<PAGE> 1
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 March 31, 1994
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 1-7543
GREYHOUND FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-1278569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
DIAL CORPORATE CENTER, PHOENIX, ARIZONA 85077
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code 602/207-6900
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 such shorter period that the
Registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 9, 1994, 25,000 shares of Common Stock ($1.00 par value) were
outstanding. All the Common Stock of Greyhound Financial Corporation is owned
by GFC Financial Corporation.
<PAGE> 2
GREYHOUND FINANCIAL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Financial Information:
Consolidated Balance Sheet - March 31, 1994 and
December 31, 1993 1 - 2
Consolidated Income Statement - Three Months Ended
March 31, 1994 and 1993 3
Consolidated Statement of Stockholder's Equity - Three Months
Ended March 31, 1994 and 1993 4
Consolidated Statement of Cash Flows - Three Months Ended
March 31, 1994 and 1993 5
Notes to Interim Consolidated Financial Information 6 - 18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18 - 21
PART II OTHER INFORMATION.
Item 5. TriCon Capital Corporation Financial Statements as of and for
the Three Months Ended March 31, 1994 22 - 30
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 32
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
--------------------------------
ITEM 1. FINANCIAL STATEMENTS
- - -----------------------------
GREYHOUND FINANCIAL CORPORATION
-------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
------
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------------------------------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 9,007 $ 2,859
INVESTMENT IN FINANCING TRANSACTIONS:
Loans and other financing contracts, less unearned
income of $72,262 and $72,747, respectively 2,595,948 2,343,755
Leveraged leases 284,641 283,782
Operating and direct financing leases 248,494 219,034
Factored receivables - net 142,799
--------------- ----------------
3,271,882 2,846,571
Less reserve for possible credit losses (73,057) (64,280)
--------------- ----------------
Investment in financing transactions - net 3,198,825 2,782,291
OTHER ASSETS AND DEFERRED CHARGES 101,566 49,747
--------------- ----------------
$ 3,309,398 $ 2,834,897
=============== ================
</TABLE>
See notes to interim consolidated financial information.
1
<PAGE> 4
GREYHOUND FINANCIAL CORPORATION
-------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------------------------------
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued expenses $ 32,586 $ 30,158
Due to Parent 16,291 130,760
Customer deposits 3,041 3,064
Due to factored clients 107,895
Interest payable 13,445 23,633
Short-term debt 470 510
Senior debt 2,420,293 1,991,986
Subordinated debt 89,827 86,790
Deferred income taxes 207,727 197,705
--------------- ----------------
2,891,575 2,464,606
--------------- ----------------
REDEEMABLE PREFERRED STOCK 25,000 25,000
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value, 100,000 shares
authorized, 25,000 shares issued 25 25
Additional capital 338,665 298,665
Retained income 61,808 54,374
Cumulative translation adjustments (7,675) (7,773)
--------------- ----------------
392,823 345,291
--------------- ----------------
$ 3,309,398 $ 2,834,897
=============== ================
</TABLE>
See notes to interim consolidated financial information.
2
<PAGE> 5
GREYHOUND FINANCIAL CORPORATION
-------------------------------
CONSOLIDATED INCOME STATEMENT
-----------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1994 1993
---------------------------------
<S> <C> <C>
Interest and other income $ 65,602 $ 51,402
Lease income 6,402 6,860
-------------- --------------
Interest earned from financing transactions 72,004 58,262
Interest expense 33,862 30,568
-------------- --------------
Interest margins earned 38,142 27,694
Provision for possible credit losses 3,250 2,701
-------------- --------------
Net interest margins earned 34,892 24,993
Gains on sale of assets 3 2,061
-------------- --------------
34,895 27,054
Selling, administrative and other operating
expenses 16,241 13,638
-------------- --------------
INCOME BEFORE INCOME TAXES 18,654 13,416
Income taxes 7,058 4,871
-------------- --------------
NET INCOME $ 11,596 $ 8,545
============== ==============
</TABLE>
See notes to interim consolidated financial information.
3
<PAGE> 6
GREYHOUND FINANCIAL CORPORATION
-------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
----------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1994 1993
-------------------------------
<S> <C> <C>
COMMON STOCK:
Balance, beginning and end of period $ 25 $ 25
------------ ------------
ADDITIONAL CAPITAL:
Balance, beginning of period 298,665 298,665
Contributions from GFC Financial Corporation 40,000
------------ ------------
Balance, end of period 338,665 298,665
------------ ------------
RETAINED INCOME:
Balance, beginning of period 54,374 33,783
Net income 11,596 8,545
Dividends (4,162) (3,763)
------------ ------------
Balance, end of period 61,808 38,565
------------ ------------
CUMULATIVE TRANSLATION ADJUSTMENTS:
Balance, beginning of period (7,773) (6,685)
Unrealized translation gain (loss) 98 (325)
------------ ------------
Balance, end of period (7,675) (7,010)
------------ ------------
TOTAL STOCKHOLDER'S EQUITY $ 392,823 $ 330,245
============ ============
</TABLE>
See notes to interim consolidated financial information.
4
<PAGE> 7
GREYHOUND FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
OPERATING ACTIVITIES: 1994 1993
--------------------
<S> <C> <C>
Net income $ 11,596 $ 8,545
Adjustments to reconcile net income to net cash used
by operating activities:
Provision for possible credit losses 3,250 2,701
Depreciation and amortization 648 454
Gains on sale of assets (3) (2,061)
Deferred income taxes 10,022 5,888
Change in assets and liabilities, net of effects from
subsidiaries purchased:
Increase in other assets (15,042) (4,936)
Decrease in accounts payable and accrued expenses (7,388) (1,023)
Decrease in interest payable (10,188) (11,182)
Other 121 (254)
------------ ------------
Net cash used by operating activities (6,984) (1,868)
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale of assets 29 2,061
Principal collections on financing transactions 153,615 122,918
Expenditures for financing transactions (225,505) (173,935)
Net change in short-term financing transactions (29,196)
Purchase of Asset Based Finance subsidiary (69,808)
Purchase of Ambassador Factors subsidiary (246,285)
Net advances to discontinued insurance subsidiary 10,607
Other 213 26
------------ ------------
Net cash used by investing activities (347,129) (108,131)
------------ ------------
FINANCING ACTIVITIES:
Net borrowings under commercial paper 24,298 19,500
Long-term borrowings 450,000 158,200
Repayment of long-term borrowings (42,995) (59,574)
Net repayment of advances from parent (74,427)
Dividends (4,162) (3,763)
Net change in due to factored clients 7,547
------------ ------------
Net cash provided by financing activities 360,261 114,363
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 6,148 4,364
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,859 19,120
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,007 $ 23,484
============ ============
</TABLE>
See notes to interim consolidated financial information.
5
<PAGE> 8
GREYHOUND FINANCIAL CORPORATION
-------------------------------
NOTES TO INTERIM CONSOLIDATED FINANCIAL INFORMATION
---------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
--------------------------------------------------
NOTE A SIGNIFICANT ACCOUNTING POLICIES
- - ----------------------------------------
The consolidated financial statements present the financial position,
results of operations and cash flows of Greyhound Financial Corporation ("GFC"
or the "Company") and subsidiaries, including the European Financial Group and
Ambassador Factors ("Ambassador") which was acquired on February 14, 1994. GFC
is a wholly-owned subsidiary of GFC Financial Corporation ("GFC Financial" or
"GFCFC").
This information should be read in connection with the financial
statements set forth in the GFC Annual Report for the year ended December 31,
1993 heretofore filed with the Commission as Annex "A" to the Registrant's
Annual Report on Form 10-K. The accounting policies utilized in the
preparation of the financial information herein are the same as set forth in
such Annual Report, as modified for interim accounting policies which are
within the guidelines set forth in Accounting Principles Board Opinion No. 28.
