<PAGE>
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 June 30, 1997
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 0-21370
LEASING SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0116801
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 ALMADEN BOULEVARD, SUITE 1500, SAN JOSE, CALIFORNIA 95113
(Address of principal executive offices) (Zip Code)
(408) 995-6565
(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 [ ]
The number of shares of Registrant's common stock outstanding at June 30, 1997
was 8,158,584 shares.
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets
June 30, 1997 and December 31, 1996 3
Consolidated Condensed Income Statements
Three and six month period ended June 30, 1997 and 1996 4
Consolidated Condensed Statements of Cash Flows
six month periods ended June 30, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information 13
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 14
2
<PAGE>
<TABLE>
<CAPTION>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars In Thousands)
June 30, December 31,
1997 1996
---------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents................................................... $ 19,008 $ 6,888
Accounts receivable......................................................... 15,185 11,534
Investment in direct finance leases - net................................... 27,870 15,088
Investment in operating leases - net........................................ 441,467 361,872
Property and equipment - net................................................ 2,661 2,338
Other assets................................................................ 12,025 9,571
---------- ----------
TOTAL ASSETS............................................................. $ 518,216 $ 407,291
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable - equipment purchases...................................... $ 10,701 $ 4,252
Accrued and other liabilities............................................... 18,526 9,497
Recourse debt............................................................... 225,111 182,739
Nonrecourse debt............................................................ 184,774 138,919
Deferred income taxes....................................................... 10,793 8,328
---------- ----------
TOTAL LIABILITIES........................................................ 449,905 343,735
---------- ----------
SHAREHOLDERS' EQUITY
Common stock, authorized 20,000,000 shares; issued and outstanding:
8,158,584 and 8,225,546 shares.......................................... 37,890 37,658
Retained earnings........................................................... 30,297 25,624
Accumulated translation adjustment.......................................... 124 274
---------- ----------
TOTAL SHAREHOLDERS' EQUITY............................................... 68,311 63,556
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................... $ 518,216 $ 407,291
========== ==========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
See accompanying Notes to Consolidated Condensed Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Operating lease revenue.............................. $ 54,725 $ 32,146 $ 101,070 $ 58,102
Earned lease income.................................. 1,087 583 1,442 1,146
Interest income...................................... 82 212 166 327
Other................................................ 3 286 148 289
--------- --------- ---------- ---------
TOTAL REVENUES....................................... 55,897 33,227 102,826 59,864
COSTS AND EXPENSES:
Depreciation - operating leases...................... 38,317 21,732 70,562 39,035
Selling, general and administrative.................. 4,605 2,975 8,417 5,419
Interest............................................. 7,422 4,072 13,641 7,738
Other................................................ 394 454 709 716
--------- --------- ---------- ---------
TOTAL COSTS AND EXPENSES............................. 50,738 29,233 93,329 52,908
--------- --------- ---------- ---------
INCOME BEFORE INCOME TAXES............................. 5,159 3,994 9,497 6,956
PROVISION FOR INCOME TAXES............................. 2,166 1,661 3,979 2,846
--------- --------- ---------- ---------
NET INCOME ............................................ $ 2,993 $ 2,333 $ 5,518 $ 4,110
========= ========= ========== =========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE.............................. $ .36 $ .28 $ .66 $ .53
========= ========= ========== =========
COMMON AND COMMON
EQUIVALENT SHARES.................................... 8,317 8,239 8,384 7,727
========= ========= ========== =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
June 30,
------------------------
1997 1996
----------- ----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES........................................ $ 90,653 $ 22,658
INVESTING ACTIVITIES:
Cost of equipment acquired for lease.......................................... (166,549) (127,853)
Cash received over revenue recognized on leases............................... 38,483 5,932
Cash paid for acquisition, net of cash received .............................. (8,898) --
Property and equipment purchases ............................................. (775) (503)
--------- ---------
Net cash used for investing activities........................................ (137,739) (122,424)
--------- ---------
FINANCING ACTIVITIES:
Borrowings:
Nonrecourse................................................................ 104,007 63,466
Recourse................................................................... 198,522 160,493
Repayments:
Nonrecourse................................................................ (72,377) (33,556)
Recourse................................................................... (170,183) (113,446)
Issuance of common stock...................................................... 650 22,681
Purchase of outstanding common stock.......................................... (1,263) --
Repayment of capital lease obligations........................................ -- (143)
--------- ---------
Net cash provided by financing activities..................................... 59,356 99,495
--------- ---------
IMPACT OF EXCHANGE RATE
CHANGES ON CASH............................................................... (150) --
--------- ---------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS................................. 12,120 (271)
CASH AND CASH EQUIVALENTS:
Beginning of period........................................................... 6,888 8,423
--------- ---------
End of period................................................................. $ 19,008 $ 8,152
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
5
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
and the rules and regulations of the Securities and Exchange Commission for
interim financial statements. Accordingly, the interim statements do not
include all of the information and disclosures required for annual
financial statements. In the opinion of the Company's management, all
adjustments (consisting solely of adjustments of a normal recurring nature)
necessary for a fair presentation of these interim results have been
included. Intercompany accounts and transactions have been eliminated.
