SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended: Commission File No.:
March 31, 1998 0-19516
SUNRISE INTERNATIONAL LEASING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 41-1632858
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
5500 Wayzata Boulevard, Suite 725
Golden Valley, Minnesota 55416
(Address of principal executive offices)
Registrant's telephone number, including area code:
(612) 593-1904
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
--------------------------------------------
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K.
---------------------------------------------
The aggregate market value of the Common Stock held by nonaffiliates of the
Registrant as of June 18, 1998 was approximately $11,305,440 based upon the
closing sale price of the Registrant's Common Stock on such date.
Shares of $.01 par value Common Stock outstanding at June 18, 1998: 7,806,046
shares.
--------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 1998 Annual Meeting are
incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
Organization
Sunrise International Leasing Corporation ("Sunrise") was originally
incorporated in Minnesota in February 1989 as Sunrise Leasing Corporation to
lease and sell new and used computers and other ancillary high technology
equipment. This leasing business is referred to as the "SLC business" and any
references to "SLC" refer to the Company with respect to the SLC business. In
February 1995, Sunrise changed its name from Sunrise Leasing Corporation to
Sunrise Resources, Inc. and merged with The P.J. King Companies, Inc. d/b/a
International Leasing Corporation ("ILC"), whose business involves leasing a
wide range of capital equipment through close relationships with the
manufacturers of such equipment. This vendor leasing business is referred to as
the "ILC business," and any references to "ILC" refer to the Company with
respect to the ILC business. On March 31, 1995 , Sunrise transferred the SLC and
the ILC businesses into a newly created wholly-owned subsidiary named Sunrise
Leasing Corporation. In November 1996, Sunrise formed a wholly-owned subsidiary
of Sunrise Leasing Corporation called Sunrise Funding Corporation to be used as
a facility for the securitization of leases with third parties. In October 1997,
Sunrise Resources was merged into and with Sunrise International Leasing
Corporation, a Delaware corporation. References to the "Company" refer to
Sunrise International Leasing Corporation and its subsidiaries.
Business
The SLC business provides its customers with lease financing for a full
range of data processing, telecommunications and other capital equipment. SLC
customers, representing a variety of industry segments, are located throughout
the United States. The Company uses master lease agreements with its customers,
under which equipment is leased through lease schedules, each of which has its
own lease term and constitutes a separate lease agreement.
The ILC business consists primarily of the development of
market-oriented vendor programs emphasizing the formulation of customized lease
and rental programs for vendors of computers and other equipment. The lease
options offered by ILC generally focus on one- to three-year lease terms.
Industry
The growth in the equipment leasing industry has occurred principally
because users have determined that the benefits of higher productivity and
profit can be obtained from the use of capital equipment, not necessarily from
its ownership, and that leasing can be significantly more flexible than other
methods of acquiring equipment. Leases can be structured to fit the lessee's
particular economic circumstances, cash flow requirements, equipment needs, and
tax situation, and to avoid the risk of obsolescence at the end of the lease
term. The benefits of leasing are especially applicable to those companies using
high technology products, because those products are characterized by rapid and
continuous technological advances. Computer equipment users frequently replace
their existing equipment as it becomes inadequate for their needs, as increased
capacity is required, or as new technological innovations become available. The
flexibility of equipment leasing assists these users to meet their changing
equipment requirements in a cost effective manner.
Leasing and Sales Activities
The Company generally leases data processing systems and other equipment
for terms ranging from six months to five years, though the vast majority of
such leases are in the one- to three-year category. All of the Company's leases
are noncancelable "net" leases which contain provisions under which the customer
must make all lease payments regardless of any defects in the equipment and
which require the customer to insure the equipment against casualty loss, and
pay all related property, sales and other taxes. SLC business customers are also
required to maintain and service the leased equipment, whereas certain ILC
business lease programs coordinate such maintenance and service for an
additional fee. The Company's leases are occasionally restructured during the
term of the lease to upgrade a customer's equipment configuration. The Company
<PAGE>
retains legal ownership of the equipment it leases, and in the event of default
by the customer, the Company (or the financial institution to whom the lease
payments have been assigned) may declare the customer in default, accelerate all
lease payments due under the lease, and pursue other available remedies,
including repossession of the equipment. At completion of the initial term of
the lease, the customer may return the equipment to the Company, renew the lease
for an additional term, or purchase the equipment. If the equipment is returned
to the Company, it is either re-leased to another customer or sold in the
secondary market as used equipment. The ILC business usually has an informal
remarketing arrangement with the equipment manufacturer, wherein the
manufacturer in some instances may assist in remarketing the equipment. Other
than its interest in the equipment it leases, the Company does not maintain any
significant inventory of equipment.
Competition
As a whole, the Company competes with a large number of firms in the
lease and sale of data processing equipment, most of which are substantially
larger and have greater capital and other resources. The Company's principal
competitors are manufacturers, such as IBM and other leasing companies, such as
IBM Credit Corporation, Comdisco Inc. and Leasetec. Commercial banks, investment
banking firms and other financial institutions also compete with the Company.
The Company's competitive position is dependent on its ability to
attract and retain vendor programs and qualified sales representatives and on
its continued ability to obtain financing on satisfactory terms.
Residual Values
Residual values, representing the estimated value of the equipment at
the termination of the lease, are recorded on the consolidated balance sheet as
a component of the investment in leasing operations. The estimated residual
values will vary, both in amount and as a percentage of the original equipment
cost, depending on several factors, including the type of equipment, the prior
history of the lessee, the amount of the monthly rent, and the term of the
lease. Residual values are also affected by equipment supply and demand and new
product introductions and prices charged by manufacturers. The Company's policy
is to evaluate residual values on an ongoing basis and record any downward
adjustments in the period identified.
The Company seeks to realize the estimated residual value at lease
termination through (i) renewal or extension of the original lease, (ii) sale of
the equipment to the lessee or a new user, or (iii) leasing of the equipment to
a new user. Equipment whose related leases have expired ("off-lease equipment")
is placed in inventory at its depreciated book value. The Company does not hold
inventory for sale for significant periods of time. The Company attempts to sell
or re-lease off-lease equipment as soon as possible in order to obtain the
highest possible return on such equipment.
Customers and Marketing
In addition to the Company's Minneapolis office, the Company has sales
offices in Denver, Los Angeles and Pittsburgh. However, the Company does not
intend to restrict its sales activities to any given territory. The Company
believes that future market expansion will depend on its ability to establish
new vendor leasing relationships and on its ability to hire qualified sales
representatives with experience in selected markets.
There were no customers individually accounting for more than 10% of
total consolidated revenues in fiscal 1998, 1997 or 1996.
Fluctuating Operating Results
Operating results are subject to fluctuations resulting from a variety
of factors, including variations in the relative percentages of the Company's
leases entered into during the period which are classified as direct financing
leases or operating leases as required by Statement of Financial Accounting
Standards No. 13. This relative mixture of leases is a result of a combination
of factors, including, but not limited to, changes in customer demands and/or
requirements, new product announcements, price changes, changes in installation
dates, pricing policies of equipment manufacturers and vendors, maturation of
existing leases, and competition from other lessors. Operating results are also
affected by changes in the Company's receivable and residual reserves resulting
from changes in the credit worthiness of lease customers and the estimated
residual values of equipment, respectively.
<PAGE>
Financing
The Company utilizes recourse and nonrecourse loans to fund lease
transactions. Such financing generally cannot be completed until the equipment
to be leased has been purchased and installed. The Company uses internally
generated funds, existing lines of credit, or other borrowings to finance the
equipment acquisitions on an interim basis.
Under nonrecourse financing arrangements, the Company assigns the
future rental payments and a security interest in the underlying equipment to a
financial institution in exchange for a loan equal to the present value of the
rental payments, without incurring liability for repayment of the loan.
Ownership of the leased equipment is retained by the Company, subject to a
financial institution's security interest. During fiscal year 1998, SLC lease
transactions were financed primarily through nonrecourse debt.
Specific recourse loans are generally collateralized by specific leases
and the underlying equipment. The Company's credit line is secured by all
unencumbered assets of the Company. In these arrangements, the Company retains
the entire risk of loss of its investment in the lease or loan. ILC lease
transactions are generally funded via internally generated cash flows or with
full-recourse loans or lines of credit.
As of March 31, 1998 and 1997, the Company's total borrowings were
$54,655,000 and $69,443,000, respectively, of which 43% and 44%, respectively,
were nonrecourse. During fiscal 1998 the Company entered into an agreement with
The King Management Corporation, (King Management) a company owned by the
Company's Chairman and Chief Executive Officer, wherein King Management would
provide financing for all approved vendor programs. Please refer to Financing
Section of Management's Discussion and Analysis under Item 7.
Significant Credit Concentrations
At March 31, 1998 and 1997, no leases outstanding to any individual
lessee exceeded 5% of the Company's total assets except in cases where the
leases had been discounted without recourse to a financial institution.
The Company has twelve vendor relationships, two of which currently
generate most of its business. Revenues of $25,916,000, or 52.6% of total
revenues, were generated through ILC's relationship with one vendor. Should this
relationship cease, revenues and cash flows would continue with individual
lessees through the scheduled expiration of such leases, but the longer term
effect would be a substantial reduction of both revenue and profit.
Proprietary Rights
The Company has no patents or registered trademarks. The Company
utilizes software licensed from third parties for certain of its leasing and
financing operations, including the administration of some outstanding equipment
leases. The Company has developed proprietary software to handle certain aspects
of its operations.
Foreign Operations and Export Sales
Almost all of the Company's leasing and sales activities have been to
customers within the United States. Sales, leases and loans to other countries
have been immaterial through March 31, 1998.
Employees
As of May 29, 1998, the Company had 40 full-time employees, none of
which is employed under a collective bargaining agreement. The Company considers
its current employee relations to be good. The Company believes that its future
operating results will be dependent in a significant part upon recruiting and
retaining well-qualified personnel.
<PAGE>
ITEM 2. PROPERTIES.
The Company's headquarters are currently located in approximately 13,600
square feet of office space in Golden Valley, Minnesota, a suburb of
Minneapolis. The lease for the Company's headquarters expires in September 2000
and has a current gross monthly rental of $11,625 plus operating expenses.
Beginning in April 1998, the Company sub-leases approximately 3,200 square feet
of this office space to The King Management Corporation for a gross monthly
rental of $2,939 plus operating expenses. The sublease is coterminous with the
Company's lease.
The Company also has short-term leases for sales offices in the Denver,
Colorado; Pittsburgh, Pennsylvania; and Los Angeles, California metropolitan
areas.
ITEM 3. LEGAL PROCEEDINGS.
The Company has several suits filed against lessees for non-payment of
their obligations under certain lease agreements. During fiscal 1998, the
arbitration procedure between the Company and the former shareholders of
International Leasing Corporation was completed. The arbitrator granted the
former ILC shareholder relief on one count and awarded a settlement of
additional shares of Sunrise common stock. (Please refer to Note 9 in the Notes
to Consolidated Financial Statements in Item 8)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth the names and ages of current executive officers of the
Company in addition to information regarding their positions with the Company,
their periods of service in such positions and their business experience for the
past five years. Executive officers generally serve in office for terms of
approximately one year.
Name and Age of Current Positions with Company and
Executive Officer Principal Occupations for the Past Five Years
----------------- ---------------------------------------------
Peter J. King Peter J. King became Chairman of the Board and Chief
70 Executive Officer on April 1, 1998, after serving as
Chairman of the Board since June 1997 and as a Board
member since April 1, 1997. Mr. King also has been
serving as the Chief Financial Officer since April 1,
1998. Mr. King had previously served as Chairman of
the Board from February 1995 to February 1996 and as
a Director from February 1995 to July of 1996. Mr.
King also previously served as a member of the
Company's Interim CEO Committee from July 1995 until
July 1996. Mr. King founded International Leasing
Corporation in 1974 and served as its President until
it was merged into the Company in February 1995. Mr.
King also serves as Chairman and CEO of The King
Management Corporation.
R. Bradley Pike R. Bradley Pike became a Vice President of the Company
44 on March 1, 1996 and has held the position of Vice
President -General Manager of Direct Leasing since
January 1998. Prior to joining the Company in March
1996, Mr. Pike was employed by Prime Capital
Corporation as Vice President of Operations from
August 1995 to February 1996. Mr. Pike was a
principal of Connectivity Systems Credit Corporation,
where he held a position of Executive Vice President
and Treasurer from October 1994 to August 1995. From
June 1988 to October 1994, he was Director of Debt
Placement at Meridian Leasing Corporation.
The Company is engaged in a realignment of responsibilities and expects to
appoint additional officers to various positions in the near future.
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information
The Company's shares are traded on the Nasdaq National Market ("NASDAQ")
under the symbol SUNL. The table below sets forth the range of high and low sale
prices per share as reported by NASDAQ.
Price
High Low
---- ----
Fiscal year ended March 31, 1998
First Quarter $3.375 $3.125
Second Quarter 4.234 2.875
Third Quarter 3.250 2.625
Fourth Quarter 3.875 2.625
Fiscal year ended March 31, 1997
First Quarter $4.125 $2.625
Second Quarter 5.250 3.125
Third Quarter 4.500 3.375
Fourth Quarter 4.125 3.500
As of June 18, 1998, there were approximately 1,427 beneficial owners of
the Common Stock. On June 18, 1998, the closing share price was $3.00.