The Financial Accounting Standards Board ("FASB") has issued a new
accounting standard, Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). This
standard requires that impaired loans that are within the scope of this
statement generally be measured based on the present value of expected cash
flows discounted at the loan's effective interest rate or the fair value of the
collateral, if the loan is collateral dependent. Under SFAS 114, a loan is
considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due. Presently,
the reserve for possible credit losses represents management's estimate of the
amount necessary to cover potential losses in the portfolio considering
delinquencies, loss experience and collateral. The impact of the new standard,
which is effective for fiscal years beginning after December 15, 1994, has not
yet been determined.
Effective January 1, 1994, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits". Analogous to SFAS No. 106
for postretirement benefits, this standard requires companies to accrue for
estimated future postemployment benefits during the periods when employees are
working. Postemployment benefits are any benefits other than retirement
benefits that are provided after employment is discontinued. The adoption of
the new standard did not have a material impact on the Company's financial
position or results of operations.
The interim consolidated financial information is unaudited. In the
opinion of management all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the financial position as of March 31,
1994, the results of operations for the three months ended March 31, 1994 and
1993 and cash flows for the three months ended March 31, 1994 and 1993, have
been included. Interim results of operations are not necessarily indicative of
the results of operations for the full year.
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
During the three months ended March 31, 1994, GFC Financial
contributed $40,000,000 of intercompany loans to GFC as additional paid in
capital.
6
<PAGE> 9
NOTE B PORTFOLIO QUALITY
- - --------------------------
The following table presents a breakdown (by line of business) of the
Company's investment in financing transactions before the reserve for possible
credit losses at the dates indicated.
7
<PAGE> 10
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
MARCH 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing
--------------------------------------------------
Repos-
Original Rewritten Operating sessed
Rate Contracts Leases Assets(3)
---------------------------------------------------
<S> <C> <C> <C> <C>
Domestic:
Corporate Finance $ 203,703 $ 28,005 $ $ 5,083
Transportation Finance (1) 440,308 13,870 166,523
Communications Finance 527,197 6,150 8,970
Commercial Real Estate Finance 503,398 1,594 28,076
Resort Finance 544,465 4,345 539 12,567
Asset Based Finance 197,427
Consumer Rediscounting 20,204
Ambassador Finance 333,662
------------ ---------- ---------- ----------
2,770,364 53,964 167,062 54,696
------------ ---------- ---------- ----------
Foreign:
Corporate Finance 6,395 327
Transportation Finance 13,308 1,212 5,172
Commercial Real Estate Finance 38,170 2,922
Consumer Finance (2) 35,583
------------ ---------- ---------- ----------
93,456 4,461 5,172
------------ ---------- ---------- ----------
$ 2,863,820 $ 58,425 $ 172,234 $ 54,696
============ ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nonaccruing
--------------------------------
90 Days Repos- Total
Delin- sessed Carrying
quent Assets Other Amount %
-------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Domestic:
Corporate Finance $ 6,597 $ 2,557 $ 380 $ 246,325 7.5
Transporation Finance (1) 620,701 19.0
Communications Finance 8,264 28,348 578,929 17.7
Commercial Real Estate Finance (1) 2,917 25,837 561,822 17.2
Resort Finance 20,001 143 582,060 17.8
Asset Based Finance 197,427 6.0
Consumer Rediscounting 20,204 0.6
Ambassador Finance 12,751 1,975 348,388 10.7
-------- -------- ------ ----------- -------
30,529 78,718 523 3,155,856 96.5
-------- -------- ------ ----------- --------
Foreign:
Corporate Finance 64 168 6,954 0.2
Transportation Finance 1,773 21,465 0.7
Commercial Real Estate Finance 2,654 43,746 1.3
Consumer Finance (2) 8,278 43,861 1.3
--------- -------- ------- ------------ --------
10,996 1,941 116,026 3.5
--------- -------- ------- ------------ --------
$ 41,525 $ 80,659 $ 523 $ 3,271,882 100.0
========== ========= ======= ============ =========
</TABLE>
NOTES:
(1) Domestic Transportation Finance includes $50.2 million of
new aircraft finance business booked through the London
office. In addition, operating leases include certain
aircraft and engines having a carrying amount of $52.7
million that were combined as one transaction pursuant to a
participation agreement with an engine and hushkitting
company.
(2) Consumer Finance accounts are generally considered
nonaccruing after being 180 days delinquent.
(3) The Company earned income totaling $0.9 million on
repossessed assets during the first quarter of 1994,
including $0.5 million in Commercial Real Estate Finance,
$0.2 million in Communications Finance and $0.2 million in
Resort Finance.
<PAGE> 11
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing
-------------------------------------------------
Repos-
Original Rewritten Operating sessed
Rate Contracts Leases Assets
(4)
-------------------------------------------------
<S> <C> <C> <C> <C>
Domestic:
Corporate Finance (1) $ 221,711 $ 27,921 $ $
Transportation Finance (1) (2) 457,741 146,675
Communications Finance 487,890 7,989 8,949
Commercial Real Estate Finance (1) 500,598 1,574 27,844
Resort Finance 530,070 4,869 547 12,163
Asset Based Finance 176,068
Consumer Rediscounting 19,439
------------ ---------- ---------- ----------
2,393,517 42,353 147,222 48,956
------------ ---------- ---------- ----------
Foreign:
Corporate Finance 8,036 324
Transportation Finance 25,303 1,267
Commercial Real Estate Finance 38,491 2,839
Consumer Finance (3) 35,656
------------ ---------- ---------- ----------
107,486 4,430
------------ ---------- ---------- ----------
$ 2,501,003 $ 46,783 $ 147,222 $ 48,956
============ ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nonaccruing
-------------------------------
90 Days Repos- Total
Delin- sessed Other Carrying
quent Assets Amount %
------------------------------ -----------------------
<S> <C> <C> <C> <C> <C>
Domestic:
Corporate Finance (1) $ 2,277 $ 7,428 $ 386 $ 259,723 9.1
Transportation Finance (1) (2) 841 605,257 21.2
Communications Finance 8,264 25,030 538,122 18.9
Commercial Real Estate Finance (1) 1,055 25,542 556,613 19.6
Resort Finance 19,001 440 567,090 19.9
Asset Based Finance 176,068 6.2
Consumer Rediscounting 19,439 0.7
-------- -------- ------- ----------- ------
12,437 77,001 826 2,722,312 95.6
-------- -------- ------- ----------- ------
Foreign:
Corporate Finance 70 23 8,453 0.3
Transportation Finance 26,570 1.0
Commerical Real Estate Finance 2,642 43,972 1.5
Consumer Finance (3) 9,608 45,264 1.6
--------- --------- ------- ----------- ------
12,320 23 124,259 4.4
--------- --------- ------- ----------- ------
$ 24,757 $ 77,024 $ 826 $ 2,846,571 100.0
========= ========= ======= =========== =======
</TABLE>
NOTES:
(1) Reclassifications (effective January 1, 1993): Approximately $169
million of accruing assets were reclassified from Corporate Finance
with $163 million going to Transportation Finance because they
primarily represented aircraft financing and $6 million to Commercial
Real Estate Finance. Additionally, $6.5 million of nonaccruing assets
($5.1 million classified as repossessed assets and $1.4 million
classified as 90 days delinquent) were reclassified from Corporate
Finance to Commercial Real Estate Finance.
(2) Domestic Transportation Finance includes $31.9 million of new aircraft
finance business booked through the London office. In addition,
operating leases include certain aircraft and engines having a
carrying amount of $53.0 million that were combined as one transaction
pursuant to a participation agreement with an engine and hushkitting
company.
(3) Consumer Finance accounts are generally considered nonaccruing after
being 180 days delinquent.
(4) The Company earned income totaling $2.7 million on repossessed
accruing assets during 1993, including $1.5 million in Commercial Real
Estate Finance, $0.6 million in Communications Finance and $0.6
million in Resort Finance.
<PAGE> 12
REWRITTEN CONTRACTS:
In the normal course of business, the Company has
renegotiated certain contracts and has modified them with respect to rates and
other terms. At March 31, 1994 and December 31, 1993, the Company had
approximately $58.4 million and $46.8 million, respectively, of these rewritten
contracts requiring disclosure under the provisions of SFAS No. 15, "Accounting
by Debtors and Creditors for Troubled Debt Restructurings". These contracts
are all current under the revised terms and yield on a weighted average basis a
return of approximately 10.2%.