These financial statements and related notes should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
The balance sheet at December 31, 1996 has been derived from the audited
financial statements included in the Annual Report on Form 10-K. The
results for the interim period ended June 30, 1997 are not necessarily
indicative of the results to be expected for the entire year.
2. CASH AND CASH EQUIVALENTS
-------------------------
Cash equivalents are comprised of highly liquid debt instruments with
maturities of three months or less. At June 30, 1997, $5,172,000 of such
amount was restricted solely for repayment of the debt securities of
Leasing Solutions Receivables, Inc. and Leasing Solutions Receivables, Inc.
II, the Company's wholly-owned subsidiaries, issued in public offerings in
1994, and a private placement in 1997, respectively, and as collateral
therefor, and was not available to other creditors or for other uses.
3. INVESTMENT IN LEASES
--------------------
The components of the net investment in direct finance leases and in
operating leases as of June 30, 1997, and December 31, 1996, are shown
below (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Direct finance leases:
Minimum lease payments receivable $ 26,180 $ 15,397
Estimated unguaranteed residual values 5,417 1,609
Initial direct costs - net 6 12
Unearned lease income (3,733) (1,930)
--------- ---------
Investment in direct finance leases - net $ 27,870 $ 15,088
========= =========
Operating leases:
Equipment under operating leases $ 671,431 $ 560,128
Initial direct costs - net 5,577 4,316
Accumulated depreciation (235,344) (202,404)
Allowance for doubtful accounts (197) (168)
--------- ---------
Investment in operating leases - net $ 441,467 $ 361,872
========= =========
</TABLE>
A substantial portion of the increase in investment in leases was financed with
nonrecourse and recourse debt.
6
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
4. PORTFOLIO ACQUISITION
---------------------
In April 1997, the Company acquired a lease portfolio from Scott Capital, a
Canadian company, engaged primarily in computer leasing. The net purchase
price in the acquisition was US$8,898,000 million. In connection with this
transaction, the Company acquired tangible assets (primarily leases) with a
value of US$37,156,000, assumed recourse and nonrecourse debt of
US$28,258,000, and recorded goodwill of $2,320,000, which is being written-
off over 7 years. The acquisition of assets was accounted for as a
purchase. In addition, the Company has assumed the office leases of the
Canadian entity and has hired its 19 employees. The results of Scott
Capital have been included in the Company's operations from April 1997, the
month of acquisition. The impact of pro forma adjustments on the combined
results of operations is not material.
5. NEW ACCOUNTING PRONOUNCEMENT
----------------------------
In February 1997, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). The Company is required to adopt SFAS 128 in the fourth quarter
of fiscal 1997 and, at that time, will restate earnings per share (EPS)
data for prior periods to conform with SFAS 128. Earlier application is not
permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic EPS would have been $.37 and $.29 for the quarters ended June 30,
1997 and 1996, respectively, and $.66 and $.54 for the six month periods
ended June 30, 1997 and 1996. Diluted EPS under SFAS 128 would not have
been significantly different than EPS currently reported for the periods.
In June 1997, the Financial Accounting Standards Board adopted Statements
of Financial Accounting Standards No. 130 (Reporting Comprehensive Income),
which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from nonowner
sources, and No. 131 (disclosures about Segments of an Enterprise and
Related Information), which establishes annual and interim reporting
standards for an enterprise's business segments and related disclosures
about its products, services, geographic areas, and major customers.
