<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
-------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 1-11601
NATIONAL AUTO CREDIT, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
------------------------------
(State or other jurisdiction of
incorporation or organization)
34-1816760
------------------------------------
(I.R.S. Employer Identification No.)
30000 Aurora Road, Solon, Ohio 44139
------------------------------------
(Address of principal executive offices and zip code)
(440) 349-1000
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR IF CHANGED SINCE LAST
REPORT).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 28,547,944 shares as of August 29, 1997.
<PAGE> 2
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets -
July 31, 1997 and January 31, 1997 1
Consolidated Statements of Income -
Three and Six Months Ended July 31, 1997
and 1996 2
Consolidated Statement of Shareholders'
Equity - Six Months Ended July 31, 1997 3
Consolidated Statements of Cash Flows -
Six Months Ended July 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 -12
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE> 3
National Auto Credit, Inc. and Subsidiaries
Consolidated Balance Sheets
(Thousands of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,784 $ 1,756
Installment notes receivable, net 432,412 417,419
Property and equipment, net of
accumulated depreciation of
$6,924 and $6,264, respectively 9,037 9,224
Other assets 12,438 11,741
Deferred income taxes 12,214 11,641
--------- ---------
$ 467,885 $ 451,781
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Dealer holdbacks, net $ 111,397 $ 101,371
Self-insurance claims 8,199 13,787
Notes payable 13,835 13,354
Operating debt 74,065 66,846
Income taxes payable 6,235 6,777
Other liabilities 16,361 20,098
--------- ---------
230,092 222,233
--------- ---------
Commitments and Contingencies -- --
Stockholders' Equity
Preferred stock - $.05 par value,
authorized 2,000,000 shares,
none issued -- --
Common stock - $.05 par value,
authorized 40,000,000 shares, issued
29,893,912 and 29,845,673 shares,
respectively 1,495 1,492
Additional paid-in capital 166,011 165,605
Retained earnings, including cumulative
foreign currency translation loss
of $1,241 and $1,070, respectively 82,390 74,073
Treasury stock, at cost, 1,345,968 and
1,298,568 shares, respectively (12,103) (11,622)
--------- ---------
237,793 229,548
--------- ---------
$ 467,885 $ 451,781
========= =========
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE> 4
National Auto Credit, Inc. and Subsidiaries
Consolidated Statements of Income
(Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------ ---------------
1997 1996 1997 1996
------- ------- ------- --------
<S> <C> <C> <C> <C>
REVENUE
Interest income $17,142 $ 13,851 $33,787 $ 27,217
Fee and other income 1,661 1,521 3,826 3,088
------- -------- ------- --------
Total 18,803 15,372 37,613 30,305
COSTS AND EXPENSES
Provision for credit losses 8,503 2,373 15,814 4,389
Operating 1,607 1,165 3,278 2,662
General and administrative 1,364 1,276 2,624 2,376
Interest 1,656 496 2,938 828
------- -------- ------- --------
Total 13,130 5,310 24,654 10,255
------- -------- ------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 5,673 10,062 12,959 20,050
Provision for income taxes 1,957 3,522 4,471 7,218
------- -------- ------- --------
INCOME FROM CONTINUING OPERATIONS 3,716 6,540 8,488 12,832
LOSS FROM DISCONTINUED OPERATIONS,
NET OF TAX -- (1,538) -- (1,819)
------- -------- ------- --------
NET INCOME $ 3,716 $ 5,002 $ 8,488 $ 11,013
======= ======== ======= ========
EARNINGS (LOSS) PER SHARE
Continuing operations $ .13 $ .23 $ .30 $ .45
Discontinued operations -- (.05) -- (.06)
------- -------- ------- --------
Total $ .13 $ .18 $ .30 $ .39
======= ======== ======= ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000's) 28,533 28,487 28,532 28,483
======= ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE> 5
National Auto Credit, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Six Months Ended July 31, 1997
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Foreign
---------------------- Additional Currency
Par Paid-In Retained Translation Treasury
Shares Value Capital Earnings Adjustment Stock Total
------- -------- -------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 31, 1997 29,846 $ 1,492 $165,605 $ 75,143 $ (1,070) $(11,622) $229,548
Net income 8,488 8,488
Stock issued under
benefit plans 48 3 406 409
Treasury stock
purchases (481) (481)
Foreign currency
translation (171) (171)
------- -------- -------- -------- -------- -------- --------
BALANCE,
JULY 31, 1997 29,894 $ 1,495 $166,011 $ 83,631 $ (1,241) $(12,103) $237,793
======= ======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 6
National Auto Credit, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
July 31,
-----------------------
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,488 $ 11,013
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 688 1,675
