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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 1995
-------------
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: 33-35664
EQUIPMENT LEASING CORPORATION OF AMERICA
----------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2408914
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Suite 76, 501 Silverside Road, Wilmington, Delaware 19809
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(Address of principal executive offices) (Zip Code)
(302)-798-2335
--------------
(Toll Free: 1-800-523-5644)
(Registrant's telephone number, including area code)
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 August 31, 1995: $1.00 par value common stock - 1,000
shares.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A) AND
(B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
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<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
----------------------------- -----------
<S> <C>
Item 1. Financial Statements
Balance Sheets as of July 31, 1995
(unaudited) and April 30, 1995 1-2
Statements of Operations; For the
Three months ended July 31, 1995 and 1994
(unaudited) 3
Statement of Changes in Shareholder's Equity;
For the Three months ended July 31, 1995 4
(unaudited)
Statements of Cash Flows For the
Three months ended July 31, 1995 and 1994
(unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Narrative Analysis of
The Results of Operations as Permitted
by General Instruction H(1)(A) and (B) 9
PART II. OTHER INFORMATION
--------------------------
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
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<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
BALANCE SHEETS
--------------
<CAPTION>
July 31, 1995 April 30, 1995
------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Direct finance leases:
Aggregate future amounts
receivable under lease
contracts $17,112,078 $17,267,612
Estimated residual value
of equipment 1,779,088 1,831,613
Less:
Unearned income under
lease contracts (3,070,988) (3,172,713)
Advance payments (517,490) (528,314)
---------- ----------
15,302,688 15,398,198
Allowance for doubtful
lease receivables (988,825) (974,667)
---------- ----------
14,313,863 14,423,531
Due from parent 3,998,440 3,991,986
Cash and cash equivalents 10,345,453 8,908,798
Other assets 424,015 423,511
---------- ----------
TOTAL ASSETS $29,081,771 $27,747,826
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
1
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<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
BALANCE SHEETS - (Continued)
<CAPTION>
July 31, 1995 April 30, 1995
------------- --------------
(unaudited)
<S> <C> <C>
LIABILITIES
Amounts payable to
equipment suppliers $ 8,749 $ 8,749
Accrued expenses and other
accounts payable 59,600 63,888
State income taxes payable 8,401 8,401
Demand, Fixed Rate and
Money Market Thrift
Certificates 25,757,363 24,521,875
Accrued interest payable 2,477,795 2,326,708
---------- ----------
28,311,908 26,929,621
SHAREHOLDER'S EQUITY
Common stock $1 par value,
1,000 shares authorized,
issued and outstanding 1,000 1,000
Variable Rate Cumulative
Preferred Stock, Series A, $1
par value, 50,000 shares
authorized, none issued --- ---
Additional paid - in capital 999,000 999,000
Accumulated deficit (230,137) (181,795)
---------- ---------
769,863 818,205
---------- ---------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $29,081,771 $27,747,826
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
2
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<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF OPERATIONS
<CAPTION>
For the Three Months Ended July 31,
1995 1994
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Revenue:
Income earned under
direct finance lease contracts $ 714,521 $ 759,105
---------- ----------
Total revenue 714,521 759,105
---------- ----------
Costs and expenses:
Interest expense, net 354,916 329,888
General and administrative expenses 233,306 264,158
Provision for doubtful lease receivables 174,641 147,120
---------- ----------
Total costs and expenses 762,863 741,166
---------- ----------
Income (loss) before provision
for income tax expense (48,342) 17,939
Provision for state income tax expense --- 897
---------- ----------
Net Income (loss) $ (48,342) $ 17,042
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
3
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<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
<CAPTION>
Common Stock
-----------------
($1.00 Par Value)
1,000 shares
Authorized Additional Total
No. of shares Paid-In Accumulated Shareholder's
Issued Amount Capital Deficit Equity
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1995 1,000 $1,000 $999,000 $(181,795) $ 818,205
Net Loss for the
three month period
ended July 31, 1995
(unaudited) -- -- -- (48,342) (48,342)
----- ------ -------- -------- ----------
Balance, July 31, 1995 1,000 $1,000 $999,000 $(230,137) $ 769,863
(unaudited) ===== ====== ======== ========= ==========
SEE ACCOMPANYING NOTES
4
</TABLE>
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<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months Ended July 31,
1995 1994
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(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
--------------------
Net Income (Loss) $ (48,342) $ 17,042
Adjustment to Reconcile
Net Income (Loss) to Net Cash from
Operating Activities:
Amortization of Deferred Debt Expenses 44,576 67,431
Provision for doubtful lease receivables 174,641 147,120
Effects of Changes
in other Operating Items:
Accrued Expenses (4,288) (19,215)
Accrued Interest 151,087 138,780
Other (net) (45,080) (49,315)
----------- ----------
Net Cash From Operating Activities 272,594 301,843
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INVESTMENT ACTIVITIES
---------------------
Excess of Cash Received
Over Lease Income Recorded 1,622,401 1,541,383
Receipt of Advance Payments 39,801 48,089
Purchase of Equipment
for Direct Finance Leases (1,727,175) (1,866,625)
Investment in U.S.