Adoption of these statements will not impact the Company's consolidated
financial position, results of operations or cash flows. Both statements
are effective for fiscal years beginning after December 15, 1997, with
earlier application permitted.
6. RECLASSIFICATIONS
-----------------
Certain amounts in prior periods have been reclassified to conform to the
current period presentation.
7
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30,
1997.
RESULTS OF OPERATIONS
Total revenues increased 68% to $55,897,000 and 72% to $102,826,000 for the
three and six month periods ended June 30, 1997, respectively, compared with the
corresponding prior year periods. Operating lease revenue increased 70% to
$54,725,000 and 74% to $101,070,000 for the three and six month periods ended
June 30, 1997, respectively, compared with the corresponding prior year periods.
The increase in operating lease revenue for both periods reflects a higher
average investment in operating leases, resulting from increases in operating
leases originated by the Company over the past year. The second quarter increase
was due to the acquisition of a portfolio from a Canadian company and the sale
of a portion of a residual interest in a lease portfolio. In addition, the six
month period increase is partially due to the sale of a mature lease portfolio.
Depreciation expense for operating leases increased 76% to $38,317,000 and 81%
to $70,562,000 for the three and six month periods ended June 30, 1997,
respectively, compared with the corresponding prior year periods. The
increases are primarily due to the increase in the operating lease base,
resulting from increases in operating leases originated by the Company over
the past year and the acquisition of a portfolio from a Canadian company. In
addition, the Company's lease portfolio as of June 30, 1997, had a higher
percentage of shorter term leases, which the Company depreciates over a
shorter period, compared to its portfolio as of June 30, 1996.
Selling, general and administrative expenses increased 55% to $4,605,000 and
55% to $8,417,000 for the three and six month periods ended June 30, 1997,
respectively, compared with the corresponding prior year periods. These
increases are primarily attributable to increased compensation and benefit
costs as a result of an increase in the number of employees, expenses
attributable to the commencement of the Company's operations in Europe and
Canada, increased occupancy costs resulting from an expansion of the Company's
headquarters and the commencement of the Company's operations in the United
Kingdom and Canada, interest costs and professional fees related to a
settlement of a tax audit adjustment, and costs related to the enhancement of
the Company's management information systems.
Interest expense increased 82% to $7,422,000 and 76% to $13,641,000 for the
three and six month periods ended June 30, 1997, respectively, compared with
the corresponding prior year periods. The increase is primarily due to higher
average recourse and nonrecourse debt outstanding, which resulted from
additional borrowings to fund the growth in the Company's lease portfolio.
The provision for income taxes increased to 42% for the three and six month
periods ended June 30, 1997, compared to the Company's 42% and 41% rate,
respectively, for the corresponding prior year period. The increase for the six
month period is due to an increase in new leases with customers located in
states with higher state income tax rates.
Net income increased 28% to $2,993,000 and 34% to $5,518,000 for the three and
six month periods ended June 30, 1997, respectively, compared with the
corresponding prior year periods, principally as a result of the increase in the
components of total revenues, reduced by the increases in the components of
total costs, specifically described above. Earnings per share increased 29% to
$.36 and 25% to $.66 for the three and six month periods, respectively. For
the six month period, net income rose faster than earnings per share for the
same period due to an increase in the average number of common shares
outstanding, primarily as a result of the Company's secondary public offering
of Common Stock completed in February, 1996.
8
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash flow from operations of $90,653,000 during the six
month period ended June 30, 1997, in part, due to net income of $5,518,000 for
the same period. Cash flow from operations was higher than net income primarily
as a result of non-cash expenses such as depreciation of $70,764,000, in
addition to net changes in accounts payable, accrued and other liabilities,
deferred taxes, and other assets, totaling $14,371,000. Investing activities,
which are primarily related to investments in equipment for lease, used
$137,739,000 during the six month period. Financing activities in the six month
period generated $59,356,000 from the Company's new borrowings of $302,529,000
of recourse and nonrecourse debt, and $650,000 from exercise of options,
aggregating $303,179,000, offset by purchases of outstanding common stock and
recourse and nonrecourse borrowings aggregating $243,823,000. Additionally, the
impact of exchange rate changes on cash was $150,000. The net result of the
above activity for the six month period was an increase in cash and cash
equivalents of $12,120,000.
