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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 AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 0-11618
HPSC, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2560004
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
60 STATE STREET, bOSTON, MASSACHUSETTS 02109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 720-3600
NONE
(Former name, former address, and former fiscal year if changed since
last report)
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 and 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 __________
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: COMMON STOCK, PAR VALUE $.01
PER SHARE. SHARES OUTSTANDING AT MAY 1, 1996, 4,686,530.
1
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HPSC, INC.
INDEX
PART 1 -- FINANCIAL INFORMATION PAGE
Consolidated Balance Sheets as of March 31, 1996,
and December 31, 1995............................. 3
Consolidated Statements of Income for each of the
three months ended March 31, 1996 and
March 31, 1995.................................... 4
Consolidated statements of Cash Flows for each of
the three months ended March 31, 1996 and
March 31, 1995.................................... 5
Notes to Consolidated Financial Statements........ 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 7-8
PART II -- OTHER INFORMATION
Signatures ....................................... 9
Exhibit Index..................................... 9
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HPSC, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
ASSETS
March 31, December 31,
1996 1995
--------- ------------
CASH AND CASH EQUIVALENTS $ 1,623 861
RESTRICTED CASH 5,361 5,610
INVESTMENT IN LEASES AND NOTES:
Lease contracts receivable due
in installments 126,339 115,364
Notes receivable due in installments 26,371 25,325
Estimated residual value of equipment
at end of lease term 9,154 9,206
Less unearned income (28,371) (25,875)
Less allowance for losses (4,857) (4,512)
Less security deposits (3,634) (3,427)
Deferred origination costs 4,190 3,805
-------- --------
Net investment in leases and notes 129,192 119,886
-------- --------
OTHER ASSETS:
Deferred expense and other assets 3,322 3,294
Refundable income taxes 460 1,088
-------- --------
TOTAL ASSETS $139,958 $130,739
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE TO BANKS $ 55,407 $ 42,070
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 2,589 3,537
ACCRUED INTEREST 363 339
INCOME TAXES:
Currently payable 445 368
Deferred 4,063 4,613
SENIOR NOTES 43,580 46,453
-------- --------
TOTAL LIABILITIES 106,447 97,380
-------- --------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $1.00 par value;
authorized 5,000,000 shares; issued - None --
COMMON STOCK, $.01 par value; 15,000,000
shares authorized; issued and outstanding
4,786,530 shares in 1996 and
4,786,530 shares in 1995 48 48
TREASURY STOCK (at cost) 100,000 shares (410) (410)
Additional paid-in capital 11,311 11,311
Retained earnings 24,628 24,476
-------- --------
35,577 35,425
Less deferred ESOP and SESOP compensation (2,066) (2,066)
-------- --------
Total Stockholders' Equity 33,511 33,359
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $139,958 $130,739
-------- --------
-------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
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HPSC, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
(in thousands, except per share and share amounts)
(unaudited)
March 31, March 31,
1996 1995
--------- ---------
REVENUES:
Earned income on leases and notes $ 3,856 $ 2,726
Provision for losses (348) (277)
---------- ----------
Net revenues 3,508 2,449
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EXPENSES:
Selling, general and administrative 1,647 1,480
Interest, net 1,609 826
---------- ----------
Total expenses 3,256 2,306
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INCOME BEFORE INCOME TAXES 252 143
PROVISION FOR INCOME TAXES:
Federal, Foreign and State:
Current 650 650
Deferred (550) (594)
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TOTAL INCOME TAXES 100 56
---------- ----------
NET INCOME $ 152 $ 87
---------- ----------
---------- ----------
NET INCOME PER SHARE $ .04 $ .02
---------- ----------
---------- ----------
SHARES USED TO COMPUTE INCOME PER SHARE: 4,013,862 5,044,811
---------- ----------
---------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
4
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HPSC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR EACH OF THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31, 1995
(in thousands)
(unaudited)
March 31, March 31,
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 152 $ 87
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 702 125
Deferred income taxes (550) (594)
Provision for losses on lease contracts and notes
receivable 348 277
Increase in accrued interest 24 176
(Decrease) in accounts payable and accrued
liabilities (948) (379)
Increase in accrued income taxes 77 36
Decrease in refundable income taxes 628 632
Decrease (increase) in other Assets 30 (209)
-------- --------
Cash provided by operating activities 463 151
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on capital leases (20) (12)
Proceeds from sale of receivables 499 -0-
Lease contracts receivable and notes receivable (12,599) (6,758)
Estimated residual value of equipment 52 (40)
Unearned income 2,575 1,512
Security deposits 207 185
Purchases of furniture and equipment (155) (20)
Initial direct costs incurred (925) (224)
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Cash (used in) investing activities (10,366) (5,357)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Senior Notes (6,013) (5,862)
Repayment of notes payable treasury stock purchase --- (1,500)
Proceeds from issuance of Senior Notes 3,140 9,500
Proceeds from revolving notes payable to banks 13,337 3,000
Decrease in restricted funds 249 523
Debt issuance costs (48) (219)
Other 0 3
-------- --------
Cash provided by financing activities 10,665 5,445
-------- --------
Net increase in cash and cash equivalents 762 239
Cash and cash equivalents at beginning of period 861 419
-------- --------
Cash and cash equivalents at end of period $ 1,623 $ 658
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Interest paid $ 1,477 $ 886
Income taxes paid 40 71
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS
5
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HPSC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The information presented for the interim periods is unaudited, but
includes all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of the Company, are necessary for a fair presentation
of the financial position, results of operations and cash flows for the
periods presented. The results for interim periods are not necessarily
indicative of results to be expected for the full fiscal year. Certain 1995
account balances have been reclassed to conform with 1996 presentation.