NONACCRUING ASSETS:
Income recognition on an account is suspended and the
account is classified as nonaccruing at the earlier of the date when an account
is generally 90 days or more past due (180 days for Consumer Finance contracts
in the United Kingdom), or when, in the opinion of management, a full recovery
of income and principal becomes doubtful. Payments (full or partial) are
currently being received on some of these accounts; however, income is
generally not recognized until performance is demonstrated to be resumed.
Total nonaccruals increased to $122.7 million at March
31, 1994 from $102.6 million at December 31, 1993. This increase is primarily
due to the addition of $14.7 million of Ambassador Factors nonaccruing assets.
The total at March 31, 1994 represented 3.8% of funds employed compared to 3.6%
of funds employed at December 31, 1993.
RESERVE FOR POSSIBLE CREDIT LOSSES:
The reserve for possible credit losses of $73.1
million at March 31, 1994 represents 2.2% of the aggregate carrying amount of
financing transactions before deducting such reserve. Changes in the reserve
for possible credit losses were as follows:
10
<PAGE> 13
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
(000 Omitted)
<S> <C> <C> <C>
Balance, beginning of period Domestic $ 64,265 $ 65,100
Foreign 15 4,191
---------- -----------
64,280 69,291
---------- -----------
Provision for possible credit losses Domestic 2,550 2,386
Foreign 700 315
---------- -----------
3,250 2,701
---------- -----------
Write-offs Domestic (4,369) (1,579)
Foreign (737) (1,358)
---------- ----------
(5,106) (2,937)
---------- -----------
Recoveries Domestic 98 26
Foreign 115 34
---------- -----------
213 60
---------- -----------
Other Domestic 10,408 1,254
Foreign 12 (97)
---------- -----------
10,420 1,157
---------- -----------
Balance, end of period Domestic 72,952 67,187
Foreign 105 3,085
---------- -----------
$ 73,057 $ 70,272
========== ===========
</TABLE>
The Company believes that collateral values significantly reduce its
loss exposure and that the reserve for possible credit losses is adequate.
NOTE C BORROWINGS
At March 31, 1994 and December 31, 1993, commercial paper and
short-term bank borrowings totaling $540 million and $516 million,
respectively, have been presented as long-term debt because they are supported
by available unused revolving credit lines which if not renewed are convertible
to long-term debt at GFC's option.
11
<PAGE> 14
NOTE D INCOME TAXES
- - ---------------------
The federal statutory income tax rate is reconciled to the effective
income tax rate as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1994 1993
------------------
(000 Omitted)
<S> <C> <C>
Computed income taxes at statutory federal income
tax rates 35.00% 34.00%
Less tax effect of:
State tax 2.42% 1.99%
Foreign tax effects 1.47% 1.25%
Other 0.18% 0.17%
----------- -----------
30.93% 30.59%
State tax provision 6.90% 5.86%
----------- -----------
37.83% 36.45%
=========== ===========
</TABLE>
NOTE E RATIO OF INCOME TO COMBINED FIXED CHARGES AND PREFERRED STOCK
- - ----------------------------------------------------------------------
DIVIDENDS
---------
The following are the ratios of income to combined fixed charges and
preferred stock dividends for the three months ended March 31, 1994 and 1993
and the years ended December 31, 1993, 1992 and 1991.
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, December 31,
-------------- -----------------------
1994 1993 1993 1992 1991
-------------- -----------------------
<S> <C> <C> <C> <C> <C>
Ratio of income to combined fixed charges
and preferred stock dividends 1.51 1.40 1.47 1.35 --
====== ======= ======= ====== ========
</TABLE>
Note: Preferred stock dividends are included in periods
subsequent to March 1992 through July 30, 1993.
Variations in interest rates generally do not have a substantial
impact on the ratio because fixed-rate and floating-rate assets are generally
matched with liabilities of similar rate and term.
Income available for fixed charges, for purposes of the computation of
the ratio of income to combined fixed charges and preferred stock dividends,
consists of the sum of income before income taxes (adjusted for the effect of
reduced tax rates on income from leveraged leases) and fixed charges. Combined
fixed charges include interest and related debt expense and a portion of rental
expense determined to be representative of interest and preferred stock
dividends grossed up to a pre-tax basis.
For the year ended December 31, 1991, earnings were inadequate to
cover combined fixed charges by $35.3 million. The decline in the ratio in
1991 was due to restructuring and other charges and transaction costs recorded
in the fourth quarter of 1991. Those charges and costs were recorded in
connection with the spin-off of the Company from The Dial Corp in March 1992.
12
<PAGE> 15
NOTE F PURCHASES OF AMBASSADOR FACTORS AND TRICON CAPITAL CORPORATION
- - -----------------------------------------------------------------------
On February 14, 1994, GFC acquired Fleet Financial Group, Inc.'s
("Fleet") factoring and asset based lending subsidiary, Fleet Factors
Corporation, which operates under the trade name Ambassador Factors
("Ambassador"). The cash purchase price of the acquisition was $246,285,000
and represented Ambassador's stockholder's equity, including a premium
($76,285,000), and repayment of the intercompany balance due from Ambassador to
Fleet ($170,000,000). In addition, GFC assumed $100,348,000 due to factored
clients, $928,000 of accrued liabilities and $8,800,000 of additional
liabilities and transaction costs. The acquisition has been accounted for as a
purchase and created approximately $30,400,000 of goodwill, which will be
amortized on a straight line basis over 20 years.
The acquisition was financed with proceeds received from the sale of
GFC Financial's discontinued mortgage insurance subsidiary and cash generated
from operations. GFC Financial, simultaneous with the acquisition, increased
its investment in GFC by contributing $40,000,000 of intercompany loans as
additional paid in capital of GFC.
On April 30, 1994, GFC acquired all of the stock of TriCon Capital
Corporation ("TriCon") from Bell Atlantic Corporation ("Bell Atlantic"), in an
all-cash transaction. The cash purchase price of the acquisition was
$344,250,000. In addition, GFC assumed outstanding indebtedness and
liabilities of TriCon totaling $1,455,405,000 and incurred additional
liabilities and acquisition costs of $7,500,000. The acquisition will be
accounted for as a purchase and will create approximately $69,817,000 of
goodwill, which will be amortized on a straight line basis over 20 years.
The cash purchase price was financed initially with the proceeds from
the issuance of $300,000,000 of debt securities of GFC and the remainder with
internally generated funds. A portion of the interim debt will be replaced
with the net proceeds from a planned public offering of 7,000,000 shares of GFC
Financial's common stock (the "Offering"), which, together with cash, the
outstanding preferred stock of GFC held by GFC Financial, the remaining
intercompany loans from GFC Financial to GFC and other assets, will be
contributed as additional paid in capital of GFC. There can be no assurance
that the Offering will occur.
The following Pro Forma Consolidated Balance Sheet of GFC as of March
31, 1994 has been prepared to reflect the historical financial position as
adjusted to reflect the acquisition of TriCon as if such acquisition had
occurred on March 31, 1994. The following Pro Forma Statements of Consolidated
Income for the three months ended March 31, 1994 and 1993 have been prepared to
reflect net income as adjusted to reflect the acquisitions of Ambassador and
TriCon as if such acquisitions had occurred on January 1, 1994 and 1993,
respectively, and give effect to the Offering as of such dates. The pro forma
consolidated financial information is unaudited and is not necessarily
indicative of the results that would have occurred if such acquisitions had
been consummated as of March 31, 1994, January 1, 1994 or January 1, 1993, nor
is it necessarily indicative of the results of future operations.
