<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-11815
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4574983
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5480 East Ferguson Drive
Commerce, California 90022
----------------------------------------
(Address of principal executive offices)
(213) 720-8600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports 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
------- -------
Number of shares outstanding as of August 13, 1996: 7,277,000.
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995 . . . . . . . . . 1
Condensed Consolidated Statements of
Operations for the Three and Six Months
Ended June 30, 1996 and 1995 . . . . . . . . . . . . . 2
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . 3
Notes to Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- --------------
A S S E T S
<S> <C> <C>
Cash $ 500 $ 7
Consumer Finance receivables, net 89,719 90,471
Automobile Finance receivables, net 7,239 3,793
Prepaid expenses and other current assets 2,187 1,237
Deferred income taxes 2,479 2,473
Property and equipment, net 2,291 2,060
Intangible asset, net 2,975 1,399
-------- --------
Total assets $107,390 $101,440
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable $ 68,080 $ 63,967
Accrued expenses and other current liabilities 2,698 1,415
Income taxes payable 433 1,576
Long-term debt 850 850
-------- --------
Total liabilities 72,061 67,808
-------- --------
Commitments and contingencies - -
Stockholder's equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized; no shares outstanding - -
Common stock, $.01 par value, 20,000,000 shares
authorized; 5,150,000 shares issued and outstanding 52 52
Paid-in capital 25,467 26,082
Retained earnings 9,810 7,498
-------- -------
Total stockholder's equity 35,329 33,632
-------- --------
Total liabilities and stockholder's equity $107,390 $101,440
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 5,564 $4,244 $11,043 $ 8,208
Automobile sales 2,579 385 4,617 385
Other income 2,237 938 4,005 1,821
------- ------ ------- -------
Total revenues 10,380 5,567 19,665 10,414
Costs and expenses:
Operating expenses 2,999 1,751 5,503 3,273
Cost of automobiles sold 1,765 274 3,120 274
Provision for credit losses 2,358 1,309 4,705 2,415
Interest expense 1,241 1,097 2,482 2,172
------- ------ ------- -------
Total costs and expenses 8,363 4,431 15,810 8,134
------- ------ ------- -------
Income before provision for income taxes 2,017 1,136 3,855 2,280
Provision for income taxes 808 459 1,543 924
------- ------ ------- -------
Net income $ 1,209 $ 677 $ 2,312 $ 1,356
======= ====== ======= =======
PER SHARE DATA:
- ---------------
Net income per share $ 0.23 $ 0.13 $ 0.45 $ 0.26
Weighted average common shares outstanding 5,150 5,150 5,150 5,150
Supplementary net income per share $ 0.21 $ 0.13 $ 0.40 $ 0.26
Supplementary weighted average number of common 7,277 7,277 7,277 7,277
shares outstanding
</TABLE>
See notes to condensed consolidated financial statements.
2
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30 ,
---------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,312 $ 1,356
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 80 198
Provision for credit losses 4,705 2,415
Deferred income taxes (6) 153
Changes in assets and liabilities:
Prepaid expenses and other current assets (950) (448)
Accrued expenses and other current liabilities 140 151
------- -------
Net cash provided by operating activities 6,281 3,825
------- -------
Cash flows from investing activities:
Installment contracts originated and acquired, net (7,399) (2,364)
Capital expenditures (276) (44)
Acquisition of travel companies (1,611) -
------- -------
Net cash used in investing activities (9,286) (2,408)
------- -------
Cash flows from financing activities:
Capital withdrawal (615) (4,688)
Net proceeds from notes payable 4,113 3,090
------- -------
Net cash provided (used) by financing activities 3,498 (1,598)
------- -------
Net increase (decrease) in cash 493 (181)
Cash, beginning of period 7 215
------- -------
Cash, end of period $ 500 $ 34
======= =======
Cash paid during the period for:
Interest $ 2,396 $ 2,229
Income taxes $ 2,693 $ 1,261
</TABLE>
See notes to condensed consolidated financial statements.
