<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q/A
(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
<TABLE>
GFC FINANCIAL CORPORATION
TABLE OF CONTENTS
<CAPTION>
Page No.
--------
<S> <C> <C>
PART II OTHER INFORMATION.
Item 5. TriCon Capital Corporation Financial Statements as of and for
the Three Months Ended March 31, 1994 1 - 9
SIGNATURES 10
</TABLE>
<PAGE> 3
PART II - OTHER INFORMATION
---------------------------
ITEM 5. TRICON CAPITAL CORPORATION FINANCIAL STATEMENTS
- - - -----------------------------------------------------------
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
---------------------------------------
ASSETS
------
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------------------------------
<S> <C> <C>
CASH $ 4,427 $ 4,483
NOTES RECEIVABLE AND FINANCE 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 unaudited consolidated financial information.
1
<PAGE> 4
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
---------------------------------------
LIABILITIES AND 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 unaudited consolidated financial information.
2
<PAGE> 5
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
-------------------------------------------------
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
------------------------------------------
(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 unaudited consolidated financial information.
3
<PAGE> 6
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1994 1993
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
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:
Increase 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 distributions (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 unaudited consolidated financial information.
4
<PAGE> 7
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
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 is 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 certain assets and liabilities of Old TriCon,
substantially all of which were acquired or assumed by TriCon in the
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 the restructuring
(the "Restructuring") and sale of TriCon's common stock on April 30, 1994 to
Greyhound Financial Corporation ("GFC"), a wholly owned subsidiary of GFC
Financial Corporation ("GFCFC" or "GFC Financial"), the Company has
capitalized with amounts sufficient to acquire from Old TriCon substantially
all of the assets and liabilities which comprise the Predecessor Business
(described below). The purchase price of the acquisition of TriCon by GFC
consisted of $344,250,000 in cash and no adjustment to the assets and
liabilities has been made in the accompanying interim unaudited financial
statements to reflect the allocation of such purchase price.
Pursuant to the Restructuring, TriCon acquired substantially all
of the assets and assumed certain liabilities of Old TriCon, other than its
leveraged lease portfolio, project finance portfolio and certain other assets
retained by Old TriCon (the "Transferred Assets" and "Excluded Assets",
respectively). The purchase price was equivalent to the net book value of
the Transferred Assets, subject to certain adjustments, and was paid in
part by the issuance of notes payable to Old TriCon.
Pursuant to the Restructuring, TriCon also, among other things,
assumed the rights and obligations of Old TriCon under its securitization
agreements and entered 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 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 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 in Greyhound
Financial's 1993 Annual Report on Form 10-K.
5
<PAGE> 8
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 5.46% 9.51%
State taxes 2.23% 2.66%
Other 0.19% (5.89%)
------ -------
27.12% 27.72%
State income tax provision 6.37% 7.61%
------ -------
33.49% 35.33%
====== =======
</TABLE>
NOTE D RECEIVABLE TRANSFER AGREEMENTS (SECURITIZATIONS)
- - - -------------------------------------------------------------
The Company transferred its interests in certain leases of its direct
finance lease portfolio during 1993, 1992 and 1991. These transfers provide
limited recourse for credit losses to the Company and certain of its assets.
As of March 31,1994, $59,883,000 of finance lease receivables are the sole
collateral for certain limited recourse provisions. In addition to such
finance lease receivables, the Company has recourse exposure at March 31, 1994
limited to $99,392,000. At March 31, 1994, an outstanding allowance for
estimated losses under these recourse provisions of $13,991,000 is included in
Accounts Payable and Accrued Expenses.
6
<PAGE> 9
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 interim unaudited consolidated financial statements reflect the
historical financial results of TriCon Capital Corporation - Predecessor
Business (the "Company"). See "Background and 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 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 principal payments, early
7
<PAGE> 10
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 lower 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 sales 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
attributable, in part, 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 gain was reported in 1994.
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 terminations or
prepayments of financing arrangements, depreciation and write-offs.
8
<PAGE> 11
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 historically has been 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 $8.2 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.
9
<PAGE> 12
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 16, 1994 By: /s/ Bruno A. Marszowski
---------------------------------------------------
Bruno A. Marszowski, Vice President - Controller
Principal Accounting Officer/Authorized Officer
</TABLE>
10