13
<PAGE> 16
GREYHOUND FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1994
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments
----------------------------
Company(1) TriCon TriCon Pro Forma
-------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 9,007 $ 4,427 $ 135 (7) $ 86,943
73,374 (11)
------------- ------------- ------------- -------------
Investment in financing transactions:
Loans and other financing contracts 2,595,948 894,365 3,490,313
Factored receivables 142,799 142,799
Direct finance leases 76,260 677,710 753,970
Operating leases 172,234 231,016 (53,600) (8) 349,650
Leveraged leases 284,641 284,641
------------- ------------- ------------- -------------
3,271,882 1,803,091 (53,600) 5,021,373
Less reserve for possible credit losses (73,057) (43,549) (116,606)
------------- ------------- ------------- -------------
3,198,825 1,759,542 (53,600) 4,904,767
Other assets and deferred charges 101,566 26,834 69,817 (11) 202,180
3,963 (11)
------------- ------------- ------------- -------------
$ 3,309,398 $ 1,790,803 $ 93,689 $ 5,193,890
============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accruals $ 49,072 $ 80,585 $ 5,000 (11) $ 134,657
Due to factored clients 107,895 107,895
Due to GFC Financial 16,291 (16,291) (11)
Due to Bell Atlantic 664,906 86,155 (9)
(751,061) (10)
Debt 2,510,590 661,299 (53,600) (8) 4,015,720
767,121 (10)
130,310 (11)
Deferred income taxes 207,727 83,355 (86,155) (9) 207,727
2,800 (11)
------------- ------------- ------------- -------------
2,891,575 1,490,145 84,279 4,465,999
Redeemable preferred stock 25,000 (25,000) (11)
Stockholder's equity 392,823 300,658 135 (7) 727,891
(16,060) (10)
(284,733) (11)
216,440 (11)
93,628 (11)
25,000 (11)
------------- ------------- ------------- -------------
$ 3,309,398 $ 1,790,803 $ 93,689 $ 5,193,890
============= ============= ============= =============
</TABLE>
14
<PAGE> 17
GREYHOUND FINANCIAL CORPORATION
PRO FORMA STATEMENT OF CONSOLIDATED INCOME
THREE MONTHS ENDED MARCH 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------------------------
Company Ambassador
Excluding Feb.and Mar. Ambassador
Ambassador (1) 1994 (1) Company (1) Jan. 1994 (1) TriCon
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest earned
from financing
transactions $ 65,922 $ 6,082 $ 72,004 $ 3,072 $ 56,197
Interest expense 32,826 1,036 33,862 563 18,294
---------- --------- ----------- ----------- ---------------
Interest margins
earned 33,096 5,046 38,142 2,509 37,903
Provision for
possible credit
losses 2,250 1,000 3,250 500 5,201
---------- --------- ----------- ----------- ----------
Net interest
margins earned 30,846 4,046 34,892 2,009 32,702
Gains on sale
of assets 3 3
---------- --------- ----------- ----------- ----------
30,849 4,046 34,895 2,009 32,702
Selling,
administrative
and other
operating
expenses 14,730 1,511 16,241 634 13,658
Depreciation 9,981
---------- --------- ----------- ----------- ----------
16,119 2,535 18,654 1,375 9,063
Income taxes 6,056 1,002 7,058 649 3,035
---------- --------- ----------- ----------- ----------
NET INCOME $ 10,063 $ 1,533 $ 11,596 $ 726 $ 6,028
========== ========= =========== =========== ==========
Pro Forma Adjustments
---------------------------------------
Ambassador
(1) TriCon Pro Forma
--------------------------------------- ---------------
Interest earned
from financing
transactions $ $ (2,141) (8) $ 129,507
375 (12)
Interest expense 131 (2) 666 (13) 53,516
----------- --------- -----------
Interest Margins
earned (131) (2,432) 75,991
Provision for
possible credit
losses 8,951
----------- ----------- -------------
Net interest
margins earned (131) (2,432) 67,040
Gains on sale
of assets 3
----------- ------------ -------------
(131) (2,432) 67,043
Selling,
administrative
and other
operating
expenses 206 (3) 873 (14) 31,885
83 (4) 190 (12)
Depreciation 9,981
----------- ---------- ------------
(420) (3,495) 25,177
Income taxes (168) (5) (1,398) (15) 9,077
(99) (6)
----------- ---------- ------------
NET INCOME $ (153) $ (2,097) $ 16,100
============ =========== ==============
</TABLE>
15
<PAGE> 18
GREYHOUND FINANCIAL CORPORATION
PRO FORMA STATEMENT OF CONSOLIDATED INCOME
THREE MONTHS ENDED MARCH 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
----------------------------------------------------------------------------
Pro
Company Ambassador TriCon Ambassador TriCon Forma
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned
from financing
transactions $ 58,262 $ 9,175 $ 57,258 $ $ (773) (8) $ 124,297
375 (12)
Interest expense 30,568 1,586 20,795 1,057 (2) 1,255 (13) 55,261
------------ ------------ --------- ------------ --------- ---------------
Interest margins
earned 27,694 7,589 36,463 (1,057) (1,653) 69,036
Provision for
possible credit
losses 2,701 1,600 7,384 11,685
------------ ------------ --------- ------------ --------- ---------------
Net interest
margins earned 24,993 5,989 29,079 (1,057) (1,653) 57,351
Gains on sale of
assets 2,061 2,061
------------ ------------ --------- ------------ --------- ---------------
27,054 5,989 29,079 (1,057) (1,653) 59,412
Selling,
administrative
and
other operating 13,638 2,091 12,397 618 (3) 873 (14) 30,057
expenses
250 (4) 190 (12)
Depreciation 10,416 10,416
------------ ------------ --------- ------------ --------- ---------------
13,416 3,898 6,266 (1,925) (2,716) 18,939
Income taxes 4,871 1,983 2,214 (770) (5) (1,086) (15) 6,918
(294) (6)
------------ ------------ --------- ------------ --------- ---------------
Income from
continuing
operations 8,545 1,915 4,052 (861) (1,630) 12,021
Cumulative effect
of changes in
accounting
principles 480 5,763 6,243
------------ ------------ --------- ------------ --------- ---------------
NET INCOME $ 8,545 $ 2,395 $ 9,815 $ (861) $ (1,630) $ 18,264
============ ============ ========= ============ ========= ===============
</TABLE>
16
<PAGE> 19
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
ACQUISITION OF AMBASSADOR
(1) The historical balance sheet of the Company as of March 31, 1994
includes the accounts of Ambassador, which was acquired in February
1994. The Pro Forma Statement of Consolidated Income for the three
months ended March 31, 1994 has been expanded to separately identify
the operations of Ambassador subsequent to its acquisition by the
Company. Pro forma adjustments included in the Pro Forma Statement of
Consolidated Income for the three months ended March 31, 1994 related
to the acquisition of Ambassador represent the effect of the one month
not included in the Company's historical financial statements.
(2) To record the estimated interest expense ($131,000 - 1994; $1,057,000
- 1993) arising from the debt incurred to fund the acquisition and the
repayment of the intercompany payable due to Fleet. The 1994
adjustment is partially offset by interest saved as a result of the
$40,000,000 of intercompany loans from GFC Financial to GFC
contributed as additional paid in capital of GFC in connection with
the acquisition of Ambassador.
(3) To record amortization of goodwill ($206,000 - 1994; $618,000 - 1993)
based on an amortization period of twenty years and amortization of
the covenant not to compete over one year (see Note (16)).
(4) To record administrative expenses for additional employees and general
overhead ($83,000 - 1994; $250,000 - 1993).
(5) To record the income tax effect ($168,000 - 1994; $770,000 - 1993) of
Notes (2), (3), and (4) at the Company's effective incremental income
tax rate of 40%.
(6) To adjust income taxes for the lower state income tax rate applicable
to the Company ($99,000 - 1994; $294,000 - 1993).
ACQUISITION OF TRICON
(7) To record the original capital contribution by Bell Atlantic as part
of the incorporation of TriCon ($135,000).
(8) To transfer assets and the related debt of TriCon ($53,600,000), not
purchased by the Company, to Bell Atlantic and reduce interest earned
from financing transactions for the income recorded on such assets in
1994 and 1993 ($2,141,000 - 1994; $773,000 - 1993).
(9) To record issuance of notes payable ($86,155,000) to Bell Atlantic by
TriCon to repay TriCon's deferred tax liability.