3
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of
Central Financial Acceptance Corporation ("CFAC") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Rule 10-01 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 only normal
recurring adjustments) considered necessary for a fair presentation of the
Company's financial condition and operating results for the interim periods
presented have been included. Operating results for the quarter are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. These interim financial statements should be read in
conjunction with the prospectus dated June 26, 1996, including the financial
statements and notes contained therein, filed with the Securities and Exchange
Commission.
CFAC was formed in April 1996 and consummated its initial public
offering on July 2, 1996, when it sold 2.13 million shares of common stock,
which resulted in proceeds to the Company, net of underwriting discount of
approximately $23.7 million before expenses. CFAC was a wholly owned
subsidiary of Banner's Central Electric, Inc. Banner's Central Electric, Inc.
is wholly owned by Banner Holdings, Inc. ("Holdings") and is a consumer
products retailer that provides its customers with financing for the
merchandise it sells. On June 24, 1996, CFAC, Banner's Central Electric, Inc.
and Holdings entered into an agreement (the "Reorganization Agreement") whereby
Holdings contributed to Banner its investments in certain wholly owned
subsidiaries, along with the subsidiaries' operations, (the "Holdings
Subsidiaries") and Banner's Central Electric, Inc. contributed to CFAC its
investments in the Holdings Subsidiaries and the finance portion of its
consumer products business, and cash in such amount so as to leave CFAC with
$500,000 of cash on hand. Pursuant to the Reorganization Agreement, the
intercompany accounts between CFAC, Banner's Central Electric, Inc. and
Holdings that arose as a result of the Reorganization Agreement and from other
transactions, except with respect to income taxes, were forgiven and
reclassified as stockholder's equity.
In addition to the Reorganization Agreement, CFAC, Banner's Central
Electric, Inc. and Holdings entered into certain agreements for the purpose of
defining the ongoing relationships among them (see Note 9). The transactions
and agreements entered into pursuant to the Reorganization Agreement are
referred to herein as the "Reorganization." Management of CFAC believes that
such agreements provide for reasonable allocations of costs between the
parties.
The reorganization was accounted for at historical cost in a manner
similar to a pooling of interests. The accompanying condensed consolidated
financial statements reflect the combined historical operations of CFAC and its
subsidiaries as if the Reorganization had taken place at the beginning of the
periods presented, except for the contribution of cash in such amount so as to
leave CFAC with $500,000 upon the Reorganization. CFAC and its subsidiaries,
as reorganized, are referred to herein as "Central" or the "Company." Banner's
Central Electric, Inc., including the operations of Banner's Central Electric,
Inc. that remain after contributing the finance portion of its consumer
products business to CFAC, is referred to herein as "Banner."
Unaudited supplementary net income per share is based on the number of
common shares issued by the Company pursuant to the Reorganization and the
number of shares sold by the Company in its initial public offering, as if all
such shares were outstanding as of January 1, 1995, and also gives effect to a
reduction of interest expense, net of income tax expense, resulting from the
reduction of indebtedness upon application of the net proceeds of the proposed
offering as if it had occurred on January 1, 1995.
4
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. NATURE OF OPERATIONS
The Company provides unsecured small loans and financing for the
purchase of consumer products for customers in greater Los Angeles and San
Francisco, and beginning in 1995, sells and finances the purchases of used cars
and travel tickets. Substantially all of the consumer product purchases that
are financed by the Company are made by customers of affiliated companies. The
Company experiences the highest demand for its financial products and services
between October and December, and experiences the lowest demand for its
financial products and services between January and March.
3. ACQUISITIONS
In May 1996, the Company acquired the business of, and assumed the
leasehold interests to six travel locations in greater Los Angeles. In
addition, in June 1996, the Company acquired the business of and assumed the
leasehold interest to 19 travel locations of which 14 are in greater Los
Angeles, two locations are in Chicago and one location is in each of Dallas,
Las Vegas and San Diego. Such transactions are not material from a financial
point of view.
