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 quarter period ended September 30, 1996
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 0-15167
Trans Leasing International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-2747735
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3000 Dundee Road, Northbrook, Illinois 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 272-1000
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_____
The number of shares of Common Stock, Par Value $.01 Per Share, of the
Registrant outstanding as of November 13, 1996 was 4,015,755.
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Independent Accountants' Review Report 4
Condensed Consolidated Statements Of Operations 5
Three-month periods ended
September 30, 1996 and 1995
(unaudited)
Condensed Consolidated Balance Sheets 6
September 30, 1996
and June 30, 1996
(unaudited)
Condensed Consolidated Statements of Cash Flows 7
Three-month periods ended
September 30, 1996 and 1995
(unaudited)
Notes to Condensed Consolidated Financial Statements 8
(unaudited)
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Stockholders and Board of Directors
Trans Leasing International, Inc.
Northbrook, Illinois
We have reviewed the accompanying condensed consolidated balance sheet
of Trans Leasing International, Inc. and subsidiaries (the "Company")
as of September 30, 1996, and the related condensed consolidated
statements of operations and cash flows for the three-month periods
ended September 30, 1996 and 1995. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such condensed consolidated financial
statements for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Trans Leasing
International, Inc. and subsidiaries as of June 30, 1996, and the
related consolidated statements of operations, stockholders' equity,
and cash flows for the year then ended (not presented herein); and in
our report dated September 6, 1996, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated
balance sheet as of June 30, 1996 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 13, 1996
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended
September 30,
1996 1995
REVENUES:
<S> <C> <C>
Finance lease income $ 8,149,000 $ 6,761,000
Operating lease income 564,000 283,000
Other 1,610,000 1,540,000
Total Revenues 10,323,000 8,584,000
EXPENSES:
Interest 4,163,000 3,677,000
General and administrative 3,616,000 2,752,000
Provision for uncollectible 1,369,000 1,246,000
accounts
Total Expenses 9,148,000 7,675,000
EARNINGS BEFORE INCOME TAXES 1,175,000 909,000
INCOME TAXES 458,000 348,000
NET EARNINGS $ 717,000 $ 561,000
EARNINGS PER COMMON SHARE $.18 $.13
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,043,219 4,198,400
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANS LEASING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30,
ASSETS 1996 1996
<S> <C> <C>
CASH $ 7,176,000 $ 4,528,000
RESTRICTED CASH 5,461,000 5,639,000
DIRECT FINANCE LEASES:
Future minimum lease payments 286,503,000 270,458,000
Estimated unguaranteed residual value 23,502,000 22,452,000
Total Direct Finance Lease 310,005,000 292,910,000
Receivables
Less: Unearned lease income ( 48,849,000) ( 46,788,000)
Allowance for uncollectible ( 10,382,000) ( 9,506,000)
accounts
Net investment in direct finance 250,774,000 236,616,000
leases
LEASE FINANCING RECEIVABLES, less allowance
for uncollectible accounts of $244,000 6,476,000 6,534,000
and $238,000, respectively
EQUIPMENT, UNDER OPERATING LEASES, net
of accumulated depreciation 8,461,000 7,709,000
FURNITURE, FIXTURES AND EQUIPMENT, net
of accumulated depreciation 1,764,000 1,811,000
INCOME TAXES RECOVERABLE 670,000 904,000
OTHER ASSETS 5,816,000 5,686,000
TOTAL ASSETS $286,598,000 $269,427,000
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 9,103,000 $ 9,183,000
NOTES PAYABLE TO FINANCIAL INSTITUTIONS 53,500,000 50,250,000
LEASE-BACKED OBLIGATIONS 174,148,000 159,567,000
SUBORDINATED OBLIGATIONS 19,620,000 20,730,000
DEFERRED INCOME TAXES 3,411,000 3,411,000
TOTAL LIABILITIES 259,782,000 243,141,000
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00;
authorized 2,500,000 shares; none issued
Common stock, par value $.01; authorized
10,000,000 shares; issued 4,798,500 shares 48,000 48,000
Additional paid-in capital 9,879,000 9,879,000
Retained earnings 19,241,000 18,646,000
Less 771,545 and 753,125 treasury shares
respectively, at cost ( 2,352,000) ( 2,287,000)
TOTAL STOCKHOLDERS' EQUITY 26,816,000 26,286,000
TOTAL LIABILITIES AND STOCKHOLDERS' $286,598,000 $269,427,000
EQUITY
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TRANS LEASING INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Earnings $ 717,000 $ 561,000
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Leasing costs, primarily provision for 1,822,000 1,788,000
uncollectible accounts and
