<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A AMENDMENT NO. 1
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from October 1, 1997 to December 31, 1997
Commission file number 0-27550
FIRSTPLUS Financial Group, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 75-2561085
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 Viceroy, Dallas, Texas 75235
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(214) 599-6400
- -------------------------------------------------------------------------------
Former fiscal year end September 30, 1997; New fiscal year end December 31, 1998
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
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
--- ---
There were 37,165,147 shares of voting common stock and 690,990 shares of non-
voting common stock, $.01 par value outstanding as of January 31, 1998.
<PAGE>
EXPLANATORY NOTE
FIRSTPLUS Financial Group, Inc. (the "Company" or "FIRSTPLUS") is amending
its Transition Report on Form 10-Q for the transition period ended December
31, 1997. The amendment is to reflect an increase in the gain on securitized
loan sales, net, and the corresponding increase in the interest only strip
("I/O Strips"), and a decrease in interest income on interest only strips.
The Company utilizes a volatility-based formula to ascertain the market
discount rate on its I/O Strips, as required by Statement of Financial
Accounting Standards No. 125 ("SFAS No. 125"). During the December 1997
quarter, and extending through the March 1998 quarter, extreme market
uncertainties resulted in FIRSTPLUS utilizing a discount rate to value its
I/O Strips which attempted to account for these uncertainties. Since that
time, FIRSTPLUS has developed an enhanced residual valuation model. This
model takes into account the most relevant valuation factors as of the date
of the related securitization, and specifically addresses the structure of
the securities and the discount rates. When evaluating the three months ended
December 31, 1997, management concluded that the residuals resulting from
this period's securitizations were recorded at levels inconsistent with the
enhanced model. After further consideration regarding the conditions that
existed on December 31, 1997, FIRSTPLUS has concluded that the discount
rates associated with I/O Strips generated during the December 1997 quarter
were overstated. As such, the Company's net income for the December 1997
quarter was understated.
This Amendment No. 1 on Form 10-Q/A to the Transition Report on Form 10-Q
of the Company for the transition period ended December 31, 1997 contains
revised financial statements (Part I Item 1) and management's discussion and
analysis of financial condition and results of operations (Part I Items 2)
resulting from the above changes. Each of the items included herein has been
restated in full.
FIRSTPLUS FINANCIAL GROUP, INC.
INDEX TO FORM 10-Q/A AMENDMENT NO. 1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1997 (Unaudited)- 3
Consolidated Statements of Income-(Unaudited)
Three Months Ended December 31, 1996 and
December 31, 1997 4
Consolidated Statements of Cash Flows-(Unaudited)
Three Months Ended December 31, 1996 and
December 31, 1997 5
Notes to Consolidated Financial Statements-(Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 12
2
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FIRSTPLUS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
September 30, December 31,
1997 1997
(Restated - see
Note 2)
------------- ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 94,978 $ 59,524
Securities, available for sale 40,995 30,172
Loans held for sale, net 1,400,446 1,577,670
Investment in securitized loans 190,861 182,842
Subordinated certificates held for sale 18,047 18,047
Interest only strips, net 456,123 482,271
Servicing assets 40,516 53,370
Receivable from trusts 138,816 171,606
Other assets 66,424 73,308
---------- ----------
Total assets $2,447,206 $2,648,810
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 44,445 $ 30,919
Warehouse financing 1,238,156 1,361,967
Term lines 211,751 275,692
Time deposits 120,025 133,146
Bonds 174,088 168,646
Convertible subordinated notes 69,920 69,920
Notes payable and other borrowings 39,321 39,714
Deferred tax liabilities, net 119,355 125,521
---------- ----------
Total liabilities 2,017,061 2,205,525
Commitments and contingencies
Stockholders' equity:
Preferred stock, non-voting, $1.00 par value,
8% cumulative dividend:
Authorized shares-Series A-300; Series B-2,300
Issued and outstanding shares-Series A
and Series B-none -- --
Common stock, $0.01 par value:
Authorized shares-100,000
Issued and outstanding shares
36,580 at September 30, 1997 and 37,140 at
December 31, 1997 366 371
Common stock, non-voting, $0.01 par value:
Authorized shares-25,000
Issued and outstanding shares
691 at September 30, 1997 and December 31, 1997 7 7
Additional capital 216,881 219,329
Unrealized gains on available for sale
securities, net 20,253 19,262
Retained earnings 192,638 204,316
---------- ----------
Total stockholders' equity 430,145 443,285
---------- ----------
Total liabilities and stockholders' equity $2,447,206 $2,648,810
---------- ----------
---------- ----------
</TABLE>
See accompanying notes
3
<PAGE>
FIRSTPLUS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
Three Months Ended
December 31,
-----------------------
1996 1997
---- ----
(Restated -
see Note 2)
(Unaudited)
<S> <C> <C>
Revenues:
Gain on securitized loan sales, net $ 49,941 $ 28,799
Gain on whole loan sales 6,296 4,521
Interest income 22,412 64,353
Interest only strips interest income 2,717 18,358
Origination income 3,738 23,480
Servicing income 3,283 9,392
Insurance income -- 2,004
Other income 2,468 1,392
---------- ----------
Total revenues 90,855 152,299
Expenses:
Salaries and employee benefits 16,586 36,909
Interest 14,713 33,996
Other operating 22,612 48,511
Provision for possible credit losses 5,272 14,047
---------- ----------
Total expenses 59,183 133,463
---------- ----------
Income before income taxes 31,672 18,836
Provision for income taxes (12,036) (7,158)
---------- ----------
Net income $ 19,636 $ 11,678
---------- ----------
---------- ----------
Weighted average common shares 28,278 37,487
---------- ----------
---------- ----------
Basic earnings per share $ 0.69 $ 0.31
---------- ----------
---------- ----------
Weighted average common shares - assuming dilution 35,547 43,570
---------- ----------
---------- ----------
Diluted earnings per share $ 0.58 $ 0.29
---------- ----------
---------- ----------
</TABLE>
See accompanying notes
4
<PAGE>
FIRSTPLUS FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
Three Months Ended
December 31,
-------------------------
1996 1997
---- ----
(Restated -
see Note 2)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 19,636 $ 11,678
Operating activities:
Provision for possible credit losses 5,272 14,047
Depreciation and amortization 342 1,770
Gain on sales of loans (56,237) (33,320)
Changes in operating assets and liabilities:
Interest only strip and servicing asset amortization 5,161 36,402
Loans originated or acquired (824,099) (1,322,947)
Principal collected and proceeds from sale of loans 585,968 1,147,817
Interest only strips, net (19,041) (52,576)
Receivable from trusts (18,107) (32,790)
Other assets (16,315) (1,687)
Accounts payable and accrued expenses (665) (13,526)
Deferred tax liability 11,469 6,166
Other 415 1,380
--------- -----------
NET CASH USED IN OPERATING ACTIVITIES (306,201) (237,586)
INVESTING ACTIVITIES:
Cash from acquisition 11,962 -
Purchases of available for sale securities (10,924) (6,844)
Proceeds from sale of available for sale securities -- 17,667
Purchases of equipment and leasehold improvements (565) (6,968)
--------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 473 3,855
FINANCING ACTIVITIES:
Borrowings on warehouse financing facilities, net 274,114 123,811
Borrowings on term line of credit 27,160 63,941
Repayment on notes payable, net (768) 393
Payments on bonds payable -- (5,442)
Net change in deposits 1,376 13,121
Issuance of common stock 718 2,453
--------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 302,600 198,277
--------- -----------
DECREASE IN CASH (3,128) (35,454)
Cash and cash equivalents at beginning of period 23,167 94,978
--------- -----------
Cash and cash equivalents at end of period $ 20,039 $ 59,524
--------- -----------
--------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 11,723 $ 30,750
--------- -----------
--------- -----------
</TABLE>
See accompanying notes
5
<PAGE>
FIRSTPLUS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended December 31, 1997 are not
necessarily indicative of the results that may be expected for a full year.
For further information, refer to the consolidated financial statements and
footnotes thereto for the year ended September 30, 1997 included in FIRSTPLUS
Financial Group, Inc.'s 1997 Annual Report filed with the Securities and
Exchange Commission on Form 10-K.
On December 15, 1997, the Board of Directors of FIRSTPLUS Financial
Group, Inc. (the "Company") approved a change in the Company's fiscal year
end from September 30 to December 31, to be effective beginning January 1,
1998. Accordingly, the Company is filing this Transition Report on Form 10-Q
for the transition period ended December 31, 1997.
2. RESTATEMENT OF THE THREE MONTHS ENDED DECEMBER 31, 1997
During the December 1997 quarter, extreme market uncertainties resulted
in the Company utilizing an increased discount rate to value its I/O Strips.