4. EARNINGS PER COMMON SHARE
Earnings per common share have been computed on the basis of the
weighted average number of common shares outstanding. There were no common
stock equivalents for the periods presented.
5. FINANCE RECEIVABLES
Central's Consumer Finance receivables include installment contracts
that are purchased from Banner and unaffiliated third-party retailers that sell
the products or services, receivables that arise from unsecured small loans
and installment contracts that are originated when customers buy travel
tickets. Add-on interest of 11% to 13% per annum is included in the face
amount of the finance receivables together with administrative fees that are
charged on certain small loan contracts. The annual percentage rate varies
depending on the length of the contract and the amount of administrative fees.
The contracts provide for scheduled monthly payments and mature generally from
1 to 15 months. Central's Automobile Finance receivables arise when customers
buy used cars from the Company. The contracts provide for scheduled monthly
payments and mature generally from 36-42 months.
The Company generally provides an allowance for credit loses in the
Consumer Finance and Automobile Finance receivable portfolios at the time that
the contract is purchased or the retail sale is made. The allowance for credit
losses in the Company's unsecured small loan business is provided for
following the origination of the loans over the period that the events giving
rise to the credit losses are estimated to occur. The Company's Consumer
Finance receivables comprise smaller-balance, homogeneous loans that are
evaluated collectively to determine an appropriate allowance for credit losses.
The allowance for credit losses is maintained at a level considered adequate to
cover losses in the existing portfolios. Collection of past due accounts is
pursued by the Company, and when the characteristics of an individual account
indicate that collection is unlikely, the account is charged off and turned
over to a collection agency. Accounts are generally charged off when they are
91 days past due.
5
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Deferred insurance revenue arises from the deferral of the recognition
of revenue from certain credit insurance contracts. Insurance premium revenue
is recognized over the life of the related contract using a method that
approximates the interest method.
<TABLE>
<CAPTION>
CONSUMER AUTOMOBILE
FINANCE RECEIVABLES FINANCE RECEIVABLES
JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31,
------------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross receivable $108,892,000 $108,648,000 $10,383,000 $5,545,000
Deferred interest 11,879,000 12,245,000 2,465,000 1,342,000
------------ ------------ ----------- ----------
Net receivable 97,013,000 96,403,000 7,918,000 4,203,000
Deferred administrative
fee & insurance 1,050,000 977,000 - -
Allowance for credit losses 6,244,000 4,955,000 679,000 410,000
------------ --------- ----------- ----------
$ 89,719,000 $ 90,471,000 $ 7,239,000 $3,793,000
============ ============ =========== ==========
</TABLE>
6. REVENUES
Interest income on the Consumer Finance and Automobile Finance
receivables is deferred and recognized over the lives of the contracts using
the "interest method" or the "Rule of 78s," which approximates the interest
method. Transaction fees on contracts purchased from a related party are
recognized using the interest method. Administrative fees are deferred and
recognized over the estimated average life of contract using the "Rule of 78s."
Administrative fees and interest income on the Automobile Finance receivables,
which began in 1995, are included in other income in the condensed consolidated
statements of operations.
7. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------ ------------
1996 1995
------------ ------------
<S> <C> <C>
Bank of America line of credit $38,192,000 $40,317,000
Wells Fargo line of credit 28,550,000 23,650,000
Other 1,338,000 -
----------- -----------
$68,080,000 $63,967,000
=========== ===========
</TABLE>
The Company has a credit agreement with Bank of America National Trust and
Savings Association (the "Bank of America Line of Credit") that, as amended,
provides for the issuance of notes up to $60,000,000, subject to an allowable
borrowing base. The amounts outstanding under these notes bear interest at
rates that are determined by the type of borrowing. Borrowings under the notes
are collateralized by certain receivables in the Company's Consumer Finance
receivable portfolio and Banner is a guarantor. The Bank of America Line of
Credit, as amended, matures on August 30, 1996 and contains certain restrictive
covenants that prohibit the Company from paying dividends and require, among
other things, the maintenance of certain financial ratios and amounts. The
amount of unused credit under the facility was limited by the allowable
borrowing base and was approximately $962,000 at December 31, 1995. The credit
facility was fully utilized at June 30, 1996.
