<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH , 1997.
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER: 001-11815
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-4574983
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
5480 EAST FERGUSON DRIVE
COMMERCE, CALIFORNIA 90022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (213) 720-8600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.01
PER SHARE
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 [ ]
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. [ ]
As of March 10, 1997, the aggregate market value of the Common Stock held
by non-affiliates of the registrant was approximately $34,032,000, based upon
the closing price of the Common Stock on that date.
Number of shares of Common Stock of the registrant outstanding as of March
10, 1997: 7,277,000
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT INCORPORATED PART OF FORM 10-K INTO WHICH INCORPORATED
------------------------- -------------------------------------------------
<S> <C>
DEFINITIVE PROXY STATEMENT FOR THE PART III
1997 ANNUAL MEETING OF SHAREHOLDERS
</TABLE>
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................................. 1
Item 2. Properties................................................................ 11
Item 3. Legal Proceedings......................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders....................... 11
Item 4(a). Executive Officers of the Registrant...................................... 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..... 12
Item 6. Selected Financial Data................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 15
Item 8. Financial Statements and Supplementary Data............................... 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 26
PART III
Item 10. Directors and Executive Officers of Registrant............................ 27
Item 11. Executive Compensation.................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 27
Item 13. Certain Relationships and Related Transactions............................ 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 27
</TABLE>
i
<PAGE> 3
PART I
ITEM 1. BUSINESS
INTRODUCTION
Certain matters discussed in this Annual Report may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act") and as such may involve risks
and uncertainties. These forward-looking statements relate to, among other
things, expectations of the business environment in which the Central Financial
Acceptance Corporation and its subsidiaries (the "Company") operate, projections
of future performance, perceived opportunities in the market and statements
regarding the Company's mission and vision. The Company's actual results,
performance, or achievements may differ significantly from the results,
performance, or achievements expressed or implied in such forward-looking
statements. For discussion of the factors that might cause such a difference,
see "Item 1. Business -- Business Considerations and Certain Factors that May
Affect Future Results of Operations and Stock Price."
COMPANY OVERVIEW
The Company is a specialized consumer finance company that primarily serves
the financing needs of the rapidly growing low income Hispanic population, a
market the Company believes is underserved. The Company (i) provides small
unsecured personal loans to the Company's customers; (ii) purchases and services
consumer finance receivables generated by the Company's customers for purchases
of high quality brand name consumer products, appliances and furniture sold by
Banner's Central Electric, Inc. ("Banner"), an affiliate of the Company, and by
independent retailers; (iii) sells airline tickets and originates and services
travel-related finance receivables; (iv) provides financing for purchases of
used automobiles sold by Banner; and (v) provides insurance products and
insurance premium financing to its customers. The Company has catered to the low
income Hispanic population during its 40 years of operation by locating its
facilities primarily in Hispanic communities, advertising in Spanish, and
employing Spanish as the primary language at its locations. While the Company
operates primarily in the greater Los Angeles area and faces substantial
competition with respect to its lines of business, the Company's objective is to
become the leading provider of consumer credit and other financial services to
the low income Hispanic population in urban areas within California and
elsewhere in the United States.
The Company's customers are typically between the ages of 21 and 45, earn
less than $25,000 per year, have little or no savings, and have limited or
short-term employment histories. In addition, the Company's customers typically
have no prior credit histories and are unable to secure credit from traditional
lending sources. The Company bases its credit decisions on its assessment of a
customer's ability to repay the obligation. In making a credit decision, in
addition to the size of the obligation, the Company generally considers a
customer's income level, type and length of employment, stability of residence,
personal references and prior credit history with the Company. The Company also
obtains a credit bureau report and rating, if available, and seeks to confirm
other credit-related information. The Company, however, is more susceptible to
the risk that its customers will not satisfy their repayment obligations than
are less specialized consumer finance companies or consumer finance companies
that have more stringent underwriting criteria. See "Item 1.
Business -- Business Considerations and Certain Factors that May Affect Future
Results of Operations and Stock Price -- Credit Risk Associated with Customers;
Lack of Collateral" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Segment Data -- Credit
Quality."
DEMOGRAPHIC TRENDS AND MARKET OPPORTUNITY
Since 1950 Hispanics have been the fastest growing minority group in the
United States, increasing from 4 million in 1950 to approximately 27 million in
1996, a compound annual growth rate of 4.3%. According to the 1996 U.S. Bureau
of the Census Current Population Report (the "1996 Report"), this trend is
expected to continue. The 1996 Report projects that the Hispanic population will
total 36 million by 2005. California is home to the largest Hispanic population
in the United States and this population is estimated to grow from
1
<PAGE> 4
9.4 million in 1995 to 13 million by 2005, at which time it will comprise
approximately 34% of California's total population. The Company believes that,
despite the current size and projected population growth of the Hispanic
population in the United States, this segment of the population will continue to
have limited access to traditional sources of credit.
The Company has identified certain metropolitan markets in which the
Company believes it can successfully introduce its financial products and
services. Specifically, the Company has determined that there exist significant
opportunities in markets having large Hispanic populations but in which such
populations account for less than 30% of such area's total population. The
Company believes that Hispanic consumers in these markets are more likely to be
underserved than Hispanics in locations in which they comprise a greater
proportion of an area's total population.
BUSINESS STRATEGY
Recognizing these demographic trends, management's strategy has been to
identify new financial products and services that it believes could be
introduced successfully to the low income Hispanic population in urban areas
within California and increase the number of locations through which it can
distribute its products and services. From 1991 until the Company's initial
public offering in June 1996, the Company grew primarily as a result of the
introduction of such financial products and services and increased pricing. The
Company's most significant growth has occurred as a result of the introduction
of unsecured small loans in the fourth quarter of 1992, a product which the
Company believes offers significant continued growth potential. In 1995, the
Company began offering company-financed sales of airline tickets and used
automobiles and in 1996, the Company began selling automobile insurance and
offering insurance premium financing and expanded its independent retail
financing business.
To continue its growth, in 1996 the Company began to expand its
distribution network through acquisitions of businesses primarily serving the
Hispanic community. The Company also intends to seek to acquire existing
businesses that the Company believes will complement or expand its current
financial products and services, or develop such new products internally. The
Company also intends to expand its consumer finance business for independent
retailers. Prior to May 1996, the Company offered its products and services
through 12 locations, 11 of which were in the greater Los Angeles area. In May
1996, the Company acquired the business of, and assumed the leasehold interests
to, six travel locations in the greater Los Angeles area. In June 1996, the
Company acquired the business of, and assumed the leasehold interests to, 19
travel locations of which 14 are in the greater Los Angeles area, two locations
are in Chicago and one location is in each of Dallas, Las Vegas and San Diego.
In December 1996, the Company acquired the assets of, and assumed the leasehold
interests in, 55 travel locations in California. In July 1996, the Company
acquired the business of, and assumed the leasehold interests in, 10 auto
insurance locations in the greater Los Angeles area. Although such transactions
are not material from a financial point of view, the Company believes that such
businesses provide the Company with growth opportunities while adding additional
locations through which it can offer its financial products and services.
BUSINESS SEGMENTS
At December 31, 1996, the value of the Company's gross receivable portfolio
was approximately $145.5 million, consisting of the portfolio of loan contracts
(the "Small Loan Portfolio"), the portfolio of consumer product contracts from
sales by Banner (the "Consumer Product Portfolio"), the portfolio of consumer
finance contracts from sales by independent retailers (the "Independent Retail
Finance Portfolio"), the portfolio of travel finance contracts (the "Travel
Finance Portfolio"), the portfolio of automobile finance contracts (the
"Automobile Finance Portfolio"), and the portfolio of insurance premium finance
contracts.
Installment Credit and Related Businesses
The Company provides credit to low income consumers who desire to purchase
consumer products and services on credit. By granting credit, the Company
provides such consumers with an increased number of purchasing options. The
Company purchases and services consumer finance receivables generated through
2
<PAGE> 5
sales of brand name consumer products by Banner. The Company also purchases and
services consumer finance receivables generated by independent retailers and
through sales of used automobiles by Banner, and originates and services
consumer finance receivables generated through Company sales of airline tickets
and insurance products.
Consumer Product Finance. The Company purchases and services consumer
finance receivables generated through sales of brand name consumer products by
Banner through six stores in the greater Los Angeles area and one store in San
Francisco. Consumer products financed by the Company include televisions,
stereos, refrigerators, washers and dryers, ovens, freezers, furniture,
household accessories and special order items.
Independent Retail Installment Finance. The Company also provides
financing to consumers for the purchase of products and services sold by
independent retailers. At present, the Company has independent retail
installment financing arrangements with approximately 100 retailers in the
greater Los Angeles area, most with one or two locations. The Company regularly
considers and evaluates additional independent retail installment financing
arrangements.
Travel Sales and Finance. As a complementary business line, the Company in
mid-1995 commenced its travel business, offering sales of airline tickets, as
well as the financing of such purchases. As a result of its recent acquisitions,
the Company believes that it is currently the largest provider of travel
services to the low income Hispanic population in California. Substantially all
of the Company's ticket sales are for international travel, which generally
provides a higher commission structure than does domestic travel. Prior to its
initial public offering, the Company was conducting this business at five of
Banner's installment credit stores in the greater Los Angeles area and two
finance centers offering small loans and travel finance in the greater Los
Angeles area that were opened in December 1995. In 1996, the Company acquired
the business of, and assumed the leasehold interests to, 80 additional travel
locations. See "Item 1. Business -- Business Strategy." The Company believes
that both its small loan and travel product lines can be offered out of
1,000-1,500 square foot locations, and that such locations can efficiently offer
additional financial products and services which the Company anticipates it will
make available in the future.
Automobile Finance. The Company also provides financing to consumers for
the purchase of automobiles sold by Banner. Banner offers used automobiles for
prices ranging from $6,500-$8,500. The Company offers financing terms on sales
of automobiles of up to 42 months. All financing extended by the Company on
automobiles sold by Banner is with full recourse back to Banner in the event of
default by the customer.
Small Loan Business
In December 1992, the Company began offering unsecured closed-end small
loans generally ranging from $350 to $1,500 for personal, family or household
purposes at Banner's flagship installment credit store. Prior to commencing this
business, the Company determined that there was a significant demand for small
loans, and that financial institutions in its geographic market were not making
loans of less than $1,500 and did not have adequate underwriting experience to
serve the low income Hispanic population. By December 31, 1995, the Company was
originating small loans through eight facilities in the greater Los Angeles
area, four of which were operated at Banner's installment credit stores and four
of which were operated as finance centers offering small loans and travel
finance which opened in December 1995. By December 31, 1996, the Company's small
loan business was operating through 11 facilities, six of which were at Banner
locations and five of which were finance centers.
Other Business Activities
The Company acts as an intermediary for an independent insurance carrier
with respect to the sale of credit life and credit accident and health insurance
to its customers and, as such, sells policies within limitations established by
agency contracts with that insurer. Credit life insurance provides for the
payment in full of the borrower's credit obligation to the lender in the event
of the borrower's death. Credit accident and health insurance provides for
repayment of loan installments to the lender during the insured's period of
involuntary unemployment resulting from disability, illness or injury. Premiums
for such credit insurance are
3
<PAGE> 6
at the maximum authorized rates and are stated separately in the Company's
disclosure to customers, as required by the Truth-in-Lending Act and applicable
state statutes. The Company does not act as an intermediary with respect to the
sale of credit insurance to non-borrowers. The Company earns a commission from
the insurance carrier on the sale of credit insurance which is based in part on
the claims experience on policies sold by the insurance carrier through the
Company. Commencing in mid-1996, the independent insurance carrier reinsured the
credit life and credit accident and health risk with a newly formed subsidiary
of the Company. As a result of this reinsurance arrangement, the credit risk
remains with the Company. In 1996, the Company also commenced its automobile
insurance and insurance premium financing businesses.
COMPANY OPERATIONS
Credit Procedures
Because of the Company's growth and expected continued growth, in late
1996, the Company took a number of steps to improve collections and credit
quality. The Company hired two senior executives in the credit and collections
fields. In December 1996, the Company installed an autodialer to assist its
collections personnel in successfully contacting past due borrowers. Finally,
the Company hired CCN, Inc. to develop a proprietary credit scoring system for
the Company, which it expects to implement during the fourth quarter of 1997.
The Company has developed uniform guidelines and procedures for evaluating
credit applications for installment credit sales and small loans. Credit
applications are taken at all of the Company's locations and at each of Banner's
stores and are generally transmitted electronically through the Company's
computer system to the Company's credit processing facility, where all credit
approval and verification is centralized. Credit applications are also taken at
each of the independent retail locations for which the Company provides
financing, and are generally transmitted to the Company's credit processing
facility via facsimile. The Company believes that its underwriting policies and
procedures allow it to respond quickly to credit requests. The Company typically
responds to credit applicants within one hour. Management believes that because
of its prompt response, many customers prefer to deal with the Company instead
of its competitors.
The Company's credit managers and credit approvers make their decisions on
a case by case basis and are influenced by, among other things, whether an
applicant is a new or existing customer. New applicants complete standardized
credit applications which contain information concerning income level,
employment history, stability of residence, driver's license or state
identification card, social security number, capacity to pay and personal
references. The Company also obtains a credit bureau report and rating, if
available, and seeks to confirm other credit-related information. For an
established customer, in all instances the credit process currently includes a
review of the customer's credit and payment history with the Company. Because
the Company offers multiple lines of credit, a review is made with respect to
the aggregate amount owed by a customer. In cases where a customer makes a
request for a material increase in his or her aggregate outstanding balance, the
Company will obtain a credit bureau report and will seek to confirm employment.
In instances where the applicant has no or limited credit history, the Company
may require a co-signer with appropriate credit status to sign the contract and
may, in the installment credit business, also require a down payment. Depending
on the size of the transaction and other relevant factors, the applicant's
employment and residence may also be verified by the Company's credit verifiers.
See "Item 1. Business -- Business Considerations and Certain Factors that May
Affect Future Results of Operations and Stock Price -- Credit Risk Associated
with Customers; Lack of Collateral."
The Company maintains reserves for credit losses in each of its portfolios
(except the Automobile Finance Portfolio) at levels that management believes are
adequate to absorb potential losses. The Company regularly reviews its
portfolios to determine the adequacy of its allowances for credit losses. Major
considerations in determining the adequacy of the allowances for credit losses
include the credit loss experience, the level of delinquencies, the impact of
general economic conditions and trends, and the size of the portfolios.
4
<PAGE> 7
Payment and Collections
Industry studies estimate that more than 25% of the adult population in the
United States does not maintain a checking account with a depository
institution, which is a standard prerequisite for obtaining a consumer loan,
credit card or other form of credit from most consumer credit sources. The
Company's customers are required to make their monthly payments using a payment
schedule provided to them by the Company. The vast majority of the Company's
customers make their payments in cash at the Company's locations or at the
Company's payment facilities in Banner's stores. For the Company's customers who
are paid their wages by check but who do not maintain checking accounts, the
Company cashes such checks at no charge in order to facilitate account payments.
Payments are considered past due if a borrower fails to make any payment in
full on or before its due date, as specified in the installment credit or small
loan contract signed by the customer. The Company currently attempts to contact
borrowers whose payments are not received by the due date within 10 days after
such due date. Such contacts are made by the Company by both letter and
telephone. In December 1996, the Company installed an autodialer which makes up
to 500 telephone calls per hour to assist its collections personnel in
successfully contacting past due borrowers. If no payment is remitted to the
Company after the initial contact, additional contacts are made every seven
days, and, after a loan becomes 31 days delinquent, the account is generally
turned over to the Company's credit collectors. Under the Company's guidelines,
an account is generally charged off and turned over to a collection agency when
the account is deemed uncollectible by the Company, which is typically when the
account is between 91 and 150 days past due.
Finance Contracts
The Company utilizes different types of financing contracts, depending on
the dollar amount of the financing and the product financed. Each of the
contracts is in Spanish and English and requires monthly financing payments.
Many of the terms, conditions and disclosures in the finance contracts are
governed by state and federal regulations. See "Item 1. Business -- Regulation."
When a qualifying customer with an open account balance increases the amount
outstanding with an additional purchase or loan, the customer executes a new
contract for the new aggregate balance and, with the proceeds, pays off the
original contract.
Insurance
The Company maintains various insurance policies of the type, and in the
amounts, which are usual for its business. The Company maintains coverage for
business interruptions, including interruptions resulting from computer failure.
The Company believes that its insurance coverage is adequate.
