<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 2-82551
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HORRIGAN AMERICAN, INC.
----------------------------------------------------
(Exact name of registrant as specified in its Charter)
Pennsylvania 23-2224614
- ----------------------- --------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
6 Commerce Drive
Shillington, Pennsylvania 19607-9704 19612-3428
- ------------------------------------ ----------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (610) 775-5199
-----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1995
- --------------------------- -----------------------------
Common Stock - $1 par value 3,103,790 Shares
<PAGE> 2
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets:
March 31, 1995 (Unaudited) and December 31, 1994............. 2
Unaudited Consolidated Statements of Operations:
Three Months Ended March 31, 1995 and 1994................... 3
Unaudited Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994................... 4
Notes to Unaudited Consolidated Financial Statements........... 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 7
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K...................... 15
Signatures..................................................... 16
<PAGE> 3
PART I - FINANCIAL INFORMATION
HORRIGAN AMERICAN, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(In thousands) (Unaudited)
- ------------- ----------- ------------
<S> <C> <C>
Cash ..................................................... $ 1,489 $ 1,947
Debt and equity securities ............................... 2,027 2,335
Net investment in finance receivables..................... 154,744 148,073
Equity investments in real estate
partnerships ........................................... 27 121
Property under operating leases, net ..................... 32,513 35,022
Property and equipment, net .............................. 1,514 2,560
Other assets ............................................. 2,800 4,272
-------- --------
$195,114 $194,330
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings .................................... $ 23,592 $ 23,393
Accounts payable and accrued expenses .................... 7,220 6,468
Customer deposits ........................................ 2,176 2,316
Long-term debt:
Recourse ............................................... 112,786 110,636
Nonrecourse ............................................ 18,044 20,577
-------- --------
Total Liabilities .................................... 163,818 163,390
-------- --------
Minority interest ........................................ 210 494
-------- --------
Stockholders' equity:
Common stock, $1 par value; authorized
10,000,000 shares; issued 3,105,170 shares
in 1995 and 3,128,262 shares in 1994;
outstanding 3,103,790 shares in
1995 and 3,126,762 shares in 1994 .................... 3,105 3,128
Capital in excess of par value ......................... 0 106
Net unrealized holding gains for available-for-
sale securities, net of tax .......................... 980 752
Retained earnings ...................................... 27,014 26,474
Less treasury stock, at cost; 1,380 shares in
1995 and 1,500 shares in 1994 ........................ (13) (14)
-------- --------
Total Stockholders' Equity ........................ 31,086 30,446
-------- --------
$195,114 $194,330
======== ========
</TABLE>
<PAGE> 4
HORRIGAN AMERICAN, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1995 1994
- --------------------------------------- ---- ----
<S> <C> <C>
Finance revenues:
Commercial leasing and financing revenues ............. $ 4,988 $ 4,226
Interest expense ...................................... 2,168 1,447
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Finance revenue margin ............................ 2,820 2,779
Provision for possible lease and loan losses .......... 138 188
------- -------
Finance revenues after provision for possible
lease and loan losses ........................... 2,682 2,591
------- -------
Operating lease revenues:
Rents on real estate operating leases ................. 1,458 1,282
Rents on equipment operating leases ................... 69 37
------- -------
Total operating lease revenues .................... 1,527 1,319
Interest expense ...................................... 686 690
Depreciation .......................................... 318 283
------- -------
Net operating lease revenues ...................... 523 346
------- -------
Other operating revenues:
Customer service fees ................................. 273 269
Management and broker income .......................... 33 51
Furniture and equipment sales, net of cost
of goods sold ....................................... 148 172
Equity loss in real estate partnerships ............... (97) (71)
Gain on sale of debt and equity securities. ........... 85 --
Other income .......................................... 575 151
------- -------
Total other operating revenues .................... 1,017 572
------- -------
Operating expenses:
Salaries and employee benefits ........................ 1,326 1,202
Depreciation and amortization ......................... 101 103
Other taxes ........................................... 162 191
Credit and collection ................................. 57 62
Other expenses ........................................ 877 657
------- -------
Total operating expenses .......................... 2,523 2,215
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Earnings before income taxes and
minority interest....................................... 1,699 1,294
Income tax provision .................................. 671 485
------- -------
Earnings before minority interest ........................ 1,028 809
Minority interest income .............................. (36) (29)
------- -------
Net earnings ............................................. $ 992 $ 780
======= =======
Net earnings per common share ............................ $ 0.32 $ 0.25
======= =======
</TABLE>
<PAGE> 5
HORRIGAN AMERICAN, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE M0NTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands) 1995 1994
- ------------- ---- ----
<S> <C> <C>
Cash flows from operating activities:
Finance revenues received .................................. $ 4,372 $ 3,800
Rentals and other cash received ............................ 3,020 2,245
Lease purchase options received ............................ 546 568
Dividends received ......................................... 12 5
Interest paid .............................................. (2,738) (2,048)
Cash paid to suppliers and employees ....................... (3,242) (2,818)
Income taxes refunded ...................................... 12 202
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Net cash provided by operating activities
(Note 4) .............................................. 1,982 1,954
------- --------
Cash flows from investing activities:
Originations and purchases of finance receivables .......... (28,645) (17,173)
Principal collections of finance receivables ............... 22,932 17,606
Proceeds from sale of debt and equity securities ........... 738 --
Acquisition of property under operating leases ............. (113) (37)
Proceeds from sale of property under
operating leases ......................................... 200 4
Acquisition of property and equipment ...................... (17) (35)
Acquisition of equity, partnership and long-term
investments .............................................. (21) (34)
Proceeds from sale of equity, partnership and
long-term investments .................................... 1,123 14
Insurance premium paid increasing cash value ............... (4) (4)
------- --------
Net cash provided by (used by)
investing activities .................................. (3,807) 341
------- --------
Cash flows from financing activities:
Issuance of common stock ................................... 1 --
Minority capital paid ...................................... (573) --
Dividends paid and partnership distributions ............... (298) (352)
Short-term debt borrowings ................................. 46,500 33,000
Short-term debt repayment .................................. (46,250) (33,500)
Long-term debt borrowings .................................. 16,000 10,489
Long-term debt repayment ................................... (14,123) (12,953)
Certificate borrowings ..................................... 1,715 1,826
Certificate repayment ...................................... (1,470) (1,176)
Net change in customer deposits ............................ (135) (104)
------- --------
Net cash provided by (used by)
financing activities ..................................... 1,367 (2,770)
------- --------
Net decrease in cash .......................................... (458) (475)
Cash at beginning of year .................................. 1,947 2,160
------- --------
Cash at end of quarter ..................................... $ 1,489 $ 1,685
======= ========
</TABLE>
<PAGE> 6
HORRIGAN AMERICAN, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. UNAUDITED STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of Horrigan American, Inc. as of March 31, 1995, and the
results of its operations and cash flows for the three month period ended
March 31, 1995 and 1994.
The accounting policies followed by the Company are set forth in note A
to the Company's 1994 consolidated financial statements included in its 1994
Form 10-K.
The consolidated financial statements include the accounts of Horrigan
American, Inc., eight wholly-owned subsidiaries, one wholly-owned subsidiary
for two months (see "Subsidiary Spin-off"), and twenty-nine real estate
partnership investments (see "Other Operating Revenues").
NOTE 2. EARNINGS PER COMMON SHARE
Earnings per common share were computed using weighted average shares
and dilutive stock options outstanding during each year and deducting
preferred dividend requirements from net earnings. Earnings per common share
assuming full dilution were not reported because dilution arising from the
stock options is less than three percent.