6
<PAGE> 9
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company has a credit agreement with Wells Fargo Bank National
Association (the "Wells Fargo Line of Credit") that, as amended, provides for
the issuance of notes up to $30,000,000 subject to an allowable borrowing base.
The amounts outstanding under these notes bear interest at rates that are
determined by the type of borrowing. Borrowings under the notes are
collateralized by certain receivables in the Company's Consumer Finance
receivable portfolio and by the Company's Automobile Finance receivable
portfolio. The Wells Fargo Line of Credit, as amended, expires on December 31,
1996. The credit facility contains certain restrictive covenants that
prohibit the Company from paying dividends and require, among other things, the
maintenance of certain financial ratios and amounts. The amount of unused
credit under the facility was limited by the allowable borrowing base and was
approximately $4,134,000 and $1,450,000 at December 31, 1995 and June 30, 1996,
respectively. Other Notes Payable consist of loans due to affiliates, which
will be repaid out of the proceeds from the Company's initial public offering.
8. LONG-TERM DEBT
Long-term debt consists of a promissory note payable to a bank that bears
interest at the bank's reference rate. Interest is payable monthly and the
principal is due July 1998. The note is secured by a deed of Trust.
9. RELATED PARTY TRANSACTIONS
As discussed in Note 1, on June 24, 1996, the Company entered into the
Reorganization Agreement and certain other agreements with Banner and Holdings
(the "Financing Agreement," the "Option Agreement," and the "Operating
Agreement"). The accompanying condensed consolidated financial statements
have been prepared as if such agreements and the Reorganization Agreement were
in place from 1991.
The Financing Agreement grants the Company the exclusive right to provide
financing to Banner's customers for a term of fifteen years from the date of
the Reorganization and provides that the Company will purchase the contracts
from Banner at face value less a 1.6% transaction fee, or, if the Company
originates such receivables, Banner will be obligated to pay the Company a fee
of 1.6% on each such receivable originated by the Company. The Company may
terminate the Financing Agreement at any time upon one year's prior written
notice to Banner. In the accompanying condensed consolidated financial
statements, the transaction fee was computed based on 1.6% of the average net
receivables of purchased contracts in the Consumer Finance receivable
portfolio, which approximates the transaction fee that would be computed based
on 1.6% of net contracts purchased from Banner recognized using the interest
method. The transaction fee totaled $220,000 for the three months ended June
30, 1996 and $447,000 for the six months ended June 30, 1996, respectively.
Pursuant to the Option Agreement, Holdings granted the Company an option,
exercisable for a two-year period commencing one year from the date of the
Reorganization, to acquire all of the outstanding capital stock of Banner (the
"Option") at an exercise price equal to the book value of Banner for the month
ended immediately preceding the exercise. If the Company exercises the Option,
the exercise prices is payable in cash or in shares of the Company's common
stock.
The Operating Agreement provides, among other things, that Banner, Holdings
or their affiliates are obligated to provide to the Company, and the Company is
obligated to utilize, certain services, including accounting, management
information systems and employee benefits. If such services involve an
allocation of expenses, such allocation shall be made on a reasonable basis.
