<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ______
COMMISSION FILE NUMBER 1-041077
T & W FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1844249
------------------------------- ----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6416 PACIFIC HIGHWAY EAST, TACOMA, WASHINGTON 98424
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (253) 922-5164
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of May 11,
1999 was 8,408,348.
<PAGE> 2
T & W FINANCIAL CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements Page
----
<S> <C> <C>
a) Income Statements for the three months ended March 31, 1999 and 1998........................1
b) Balance Sheets as of March 31, 1999 and December 31, 1998...................................2
c) Cash Flows Statements for the three months ended March 31, 1999 and 1998....................3
d) Shareholders' Equity for the periods ended March 31, 1999 and December 31, 1998.............4
e) Notes to Financial Statements...............................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......8
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................................................14
Signature
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1999
----------- ------------
<S> <C> <C>
Revenues:
Lease contract revenue $ 4,969 $ 7,303
Gain on sale of leases 6,032 9,680
Fee income 417 779
Servicing & Other Income 586 826
-------- --------
Total Revenues 12,004 18,588
-------- --------
Expenses:
Interest expense 2,269 3,775
Compensation and related expenses 482 2,752
Amortization of initial direct cost 562 1,043
Provision for credit losses 390 2,521
Other general and administrative
expenses 1,155 2,886
-------- --------
4,858 12,977
-------- --------
Income before minority interest and
income taxes 7,146 5,611
Minority Interest (1,072) (842)
-------- --------
Income before income taxes 6,074 4,769
Income Taxes (2,187) (1,631)
-------- --------
Net Income $ 3,887 $ 3,138
======== ========
Earnings Per Share: Basic and Diluted $ 0.46 $ 0.37
Weighted Average Number of shares of
Common Stock and Common Stock
Equivalents Outstanding 8,400 8,397
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
(Audited) (Unaudited)
---------- ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 11,394 $ 19,866
Dealer floor plans 9,522 7,152
Net investment in leases 167,516 181,661
Securitization receivables 49,001 59,275
Intangible assets, net 5,260 6,071
Other assets 8,343 16,774
-------- --------
Total Assets $251,036 $290,799
======== ========
Liabilities
Accounts payable and other accrued liabilities $ 18,000 $ 11,961
Notes payable - recourse 103,758 148,855
Notes payable - nonrecourse 29,624 24,291
Security deposits 13,065 13,887
Deferred income taxes 17,642 19,187
-------- --------
Total Liabilities 182,089 218,181
-------- --------
Minority Interest 11,271 11,729
-------- --------
Commitments and Contingencies
Shareholders' Equity
Preferred Stock -- --
Common Stock and paid-in capital 28,306 28,381
Retained Earnings 29,370 32,508
-------- --------
Total Shareholders' Equity 57,676 60,889
-------- --------
Total Liabilities and Shareholders' Equity $251,036 $290,799
======== ========
</TABLE>
<PAGE> 5
T & W Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1998 1999
--------------- -------------
<S> <C> <C>
Net Income $ 3,887 $ 3,138
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Amortization and depreciation 791 2,329
Provision for credit losses 390 2,521
Gain on sale of leases (6,032) (9,680)
Minority interest 1,072 842
Deferred taxes 2,187 1,545
New leases originated (63,600) (118,177)
Lease payments received 25,869 15,040
Initial direct costs incurred (1,169)
Proceeds from sale of lease portfolio 85,549 86,003
Proceeds from recourse and nonrecourse borrowings 20,394 144,691
Payments on recourse and nonrecourse borrowings (54,449) (104,927)
Net cash (advances) payments on floor plans 274 2,370
