<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-K
(MARK ONE)
X Annual Report Pursuant to Section 13 or 15(d) of the
- ------- Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended January 31, 1996
OR
Transition Report Pursuant to Section 13 or 15(d) of
- ------- the Securities Exchange Act of 1934 (No Fee Required)
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 34-1816760
(State of incorporation) (I.R.S. Employer Identification No.)
30000 Aurora Road, Solon, Ohio 44139
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (216) 349-1000.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, par value $.05 per share............New York Stock Exchange,Inc.
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( X )
As of March 29, 1996, 25,892,354 shares of Common Stock of National Auto
Credit, Inc. were outstanding.
Aggregate market value of the registrant's Common Stock held by nonaffiliates
at March 29, 1996, was approximately $173,342,286.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on June 6, 1996, are incorporated by reference into Part III.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I Page
- ------ ----
<S> <C>
Item 1. Business. . . . . . . . . . . . . . . . . . . . 1
2. Properties. . . . . . . . . . . . . . . . . . . 7
3. Legal Proceedings . . . . . . . . . . . . . . . 7
4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . 8
Executive Officers of the Registrant. . . . . . . . . 8
Part II
- -------
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters . . . 11
6. Selected Financial Data . . . . . . . . . . . . 12
7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . . . . . . . . 13
8. Financial Statements and Supplementary Data . . 19
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . 40
Part III
- --------
Item 10. Directors and Executive Officers of
the Registrant. . . . . . . . . . . . . . . . 40
11. Executive Compensation. . . . . . . . . . . . . 40
12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . 40
13. Certain Relationships and Related
Transactions. . . . . . . . . . . . . . . . . 40
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . . . 41
</TABLE>
<PAGE> 3
PART I
------
Item 1. Business
- ------- --------
OVERVIEW
- --------
National Auto Credit, Inc. (the "Company"), began operations in 1969
and was incorporated in Delaware in 1971. The Company's name was changed to
National Auto Credit, Inc., effective August 15, 1994, and was formerly known
as Agency Rent-A-Car, Inc. The Company operates through two segments: financial
services and dealership operations. On September 30, 1995, the rental
operations segment was discontinued.
The financial services business is conducted by NAC, Inc. ("NAC"), a
wholly-owned subsidiary of the Company. NAC operates as an alternative
financial services company for automobile dealerships throughout the United
States. Working with over 2,300 dealers in its dealer network, NAC has
established a receivables portfolio of over $375 million as of April 1996 and
plans continued growth throughout fiscal 1997.
The dealership operations segment sells front-line ready used vehicles
retired from the Company's discontinued rental operations. This business unit,
known as National Motors, Inc. ("NMI"), generated $56.3 million in revenue from
the sale of approximately 8,200 vehicles in fiscal 1996. Over 85% of these
vehicles were sold to NAC member dealers. This business segment will be
discontinued during fiscal 1997.
The discontinued business segment, which operated under the names of
Agency Rent-A-Car and Altra Auto Rental throughout the United States, rented
automobiles on a short-term basis, principally to the insurance replacement
market.
FINANCIAL SERVICES
- ------------------
GENERAL
NAC began operations in October 1992, capitalizing on management's
in-depth knowledge of the used car market, accumulated over 25 years of
operating a rental car business. NAC is a financial services company
specializing in providing funding, receivables management, collection, sales
training and other services to automobile dealers. The primary business of NAC
is to assist member dealers in providing indirect financing to sub-prime rated
customers, many of whom have limited access to financing through traditional
sources of consumer credit. As of April 1996,
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NAC conducted business with over 2,300 automobile dealerships in 45 states and
has built an installment receivables portfolio of over $375 million.
NAC enables member dealers to capture the sale that may have been lost
as a result of unavailable credit. NAC currently charges qualified dealers a
$4,500 fee for enrollment into the NAC Dealer Acceptance Program, which
provides a source of funds for the qualified buyer, as well as a means of
positive cash flow to the dealer on each and every sale. Annually thereafter,
a $600 maintenance fee is assessed. A prospective customer who is interested
in obtaining financing through NAC and its member dealers is required to
complete a credit application in addition to a retail installment contract.
These documents are then sent to NAC's Centralized Loan Processing Center.
CENTRALIZED LOAN PROCESSING
The Company consolidated all branch offices in early fiscal 1996 into
one Centralized Loan Processing Center. This consolidation has greatly
improved consistency in dealer services, increased efficiency in contract
processing, enhanced employee productivity, as well as, strengthened management
controls. Loan files are centrally located providing greater control and ease
of access. The location of each file is tracked using a state of the art
scanning system.
Each credit application is reviewed for approval prior to contract
acceptance in order to ensure that the Company's minimum underwriting criteria
are met. Credit applicants are approved or rejected on individual merit by
analyzing the four major areas that the industry considers important: stability
(length of time at residence and employment), ability (payment and debt to
income ratios), willingness (demonstrated desire to pay) and downpayment
(commitment to vehicle purchase). The credit application is entered into an
automated credit evaluation system custom developed by Fair, Isaac and Company,
Inc. for initial risk analysis and the residence and employment are verified by
credit support personnel. The application is then forwarded to the dealer's
assigned Account Executive for final review. Experienced Account Executives
(credit analysts) review the system generated statistics along with the
specifics of each credit offering and then personally call the member dealer to
discuss the decision. The personal call to the dealer enables the Account
Executive to make recommendations as to how the terms and conditions of the
loan can be improved. In addition to the credit review process, Account
Executives are charged with maintaining an ongoing relationship with assigned
dealers. Of the 400 or more credit applications processed daily, approximately
30% are rejected.
Contracts are entered into a tracking data base, matched with the
initial credit application and are reviewed for adherence to the
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terms and conditions set forth in the approval. Contracts are reviewed for
compliance with Federal and State regulations as well as completeness of all
NAC required documentation including written verification of residence and
employment and phone verification of the terms of the contract with the
customer in accordance with Company policy.
Upon acceptance, dealers are advanced a percentage of the unpaid
contract balance based on the model year of the automobile being financed, up
to the applicable industry established book value of the vehicle, net of
standard processing fees.
The installment notes generally have initial terms ranging from 12 to
60 months with an average initial term of 32 months. The amount by which the
customer's total installment note exceeds the dealer advance is recorded as
dealer holdback. In addition to the dealer holdback, risk of loss to NAC is
further mitigated by a secured interest in the vehicle financed and the pooling
of all loans for each dealer.
NAC receives 20% of all cash receipts related to the installment note
for the management and collection of the outstanding debt. The balance
remaining (80%) is next applied against the dealer's advance. Once all
advances have been repaid, the dealer receives monthly payments in accordance
with the terms of the dealer agreement. The dealer is provided a monthly
statement which details all transactions on the dealer's account.
SALES AND MARKETING
NAC employs experienced sales and marketing personnel at corporate and
in the field for the purpose of enrolling new dealers and providing services to
existing dealers. It is the responsibility of field personnel to identify
qualified dealer leads and promote the benefits of membership in the NAC
financing program. This Field Area Manager provides training, consulting and
product knowledge to the dealers. The more member dealers know about the
revenue-producing benefits of NAC, the more they will utilize the program.
Company sales personnel serve as NAC's Dealer Relations Department and
demonstrate our commitment to providing quality dealer service.
NAC also utilizes national direct marketing campaigns, trade show
involvement and print advertising to build its image in an effort to stimulate
more enrollments and generate increased contract volume. A cooperative
advertising assistance program, unique to NAC, provides member dealers an
opportunity to fund a portion of their advertising expenses through credits
earned on the financing contracts. An in-house Marketing Department was formed
and, in conjunction with the insight and recommendations provided by the
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Dealer Advisory Board, introduced many new and innovative programs during the
year including the NAC 150, which recognizes the top producing and performing
dealers. These programs have proven beneficial in increasing the loyalty of
member dealers.
DEALER SELECTION AND ACCEPTANCE
Management seeks to enroll reputable quality dealers by following
written guidelines. Initially, an Area Manager visits the dealership and
becomes familiar with its operation. If both parties wish to pursue a further
business relationship, an application is completed and, at a minimum, trade and
bank references, insurance coverage, valid current operating licenses and
financial statements are obtained and verified. In addition, thorough
background checks are performed on both the dealership as well as dealership
principals.
Dealers meeting Company standards are charged a non-refundable
enrollment fee of $4,500 and sign a dealership agreement. The Company has the
right to terminate this agreement in the event of default or misrepresentation
and it is renewable annually with a $600 maintenance fee.
COLLECTION
NAC employs an experienced collection staff dedicated to the
collection of its installment notes portfolio. The collection function is
performed at the Company's corporate headquarters in Solon, Ohio. Collection
personnel work staggered schedules generally from 8:00 a.m. to 8:00 p.m.
depending on the region of the country to which they are assigned. The
collection efforts of the individuals are aided by a computerized on-line
receivables system and state of the art call management system with a
predictive dialing feature. The call management system, which was expanded in
March 1996, has greatly increased the productivity of the Collection Department
and has enabled NAC to contact accounts before their first payment due date to
verify contract terms and identify issues which may lead to potential future
delinquencies. All accounts are called if payment is not made by the
respective due date and calls are continually placed based upon the
computerized priority system. Experience has demonstrated that collections
improve through timely and frequent contact with customers.
While this collection policy is aggressive, it provides the customer
with the opportunity to catch-up past due balances, retain the vehicle and
establish goodwill which will enhance their credit history.
In those cases where repossessions are made, NAC pursues the
collection of any deficiencies, either through corporate employees or outside
agents. NAC collects "VSI" fees, in most states, which provide protection
against chargebacks where the customer or car cannot be located or the
customer's insurance has lapsed.
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Coupon payment books are sent to each customer and receipts are
directed to retail lockboxes in Denver, Colorado and Richmond, Virginia.
Customers who are delinquent are often directed to remit payment to NAC through
Western Union's "Quick Collect" service.
The status history of all customer loans is reported monthly to three
major credit reporting agencies.
CREDIT COUNSELING
During the calling cycle, accounts are referred to our certified
credit counselors who assist customers in restructuring their debt and
repayment schedules with the Company.
This team of well-educated credit counselors has been trained on
consumer issues related to economics and hardships. This team works to solve
credit problems of the business and helps the consumer keep the vehicle, which
is generally needed as basic transportation to get to and from work.
LOAN LOSS/CHARGE-OFF PROCEDURES
When no customer payment is received for 120 days, the recognition of
income is suspended. The installment notes receivable portfolio is reviewed
regularly to ensure that the allowance for loan losses is maintained at a level
considered adequate to cover potential losses. Loans are charged-off on a loan
by loan basis generally when no material payment has been received for one
year. Principal balances are charged-off against the related dealer holdback
first, and then against the allowance for loan losses, as necessary. An
additional allowance for credit losses (the dealer advance reserve) is provided
to protect NAC from advances that are not expected to be recovered from
dealers.
