<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 March 31, 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.
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 May 12, 1997 was 4,105,517.
<PAGE> 2
ROCKFORD INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Income - Three months
ended March 31, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows - Three months
ended March 31, 1997 and 1996 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 11
PART II. OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
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<PAGE> 3
ROCKFORD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,798,022 $ 3,985,350
Restricted cash and cash equivalents 5,593,374 6,109,559
Accounts receivable (net of allowance for doubtful
accounts of $530,000 at March 31, 1997 and $385,000
at December 31, 1996) 14,160,696 10,039,818
Note receivable from officer 143,831 143,831
Prepaid expenses 1,014,862 884,184
Income taxes receivable -- 953,234
Net investment in direct finance leases (net of
lease receivable and residual valuation allowance
of $721,246 at March 31, 1997 and $1,215,000 at
December 31, 1996) 29,106,645 35,530,325
Net fixed assets 2,081,599 1,900,810
Discounted lease rentals assigned to lenders 92,331,570 98,151,318
------------ ------------
$146,230,599 $157,698,429
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable to bank $ 7,736,037 $ 10,981,549
Accounts payable 3,910,713 6,030,482
Accrued liabilities 6,087,944 5,919,187
Reserve for possible losses on securitized accounts 553,754 --
Income taxes payable 1,304,724 --
Deferred income taxes 760,052 1,820,346
Nonrecourse debt 105,179,029 113,062,823
------------ ------------
Total liabilities 125,532,253 137,814,387
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 5,090,855 4,276,551
------------ ------------
Total stockholders' equity 20,698,346 19,884,042
------------ ------------
$146,230,599 $157,698,429
============ ============
</TABLE>
See notes to financial statements
- 3 -
<PAGE> 4
ROCKFORD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1997 1996
------------ -----------
<S> <C> <C>
REVENUES:
Sales of equipment (Note 2) $ -- $19,499,758
Gain on sale of financing transactions 2,309,359 1,252,685
Finance income 1,128,986 1,264,097
Servicing related revenue 727,881 279,330
Gain on sale of residuals 148,428 94,566
Other income 281,347 176,311
----------- -----------
Total revenues from operations 4,596,001 22,566,747
COSTS:
Cost of equipment sold (Note 2) -- 17,565,486
Interest expense 620,974 648,828
----------- -----------
Total costs 620,974 18,214,314
GROSS PROFIT 3,975,027 4,352,433
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,574,833 3,254,419
----------- -----------
INCOME BEFORE INCOME TAXES 1,400,194 1,098,014
INCOME TAXES 560,000 439,250
----------- -----------
NET INCOME $ 840,194 $ 658,764
=========== ===========
INCOME PER SHARE (Note 2) $ .19 $ .15
=========== ===========
NET INCOME APPLICABLE TO
COMMON STOCK HOLDERS $ 814,304
===========
Weighted average shares outstanding 4,380,000 4,438,000
=========== ===========
</TABLE>
See notes to financial statements
- 4 -
<PAGE> 5
ROCKFORD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASHFLOWS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 840,194 $ 658,764
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 156,000 68,957
Change in lease receivable allowance (493,754) 100,000
Increase in reserve for possible losses on
securitized accounts 553,754 --
Gain on sale of residuals (148,428) (94,566)
Gain on sale of financing transactions (2,306,590) (1,252,685)
Initial direct cost amortization 329,733 383,645
Net amortization of deferred interest (837,745) (998,914)
Change in restricted cash 516,185 (789,986)
Increase in accounts receivable, officer note
receivable and prepaid expenses (4,251,556) (791,232)
Decrease in income taxes receivable 953,234 --
Change in accounts payable and accrued liabilities (1,951,012) 343,221
Change in income taxes payable 1,304,724 (434,456)
Decrease in deferred income taxes (1,060,294) --
------------ ------------
Net cash used in operating activities (6,395,555) (2,807,252)
CASH FLOWS FROM INVESTING ACTVITIES:
Payments received from lessees 5,702,989 592,913
Proceeds from sale of residuals 384,346 164,462
Purchase of fixed assets (234,789) (443,403)
Initial direct cost capitalization (2,445,531) (359,722)
Equipment purchased for financing (38,909,797) (29,727,686)
------------ ------------
Net cash used in investing activities (35,502,782) (29,773,436)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from nonrecourse debt and securitizations 42,982,411 28,129,543
Proceeds from notes payable to bank 25,072,786 2,522,446