To the extent that such services directly relate to the finance portion of the
consumer products business contributed by Banner to the Company, or to the
extent that other costs are incurred by Banner, Holdings or their affiliates
that directly relate to the Company, the Company is obligated to pay Banner's,
Holdings' or their affiliates' actual cost of providing such services or
incurring such costs. Employee benefit expenses are allocated to the Company
based on the ratio of actual payroll expenses of employees in the consumer
products business contributed by Banner to the Company compared to total
actual payroll expenses of Banner before such allocation. Accounting expenses
are allocated 50% to the Company. The operating costs of Banner's management
information systems function are allocated initially 50% to the Company for a
period of five years, subject to adjustment from time to time to reflect
changing costs and usage. Except for management information systems services,
the Operating Agreement continues until terminated by either the Company,
Holdings or Banner upon one year's prior written notice. Termination may be
made on a service-by-service basis or in total.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following sets forth certain information relating to the Company's
financial trends, credit quality and delinquency experienced for the Company's
Consumer Finance receivable portfolio, for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -------------------
1996 1995 1996 1995
------- -------- ------ -------
<S> <C> <C> <C> <C>
FINANCIAL TRENDS (000's omitted)
Gross receivable (at end of period) $108,892 $84,367 $108,892 $84,367
Deferred interest (at end of period) 11,879 8,991 11,879 8,991
------ ----- ------ -----
Net receivable (at end of period) 97,013 75,376 97,013 75,376
Deferred administrative fees & insurance (at end of period) 1,050 692 1,050 692
Allowance for credit losses (at end of period) 6,244 4,407 6,244 4,407
----- ----- ----- -----
Net carrying value $ 89,719 $70,277 $ 89,719 $70,277
======== ======= ======== =======
Average net receivable $ 93,618 $74,199 $ 94,231 $74,241
Average interest bearing liabilities(1) 63,437 50,551 62,647 50,980
Administrative fee income 455 268 869 531
Total interest income(2) 5,564 4,244 11,043 8,208
Total interest expense 1,241 1,097 2,482 2,172
----- ----- ----- -----
Net interest income before provision for credit losses 4,323 3,147 8,561 6,036
Net provision for credit losses 2,126 1,309 4,279 2,415
Net write-off's 1,530 955 2,990 1,720
Average interest rate on average net receivables 23.8% 22.9% 23.4% 22.1%
Average interest rate on interest bearing liabilities 7.8% 8.7% 7.9% 8.5%
---- ---- ---- ----
Net interest spread 16.0% 14.2% 15.5% 13.6%
==== ===== ===== =====
</TABLE>
(1) The amounts represent borrowings and related interest expense on the
Company's lines of credit, excluding amounts related to the Company's
other borrowings.
(2) The amounts represent interest income on Consumer Finance receivables,
excluding administrative fees, late charges and other charges, which
are included in the Condensed Consolidated Statements of Operations.
8
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
CREDIT QUALITY (000's omitted)
Average net receivable $93,618 $74,199 $94,231 $74,241
Net provision for credit losses total 2,126 1,309 4,279 2,415
Net write-off's total 1,530 955 2,990 1,720
Provision for credit losses as a % of
average net receivable 9.1% 7.1% 9.1% 6.5%
Net write-off's as a % of average net receivable 6.5% 5.1% 6.3% 4.6%
END OF PERIOD (000's omitted)
Net receivable - - $97,013 $75,376
Allowance for credit losses - - 6,244 4,407
Allowance for credit losses as a % of net receivable - - 6.4% 5.8%
DELINQUENCY EXPERIENCE (000's omitted)
Past due accounts (gross receivable)
31-60 days - - $ 2,534 $ 1,694
61 days or more - - 3,466 2,353
Accounts with payments 31 days or more past due
as a percentage of end of period gross receivables - - 5.5% 4.8%
</TABLE>
AUTOMOBILE FINANCE PORTFOLIO
The Company began offering company-financed sales of automobiles in mid-1995.
At June 30, 1996 and December 31, 1995, the gross receivable of this portfolio
was million $10.4 and $5.5 million, respectively; the net receivable was
million $7.9 and $4.2 million, and the allowances for credit losses was $.7
million and are $.4 million, respectively. No write-off's, or provision for
credit losses were provided in the six months ended June 30, 1996. Write-off's
of $60,000 and $157,000 were charged against the allowance for credit losses in
the three and six months ended June 30, 1996. For these periods, the provision
for credit losses was $242,000 and $426,000, repectively.
9
<PAGE> 12
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED JUNE 30, 1995.
Total revenues in the three months ended June 30, 1996 increased to
$10.4 million from $5.6 million in the three months ended June 30, 1995, an
increase of $4.8 million or 86.5%.