Changes in assets and liabilities exclusive of the effects
of business acquisitions:
(Increase) decrease in other assets 4,054 (8,409)
Net increase in security deposits 822 822
Increase (decrease) in accounts payable and
other accrued liabilities 2,960 (6,039)
--------- ---------
Net Cash Provided by Operating Activities 24,168 10,900
--------- ---------
Cash Flows From Investing Activities
Purchase of Equipment (82) (401)
--------- ---------
Net Cash Used by Investing Activities (82) (401)
--------- ---------
Cash Flows From Financing Activities
Proceeds from sale of common stock, net of costs 139 75
Debt issue costs paid (203) (1,718)
Distributors to minority interest (384)
--------- ---------
Net Cash Used by Financing Activities (64) (2,027)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 24,022 8,472
Cash and Cash Equivalents, beginning of period 16,619 11,394
--------- ---------
Cash and Cash Equivalents, end of period $ 40,641 $ 19,866
========= =========
Income Taxes Paid $ -- $ 86
========= =========
Interest Paid $ 1,478 $ 2,968
========= =========
</TABLE>
See accompanying notes
Page 3
<PAGE> 6
<TABLE>
<CAPTION>
Common
Stock
and Paid Retained
Shares in Capital Earnings Total
------- ---------- --------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 (Audited) 8,384 $28,117 $12,584 $40,701
Issuance of common stock 13 189 189
Net Income 16,786 16,786
------- ------- ------- -------
Balance at December 31, 1998 (Audited) 8,397 28,306 29,370 57,676
Issuance of common stock 11 75 75
Net Income 3,138 3,138
------- ------- ------- -------
Balance at March 31, 1999 (Unaudited) 8,408 $28,381 $32,508 $60,889
======= ======= ======= =======
</TABLE>
<PAGE> 7
T & W FINANCIAL CORPORATION AND AFFILIATES
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
T&W Financial Corporation ("T&W" or the "Company") is a specialized commercial
finance company that was formed in November 1997 to provide capital equipment
financing, principally in the form of leases, to commercial entities.
Previously, the Company's operations were part of a group of pass-through
entities, each having primarily the same two individual owners. The assets,
liabilities and operations of these pass-through entities were transferred to
T&W Financial Services Company, L.L.C. ("TWFSC") a newly formed limited
liability company owned 85% by T&W and 15% by T&W Funding Company VI, L.L.C., an
entity owned by T&W's senior management. The Company's operations extend
throughout the United States and Canada, with no significant concentration in
any region except the Pacific Northwest. The Company's headquarters are located
in Tacoma, Washington.
The accompanying consolidated balance sheets and related interim consolidated
statements of income, cash flows and shareholders' equity are unaudited. In the
opinion of management, all adjustments, which consist of only normal recurring
items necessary for the fair presentation of these interim financial statements
have been included. Interim results are not necessarily indicative of the
results expected for the full year.
NOTE 2. NET INVESTMENT IN LEASES
The Company's investments in leases have been pledged as collateral for
certain notes payable. The investment in leases which are in SPEs and pledged as
collateral for related debt are referred to herein as "Securitized". The net
investment in leases presented on a basis by type of borrowing for which the
investment is pledged as collateral is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Year ended ended March 31,
December 31, 1998 1999
(Audited) (Unaudited)
----------------- --------------
<S> <C> <C>
SECURITIZED: ...................... $ 36,349 $ 62,985
Minimum lease payments receivable .
Estimated residual value of leased 5,481 6,360
equipment, net
Unearned lease revenue ............ (5,473) (9,372)
--------- ---------
36,357 59,973
--------- ---------
NOT SECURITIZED: .................. 131,859 125,052
Minimum lease payments receivable .