(b) Dividends
The Company has never paid a cash dividend on its common stock. The
Board of Directors presently intends to retain all earnings for use in the
Company's business and does not anticipate paying cash dividends in the near
term. The Company's bank line of credit prohibits the Company from paying
dividends without the bank's consent.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below under the captions
"Statement of Operations Data" and "Balance Sheet Data" as of and for each of
the years in the five-year period ended March 31, 1998, are derived from the
Company's audited consolidated financial statements The consolidated financial
statements as of March 31, 1998 and 1997 and for the three years in the period
ended March 31, 1998, and the Independent Auditors reports thereon, are included
elsewhere in this Annual Report on Form 10-K. The data set forth in the
following tables should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and notes to the consolidated financial
statements appearing elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996 1995 1994
--------------- --------------- ------------- ------------- --------
Statement of Operations Data
Revenues
<S> <C> <C> <C> <C> <C>
Operating $ 33,714,000 $ 26,483,000 $ 21,998,000 $ 10,722,000 $ 8,628,000
Direct financing 4,792,000 7,528,000 9,625,000 5,613,000 3,837,000
Equipment sales 9,971,000 8,394,000 10,049,000 3,141,000 3,831,000
Interest income 202,000 304,000 1,447,000 869,000 --
Fee income 593,000 269,000 369,000 1,710,000 165,000
--------------- --------------- ------------- ------------- ------------
Total 49,272,000 42,978,000 43,488,000 22,055,000 16,461,000
Costs and expenses
Depreciation 19,974,000 15,297,000 13,777,000 7,518,000 4,924,000
Interest 5,424,000 6,541,000 7,559,000 3,865,000 1,718,000
Provision for lease and loan losses 2,790,000 7,512,000 1,853,000 9,502,000 70,000
Cost of equipment sold 9,966,000 7,418,000 9,145,000 2,495,000 3,107,000
Compensation expense 4,010,000 3,729,000 3,596,000 2,151,000 1,392,000
Other operating expenses 3,125,000 2,815,000 2,671,000 1,861,000 1,268,000
Arbitration settlement -- 2,022,000 -- -- --
--------------- --------------- ------------- ------------- -------------
Total 45,289,000 45,334,000 38,601,000 27,392,000 12,479,000
--------------- --------------- ------------- ------------- -------------
Income (loss) before income taxes 3,983,000 (2,356,000) 4,887,000 (5,337,000) 3,982,000
Provision(benefit) for income taxes 1,792,000 191,000 2,384,000 (1,085,000) 1,593,000
--------------- --------------- ------------- ------------- -------------
Net income (loss) $ 2,191,000 $ (2,547,000) $ 2,503,000 $ (4,252,000) $ 2,389,000
=============== =============== ============= ============ =============
Net income (loss) per common
share-basic $ .29 $ (0.35) $ 0.35 $ (0.93) $ 0.59
=============== =============== ============= ============ =============
Net income (loss) per
common share-diluted $ .29 $ (0.35) $ 0.35 $ (0.93) $ 0.59
=============== =============== ============= ============ =============
March 31,
1998 1997 1996 1995 1994
--------------- --------------- ------------- ------------- -------------
Balance Sheet Data
Investment in leasing operations $81,600,000 $94,584,000 $101,271,000 $ 95,936,000 $ 56,328,000
Loans receivable 3,328,000 7,503,000 14,074,000 18,638,000 2,096,000
Total assets 93,940,000 109,748,000 123,085,000 120,147,000 60,374,000
Borrowings under lines of credit 6,661,000 13,329,000 18,298,000 15,608,000 --
Notes payable to The
King Management Corporation 14,986,000 -- 4,127,000 11,733,000 --
Participations in loans receivable -- 435,000 4,582,000 7,585,000 1,596,000
Retained earnings 3,275,000 1,084,000 3,631,000 1,128,000 5,380,000
Shareholders' equity 31,008,000 26,757,000 29,304,000 26,800,000 22,134,000
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Revenues
The Company classifies its lease transactions, as required by Statement
of Financial Accounting Standards No. 13 ("FASB 13"), as either direct financing
or operating leases. Revenue, costs and resulting income are recognized during
each of the accounting periods during the term of the lease. The allocation of
income among the accounting periods within a lease term will vary depending upon
the lease classification.
The Company segregates the sources of its revenue into five categories
for financial statement purposes: (i) operating leases; (ii) direct financing
leases; (iii) sales of new and used equipment; (iv) fee income; and (v) interest
income.
Operating Leases. All leases that are not classified as direct financing
leases are treated as operating leases. Monthly billings from these leases are
recognized as leasing revenue. The Company's cost of the leased equipment is
recorded on the balance sheet and is depreciated on a straight-line basis over
the lease term to the Company's estimate of residual value. Revenue,
depreciation expense and the resultant gross margin for operating leases are
recorded evenly over the term of the lease. If the lease is discounted to a
financial institution, the related interest expense declines over the term of
the lease as the principal is reduced, with the resultant net margin being lower
in the early periods of the lease and higher in the later periods.
Direct Financing Leases. These leases transfer substantially all
benefits and risks of equipment ownership to the lessee. A lease is a direct
financing lease if the credit worthiness of the customer and the collectibility
of lease payments are reasonably certain and it meets at least one of the
following criteria: (i) the lease transfers ownership of the equipment to the
customer by the end of the lease term; (ii) the lease contains a bargain
purchase option; (iii) the lease term at inception is at least 75% of the
estimated economic life of the leased equipment; or (iv) the present value of
the minimum lease payments is at least 90% of the fair value of the leased
equipment at inception of the lease.
Direct financing leases consist of future lease payments plus the
residual value (collectively referred to as the "gross investment"). Residual
value is the estimated fair market value at the time of lease termination. At
the inception of a direct finance lease, the difference between the gross
investment in the lease and the cost (or carrying amount, if different) of the
leased equipment is recorded as unearned revenue. The "net investment" in the
lease is the gross investment less unearned revenue. The unearned revenue is
amortized to leasing revenue over the lease term to produce a constant
percentage return on the net investment whether or not the lease is discounted
to a financial institution.
Equipment Sales. Revenue from equipment sales transactions is recognized
by the Company at the time title to the equipment passes to the customer. Leases
that entitle the customer to purchase the leased equipment for a nominal sum at
the end of the lease term and which are discounted on a nonrecourse basis at the
lease commencement date, leaving the Company with no interest in the
transaction, are treated by the Company as a sale of equipment.
Fee Income. Fee income primarily consists of late fees collected on
past due accounts.
Interest Income. Interest income is accrued on unimpaired loans
receivable under the effective interest method. Interest income is not
recognized on loans which have been identified by the Company as impaired.
<PAGE>
Financing
The Company funds its revenue producing assets with a mix of
nonrecourse and recourse financing. As of March 31, 1998, the Company's total
borrowings of $54,665,000 were comprised of $23,502,000 of nonrecourse and
$31,153,000 of recourse debt, or 43% and 57%, respectively.
During fiscal 1998, the Company entered into a Discretionary Revolving
Credit Agreement with National City Bank of Minneapolis. The agreement provides
for discretionary loan advances up to $5.5 million based on eligible equipment
leases. Advances under the agreement are secured by the eligible equipment
leases and are repaid over the term of such eligible equipment leases with
interest of 3.25% above the yield on U.S. Treasury securities of equivalent
term. In May 1997, the Company borrowed $5.5 million under this credit facility,
and $3.7 million remains outstanding as of March 31, 1998.
During fiscal 1998, the Company entered into an agreement with King
Management wherein King Management agreed to provide funding for approved vendor
leasing programs, including making direct loans, and providing certain
subordinations and arranging financing packages for the period July 1, 1997
through June 30, 1999. Any direct financing utilized will be on terms as
attractive as any other financing facility utilized by the Company. In
consideration for the financing commitment, and other services , the Company
agreed to allow King Management to participate in 15% or 25% (depending on the
level of risk) of vendor lease transactions consummated during the agreement
term noted above. During fiscal 1998, King Management purchased leases in the
amount of $4,969,000 and had made direct loans to Sunrise totaling $15,472,000,
of which $14,986,000 were outstanding as of March 31, 1998. King Management
advances 100% of the purchase price, or net book value of the assets, and the
interest rate on these loans is at 1/4 % under the prime rate.
Subsequent to March 31, 1998, the Company extended the term of this
agreement for one additional year through June 30, 2000, and the King Management
financing commitment has been extended to include financing of direct leases
with terms of two years or shorter.
The $20 million securitization financing with Dougherty Dawkins during
fiscal 1997 has been reduced to a balance of $3,877,000 as of March 31, 1998.
In addition to King Management's financing commitment described above,
as of March 31, 1998, the Company had available a $25 million line of credit
which matures on September 30, 1998. At March 31, 1998, advances under this line
of credit were subject to a borrowing base limitation of $20,647,000, $6.7
million of which was outstanding. Advances under the line are collateralized by
substantially all of the Company's assets. The interest rate is at prime, and
the Company is subject to certain financial and other covenants relating to net
worth ratios and liquidity requirements.
The Company also utilizes certain of its lease rentals receivable and
the underlying equipment in lease transactions as collateral for secured
borrowing from financial institutions at fixed rates primarily on a nonrecourse
basis.
Cash Flows from Leases
Cash flows are not affected by how a particular lease is classified, but
are affected by the Company's decision on how its investment in a particular
lease will be financed.
<PAGE>
Results of Operations for the Years Ended March 31, 1998 and 1997
Total revenue for the fiscal year ended March 31, 1998 increased $6.3
million (14.6%) compared to the previous fiscal year. Operating lease revenue
continued to show sustained growth with an increase of $7.2 million (27.3%)
compared to the same period in fiscal 1997, which was primarily due to the
increase in activity in the Company's vendor leasing programs. Direct financing
lease revenues decreased $2.7 million (36.3%) from the previous fiscal year due
to fewer new leases being added as compared to the run-off of existing leases.
Equipment sales increased $1.6 million (18.8%) as compared to the same period in
fiscal 1997.
Total leasing revenues were as follows:
<TABLE>
<CAPTION>
Year ended March 31,
1998 1997
------------------------------- -------------------
Amount % Amount %
<S> <C> <C> <C> <C>
Leasing Revenues
Vendor (ILC) $ 27,138,000 70% $ 20,352,000 60%
Direct (SLC) 11,368,000 30 13,659,000 40
--------------- -- -------------- --
Total $ 38,506,000 100% $ 34,011,000 100%
=============== ==== ============== ====
As a percent of total revenues 78.1% 79.1%
===== =====
</TABLE>
Margins from leasing activities (leasing revenue, less depreciation and
interest expense) were 34.0%, 35.8% and 34.7% for the periods ended March 31,
1998, 1997 and 1996, respectively. Margins will fluctuate from period to period
based upon the mix of direct financing and operating leases. Margins will also
be affected by the age of direct finance and operating leases in the current
portfolio.
Revenue from equipment sales for the period ended March 31, 1998
increased $1.6 million as compared to the corresponding period in fiscal 1997.
The gross margin of this activity was approximately breakeven for the current
period ended March 31, 1998 as compared to 11.6% for the same period in fiscal
1997. The gross margin decrease was due to losses on sales related to a specific
vendor program. Gross margins will vary depending on the Company's ability to
purchase equipment at competitive prices and to negotiate attractive selling
prices for such equipment when the equipment has been returned at the end of the
lease term.
Interest income decreased $102,000 (33.6%) and fee income increased
$324,000 (120.4%) in fiscal 1998 as compared to the same period in fiscal 1997.
Interest income continues to decrease due to the cessation of the asset-based
lending business. Fee income increased primarily as a result of increased late
fee collections.
Total costs and expenses decreased $45,000 (less than 1%) in fiscal
1998 compared to the same period in fiscal 1997.
Depreciation increased $4.7 million (30.6%) in fiscal 1998 compared to
the same period in fiscal 1997. The increase reflects the continued increase in
operating leases.
Interest expense decreased $1.1 million (17.1%) in fiscal 1998 compared
to the same period in fiscal 1997. This decrease in interest expense reflects
lower average borrowings during the period, as well as lower cost of borrowing
under King Management's financing commitment.
<PAGE>
During fiscal 1998, the Company incurred $2,790,000 in losses on leases
and loans, including $1,895,000 during the fourth quarter. The fourth quarter
charges included $1.4 million reserves on assets originated prior to the merger
with ILC, a provision for a fourth quarter negotiated settlement of $4.6 million
of lease transactions which the Company had placed into default late in the
third quarter, as well as provisions for reserves to cover other leases in
default.
Also included in the fourth quarter are charges in the amount of
$500,000 representing a reduction in residual value of assets in a specific
vendor program. In addition, the Company will be changing its depreciation
method on future asset purchases under this program to better match the
accelerating rate of obsolescence. The impact of these changes will result in a
slight decrease in overall margins from leasing activity in future periods.
Compensation expense increased $281,000 (7.5%) in fiscal 1998 versus the
same period in fiscal 1997. This increase was primarily due to severance
accruals including $163,000 which will be paid during fiscal year 1999.
Other operating expenses increased $310,000 (11.0%) in fiscal 1998
compared to the same period in fiscal 1997. This increase was primarily
attributed to accelerating the amortization of capitalized costs incurred in a
securitized financing which was completed in fiscal 1997.
As the result of a merger related arbitration proceeding, on June 17,
1997, the former International Leasing Corporation shareholders were awarded
560,257 additional shares of Sunrise common stock for the breach of warranty and
38,818 additional shares of Sunrise common stock for repayment of attorneys'
fees. The charges relating to these awards ($2,022,000) were included in the
financial statements for fiscal 1997.
Income tax provision as a percentage of income (loss) before taxes was
45.0% in fiscal 1998 as compared to 8.1% in fiscal 1997. The primary reason for
the effective tax rates differing from the statutory rates is the lack of
deductibility of both the arbitration settlement costs and the related legal
costs.
Results of Operations for the Years Ended March 31, 1997 and 1996
Total revenue for the fiscal year ended March 31, 1997 decreased by
$510,000 (1.2%) compared to the previous fiscal year. Operating lease revenue
continued to show sustained growth with an increase of $4.5 million (20.4%)
compared to the same period in fiscal 1996, which was primarily due to the
increase in activity in the Company's vendor leasing programs. Direct financing
lease revenues decreased $2.1 million (21.8%) from the previous fiscal year due
to fewer new leases being added as compared to the run-off of existing leases.
