<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
------------------------
OR
- ---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ________
Commission file number 1-11601
NATIONAL AUTO CREDIT, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
--------------------------
(State or other jurisdiction of
incorporation or organization)
34-1816760
--------------------------
(I.R.S. Employer Identification No.)
30000 Aurora Road, Solon, Ohio 44139
---------------------------------------------------
(Address of principal executive offices and zip code)
(216) 349-1000
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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
------- -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: 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 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 29,779,815 shares as of May 31, 1996.
<PAGE> 2
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION:
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets -
April 30, 1996 and January 31, 1996 1
Consolidated Statements of Income -
Three Months Ended April 30, 1996 and 1995 2
Consolidated Statement of Shareholders'
Equity for the Three Months Ended April 30, 1996 3
Consolidated Statements of Cash Flows -
Three Months Ended April 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 13
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE> 3
National Auto Credit, Inc. and Subsidiaries
Consolidated Balance Sheets
(Thousands of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
April 30, January 31,
1996 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,673 $ 1,665
Installment notes receivable,
net (Note B) 325,095 293,890
Property and equipment, net of
accumulated depreciation of
$5,326 and $4,959, respectively 9,082 9,175
Other assets 13,473 12,480
Assets related to discontinued
operations (Note F) 9,048 24,902
-------- --------
$358,371 $342,112
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Dealer holdbacks, net (Notes C and D) $ 65,079 $ 58,864
Self-insurance claims 10,782 12,712
Notes payable 13,354 13,354
Operating debt 11,846 3,546
Deferred and accrued
income taxes 16,526 17,379
Other liabilities 16,684 18,594
-------- --------
134,271 124,449
-------- --------
Commitments and Contingencies (Note E) -- --
Stockholders' Equity
Preferred stock - $.05 par value,
authorized 2,000,000 shares,
none issued -- --
Common stock - $.05 par value,
authorized 40,000,000 and 30,000,000
shares, issued 29,779,815 and 27,183,217
shares, respectively 1,488 1,359
Additional paid-in capital 164,970 128,133
Retained earnings, including cumulative
foreign currency translation loss
of $1,274 and $1,349, respectively 69,264 99,793
Treasury stock, at cost, 1,298,568
shares (11,622) (11,622)
-------- --------
224,100 217,663
-------- --------
$358,371 $342,112
======== ========
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE> 4
National Auto Credit, Inc. and Subsidiaries
Consolidated Statements of Income
(Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------------
1996 1995
-------- --------
<S> <C> <C>
REVENUE $ 12,917 $ 7,565
COSTS AND EXPENSES
Operating 1,137 1,080
General and administrative 1,460 1,336
Interest 332 244
-------- --------
Total 2,929 2,660
-------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 9,988 4,905
Provision for income taxes 3,696 1,753
-------- --------
INCOME FROM CONTINUING OPERATIONS 6,292 3,152
-------- --------
DISCONTINUED OPERATIONS,
NET OF TAX (Note F) -- 1,493
-------- --------
NET INCOME $ 6,292 $ 4,645
======== ========
EARNINGS PER SHARE
Continuing operations $ .22 $ .11
Discontinued operations -- .05
-------- --------
$ .22 $ .16
======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000's) 28,479 28,271
======== ========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE> 5
National Auto Credit, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Three Months Ended April 30, 1996
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Foreign
-------------------- Additional Currency
Par Paid-In Retained Translation Treasury
Shares Value Capital Earnings Adjustment Stock Total
-------- ------- ---------- -------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 31, 1996 27,183 $ 1,359 $128,133 $101,142 $(1,349) $(11,622) $217,663
Net income 6,292 6,292
Stock issued under
benefit plans 8 75 75
10% Stock dividend 2,589 129 36,762 (36,896) (5)
Foreign currency
translation 75 75
------- -------- -------- -------- -------- -------- --------
BALANCE,
APRIL 30, 1996 29,780 $ 1,488 $164,970 $ 70,538 $ (1,274) $(11,622) $224,100
======= ======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 6
National Auto Credit, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,292 $ 4,645
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 806 6,329
Interest income on dealer advances (3,085) (1,682)
Provision for credit losses 1,015 1,503
Deferred income taxes 301 (1,379)
Changes in operating assets and liabilities:
Accounts receivable 317 1,059
Current income taxes payable (1,154) 3,517