Estimated residual value of leased 16,370 11,374
equipment, net
Unearned lease revenue ............ (20,021) (17,811)
--------- ---------
128,208 118,615
--------- ---------
Allowance for credit losses ....... (2,106) (2,110)
Initial direct costs, net ......... 5,057 5,183
--------- ---------
Net Investment in Leases ..... $ 167,516 $ 181,661
========= =========
</TABLE>
A summary of activity in the allowance for credit losses account is as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months
Year ended ended March 31,
December 31, 1998 1999
(Audited) (Unaudited)
----------------- ----------------
<S> <C> <C>
BALANCE, beginning of year ......... $ 1,235 $ 2,106
Provision for credit losses ........ 5,249 2,522
Charge-offs ........................ (2,875) (1,576)
Recoveries ......................... 454 47
Allowance allocated to leases sold . (1,957) (989)
------- -------
BALANCE, end of year ............... $ 2,106 $ 2,110
======= =======
</TABLE>
1
<PAGE> 8
NOTE 3. NOTES PAYABLE - RECOURSE
Notes payable for which the lender has recourse against the Company are
secured by guarantees of certain shareholders of the Company and for lines of
credit borrowings, underlying pledged leases and dealer floor plans, and are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
December March 31,
31, 1998 1999
(Audited) (Unaudited)
------------ -----------
<S> <C> <C>
US DOLLAR OBLIGATIONS
Payable to bank drawn on a $75 million credit facility, interest
payable monthly at prime (7.75% at March 31, 1999), due November 1999 $ 60,000 $ 63,500
Payable to bank drawn on a $15 million credit line, interest
payable monthly at 1.5% above 30 day LIBOR (6.50% at March 31,
1999), due as payments are made on underlying leases (last lease
payment due October 2001) 240 208
Payable to bank drawn on a $3 million credit line, interest
payable monthly at 1% over prime (8.75% at March 31, 1999), due
August 1999 1,750 3,000
Payable to bank drawn on a $7.5 million credit line, interest
payable Monthly at 2.0% above 30 day LIBOR (7.00% at March 31, 1999),
due upon demand 6,645 7,500
Payable to financial institution, drawn on a $75 million credit
line, interest payable monthly at 0.8% above 30 day LIBOR (5.76%
at March 31, 1999), due July 1999 1,523 10,914
Payable to financial institution, drawn on a $20 million credit
line, interest Payable monthly at 6.0% above 30 day LIBOR (10.96%
at March 31, 1999), due December 1999 -- 20,000
Acquisition notes payable, interest at 8%, $1 million paid
January, 1999, with remaining principal and interest due quarterly
to 2007, net of imputed interest discount of $225,000 and $206,000
at December 31, 1998 and March 31,1999, respectively 4,487 3,416
---------- ----------
74,645 108,538
---------- ----------
CANADIAN DOLLAR OBLIGATIONS
Payable to bank drawn on a Cdn$30 million credit line
(temporarily increased to Cdn$40 million at December 31, 1998)
interest payable monthly at 0.75% above prime (7.50% at
March 31, 1999, due September, 1999 25,155 11,264
Payable to bank drawn on a Cdn$135 million securitization facility
interest payable monthly at 5.98%, due as payments are made on
underlying leases (last lease payment due in 2005) -- 25,057
Loan payable to affiliate with interest imputed at 8%, due 2003 3,958 3,996
---------- ----------
29,113 40,317
---------- ----------
$ 103,758 $ 148,855
========== ==========
</TABLE>
NOTE 4. SECURITIZATIONS
On March 31, 1999 the Company closed a securitization facility for $110 million
which was privately placed and in connection therewith, SPE's were formed to
issue lease-backed notes. Pursuant to terms of the facility, the Company sells
and transfers pools of leases to the first SPE, which then sells and transfers
rights and pledges an interest in the leased equipment to a second SPE. The
Company retains servicing rights for which it receives monthly servicing fee
income. The Company accounted for such transaction for financial reporting
purposes as a sale of the lease interests.
2
<PAGE> 9
NOTE 5. SUBSEQUENT EVENTS
In April 1999, the Company completed the acquisition of Accel Financial Group, a
Canadian financial services company and joint venture partner in Onset for
Cdn$2.50 per share, approximately US$17.4 million.