Equipment sales decreased $1.7 million (16.5%) as compared to the same period in
fiscal 1996. This decrease is primarily a result of lower off-lease sales coming
from the vendor leasing business. Interest income and fee income continued to
decline as the Company continued to wind down its asset-based lending business.
Total leasing revenues were as follows:
<TABLE>
<CAPTION>
Year ended March 31,
1997 1996
------------------------------- -------------------
Amount % Amount %
<S> <C> <C> <C> <C>
Leasing Revenues
Vendor (ILC) $ 20,352,000 60% $ 13,899,000 44%
Direct (SLC) 13,659,000 40 17,724,000 56
---------------- -- ---------------- --
Total $ 34,011,000 100% $ 31,623,000 100%
================ ==== ============== ====
As a percent of total revenues 79.1% 72.7%
===== =====
</TABLE>
<PAGE>
Margins from leasing activities (leasing revenue, less depreciation and
interest expense) were 35.8%, 34.7% and 31.7% for the periods ended March 31,
1997, 1996 and 1995, respectively. Margins will fluctuate from period to period
based upon the mix of direct financing and operating leases. Margins will also
be affected by the age of direct finance and operating leases in the current
portfolio.
Revenue from equipment sales for the period ended March 31, 1997
decreased $1.7 million as compared to the corresponding period in fiscal 1996.
This decrease was primarily the result of lower off-lease sales coming from the
vendor leasing business. The gross margin of this activity was 11.6% for the
current period ended March 31, 1997 as compared to 9.0% for the same period in
fiscal 1996. Gross margins will also vary depending on the Company's ability to
purchase equipment at competitive prices and to negotiate attractive selling
prices for such equipment.
Interest income decreased $1.1 million (78.9%) and fee income decreased
$100,000 (27.1%) in fiscal 1997 as compared to the same period in fiscal 1996.
Both of these decreased primarily due to the cessation of the Company's
asset-based lending activities.
Total costs and expenses increased $6.7 million (17.4%) in fiscal 1997
compared to the same period in fiscal 1996. This increase reflects the
additional amounts recorded as reserves on certain lease and loan transactions
and the cost of additional shares issued as part of the arbitration settlement.
Depreciation increased $1.5 million (11.0%) in fiscal 1997 compared to
the same period in fiscal 1996. The increase was a result of an increase in
operating leases.
Interest expense decreased $1.0 million (13.5%) in fiscal 1997 compared
to the same period in fiscal 1996. This decrease in interest expense reflects
lower average borrowings during the period.
During fiscal 1997, the Company provided $7,512,000 for losses on lease
and loan receivables, including $6,641,000 during the fourth quarter. The fourth
quarter provision was made after considering the deteriorating financial
condition of one leasing and three loan customers. The Company wrote off or
established reserves to reduce the carrying values of these underlying leases
and loans to their net estimated realizable values as of March 31, 1997. The
collateral underlying these leases and loans consists primarily of casino
equipment, a minority share in three limited liability corporations, cash
surrender value of three life insurance policies and a golf course and
surrounding residential lots.
<PAGE>
Compensation expense increased slightly with a $133,000 (3.7%) change in
fiscal 1997 versus the same period in fiscal 1996. This increase was due to a
slight increase in average personnel as well as increases in certain
compensation accruals.
Other operating expenses increased $144,000 (5.4%) in fiscal 1997
compared to the same period in fiscal 1996. This increase was attributed to a
significant increase in legal fees relating to the Company's dispute with King
Management Corporation.
During fiscal 1997, the former shareholder of International Leasing
Corporation commenced arbitration proceedings against the Company related to the
February 1995 merger of the Company with International Leasing Corporation. On
June 17, 1997, the former International Leasing Corporation shareholder was
awarded 560,257 additional shares of Sunrise common stock for the breach of
warranty and 38,818 additional shares of Sunrise common stock for repayment of
attorneys' fees.
Income tax provision as a percentage of income (loss) before taxes was
8.1% in fiscal 1997 as compared to 48.8% in fiscal 1996. The tax provision
versus a tax benefit from the pre-tax loss in fiscal 1997 was due principally to
the non-deductibility of the settlement from the arbitration award.
Liquidity and Capital Resources
General
The Company uses a combination of its credit lines and internally
generated cash flows to finance, on an interim basis, the acquisition of revenue
generating equipment. Generally, upon commencement of an SLC original equipment
lease, the Company attempts to assign the remaining lease payment stream to a
financial institution on a discounted, nonrecourse basis. In this manner, the
Company limits its risk, if any, to its equity investment in the loan or
equipment. The discounted lease proceeds received by the Company are used to
reduce borrowings under the Company's credit lines. Where the Company finances
the equipment cost either internally or on a recourse basis, the Company assumes
the entire risk on its investment in the loan or equipment.
At March 31, 1998, the Company had total borrowings outstanding of $54.7
million, of which 43.4 % were nonrecourse. These borrowings consisted of $25.5
million of discounted lease rentals (7.0% of which were recourse and 93.0% of
which were non-recourse), $6.7 million of borrowings under bank lines of credit,
$3.8 million under a securitized financing facility, $3.7 million note payable
to a bank, and a total of $15.0 million of notes payable to King Management
Corporation.
As of March 31, 1998, the Company had a total investment in leasing
operations of $81.6 million, which compares to $94.6 million in fiscal 1997. The
Company's investment in leasing operations was financed through $23.7 million on
non-recourse discount lease financing, $1.8 million of recourse discount lease
financing, $18.6 million notes payable and $37.5 million generated by internal
funds and recourse bank lines of credit. The Company's investment in leasing
operations includes equipment held for lease, which consists of equipment for
which a lease has been signed but which has not yet commenced. The amount of
equipment held for lease fluctuates significantly depending on the dollar
amounts and commencement dates of the Company's leases. The decrease in
investment in leasing operations is a result of a decrease in the direct leasing
business direct financing leases.
<PAGE>
Net cash provided by operating activities was $20.2 million for the year
ended March 31, 1998, which includes accounts payable decreasing $5.4 million.
Equipment expenditures of $30.4 million and a net $14.8 million
reduction in borrowings for fiscal 1998 were funded through $20.2 million of
cash flows provided by operating activities and through the collection of $4.0
million and $21.0 million in loans and direct financing leases, respectively.
Also during 1998 significant reductions in discounted lease financings and
securitized borrowings were funded by advances from King Management. The Company
does not have any material commitments for capital expenditures, other than
equipment held for lease.
Inflation has not been a significant factor in the Company's business in
any of the periods presented.
Liquidity and Financing Sources
The Company maintains a $25 million line of credit. Of this amount, $6.7
million had been utilized as of March 31, 1998. Advances under the line bear
interest at prime and are collateralized by substantially all of the Company's
unincumbered assets. The Company's line of credit matures on September 30, 1998.
The Company believes this credit facility will be renewed on terms similar to
the current facility. The line of credit requires compliance with financial
covenants, including the maintenance of certain liquidity and net worth ratios,
prohibits the payment of dividends and requires compliance with other financial
covenants. As of March 31, 1998, the Company is in compliance with the terms of
these agreements.
During fiscal 1998, the Company entered into a Discretionary Revolving
Credit Agreement with National City Bank of Minneapolis. The agreement provides
for discretionary loan advances up to $5.5 million based on eligible equipment
leases. Advances under the agreement are secured by the eligible equipment
leases and are repaid over the term, up to 48 months, of such eligible equipment
leases with interest at 3.25% above the yield on U.S. Treasury securities of
equivalent term (9.53% at March 31, 1998.) In May 1997, the Company borrowed
$5.5 million under this credit facility, of which $3.7 million was outstanding
as of March 31, 1998.
During fiscal 1998, the Company entered into an agreement with King
Management wherein King Management agreed to provide funding for approved vendor
leasing programs, including making direct loans, and providing certain
subordinations and arranging financing packages for the period July 1, 1997
through June 30, 1999. Any direct financing utilized will be on terms as
attractive as any other financing facility utilized by the Company. In
consideration for the financing commitment, and other services, the Company
agreed to allow King Management to participate in specific percentages of vendor
lease transactions consummated during the agreement term noted above. During
fiscal 1998, King Management purchased leases in the amount of $4,969,000 and
made direct loans to Sunrise totaling $15,472,000, of which $14,986,000 were
outstanding as of March 31, 1998. Subsequent to March 31, 1998, the Company has
extended the term of this agreement for one additional year through June 30,
2000, and King Management's financing commitment has been extended to include
financing of direct leases with terms of two years or shorter.
Based on the financing commitments from King Management, the borrowing
capacity under the bank line and its recent success in obtaining additional
discount financing, the Company believes that it will be able to finance its
anticipated equipment purchasing commitments in fiscal 1999.
The Company continues to monitor several problem leases and loans.
While there are leases and loans payable to the Company which could force the
Company to take additional write-offs, management does not currently believe
that any such write-offs, other than the loan described below, would be material
or that they would create new covenant violations on current credit facilities
or otherwise limit or reduce the Company's access to credit.
<PAGE>
Outlook
Certain statements contained in this Outlook section and other sections
of this document are forward looking, based on current expectations, and actual
results may differ materially. The forward looking statements, in particular the
statements regarding growth of the company's vendor leasing business, the
Company's ability to finance its business, and management's belief that any
future loan or lease write-off will not be material, involve a number of risks
and uncertainties including the Company's reliance on a few large vendors for
its business, its ability to cope with accelerating obsolescence, and to
remarket its off-lease equipment at prices that are equal to or better than its
book value. In addition to the factors discussed above which could cause actual
results to differ from those projected other factors which could cause actual
results to differ from expected include the following:
Future Growth. The Company's ability to grow at an acceptable rate is
dependent to a great extent on the expansion of its vendor leasing business. The
Company's ability to expand its vendor business is dependent upon successfully
servicing existing vendor accounts and attracting new vendor accounts. As of
March 31, 1998, the Company had only two significant vendor leasing programs and
has signed agreements for ten other vendor leasing programs. While the Company
believes it has the ability and capacity to develop large vendor leasing
programs, other than the two it is currently servicing there is no assurance
that it will be successful in this regard or that it will be able to generate
acceptable revenue growth.
In order to broaden the base of potential lessees the Company has
redefined its underwriting policies. These policy changes result in a greater
focus on very short-term leases (1-2 year), expanding our business with
customers that traditionally are of lower credit quality, and accepting
significantly larger transactions from credit worthy customers at rates which
are lower than usual. These changes will result in an increased level of
transaction and portfolio risk for the Company and an increased reliance on
recourse financing.
Highly Competitive Industry. The equipment leasing business is highly
competitive. The Company competes with numerous companies, including leasing
companies, commercial banks and financial institutions, some of which the
Company relies on to obtain capital to finance its leases. Most of the Company's
competitors are significantly larger and have substantially greater resources
than the Company. The Company typically chooses not to compete with large
leasing companies for those leases in which the cost of the equipment greatly
exceeds the amount of nonrecourse financing available.
Risk of Additional Loan and Lease Write-Offs. While the Company
believes that its current reserves are adequate, it continues to monitor closely
a restructured loan and a material lease, as to which the Company has a book
value of $4.1 million and a remaining investment of $9.5 million. While lessee
payments are being received on a monthly basis there is no assurance that such
payments will continue on an uninterrupted basis or that the Company is
adequately secured. Any future losses on such loans and lease incurred in excess
of the Company's reserves would likely materially affect the Company's future
earnings and cash flows, and may cause the Company to be in violation of one or
more of its covenants under its credit agreements with its financing sources.
Financing. The Company's growth and profitability are dependent to a
great extent on the Company's ability to finance revenue producing assets. The
King Management Corporation's financing commitment, as well as continued
reduction in the amount of non-performing assets, have enhanced the Company's
ability to obtain required financing. While the Company has been successful in
obtaining required recourse and non-recourse financing to date, there is no
assurance that all required financing will be available in the future.
Major Customers/Vendors. At March 31, 1998 and March 31,1997, no leases
outstanding to any individual lessee exceeded 5% o the total lease portfolio,
except in cases where the leases had been discounted without recourse to a
financial institution.
However, 52.6% of the Company's total leasing revenue for the year
ended March 31,1998 was generated through a single vendor leasing program.
Should this program terminate, the Company would continue to realize related
revenues for a period of up to three years. If the Company is unable to replace
this business, the Company's future financial results could be materially and
adversely affected.
<PAGE>
Residual Values of Leased Equipment. The value of the data processing
equipment leased by the Company to its customers represents a substantial
portion of the Company's capital. At the inception of each lease, the Company
estimates the residual value of the leased equipment, which is the estimated
market value of the equipment at the end of the initial lease term. The actual
realized residual value of leased equipment may differ from its estimated
residual value, resulting in profit or loss when the leased equipment is sold or
leased again at the end of the initial lease term. If a lessee defaults on a
lease which has been discounted by the Company to a financial institution, the
financial institution may foreclose on its security interest in the leased
equipment and the Company may not realize any portion of such residual value. In
addition, the high technology equipment which comprises the bulk of the
Company's lease portfolio is subject to rapid technological obsolescence typical
of the computer industry.
During the past fiscal year, the Company has experienced losses on a
specific vendor program and established reserves to cover anticipated losses in
future periods. In addition, the company will be depreciating future equipment
acquisitions from this vendor program more quickly. The trend towards shortened
product life cycles will continue to add additional risk to maintaining
historical leasing margins.
Accounting Changes
Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting
Comprehensive Income" was issued in June 1997 and must be adopted by the
Company no later than fiscal 1999. The statement requires companies to
disclose comprehensive income and its components in the general purpose
financial statements.
SFAS No. 131, "Disclosure about Segments of the Enterprise and Related
Information" was issued in June 1997 and must be adopted by the Company no
later than fiscal 1999. The statement establishes standards which redefine
how operating segments are determined and requires public companies to
report financial and descriptive information about reportable operating
segments.