Government Securities --- (7,013,583)
----------- ----------
Net Cash Used in
Investing Activities (64,973) (7,290,736)
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES
5
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<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months Ended July 31,
1995 1994
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(unaudited) (unaudited)
<S> <C> <C>
FINANCING ACTIVITIES
--------------------
Proceeds from Issuance
of Demand and Fixed Rate Certificates 3,014,550 2,100,662
Proceeds (repayments) from
borrowings from Walnut (6,454) 381,265
Redemption of Demand, Fixed
Rate, and Money Market Thrift
Certificates (1,779,062) (1,786,773)
----------- ----------
Net Cash Provided by
Financing Activities 1,229,034 695,154
----------- ----------
Increase (Decrease) in Cash
and cash equivalents 1,436,655 (6,293,739)
Cash and cash equivalents,
Beginning of Year 8,908,798 7,587,864
----------- ----------
Cash and cash equivalents,
End of Period $10,345,453 $1,294,125
=========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
6
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EQUIPMENT LEASING CORPORATION OF AMERICA
Notes to Interim Financial Statements
Three Months Ended July 31, 1995 and 1994
1. FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the audited
financial statements and notes thereto as of April 30, 1995. The
accompanying financial statements have not been audited by independent
accountants, but in the opinion of management, such financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to summarize fairly the results of operations and are not
necessarily indicative of the results to be expected for the full year.
2. ACCOUNTING POLICIES
ACCOUNTING FOR LEASES
Equipment Leasing Corporation of America ("ELCOA")'s lease contracts provide
for total noncancellable rentals which exceed the cost of leased equipment
and, accordingly, are accounted for as direct finance leases. At inception,
ELCOA records the gross lease receivable, the estimated residual value of the
leased equipment, and the unearned lease income. The unearned lease income
represents the excess of the gross lease receivable at inception of the
contract plus the estimated residual value over the cost of the equipment
being leased. ELCOA utilizes the "effective" or interest method in
recognizing the remainder of unearned income. For leases originated after
April 30, 1988, the Company has changed its method of accounting to conform
with the requirements of FAS No. 91 "Accounting for Non Refundable Fees and
Costs Associated with Originating or Acquiring Loans and Initial Direct Cost
of Leases". Under this method a portion of the initial direct costs as
defined by FAS No. 91 ($66,429 and $71,794 for the three months ended July
31, 1995 and 1994, respectively), were accounted for as part of the
Investment in Direct Financing Leases. Unearned income is earned and initial
direct costs are amortized to income using the effective method over the term
of the lease.
ELCOA provides a provision for doubtful accounts based upon a periodic review
(not less than quarterly) of its outstanding lease portfolio, and provides a
direct charge against operations to increase the amount of stated reserves
for uncollectable accounts. Any writeoffs of uncollectable leases reduce the
stated amount of ELCOA's reserves. Write-offs of delinquent leases totaled
$160,483 and $165,419 during the three month periods ended July 31, 1995 and
1994, respectively, while ELCOA increased these reserves by charges of
$174,641 and $147,120 during the three month periods ended July 31, 1995 and
1994, respectively.
INCOME TAXES
Effective May 1, 1993, the Company adopted Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" (SFAS 109), which requires an
asset and liability approach to financial accounting and reporting for income
7
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taxes. Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax
assets and liabilities.
The net deferred tax asset as of April 30, 1995 includes deferred tax assets
(liabilities) attributable to the following temporary deductible (taxable)
differences:
Operating lease method vs. direct financing method $1,576,000
Provision for doubtful lease receivables 341,000
Other (34,000)
----------
Net deferred tax asset 1,883,000
Valuation allowance (1,883,000)
----------
Net deferred tax asset after valuation allowance $ ----
==========
A valuation allowance was considered necessary since it is more likely than
not that the Company will not realize the tax benefits of the deductible
differences.
The Company will be included in the consolidated federal income tax return of
its parent, Walnut Equipment Leasing Co., Inc. Based on a tax allocation
agreement, current federal taxes otherwise refundable (payable) under a
separate company computation will be received from (paid to) its parent.