Repossession proceedings are generally initiated when an account is
more than two months past due. The repossession process is accelerated for
loans becoming delinquent in the first or second month.
COMPETITION
It is estimated that used car sales will total over $300 billion in
1996 and that as many as 25% to 30% of all Americans have some form of bad
credit in their past disqualifying them from traditional bank, credit union or
captive financing. The primary focus of NAC is providing financing to buyers
who cannot qualify for traditional financing.
NAC's direct competition consists of a growing number of national and
regional finance companies which specialize in the used automobile sub-prime
market and does not consider itself, at this time, to be in direct competition
with banks, credit unions and
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captives. However, traditional lending institutions are entering this market
in increasing numbers and will continue to challenge NAC's aggressive growth
plans.
Management believes that the most competitive factor in this industry
is premium service to member dealers and superior collection performance, and
that NAC competes favorably in both regards. The NAC Dealer Acceptance Program
includes a number of benefits available to member dealers which further enhance
our position in the marketplace. These exclusive benefits provide additional
revenue centers for both NAC and the member dealer and include aftermarket
products including auto warranty, floor plan financing (inventory financing),
advertising assistance and ongoing training at no cost.
DEALERSHIP OPERATIONS
- ---------------------
The dealership operations segment supplies and sells front-line ready
used automobiles to NAC member dealers. This business unit also controls the
disposition of the retired rental units. Dealership operations generated $56.3
million in revenue from the sale of approximately 8,200 vehicles in fiscal
1996. Over 85% of these vehicles were sold to NAC member dealers.
Disposition of the Company's retired rental fleet vehicles is
centrally controlled by the dealership operations group. These vehicle sales
professionals determine the most efficient and profitable means of disposal,
either through NAC member dealers, wholesale or auction. The dealership
operations group operated nine "Program Car Prep Centers" throughout most of
fiscal 1996 and currently operates five prep centers which oversee the
preparation and detailing of retired vehicles. The supply of retired rental
units is expected to be depleted by April 1996 and operations are expected to
be discontinued by the end of the second quarter of fiscal 1997.
DISCONTINUED OPERATIONS
- -----------------------
Discontinued operations represent the automobile rental segment of the
business which operated under the name of Agency Rent-A-Car ("ARAC") and its
division, Altra Auto Rental. This segment rented cars on a short-term basis in
the insurance replacement market. On September 30, 1995, ARAC operated a fleet
of approximately 6,000 cars through a network of 230 offices in the United
States when an agreement was reached with a subsidiary of Avis, Inc. ("Avis").
Certain assets were sold, principally consisting of tradename rights and
delivery vehicles. The Company agreed to lease the rental fleet and perform,
for a fee, certain administrative support services. Most of the office
operating leases were short-term and assumable and many of the rental segment's
employees were hired by Avis. All liabilities, including deferred taxes and
self-insurance claims, were retained by the Company.
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Based upon certain contractual guidelines with Avis, the entire fleet
should be retired by the end of the first quarter and sold by the end of the
second quarter of fiscal 1997.
ARAC maintained a staff of liability, physical damage and subrogation
adjusters at corporate headquarters to administer insurance and claims. Their
efforts were augmented by staff and outside attorneys. As was the case with
all supporting departments, once the decision was made to dispose of the rental
operation, certain staff and overhead expenses were critically reviewed and
eliminated. Outsourcing commenced wherever it was deemed economical and
practical. The insurance and claims administrative functions were gradually
outsourced to an independent company specializing in this area.
EMPLOYEES
- ---------
As of January 31, 1996, the Company employed a total of 350 people,
none of which were covered by a collective bargaining agreement. The Company
believes it maintains good relations with its employees.
SEGMENT REPORTING INFORMATION
- -----------------------------
Financial information about the Company's industry segments is
provided in Note M to the Company's consolidated financial statements on page
35 of this Form 10-K which is herein incorporated by reference.
Item 2. Properties
- ------- ----------
The Company's corporate headquarters and centralized operating centers
are located in two four-story, 55,000 square feet office buildings owned by the
Company in Solon, Ohio, a southeast suburb of Cleveland. The Company owns
facilities in Beach City, Ohio (9,000 square feet) and Delran, New Jersey
(12,000 square feet), which are used as automobile prep centers.
The Company believes that its operational facilities and other
properties are well maintained and adequate for its future operations.
Item 3. Legal Proceedings
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The Company self-insures for insurance claims relating to its
discontinued fleet of vehicles as discussed in Note E to the Company's
consolidated financial statements on page 29 of this Form 10-K which is herein
incorporated by reference.
In the normal course of its business, the Company is named as
defendant in legal proceedings. It is the Company's policy to
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Item 3. Legal Proceedings (cont.)
- ------- -----------------
vigorously defend litigation and/or enter into settlements of claims where
management deems appropriate. The Company is a defendant in other legal
proceedings as discussed in Note O to the Company's consolidated financial
statements on page 37 of this Form 10-K which is herein incorporated by
reference.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
A Special Meeting of Stockholders was held on December 27, 1995. The
matter voted upon was the amendment of the Company's Certificate of
Incorporation, Article SIXTH, to eliminate the requirement of a stockholder
vote in connection with a merger or consolidation of the Company or a
disposition of assets by the Company, except as required by the General
Corporation Law of the State of Delaware and in connection with "Business
Combination" and "Interested Person" as defined in Article SIXTH. Below
summarizes the voting results on this matter:
<TABLE>
<CAPTION>
Votes
Votes Against Broker
in Favor or Withheld Abstentions Non-Votes
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Amendment of Company's
Certificate of Incorporation,
Article SIXTH 18,754,830 1,829,181 229,983 5,018,978
</TABLE>
Executive Officers of the Registrant
- ------------------------------------
Executive officers hold office until the annual meeting of the Board of
Directors, subject to earlier removal by the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
------------------ --- --------
<S> <C> <C>
Sam J. Frankino 71 Chairman of the Board
Robert J. Bronchetti 48 President, Chief Executive
Officer and Director
Edward T. Anderson 35 Executive Vice President, Sales and Wholesale Operations
Thomas J. Dostart 41 Vice President, General Counsel
and Secretary
Davida S. Howard 49 Vice President-Finance and
Controller
R. Craig Johnson 51 Vice President, Marketing and
Communications
</TABLE>
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Executive Officers of the Registrant (cont.)
- --------------------------------------------
<TABLE>
<S> <C> <C>
Gary J. Mooney 48 Vice President, Auto Sales
and Service
Alan J. Murrow 37 Operations Controller
James E. Smith, Jr. 41 Vice President, Operations and Director
Richard A. Tomaszewski 46 Vice President, Credit and
Collections
</TABLE>
Sam J. Frankino
- ---------------
Mr. Frankino, founder and majority stockholder of the Company, has served
as the Chairman of the Board of Directors of the Company since 1969. Mr.
Frankino has also served as Chief Executive Officer from 1969 to 1992 and from
December 1993 until December 1994.
Robert J. Bronchetti
- --------------------
Mr. Bronchetti, President and Chief Executive Officer, has been employed by
the Company since May 1991 and was elected a Director in September 1993. Mr.
Bronchetti has held the position of President since March 1994 and Chief
Executive Officer since December 1994. Mr. Bronchetti previously held the
positions of Executive Vice President and Chief Financial Officer, Vice
President and Chief Financial Officer and Vice President of Finance and
Treasurer. Prior to 1991, Mr. Bronchetti held various financial management
positions with Engelhard Corporation and its wholly-owned subsidiary, The
Harshaw Chemical Company.
Edward T. Anderson
- ------------------
Mr. Anderson, Executive Vice President, Sales and Wholesale Operations, has
been employed by the Company since 1983. Mr. Anderson held numerous positions
with the Company including District Manager and Regional Director, National
Sales Manager and Vice President of Wholesale Operations, prior to assuming his
present duties in July 1995.
Thomas J. Dostart
- -----------------
Mr. Dostart, Vice President, General Counsel and Secretary has been
employed by the Company since February 1995. From May 1992 until January 1995,
Mr. Dostart was General Counsel for Interactive Systems Corporation, a Kodak
company, and successor organizations. Prior to May 1992, Mr. Dostart was
employed by Amoco Corporation and Jones, Day, Reavis & Pogue as an attorney.
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Executive Officers of the Registrant (cont.)
- --------------------------------------------
Davida S. Howard
- ----------------
Ms. Howard, Vice President-Finance and Controller, has been employed by the
Company since July 1990. Ms. Howard held the position of Controller prior to
assuming her present duties in March 1994. Prior to July 1990, Ms. Howard was
Vice President of Finance and Administration/Controller with SNS Properties,
Inc. and an Audit Manager with Price Waterhouse & Co.
R. Craig Johnson
- ----------------
Mr. Johnson, Vice President, Marketing and Communications, has been
employed by the Company since June 1995. From 1987 until June 1995, Mr.
Johnson was President of Adverama, an advertising company. Prior to 1987, Mr.
Johnson held various positions with advertising agencies such as Karis
Advertising, Leo Burnett and D'Arcy.
Gary J. Mooney
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Mr. Mooney, Vice President, Auto Sales and Service, has been employed by
the Company since January 1990. Mr. Mooney held the positions of Regional
Director and National Director, Vehicle Sales prior to assuming his present
position in May 1993.
Alan J. Murrow
- --------------
Mr. Murrow, Operations Controller, has been employed by the Company since
June 1994. From September 1983 until May 1994, Mr. Murrow held the position of
Corporate Controller for three companies in the financing, trucking, and
service industries. Prior to September 1983, Mr. Murrow was employed by
Deloitte, Haskins & Sells.
James E. Smith, Jr.
- -------------------
Mr. Smith, Vice President of Operations, has been employed by the Company
since May 1993 and was elected a Director in November 1995. Mr. Smith held
the positions of Regional Director and Regional Vice President, Operations
prior to assuming his present position in July 1994. For six years prior to
May 1993, Mr. Smith was Branch Operations Manager for Chrysler Credit
Corporation.
Richard A. Tomaszewski
- ----------------------
Mr. Tomaszewski, Vice President, Credit and Collections, has been employed
by the Company since December 1991. Mr. Tomaszewski held the positions of
Manager, Director of Operations and Director of Collections prior to assuming
his present duties in January 1995. From March 1991 until December 1991, Mr.
Tomaszewski was Assistant Credit Manager with Ford Consumer Finance, Inc. Prior
to March 1991, Mr. Tomaszewski held various positions with TransOhio Savings
Bank, including that of Consumer Loan Manager.