2. Interest expense is net of interest income of $61,000 and $95,000 for the
three months ended March 31, 1996, and March 31, 1995, respectively.
3. The earnings per share computations assume the exercise of stock options
under the modified treasury stock method and include only those shares
allocated to participant accounts in the Company's Employee Stock Ownership
Plan.
4. On March 31, 1996, the Company had $5,590,000 in restricted cash, of which
$3,077,000 was reserved for debt service and $2,513,000 was reserved for
credit enhancement pursuant to the terms of agreements entered into by the
Company on December 27, 1993, with respect to a $70,000,000 securitization
transaction.
5. In connection with the HPSC Bravo Funding Corp. ("Bravo") revolving credit
facility, the Company had $ 27,507,000 of its Senior Notes subject to
interest rate swap agreements. Under the structure of the swap agreements to
assure fixed rate funding. At March 31, 1996, Bravo had seven separate swap
contracts with the Bank of Boston with a total notional value of $29,760,000.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
AND
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter ended March 31, 1996 compared to Quarter ended March 31, 1995
The Company's net income in the first quarter of 1996 was $152,000 or $.04
per share compared to $87,000 or $.02 per share. The increase was due to
higher earned income on leases and notes offset by an increase in the
provision for losses, higher selling, general and administrative expenses and
higher interest costs.
Earned income on leases and notes for the first quarter of 1996 was
$3,856,000 compared to $2,726,000 for the first quarter of 1995. This
increase was primarily due to an increase in the net investment in leases and
notes of 34% from the first quarter of 1995 to the comparable 1996 period.
The Company's volume of new financings for the first quarter of 1996 was
$20,300,000 compared to $14,600,000 in 1995.
The provision for losses in the first quarter of 1996 was $349,000 compared
to $277,000 in 1995. This increase was due to the higher volume of new
financings.
Selling, general and administrative costs for the quarter were $1,647,000 in
1996 compared to $1,480,000 in 1995. This 11% increase reflects increased
staffing and support levels required by the higher volume of new financing
activity.
Interest expense increased 94% from $826,000 in 1995 to $1,609,000 in 1996.
The increase results from an increase of 54% in the level of debt from 1995
to 1996 and higher interest costs in 1996.
The Company's income before income taxes in the first quarter of 1996 was
$252,000 compared to $143,000 in 1995, and its effective tax rate remained
approximately the same.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had $6,984,000 in cash, cash equivalents and
restricted cash as compared to $6,471,000 at December 31, 1995. As described
in Note 4 to the Company's consolidated financial statements included in this
report on Form 10-Q, $5,361,000 of such cash was restricted pursuant to
financing agreements as of March 31, 1996. Cash provided by operating
activities was $463,000 for the three months ended March 31, 1996 compared to
cash provided by operating activities of $151,000 in the same period of 1995.
Cash used in investing activities was $10,366,000 for the three months ended
March 31, 1996, compared to cash used in investing activities of $5,357,000
for the first quarter of 1995.
In March 1996, the Company entered into a sale agreement with Springfield
Institution for Savings ("SIS") under which it transferred $417,000 in assets
to SIS subject to certain recourse covenants and servicing of these assets by
the Company. A net gain of
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approximately $80,000 was recognized in connection with this transaction and
is included in earned income from leases and notes for the period.
At March 31, 1996, the Company's Revolving Loan Agreement provided for loans
of up to $60,000,000 with $52,500,000 outstanding, and $7,500,000 available
for borrowing. The Company continues to utilize HPSC Bravo Funding Corp.
("Bravo") and at March 31, 1996 had $27,507,000 of loans outstanding under
this $50,000,000 revolving credit facility.
Management believes that the Company's liquidity is adequate to meet current
obligations and projected levels of financings and operations. In order to
finance adequately its anticipated growth, the Company will continue to seek
to raise additional capital from bank and non-bank sources. The Company
expects that it will be able to obtain additional capital at competitive
rates, but there can be no assurance it will be able to do so.
8
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HPSC, INC.
PART II. OTHER INFORMATION
Items 1 through 5 are omitted because they are inapplicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
b) Reports on Form 8-K
During the quarter for which this report is filed, the Company filed
with the Commission the following report on Form 8-K.
The Registrant reported on April 12, 1996, changes in the stock
ownership table included in its proxy statement for the Annual
Meeting of Stockholders to be held on May 16, 1996, to reflect the
beneficial ownership by Hollybank Investments, LP of 6.10% of the
Company's Common Stock.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, HPSC, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 15, 1996 HPSC, INC.
---------------------------
(Registrant)
By: /s/ John W. Everets
---------------------------
John W. Everets
Chief Executive Officer
Chairman of the Board
By: /s/ Rene Lefebvre
---------------------------
Rene Lefebvre
Vice President
Chief Financial Officer
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,984
<SECURITIES> 0
<RECEIVABLES> 152,710
<ALLOWANCES> 4,857
<INVENTORY> 0
<CURRENT-ASSETS> 136,176
<PP&E> 1,459
<DEPRECIATION> 468
<TOTAL-ASSETS> 139,958
<CURRENT-LIABILITIES> 57,996
<BONDS> 43,580
0
0
<COMMON> 48
<OTHER-SE> 33,463
<TOTAL-LIABILITY-AND-EQUITY> 139,958
<SALES> 0
<TOTAL-REVENUES> 3,856
<CGS> 0
<TOTAL-COSTS> 1,647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 348
<INTEREST-EXPENSE> 1,609
<INCOME-PRETAX> 252
<INCOME-TAX> 100
<INCOME-CONTINUING> 152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
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