Interest income on dealer advances (10,019) (6,420)
Provision for credit losses 15,814 4,389
Deferred income taxes (601) (554)
Changes in operating assets and liabilities:
Income taxes payable (514) (5,634)
Other liabilities (4,872) (996)
Self-insurance claims (5,588) (5,121)
Other operating assets and liabilities, net (946) 2,128
--------- --------
Net cash provided by operating activities 2,450 480
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on installment notes receivable 77,274 57,448
Proceeds from sale of rental automobiles -- 9,270
Advances to dealers and payment of dealer holdbacks (86,607) (90,502)
Purchase of property and equipment (571) (628)
Other investing activities, net 25 (586)
--------- --------
Net cash used in investing activities (9,879) (24,998)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on lines of credit (79,800) 24,100
Proceeds from revolving credit facility and
issuance of senior notes 119,000 --
Payments on revolving credit facility and
senior notes (31,500) --
Payments to acquire treasury stock (481) --
Stock issued under benefit plans 409 303
Other financing activities, net (171) 126
--------- --------
Net cash provided by financing activities 7,457 24,529
--------- --------
Increase in cash and cash equivalents 28 11
Cash and cash equivalents at beginning of period 1,756 1,665
--------- --------
Cash and cash equivalents at end of period $ 1,784 $ 1,676
========= ========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 2,027 $ 683
========= ========
Income taxes paid $ 5,550 $ 11,860
========= ========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 7
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - Summary of Significant Accounting Policies
------------------------------------------
GENERAL:
The accompanying consolidated financial statements include the accounts
of National Auto Credit, Inc. and its subsidiaries (the "Company").
The unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended July 31,
1997 are not necessarily indicative of the results that may be expected
for the year ended January 31, 1998. For further information, refer to
the financial statements and footnotes thereto included in the
Company's January 31, 1997 Annual Report on Form 10-K.
EARNING 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. These calculations are made in accordance with
Accounting Principles Board Opinion (APB) No. 15 "Earnings Per Share".
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standard (SFAS) 128, "Earnings Per Share" which
supersedes APB No. 15 and is effective for all periods ending after
December 15, 1997, earlier application not being permitted. Earnings
per share determined in accordance with SFAS 128 will not be materially
different than earnings per share determined in accordance with APB No.
15.
RECLASSIFICATIONS:
Certain prior period amounts have been reclassified to conform with the
current period presentation.
-5-
<PAGE> 8
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE B - Installment Notes Receivable, Net
---------------------------------
The components of installment notes receivable, net, are as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
--------- ---------
(in thousands)
<S> <C> <C>
Gross installment notes receivable $ 514,217 $ 496,947
Unearned income (72,315) (72,475)
Allowance for loan losses (9,490) (7,053)
--------- ---------
Installment notes receivable, net $ 432,412 $ 417,419
========= =========
</TABLE>
A summary of changes in gross installment notes receivable is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 503,923 $ 392,197 $ 496,947 $ 354,012
Contracts accepted 84,835 86,764 167,348 176,234
Cash collected (47,879) (40,182) (101,140) (80,190)
Charge-offs against:
Dealer holdbacks (20,671) (9,492) (37,819) (17,832)
Unearned income/allowance (5,991) (3,257) (11,119) (6,194)
--------- --------- --------- ---------
Balance, end of period $ 514,217 $ 426,030 $ 514,217 $ 426,030
========= ========= ========= =========
</TABLE>
Installment notes receivable relate to the indirect consumer financing
of used automobiles. These notes generally have initial terms ranging
from 12 to 48 months with an average initial term of 37 months and an
initial gross amount of $9,500. At July 31, 1997 and January 31, 1997,
the average remaining note term was 24 months. The notes are
collateralized by the related vehicles sold. Installment notes
receivable are from customers residing in all 50 states with no
individual state accounting for more than 10% of total installment
notes receivable, except for Texas with 12.8% and North Carolina with
12.1%.
The accrual of interest income is suspended once a note becomes 120
days contractually past due. These non-performing notes are charged-off
against the related dealer's holdback, unearned income and then loan
loss reserves, if necessary. At July 31, 1997 and January 31, 1997, the
percent of installment notes receivable which were greater than 120
days contractually past due was 29.7% and 24.9%, respectively.