The financing necessary to support the Company's leasing activities has
principally been provided from nonrecourse and recourse borrowings.
Historically, the Company has obtained recourse and nonrecourse borrowings from
money center banks, regional banks, insurance companies, finance companies and
financial intermediaries. In 1994, the Company, through its wholly-owned
subsidiary, Leasing Solutions Receivables, Inc., obtained long-term financing
for its leasing activity through the issuance of secured, nonrecourse debt
securities. Additionally, in January 1997, the Company, through its wholly-
owned subsidiary, Leasing Solutions Receivables II, Inc., obtained long-term
financing for its leasing activities through a $100,000,000 commercial paper-
backed conduit, revolving, nonrecourse line of credit provided by an affiliate
of a money center bank. Borrowings under this facility of approximately
$29,485,000, as of June 30, 1997, bear interest at a rate of 7.4% per annum.
Such borrowings through the Company's subsidiaries ("Securitizations") are
secured by lease receivables and the underlying equipment financed under such
arrangements.
In February 1996, the Company closed a public stock offering in which it sold
1,800,000 shares of the Company's Common Stock. The Company received net
proceeds of approximately $22,540,000 from the offering. In October 1996, the
Company closed a public debt offering for $71,875,000 of convertible
subordinated notes. The notes constitute general unsecured obligations of the
Company and are subordinated in right of payment to all existing and future debt
of the Company. The Company received net proceeds of approximately $69,400,000
from the offering. The seven year notes bear interest at a rate of 6.875% per
annum and are convertible into the Company's Common Stock at a conversion price
of $34.90. Interest is payable in April and October of each year. Principal is
payable upon maturity in October 2003. The Company may call, or prepay, all or
a portion of the notes beginning in October 1999. These equity and debt public
offerings were made principally to raise "equity" for the Company's purchase of
equipment for lease to its customers.
Prior to the permanent financing of its leases, interim financing has been
obtained through short-term, secured, recourse facilities. The Company's
available credit under these short-term, recourse facilities totaled
$185,000,000 at June 30, 1997. A brief description of each of those facilities
follows.
9
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
(1) $155,000,000 revolving facility syndicated with ten banks, expiring
October 11, 1997. At June 30, 1997, $119,152,000, with a weighted average
interest rate of 6.9% per annum, was outstanding under this facility.
Borrowings under the facility bear an interest rate, at the Company's
option, of the agent bank's prime rate or LIBOR plus 135 basis points (250
basis points for the portion of any advance exceeding the present value of
the financing lease).
(2) $15,000,000 revolving facility with one bank, with borrowings available
through April 1998, and repayments due 240 days after borrowing. At June
30, 1997, there were no amounts outstanding under this facility. Borrowings
under the facility bear interest at LIBOR plus 150 basis points.
(3) $15,000,000 revolving facility with one bank, expiring May 1998.
Borrowings under the facility bear interest at the bank's prime rate plus
95 basis points. At June 30, 1997, $8,000,000, with a weighted average
interest rate of 9.45% per annum, was outstanding under this facility. In
addition to interim financing of lease transactions, proceeds borrowed
under this facility are available for general corporate purposes.
The Company also has a $15,000,000 revolving facility, expiring October 15,
1997, with one bank. Borrowings under the facility bear interest at the bank's
prime rate. At June 30, 1997, there were no amounts outstanding under this
facility. The proceeds of borrowings under this line are used exclusively to
fund certain accounts payable to one of the Company's vendors resulting from the
purchase of equipment for lease, principally to one significant customer of the
Company.
In March 1996, the Company entered into a $100,000,000, nonrecourse revolving
facility with an affiliate of a money center bank. This bank has agreed to
extend this line until March 1998, and borrowings under the facility bear
interest at rates ranging from 135 to 200 basis points over average life
treasuries at the time of borrowing. To date, the Company has refinanced
approximately $92,012 of borrowings under its other short-term facilities
through this facility. The Company paid down approximately $50,465,000 of this
facility in January 1997 from the proceeds of the Securitization entered into in
January 1997 mentioned above. At June 30, 1997, $ 25,839,000 was outstanding
under this facility and the weighted average interest rate on that amount was
7.3% per annum. The Company expects to refinance, from time to time, under this
facility, additional borrowings under its other short-term facilities in order
to fix the interest rate for these borrowings.