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PART II
-------
Item 5. Market for Registrant's Common Equity and
-----------------------------------------
Related Stockholder Matters
---------------------------
MARKET INFORMATION
The Company's common stock, $.05 par value, traded on the NASDAQ Stock Market
under the symbol NACC through July 31, 1995. On August 1, 1995, the Company
began trading on the New York Stock Exchange under the symbol NAK. The
following table reflects the high and low sales prices for the Company's common
stock during the periods indicated as reported by NASDAQ and the New York Stock
Exchange:
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Year ended January 31, 1996
First Quarter ....................... $ 11 3/4 $ 10
Second Quarter ...................... 14 7/8 10
Third Quarter ....................... 19 1/4 13
Fourth Quarter ...................... 17 7/8 10 3/4
Year ended January 31, 1995
First Quarter ....................... $ 15 $ 11 7/8
Second Quarter ...................... 14 10 5/8
Third Quarter ....................... 13 3/4 11 1/8
Fourth Quarter ...................... 12 1/8 9 3/8
</TABLE>
STOCKHOLDERS
There were 1,379 stockholders of record of the Company's common stock as
of March 29, 1996.
DIVIDENDS
It has been the Company's policy to retain earnings to finance the growth
of its business and reduce outstanding debt; accordingly the Company has
generally not issued a cash dividend. However, the Company does from time to
time reassess its cash dividend policy and may issue cash dividends in the
future if circumstances warrant. No cash dividends were declared for the
fiscal years ended January 31, 1996 and 1995.
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Item 6. SELECTED FINANCIAL DATA - Set forth below is selected financial data
with respect to the income statements of the Company for the five years ended
January 31, 1996, and with respect to the balance sheets of the Company at
January 31 in each of those years (thousands of dollars, except per share
amounts).
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUE
Financial services $ 39,709 $ 22,401 $ 7,419 $ 342
Dealership operations 56,333 64,651 73,303 48,949 $ 9,229
-------- -------- -------- -------- --------
Total $ 96,042 $ 87,052 $ 80,722 $ 49,291 $ 9,229
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ 20,612 $ 10,573 $ 985 $ (871) $ (395)
DISCONTINUED OPERATIONS,
NET OF TAX(1) (3,644) 11,830 17,253 17,677 17,579
-------- -------- -------- -------- --------
NET INCOME $ 16,968 $ 22,403 $ 18,238 $ 16,806 $ 17,184
======== ======== ======== ======== ========
EARNINGS (LOSS) PER SHARE
Continuing operations $ .80 $ .41 $ .04 $ (.03) $ (.01)
Discontinued operations (.14) .46 .68 .69 .69
-------- -------- -------- -------- --------
Total $ .66 $ .87 $ .72 $ .66 $ .68
======== ======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000's) 25,783 25,814 25,468 25,443 25,401
======== ======== ======== ======== ========
GROSS INSTALLMENT NOTES RECEIVABLE $351,312 $193,456 $ 93,233 $ 5,130
TOTAL ASSETS 342,112 321,189 350,921 406,076 $372,397
TOTAL OPERATING DEBT 3,546 10,192 68,491 145,308 125,800
STOCKHOLDERS' EQUITY 217,663 199,228 177,257 157,054 141,574
PERCENT OF OPERATING DEBT TO
TOTAL CAPITAL 1.5% 4.4% 24.6% 44.0% 42.9%
NUMBER OF EMPLOYEES 350 1,000 1,600 2,900 2,900
</TABLE>
Certain prior year amounts have been reclassified to conform with the current
year presentation.
(1) See Note P to the Company's consolidated financial statements on page 38 of
this Form 10-K which is herein incorporated by reference for further
discussion of discontinued operations.
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Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
Overview
- --------
National Auto Credit, Inc., a leading provider of financing for
sub-prime automobile loans, was successful in fiscal 1996 in increasing its
automobile loan portfolio to $351 million from $193 million at the end of
fiscal 1995. This was accomplished through $306 million in new loan
originations. The growth of the Company's installment receivable portfolio
drove income from continuing operations to $20.6 million, or $10.0 million over
the prior year. Revenue of the Company increased to $96.0 million in fiscal
1996, up from $87.1 million in fiscal 1995. It is anticipated that the
Company's income from continuing operations will continue to show significant
increases as the Company continues to grow its installment receivable portfolio
in the very large sub-prime finance industry.
On August 1, 1995, the Company's common stock began trading on
the New York Stock Exchange under the symbol NAK. In addition, on March 25,
1996, the Company's Board of Directors declared a ten percent stock dividend
payable April 30, 1996 to shareholders of record on April 15, 1996.
Previously, the Company operated in the auto insurance
replacement rental business under the name of Agency Rent-A-Car. This business
was sold to a subsidiary of Avis, Inc. on September 30, 1995, thereby allowing
the Company to focus its full resources on the sub-prime auto financing
segment.
<TABLE>
<CAPTION>
Revenue Distribution
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Income From Continuing
Operations Before Taxes 34.0% 18.9% 2.0%
Interest Expense 1.0 .8 .4
General and Administrative
Expense 6.4 6.3 6.9
Operating Expense 58.6 74.0 90.7
------- ------ ------
Total Revenue 100.0% 100.0% 100.0%
======= ====== ======
</TABLE>
Financial Services
- ------------------
The Company's financial services subsidiary, NAC, Inc.
("NAC"), had revenue of $39.7 million, a 77% increase over the $22.4 million of
revenue earned during fiscal 1995. Financial services revenue also increased
to $22.4 million in fiscal 1995 from $7.4 million in fiscal 1994. This revenue
growth, consisting predominantly of finance charge income, is attributable to
the growth in the gross installment notes receivable portfolio and in its
enrolled dealer base as follows:
-13-
<PAGE> 16
Financial Services (cont.)
- ------------------
<TABLE>
<CAPTION>
Gross Installment Number of
Balance as of Notes Receivable Number Enrolled
January 31, (in Millions) of Contracts Dealers
- ------------- ---------------- ------------ ---------
<S> <C> <C> <C>
1993 $ 5.1 1,000 100
1994 93.2 12,900 900
1995 193.5 28,400 1,400
1996 351.3 53,000 2,300
</TABLE>
Also included in financial services revenue are net
enrollment fees, net loan origination fees which are amortized as yield
adjustment, paid late charges and commissions earned from the sale of
warranties, for which NAC bears no liability. Total fee income increased to
$4.6 million up from $1.9 million in fiscal 1995. Warranty commissions should
continue to expand through increased loan volume and market penetration.
During most of fiscal 1996, NAC operated one consolidated
loan processing center located at the Company's corporate headquarters in
Solon, Ohio. This compares to the six branch locations which operated during
the first nine months of fiscal 1995, three of which were consolidated during
the fourth quarter of fiscal 1995 and the remaining three which were
consolidated during the first quarter of fiscal 1996. This consolidation has
proven to be very effective in enabling NAC to improve its level of service,
consistency and support of its member dealers as well as gaining greater
management control of the process. This consolidation, as well as the benefit
of additional fee income, has increased the operating margin (revenue less
direct operating costs) by over two percentage points to 89.7% from last year.
The percentage breakdown of NAC's operating expenses for
fiscal 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Salaries and Benefits 70.0% 57.8% 60.3%
Professional Services 7.1 3.6 3.6
Office Supplies 7.0 10.1 9.3
Telephone 5.4 8.8 5.7
Travel 2.9 8.5 8.3
Advertising 2.6 6.0 7.8
Rent and Utilities 3.5 4.1 3.2
Other 1.5 1.1 1.8
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Operating expenses were 1.8% and 2.3% of average net
installment notes receivable for fiscal years 1996 and 1995, respectively. NAC
operating expenses increased from $2.8 million in fiscal 1995 to $4.1 million
in the current fiscal year. Similarly, operating expenses in fiscal 1994 of
$.9 million increased to $2.8 million in fiscal 1995. The increases are
primarily due to the growth in portfolio servicing staff.
-14-
<PAGE> 17
Financial Services (cont.)
- ------------------
Non-performing loans as a percent of the total receivable
portfolio increased from 13.3% to 18.1% due primarily to the aging of the
portfolio. The gross charge-off rate as a percent of average gross receivables
remained relatively consistent from last year to this year at 9.8%.
NAC maintains two different allowances for credit losses:
one netted against gross installment notes receivable to predominantly reserve
for interest income earned but not yet received ($2.6 million at January 31,
1996 compared with $1.1 million at January 31, 1995) and one netted against
dealer advances which is included in dealer holdbacks, net ($6.8 million at
January 31, 1996 compared with $2.4 million at January 31, 1995). This dealer
advance reserve is maintained in the event the collectibility of a dealer
portfolio is not sufficient to ensure the recovery of any outstanding advances.
NAC records an addition to these reserves as a provision against income and/or
fees contractually charged to member dealers. In the opinion of management,
these allowances for credit losses provide adequate reserves for current and
anticipated future losses. The increase in these allowances is primarily
attributable to the increase in gross installment receivables outstanding and
the maturity of the loan portfolio.
Management continually evaluates the allowances for credit
losses using a variety of criteria which primarily includes: charge-off
experience, estimates of collectibility based on aging and delinquency of the
portfolios and underlying collateral, both in total and on a dealer by dealer
basis. Although NAC uses many factors in assessing the adequacy of these
allowances, there is no precise method for accurately determining the ultimate
losses and whether they would vary from current estimates.
During fiscal 1996 many new innovative products were
introduced providing a higher level of service and benefits to our member
dealers. The dealer advance criteria was revised to also consider the model
year of the car purchased. Credit counselors were hired and trained to analyze
customer payment plans and assist with their monthly budgeting. NAC began
reporting customer monthly payment history to three major credit reporting
agencies. Management expects that through the continual refinement of existing
programs, the Company's increasing emphasis on improving dealer relations and
the further development of a field sales organization, NAC will maintain a
leadership role in the alternative financial services industry, with a gross
receivable portfolio approaching $500 million by fiscal year end 1997.
Dealership Operations
- ---------------------
Dealership operations represent the Company's used car sales
subsidiary operating under the name of National Motors, Inc. ("NMI"). Revenue
decreased to $56.3 million on the sale of 8,200
-15-
<PAGE> 18
Dealership Operations (cont.)
- ---------------------
cars from $64.7 million on the sale of 8,900 cars during fiscal
1995. Revenue decreased to $64.7 million in fiscal 1995 from $73.3 million in
fiscal 1994, as the number of cars sold decreased to 8,900 from 12,200.