This rate attempted to account for these uncertainties. Since that time,
FIRSTPLUS has developed an enhanced residual valuation model. This model
takes into account the most relevant valuation factors as of the date of the
related securitization, and specifically addresses the structures of the
securities and the discount rates. When evaluating the three months ended
December 31, 1997, management concluded that the residuals resulting from
this period's securitizations were recorded at levels inconsistent with the
enhanced model. The Company has concluded that the discount rates associated
with I/O Strips generated during the December 1997 quarter were overstated.
As such, the Company's net income for the December 1997 quarter was
understated. The gain on securitized loan sales, net, was $18.9 million in
the quarter ended December 31, 1997. Following the revaluations, the gain on
securitized loan sales, net, will now be $28.8 million or an increase of $9.9
million. As a result of a decrease in the average yield of our residuals and
increases in amortization, interest income on interest only strips which was
$23.2 million for the December 1997 quarter will now be $18.4 million or $4.8
million lower. Net income for the December period was $8.6 million and will
now be $11.7 million or an increase of $3.1 million, or $0.07 per diluted
share.
3. LOANS HELD FOR SALE
Loans held for sale consist of the following:
<TABLE>
September 30, December 31,
1997 1997
(Restated-see Note 2)
---------- ---------------------
(Unaudited)
<S> <C> <C>
High LTV Loans $1,310,576 $1,445,725
Personal consumer 93,172 107,118
Conforming first lien mortgages 16,488 16,801
Other 14,581 41,938
---------- ----------
Subtotal 1,434,817 1,611,582
Allowance for possible credit losses (31,539) (19,753)
Deferred finance charges (16,568) (19,559)
Net purchase premiums 13,736 5,400
---------- ----------
Total $1,400,446 $1,577,670
---------- ----------
---------- ----------
</TABLE>
6
<PAGE>
FIRSTPLUS FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INTEREST ONLY STRIPS, NET
The activity in the Interest Only Strips (net of allowance for loan losses)
is summarized as follows:
<TABLE>
Three months
Year ended ended
September 30, December 31,
1997 1997
(Restated - see
Note 2)
--------- ----------
(Unaudited)
<S> <C> <C>
Balance, beginning of period $ 132,973 $ 456,123
Interest only strips from securizations 608,548 165,469
Provision for possible losses (245,796) (121,795)
Amortization (61,707) (34,769)
Charge-offs, net 23,866 17,581
Other (1,761) (338)
--------- ---------
Balance, end of period $ 456,123 $ 482,271
--------- ---------
--------- ---------
</TABLE>
5. EARNINGS PER SHARE
The table below sets forth the computation of basic and diluted earnings per
share:
<TABLE>
Three Months Ended
December 31
------------------
(Unaudited)
1996 1997
(Restated - see
Note 2)
-------- ---------------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share-income $19,636 $11,678
available to common stockholders (net income)
Effect of dilutive securities:
Additional interest on convertible
subordinated notes, net of tax 1,096 792
------- -------
Numerator for diluted earnings per share-income
available to common stockholders after assumed
conversions $20,732 $12,470
------- -------
------- -------
Denominator:
Denominator for basic earnings per share-weighted
average shares 28,278 37,487
Effect of dilutive securities:
Employee stock options 1,345 1,793
Convertible subordinated notes 5,924 4,290
------- -------
Dilutive potential common shares 7,269 6,083
------- -------
Denominator for diluted earnings per share-adjusted
weighted average shares and assumed conversions 35,547 43,570
------- -------
------- -------
Basic earnings per share $ 0.69 $ 0.31
------- -------
------- -------
Diluted earnings per share $ 0.58 $ 0.29
------- -------
------- -------
</TABLE>
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRSTPLUS Financial Group, Inc. (together with its subsidiaries, the
"Company" or "FIRSTPLUS") is a specialized consumer finance company that
originates, purchases, services and sells consumer finance receivables. The
Company's loan products are debt consolidation or home improvement loans
secured by second liens on residential real property ("High LTV Loans"),
non-conforming home equity loans ("Home Equity"), conforming first lien
loans, and personal consumer loans. The Company sells substantially all of
its High LTV Loans through its securitization program and retains rights to
service these loans.
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Annual Report filed with the Securities and Exchange Commission on Form 10-K,
including the consolidated financial statements and notes thereto.
