<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 0-26324
ROCKFORD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0075112
(State of Incorporation) (I.R.S. Employer
Identification No.)
1851 E. FIRST ST.
SANTA ANA, CA 92705
(Address of principal executive offices) (Zip Code)
(714) 547-7166
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's no par value Common
Stock at October 31, 1997 was 4,105,517.
<PAGE> 2
ROCKFORD INDUSTRIES, INC.
TABLE OF CONTENTS
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PAGE
NUMBER
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PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets - 3
September 30, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Income - 4
Three months and nine months ended September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows - 5
Nine months ended September 30, 1997 and 1996 (unaudited)
Notes to Consolidated Financial Statements 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 8 - 12
RESULTS OF OPERATIONS
PART II. OTHER INFORMATION 13
SIGNATURES 14
</TABLE>
See notes to financial statements
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<PAGE> 3
ROCKFORD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 745,144 $ 3,985,350
Restricted cash and cash equivalents 13,891,909 6,109,559
Accounts receivable (net of allowance for doubtful
accounts of $575,000 at September
30, 1997 and $385,000 at December 31, 1996) 7,759,905 10,039,818
Note receivable from officer 109,761 143,831
Prepaid expenses 2,034,245 884,184
Income taxes receivable 288,365 953,234
Net investment in direct finance leases
(net of lease receivable and residual
valuation allowance of $825,200 at September 30, 1997 and
$1,215,000 at December 31, 1996) 22,436,833 35,530,325
Net fixed assets 2,465,786 1,900,810
Discounted lease rentals assigned to lenders (Note 2) 69,855,569 98,151,318
------------ ------------
$119,587,517 $157,698,429
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable to bank $ 2,927,473 $ 10,981,549
Accounts payable 8,900,796 6,030,482
Accrued liabilities 2,375,678 5,919,187
Estimated recourse obligations 1,868,391 --
Deferred income taxes 2,959,620 1,820,346
Nonrecourse debt (Note 2) 78,396,427 113,062,823
------------ ------------
Total liabilities 97,428,385 137,814,387
Commitments and contingencies -- --
Stockholders' equity:
Series A redeemable preferred stock 1,575,000 1,575,000
Common stock no par value; 10,000,000 shares
authorized; 4,105,517
shares issued and outstanding 14,032,491 14,032,491
Retained earnings 6,551,641 4,276,551
------------ ------------
Total stockholders' equity 22,159,132 19,884,042
------------ ------------
$119,587,517 $157,698,429
============ ============
</TABLE>
See notes to financial statements
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<PAGE> 4
ROCKFORD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Sales of equipment $ -- $27,275,770 $ -- $68,197,986
Gain on sale of financing transactions 3,246,815 1,147,483 7,802,535 3,189,479
Finance income 920,513 1,188,878 3,047,406 3,640,328
Servicing related income 652,737 475,453 2,114,813 1,141,888
Gain on sale of residuals 93,997 75,268 324,059 361,734
Other income 487,803 178,767 1,223,449 477,531
---------- ----------- ----------- -----------
Total revenues 5,401,865 30,341,619 14,512,262 77,008,946
COSTS:
Cost of equipment sold -- 24,109,191 -- 60,632,950
Operating expenses 2,661,232 3,731,641 7,207,385 9,567,203
Provision for losses 921,127 611,732 1,871,451 1,238,744
Interest expense 422,771 635,406 1,568,038 1,961,389
---------- ----------- ----------- -----------
Total costs 4,005,130 29,087,970 10,646,874 73,400,286
Income before income taxes 1,396,735 1,253,649 3,865,388 3,608,660
Income taxes 512,604 501,460 1,500,065 1,443,464
---------- ----------- ----------- -----------
Net income $ 884,131 $ 752,189 $ 2,365,323 $ 2,165,196
========== =========== =========== ===========
Income per share $ 0.20 $ 0.17 $ 0.53 $ 0.48
========== =========== =========== ===========
Net iincome applicable to common stock
holders $ 848,844 $ 725,723 $ 2,275,090 $ 2,100,949
========== =========== =========== ===========
Weighted average shares outstanding 4,479,000 4,520,000 4,479,000 4,493,000
========== =========== =========== ===========
</TABLE>
See notes to financial statements
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<PAGE> 5
ROCKFORD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,365,323 $ 2,165,196
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 420,000 229,844
Change in lease receivable allowance (389,800) 325,000
Increase in estimated recourse obligations 1,868,391 --
Gain on sale of residuals (324,059) (361,734)