Other liabilities (1,936) 205
Self-insurance claims (1,930) (6,900)
Other operating assets and liabilities, net 1,240 2,597
-------- --------
Net cash provided by operating activities 1,866 9,894
-------- --------
Cash Flows from Investing Activities
Principal collected on installment notes receivable 28,822 16,855
Proceeds from sale of rental automobiles 8,020 1,628
Purchase of dealership inventory (418) (5,551)
Purchase of property and equipment (479) (212)
Advances to dealers and payments of dealer
holdbacks (46,248) (14,678)
Other investing activities, net -- (1,299)
-------- --------
Net cash used in investing activities (10,303) (3,257)
-------- --------
Cash Flows from Financing Activities
Net borrowings (payments) on
operating debt and notes payable 8,300 (6,461)
Payments to acquire treasury stock -- (786)
Stock issued under benefit plans 75 496
Other financing activities, net 70 18
-------- --------
Net cash provided by (used in)
financing activities 8,445 (6,733)
-------- --------
Increase (decrease) in cash and cash equivalents 8 (96)
Cash and cash equivalents at beginning of period 1,665 398
-------- --------
Cash and cash equivalents at end of period $ 1,673 $ 302
======== ========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 246 $ 295
======== ========
Income taxes paid $ 4,525 $ 1,009
======== ========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 7
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - Summary of Significant Accounting Policies
------------------------------------------
GENERAL:
The accompanying consolidated financial statements include the
accounts of National Auto Credit, Inc. and its subsidiaries (the
"Company").
The unaudited 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 April 30,
1996 are not necessarily indicative of the results that may be
expected for the year ended January 31, 1997. For further information,
refer to the financial statements and footnotes thereto included in
the Company's January 31, 1996 Annual Report on Form 10-K.
STOCKHOLDERS' EQUITY:
On March 25, 1996, the Company's Board of Directors declared a 10%
stock dividend payable on April 30, 1996, to stockholders of record on
April 15, 1996. Earnings per share and weighted average shares
outstanding have been restated to reflect the 10% stock dividend. In
March 1996, the Board of Directors approved an increase in the
authorized common shares from 30,000,000 to 40,000,000 shares.
RECLASSIFICATIONS:
Certain prior period amounts have been reclassified to conform with
the current period presentation.
-5-
<PAGE> 8
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE B - Installment Notes Receivable, Net
---------------------------------
The components of installment notes receivable are as follows:
<TABLE>
<CAPTION>
April 30, January 31,
1996 1996
--------- ----------
(in thousands)
<S> <C> <C>
Gross installment notes receivable $ 389,497 $ 351,312
Unearned income (61,053) (54,835)
Allowance for loan losses (3,349) (2,587)
--------- ---------
Installment notes receivable, net $ 325,095 $ 293,890
========= =========
</TABLE>
A summary of changes in gross installment notes receivable is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
Balance, beginning of period $ 351,312 $ 193,456
Contracts accepted 89,470 58,304
Cash collected (40,008) (25,494)
Charge-offs against:
Dealer holdback (8,340) (3,923)
Unearned income/allowance (2,937) (2,265)
--------- ---------
Balance, end of period $ 389,497 $ 220,078
========= =========
</TABLE>
Installment notes receivable relate to the indirect consumer financing
of used automobiles. These notes generally have initial terms ranging
from 12 to 60 months with an average initial term of 33 months and an
initial gross amount of $8,600. At April 30 and January 31, 1996, the
average remaining note term was 23 months. The notes are
collateralized by the related vehicles sold. Installment notes
receivable are from customers residing in all 50 states with no
individual state accounting for more than 10% of total installment
notes receivable, except for North Carolina with 13.6% and Texas with
10.5%.
The Company has outstanding $876,000 and $1,595,000 of installment
notes receivable with no related dealer holdbacks at April 30 and
January 31, 1996, respectively. Early in fiscal 1995, the Company
ceased entering into these types of receivables. Changes in the
allowance for loan losses, which are provided for these installment
notes receivable and for earned but unpaid finance charges on the
entire portfolio are as follows:
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
Balance, beginning of period $ 2,587 $ 1,107
Provision for loan losses 810 393
Net charge-offs (48) (193)
--------- ---------
Balance, end of period $ 3,349 $ 1,307
========= =========
</TABLE>
-6-
<PAGE> 9
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - Dealer Holdbacks, Net
---------------------
Dealer holdbacks are the amounts payable to member dealers from the
acceptance of retail installment contracts, net of cash advanced.