The Company has not completed the process of evaluating the effect of SFAS
No. 130, and SFAS No. 131, but does not believe the new accounting
pronouncements will significantly effect the Company's financial condition
or operating results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedule listed below are included herein
on the pages set forth:
Page
Current Independent Auditor's Report on Consolidated
Financial Statements and Schedule for the year ended March 31, 1998...18
Former Independent Public Accountants' Report on Consolidated
Financial Statements as of March 31, 1997 and for each of the
two years then ended..................................................19
Consolidated Balance Sheets as of March 31, 1998 and 1997...............20
Consolidated Statements of Operations for the years ended March 31,
1998, 1997, and March 31, 1996........................................21
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1998, 1997 and March 31, 1996...............................22
Consolidated Statements of Cash Flows for the years ended March 31,
1998, 1997 and March 31, 1996.........................................23
Notes to Consolidated Financial Statements..............................24
.
Schedule II- Valuation and Qualifying Accounts..........................*
All other schedules are omitted, as the required information is
inapplicable or the information is presented in the financial statements or
related notes.
*Immediately follows signature page of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 12, 1997, Arthur Andersen LLP was dismissed and Deloitte &
Touche LLP was appointed as the Company's independent public accountants. Such
change in accountants was reported in the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Sunrise International Leasing Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Sunrise
International Leasing Corporation (formerly Sunrise Resources, Inc.) and
Subsidiaries as of March 31, 1998 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in the index at Item
14.a.2. These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 1998 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sunrise International Leasing
Corporation and Subsidiaries as of March 31, 1998 and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
May 29, 1998
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sunrise International Leasing Corporation.:
We have audited the accompanying consolidated balance sheet of Sunrise
International Leasing Corporation (a Delaware corporation) (formerly Sunrise
Resources, Inc.) and Subsidiaries (the Company) as of March 31, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended March 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sunrise International Leasing
Corporation and Subsidiaries as of March 31, 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
March 31, 1997 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
June 27, 1997
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION
(FORMERLY SUNRISE RESOURCES, INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,140,000 $ 2,191,000
Accounts receivable, less allowance for doubtful accounts
of $260,000 and $494,000, respectively 3,413,000 1,928,000
Income taxes receivable 672,000 1,245,000
Inventory held for sale 207,000 388,000
Loans receivable, less allowance for possible losses of
$1,105,000 and $3,401,000, respectively 3,328,000 7,503,000
Investment in leasing operations:
Direct financing leases 27,200,000 45,348,000
Operating leases, less accumulated depreciation of
$24,646,000 and $22,973,000, respectively 49,687,000 42,211,000
Equipment held for lease 4,262,000 6,435,000
Initial direct costs 451,000 590,000
------------ ------------
Total investment in leasing operations 81,600,000 94,584,000
------------ ------------
Furniture and fixtures, less accumulated depreciation of
$658,000 and $535,000, respectively 326,000 411,000
Other assets 2,254,000 1,498,000
------------ ------------
Total Assets $ 93,940,000 $109,748,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Financing arrangements
Borrowings under lines of credit $ 6,661,000 $ 13,329,000
Discounted lease rentals 25,476,000 40,198,000
Securitized borrowings 7,532,000 15,481,000
Recourse participations in loans receivable 435,000
Note payable to King Management Corporation 14,986,000
------------ ------------
Total financing arrangements 54,655,000 69,443,000
------------ ------------
Accounts payable 1,457,000 6,808,000
Accrued liabilities 3,085,000 4,841,000
Deferred tax liability 3,735,000 1,899,000
------------ ------------
Total Liabilities 62,932,000 82,991,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 17,500,000 shares authorized,
7,788,000 shares issued and outstanding 78,000 72,000
Preferred stock, undesignated, par value $.01 per share,
2,500,000 shares authorized, none issued or outstanding
Additional paid-in capital 27,655,000 25,601,000
Retained earnings 3,275,000 1,084,000
------------ ------------
Total stockholders' equity 31,008,000 26,757,000
------------ ------------
Total liabilities and stockholders' equity $ 93,940,000 $109,748,000
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION
(FORMERLY SUNRISE RESOURCES, INC. ) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Operating leases $ 33,714,000 $ 26,483,000 $ 21,998,000
Direct financing leases 4,792,000 7,528,000 9,625,000
Equipment sales 9,971,000 8,394,000 10,049,000
Interest income 202,000 304,000 1,447,000
Fee income 593,000 269,000 369,000
------------ ------------ ------------
Total revenues 49,272,000 42,978,000 43,488,000
------------ ------------ ------------
COSTS AND EXPENSES:
Depreciation 19,974,000 15,297,000 13,777,000
Interest (including $161,000, $145,000 and
$753,000 respectively paid to a related party) 5,424,000 6,541,000 7,559,000
Provision for lease and loan losses 2,790,000 7,512,000 1,853,000
Cost of equipment sold 9,966,000 7,418,000 9,145,000
Compensation expense 4,010,000 3,729,000 3,596,000
Other operating expenses 3,125,000 2,815,000 2,671,000
Arbitration settlement 2,022,000
------------ ------------ ------------
Total costs and expenses 45,289,000 45,334,000 38,601,000
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS BEFORE
PROVISION FOR INCOME TAXES 3,983,000 (2,356,000) 4,887,000
PROVISION FOR INCOME TAXES 1,792,000 191,000 2,384,000
------------ ------------ ------------
NET INCOME (LOSS) $ 2,191,000 $ (2,547,000) $ 2,503,000
============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
BASIC $ 0.29 $ (0.35) $ 0.35
============ ============ ============
DILUTED $ 0.29 $ (0.35) $ 0.35
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC 7,658,000 7,189,000 7,189,000
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - DILUTED 7,676,000 7,245,000 7,221,000
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION
(FORMERLY SUNRISE RESOURCES, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
------------ ---------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT
MARCH 31, 1995 7,189,000 $ 72,000 $ 25,600,000 $ 1,128,000 $ 26,800,000
Employee stock purchases 1,000 1,000
Net income 2,503,000 2,503,000
------------ ---------- ------------- ------------ --------------
BALANCE AT
MARCH 31, 1996 7,189,000 72,000 25,601,000 3,631,000 29,304,000
Net loss (2,547,000) (2,547,000)
------------ ---------- ------------- ------------ --------------
BALANCE AT
MARCH 31, 1997 7,189,000 72,000 25,601,000 1,084,000 26,757,000
Stock issued as a result of
arbitration settlement 599,000 6,000 2,016,000 2,022,000
Stock options issued to
non-employees 38,000 38,000
Net income 2,191,000 2,191,000
------------ ---------- ------------- ------------ --------------
BALANCE AT
MARCH 31, 1998 7,788,000 $ 78,000 $ 27,655,000 $ 3,275,000 $ 31,008,000
============ ========== ============= ============ ==============
</TABLE>
See notes to financial statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION
(FORMERLY SUNRISE RESOURCES, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 2,191,000 $ (2,547,000) $ 2,503,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Provision for lease and loan losses 2,790,000 7,512,000 1,853,000
Depreciation and amortization 20,947,000 15,409,000 13,834,000
Deferred income taxes 1,792,000 401,000 1,941,000
Stock issued for arbitration settlement 2,022,000
Stock options issued to non-employees 38,000
Change in operating assets and liabilities:
Accounts receivable (2,081,000) 1,236,000 (2,941,000)
Income taxes 617,000 (88,000) (1,563,000)
Other assets (1,195,000) (831,000) 4,000
Inventory held for sale 181,000 (265,000) 51,000
Accounts payable (5,351,000) 1,971,000 (145,000)
Accrued liabilities (1,756,000 2,333,000 1,321,000
------------ ------------ ------------
Net cash provided by operating activities 20,195,000 25,131,000 16,858,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in loans receivable (1,417,000) (39,297,000)
Principal portion of loans receivable collected 3,975,000 5,503,000 42,773,000
Purchase of equipment for lease (30,364,000) (40,646,000) (43,341,000)
Principal portion of direct financing leases collected 21,016,000 26,115,000 24,203,000
Purchase of furniture and fixtures (85,000) (40,000) (132,000)
------------ ------------ ------------
Net cash used in investing activities (5,458,000) (10,485,000) (15,794,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit 36,100,000 22,600,000 35,320,000
Payments on lines of credit (42,768,000) (27,569,000) (32,630,000)
Proceeds from discounted lease financing 11,342,000 12,298,000 32,522,000
Payments on discounted lease financing (26,064,000) (28,620,000) (26,437,000)
Proceeds from note payable related party 15,472,000 1,955,000 --
Payments on note payable to related party (486,000) (6,082,000) (7,606,000)
Proceeds from participations in loans receivable -- -- 714,000
Payments on participations in loans receivable (435,000) (4,147,000) (3,717,000)
Proceeds from securitized borrowings 5,499,000 20,000,000
Payments on securitized borrowings (13,448,000) (4,519,000)
Issuance of common stock 1,000
------------ ------------ ------------
Net cash used in financing activities (14,788,000) (14,084,000) (1,833,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (51,000) 562,000 (769,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 2,191,000 1,629,000 2,398,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR $ 2,140,000 $ 2,191,000 $ 1,629,000
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 3,004,000 $ 3,823,000 $ 4,246,000
Income taxes paid (617,000) 423,000 1,392,000
</TABLE>
See notes to financial statements.
<PAGE>
SUNRISE INTERNATIONAL LEASING CORPORATION
(FORMERLY SUNRISE RESOURCES, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - Sunrise International Leasing Corporation
(formerly Sunrise Resources, Inc.) (Sunrise or the Company) was
incorporated in Minnesota in February 1989. In 1997 the Company was
reincorporated under Delaware state law. The Company, through its wholly
owned subsidiary Sunrise Leasing Corporation (also d/b/a International
Leasing Corporation (ILC)), is primarily in the business of leasing data
processing and other equipment. The Company has also established Sunrise
Funding Corporation I, a wholly owned subsidiary of Sunrise, as a facility
for securitization of leases. The Company has in the past engaged in
commercial and asset-based lending through its wholly owned subsidiary
Sunrise Financial Resources, Inc. (SFR).
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to
conform with the current year's presentation.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. At March 31, 1998 and 1997, the Company had restricted cash
balances of $891,000 and $818,000, respectively, associated with a
compensating debt balance.
Inventory Held for Sale - Inventory is valued at the lower of specific
unit cost or net realizable value.
Loan Accounting - Loans are stated at the amount of unpaid principal, net
of unearned fees from loan origination, and are reduced by an allowance
for possible loan losses. Interest is accrued on the unpaid principal
balances. Unearned fees from loan origination are deferred and recognized
over the loan term as fee income. When, in the opinion of management, a
reasonable doubt exists as to the collectibility of interest or fee
income, the accrual of such income is discontinued and uncollected income
accruals are reversed.
Lease Accounting - The Company's lease transactions are classified as
either direct financing or operating leases. The Company classifies each
lease at its inception in accordance with Statement of Financial
Accounting Standards (SFAS) No. 13, Accounting for Leases. Direct
financing leases are defined as those leases which transfer substantially
all of the costs and risks of ownership of the equipment to the lessee.
The Company classifies a lease as a direct financing lease if the
creditworthiness of the customer and the collectibility of lease payments
are reasonably certain and it meets one of the following criteria: (a) the
lease term is at least 75% of the estimated economic life of the leased
equipment at lease inception; (b) the present value of the rental payments
is at least 90% of the fair market value of the leased equipment at lease
inception; (c) the lease contains a bargain purchase option; or (d) the
lease transfers ownership of the equipment to the lessee by the end of the
lease term. Operating leases are defined as those leases in which
substantially all the benefits and risks of ownership of the equipment are
retained by the Company.
<PAGE>
The lease accounting methods used by the Company are:
Operating Leases - Monthly payments are recorded as operating lease
revenues. The cost of the equipment is recorded as investment in
leasing operations - operating leases in the consolidated balance
sheet and this cost, less an estimated residual value, is depreciated
using the straight-line method over the term of the lease.
Direct Financing Leases - Direct financing leases consist of future
lease payments plus the residual value (collectively referred to as
the "gross investment"). The difference between the gross investment
in the lease and the cost (or carrying amount, if different) of the
leased property is recorded as unearned revenue. The net investment
in the lease is the gross investment less unearned revenue and is
recorded as investment in leasing operations - direct financing
leases in the consolidated balance sheet. The unearned revenue is
amortized to direct financing lease revenues over the lease term to
produce a constant percentage return on the net investment.
Residual Values - Residual values represent management's estimate of
value of the leased equipment when the lease on such equipment
terminates. The estimates are made at the inception of the lease
based on management's experience and judgment. The Company evaluates
residual values on an ongoing basis and establishes reserves if they
determine values to be overstated. No upward revision of residual
value is made subsequent to the period of inception of the lease. The
residual values are included in investment in leasing operations -
operating leases or investment in leasing operations - direct
financing leases as applicable.
Initial Direct Costs - Initial direct costs, primarily sales
commissions relating to direct financing and operating leases, are
capitalized and amortized over the lease term in proportion to the
recognition of income.
Allowance for Lease and Loan Losses - The allowance for possible lease and
loan losses is established through a provision for lease and loan losses
charged to expense and is estimated based upon the Company's past loss
experience, current economic conditions, and an evaluation of the lease
and loan portfolio. The allowance for possible losses is reduced by net
lease and loan charge-offs. Current and future economic developments or
other factors may have a significant impact on the market value of real
estate and other collateral. Accordingly, ultimate losses may vary from
current estimates. These estimates are reviewed periodically and
adjustments, as they become necessary, are reported in the results of
operations in the periods in which they become known. In management's
opinion, the allowance for possible lease and loan losses is sufficient to
adequately provide for potential losses.
Equipment Held for Lease - Equipment held for lease is valued at the lower
of specific unit cost or net realizable value. Equipment consists
primarily of those items assigned to lease contracts that have not yet
commenced.
Depreciation - Furniture and fixtures are depreciated using the
straight-line method over the expected useful lives of the assets (3-5
years). Rental equipment is depreciated using the straight-line method
over the term of the lease and is depreciated to its estimated residual
value.