Cost of sales in fiscal 1996 decreased to $52.3 million from
$61.6 million and $72.3 million in fiscal 1995 and 1994, respectively, as a
result of decreased sales volume and due to a decreased average cost per car.
Management of the Company decided in March 1996 to
discontinue this business once the current supply of inventory vehicles has
been depleted. It is expected that this process will be completed by the end
of the second quarter of fiscal 1997 with no operating income expected for the
year.
General and Administrative
- --------------------------
General and administrative expenses for fiscal 1996 remained
constant as a percentage of total revenue with the same period from one year
ago. General and administrative expenses for fiscal 1996 were $6.1 million, or
6.4% of total revenue, compared with $5.4 million, or 6.3% of total revenue in
fiscal 1995. Similarly, general and administrative expenses for fiscal 1994
were $5.6 million, or 6.9% of total revenue.
Interest
- --------
Interest expense increased from $.7 million to $1.0
million this year due to an increase in the Company's effective cost of
borrowing to 6.0% from 4.1%, and an increase in average debt to $13.2 million
for the year ended January 31, 1996 from $10.6 million for the year ended
January 31, 1995. Interest expense is predominantly from notes payable used by
the Company to purchase treasury stock. The higher average debt level for
fiscal 1996 is primarily due to the purchase of approximately $2.9 million of
treasury stock during the fourth quarter of fiscal 1995 and $.8 million in the
first quarter of fiscal 1996. The increase in interest expense from $.3
million in fiscal 1994 to $.7 million in fiscal 1995 was due to a higher
effective interest rate of 4.1% in fiscal 1995 compared with 3.4% in fiscal
1994 and an increase in average debt outstanding.
Income Taxes
- ------------
The provision for income taxes in fiscal 1996 increased from
$5.9 million in fiscal 1995 to $12.0 million due to an increase in pre-tax
income from continuing operations and a slightly higher effective tax rate.
The provision for income taxes in 1995 increased to $5.9
million from $.7 million in fiscal 1994 due to increased pre-tax income
partially offset by a lower effective tax rate.
-16-
<PAGE> 19
Discontinued Operations
- -----------------------
During fiscal 1996, the Company entered into an agreement
with a subsidiary of Avis, Inc. to dispose of its automobile rental operations
through the sale of certain assets (including the tradename, Agency Rent-A-Car)
and through certain leases, as disclosed in Note P to the consolidated
financial statements.
Discontinued revenue and most of the related operating
expenses decreased during fiscal 1996, as the fleet decreased from
approximately 12,000 cars at January 31, 1995, to 6,500 vehicles which have
been leased by Avis since October 1, 1995. Maintenance expense and bad debt
expense increased as a percent of revenue due to an aging fleet and the impact
of discontinuing the rental operations. Claims expense decreased 41% from
fiscal 1994 to 1995 and 59% from fiscal 1995 to the eight months ended
September 30, 1995. These decreases are directly proportionate to the decline
in average fleet. The claims reserve was adjusted monthly based upon estimated
actuarial calculated rates applied to the average rental fleet. These rates,
as well as the reserve balance, are revised at least annually based upon the
results of an independent actuarial study, as was the case during the fourth
quarter of fiscal 1996. The fourth quarter charge of $3.3 million reflects the
results of the comprehensive actuarial study, as well as further staff
reductions and the outsourcing of the claims processing function. Due to
uncertainties inherent in the estimation process, it is possible that claims
reserves will be further revised in the future.
IMPACT OF INFLATION
- -------------------
The Company is affected by inflation primarily through its
impact on operating costs and expenses and interest expense.
The impact of inflationary pressures on operating costs and expenses
has been offset by the Company's continued emphasis on tight operating and cost
controls, automation, as well as its ability to generate and increase fees in
its finance business.
The impact of potential escalating interest rates is
mitigated by the Company's agreement with NAC member dealers which provides for
the assessment of interest charges to the dealer on outstanding advances at a
variable rate that fluctuates with the prime rate.
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, proceeds from sale of rental automobiles and
proceeds received during the third quarter of this year from the sale of
discontinued operations.
-17-
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES (cont.)
- -------------------------------
External sources of funds available to the Company at January
31, 1996 consist of $200 million in unsecured short-term commercial paper, $76
million in unsecured uncommitted short-term bank lines of credit and $40
million in unsecured committed bank lines of credit, none of which have
compensating balance requirements. The committed bank facility expires on June
28, 1996. Outstanding borrowings at January 31, 1996 amounted to $16.9 million
in unsecured uncommitted short-term lines of credit. The funds generated from
the sale of rental automobiles will decrease during fiscal 1997 as the supply
of cars is exhausted.
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
throughout fiscal 1997.
The ratio of operating debt to total capital was 1.5% at
January 31, 1996 and 4.4% at January 31, 1995. It is anticipated that debt
levels will increase through the end of fiscal 1997 primarily to fund the
increased growth in new installment contracts.
The Company does not intend on utilizing its commercial paper
program and plans on maintaining its financial flexibility by renegotiating the
unsecured committed bank lines of credit, increasing the commitment to $50
million and with uncommitted short-term bank lines. The Company is currently
exploring options regarding the most cost effective means of providing for the
longer term capital requirements of the Company.
-18-
<PAGE> 21
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
National Auto Credit, Inc. and Subsidiaries
Solon, Ohio
We have audited the accompanying consolidated balance sheets of National Auto
Credit, Inc. and Subsidiaries as of January 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended January 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of National Auto Credit, Inc. and
Subsidiaries as of January 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/Deloitte & Touche LLP
Cleveland, Ohio
March 25, 1996
-19-
<PAGE> 22
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
January 31,
--------------------------------
ASSETS 1996 1995
-------- --------
<S> <C> <C>
Cash and cash equivalents $ 1,665 $ 398
Installment notes receivable,
net (Note B) 293,890 164,154
Dealership inventory 5,794 23,406
Property and equipment, net of
accumulated depreciation of
$5,442 and $4,314, respectively 9,175 10,228
Other assets 12,897 12,677
Assets related to discontinued
operations (Note P) 18,691 110,326
-------- --------
$342,112 $321,189
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Dealer holdbacks, net (Note C) $ 58,864 $ 33,816
Self-insurance claims (Note E) 12,712 24,475
Notes payable (Note F) 13,354 12,469
Operating debt (Note G) 3,546 10,192
Deferred and accrued
income taxes (Note H) 17,379 22,543
Other liabilities (Note D) 18,594 18,466
-------- --------
124,449 121,961
-------- --------
COMMITMENTS AND CONTINGENCIES (Note O) -- --
Stockholders' Equity (Note I)
Preferred stock - $.05 par value,
authorized 2,000,000 shares,
none issued -- --
Common stock - $.05 par value,
authorized 30,000,000 shares,
27,183,217 and 26,946,679
shares issued, respectively 1,359 1,348
Additional paid-in capital 128,133 125,695
Retained earnings, including cumulative
foreign currency translation loss
of $1,349 and $1,253, respectively 99,793 82,921
Treasury stock, at cost, 1,298,568 and
1,217,668 shares, respectively (11,622) (10,736)
-------- --------
217,663 199,228
-------- --------
$342,112 $321,189
======== ========
</TABLE>
See notes to consolidated financial statements.
-20-
<PAGE> 23
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended January 31,
------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Financial services $ 39,709 $ 22,401 $ 7,419
Dealership operations 56,333 64,651 73,303
-------- -------- --------
Total 96,042 87,052 80,722
COSTS AND EXPENSES
Cost of goods sold and operating
expenses:
Financial services 4,086 2,829 875
Dealership operations 52,273 61,618 72,321
General and administrative 6,095 5,447 5,551
Interest 981 690 324
-------- -------- --------
Total 63,435 70,584 79,071
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 32,607 16,468 1,651
Provision for income taxes (Note H) 11,995 5,895 666
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS 20,612 10,573 985
-------- -------- --------
DISCONTINUED OPERATIONS,
NET OF TAX (Note P)
Income (loss) from operations (3,432) 11,830 17,253
Loss on disposal of operations (212) -- --
-------- -------- --------
(3,644) 11,830 17,253
-------- -------- --------
NET INCOME $ 16,968 $ 22,403 $ 18,238
======== ======== ========
EARNINGS (LOSS) PER SHARE
Continuing operations $ .80 $ .41 $ .04
Discontinued operations (.14) .46 .68
-------- -------- --------
$ .66 $ .87 $ .72
======== ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000's) 25,783 25,814 25,468
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-21-
<PAGE> 24
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Common Stock Foreign
-------------------- Additional Currency
Shares Par Paid-In Retained Translation Treasury
(000's) Value Capital Earnings Adjustment Stock Total
-------- ------- ---------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 31, 1993 26,349 $ 1,317 $120,218 $ 43,533 $ (292) $ (7,722) $157,054
Net income 18,238 18,238
Stock issued under
benefit plans
(Note J) 300 16 2,687 2,703
Treasury stock
purchases
(Note I) (135) (135)
Foreign currency
translation (603) (603)
------- -------- -------- -------- -------- -------- --------
BALANCE,
JANUARY 31, 1994 26,649 1,333 122,905 61,771 (895) (7,857) 177,257
Net income 22,403 22,403
Stock issued under
benefit plans
(Note J) 298 15 2,790 2,805
Treasury stock
purchases
(Note I) (2,879) (2,879)
Foreign currency
translation (358) (358)
------- -------- -------- -------- -------- -------- --------
BALANCE,
JANUARY 31, 1995 26,947 1,348 125,695 84,174 (1,253) (10,736) 199,228
Net income 16,968 16,968
Stock issued under
benefit plans
(Note J) 236 11 2,438 2,449
Treasury stock
purchases
(Note I) (886) (886)
Foreign currency
translation (96) (96)
------- -------- -------- -------- -------- -------- --------
BALANCE,
JANUARY 31, 1996 27,183 $ 1,359 $128,133 $101,142 $ (1,349) $(11,622) $217,663
======= ======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-22-
<PAGE> 25
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Years Ended January 31,
-----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 16,968 $ 22,403 $ 18,238
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,420 36,660 61,338
Interest income on dealer advances (9,098) (3,507) (405)
Provision for credit losses 4,492 1,924 1,710
Loss on sale of discontinued operations 212 -- --
Deferred income taxes (11,866) (6,382) 1,727
Changes in operating assets and liabilities:
Accounts receivable 7,304 6,947 10,773
Current income taxes payable 3,165 (4,120) 3,093
Other liabilities (11,185) (977) (5,481)
Self-insurance claims (11,763) (9,950) (12,375)
Other operating assets and liabilities 5,642 5,228 4,531
-------- -------- --------
Net cash provided by operating activities 10,291 48,226 83,149
-------- -------- --------
Cash Flows from Investing Activities
Proceeds from the sale of discontinued operations 20,524 -- --
Purchase of rental automobiles (91) (16,882) (60,398)
Proceeds from sale of rental automobiles 34,541 29,544 68,963
Purchase of dealership inventory (10,419) (5,226) (2,814)
Purchase of other property and equipment (702) (592) (3,634)
Principal collected on installment notes receivable 85,403 45,527 10,032
Advances to dealers and payments of dealer
holdbacks (133,986) (44,513) (21,976)
Other investing activities, net -- (592) 770
-------- -------- --------
Net cash provided by (used in) investing
activities (4,730) 7,266 (9,057)
-------- -------- --------
Cash Flows from Financing Activities
Net principal payments on operating debt
and notes payable (5,761) (55,420) (76,682)
Payments to acquire treasury stock (886) (2,879) (135)
Stock issued under benefit plans 2,449 2,805 2,703
Other financing activities, net (96) (358) (603)
-------- -------- --------
Net cash used in financing activities (4,294) (55,852) (74,717)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 1,267 (360) (625)
Cash and cash equivalents at beginning of year 398 758 1,383
-------- -------- --------
Cash and cash equivalents at end of year $ 1,665 $ 398 $ 758
======== ======== ========
Supplemental Disclosures of Cash Flow Information
Interest paid $ 1,203 $ 2,520 $ 5,929
======== ======== ========
Income taxes paid $ 19,056 $ 23,673 $ 7,109
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-23-
<PAGE> 26
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE A - Summary of Significant Accounting Policies
------------------------------------------
NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION:
National Auto Credit, Inc. (the "Company") began operations in 1969. Since
October 1992, the Company has operated as an alternative finance source for
independent automobile dealerships throughout the United States. The primary
business of the Company is to provide financing in the sub-prime auto loan
market through member dealerships for their customers who have limited access
to financing through more traditional lending sources.