Following are details on the net earnings and number of shares used in
the computation:
Three Months Ended
March 31,
------------------
1995 1994
---- ----
Net earnings ............................... $ 992,000 $ 780,000
Dividends on preferred shares .............. -- (4,000)
---------- ----------
Net earnings applicable to common
shares .................................. $ 992,000 $ 776,000
========== ==========
Weighted average common shares and
dilutive stock options .................. 3,135,070 3,113,814
========== ==========
Net earnings per common share .............. $ 0.32 $ 0.25
====== ======
NOTE 3. DIVIDENDS PER SHARE
Following are details on dividends declared and paid:
Three months ended
March 31,
------------------
1995 1994
---- ----
Dividends per preferred share .............. $ -- $2.00
Dividends per common share ................. $0.08 $0.10
<PAGE> 7
NOTE 4. CASH FLOW INFORMATION
The following is the reconciliation of net earnings to net cash provided by
operating activities for the three months ended March 31:
(In thousands) 1995 1994
- ------------- ---- ----
Net earnings .............................................. $ 992 $ 780
Noncash expenses, revenues, losses and gains
included in net earnings:
Depreciation and amortization .......................... 419 386
Excess of provision for income taxes
over income taxes paid .............................. 682 687
Net change in prepaid expenses and payables ............ (413) (427)
Decrease in income receivable .......................... 290 3
Lease purchase options: cash received in
excess of earned .................................... 181 319
Increase in interest payable ........................... 117 90
Gain on sale of marketable securities, finance and
operating leases, property and equipment,
and investments ..................................... (558) (181)
Provision for possible lease and loan losses ........... 138 188
Equity loss in real estate partnerships
and associated companies ............................ 98 80
Minority interest income ............................... 36 29
------ ------
Net cash provided by operating activities .............. $1,982 $1,954
====== ======
The following is a schedule of noncash investing and financing activities for
the three months ended March 31:
(In thousands) 1995 1994
- ------------- ---- ----
Change in carrying value of available-for-sale securities:
Debt and equity securities ........................... $ 345 $ (385)
Deferred tax (liability) benefit ..................... $ (117) $ 130
Net unrealized holding gains for
available-for-sale securities ...................... $ (228) $ 255
Sales of ownership interest in real estate partnerships,
previously included in the consolidated financial
statements:
Operating lease assets and other assets .............. $(3,060) $ --
Long-term debt and other liabilities ................. $ 2,498 $ --
Partnership capital .................................. $ 562 $ --
Exchange of stock by shareholders for ownership interest
in subsidiary company previously included in the
consolidated financial statements:
Common stock ......................................... $ 23 $ --
Paid in capital ...................................... $ 106 $ --
Retained earnings .................................... $ 202 $ --
Equity investment in subsidiary company .............. $ (331) $ --
Subsidiary's assets .................................. $(1,270) $ --
Subsidiary's long-term debt and other liabilities .... $ 915 $ --
Stockholder's equity of subsidiary ................... $ 355 $ --
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Earnings
The Company generated net earnings of $992,000 for the first three months
of 1995 compared to net earnings of $780,000 for the same period a year ago.
The components of these changes are discussed in the following sections.
Total Finance Revenues
Commercial leasing and financing revenues were $4,988,000 for the first
three months of 1995 compared to $4,226,000 for the first three months of
1994, resulting in a 18.0% increase.
This increase in total finance revenues is primarily due to a higher
average outstanding balance of finance receivables, principally the result of
an increase in total volume of new leases and loans generated through the
Company's sales efforts and the acquisition of a portfolio of finance
receivables during the second quarter of 1994. Net direct finance lease
receivables and commercial finance receivables totalled $154,744,000 as of
March 31, 1995, compared to $121,076,000 as of March 31, 1994.
This increase in volume has reduced the negative impact of lower yields on
the lease and loan portfolio. Lower yields resulted from the mix of the
Company's newly acquired leases and loans, which consists of higher
transaction sizes with lower implicit yields since the lessees are more rate
sensitive.
