UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended January_31,_1995
or
[ ] 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: 2-65101
WALNUT EQUIPMENT LEASING CO., INC.
________________________
(Exact name of registrant as specified in its charter)
DELAWARE 23-1712443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Suite_2128,_101_W._City_Avenue,_Bala_Cynwyd,_Pennsylvania__19004__
(Address of Principal executive offices) (Zip Code)
(610) 668-0700
(800)_866-0809
(Registrant's telephone number, including area code)
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
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of January 15, 1995: $1.00 par value common stock - 1,000
shares.
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WALNUT EQUIPMENT LEASING CO., INC.
Index
Part I. Financial Information Page Number
Item 1. Financial Statements
Consolidated Balance Sheets; January 31, 1995
(unaudited) and April 30, 1994 2
Consolidated Statements of Operations;
Nine months ended January 31, 1995 and
1994 (unaudited) and Three months ended
January 31, 1995 and 1994 (unaudited) 3
Consolidated Statement of Changes in
Shareholders' Deficit; Nine months ended
January 31, 1995 (unaudited) 4
Consolidated Statements of Cash Flows;
Nine months ended January 31, 1995 and
1994 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II. Other Information
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
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WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January_31,_1995 April_30,_1994
(unaudited)
<S> <C> <C>
ASSETS
Direct finance Leases:
Aggregate future amounts receivable under lease contracts $ 19,033,137 $ 20,979,917
Estimated residual value of equipment 2,008,482 2,178,259
Less:
Unearned income under lease contracts ( 3,517,700) ( 3,865,103)
Advance payments (___583,917) (___611,887)
16,940,002 18,681,186
Allowance for doubtful lease receivables ___(832,602) (_1,888,458)
_16,107,400 _16,792,728
Operating Leases:
Equipment at cost, Less accumulated depreciation of
$3,415 and $19,184, respectively 31,601 23,579
Accounts receivable 5,024 7,166
Cash 1,454,871 7,598,151
Investment in U.S. Government
Securities (at amortized cost) 6,790,587 ---
Other assets (Includes $634,567 paid to or receivable
from related parties at April 30, 1994.) __1,069,699 1,057,475
Total assets $ 25,459,182 $ 25,479,099
========== ==========
LIABILITIES
Amounts payable to equipment suppliers $ 622,073 $ 701,508
Other accounts payable and accrued expenses 277,971 438,768
Demand, Fixed Rate and Money Market Thrift Certificates
(Includes $167,617 at April 30, 1994 payable to related parties) 23,596,406 21,810,991
Senior Thrift Certificates (includes $583,372 at April
30, 1994 payable to related parties) 17,671,470 16,650,670
Subordinated Thrift Certificates (Includes $438,624 at
April 30, 1994 payable to related parties) 5,969,599 6,038,409
Accrued interest 5,645,640 4,803,444
Subordinated debentures (Includes $4,000 at
April 30, 1994 payable to related parties) 5,858 5,858
State income taxes payable ______8,401 ____8,401
_53,797,418 _50,458,049
SHAREHOLDERS' DEFICIT
Prime Rate Cumulative Preferred Shares, $1 par value,
$100 per share liquidation preference, 50,000 shares
authorized, 281 shares, issued and outstanding
(liquidation preference $28,100) 281 281
Adjustable Rate Cumulative Preferred Shares, $1 par value,
$1000 per share liquidation preference. 1,000 shares
authorized, 275 shares issued and outstanding
(liquidation preference $275,000) 275 275
Common stock, $1.00 par value, 1,000 shares authorized,
issued and outstanding 101,500 101,500
Accumulated Deficit (28,440,292) (25,081,006)
(28,338,236) (24,978,950)
Total liabilities and shareholders' deficit $25,459,182 $25,479,099
========== ==========
<FN>
See accompanying notes
-2-
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WALNUT EQUIPMENT LEASING CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For The Nine Months Ended January 31, For The Three Months Ended January 31,