Preferred stock dividends (25,890) --
Payments on notes payable to bank (28,318,298) --
------------ ------------
Net cash provided by financing activities 39,711,009 30,651,989
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,187,328) (1,928,699)
CASH AND CASH EQUIVALENTS, beginning of year 3,985,350 9,409,305
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,798,022 $ 7,480,606
============ ============
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $ 273,336 $ 881,918
============ ============
Interest paid $ 173,200 $ --
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES -
Estimated lessee payments made directly to
nonrecourse lending institutions $ 13,638,423 $ 15,320,746
============ ============
</TABLE>
See notes to financial statements
- 5 -
<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 March 31,
1997 and December 31, 1996, the statements of income for the three month periods
ended March 31, 1997 and 1996, and the statements of cash flows for the three
month periods ended March 31, 1997 and 1996. The results of operations for the
three month period ended March 31, 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 PRONOUNCEMENT
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 March 31, 1997, and for the three
months then ended, 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 ended March 31, 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 March 31, 1997, and
for the three 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 ended March 31, 1996 reflects certain reclassifications to
present the results of the Company's operations for the three months ended
March 31, 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
March 31,
-------------------------------------------------------
Pro Forma Reclassifi-
1997 1996 cations(1) 1996
------- --------- ----------- -------
(in thousands)
<S> <C> <C> <C> <C>
REVENUES:
Sales of equipment $ - $ - $19,500 $19,500
Gain on sale of financing transactions 2,309 1,362 (109) 1,253
Finance income 1,129 1,264 - 1,264
Servicing related revenue 728 279 - 279
Gain on sale of residuals 146 95 - 95
Other income 284 241 (65) 176
------ ------ ------- -------
Total revenues 4,596 3,241 19,326 22,567
COSTS:
Cost of equipment sold - - 17,566 17,566
Interest expense 621 649 - 649
------ ------ ------- -------
Total costs 621 649 17,566 18,215
GROSS PROFIT 3,975 2,592 1,760 4,352
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,575 1,494 1,760 3,254
------ ------ ------- -------
INCOME BEFORE INCOME TAXES 1,400 1,098 - 1,098
INCOME TAXES 560 439 - 439
------ ------ ------- -------
NET INCOME $ 840 $ 659 $ - $ 659
====== ====== ======= ========
</TABLE>
- -----------
(1) Represents the reclassification of the following to gain on sale of
financing transactions: $19,500 from sales of equipment, $17,566 from cost
of equipment sold, $1,515 from selling, general and administrative ("SG&A")
expenses relating to initial direct costs, $245 from SG&A expenses relating
to estimated bad debt expense on securitized accounts, and the
reclassification of $65 in documentation fees from gain on sale of
financing transactions to other income.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997 AND 1996
- ------------------------------------------------------------------
FINANCE CONTRACT ORIGINATIONS AND REVENUES. Finance contract
originations increased by approximately $9.2 million or 31% to $38.9 million in
the quarter ended March 31, 1997 from $29.7 million in the quarter ended March
31, 1996 reflecting the benefits of an expanded sales force. Total revenues for
the quarter ended March 31, 1997 were $4.6 million as compared to $22.6 million
for the quarter ended March 31, 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
quarter ended March 31, 1997 was $4.6 million as compared to $3.2 million for
the quarter ended March 31, 1996, representing an increase of $1.4 million or
42%. This increase resulted primarily from increased finance contract
originations and gains derived from the sale of Company held finance contracts.
GROSS PROFIT. Total gross profit for the quarter ended March 31, 1997
was $4.0 million as compared to $4.4 million for the same quarter in the prior
year, representing a decrease of $0.4 million or 9%. This decrease in gross
profits was attributable to the reclassification of certain selling costs from
selling, general and administrative expenses to
- 8 -
<PAGE> 9
gain on sale of financing transactions in the first quarter of 1997 associated
with the adoption of SFAS No. 125. On a pro forma basis, gross profit increased
from $2.6 million for the quarter ended March 31, 1996 to $4.0 million for the
quarter ended March 31, 1997, representing an increase of $1.4 million or 53%.