The Company previously engaged in the rental of automobiles on a short-term
basis, principally to the insurance replacement market.
The Company also has a dealership operation that sells used cars that are
retired from the rental fleet, primarily to member dealers of the Company's
financial services business. This segment will be discontinued during fiscal
1997 as the rental fleet is depleted.
The Company has member dealers in 45 states with no individual dealer's
portfolio exceeding 2% of total installment notes receivable. These notes are
from retail consumers residing in all 50 states, with no individual state
accounting for more than 10% of total installment notes receivable, except
North Carolina with 14.2%. The next five largest states, Ohio, Texas,
Maryland, Pennsylvania and New Jersey, account for 35.3% of total installment
notes receivable. The customer's ability to repay the loan may be dependent on
economic conditions in these states. Risk of loss is mitigated by a security
interest in the vehicles sold, dealer holdbacks and loan loss reserves.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of National Auto
Credit, Inc. and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
FINANCIAL SERVICES REVENUE:
FINANCE CHARGE INCOME: Upon acceptance of retail installment contracts,
gross installment notes receivable are recorded net of unearned finance charges
which are equal to the amount of the Company's discount. Finance charges are
recognized as income using the interest method over the life of the applicable
contract. Accrual of finance charges is suspended when a loan becomes 120 days
contractually past due and a reserve is provided for previously earned but
unpaid income. When the loan becomes current, the accrual is resumed and
past-due income is recognized.
FEE INCOME: Non-refundable enrollment fees are charged to each dealer upon
acceptance as a member in the financing program and maintenance fees are
charged annually thereafter. These fees are deferred and amortized on a
straight-line basis over twelve months, net of the related direct incremental
costs associated with the enrollment fee. Loan origination fees, net of
related direct costs, are deferred and amortized over the life of the loan.
-24-
<PAGE> 27
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE A - Summary of Significant Accounting Policies (cont.)
------------------------------------------
CREDIT LOSSES:
The Company provides allowances for credit losses at a level considered by
management to adequately cover current and future losses.
ALLOWANCE FOR LOAN LOSSES: This allowance is provided for installment
notes receivable with no related dealer holdbacks and for earned but unpaid
finance charges. The installment notes receivable portfolio is reviewed
regularly. Loans are charged-off on a loan by loan basis when no material
payment has been received for one year. Principal balances are charged off
against the related dealer holdback first, and then against the allowance for
loan losses, as necessary.
DEALER ADVANCE RESERVE: This allowance is provided for advances that are not
expected to be recoverable either from the collection of the dealer's loan
portfolio or directly from the dealer, either by a charge to income or from
specific fees collected from dealers. Advances are written-off on a dealer by
dealer basis when collection efforts have been exhausted and there have been no
loan additions during the prior twelve months.
DEALERSHIP INVENTORY:
Dealership inventory is stated at lower of depreciated cost or estimated
wholesale market.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost, less accumulated depreciation, and is
depreciated using the straight-line method over its estimated useful life.
Rental automobiles, included in assets related to discontinued operations, are
stated at cost less related purchase discounts and incentives. Rental
automobiles are depreciated, while in service, using the straight-line method
at rates which generally range from 1.0% to 1.9% of capitalized cost per month,
depending on make, model and time of year placed into service. The rate was
calculated using an estimated in-service life of 33 months and an anticipated
residual value at the end of this period, which is estimated using prior
disposition experience and independently published used automobile values.
Gains and losses upon the sale of rental automobiles are either recorded as an
adjustment to depreciation expense of discontinued operations, or are included
in dealership operations, depending on the method of disposal. The net gain
from the sale of automobiles totalled $6,050,000, $3,874,000 and $2,431,000 for
the years ended January 31, 1996, 1995 and 1994, respectively. The number of
automobiles sold by the Company was 12,571, 11,055 and 16,538 in fiscal 1996,
1995 and 1994, respectively.
-25-
<PAGE> 28
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE A - Summary of Significant Accounting Policies (cont.)
------------------------------------------
INCOME TAXES:
Deferred income taxes are provided for all temporary differences between the
book and tax basis of assets and liabilities. In addition, as was the case in
fiscal 1994, deferred income taxes are adjusted to reflect new tax rates when
they are enacted into law.
ESTIMATES:
The preparation of financial statements and the accompanying notes in
conformity with generally accepted accounting principles require management to
make estimates and assumptions that affect reported amounts. Actual results
could differ from those estimates.
FOREIGN CURRENCY TRANSLATION:
For the Company's Canadian subsidiaries, currency is translated into U.S.
dollars for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. The gains or losses resulting from
such translations are included in stockholders' equity.
EARNINGS PER SHARE:
Earnings per share is computed on the basis of the weighted average common
shares outstanding during the period. Common share equivalents have been
excluded from this computation since they have less than a 3% dilutive effect.
CASH EQUIVALENTS:
All highly liquid investments with an original maturity of three months or less
are considered to be cash equivalents.
RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform with the current
year presentation.
NOTE B - Installment Notes Receivable, Net
---------------------------------
The components of installment notes receivable are as follows:
<TABLE>
<CAPTION>
January 31,
-------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Gross installment notes receivable $351,312 $193,456
Unearned income (54,835) (28,195)
Allowance for loan losses (2,587) (1,107)
-------- --------
Installment notes receivable, net $293,890 $164,154
======== ========
</TABLE>
-26-
<PAGE> 29
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE B - Installment Notes Receivable, Net (cont.)
---------------------------------
A summary of changes in gross installment notes receivable is as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
January 31,
-----------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Balance, beginning of year $193,456 $ 93,233
Contracts accepted 306,001 181,625
Cash collected (121,542) (67,394)
Charge-offs against:
Dealer holdback (18,209) (7,935)
Unearned income/allowance (8,394) (6,073)
-------- --------
Balance, end of year $351,312 $193,456
======== ========
</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 32 months and an initial gross amount of
$8,500. At January 31, 1996 and 1995, the average remaining note term was 23
months. The notes are collateralized by the related vehicle sold.
At January 31, 1996 and 1995, the accrual of interest income was suspended on
18.1% and 13.3% of net installment notes receivable, respectively, which were
120 days contractually past due.
On January 31, 1996, contractual maturities of gross installment notes
receivable were as follows (in thousands of dollars):
<TABLE>
<S> <C> <C>
Fiscal year: 1997 $182,057
1998 105,828
1999 50,165
2000 10,886
2001 2,376
--------
Total $351,312
========
</TABLE>
The above information should not be used to project future cash flows as it is
the Company's experience that a portion of the installment receivable portfolio
may be paid subsequent to due date, paid in full, or charged-off prior to
contractual maturity dates.
The Company has outstanding $1,595,000 and $7,057,000 of installment notes
receivable with no related dealer holdbacks at January 31, 1996 and 1995,
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>
Twelve Months Ended
January 31,
-----------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Balance, beginning of year $ 1,107 $ 914
Provision for loan losses 1,958 880
Net charge-offs (478) (687)
-------- --------
Balance, end of year $ 2,587 $ 1,107
======== ========
</TABLE>
-27-
<PAGE> 30
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE C - Dealer Holdbacks
----------------
Dealer holdbacks are the amounts payable to member dealers from the acceptance
of retail installment contracts, net of cash advanced. The cash advances are
based upon certain criteria and are interest-bearing at the prime rate less 3%.
The dealer holdbacks protect the Company from potential losses associated with
the installment contracts and are not paid until substantially all advances
related to a particular dealer have been recovered. The components of dealer
holdbacks are as follows:
<TABLE>
<CAPTION>
January 31,
-----------------------
1996 1995
--------- ---------
(in thousands)
<S> <C> <C>
Dealer holdbacks $ 274,927 $ 140,312
Advances (222,830) (108,872)
--------- ---------
52,097 31,440
Dealer advance reserve 6,767 2,376
--------- ---------
Dealer holdbacks, net $ 58,864 $ 33,816
========= =========
</TABLE>
A summary of changes in the dealer advance reserve is as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
January 31,
-----------------------
1996 1995
--------- ---------
(in thousands)
<S> <C> <C>
Balance, beginning of year $ 2,376 $ 800
Advance reserve fees 2,531 538
Provision for advance losses 2,534 1,044
Net charge-offs (674) (6)
--------- ---------
Balance, end of year $ 6,767 $ 2,376
========= =========
</TABLE>
NOTE D - Other Liabilities
-----------------
Other liabilities are as follows:
<TABLE>
<CAPTION>
January 31,
-----------------------
1996 1995
--------- ---------
(in thousands)
<S> <C> <C>
Accounts payable $ 9,221 $ 5,065
Accrued expenses 5,737 9,358
Deferred capital contributions 3,636 4,043
--------- ---------
$ 18,594 $ 18,466
========= =========
</TABLE>
The Company is a limited partner in certain affordable housing investments that
generate benefits in the form of tax credits. In connection with its
investments in affordable housing limited partnerships, which are included as
other assets in the balance
-28-
<PAGE> 31
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE D - Other Liabilities (cont.)