Finance Revenue Margin
Finance revenue margin represents the difference between total finance
revenues and the amount the Company pays as interest on short-term borrowings
and long-term debt allocated to finance receivables. The Company's finance
revenue margin was $2,820,000 for the first three months of 1995 and
$2,779,000 for the first three months of 1994.
The Company's finance revenue margin increased $41,000 (1.5%) for the
first three months of 1995 compared to the same period a year ago. Total
finance revenues increased 18.0% in 1995 from 1994 and interest expense
increased 49.8% for the same period. The average interest rate at which the
Company prices its products decreased 66 basis points to 12.82% in 1995 from
13.48% for the first three months of 1994. The average interest rate on the
Company's borrowings increased 89 basis points to 7.22% in 1995 from 6.33%
for the first three months of 1994.
The net increase in finance revenue margin was due principally to a
$30,277,000 increase in average outstanding earning assets for the first
three months of 1995 compared to the same period a year ago. Average
outstanding debt increased $27,508,000 for the same period. The Company
continues to market higher average balance commercial leasing and financing
contracts, with lower implicit yields to achieve improved asset quality and
economies of operations. The Company's Asset and Liability Committee reviews
the interest rate spread regularly and manages the matching of debt with
these finance receivables.
<PAGE> 9
Provision For Possible Lease and Loan Losses
The provision for possible lease and loan losses decreased $50,000 (26.6%)
to $138,000 for the first three months of 1995 compared to the same period a
year ago. The following table details the components of the provision for
possible lease and loan losses as of and for the three months ended March 31,
1995 and 1994.
<TABLE>
<CAPTION>
(In thousands)
- -------------
Provision Allowance
for Possible for Possible Gross Allowance
Lease and Net Loss Experience Lease Investment as a
Loan ----------------------------------- Acquired and Loan in % of Gross
Losses Charge-offs Recoveries Net Losses Allowance (A) Losses Receivables Receivables
------ ----------- ---------- ---------- ------------ ------ ----------- -----------
THREE MONTHS ENDED MARCH 31
- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $138 (183) 151 (32) -- $6,161 $183,383 3.36
1994 $188 (358) 170 (188) -- $5,438 $141,883 3.83
</TABLE>
(A) Additional allowance for possible lease and loan losses as a result of
acquisitions of finance receivables.
The Company maintains an allowance for possible lease and loan losses
based on a periodic evaluation of the finance receivable portfolio.
Management considers current economic conditions, diversification of the loan
portfolio, historical loss experience, results of loan reviews, borrower's
financial and managerial strengths, the adequacy of underlying collateral and
other relevant factors in its evaluation. While management uses the best
available information to make such evaluations, future adjustments to the
allowance may be necessary if conditions differ substantially from the
assumptions used in making the evaluation. This allowance reflects an amount
that in management's opinion is adequate to absorb known and inherent losses
in the portfolio. Receivables which are determined to be uncollectible are
charged off against the allowance for possible lease and loan losses, and
recoveries on accounts previously charged off are credited to it.
As of March 31, 1995, the Company allocated $100,000 of the allowance for
possible lease and loan losses in anticipation of losses on certain
individually significant accounts. This allocated allowance decreased
$35,000 from December 31, 1994.
The recorded investment in the loans for which impairment has been
recognized approximated $9,000 as of March 31, 1995. The total allowance for
possible loan losses related to these impaired loans is $9,000 as of March
31, 1995.
The Company's net losses of commercial leasing and financing receivables
decreased $156,000 (83.0%), for the first three months of 1995 compared to
the same period a year ago. This decrease in net losses was the result of
improved underwriting standards, improved adjusting procedures, aggressive
use of legal remedies, strong remarketing efforts and a healthier economy.
The Company continues to improve its asset quality and to control the
delinquency of receivables. The Company's tighter credit standards and more
focused efforts within several market niches, have enhanced asset quality. In
certain situations, larger down payments, additional security deposits,
and/or shorter terms are now required. An asset review committee monitors the
quality of the Company's assets. The Company's improved collection and
adjusting procedures have resulted in effective control of delinquent
receivables. Management believes the allowance for possible lease and loan
losses is adequate to cover inherent credit losses.