Management Information Systems
Pursuant to an Operating Agreement dated June 24, 1996 by and between the
Company, Banner and Holdings, the Company utilizes Banner's management
information systems and has been granted a license to use Banner's management
information systems' software. Banner has invested significant resources to
develop a proprietary system that integrates all major aspects of the businesses
of the Company and Banner. The computer system utilizes a high-range IBM AS-400
as its central server, which provides on-line, real-time information processing
services to terminals located in each of Banner's locations and in the Company's
centralized credit processing facility. The system allows for complete
processing of the Company's consumer product finance, automobile finance, travel
finance and small loan businesses, including application processing and
credit-approval, acquisition of credit bureau reports, accessing the payment
history of all active accounts, preparation of contracts, payment posting, and
all other collection-monitoring activities. In addition, the system provides
customized reports to analyze each of the Company's portfolios on a daily,
weekly and monthly basis. The Company believes that the computer system is
sufficient to permit significant growth in each of the Company's business lines
and portfolios without the need for a material additional investment in
management information systems. Banner has adopted procedures designed to
minimize the effect of systems failures and other types of potential problems,
including routine backup and off-site storage of computer tapes, as well as
redundancy and "mirroring" of certain computer processes.
5
<PAGE> 8
COMPETITION
The installment credit business is highly competitive. The Company, through
its relationship with Banner and other retailers, competes with those department
stores, discount stores and other retail outlets which also provide credit to
low income consumers. The largest national and regional competitors have
significantly greater resources than the Company. Competition may arise from new
sources having the expertise and resources to enter the Company's markets either
through expansion of operations or acquisitions.
The small loan consumer finance industry is a highly fragmented segment of
the consumer finance industry. There are numerous small-loan consumer finance
companies operating in the United States. Many of these companies have
substantially greater resources than the Company, and the entry or expansion of
any such company within the Company's markets could have a material adverse
effect on the Company's business strategy and results of operations and
financial condition. The Company does not believe it competes with commercial
banks, savings and loans and most other consumer finance lenders, because these
institutions typically make loans greater than $1,500 with maturities greater
than one year.
Each of the Company's other businesses, including travel sales, automobile
finance and automobile insurance sales, are in highly competitive industries.
The Company competes against a large number of national and regional firms
engaged in such businesses, many of which have substantially greater financial,
marketing and sales resources than the Company. There can be no assurance that
the Company's present competitors or companies that choose to enter the
marketplace in the future will not exert significant competitive pressures on
the Company.
REGULATION
General
As a consumer finance company, the Company is subject to extensive
regulation. Violation of statutes and regulations applicable to the Company may
result in actions for damages, claims for refunds of payments made, certain
fines and penalties, injunctions against certain practices and the potential
forfeiture of rights to repayment of loans. The Company may be affected by
changes in state and federal statutes and regulations. The Company, in
conjunction with industry associations, actively participates in lobbying
efforts in the states in which it operates. Although the Company is not aware of
any pending or proposed legislation that could have a material adverse effect on
the Company's business, there can be no assurance that future regulatory changes
will not adversely affect the Company's lending practices, operations,
profitability or prospects.
State Regulation
Consumer Product and Travel Finance. The Company's consumer product
finance and Travel Finance businesses are regulated in California by the
California Retail Installment Sales Act (the "Unruh Act"). The Unruh Act
requires the Company to disclose to its customers the conditions under which the
Company may impose a finance charge, the method of determining the balance which
is subject to a finance charge, the method used to determine the amount of the
finance charge, and the minimum periodic payment required. In addition, the
Unruh Act provides consumer protection against unfair or deceptive business
practices by regulating the contents of retail installment sales contracts,
setting forth the respective rights and obligations of buyers and sellers, and
regulating the maximum legal finance rate or charge on installment credit sales.
Automobile Finance. The Rees-Levering Motor Vehicle Sales and Financing
Act (the "Rees-Levering Act") governs the Company's automobile finance business
in California. The Rees-Levering Act requires the Company to provide its
customers with information such as an itemization of the amount financed,
including items such as document preparation fees, taxes imposed on the sale,
and the amount charged for a service contract. The Rees-Levering Act also
requires that the Company's sales contracts comply with the disclosure
requirements of Federal Truth-in-Lending Regulation Z. In addition, the
Rees-Levering Act protects consumers against unfair or deceptive sales practices
by setting forth the respective rights and obligations of buyers and sellers of
motor vehicles, and regulating the maximum legal finance rate or charge for
motor vehicle sales.
6
<PAGE> 9
Small Loan Business. Small loan consumer finance companies are subject to
extensive regulation, supervision and licensing under various federal and state
statutes, ordinances and regulations. In general, these statutes establish
maximum loan amounts and interest rates and the types and maximum amounts of
fees and other costs that may be charged. In addition, state laws regulate
collection procedures, the keeping of books and records and other aspects of the
operation of small-loan consumer finance companies. State agency approval
generally is required to open new branch offices. Accordingly, the ability of
the Company to expand by acquiring existing offices and opening new offices will
depend in part on obtaining the necessary regulatory approvals.
Each facility that offers small loans must be separately licensed under the
laws of California. Licenses granted by the regulatory agencies are subject to
renewal every year and may be revoked for failure to comply with applicable
state and federal laws and regulations. In California, licenses may be revoked
only after an administrative hearing.
Insurance Businesses. The Company's insurance businesses are regulated in
California by the State of California Department of Insurance. In general, these
regulations require the Company to, among other things, maintain fiduciary fund
and trust accounts and follow specific market, general business and claims
practices.
Federal Regulation
The Company is subject to extensive federal regulation as well, including
the Truth-in-Lending Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act and the regulations thereunder and the Federal Trade Commission's
Credit Practices Rule. These laws require the Company to provide complete
disclosure of the principal terms of each loan to every prospective borrower,
prohibit misleading advertising, protect against discriminatory lending
practices and proscribe unfair credit practices. Among the principal disclosure
items under the Truth-in-Lending Act are the terms of repayment, the total
finance charge and the annual rate of finance charge or "Annual Percentage Rate"
on each loan. The Equal Credit Opportunity Act prohibits creditors from
discriminating against loan applicants on the basis of race, color, sex, age or
marital status. Pursuant to Regulation B promulgated under the Equal Credit
Opportunity Act, creditors are required to make certain disclosures regarding
consumer rights and advise consumers whose credit applications are not approved
of the reasons for the rejection. The Fair Credit Reporting Act requires the
Company to provide certain information to consumers whose credit applications
are not approved on the basis of a report obtained from a consumer reporting
agency. The Credit Practices Rule limits the types of property a creditor may
accept as collateral to secure a consumer loan.
Travel Agency Regulation
Each of the Company's travel locations are travel agencies which are
regulated by the Airline Reporting Corporation ("ARC"). The ARC represents the
major scheduled air carriers and sets the operating rules for travel agencies.
The Company is required to submit weekly reports to the ARC and to meet certain
procedural, funding and bonding requirements set by the ARC.
ADVERTISING
Banner actively advertises primarily on Hispanic television and through
direct mail, targeting both its present and former customers and potential
customers who have used other sources of consumer credit. Banner advertises
extensively during the October through December holiday season and in connection
with new store openings. The Company also advertises its other financial
products and services in cooperation with Banner and the related costs are
allocated to each of the parties. The Company believes that Banner's advertising
and its own advertising contributes significantly to its ability to compete
effectively with other providers of consumer credit.
7
<PAGE> 10
EMPLOYEES
At December 31, 1996, the Company had 436 hourly employees and 179 salaried
employees. None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its relations with its employees to be good.
BUSINESS CONSIDERATIONS AND CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS AND STOCK PRICE
Discussions of certain matters contained in this Annual Report on Form 10-K
may constitute forward-looking statements within the meaning of the Reform Act,
and as such, may involve risks and uncertainties. These forward-looking
statements relate to, among other things, expectations of the business
environment in which the Company operates, projections of future performance,
perceived opportunities in the market and statements regarding the Company's
mission and vision. The Company's actual results, performance and achievements
may differ materially from the results, performance or achievements expressed or
implied in such forward-looking statements. The following is a summary of some
of the important factors that could affect the Company's future results of
operations and/or its stock price, and should be considered carefully in
evaluating the Company.
Credit Risk Associated with Customers; Lack of Collateral
The Company's customers are typically between the ages of 21 and 45, earn
less than $25,000 per year, have little or no savings and have limited or
short-term employment histories. In addition, the Company's customers typically
have no prior credit histories and are unable to secure credit from traditional
lending sources. The Company bases its credit decisions primarily on its
assessment of a customer's ability to repay the obligation. In making a credit
decision, in addition to the size of the obligation, the Company generally
considers a customer's income level, type and length of employment, stability of
residence, personal references and prior credit history with the Company. The
Company, however, is more susceptible to the risk that its customers will not
satisfy their repayment obligations than are less specialized consumer finance
companies or consumer finance companies that have more stringent underwriting
criteria.
Because the Company relies on the creditworthiness of its customers for
repayment and does not rely on collateral securing the debt, the Company
experiences actual rates of losses higher than lenders who have collateral which
they can repossess in the event of a borrower's default. At year end 1996, the
Consumer Product Portfolio and Small Loan Portfolio had net receivables of $54.7
million and $51.6 million, respectively, or 82.8% in the aggregate of the
Company's total net receivables. At year end 1996, the Consumer Product and
Small Loan Portfolios had accounts with payments 31 days or more past due as a
percentage of end of period gross receivables in each such portfolio of 7.6% and
4.9%, respectively, as compared to 6.5% and 3.0%, respectively, at year end
1995. In 1996, such portfolios had net write-offs of $4.3 million and $2.6
million, respectively, as compared to $3.3 million and $0.9 million,
respectively, in 1995. The provision for credit losses as a percentage of
average net receivables was 8.9% for the Consumer Product Portfolio and 8.6% for
the Small Loan Portfolio at year end 1996. There can be no assurance that the
Company will not continue to experience increases in delinquencies and net
write-offs which would require additional increases in the provisions for credit
losses. Such increases would adversely affect results of operations if the
Company were not able to increase the rate charged on receivables to reflect the
additional risks in its portfolios. For information concerning the Company's
credit quality experience, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Segment Data -- Credit Quality."
General Economic Risk
The risks associated with the Company's business become more significant in
an economic slowdown or recession. During periods of economic slowdown or
recession, the Company has experienced and may again experience a decreased
demand for its financial products and services and an increase in rates of
delinquencies and the frequency and severity of losses. The Company's actual
rates of delinquencies and frequency and severity of losses have been in the
past and may be in the future higher under adverse economic conditions
8
<PAGE> 11
than those generally experienced in the consumer finance industry. Any sustained
period of economic slowdown or recession could materially adversely affect the
Company's financial condition and results of operations. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Segment Data -- Financial Trends," and "-- Credit Quality."
Dependence on California Market
Substantially all of the Company's facilities are located, and
substantially all of the Company's revenues are generated in California. To
date, substantially all of the Company's operations have been in the greater Los
Angeles area. Therefore, the Company's performance depends upon economic
conditions in California, and in Southern California in particular, and may be
further adversely affected by social factors or natural disasters in California.
California has experienced adverse economic conditions over the last several
years. A further decline in the California economy could have a material adverse
effect on the Company's results of operations and financial condition.
Dependence of Consumer Product Portfolio on Banner
The Consumer Product Portfolio consists of consumer finance receivables
generated from products sold by Banner. The performance of the Consumer Product
Portfolio therefore depends substantially upon the success of Banner's stores.
The Consumer Product Portfolio accounted for 42.5% of the Company's gross
receivable portfolio as of December 31, 1996. Although as part of its business
strategy, the Company has begun to expand its installment credit business to
independent retailers, and acquire and utilize new distribution centers,
including the Company's travel locations, through which it may offer its
products and services to a larger pool of customers, the installment credit
business will, for the foreseeable future, continue to depend on Banner's stores
and customers. There can be no assurance that the Company will be able to
successfully further expand its installment credit finance business to other
retailers or its distribution network.
Interest Rate Risk
The net interest spread, which is the difference between the average
interest rate on average net receivables and the average interest rate on
average interest bearing liabilities (the "Net Interest Spread"), partially
determines the Company's profitability. Because the Company pays a floating
interest rate on borrowings under its Lines of Credit (as defined below) and has
elected not to hedge its interest rate risk, increases in such rates have at
times decreased, and in the future may decrease, the Company's Net Interest
Spread and have a material adverse effect on the Company's results of operations
and financial condition. The interest rate the Company is allowed to charge its
customers on its small loans is limited under California law. The Company
presently charges the maximum interest rate permitted in California. There is no
corresponding interest rate limitation on installment credit sales. Increases in
the interest rate the Company charges its customers could reduce demand for
Banner's products and the Company's financial products and services which, in
turn, could decrease the Company's net income. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation" and
"Business -- Regulation."
Need for Additional Financing
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to maintain its current level of operations
and to expand its operations will be affected by the availability of financing
and the terms thereof. Principally, the Company funds its lending activities and
operations through a $60 million line of credit between Central Installment
Credit Corporation ("Central Installment Credit"), Banner and several banks for
which Bank of America National Trust and Savings Association acts as agent (the
"Bank of America Line of Credit") and a $50 million line of credit between
Central Consumer Finance Company ("Central Consumer Finance") and Wells Fargo
Bank, National Association (the "Wells Fargo Line of Credit" and, together with
the Bank of America Line of Credit, the "Lines of Credit"). The Bank of America
Line of Credit may be used only for the Company's consumer product finance
business. The Wells Fargo Line of Credit may be used only for the Company's
travel finance, auto finance and small loan businesses. The Bank of America Line
of Credit and the Wells Fargo Line of Credit both expire on April 30,
9
<PAGE> 12
1997. The Company is currently in discussions with Bank of America and Wells
Fargo with respect to the renewal of such Lines of Credit. The Company believes
it will be able to renew both Lines of Credit. However, there can be no
assurance that the Company will be able to renew such Lines of Credit, that the
Company will have access to additional financing sources necessary to sustain
its operations and fund its growth, or that the Company will be able to secure
financing on favorable terms.
The Company will need to arrange for additional bank borrowings or
additional debt or equity financing as it continues to grow. The Company may not
be able to obtain additional financing on acceptable terms, and any such
unavailability could have a material adverse effect on the Company's results of
operations and financial condition. See "Item 7. Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- Liquidity and
Capital Resources."
Ability of the Company to Execute its Business Strategy
The financial performance of the Company will depend, in part, on the
Company's ability (i) to integrate new locations into the Company's operations,
(ii) to generate satisfactory performance or enhance performance at such
locations, (iii) to open and/or acquire additional locations on favorable terms,
(iv) to integrate new financial products and services into the Company's
operations; and (v) to enter into arrangements with additional independent
retailers. As a result of acquisitions during 1996, the Company acquired 84 new
locations from which to distribute products and services, including 33 locations
in new geographic regions. There can be no assurance that any of such acquired
locations and operations will be effectively and profitably integrated into the
Company's existing operations. Such acquisitions may negatively impact the
Company's operating results, particularly during the periods immediately
following an acquisition. In addition, there can be no assurance that the
Company will be able to profitably implement its business strategy in new
geographic areas. Furthermore, the Company may compete for expansion and
acquisition opportunities with companies that have significantly greater
financial and other resources than the Company. There can be no assurance that
the Company will be able to locate suitable new locations or acquisition
candidates, or that any operations that the Company opens or acquires will be
effectively and profitably integrated into the Company's existing operations.
The Company's financial performance also depends, in part, on the Company's
ability to manage its various portfolios and the Company's ability to
successfully introduce additional financial products and services. There can be
no assurance that additional financial products and services will be introduced
or, if introduced, that such financial products and services will be successful.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Liquidity and Capital Resources."
Competition
Each of the Company's businesses are in highly competitive industries. The
Company competes against a large number of national and regional firms engaged
in such businesses, many of which have substantially greater resources than the
Company. There can be no assurance that the Company's present competitors or
companies that choose to enter the marketplace in the future will not exert
significant competitive pressures on the Company which could have a material
adverse effect on the Company's results of operations and financial condition.
Impact of Government Regulation
The operations of the Company are regulated by federal, state and local
government authorities and are subject to various laws and judicial and
administrative decisions imposing various requirements and restrictions
including, among other things, regulating credit granting activities,
establishing maximum interest rates, and charges, requiring disclosures to
customers, governing secured transactions and setting collection, repossession
and claims handling procedures, regulating insurance claims practices and
procedures, and other trade practices. Although the Company believes that it is
in compliance in all material respects with applicable local, state and federal
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules
10
<PAGE> 13
and regulations will not be adopted in the future which may make compliance more
difficult or expensive, restrict the Company's ability to purchase or finance
installment sales or small loans, further limit or restrict the amount of
interest and other charges imposed in installment sales or small loans
originated by retailers or the Company, or otherwise materially adversely affect
the business or prospects of the Company. See "Item 1. Business -- Regulation."