FINANCIAL CONDITION
DECEMBER 31, 1997
Loans held for sale and investment in securitized loans increased to
$1.8 billion as of December 31, 1997, compared with $1.6 billion as of
September 30, 1997, an increase of $0.2 billion or 12.5%. This increase
was due to loan originations of $1.3 billion offset by loans securitized of
$900 million, whole loan sales and loan paydowns.
The Company's interest only strips ("I/O Strips") increased to $482.3
million at December 31, 1997, compared with $456.1 million at September 30,
1997, an increase of $26.2 million or 5.7%. The increase in the I/O Strips
was the result of the recognition of the fair value of the I/O Strips
associated with the current period securitizations, offset by the
amortization of the I/O Strips and offset by the provision for losses on
loans sold. I/O Strips are amortized through periodic charges to the income
statement on an accelerated basis. This amortization rate is approximately
131% of the 2.9% (11.6% annualized) loan run-off rate (including scheduled
amortization, prepayments and defaults) experienced in the related
securitization pools during the December 31, 1997 quarter. As of December
31, 1997, the carrying value of previously recorded I/O Strips reflects the
estimated fair value.
Total stockholders' equity at December 31, 1997 was $443.3 million,
compared with $430.1 million at September 30, 1997, an increase of $13.2
million or 3.0%. During the three months ended December 31, 1997, the
Company earned net income of $11.7 million and issued $2.5 million in common
stock.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 VERSUS THREE MONTHS ENDED
DECEMBER 31, 1996
The Company's total revenues increased to $152.3 million during its
December 1997 quarter, compared with $90.9 million in the December 1996
quarter, an increase of $61.4 million or 67.6%. During the December 1997
quarter, the Company's percentage of non-securitization revenue to total
revenue increased to 81.1%, compared with 45.0% in the December 1996 quarter.
Gain on securitized loan sales decreased to $28.8 million in the
December 1997 quarter, compared with $49.9 million in the December 1996
quarter, a decrease of $21.1 million or 42.3%. Gain on securitized loan sales
in each quarter was affected by both the size of the securitizations and the
assumptions used in the gain on securitized loan sales. During the December
1997 quarter, the Company securitized $900 million of High LTV Loans,
compared with $395 million in the December 1996 quarter. This increase in
volume was due to increased loan originations.
The Company utilizes an enhanced residual valuation model. The model
takes into account the most relevant valuation factors as of the date of the
related securitization and the current balance sheet date, and specifically
addresses discount rates. Management makes estimates and assumptions
regarding the value of the I/O Strips at the time of the securitization and
at each balance sheet date. The primary assumptions used to estimate the
value of the I/O Strips are default and prepayment rates, along with an
appropriate discount rate. The discount rate is determined based on the
securitization structure, the over-collateralization levels, interest rate
8
<PAGE>
fluctuations and market volatility. During the December 31, 1997 quarter, we
used an approximate 21% discount rate to value the I/O Strips, by taking into
account all cash flows that will revert to the Company. The resulting gain on
securitized loan sales, net as a percentage of the loans securitized and sold
was 3.2% and 12.6% for the quarters ended December 31, 1997 and 1996,
respectively.
Interest income increased to $64.4 million in the December 1997 quarter,
compared with $22.4 million in the December 1996 quarter, an increase of
$42.0 million or 187.5%. The increase in interest income was mostly
attributable to an increase in the volume of loans originated and loans held
for sale. Loans held for sale as of December 31, 1997 were $1.6 billion,
compared with $734.4 million as of December 31, 1996.
Interest income on the Company's I/O Strips increased to $18.4 million
in the quarter ended December 31, 1997, compared with $2.7 million in the
quarter ended December 31, 1996, an increase of $15.7 million or 581%. This
increase was primarily the result of the Company's larger average I/O Strip
balance during the December 31, 1997 quarter. I/O Strips as of December 31,
1997 were $482.3 million compared with $196.8 million as of December 31, 1996.
Origination income increased to $23.5 million in the quarter ended
December 31, 1997, compared with $3.7 million in the quarter ended December
31, 1996, an increase of $19.8 million or 535.1%. The increase was the
result of the Company's continuing shift toward direct to consumer
originations. Origination fees are deferred when collected and subsequently
recognized when the loans are sold. The Company collected and deferred
approximately $34.1 million of loan origination fees during the December 1997
quarter.