<PAGE> 10
Net Operating Lease Revenues
Net operating lease revenues represent rents on real estate and equipment
operating leases offset by related interest and depreciation expenses. Net
operating lease revenues increased $177,000 (51.2%) for the first three
months of 1995 compared to the same period a year ago. Total operating lease
revenues increased $208,000 (15.8%) to $1,527,000. The increase is due
primarily to the acquisition of one property in December, 1994 and a $66,700
recovery of rents charged off in the prior year. Interest expense
attributable to net operating lease revenues decreased $4,000 (0.6%).
Depreciation expense attributable to net operating leases increased $35,000
(12.4%) primarily the result of an increase in equipment operating leases and
the acquisition of one real estate property in December 1994, offset by a
decrease in depreciation on real estate operating leases due to the sale of
properties in 1994.
The Company's principal objectives for its real estate business are to (1)
manage its properties aggressively, maintaining the integrity of the assets
through appropriate capital expenditures, (2) accelerate paydown of the debt
associated with those properties as available cash flow permits, (3) hold
most assets for long-term investment, (4) consider the selective sale of
individual properties or groups of properties, and (5) selectively invest in
additional real estate.
The Company's aggregate investment in real estate is not expected to
significantly appreciate in value over the next several years. In addition,
net operating lease revenues from some existing investments may decline in
the short to intermediate term, as rents under many existing leases are
expected to remain flat or decrease as leases expire over the next several
years. While this will tend to depress the Company's profitability in its
real estate operations for a period of time, it is expected that the
Company's real estate investments (after third party mortgage debt service
obligations and overhead expenses) will continue to provide positive cash
flow to the Company.
The commercial real estate business is subject to several risks which
management reviews on a regular basis. These risks are identified below with
the status of each as of March 31, 1995:
1. Credit risks.
There are various levels of credit risks inherent in the Company's
rent receivables. A total of $9,000 of rents were thirty-one or more
days past due.
2. General market conditions nationally or within specific geographic
areas.
The Company is maintaining an ownership interest, ranging from 10% to
100%, in 41 real estate properties with an original cost of
$60,171,000 in the following states, with the percentage of
concentration indicated in parenthesis: Florida (29%), Pennsylvania
(23%), New Jersey (15%), Michigan (10%) and other (23%).
<PAGE> 11
3. Greater difficulty in releasing or selling special purpose buildings.
The Company's special purpose buildings include three day-care
facilities. None are presently for sale and all are fully occupied.
The Company also owns and manages two limited service hotels.
4. Vacancies.
Total vacancy (excluding the hotels), based on the portfolio's total
square footage, approximated 17%. The vacancy percentage included
partial vacancies (3%) in eight real estate projects and full
vacancies (14%) in two real estate projects (with a recorded book
value of $1,547,000). Some of of these properties may require
additional cash from the Company until they are substantially leased.
Management is actively pursuing new tenants for these properties.
5. Property repairs and improvements.
Preservation of the quality and value of commercial real estate
properties requires that repairs and improvements occur regularly.
In a majority of the Company's properties, the obligation to incur
such expenditures has been passed to the tenants. Provided the
tenants have the financial resources to comply, the Company is able
to avoid or defer this responsibility. In other cases, the
responsibility is retained by the Company, and repairs and
improvements are funded out of current operating lease cash flows or
through cash reserves; and if necessary through increased investments
or additional borrowings.
The timing and amount of repairs or improvements is determined by the
operating history and present operating lease revenue levels of the
property, by the Company's plans for a property (such as a sale,
lease, or renovation), and in some cases by regulatory directives.
In 1992, the Americans With Disabilities Act ("ADA") was passed,
requiring the improvement of many properties under certain conditions
in order to accommodate the needs of the physically disabled. In
certain of the Company's properties, meeting ADA requirements will
necessitate improvements at various times. The Company estimates that
the cost of such improvements will not be material relative to the
aggregate cost of the properties.