In May 1999, Onset Capital Corporation, completed its second securitization. The
Cdn$20.2 million (US$13.4 million) facility was structured by CIBC Wood Gundy,
the investment banking arm of Canadian Imperial Bank of Canada. This is the
second securitization of an overall committed facility for C$135 million
(US$89.5 million).
3
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements are made throughout this Management's Discussion and
Analysis of Financial Condition and Results of Operations. Any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar
expressions are intended to identify forward-looking statements.
The Company's forward looking statements are based primarily on the Company's
current expectations and are subject to a number of risks and uncertainties.
Important factors to consider in evaluating the Company's forward looking
statements include (1) the Company's ability to continue to fund its current
business strategy with cost effective asset securitization facilities; (2) the
level of credit enhancement required by rating agencies to achieve investment
grade status for debt securities issued by the special purpose entities or owner
trusts which purchase leases from the Company (the "SPEs"); (3) the
collectibility of securitization receivables which represent the excess cash
flows anticipated by the SPEs; (4) the Company's ability to identify suitable
acquisition candidates or complete acquisitions on reasonable terms; (5) the
Company's ability to attract and retain qualified management personnel; (6) the
existence of a market for used equipment that must be sold or re-leased to
recover the residual value of such equipment recorded by the Company, when
guarantors of the residual values cannot satisfy their obligations to the
Company; (7) the Company's ability to create and maintain relationships with
equipment providers and referral sources to generate sufficient origination
volume; and (8) the ability of lessees to comply with the terms of their leases
so these leases may qualify to serve as collateral under the Company's bank
lines of credit or as part of the lease pool under the Company's securitization
facilities. In view of the risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this Quarterly Report on Form
10-Q will, in fact, have the results indicated, and accordingly, the actual
results of the Company may differ materially from those indicated by such
forward-looking statements.
OVERVIEW
This report should be read in conjunction with the Company's audited annual
report (Form 10-K) for the year ended December 31, 1998 which has additional
information and disclosures that will assist the reader in understanding the
Company, the financial statements presented and the analysis that follows.
4
<PAGE> 11
<TABLE>
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1999
---------- ----------
<S> <C> <C>
OPERATING DATA: 1,033 2,368
Lease financing Receivables Originated
Number of contracts.......
Lease originations(1)..... $63,600 $ 118,177
Leases serviced Number of contracts 10,367 15,680
Portfolio of leases serviced(2) $363,400 $ 688,583
Average portfolio yield(3) 12.5% 12.2%
Credit quality statistics Delinquencies 3.44% 4.11%
as a percentage of portfolio of leases
serviced
31--60 days..............
61--90 days.............. 1.70% .87%
91--120 days............. 1.70% .46%
Over 120 days........... 1.23% 2.58%
---- ----
Total.............. 8.07% 8.02%
==== ====
Net charge-offs(4)........ 0.20% 1.08%
</TABLE>
(1) Represents the equipment cost for leases originated during the period.
(2) Represents the aggregate of minimum lease payments, excluding residual
values except for guaranteed residuals related to Specialty Vehicles
under all leases serviced by the Company held as direct financing
leases and leases sold to SPEs.
(3) Represents the average yield recognized during the period for the
portfolio of leases serviced.
(4) Represents charge-offs (reduced by recoveries), divided by the
respective period's average net investment, including residuals, under
all leases serviced by the Company and either held as direct financing
leases or sold.
5
<PAGE> 12
RESULTS OF OPERATIONS
The Company's revenues are comprised of lease contract revenue, gain on sale of
leases, fee income, and servicing and other income. Lease contract revenue is
the revenue recognized from the net investment in leases held. Gain on sale of
leases is the revenue recognized under sale treatment for leases securitized.
Fee income represents security deposits which are recognized as income upon
lease expirations and commitment fees received upon the origination of leases.
Servicing and other income includes normal servicing fees, late fees, interest
income and amounts received from the owner trust relating to interest rate
collar agreements.