amortization of initial direct costs
Depreciation and amortization 673,000 369,000
Initial direct costs incurred ( 856,000) ( 576,000)
Changes in:
Accounts payable and accrued ( 80,000) 1,527,000
expenses
Income taxes recoverable 234,000 82,000
Other assets ( 130,000) ( 271,000)
Other 89,000 -
Net cash provided by operating
activities 2,469,000 3,480,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collections on leases 25,554,000 20,702,000
Equipment purchased for leasing ( 39,633,000) ( 29,272,000)
Purchase of lease financing receivables ( 855,000) ( 833,000)
Purchase of property and equipment ( 1,457,000) ( 1,161,000)
Disposal of property and equipment 49,000 159,000
Net cash used in investing ( 16,342,000) ( 10,405,000)
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable to financial
institutions 24,650,000 25,425,000
Repayment of notes payable to financial
institutions ( 21,400,000) ( 18,575,000)
Issuance of lease-backed obligations 30,615,000 17,591,000
Repayment of lease-backed obligations ( 16,047,000) ( 18,088,000)
Repayment of subordinated obligations ( 1,110,000) -
Payment of dividends on common stock ( 122,000) ( 127,000)
Purchase of treasury stock ( 65,000) ( 142,000)
Net cash provided by financing
activities 16,521,000 6,084,000
NET INCREASE (DECREASE) IN CASH 2,648,000 ( 841,000)
CASH, beginning of period 4,528,000 3,758,000
CASH, end of period $ 7,176,000 $ 2,917,000
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Financial Statements:
The condensed consolidated balance sheet of Trans Leasing
International, Inc. (the "Company") as of September 30, 1996, and the
condensed consolidated statements of operations and cash flows for the
three-month periods ended September 30, 1996 and 1995, have been
prepared by the Company without audit. The condensed consolidated
balance sheet as of June 30, 1996, has been taken from the audited
financial statements of that date. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position at September 30,
1996, and the results of operations and cash flows for the periods
presented have been made. The results of operations for the period
ended September 30, 1996, are not necessarily indicative of the
operating results for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's June 30, 1996
annual report to stockholders.
Certain reclassifications have been made to prior years to
conform with the presentation used in fiscal 1997.
Note B - Pending Accounting Standards:
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation", which encourages entities to adopt a fair
value based method of accounting for the compensation cost of employee
stock compensation plans. The statement allows an entity to continue
the application of the accounting method prescribed by APB No. 25,
"Accounting for Stock Issued to Employees", however pro forma
disclosures of net income and earnings per share, as if the fair value
based method of accounting defined by this statement had been applied,
are required. The disclosure requirements of this statement will be
adopted in the fourth quarter of fiscal 1997. Results of operations
and financial position will not be affected by the adoption of this
statement.
Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS 125), provides new methods of accounting and
reporting for transfers and servicing of financial assets and
extinguishments of liabilities for transaction occurring after
December 31, 1996. The effect of adopting SFAS 125 is not expected to
have a material effect on the Company's financial position or results
of operations.
Note C - Subsequent Event:
On October 7, 1996, Richard Grossman, the Company's principal
shareholder, passed away. Prior to that date, Mr. Grossman held the
positions of Chairman of the Board, Chief Executive Officer and
President.
The Company's unsecured revolving credit agreement (the "TLI
Revolving Credit Facility") requires that Mr. Grossman maintain a
minimum ownership position in the Company. The Company's private
senior and subordinated unsecured note agreements (the "Note
Agreements") permit the holders of such notes to require the Company
to repurchase such notes in the event that Richard Grossman is no
longer the Company's Chief Executive Officer.
<PAGE>
The total amount of debt that contains the various provisions
discussed above was approximately $60 million as of September 30,
1996. As of Mr. Grossman's death, the Company was not in compliance
with the aforementioned TLI Revolving Credit Facility provisions and
the holders of the notes had the ability to exercise their repurchase
rights. However, the Company has obtained from the lenders and the
note holders waivers of these provisions through December 31, 1996.
The Company intends to obtain permanent amendments to the affected
agreements by that date. However, there can be no assurance that the
Company will be able to do so.