The dealer holdbacks protect the Company from potential losses
associated with the installment contracts and are not paid unless
substantially all advances including those on non-performing loans
related to a particular dealer have been recovered. The components of
dealer holdbacks are as follows:
<TABLE>
<CAPTION>
April 30, January 31,
1996 1996
--------- ----------
(in thousands)
<S> <C> <C>
Dealer holdbacks $ 307,379 $ 274,927
Advances (249,849) (222,830)
--------- ---------
57,530 52,097
Dealer advance reserve 7,549 6,767
--------- ---------
Dealer holdbacks, net $ 65,079 $ 58,864
========= =========
</TABLE>
A summary of changes in dealer holdbacks, net, is as follows:
<TABLE>
<CAPTION>
Three Months Ended
April 30,
----------------------
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
Balance, beginning of period $ 58,864 $ 33,816
Additions to holdback 71,233 45,222
Advances disbursed (56,865) (38,359)
Charge-offs of non-performing notes (8,340) (3,923)
Other 187 1,144
-------- --------
Balance, end of period $ 65,079 $ 37,900
======== ========
</TABLE>
The accrual of interest income was suspended on 18.5% and 18.1% of
gross installment notes receivable at April 30 and January 31, 1996,
respectively, which were 120 days contractually past due.
Non-performing notes are charged-off against the related dealer's
holdback and protect the Company from associated losses.
NOTE D - Dealer Advance Reserve
----------------------
The dealer advance reserve is maintained in the event the holdback
of a particular dealer portfolio is not sufficient to insure the
recovery of any outstanding advances. The Company assesses fees
to dealers for the purpose of maintaining this reserve. A summary of
changes in the dealer advance reserve is as follows:
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
Balance, beginning of period $ 6,767 $ 2,376
Advance reserve fees 784 439
Provision for credit losses 205 1,110
Net charge-offs (207) (6)
--------- ---------
Balance, end of period $ 7,549 $ 3,919
========= =========
</TABLE>
-7-
<PAGE> 10
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - Commitments and Contingencies
-----------------------------
In the normal course of its business, the Company is named as
defendant in legal proceedings. It is the policy of the Company to
vigorously defend litigation and/or enter into settlements of claims
where management deems appropriate.
On June 15, 1992, former employees of the Company filed a class
action lawsuit, currently pending in the United States District Court
for the Northern District of California. The complaint alleges that
the Company violated certain sections of the California Labor Law,
including those relating to the payment of overtime. On June 16,
1995, the Court issued a finding as to partial liability against the
Company. Notices and claim forms were mailed to class members during
the period from January through March 1996. As of June 1, 1996, 396
claim forms have been returned by class members which are currently
being reviewed by the Company. The Company estimates that ultimate
damages, penalties, interest and attorneys' fees could range from $2
million, which has been accrued, to $5 million. The amount of
damages, penalties, interest and attorneys' fees for which the
Company may ultimately be held liable is subject to numerous
variables and cannot be more precisely estimated. Due to these
uncertainties, it is at least reasonably possible that the accrual
for these claims will be further revised in fiscal 1997.
In December 1995, the Company was notified by the U.S. Department of
Labor as to its pending investigation of the Company's pay practices
concerning former employees of the Company throughout the United
States during the period from February 1993 through September 1995.
Since the Department of Labor's investigation is in its early stages,
potential liability, if any, cannot be estimated by the Company at
this time.
NOTE F - Discontinued Operations
-----------------------
During the first quarter of fiscal 1997, the Company announced its
decision to discontinue dealership operations once its supply of
inventory vehicles from the discontinued rental car segment is
depleted. It is expected that this process will be completed by the
end of the second quarter of fiscal 1997.
In third quarter of fiscal 1996, the Company disposed of its rental
fleet business through the sale of certain assets and through certain
leases to a subsidiary of Avis, Inc. All liabilities related to the
discontinued rental car business, principally, self-insurance claims
and deferred taxes, are being retained by the Company.
Accordingly, the assets and operating results of both the rental car
segment and dealership operations for all periods presented have been
restated to reflect discontinuation.
-8-
<PAGE> 11
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE F - Discontinued Operations (cont.)