Gain on sale of financing transactions (6,904,126) (3,189,479)
Initial direct cost amortization 940,755 990,884
Net amortization of deferred interest income (2,420,123) (2,669,823)
Increase in restricted cash (7,782,350) (2,366,241)
Change in accounts receivable and prepaid expenses 1,163,922 (11,499,295)
Change in accounts payable and accrued liabilities (608,853) 5,085,413
Dividends payable 64,342 --
Change in income taxes receivable 664,869 --
Change in income taxes payable -- (1,165,800)
Change in deferred income taxes 1,139,274 (266,743)
------------- ------------
Net cash used in operating activities (9,802,435) (12,722,778)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received from lessees 14,234,418 6,015,259
Proceeds from sale of residuals 1,265,277 831,621
Purchase of fixed assets (984,976) (971,229)
Initial direct costs (7,450,498) (988,141)
Equipment purchased for lease (122,213,000) (93,699,238)
------------- ------------
Net cash used in investing activities (115,148,779) (88,811,728)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from nonrecourse debt and securitizations 129,855,316 91,653,248
Proceeds from notes payable to bank 79,068,600 15,658,598
Payments on notes payable to bank (87,122,675) (11,262,249)
Proceeds from sale of common stock -- 21,113
Dividends on preferred stock (90,233) (81,891)
------------- ------------
Net cash provided by financing activities 121,711,008 95,988,819
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,240,206) (5,545,687)
CASH AND CASH EQUIVALENTS, beginning of year 3,985,350 9,409,305
------------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 745,144 $ 3,863,618
============= ============
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $ 606,922 $ 2,884,573
============= ============
Interest paid $ 608,226 $ 153,948
============= ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Estimated lessee payments made directly to nonrecourse lending institutions $ 39,405,445 $ 39,832,548
============= ============
</TABLE>
See notes to financial statements
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<PAGE> 6
ROCKFORD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements, including the
accounts of Rockford Industries, Inc. and its wholly-owned subsidiaries (the
"Company), have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles ("GAAP") for complete financial statements. The financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K filed with the SEC on March
31, 1997.
In the opinion of management, the consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair statement of the balance sheets as of September
30, 1997 and December 31, 1996, the statements of income for the three month and
nine month periods ended September 30, 1997 and 1996, and the statements of cash
flows for the nine month periods ended September 30, 1997 and 1996. The results
of operations for the three month and nine month periods ended September 30,
1997 are not necessarily indicative of the results of operations to be expected
for the entire fiscal year ending December 31, 1997.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No.
125 ("SFAS No. 125"), Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities as of January 1, 1997. SFAS No. 125 has
changed the manner in which the Company determines and recognizes the gain
recorded upon the transfer of its interest in finance contracts subsequent to
December 31, 1996. Additionally, SFAS No. 125 allows the Company to record gains
with respect to transfers of its interest in leases previously accounted for as
direct finance leases. SFAS No. 125 has also altered the presentation in the
Company's consolidated financial statements of revenues, expenses and certain
assets and liabilities associated with finance contracts sold. As a result,
certain aspects of the Company's financial statements as of September 30, 1997,
and for the three-month and nine-month periods, may not be directly comparable
to the prior period financial statements.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
No. 128"). Under SFAS No. 128, the Company will be required to disclose basic
earnings per share ("EPS") and diluted EPS for all periods for which income is
presented, which will replace disclosure currently being made for primary EPS
and fully-diluted EPS. SFAS No. 128 requires adoption for fiscal periods ending
after December 15, 1997. The Company will adopt the provisions of SFAS No. 128
within the 1997 year-end consolidated financial statements. EPS, as computed
under SFAS No. 128, is not materially different than EPS presented in the
Consolidated Statements of Income for the three months and nine months ended
September 30, 1997 and 1996.