Interest income on the Consumer Finance receivables portfolio in the
three months ended June 30, 1996 increased to $5.6 million from $4.2 million in
the three months ended June 30, 1995, an increase of $1.3 million or 31.1%.
This increase was primarily attributable to an increase in the Consumer Finance
receivable portfolio which averaged $93.6 million in the three months ended
June 30, 1996, compared to $74.2 million in the three months ended June 30,
1995. The average interest rate the Company charged on this portfolio
increased to 23.8% for the three months ended June 30, 1996, compared to 22.9%
for the three months ended June 30, 1995.
For the three months ended June 30, 1996, revenues from the
sale of automobiles, which business commenced in June 1995 increased to $2.6
million from $0.4 million in the three months ended June 30, 1995.
Other income for the three months ended June 30, 1996 increased to
$2.2 million from $0.9 million in the three months ended June 30, 1995. Other
income includes an increase in the three months ended June 30, 1996 of $.4
million of net revenues earned from the sale of airline tickets, which
commenced in June 1995. The remaining increase in other income was primarily
due to an increase of $.2 million in administrative fee income earned on small
loans, a $.3 million increase in late charges, and an increase of $.4 million
of interest earned on the Company's Automobile Finance receivable portfolio.
Operating expenses in the three months ended June 30, 1996 increased
to $3.0 million from $1.8 million in the three months ended June 30, 1995, an
increase of $1.2 million or 71.3%. Of this increase, $.9 million is
attributable to operating costs and expenses incurred in connection with the
sale of automobiles and airline tickets which businesses commenced in June and
July 1995. The remaining increase of $.3 million was primarily due to the
expansion of the small loan business, including an increase in the number of
employees and related payroll expenses.
The cost of automobiles sold for the three months ended June 30, 1996
was $1.8 million and $0.3 million for the three months ended June 30, 1995.
The provision for credit losses in the three months ended June 30,
1996 increased to $2.4 million from $1.3 million in the three months ended June
30, 1995, an increase of $1.1 million or 80.1%. This increase was primarily
due to the growth experienced by the Company in its Consumer Finance and
Automobile Finance receivable portfolios, and to higher levels of write-off's.
Interest expense in the three months ended June 30, 1996 increased to
$1.2 million from $1.1 million in the three months ended June 30, 1995, an
increase of $.1 million or 13.1%. This increase was primarily due to a higher
level of borrowings under the lines of credit to support the growth of the
Company's Consumer Finance receivable and Automobile Finance receivable
portfolios, offset by lower interest rates.
As a result of the foregoing factors, net income in the three months
ended June 30, 1996 increased to $1.2 million from $.7 million in the three
months ended June 30, 1995, an increase of $.5 million or 78.6%.
10
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1995.
Total revenues in the six months ended June 30, 1996 increased to
$19.7 million from $10.4 million in the six months ended June 30, 1995, an
increase of $9.3 or 88.8%.
Interest income on the Consumer Finance receivable portfolio for the
six months ended June 30, 1996 increased to $11.0 million from $8.2 million in
the six months ended June 30, 1995, an increase of $2.8 million or 34.5%. This
increase was primarily attributable to an increase in the Consumer Finance
receivable portfolio which averaged $94.2 million in the six months ended June
30, 1996, compared to $74.2 million in the six months ended June 30, 1995.
The average interest rate the Company charged on this portfolio increased to
23.4% for the six months ended June 30, 1996, compared to 22.1% for the six
months ended June 30, 1995.
For the six months ended June 30, 1996, revenues from the sale of
automobiles, which business commenced in June 1995 increased to $4.6 million
from $.4 in the six months ended June 30, 1995.
Other income for the six months ended June 30, 1996 increased to $4.0
million from $1.8 million in the six months ended June 30, 1995, an increase of
$2.2 million or 119.9%. Other income increased in the six months ended June
30, 1996 by $.6 million of net revenues earned from the sale of airline
tickets, which commenced in June 1995. The remaining increase in other income
was primarily due to an increase of $.4 million in administrative fee income
earned on small loans to customers, and a $.6 million increase in late charges
earned on the Company's Consumer Finance receivable portfolio and an increase
of $.6 million of interest earned on its Automobile Finance receivable
portfolio.