-------------------------------
Summarized asset data related to discontinued operations is as
follows:
<TABLE>
<CAPTION>
April 30, January 31,
1996 1996
--------- ----------
(in thousands)
<S> <C> <C>
Accounts receivable, net of allowance
for doubtful accounts of $3,509
and $5,041, respectively $ 1,177 $ 1,494
Rental automobiles, net of accumulated
depreciation of $2,139 and $10,458,
respectively 2,400 14,403
Dealership inventory 3,645 5,794
Other property and equipment, net 38 419
Other assets 1,788 2,792
--------- ---------
$ 9,048 $ 24,902
========= =========
</TABLE>
Summarized results of discontinued operations are as follows:
<TABLE>
<CAPTION>
Three Months Ended
April 30,
-------------------------
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
Revenue $ 9,702 $ 41,497
Costs and Expenses:
Cost of goods sold and
operating expenses 9,185 29,581
General and Administrative 517 9,183
Interest -- 84
-------- --------
Total 9,702 38,848
Income before income taxes -- 2,649
Provision for income taxes -- 1,156
-------- --------
Net income $ -- $ 1,493
======== ========
</TABLE>
-9-
<PAGE> 12
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Overview
--------
National Auto Credit, Inc. had net income from continuing operations
of $6.3 million or $.22 per share for the quarter ended April 30, 1996, as
compared to $3.2 million or $.11 per share for the quarter ended April 30,
1995.
Revenue for the quarter ended April 30, 1996 was $12.9 million versus
$7.6 million in the first quarter of the prior year. Revenue and earnings
benefited in the first quarter of fiscal 1997 from an increase of $38.2 million
in gross installment notes receivable to $389.5 million at April 30, 1996 from
$351.3 million at January 31, 1996.
The Company anticipates further increases in revenue and earnings
consistent with the planned growth in the receivables portfolio to $500 million
by the end of this fiscal year.
During the quarter ended April 30, 1996, Management announced that
dealership operations will be phased out, completing the Company's strategic
plan to discontinue operation of all non-financial services related businesses
and focus all its resources on the core financing business.
In addition, the Company issued a 10 percent common stock dividend on
April 30, 1996 to shareholders of record on April 15, 1996.
Financial Services
------------------
Revenue, consisting of interest and fee income generated by NAC, Inc.
("NAC"), increased 70.7% from $7.6 million for the quarter ended April 30, 1995
to $12.9 million for the quarter ended April 30, 1996. This revenue growth is
primarily attributable to the growth in the gross installment notes receivable
portfolio and in NAC's enrolled dealer base as follows:
<TABLE>
<CAPTION>
GROSS INSTALLMENT NUMBER OF
NOTES RECEIVABLE NUMBER ENROLLED
(IN MILLIONS) OF CONTRACTS DEALERS
----------------- ------------ ------------
<S> <C> <C> <C>
January 31, 1994 $ 93.2 12,900 900
April 30, 1994 129.5 17,800 1,100
January 31, 1995 193.5 28,400 1,400
April 30, 1995 220.1 33,100 1,700
January 31, 1996 351.3 53,000 2,300
April 30, 1996 389.5 58,200 2,400
</TABLE>
Revenue includes $1.5 million and $.7 million of fee income, principally
warranty commissions, for the first quarters of fiscal 1997 and 1996
respectively.
-10-
<PAGE> 13
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Services (Continued)
------------------
Operating expenses were $1.1 million in the first quarter of fiscal 1997
consistent with the prior year. Operating expenses as a percent of revenue for
the quarters ended April 30, 1996 and 1995 decreased to 8.8% from 14.3%,
respectively, yielding an operating margin of over 90% in the first quarter of
fiscal 1997 up from 86% for the same period in the prior year.
The percentage breakdown of NAC's operating expenses for the three month
periods ended April 30, 1996 and 1995, respectively, is as follows:
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Salaries and Benefits 73.2% 64.6%
Professional Services 4.8 7.3
Office Supplies 5.6 8.3
Telephone 6.2 6.5
Travel 2.1 3.9
Advertising 1.9 2.6
Rent and Utilities 1.0 4.7
Depreciation 2.0 1.0
Operating and Licensing
Fees 2.9 1.0
Other .3 .1
----- -----
Total 100.0% 100.0%
===== =====
</TABLE>
The increase in operating margin and the fluctuation in expense components
are due to the economy of scale gained from closing the remaining three branch
offices at the end of April 1995, consolidating all operations at corporate
headquarters, the development and installation of new data processing systems
such as the Fair, Isaac and Company credit evaluation system and an increase in
dealer fees to offset costs.
The gross charge-off rate remained relatively consistent comparing
first quarter last year to first quarter this year at approximately 12%.