Other Assets - Other assets includes goodwill net of accumulated
amortization of $519,000 and $563,000 at March 31, 1998 and 1997,
respectively, representing the excess of cost over the fair value of
identifiable net assets at the date of the ILC merger and is being
amortized over a 15-year period. At the balance sheet date, management
assessed whether there had been a permanent impairment in the value of
goodwill by comparing anticipated undiscounted future cash flows from the
acquired business unit with the carrying value of the related goodwill.
The factors considered by management in performing this assessment include
current operating results, trends and prospects, as well as the effects of
demand, competition and other economic factors. Also included in other
assets is the carrying value of certain assets which the Company has taken
ownership of in settlement of outstanding loans and leases.
<PAGE>
Income Taxes - Deferred income taxes are provided for differences between
the financial reporting basis and tax basis of the Company's assets and
liabilities at currently enacted tax rates.
Accounting for Equipment Sales - Revenues and cost of sales of equipment
are recognized when title to the equipment is transferred to the customer.
In addition, leases that entitle the lessee to purchase the equipment for
a nominal amount at the end of the lease term and which are discounted on
a nonrecourse basis at the lease commencement date, leaving the Company
with no interest in the transaction, are treated as equipment sales.
Fee Income - Fee income primarily consists of late fees collected on past
due accounts.
Net Income (Loss) Per Common and Common Equivalent Share - During 1998,
the Company adopted SFAS No. 128, Earnings Per Share. SFAS No. 128
requires the disclosure of Basic and Diluted Earnings per share (EPS).
Basic EPS is computed using income available to common shareholders
divided by the weighted average number of shares outstanding during the
year. Diluted EPS is similar to Basic EPS except that the weighted average
number of common shares outstanding is increased to give effect to all
dilutive potential common shares that were outstanding during the period.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company uses significant
estimates to record lease and loan loss reserves and estimated residual
values. Ultimate results could differ from those estimates.
Recent Accounting Pronouncements - In fiscal 1996, the Company adopted
SFAS No. 114, Accounting by Creditors for Impairment of a Loan (as amended
by SFAS No. 118). SFAS No. 114 establishes the accounting for creditors
for impairment of certain loans. The adoption of SFAS No. 114 did not have
a material impact on the Company's financial position or results of
operations.
In fiscal 1997, the Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,
which establishes new accounting standards for the impairment of
long-lived assets. The adoption of SFAS No. 121 did not have a material
impact on the Company's financial position or results of operations.
<PAGE>
In fiscal 1997, the Company adopted SFAS No. 123, Accounting for Stock
Based Compensation. The Company has elected to continue to follow the
accounting guidance of Accounting Principles Board Opinion No. 25 (APB No.
25), Accounting for Stock Issued to Employees, for measurement and
recognition of stock-based transactions with employees. The adoption of
SFAS No. 123 did not have a material impact on the Company's financial
position or results of operations.
In fiscal 1997, the Company also adopted SFAS No. 125, Accounting for
Transfer and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. The adoption of SFAS No. 125 did not have a material
impact on the Company's financial position or results of operations.
SFAS No. 130 "Reporting Comprehensive Income" was issued in June 1997 and
must be adopted by the Company no later than fiscal 1999. The statement
requires companies to disclose comprehensive income and its components in
the general purpose financial statements.
SFAS No. 131, "Disclosure about Segments of the Enterprise and Related
Information" was issued in June 1997 and must be adopted by the Company no
later than fiscal 1999. The statement establishes standards which redefine
how operating segments are determined and requires public companies to
report financial and descriptive information about reportable operating
segments.
The Company has not completed the process of evaluating the effect of SFAS
No. 130, and SFAS No. 131, but does not believe the new accounting
pronouncements will significantly effect the Company's financial condition
or operating results.
2. LOANS RECEIVABLE
Loans by Collateral Type: The composition of the loans receivable
portfolio by collateral type was as follows at March 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Commercial loans, collateralized primarily by receivables $ 161,000
Commercial loans, collateralized by equipment, marketable
securities and other 5,163,000
Real estate loans $ 99,000 1,038,000
Non-accrual loans 4,393,000 5,475,000
Nonrecourse participations (867,000)
--------------- ----------------
4,492,000 10,970,000
Less -
Allowance for possible loan losses (1,105,000) (3,401,000)
Unearned fees from loan origination (59,000) (66,000)
---------------- ----------------
$ 3,328,000 $ 7,503,000
=============== ================
</TABLE>
During the second quarter of fiscal 1996, management made the
determination to wind down the commercial and asset-based lending
business. In the fourth quarter of fiscal 1997, management further
concluded that additional provisions for potential losses were needed and
provided for potential losses on three loans in the amount of $2,365,000.
<PAGE>
As of March 31, 1998 and 1997, the Company's recorded investment in
impaired and other loans and the related valuation allowances are as
follows:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
--------------------------------- ----------------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
<S> <C> <C> <C> <C>
Impaired loans:
Non-accrual $ 4,168,000 $ 880,000 $ 5,250,000 $ 3,176,000
Other 225,000 225,000 225,000 225,000
Performing loans 99,000 6,362,000
Nonrecourse participations (867,000)
-------------- --------------- -------------- --------------
Totals $ 4,492,000 $ 1,105,000 $ 10,970,000 $ 3,401,000
============== =============== ============== ==============
</TABLE>
The activity in the allowance for possible loan losses was as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996
<S> <C> <C> <C>
Balance at beginning of year $ 3,401,000 $ 2,773,000 $ 2,125,000
Provision for loan losses 200,000 2,485,000 1,239,000
Loans written off (2,496,000) (1,857,000) (591,000)
----------------- -------------- ---------------
Balance at end of year $ 1,105,000 $ 3,401,000 $ 2,773,000
================ ============== ===============
</TABLE>
When, in the opinion of management, a reasonable doubt exists as to the
collectibility of interest or fee income, the accrual of such income is
discontinued, and uncollected income accruals are reversed. During the
years ended March 31, 1998, 1997 and 1996, the Company did not recognize
fee and interest income totaling $850,000, $771,000 and $1,064,000,
respectively, related to impaired loans.
While the Company believes that its current reserves are adequate, it
continues to monitor closely a restructured loan and a material lease to
an individual customer, as to which the Company has an aggregate book
value of $4.1 million and an aggregate remaining contractual balance of
$9.5 million. While payments are being received on a monthly basis there
is no assurance that such payments will continue on an uninterrupted basis
or that the Company is adequately secured. Any losses incurred in excess
of the Company's reserves for these accounts would likely materially
affect the Company's future earnings and cash flows, and may cause the
Company to be in violation of one or more of its covenants under its
credit agreements with its financing sources.
3. INVESTMENT IN LEASING OPERATIONS
Direct Financing Leases: The components of assets leased under direct
financing leases consist of the following:
<TABLE>
<CAPTION>
March 31,
1998 1997
<S> <C> <C>
Future minimum lease rentals $ 35,653,000 $ 54,871,000
Estimated residual values of leased equipment 2,888,000 4,021,000
--------------- ----------------
38,541,000 58,892,000
Less unearned revenue on lease rentals (5,749,000) (8,282,000)
Less reserves for direct financing leases (5,592,000) (5,262,000)
---------------- ----------------
Net investment in direct financing leases $ 27,200,000 $ 45,348,000
=============== ================
</TABLE>
<PAGE>
Value at Lease Termination - The estimated net book value at lease
termination for direct financing and operating leases is as follows:
<TABLE>
<CAPTION>
Direct
Financing Operating
Leases Leases Total
<S> <C> <C> <C>
Years ending March 31:
1999 $1,607,000 $ 698,000 $ 2,305,000
2000 754,000 457,000 1,211,000
2001 494,000 865,000 1,359,000
2002 33,000 -- 33,000
----------- ----------- -----------
2,888,000 2,020,000 4,908,000
Less residual reserve (294,000) -- (294,000)
----------- ----------- -----------
$ 2,594,000 $ 2,020,000 $ 4,614,000
=========== =========== ===========
</TABLE>
Future Minimum Lease Payments - Future minimum lease payments on direct
financing and operating leases are due as follows:
Direct
Financing Operating
Leases Leases
Years ending March 31:
1999 $18,659,000 $27,476,000
2000 10,041,000 11,481,000
2001 3,905,000 3,151,000
2002 1,193,000
2003 and thereafter 1,855,000
----------- -----------
$35,653,000 $42,108,000
=========== ===========
4. SIGNIFICANT CONCENTRATIONS IN LOANS AND LEASES
At March 31, 1998 and 1997, no leases outstanding to any individual lessee
exceeded 5% of the total lease portfolio, except in cases where the leases
had been discounted without recourse to a financial institution.
Revenues for the year ended March 31, 1998 included $25,916,000 or 52.6%
of the Company's total revenues generated through its relationship with a
single vendor. Should this relationship cease, revenues and cash flows
would continue with individual lessees through the scheduled expiration of
such leases.
5. FINANCING ARRANGEMENTS
Lines of Credit - The Company has a $25,000,000 line of credit facility
with a bank for use in its normal operations. Advances under this line of
credit are subject to a borrowing base limitation of $20,647,000 at March
31, 1998. The balance outstanding on this line of credit at March 31, 1998
and 1997 was $6,661,000 and $13,329,000, respectively. Advances are at
prime (8.5% at March 31, 1998) and are collateralized by substantially all
unsecured assets of the Company. This line of credit facility matures on
September 30, 1998. The Company believes this credit facility will be
renewed on terms similar to the current facility.
This credit facility requires compliance with financial covenants,
including the maintenance of certain liquidity and net worth ratios,
prohibits the payment of dividends and requires compliance with other
non-financial covenants. As of March 31, 1998, the Company is in
compliance with the terms of these agreements.
<PAGE>
Securitization - On October 31, 1996, the Company and certain subsidiaries
entered into an agreement with a subsidiary of Dougherty Dawkins, Inc. to
place up to $20 million of notes. Dougherty Dawkins, Inc. is an investment
banking firm of which a former director of the Company is Vice Chairman.
The notes are secured by certain leases contributed to Sunrise Funding by
Sunrise Leasing. The outstanding balance on this securitization was
$3,877,000 and $15,481,000 at March 13, 1998 and 1997, respectively. At
March 31, 1998, borrowings under the agreement accrue interest at 9.25%
and are secured by leases with a net book value of $6,721,000.
On May 16, 1997, Sunrise Leasing Corporation completed a $5,500,000
funding on a securitization facility with National City Bank of
Minneapolis. These notes are secured by certain leases of the Company.
These funds were used to reduce the debt outstanding under the Company's
line of credit. The balance outstanding on this securitization was
$3,655,000 with interest accruing at 9.53% at March 31, 1998.
Interest expense related to the above described credit facilities was
$1,303,000, $2,290,000 and $1,474,000 for the years ended March 31, 1998,
1997 and 1996, respectively.
Financing arrangement with King Management Corporation - Prior to November
8, 1996, the Company had an outstanding note payable to The King
Management Corporation (KMC), an affiliate of Peter King, Chairman of the
Board and CEO. This note was collateralized by certain lease and rental
equipment and was paid in full on November 8, 1996.
On June 16, 1997, the Company entered into a financing arrangement with
KMC. Under the financing arrangement, for the period from July 1, 1997
through June 30, 1999, KMC has committed to provide or assist the Company
in arranging whatever financing is necessary to enable the Company to grow
its vendor leasing business unencumbered by the availability of financing.
During fiscal 1998, under the financing arrangement, KMC provided two
fundings totaling $15,472,000. The balance outstanding was $14,986,000 at
March 31, 1998. The notes bear interest at prime minus 0.25% (8.25% at
March 31, 1998), and are secured by lease equipment.
In consideration for the commitment described above and other services,
the Company agreed to allow KMC to participate in specific percentages of
vendor leasing transactions consummated during the period from July 1,
1997 through June 30, 1999. Specific leases are identified as the property
of KMC and are not included in the Company's portfolio. During 1998, KMC
purchased leases in the amount of $4,969,000 under this participation
agreement.
Interest expense paid to KMC related to the financing arrangements
described above were $161,000, $145,000 and $753,000, for the years ended
March 31, 1998, 1997, and 1996, respectively.
<PAGE>
Discounted lease rentals - Discounted lease rentals consist of the
following:
March 31,
1998 1997
Nonrecourse borrowings $ 23,697,000 $ 30,761,000
Recourse borrowings 1,779,000 9,437,000
--------------- ----------------
$ 25,476,000 $ 40,198,000
=============== ================
The Company utilizes certain of its lease rentals receivable and
underlying equipment in lease transactions as collateral to borrow from
financial institutions at fixed rates primarily on a nonrecourse basis. In
the event of a default by a lessee on a nonrecourse borrowing, the
financial institutions have a first lien on the underlying leased
equipment with no further recourse against the Company. For recourse
borrowings, the financial institution can seek recourse from the Company
in addition to having a first lien on the asset. The liability associated
with the proceeds from discounting are recorded on the consolidated
balance sheet as discounted lease rentals. Discounted lease rentals are
reduced by the interest method.
Future minimum lease payments and interest expense on leases that have
been discounted are as follows:
Minimum Lease
Payments to be
Received by Discounted Future
Financial Lease Interest
Institution Rentals Expense
Years ending March 31:
1999 $16,619,000 $15,108,000 $ 1,511,000
2000 8,460,000 7,951,000 509,000
2001 2,300,000 2,228,000 72,000
2002 191,000 189,000 2,000
----------- ----------- -----------
$27,570,000 $25,476,000 $ 2,094,000
=========== =========== ===========
Certain recourse discounted lease rental agreements require the Company to
maintain financial ratios and to comply with other covenants similar to
those required in the Company's credit facility agreements. As of March
31, 1998, the Company was in compliance with such covenants.
Effective interest rates on the discounted lease rentals ranged from 6.0%
to 10.5% at March 31, 1997. Interest expense on discounted lease rentals
was $2,833,000, $4,043,000, and $4,648,000 for the years ended March 31,
1998, 1997, and 1996, respectively.