The Company is a beneficiary on two key-man life insurance
policies, which name Richard Grossman as the insured.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company's operations are comprised almost exclusively of
lease financing. The Company realizes net earnings to the extent that
lease income and related fees exceed interest expense, general and
administrative expense and a provision for uncollectible accounts.
Interest expense is the single largest expense of the Company and is a
function of the amounts borrowed by the Company to finance its lease
portfolio and the interest rates associated with those borrowings.
The difference between lease income and the cost of funds to finance
the leases from which such income is earned is generally referred to
as the "spread" in the portfolio.
Substantially all of the Company's lease receivables are written
at a fixed rate of interest for a fixed term. The Company's
borrowings are at both fixed and variable rates of interest. The
Company borrows under revolving credit facilities at variable interest
rates (see "Liquidity and Capital Resources") and periodically
refinances that debt either through a fixed-rate loan option in the
revolving credit agreements, securitization of lease receivables or
the sale of debt in the public or private markets. To the extent the
Company refinances with fixed-rate debt, the Company locks in the
spread in its portfolio.
The Company has experienced growth in the total dollar amounts of
new lease receivables added to its portfolio during each of the last
five fiscal years, though there can be no assurances that this trend
will continue. In analyzing the Company's financial statements, it is
important to understand the impact of lease receivable growth during
an accounting period on lease income and net earnings.
For financial reporting purposes, substantially all of the
Company's leases are classified as direct finance leases and are
accounted for in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 13, "Accounting for Leases." The Company
accounts for its investment in direct finance leases by recording on
the balance sheet the total minimum lease payments receivable plus the
estimated residual value of leased equipment less the unearned lease
income. Unearned lease income represents the excess of the total
minimum lease payments plus the estimated residual value expected to
be realized at the end of the lease term over the cost of the related
equipment. Unearned lease income is recognized as revenue over the
term of the lease by the effective interest method, i.e., application
of a constant periodic rate of return to the declining net investment
in each lease. As a result, during a period in which the Company
realizes growth in new lease receivables, lease income should also
increase, but at a lesser rate.
Operating lease income is recognized as revenue when the rental
payments become due. Equipment under operating leases is recorded at
cost and depreciated on a straight-line basis over the estimated
useful life of the equipment, generally three to five years.
Initial direct costs incurred in consummating a lease,
principally commissions and a portion of salaries for personnel
directly involved in generating new lease receivables, are capitalized
as part of the net investment in direct finance leases and amortized
over the lease term as a reduction in the yield. An allowance for
uncollectible accounts is provided over the terms of the underlying
leases as the leases are determined to be uncollectible. See "Results
of Operations" below for further discussion.
The primary long-term funding method currently employed by the
Company is to securitize portions of its lease portfolio. This method
of funding is believed to afford the lowest cost long-term financing
available. These transactions are not reflected as sales of lease
receivables in the financial statements as the Company has an ongoing
economic interest in the securitized assets. As such, the leases
remain on the consolidated balance sheet and the income associated
with such leases is recognized over the respective lease terms.
<PAGE>
Results of Operations
Finance lease income increased $1,388,000 (20.5%) in the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996
due primarily to a 24.7% increase in the net investment in direct
finance leases from September 30, 1995 to September 30, 1996.
Operating lease income increased $281,000 (99.3%) in the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996
due primarily to a 90.1% increase in the net cost of equipment under
operating leases from September 30, 1995 to September 30, 1996.
The growth in the Company's lease portfolio is the result of an
increase in the dollar amount of leases originated. The Company
believes that the dollar amount of leases originated has increased
primarily as a result of its increased marketing and selling
activities, greater name recognition of LeaseCard in the marketplace,
and the introduction of new products by equipment manufacturers.
Lease-related fees, primarily delinquency charges and lease
continuance fees, have increased as a result of the growth in the size
of the Company's lease portfolio.
Interest expense increased $486,000 (13.2%) in the first quarter
of fiscal 1997 compared to the first quarter of fiscal 1996. This
increase resulted from an increase in the amounts borrowed to finance
the growth in the lease portfolio. Interest expense as a percent of
lease income decreased to 41.3% in the first quarter of fiscal 1997
from 44.3% in the first quarter of fiscal 1996, primarily as a result
of the decrease in market interest rates. Interest expense is reported
net of the impact of interest rate swaps used to fix the rate on
floating rate financings, the effect of which was to decrease interest
expense by $23,000 for the first quarter in fiscal 1996.
