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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 January 31, 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: 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
---------------------------------------------------------
(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 February 15, 1996: $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 January 31, 1996
(unaudited) and April 30, 1995 1
Statements of Operations; For the
nine months ended January 31, 1996 and 1995
and three months ended January 31, 1996
and 1995 (unaudited) 3
Statement of Changes in Shareholder's Equity;
For the nine months ended January 31, 1996 4
(unaudited)
Statements of Cash Flows For the
nine months ended January 31, 1996 and 1995
(unaudited) 5
Notes to Financial Statements 7
Item 2. Management's Narrative Analysis of
The Results of Operations as Permitted
by General Instruction H(1)(A) and (B) 10
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<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
BALANCE SHEETS
--------------
<CAPTION>
January 31, 1996 April 30, 1995
---------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Direct finance leases:
Aggregate future amounts
receivable under lease
contracts $16,835,353 $17,267,612
Estimated residual value
of equipment 1,639,475 1,831,613
Less:
Unearned income under
lease contracts (3,002,240) (3,172,713)
Advance payments (523,376) (528,314)
---------- ----------
14,949,212 15,398,198
Allowance for doubtful
lease receivables (1,017,448) (974,667)
---------- ----------
13,931,764 14,423,531
Due from parent 5,591,893 3,991,986
Cash and cash equivalents 9,918,635 8,908,798
Other assets 415,822 423,511
---------- ----------
TOTAL ASSETS $29,858,114 $27,747,826
=========== ===========
SEE ACCOMPANYING NOTES
1
</TABLE>
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<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
BALANCE SHEETS - (Continued)
--------------
<CAPTION>
January 31, 1996 April 30, 1995
---------------- --------------
(unaudited)
<S> <C> <C>
LIABILITIES
Amounts payable to
equipment suppliers $ 8,749 $ 8,749
Accrued expenses and other
accounts payable 64,338 63,888
State income taxes 8,401 8,401
Demand, Fixed Rate and
Money Market Thrift
Certificates 26,494,498 24,521,875
Accrued interest payable 2,778,010 2,326,708
---------- ----------
29,353,996 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 (495,882) (181,795)
---------- ---------
504,118 818,205
---------- ---------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $29,858,114 $27,747,826
=========== ===========
SEE ACCOMPANYING NOTES
2
</TABLE>
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<PAGE>5
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF OPERATIONS
<CAPTION>
For the Nine Months Ended January 31, For the Three Months Ended January 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Income earned under
direct finance lease contracts $ 1,977,590 $2,202,991 $ 614,602 $ 695,210
----------- ---------- ----------- ----------
Total revenue 1,977,590 2,202,991 614,602 695,210
----------- ---------- ----------- ----------
Costs and expenses:
Interest expense, net 1,047,676 1,002,069 344,593 328,219
General and administrative expenses 729,232 790,232 244,784 256,207
Provision for doubtful lease receivables 514,769 620,073 168,176 268,887
----------- ---------- ----------- ----------
Total costs and expenses 2,291,677 2,412,374 757,553 853,313
----------- ---------- ----------- ----------
Loss before provision
for income taxes (314,087) (209,383) (142,951) (158,103)
Provision for income taxes
- Federal (See Note 2) --- --- --- ---
- State --- --- --- ---
----------- ---------- ----------- ----------
Net Loss $ (314,087) $ (209,383) $ (142,951) $ (158,103)
=========== ========== =========== ==========
SEE ACCOMPANYING NOTES
3
</TABLE>
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<PAGE>6
<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 Retained Shareholder's
Issued Amount Capital Earnings 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
nine month period
ended January 31, 1996
(unaudited) -- -- -- (314,087) (314,087)
----- ------ -------- -------- ---------
Balance, January 31, 1996 1,000 $1,000 $999,000 $(495,882) $ 504,118
(unaudited) ===== ====== ======== ========= ==========
SEE ACCOMPANYING NOTES
4
</TABLE>
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<PAGE>7
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months Ended January 31,
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Loss $ (314,087) $ (209,383)
Adjustment to Reconcile Net Loss to Net
Cash from Operating Activities:
Amortization of Deferred Debt Expenses 172,026 182,088
Provision for doubtful lease receivables 514,769 620,073
Effects of Changes
in other Operating Items:
Accrued Expenses 450 (23,682)
Accrued Interest 451,302 240,386
Other (net) (164,337) (146,342)
---------- ----------
Net Cash From Operating Activities 660,123 663,140
---------- ----------
INVESTMENT ACTIVITIES
- ---------------------
Excess of Cash Received
Over Lease Income Recorded 4,765,807 4,866,789
Receipt of Advance Payments 143,402 138,314
Purchase of Equipment
for Direct Finance Leases (4,932,211) (5,246,929)
---------- ----------
Net Cash Used in
Investing Activities $ (23,002) $ (241,826)