Changes in the allowance for loan losses, which is provided primarily
for earned but unpaid finance charges are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
-------------------- --------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 8,318 $ 3,036 $ 7,053 $ 2,578
Provision for loan losses 2,607 1,139 5,022 2,144
Net charge-offs (1,435) (605) (2,585) (1,152)
------- ------- ------- -------
Balance, end of period $ 9,490 $ 3,570 $ 9,490 $ 3,570
======= ======= ======= =======
</TABLE>
-6-
<PAGE> 9
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - Dealer Holdbacks, Net
---------------------
Dealer holdbacks are the amounts payable to member dealers from the
acceptance of retail installment contracts, net of cash advanced. The
dealer holdbacks protect the Company from potential losses associated
with the installment contracts and are not paid unless substantially
all advances, including those on non-performing loans related to a
particular dealer, have been recovered. The components of dealer
holdbacks, net, are as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
--------- ---------
(in thousands)
<S> <C> <C>
Dealer holdbacks $ 409,026 $ 392,733
Advances (332,466) (317,766)
--------- ---------
76,560 74,967
Dealer advance reserve 34,837 26,404
--------- ---------
Dealer holdbacks, net $ 111,397 $ 101,371
========= =========
</TABLE>
A summary of changes in dealer holdbacks, net, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
---------------------------- -----------------------------
1997 1996 1997 1996
--------- -------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 106,976 $ 80,425 $ 101,371 $ 72,803
Additions to holdbacks 64,110 67,074 126,249 137,672
Advances disbursed (47,810) (51,259) (94,013) (107,489)
Charge-offs of non-performing notes (20,671) (9,492) (37,819) (17,832)
Increase in dealer advance reserve
and other 8,792 928 15,609 2,522
--------- -------- --------- ---------
Balance, end of period $ 111,397 $ 87,676 $ 111,397 $ 87,676
========= ======== ========= =========
</TABLE>
The dealer advance reserve is maintained in the event the holdback of a
particular dealer portfolio is not sufficient to ensure the recovery of
any outstanding advances. The Company assesses fees to dealers for the
purpose of supplementing this reserve. A summary of changes in the
dealer advance reserve is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
--------------------------- ---------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 31,619 $ 22,895 $ 26,404 $ 20,706
Advance reserve fees 4,419 383 6,654 1,335
Provision for advance losses 5,896 1,234 10,792 2,245
Net charge-offs (7,097) (213) (9,013) (420)
Other -- 209 -- 642
-------- -------- -------- --------
Balance, end of period $ 34,837 $ 24,508 $ 34,837 $ 24,508
======== ======== ======== ========
</TABLE>
-7-
<PAGE> 10
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - Dealer Holdbacks, Net (Cont.)
------------------------------
A summary of the changes in the allowance for credit losses, which
includes the allowance for loan losses and dealer advance reserve, is
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
--------------------------- ---------------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 39,937 $ 25,931 $ 33,457 $ 23,284
Advance reserve fees 4,419 383 6,654 1,335
Provision for credit losses 8,503 2,373 15,814 4,389
Net charge-offs (8,532) (818) (11,598) (1,572)
Other -- 209 -- 642
-------- -------- -------- --------
Balance, end of period $ 44,327 $ 28,078 $ 44,327 $ 28,078
======== ======== ======== ========
</TABLE>
These amounts are included in the financial statements as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
------- -------
(in thousands)
<S> <C> <C>
Allowance for loan losses $ 9,490 $ 7,053
Dealer advance reserve 34,837 26,404
------- -------
$44,327 $33,457
======= =======
</TABLE>
NOTE D - 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.
In December 1995, the U.S. Department of Labor notified the Company of
its investigation of the Company's pay practices concerning its former
employees during the period from February 1993 through September 1995.
The Department of Labor's investigation is ongoing and potential
liability, if any, cannot be estimated by the Company at this time.
NOTE E - Notes Payable and Operating Debt
--------------------------------
The Company completed its private debt offering during the first
quarter of fiscal 1998. The related $45.0 million of 7.66% unsecured
Senior Notes have an average term of five years. During the first
quarter of fiscal 1998, the Company also entered into an unsecured
revolving credit agreement for $97.5 million with a group of financial
institutions. This facility, which replaced the Company's previous
committed facility of $50.0 million, consists of $39.0 million with a
term of one year and $58.5 million with a term of three years. The
Company also has available $15.1 million of uncommitted short-term bank
lines at July 31, 1997.
Amounts outstanding at July 31, 1997 were $45.0 million from the
private debt facility and $42.9 million from the revolving and
uncommitted credit facilities. Borrowings under the revolving credit
facility had an average interest rate of 6.5% at July 31, 1997 and
mature at various dates through January 31, 1998. Outstanding
borrowings at January 31, 1997 were $80.2 million and had an average
interest rate of 6.1%.