-6-
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CUSTOMER FINANCE CONTRACT ACCOUNTING
GAIN ON SALE OF FINANCING TRANSACTIONS. Certain of the Company's
direct finance leases are initially funded with recourse debt or with the
Company's own working capital. The Company warehouses these contracts for a
period of time, and during this time utilizes the accounting and income
recognition methodology relating to direct finance leases as described below.
Subsequently, the Company may sell to nonrecourse lenders or securitize these
contracts. The difference between the cash proceeds from the assignment of the
remaining payments due under these contracts and the unamortized net investment
balance is recorded by the Company as a gain or loss on sale of financing
transactions, depending upon whether the cash proceeds are in excess of or less
than the unamortized net investment balance. If such sold contracts include a
residual payment that is not assigned to the purchaser, the residual interest is
recorded on the Company's books at the present value of the estimated residual
future value.
DIRECT FINANCE LEASES. Equipment financing transactions are
classified as direct finance leases when the Company funds the transaction with
recourse debt or the Company's own working capital. Additionally, collectability
of the contract payments must be reasonably certain and the transaction must
meet at least one of the following criteria: (i) the contract transfers
ownership of the equipment to the customer at the end of the contract term, (ii)
the contract contains a bargain purchase option, (iii) the contract term at
inception is at least 75% of the estimated economic life of the financed
equipment, or (iv) the present value of the minimum payments required of the
customer is at least 90% of the fair market value of the equipment at the
inception of the contract. For direct finance leases, the Company records the
total contract payments, estimated unguaranteed residual value and initial
direct costs (consisting of sales commissions, referral fees and other
origination costs) as the gross investment in the direct finance lease. The
difference between the gross investment in the direct finance lease and the cost
to the Company of the equipment being financed is recorded as unearned income.
Interest income is recognized over the term of the contract by amortizing the
unearned income using the interest method.
GAIN OR LOSS ON SALE OF RESIDUALS. The estimated unguaranteed
residual value represents management's estimate of the amount expected to be
received at the termination of a direct finance lease as a result of remarketing
the equipment originally financed by such contract. Management reviews such
estimates quarterly and records a residual valuation allowance if the
equipment's estimated fair market value is below its recorded value. When
equipment is sold by the Company at the expiration of the contract term, a gain
or loss is recorded depending upon whether the net proceeds from the sale are
above or below the estimated unguaranteed residual value.
-7-
<PAGE> 8
PRESENTATION OF FINANCIAL STATEMENTS
The Company adopted Statement of Financial Accounting Standards No.
125 ("SFAS No. 125"), Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities as of January 1, 1997. SFAS No. 125 has
changed the manner in which the Company determines and recognizes the gain
recorded upon the transfer of its interest in finance contracts subsequent to
December 31, 1996. Additionally, SFAS No. 125 allows the Company to record gains
with respect to transfers of its interest in leases previously accounted for as
direct finance leases. SFAS No. 125 has also altered the presentation, in the
Company's consolidated financial statements, of revenues, expenses and certain
assets and liabilities associated with finance contracts sold. As a result,
certain aspects of the Company's financial statements as of September 30, 1997,
and for the three months and nine months then ended, may not be directly
comparable to the prior period financial statements. The following pro forma
statement of operations for the three months and nine months ended September 30,
1996 reflects certain reclassifications to present the results of the Company's
operations for the three months and nine months ended September 30, 1996 on a
basis comparable to the 1997 presentation. The reclassifications pertain to
sales of equipment, cost of equipment sold, and the recording of initial direct
costs and estimated bad debt expense. The provisions of SFAS No. 125 may not be
applied retroactively, as a result, the accompanying pro forma information
reflects only reclassification adjustments to conform presentation.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------
PRO FORMA RECLASSIFI-
1997 1996 CATIONS 1996
------ ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Sales of equipment $ -- $ -- $ 27,276 $27,276
Gain on sale of financing transactions 3,246 1,771 (623) 1,148
Finance income 921 1,189 1,189
Servicing related income 653 476 (1) 475
Gain on sale of residuals 94 76 (1) 75
Other income 488 261 (82) 179
------ ------ -------- -------
Total revenues 5,402 3,773 26,569 30,342
COSTS:
Cost of equipment sold -- -- 24,110 24,110
Operating expenses 2,661 1,374 2,001 3,375
Provision for losses 921 510 458 968
Interest expense 423 635 635
------ ------ -------- -------
Total costs 4,005 2,519 26,569 29,088
Income before income taxes 1,397 1,254 -- 1,254
Income taxes 513 502 502
------ ------ -------- -------
Net income $ 884 $ 752 $ -- $ 752
====== ====== ======== =======
</TABLE>
-8-
<PAGE> 9
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------
PRO FORMA RECLASSIFI-
1997 1996 CATIONS 1996
------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Sales of equipment $ -- $ -- $ 68,198 $68,198
Gain on sale of financing transactions 7,803 4,441 (1,252) 3,189
Finance income 3,047 3,640 -- 3,640
Servicing related income 2,115 1,142 -- 1,142
Gain on sale of residuals 324 363 (1) 362
Other income 1,223 702 (225) 477
------- ------- -------- -------
Total revenues 14,512 10,288 66,720 77,008
COSTS:
Cost of equipment sold -- -- 60,633 60,633
Operating expenses 7,207 4,076 5,136 9,212
Provision for losses 1,872 643 951 1,594
Interest expense 1,568 1,961 -- 1,961
------- ------- -------- -------
Total costs 10,647 6,680 66,720 73,400
Income before income taxes 3,865 3,608 -- 3,608
Income taxes 1,500 1,443 -- 1,443
------- ------- -------- -------
Net income $ 2,365 $ 2,165 $ -- $ 2,165
======= ======= ======== =======
</TABLE>
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<PAGE> 10
RESULTS OF OPERATIONS
FINANCE CONTRACT ORIGINATIONS AND REVENUES. Finance contract
originations increased to $39.9 and $122.2 million in the three and nine month
periods ended September 30, 1997 from $33.0 and $93.7 million in the three and
nine month periods ended September 30, 1996. This represents an increase of 20%
and 30% for the three and nine month periods ended September 30, 1997 when
compared to the same prior year periods. The increases are primarily due to the
benefits of an expanded sales force.
Total revenues for the three and nine month periods ended September
30, 1997 were $5.4 and $14.5 million as compared to $30.3 and $77.0 million for
the three and nine month periods ended September 30, 1996. This decrease is due
to the adoption of SFAS No. 125 as of January 1, 1997. On a pro forma basis,
total revenues for the three and nine month periods ended September 30, 1997
were $5.4 and $14.5 million as compared to $3.8 and $10.3 million for the three
and nine month periods ended September 30, 1996, representing increases of 43%
and 41% respectively. Such increases were primarily due to increased sales of
finance contracts and higher gain margins on those sales. The improved gain
margin was the result of lower cost of funds in the Company's securitization
facilities and a one-time gain of approximately $900,000 from restructuring a
securitization facility in the third quarter.
Total costs for the three and nine month periods ended September 30,
1997 were $4.0 and $10.6 million as compared to $29.1 and $73.4 million for the
three and nine month periods ended September 30, 1996. This decrease is due to
the adoption of SFAS No. 125 as of January 1, 1997. On a pro forma basis, total
revenues for the three and nine month periods ended September 30, 1997 were $4.0
and $10.6 million as compared to $2.5 and $6.7 million for the three and nine
month periods ended September 30, 1996, representing increases of 59% for both
the three and nine month periods ended. Such increases were primarily the result
of increased operating expenses and provision for losses.
On a pro forma basis, operating expenses increased to $2.7 and $7.2
millions for the three and nine month periods ended September 30, 1997 from $1.4
and $4.1 million for the three and nine month periods ended September 30, 1996.
The increases were primarily due to decreased capitalization of initial direct
costs and increases in volume related expenses and additional investment in the
infrastructure necessary to service and support and increasing level of finance
contract originations and the increased size of the securitized portfolio.
On a pro forma basis, provision for losses increased to $0.9 and $1.9
millions for the three and nine month periods ended September 30, 1997 from $0.5
and $0.6 million for the three and nine month periods ended September 30, 1996.
The increases were primarily due to an increasing level of finance contract
originations and the increased size of the securitized portfolio.