The Company's expenses are comprised of interest expense, compensation and
related expenses, amortization of initial direct costs, provisions for credit
losses and other general and administrative expenses. Interest expense includes
the expense related to notes payable and the amortization of related debt
issuance costs. Compensation and related expenses include salaries and bonuses
for employees and management fees to affiliates. Amortization of initial direct
costs relates to costs associated with originating leases, including
commissions, which are amortized over the period of the leases. Provisions for
credit losses are provided based on estimated future credit losses. Other
general and administrative expenses include trustee, legal and other
professional fees, and occupancy and other office-related expenses.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998.
Leases originated increased from $64 million for the three months ended March
31, 1998 to $118 million for the comparable period in 1999, representing an
increase of 84%. The portfolio of leases serviced increased from $363.4 million
at March 31, 1998 to $688.6 million at March 31, 1999, representing an increase
of 89%. This increase was due to an increase in lease originations.
Lease contract revenue increased from $5.0 million for the three months ended
March 31, 1998 to $7.3 million for the comparable period in 1999, representing
an increase of 46% due primarily to an increased average net investment in
leases owned during the 1999 period.
Fee income increased from $417,000 for the three months ended March 31, 1998 to
$779,000 for the comparable period in 1999, representing an increase of 87%.
This increase was due primarily to the Company's increased business activity of
charging fee income on lease transactions.
Servicing and other income increased from $586,000 for the three months ended
March 31, 1998 to $826,000 for the comparable period in 1999, representing an
increase of 41%, due primarily to servicing income received from the SPEs.
Total revenues increased from $12.0 million for the three months ended March 31,
1998 to $18.6 million for the comparable period in 1999, representing an
increase of 55%.
Interest expense increased from $2.3 million for the three months ended March
31, 1998 to $3.8 million for the comparable period in 1999, representing an
increase of 65%. The increase was due to increased average borrowings
outstanding during the 1999 period as compared to the prior year.
Compensation and related expenses increased from $482,000 for the three months
ended March 31, 1998 to $2.7 million for the comparable period in 1999,
representing a increase of 471%. The increase was due primarily to the increase
in the number of employees as the Company continues to increase its portfolio of
leases serviced.
Amortization of initial direct costs increased from $562,000 for the
three months ended March 31, 1998 to $1.0 million for the comparable period in
1999, representing a increase of 86%. %. The increase was due primarily to an
increased average net investment in leases during the 1999 period over the
comparative prior year period. Additionally, initial direct costs, relative to
the investment in leases, increased from December 31, 1997 to December 31, 1998,
which resulted in increased amortization charges during the 1999 period as
compared to the prior year.
The provision for credit losses increased from $390,000 for the three months
ended March 31, 1998 to $2.5 million for the comparative period in 1999,
representing an increase of 546%. This increase was due to increased
originations and an increase in the provision rate, as a percentage of
originations from 1% in 1998 to 2% in 1999.
Other general and administrative expenses increased from $1.2 million for the
three months ended March 31, 1998 to $2.9 million for the comparable period in
1999, representing an increase of 142%. The increase was due primarily to
increased occupancy and related costs associated with supporting the Company's
growth.
Total expenses increased from $4.9 million for the three months ended March 31,
1998 to $13.0 million for the comparable period in 1999, representing an
increase of 165%.
As a result of the above factors, net income decreased from $3.9 million for the
three months ended March 31, 1998 to $3.1
6
<PAGE> 13
million for the comparable period in 1999, a decrease of 22%.
7
<PAGE> 14
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997.
Leases originated increased from $19 million for the three months ended March
31, 1997 to $64 million for the comparable period in 1998, representing an
increase of 237%. The portfolio of leases serviced increased from $157.7 million
at March 31, 1997 to $363.4 million at March 31, 1998, representing an increase
of 130%. This increase was due to an increase in lease originations.
Lease contract revenue increased from $3.8 million for the three months ended
March 31, 1997 to $5.0 million for the comparable period in 1998, representing
an increase of 31.6% due primarily to an increased average net investment in
leases owned during the 1998 period.