This increase was primarily due to increased finance contract originations,
lower cost of funds (borrowing rates), increased gains on sales of financing
transactions, servicing fees and other revenues associated with an increasing
serviced portfolio.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in the first quarter of 1997 were $2.6 million as
compared to $3.3 million in the first quarter of 1996, representing a decrease
of $0.7 million. This decrease was attributable to the reclassification of
certain selling costs from selling, general and administrative expenses to gain
on sale of financing transactions in the first quarter of 1997 associated with
the adoption of SFAS No. 125. On a pro forma basis, selling, general and
administrative expenses of $2.6 million for the quarter ended March 31, 1997
represented an increase of $1.1 million or 72% from $1.5 million for the same
period in 1996. This increase in selling, general and administrative expenses
was primarily due to increases in volume related expenses and additional
investment in the infrastructure and reserves necessary to service and support
an increasing level of finance contract originations and securitized portfolio.
NET INCOME. Income before taxes was $1,400,000 for the quarter ended
March 31, 1997 as compared to $1,098,000 for the same quarter of the prior year.
The effective income tax rate of 40% remained constant for the comparative
periods shown. Net income was $840,000 for the quarter ended March 31, 1997 as
compared to $659,000 for the same quarter of the prior year, representing an
increase of $181,000 or 27%. Net income of $.19 per share on weighted average
shares outstanding of 4,380,000 was earned during the first quarter of 1997, as
compared to net income of $.15 per share on weighted average shares outstanding
of 4,438,000 for the first quarter of 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.
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 January 1995, the Company and SunAmerica entered into an asset
securitization agreement under which SunAmerica agreed to purchase up to $65.0
million in principal amount of trust certificates. The Company securitized $57.0
million of financing contracts under this facility. In February 1996, the
Company and SunAmerica entered into an agreement pursuant to which SunAmerica
agreed to purchase up to an additional $l00.0 million in principal amount of
trust certificates. Under this agreement, through March 31, 1997, the Company
has securitized $95.5 million of its financing contracts with SunAmerica. This
agreement with SunAmerica expires on April 30, 1997. Negotiations are currently
in progress that will expand the SunAmerica securitization program under a
multi-year facility providing cost of funds at rates lower than previously in
effect. Management currently expects that this facility will be finalized during
the second quarter of 1997, provided
- 9 -
<PAGE> 10
that the negotiations are completed satisfactorily.
On November 7, l996, CoreStates Bank, N.A. provided the Company with a
commitment letter under which CoreStates proposed to provide the Company with a
$150 million three-year facility for the securitization of equipment finance
contracts. The CoreStates facility was closed on March 27, 1997 and provides
financing at rates that are about 65 basis points lower than the rates
previously available to the Company. Through March 31, 1997, the Company has
securitized $26.8 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 March 31, 1997, the Company had recorded nonrecourse debt of $105 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 May 1997 and contains a feature for
pricing at LIBOR plus 1 1/2%. At March 31, 1997, the Company had $7.7 million
outstanding under the Revolver.
CASHFLOWS. The Company's cash and cash equivalents at March 31, 1997
was $1.8 million compared to $7.5 million at March 31, 1996. During the three
months ended March 31, 1997, the Company's cash position decreased by $2.2
million, reflecting the use of cash in operations and investing activities of
$6.4 million and $35.5 million, respectively, and the cash provided from
financing activities of $39.7 million. The most significant aspects of the
change during this period was from cash invested in equipment for financing of
$38.9 million, increases in receivables and prepaids of $4.3 million and
proceeds from nonrecourse debt and securitizations of $43.0 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 $1.9 million during the
three months ended March 31, 1996, reflecting the use of cash in operations and
investing activities of $2.8 million and $29.8 million, respectively, and the
cash provided from financing activities of $30.7 million. The change in cash was
primarily due to cash used to purchase equipment for financing of $29.7 million
and proceeds from nonrecourse debt borrowings and securitizations of $28.1
million.
The Company believes that existing cash balances, cash flows from
activities, proceeds from securitization arrangements, nonrecourse assignments,
and bank credit lines will be sufficient to meet its financing needs for the
next twelve months.
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
- 10 -
<PAGE> 11
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.
- 11 -
<PAGE> 12
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.
- 12 -
<PAGE> 13
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: May 15, 1997 /s/ GERRY J. RICCO
-----------------------------
Gerry J. Ricco
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: May 15, 1997 /s/ LARRY E. DAVIS
----------------------------
Larry E. Davis
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) BALANCE
SHEET STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) 1ST
QUARTER 10-Q.
</LEGEND>
<CIK> 0000945901
<NAME> ROCKFORD INDUSTRIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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