Servicing income increased to $9.4 million in the quarter ended December
31, 1997, compared with $3.3 million in the quarter ended December 31, 1996,
an increase of $6.1 million or 184.8%. This increase was a result of the
increase in the Company's securitized loan portfolio which increased to $3.9
billion at December 31, 1997, compared with $1.2 billion at December 31, 1996.
Total pre-tax operating expenses, which include salaries, employee
benefits, advertising, marketing, servicing and other operating expenses,
increased to $96.8 million (before deferring $11.4 million of direct origination
costs) in the quarter ended December 31, 1997, compared with $39.2 million in
the quarter ended December 31, 1996, an increase of $57.6 million or 146.9%.
The increase in operating expenses during the quarter ended December 31, 1997
was due to the Company's decision to significantly increase its High LTV and
Home Equity direct to consumer lending platforms (including its Texas Home
Equity direct to consumer lending division). In addition, the Company
continued to increase marketing and advertising to build brand name awareness
and attract new customers.
Interest expense for the quarter ended December 31, 1997 increased to
$34.0 million, compared with $14.7 million for the quarter ended December 31,
1996, an increase of $19.3 million or 131.3%. The increase primarily
9
<PAGE>
related to the Company's overall increase in the warehouse and repurchase
facilities and term line borrowings, which supported both loan volume growth
and expanding operations in the quarter.
The Company's provision for possible credit losses on loans held for
sale increased to $14.0 million for the quarter ended December 31, 1997,
compared with $5.3 million for the quarter ended December 31, 1996, an
increase of $8.7 million or 164.1%. The 30 day and over delinquency rate for
the managed loans portfolio decreased to 2.6% as of December 31, 1997,
compared with 2.7% as of December 31, 1996. Gross servicing portfolio
defaults, before recoveries and insurance recoveries received on Title I
loans, equaled $22.6 million or 0.44% of the December 31, 1997 average
quarterly loan portfolio. Of the $22.6 million, approximately $5.3 million
were Title I defaults, which are subject to recoveries under the Title I
insurance program.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require continued access to financing sources.
The Company's primary operating cash requirements include the funding of (i)
loan originations, (ii) reserve accounts, overcollateralization requirements,
fees and expenses incurred in connection with its securitization
transactions, (iii) tax payments due on the Company's taxable net income,
(iv) television, radio and direct mail advertising and other marketing, and
(v) administrative and other operating expenses. The Company has been able
to utilize a new securitization structure whereby the Company issues the
bonds in excess of loans delivered. Overcollateralization requirements are
met by future excess cash flows of the specific securitizations. The Company
expects to continue to utilize this structure in future securitization
transactions.
Adequate credit facilities and other sources of funding, which permit
the Company to fund its operating cash requirements and to securitize or sell
loans in the secondary market, are essential to the continuation of the
Company's ability to originate and purchase loans. After utilizing available
working capital, the Company borrows money to fund its loan originations and
purchases and repays these borrowings as the loans are repaid or sold. Upon
the securitization or sale of loans and the subsequent repayment of the
borrowings, the Company's working capital and warehouse facilities again
become available to fund additional loan originations and purchases.
The Company currently has approximately $3.6 billion in capacity in its
warehouse and repurchase facilities. These facilities carry variable
interest rates, primarily based on LIBOR, ranging from 0.50% to 1.5%. On
December 15, 1997, the Company entered into a new $1.5 billion committed
repurchase agreement with an affiliate of Deutsche Bank A.G. that bears interest
at LIBOR + 0.50%. As of December 31, 1997, the Company had $1.4 billion
outstanding under these facilities. The borrowings under the warehouse and
repurchase facilities had a weighted average interest rate of 6.8% and 6.6%
as of December 31, 1997 and September 30, 1997, respectively.
In addition, the Company had approximately $420 million in term line
facilities that are secured by I/O Strips generated from the related
securitizations. As of December 31, 1997, the Company had $275.7 million
outstanding under these facilities. These facilities are with the same
institution as the warehouse and repurchase facility and bear interest rates
at LIBOR + between 2.1% and 2.25%.
As a result of the Company's increasing volume of loan originations and
purchases, and its expanding securitization activities, the Company has
operated, and expects to continue to operate, on a negative operating cash
flow basis, which is expected to increase as the volume of the Company's loan
purchases and originations increase and its securitization program grows.
