SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from to
Commission file number 0-20123
WINTHROP RESOURCES CORPORATION
(Exact name of Registrant as specified in its charter)
MINNESOTA 41-1415469
(State of incorporation) (I.R.S. Employer
Identification No.)
1015 OPUS CENTER, 9900 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 936-0226
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 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
As of August 12, 1996, 8,599,800 shares of Common Stock of the
Registrant, $0.01 par value, were outstanding.
WINTHROP RESOURCES CORPORATION
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1996 ........ 3
and December 31, 1995
Consolidated Statements of Earnings for the three months
and six months ended June 30, 1996 and 1995 ............ 4
Consolidated Statement of Common Shareholders' Equity
for the six months ended June 30, 1996 ................. 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 .................... 6
Condensed Notes to Consolidated Financial Statements ... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................... 14
Item 2. Changes in Securities .................................. 14
Item 3. Defaults Upon Senior Securities ........................ 14
Item 4. Submission of Matters to a Vote of Security Holders .... 14
Item 5. Other Information ...................................... 14
Item 6. Exhibits and Reports on Form 8-K ....................... 14
SIGNATURES ............................................................... 16
EXHIBIT INDEX ............................................................ 18
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WINTHROP RESOURCES CORPORATION
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 519,525 $ 10,234,159
Receivables:
Trade accounts 2,007,254 2,215,747
Other receivables 612,741 174,063
------------ ------------
Total receivables 2,619,995 2,389,810
Due from underwriters 41,672,500 --
Investment in leasing operations:
Direct financing and sales-type leases 268,699,122 238,651,547
Operating leases, less accumulated depreciation 3,816,027 5,542,906
Equipment installed on leases not yet commenced 13,424,534 10,086,568
------------ ------------
Total investment in leasing operations 285,939,683 254,281,021
Furniture and equipment, less accumulated
depreciation of $629,114 and $528,985 742,804 607,078
Goodwill and other intangible assets, less accumulated 6,739,985 188,055
amortization of $302,045 and $11,944
Other assets 1,433,340 244,854
------------ ------------
$339,667,832 $267,944,977
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable $ 10,042,646 8,001,592
Accrued liabilities 6,994,404 3,735,546
Income taxes payable 1,244,147 1,644,882
Customer deposits 2,751,715 2,017,070
Rents received in advance 2,150,944 3,934,758
Deferred income taxes 17,291,454 15,430,414
Notes payable to banks 13,650,000 --
Senior notes due 2003 28,750,000 --
Discounted lease rentals 182,948,040 178,457,019
------------ ------------
Total liabilities 265,823,350 213,221,281
Preferred stock, $.01 par value. Authorized 2,000,000
shares; no shares issued and outstanding -- --
Common shareholders' equity:
Common stock, $.01 par value. Authorized 15,000,000 shares;
issued and outstanding 8,599,800 and 7,882,900 shares 85,998 78,829
Additional paid-in capital 23,185,354 9,465,205
Retained earnings 50,573,130 45,179,662
------------ ------------
Total common shareholders' equity 73,844,482 54,723,696
------------ ------------
$339,667,832 $267,944,977
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
WINTHROP RESOURCES CORPORATION
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Leasing $24,324,804 $22,602,436 $39,824,587 $39,497,042
Sales 679,992 374,590 1,157,517 1,244,404
Other 107,345 6,396 179,283 54,178
----------- ----------- ----------- -----------
Total revenues 25,112,141 22,983,422 41,161,387 40,795,624
----------- ----------- ----------- -----------
Costs and expenses:
Leasing 12,841,183 13,271,718 17,495,510 19,970,886
Sales 282,092 259,869 541,429 1,050,659
Selling, general and administrative 1,856,453 1,742,738 3,982,748 3,268,464
Interest 3,926,339 3,098,048 7,504,001 6,462,649
Other 171,374 -- 290,101 --
----------- ----------- ----------- -----------
Total costs and expenses 19,077,441 18,372,373 29,813,789 30,752,658
----------- ----------- ----------- -----------
Earnings before income tax expense . 6,034,700 4,611,049 11,347,598 10,042,966
Provision for income tax expense 2,474,300 1,844,400 4,652,600 4,017,200
----------- ----------- ----------- -----------
Net earnings $ 3,560,400 $ 2,766,649 $ 6,694,998 $ 6,025,766
=========== =========== =========== ===========
Net earnings per common share $ 0.45 $ 0.35 $ 0.85 $ 0.76
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
WINTHROP RESOURCES CORPORATION
Consolidated Statement of Common Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------- Paid-in Retained
Shares Amount Capital Earnings Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, 7,882,900 $ 78,829 $ 9,465,205 $ 45,179,662 $ 54,723,696