<PAGE>
6. INCOME TAXES
The provision for income taxes consisted of the following:
Years Ended March 31,
1998 1997 1996
Current payable (refundable)
Federal $ (197,000) $ 372,000
State and other (13,000) 71,000
---------- -----------
(210,000) 443,000
---------- -----------
Deferred
Income taxes 1,792,000 457,000 1,658,000
Valuation allowance (56,000) 283,000
----------- ---------- -----------
1,792,000 401,000 1,941,000
----------- ---------- -----------
Total $ 1,792,000 $ 191,000 $ 2,384,000
=========== ========== ===========
A reconciliation of income tax provision (benefit) at the federal
statutory rates to the income tax provision at the effective rate is as
follows:
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996
<S> <C> <C> <C>
Federal income tax provision (benefit)
at statutory rates $ 1,354,000 $ (801,000) $ 1,662,000
State income taxes, net of federal tax effect 245,000 (141,000) 290,000
AMT valuation allowance and other 21,000 324,000 432,000
Settlement and legal costs associated with
the shareholder arbitration 172,000 809,000 --
----------- ----------- -----------
$ 1,792,000 $ 191,000 $ 2,384,000
=========== =========== ===========
</TABLE>
The components of deferred taxes consist of the following:
<TABLE>
<CAPTION>
March 31,
1998 1997
Deferred tax assets
<S> <C> <C>
Lease revenue $ 24,194,000 $ 21,476,000
Allowances for doubtful accounts and lease and loan losses 2,751,000 3,564,000
Net operating loss 3,876,000 1,736,000
Alternative minimum tax credits 1,267,000 1,267,000
Other assets 400,000
Deferred revenue 133,000 186,000
Other 131,000 100,000
--------------- ----------------
Total deferred tax assets 32,752,000 28,329,000
--------------- ----------------
Deferred tax liabilities
Depreciation (35,167,000) (28,954,000)
Prepaid assets (53,000) (7,000)
---------------- ----------------
Total deferred tax liabilities (35,220,000) (28,961,000)
Valuation allowance (1,267,000) (1,267,000)
---------------- ----------------
Net deferred tax liability $ (3,735,000) $ (1,899,000)
================ ================
</TABLE>
<PAGE>
7. STOCKHOLDERS' EQUITY
Stock Option Plan - The Company has a Stock Option Plan (the Plan)
pursuant to which incentive stock options and nonqualified stock options
for up to 750,000 shares of common stock may be granted to officers,
directors, key employees, or certain advisors or consultants. Incentive
stock options are granted at exercise prices not less than the market
price on the date of grant and are exercisable no later than ten years
from such date. Incentive stock options generally vest and become
exercisable at 25% per year beginning one year from the date of grant,
although some grants are exercisable immediately. Nonqualified stock
options are granted at exercise prices determined by the Stock Option
Committee of the Board of Directors on the date of grant and are
exercisable as established by such committee.
A summary of the status of the Company's stock option plan at March 31,
1998, 1997, and 1996 and changes during the years then ended is presented
in the table and narrative below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- ---------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 479,125 $ 4.09 555,625 $ 4.65 449,500 $ 5.98
Granted 553,506 3.38 101,500 2.66 299,125 3.28
Exercised -- -- --
Canceled (47,625) 4.52 (178,000) 5.01 (193,000) 5.63
---------- ----------- ---------
Outstanding at end
end of year 985,006 3.67 479,125 4.09 555,625 4.65
Exercisable at end of year 513,378 3.59 177,375 4.58 172,750 5.23
Weighted average fair value
per share of options granted $ 1.69 $ 1.17 $ 1.34
</TABLE>
The 985,006 options outstanding at March 31, 1998 have exercise prices
between $2.63 and $8.50, with a weighted average exercise price of $3.67
and a weighted average remaining contractual life of 5.6 years.
Of the 553,506 options granted during fiscal 1998, 541,506 of the options
were issued pursuant to a June 16, 1997 agreement between the Company,
Peter J. King (Mr. King) and The King Management Corporation (KMC). In
conjunction with this agreement, Mr. King was issued two options to
purchase common stock of the Company. Each option entitled Mr. King to
purchase 270,753 shares of common stock at the fair value of the Company
stock on June 16, 1997. The first option was granted for past services by
Mr. King as Director and Chairman to the Company and became exercisable on
the date of grant. This option was accounted for as an employee option
under APB 25 and SFAS 123. The second option was granted for Mr. King's
future services as Chairman and for financing commitments made by KMC
(which is controlled by Mr. King) to the Company for the two-year period
of July 1, 1997 through June 30, 1999. The exercisability of this option
is reduced from four years to two years in the event that Sunrise has an
uninterrupted supply of financing (note 4) for approved vendor programs.
Due to this impact on vesting and other provisions of the agreement, the
Company has determined that 25% of the option will be treated as a
non-employee option. The remaining 75% of this option will be accounted
for as an employee option under APB No. 25 and SFAS No. 123. Based on the
Black-Scholes Valuation Model, the portion of this option relating to the
financing commitment from KMC was $97,000, which will be charged to the
Company's operations over the two year accelerated vesting period assuming
KMC will provide Sunrise an uninterrupted supply of financing.
Compensation expense of $38,000 has been recognized for this stock option
grant in fiscal 1998.
<PAGE>
The fair value of each option grant is estimated on the date of grant
using the Black Scholes option pricing model with the following
weighted-average assumptions used for grants in 1998 and 1997,
respectively: risk-free interest rates of 6.1 and 5.7 percent for the
options; expected lives of 5 years for both years; expected volatility of
46 and 38 percent.
The Company accounts for employee option grants under APB No. 25, and
accordingly no compensation cost has been recognized. Had compensation
cost for these plans been determined consistent with SFAS No. 123, the
Company's net income (loss) and earnings per share would have been reduced
to the following pro forma amounts:
March 31,
1998 1997
Net income (loss):
As reported $ 2,191,000 $ (2,547,000)
SFAS No. 123 expense (800,000) (90,000)
------------ ------------
Pro forma net income (loss) $ 1,391,000 $ (2,637,000)
=========== ============
Weighted Average Common and Common
Equivalent Shares Outstanding 7,676,000 7,245,000
----------- ------------
Net income (loss) per share-diluted
As reported $ 0.29 $ (0.35)
Pro forma 0.18 (0.36)
Employee Stock Purchase Plan - The Company has an Employee Stock Purchase
Plan under the terms of which 150,000 shares of authorized but unissued
common stock were reserved. This plan provides that employees may
authorize payroll deductions to be made for the purpose of acquiring
shares at 85% of market price. A total of 39,235 shares of common stock
have been purchased under the plan as of March 31, 1998. There are 110,765
shares of common stock available for purchase in the future.
Warrants - Warrants were outstanding for the purchase of 135,000 shares of
the Company's common stock at $9.45 per share which were issued in
connection with the Company's secondary offering in April 1993. These
warrants expired unexercised on April 21, 1998.
8. PROFIT SHARING 401(k) PLAN
The Company has a profit sharing plan (the 401(k) Plan) which was
implemented in February 1994. The 401(k) Plan is a salary reduction cash
or deferred profit sharing plan intended to meet the requirements of
Section 401(k) of the Internal Revenue Code. All employees who have
completed at least three months of service and have attained the age of 21
are eligible to participate in the 401(k) Plan. The 401(k) Plan allows
eligible employees to contribute up to 18% of their gross compensation
into the 401(k) Plan each year. The Company may make discretionary
contributions to the 401(k) Plan on behalf of eligible participants in an
amount determined by the Board of Directors. The Company's contributions
to the 401(k) Plan were $32,000, $24,000 and $20,000 for the years ended
March 31, 1998, 1997 and 1996, respectively.
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
Future Lease Commitments - The Company rents office facilities at five
locations. Total rent expense incurred for the office facilities for the
years ended March 31, 1998, 1997 and 1996 was $332,000, $309,000 and
$344,000, respectively. Future minimum lease commitments (net of
subleases) are as follows:
Years ending March 31:
1998 $ 183,000
1999 181,000
2000 170,000
2001 99,000
---------
$ 633,000
Litigation - During fiscal 1997, former stockholders of ILC commenced
arbitration proceedings against the Company relating to the February 1995
merger of the Company with The P.J. King Companies, Inc. (d/b/a
International Leasing Corporation) (ILC) on the basis that, in their view,
problems underlying the net investment in several direct financing loans
and leases arose prior to the merger and were not disclosed. They also
asserted other claims regarding valuation of certain other assets of the
Company at the time of the merger. In addition to seeking money damages or
additional shares of the Company's common stock, the former ILC
stockholders attempted to obtain rescission of the merger.
On June 17, 1997, a decision was released by the arbitrator on these
proceedings. ILC stockholders were denied rescission and reformation of
the merger agreement as well as relief on five other claims. They were
however granted relief on one count and awarded a settlement of 560,257
additional shares of Sunrise common stock. This award, valued at
$1,891,000, was charged to expense for fiscal 1997. Additionally, they
were awarded repayment of attorney's fees relating to breach of warranty
to this arbitration payable by 38,818 additional shares of Sunrise common
stock. This award valued at $131,000 was also charged to expense for
fiscal 1997. These proceedings were conducted under the agreement of
binding arbitration and therefor no further disputes or settlements with
the Company are expected to arise in connection with the merger agreement.
The Company is involved in various other legal actions in the normal
course of business. Management is of the opinion that the outcome of such
actions will not have a significant effect on the Company's financial
position or results of operations.
10. RELATED-PARTY TRANSACTONS
The Company has adopted a policy of not entering into transactions in
which any officer, director, stockholder or affiliate of the Company has a
partial financial interest unless the transaction has been approved by a
majority of the disinterested directors of the Company based on a
determination that the terms of such transactions are no less favorable to
the Company then those which could be obtained from unaffiliated third
parties. In addition to the transactions described in Notes 5 and 7, the
following summarizes significant transactions with related parties:
a. During fiscal 1997, the Company paid $338,000 to a corporation
affiliated with a former member of the Company's Board of Directors
for assistance in arranging a securitization of $20 million for the
Company.
b. During fiscal 1998, certain employees of KMC dedicated a significant
amount of time to management of the Company. In addition, under the
terms of the lease participation agreement described in Note 5, during
1998, the Company has begun to provide certain lease portfolio
administration services to KMC. To date there has been no agreement
between the Company and KMC regarding compensation for such services.
Management of the Company and KMC expect to formalize these
arrangements during 1999. The impact of formalizing these arrangements
is not expected to have a significant impact on the financial
statements of the Company.
<PAGE>
11. QUARTERLY FINANCIAL DATA (Unaudited)
The following is a summary of quarterly financial data for fiscal years
1998 and 1997:
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal 1998 June 30 September 30 December 31 March 31 Total
Revenues $11,125,000 $11,628,000 $13,512,000 $13,007,000 $49,272,000
Net income (loss) 877,000 958,000 835,000 (479,000) 2,191,000
============ =========== =========== =========== ===========
Net income (loss)
per share-basic $ 0.12 $ 0.12 $ 0.11 $ (0.06) $ 0.29
============ =========== =========== =========== ===========
Net income (loss)
per share-diluted $ 0.12 $ 0.12 $ 0.11 $ (0.06) $ 0.29
============ =========== =========== =========== ===========
Fiscal 1997 June 30 September 30 December 31 March 31 Total
Revenues $10,670,000 $10,738,000 $11,294,000 $10,276,000 $42,978,000
Net income (loss) 1,093,000 926,000 851,000 (5,417,000) (2,547,000)
============ =========== =========== =========== ===========
Net income (loss)
per share-basic $ 0.15 $ 0.13 $ 0.12 $ (0.75) $ (0.35)
============ =========== =========== =========== ===========
Net income (loss)
per share-diluted $ 0.15 $ 0.13 $ 0.12 $ (0.75)$ (0.35)
============ =========== =========== =========== ===========
</TABLE>
During the fourth quarter of 1998, the Company provided $1,895,000 for
losses on leases and loans. Also included in the fourth quarter are
charges in the amount of $500,000 representing a reduction in residual
value of assets in a specific vendor program.
12. SUBSEQUENT EVENT
Subsequent to March 31, 1998, the Company extended the financing and lease
participation agreement with KMC, described in note 5, for one year. The
agreement now extends through June 30, 2000. In addition, KMC has also
agreed to provide recourse financing of certain direct leases.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Other than "Executive Officers of the Company," which is set forth at
the end of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the sections labeled "Election of Directors"
and "Compliance With Section 16(a) of the Exchange Act," which appear in the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A not
later than 120 days after the close of fiscal 1998 in connection with the
Company's 1998 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated herein by reference
to the sections labeled "Management Compensation" and "Election of Directors,"
which appear in the Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A not later than 120 days after the close of fiscal 1998 in
connection with the Company's 1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated herein by reference
to the section labeled "Principal Shareholders and Management Shareholdings,"
which appears in the Company's definitive Proxy Statement to be filed pursuant
to Regulation 14A not later than 120 days after the close of fiscal 1998 in
connection with the Company's 1998 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 is incorporated herein by reference
to the section labeled "Management Compensation," which appears in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A not later than
120 days after the close of fiscal 1998 in connection with the Company's 1998
Annual Meeting of Shareholders.
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report.
(1) Consolidated Financial Statements. The following financial
statements are included in Part II, Item 8 of this Annual Report on Form
10-K:
Current Independent Auditors' Report for the year ended March 31, 1998
Former Independent Public Accountants' Report as of March 31, 1997 and
for each of the two years then ended
Consolidated Balance Sheets as of March 31, 1997 and 1996
Consolidated Statements of Operations for the years ended March 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended March 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules. The following schedule
immediately follows the signature page of this Annual Report on Form
10-K.
Schedule II. Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable or the information is inapplicable or the information is
presented in the financial statements or related notes.