It is estimated that, not including potential ADA requirements, up to
approximately $809,000 of improvements may be made within the next
twelve months. Approximately 30% of the cost of these improvements
will be funded through operating cash generated by the partnerships,
and the balance through additional debt.
6. Mortgage loan rollover.
The extensions or replacement of existing mortgage loans as they come
due continue to involve a higher degree of risk in the current and
reasonably foreseeable future. Such loans, when available, are
frequently at lower loan amounts. During the next twelve months,
approximately $4,136,000 of third party mortgage debt will come due
and will require negotiation or replacement financing. It is
expected that a substantial portion of this debt will be renegotiated
for extended terms with existing lenders. To the extent any such
debt is not extended in maturity, the Company expects to seek funding
from other lenders or provide funding internally, if necessary. As
interest rates have been increasing, however, any such extensions or
<PAGE> 12
new loans may be at higher interest rates than in the recent past.
This has the potential to decrease the Company's operating margin, as
several factors can tend to reduce the ability to achieve higher
revenues to offset such increases. Such factors include the timing
of rent adjustments and market limitations.
7. Valuation of real estate properties.
A decline in the market value of the Company's investment in real
estate can provide risk to the Company in several ways. To the
extent the declines indicate a reduction in the rentals expected on a
property, the Company will experience a decline in operating lease
revenues. Also, lower values can reduce the amount of available loan
borrowings or equity capital available from third parties to the
Company to fund its continued ownership of the properties, and can
reduce eventual sale proceeds if properties are sold and values have
not recovered.
In general, condition's affecting the value of individual properties
can change from period to period. Conditions include an extremely
wide variety of factors outside the control of the Company. In the
case of many of the Company's real estate operating leases, a change
in conditions can also include the early termination of a favorable
lease caused by a tenant's financial difficulties or the modification
of such a lease arising out of the negotiation of a new lease with a
tenant. The Company is presently in negotiations involving several
of its properties, any of which may result in lower operating lease
revenues in future periods.
As of March 31, 1995, there were no properties believed to have an
estimated current fair value materially below book value. Future
changes to the property valuations may be necessary if any condition
differs substantially from the assumptions used in developing current
valuations.
Subsidiary Spin-off
On March 1, 1995 the Company split off to certain electing shareholders
its wholly-owned subsidiary, The Business Outlet, Inc. ("BOI"). The spin-off
of BOI was accomplished with Company shareholders electing to exchange 23,092
shares of the Company, resulting in the spin-off of 95.3% of BOI. The Company
retained a 4.7% interest, which was reduced to 2.4% after the infusion of new
capital from the other BOI shareholders. As a result of this exchange, the
Company reported a gain of $17,529. The major business activity of BOI was
reported as the Furniture and Equipment Segment in note M to the Company's
1994 Consolidated Financial Statements.
Other Operating Revenues
Other operating revenues increased $445,000 (77.8%) to $1,017,000 for the
first three months of 1995 compared to the same period a year ago. Customer
service fees increased $4,000 (1.5%) due to an increase in recording fees
earned offset by a continued reduction in insurance premiums and late charges
earned. Management income decreased $18,000 (29.4%) due to the hotel sale in
<PAGE> 13
June, 1994. Furniture and equipment sales, net of cost of goods sold,
decreased $24,000 (14.0%) due to two months activity reported in 1995, which
included an inventory write-down offset by increased volume in the modular
and systems furniture business. The Company's share of equity loss in
unconsolidated real estate partnerships increased $26,000 (36.6%) primarily
due to increased partnership expenses. Gain on sale of equity securities
increased $85,000 due to sales activity in the first three months of 1995.
Other income increased $424,000 (380.8%) due primarily to a gain on the sale
of a partnership interest ($183,000) and recovery income from charged-off
accounts purchased through previous acquisitions ($103,000).