December 31, 1995
Issuance of common 750,000 7,500 13,718,250 -- 13,725,750
shares in public
offering
Common shares issued upon exercise 10,000 100 53,650 -- 53,750
of stock options
Repurchase and retirement of (43,100) (431) (51,751) (673,746) (725,928)
common shares
Dividends declared -- -- -- (627,784) (627,784)
Net earnings for the period -- -- -- 6,694,998 6,694,998
--------- ------------ ------------ ------------ ------------
Balance,
June 30, 1996 8,599,800 $ 85,998 $ 23,185,354 $ 50,573,130 $ 73,844,482
========= ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
WINTHROP RESOURCES CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,694,998 $ 6,025,766
Adjustments to reconcile net earnings to net
cash provided by in operating activities:
Leasing costs and interest expense on 23,849,076 27,388,870
discounted lease rentals
Leasing revenue, primarily amortization of unearned income on (11,627,575) (10,767,391)
sales-type and direct financing leases
Deferred initial direct costs (454,000) (376,979)
Deferred income taxes 1,861,040 1,606,880
Amortization of goodwill and other intangible assets 290,101 --
Depreciation on furniture and equipment 100,129 40,632
Changes in operating assets and liabilities:
Trade accounts and other receivables (153,160) 707,423
Other assets (253,622) 113,251
Accounts payable and accrued liabilities 2,917,869 (1,389,265)
Income taxes payable (400,735) 1,055,817
Customer deposits and rents received in advance (1,049,169) 296,886
------------ ------------
Net cash provided by operating activities 21,774,952 24,701,890
------------ ------------
Cash flows from investing activities:
Purchase of equipment for leasing (81,566,773) (65,191,413)
Purchase of furniture and equipment (176,132) (38,063)
Acquisition, net of cash acquired (4,805,855) --
------------ ------------
Net cash used in investing activities (86,548,760) (65,229,476)
------------ ------------
Cash flows from financing activities:
Proceeds from discounted lease rentals 44,502,421 47,860,927
Early retirement of discounted lease rentals (1,870,790) (9,822,277)
Borrowings under lines of credit 24,818,000 14,000,000
Repayment of borrowings under lines of credit (11,168,000) (14,000,000)
Proceeds from exercise of stock options 53,750 --
Repurchase of common stock (725,928) (898,490)
Dividends paid (550,279) (399,082)
------------ ------------
Net cash provided by financing activities 55,059,174 36,741,078
------------ ------------
Net decrease in cash and cash equivalents (9,714,634) (3,786,508)
Cash and cash equivalents, beginning of period 10,234,159 6,860,747
------------ ------------
Cash and cash equivalents, end of period $ 519,525 $ 3,074,239
============ ============
Cash paid during the period for:
Interest $ 79,473 $ 105,322
============ ============
Income taxes $ 3,195,686 $ 1,354,503
============ ============
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acqusition (see Note 2):
The Company accrued a $2,000,000 liability in conjunction with the Capital
Business Leasing, Inc. acquisition.
Equity and Debt Offering (see Notes 3 and 4):
The Company completed an equity and debt offering totaling $42,475,750 on
June 28, 1996 for which net cash proceeds of $41,672,500 were not received until
July 3, 1996.
See accompanying notes to consolidated financial statements.
WINTHROP RESOURCES CORPORATION
Condensed Notes to Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The consolidated financial statements included in this Form 10-Q have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed, or
omitted, pursuant to such rules and regulations, although management believes
the disclosures are adequate to make the information presented not misleading.
These statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
The consolidated financial statements presented herein as of June 30,
1996 and 1995 and for the three and six month periods then ended reflect, in the
opinion of management, all material adjustments consisting only of normal
recurring adjustments necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. Certain
1995 balances have been reclassified to conform to the 1996 presentation.
(2) ACQUISITION
On January 19, 1996, the Company acquired substantially all of the
assets of Capital Business Leasing, Inc. ("Capital"), a Nevada corporation with
its headquarters in Henderson, Nevada and a sales office in Knoxville,
Tennessee. Capital was a small-ticket lease broker that served as a focal point
or consolidator for a variety of unrelated brokers and vendors, and arranged for
the financing of these lease transactions with other leasing companies. The
Company is operating this wholesale lease business as it was previously
conducted. Capital's assets, which included cash, furniture and equipment and
other intangibles including goodwill, were acquired pursuant to an asset
purchase agreement for $7,100,000. Under the terms of the agreement, the Company
paid $5,100,000 on January 19, 1996 and is required to pay up to $2,000,000 on
December 31, 1996, plus accrued interest thereon at a rate of six percent (6%)
per annum.