As described above, the Company's securitizations have predominantly been
structured as sales for financial reporting purposes, rather than as financing
transactions as was the case in prior years. During the three months ended March
31, 1998, the Company recognized a gain on sale of $6 million. Since the Company
plans to continue to structure its securitizations as sale transactions, it
anticipates that gain on sale of leases will increase and become a larger
portion of revenues in the future.
Fee income increased from $57,000 for the three months ended March 31, 1997 to
$417,000 for the comparable period in 1998, representing an increase of 632%.
This increase was due primarily to the Company's increased business activity of
charging fee income on lease transactions.
Servicing and other income increased from $255,000 for the three months ended
March 31, 1997 to $586,000 for the comparable period in 1996, representing an
increase of 130%, due primarily to income received from the owner trust
principally related to interest rate collar agreements during 1998.
Total revenues increased from $5.3 million for the three months ended March 31,
1997 to $12.0 million for the comparable period in 1998, representing an
increase of 126%.
Interest expense increased from $1.9 million for the three months ended March
31, 1997 to $2.3 million for the comparable period in 1998, representing an
increase of 21%. The increase was due to increased average borrowings
outstanding during the 1998 period as compared to the prior year.
Compensation and related expenses decreased from $856,000 for the three months
ended March 31, 1997 to $482,000 for the comparable period in 1998, representing
a decrease of 56.3%. The decrease was due primarily to direct compensation
expenses attributable to originations that were sold, shown as a reduction of
the gain on sale of leases.
Amortization of initial direct costs decreased from $572,000 for the three
months ended March 31, 1997 to $562,000 for the comparable period in 1998,
representing a decrease of 1.7%. Initial direct costs, relative to the
investment in leases, decreased from December 31, 1996 to December 31, 1997 (the
beginning of the three month periods ended March 31, 1998 and 1997,
respectively), which resulted in decreased amortization charges during the 1998
period as compared to the prior year.
The provision for credit losses increased from $282,000 for the three months
ended March 31, 1997 to $390,000 for the comparative period in 1998,
representing an increase of 38.3%. This increase was due to increased
originations offset by a decrease in the provision rate (as a percentage of
originations) due to improved actual loss experience.
Other general and administrative expenses increased from $346,000 for the three
months ended March 31, 1997 to $1.2 million for the comparable period in 1998,
representing an increase of 247%. The increase was due primarily to increased
occupancy and related costs associated with supporting the Company's growth.
Total expenses increased from $4.0 million for the three months ended March 31,
1997 to $4.9 million for the comparable period in 1997, representing an increase
of 22.5%.
As a result of the above factors, net income increased from $691,000 for the
three months ended March 31, 1997 to $3.9 million for the comparable period in
1997, an increase of 464%.
8
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company requires a substantial amount of cash to implement its business
strategy, including, without limitation, cash to: (i) finance the purchase of
equipment that it leases; (ii) pay the fees and expenses incurred in the
securitization of leases; (iii) pay the fees and interest expense under its bank
lines of credit; (iv) pay operating expenses; and (v) satisfy working capital
requirements. These cash requirements, which have been satisfied through
securitizations, bank borrowings and the initial public offering of the
Company's stock, will increase as the Company's lease originations increase. No
assurance can be given that the Company will have access to the capital markets
in the future for equity or debt issuances or for securitizations or that
financing through bank lines of credit or other means will be available on
acceptable terms to satisfy the Company's cash requirements.