Operating expenses in the six months ended June 30, 1996 increased to
$5.5 million from $3.3 million in the six months ended June 30, 1995, an
increase of $2.2 million or 68.1%. Of this increase, $1.5 million is
attributable to operating costs and expenses incurred in connection with the
sale of automobiles and airline tickets. The remaining increase of $.7 million
was primarily due to the expansion of the small loan business, including an
increase in the number of employees and related payroll expenses.
The cost of automobiles sold for the six months ended June 30, 1996
was $3.1 million and $.03 million for the six months ended June 30, 1995.
The provision for credit losses in the six months ended June 30, 1996
increased to $4.7 million from $2.4 million in the six months ended June 30,
1995, an increase of $2.3 million or 94.8%. This increase was primarily due
to the growth experienced by the Company in its Consumer Finance receivable and
Automobile Finance receivable portfolios and to higher levels of write-off's.
Interest expense in the six months ended June 30, 1996 increased to
$2.5 million from $2.2 million in the six months ended June 30, 1995, an
increase of $.3 million or 14.3%. This increase was primarily due to a higher
level of borrowings under the lines of credit to support the growth of the
Company's Consumer Finance receivable and Automobile Finance receivable
portfolio, offset by lower interest rates.
As a result of the foregoing, net income in the six months ended June
30, 1996 increased to $2.3 million from $1.4 million in the six months ended
June 30, 1995, an increase of $.9 million or 70.5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through the cash
flow generated from operations, borrowings under its Lines of Credit, and from
periodic contributions to capital made by Holdings and related entities.
11
<PAGE> 14
For the six months ended June 30, 1996, net cash provided from
operations totalled $6.3 million. While investing activities utilized $9.3
million of cash flow. During this period the Company borrowed $ 4.1 million of
notes payable and paid a capital withdrawal of $.6 million to Banner.
Currently, the Company funds its lending activities and operations in
part with borrowings under the Bank of America Line of Credit and Wells Fargo
Line of Credit. The amount of credit available at any one time under the
Bank of America Line of Credit is limited to 75% of certain eligible contracts
in the Company's Consumer Finance receivable portfolio. As of June 30, 1996,
the total amount available to the Company under the Bank of America Line of
Credit was $38.0 million, all of which was outstanding. The Bank of America
Line of Credit was amended and restated as of June 24, 1996 and expires on
August 30, 1996. Borrowings under the Wells Fargo Line of Credit may be used
only to finance the Company's travel finance, auto finance and small loan
businesses. The amount of credit available at any one time under the Wells
Fargo Line of Credit is limited to 70% of eligible contracts. As of June 30,
1996, the total amount available to the Company under the Wells Fargo Line of
Credit was $30.0 million, of which approximately $28.5 million was outstanding.
The Wells Fargo Line of Credit expires on December 31, 1996. The Company
believes it will be able to renew both of its Lines of Credit.
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability of financing and the terms thereof. The
amount of debt the Company requires from time to time depends on the Company's
needs for cash, as determined by its operating performance and its ability to
borrow under the terms of its various loan agreements. The Company intends to
meet its short-term liquidity needs with cash flow from operations, a portion
of the proceeds from the Company's initial public offering and borrowings under
its Lines of Credit.
The net proceeds of the Company's initial public offering are
expected to be sufficient to fund the Company's liquidity requirements for more
than 12 months if the company were to maintain its operations at current
levels. However, the Company may need to arrange for additional bank
borrowings, or additional debt, or equity financing as it continues to grow.
The Company believes that its Lines of Credit can be renewed, that the increase
in equity resulting from the Offering will facilitate the Company's ability to
incur increased indebtedness, and that it can obtain alternative financing
sources that, together with cash flow from operations and the net proceeds
form the Offering, would provide the Company sufficient resources to meet its
capital requirements.