Non-performing loans as a percent of the gross installment notes receivable
portfolio increased slightly from the year end to April 30, 1996. Because the
Company provides financing to sub-prime rated customers, many of whom have
limited access to financing through traditional sources of consumer credit,
these percentages are considered by the Company to be reasonable and also lower
than those of its competitors. The risk of loss to the Company is mitigated by
a security interest in the vehicles sold, dealer holdbacks and loan loss
reserves.
Management continues its efforts to make NAC the leading company in the
alternative financial services industry. One of the new programs introduced
during first quarter of fiscal 1997 was low cost floor planning for member
dealers. This program is gradually replacing the Program Car benefit for dealers
which is being phased out due to the discontinuance of dealership operations.
-11-
<PAGE> 14
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and Administrative
--------------------------
General and administrative expenses for the first quarter of fiscal 1997 as
a percentage of total revenue decreased from the same period in fiscal 1996.
General and administrative expenses were $1.5 million, or 11.3% of total
revenue, compared with $1.3 million, or 17.7% of total revenue for the first
quarter of fiscal 1996. This is principally due to certain fixed items included
in general and administrative expense such as depreciation, building maintenance
and support salaries compared to rising revenue.
Interest
--------
Interest expense increased approximately $90,000 in the current fiscal year
over the prior fiscal year's first quarter. An increase in average outstanding
debt from $12.9 million to $21.1 million slightly offset by a decline in the
effective borrowing rate from 6.10% to 5.66%, accounted for the change.
Income Taxes
------------
The provision for income taxes increased from $1.8 million to $3.7 million
for the quarters ended April 30, 1995 and 1996, respectively. This change is
directly attributable to the increase in pre-tax income and a 1.3% rise in the
effective tax rate. This increase is attributable to the diminishing effect of
the tax credits generated from the Company's investment in certain affordable
housing limited partnerships applied to a higher income base.
Discontinued Operations
-----------------------
During the first quarter of fiscal 1997, the Company announced its decision
to discontinue dealership operations once the supply of inventory vehicles from
the discontinued rental operations is exhausted. The Company anticipates that
this process will be completed by the end of the second quarter of fiscal 1997.
Revenue from dealership operations decreased to $9.7 million on the sale of
1,415 units during the first quarter of fiscal 1997 versus $21.4 million on the
sale of 3,016 units for the first quarter of fiscal 1996. Related cost of sales
for the first quarter of fiscal 1997 decreased to $9.2 million from $19.8
million in the first quarter of fiscal 1996, principally as a result of
decreased sales volume. Remaining inventory on hand at April 30, 1996 for
discontinued dealership operations was 934 units.
During the third quarter of fiscal 1996, the Company discontinued
automobile rental operations through the sale of certain assets and through
certain leases to a subsidiary of Avis, Inc. The assets and operating results of
both rental and dealership operations have been restated to reflect
discontinuation.
-12-
<PAGE> 15
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of internally generated funds include net cash
provided by operating activities, principal collected on installment notes
receivable and proceeds from sales of rental automobiles. The funds generated
from the sale of rental automobiles will decrease throughout fiscal 1997 as the
supply of cars is exhausted and the dealership operations segment is
discontinued.
External sources of funds available to the Company at April 30, 1996
consisted of $56 million in unsecured uncommitted short-term bank lines of
credit and $40 million in unsecured committed bank lines of credit (increased
to $50 million on June 7, 1996), neither of which have compensating balance
requirements. The committed bank facility expires on May 27, 1997. Outstanding
borrowings at April 30, 1996 amounted to $25.2 million in unsecured uncommitted
short-term lines of credit.
The Company believes it has sufficient internal and external sources of
funds available to meet its current obligations, to fund current operating and
capital requirements as necessary, and to finance future growth.
The ratio of operating debt to total capital was 4.7% at April 30, 1996 and
1.5% at January 31, 1996. It is anticipated that debt levels will increase
through the end of this fiscal year primarily to fund the increased growth in
new installment contracts.
-13-
<PAGE> 16
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
Exhibit 27 - Financial Data Schedule
------------------------------------
Electronically filed with the Securities and Exchange
Commission pursuant to Item 601(c) of Regulation S-K
b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended April
30, 1996.
-14-
<PAGE> 17
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.
NATIONAL AUTO CREDIT, INC.
Date: June 11, 1996 By:/s/ Robert J. Bronchetti
----------------------- ------------------------
Robert J. Bronchetti
President and
Chief Executive Officer
and Director
By: /s/ Davida S. Howard
------------------------
Davida S. Howard
Vice President-Finance
and Controller (Principal
Financial and Accounting
Officer)
-15-
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