(10) To record a dividend from TriCon to Bell Atlantic ($16,060,000) and
the conversion of the remaining short-term borrowings from affiliates
of TriCon ($751,061,000) to a note payable to Bell Atlantic
($767,121,000).
(11) To record the goodwill created in the acquisition of TriCon
($69,817,000), elimination of the remaining TriCon equity
($284,733,000), the elimination of deferred tax assets ($2,800,000),
the debt incurred to finance the acquisition ($130,310,000), the
contribution of the proceeds
17
<PAGE> 20
received by GFC Financial from the issuance of 7,000,000 shares of its
common stock at $32.00 per share, net of the underwriting discount,
but before deducting estimated expenses payable by GFC Financial in
connection with such Offering ($216,440,000) and the accrual of
various liabilities ($5,000,000). In connection with the acquisition
of TriCon, GFC Financial will contribute cash ($73,374,000), the
outstanding preferred stock of GFC held by GFC Financial
($25,000,000), the remaining intercompany loans ($16,291,000) and
other assets ($3,963,000) as additional paid in capital of the
Company. The interest expense related to debt to be replaced with the
net proceeds from the Offering and, therefore, nonrecurring and
excluded from the Pro Forma Statement of Consolidated Income, is
approximately $2,000,000.
(12) To reflect base fees ($375,000) and incremental costs ($190,000)
related to an agreement to manage leveraged leases for Bell Atlantic
by TriCon .
(13) To record interest expense ($666,000 - 1994; $1,255,000 - 1993)
resulting from the additional debt issued to purchase TriCon and
certain debt to Bell Atlantic incurred to fund the deferred tax
payment and dividends referred to in Notes (9) and (10), reduced by
the interest savings applicable to the debt not transferred in the
TriCon acquisition referred to in Note (8) and interest savings as a
result of the equity contribution of the intercompany loans in Note
(11).
(14) To record amortization of goodwill ($873,000) based on an amortization
period of twenty years (see Note (16)).
(15) To record the income tax effect ($1,398,000 - 1994; $1,086,000 - 1993)
of Notes (8) and (12) through (14) at the Company's effective
incremental income tax rate of 40%.
(16) Goodwill may be adjusted as the final allocation of the values of the
purchased assets and liabilities is established.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- - ------------------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1994
TO THE THREE MONTHS ENDED MARCH 31, 1993
The following discussion relates to Greyhound Financial Corporation
("GFC" or the "Company"), including the European Financial Group ("GEFG") and
Ambassador Factors ("Ambassador") acquired on February 14, 1994.
RESULTS OF OPERATIONS
Net income for the first quarter of 1994 was $11.6 million compared to
$8.6 million for the comparable period in 1993 (a 36% improvement). The
results for the first quarter of 1994 include income for February and March
from Ambassador.
INTEREST MARGINS EARNED. The primary item resulting in the improved
earnings in 1994 was higher interest margins earned, which represent the
difference between interest earned from financing
18
<PAGE> 21
transactions and interest expense. Interest margins earned increased by 38%
during the first three months of 1994 to $38.1 million compared to $27.7
million for the first quarter of 1993.
Interest earned from financing transactions increased to $72.0 million
for the first quarter of 1994 from $58.3 million in the first quarter of 1993,
an increase of 24%. This improvement was driven by a 29% increase in
investment in financing transactions (funds employed) during the twelve months
ended March 31, 1994, resulting from $1.1 billion of new business being added
by the core finance operations during that period and the acquisition of
Ambassador.
The higher interest margins earned, which equate to a 5.6% annualized
return on average earning assets compared to 5.0% for the first quarter of
1993, were attributable to the growth of the portfolio, a lower effective cost
of debt in 1994 and higher fee income principally generated by Ambassador.
The strong improvement in interest margins was more than enough to
offset the $2 million reduction in gains on sale of assets, higher provisions
for possible credit losses and the higher selling, administrative and other
operating expenses.
NON-INTEREST EXPENSE. Loss provisions, which increase the reserve for
possible credit losses ("reserve"), were higher by $0.5 million during the
first three months of 1994 compared to the same period in 1993. Changes in the
reserve are based on portfolio growth, write-offs and reserve adequacy.
Management believes that reserve coverage (reserve/nonaccruing assets) remains
adequate at 59.5% of nonaccruing assets and at 2.2% of funds employed.
Selling, administrative and other operating expenses were up by
approximately $2.6 million in the 1994 period due in part to the higher
personnel costs attributable to the Asset Based Finance group acquired in
February 1993 and Ambassador acquired in February 1994 and to normal cost
increases.
GAINS ON SALE OF ASSETS. Gains on sale of assets were $2 million
lower in 1994 compared to the same period in 1993. Gains on sale of assets can
vary significantly from period to period and are based on the amount and type
of assets sold.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Funds employed increased by $425 million to $3,272 million at March
31, 1994 from $2,847 million at December 31, 1993. This increase is
attributable to the Ambassador portfolio acquired ($329 million) and new
business generated ($255 million) during the first quarter of 1994.
The reserve increased by $8.8 million in 1994 to $73.1 million. The
increase in the reserve during the quarter consisted of increases due to loss
provisions of $3.3 million which were applicable to portfolio growth and $10.4
million of reserves acquired with Ambassador, partially offset by decreases due
to write-offs of $5.1 million.
The Company had total debt of approximately $2,514 million or 6.4
times its equity base of $393 million at March 31, 1994. The Company also had
deferred income taxes of $208 million at that date as part of its capital base
to help finance its lending activities. The Company's capitalization will
change significantly as a result of the acquisition of TriCon Capital
Corporation ("TriCon"), which is discussed in Note F of Notes to Interim
Consolidated Financial Information.
Growth in funds employed is typically financed by internally generated
cash flow and additional borrowings. During the first three months of 1994,
GFC issued $450 million of new senior debt, which,
19
<PAGE> 22
together with general corporate funds, was used to finance new business and
redeem or retire $43 million of maturing debt.
GFC satisfies a significant portion of its cash requirements from a
diversified group of worldwide funding sources and is not dependent upon any
one lender. Additionally, GFC relies on the issuance of commercial paper as a
major funding source. During the first three months of 1994, GFC issued $1.5
billion of commercial paper (with an average of $562 million outstanding during
this period) and raised $450 million, as noted above, through new long-term
financing facilities of one to five year durations. GFC recently filed a
shelf-registration statement with the Securities and Exchange Commission that
would allow for the issuance of up to $1.0 billion of senior debt securities.
GFC currently maintains a three-year revolving credit facility with numerous
lenders, in the aggregate principal amount of $700 million. Separately, GFC
also has a 364 day revolving credit facility in the aggregate principal amount
of $150 million. Both of these facilities support GFC's outstanding commercial
paper and short-term borrowings.
GFC is currently in negotiation with its banks to expand the aggregate
principal amount of the three-year revolving credit facility from $700 million
to $950 million through a bank syndicate and to provide for a new $950 million
364-day facility through the same bank syndicate. These facilities would be
subject to the completion of a proposed equity Offering and the investment by
GFC Financial of a substantial portion of the net proceeds from the Offering in
GFC, as well as negotiation and execution of definitive documentation and other
terms and conditions usual and customary for transactions of that nature.
While the Company believes it will be successful in obtaining such facilities,
there can be no assurance of that result. If such facilities are not
successfully negotiated, the Company and GFC Financial believe they have other
alternatives available to them, including the sale of additional debt or equity
securities, although the ability to do so will depend on various factors
including then-current market conditions and the Company's financial condition.
Debt repayments due over the last nine months of 1994 will be
approximately $1.1 billion, consisting of approximately $767 million payable to
Bell Atlantic, approximately $169 million payable through Bell Atlantic to
other third party creditors of TriCon and approximately $139 million payable to
creditors of GFC. The Company believes that its current financial resources
and anticipated future cash flows, together with the proceeds of the Offering
and sale of commercial paper, supported by the anticipated debt facilities
referred to above, will be adequate to fund the Company's 1994 debt repayments
and operating requirements.
The Offering is discussed in Note F of Notes to Interim Consolidated
Financial Information.