12
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2.1* Reorganization Agreement between the Company, Banner's Central
Electric, Inc. and Banner Holdings, Inc. dated as of June 24,
1996.
3.1* Certificate of Incorporation of the Company.
3.2* By-laws of the Company.
10.1* 1996 Stock Option Plan dated as of June 24, 1996.
10.2* Indemnification Agreement between the Company and certain
directors and officers of the Company.
10.3* Employment Agreement between the Company and Gary M. Cypres
dated as of June 24, 1996.
10.4* Financing Agreement between the Company, Banner's Central
Electric, Inc. and Banner Holdings, Inc. dated as of June 24,
1996.
10.5* Option Agreement between the Company, Banner's Central
Electric, Inc. and Banner Holdings, Inc. dated as of
June 24, 1996.
10.6* Operating Agreement between the Company, Banner's Central
Electric, Inc. and Banner Holdings, Inc. dated as of
June 24, 1996.
10.7* Tax Sharing Agreement between the Company, Banner's Central
Electric, Inc. and Banner Holdings, Inc. dated as of June 24,
1996.
10.8* Indemnification Agreement between the Company, Banner's
Central Electric, Inc. and Banner Holdings, Inc. dated as of
June 24, 1996.
10.9* Indemnification Agreement dated as of June 24, 1996 between
the Company and Banner Holdings, Inc.
10.10* Credit Agreement dated as of December 14, 1993 among Banner's
Central Electric Consumer Finance Company and Wells Fargo
Bank, N.A. as amended.
10.11* Credit Agreement amended and restated as of April 29, 1996
among Banner's Central Electric, Inc. and Bank of America
National Trust and Savings Association.
10.12* Central Financial Acceptance Corporation Supplemental
Executive Retirement Plan dated as of June 24, 1996.
10.13* Central Financial Acceptance Corporation Executive Deferred
Salary and Bonus Plan dated as of June 24, 1996.
10.14* Third Amended and Restated Loan Agreement dated as of June 24,
1996 among the financial institutions named therein, Central
Installment Credit Corporation, and Banner's Central Electric,
Inc.
10.15* Central Ram, Inc. Amended and Restated Security Agreement
dated as of June 24, 1996 between Central Ram, Inc. and Bank
of America National Trust and Savings Association.
13
<PAGE> 16
10.15* Central Ram, Inc. Amended and restated Security Agreement dated
as of June 24, 1996 between Central Ram, Inc. and Bank of
America National Trust and Savings Association.
10.16* Central Installment Credit Corporation Security Agreement dated
as of June 24, 1996 between Central Installment Credit
Corporation and Bank of America National Trust and Savings
Association.
10.17* Central Ram, Inc. Continuing Guaranty dated as of June 24,
1996 in favor of Bank of America National Trust and Savings
Association.
10.18* Banner's Central Electric, Inc. Continuing Guaranty dated as
of June 24, 1996 in favor of Bank of America National Trust
and Savings Association.
10.19* Company's Continuing Guaranty dates as of June 24, 1996 in
favor of Bank of America National Trust and Savings
Association.
10.20* Stock Pledge Agreement dated as of June 24, 1996 between the
Company and Bank of America National Trust and Savings
Association.
10.21* Banner's Central Electric, Inc. Second Amended and Restated
Security Agreement dated as of June 24, 1996 between Banner's
Central Electric, Inc. and Bank of America National Trust and
Savings Association.
10.22* Adoption Agreement for the Qualified Benefits, Inc.
Regional Prototype Non-Standardized Profit Sharing Plan and
Trust effective as of November 1, 1989.
* Incorporated by reference from the Company's Registration Statement
on Form S-1 (No. 333-3790)
(b) Reports
No reports on Form 8-K were required to be filed by the
Company during the six months ended June 30, 1996.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
August 13, 1996 /s/ Gary M. Cypres
------------------------------------------
Gary M. Cypres
Chairman of the Board, Chief Executive
Officer and President
August 13, 1996 /s/ Neal E. Gower
-----------------------------------------
Neal E. Gower
Controller (Principal Accounting Officer)
15
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