-----------------
sheet, the Company is required as of January 31, 1996 to make future
contributions of $3,636,000, plus interest at an average rate of 8.9% per annum
in varying amounts over the next seven years as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal year: 1997 $390,000
1998 508,000
1999 533,000
2000 566,000
2001 593,000
2002 614,000
2003 432,000
</TABLE>
Management anticipates that the cash flow from the tax benefits generated by
these investments will exceed the additional contribution requirements.
NOTE E - Self-Insurance Claims
---------------------
The Company is primarily self-insured for bodily injury and property damage up
to its retained limits relating to its fleet of vehicles included in
discontinued assets. This self-insurance program provides protection to the
Company and to its employees operating Company vehicles within the scope of
their employment. Prior to October 1, 1995 this self-insurance program
provided protection to renters of Company vehicles to the extent required by
the applicable state laws and/or provided under the terms of the rental
agreement. On October 1, 1995, a subsidiary of Avis, Inc. assumed this
responsibility for new claims incurred relating to Avis rental agreements
pursuant to the terms of a leasing agreement for the Company's rental fleet
(see Note P to the consolidated financial statements).
The Company estimates its liability for self-insurance claims based upon a
comprehensive actuarial analysis of reported and incurred but not reported
claims. Changes in estimates of claim costs resulting from this analysis are
recognized in income in the period in which the estimates are changed. The
fiscal 1996 actuarial analysis estimates that future claim payments could range
from $12,318,000 to $17,862,000. Due to uncertainties inherent in the
estimation process, it is reasonably possible that the claims reserve will be
further revised during fiscal 1997. Self-insurance claims expense, included in
discontinued operations, was $6,854,000, $8,604,000 and $14,417,000, for 1996,
1995 and 1994, respectively.
The Company carries excess automobile liability insurance for bodily injury and
property damage of $5,000,000 per occurrence, of which the
-29-
<PAGE> 32
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE E - Self-Insurance Claims (cont.)
---------------------
Company self-insures the first $1,000,000 of loss. In connection with
this program, at January 31, 1996, the Company had $6,400,000 of outstanding
irrevocable standby letters of credit, as required by various state insurance
regulatory authorities.
NOTE F - Notes Payable
-------------
At January 31, 1996 and 1995, the Company had utilized $13,354,000 and
$12,469,000, respectively, of its unsecured bank lines of credit to finance the
repurchase of the Company's common stock. Interest rates on the outstanding
borrowings were 6.00% and 6.12% at January 31, 1996 and 1995, respectively.
NOTE G - Operating Debt
--------------
Operating debt consisted of the following:
<TABLE>
<CAPTION>
January 31,
------------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Unsecured lines of credit $ 3,546 $ 1,231
Commercial paper -- 8,961
-------- --------
$ 3,546 $ 10,192
======== ========
</TABLE>
At January 31, 1996, the Company had short-term unsecured lines of credit with
banks totalling $76 million, net of outstanding letters of credit. There are
no fees or compensating balances associated with these credit facilities which
are provided on an uncommitted basis. Interest rates on the outstanding
borrowings under these lines of credit were 6.00% and 6.12% at January 31, 1996
and 1995, respectively.
The Company has an unsecured short-term commercial paper program in the
aggregate of $200 million. Outstanding commercial paper was borrowed at a
weighted average interest rate of 5.85% at January 31, 1995.
The Company maintains a committed bank facility of $40 million. There are no
compensating balances associated with this facility and, as of January 31,
1996, the Company is in full compliance with all restrictive covenants. The
agreement expires June 28, 1996 and may be renewed at the discretion of both
parties. There have been no borrowings under this agreement.
-30-
<PAGE> 33
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE H - Income Taxes
------------
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
Years Ended January 31,
------------------------------
1996 1995 1994
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Current
Federal $21,439 $16,617 $ 8,976
State 4,718 3,790 1,627
------- ------- -------
26,157 20,407 10,603
------- ------- -------
Deferred
Federal (9,907) (5,551) 966
State (1,959) (831) 761
------- ------- -------
(11,866) (6,382) 1,727
------- ------- -------
$14,291 $14,025 $12,330
======= ======= =======
</TABLE>
Income tax expense is included in the financial statements as follows:
<TABLE>
<CAPTION>
Years Ended January 31,
------------------------------
1996 1995 1994
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Continuing operations $11,995 $ 5,895 $ 666
Discontinued operations 2,296 8,130 11,664
------- ------- -------
$14,291 $14,025 $12,330
======= ======= =======
</TABLE>
Reconciliations of the Federal statutory tax rate to the
effective tax rate for continuing operations are as follows:
<TABLE>
<CAPTION>
Years Ended January 31,
------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State and local income taxes
(net of federal income tax) 4.7 5.2 5.1
Tax credits (3.1) (4.8) (2.6)
Impact of changes in
federal rate -- -- 2.3
Other .2 .4 .5
------- ------- -------
36.8% 35.8% 40.3%
======= ======= =======
</TABLE>
-31-
<PAGE> 34
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE H - Income Taxes (cont.)
------------
Deferred tax assets, on which no valuation allowance is considered necessary,
deferred tax liabilities and accrued income taxes consist of the following:
<TABLE>
<CAPTION>
January 31,
------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Self-insurance claims $ 4,627 $ 8,446
Liabilities and other reserves 3,864 2,543
Other 1,715 1,689
------- -------
Total deferred tax assets 10,206 12,678
------- -------
Deferred tax liabilities:
Depreciation 13,812 28,192
State income taxes 1,495 3,020
Other 5,455 4,238
------- -------
Total deferred tax liabilities 20,762 35,450
------- -------
Accrued (refundable) income taxes 6,823 (229)
------- -------
$17,379 $22,543
======= =======
</TABLE>
NOTE I - Stockholders' Equity
--------------------
On March 18, 1996, in accordance with General Corporation Law of the State of
Delaware, the majority stockholder of the Company gave his written consent to
increase the number of authorized shares of common stock from 30 million to 40
million. On March 25, 1996, the Board of Directors declared a 10% stock
dividend to be paid on April 30, 1996 to stockholders of record at the close of
business on April 15, 1996.
The Company's Board of Directors has authorized the repurchase of up to four
million shares of the Company's outstanding stock. Shares repurchased amounted
to 80,900, 257,000 and 12,100 in fiscal 1996, 1995 and 1994, respectively.
NOTE J - Benefit Plans
-------------
The Company's 1993 Equity Incentive Plan provides for the granting of incentive
and non-qualified stock options, stock appreciation rights, common stock and
restricted common stock. The total number of shares which may be granted under
this Plan are 2,000,000. There were 29,500, 23,000 and 18,000 shares of
restricted stock granted
-32-
<PAGE> 35
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE J - Benefit Plans (cont.)
-------------
under this Plan during the years ended January 31, 1996, 1995 and 1994,
respectively. There were 1,844,500 shares available for future stock or option
grants at January 31, 1996.
The Company's 1983 Stock Option Plan provided for the granting of both
incentive and non-qualified stock options to key employees for the purchase of
the Company's common stock. The 1983 Plan terminated on April 17, 1993 and no
further options may be granted, although options still remain outstanding.
Options previously granted under the Plan extend for ten years and become
exercisable in installments over the first five years.
A summary of changes in stock options granted under both plans is as follows:
<TABLE>
<CAPTION>
Number of Price Range
Options Per Share
--------- ------------
<S> <C> <C>
Balance January 31, 1993 1,662,113 $ 6.33- 9.88
Granted 4,000 7.56
Exercised (270,591) 6.33- 9.88
Cancelled (350,984) 6.56- 9.88
---------
Balance January 31, 1994 1,044,538 6.56- 9.88
Granted 60,000 6.56-11.00
Exercised (271,837) 6.56- 9.88
Cancelled (223,659) 6.56- 9.88
---------
Balance January 31, 1995 609,042 6.56-11.00
Granted 57,500 11.00-12.00
Exercised (206,177) 6.56- 9.88
Cancelled (122,031) 6.56-11.00
---------
Balance January 31, 1996 338,334 $ 6.56-12.00
=========
</TABLE>
The outstanding options expire at various dates through 2006. Options for
236,734, 377,892 and 531,818 shares were exercisable at January 31, 1996, 1995
and 1994, respectively. The Company is planning to adopt only the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" in fiscal year 1997.
In addition, the Company's 1995 Dealer Stock Option Plan for Member Dealers
provides for the granting of up to 500,000 stock options to member dealers
based upon certain volume criteria. The options become exercisable over a
three year period. During the year ended January 31, 1996 there were 50,000
options granted at prices ranging from $11.00 to $16.25.
The 1986 Employee Stock Purchase Plan terminated effective January 31, 1996 and
no further shares will be issued by the Company to the Plan. Under this Plan,
eligible employees could purchase shares of the Company's common stock through
payroll deductions at the month-end market price. The Company contributed an
amount equal to 20% of the employee's payroll deduction, subject to a two-year
vesting period from the date of such contribution. There were 861, 2,520 and
12,133 shares purchased under this Plan during the years ended January 31,
1996, 1995 and 1994, respectively.
-33-
<PAGE> 36
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE J - Benefit Plans (cont.)
-------------
The Company has a 401(k) Savings and Profit-Sharing Plan covering substantially
all employees who have completed one year of service with the Company. Company
contributions to this Plan are discretionary and are determined annually by the
Board of Directors. The Plan also allows employees the option of purchasing
common stock of the Company. The total number of shares which may be purchased
under this Plan are 500,000. There were 4,418, 14,774 and 222 shares purchased
during the years ended January 31, 1996, 1995 and 1994, respectively. Company
contributions to the Plan were $38,000, $51,000 and $5,000 for the years ended
January 31, 1996, 1995 and 1994, respectively.
The Company does not provide post-retirement or post-employment benefits to its
employees.
NOTE K - Related Party Transactions
--------------------------
Adverama, Inc. provided the Company with placement of Yellow Pages directory
advertising, printing services and promotional items relating to discontinued
rental fleet operations. Payments for these services were $1,577,000,
$3,401,000 and $6,221,000 for the years ended January 31, 1996, 1995 and 1994,
respectively. Adverama, Inc. is beneficially owned by the daughter of the
Company's Chairman of the Board of Directors and majority stockholder. There
were no amounts payable to Adverama, Inc. as of January 31, 1996. The amount
payable to Adverama, Inc. was $373,000 at January 31, 1995.