Dependence Upon Key Personnel
The Company's success depends substantially on certain members of its
senior management, in particular Mr. Cypres, the Company's Chairman of the
Board, Chief Executive Officer, President and Chief Financial Officer. The
Company's business and financial condition could be materially adversely
affected by the loss of the services of Mr. Cypres. The Company does not
maintain key man life insurance. See "Item 10. Directors and Executive Officers
of Registrant" and "Item 13. Certain Relationships and Related Transactions --
Certain Relationships."
Seasonal Fluctuations in Quarterly Operating Results
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. These significant
seasonal fluctuations in its business directly impact the Company's operating
results and cash needs.
Other Risks
From time to time, the Company details other risks with respect to its
business and/or financial results in its filings with the Commission.
ITEM 2. PROPERTIES
The Company's executive and administrative offices occupy approximately
17,000 square feet of a building owned by Banner Holdings, Inc. ("Holdings"),
the sole shareholder of Banner, that is located at 5480 East Ferguson Drive,
Commerce, California 90022. The Company believes that its executive and
administrative offices are adequate for current needs and that additional space
in its headquarters is available for future expansion. The Company's payment
centers located in Banner's stores are adequate for the Company's present and
anticipated needs. The Company owns an 86,000 square foot property in Los
Angeles on which the Company built a 10,000 square foot loan center and on which
Banner operates its used automobile sales business. All of the Company's other
finance centers are leased pursuant to leases that generally have five year
terms with options to renew.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings arising in the normal
course of its business. Management does not believe the outcome of these matters
will have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of fiscal 1996.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals are executive officers of the Company. Pertinent
information relating to these individuals is set forth below. There are no
family relationships between any of the officers. All of the Company's officers
hold their respective offices at the pleasure of the Board of Directors, subject
to the rights, if any, of an officer under any contract of employment.
11
<PAGE> 14
GARY M. CYPRES has been Chairman of the Board, Chief Executive Officer,
President and Chief Financial Officer of the Company since its formation. Mr.
Cypres has been Chairman of the Board, Chief Executive Officer, President and
Chief Financial Officer of Holdings and Banner since February 1991, Chairman of
the Board and Chief Executive Officer of Central Rents, Inc. since June 1994 and
managing general partner of West Coast Private Equity Partners, L.P. since March
1990.
ANTHONY FORTUNATO has been Executive Vice President of Operations of the
Company since October 18, 1996. Prior to joining the Company, Mr. Fortunato was
Executive Vice President of Citibank, F.S.B. California from November 1993 to
October 1996, and Vice President of Citibank, N.A./Citicorp from September 1976
to November 1993.
GERARD T. MCMAHON has been Executive Vice President of Credit and
Collections of the Company since September 23, 1996. Prior to joining the
Company, Mr. McMahon was Vice President of Credit and Collections at Barry's
Jewelers from 1991 to 1996 and Divisional Vice President of Credit and
Collections at Kay Jewelers from 1987 to 1991. From 1981 to 1987, Mr. McMahon
was Divisional Vice President of Credit Administration at The Broadway.
ED VALDEZ has been Senior Vice President of Credit of the Company since its
formation, Senior Credit Manager of the Company's consumer product finance
business since 1986 and Senior Credit Manager of the Company's small loan
business since November 1992. Mr. Valdez has been working for the Company for
over 28 years.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NASDAQ NATIONAL MARKET LISTING
The Common Stock is listed on the Nasdaq National Market and traded under
the symbol "CFAC." The following table sets forth, in the periods indicated, the
high and low sales prices per share of the Common Stock, as reported by Nasdaq
for the periods presented. As of March 10, 1997, there were approximately 645
holders of record of the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Quarter ended June 30, 1996(1)..................................... $15.00 $12.25
Quarter ended September 30, 1996................................... $20.25 $11.25
Quarter ended December 31, 1996.................................... $21.50 $16.75
</TABLE>
- ---------------
(1) CFAC first began trading on the Nasdaq National Market on June 26, 1996, the
date of its initial public offering.
DIVIDENDS
CFAC has never paid and has no present intention of paying cash dividends
on its Common Stock. CFAC anticipates that it will retain all earnings for use
in the Company's business, and CFAC does not anticipate paying cash dividends
for the foreseeable future. Any determination in the future to pay dividends
will depend on the Company's financial condition, capital requirements, results
of operations, contractual limitations and any other factors deemed relevant by
the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's consolidated financial position as of December 31, 1995 and 1996, and
its results of operations for the years ended December 31, 1994, 1995 and 1996
has been derived from the audited consolidated financial statements of the
Company appearing elsewhere herein. This information should be read in
conjunction with such consolidated financial statements and the notes thereto.
The selected financial data with respect to the Company's consolidated
12
<PAGE> 15
financial position as of October 31, 1993 and 1994 and December 31, 1994, its
results of operations for the two months ended December 31, 1993 and 1994 and
the fiscal years ended October 31, 1993 and 1994 has been derived from the
audited consolidated financial statements of the Company, which are not
presented herein. The selected financial data with respect to the Company's
consolidated financial position as of October 31, 1992 and its results of
operations for the fiscal year ended October 31, 1992 and the year ended
December 31, 1993 has been derived from unaudited financial statements, which in
the opinion of the Company's management reflect all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results of operations for the unaudited periods. The results of operations for
the interim periods are not necessarily indicative of the results of operations
for the full fiscal year.
13
<PAGE> 16
SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWO MONTHS
YEARS ENDED ENDED YEARS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31,
------------------------------------ ------------------------ -------------------------------------------------
1992 1993 1994 1993 1994 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
INCOME
DATA:
Revenues:
Interest
Income
Consumer
Product
Portfolio. $ 8,145 $ 9,010 $ 11,444 $ 1,714 $ 2,057 $ 9,420 $ 11,787 $ 12,508 $ 12,850
Small
Loan
Portfolio. -- 134 672 54 439 188 1,057 5,095 9,686
Automobile
Finance
Portfolio. -- -- -- -- -- -- -- 240 1,548
Other(1)... -- -- -- -- -- -- -- 176 1,691
Total
Interest
Income.. 8,145 9,144 12,116 1,768 2,496 9,608 12,844 18,019 25,775
Travel
services... -- -- -- -- -- -- -- 371 2,449
Transaction
fees on
contracts
purchased
from
related
party.... 747 830 844 137 150 829 857 916 965
Other
income(2).. 1,253 1,457 1,756 304 416 1,445 1,868 2,857 7,238
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total
Revenues. 10,145 11,431 14,716 2,209 3,062 11,882 15,569 22,163 36,427
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Costs and
Expenses:
Operating
expenses... 3,986 4,519 5,009 864 1,025 4,461 5,170 7,288 12,676
Provision
for
credit
losses... 2,654 3,264 3,002 696 1,617 3,447 3,923 5,449 9,105
Interest
expense.. 2,306 2,279 2,523 339 617 2,235 2,801 4,278 4,697
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss)
before
taxes...... 1,199 1,369 4,182 310 (197) 1,739 3,675 5,148 9,949
Income tax
expense
(benefit)... 503 572 1,694 127 (74) 727 1,493 2,079 3,979
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income
(loss)
before
discontinued
operations... 696 797 2,488 183 (123) 1,012 2,182 3,069 5,970
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Discontinued
operations
net income
(loss)..... -- -- -- -- -- -- -- 50 (91)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income
(loss)..... $ 696 $ 797 $ 2,488 $ 183 $ ( 123) $ 1,012 $ 2,182 $ 3,119 $ 5,879
========== ========== ========== ========== ========== ========== ========== ========== ==========
PER SHARE
DATA:
Net income
(loss) per
share
before
discontinued
operations.. $ 0.14 $ 0.15 $ 0.48 $ 0.04 ( $ 0.02) $ 0.20 $ 0.42 $ 0.60 $ 0.96
Net income
(loss) per
share
discontinued
operations.. 0 0 0 0 0 0 0 0.01 (0.01)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income
(loss) per
share...... $ 0.14 $ 0.15 $ 0.48 $ 0.04 ( $ 0.02) $ 0.20 $ 0.42 $ 0.61 $ 0.95
Weighted
average
number of
shares
outstanding. 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 5,150,000 6,213,500
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- ---------------
(1) Other interest income includes interest earned on the Travel Finance
Portfolio and the Independent Retail Finance Portfolio and through the
Company's insurance premium finance business.
(2) Other income includes administrative fees charged on certain small loan
contracts, late charges and revenue from the sale of insurance products.
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
------------------------------- ---------------------------------
1992 1993 1994 1994 1995 1996
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ -- $ 931 $ 1,886 $ 215 $ 57 $ 5,848
Net receivable............................................ 45,094 47,026 50,626 56,337 94,674 120,391
Total assets.............................................. 48,158 51,567 61,597 73,942 101,730 145,887
Total debt................................................ 34,250 33,700 42,287 48,845 63,967 74,024
Stockholder's equity...................................... 13,399 17,146 18,560 23,951 33,632 61,353
</TABLE>
14
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the information
under "Item 6. Selected Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto and other financial data, included elsewhere in
this Annual Report. Certain statements under this caption constitute "forward-
looking statements" under the Reform Act which involve risks and uncertainties.
The Company's actual results may differ significantly from the results discussed
in such forward-looking statements. Factors that might cause such a difference,
include but are not limited to, credit quality, economic conditions, competition
in the geographic and business areas in which the Company conducts its
operations, fluctuations in interest rates and government regulation. For
additional information concerning these factors, see "Item 1. Business --
Business Considerations and Certain Factors that May Affect Future Results of
Operations and Stock Price."
OVERVIEW
In pursuit of the Company's business strategy, since 1992 the Company has
expanded its financing business by offering consumer financing through
additional installment credit stores opened by Banner, by increasing the number
and type of products and services financed, and by offering new financial
products and services. In 1992, the Company began offering small unsecured loans
generally ranging from $300 to $1,500 with average loan terms of 12 months, and
began offering installment credit finance to Banner's customers at three
additional installment credit stores in the greater Los Angeles area and one
additional installment credit store in San Francisco that were opened or
acquired by Banner in 1994. In 1995, the Company opened two finance centers
offering small loans and travel finance and one automobile sales location in the
greater Los Angeles area, and began offering consumer product finance to
Banner's customers at one additional installment credit store in the greater Los
Angeles area that was opened by Banner in 1995. In 1995, the Company also began
offering financing for the sale of used automobiles. Beginning in late 1995, the
Company expanded its indirect consumer financing business by offering financing
to consumers for the purchase of products and services sold by independent
retailers. At present, the Company has retail installment financing arrangements
with approximately 100 independent retailers in the greater Los Angeles area. In
1996, the Company expanded its travel business by acquiring 25 travel locations
in June 1996 and 55 locations in December 1996. The Company presently has 86
travel locations, of which 80 are located in California. In addition, the
Company commenced its automobile insurance business in 1996 through 12 locations
in the greater Los Angeles area and also began offering insurance premium
financing to its customers. As a result of this rapid growth, results of
operations are not readily comparable from year to year or from period to
period, and are not necessarily indicative of future operating results.
15
<PAGE> 18
SEGMENT DATA
Financial Trends
The following sets forth certain information relating to the Company's
financial trends for the periods indicated.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE CONTRACT BALANCE)
<TABLE>
<CAPTION>
TWO MONTHS
YEARS ENDED ENDED YEARS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31,
----------------- ----------------- -------------------------------------
1992 1993 1993 1994 1993 1994 1995 1996
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross receivable (at end of period)........... $54,038 $57,250 $60,590 $67,514 $60,590 $67,514 $67,811 $61,848
Deferred interest (at end of period).......... 6,354 7,028 7,657 7,603 7,657 7,603 7,796 7,132
------- ------- ------- ------- ------- ------- ------- -------
Net receivable (at end of period)............. 47,684 50,222 52,933 59,911 52,933 59,911 60,015 54,716
Deferred insurance revenues (at end of
period)..................................... 294 536 529 405 529 405 401 270
Allowance for credit losses (at end of
period)..................................... 2,296 2,660 2,786 3,169 2,786 3,169 3,711 4,409
------- ------- ------- ------- ------- ------- ------- -------
Net carrying value............................ $45,094 $47,026 $49,618 $56,337 $49,618 $56,337 $55,903 $50,037
======= ======= ======= ======= ======= ======= ======= =======
Average net receivable........................ $46,690 $51,907 $51,473 $56,335 $52,456 $53,656 $57,276 $55,742
Number of contracts (at end of period)........ N/A N/A 66,353 76,984 66,353 76,984 84,555 81,361
Average net contract balance.................. N/A N/A $ 798 $ 778 $ 798 $ 778 $ 710 $ 673
Average interest bearing liabilities(1)....... 32,736 36,404 34,275 38,573 36,163 37,549 39,284 33,489
Total interest income(2)...................... 8,145 9,010 1,714 2,057 9,420 11,787 12,508 12,850
Total interest expense(1)..................... 2,306 2,279 335 534 2,231 2,579 3,242 2,688
Net interest income before provision for
credit losses............................... 5,839 6,731 1,379 1,523 7,189 9,208 9,266 10,162
Net provision for credit losses............... 2,654 3,198 655 1,229 3,340 3,332 3,852 4,955
Net write-offs................................ 1,688 2,834 529 625 2,897 2,949 3,310 4,257
Average interest rate on average net
receivable.................................. 17.4% 17.4% 20.0% 21.9% 18.0% 22.0% 21.8% 23.1%
Average interest rate on interest bearing
liabilities................................. 7.0% 6.3% 5.9% 8.3% 6.2% 6.9% 8.3% 8.0%
Net Interest Spread........................... 10.4% 11.1% 14.1% 13.6% 11.8% 15.1% 13.5% 15.1%
</TABLE>
- ---------------
(1) Amounts represent borrowings and related interest expense on the Company's
Lines of Credit for the Consumer Product Portfolio, excluding amounts
related to the Company's other borrowings.
(2) Amounts represent interest income on installment contracts, excluding
administrative fees, late charges and other charges, which are included in
other income in the Consolidated Statements of Income appearing elsewhere
herein.
16
<PAGE> 19
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE CONTRACT BALANCE)
<TABLE>
<CAPTION>
YEAR TWO MONTHS
ENDED ENDED YEARS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31,
----------- ----------------- -------------------------------------
1993(1) 1993 1994 1993 1994 1995 1996
----------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Receivable (at end of period)................. $ 705 $ 4,314 $16,735 $ 4,314 $16,735 $37,868 $57,671
Deferred interest (at end of period)................ 26 241 1,809 241 1,809 4,187 6,041
Deferred administrative fees and insurance revenues
(at end of period)................................ 13 166 392 166 392 576 978
Allowance for credit losses (at end of period)...... 66 107 543 107 543 1,194 1,937
------ ------- ------- ------- ------- ------- -------
Net carrying value.................................. $ 600 $ 3,800 $13,991 $ 3,800 $13,991 $31,911 $48,715
====== ======= ======= ======= ======= ======= =======
Average net receivable.............................. $ 850 $ 2,009 $10,509 $ 1,131 $ 5,662 $20,219 $38,847
Number of contracts (at end of period).............. 3,127 10,616 26,166 10,616 26,166 55,241 79,819
Average net contract balance........................ $ 217 $ 384 $ 570 $ 384 $ 570 $ 610 $ 647
Average interest bearing liabilities(2)............. -- 400 5,887 67 3,165 12,902 25,204
Total administrative fee income..................... 52 13 145 65 458 1,133 1,897
Total interest income(3)............................ 134 54 439 188 1,057 5,095 9,686
Total interest expense(2)........................... -- 4 83 4 222 1,036 2,009
Net interest income before provision for credit
losses............................................ 134 50 356 184 835 4,059 7,677
Net provision for credit losses..................... 66 41 388 107 591 1,547 3,349
Net write-offs...................................... -- -- 35 -- 155 896 2,606
Average interest rate on average net receivable..... 15.8% 16.1% 25.1% 16.6% 18.7% 25.2% 24.9%
Average interest rate on interest bearing
liabilities....................................... N/A 6.0% 8.5% 6.0% 7.0% 8.0% 8.0%
Net Interest Spread................................. 15.8% 10.1% 16.6% 10.6% 11.7% 17.2% 17.0%
</TABLE>
- ---------------
(1) The Company commenced its small loan business in December 1992.
(2) Amounts represent borrowings and related interest expense on the Company's
Lines of Credit for the Small Loan Portfolio, excluding amounts related to
the Company's other borrowings.
(3) Amounts represent interest income on installment contracts, excluding
administrative fees, late charges and other charges, which are included in
other income in the Consolidated Statements of Income appearing elsewhere
herein.