Net income was $884,000 and $2,365,000 for the three and nine month
periods ended September 30, 1997 as compared to $752,000 and $2,165,000 for the
three and nine month periods ended September 30, 1996, representing an increase
of $132,000 or 18% and $200,000 or 9% respectively. Net income of $0.20 per
share on weighted average shares outstanding of 4,479,000 was earned during the
third quarter of 1997, as compared to net income of $0.17 per share on weighted
average shares outstanding of 4,520,000 for the third quarter of 1996. Net
income of $0.53 per share on weighted average shares outstanding of 4,479,000
was earned during the nine months ended September 30, 1997, as compared to net
income of $0.48 per share on weighted average shares outstanding of 4,493,000
earned during the nine months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Because equipment financing is a capital intensive business, the
Company requires continual access to substantial short and long-term credit to
generate its new equipment financings and sales. The principal sources of
funding for the Company's equipment finance contracts are (i) funding obtained
from sales of asset-backed securities (backed by pools of the Company's
equipment finance contracts) to SunAmerica Life Insurance Company ("SunAmerica")
and CoreStates Bank, N.A., pursuant to the terms of the each securitization
arrangement, (ii) nonrecourse borrowings from institutional lenders, and (iii)
standard recourse borrowings under its $30 million revolving line of credit
("Revolver") used by the Company from time to time to temporarily fund a portion
of its equipment finance contracts, pending more permanent funding arrangements
for such contracts.
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<PAGE> 11
SECURITIZED DEBT. Asset securitization is a process in which a pool
of equipment finance contracts is transferred to a wholly-owned special-purpose
subsidiary which, in turn, transfers the contracts and the payments due
thereunder to a trust which issues trust certificates to investors relating to
the contract pool. The source of repayment for the trust certificates is the
stream of payments which are made on the equipment finance contracts included in
the corresponding pool of transferred contracts. In addition, the special
purpose subsidiary pledges, as collateral to support payment of the trust
certificates, the equipment underlying the equipment finance contracts in each
pool. To the extent adequate payments on the trust certificates are not realized
by the investor, the investor (as opposed to the special purpose subsidiary) has
the right to the residual value, if any, of the equipment underlying the
contracts in the pool should such equipment be resold. The special purpose
subsidiary also provides credit enhancement by maintaining, in the case of the
Company's securitization program, certain cash reserve accounts or letters of
credit in connection with each borrowing under the securitization program. In
connection with the securitization programs, the Company has agreed to continue
to service the equipment finance contracts included in each pool of transferred
contracts on behalf of the certificate holder. In consideration for servicing
these contract pools, the Company receives a service fee from the certificate
holder.
In August 1997, the Company entered into an agreement with
SunAmerica, Inc. that provides the Company with a three year credit facility for
the securitization of up to $250 million of finance contract originations. Under
this agreement, through September 30, 1997, the Company has securitized $26.7
million of its financing contracts with SunAmerica. Also under this agreement,
the Company has consolidated $95.8 million of financing contracts securitized
with SunAmerica under previous agreements.
On March 27, l997 CoreStates Bank, N.A. provided the Company with a
commitment under which CoreStates provides the Company with a $150 million
three-year facility for the securitization of equipment finance contracts. The
CoreStates facility provides financing at rates that are about 65 basis points
lower than the rates previously available to the Company. Through September 30,
1997, the Company has securitized $75.0 million of its financing contracts with
CoreStates.
NONRECOURSE DEBT. Prior to the utilization of the securitization
funding methodology described above, the Company's principal source of funding
had been nonrecourse borrowings from institutional lenders, in connection with
which the lender's recourse is to the Company's customers and to the equipment
financed, not to the Company. This method of funding is still utilized by the
Company for a portion of its finance contract originations. To date, the Company
has been successful in attracting nonrecourse lenders and in extending the
levels at which existing lenders are willing to provide nonrecourse financing.
At September 30, 1997, the Company had recorded nonrecourse debt of $78 million.
SHORT-TERM RECOURSE DEBT. The Company has also, from time to time,
relied on standard recourse borrowings for the funding of a smaller, short-term
portion of its financing needs. The Company has maintained a credit facility
with a bank for such short-term borrowings, and under the terms of the
agreement, the Company may fund certain finance contracts at rates lower per
annum than available through nonrecourse financing. On February 10, 1997, the
borrowing limit of this facility was increased to $30.0 million. The terms of
this facility provide for advances through July 1998 and contains a feature for
pricing at LIBOR plus 1 -1/2%. At September 30, 1997, the Company had $2.9
million outstanding under the Revolver.