The Company's operations used $237.6 million during the quarter ended
December 31, 1997, compared with $306.2 million used during the quarter ended
December 31, 1996. The cash used in operations is primarily related to the
cost of an enlarged infrastructure, employee base and the costs that
accompany the Company's securitization strategy. Cash from financing and
investing activities provided cash in the amount of $202.1 million for the
quarter ended December 31, 1997, compared with $303.1 million in the quarter
ended December 31, 1996. Financing and investing activities increased
primarily due to additional borrowings related to the warehouse, repurchase,
and term line facilities along with other borrowings, which have been used to
fund loan originations, working capital and securitization costs.
In addition, the Company has a strategy of maintaining a significant
quantity of loans on its balance sheet, thus increasing the length of time
that loans are held for sale and materially increasing its interest rate
10
<PAGE>
risk. Because the Company's present loan facilities bear interest at variable
rates, the Company has a need for medium to long-term fixed-rate financing.
If the Company is unable to obtain such financing, it could have a material
adverse effect on the Company's results of operations and financial condition.
IMPACT OF YEAR 2000
The "Year 2000" issue refers to the phenomenon whereby computer
programs, having been written using two digits rather than four to define the
applicable year, may erroneously recognize a date using "00" as the year 1900
rather than the year 2000. This error could potentially result in a system
failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions or engage
in similar normal business activities.
The Company is in the process of upgrading its mission critical systems
as part of its strategic initiatives to accommodate its growth and need for
increased capacity. As part of this process, the Company is ensuring that
these new systems are Year 2000 compliant.
To a degree, the Company relies on outside software vendors, significant
suppliers and large customers for the operation of its systems. The Company
is initiating formal communications with these parties to determine the
extent to which the Company's upgraded systems are vulnerable to those third
parties' failure to remedy their own Year 2000 issues. The Company presently
believes that with modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant operational problems
for its systems. However, if such modifications and conversions are not made,
or are not completed timely, the Year 2000 issue could have a material impact
on the operations of the Company.
The Company will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications.
The Company anticipates completing the Year 2000 project prior to any
anticipated impact on its operating systems. The total cost of the Year 2000
project, although not formally assessed at this time, is not expected to be
material and is being funded through operating cash flows.
FORWARD LOOKING STATEMENTS
The above statements contained in the Amendment No. 1 on Form 10-Q/A to
the Transition Report that are not historical facts, including, but not
limited to, statements that can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or comparable
terminology, are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, and involve a number of risks and
uncertainties. The actual results of the future events described in such
forward-looking statements in this press release could differ materially from
those stated in such forward-looking statements. Among the factors that could
cause actual results to differ materially are: short-term interest rate
fluctuations, level of defaults and prepayments, general economic conditions,
competition, government regulation and possible future litigation, as well as
the risks and uncertainties discussed in the Company's Current Report on Form
8-K, dated December 19, 1996, including without limitation, the uncertainties
set forth from time to time in the Company's other public reports and filings
and public statements.
11
<PAGE>
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
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits:
10.1* - Loan and Security Agreement, dated December 13, 1997,
between FIRSTPLUS Special Funding Corp. and German
American Capital Corporation
10.2* - Loan and Security Agreement, dated December 13, 1997,
between FIRSTPLUS Special Funding Corp. and Aspen
Funding Corp.
27 - Financial Data Schedule
(B) Reports on Form 8-K
* On December 23, 1997, the Company filed a Current Report on Form
8-K (amended on February 5, 1998) with respect to a change in
fiscal year end.
* On December 22, 1997, the Company filed a Current Report on Form
8-K with respect to the press release dated December 19, 1997 on
gain-on-sale.
* Previously filed
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.
FIRSTPLUS Financial Group, Inc.
(Registrant)
by: /s/ William P. Benac
---------------------------------------------------------
William P. Benac
Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
date: May 18, 1998
------------
12
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> OCT-31-1997
<PERIOD-END> DEC-31-1997
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<SECURITIES> 530,490
<RECEIVABLES> 1,597,423
<ALLOWANCES> 19,753
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<DEPRECIATION> 11,983
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<CURRENT-LIABILITIES> 30,919
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0
0
<COMMON> 378
<OTHER-SE> 442,907
<TOTAL-LIABILITY-AND-EQUITY> 2,648,810
<SALES> 0
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<LOSS-PROVISION> 14,047
<INTEREST-EXPENSE> 33,996
<INCOME-PRETAX> 18,836
<INCOME-TAX> 7,158
<INCOME-CONTINUING> 11,678
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<EXTRAORDINARY> 0
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