-8-
<PAGE> 11
NATIONAL AUTO CREDIT,INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
--------
National Auto Credit, Inc., (the "Company") had net income from continuing
operations of $3.7 million or $.13 per share for the quarter ended July 31,
1997, as compared to $6.5 million or $.23 per share for the quarter ended July
31, 1996.
Revenue for the quarter ended July 31, 1997 was $18.8 million as compared
to $15.4 million for the same quarter of the prior year. For the six months
ended July 31, 1997, revenue was $37.6 million as compared to $30.3 million in
the prior year.
Revenue and earnings benefited in the first six months of fiscal 1998 from
gross installment contracts accepted of $167.3 million bringing gross
receivables to $514.2 million at July 31, 1997 compared to $496.9 million at
January 31, 1997 and $426.0 million at July 31, 1996.
The Company anticipates further planned growth in the receivables portfolio
to approximately $550 million by the end of this fiscal year. In addition, in an
effort to maximize shareholder value, the Company's Board of Directors announced
its intentions to retain an investment banking firm to assist management in
examining strategic alternatives.
Results of Operations
---------------------
Revenue
- -------
Interest, fee and other income generated by the Company increased 22.3%
from $15.4 million for the quarter ended July 31, 1996 to $18.8 million for the
quarter ended July 31, 1997, and increased 24.1% or $7.3 million for the
comparable six months. This revenue growth is primarily attributable to the
growth in the Company's gross installment notes receivable portfolio and in its
enrolled dealer base as follows:
<TABLE>
<CAPTION>
GROSS INSTALLMENT NUMBER OF
NOTES RECEIVABLE NUMBER ENROLLED
(IN MILLIONS) OF CONTRACTS DEALERS
---------------- ------------ ---------
<S> <C> <C> <C>
January 31, 1994 $ 95.7 12,900 900
July 31, 1994 154.9 21,500 1,200
January 31, 1995 196.2 28,400 1,400
July 31, 1995 269.7 40,700 1,900
January 31, 1996 354.0 53,000 2,300
July 31, 1996 426.0 61,700 2,600
January 31, 1997 496.9 70,000 3,100
July 31, 1997 514.2 75,600 3,300
</TABLE>
During the second quarter of fiscal 1998, the Company reevaluated its
relationship with certain dealers, deleting them from the dealer network and
added 160 new dealers, bringing the total number of dealers enrolled to 3,300 at
July 31, 1997.
The average annualized yield on the portfolio decreased from 15.9% for the
quarter ended July 31, 1996 to 15.6% for the quarter ended July 31, 1997 and
from 16.4% to 15.6% for the comparable six month periods, respectively. This
decrease is primarily attributable to the increase in non-performing contracts
and to the increase in the average initial term of contracts from 36 months at
July 31, 1996 to 37 months at July 31, 1997.
-9-
<PAGE> 12
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenue (cont.)
- -------
Fee and other income includes principally late fees, other miscellaneous
fees and warranty commissions. Revenue from these sources increased 9.2% for the
three month period and 23.9% for the six month period ended July 31, 1997 and
1996, primarily as the collection of late fees has increased proportionally with
the growth in the loan portfolio slightly offset by the reduction in warranty
commissions.
Provision for Credit Losses
- ---------------------------
The provision for credit losses was $8.5 million for the three months ended
July 31, 1997 as compared to $2.4 million for the same three month period in the
prior year. For the six months ended July 31, 1997, this expense was $15.8
million as compared to $4.4 million for the same period a year ago. The increase
in the provision for credit losses is attributable to both the increase in
non-performing installment notes receivable and to the decline in estimated
collectibility on certain dealer advances. Non-performing installment notes
receivable are expected to continue to increase throughout the remainder of
fiscal 1998.
The provision for credit losses together with fees contractually charged to
member dealers is added to either the allowance for loan losses or the dealer
advance reserve. The Company believes its loan loss reserves are adequate to
absorb anticipated credit losses, however, since there is no precise method for
accurately determining losses, actual losses could vary from current estimates.
Non-performing loans as a percent of the gross installment notes receivable
portfolio are expected to increase as the portfolio matures. The non-performing
percentages are considered by the Company to be reasonable for the sub-prime
finance industry and also lower than those of its competitors. The risk of loss
to the Company is mitigated by a security interest in the vehicle sold and
dealer holdbacks.
Operating Expenses
- ------------------
Operating expenses were $1.6 million for the second quarter of fiscal 1998
as compared to $1.2 million for the same period in fiscal 1997. Operating
expenses as a percent of revenue for the three months ended July 31, 1997 and
1996 increased to 8.5% from 7.6%, respectively, and remained relatively
consistent for the six month periods then ended. This is primarily due to the
increase in the collection staff and to a lesser extent, a build up in the field
sales and service organization.