The following table sets forth the major components of the increase in cash and
cash equivalents:
<TABLE>
<CAPTION>
December March 31,
31, 1998 1999
(Audited) (Unaudited)
------------- ------------
<S> <C> <C>
Net cash provided (used) by operating
activities.............................. $ (2,003) $ 10,900
Net cash used by investing activities... (2,435) (401)
Net cash provided (used) by financing
activities.............................. (787) (2,027)
------------- ------------
Net increase (decrease) in cash and cash
equivalents............................. $ (5,225) $ 8,472
============= ============
</TABLE>
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support lease originations and satisfy line
of credit repayment requirements. The Company generally maintains sufficient
cash and short-term investments to meet short-term liquidity needs. At March 31,
1999, cash and cash equivalents totaled $19.9 million or 7% of total assets. At
March 31, 1999, the Company maintained various lines of credit which provided
for immediately available advances of up to $200 million. Advances under these
lines of credit totaled $116 million. In addition, the Company had a committed
Cdn$135 million (US $89.5 million) securitization facility. Advances on this
facility totaled US $25.1 million.
SECURITIZATIONS.
Securitizations involve the pooling of lease receivables for sale in the
secondary market. The primary advantages of securitizations include: (i) quick
access to significant amounts of capital to fund growth in lease originations;
(ii) relatively lower cost of funds than commercial bank financing; and (iii)
greater flexibility with respect to sources of funding. From 1992 through 1999
the Company has completed the following securitizations:
<TABLE>
<CAPTION>
COMMENCEMENT AMOUNT RATING AGENCY SUBORDINATION
DATE LEVEL
- ---------------- -------------- ------------------ ----------------- -------------
<S> <C> <C> <C> <C>
April 1992..... $12.1 million AA+ Duff & Phelps 20%
May 1993....... 10.6 million AAA/Aaa S&P/Moody's 13%
June 1994...... 30.0 million A-1/P-1 S&P/Moody's 13%
July 1995...... 90.0 million AAA/Aaa S&P/Moody's 8%
February 1997.. 61.6 million AAA/Aaa S&P/Moody's 8%
October 1997... 74.3 million AAA/Aaa Duff & Phelps 2%
March 1998 86.0 million AAA/BBB Duff & 2.5%
Phelps/Fitch
June 1998 117.5 million A-1/P-1 S&P/Moody's 0.0%
September 1998 77.4 million AAA/A Duff & 3.0%
Phelps/Fitch
December 1998 67.5 million A-1/P-1 S&P/Moody's 0.0%
March 1999 110.0 million AAA/A Duff &
Phelps/Fitch 6.0%
--------------
TOTAL..... $737.0 million
==============
</TABLE>
The Company continually seeks to improve the efficiency of its securitizations
by reducing the Company's cost of capital or improving upon existing financing
terms.
The Company has been able to fund substantially all of its lease originations
without impairing its working capital. Cash used for principal payments on notes
payable is principally generated from the monthly lease payments which are
pledged as collateral for the notes.
The Company believes, based on its historical cash requirements and anticipated
uses of cash, that the cash currently available and
9
<PAGE> 16
the cash to be derived from the company's operating, investing and financing
activities will be sufficient to meet its cash requirements and implement its
business plan through the end of 2000.
10
<PAGE> 17
Part II. Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11. Computation of Earnings Per Share is on page 4.
27. Financial Data Schedule.
(B) REPORTS ON FORM 8-K
ITEMS 1 THROUGH 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
SIGNATURE
Pursuant to the requirements of the Securitites Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T & W Financial Corporation
Date: May 14, 1999 By: /s/ Paul B. Luke
Paul B. Luke
Senior Vice President, Chief
Financial Officer, Secretary,
Treasurer and Director
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,866
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 290,799
<CURRENT-LIABILITIES> 45,035
<BONDS> 173,146
0
0
<COMMON> 28,381
<OTHER-SE> 32,508
<TOTAL-LIABILITY-AND-EQUITY> 290,799
<SALES> 0
<TOTAL-REVENUES> 18,588
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,523
<LOSS-PROVISION> 2,521
<INTEREST-EXPENSE> 3,775
<INCOME-PRETAX> 4,769
<INCOME-TAX> 1,631
<INCOME-CONTINUING> 3,138
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,138
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