---------- ----------
SEE ACCOMPANYING NOTES
5
</TABLE>
<PAGE>
<PAGE>8
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERCIA
STATEMENTS OF CASH FLOWS - (Continued)
<CAPTION>
For the Nine Months Ended January 31,
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
FINANCING ACTIVITIES
- --------------------
Proceeds from Issuance
of Demand and Fixed Rate Certificates $7,168,313 $7,826,763
Proceeds (repayments) from
borrowings from Walnut (1,599,907) (1,569,369)
Redemption of Demand, Fixed
Rate, and Money Market Thrift
Certificates (5,195,690) (6,041,348)
---------- ----------
Net Cash Provided by
Financing Activities 372,716 216,046
---------- ----------
Increase (Decrease) in Cash and
Cash Equivalents 1,009,837 637,360
Cash and Cash Equivalents,
Beginning of Year 8,908,798 7,587,864
---------- ----------
Cash and Cash Equivalents,
End of Period $9,918,635 $8,225,224
========== ==========
SEE ACCOMPANYING NOTES
6
</TABLE>
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<PAGE>9
EQUIPMENT LEASING CORPORATION OF AMERICA
Notes to Interim Financial Statements
Nine Months Ended January 31, 1996 and 1995
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 ($191,700 and $207,219
for the nine months ended January 31, 1996 and 1995, 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 $471,988 and $1,143,199 during the nine month
periods ended January 31, 1996 and 1995, respectively, while ELCOA
increased these reserves by charges of $514,769 and $620,073 during the
nine month periods ended January 31, 1996 and 1995, 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 taxes. Deferred income tax assets and liabilities are
7
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EQUIPMENT LEASING CORPORATION OF AMERICA
Notes to Interim Financial Statements
Nine Months Ended January 31, 1996 and 1995
INCOME TAXES - Continued
computed annually for differences between the financial statement and tax
bases 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 nine months ended January 31, 1996 and 1995, the provision for
federal and state income taxes consists of:
Nine Months Ended January 31,
1996 1995
--------- ---------
Current $ 805,106 $ 435,697
Deferred (805,106) (435,697)
--------- ---------
$ --- $ ---
========= =========
The deferred tax benefit is the change in the net deferred tax asset
arising from the available carry-back claim from its parent.
8
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EQUIPMENT LEASING CORPORATION OF AMERICA
Notes to Interim Financial Statements
Nine Months Ended January 31, 1996 and 1995
OTHER ASSETS AND LIABILITIES
Amounts payable to equipment suppliers in the amount of $8,749 as of
January 31, 1996 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.
Other assets at January 31, 1996 include $415,534 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 $84,170 at January 31, 1996 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 nine month periods ended January 31, 1996 and 1995 were
$172,026 and $182,088, respectively. Also, $331,364 in commissions paid
for sale of the Demand, Fixed Rate and Money Market Thrift Certificates
included in Other Assets at January 31, 1996 are being amortized over the
life of each respective certificate sold.
9
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<PAGE>12
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 NINE MONTHS ENDED JANUARY 31, 1996 AND 1995.
Revenues of $1,977,590 and $2,202,991 were recognized during the nine
months ended January 31, 1996 and 1995 respectively. Revenues decreased
$225,401 or 10.2% 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 nine month periods ended January 31, 1996 and 1995,
$6,499,838 and $6,860,033, respectively, in new gross finance lease
receivables were added to the portfolio of outstanding leases,
corresponding to equipment purchases of $4,932,211 and $5,246,929,
respectively. Unearned income under direct finance leases reflected a net
decrease of $170,473 and $334,208 during the nine months ended January 31,
1996 and 1995, 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 nine month
period ended January 31, 1996 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 $191,700 and $207,219, respectively, were capitalized in
accordance with FAS No. 91 during the nine months ended January 31, 1996,
and 1995. See Footnote 2 to the Financial Statements for the nine month
interim period ended January 31, 1996.
General and administrative expenses for the nine month periods ended
January 31, 1996 and 1995 were $729,232 and $790,232, respectively.
Included in these expenses were $435,253 and $494,215, respectively, in
monthly servicing fees representing a reimbursement to Walnut for the
servicing and administration of ELCOA's outstanding leases at a cost of
$6.50 per account per month. As of January 31, 1996 and 1995, there were
6,936 and 8,158 of direct finance leases outstanding, respectively. Also
included in general and administrative expenses for the nine months ended
January 31, 1996 and 1995 are $172,026 and $182,088, respectively, which
represents the amortization of the deferred registration and solicitation
expenses which are included in "Other Assets" on the Balance Sheet at
January 31, 1996 and 1995. See Footnote 2 to the Financial Statements for
a more detailed discussion of the calculation of the amortization expense.