(3) Exhibits. See Exhibit Index immediately following the schedule which
follows the signature page of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
During the quarter ended March 31, 1998, the Company filed a report on
form 8-K dated March 9, 1998 to report the description of its securities
subsequent to its reorganization and reincorporation in Delaware on
October 18, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SUNRISE INTERNATIONAL LEASING CORPORATION
Date: June 26 , 1998 By: /s/ Peter J. King
Peter J. King, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(Power of Attorney)
Each person whose signature appears below constitutes Peter J. King and
Jeffrey G. Jacobsen, the undersigned's true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities, to sign any or all amendments to this Annual Report on Form 10-K
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
Signatures Title Date
/s/ Peter J. King Chairman of the Board, Chief Executive June 26, 1998
Peter J. King Officer and Director (principal executive
officer and principal financial officer)
/s/ Nanette Herpst Manager of Corporate Accounting June 26, 1998
Nanette Herpst (principal accounting officer)
/s/ Jeffrey G. Jacobsen Secretary and Director June 26, 1998
Jeffrey G. Jacobsen
/s/ Donald R. Brattain Director June 26, 1998
Donald R. Brattain
/s/ Thomas R. King Director June 26, 1998
Thomas R. King
<PAGE>
Sunrise International Leasing Corporation
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance
Beginning costs and net of at end
of period expenses recoveries of period
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Description
Allowance for doubtful accounts:
Year ended March 31, 1998 $ 494,000 $ 596,000 $ 830,000 $ 260,000
Year ended March 31, 1997 626,000 373,000 505,000 494,000
Residual Value Reserve:
Year ended March 31, 1998 $5,262,000 $1,994,000 $1,664,000 $5,592,000
Year ended March 31, 1997 1,093,000 4,654,000 485,000 5,262,000
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX TO FORM 10-K
Commission File No.: 0-19516
For the Fiscal Year Ended
March 31, 1998
SUNRISE INTERNATIONAL LEASING CORPORATION
Exhibit
Number Description
3.1 Certificate of Incorporation, -- incorporated by reference to Exhibit
3.1 to the Company's Quarterly Report Form 10-Q for the quarter ended
September 30, 1997.
3.2 Bylaws--incorporated by reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,1997.
4.1 Specimen of Common Stock Certificate--incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report Form 10-Q for the quarter
ended September 30, 1997.
10.1* The Company's 1991 Stock Option Plan--As amended and restated through
February 1995 incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.2* The Company's 1992 Employee Stock Purchase Plan--incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1992.
10.3 Standard Office Lease between Minnesota CC Properties, Inc. and the
Company regarding the Company's offices at Golden Valley,
Minnesota--incorporated by reference to Exhibit 10.14 to the Company's
Registration Statement on Form S-1, Reg. No. 33-59694.
10.4 Credit Agreement between American Bank and Trust Company N.A. and the
Company--incorporated by reference to Exhibit 10.18 to the Company's
Quarterly Report ended September 30, 1993.
10.5 Amendment No. 1 to Standard Office Lease between Minnesota CC
Properties, Inc. and the Company regarding the Company's offices at
Golden Valley, Minnesota, incorporated by reference to Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the year ended March 31,
1994.
10.6 Agreement and Plan of Reorganization dated October 14, 1994 by and among
the Company, The P.J. King Companies, Inc. d/b/a International Leasing
Corporation, King Management Corporation, Peter J. King, Stephen D.
Higgins, as Trustee under the William B. King Stock Trust dated November
21, 1989 for the benefit of William B. King, and Stephen D. Higgins, as
Trustee under the Russell S. King Stock Trust dated November 11, 1989
for the benefit of Russell S. King--incorporated by reference to Exhibit
2.1 to Company's Current Report on Form 8-K dated February 13, 1995.
10.7 Shareholders Agreement dated as of February 13, 1995 among the Company,
Peter J. King, Stephen D. Higgins, as Trustee under the William B. King
Stock Trust dated November 21, 1989 for the Benefit of William B. King,
and Stephen D. Higgins, as Trustee under the Russell S. King Stock Trust
dated November 11, 1989 for the benefit of Russell S. King, and each of
the other ILC shareholders listed on Schedule 1 thereto--incorporated by
reference to Exhibit 2.2 to Company's Current Report on Form 8-K dated
February 13, 1995.
10.8 Amendment No. 2 to Standard Office Lease between Minnesota CC
Properties, Inc. and the Company regarding the Company's offices at
Golden Valley, Minnesota - incorporated by reference to Exhibit 10.23 to
the Company's Annual Report on Form 10-K for the year ended March 31,
1995.
10.9 Amendment No. 3 to Standard Office Lease between Minnesota CC
Properties, Inc. and the Company regarding the Company's offices at
Golden Valley, Minnesota- incorporated by reference to Exhibit 10.24 to
the Company's Annual Report on Form 10-K for the year ended March 31,
1995.
<PAGE>
10.10* Amendment to the Company's 1991 Stock Option Plan dated October 4, 1994
- incorporated by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the year ended March 31, 1995.
10.11 Amended and Restated Credit Agreement between First Bank National
Association and the Company--incorporated by reference to Exhibit 10.29
to the Company's Annual Report on Form 10-K for the year ended March 31,
1996.
10.12 Amendment to Security Agreement dated June 22, 1995 between the Company
and King Holding Corporation--incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
10.13 First Amendment to Amended and Restated Credit Agreement dated October
1, 1996 between the Company and First Bank National
Association--incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.
10.14 Promissory Note Extension Agreement dated October 1, 1996 between the
Company and First National Bank Association--incorporated by reference
to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
10.15* Incentive Compensation Plan for Fiscal Year 1997--incorporated by
reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996.
10.16 Replacement promissory note dated November 7, 1996 between the Company
and Daiwa Bank, Limited at the Sumitomo Bank, Limited--incorporated by
reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996.
10.17 Amended and Restated Loan and Security Agreement dated November 7, 1996
between the Company and Daiwa Bank, Limited--incorporated by reference
to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996.
10.18 Purchase Agreement Dated October 31, 1996 by and among the Company,
Sunrise Funding Corporation I, Sunrise Leasing Corporation and Dougherty
Funding, Inc.--incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996.
10.19 Lease Receivables-Backed Note, Series 1996-1 dated November 8, 1996 in
the principal amount of $20,000,000 by Sunrise Funding Corporation I in
favor of Dougherty Funding, Inc.--incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996.
10.20 Indenture amount Sunrise Funding Corporation I, Sunrise Leasing
Corporation and Norwest Bank Minnesota, National Association dated
November 1, 1996--incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended December
31, 1996.
10.21 Contribution Agreement dated November 1, 1996 between Sunrise Leasing
Corporation and Sunrise Funding Corporation I--incorporated by reference
to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996.
10.22 Servicing Agreement dated November 1, 1996 between Sunrise Funding
Corporation I and Sunrise Leasing Corporation--incorporated by reference
to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996.
10.23 Severance Agreement and Release dated November 12, 1996 between the
Company and William B. King--incorporated by reference to Exhibit 10.6
to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996.
10.24 Portfolio Purchase Agreement and Guaranty dated November 27, 1996
between Sunrise Leasing Corporation and The CIT Group--incorporated by
reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996.
<PAGE>
10.25 Discretionary Revolving Credit Agreement dated May 15, 1997 between
Sunrise Leasing Corporation and National City Bank of
Minneapolis--incorporated by reference to Exhibit 10.46 to the Company's
Annual Report on Form 10-K for the year ended March 31, 1997.
10.26 Security Agreement dated May 15, 1997 between Sunrise Leasing
Corporation and National City Bank of Minneapolis--incorporated by
reference to Exhibit 10.47 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1997.
10.27 Promissory Note in the principal amount of $5,498,960.57 dated May 15,
1997 in favor of National City Bank of Minneapolis--incorporated by
reference to Exhibit 10.48 to the Company's Annual Report on Form 10-K
for the year ended March 31, 1997.
10.28 Agreement dated June 16, 1997 among the Company, Peter J. King and The
King Management Corporation--incorporated by the reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997.
10.29 Nonqualified Stock Option Agreement dated June 18, 1997 between the
Company and Peter J. King (accelerated vesting upon performance)--
incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September, 30 1997.
10.30 Nonqualified Stock Option Agreement dated June 18, 1997 between the
Company and Peter J. King (fully vested)--incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 1997.
10.31 Separation Agreement and Release of Claims dated November 13, 1997
between the Company and Barry J. Schwach.
11.1 Per Share Earnings Computations
21.1 List of Subsidiaries--incorporated by reference to Exhibit 21.1 to the
Company's Annual Report on Form 10-K for the year ended March 31, 1997.
23.1 Consent Deloitte & Touche LLP
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney for certain directors (included on signature page of
Form 10-K)
27.0 Financial Data Schedule (filed with electronic version only)
* Management contract or other compensatory plan.
SEPARATION AGREEMENT AND RELEASE OF CLAIMS
It is hereby agreed by and between Sunrise International Leasing
Corporation ("Sunrise") and Barry J. Schwach ("Schwach") as follows:
WHEREAS, Schwach is an employee of Sunrise, and has stated his
intention to voluntarily resign from his position;
WHEREAS, Schwach wishes to receive certain payments and other valuable
consideration to which he would not otherwise be entitled; and
WHEREAS, the parties wish to set forth the terms of their agreement in
writing.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, and for other good and valuable
consideration the receipt and sufficiency of which is specifically acknowledged
by the parties, Sunrise and Schwach agree as follows:
1. Last Date of Employment. Sunrise and Schwach agree that his last
date of employment will be November 30, 1997 and he will continue to receive his
normal salary and benefits through such date. During the remainder of his
employment, Schwach will assist Sunrise in implementing its strategic plan.
Schwach will be deemed to have voluntarily resigned his employment effective
November 30, 1997, and shall receive no further salary or other payments of any
sort except as specifically set forth in this Separation Agreement and Release.
Sunrise will, upon the signing of this Separation Agreement and Release, and the
expiration of the 15 and 21-day periods as set forth in Paragraphs 10 and 12
without rescission, pay Schwach a severance in an amount equivalent to his
current base salary, of $10,500 a month, less any required deductions, according
to the normal payroll schedule, for the period December 1, 1997 through August
31, 1998. Sunrise will reimburse Schwach for business expenses incurred through
November 30, 1997. Sunrise will continue to indemnify Schwach in his capacity as
an officer and employee in accordance with applicable law.
2. Extension of Stock Option Election. Schwach's outstanding stock
option agreements dated February 15, 1995 (of which 7,500 are exercisable at
$5.00 per share), April 23, 1996 (all 25,000 of which are exercisable at $2.625
per share) and April 23, 1996 (of which 2,000 are exercisable at $2.625 per
share) are hereby amended to extend the 60-day period after termination of
employment in which such option can be exercised to one year. Therefore, such
options shall be exercisable until November 30, 1998, but only to the extent
they are exercisable at November 30, 1997. Schwach acknowledges that such
options might no longer qualify as incentive stock options, and agrees to take
whatever actions Sunrise may reasonably request to enable Sunrise to satisfy any
income tax or withholding obligations in connection with such exercise.
3. Computers. Sunrise agrees that, upon the signing of this Separation
Agreement and Release, and the expiration of the 15 and 21-day periods as set
forth in Paragraphs 10 and 12 of this Agreement, without rescission, Schwach may
keep the two computers which he has in his possession, and that Sunrise will
provide for upgrades to such computers if it is technically practical to do so.
4. Return of Property. Schwach shall, prior to November 30, 1997,
return to Sunrise all documents or other items, whether on computer disk or
otherwise, and all copies thereof, within his possession or control belonging to
Sunrise or in any manner relating to the business of, or the services provided
by Sunrise, or the duties and services performed by Schwach on behalf of
Sunrise. Schwach acknowledges, by his signature to this Separation Agreement and
Release, that he has returned or will return all such documents and materials,
or will erase any computer files of such documents or materials, and has not
retained any copies of such documents and materials.
5. Nondisclosure. Schwach acknowledges that he has not, and agrees that
he will not, at any time, directly or indirectly, disclose or discuss to any
other entity or person any Confidential Information of Sunrise, without the
prior written approval of the Chief Executive Officer and President of Sunrise.
For purposes of this Agreement, the term "Confidential Information" shall
include any information of Sunrise, whether in print, or on a computer disc, or
tape, including a formula, pattern, compilation, program, device, method,
technique, or process which (a) derives independent economic value, actual or
potential, from not being generally known in the leasing industry or to the
public or to other persons who can obtain economic value from its disclosure or
use; and (b) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. Schwach acknowledges that such
Confidential Information includes current and potential customers, customer
lists, forms and agreements identified by Sunrise as of the date of this
agreement and used in the vendor program leasing business of Sunrise, and
specifically includes vendor program agreements and related documents.
Notwithstanding anything to contrary herein, Confidential Information shall not
include information which is available to the public.
6. Non-Competition. In consideration of the mutual covenants herein,
including but not limited to the payments to which he would not otherwise be
entitled, Schwach acknowledges and agrees that he will not, for the period
through August 31, 1998, on behalf of or for any person or entity:
a. directly or indirectly, as an employee, participate or engage
in, manage, operate, control, render advice or assistance to
providing vendor leasing programs of the same type provided by
Sunrise to its vendors.
b. directly or indirectly, contact or solicit any current or
potential customer of Sunrise as of the date of this
Agreement;
c. for any reason influence or solicit, or attempt to influence
or solicit, either directly or indirectly, any employee of
Sunrise or any related company to terminate his or her
employment with Sunrise or any related company, or to work for
any person or entity other than Sunrise or any related
company.