TRAVEL FINANCE PORTFOLIO
The Company also began offering Company-financed sales of airline tickets
in mid-1995. At December 31, 1995 and 1996, respectively, the gross receivable
of the Travel Finance Portfolio was $3.0 million and $5.6 million, the net
receivable was $2.7 million and $5.2 million and the carrying value of the
portfolio was $2.7 million and $4.9 million. In addition, the number of
contracts outstanding at December 31, 1995 and 1996, respectively, was 5,811 and
11,772 with an average net contract balance of approximately $466 and $438. At
December 31, 1995 and 1996, respectively, the average interest rate on the
average portfolio was approximately 23.7% and 25.0%. Due to the size and lack of
seasoning of this portfolio, there can be no assurance that the Company's
experience to date with its Travel Finance Portfolio will be indicative of
future results of this portfolio.
INDEPENDENT RETAIL FINANCE PORTFOLIO
The Company began purchasing and servicing consumer finance receivables
generated by independent retailers in 1996. At December 31, 1996, the gross
receivable of the Independent Retail Finance Portfolio was $7.2 million, the net
receivable was $6.2 million and the carrying value of the portfolio was $5.8
million. In addition, the number of contracts outstanding at December 31, 1996,
was 12,053 with an average net contract balance of approximately $518. At
December 31, 1996, the average interest rate on the average portfolio was
approximately 31.5%. Due to the size and lack of seasoning of this portfolio,
there can be no assurance that the
17
<PAGE> 20
Company's experience to date with its Independent Retail Finance Portfolio will
be indicative of future results of this portfolio.
AUTOMOBILE FINANCE PORTFOLIO
The Company began offering Company-financed sales of used automobiles in
mid-1995. In August 1996, the Company sold the used car sales business to Banner
pursuant to an Agreement to Transfer Business Operations among Banner, Central
Consumer Finance, Central Auto Sales, Inc. and Central Financial Acceptance
Corporation (the "Automobile Financing Agreement") which granted the Company the
exclusive right to finance Banner's sales of automobiles or purchase automobile
finance contracts generated by Banner. The Company's decision to sell the used
car sales business was due to capital considerations and the Company's
determination that such business did not presently fit well into the Company's
overall business strategy. At December 31, 1995 and 1996, respectively, the
gross receivable of the Automobile Finance Portfolio was approximately $5.5
million and $11.0 million and the net receivable of the portfolio was $4.2
million and $8.7 million. In addition, the number of contracts outstanding at
December 31, 1995 and 1996, respectively, was 624 and 1,376, with an average net
contract balance at each date of approximately $6,700 and $8,000. The average
interest rate on the average portfolio was 21% at both December 31, 1995 and
1996, and the Net Interest Spread was approximately 13% in both years. Pursuant
to the Automobile Financing Agreement, all purchases of automobile finance
receivables are made with full recourse to Banner in the event of default by the
customer. Accordingly, the Company maintains no allowance for credit losses with
respect to the Automobile Finance Portfolio.
Analysis of Changes in Net Interest Income
The following table segregates the changes in net interest income between
changes in average balances ("Volume") and average rates ("Rate") for both
average net receivables and average interest bearing liabilities of the Consumer
Product Portfolio and the Small Loan Portfolio (dollars in thousands).
<TABLE>
<CAPTION>
YEARS ENDED YEARS ENDED YEARS ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
VERSUS VERSUS VERSUS
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------------ ------------------------ ----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ------ ------ ------ ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Consumer Product Portfolio................... $215 $2,152 $2,367 $ 795 $ (74) $ 721 $(354) $696 $ 342
Small Loan Portfolio......................... 753 116 869 2,718 1,320 4,038 4,645 (54) 4,591
---- ------ ------ ------ ---- ------ ------ ---- ------
968 2,268 3,236 3,513 1,246 4,759 4,291 642 4,933
---- ------ ------ ------ ---- ------ ------ ---- ------
Increase (decrease) in interest expense:
Bank of America Line of Credit............. 86 262 348 119 544 663 (465) (87) (552)
Wells Fargo Line of Credit................. 185 33 218 683 131 814 980 (7) 973
---- ------ ------ ------ ---- ------ ------ ---- ------
271 295 566 802 675 1,477 515 (94) 421
---- ------ ------ ------ ---- ------ ------ ---- ------
Increase in net interest income.............. $697 $1,973 $2,670 $2,711 $ 571 $3,282 $3,776 $736 $4,512
==== ====== ====== ====== ==== ====== ====== ==== ======
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
YEARS ENDED TWO MONTHS ENDED
OCTOBER 31, 1993 DECEMBER 31, 1994
VERSUS VERSUS
OCTOBER 31, 1992 DECEMBER 31, 1993
---------------------- ---------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ----- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Consumer Product Portfolio............................................. $910 $ (45) $865 $162 $181 $343
Small Loan Portfolio................................................... * * * 228 157 385
---- ----- ---- ---- ---- ----
910 (45) 865 390 338 728
---- ----- ---- ---- ---- ----
Increase (decrease) in interest expense:
Bank of America Line of Credit....................................... 258 (285) (27) 42 157 199
Wells Fargo Line of Credit........................................... * * * 55 24 79
---- ----- ---- ---- ---- ----
258 (285) (27) 97 181 278
---- ----- ---- ---- ---- ----
Increase in net interest income........................................ $652 $ 240 $892 $293 $157 $450
---- ----- ---- ---- ---- ----
</TABLE>
- ---------------
* Information not meaningful
Credit Quality
The Company maintains reserves for credit losses in each of its portfolios
at levels that management believes are adequate to absorb potential losses.
Under the Company's guidelines, an account is generally charged off when the
account is deemed uncollectible by the Company, which is typically when the
account is between 91 and 150 days past due. The following sets forth the
Company's charge-off experience and allowance for credit losses. The Company
does not believe that its credit quality experience can be readily compared to
less specialized consumer finance companies due to the Hispanic orientation and
uniform credit profile of its customers.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS
YEARS ENDED ENDED YEARS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31,
----------------- ----------------- -------------------------------------
1992 1993 1993 1994 1993 1994 1995 1996
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average net receivable........................ $46,690 $51,907 $51,473 $56,335 $52,456 $53,656 $57,276 $55,742
Net provision for credit losses............... 2,654 3,198 655 1,229 3,340 3,332 3,852 4,955
Net write-offs................................ 1,688 2,834 529 625 2,897 2,949 3,310 4,257
Provision for credit losses as a percentage of
average net receivable...................... 5.7% 6.2% 7.6% 13.1% 6.4% 6.2% 6.7% 8.9%
Net write-offs as a percentage of average net
receivable.................................. 3.6% 5.5% 6.2% 6.7% 5.5% 5.5% 5.8% 7.6%
END OF PERIOD
Net receivable................................ $47,684 $50,222 $52,933 $59,911 $52,933 $59,911 $60,015 $54,716
Allowance for credit losses................... 2,296 2,660 2,786 3,169 2,786 3,169 3,711 4,409
Allowance for credit losses as a percentage of
net receivable.............................. 4.8% 5.3% 5.3% 5.3% 5.3% 5.3% 6.2% 8.1%
</TABLE>
19
<PAGE> 22
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS
YEARS ENDED ENDED YEARS ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31,
----------- ----------------- ---------------------------------------
1993(1) 1993 1994 1993 1994 1995 1996
----------- ------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Average net receivable....................... $ 850 $2,009 $10,509 $1,131 $ 5,662 $20,219 $38,847
Net provision for credit losses.............. 66 41 388 107 591 1,547 3,349
Net write-offs............................... 0 0 35 0 155 896 2,606
Provision for credit losses as a percentage
of average net receivable.................. 8.5% 12.2% 22.2% 9.5% 10.4% 7.7% 8.6%
Net write-offs as a percentage of average net
receivable................................. 0.0% 0.0% 2.0% 0.0% 2.7% 4.4% 6.7%
END OF PERIOD
Net receivable............................... $ 679 $4,073 $14,926 $4,073 $14,926 $33,681 $51,630
Allowance for credit losses.................. 66 107 543 107 543 1,194 1,937
Allowance for credit losses as a percentage
of net receivable.......................... 9.7% 2.6% 3.6% 2.6% 3.6% 3.5% 3.8%
</TABLE>
- ---------------
(1) The Company commenced its small loan business in December 1992.
TRAVEL, INDEPENDENT RETAIL, AND AUTOMOBILE FINANCE PORTFOLIOS
At December 31, 1995 and 1996, respectively, the allowance for credit
losses in the Travel Finance Portfolio was $50,000 and $213,000, representing
1.8% and 4.1% of the end of period net receivable. At December 31, 1996, the
allowance for credit losses and dealer discount reserves in the Independent
Retail Finance Portfolio was $418,000, representing 6.7% of the end of period
net receivable. Pursuant to the Automobile Financing Agreement, all purchases of
automobile finance receivables are made with full recourse to Banner in the
event of default by the customer. Accordingly, the Company maintains no
allowance for credit losses with respect to the Automobile Finance Portfolio.
Delinquency Experience
Borrowers under the Company's contracts are required to make monthly
payments. The following sets forth the Company's delinquency experience for
accounts with payments 31 days or more past due.
CONSUMER PRODUCT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
--------------- ---------------------------------
1992 1993 1993 1994 1995 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Past due accounts (gross receivable):
31-60 days................................... $1,485 $1,453 $1,316 $2,264 $1,943 $2,393
61 days or more.............................. 1,412 1,483 1,576 2,610 2,465 2,277
Accounts with payments 31 days or more past due
as a percentage of end of period gross
receivable................................... 5.4% 5.1% 4.8% 7.2% 6.5% 7.6%
</TABLE>
20
<PAGE> 23
SMALL LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
----------- ---------------------------------
1993 1993 1994 1995 1996
----------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Past due accounts (gross receivable):
31-60 days........................................ $ 10 $ 9 $ 76 $500 $1,239
61 days or more................................... 27 36 105 649 1,615
Accounts with payments 31 days or more past due as a
percentage of end of period gross receivable...... 5.2% 1.0% 1.1% 3.0% 4.9%
</TABLE>
TRAVEL AND INDEPENDENT RETAIL FINANCE PORTFOLIOS
At December 31, 1995 and 1996, respectively, the dollar amount of accounts
31 days or more past due in the Travel Finance Portfolio was $87,000 and
$342,000 or 2.9% and 6.1% as a percentage of the end of period gross receivable.
At December 31, 1996, the dollar amount of accounts 31 days or more past due in
the Independent Retail Finance Portfolio was $581,000 or 8.1% as a percentage of
the end of period gross receivable. Due to the size of and lack of seasoning of
these portfolios, there can be no assurance that the performance of the
Company's experience to date will be indicative of future results.
In 1996, delinquencies and net write-offs in the Consumer Product Portfolio
increased to levels which were substantially higher than those historically
experienced by the Company in such portfolio. The increases occurred primarily
with respect to the Company's existing customers, rather than new credit
customers. Management believes such increases were a result of excessive credit
burdens for some customers, due to an aggregate overextension of credit in the
marketplace, coupled with uncertainty over proposed legislative reforms
potentially impacting the Company's customers and their extended families.
Although the Company also experienced increases in delinquencies and net
write-offs in its other portfolios, such increases were consistent with
management's expectations.
Because of the Company's growth and expected continued growth, in late 1996
the Company took a number of steps to improve collections and credit quality.
The Company hired two senior executives in the credit and collections fields. In
December 1996, the Company installed an autodialer to assist its collections
personnel in successfully contacting past due borrowers. Finally, the Company
has hired CCN, Inc. to develop a proprietary credit scoring system for the
Company, which it expects to implement during the fourth quarter of 1997.
Notwithstanding these measures, there can be no assurance that the trend in
increased delinquencies and net write-offs will not continue.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total revenues in the year ended December 31, 1996 increased to $36.4
million from $22.2 million in the year ended December 31, 1995, an increase of
$14.2 million or 64.4%.
Consumer Product Portfolio interest income in the year ended December 31,
1996 increased to $12.9 million from $12.5 million in the year ended December
31, 1995, an increase of $0.4 million. Of this increase, $0.7 million was
attributable to a 1.3% increase in the average interest rate earned on this
portfolio in the year ended December 31, 1996 compared to the year ended
December 31, 1995, offset by a $0.3 million decrease in interest income as a
result of a decrease of $1.5 million in the size of the average Consumer Product
Portfolio for the year ended December 31, 1996 compared to the year ended
December 31, 1995.
Small Loan Portfolio interest income in the year ended December 31, 1996
increased to $9.7 million from $5.1 million in the year ended December 31, 1995,
an increase of $4.6 million or 90.1%. Substantially all of this increase was
attributable to an increase in the size of the Small Loan Portfolio, which
averaged $38.8 million in the year ended December 31, 1996 compared to $20.2
million in the year ended December 31, 1995. For the year ended December 31,
1996, the Company earned an average interest rate of 24.9%
21
<PAGE> 24
compared to 25.2% in the year ended December 31, 1995. The Company currently
charges the maximum interest rate permitted under California law on its small
loans.
Automobile Finance Portfolio interest income in the year ended December 31,
1996 increased to $1.5 million from $0.2 million in the year ended December 31,
1995, an increase of $1.3 million. Substantially all of this increase was
attributable to an increase in the size of the Automobile Finance Portfolio,
which averaged $7.2 million in the year ended December 31, 1996 compared to $1.1
million in the year ended December 31, 1995. The Company commenced its business
of financing automobiles in July 1995.
Other interest income in the year ended December 31, 1996 increased to $1.7
million from $0.2 million in the year ended December 31, 1995, an increase of
$1.5 million. Of this increase, $0.8 million was attributed to an increase in
interest income earned on the Company's Travel Finance Portfolio, and $0.6
million was attributable to interest income earned on the Company's financing of
installment receivables generated from the sale of consumer products sold to
customers of independent retailers; the Company commenced this business in early
1996.
For the year ended December 31, 1996, the Company's Travel Finance
Portfolio averaged $4.9 million compared to $2.7 million in the year ended
December 31, 1995. The average interest rate earned on this portfolio was 25.0%
in the year ended December 31, 1996 compared to 23.7% in the year ended December
31, 1995.
Revenues earned on the sales of travel services increased to $2.4 million
in the year ended December 31, 1996 compared to $0.4 million in the year ended
December 31, 1995, an increase of $2.0 million. The Company commenced its travel
business in June 1995, and substantially expanded its operation through the
acquisition of 25 travel locations in May and June of 1996. In December 1996,
the Company acquired an additional 55 travel locations. However, such
acquisition did not materially contribute to 1996 revenues.
Other income for the year ended December 31, 1996 increased to $7.2 million
from $2.9 million in the year ended December 31, 1995, an increase of $4.3
million or 153.3%. Other income primarily includes administrative fees earned on
the Company's Small Loan Portfolio, late and extension charge income and income
earned on the sale of insurance products. For the year ended December 31, 1996,
administrative fee income increased to $1.9 million compared to $1.1 million in
the year ended December 31, 1995, an increase of $0.8 million. For the year
ended December 31, 1996, late and extension charge income increased to $2.6
million from $1.0 million in the year ended December 31, 1995, an increase of
$1.6 million. This increase was primarily attributable to the State of
California increasing the late charges the Company may charge coupled with an
increase in the size of the Company's combined receivable portfolios. For the
year ended December 31, 1996, income from the sale of credit life insurance,
credit accident and health insurance, and credit property insurance increased to
$2.8 million from $0.8 million in the year ended December 31, 1995, an increase
of $2.0 million. This increase was primarily attributable to the Company's
commencing the sale of its insurance products on its small loan portfolio in
November 1995.
Operating expenses in the year ended December 31, 1996 increased to $12.7
million from $7.3 million in the year ended December 31, 1995, an increase of
$5.4 million or 74.0%. Of this increase, $1.7 million and $0.9 million are
attributable to operating costs and expenses incurred in connection with the
sale of travel services, which business commenced in June 1995, and was expanded
through acquisitions in 1996, and the commencement of the Company's automobile
insurance business. Of the remaining increase of $2.8 million, approximately
$0.6 million was attributable to increased costs of selling the Company's
insurance products with substantially all of the remaining increase attributable
to increased costs, including the number of employees and related payroll to
accommodate the increased number of outstanding contracts associated with the
expansion of the Company's businesses.
The provision for credit losses in the year ended December 31, 1996
increased to $9.1 million from $5.5 million in the year ended December 31, 1995,
an increase of $3.6 million or 67.1%. This increase was primarily due to the
growth experienced by the Company in the Small Loan Portfolio, which generated a
provision of $3.3 million in the year ended December 31, 1996 compared to $1.5
million in the comparable period of 1995. The remaining increase of $1.8 million
was primarily attributable to an increase of $1.1 million
22
<PAGE> 25
in the provision for credit losses on the Company's Consumer Product Portfolio,
as a result of increased write-offs and delinquencies in such portfolio, and a
$0.4 million provision for credit losses provided on the Company's Independent
Retail Finance Portfolio. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Segment Data -- Credit
Quality."