___1995___ ___1994___ ___1995___ ___1994___
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Income earned under direct
finance lease contracts $ 3,049,667 $ 3,008,708 $ 955,955 $ 1,008,628
Operating lease rentals 21,590 5,959 14,746 8,030
Total revenue 3,071,257 3,014,667 970,701 1,016,658
Costs and expenses:
Interest 3,209,568 3,079,208 1,083,899 1,053,883
Lease origination expenses 816,469 831,579 273,727 301,714
General and administrative expenses 1,497,799 1,433,070 513,538 504,363
Provision for doubtful lease receivables 901,314 486,123 373,141 163,431
Depreciation of operating lease equipment 5,393 799 1,552 149
Total costs and expenses 6,430,543 5,830,779 2,245,857 2,023,540
Loss before provision for income tax expense (3,359,286) (2,816,112) (1,275,156) (1,006,882)
Provision for income tax expense (See Note 2) --- --- --- ---
Net Loss (See Note 2) $(3,359,286) $(2,816,112) $(1,275,156) $(1,006,882)
============ =========== =========== ===========
<FN>
SEE ACCOMPANYING NOTES
3
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WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<CAPTION>
Prime Rate Adjustable Rate Total
Cumulative Cumulative Common Accumulated Shareholders'
Preferred_Shares Preferred_Share Stock Deficit____ Deficit______
No. of Shares No. of Shares
Issued Amount Issued Amount
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1994 281 $ 281 275 $ 275 $101,500 $(25,081,006) $(24,978,950)
Net loss for the nine month
period ended January 31, 1995
(unaudited) --- --- --- --- --- (3,359,286) (3,359,286)
____ ____ ____ _______ ________ _____________ _____________
Balance, January 31, 1995 (unaudited) 281 $ 281 275 $ 275 $101,500 $(28,440,292) $(28,338,236)
==== ======= ==== ======= ======== ============= =============
<FN>
SEE ACCOMPANYING NOTES
4
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WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months Ended January 31,
1995 1994
(unaudited) (unaudited)
<S> <C> <C>
OPERATING_ACTIVITIES
Net Loss $(3,359,286) $(2,816,112)
Adjustments to Reconcile
Net Loss to Net Cash
Used in Operating Activities:
Depreciation 5,393 799
Amortization of Deferred Debt Expenses 83,557 81,598
Provision for doubtful
Lease receivables 901,314 486,123
Effects of Changes
in other Operating Items:
Accrued Interest 842,196 634,032
Amounts Payable to Equipment Suppliers (79,435) 116,401
Other (net), principally
increase in other Assets ___(285,047) ____(232,525)
Net Cash used in Operating Activities _(1,891,308) __(1,729,684)
INVESTING_ACTIVITIES
Excess of Cash Received Over Lease Income
Recorded 5,578,377 5,072,086
Purchase of Equipment for Lease (5,777,167) (5,457,905)
Purchase of U.S. Government Securities _(6,790,587) _________---
Net Cash Used in Investing Activities _(6,989,377) ____(385,819)
FINANCING_ACTIVITIES
Proceeds for Issuance of:
Demand, and Fixed Rate and Money
Market Thrift Certificates 7,826,763 7,126,135
Senior Thrift Certificates 3,366,600 3,599,767
Redemption of:
Demand, Fixed Rate, and Money
Market Thrift Certificates (6,041,348) (3,573,408)
Subordinated Thrift Certificates
and Debentures (68,810) (10,374)
Senior Thrift Certificates (2,345,800) __(2,106,263)
Net Cash Provided By
Financing Activities __2,737,405 ___5,035,857
Increase (decrease) in cash (6,143,280) 2,920,354
Cash, Beginning of Year __7,598,151 ___4,269,785
Cash, End of Year $_1,454,871 $__7,190,139
<FN>
SEE ACCOMPANYING NOTES
5
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Walnut Equipment Leasing Co., Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
1. FINANCIAL STATEMENT PRESENTATION
The unaudited interim financial statements presented herein have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in
conjunction with the audited financial statements and notes thereto for the
year ended April 30, 1994. The accompanying interim financial statements
have not been audited by independent certified public accountants, but in
the opinion of management, such financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
summarize fairly the results of operations, and are not necessarily
indicative of the results to be expected for the full year.