The acquisition has been accounted for as a purchase and the results of
operations of Capital since the date of acquisition have been included in the
Company's consolidated financial statements. The Company allocated $1,000,000 of
the purchase price to other intangible assets and is amortizing such amount on a
straight-line basis over five years. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $5,842,000
was recognized as goodwill and is being amortized on a straight-line basis over
15 years.
(3) PUBLIC STOCK AND DEBT OFFERING
Effective June 28, 1996, the Company completed a public offering of
1,500,000 shares of its Common Stock at $19.50 per share and $28,750,000 of
9.50% Senior Notes due 2003. Of the 1,500,000 shares offered, 750,000 shares
were sold by the Company and 750,000 shares were sold by certain shareholders of
the Company.
(4) DUE FROM UNDERWRITERS
The amount due from underwriters, $41,672,500, represents net proceeds
due from the Company's underwriters at June 30, 1996 for the Company's public
offering of common stock and senior notes which became effective June 28, 1996.
The settlement date, at which time the Company's underwriters paid the balance
in full, was July 3, 1996.
(5) INVESTMENT IN LEASING OPERATIONS
The components of the net investment in direct financing and sales-type
leases as of June 30, 1996 were as follows:
Minimum lease payments receivable, net of
reserve for credit losses $288,699,666
Estimated residual values 24,347,498
Initial direct costs 4,457,152
Less unearned revenue on lease payments receivable (44,564,927)
Less unearned revenue on residuals (4,240,267)
------------
Net investment in direct financing and
sales-type leases $268,699,122
============
Unearned revenue is recorded as leasing revenue over the lease terms.
Investment in operating lease assets included the following as of June
30, 1996:
Operating lease assets $ 8,708,648
Less accumulated depreciation and amortization (4,892,621)
-----------
Net $ 3,816,027
===========
(6) DISCOUNTED LEASE RENTALS
Discounted lease rentals as of June 30, 1996 consisted of the
following:
Nonrecourse borrowings $182,550,248
Recourse borrowings 397,792
------------
Total discounted lease rentals $182,948,040
============
(7) NOTES PAYABLE TO BANKS
At June 30, 1996, the Company had lines of credit totalling $23,000,000
available from two banks. The interest rates are charged at one bank's prime
rate, or, at the Company's option, at a rate determined by a specified
alternative-rate calculation, and at 25 basis points over the other bank's prime
rate. These agreements expire in July 1997 and June 1997, respectively. All
borrowings under these agreements are secured by specific leases and the
underlying equipment. At June 30, 1996, $13,650,000 was outstanding under these
lines of credit.
(8) SENIOR NOTES DUE 2003
At June 30, 1996, the Company had $28,750,000 in aggregate principal
amount of 9.5% Senior Notes due July 1, 2003 (the "Notes"). The Notes, issued in
the Company's public offering of common stock and senior notes on June 28, 1996,
are general unsecured senior obligations of the Company ranking pari passu with
all other existing and future unsecured and unsubordinated obligations of the
Company. Interest is payable monthly. The Notes may not be redeemed prior to
July 1, 2001, after which the Notes may be redeemed in whole or in part, at the
Company's option.
(9) INCOME TAXES
Income tax expense for the three months ended June 30, 1996 consisted
of current and deferred tax expense of $1,484,580 and $989,720, respectively.
For the six month period ended June 30, 1996, current and deferred income tax
expenses were $2,791,560 and $1,861,040, respectively.
(10) EARNINGS PER SHARE
Earnings per share are computed on the weighted average number of
common shares outstanding of 7,874,525 and 7,873,025 for the three and six month
periods ended June 30, 1996, respectively. For each of the comparable periods in
1995, the weighted average number of common shares outstanding was 7,912,493 and
7,932,725, respectively. Common equivalent shares are excluded from the weighted
average number of common shares as the dilutive effect is less than 3%.
WINTHROP RESOURCES CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net earnings for the three months ended June 30, 1996 were $3,560,000,
or $0.45 per share, as compared to $2,767,000, or $0.35 per share, for the
corresponding period in 1995. For the six month period ended June 30, 1996, net
earnings were $6,695,000, or $0.85 per share, compared to $6,026,000, or $0.76
per share, during the comparable 1995 period. At June 30, 1996, the Company's
net investment in leasing operations was $285,940,000, up from $254,281,000 at
December 31, 1995, an increase of 12.5%.
Total revenues of $25,112,000 and $41,161,000 for the three and six
month periods ended June 30, 1996 were up 9.3% and 1.0% from $22,983,000 and
$40,796,000 in the comparable periods in 1995. Leasing revenues accounted for
96.7% and 96.8% of total revenues for the three and six month periods ended June
30, 1996, respectively, and 98.3% and 96.8% for the corresponding 1995 periods.