CASHFLOWS. The Company's cash and cash equivalents at September 30,
1997 was $0.7 million compared to $3.90 million at September 30, 1996. During
the nine months ended September 30, 1997, the Company's cash position decreased
by $3.2 million, reflecting the use of cash in operations and investing
activities of $9.8 million and $115.1 million, respectively, and the cash
provided from financing activities of $121.7 million. The most significant
aspects of the change during this period was from cash invested in equipment for
financing of $122.2 million and proceeds from nonrecourse debt and
securitizations of $129.9 million. This was largely due to the higher level of
the Company's finance contract originations. In comparison, the Company's cash
position decreased by $5.5 million during the nine months ended September 30,
1996, reflecting the use of cash in operations and investing activities of $12.7
million and $88.8 million, respectively, and the cash provided from financing
activities of $96.0 million. The change in cash was primarily due to cash used
to purchase equipment for financing of $93.7 million and proceeds from
nonrecourse debt borrowings and securitizations of $91.7 million.
During the nine months ended September 30, 1997, the Company's
restricted cash and cash equivalents increased by $7.8 million from $6.1 million
at December 31, 1996 to $13.9 million at September 30, 1997 due to increasing
securitization activity and letter of credit requirements. As a result, the
Company believes it will need to raise additional capital financing in the form
of debt or equity in 1998.
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<PAGE> 12
SEASONALITY
Historically, the Company has generally experienced lower
originations in its first quarter and relatively higher originations in its
fourth quarter. The Company believes that the first quarter has been negatively
affected by the requirements of its vendors to rebuild equipment inventories and
order backlog at the beginning of a new year and that the fourth quarter is
favorably affected by greater customer demand for equipment which is fostered,
in part, by budget and tax considerations.
IMPACT OF INFLATION
The Company funds a majority of its equipment finance contracts with
fixed rate loans in order to maintain a spread between the interest rates
charged to the Company and those implicit in the financing the Company provides.
Due to this timely matching of finance contract yields with funding rates, the
Company generally has mitigated the effects of rising interest rates during
inflationary periods. General inflation in the economy has driven upward the
operating expenses of many businesses, and accordingly, the Company has
increased salaries and borne higher prices for most other goods and services.
The Company continuously seeks methods of reducing costs and streamlining
operations while maximizing efficiencies and internal operating controls through
development of cost reducing funding mechanisms, such as the securitization
program, and through systems automation and enhancement. While the Company is
subject to inflation as described above, the Company believes that inflation
does not have a material effect on its operating results.
-12-
<PAGE> 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - Not Applicable
Item 2 - Changes in Securities - Not Applicable
Item 3 - Defaults Upon Senior Securities - Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports were filed on form 8-K during the
quarter for which this report is filed.
-13-
<PAGE> 14
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.
Rockford Industries, Inc.
(Registrant)
Date: November 13, 1997 /s/ GERRY J. RICCO
---------------------------------------
Gerry J. Ricco
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: November 13, 1997 /s/ KEVIN P. McDONNELL
---------------------------------------
Kevin P. McDonnell
Executive Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
-14-
<PAGE> 15
Exhibit Index
(a) Exhibit:
27 Financial Data Schedule
-15-
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,637,053
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 1,400,200
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,578,342
<DEPRECIATION> 1,112,557
<TOTAL-ASSETS> 119,587,517
<CURRENT-LIABILITIES> 97,428,385
<BONDS> 0
0
1,575,000
<COMMON> 14,032,491
<OTHER-SE> 6,551,641
<TOTAL-LIABILITY-AND-EQUITY> 119,587,517
<SALES> 7,802,535
<TOTAL-REVENUES> 14,512,262
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,207,385
<LOSS-PROVISION> 1,871,451
<INTEREST-EXPENSE> 1,568,038
<INCOME-PRETAX> 3,865,388
<INCOME-TAX> 1,500,005
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,365,323
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
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