For the three months ended July 31, 1995 and 1994, the provision for federal
and state income taxes consists of:
Three Months Ended July 31,
1995 1994
-------- --------
Current $271,098 $154,610
Deferred (271,098) (153,713)
-------- --------
$ --- $ 897
======== ========
The deferred tax benefit is the change in the net deferred tax asset arising
from the available carry-back claim from its parent.
OTHER ASSETS AND LIABILITIES
Amounts payable to equipment suppliers in the amount of $8,749 as of July 31,
1995 represents holdbacks from suppliers of equipment as additional security
for performance by the underlying lessee on the related lease contract, and
are payable at the termination of the contracts based upon the lessee's
compliance with terms of the lease contract.
8
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Other assets at July 31, 1995 include $423,726 in deferred expenses, net of
amortization, representing costs directly related to the Company's
registration and solicitation of Demand, Fixed Rate and Money Market Thrift
Certificates. Registration expenses of $85,760 at July 31, 1995 are being
amortized on a straight-line basis over the estimated average lives of the
debt to be issued under the registration statement. Amortization of these
deferred registration expenses and solicitation costs charged to income
during the three month periods ended July 31, 1995 and 1994 were $44,576 and
$67,431, respectively. Also, $337,966 in commissions paid for sale of the
Demand, Fixed Rate and Money Market Thrift Certificates included in Other
Assets at July 31, 1995 are being amortized over the life of each respective
certificate sold.
9
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EQUIPMENT LEASING CORPORATION OF AMERICA
MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
AS PERMITTED BY GENERAL INSTRUCTION H(1)(A) AND (B)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 1995 AND 1994.
Revenues of $714,521 and $759,105 were recognized during the three months
ended July 31, 1995 and 1994 respectively. Revenues decreased $44,584 or
5.87% as a result of the decrease in outstanding aggregate future receivables
during these periods. The Company utilizes the "effective" method in
recognizing income from deferred income on its direct finance lease
portfolio. For a more detailed discussion of the manner in which income is
computed and recognized, see Footnote 2 to the Financial Statements. During
the three month periods ended July 31, 1995 and 1994, $2,255,150 and
$2,475,364, respectively, in new gross finance lease receivables were added
to the portfolio of outstanding leases, corresponding to equipment purchases
of $1,727,175 and $1,866,625, respectively. Unearned income under direct
finance leases reflected a net decrease of $101,725 and $44,925 during the
three months ended July 31, 1995 and 1994, respectively, which resulted from
a decrease in the aggregate amount of outstanding direct financing leases.
Management attributes the decrease in new leases generated during the three
month period ended July 31, 1995 to a reduction in equipment available for
purchase from its parent, Walnut.
Amounts paid under the service contract for lease origination in the amounts
of $66,429 and $71,794, respectively, were capitalized in accordance with FAS
No. 91 during the three months ended July 31, 1995, and 1994. See Footnote 2
to the Financial Statements.
General and administrative expenses for the three month periods ended July
31, 1995 and 1994 were $233,306 and $264,158, respectively. Included in
these expenses were $152,282 and $167,505, respectively, in monthly servicing
fees which are to reimburse Walnut for the servicing and administration of
ELCOA's outstanding leases which are charged at $6.50 per account per month.
As of July 31, 1995 and 1994, there were 7,700 and 8,576 direct finance
leases outstanding, respectively. Also included in general and
administrative expenses for the three months ended July 31, 1995 and 1994 are
$44,576 and $67,431, respectively, which represents the amortization of the
deferred registration and solicitation expenses which are included in "Other
Assets" on the Balance Sheet at July 31, 1995 and 1994. See Footnote 2 to
the Financial Statements for a more detailed discussion of the calculation of
the amortization expense. ELCOA paid Walnut $6,000 and $6,500, respectively,
for the three month periods ended July 31, 1995 and 1994, for bookkeeping
fees. These fees are to reimburse Walnut for the routine bookkeeping
functions performed for ELCOA and are charged at $500 per week. Also
included in general and administrative expenses were $26,563 and $24,053,
respectively, in transfer service fees paid to Financial Data, Inc., an
affiliate. These expenses approximate the actual costs incurred for the
services performed, which increased during fiscal 1995 as a result of lower
costs incurred by Financial Data, Inc.
10
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For the three months ended July 31, 1995 and 1994, ELCOA recognized expenses
of $174,641 and $147,120, respectively, for its doubtful lease receivable
provision. See Footnote 2 to the Financial Statements. This provision was
recognized in order to maintain an adequate allowance, based upon
management's belief and historical experience, for anticipated delinquencies
and impairments from doubtful direct finance lease receivables outstanding as
of July 31, 1995 and 1994. During the three months ended July 31, 1995,
ELCOA continued to conduct an extensive review of the collectibility of all
past due accounts, and wrote-off those situations where further costs in
pursuing legal remedies in collection were considered to be unwarranted.