Operating Expenses
Operating expenses increased $308,000 (13.9%) to $2,523,000 for the first
three months of 1995 compared to the same period a year ago. Salaries,
related taxes, and employee benefits increased $124,000 (10.3%) due to the
addition of several employees through the 1994 acquisitions. Depreciation
and amortization decreased $2,000 (1.9%). All remaining expenses increased
$186,000 (20.4%) due primarily to additional advertising expense ($51,000),
professional fees relating to the spinoff ($34,000), additional operating
expenses as the result of the 1994 acquisitions ($46,000) and the growth of
the furniture and equipment segment ($57,000).
Provision for Income Taxes
Provision for income taxes for the first three months of 1995 were
$671,000 compared to $485,000 for the comparable period a year ago. The
effective income tax rates for the first three months of 1995 and 1994 were
39.5% and 37.5%, respectively.
Income tax expense for 1995 increased due to higher pre-tax income and a
higher effective income tax rate. The effective income tax rate was 2.0%
higher for the first three months of 1995 compared to the same period a year
ago due primarily to a purchase accounting adjustment and an increase in the
provision for state income taxes, net of federal tax benefit.
Net Investment in Finance Receivables and Property under Operating Leases
Net direct finance lease receivables and commercial finance receivables
totalled $154,744,000 as of March 31, 1995 compared to $148,073,000 as of
December 31, 1994, a net increase of $6,671,000 for the three months.
The increase in finance receivables was in accordance with the Company's
growth plans. The Company's sales efforts have generated a larger volume of
new leases and loans in 1995 due to increased penetration into focus markets,
while maintaining its policy of tight credit standards. Future originations
will be dependent to a large extent upon economic conditions and the
Company's ability to sell services in a continuing competitive market
environment. The Company has expanded its marketing divisions through the
acquisition, on March 31, 1994, of Golf Capital Corporation which provides
leasing and lending services to the country club and golf course marketplace.
On June 1, 1994, the Company purchased all of the outstanding shares of
American Capital Leasing Corporation which provides leasing services to
several specialized markets, principally refuse equipment and machine tools.
<PAGE> 14
The Company continues to look for opportunities to acquire portfolios of
leases and loans which will compliment the Company's existing finance
receivables.
Property under operating leases, net of accumulated depreciation,
decreased $2,509,000 primarily due to the sale of one real estate property
and normal depreciation.
The change in property under operating leases is in accordance with
management strategy (see "Net Operating Lease Revenues").
Liquidity
Liquidity represents the Company's ability to meet ongoing financial
obligations. The Company's ongoing liquidity is dependent upon continued
profitability and collection of its receivables and rentals, the ability to
sell equipment or collect purchase option payments at the conclusion of
maturing equipment leases, the sale of Subordinated Investment Certificates,
the ability to secure new senior debt (loans from banks and other financial
institutions), the ability to secure real estate mortgage financing, to sell
real estate, and to sell equity interests in real estate partnerships, and
other financing.
Net cash provided by operating activities was $1,982,000 for the three
months ended March 31, 1995 compared to $1,954,000 for the same period a year
ago.
The Company's direct finance lease receivables and equipment operating
leases are funded primarily with unsecured senior debt. The Company generally
attempts to match new leases with borrowings of like maturity and amount in
which the interest rate is fixed at the time of the borrowing. Additionally,
the Company borrows term debt with varying maturities and short-term floating
interest rate debt, and uses Subordinated Investment Certificate debt. The
Company's commercial finance receivables are similarly match funded by
various forms of unsecured senior debt and Subordinated Investment
Certificate debt. The Company has unused lines of credit totalling
$53,450,000 as of March 31, 1995. (See "Capital Resources").