General and administrative expense increased $864,000 (31.4%) in
the first quarter of fiscal 1997 compared to the first quarter of
fiscal 1996, primarily due to an increase in employees to accommodate
the Company's continued growth. General and administrative expense as
a percent of lease income was 35.9% in the first quarter of fiscal
1997 compared to 33.2% in the first quarter of fiscal 1996.
The provision for uncollectible accounts increased $123,000
(9.9%) in the first quarter of fiscal 1997 compared to the first
quarter of fiscal 1996. The increase over this period resulted
primarily from the increase in the size of the Company's lease
portfolio. The provision for uncollectible amounts as a percent of
lease income was 13.6% in the first quarter of fiscal 1997 and 15.0%
in the first quarter of fiscal 1996.
Earnings before income taxes increased 29.2% to $1,175,000
compared with $909,000 for the same quarter of the prior year. Net
earnings for the first quarter of fiscal 1997 increased by 27.8% to
$717,000, or $.18 per share, compared with $561,000, or $.13 per
share, for the same quarter of the prior year. The increases in both
earnings before income taxes and net earnings for the first quarter of
fiscal 1997 are primarily due to the increase in lease income and the
decrease in interest expense as a percent of lease income, as
discussed above.
Liquidity and Capital Resources
The Company has principally financed its operations, including
the growth of its lease portfolio, through borrowings under its
revolving credit agreements, issuance of debt and lease-backed
obligations in both the institutional private placement and public
markets, principal collections on leases and cash provided from
operations.
<PAGE>
Net cash used in investing activities, which was $16.3 million in
the first quarter of fiscal 1997 and $10.4 million in the first
quarter of fiscal 1996, generally represents the excess of equipment
purchased for leasing over principal collection on leases. Net cash
provided by financing activities (the excess of borrowings under the
revolving credit agreement and issuances of debt and lease-backed
obligations over repayments of these debt instruments) was $16.5
million in the first quarter of fiscal 1997 and $6.1 million in the
first quarter of fiscal 1996. The remaining funds used in investing
activities were provided by operating cash flows and cash on hand at
the beginning of the period. As of September 30, 1996, the Company
had outstanding commitments to purchase equipment, which it intended
to lease, with an aggregate purchase price of $5.7 million.
The Company borrows under its unsecured revolving credit
agreement (the "TLI Revolving Credit Facility") to fund its
operations. The maximum borrowing under the TLI Revolving Credit
Facility is $30 million. At November 11, 1996, the outstanding loans
under this facility were $23 million and unused borrowing capacity was
$7 million.
The Company, through a wholly-owned special-purpose financing
subsidiary, TL Lease Funding Corp. IV ("TLFC IV"), also has a
securitized revolving credit and term loan facility (the "TLFC IV
Revolving Credit Facility") with a maximum borrowing limit of $100
million through December 31, 1996, at which time the credit limit will
decrease to $75 million. In addition, this facility provides a $25
million swing line available for up to a 60 day period from the
drawdown of such amount.
On July 31, 1996, the Company sold leases with a net book value
of approximately $32 million to TLFC IV for approximately $30 million
in cash borrowed under the TLFC IV Revolving Credit Facility. On
September 30, 1996, the Company sold leases with a net book value of
approximately $24 million to TLFC IV for approximately $24 million in
cash borrowed under this facility. The Company continues to service
the leases sold to TLFC IV and used the proceeds from the sales of
leases to reduce revolving credit borrowings under its unsecured
revolving credit facility. As of November 11, 1996, outstanding loans
under the TLFC IV revolving credit facility were $109.8 million and
unused borrowing capacity was $15.2 million.
As the Company has approached full utilization under its
revolving credit facilities, it has sold long-term debt and lease-
backed obligations in both the institutional private placement and
public markets and used the proceeds to reduce its revolving credit
borrowings. These long-term debt and lease-backed obligations are
issued either with fixed interest rates or with floating interest
rates combined with an interest rate hedge to lock in a fixed rate.
The Company intends to continue to issue long-term debt and lease-
backed obligations with either fixed interest rates or floating
interest rates converted to a fixed-rate through an interest rate
hedge agreement, in both the institutional private placement and
public markets to reduce its exposure to floating interest rates
associated with revolving credit borrowings.
On October 7, 1996, Richard Grossman, the Company's principal
shareholder, passed away. Prior to that date, Mr. Grossman held the
positions of Chairman of the Board, Chief Executive Officer and
President.