As a result, past due accounts four or more monthly payments past due (on a
strict contractual basis) as of July 31, 1995 were $4,873,559 or 28.5% of the
$17,112,078 in aggregate future lease receivables outstanding at that date.
These delinquencies increased $136,327 or 28.8% from the amount of $4,737,232
(27.4% of aggregate receivables) at April 30, 1995. Management is continuing
its efforts in pursuit of collections of all past due lease receivables.
During the three months ended July 31, 1995 and 1994, ELCOA incurred $354,916
and $329,888, respectively in interest expense (net) on the Demand, Fixed
Rate and Money Market Thrift Certificates. Accrued interest thereon of
$2,477,795 and $2,233,110, respectively, were outstanding at July 31, 1995
and 1994. These expenses were reduced by interest income of $226,895 and
$151,320, respectively during the three months ended July 31, 1995 and 1994.
The increase in interest income during the three months ended July 31, 1995
is attributable in part to ELCOA's investment in short-term U.S. Government
Treasury Bills, having maturities of six months or less. The interest rate
on three month U.S. Treasury bills was 5.46% at July 31, 1995 which
represents an increase of 13.04% over the 4.83% rate during the three months
ended July 31, 1994. The average rates of interest paid on the Certificates
(including accrued interest thereon) during these periods were approximately
8.5% and 8.0%, respectively, during the three month periods ended July 31,
1995 and 1994. Effective July 1, 1991, ELCOA and Walnut, its parent, agreed
to pay each other interest on any intercompany advances during each month.
Interest is charged at a rate equal to 2% above the prevailing "prime" rate
of interest at Meridian Bank, Reading, Pennsylvania. During the three months
ended July 31, 1995 and 1994, ELCOA recognized $108,842 and $64,830,
respectively, as interest income under this agreement, due principally to an
increase in the "prime" rate during the recent fiscal period.
During the three month periods ended July 31, 1995 and 1994, ELCOA recognized
provisions for state income taxes in the amounts of $0 and $897,
respectively, based upon its net income before taxes. No provision for
federal income taxes was necessary. See Footnote 2 to the Financial
Statements.
CAPITAL RESOURCES AND LIQUIDITY
ELCOA has financed its growth to date primarily from the proceeds of sale of
its debt securities, as well as from rental receipts from its outstanding
lease portfolio. To date ELCOA has not experienced any difficulty in
financing the purchase of new equipment for lease.
11
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Taking into consideration new lease business, cash and unhypothecated leases
on hand, anticipated sales and redemptions of debt securities, and other
resources, it is management's opinion that its cash will be sufficient to
conduct its business and meet its anticipated obligations during the current
fiscal year. No assurance can be given that the anticipated level of sales
of its offering of Demand and Fixed Rate Certificates will be attained.
proceeds during the three months ended July 31, 1995 increased as a result of
increased short-term certificates outstanding, and an increase in market
interest rates in general in comparison to the increased rates being offered
on ELCOA's Certificates. See the Statement of Cash Flows on page 5 of this
report for an analysis of the sources and uses of cash by ELCOA during the
three month periods ended July 31, 1995 and 1994.
ITEM 5. OTHER INFORMATION
On August 2, 1995, ELCOA filed a post-effective amendment to a registration
statement on Form S-2 in connection with the continuing offer and sale of its
debt securities. Sales of these securities were suspended effective
September 1, 1995, pending declaration of effectiveness of this
post-effective amendment. Post-Effective Amendment Number 4 to Form S-2 (SEC
Registration Number 33-65814) relating to $13,500,000 in principal amount of
Demand and Fixed Rate Certificates remaining unsold from the prior
registration is expected to be declared effective during September, 1995.
The sale of these securities will commence effective with that date.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the three months ended July
31, 1995.
12
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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.
EQUIPMENT LEASING CORPORATION OF AMERICA
----------------------------------------
(Registrant)
/s/ William Shapiro
----------------------------------------
William Shapiro, President and
Chief Financial Officer
September 14, 1995
------------------
Date
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS FOR 1ST QUARTER 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> JUL-31-1995
<CASH> 10,345
<SECURITIES> 0
<RECEIVABLES> 17,112
<ALLOWANCES> 989
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,082
<CURRENT-LIABILITIES> 0
<BONDS> 25,757
<COMMON> 1,000
0
0
<OTHER-SE> (230)
<TOTAL-LIABILITY-AND-EQUITY> 29,082
<SALES> 715
<TOTAL-REVENUES> 715
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 233
<LOSS-PROVISION> 175
<INTEREST-EXPENSE> 355
<INCOME-PRETAX> (48)
<INCOME-TAX> 0
<INCOME-CONTINUING> (48)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