The quarter-to-quarter fluctuations in total revenues, leasing revenues and the
allocation between types of leasing revenues result primarily from the manner
and timing in which leasing revenues are recognized over the term of each
particular lease. The allocation of revenues is a function of the lease
classification as determined in accordance with generally accepted accounting
principles. Total leasing revenues for the three and six months ended June 30,
1996 also include approximately $1,984,000 and $4,069,000, respectively, of
commissions generated from the financing of lease transactions which were placed
by the Company's wholesale lease business acquired on January 19, 1996. For
additional information relating to the acquisition, see Note 2 to the Company's
financial statements included in this Quarterly Report on Form 10-Q.
Total leasing costs as a percentage of leasing revenues were 52.8% and
43.9% for the three and six month periods ended June 30, 1996, respectively.
Total leasing costs for the three and six months ended June 30, 1996 include
approximately $1,238,000 and $2,592,000, respectively, of commissions paid to
third-party brokers for the origination of lease transactions for the Company's
wholesale lease business. During the corresponding 1995 periods, total leasing
costs were 58.7% and 50.6% of leasing revenues. The decrease in leasing costs as
a percentage of leasing revenues primarily reflects the influence of the
relative size and lease classification of transactions for the respective
periods.
Selling, general and administrative expenses increased $114,000 (6.5%)
in the second quarter of 1996 over 1995, and increased $714,000 (21.9%) during
the six month period ended June 30, 1996 over the corresponding 1995 period,
primarily as a result of increased employment costs and general operating
expenses. Employment costs increased primarily as a result of the addition of
personnel since the commencement of operations in July 1995 of WINR Business
Credit and the acquisition of the wholesale lease broker business, as well as
overall company expansion. At June 30, 1996 the Company had a total of 89
full-time employees compared to 50 full-time employees at June 30, 1995. General
operating expenses have increased due to the growth of the Company, through the
formation of WINR Business Credit and the wholesale lease broker business
acquisition, as well as the expansion of sales offices.
Interest expense increased $828,000 (26.7%) and $1,041,000 (16.1%)
during the three and six month periods ended June 30, 1996 over the
corresponding 1995 periods. These increases were primarily the result of higher
average borrowings during the current periods as compared with the corresponding
1995 periods.
Income tax expense as a percentage of earnings before income tax was
approximately 41% for the three and six month periods ended June 30, 1996, and
approximately 40% for both of the comparable 1995 periods. The actual income tax
paid varies depending on many factors, including the alternative minimum tax
rate, various state tax laws, timing differences due to accelerated tax
depreciation rules and a variety of other tax considerations.
As a result of the foregoing factors, net earnings increased by
$794,000 (28.7%) and $669,000 (11.1%) for the three and six month periods ended
June 30, 1996 as compared with the corresponding 1995 periods.
FINANCIAL CONDITION AND LIQUIDITY
The funds necessary to support the Company's leasing activities have
been provided primarily from operations, discounted lease financing and, to a
lesser extent and only on an interim basis, bank borrowings under lines of
credit. The extent to which the Company employs these lines is dependent upon
available funds and the volume of its lease and sales transactions. At June 30,
1996, $13,650,000 was outstanding under these credit lines.
Generally, upon commencement of a lease, the Company assigns the lease
payment stream to a financial institution and the proceeds are used to reduce
the lines of credit. The Company generally funds its equity investments in
leased equipment with internally generated funds.
The Company uses internally generated funds or its bridge lines of
credit to finance short-term requirements. At the request of the Company and
with the consent of First Bank National Association, the commitment to provide a
bridge credit line was extended from July 1996 to July 1997. Terms and
conditions were amended on June 28, 1996 pursuant to a discretionary revolving
credit note. See "Part II. Other Information -- Item 6. Exhibits and Reports on
Form 8-K" appearing elsewhere in this Quarterly Report on Form 10-Q. The Company
also extended the commitment by Norwest Equipment Finance, Inc. to provide a
bridge credit line from June 1996 to June 1997. Terms and conditions were
amended on June 28, 1996 pursuant to a letter agreement included under "Part II.
Other Information -- Item 6. Exhibits and Reports on Form 8-K" appearing
elsewhere in this Quarterly Report on Form 10-Q.
At June 30, 1996, the Company had discounted lease rentals outstanding
of $182,948,000 of which 99.8% were nonrecourse. At December 31, 1995, the
Company had discounted lease rentals outstanding of $178,457,000 of which 99.3%
were nonrecourse. The increase in discounted lease rentals for the six months
ended June 30, 1996 is due primarily to an increased number of permanent
financings that resulted from the increase in business volume in 1996 over 1995.