2. ACCOUNTING POLICIES
Method_of_Consolidation
The unaudited interim consolidated financial statements of Walnut Equipment
Leasing Co., Inc. for the nine month periods ended January 31, 1995 and
1994, respectively, include the operating results of its wholly-owned
subsidiary, Equipment Leasing Corporation of America ("ELCOA"). All
intercompany items have been eliminated for purposes of preparing the
consolidated financial statements contained herein.
Accounting_for_Leases
The Company's lease contracts provide for total noncancellable rentals
which exceed the cost of the leased equipment plus anticipated financing
charges and, accordingly, are accounted for as financing leases. At the
inception of each new lease, the Company records the gross lease
receivable, the estimated residual value of the leased equipment, and the
unearned lease income. The unearned lease income represents the excess of
the gross lease receivable plus the estimated residual value over the cost
of the equipment leased. For leases originated after April 30, 1988, the
Company has changed its method of accounting to conform with the
requirements of FAS No. 91 "Accounting for Non Refundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Cost of
Leases". Under this method, commissions paid in the amounts of $31,410 and
$28,099 for the nine months ended January 31, 1995 and 1994, respectively,
were accounted for as part of the Investment in Direct Financing leases.
Unearned income is earned and initial direct costs are amortized to
direct finance lease income using the interest (or "effective") method over
the term of each lease.
6
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An allowance for doubtful direct finance lease receivables has been
maintained at a level considered adequate to provide for estimated losses
that will be incurred in the collection of these receivables. The
allowance is increased by provisions charged to operating expense and
reduced by charge-offs based upon a periodic evaluation, performed at least
quarterly, of delinquent finance lease receivables. Pursuant to FAS 91,
reserves are established to reflect losses anticipated from delinquencies
and impairments that have already occurred rather than ultimate losses
expected over the life of the lease portfolio. Total write-offs charged
against this reserve for the nine months ended January 31, 1995 and 1994
were $1,957,171 and $660,252, respectively, while the Company increased
these reserves by charges of $901,314 and $486,123, respectively, to
maintain reserves considered adequate for losses anticipated from remaining
outstanding delinquent lease receivables.
Income_Taxes_Expense
Effective May 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" (SFAS 109),
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expenses is the
tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
The net deferred tax asset as of April 30, 1994 includes deferred tax
assets (liabilities) attributable to the following temporary deductible
(taxable) differences:
Operating lease method vs. direct financial method $3,002,200
Provision for doubtful lease receivables 736,500
Other (24,700)
Net deferred tax asset 3,714,000
Valuation allowance (3,714,000)
Net deferred tax asset after valuation allowance $ ---
=========
A valuation allowance was required as of April 30, 1994 due to the net
operating loss carryover of approximately $15,609,000 and investment tax
credit carryover of approximately $1,395,000, and due to the valuation
allowance for the carryforwards there is no net change in deferred tax
assets for the nine months ended January 31, 1995.
7
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WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
Item_2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Comparison of Nine Months Ended January 31, 1995 and 1994
Revenues from Lease Contracts
Total revenues from direct finance leases for the nine months ended
January 31, 1995 increased 1.36% or $40,959 as compared to the nine months
ended January 31, 1994. This increase resulted from an increase in late
charges and other fees recognized from collection of delinquent lease
receivables during the nine months ended January 31, 1995 in comparison to
the prior year. Aggregate new lease receivables entered increased $460,665
or 5.9% to $7,792,150 for the nine months ended January 31, 1995 from
$7,331,485 for the nine months ended January 31, 1994. Management
attributes this increase to the initiation of a marketing strategy that
began during the second half of the fiscal year ended April 30, 1994 that
emphasized increased contacts by telephone with equipment vendors and
manufacturers nationwide. The Company is intensifying its efforts in
contacting equipment vendors, some of whom are discovering fewer lessors
willingness to accept small-ticket items, and equipment manufacturers in
order to attract an increasing number of equipment vendors to utilize the
Company's services. As noted below in the discussion comparing the three
month periods ended January 31, 1995 and 1994, the Company is further
refining these efforts in an attempt to dramatically increase volume beyond
current levels. See "Further Refinements in Marketing Strategy and Efforts
to Reduce Operating Losses", below.