In fiscal 1996, the Company engaged the investment banking firm of Brown
Brothers Harriman and Co. ("BBH") as financial advisor in connection with the
sale of the rental fleet business and paid BBH $950,000 during the year ended
January 31, 1996 for these services. A director of the Company is a partner
for BBH. Another director of the Company received a percentage of this fee
paid by the Company for his participation in the transaction.
NOTE L - Financial Instruments
---------------------
The Company has various financial instruments including cash and cash
equivalents, installment notes receivable, investments in affordable housing
limited partnerships, dealer holdbacks, net, notes payable, operating debt and
miscellaneous other assets. Many of these instruments are short-term in nature
and the fair value of these financial instruments has been estimated based on
available market information and appropriate valuation methodologies. The
Company has determined that their carrying values approximate estimated fair
values.
-34-
<PAGE> 37
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE M - Industry Segment Information
----------------------------
Since the sale of the Company's automobile rental segment in September 1995
(see Note P to the consolidated financial statements), the Company operates in
two principal segments: the financial services segment which provides
non-traditional financing to automobile dealerships throughout the United
States and dealership operations which sells used automobiles (its principal
source of units resulting from the retiring rental fleet) primarily to member
dealers of the financial services business.
Operating income by segment is total revenue less cost of sales and operating
expenses. Income and expense not allocable to business segments include
interest expense and portions of certain corporate administrative costs.
Consistent with industry practice, general and administrative expenses directly
incurred in the operation of the financial services segment are included in
operating expenses. Identifiable assets by business segment are those assets
employed in each segment's operation and are reflected after elimination of
intercompany balances. Corporate identifiable assets are principally cash,
administrative facilities, corporate receivables, and certain other assets.
Information for the Company's continuing industry segments for the fiscal years
ended January 31 (in thousands of dollars) is as follows:
<TABLE>
<CAPTION>
Financial Dealership
1996 Services Operations Corporate Total
- ---- --------- ---------- --------- --------
<S> <C> <C> <C> <C>
Revenue $ 39,709 $ 56,333 $ 96,042
Costs and operating expenses 4,086 52,273 56,359
-------- --------- --------
Operating income 35,623 4,060 39,683
General and administrative 559 316 $ 5,220 6,095
Interest expense -- -- 981 981
-------- --------- -------- --------
Income before income taxes $ 35,064 $ 3,744 $ (6,201) $ 32,607
======== ========= ======== ========
Identifiable assets $295,097 $ 6,284 $ 22,040 $323,421
======== ========= ======== ========
Capital expenditures $ 434 $ -- $ 268 $ 702
======== ========= ======== ========
</TABLE>
-35-
<PAGE> 38
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE M - Industry Segment Information (cont.)
----------------------------
<TABLE>
<CAPTION>
Financial Dealership
1995 Services Operations Corporate Total
- ---- --------- ---------- --------- --------
<S> <C> <C> <C> <C>
Revenue $ 22,401 $ 64,651 $ 87,052
Costs and operating expenses 2,829 61,618 64,447
-------- --------- --------
Operating income 19,572 3,033 22,605
General and administrative 491 409 $ 4,547 5,447
Interest expense -- -- 690 690
-------- --------- -------- --------
Income before income taxes $ 19,081 $ 2,624 $ (5,237) $ 16,468
======== ========= ======== ========
Identifiable assets $165,428 $ 23,715 $ 21,720 $210,863
======== ========= ======== ========
Capital expenditures $ 398 $ -- $ 179 $ 577
======== ========= ======== ========
1994
- ----
Revenue $ 7,419 $ 73,303 $ 80,722
Costs and operating expenses 875 72,321 73,196
-------- --------- --------
Operating income 6,544 982 7,526
General and administrative 110 1,105 $ 4,336 5,551
Interest expense -- -- 324 324
-------- --------- -------- --------
Income before income taxes $ 6,434 $ (123) $ (4,660) $ 1,651
======== ========= ======== ========
Identifiable assets $ 77,180 $ 26,989 $ 17,598 $121,767
======== ========= ======== ========
Capital expenditures $ 506 $ 28 $ 667 $ 1,201
======== ========= ======== ========
</TABLE>
NOTE N - Quarterly Financial Data (Unaudited)
------------------------
The following tables present quarterly financial information (in thousands of
dollars, except per share information):
<TABLE>
<CAPTION>
Quarter
-------------------------------------------
First Second Third Fourth
-------- -------- -------- --------
1996:(1)
- --------
<S> <C> <C> <C> <C>
Revenue $ 28,915 $ 26,178 $ 22,755 $ 18,194
Operating income (2) $ 8,058 $ 9,623 $ 10,577 $ 11,425
Income from continuing
operations $ 4,033 $ 4,848 $ 5,565 $ 6,166
Discontinued operations,
net of tax 612 (587) (1,046) (2,623)
-------- -------- -------- --------
Net income $ 4,645 $ 4,261 $ 4,519 $ 3,543
======== ======== ======== ========
Earnings (loss) per share: (3)
Continuing $ .16 $ .19 $ .22 $ .24
Discontinued .02 (.02) (.04) (.10)
-------- -------- -------- --------
Total $ .18 $ .17 $ .18 $ .14
======== ======== ======== ========
</TABLE>
-36-
<PAGE> 39
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE N - Quarterly Financial Data (Unaudited) (cont.)
------------------------
<TABLE>
<CAPTION>
Quarter
----------------------------------------
First Second Third Fourth
------- ------- ------- -------
1995:(1)
- --------
<S> <C> <C> <C> <C>
Revenue $23,318 $21,203 $19,497 $23,034
Operating income (2) $ 4,367 $ 5,499 $ 5,999 $ 6,740
Income from continuing
operations $ 1,597 $ 2,697 $ 2,888 $ 3,391
Discontinued operations,
net of tax 3,032 3,949 3,206 1,643
------- ------- ------- -------
Net income $ 4,629 $ 6,646 $ 6,094 $ 5,034
======= ======= ======= =======
Earnings per share:(3)
Continuing $ .06 $ .11 $ .11 $ .13
Discontinued .12 .15 .13 .07
------- ------- ------- -------
Total $ .18 $ .26 $ .24 $ .20
======= ======= ======= =======
</TABLE>
(1) - All amounts have been restated to reflect discontinued
operations. See Note P to the consolidated financial
statements.
(2) - Revenue less cost of goods sold and operating expenses.
(3) - Based on average number of shares outstanding at the end of each year.
The quarterly earnings per share do not necessarily sum to the total for
the fiscal year due to rounding.
NOTE O - 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. 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
-37-
<PAGE> 40
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE O - Commitments and Contingencies (cont.)
-----------------------------
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.
The Company's operating lease agreements were mainly associated with the
discontinued rental fleet business and since its sale, are no longer
obligations of the Company due to either assumption or settlement. Total rent
expense for both continuing operations and discontinued operations was
$2,009,000, $4,264,000 and $6,357,000 for the years ended January 31, 1996,
1995 and 1994, respectively. Rent expense for continuing operations which is
included in cost of goods sold and operating expenses was $345,000, $473,000
and $955,000 for the years ended January 31, 1996, 1995 and 1994, respectively.
NOTE P - Discontinued Operations
-----------------------
Effective September 30, 1995, the Company entered into a transaction regarding
its rental fleet business with a subsidiary of Avis, Inc., principally selling
certain assets (delivery vehicles, field furniture and fixtures and prepaid
assets) for their net book value of $2,524,000, selling intellectual property
(including tradename rights, permits and telephone numbers) for $18,000,000 in
cash, leasing the rental fleet for a term of up to twelve months and providing
support services (predominantly computer related) during an interim transition
period. The loss recorded on the sale was $212,000, after tax expense of
$3,537,000. Operations of the rental fleet business are reported as
discontinued operations. Prior year amounts have been restated to conform with
the current year presentation.
Proceeds from the sale were used primarily to finance the growth of the
Company's financial services segment's loan portfolio.
All liabilities related to the discontinued segment, principally self-insurance
claims and deferred taxes, are being retained by the Company.
Summarized asset data related to discontinued operations is as follows:
<TABLE>
<CAPTION>
January 31,
-------------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
Accounts receivable, net of
allowance for doubtful accounts
of $5,041 and $3,720, respectively $ 1,494 $ 9,500
Rental automobiles, net of
accumulated depreciation of
$10,458 and $44,572, respectively 14,403 81,580
Other property and equipment, net 419 6,096
Other assets 2,375 13,150
------- --------
$18,691 $110,326
======= ========
</TABLE>
-38-
<PAGE> 41
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE P - Discontinued Operations (cont.)
-----------------------
Summarized results of discontinued operations are as follows:
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revenue $ 49,717 $132,111 $222,460
Direct operating expenses 28,803 57,310 95,378
Depreciation and amortization 14,942 35,247 60,639
Other expenses 10,645 19,594 37,526
-------- -------- --------
54,390 112,151 193,543
-------- -------- --------
Income (loss) before income taxes (4,673) 19,960 28,917
Provision (benefit) for income taxes (1,241) 8,130 11,664
-------- -------- ---------
Income (loss) from operations (3,432) 11,830 17,253
Loss on disposal of operations,
net of tax (212) -- --
-------- -------- ---------
Net income (loss) $ (3,644) $ 11,830 $ 17,253
======== ======== =========
</TABLE>
-39-
<PAGE> 42
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure
------------------------
NONE
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The information required by this item concerning the Company's directors is
incorporated by reference from the section captioned "Election of Directors"
contained in the Company's Proxy Statement related to the Annual Meeting of
Stockholders to be held June 6, 1996, to be filed by the Company with the
Securities and Exchange Commission within 120 days of the end of the Company's
fiscal year pursuant to General Instruction G(3) of Form 10-K (the "Proxy
Statement"). The information required by this item concerning executive
officers is set forth in Part I of this Report. The information required by
this item concerning compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the section captioned "Compliance with Section
16(a) of the Exchange Act" contained in the Proxy Statement.
Item 11. Executive Compensation
- -------- ----------------------
The section entitled "Summary Compensation Table" of the 1996 Proxy Statement
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
- -------- ---------------------------------------------------
Management
----------
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the 1996 Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The section entitled "Certain Transactions" of the 1996 Proxy Statement is
incorporated herein by reference.
-40-
<PAGE> 43
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports
- -------- ----------------------------------------------------
on Form 8-K
-----------
(a)(1) The following financial statements are included in Part II,
Item 8:
Independent Auditors' Report
Financial Statements:
Consolidated Balance Sheets -
January 31, 1996 and 1995
Consolidated Statements of Income -
Years Ended January 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity -
Years Ended January 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows
Years Ended January 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Years Ended January 31, 1996, 1995 and 1994
(a)(2) The following financial statement schedule for the years
ended January 31, 1996, 1995 and 1994 is submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable.