The Company depends on discounted lease financing to provide funds for its
operations at rates that reflect prevailing market interest rates and the credit
standing of its customers. Based on the Company's experience in the leasing
industry, its strong financial history and its long-standing relationships with
certain financial institutions, the Company believes that discounted lease
financing will continue to be available at competitive rates of interest.
The primary use of cash for the six-month period ended June 30, 1996
has been the purchase of equipment for leasing which totalled approximately
$81,567,000.
On January 19, 1996, the Company made a $5,100,000 cash payment
pursuant to an asset purchase agreement (the "Agreement") for the purchase of
substantially all the assets of Capital Business Leasing, Inc. Under the terms
of the Agreement, on December 31, 1996 the Company is required to make a final
payment of up to $2,000,000, plus accrued interest thereon at a rate of six
percent (6%) per annum.
There can be fluctuations in cash flow from period to
period due to the timing of payments by customers and timing of permanent
financing. The Company's current financial resources, estimated cash flow from
operations together with the net proceeds from the Company's public offering of
Common Stock and 9.5% Senior Notes due 2003, see "Part II. Other Information --
Item 5. Other Information" appearing elsewhere in this Quarterly Report on Form
10-Q, are expected to be adequate to fund the Company's operations and its
present expansion plans.
Inflation has not been a significant factor in the Company's
operations.
PART II. OTHER INFORMATION
WINTHROP RESOURCES CORPORATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable.
(b) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
On June 28, 1996, the Company completed a secondary public stock
offering of 1,500,000 shares of Common Stock at $19.50 per share and $28,750,000
of 9.50% Senior Notes due 2003. Of the 1,500,000 shares offered, 750,000 were
sold by the Company and 750,000 shares were sold by certain shareholders. The
net proceeds from this offering received by the Company on July 3, 1996 were
$41,672,500 and were used for repayment in full of amounts outstanding under the
Company's bridge lines of credit, for purchases of equipment for lease to
customers, for expansion of operations and for working capital and general
corporate purposes.
On July 25, 1996, the Company's Board of Directors declared a dividend
of four cents ($.04) per share of Common Stock, payable October 1, 1996 to
shareholders of record September 16, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Discretionary Revolving Credit Note dated June 28, 1996
between the Company and First Bank National Association. 19
10.2 Letter of agreement dated June 28, 1996 between the Company
and Norwest Equipment Finance, Inc. 25
11 Statement Regarding Computation of Per Share Earnings. 27
27 Financial Data Schedule 28
(b) Reports on Form 8-K
The Registrant was not required to file any reports on Form 8-K for the
three months ended June 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINTHROP RESOURCES CORPORATION
Date: August 12, 1996 By: /s/ John L. Morgan
John L. Morgan
President and Chief Executive
Officer (Principal Executive
Officer) and Director
/s/ Kirk A. MacKenzie
Kirk A. MacKenzie
Executive Vice President, Treasurer,
and Chief Financial Officer (Principal
Financial and Accounting Officer) and
Director
Exhibit Index
EXHIBIT DESCRIPTION PAGE
------- ----------- ----
10.1 Discretionary Revolving Credit Note dated June 28,
1996 between the Company and First Bank National
Association 19
10.2 Letter of agreement dated June 28, 1996 between the
Company and Norwest Equipment Finance, Inc. 25
11 Statement Regarding Computation of Per Share Earnings 27
27 Financial Data Schedules 28
Exhibit 10.1
<PAGE>
DISCRETIONARY REVOLVING CREDIT NOTE
$15,000,000 Minneapolis, Minnesota
Due: July 31, 1997 June 28, 1996
FOR VALUE RECEIVED, the undersigned, WINTHROP RESOURCES CORPORATION, a
Minnesota corporation (the "Borrower"), promises to pay to the order of FIRST
BANK NATIONAL ASSOCIATION, a national banking association (the "Bank"), its
successors and assigns, at its banking office at First Bank Place, 601 Second
Avenue South, Minneapolis, Minnesota 55402-4302, or such other place as the
holder hereof may designate in writing from time to time, the principal sum of
FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000), or so much thereof as may be
advanced from time to time pursuant to that certain Discretionary Letter
Agreement dated August 2, 1994, between the Borrower and the Bank (as originally
executed and as may be amended, modified, supplemented and restated from time to
time, the "Discretionary Agreement"), in lawful money of the United States,
together with interest from the date hereof on the unpaid balance hereof from
time to time outstanding at one or more of the rates set forth below at the
option of the Borrower calculated on the basis of the actual number of days
elapsed and a 360-day year.