Unearned income during the nine months ended January 31, 1995
decreased by $347,403 in comparison to a decrease of $472,490 for the nine
months ended January 31, 1994. During the nine month periods ended January
31, 1995 and 1994, the gross rents charged over the "net investment" in
direct finance leases were 145% and 144%, respectively. The recognition of
direct finance lease income reflects the composite aging of the underlying
leases in the portfolio, as well as application of FAS No. 91, to
outstanding leases after May 1, 1988 which affects leases originated after
April 30, 1988, and changes the method used to recognize income and expense
items. FAS No. 91 does not change the total income and expenses ultimately
to be recognized from each transaction. Further increases in new lease
volume are expected to increase the levels of unearned income in the
future. The Company is continuing to increase its efforts to contact new
equipment vendors to further increase the level of new business. In this
regard, the Company is contacting prospective equipment vendors through a
program of targeting them nationwide by industry, initially using the
Company's direct mail facilities, and by increasing direct solicitation by
telephone. The Company believes that increased personal contact will be
one of the principal reasons for an increasing number of new vendors
providing equipment for lease in the future. As noted below, in an effort
to further increase new business during the current fiscal year, the
Company is in the process of contacting equipment manufacturers with the
expectation that it will jointly market its leasing services to the
equipment manufacturer by using its in-house printing and direct-mail
facilities, and when warranted, create a "private label lease program"
8
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specifically for a given manufacturer. As the number of new lease
applications increase, the Company will be employing additional vendor
account executives in its sales department.
The limited use of the operating lease equipment program resulted in
$12,915 of equipment being purchased for operating leases for the nine
months ended January 31, 1995, and $4,183 for the nine months ended January
31, 1994. Operating lease rental income increased by $15,631 in the nine
months ended January 31, 1995 as compared to the nine months ended January
31, 1994, primarily due to the purchase of additional equipment.
Interest Expense
For the nine months ended January 31, 1995, interest expense increased
$130,360 or 4.2% as compared to the nine months ended January 31, 1994.
Management attributes the increase to additional debt securities
outstanding and the excess funds on hand from sale of debt securities
awaiting investment in new lease receivables, offset in part by the
increase in interest income from its investment in short-term U.S.
government securities having maturities of six months or less. Total
interest expense (disregarding interest income of $277,791 and $118,903,
respectively, during the nine month periods ended January 31, 1995 and
1994) averaged 9.1% on average total borrowings (including accrued
interest) of $51,099,173 for the nine months ended January 31, 1995 as
compared to 9.4% on average total borrowings (including accrued interest)
of $45,169,425 for the nine months ended January 31, 1994. The increase in
interest income during the nine months ended October 31, 1994 is
attributable to the investment of excess cash in short-term U.S. Government
treasury bills having maturities of six months or less. The interest rate
on six month U.S. Treasury bills was 6.24% at January 31, 1995, which
represents an increase of 97% over the 3.16% rate on similar securities at
January 31, 1994. As such, the Company's interest income reflects an
increase in excess of 100% during the nine months ended January 31, 1995.
Other Expenses
Lease origination expenses decreased 1.8% or $15,110 for the nine
months ended January 31, 1995, compared to the corresponding period ended a
year earlier. Lease origination expenses, including capitalized
commissions paid, were 10.94% of new direct financing lease receivables
during the nine months ended January 31, 1995 as compared to 11.7% for the
nine months ended January 31, 1994. The decreased percentage in the period
ended January 31, 1995 is attributable to the controlled costs associated
with the Company's direct mail efforts during the nine months ended January
31, 1995. Effective September, 1994, the Company had eliminated its direct
mail solicitation in favor of increasing the number of in-house vendor
account executives to personally contact prospective equipment vendors by
telephone. The Company's efforts in increasing new lease volume are
continuing, and at the same time the Company is attempting to reduce these
costs whenever possible without compromising it's goals. See "Further
Refinements in Marketing Strategy and Efforts to Reduce Operating Losses".