GFC generally mitigates the volatility of interest rate changes by
matching the terms of its investments in new and existing transactions with
approximately similar terms and duration applicable to its funding sources.
Generally, fixed-rate assets are financed with fixed-rate funds and
floating-rate assets are financed with floating-rate funds. GFC also balances
the maturities of its investments so that sufficient cash flow is available to
service anticipated debt requirements and has purchased interest rate hedges
covering interest costs applicable to $750 million of floating-rate
obligations.
GFC had outstanding 30 interest rate conversion agreements with
notional principal amounts totaling $1.3 billion. Five agreements with
notional principal amounts of $130 million were arranged to effectively convert
certain floating interest rate obligations into fixed interest rate obligations
and require interest payments on the stated principal amount at rates ranging
from 8.3% to 9.3% (remaining terms of one to five years) in return for receipts
calculated on the same notional amounts at floating interest rates. In
addition, 25 agreements with notional principal amounts of $1.14 billion were
arranged to effectively convert certain fixed interest rate obligations into
floating interest rate obligations and require interest payments on the stated
principal amount at the three month or six month LIBOR
20
<PAGE> 23
(remaining terms of two months to nine years) in return for receipts calculated
on the same notional amounts at fixed interest rates of 4.9% to 7.6%. The
agreements have been entered into with major financial institutions which are
expected to fully perform under the terms of the agreements, thereby mitigating
the credit risk from the transactions.
GFC's aggregate cost of funds has declined to 5.6% for the first three
months of 1994 from 6.5% for the first three months of 1993. GFC's cost of and
access to capital resources is significantly influenced by its debt ratings.
The agreements pertaining to long-term debt of GFC include various
restrictive covenants and require the maintenance of certain defined financial
ratios with which GFC has complied. Under one of these covenants, dividend
payments are limited to 50 percent of the sum of accumulated earnings and the
proceeds from equity issued after December 31, 1991.
BUSINESS OUTLOOK AND RECENT DEVELOPMENTS
Following the spin-off from The Dial Corp in March 1992, the Company
decided to focus its resources and capital on its core domestic commercial
finance activities. The Company embarked on a program of selling or winding
down those businesses included in the spin-off that were not associated with
the Company's core domestic commercial finance activities. The Company has
concentrated on redeploying the capital previously invested in such businesses
to support internal portfolio growth and to make selected acquisitions which
complement the Company's core operations. This strategy has resulted in (i)
the managed liquidation and sale of the Greyhound European Financial Group and
Latin America loan portfolios, (ii) an increase (excluding acquisitions) in
GFC's domestic loan portfolio from March 31, 1992 of $678 million or 33%, (iii)
the acquisition of the Asset Based Finance group from U.S. Bancorp, (iv) the
sale of the discontinued mortgage insurance subsidiary, (v) the acquisition of
Ambassador, and (vi) the acquisition of TriCon. As a result of management's
execution of its business strategy, management believes that the Company now
ranks among the largest independent commercial finance companies, based on
assets, in the United States, and can direct its energies primarily on its core
business operations in the United States, rather than on terminating
discontinued operations.
21
<PAGE> 24
PART II - OTHER INFORMATION
---------------------------
ITEM 5. TRICON CAPITAL CORPORATION FINANCIAL STATEMENTS.
- - ---------------------------------------------------------
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
-------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
------
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---------------------------------
<S> <C> <C>
CASH $ 4,427 $ 4,483
NOTES RECEIVABLE AND FINANCING LEASES:
Investment in notes receivable 894,365 912,964
Investment in finance leases 677,710 647,055
--------------- ----------------
1,572,075 1,560,019
Less reserve for possible credit losses (43,549) (43,191)
--------------- ----------------
Net investment in notes receivable and finance leases 1,528,526 1,516,828
Investment in operating leases, net of accumulated
depreciation 231,016 240,057
Other assets 26,834 27,091
--------------- ----------------
$ 1,790,803 $ 1,788,459
=============== ================
</TABLE>
See notes to interim consolidated financial information.
22
<PAGE> 25
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
-------------------------------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
LIABILITIES:
Notes payable $ 661,299 $ 709,508
Accounts payable and accrued expenses 80,585 75,302
Due to affiliates 664,906 611,194
Deferred income taxes 83,355 81,100
--------------- ----------------
1,490,145 1,477,104
--------------- ----------------
TOTAL EQUITY 300,658 311,355
--------------- ----------------
$ 1,790,803 $ 1,788,459
=============== ================
</TABLE>
See notes to interim consolidated financial information.
23
<PAGE> 26
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
-------------------------------------------------
CONSOLIDATED INCOME STATEMENT
-----------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1994 1993
---------------------
<S> <C> <C>
Interest income $ 19,903 $ 20,837
Finance lease revenue 15,383 16,000
Operating lease revenue 15,847 14,249
Other 5,064 6,172
-------------- --------------
56,197 57,258
-------------- --------------
Interest 18,294 20,795
Selling, general and administrative expenses 13,658 12,397
Provision for credit losses 5,201 7,384
Depreciation 9,981 10,416
-------------- --------------
47,134 50,992
-------------- --------------
Income before provision for income taxes and
cumulative effect of change in accounting principle 9,063 6,266
Provision for income taxes 3,035 2,214
-------------- --------------
Income before cumulative effect of change in
accounting principle 6,028 4,052
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 5,763
-------------- --------------
NET INCOME $ 6,028 $ 9,815
============== ==============
</TABLE>
See notes to interim consolidated financial information.
24
<PAGE> 27
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
OPERATING ACTIVITIES: 1994 1993
-------------------
<S> <C> <C>
Net income $ 6,028 $ 9,815
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,559 10,979
Provision for credit losses 5,201 7,384
Amortization of initial direct costs 1,718 2,433
Cumulative effect of change in accounting principle (5,763)
Gain on sale of equipment and real estate held under
operating leases (1,428) (643)
Deferred income taxes 2,255 (978)
Changes in certain assets and liabilities:
Decrease in other assets (853) (4,056)
Increase in accounts payable and accrued expenses 5,283 15,801
------------ ------------
Net cash provided by operating activities 28,763 34,972
------------ ------------
INVESTING ACTIVITIES:
Additions to notes receivable and finance leases (495,982) (377,864)
Principal payments received on notes receivable and
finance leases 477,356 307,575
Additions to equipment and real estate held under operating
leases (2,763) (20,607)
Proceeds from sale of equipment and real estate held under
operating leases 3,783 1,818
------------ ------------
Net cash used by investing activities (17,606) (89,078)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings 76,625
Principal repayments of borrowings (48,209) (23,979)
Increase in amounts due to affiliates 53,712 8,161
Capital distribution (16,725) (7,316)
------------ ------------
Net cash (used) provided by financing activities (11,222) 53,491
------------ ------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 9 (3)
------------ ------------
DECREASE IN CASH (56) (618)
CASH, beginning of period 4,483 4,503
------------ ------------
CASH, end of period $ 4,427 $ 3,885
============ ============
</TABLE>
See notes to interim consolidated financial information.
25
<PAGE> 28
TRICON CAPITAL CORPORATION
--------------------------
NOTES TO INTERIM CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1994
-----------------------------------------
NOTE A BACKGROUND AND BASIS OF PREPARATION
- - --------------------------------------------
TriCon Capital Corporation ("TriCon"), a wholly-owned subsidiary of
Bell Atlantic TriCon Leasing Corporation ("Old TriCon") and, ultimately, by
Bell Atlantic Corporation ("Bell Atlantic"), was incorporated on December 3,
1993 and will be the successor entity to certain businesses of Old TriCon. The
consolidated financial statements reflect the financial position, results of
operations and cash flows of TriCon Capital Corporation - Predecessor Business,
which consists of the assets and liabilities to be acquired or assumed by
TriCon in the contemplated restructuring described below. Use of "the Company"
in these financial statements refers to the Predecessor Business. The
consolidated financial statements include the accounts of a Canadian division
and all wholly owned subsidiaries which are included in the Predecessor
Business. All significant intercompany balances are eliminated. Prior to a
planned restructuring (the "Restructuring") in contemplation of a sale of
TriCon's common stock to Greyhound Financial Corporation ("GFC"), a wholly
owned subsidiary of GFC Financial Corporation, the Company will be capitalized
with amounts sufficient to acquire from Old TriCon certain assets and
liabilities which comprise the Predecessor Business (described below).