INTEREST RATE OPTIONS
Amounts outstanding hereunder shall bear interest at one or more of the
following interest rates, at the option of the Borrower:
(a) Reference Rate; and/or
(b) Resetting C/D Rate (Reserve Adjusted) plus the Applicable Margin
("Alternate Rate").
After maturity (whether by acceleration or otherwise) all amounts
outstanding hereunder shall bear interest at a variable annual rate at all times
equal to the interest rate(s) otherwise applicable to the Advances hereunder
plus two percent (2%) per annum. Such interest shall be due and payable upon
demand.
DEFINITIONS
As used herein the following capitalized terms shall have the meanings
set forth below:
"Applicable Margin" means the per annum rate set forth below based upon
the ratio of the Borrower's Indebtedness to its Tangible Net Worth as reflected
in the most recent Compliance Certificate provided by the Borrower in accordance
with the Discretionary Agreement:
Ratio Applicable Margin
----- -----------------
Less than 1.50 to 1.00 1.50%
Equal to or greater than
1.50 to 1.00 but less than
or equal to 2.49 to 1.00 1.75%
Equal to or greater
than 2.50 to 1.00 2.00%
The Applicable Margin shall be determined by the Bank from time to time upon the
information set forth in the Compliance Certificates furnished to the Bank
pursuant to Section 6(e) of the Discretionary Agreement. Any change in the
Applicable Margin shall take effect on the Business Day following the due date
of the applicable Compliance Certificate, and the Applicable Margin, as so
determined, shall remain in effect until the scheduled due date of the next
Compliance Certificate. Upon any failure of the Borrower to deliver to the Bank
the applicable Compliance Certificate within the time provided by Section 6(e),
the Applicable Margin shall be deemed to be based upon an assumed ratio of 2.50
to 1.00 and such Applicable Margin shall remain in effect until the Business Day
following the Business Day of delivery to the Bank of a Compliance Certificate
reflecting a ratio for which the lower Applicable Margin would be applicable.
Upon any adjustment of the Applicable Margin, (x) the Borrower shall promptly
pay to the Bank such amount of additional interest as may be payable for the
applicable prior period and (y) if no Default or Event of Default has occurred
and is continuing, the Bank shall promptly credit to the Borrower any excess
interest as may be applicable for the applicable prior period, as the case may
be, as may be payable based upon such adjustment.
"Reference Rate" means the rate of interest established and publicly
announced by the Bank from time to time as its reference rate. The Bank may make
loans to its customers at, above or below the Reference Rate. In the event that
the Bank ceases to establish and announce a Reference Rate at any time during
the term of this Note, the Bank shall be entitled to designate a reasonably
comparable substitute index for the calculation of the interest rate hereon so
long as any amount remains outstanding hereunder. All changes in the rate of
interest based upon the Reference Rate shall become effective on the same day
that the change in said Reference Rate is announced.
"Resetting Certificate of Deposit Rate" means for each day that any
amount is outstanding hereunder, the rate per annum determined to be the rate
per annum bid (at or about 8:00 a.m. Minneapolis time or as soon thereafter as
is practicable) on such day for the purchase at face value from the Bank of its
certificates of deposit in an amount approximately equal to the outstanding
principal amount of the Advance to which the Alternate Rate is to apply and
having a maturity of thirty days.
"Resetting Reserve Adjusted CD Rate" means, for each day that any
amount is outstanding hereunder, the rate per annum equal to the sum (rounded up
to the nearest 1/100 of 1%) of: (a) the rate obtained by dividing (i) the
Resetting Certificate of Deposit Rate for such day by; (ii) a percentage equal
to 1.00 minus the full reserve requirement percentage (expressed as a decimal)
as imposed for such day by Regulation D on non-personal time deposits of
$100,000 or more made with the Bank and having a thirty day maturity (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves if the Bank, in its sole discretion, determines that it is required to
maintain any such reserves during the term of the Note); plus (b) the effective
daily net annual assessment rate (rounded up to the nearest 1/100 of 1%) for
such day assessed to the Bank by the Federal Deposit Insurance Corporation (or
any successor thereto) for such Corporation's insuring of time deposits at
domestic offices of the Bank in the United States, and (c) a rate per annum
based upon all broker's fees and other direct or indirect fees, costs and
expenses that would be associated with the issuance and sale of the Bank's
certificates of deposit, as determined by the Bank in its sole discretion. The
Resetting Reserve Adjusted CD Rate as to any Advance bearing interest at the
Alternate Rate shall be adjusted automatically every Bank business day. The
reserve requirement percentage used in clause (a)(ii) above shall be the reserve
requirement percentage for the computation period in which such day falls, as
reflected in a publication of the Board of Governors of the Federal Reserve
System (or any successor thereto).