-10-
<PAGE> 13
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and Administrative
- --------------------------
General and administrative expenses for the three and six month periods
ended July 31, 1997 as a percent of total revenue decreased to 7.3% and 7.0%,
respectively, from the prior year three and six month comparable periods of 8.3%
and 7.8%, respectively. The decrease as a percent of revenue is primarily due to
the fixed nature of these expenses and increased revenue.
Interest
- --------
Interest expense of $.5 million for the three months ended July 31, 1996
increased to $1.7 million for the three months ended July 31, 1997, primarily as
a result of an increase in average operating debt. There was also an increase in
the effective borrowing rate from 6.0% for the three months ended July 31, 1996
to 6.9% for the same period in fiscal 1998.
For the six months ended July 31, 1997, interest expense increased to $2.9
million from $.8 million for the same period in the prior year as a result of an
increase in average operating debt levels and an increase in the effective
borrowing rate to 6.6% for the six months ended July 31, 1997 from 5.9% for the
same period in the prior year.
Income Taxes
- ------------
The provision for income taxes decreased to $2.0 million from $3.5 million
for the quarters ending July 31, 1997 and 1996, respectively, and decreased to
$4.5 million from $7.2 million for the six months then ended. This change is
attributable to the decrease in pre-tax income from continuing operations and a
decrease in the effective tax rate from 35% and 36% for the three and six month
periods ending July 31, 1996, respectively, to 34.5% for both periods in fiscal
year 1998. This decrease in tax rate is a result of the changing composition of
business throughout the various state tax jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's primary sources of funds include net cash provided by
operating activities, collections on installment notes receivable, financing
from financial institutions and a private debt facility. In fiscal 1997, sources
of funds also included proceeds from the sale of rental automobiles.
Outstanding borrowings at July 31, 1997 totalled $87.9 million and consisted
of $42.9 million from financial institutions and $45.0 million from its private
debt facility. Amounts available to the Company from committed facilities
totalled $56.5 million and uncommitted facilities totalled $11.8 million at July
31, 1997.
The Company believes it has sufficient internal and external sources of
funds available to meet its current obligations, to fund
-11-
<PAGE> 14
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (cont.)
- ---------------------------------------
current operating and capital requirements as necessary, and to finance the
planned growth of the receivables portfolio into the next fiscal year.
The ratio of operating debt to total capital was 23.3% at July 31, 1997 and
22.0% at January 31, 1997. It is anticipated that debt levels will increase
through the end of this fiscal year primarily to fund dealer advances associated
with the increased growth in new installment contracts.
-12-
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders was held on June 12, 1997.
The election of one director was voted upon. Below are the results of
the election:
<TABLE>
<CAPTION>
Votes
Votes Against Broker
in Favor or Withheld Abstentions Non-Votes
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Election of Director
Per E. Hoel 26,870,374 561,374 --- ---
</TABLE>
Each other director whose term of office as a director
continued after the meeting is as follows: Sam J.
Frankino, Robert J. Bronchetti, Noah T. Herndon, J. Hunter
Brown, and James E. Smith, Jr. Subsequent to the date of the
Annual Meeting of Stockholders, James E. Smith, Jr. resigned as
a director.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
Electronically filed with the Securities
and Exchange Commission pursuant to Item
601(c) of Regulation S-K.
b) Reports on Form 8-K
-------------------
No reports were filed on Form 8-K
during the quarter ended July 31,
1997.
-13-
<PAGE> 16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL AUTO CREDIT, INC.
Date: September 12, 1997 By: /s/ Robert J. Bronchetti
----------------------- -----------------------------------
Robert J. Bronchetti
President and
Chief Executive Officer
and Director
By: /s/ Davida S. Howard
-----------------------------------
Davida S. Howard
Vice President-Finance
and Controller (Principal
Financial and Accounting
Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001004981
<NAME> NATIONAL AUTO CREDIT, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 1,784
<SECURITIES> 0
<RECEIVABLES> 432,412
<ALLOWANCES> 9,490
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 15,961
<DEPRECIATION> 6,924
<TOTAL-ASSETS> 467,885
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 1,495
0
0
<OTHER-SE> 236,298
<TOTAL-LIABILITY-AND-EQUITY> 467,885
<SALES> 0
<TOTAL-REVENUES> 37,613
<CGS> 0
<TOTAL-COSTS> 3,278
<OTHER-EXPENSES> 2,624
<LOSS-PROVISION> 15,814
<INTEREST-EXPENSE> 2,938
<INCOME-PRETAX> 12,959
<INCOME-TAX> 4,471
<INCOME-CONTINUING> 8,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,488
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