Interest expense in the year ended December 31, 1996 increased to $4.7
million from $4.3 million, an increase of $0.4 million or 9.8%. This increase
was primarily due to a higher level of borrowings under the Lines of Credit used
to support the growth in the Company's Small Loan Portfolio and Travel
Portfolio.
As a result of the foregoing factors, net income in the year ended December
31, 1996 increased to $5.9 million from $3.1 million in the year ended December
31, 1995, an increase of $2.8 million or 88.5%.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total revenues in the year ended December 31, 1995 increased to $22.2
million from $15.6 million in the year ended December 31, 1994, an increase of
$6.6 million or 42.4%.
Consumer Product Portfolio interest income in the year ended December 31,
1995 increased to $12.5 million from $11.8 million in the year ended December
31, 1994, an increase of $0.7 million or 6.1%. Of this increase, $0.8 million
was attributable to an increase in the size of the Consumer Product Portfolio,
which averaged $57.3 million in the year ended December 31, 1995 compared to
$53.7 million in the year ended December 31, 1994. For the year ended December
31, 1995, the number of active contracts outstanding in the Consumer Product
Portfolio increased to 84,600, an increase of 9.8% over the comparable period in
1994. For the year ended December 31, 1995, the average balance in such
portfolio decreased to $710 from $778 in the year ended December 31, 1994, a
decrease of 8.7%. The Company believes that this reduction may be attributable
to a number of factors, including general economic conditions in California. The
average interest rate the Company earned on its Consumer Product Portfolio in
the year ended December 31, 1995 decreased to 21.8% from 22.0% in the year ended
December 31, 1994.
Small Loan Portfolio interest income in the year ended December 31, 1995
increased to $5.1 million from $1.1 million in the year ended December 31, 1994,
an increase of $4.0 million or 382.0%. Of this increase, $2.7 million was
attributable to an increase in loan demand and $1.3 million was attributable to
an increase in the average interest rate the Company earned on the average Small
Loan Portfolio. The average interest rate increased to 25.2% for the year ended
December 31, 1995 from 18.7% for the year ended December 31, 1994. The Company
currently charges the maximum interest rate permitted under California law on
its small loans. The average size of the Small Loan Portfolio increased to $20.2
million in the year ended December 31, 1995 from $5.7 million in the year ended
December 31, 1994, an increase of $14.6 million.
In the year ended December 31, 1995, revenues include $0.4 million
generated from the sale of travel services, which business commenced in June
1995, and $0.4 million of interest income earned on the Travel Finance and
Automobile Finance Portfolios.
Other income in the year ended December 31, 1995 increased to $2.9 million
from $1.9 million in the year ended December 31, 1994, an increase of $1.0
million or 52.9%. The remaining increase in other income was primarily due to an
increase of $0.7 million in administrative fee income earned on the Small Loan
Portfolio and $0.3 million from increases in late charges and sales of insurance
products.
Operating expenses in the year ended December 31, 1995 increased to $7.3
million from $5.2 million in the year ended December 31, 1994, an increase of
$2.1 million or 40.9%. Of this increase, $0.3 million is attributable to
operating expenses and costs incurred in connection with the sale of airline
tickets, which began in the year ended December 31, 1995. The remaining increase
of $1.8 million was primarily due to the expansion of the small loan business,
including an increase in the number of employees and related payroll expenses of
$0.9 million, and to an increase in advertising expenses of $0.3 million.
The provision for credit losses in the year ended December 31, 1995
increased to $5.5 million from $3.9 million in the year ended December 31, 1994,
an increase of $1.6 million or 38.9%. This increase was primarily due to the
growth experienced by the Company in its Small Loan Portfolio, which generated a
23
<PAGE> 26
provision of $1.5 million for the year ended December 31, 1995 compared to $0.6
million in the comparable period of 1994. The Travel Finance Portfolio accounted
for $0.1 million of the provision for credit losses during 1995. The remaining
increase was attributable to growth in the Company's Consumer Product Portfolio
and a higher provision level on this portfolio in 1995 as compared to 1994.
Interest expense in the year ended December 31, 1995 increased to $4.3
million from $2.8 million in the year ended December 31, 1994, an increase of
$1.5 million or 52.7%. This increase was primarily due to a higher level of
borrowings under the Lines of Credit used to support the growth in the Company's
Installment Credit Portfolio and Small Loan Portfolio, and to a higher level of
interest charged by the lenders under the respective Lines of Credit, as a
result of increases in their borrowing rates.
As a result of the foregoing factors, net income in the year ended December
31, 1995 increased to $3.1 million from $2.2 million for the year ended December
31, 1994, an increase of $0.9 million or 42.9%.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Total revenues in the year ended December 31, 1994 increased to $15.6
million from $11.9 million in the year ended December 31, 1993, an increase of
$3.7 million or 31.0%.
Consumer Product Portfolio interest income in the year ended December 31,
1994 increased to $11.8 million from $9.4 million in the year ended December 31,
1993, an increase of $2.4 million or 25.1%. Of this increase, $2.2 million was
attributable to an increase in the average interest rate the Company earned on
the Consumer Product Portfolio, which increased to 22.0% in the year ended
December 31, 1994 from 18.0% in the year ended December 31, 1993. The remaining
increase of $0.2 million was attributable to an increase in the size of the
Consumer Product Portfolio, which averaged $53.7 million in the year ended
December 31, 1994 compared to $52.5 million in the year ended December 31, 1993.
Small Loan Portfolio interest income in the year ended December 31, 1994
increased to $1.1 million from $0.2 million in the year ended December 31, 1993,
an increase of $0.9 million or 462.2%. Of this increase, $0.8 million was
attributable to an increase in loan demand and $0.1 million was attributable to
an increase in the average interest rate the Company earned on the average Small
Loan Portfolio. The average interest rate increased to 18.7% for the year ended
December 31, 1994 from 16.6% for the year ended December 31, 1993. The average
size of the Small Loan Portfolio increased to $5.7 million in the year ended
December 31, 1994 from $1.1 million in the year ended December 31, 1993, an
increase of $4.5 million.
Other income in the year ended December 31, 1994 increased to $1.9 million
from $1.4 million in the year ended December 31, 1993, an increase of $0.4
million or 29.3%. This increase was primarily due to an increase in
administrative fee income and to increased late fee income.
Operating expenses in the year ended December 31, 1994 increased to $5.2
million from $4.5 million in the year ended December 31, 1993, an increase of
$0.7 million or 15.9%. This increase was primarily due to increased expenses in
connection with the Company's development of its small loan business, which
include an increase in the number of employees and related payroll necessary to
accommodate the increased number of contracts associated with the expansion of
this business.
The provision for credit losses in the year ended December 31, 1994
increased to $3.9 million from $3.4 million in the year ended December 31, 1993,
an increase of $0.5 million, or 13.8%. This increase was attributable to the
growth in the Company's Small Loan Portfolio. The Company's provision for credit
losses on its Consumer Product Portfolio was $3.3 million for both of the years
ended December 31, 1994 and 1993. The provision for credit losses as a
percentage of the average Consumer Product Portfolio was 6.2% in the year ended
December 31, 1994 compared to 6.4% in the year ended December 31, 1993.
Interest expense in the year ended December 31, 1994 increased to $2.8
million from $2.2 million during the year ended December 31, 1993, an increase
of $0.6 million or 25.3%. This increase was due to a higher level of bank
borrowings used to support the growth on the Company's Combined Receivable
Portfolio and to higher interest rates on the Company's Lines of Credit.
24
<PAGE> 27
As a result of the foregoing factors, net income in the year ended December
31, 1994 increased to $2.2 million compared to $1.0 million in the year ended
December 31, 1993, an increase of $1.2 million or 115.6%.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in June 1996, the Company 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. See "Item 12. Security Ownership of
Certain Beneficial Owners and Management" and "Item 13. Certain Relationships
and Related Transactions."
Net cash provided from operations totaled $6.7 million, $9.2 million and
$17.6 million for the years ended December 31, 1994, 1995 and 1996,
respectively. During these periods, the primary source of net cash provided from
operations was net income before non-cash charges, principally the provision for
credit losses.
Net cash flow generated from operations was insufficient to fund the
Company's outlays for capital expenditures and the significant growth it
experienced in its combined receivable portfolio in each of 1994, 1995 and 1996
and the acquisitions completed in 1996. Net cash used in such investing
activities was $20.8 million, $31.9 million and $43.7 million in the years ended
December 31, 1994, 1995 and 1996, respectively. To fund its expenditures and
support the growth in its combined receivable portfolio, the Company relied on
capital contributions from Holdings, the proceeds from the initial public
offering and bank borrowings made under its credit facilities. Capital
contributions amounted to $1.6 million and $6.6 million in the years ended
December 31, 1994 and 1995, respectively. Prior to the initial public offering,
the Company made a return of capital of $615,000 to Banner. Net proceeds from
the initial public offering were $22.5 million for the year ended December 31,
1996. Bank borrowings provided cash of $12.2 million, $15.1 million and $10.1
million in the years ended December 31, 1994, 1995 and 1996, respectively.
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. Borrowings under the Bank of America Line of Credit may be used only to
finance the Company's consumer product finance business. Banner and CFAC are
each guarantors under the Bank of America 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 eligible contracts in the Company's Consumer Product Portfolio. As of
December 31, 1996, the total amount available to the Company under the Bank of
America Line of Credit was $36.8 million, of which $35.2 million was
outstanding. The Bank of America Line of Credit expires on April 30, 1997.
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 75% of eligible contracts in Small Loan, Automobile Finance and Travel
Finance Portfolios. As of December 31, 1996, the total amount available to the
Company under the Wells Fargo Line of Credit was $45.4 million, of which $38.8
million was outstanding. The Wells Fargo Line of Credit expires on April 30,
1997. The Company believes it will be able to renew both of its Lines of Credit.
However, there can be no assurance that the Company will be able to renew such
Lines of Credit. See "Item 1. Business -- Business Considerations and Certain
Factors that May Affect Future Results of Operations and Stock Price -- Need for
Additional Financing."
The Lines of Credit each contain certain restrictive covenants that
require, among other things, the maintenance of certain financial ratios and
amounts. The Bank of America Line of Credit requires maintenance of a specified
tangible net worth, specific cash flow to interest coverage ratios and specific
debt to tangible net worth coverage ratios for Central Installment Credit and
Banner combined, as such terms are defined in the Bank of America Line of
Credit. Other ratios related to the performance of the Company's Consumer
Product Portfolio must be maintained within limits, including maximum ratios of
past due accounts to eligible contracts and net write-offs to average net
receivables, and a minimum ratio of the allowance for credit losses to net
receivables, in all cases as such terms are defined in the Bank of America Line
of Credit. The Wells Fargo Line of Credit requires Central Consumer Finance to
maintain specified levels of tangible net worth, net income, and cash flow to
interest coverage and debt to tangible net worth ratios, as such terms are
defined in the Wells Fargo Line of Credit. In addition, the ratio of the net
provision for credit losses to net
25
<PAGE> 28
receivables for the Company's Small Loan, Automobile Finance and Travel Finance
portfolios must be maintained below a specified level as such terms are defined
in the Wells Fargo Line of Credit. At December 31, 1996, the Company was not in
compliance with certain financial covenants in the Lines of Credit, however, the
Company obtained waivers from each of Bank of America National Trust and Savings
Association and Wells Fargo Bank, National Association.
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 and
borrowings under its Lines of Credit.
The Company will 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 and that it can obtain
alternative financing sources that, together with cash flow from operations,
would provide the Company sufficient resources to meet its capital requirements.
However, there can be no assurance that the Company will be able to renew its
Lines of Credit, that the Company will have access to additional financing
sources necessary to sustain its operations and its growth plans, or that such
financing will be available to the Company on favorable terms.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K" for the Company's financial statements, and the notes thereto, and the
financial statement schedules filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 17, 1996, the Company changed its independent accountant by
terminating its engagement of Deloitte & Touche LLP ("Deloitte & Touche") and
selecting Arthur Andersen LLP as its independent accountant to audit its
financial statements for the year ended December 31, 1996. All descriptions
contained herein of communications between the Company and third parties and
reports of third parties are qualified in their entirety by the text of the
communications and reports referred to herein.
Deloitte & Touche audited the consolidated balance sheets of the Company
and its subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of income, stockholders equity, and cash flows for the
years ended October 31, 1993 and 1994, the two months ended December 31, 1993
and 1994, and the years ended December 31, 1994 and 1995 (collectively referred
to as the "Financial Statements"). Deloitte & Touche's report on the Financial
Statements did not contain an adverse opinion or disclaimer of opinion nor was
it qualified or modified as to uncertainty, audit scope, or accounting
principles.
The decision to terminate the Company's engagement of Deloitte & Touche and
select Arthur Andersen LLP was unanimously recommended by the Company's Audit
Committee and unanimously approved by the Company's Board of Directors.
During the two most recent fiscal years of the Company and/or its
subsidiaries and the subsequent interim period preceding the aforesaid change,
there were no reportable events as contemplated by Item 304 of Regulation S-K
and no disagreements between the Company and/or its subsidiaries and Deloitte &
Touche on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure which if not resolved to the
satisfaction of Deloitte & Touche would have caused them to make reference to
the subject matter of the disagreement in their report. The Company has
authorized Deloitte & Touche to fully respond to any inquiries by the Company's
new independent auditor, Arthur Andersen LLP.
26
<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Incorporated herein by reference is the information contained in the
section entitled "Directors and Executive Officers" of the Company's definitive
proxy statement, to be filed with the Securities and Exchange Commission within
120 days after December 31, 1996. Reference is also made to the list of
executive officers provided herein under Section 4(a), "Executive Officers of
the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information contained in the
section entitled "Directors and Executive Officers -- Compensation of Executive
Officers and Directors" of the Company's definitive proxy statement, to be filed
with the Securities and Exchange Commission within 120 days after December 31,
1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information contained in the
section entitled "Beneficial Ownership of Principal Stockholders and Management"
of the Company's definitive proxy statement, to be filed with the Securities and
Exchange Commission within 120 days after December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the information contained in the
section entitled "Directors and Executive Officers -- Compensation of Executive
Officers and Directors -- Compensation Committee Interlocks and Insider
Participation" of the Company's definitive proxy statement, to be filed with the
Securities and Exchange Commission within 120 days after December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS. Reference is made to the Index to
Consolidated Financial Statements on page F-1 for a list of financial statements
filed as part of this report.
(2) FINANCIAL STATEMENT SCHEDULES. All financial statement schedules are
omitted because of the absence of the conditions under which they are required
to be provided or because the required information is included in the financial
statements listed above and/or related notes.
(3) LIST OF EXHIBITS. The following is a list of exhibits filed as a part
of this report, including any management contracts or compensatory plans or
arrangements required to be filed as an exhibit to this report. Such management
contracts or compensatory plans or arrangements are identified in the list
below.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ----------------------------------------------------------------------------------
<S> <C>
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 Registrant.
3.2* By-laws of the Registrant.
4.1* Specimen Common Stock Certificate of the Registrant.
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 Central Installment Credit Corporation, Banner's
Central Electric, Inc., Central Ram, Inc. and Banner Holdings, Inc. dated as of
June 24, 1996.
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ----------------------------------------------------------------------------------
<S> <C>
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 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.
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 dated 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 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.
10.23** Amendment Number One to Third Amended and Restated Loan Agreement dated as of
August 31, 1996 among the financial institutions named therein, Central
Installment Credit Corporation and Banner's Central Electric, Inc.
10.24 Eighth Amendment to Credit Agreement dated as of June 21, 1996 by and between
Central Consumer Finance Company and Wells Fargo Bank, National Association.
10.25** Ninth Amendment to Credit Agreement dated as of October 10, 1996 by and between
Central Consumer Finance Company and Wells Fargo Bank, National Association.
10.26+ Employment Agreement between the Company and Anthony Fortunato dated October 25,
1996.
10.27+ Employment Agreement between the Company and Gerard T. McMahon dated August 30,
1996.
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ----------------------------------------------------------------------------------
<S> <C>
10.28 Amendment Number Two to Third Amended and Restated Loan Agreement dated as of
December 31, 1996 among the financial institutions named therein, Central
Installment Credit Corporation and Banner's Central Electric, Inc.
10.29 Agreement to Transfer Business Operations among Banner's Central Electric, Inc.,
Central Consumer Finance Company, Central Financial Acceptance Corporation and
Central Auto Sales, Inc. dated as of July 31, 1996.