ELCOA paid Walnut $19,500 during each of the nine month periods ended
January 31, 1996 and 1995, 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 $79,479 and $73,359, respectively, in transfer
service fees paid to Financial Data, Inc., an affiliate. These expenses
approximate the actual costs incurred in the services performed, which
increased during fiscal 1996 as a result of higher costs incurred by
Financial Data, Inc. from increases in the amount of debt securities
outstanding.
10
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<PAGE>13
For the nine months ended January 31, 1996 and 1995, ELCOA recognized
expenses of $514,769 and $620,073, 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 January 31, 1996 and 1995. During the nine
months ended January 31, 1995, ELCOA continued to conduct an extensive
review of the collectibility of all past due accounts, and increased the
amount of write-offs in those situations where further costs in pursuing
legal remedies in collection were considered to be unwarranted.
Past due accounts four or more monthly payments past due (on a strict
contractual basis) as of January 31, 1996 were $5,178,694 or 30.76% of the
$16,835,353 in aggregate future lease receivables outstanding at that date.
These delinquencies increased $441,463 or 9.32% from the amount of
$4,737,231 (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 nine months ended January 31, 1996 and 1995, ELCOA incurred
$1,047,676 and $1,002,069, respectively in interest expense (net) on the
Demand, Fixed Rate and Money Market Thrift Certificates. Accrued interest
thereon of $2,778,010 and $2,334,716, respectively, were outstanding at
January 31, 1996 and 1995. These expenses were reduced by interest income
of $764,654 and $520,412, respectively during the nine months ended January
31, 1996 and 1995. The increase in interest income during the nine months
ended January 31, 1996 is attributable in part to ELCOA's investment in
short-term U.S. Government treasury bills, having three month maturities.
Although the interest rate on U.S. Treasury Bills was relatively comparable
at January 31, 1996 and 1995 (5.01% vs. 5.80%, respectively), ELCOA's
investment in U.S. Government Treasury Bills increased $1,996,966 or 30% to
$8,757,553 at January 31, 1996 from $6,790,587 at January 31, 1995. The
average rates of interest paid on the Certificates (including accrued
interest thereon) during these periods were approximately 8.6% and 8.2%,
respectively, during the nine month periods ended January 31, 1996 and
1995. Effective January 1, 1991, ELCOA and Walnut, its parent, agreed to
pay each other interest on any intercompany advances during each month.
Interest will be charged at a rate equal to 2% above the prevailing "prime"
rate of interest at Meridian Bank, Reading, Pennsylvania. During the nine
months ended January 31, 1996 and 1995, ELCOA recognized $393,626 and
$245,663, respectively, as interest income under this agreement.
During the nine month periods ended January 31, 1996 and 1995, ELCOA
recognized no provisions for state income taxes, or federal income taxes.
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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<PAGE>14
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 from issuances decreased by
$658,450 or 8.4% to $7,168,313 for the nine months ended January 31, 1996
from $7,826,763 for the same period prior year as a result of management's
efforts to slow down the solicitation of Certificate sales in light of the
company's excess cash. The $845,658 or 14.0% decrease in certificate
redemptions during the nine month period ended January 31, 1996 to
$5,195,690 from $6,041,348 for the nine month period ended January 31, 1995
was the result of a slight decrease in market rates in general during the
3rd quarter, while, due to ELCOA's trust indenture agreement, ELCOA's rates
were unable to drop accordingly, thereby making ELCOA certificates more
attractive. 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 nine month
periods ended January 31, 1996 and 1995.
12
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<PAGE>15
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
March xx, 1996
- --------------
Date
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS FOR 3RD QUARTER 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Apr-30-1996
<PERIOD-END> Jan-31-1996
<CASH> 9,919
<SECURITIES> 0
<RECEIVABLES> 16,835
<ALLOWANCES> 1,017
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,858
<CURRENT-LIABILITIES> 0
<BONDS> 26,494
<COMMON> 1,000
0
0
<OTHER-SE> (496)
<TOTAL-LIABILITY-AND-EQUITY> 29,858
<SALES> 1,978
<TOTAL-REVENUES> 1,978
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 729
<LOSS-PROVISION> 515
<INTEREST-EXPENSE> 1,048
<INCOME-PRETAX> (314)
<INCOME-TAX> 0
<INCOME-CONTINUING> (314)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (314)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