REPAYMENT
Accrued interest hereon shall be due and payable on the last day of
each calendar month, commencing July 31, 1996. All outstanding principal and
accrued and unpaid interest shall be due and payable on July 31, 1997.
GENERAL TERMS
This Note is issued pursuant to the terms and provisions of the
Discretionary Agreement and this Note and the holder hereof are entitled to all
of the benefits provided for in the Discretionary Agreement, or are referred to
therein. Reference is made to the Discretionary Agreement for a statement of the
terms and conditions under which this indebtedness was incurred and is to be
repaid and under which the due date of this Note may be accelerated. The
provisions of the Discretionary Agreement are hereby incorporated by reference
with the same force and effect as if fully set forth herein. Capitalized terms
used in this Note which are not otherwise defined herein shall have the meanings
ascribed to them in the Discretionary Agreement.
This Note is secured by a Master Security Agreement and Assignment of
Leases dated of June 6, 1989, executed by the Borrower in favor of the Bank, as
supplemented to date, and as may be further amended, modified, and supplemented
from time to time, and the Security Interest granted by the Borrower to the Bank
pursuant to the Discretionary Agreement.
If an Event of Default, as defined in the Discretionary Agreement or
any other agreement made by any party in connection with this Note, shall occur,
the Bank or other holder may, without notice, demand, presentment for payment
and notice of nonpayment, all of which Borrower hereby expressly waives, declare
the indebtedness evidenced hereby and all other indebtedness and obligations of
the Borrower to the Bank or holder hereof immediately due and payable and the
Bank or other holder hereof may, without notice, immediately exercise any right
of setoff and enforce any lien or security interest securing payment hereof. The
foregoing shall be in addition to the rights of acceleration that may be
provided in any loan agreement, security agreement, mortgage and/or other
writing relating to the indebtedness evidenced hereby. If this Note is placed
with any attorney(s) for collection upon any default, the Borrower agrees to pay
to the Bank or holder, its reasonable attorneys' fees and all lawful costs and
expenses of collection, whether or not a suit is commenced.
Time is of the essence. No delay or omission on the part of the Bank or
other holder hereof in exercising any right or remedy hereunder shall operate as
a waiver of such right or of any other right or remedy under this Note or any
other document or agreement executed in connection herewith. All waivers by the
Bank must be in writing to be effective and a waiver on any occasion shall not
be construed as a bar to or a waiver of any similar right or remedy on a future
occasion.
Any deposits or other sums at any time credited by or due from the Bank
to any maker, endorser or guarantor hereof and any securities or other property
of any maker, endorser, or guarantor hereof in the possession of the Bank or
other holder of this Note may at all times be held and treated as collateral
security for the payment of this Note. The Bank or other holder hereof may apply
or set off such deposits or other sums against the obligations hereunder at any
time in case of makers, but only with respect to matured liabilities in the case
of endorsers or guarantors.
Any payment due on any non-banking day of the Bank shall be due upon
(and interest shall accrue to) the next banking day.
This Note is issued in substitution for, but not in payment of, that
certain Discretionary Revolving Credit Note of Borrower dated June 12, 1995, in
the original principal amount of $15,000,000 payable to the order of the Bank.
THIS NOTE IS A CONTRACT NEGOTIATED, EXECUTED AND TO BE PERFORMED IN THE
STATE OF MINNESOTA AND SHALL BE CONSTRUED, INTERPRETED AND GOVERNED BY THE
SUBSTANTIVE LAWS (BUT NOT THE LAW OF CONFLICTS) OF SAID STATE, GIVING EFFECT TO
LAWS GOVERNING NATIONAL BANKS.
THE BORROWER HEREBY CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE
AND FEDERAL COURTS LOCATED IN THE STATE OF MINNESOTA IN CONNECTION WITH ANY
CONTROVERSY RELATED TO THIS NOTE, WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS
IS NOT CONVENIENT AND AGREES THAT ANY LITIGATION INSTIGATED BY THE BORROWER
AGAINST THE BANK IN CONNECTION WITH THIS NOTE SHALL BE VENUED IN EITHER THE
DISTRICT COURTS OF HENNEPIN COUNTY, MINNESOTA, OR THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF MINNESOTA, FOURTH DIVISION.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE BORROWER
ACKNOWLEDGES AND AGREES THAT THIS NOTE EVIDENCES ADVANCES MADE BY THE BANK UNDER
A DISCRETIONARY FACILITY. THE MAKING OF ANY ADVANCE SHALL NOT OBLIGATE THE BANK
TO MAKE ANY OTHER OR FUTURE ADVANCE. THE BANK MAY DECLINE ANY REQUEST FOR ANY
ADVANCE IN ITS SOLE DISCRETION NOTWITHSTANDING THAT THE BORROWER HAS COMPLIED
WITH ALL OF THE TERMS AND PROVISIONS OF THIS NOTE, THE DISCRETIONARY AGREEMENT
OR ANY OTHER CREDIT DOCUMENT.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note
to the Bank as of the day and year first above written.