During the nine months ended January 31, 1995 and 1994, commissions of
$31,410 and $28,099, respectively, were paid and included as lease
origination expenses during the period. The Company believes that
increasing new leases generated from repeat vendors and increasing the
number of new vendors utilizing its leasing services that are being
attracted through its marketing efforts, will assist to decrease the
overall percentage of total lease origination costs in comparison to new
lease volume in the future.
9
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General and administrative expenses increased by $64,729 or 4.52% for
the nine months ended January 31, 1995, as compared to the corresponding
period in 1994, due in part to increased recognition of amortized expenses
associated with the sale of debt securities by the Company and ELCOA, and
an increase in legal costs necessary to facilitate collection of its
delinquent lease receivables.
An allowance for doubtful direct finance lease receivables is
maintained at a level considered adequate to provide for estimated losses
that will be incurred in the collection of these receivables. The
allowance is increased by the provisions charged to operating expense and
reduced by charge-offs. Total write-offs charged against this reserve for
the nine months ended January 31, 1995 and 1994 were $1,957,171 and
$660,252, respectively. See Footnote 2 to the Interim Consolidated
Financial Statements. For the nine months ended January 31, 1995 and 1994,
the Company recognized expenses of $901,314 and $486,123 respectively, for
its doubtful lease receivable provisions. This provision was recognized in
order to maintain an adequate allowance, based upon management's belief and
historical experience, for anticipated delinquencies and impairments from
doubtful direct finance lease receivables outstanding as of January 31,
1995 and 1994. During the nine months ended January 31, 1995, the Company
conducted an extensive review of the collectibility of all past due
accounts, and increased the amount of write-offs in those situations where
further costs in pursuing legal remedies in collection were unwarranted.
As a result, past due accounts four or more monthly payments past due (on a
strict contractual basis) as of January 31, 1995 were $5,210,464 or 27.4%
of the $19,033,137 in aggregate future lease receivables outstanding at
that date. These delinquencies decreased by $1,389,013 or 21.0% from the
amount of $6,599,477 (31.5% of aggregate receivables) at April 30, 1994.
Management is continuing in its efforts in pursuit of collections of all
past due lease receivables.
Comparison of Three Months Ended January 31, 1995 and 1994
Revenues
Total revenues from direct financing leases for the three months ended
January 31, 1995 decreased 5.22% or $52,673 as compared to the three months
ended January 31, 1994. This decrease was attributable to a decrease in
the amount of outstanding leases, offset in part by an increase in late
charges and other amounts collected from delinquent lessees during the
period. Aggregate new lease receivables entered increased to $2,596,150
for the three months ended January 31, 1995 as compared to $2,286,672 for
the three months ended January 31, 1994. See "Further Refinements in
Marketing Strategy", below. Deferred income from outstanding direct
finance leases decreased by $99,610 during the three months ended January
31, 1995, after having decreased by $209,459 during the three months ended
January 31, 1994.
Further Refinements in Marketing Strategy and Efforts to Reduce Operating
Losses
Management further initiated certain measures to refine its marketing
strategy during the three months ended January 31, 1995 that it believes
may result in an increase in the levels of new leases to be generated in
the future. The Company must increase the level of new leases and control
its costs of lease origination and administration in order to reduce its
operating losses.
10
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Management initiated certain changes during September, 1994 to enhance
its previous direct mail marketing program. The Company began to purchase
and/or internally obtain from equipment manufacturers nationwide lists of
commercial equipment vendors in industries such as office machinery, light
industrial equipment, data processing and peripheral equipment, along with
food service and preparation equipment, among others. By October 31, 1994,
the Company had obtained in excess of 50,000 names and information of
additional potential equipment vendors, manufacturers, and other
distributors which were put into its computer database. The Company has
eliminated the costs associated with direct mail solicitation in favor of
utilizing its in-house account executives who are responsible to contact
vendors in these target groups of equipment sellers, and to solicit
interest in their using the Company's leasing services as a sales tool.
Once a vendor expresses interest in receiving further information, the
Company's marketing materials are forwarded to the equipment vendor. The
account executives maintain further contact with the equipment sellers to
implement the relationships of the equipment sellers with the Company, and
the Company utilizes direct mail solely to send bi-weekly reminders to
interested vendors to use the Company's services.