10.30 Waiver Agreement and Temporary Amendment dated as of January 31, 1997 with
reference to the Credit Agreement dated as of December 14, 1993 between Consumer
Finance Company and Wells Fargo Bank, National Association, as amended.
10.31 Amendment One to Financing Agreement between Central Installment Credit
Corporation, Banner's Central Electric, Inc., Central Ram, Inc. and Banner
Holdings, Inc., dated as of July 1, 1996.
11.0 Statement of Per Share Earnings.
21.1 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to exhibits filed with the Commission in the
Company's Registration Statement on Form S-1 (Registration No. 333-3790).
** Incorporated by reference to exhibits filed with the Commission in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit.
(B) REPORTS ON FORM 8-K. On October 23, 1996, the Company filed a report
on Form 8-K under Item 4, "Changes in Registrant's Certifying Accountant." The
Company subsequently filed amendments to such report on October 30 and November
1, 1996.
(C) EXHIBITS. Reference is made to the Exhibit Index and exhibits filed as
a part of this report.
(D) ADDITIONAL FINANCIAL STATEMENTS. Not applicable.
29
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Gary M. Cypres
--------------------------------------
Gary M. Cypres
Chief Executive Officer and President
Date: March 26, 1997
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 and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------- ---------------
<C> <S> <C>
/s/ Gary M. Cypres Chairman of the Board of Directors, March 26, 1997
- ------------------------------------------ Chief Executive Officer and
Gary M. Cypres President (Principal Executive
Officer)
/s/ Louis Caldera Director March 26, 1997
- ------------------------------------------
Louis Caldera
/s/ Jose de Jesus Legaspi Director March 26, 1997
- ------------------------------------------
Jose de Jesus Legaspi
</TABLE>
<PAGE> 33
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................................. F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.............................................. F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1996 and 1995........................... F-4
Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and
1994............................................................................. F-5
Consolidated Statements of Stockholder's Equity for the Years Ended December 31,
1996, 1995 and 1994.............................................................. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995
and 1994......................................................................... F-7
Notes to Consolidated Financial Statements.......................................... F-8
</TABLE>
F-1
<PAGE> 34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Central Financial Acceptance
Corporation:
We have audited the accompanying consolidated balance sheet of Central
Financial Acceptance Corporation, a California corporation, and subsidiaries
(the "Company") as of December 31, 1996, and the related consolidated statements
of income, stockholder's equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 19, 1997
F-2
<PAGE> 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-3
<PAGE> 36
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash............................................................ $ 5,848,000 $ 57,000
Finance receivables, net........................................ 120,391,000 94,674,000
Prepaid expenses and other current assets....................... 3,962,000 200,000
Net assets of discontinued operation............................ -- 1,033,000
Deferred income taxes........................................... 3,536,000 2,307,000
Property and equipment, net..................................... 3,425,000 2,060,000
Intangible assets, net.......................................... 8,725,000 1,399,000
------------ ------------
TOTAL................................................. $145,887,000 $101,730,000
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable................................................... $ 74,024,000 $ 63,967,000
Accrued expenses and other current liabilities.................. 8,708,000 1,688,000
Income taxes payable............................................ 952,000 1,593,000
Long-term debt.................................................. 850,000 850,000
------------ ------------
Total liabilities.......................................... 84,534,000 68,098,000
------------ ------------
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;
7,277,000 and 5,150,000 shares issued and outstanding,
respectively............................................... 73,000 52,000
Paid-in capital............................................... 47,903,000 26,082,000
Retained earnings............................................. 13,377,000 7,498,000
------------ ------------
Total stockholder's equity................................. 61,353,000 33,632,000
------------ ------------
TOTAL................................................. $145,887,000 $101,730,000
============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements.
F-4
<PAGE> 37
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Interest income
Consumer product portfolio......................... $12,850,000 $12,508,000 $11,787,000
Small loan portfolio............................... 9,686,000 5,095,000 1,057,000
Automobile finance portfolio....................... 1,548,000 240,000 0
Other.............................................. 1,691,000 176,000 0
----------- ----------- -----------
Total interest income............................ 25,775,000 18,019,000 12,844,000
Travel services....................................... 2,449,000 371,000 0
Transaction fees from affiliate....................... 965,000 916,000 857,000
Other income.......................................... 7,238,000 2,857,000 1,868,000
----------- ----------- -----------
Total revenues................................... 36,427,000 22,163,000 15,569,000
----------- ----------- -----------
COSTS AND EXPENSES:
Operating expenses.................................... 12,676,000 7,288,000 5,170,000
Provision for credit losses........................... 9,105,000 5,449,000 3,923,000
Interest expense...................................... 4,697,000 4,278,000 2,801,000
----------- ----------- -----------
Total costs and expenses......................... 26,478,000 17,015,000 11,894,000
----------- ----------- -----------
Income before taxes and discontinued operations......... 9,949,000 5,148,000 3,675,000
Income tax expense...................................... 3,979,000 2,079,000 1,493,000
----------- ----------- -----------
Income from continuing operations....................... 5,970,000 3,069,000 2,182,000
Discontinued operations net income (loss)............... (91,000) 50,000 0
----------- ----------- -----------
Net income.............................................. $ 5,879,000 $ 3,119,000 $ 2,182,000
=========== =========== ===========
PER SHARE DATA: (NOTE 3)
Earnings per share from continuing operations......... $ 0.96 $ 0.60 $ 0.42
Earnings (Loss) per share discontinued operations..... (0.01) 0.01 0.00
----------- ----------- -----------
Net income per share.................................. $ 0.95 $ 0.61 $ 0.42
Weighted average common shares outstanding............ 6,213,500 5,150,000 5,150,000
Supplementary net income per share (unaudited)........ $ 0.88 $ 0.58 $ 0.43
Supplementary weighted average number of common shares
outstanding (unaudited)............................ 7,277,000 7,277,000 7,277,000
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements.
F-5
<PAGE> 38
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK
--------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994..... 5,150,000 $52,000 $17,916,000 $ 2,197,000 $20,165,000
Net income................. 2,182,000 2,182,000
Capital contribution....... 1,604,000 1,604,000
--------- ------- ----------- ----------- -----------
Balance, December 31, 1994... 5,150,000 52,000 19,520,000 4,379,000 23,951,000
Net income................. 3,119,000 3,119,000
Capital contribution....... 6,562,000 6,562,000
--------- ------- ----------- ----------- -----------
Balance, December 31, 1995... 5,150,000 52,000 26,082,000 7,498,000 33,632,000
Net income................. 5,879,000 5,879,000
Capital withdrawal......... (615,000) (615,000)
Net proceeds from public
offering................ 2,127,000 21,000 22,436,000 22,457,000
--------- ------- ----------- ----------- -----------
Balance, December 31, 1996... 7,277,000 $73,000 $47,903,000 $13,377,000 $61,353,000
========= ======= =========== =========== ===========
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements.
F-6
<PAGE> 39
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 5,879,000 $ 3,119,000 $ 2,182,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 224,000 386,000 264,000
Provision for credit losses.................... 9,105,000 5,449,000 3,923,000
Deferred income taxes.......................... (1,229,000) (663,000) (281,000)
Changes in assets and liabilities:
Prepaid expenses and other current assets...... (3,762,000) (166,000) 131,000
Net assets of discontinued operations.......... 1,033,000 (1,033,000) 0
Accrued expenses and other current liabilities
and income taxes payable.................... 6,379,000 2,135,000 521,000
------------ ------------ ------------
Net cash provided by operating activities... 17,629,000 9,227,000 6,740,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Installment contracts (originated and acquired)
collected, net.............................. (34,822,000) (29,795,000) (20,833,000)
Capital expenditures........................... (1,492,000) (2,124,000) (7,000)
Acquisitions................................... (7,423,000) 0 0
------------ ------------ ------------
Net cash used in investing activities....... (43,737,000) (31,919,000) (20,840,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution (withdrawal).............. (615,000) 6,562,000 1,604,000
Net Proceeds from public offering.............. 22,457,000 0 0
Proceeds from long-term debt................... 0 850,000 0
Net proceeds from notes payable................ 10,057,000 15,122,000 12,195,000
------------ ------------ ------------
Net cash provided by financing activities... 31,899,000 22,534,000 13,799,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH.................. 5,791,000 (158,000) (301,000)
CASH, BEGINNING OF YEAR.......................... 57,000 215,000 516,000
------------ ------------ ------------
CASH, END OF YEAR................................ $ 5,848,000 $ 57,000 $ 215,000
============ ============ ============
CASH PAID DURING THE YEAR FOR:
INTEREST....................................... $ 4,531,000 $ 4,250,000 $ 2,772,000
INCOME TAXES................................... $ 5,909,000 $ 1,675,000 $ 1,549,000
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these consolidated financial statements.
F-7
<PAGE> 40
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Basis of Presentation -- Central Financial Acceptance Corporation ("CFAC")
was formed in April 1996 and was a wholly owned subsidiary of Banner's Central
Electric, Inc ("Banner"). 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 "Holding 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 11). 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 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.
On July 2, 1996, CFAC consummated its initial public offering when it sold
2.127 million shares of common stock, which resulted in net proceeds to the
Company of $22.5 million.
On August 1, 1996, the business of Central Auto Sales, Inc., (a wholly
owned subsidiary of CFAC) was sold to CFAC's parent company for net book value.
The consolidated financial statements have been restated to reflect this
business as a discontinued operation.
Nature of Operations -- The Company (i) purchases and services consumer
finance receivables generated by the Company's customers for purchases of high
quality brand name consumer products, appliances and furniture sold by Banner,
and by independent retailers; (ii) provides financing for purchases of used
automobiles sold by Banner; (iii) provides small loans to its customers; (iv)
originates and services consumer finance receivables generated by the Company's
customers for purchases of airline tickets sold by the Company; and (v) provides
insurance products and insurance premium financing to its customers. The
majority of the Company's business is focused in Southern California, and the
Company experiences the highest demand for its financial products and services
between October and December.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Central Financial Acceptance Corporation and
its wholly owned subsidiaries, Central Installment Credit Corporation, Central
Consumer Finance Company, Centravel, Inc., Central Financial
Acceptance/Insurance Agency, Central Premium Finance Company, Central
International, Ltd. and BCE Properties, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
Finance Receivables -- Central's finance receivables include installment
contracts that are purchased from Banner (referred to herein as the "Consumer
Product Portfolio"), receivables that arise from unsecured, small loans
(referred to herein as the "Small Loan Portfolio"), installment contracts that
are originated when
F-8
<PAGE> 41
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
customers buy used cars and travel tickets (referred to herein as the
"Automobile Finance Portfolio" and the "Travel Finance Portfolio,"
respectively), and installment contracts purchased from unaffiliated third party
retailers that sell products or services and receivables that arise from
automobile insurance premium contracts (referred to herein as the "Other
Portfolio.") 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 24 months in the Consumer Product Finance Portfolio and the Other Portfolio,
which includes the independent retailers, from 1 to 12 months in the Small Loan
and Travel Finance Portfolios, and from 36 to 42 months in the Automobile
Finance Portfolio.
Certain direct loan origination costs are capitalized and recognized into
expense over the life of the related loan using a method that approximates the
interest method.
The Company provides an allowance for credit losses in the Consumer Product
and Travel Finance Portfolios at the time that the contract is purchased or the
retail sale is made. The allowance for credit losses in the Small Loan Portfolio
and independent retailers 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 portfolios 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 indicates that collection is unlikely, the account is charged
off and turned over to a collection agency. Accounts are generally charged off
when they are between 91 and 150 days past due.
Allowance for loan losses is increased by charges to income and decreased
by chargeoffs, net of recoveries. Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay and current economic conditions. The Company's
customers are typically between the ages of 21 and 45 and earn less than $25,000
per year, have little or no savings and limited short-term employment histories.
In addition, the Company's customers typically have no prior credit histories
and are unable to secure credit from traditional lending sources. The Company
makes its credit decisions primarily on its assessment of a customer's ability
to repay the obligation. In making a credit decision, in addition to the size of
the obligation, the Company generally considers a customer's income level, type
and length of employment, stability of residence, personal references and prior
credit history with the Company. As a result, the Company is more susceptible to
the risk that its customers will not satisfy their repayment obligations than
are less specialized consumer companies or consumer finance companies that have
more stringent underwriting criteria. Because the Company relies on the
creditworthiness of its customers for repayment and does not rely on collateral
securing the debt, the Company experiences actual rates of losses higher than
lenders who have collateral which they can repossess in the event of a
borrower's default.
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.
Property and Equipment -- Property and equipment are carried at cost.
Long-lived property is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such an asset may not be
recoverable. If the carrying amount of the asset exceeds the estimated
undiscounted future cash flows to be generated by the asset, an impairment loss
would be recorded to reduce the asset's carrying
F-9
<PAGE> 42
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value to its estimated fair value. Depreciation and amortization are computed
primarily using the straight-line method over the estimated lives of the assets,
as follows:
<TABLE>
<S> <C>
Furniture, equipment and software.................. Five to ten years
Leasehold improvements............................. Life of lease
Building improvements.............................. 7 to 39 years
</TABLE>
Intangible Assets -- Intangible assets primarily arose in connection with
the Company's acquisition of the net assets of certain travel and automobile
insurance businesses during 1996. The excess of the purchase price over the fair
value of net assets acquired is being amortized using the straight-line method
over 30 years. The recoverability of the intangible asset is analyzed annually
based on undiscounted future cash flows. If the carrying value of the intangible
asset exceeds the estimated undiscounted future cash flows, an impairment loss
would be recorded to reduce the asset's carrying value to its estimated fair
value.
Income Recognition -- Interest income on the Consumer Product, Automobile
Finance and Travel Finance Portfolios is deferred and recognized over the lives
of the contracts using the "Rule of 78s," which approximates the interest
method. Interest income on the Small Loan Portfolio and independent retailers is
deferred and recognized using the interest method. Transaction fees on contracts
purchased from a related party are deferred and recognized using the interest
method. Administrative fees are deferred and recognized over the estimated
average life of the Small Loan Portfolio using the "Rule of 78s, which
approximates the interest method. Administrative fees are included in other
income in the consolidated statements of income. Premiums and commissions for
credit life insurance are recognized as revenue using the interest method.
Premiums and commissions for credit accident and health insurance are recognized
over the terms of the contracts based on the means of the straight line and
interest method and are included in other income in the consolidated statements
of income.
Travel Services -- Revenues from the sale of travel tickets represent
airline commissions paid to the Company.
Insurance Liabilities -- The liability for losses and loss-adjustment
expenses includes an amount determined from loss reports and individual cases
and an amount, based on past experience, for losses incurred but not reported.
Such liabilities are necessarily based on estimates and, while management
believes that the amount is adequate, the ultimate liability may be in excess of
or less than the amounts provided. The methods for making such estimates and for
establishing the resulting liability are continually reviewed, and any
adjustments are reflected in earnings in the current period.
Income Taxes -- The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 109. Under SFAS No. 109, income tax expense includes
income taxes payable for the current year and the change in deferred income tax
assets and liabilities for the future tax consequences of events that have been
recognized in the Company's financial statements or income tax returns. A
valuation allowance is recognized to reduce the carrying value of the deferred
tax assets if it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Fair Value of Financial Instruments -- The carrying value of the Company's
finance receivables approximates their fair value due to their short term nature
and generally stable rates of interest currently being charged in comparison to
the rates reflected in the existing portfolios. The carrying value of the
Company's notes payable approximates their fair value, as these notes represent
a series of short-term notes at floating interest rates. The carrying value of
the Company's long-term debt approximates its fair value, as the promissory note
bears interest at a floating rate.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. Such estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
F-10
<PAGE> 43
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
3. EARNINGS PER SHARE
Earnings per common share is computed by dividing net income by the average
number of common shares outstanding during the periods using the treasury stock
method. Stock options were not considered as dilutive in the earnings per share
calculation since they have less than 3% effect in the aggregate.
Supplementary net income per share is based upon 5,150,000 shares of Common
Stock issued by the Company pursuant to the Reorganization and 2,127,000 shares
of Common Stock sold by the Company in its initial public offering as if all
such shares were outstanding as of January 1, 1994, and also gives effect to a
reduction in interest expenses resulting from the reduction of indebtedness upon
application of the net proceeds of the initial public offering as if it has
occurred on January 1, 1994.
4. ACQUISITIONS
During 1994, the Company acquired the receivables portfolio of a furniture
retailer in the San Francisco area that provided installment credit for its
customers. The receivables portfolio was acquired for approximately $6,125,000.
During 1996, the Company acquired the business of, and assumed the leasehold
interest to 80 travel locations, and 10 automobile insurance agencies for an
aggregate purchase price of approximately $7.5 million.