WINTHROP RESOURCES CORPORATION,
a Minnesota corporation
By: /s/ Richard Pieper
Its: Vice President
ACKNOWLEDGMENT
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing Discretionary Revolving Credit Note was acknowledged
before me this 30th day of July, 1996, by Richard Pieper as Vice President of
Winthrop Resources Corporation, a Minnesota corporation, on behalf of said
corporation.
[SEAL] /s/ Deborah Lee Mogensen
Notary Public
Exhibit 10.2
Norwest Equipment Finance, Inc.
Suite 300, Investors Building
733 Marquette Avenue
Minneapolis, MN 55479-2048
June 28, 1996
Mr. Richard Pieper, Vice President
Winthrop Resources Corporation
1015 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Dear Rich:
I am pleased to inform you that Norwest Equipment Finance, Inc. (NEFI) has
approved the following conditional lines of credit for Winthrop Resources
Corporation (the "Company"):
1. $8,000,000 bridge line priced at a variable rate 1/4% over Norwest Bank
Minnesota's base rate with interest due monthly. The purpose of the
line will be to bridge fund leases between inception and permanent
funding. The line will be secured by specific leases assigned to NEFI
and the underlying equipment. Advances will be evidenced by separate
notes for each lease and will have 120 day maturities and should have a
committed take out source for permanent funding. Advances will not
exceed 100% of the equipment cost and will be at a minimum $100,000.
Unless terminated sooner, this line will expire on 6/30/97.
Documentation for this line will include:
a) Original or certified copy of Master lease
b) Original schedule
c) Assignment and Master Security Agreement
d) Note
e) Original D & A (certified copies acceptable if a large number of
Certificates per schedule)
f) UCC filings (only in Minnesota)
g) Evidence of ownership or bridge advance pays vendor for equipment
under lease being bridged
In addition, we will continue to consider advances for permanent funding of
lease streams on a recourse basis at NEFI's sole discretion. Pricing will vary
depending on size, term, credit quality of lessee and amount of recourse. We
anticipate funding leases under three recourse amounts, 15%, 50% and 100%.
Mr. Richard Pieper
June 28, 1996
Page 2
As additional conditions for this line, the Company will provide NEFI with the
following information:
- - Quarterly financial statements within 45 days of each quarter end.
- - Annual audited financial statements within 90 days of year-end.
- - Financial statements and other such information as NEFI may require on each
of the lessees.
If you concur with the terms outlined, please sign below and return one copy for
our files.
Sincerely,
/s/ Mark Nyquist
Mark Nyquist
Assistant Vice President
Winthrop Resources Corporation
By /s/ Richard Pieper
Its Vice President
Exhibit 11
Winthrop Resources Corporation
Computation of Per Share Earnings
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Weighted average common shares
outstanding 7,874,525 7,912,493 7,873,025 7,932,725
Effect of dilutive options * * * *
- -------------------------- ---------- ---------- ---------- ----------
Total 7,874,525 7,912,493 7,873,025 7,932,725
========== ========== ========== ==========
Net earnings $3,560,400 $2,766,649 $6,694,998 $6,025,766
========== ========== ========== ==========
Net earnings per common share $ 0.45 $ 0.35 $ 0.85 $ 0.76
========== ========== ========== ==========
* Dilution is less than 3%; common equivalent shares are excluded.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
WINTHROP RESOURCES CORPORATION
FINANCIAL DATA SCHEDULES
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 520
<SECURITIES> 0
<RECEIVABLES> 2,620
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,372
<DEPRECIATION> 629
<TOTAL-ASSETS> 339,668
<CURRENT-LIABILITIES> 0
<BONDS> 28,750
0
0
<COMMON> 86
<OTHER-SE> 73,758
<TOTAL-LIABILITY-AND-EQUITY> 339,668
<SALES> 1,158
<TOTAL-REVENUES> 41,161
<CGS> 541
<TOTAL-COSTS> 22,019
<OTHER-EXPENSES> 290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,504
<INCOME-PRETAX> 11,348
<INCOME-TAX> 4,653
<INCOME-CONTINUING> 6,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,695
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
</TABLE>