7. Release of Claims. In consideration of the severance pay and other
benefits set forth in Paragraphs 1, 2 and 3 of this Separation Agreement and
Release, to which Schwach would not otherwise be entitled, Schwach, for himself,
his heirs, representatives, agents, successors and assigns, hereby releases and
forever discharges Sunrise and any parent, subsidiary, and related entity, and
all present and past officers, directors, shareholders, employees, agents and
representatives of Sunrise, or of any parent, subsidiary, or related entity and
the successors and assigns of each, from any and all manner of past, present, or
future, claims, demands, actions, causes of action, administrative claims,
liability, damages, claims for punitive or liquidated damages, claims for
attorney's fees, costs and disbursements, individual or class action claims, or
demands of any kind whatsoever, including but not limited to any claims for
wages, vacation, severance, benefits, any claims arising by statute, in tort or
contract, any claims arising under Title VII of the Civil Rights Act, 42 U.S.C.
ss. 2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. ss. 621
et seq., the Americans with Disabilities Act, 42 U.S.C. ss. 12101, et seq., the
Family and Medical Leave Act, 29 U.S.C. ss. 2601, et seq., the Minnesota Human
Rights Act, Minn. Stat. Ch. 363, the Minneapolis Civil Rights Ordinance, any
other claims arising under federal, any state or local law, or any claims in any
manner relating to Schwach's employment with or separation from Sunrise, arising
in law or equity, whether known, suspected or unknown, and however originating
or existing, from the beginning of time to the date of the signing of this
Separation Agreement and Release.
Schwach agrees to and hereby does release and discharge Sunrise, and
any parent, subsidiary, and any related entity, and all present and past
officers, directors, shareholders, employees, agents and representatives of
Sunrise, any parent, subsidiary, or related entity, and the successors and
assigns of each, not only from any and all claims that Schwach could make on
Schwach's own behalf, but also those that may or could be brought by any other
person, entity or organization on Schwach's behalf, and Schwach specifically
waives any right to become, and agrees not be become, a member of any class in
any proceeding or case in which a claim or claims against Sunrise, or any
parent, subsidiary, or any related entity, or any present or past officers,
directors, shareholders, employees, agents or representatives of Sunrise, or of
any parent, subsidiary, or related entity, and the successors and assigns of
each, arise, in whole or in part, from any event which occurred from the
beginning of time to the date of this Separation Agreement and Release.
Schwach further agrees that he will not institute any civil action,
administrative proceeding or other legal proceeding of any nature against
Sunrise, or any parent, subsidiary, or any related company or any present or
past officers, directors, shareholders, employees, agents or representatives of
Sunrise, or of any parent, subsidiary, or any related company, or the successors
and assigns of each, including but not limited to any action or proceeding
raising claims for wages, vacation, severance, benefits, any claims arising by
statute, in tort or contract, any claims arising under Title VII of the Civil
Rights Act, 42 U.S.C. ss. 2000e et seq., the Age Discrimination in Employment
Act, 29 U.S.C. ss. 621 et seq., the Americans with Disabilities Act, 42 U.S.C.
ss. 12101, et seq., the Family and Medical Leave Act, 29 U.S.C. ss. 2601, et
seq., the Minnesota Human Rights Act, Minn. Stat. Ch. 363, the Minneapolis Civil
Rights Ordinance, any other claims arising under federal, any state or local
law, or any claims in any manner relating to Schwach's employment with or
separation from Sunrise, arising in law or equity, whether known, suspected or
unknown, and however originating or existing, from the beginning of time to the
date of the signing of this Separation Agreement and Release. If, for any
reason, an administrative or other legal proceeding results in any relief to
Schwach based on any claims or demands noted in this Separation Agreement and
Release, Schwach further agrees that the consideration provided to Schwach under
this Separation Agreement and Release shall be in full satisfaction of any such
claims or demands, and that Schwach will not be entitled to any further relief
of any kind.
Notwithstanding anything to the contrary herein, nothing in this
Agreement is intended to extinguish any claim which arises out of facts or
circumstances occurring after Schwach's execution of this Agreement, that
Schwach may have relating to his status as a shareholder of Sunrise or arising
out of Sunrise's breach of this Agreement. Schwach is not aware of any claims or
potential claims arising out of his status as a shareholder.
8. Release of Claims by Sunrise. In consideration of the mutual
covenants herein, Sunrise, and all present and past officers, directors,
shareholders, employees, agents and representatives of Sunrise, all in their
capacity as such, and their successors and assigns, hereby release and forever
discharge Schwach, his heirs, representatives, agents, and the successors and
assigns of each, from any and all manner of past, present, or future, claims,
demands, actions, causes of action, administrative claims, liability, damages,
claims for punitive or liquidated damages, claims for attorney's fees, costs and
disbursements, individual or class action claims, or demands of any kind
whatsoever, including any claims but not limited to arising by statute, in tort
or contract, any claims arising under federal, any state or local law, arising
in law or equity, whether known, suspected or unknown, and however originating
or existing, from the beginning of time to the date of the signing of this
Agreement and Release.
Sunrise agrees to and hereby does release and discharge Schwach, his
heirs, representatives, agents, and the successors and assigns, not only from
any and all claims that Sunrise could make on its own behalf, but also those
that may or could be brought by any other person, entity or organization on
Sunrise's behalf, and Sunrise specifically waives any right to become, and
agrees not to become, a member of any class in any proceeding or case in which a
claim or claims against Schwach, his heirs, representatives, agents, and the
successors and assigns, arise, in whole or in part, from any event which
occurred from the beginning of time to the date of this Agreement and Release.
Sunrise further agrees that it will not institute any civil action,
administrative proceeding or other legal proceeding of any nature against
Schwach, his heirs, representatives, agents, or their successors and assigns,
including but not limited to arising by statute, in tort or contract, any claims
arising under federal, any state or local law, arising in law or equity, whether
known, suspected or unknown, and however originating or existing, from the
beginning of time to the date of the signing of this Agreement and Release. If,
for any reason, an administrative or other legal proceeding results in any
relief to Sunrise based on any claims or demands noted in this Agreement and
Release, Sunrise further agrees that the consideration provided to Sunrise under
this Agreement and Release shall be in full satisfaction of any such claims or
demands, and that Sunrise will not be entitled to any further relief of any
kind.
9. Affirmation Regarding Pending Matters. Schwach affirms that he has
not filed or instituted any charge, complaint, or action against Sunrise, or any
parent, subsidiary, or any related company or any present or past officers,
directors, shareholders, employees, agents and representatives of Sunrise, or of
any parent, subsidiary, or any related company, or the successors and assigns of
each. If there is outstanding any such charge, complaint, or action, Schwach
agrees to seek its immediate withdrawal and dismissal with prejudice. If for any
reason the charge, complaint, or action is not dismissed, Schwach agrees not to
voluntarily testify, provide documents, or otherwise participate, or to permit
others to voluntarily participate on Schwach's behalf, in any further proceeding
arising therefrom or associated therewith and to execute such other papers or
documents as may be necessary to have the charge dismissed with prejudice.
Sunrise affirms that it has not filed or instituted any charge,
complaint, or action against Schwach, his heirs, representatives, agents, or
their successors and assigns. If there is outstanding any such charge,
complaint, or action, Sunrise agrees to seek its immediate withdrawal and
dismissal with prejudice. If for any reason the charge, complaint, or action is
not dismissed, Sunrise agrees not to voluntarily testify, provide documents, or
otherwise participate, or to permit others to voluntarily participate on
Sunrise's behalf, in any further proceeding arising therefrom or associated
therewith and to execute such other papers or documents as may be necessary to
have the charge dismissed with prejudice.
10. Notification of Rights under the Minnesota Human Rights Act (Minn.
Stat. ch. 363) and Federal Age Discrimination in Employment Act (29 U.S.C. ss.
621 et seq. ). Schwach is hereby notified of his right to rescind the release of
claims in regard to claims arising under the Minnesota Human Rights Act, Minn.
Stat. ch. 363, within (15) calendar days, and in regard to claims arising under
the Federal Age Discrimination in Employment Act, 29 U.S.C. ss. 621, et seq.,
within seven (7) calendar days, of his signing of this Separation Agreement and
Release, rescission periods to run concurrently. The rescission must be in
writing and delivered or mailed to: Errol Carlstrom, Sunrise Resources, Inc.,
5500 Wayzata Boulevard, Suite 725, Golden Valley, MN 55416. If delivered by
mail, the rescission must be post-marked within the required period, properly
addressed to the individual noted above at the above address, and sent by
certified mail, return receipt requested. It is further understood that, if
Schwach rescinds the release of claims in accordance with this Paragraph 10,
that Schwach will not be entitled to the payments, benefits or property as set
forth in Paragraphs 1, 2, and 3, (apart from his salary through his last date of
employment, November 30, 1997 and business expense through the same date), and
Schwach will immediately reimburse Sunrise for, or return any such payments or
property. This Separation Agreement and Release will be effective upon the
expiration of the 15-day period noted in this Paragraph 10 without rescission.
11. Acknowledgment of Reading and Understanding/Consultation with
Counsel. By Schwach's signature to this Separation Agreement and Release,
Schwach acknowledges and agrees that he has carefully read and understood all
provisions of this Separation Agreement and Release, and that he has entered
into this Separation Agreement and Release knowingly and voluntarily. Schwach
further acknowledges that Sunrise has advised Schwach to consult with counsel
prior to signing this Separation Agreement and Release, and that Schwach has
done so or chosen not to do so of his own accord.
12. Period for Consideration. By his signature to this Separation
Agreement and Release, Schwach acknowledges that Sunrise has informed Schwach
that he has 21 days from the date of receipt of this Separation Agreement and
Release to consider whether its terms are acceptable to Schwach, and that he has
had the benefit of the 21-day period.
13. Nonadmission. It is expressly understood and agreed that this
Separation Agreement and Release does not constitute, nor shall either be
construed as an adjudication or finding on the merits of any potential claim by
Schwach, nor does this Separation Agreement and Release constitute, nor shall
either be in any manner construed, as an admission of any wrongful conduct or
liability on the part of Sunrise, any parent, subsidiary, or any related company
or any present or past officers, directors, shareholders, employees, agents or
representatives of Sunrise, or of any parent, subsidiary, or any related
company, or the successors and assigns of each, by all of whom any such
liability is expressly denied.
14. Confidentiality. Schwach understands and agrees that this
Separation Agreement and Release and the terms of this Separation Agreement and
Release shall remain confidential and that Schwach shall not disclose any such
information to any person or entity, other than Schwach's counsel, Schwach's
accountant, Schwach's tax advisor, and Schwach's immediate family members, and
prospective employers during the course of seeking employment, except as
required by law, subpoena or court order, without the express written consent of
Sunrise.
15. Public Announcement. Sunrise and Schwach agree that any public
announcement by Sunrise shall communicate simply that Schwach has voluntarily
resigned from his position at Sunrise.
16. Successors and Assigns. This Agreement shall inure to the benefit
of the successors and assigns of Sunrise., and the heirs of Schwach.
17. Entire Agreement. This Separation Agreement and Release, when
signed by Schwach, supersedes any prior agreement, oral or written, and contains
all of the terms and conditions agreed upon by Sunrise and Schwach with respect
to the subject matter hereof. No other agreements except for stock option
agreements referred to in Paragraph 2, whether oral or written, not specifically
referred to or included herein, shall be deemed to exist or modify this
Separation Agreement and Release or bind Sunrise and Schwach. No modification,
release, discharge or waiver of any provision of this Separation Agreement and
Release shall be of any force or effect unless made in writing and signed by the
parties hereto, and specifically identified as a modification, release or
discharge of this Separation Agreement and Release. If any term, clause or
provision of this Separation Agreement and Release shall for any reason be
adjudged invalid, unenforceable or void, the same shall not impair or invalidate
any of the other provisions of the Separation Agreement and Release, all of
which shall be performed in accordance with their respective terms. Schwach
acknowledges, by his signature to this Separation Agreement and Release, that he
has not relied on any representations or statements, whether oral or written,
other than the express statements of this Separation Agreement and Release, in
signing this Separation Agreement and Release.
Dated: Nov 13, 1997 /s/ Barry J. Schwach
Barry J. Schwach
SUNRISE INTERNATIONAL LEASING
CORPORATION
Dated: Nov 13, 1997 By /s/ Errol Carlstrom
Its CEO
Exhibit 11.1
SUNRISE INTERNATIONAL LEASING CORPORATION
PER SHARE EARNINGS (LOSS) COMPUTATIONS
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Basic Earnings Per Share:
Weighted average number of common shares
outstanding 7,658,000 7,189,000 7,189,000
Net income (loss) $ 2,191,000 $(2,547,000) $ 2,503,000
=========== =========== ===========
Basic Earnings Per Share $ 0.29 $ (0.35) $ 0.35
=========== =========== ===========
Diluted Earnings (Loss) Per Share
Weighted average number of common shares
outstanding 7,658,000 7,189,000 7,189,000
Common share equivalents from assumed
exercise of options and warrants 18,000 56,000 32,000
----------- -----------
Total shares 7,676,000 7,245,000 7,221,000
=========== =========== ===========
Net income (loss) $ 2,191,000 $(2,547,000) $ 2,503,000
----------- =========== ===========
Diluted Earnings Per Share $ 0.29 $ (0.35) $ 0.35
=========== =========== ===========
</TABLE>
Exhibit 23.1
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in Registration Statements File
Nos. 33-52364 and 33-52366 of Sunrise International Leasing Corporation on Forms
S-8 of our report dated May 29, 1998 appearing in this Annual Report on Form
10-K of Sunrise International Leasing Corporation for the year ended March 31,
1998
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
June 26, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated June 27, 1997 included in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 33-52364 and No. 33-52366.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
June 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,140,000
<SECURITIES> 0
<RECEIVABLES> 8,106,000
<ALLOWANCES> 1,365,000
<INVENTORY> 207,000
<CURRENT-ASSETS> 91,360,000
<PP&E> 984,000
<DEPRECIATION> 658,000
<TOTAL-ASSETS> 93,940,000
<CURRENT-LIABILITIES> 62,932,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 30,930,000
<TOTAL-LIABILITY-AND-EQUITY> 93,940,000
<SALES> 49,272,000
<TOTAL-REVENUES> 49,272,000
<CGS> 45,289,000
<TOTAL-COSTS> 45,289,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,983,000
<INCOME-TAX> 1,792,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,191,000
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