These acquisitions were accounted for as purchases and the results of their
operations, which are not significant, have been included since the applicable
acquisition dates.
5. FINANCE RECEIVABLES
Finance receivables consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Consumer Product Portfolio.............................. $ 61,848,000 $ 67,811,000
Small Loan Portfolio.................................... 57,671,000 37,868,000
Automobile Finance Portfolio............................ 11,002,000 5,545,000
Travel Finance Portfolio................................ 5,609,000 2,969,000
Other................................................... 9,349,000 0
------------ ------------
145,479,000 114,193,000
Less deferred interest.................................. 17,049,000 13,587,000
Less allowance for credit losses........................ 6,786,000 4,955,000
Less deferred administrative fees and insurance
revenues.............................................. 978,000 576,000
Less unearned premiums and unpaid claim liabilities
related to finance receivables........................ 275,000 401,000
------------ ------------
$120,391,000 $ 94,674,000
============ ============
</TABLE>
F-11
<PAGE> 44
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Customers are required to make monthly payments on installment contracts.
The aggregate gross balance of accounts with payments 31 days or more past due
are:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
CONSUMER PRODUCT PORTFOLIO:
Past due 31-60 days..................................... $ 2,393,000 $ 1,943,000
Past due 61 days or more................................ 2,277,000 2,465,000
----------- -----------
$ 4,670,000 $ 4,408,000
=========== ===========
SMALL LOAN PORTFOLIO:
Past due 31-60 days..................................... $ 1,239,000 $ 500,000
Past due 61 days or more................................ 1,615,000 649,000
----------- -----------
$ 2,854,000 $ 1,149,000
=========== ===========
TRAVEL FINANCE PORTFOLIO:
Past due 31-60 days..................................... $ 129,000 $ 39,000
Past due 61 days or more................................ 213,000 48,000
----------- -----------
$ 342,000 $ 87,000
=========== ===========
OTHER:
Past due 31-60 day...................................... $ 437,000 $ 0
Past due 61 days or more................................ 252,000 0
----------- -----------
$ 689,000 $ 0
=========== ===========
</TABLE>
The allowance for credit losses in the Consumer Product Portfolio includes
the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Allowance for credit losses, beginning of $ 3,711,000 $ 3,169,000 $ 2,786,000
year......................................
Provision for credit losses................. 4,955,000 3,852,000 3,332,000
Write-offs, net of recoveries............... (4,257,000) (3,310,000) (2,949,000)
----------- ----------- -----------
Allowance for credit losses, end of year.... $ 4,409,000 $ 3,711,000 $ 3,169,000
=========== =========== ===========
</TABLE>
The allowance for credit losses in the Small Loan Portfolio includes the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Allowance for credit losses, beginning of $ 1,194,000 $ 543,000 $ 107,000
year......................................
Provision for credit losses................. 3,349,000 1,547,000 591,000
Write-offs, net of recoveries............... (2,606,000) (896,000) (155,000)
----------- ----------- -----------
Allowance for credit losses, end of year.... $ 1,937,000 $ 1,194,000 $ 543,000
=========== =========== ===========
</TABLE>
F-12
<PAGE> 45
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The allowance for credit losses in the Travel Finance Portfolio, which
began in 1995, includes the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Allowance for credit losses, beginning of year............ $ 50,000 $ 0
Provision for credit losses............................... 395,000 50,000
Write-offs, net of recoveries............................. (232,000) 0
---------- ----------
Allowance for credit losses, end of year.................. $ 213,000 $ 50,000
========== ==========
</TABLE>
The allowance for credit losses in the Other Finance Portfolio, which
businesses began in 1996, includes the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1996
------------
<S> <C>
Allowance for credit losses, beginning of year.......................... $ 0
Provision for credit losses............................................. 406,000
Write-offs, net of receivables.......................................... (179,000)
----------
Allowance for credit losses, end of year................................ $ 227,000
==========
</TABLE>
The Automobile Finance Portfolio is financed by the Company with full
recourse back to Banner, and accordingly, no allowance for credit losses is
provided for by the Company.
6. PROPERTY AND EQUIPMENT
Property and equipment, net consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Land.................................................... $1,568,000 $1,568,000
Improvements............................................ 507,000 146,000
Furniture, equipment and software....................... 1,548,000 417,000
---------- ----------
3,623,000 2,131,000
Less accumulated depreciation and amortization.......... 198,000 71,000
---------- ----------
$3,425,000 $2,060,000
========== ==========
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets, net consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Excess of purchase price over the fair value of net $9,085,000 $1,662,000
assets acquired.......................................
Less accumulated amortization........................... 360,000 263,000
---------- ----------
$8,725,000 $1,399,000
========== ==========
</TABLE>
F-13
<PAGE> 46
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Bank of America line of credit........................ $35,208,000 $40,317,000
Wells Fargo line of credit............................ 38,816,000 23,650,000
----------- -----------
$74,024,000 $63,967,000
=========== ===========
</TABLE>
The Company has a line of 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 the Consumer Product Portfolio and Banner is a
guarantor. The Bank of America Line of Credit, as amended, matures on April 30,
1997 and contains certain restrictive covenants that require, among other
things, the maintenance of certain financial ratios and amounts. The Company is
required to maintain specified levels of tangible net worth and cash flow to
interest coverage ratios for one of its subsidiaries and Banner combined, and
cannot exceed a specified ratio of debt to tangible net worth for such
subsidiary and Banner combined, as such terms are defined in the line of credit
agreement. Other ratios related to the performance of the Company's Consumer
Product Portfolio must be maintained within limits, including maximum ratios of
past due accounts to eligible contracts, net write-offs to average net
receivables, and a minimum ratio of the allowance for credit losses to net
receivables, in all cases as such terms are defined in the line of credit
agreement. Borrowings under the facility bore interest at weighted average rates
of 9.13% and 8.21% per annum as of December 31, 1996 and December 31, 1995,
respectively. The amount of unused credit under the facility was limited by the
allowable borrowing base and was approximately $1,572,000 at December 31, 1996.
The Company has a line of 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 $50,000,000, 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 the Small Loan, Automobile Finance and Travel Finance
Portfolios. The Wells Fargo Line of Credit, as amended, expires on April 30,
1997. The credit facility contains certain restrictive covenants that require,
among other things, the maintenance of certain financial ratios and amounts. The
Company is required to maintain specified levels of tangible net worth, net
income, and cash flow to interest coverage ratios for one of its subsidiaries,
and cannot exceed a specified ratio of debt to tangible net worth for such
subsidiary, as such terms are defined in the line of credit agreement. In
addition, the ratio of the net provision for credit losses to net receivables
for the Company's Small Loan, Automobile Finance and Travel Finance Portfolios
must be maintained below a specified level as such terms are defined in the line
of credit agreement. Borrowings under the facility bore interest at weighted
average rates of 7.89% and 8.11% per annum as of December 31, 1996 and December
31, 1995, respectively. The amount of unused credit under the facility was
limited by the allowable borrowing base and was approximately $6,624,000 at
December 31, 1996. The Company believes that the Lines of Credit can be renewed
or that it can obtain alternative financing.
The Company is required to pay a commitment fee of 0.375% per annum for
unused portions of its lines of credit. These fees totaled $179,000 for the
years ended December 31, 1996 and 1995, and $78,000 for the year ended December
31, 1994, and are included in operating expenses in the consolidated statements
of income.
F-14
<PAGE> 47
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company was not in compliance with certain financial covenants as of
December 31, 1996; however, a waiver has been received from each of Bank of
America National Trust and Savings Association and Wells Fargo Bank, National
Association.
9. LONG-TERM DEBT
Long-term debt consists of a promissory note payable to a bank that bears
interest at the bank's reference rate of 8.25% at December 31, 1996. Interest is
payable monthly and the principal is due July 1998. The note is secured by a
deed of trust.
10. INCOME TAXES
The Company has agreed to indemnify Holdings for all federal, state, and
other income taxes for periods prior to July 2, 1996, when it was included as
part of Holdings consolidated tax group.
Subsequent to July 2, 1996, the Company and its subsidiaries will file a
consolidated federal income tax return. For California and certain other states,
the Company will continue to file on a combined or separate company tax basis,
as appropriate. The income tax provisions as presented in the accompanying
financial statements are based upon the amount the Company would have paid as if
it filed separate income tax returns for the entire periods presented.
The provision (benefit) for income taxes from continuing operations
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
CURRENT:
Federal..................................... $ 4,127,000 $2,121,000 $1,373,000
State....................................... 1,081,000 621,000 401,000
----------- ---------- ----------
5,208,000 2,742,000 1,774,000
----------- ---------- ----------
DEFERRED:
Federal..................................... (1,041,000) (521,000) (220,000)
State....................................... (188,000) (142,000) (61,000)
----------- ---------- ----------
(1,229,000) (663,000) (281,000)
----------- ---------- ----------
Provision for income taxes.................... $ 3,979,000 $2,079,000 $1,493,000
=========== ========== ==========
</TABLE>
A reconciliation of the provision for income taxes from continuing
operations to the statutory rates is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income taxes at statutory rates........................ 35.0% 35.0% 35.0%
State franchise taxes, net of federal benefit.................. 5.8 6.0 6.0
Amortization of the excess purchase price
over the fair value of assets acquired....................... 0.2 0.4 0.5
Other.......................................................... (1.0) (1.0) (0.9)
---- ---- ----
40.0% 40.4% 40.6%
==== ==== ====
</TABLE>
F-15
<PAGE> 48
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences giving rise to the deferred income
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
DEFERRED INCOME TAX ASSETS (LIABILITIES):
Allowance for credit losses............................... $2,908,000 $2,157,000
Deferred revenue.......................................... 466,000 162,000
Other..................................................... 162,000 (12,000)
---------- ----------
$3,536,000 $2,307,000
========== ==========
</TABLE>
11. RELATED PARTY TRANSACTIONS
In connection with its formation, the Company, Banner and Holdings, entered
into the Reorganization Agreement and certain other agreements (the "Financing
Agreement", the "Option Agreement", and the "Operating Agreement").
The Financing Agreement, as amended, grants the Company exclusive right to
provide financing to Banner customers for a term of fifteen years from the date
of the Reorganization and provides that any contracts purchased pursuant to this
Agreement will be at face value less a transaction fee, which is subject to
renegotiation at six month intervals. The Agreement also provides that for the
years ended December 31, 1996 and 1997, up to $1.5 million of contracts
purchased can be returned to Banner at amortized principal balance. The Company
can terminate the Financing Agreement at any time upon one year's prior written
notice to Banner.
In the accompanying consolidated financial statements the transaction fee
was computed based upon 1.6% of average net receivables in the Consumer Product
Portfolio prior to July 2, 1996, and 2.5% thereafter. During 1996, Banner sold
approximately $55 million of Consumer Product Receivables, net of $1.5 million
which the Company returned pursuant to the Financing Agreement.
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 price 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,
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.
F-16
<PAGE> 49
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Termination may be made on a service-by-service basis or in total. Such
allocated expenses totaled $1,338,000, $1,000,000, and $559,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
In August 1996, following CFAC's initial public offering, CFAC, Central
Auto Sales, Inc., Central Consumer Finance Company and Banner entered into an
Agreement to Transfer Business Operations (the "Automobile Financing
Agreement"), under which CFAC sold its used car sales business to Banner for
approximately its net book value, or $865,000. Under the provisions of the
Automobile Financing Agreement, Banner will operate the used car sales business
while the Company will have the exclusive right for a fifteen year period to
provide financing for all cars that Banner sells or to purchase automobile
finance contracts generated by Banner. In addition, all financing extended by
the Company on automobiles sold by Banner will be with full recourse back to
Banner in the event of default by the customer. Accordingly, Banner will not
provide any dealers discount for cars sold pursuant to the Automobile Financing
Agreement.
12. PROFIT-SHARING PLAN
The Company participates along with other affiliated companies, in a
profit-sharing plan that covers substantially all employees who meet certain age
and length-of-service requirements. Annual contributions are contingent upon
current and accumulated profits and are at the sole discretion of the Board of
Directors. Profit-sharing expense allocated to the Company for the years ended
December 31, 1996, 1995 and 1994 was $27,000, 55,000 and $48,000, respectively.
13. STOCK OPTION PLAN
In connection with its initial public offering the Company adopted the 1996
Stock Option Plan, under which 700,000 shares of authorized common stock have
been reserved for issuance pursuant to terms and conditions as determined by the
Board of Directors. The options have a maximum duration of ten years and are
subject to certain vesting and cancellation provisions, and may not be granted
at less than the market value of the Company's Common Stock on the date of grant
of the option. During 1996, the Company granted options to acquire an aggregate
of 425,000 shares of common stock with exercise prices ranging from $12.00 to
$18.25 per share. As of December 31, 1996, no options were exercisable.
In October 1995, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 defines a fair value based method of
accounting for employee stock compensation plans, but allows for the
continuation of the intrinsic value based method of accounting to measure
compensation cost prescribed by Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"). For companies electing
not to change their accounting, SFAS 123 requires pro-forma disclosures of
earnings and earnings per share as if the change in accounting provision of SFAS
123 has been adopted.
The Company has elected to continue to utilize the accounting method
prescribed by APB 25, under which no compensation cost has been recognized, and
adopt the disclosure requirements of SFAS 123. As a result, SFAS 123 has no
effect on the financial condition or results of operations of the Company at
December 31, 1996.
Had compensation cost for this plan been determined consistent with SFAS
123, the Company's net income and earnings per share would have been reduced to
the following pro forma amounts.
<TABLE>
<S> <C> <C>
Net Income...................................... As Reported $5,879,000
Pro Forma $5,496,000
Primary EPS..................................... As Reported $ 0.95
Pro Forma $ 0.88
</TABLE>
F-17
<PAGE> 50
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes information about the stock option plan
outstanding as of December 31, 1996:
<TABLE>
<S> <C>
Range of exercise price................................... $12.00 - $18.25
Number outstanding........................................ 425,000
Weighted average remaining contractual life............... 9.5 years
</TABLE>
14. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
During 1996, the Company adopted a Supplemental Executive Retirement Plan
(the "SERP Plan") which will provide supplemental retirement benefits to certain
key management employees. To vest in the SERP Plan, an employee must have at
least ten years of service with the Company, including five years subsequent to
the adoption of the plan.
The Supplemental Executive Retirement Plan, which is unfunded, expense for
the year ended December 31, 1996 amounted to approximately $80,000.
15. COMMITMENTS AND CONTINGENCIES
The Company is allocated 50% of the cost of various computer equipment
operating leases from Banner. These leases expire at various times from 1997
through 2001. The Company's stand-alone loan and travel centers are leased under
noncancelable operating leases that generally have two to five-year terms with
options to renew.
Aggregate minimum lease commitments under the location leases and one-half
of the computer equipment minimum lease commitments of Banner are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, BANNER OTHERS
---------------------------------------------------- ---------- ----------
<S> <C> <C>
1997................................................ $ 609,000 $1,212,000
1998................................................ 520,000 765,000
1999................................................ 384,000 444,000
2000................................................ 340,000 255,000
2001................................................ 222,000 157,000
Thereafter.......................................... 0 101,000
---------- ----------
$2,075,000 $2,934,000
========== ==========
</TABLE>
Aggregate rental expense for the years ended December 31, 1996, 1995 and
1994 were $1,039,000, $458,000 and $348,000, respectively.
Employment Agreement -- The Company has an agreement with the Chairman of
the Board of Directors for a period of five years at a base salary of $175,000
per year with eligibility to participate in the Company's executive compensation
plans. Any changes to the agreement require approval of the Board of Directors.
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. Management of the Company believes that
litigation currently pending will not have a material adverse effect on the
Company's financial position or results of operations.
* * * * * *
F-18
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------
<C> <S>
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 Registrant.
3.2 * By-laws of the Registrant.
4.1 * Specimen Common Stock Certificate of the Registrant.
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 Central Installment Credit Corporation,
Banner's Central Electric, Inc., Central Ram, 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 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.
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.
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------
<C> <S>
10.19* Company's Continuing Guaranty dated 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 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.
10.23** Amendment Number One to Third Amended and Restated Loan Agreement dated as of
August 31, 1996 among the financial institutions named therein, Central
Installment Credit Corporation and Banner's Central Electric, Inc.
10.24 Eighth Amendment to Credit Agreement dated as of June 21, 1996 by and between
Central Consumer Finance Company and Wells Fargo Bank, National Association.
10.25** Ninth Amendment to Credit Agreement dated as of October 10, 1996 by and
between Central Consumer Finance Company and Wells Fargo Bank, National
Association.
10.26+ Employment Agreement between the Company and Anthony Fortunato dated
October 25, 1996.
10.27+ Employment Agreement between the Company and Gerard T. McMahon dated
August 30, 1996.