The TLI Revolving Credit Facility requires that Mr. Grossman
maintain a minimum ownership position in the Company. The Company's
private senior and subordinated unsecured note agreements (the "Note
Agreements") permit the holders of such notes to require the Company
to repurchase such notes in the event that Richard Grossman is no
longer the Company's Chief Executive Officer.
The total amount of debt that contains the various provisions
discussed above was approximately $60 million as of September 30,
1996. As of Mr. Grossman's death, the Company was not in compliance
with the aforementioned TLI Revolving Credit Facility provisions and
the holders of the notes had the ability to exercise their repurchase
rights. However, the Company has obtained from the lenders and the
note holders waivers of these provisions through December 31, 1996.
The Company intends to obtain permanent amendments to the affected
agreements by that date. However, there can be no assurance that the
Company will be able to do so.
<PAGE>
If the Company is able to amend the TLI Revolving Credit Facility
and the Note Agreements, it believes that the revolving credit
facilities, increasing principal payments on leases and continued
placement of debt in the public and/or private markets will provide
adequate capital resources and liquidity for the Company to fund its
operations and debt maturities. However, there can be no assurances
that this will be the case.
On November 16, 1994, the Board of Directors authorized the
repurchase by the Company of up to 1,000,000 shares of its common
stock. As of September 30, 1996, 344,945 shares have been repurchased
at a total cost of $1,173,000 under this program. On November 7,
1996, the Board terminated this stock repurchase program.
On August 6, 1996, the Board of Directors approved the payment of
a quarterly cash dividend in the amount of $.03 per share. The
dividend was paid on August 27, 1996 to holders of record as of August
16, 1996. On October 10, 1996, the Board of Directors approved the
payment of a quarterly cash dividend in the amount of $.03 per share.
The dividend was paid on November 8, 1996 to holders of record as of
October 28, 1996.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE LITIGATION REFORM ACT OF 1995
Except for historical matters, the matters discussed in this Form 10-Q
are forward-looking statements that involve risks and uncertainties.
Forward-looking statements include, but are not limited to, statements
made under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company wishes to caution readers that in addition to the
important factors described elsewhere in this Form 10-Q, the following
important factors, among others, sometimes have affected and in the
future could affect, the Company's actual results and could cause the
Company's actual results during the remainder of fiscal 1997 and
beyond, to differ materially from those expressed in any forward-
looking statements made by, or on behalf of, the Company:
Portfolio Risk
The principal assets of the Company are its portfolio of lease
receivables and the residual value of its equipment. Investment risks
inherent in a leasing company include the possibility that lease
receivables might not be fully collectible and that equipment might be
sold at lease expiration or termination for less than the residual
value recorded on the Company's balance sheet.
Receivables Risk: Although the allowance for uncollectible accounts
carried on the Company's books has historically been adequate to
provide for losses associated with its lease receivables, changes in
the reimbursement policies of government or third-party payors,
obsolescence of equipment under lease, changes in the local, regional
or national economies, changes in federal tax laws or other factors
could significantly impact the Company's future delinquency and loss
experience, which could in turn have a material adverse effect on the
Company's earnings.
Residual Risk: When the Company enters into a lease from which it
expects to derive value through the resale of equipment at lease
expiration, it records an estimate of the expected resale value on the
Company's balance sheet as a residual interest. The growth in the
Company's equipment lease portfolio in recent years has resulted in
increases in the aggregate amount of recorded residual values.
Realization of residual values depends on factors not within the
Company's control, such as equipment obsolescence, whether the lease
expires or is terminated for default, whether the equipment is in fact
returned to the Company at the end of the lease and the condition of
the equipment when it is returned. Although the Company has
historically received a very high percentage of recorded residual
values for expired leases, there can be no assurance this will
continue in the future. Failure to realize residual values could have
a material adverse effect on the Company's earnings.
<PAGE>
Interest Rate Risk
The Company's leases are at fixed rates but its warehouse lines,
which represent a significant portion of its borrowings, bear interest
at variable rates. Consequently, if interest rates were to increase,
earnings would be adversely affected. In addition, the Company's
ability to increase its yield on new receivables would be limited by
competitive and economic factors.