Borrowings under the above-described facilities are generally secured by lease
receivables and the underlying equipment financed under the facility. Payments
under the Company's borrowings and the maturities of its long-term borrowings
are typically structured to match the payments due under the leases securing the
borrowings. The agreements for the facilities contain covenants regarding
leverage (a recourse liabilities-to-equity ratio of not more than 4.5 to 1),
interest coverage, minimum net worth and profitability and a limitation on the
payment of dividends. At June 30, 1997, the Company had a recourse liabilities-
to-equity ratio of 3.9 to 1. If the Company finances, on a long-term,
nonrecourse basis, the equipment and related leases presently financed under
short-term, recourse facilities, its recourse liabilities to equity ratio will
decrease to below 2 to 1.
Occasionally, the Company will obtain long-term, nonrecourse financing for
significant individual or pooled lease transactions (typically with one lessee)
at the time, or shortly after, it purchases the related equipment. The Company
borrowed an aggregate of $70,051,000 under such arrangements in the second
quarter of 1997. An aggregate of $116,026,000 ($16,768,000 of which is
recourse), with a weighted average interest rate of 8.5% per annum, remained
outstanding under all such arrangements as of June 30, 1996.
In 1995, the Company issued $17,500,000 of nonrecourse subordinated debt at a
coupon rate of 9.71% due through May 1998. In June 1997, the Company, through a
newly formed, wholly-owned subsidiary, Leasing Solutions Receivables III, Inc.,
financed, through a $8,500,000 nonrecourse sale to an affiliate of a major life
insurance company, a portion of its residual interest in a lease portfolio. Such
portion of the residual interest had a book value of $5,941,000. Approximately
$6,000,000 of the proceeds were used to repay the subordinated debt described
above which was owed to the same financing source.
As a result of the acquisition of a Canadian lease portfolio in April 1997,
the Company assumed recourse debt of $14,033,000 and nonrecourse debt, under
two separate lines, of $14,225,000. At June 30, 1997, outstanding recourse
debt was $9,316,000 and nonrecourse debt was $21,729,000, under those lines,
with weighted average interest rates of 5.8% and 7.8%, respectively.
10
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
The Company's debt financing activities typically provide approximately 80% to
90% of the purchase price of the equipment purchased by the Company for lease to
its customers. The 10% to 20% balance of the purchase price (the Company's
equity investment in equipment) must generally be financed by cash flow from its
operations, the proceeds of subordinated debt, or its equivalent, or recourse
debt, or common stock or convertible debt sold by the Company. Debt financing
for the Company's equity investment is not readily available in the marketplace
and may require an interest rate materially higher than is required by the
Company's conventional debt financing. Although the Company expects that the
credit quality of its lessees and its residual return history will continue to
allow it to obtain such financing, no assurances can be given that such
financing will be available, at acceptable terms or at all.
The arrangements under which the Company expects to finance its leasing
activities in Europe are likely to be substantially similar to the lease
financing arrangements utilized by the Company in the United States. The
Company's European subsidiaries will engage in nonrecourse and recourse
borrowings, with terms comparable to its domestic borrowings, to provide most of
the purchase price of equipment and finance its equity investment in equipment
from one or more of the equity sources described above. Although no assurances
can be given, the Company expects that a revolving line of credit, with
availability of 30,000,000 (sterling pounds), to be provided by both United
States financial institutions currently lending to the Company and by European
financial institutions, will be put in place by the Company's European
subsidiaries prior to the end of the third quarter of 1997.
The Company's current lines of credit, if renewed or replaced, the renewal of
recently expired lines, its expected access to the public and private securities
markets, both debt and equity, anticipated new lines of credit (both short-term
and long-term and recourse and nonrecourse), anticipated long-term financing of
individual significant lease transactions, and its estimated cash flow from
operations are anticipated to provide adequate capital to fund the Company's
operations, including acquisitions and financings under its vendor programs, for
the next twelve months. Although no assurances can be given, the Company expects
to be able to renew or timely replace its existing and recently expired lines of
credit, to continue to have access to the public and private securities markets,
both debt and equity, and to be able to enter into new lines of credit and
individual financing transactions.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's future quarterly operating results and the market price of its
stock may fluctuate. In the event the Company's revenues or earnings for any
quarter are less than the level expected by securities analysts or the market in
general, such shortfall could have an immediate and significant adverse impact
on the market price of the Company's stock. Any such adverse impact could be
greater if any such shortfall occurs near the time of any material decrease in
any widely followed stock index or in the market price of the stock of one or
more public equipment leasing companies or major customers or vendors of the
Company.