The Company's investment in real estate (property under operating leases)
is leveraged substantially with borrowings by the Company. Much of the debt
is comprised of mortgage loans securing individual properties. Of the
mortgage debt, a substantial amount is nonrecourse to the Company, with the
balance being recourse through guarantees by Horrigan American, Inc. or its
real estate subsidiary. Of the investment in real estate not funded with
mortgage debt, a substantial amount is funded indirectly by the Company with
Subordinated Investment Certificate debt.
In the opinion of management, the Company's liquidity position is
sufficient under present circumstances.
<PAGE> 15
Capital Resources
Future growth of the Company will depend in significant measure on its
ability to obtain additional lines of credit and other financing, the
continued sale of Subordinated Investment Certificates, the sale of the
Company's ownership interests in real estate partnerships and continued
profitability. As of March 31, 1995, the Company had the following debt
structure:
Debt Outstanding and
Availability/Lines of Credit
--------------------------------------
Total
(In thousands) Availability In Use Unused
- ------------- ------------ ------ ------
Short-Term Borrowings:
Investment Certificate ........... $ -- $ 3,092 $ --
Fixed Rate ....................... 33,394 18,500 14,894
Floating Rate .................... 5,000 2,000 3,000
-------- -------- -------
Sub-Total ..................... 38,394 23,592 17,894
-------- -------- -------
Long-Term Debt:
Recourse
Investment Certificate ........... -- 26,161 --
Junior Subordinated Debt ......... -- 103 --
Unsecured Funding Program ........ 86,555 50,999 35,556
Fixed Rate ....................... 28,856 28,856 --
Real Estate Mortgages ............ -- 4,667 --
Term Loan ........................ -- 2,000 --
Nonrecourse
Real Estate Mortgages ............ -- 18,044 --
-------- -------- -------
Sub-Total ..................... 115,411 130,830 35,556
-------- -------- -------
TOTAL DEBT ......................... $154,422
========
TOTAL AVAILABILITY ................. $153,805 $53,450
======== =======
The notional principal amounts of outstanding swap contracts decreased
by $610,000 from December 31, 1994 for an outstanding balance of $6,977,000
as of March 31, 1995. The swap contracts are "plain vanilla" swaps matched
with outstanding short-term borrowings.
Total stockholders' equity increased $640,000 from December 31, 1994 to
March 31, 1995 due to the retention of earnings ($992,000), issuance of
common stock ($1,000) and an increase in net unrealized holding gains for
available-for-sale securities ($228,000), offset by the payment of dividends
($250,000) and the retirement of common stock ($330,000).
In the opinion of management, the Company's capital resources are
sufficient under present circumstances to satisfy its capital requirements
based upon present asset growth projections, current leverage, continued
profitability and historic ability to secure new sources of borrowings.
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 - Financial Data Schedule.
B. There were no reports on Form 8-K filed for the three months ended March
31, 1995.
<PAGE> 17
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.
HORRIGAN AMERICAN, INC.
-----------------------
(Registrant)
/s/ Arthur A. Haberberger
-------------------------
Arthur A. Haberberger
President and
Chief Executive Officer
Date: May 12, 1995 (Principal Executive Officer)
/s/ Robert Ordway
-----------------------
Robert Ordway
Senior Vice President
Date: May 12, 1995 (Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,489,000
<SECURITIES> 2,027,000
<RECEIVABLES> 160,905,000
<ALLOWANCES> 6,161,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 42,121,000
<DEPRECIATION> 8,094,000
<TOTAL-ASSETS> 195,114,000
<CURRENT-LIABILITIES> 0
<BONDS> 154,422,000
<COMMON> 3,105,000
0
0
<OTHER-SE> 27,981,000
<TOTAL-LIABILITY-AND-EQUITY> 195,114,000
<SALES> 148,000
<TOTAL-REVENUES> 7,384,000
<CGS> 0
<TOTAL-COSTS> 2,841,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 138,000
<INTEREST-EXPENSE> 2,854,000
<INCOME-PRETAX> 1,699,000
<INCOME-TAX> 671,000
<INCOME-CONTINUING> 992,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 992,000
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