Financing
The Company's profitability depends, among other factors, on the
size of its lease portfolio, which in turn depends on the Company's
ability to obtain external financing to supplement cash flows
available from operations. The Company's principal sources of
external financing have been borrowings under its revolving credit
agreements and public offerings and private placements of debt and
lease-backed obligations. Although the Company has been successful in
arranging these types of fundings in the past, there can be no
assurance that it will be able to obtain funding in the future in
amounts or on terms it deems necessary or acceptable. The Company's
inability to obtain financing would have a material adverse effect on
its operations. Covenants in certain of the Company's debt agreements
limit its ability to incur additional debt above certain levels.
Under substantially all of the Company's debt agreements, a
reduction (including, under most of these debt agreements, reductions
caused by death) in the principal shareholder's ownership of the
Common Stock below certain levels ranging from 30% to 35% would
constitute an event of default or require prepayment. A default or
required prepayment under any of these debt agreements may also result
in defaults and required prepayments under other debt agreements.
Third Party Reimbursement
The Company believes that, due to the growing national concern with
rising health care costs, the amount the government and other third
party payors reimburse for individual health care procedures could be
reduced. Changes in third party reimbursement policies, especially if
such changes limit reimbursement for outpatient services (the type of
services generally provided by the Company's medical lessees), could
adversely affect the Company.
Competition
The Company competes with finance affiliates of equipment
manufacturers which sell products leased by the Company, banks and
other leasing and finance companies. Many of these organizations have
greater financial and other resources than the Company and as a
consequence may be able to obtain funds on terms more favorable than
those available to the Company. Some of these competitors may provide
financing which is less expensive than leasing from the Company.
<PAGE>
PART II OTHER INFORMATION
ITEM 5. Other Information.
On October 7, 1996, Richard Grossman, the principal
stockholder, Chairman of the Board, Chief Executive Officer
and President of the Registrant, passed away. On October 24,
1996, Larry S. Grossman, who from 1972 through 1982 served in
various capacities, including President and Chief Executive
Officer of the Registrant, and has been a director of the
Registrant since 1991, was appointed as Chairman of the Board
and Chief Executive Officer and Michael J. Heyman, who has
been a director of the Registrant since 1991, was appointed
President and Chief Operating Officer.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits Filed with Form 10-Q:
10.25 Amendment No. 1 to Revolving Credit and Term Loan and
Security Agreement, dated March 29, 1996, between TL
Lease Funding Corp. IV and First Union National Bank
of North Carolina, incorporated by reference to Exhibit
10.43 to the Registrant's Form 10-Q Report for the
quarter ended March 31, 1996.
10.26 Amendment No. 1 to Limited Recourse Agreement, dated
March 29, 1996, between Registrant and First Union
National Bank of North Carolina, incorporated by
reference to Exhibit 10.44 to the Registrant's Form 10-
Q Report for the quarter ended March 31, 1996.
10.28 Amendment No. 2 to Revolving Credit and Term Loan and
Security Agreement, dated July 31, 1996, between TL
Lease Funding Corp. IV and First Union National Bank of
North Carolina, incorporated by reference to Exhibit
10.28 to the Registrant's Form 10-K for the year ended
June 30, 1996.
10.30 Amendment to Limited Recourse Agreement, dated October
1, 1996, between Registrant and First Union National
Bank of North Carolina.
10.31 Amendment to Revolving Credit and Term Loan and
Security Agreement, dated October 1, 1996 between TL
Lease Funding Corp. IV, and First Union National Bank
of North Carolina.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the fiscal
quarter ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TRANS LEASING INTERNATIONAL, INC.
(Registrant)
DATE: NOVEMBER 14, 1996 /s/MICHAEL J. HEYMAN
Michael J. Heyman
President
DATE: NOVEMBER 14, 1996 /s/NORMAN SMAGLEY
Norman Smagley
Vice President, Finance, and
Chief Financial Officer
<PAGE>
Exhibit Index
Exhibit No. Description of Exhibit Page No.
10.30 Amendment to Limited Recourse
Agreement, dated October 1, 1996,
between Registrant and First Union
National Bank of North Carolina 18
10.31 Amendment to Revolving Credit and
Term Loan and Security Agreement,
dated October 1, 1996 between TL
Lease Funding Corp. IV, and First
Union National Bank of North 20
Carolina.
27 Financial Data Schedule 22
EXHIBIT 10.30
AMENDMENT
TO LIMITED RECOURSE AGREEMENT
This Amendment is entered into as of October 1, 1996,
between TRANS LEASING INTERNATIONAL, INC., a Delaware corporation
(the "Company"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA
("First Union").