The Company's quarterly results of operations are susceptible to fluctuations
for a number of reasons, including, without limitation, as a result of sales by
the Company of equipment it leases to its customers. Such sales of equipment,
which are an ordinary but not predictable part of the Company's business, will
have the effect of increasing revenues, and, to the extent sales proceeds exceed
net book value, net income, during the quarter in which the sale occurs.
Furthermore, any such sale may result in the reduction of revenue, and net
income, otherwise expected in subsequent quarters, as the Company will not
receive lease revenue from the sold equipment in those quarters.
Given the possibility of such fluctuations, the Company believes that
comparisons of the results of its operations to immediately succeeding quarters
are not necessarily meaningful and that such results for one quarter should not
be relied upon as an indication of future performance.
11
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company issued and sold $71,875,000 of convertible subordinated notes, in
October 1996, in a public offering subject to its Registration Statement, dated
September 20, 1996, as amended. That Registration Statement and the Prospectus,
dated October 3, 1996, which is a part of it (the "Prospectus"), include a
section entitled "Risk Factors," which describes certain factors that may affect
future operating results of the Company. That section is hereby incorporated by
reference in this Report. Those factors should be considered carefully in
evaluating an investment in the Company's Common Stock and convertible debt.
If you do not have a copy of the Prospectus, you may obtain one by requesting
it from the Company's Investor Relations Department by phone, at (408) 995-6565,
or by mail at Leasing Solutions, Inc., 10 Almaden Boulevard, Suite 1500, San
Jose, California 95113.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The statements contained in this Report which are not historical facts may be
deemed to contain forward-looking statements with respect to events, the
occurrence of which involve risks and uncertainties, including, without
limitation, demand and competition for the Company's lease financing services
and the products leased by the Company, the continued availability to the
Company of adequate financing, risks and uncertainties of doing business in
Europe and Canada, the ability of the Company to recover its investment in
equipment through remarketing, the ability of the Company to enter into new
vendor programs and extend existing vendor programs, the ability of the Company
to manage its growth, and other risks or uncertainties detailed in the Company's
Securities and Exchange Commission filings, including the Prospectus.
12
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
PART II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Under Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on May 29,
1997.
(b) See (c) 1 below
The Company has no other Directors
(c) At the 1997 Annual Meeting, the shareholders took the following
action:
1. Elected four directors to serve until the next Annual
Meeting of Shareholders and until their successors are
elected and qualified; and
In the election of directors, no candidates were nominated
for election as a director other than the nominees of the
Board of Directors whose names were set forth in the
Company's proxy statement dated May 5, 1997. Set forth
below is a tabulation of the votes cast in the election of
Directors with respect to each nominee for office.
<TABLE>
<CAPTION>
Name of Nominee For Election Withheld
--------------- ------------ --------
<S> <C> <C>
Hal J Krauter 7,592,870 17,000
Louis R. Adimare 7,592,970 16,900
George L. Bragg 7,591,970 17,900
James C. Castle 7,592,970 16,900
Abstentions N/A N/A
Broker Non-votes N/A N/A
</TABLE>
(d) Not Applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit No. Document
----------- --------
27 Financial Data Schedule
13
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LEASING SOLUTIONS, INC.
By: /s/ Hal J Krauter
---------------------------------
Hal J Krauter
President and Chief Executive Officer
By: /s/ Steven L. Yeffa
---------------------------------
Steven L. Yeffa
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
DATE: August 14, 1997
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 19,008
<SECURITIES> 0
<RECEIVABLES> 15,185
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 518,216
<CURRENT-LIABILITIES> 29,227
<BONDS> 0
0
0
<COMMON> 37,890
<OTHER-SE> 30,421
<TOTAL-LIABILITY-AND-EQUITY> 518,216
<SALES> 0
<TOTAL-REVENUES> 102,826
<CGS> 70,562
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,417
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,641
<INCOME-PRETAX> 9,497
<INCOME-TAX> 3,979
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,518
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0
</TABLE>