Although these refinements have only been recently implemented,
approximately 10% of those potential equipment sellers being contacted in
this manner are expressing interest in the Company's services, in contrast
to the approximately 1% response rate to its former direct mail program.
This represents a dramatic increase in comparison to the level achieved
utilizing direct mail as a means of solicitation. The vendor account
executives, who are compensated on a salary basis plus a commission for
each consummated new lease transaction, are expected to generate at least
ten new consummated leases per week after six months of employment with the
Company. The Company expects to increase the number of account executives
commensurate with an increase in new applications received from its
equipment vendors.
During the three months ended January 31, 1995, the Company began to
target equipment manufacturers having a broad sales distribution network
(primarily those with at least $5 million in annual sales and at lease one
hundred equipment distributors and vendors) to offer them a "private label
lease program" customized for their distributors' needs. The Company has
entered into three such programs to date and have solicited indications of
sincere interest from other manufacturers. In this way, the Company
accepts responsibility for the origination, servicing, and funding for
lease transactions from each manufacturer for new leases from the
manufacturers distributors using the Company's forms and documentation
customized with the equipment manufacturers' name. The Company uses its
in-house printing and direct mail facilities to produce flyers and
brochures to be distributed throughout each manufacturers' sales
distribution network illustrating the benefits of leasing, to facilitate
sales of the manufacturers' equipment. The Company is encouraged by the
initial positive reaction received from the equipment manufacturers, and
interest to further emphasize this program as a means towards increasing
new lease volume.
11
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The Company believes that lease securitization may provide both the
additional funding for and increased revenues associated with an increase
in new lease volume. Reference is made to the prospectus dated January 13,
1995 relative to the offering and sale of the Company's Senior Thrift
Certificates. The Company anticipates that such sales under a lease
securitization program may commence during the fiscal year ending April 30,
1996, although no such sales have occurred to date as a result of the
excess available funds the Company presently maintains awaiting investment
in new direct finance lease equipment.
Interest Expense
For the three months ended January 31, 1995, interest expense
increased $30,016 or 2.8% as compared to the three months ended January 31,
1994. Management attributes a significant portion of this increase to an
increase in debt securities outstanding resulting in higher cash balances
awaiting investment in leases. Excess funds are maintained in highly
liquid U.S. Government securities of six month maturities or less, which
currently yield less interest income than the interest expense being paid
on excess funds. Total interest expense (disregarding interest income of
$94,360 and $48,996 during the three month periods ended January 31, 1995
and 1994, respectively) averaged 8.9% on average total borrowings
(including accrued interest) of $52,682,862 for the three months ended
January 31, 1995 as compared to 9.3% on averaged total borrowings
(including accrued interest) of $47,460,295 for the three months ended
January 31, 1994.
Other Expenses
Lease origination expense decreased 9.27% or $27,987 for the three
months ended January 31, 1995 compared to the corresponding period ended a
year earlier. Lease origination expenses, including capitalized
commissions paid outside leasing brokers, were 11.0% of new financing lease
receivables during the three months ended January 31, 1995 as compared to
13.6% for the three months ended January 31, 1994. This decrease in costs
resulted from the discontinuance of the Company's direct mail efforts as
discussed above. In addition, $11,861 and $9,078 in commissions were paid
during the three months ended January 31, 1995 and 1994, respectively, and
were capitalized and not charged to expense.
General and administrative expenses increased by $9,175 or 1.8% for
the three months ended January 31, 1995, compared to the corresponding
period in 1994, due to an increase in costs recognized in association with
the amortization of deferred solicitation expenses in connection with sale
of debt securities.
An allowance for doubtful direct finance lease receivables is
maintained at a level considered adequate to provide for estimated losses
that will be incurred in the collection of these receivables. The
allowance is increased by the provisions charged to operating expense and
reduced by charge-offs. As a result of the Company's extensive review of
the collectibility of all past due accounts which continued during the
three months ended January 31, 1995, write-offs of delinquent lease
receivables were $592,422, in comparison to $178,714 during the three
months ended January 31 1994. The Company provided additional provisions
against these reserves in the amount of $373,141 and $163,431,
12
<PAGE>
<PAGE>
respectively, during the three month periods ended January 31, 1995 and
1994. See Footnote 2 to the Interim Consolidated Financial Statements for
a more detailed discussion of the accounting for the provision for
uncollectable accounts.