Pursuant to the Restructuring, TriCon will acquire substantially all
of the assets and assume certain liabilities of Old TriCon, other than its
leveraged lease portfolio, project finance portfolio and certain other assets
to be retained by Old TriCon (the "Transferred Assets" and "Excluded Assets",
respectively). The purchase price will be equivalent to the net book value of
the Transferred Assets, subject to certain adjustments, and will be paid in
part by the issuance of notes payable to Old TriCon.
Pursuant to the Restructuring, TriCon will also, among other things,
assume the rights and obligations of Old TriCon under its securitization
agreements and enter into a five-year agreement to manage, for a fee, the
leveraged lease and project finance portfolios retained by Old TriCon.
The consolidated financial statements include allocations of certain
liabilities and expenses relating to the Predecessor Business to be transferred
to TriCon in the Restructuring. Debt and related interest expense were
allocated between the Transferred Assets and the Excluded Assets based upon the
internal "match funding" and debt-to-equity ratio policies of Old TriCon in
place during such periods. Common expenses were allocated on a proportional
basis between the Transferred Assets and the Excluded Assets. Management
believes that these allocation methods are reasonable.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ---------------------------------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and, accordingly, certain information and
footnote disclosure required for complete financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
management's opinion, the accompanying unaudited consolidated financial
statements include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the results of operations, financial
position and cash flows for each period shown. The results for interim periods
are not necessarily indicative of financial results for the full year. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the audited Consolidated Financial Statements and Notes
heretofore filed with the Securities and Exchange Commission as Amendment
26
<PAGE> 29
No. 3 to Form S-1A.
The Financial Accounting Standards Board ("FASB") has issued a new
accounting standard, Statement of Financial Accounting Standard ("SFAS") SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). The
standard requires that impaired loans that are within the scope of this
statement generally be measured based on the present value of expected cash
flows discounted at the loan's effective interest rate or the fair value of the
collateral, if the loan is collateral dependent. Under SFAS 114, a loan is
considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due. The impact
of the new standard, which is effective for fiscal years beginning after
December 15, 1994, is not expected to have a material impact on the Company's
financial position or results of operations as the Company's current loan
review policies require identification of impaired loans and establishment of
provisions thereon in a manner which management believes is substantially
consistent with SFAS 114.
NOTE C INCOME TAXES
- - ---------------------
The federal statutory income tax rate is reconciled to the effective
income tax rate as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1994 1993
-------------------
(000 Omitted)
<S> <C> <C>
Computed income taxes at statutory federal income
tax rates 35.00% 34.00%
Less tax effect of:
Municipal income 5.21% 8.36%
State taxes 2.83% 2.83%
Other 1.55% (4.19%)
----------- -----------
25.41% 27.00%
State income tax provision 8.08% 8.33%
----------- -----------
33.49% 35.33%
=========== ===========
</TABLE>
NOTE D SUBSEQUENT EVENT
- - -------------------------
On March 4, 1994, Bell Atlantic entered into an agreement to sell
substantially all of the assets and liabilities of the Company other than those
assets and liabilities relating to its investment in leveraged leases and joint
ventures and certain real estate assets to GFC. Prior to the sale, the Company
will transfer these assets and liabilities to TriCon. The stock of TriCon was
sold to GFC on April 30, 1994 in an all cash transaction. The cash purchase
price of the acquisition was $344,250,000. In addition, GFC assumed
indebtedness and liabilities of TriCon totaling $1,455,405,000.
27
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1994
TO THE THREE MONTHS ENDED MARCH 31, 1993
The Consolidated Financial Statements included in these interim
financial statements reflect the historical financial results of TriCon Capital
Corporation (the "Company") after giving effect to the Restructuring. See
"Basis of Preparation".
The Company's total revenues are comprised of interest income, finance
lease revenue, operating lease revenue and other income. The amount of
revenues reported by the Company in the form of interest income, finance lease
revenues and operating lease revenues is affected by the amount of Portfolio
Assets reflected on its balance sheet and the interest rate implicit in its
Portfolio Assets. The principal Portfolio Assets reflected on the Company's
balance sheet are investments in notes receivable, direct finance leases and
operating leases. Portfolio Assets are increased by the volume of new business
originations and decreased by liquidations of such assets, which can take the
form of payments by the obligor of amounts owed under such financings,
securitizations, early termination or prepayments, depreciation and write-offs
of uncollectible Portfolio Assets. The interest rate implicit in Portfolio
Assets is principally affected by the level of general market interest rate
indices, such as commercial paper rates, prime rates and treasury note rates.
Other income recognized by the Company is attributable to collections
of fee-based revenue, income related to disposition of leased equipment, early
termination of Portfolio Assets, securitization transactions, late charges,
documentation-related fees and servicing fee income.
Securitization transactions reduce the Company's investment in finance
leases as the Company removes from its balance sheet the net investment in
finance leases related to the assets securitized. The future revenue stream of
the securitized assets, in excess of revenue allocated to the securitization
investor, is re-characterized into two components: (i) servicing fee income
which is recognized by the Company over time as other income; and (ii) gains on
sale which is currently recognized as other income. The proceeds from
securitizations typically are used by the Company to reduce debt or to invest
in new financing transactions.
RESULTS OF OPERATIONS
The Company's total revenues for the three months ended March 31, 1994
were $56.2 million, a decrease of $1.1 million, or 1.9%, compared to the same
period in 1993. Total revenues are comprised of interest income, finance lease
revenue, operating lease revenue and other income.
Interest income for the three months ended March 31, 1994 was $19.9
million, a decrease of $0.9 million, or 4.5%, compared to the three month
period in 1993. The Company's interest income is dependent upon the amount of
the Company's investment in notes receivable and the impact of the interest
rate environment on the yields of loans during the period. The decrease in
interest income for the first quarter of 1994 was primarily attributable to a
decline in loan yields on the average investment in notes receivable.
Finance lease revenue during the first three months of 1994 was $15.4
million, a decrease of $0.6 million, or 3.9%, from 1993. Finance lease
revenues are dependent primarily upon the size of the
28
<PAGE> 31
Company's finance lease receivable portfolio and the impact of the interest
rate environment on the pricing terms of new finance leases entered into during
the period. The average investment in finance leases is affected by finance
lease additions to the portfolio as offset by lease payments, early
terminations and write-offs. The decrease in finance lease revenues is
principally due to the maturity of transactions originated in a higher interest
rate environment being replaced by current lease originations reflecting market
interest rate levels which are lower than historical periods.
Operating lease revenue was $15.8 million during the first quarter of
1994, an increase of $1.6 million, or 11.2% compared to 1993. This increase
was primarily attributable to the stronger operating performance of commercial
real estate operating leases in 1994 as compared to 1993.
Other income was $5.1 million during the first three months of 1994, a
decrease of $1.1 million, or 18.0%, compared to 1993. This decrease was
attributable to decreases in income from securitizations entered into in prior
periods and gains on sale of equipment. These decreases were partially offset
by income from early termination of leases and other fee income.
Total expenses were $47.1 million during the first three months of
1994, a decrease of $3.9 million, or 7.6%, compared to 1993. The Company's
total expenses are comprised of interest expense, selling, general and
administrative expenses, provision for credit losses and depreciation expense.
Interest expense during the first quarter of 1994 was $18.3 million, a
decrease of $2.5 million, or 12.0%, compared to 1993. The decrease in interest
expense was primarily the result of lower interest rates on the Company's
borrowings.
Selling, general and administrative expenses for the first quarter of
1994 were $13.7 million, an increase of $1.3 million, or 10.2%, for the same
period in 1993. The increase was primarily related to costs for an increase in
the sale force, costs incurred in connection with an initial public offering
that was aborted with the sale of the Company to GFC and normal cost increases,
partially offset by a reduction in investment portfolio related expenses.