-41-
<PAGE> 44
Item 14. Exhibits, Financial Statement Schedules, and Reports
- -------- ----------------------------------------------------
on Form 8-K (cont.)
-----------
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
(a)(3) Exhibits
(2)(a) Agreement of Merger (filed as Exhibit 2 to
the Company's Form 8B dated December 27, 1995,
SEC File No. 1-11601 and incorporated herein by
reference and made a part hereof). N/A
(3)(a) Restated Certificate of Incorporation of
National Auto Credit, Inc. (filed as Exhibit 3(1)
to the Company's Form 8B dated December 27, 1995,
SEC File No. 1-11601 and incorporated herein by
reference and made a part hereof). N/A
(b) By-Laws of National Auto Credit, Inc. (filed as
Exhibit 3(2) to the Company's Form 8B dated
December 27, 1995, SEC File No. 1-11601 and
incorporated herein by reference and made a
part hereof). N/A
(4)(a) Specimen Stock Certificate - Agency Rent-A-Car,
Inc. (filed as Exhibit 4(a) to the Company's Form
10-K for the year ended January 31, 1989, SEC File
No. 0-12201 and incorporated herein by reference
and made a part hereof). N/A
(b) Specimen Stock Certificate - National Auto
Credit, Inc. (filed as Exhibit 4(b) to the Company's
Form 10-K for the year ended January 31, 1995,
SEC File No. 0-12201 and incorporated herein by
reference and made a part hereof). N/A
(c) Specimen Stock Certificate - National Auto Credit,
Inc. filed herewith. 46-47
(10)(a) National Auto Credit, Inc. 1983 Stock
Option Plan (incorporated by reference from
the Company's Post Effective Amendment No. 2 to
Form S-8 as filed on October 1, 1987,
File No. 2-93984). N/A
(b) National Auto Credit, Inc. 1986 Employees Stock
Purchase Plan (incorporated by reference from
the Company's Post Effective Amendment No.2 to
Form S-8 as filed on October 1, 1987,
File No. 33-2117). N/A
(c) Form of Directors' Indemnification Agreement
dated July 2, 1986 (incorporated by reference
to Exhibit 10(f) of the Company's Annual
Report on Form 10-K for fiscal year ended
January 31, 1988, File No. 0-12201). N/A
(d) National Auto Credit, Inc. 1993 Equity Incentive
Plan (incorporated by reference from the
Company's Form S-8 Registration Statement as filed
on December 28, 1993, File No. 33-51727). N/A
</TABLE>
-42-
<PAGE> 45
Item 14. Exhibits, Financial Statement Schedules, and Reports
----------------------------------------------------
on Form 8-K (cont.)
-----------
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
(a)(3) Exhibits (cont.)
(10)(g) National Auto Credit, Inc. 401(k) Savings and
Retirement Plan and Trust (incorporated by
reference from the Company's Form S-8
Registration Statement as filed on December
28, 1993, File No. 33-51729). N/A
(h) National Auto Credit, Inc. 1995 Stock Option
Plan for Member Dealers (incorporated by
reference from the Company's Form S-3
Registration Statement as filed on May 3,
1995, File No. 33-58579). N/A
(12) Computation of Ratios 48
(21) Subsidiaries of National Auto Credit, Inc.
at January 31, 1996. 49
(23) Independent Auditors' Consent 50
(27) Financial Data Schedule 51
</TABLE>
(b) Reports on Form 8-K
On December 28, 1995 a Form 8-K was filed announcing a
restructuring of the registrant into a holding Company by way of a merger
involving a one-for-one common stock exchange effective December 27, 1995.
-43-
<PAGE> 46
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, National Auto Credit, Inc. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
National Auto Credit, Inc.
Registrant
Date April 25, 1996 By: /s/ Sam J. Frankino
----------------------- -----------------------------
Sam J. Frankino
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities as indicated on April 25, 1996.
Principal Executive Officer: Principal Financial
- ---------------------------- -------------------
and Accounting Officer:
-----------------------
/s/ Robert J. Bronchetti /s/ Davida S. Howard
- ---------------------------------- ---------------------------------
Robert J. Bronchetti Davida S. Howard
President, Chief Executive Officer Vice President-Finance and
and Director Controller
Other Directors:
----------------
/s/ Edward N. Lesczcynski /s/ Noah T. Herndon
- ---------------------------------- ---------------------------------
Edward N. Lesczcynski, Director Noah T. Herndon, Director
/s/ Per E. Hoel /s/ James E. Smith, Jr.
- ---------------------------------- ---------------------------------
Per E. Hoel, Director James E. Smith, Jr.
Vice President, Operations and
Director
/s/ J. Hunter Brown
- ----------------------------------
J. Hunter Brown, Director
-44-
<PAGE> 47
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- ------------------ -------- ---------
Balance at Additions Balance
beginning Charged to: at end
Description of period Expenses Other Deductions of period
- ------------------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended
- ----------
January 31, 1996
----------------
Allowance for
doubtful accounts $ 3,720 $ 2,498 $ 1,177(a) $ 5,041
Self-insurance claims $24,475 $ 9,255(d) $21,018(b) $12,712
Allowance for loan losses $ 1,107 $ 1,958 $ 478(a) $ 2,587
Dealer advance reserve $ 2,376 $ 2,534 $ 2,531(c) $ 674(a) $ 6,767
Year ended
- ----------
January 31, 1995
----------------
Allowance for
doubtful accounts $ 5,474 $ 2,781 $ 4,535(a) $ 3,720
Self-insurance claims $34,425 $ 8,604 $18,554(b) $24,475
Allowance for loan losses $ 914 $ 880 $ 687(a) $ 1,107
Dealer advance reserve $ 800 $ 1,044 $ 538(c) $ 6(a) $ 2,376
Year ended
- ----------
January 31, 1994
----------------
Allowance for
doubtful accounts $ 5,317 $ 4,441 $ 4,284(a) $ 5,474
Self-insurance claims $46,800 $14,417 $26,792(b) $34,425
Allowance for loan losses $ 158 $ 910 $ 154(a) $ 914
Dealer advance reserve $ 800 $ 800
<FN>
(a) Uncollected receivables written off, net of recoveries.
(b) Cash disbursements related to self-insured claims.
(c) Advance reserve fees were reclassed from dealer holdbacks at January
31, 1995.
(d) Includes $6,854 for self-insurance claims and $2,401 for additional
expenses to administer the claims.
</TABLE>
-45-
<PAGE> 1
EXHIBIT (4)(c) 1/2
COMMON STOCK
Number Shares
NK
INCORPORATED UNDER THE LAWS CUSIP 632900 10 6
OF THE STATE OF DELAWARE SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFICATE IS
TRANSFERABLE IN NEW YORK, N.Y.
NATIONAL AUTO CREDIT, INC.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.05 EACH OF THE
COMMON STOCK OF
National Auto Credit, Inc.transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation, as amended, to all of which
the holder of this certificate by the acceptance hereof expressly assents.
This certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED:
COUNTERSIGNED AND REGISTERED:
CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
{NATIONAL AUTO CREDIT, INC. CORPORATE SEAL}
BY TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
/s/ Sam Frankino /s/ Thomas J. Dostart
CHAIRMAN OF THE BOARD SECRETARY
-46-
<PAGE> 2
EXHIBIT (4)(c) 2/2
NATIONAL AUTO CREDIT, INC.
A full statement of the designations and any preferences, conversion and
other rights, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption of the common stock represented by this
certificate and of each other class of stock authorized to be issued by the
Corporation will be furnished by the Corporation to any stockholder upon
request and without charge.
KEEP THIS CERTIFICATE IN A SAFE PLACE.
IF IT IS LOST, STOLEN OR DESTROYED THE CORPORATION WILL REQUIRE A BOND OF
INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
__________________________________
The following abbreviations, when used
in the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT....Custodian.....
(Cust) (Minor)
TEN ENT - as tenants by the entireties Under Uniform Gifts to Minor
JT TEN - as joint tenants with right Act ............................
of survivorship and not as (State)
tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_________________________________________________________________________shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_____________________________________________
_____________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated ____________________
NOTICE:____________________________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
BY
_____________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (Banks, Stockbrokers, Savings and Loan Associations
and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.
-47-
<PAGE> 1
EXHIBIT 12
----------
COMPUTATION OF RATIOS
Percent of Operating Debt to Total Capital
- ------------------------------------------
Operating debt divided by the sum of operating debt plus deferred and accrued
income taxes plus stockholders' equity.
-48-
<PAGE> 1
EXHIBIT 21
----------
SUBSIDIARIES
<TABLE>
<CAPTION>
Percent Owned
State of by National Auto
Corporate Name Organization Credit, Inc.
- -------------- ------------ ----------------
<S> <C> <C>
ARAC, Inc. (1) Delaware 100%
National Motors, Inc. Delaware 100%
NAC Capital, Inc. Delaware 100%
NAC, Inc. Delaware 100%
</TABLE>
All of the subsidiaries listed above are included in the consolidated financial
statements of the Company. The Company also has various subsidiaries which,
when considered in the aggregate, do not constitute a significant subsidiary.
(1) Formerly operated under the name of Agency Rent-A-Car and its
divisions, Altra Auto Rental and Automate.
-49-
<PAGE> 1
EXHIBIT 23
----------
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
We consent to the incorporation by reference in Registration Statements No.
33-51727, No. 33-51729, No. 2-93984 and No. 33-2117 of National Auto Credit,
Inc. on Form S-8 and Registration Statement No. 33-58579 of National Auto
Credit, Inc. on Form S-3 of our report dated March 25, 1996 appearing in this
Annual Report on Form 10-K of National Auto Credit, Inc. for the year ended
January 31, 1996.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
April 23, 1996
-50-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> JAN-31-1995
<PERIOD-END> JAN-31-1996
<CASH> 1,665
<SECURITIES> 0
<RECEIVABLES> 351,312
<ALLOWANCES> 2,587
<INVENTORY> 5,794
<CURRENT-ASSETS> 0
<PP&E> 14,617
<DEPRECIATION> 5,442
<TOTAL-ASSETS> 342,112
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 1,359
0
0
<OTHER-SE> 216,304
<TOTAL-LIABILITY-AND-EQUITY> 342,112
<SALES> 56,333
<TOTAL-REVENUES> 96,042
<CGS> 52,273
<TOTAL-COSTS> 56,359
<OTHER-EXPENSES> 6,095
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 981
<INCOME-PRETAX> 32,607
<INCOME-TAX> 11,995
<INCOME-CONTINUING> 20,612
<DISCONTINUED> (3,644)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,968
<EPS-PRIMARY> .66
<EPS-DILUTED> 0
</TABLE>