Capital Resources and Liquidity
The Company has financed its growth to date primarily from proceeds of
debt securities offered to the public. The Company has not experienced any
difficulty in financing the purchase of equipment that it leases at current
levels.
Sales of the Company's Senior Thrift Certificates were suspended
during the period from September 1, 1994 through January 13, 1995, after
the declaration of effectiveness of an amendment to the registration
previously filed with the Securities and Exchange Commission resulting from
updated disclosures concerning the recent change in the Company's
independent accountants. Sales of ELCOA's debt securities were suspended
pending the effectiveness of refilling a post-effective amendment to its
prospectus dated August 31, 1994, filed December 23, 1994, and declared
effective January 6, 1995.
Taking into consideration new business, the Company's cash and
unhypothecated leases on hand, cash available from sale of leases to ELCOA,
anticipated renewal of a portion of the Company's borrowings, anticipated
sales of senior debt and other resources, it is management's opinion that
its cash will be sufficient to conduct its business and meet its
anticipated obligations during the current fiscal year. The Company
attributes the increased redemptions during the nine month fiscal ended
January 31, 1995 to increased debt outstanding, and to a lesser extent to
increasing interest rates in general. No assurance can be given that the
redemption of senior and subordinated borrowings will not exceed the
Company's expectation or that a substantial portion of its offering of
Senior Thrift Certificates or the offering by Equipment Leasing Corporation
of America of its Demand and Fixed Rate Certificates will be sold.
In view of the Company's history of losses, the uncertainty with
respect to future interest rates to holders of its unsecured borrowings,
the potential redemption of senior and subordinated borrowings and the
uncertainty as to the sale of its offering of Senior Thrift Certificates,
and of the sale of the Demand and Fixed Rate Certificates, management is
unable to estimate the Company's future profitability and liquidity beyond
the current fiscal year. If the Company continues to have losses, it may
have difficulty in servicing its debt in future years. Management
attributes its losses during the current fiscal year to the size of its
lease portfolio relative to its fixed costs, including interest on
outstanding debt. Management is currently exploring various means of
increasing its new leases entered and the outstanding lease portfolio. See
"Consolidated Statements of Cash Flows" on page 5 of this report for an
analysis of the sources and uses of cash by the Company during the nine
month periods ended January 31, 1995 and 1994, respectively. See also
"Further Refinements in Marketing Strategy and Efforts to Reduce Operating
Losses on page 10 of this report on Form 10-Q.
For a complete discussion of liquidity and capital resources for the
fiscal year ending April 30, 1994, reference is made to the "Capital
Resources and Liquidity" section of Form 10-K/A filed on December 23, 1994
for the fiscal year ended April 30, 1994.
13
<PAGE>
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information
On December 23, 1994, the Company filed an additional pre-effective
amendment to its prospectus, subject to completion, relative to the offer
and sale of Senior Thrift Certificates. This offering commenced upon
declaration of effectiveness of that amendment, on January 13, 1995.
Post-Effective Amendment Number 2 to Form S-2 (SEC Registration Number
33-65814) relating to $29,000,000 in principal amount of ELCOA's Demand and
Fixed Rate Certificates was declared effective on January 6, 1995. The
sale of these securities had been suspended at the time ELCOA was notified
by Glickman, Berkovitz, Levinson & Weiner, its former independent
accountants, of its filing of a voluntary petition for relief under Chapter
11 of the U.S. Bankruptcy Code.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K
Reports on Form 8-K and 8-K/A filed during the three month period
ended January 31, 1995, were filed on November 4, 1994, December 18, 1994,
and January 6, 1995, relative to the change in the Company's and ELCOA's
independent accountants.
14
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
March_16,_1995 WALNUT_EQUIPMENT_LEASING_CO.,_INC.
Date
S/William_Shapiro______________________
William Shapiro, President and
Chief Financial Officer
<PAGE>
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ART. 5 FDS FOR 3RD QUARTER 10-Q
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