The provision for credit losses during the first three months of 1994
was $5.2 million, a decrease of $2.2 million, or 29.6%, from 1993. The
decrease was primarily the result of a decrease in the Company's nonaccruing
accounts and general improvement in the business environment.
Depreciation expense for the first quarter of 1994 was $10.0 million,
a decrease of $0.4 million, or 4.2%, from the first three months of 1993. This
is due primarily to the net reduction of assets under operating lease.
The provision for income taxes was $3.0 million for the first quarter
of 1994 and $2.2 million for the same period in 1993. The effective income tax
rate was 33.5% for 1994 and 35.3% for 1993. The reduction in the 1994 rate was
mainly attributable to an increase in tax exempt income for 1994.
The income before cumulative effect of accounting change in the first
quarter of 1994 was $6.0 million, an increase of $2.0 million, or 48.8%, over
the first quarter of 1993.
Net income for the first three months of 1994 was $6.0 million, a
decrease of $3.8 million, or 38.6%, over the same period in 1993. The decrease
resulted primarily from a $5.8 million gain in 1993 resulting from the effect
of the Company's adoption of SFAS No. 109, "Accounting for Income Taxes". No
such gains were reported in 1994.
29
<PAGE> 32
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Portfolio assets, at March 31, 1994, were $1.803 billion, an increase
of $3.0 million or 0.2% from $1.800 billion at December 31, 1993. Portfolio
assets generally increase as a result of new lease and loan originations by the
Company and decrease primarily through liquidations of Portfolio Assets,
including normal principal repayments, securitizations, early termination or
prepayments of financing arrangements, depreciation and write-offs.
Investment in notes receivable at March 31, 1994 was $894.4 million, a
decrease of $18.6 million, or 2.0%, from December 31, 1993. This decrease is
primarily due to a net increase in prepayment and normal principal repayment
over new loan originations.
Investment in finance leases at March 31, 1994 was $677.7 million, an
increase of $30.6 million, or 4.7%, from $647.1 million at December 31, 1993.
This increase was primarily due to new lease originations (principally in the
Vendor Service Group) partially offset by portfolio liquidation.
Investment in operating leases at March 31, 1994 was $231.0 million, a
decrease of $9.1 million, or 3.8%, from $240.1 million at December 31, 1993.
The decrease principally relates to normal depreciation.
The Company generates a substantial portion of its funds from lease
and loan payments and is also highly dependent upon financing from Bell
Atlantic Financial Services, Inc. ("FSI") which issued commercial paper and
medium-term notes, supported by Bell Atlantic, in the public and private
markets on behalf of Old TriCon. The financing provided by FSI and use of the
Bell Atlantic support agreement will not be available to the Company after the
date of the sale of the Company to GFC. All future financing for the Company
will be provided by GFC.
Funds required to support the Company's operations during the quarter
ended March 31, 1994 included both internally generated funds, consisting
primarily of receipts of finance lease receivables, operating lease receivables
and notes receivable and funds generated through short-term financings from
FSI.
During the quarters ended March 31, 1994 and 1993, the Company's net
additions to investment in finance leases and notes receivable ($18.6 million
and $70.3 million, respectively) and investment in operating leases ($2.8
million and $20.6 million, respectively) were funded primarily through proceeds
from cash flows from operating activities and, to a lesser extent, cash from
available financing sources.
The Company reduced outstanding medium-term notes payable by $48.2
million and $24.0 million during the quarters ended March 31, 1994 and 1993,
respectively, and increased short-term borrowings from affiliates by $53.7
million and $8.1 million in 1994 and 1993, respectively. The increase in
short-term borrowings in 1994 was due to Bell Atlantic's request to the
Company, in the fourth quarter of 1993, to satisfy its financing requirements
through short-term advances from FSI in anticipation of the sale.
The Company's debt (notes payable and due to affiliates) to equity
ratio was 4.4:1 at March 31, 1994 and 4.2:1 at December 31, 1993.
Future financing is expected to be arranged by GFC as necessary to
meet the Company's capital and other requirements with the timing of issue,
principal amount and form dependent on the Company's needs, prevailing market
and general economic conditions.
30
<PAGE> 33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- - ------------------------------------------
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
12 Computation of Ratio of Income to Combined Fixed
Charges and Preferred Stock Dividends (interim period).
</TABLE>
(b) Reports on Form 8-K:
A Report on Form 8-K dated January 21, 1994 was filed by Registrant,
which reported under Item 5 the revenues, net income and selected
financial data and ratios for the fourth quarter and twelve months
ended December 31, 1993 (unaudited).
A Report on Form 8-K dated January 21, 1994 was filed by Registrant,
which reported under Item 5 the settlement of the litigation between
Cabana Limited Partnership, a South Carolina Limited Partnership v.
Greyhound Real Estate Finance Company, et al; a subsidiary of
Greyhound Financial Corporation, the principal operating subsidiary of
GFC Financial Corporation.
Reports on Form 8-K, 8-K/A and 8-K/A-1 dated February 14, 1994 were
filed by Registrant, which reported under Items 2 and 7 the
acquisition by Greyhound Financial Corporation of Ambassador Factors
from Fleet Financial Group, Inc. and included the Fifth Amendment and
Restatement, dated as of May 18, 1993, of Credit Agreement dated as of
May 31, 1976 among Greyhound Financial Corporation, Bank of America
National Trust and Savings Association, Chemical Bank and Citibank,
N.A., as agents, and the financial institutions listed.
A Report on Form 8-K dated April 18, 1994 was filed by Registrant,
which reported under Item 5 the revenues, net income and selected
financial data and ratios for the three months ended March 31, 1994
(unaudited).
A Report on Form 8-K dated May 2, 1994 was filed by Registrant, which
reported under Item 5 the consummation of the TriCon acquisition.
31
<PAGE> 34
GREYHOUND FINANCIAL CORPORATION
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.
GREYHOUND FINANCIAL CORPORATION
(Registrant)
<TABLE>
<S> <C> <C> <C> <C>
Dated: May 9, 1994 By: /s/ Bruno A. Marszowski
---------------------------------------------------
Bruno A. Marszowski, Vice President - Controller
Principal Accounting Officer/Authorized Officer
</TABLE>
32
<PAGE> 35
GREYHOUND FINANCIAL CORPORATION
COMMISSION FILE NUMBER 1-7543
EXHIBIT INDEX
MARCH 31, 1994 FORM 10-Q
<TABLE>
<CAPTION>
Page No. in
Sequentially
Numbered
Form 10-Q
No. Title Report
- - ----------------- --------------------------------------------------------- -------------
<S> <C>
(12) Computation of Ratio of Income to Combined Fixed
Charges and Preferred Stock Dividends.
</TABLE>
33
<PAGE> 1
EXHIBIT 12
GREYHOUND FINANCIAL CORPORATION
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(000 Omitted)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, December 31,
------------------- --------------------------------
1994 1993 1993 1992 1991
------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss) before
income taxes $ 18,654 $ 13,416 $ 64,123 $ 50,593 $ (37,014)
Add leverage lease
adjustment 233 243 1,505 1,059 1,758
Add fixed charges:
Interest expense 33,862 30,568 126,152 136,107 157,560
One-third rentals 366 346 1,387 1,498 1,148
---------- ---------- ----------- ----------- -----------
Total fixed charges 34,228 30,914 127,539 137,605 158,708
---------- ---------- ----------- ----------- -----------
Net income as adjusted $ 53,115 $ 44,573 $ 193,167 $ 189,257 $ 123,452
---------- ---------- ----------- ----------- -----------
Ratio of income to fixed
charges 1.55 1.44 1.51 1.38 ---
========== ========== =========== =========== ===========
Preferred stock dividends on a
pre-tax basis $ 930 $ 908 $ 3,682 $ 2,826
Total combined fixed charges
and preferred stock dividends $ 35,158 $ 31,822 $ 131,221 $ 140,431 $ 158,708
---------- ---------- ----------- ----------- -----------
Ratio of income to combined
fixed charges and preferred
stock dividends 1.51 1.40 1.47 1.35 ----
========== ========== =========== =========== ===========
</TABLE>
34