The parties hereto are the parties to a Limited
Recourse Agreement, dated as of November 28, 1995 (as amended
through the date hereof, the "Recourse Agreement"), and desire to
increase the maximum amount that the Company shall be required to
pay or contribute to TL Lease Funding Corp. IV, a Delaware
corporation, thereunder from $5,000,000 to $6,250,000 for the
period from the date hereof through November 30, 1996. All
capitalized terms used herein shall have the same meanings as in
the Recourse Agreement.
NOW THEREFORE, in consideration of the foregoing
premises and the agreements hereinafter set forth, and for the
good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as
follows:
1. Amendment. (a) (i) As of the date hereof, Recital
C of the Recourse Agreement is hereby amended by substituting the
figure $6,250,000 for the figure $5,000,000 therein and (ii) the
proviso in the first paragraph of Section 2 of the Recourse
Agreement is hereby amended by substituting the figure $6,250,000
for the figure $5,000,000 therein and (b) on and after December
1, 1996, (i) the provisions set forth in Section 1(a) hereof
shall no longer be effective and (ii) (A) Recital C of the
Recourse Agreement is hereby amended by substituting the figure
$5,000,000 for the figure $6,250,000 therein and (B) the proviso
in the first paragraph of Section 2 of the Recourse Agreement is
hereby amended by substituting the figure $5,000,000 for the
figure $6,250,000 therein.
2. No Further Amendment. Except as set forth above,
the Recourse Agreement shall continue in full force and effect
without modification.
3. Amendment to Credit Agreement. The Company hereby
acknowledges the execution and delivery of Amendment, dated as of
October 1, 1996, to the Revolving Credit and Term Loan and
Security Agreement, dated as of November 28, 1995, each between
TL Lease Funding Corp. IV and First Union, and hereby agrees that
such amendment shall not affect the obligations of the Company
under the Recourse Agreement except as provided herein.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Amendment to be executed by their respective officers thereunto
duly authorized as of the date first written above.
TRANS LEASING INTERNATIONAL, INC.
By: /s/ Richard Grossman
Title: President
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: /s/ Bill A. Shirley
Title: Vice President
EXHIBIT 10.31
AMENDMENT TO
REVOLVING CREDIT AND TERM LOAN
AND SECURITY AGREEMENT
This Amendment is entered into as of October 1, 1996,
between TL LEASE FUNDING CORP. IV, a Delaware corporation (the
"Company"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA
("First Union").
The parties hereto are the parties to a Revolving
Credit and Term Loan and Security Agreement, dated as of November
28, 1995 (as amended through the date hereof, the "Credit
Agreement"), and desire to increase the maximum amount of loans
which may be made thereunder from $100,000,000 to $125,000,000
for the period from the date hereof through November 30, 1996.
All capitalized terms used herein shall have the same meanings as
in the Credit Agreement.
NOW THEREFORE, in consideration of the foregoing
premises and the agreements hereinafter set forth, and for the
good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as
follows:
1. Amendments. (a) (i) Recital A of the Credit
Agreement is hereby amended by substituting the figure
$125,000,000 for the figure $100,000,000 therein and (ii) Section
1.1 of the Credit Agreement is hereby amended by substituting the
figure $125,000,000 for the figure $100,000,000 in the definition
of Loan Commitment Amount and (b) on and after December 1, 1996,
(i) the provisions set forth in Section 1(a) hereof shall no
longer be effective and (ii) (A) Recital A of the Credit
Agreement is amended by substituting the figure $100,000,000 for
the figure $125,000,000 therein and (B) Section 1.1 of the Credit
Agreement is amended by substituting the figure $100,000,000 for
the figure $125,000,000 in the definition of Loan Commitment
Amount
2. No Further Amendment. Except as set forth above,
the Credit Agreement shall continue in full force and effect
without modification.
3. Effectiveness; Note. This Amendment shall become
effective upon the execution and delivery by the Company and by
First Union of this Amendment and by the Company of a substitute
promissory note reflecting this Amendment. This Amendment may be
executed in two counterparts, each of which shall be an original,
but all of which will constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Amendment to be executed by their respective officers thereunto
duly authorized as of the date first written above.
TL LEASE FUNDING CORP. IV
By: /s/ Richard Grossman
Title: President
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: /s/ Bill A. Shirley
Title: Vice President
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