10.28 Amendment Number Two to Third Amended and Restated Loan Agreement dated as of
December 31, 1996 among the financial institutions named therein, Central
Installment Credit Corporation and Banner's Central Electric, Inc.
10.29 Agreement to Transfer Business Operations among Banner's Central Electric,
Inc., Central Consumer Finance Company, Central Financial Acceptance
Corporation and Central Auto Sales, Inc. dated as of July 31, 1996.
10.30 Waiver Agreement and Temporary Amendment dated as of January 31, 1997 with
reference to the Credit Agreement dated as of December 14, 1993 between
Consumer Finance Company and Wells Fargo Bank, National Association, as
amended.
10.31 Amendment One to Financing Agreement between Central Installment Credit
Corporation, Banner's Central Electric, Inc., Central Ram, Inc. and Banner
Holdings, Inc., dated as of July 1, 1996.
11.0 Statement of Per Share Earnings
21.1 Subsidiaries of the Registrant.*
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to exhibits filed with the Commission in the
Company's Registration Statement on Form S-1 (Registration No. 333-3790).
** Incorporated by reference to exhibits filed with the Commission in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit.
<PAGE> 1
Exhibit 10.24
EIGHTH AMENDMENT TO CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of June 21, 1996, by and between CENTRAL CONSUMER FINANCE COMPANY, a
Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between Borrower and Bank dated
as of December 14, 1993, as amended from time to time ("Credit Agreement");
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and the promissory notes
executed in connection therewith and have agreed to amend the Credit Agreement
and such promissory notes to reflect said changes;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
-1-
<PAGE> 2
A. Subject to the satisfaction of each of the conditions precedent
set forth in Paragraph 1 of Section C of this Amendment, the Credit Agreement,
the Line of Credit Note and the Line of Credit Note No. 2 are hereby amended as
follows:
1. Section 1.1(a) of the Credit Agreement is hereby amended by
deleting "July 1, 1996" as the last day on which Bank will make advances under
the Line of Credit, and by substituting for said date "December 31, 1996."
2. Subparagraph (a) of Section 1.1A of the Credit Agreement is
hereby amended by deleting "July 1, 1996" as the last day on which Bank will
make advances under the Line of Credit No. 2, and by substituting for said date
"the earlier of (1) December 31, 1996, or (2) the date an initial public
offering is first made by Borrower or any parent company of Borrower".
3. The last sentence of subparagraph (a) of the section entitled
"BORROWING AND REPAYMENT" of the Line of Credit Note is amended and restated in
its entirety to read as follows:
-2-
<PAGE> 3
"The outstanding principal balance of this Note shall be due and
payable in full on December 31, 1996."
4. The last sentence of subparagraph (a) of the section entitled
"BORROWING AND REPAYMENT" of the Line of Credit Note No. 2 is amended and
restated in its entirety to read as follows:
"The outstanding principal balance of this Note shall be due and
payable in full on the earlier of (1) December 31, 1996, or (2) the
date an initial public offering is first made by Borrower or any parent
company of Borrower."
B. Subject to the satisfaction of each of the conditions precedent
set forth in Paragraphs 1 and 2 of Section C of this Amendment, the Credit
Agreement is hereby further amended as follows:
1. Sections 1.2(a) and (b) of the Credit Agreement are hereby
amended in their entirety to read as follows:
"(a) Interest. The outstanding principal balance of
the Line of Credit shall bear interest at the rate of interest
set forth in the Line of Credit Note.
-3-
<PAGE> 4
(b) Computation and Payment. Interest shall be computed on
the basis of a 360-day year, actual days elapsed. Interest shall be
payable at the times and place set forth in the Line of Credit Note."
2. Section 1.3. of the Credit Agreement is hereby amended in its
entirety to read as follows:
"SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all interest and fees due under the Line of Credit (the
"Credit") by charging Borrower's demand deposit account number
4600183859 with Bank, or any other demand deposit account maintained by
Borrower with Bank, for the full amount thereof. Should there be
insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately
due and payable by Borrower."
3. Section 1.4 of the Credit Agreement is amended by deleting the
first sentence thereof (which begins with the words "As security for") and
replacing such sentence with the following:
"As security for all indebtedness of Borrower to Bank pursuant
to this Agreement, including without limitation the Line of Credit,
Borrower grants to Bank security interests of first priority in all
Borrower's present and future accounts, general intangibles, contract
rights, rights to payment, instruments, documents, chattel paper and
equipment, including without limitation all Contracts, all guarantees
related to Contracts, and all collateral for each Contract."
-4-
<PAGE> 5
4. The second sentence of Section 2.1 of the Credit Agreement is hereby
amended in its entirety to read as follows:
"One hundred percent (100%) of the common stock of Borrower is owned
directly by Central Financial Acceptance Corporation ("CFAC"), a
Delaware corporation. At least seventy percent (70%) of the common stock
of CFAC is owned directly by Banner Central Electric, Inc., a Delaware
corporation ("Banner Central Electric"). One hundred percent (100%) of
the common stock of Banner Central Electric is owned directly by Banner
Holdings, Inc., a Delaware corporation ("Holdings"). At least seventy
percent (70%) of the common stock of Holdings is owned directly by West
Coast Private Equity Partners, L.P. ("WCP")."
5. The parenthetical clause in the fifth through seventh lines of the
first paragraph of Section 4.9 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(for purposes of this Section 4.9, the financial condition of Borrower
shall not be consolidated with Holdings, WCP, CFAC, Banner Central
Electric or any other owner of affiliate of Borrower)."
6. Subparagraphs (j), (k) and (l) of Section 6.1 of the Credit
Agreement are hereby amended in their entirety, and a new subsection (m) is
hereby added to such Section 6.1, each to read as follows:
-5-
<PAGE> 6
"(j) CFAC ceases to directly own 100% of the common stock of Borrower.
(k) Banner Central Electric ceases to directly own at least 70% of the
common stock of CFAC.
(l) Holdings ceases to directly own 100% of the common stock of Banner
Central Electric.
(m) WCP ceases to directly own at least 51% of the common stock of
Holdings."
C. Conditions Precedent.
1. It is a condition precedent to all of the accommodations granted
Borrower by Bank hereunder that each of the following conditions be satisfied
on or before June 28, 1996, and all of such accommodations shall be effective
only upon satisfaction in full of each such condition:
(a) This Amendment shall be executed by Borrower and delivered to Bank.
(b) Borrower shall pay to Bank the fee for the accommodations granted
hereunder in accordance with Paragraph 1 of Section D below.
(c) West Coast Private Equity Partners, L.P. shall execute and deliver
to Bank a new letter of understanding
-6-
<PAGE> 7
satisfactory to Bank regarding West Coast Private Equity Partners, L.P.'s
ability to inject equity into Borrower.
(d) Borrower shall reimburse Bank for all of its costs and expenses
(including, without limitation, attorneys fees of Bank's inside and outside
counsel) incurred in connection with the preparation, negotiation and
implementation of this Amendment.
2. It is a condition precedent to the accommodations granted
Borrower by Bank under Paragraphs 1 through 6 of Section B of this Amendment
that, in addition to the conditions precedent set forth in Paragraph 1 of this
Section C above, all of the following conditions also be satisfied on or
before July 31, 1996, and all of such accommodation shall be effective only
upon satisfaction in full of each such condition:
(a) The reorganization of Borrower's parent companies shall occur
in accordance with all applicable laws such that WCP directly owns at least 51%
of the common stock of Holdings, Holdings directly owns 100% of the common
stock of Banner Central Electric, Banner Central Electric directly owns at
least 70% of the common stock of CFAC, and CFAC directly owns 100% of the
common stock of Borrower.
-7-
<PAGE> 8
(b) CFAC shall complete its initial public offering pursuant to
which approximately 30% of its common stock will be sold to the public in
accordance with all applicable laws.
(c) Borrower shall repay all outstanding advances under the Line of
Credit No. 2 and acknowledge the termination of the Line of Credit No. 2.
(d) Borrower shall deliver to Bank a true and complete copy of each
document listed on the attached Schedule 1, which is incorporated by this
reference.
D. Miscellaneous.
1. Borrower shall pay to Bank a non-refundable commitment fee for
the renewal of the Line of Credit and the Line of Credit No. 2, and the other
accommodations granted Borrower hereunder, equal to $15,000.00, which
commitment fee shall be due and payable on the date this Amendment is executed
by Borrower and delivered to Bank.
2. The parties hereto acknowledge that notwithstanding the fact
that Bank may, for reasons of administrative convenience, decide not to take
possession of the original of each promissory note which evidences all or any
portion of any Eligible Contract Receivables, Bank reserves its right to do so
-8-
<PAGE> 9
at any time hereafter; if Bank requests hereafter, Borrower shall immediately
deliver such promissory notes to Bank (if Bank requests, endorsed to the order
of Bank); and such promissory notes remain subject to Bank's security interest
and Borrower is obligated to place a legend thereon in accordance with the
Credit Agreement.
3. Except as specifically provided herein, all terms and
conditions of the Credit Agreement remain in full force and effect, without
waiver or modification. Except as specifically defined herein, all terms
defined in the Credit Agreement shall have the same meaning when used in this
Amendment. This Amendment and the Credit Agreement shall be read together, as
one document.
4. Borrower hereby remakes all representations and warranties
contained in the Credit Agreement (including as amended hereby) and reaffirms
all covenants set forth therein as same may be modified hereby. Borrower
further certifies that as of the date of this Amendment there exists no Event
of Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
CENTRAL CONSUMER FINANCE WELLS FARGO BANK,
COMPANY NATIONAL ASSOCIATION
By: /s/ BRIAN S. COHEN By: /s/ PERRY MORETH
--------------------------- ------------------------------
Title: S.V.P. Perry Moreth
------------------------ Vice President
-10-
<PAGE> 1
Exhibit 10.26
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 25th day of October 1996, by and between
Central Financial Acceptance Corporation, a Delaware corporation with its
principal offices at 5480 East Ferguson Drive, Commerce, California 90022 (the
"Corporation"), and Anthony Fortunato (the "Executive").
WITNESSETH:
In consideration of the mutual covenants contained herein, the parties
hereto agree as follow:
1. TERM: The Corporation hereby employs the Executive as Executive Vice
President of the Corporation, and the Executive agrees to serve the
Corporation as such, upon the terms and conditions hereof for a period
of three years commencing on the date hereof, unless Executive's
employment under the Agreement is otherwise terminated in accordance
with the provisions hereof.
2. DUTIES:
(a) Executive shall serve as an Executive Vice President of the
Corporation, with such duties and authority as are generally incident to
such positions, or shall serve in such other senior management positions
as the Corporation shall determine, provided that such other positions
shall be comparable in authority and responsibility to the positions
specified above. The Executive will hold such senior offices in the
Corporation and/or its subsidiaries or affiliates to which he may be
elected or appointed from time to time, provided that such offices shall
not be inconsistent with his duties and authority as aforesaid.
(b) The Executive agrees that he will devote all of his time and
attention to the affairs of the Corporation, and will use his best
efforts to promote the business and interests of the Corporation. The
Executive further agrees that he will not engage, either directly or
indirectly, in any other business or occupation during the term of
employment hereunder. It is further understood that the terms of this
Agreement will not prohibit the Executive from engaging in personal
investment activities for himself and his family which do not interfere
with the performance of his duties hereunder.
3. COMPENSATION: The Corporation will pay the Executive a salary as set
forth below, payable in equal installments in accordance with customary
payroll practices for senior executives of the Corporation, in
consideration for all services to be rendered by the Executive hereunder
(including, without limitation, all services to be rendered by him as an
officer of the Corporation and/or its Subsidiaries and affiliates).
Base Salary
-----------
October 18, 1996 to October 17, 1997 $225,000
October 18, 1997 to October 17, 1998 $250,000
October 18, 1998 to October 17, 1999 $275,000
1
<PAGE> 2
The Company may also pay the Executive an annual bonus with respect to
each fiscal year of the Corporation, either on an "ad hoc" basis, or
pursant to any bonus plan or arrangement for senior executives of the
Corporation as may be established at the Corporation's discretion.
However, nothing contained herein shall obligate the Corporation to pay
any bonus to the Executive, it being understood that the payment of any
such bonus shall be in the sole discretion of the Board of Directors,
and that the amount thereof, if any, may vary depending on actual
performance of the Corporation and/or the Executive, as determined by
the Board.
Nothing contained herein shall prohibit the Board of Directors of the
Corporation, in its sole discretion, from increasing the compensation
payable to the Executive pursuant to this Agreement and/or making
available to the Executive other benefits in addition to those benefits
which the Executive is entitled to hereunder.
4. EXPENSES: The Executive shall be entitled to reimbursement by the
Corporation, in accordance with the Corporation's policies then
applicable to senior executives at the Executive's level, against
appropriate vouchers or other receipts for authorized travel,
entertainment and other business expenses reasonably incurred by him in
the performance of his duties hereunder.
5. EXECUTIVE BENEFITS:
(a) GENERAL BENEFITS: The Executive shall be entitled to participate in,
and receive benefits under, any pension, profit sharing, insurance,
hospitalization, medical, disability, vacation or other employee benefit
plan, program or policy of the Corporation which may be in effect at any
time during the course of his employment by the Corporation, and which
shall be generally available to senior executives of the Corporation
occupying positions of comparable status or responsibility, subject to
the terms of such plans, programs or policies. Notwithstanding the
foregoing, the Corporation may in its discretion and at any time, change
or evoke any of its employee benefits plans, programs or policies, and
the Executive shall not be deemed, by virtue of this Agreement, to have
any vested interest in such plans, programs or policies, except as
otherwise provided herein. The Corporation will also provide the
Executive, at the Corporation's expense, with an automobile reasonably
appropriate to the Executive's position, as determined by the
Corporation, for use by the Executive in connection with the performance
of his duties hereunder.
(b) STOCK OPTIONS: The Executive will be awarded an initial grant of
100,000 Stock Options pursuant to the provision of the Company's 1996
Stock Option Plan. Vesting in such Options shall accrue over a five year
period in equal yearly amounts based upon the performance of the Company
and the Executive, as solely determined by the Board of Directors.
Should the Company terminate the Executive without cause duing the term
of this contract and should the Executive have vested in any portion of
such Options, then the remaining unvested Options for future years shall
vest in relationship to the percentage that the vested Options bear to
the Options that could have vested for the period irregardless of
whether such Options vested or not, due to the performance of the
Company or the Executive, as determined by the Board of Directors. If
upon completion of the Employment Agreement the Company
2
<PAGE> 3
determines not to continue to employ the Executive, then the remaining
unvested Options which the Executive would have been eligible to vest
in, in years four and five pursuant to the Stock Option Agreement, shall
vest in relationship to the percentage that the vested Options bear to
the Options that could have vested for the period covered by the
Employment Agreement, irregardless of whether such Options vested or
not, due to the performance of the Company or the Executive, as
determined by the Board of Directors.
6. WITHHOLDING: All payment required to be made by the Corporation to the
Executive hereunder shall be subject to the withholding of such amounts
relating to taxes and other governmental assessments as the Corporation
may reasonable determine it is obligated to withhold pursuant to any
applicable law, rule or regulation.
7. DEATH; PERMANENT DISABILITY: This Agreement shall terminate upon the
death of the Executive during the term of this Agreement. If the
Executive fails to perform the services required hereunder during the
term of this Agreement because of illness or other incapacity for any
consecutive period of more than 180 days, or for shorter periods
aggregating more than 180 days in any consecutive twelve-month period
(any such illness or incapacity being hereinafter referred to as
"permanent disability"), then the Corporation, in its discretion, may
at any time thereafter terminate this Agreement upon not less than 10
days written notice thereof to the Executive, and this agreement shall
terminate and come to an end upon the date set forth in said notice as
if said date were the termination date of this Agreement; provided,
however, that such termination shall not become effective if, prior to
the date when such notice is given, the Executive's illness or
incapacity shall end and he shall be physically and mentally able to
perform the services required hereunder, and shall have taken up and
begun performing such duties.
8. TERMINATION:
(a) TERMINATION FOR CAUSE: The Corporation may at any time during the
term of this Agreement terminate the employment of the Executive for
cause. Termination for cause shall be by written notice which specifies
the cause for termination, and termination of employment shall be
immediately effective upon the Corporation giving the Executive such
notice. For purposes of this Agreement, "cause" shall mean (i) any
willful misconduct of the Executive in connection with the performance
of any of his duties hereunder, including without limitation
misappropriation of funds or property of the Corporation, securing or
attempting to secure personally any profit in connection with any
transaction entered into on behalf of the Corporation or any willful and
intentional act having the effect of injuring the reputation, business
or business relationships of the Corporation; (ii) willful failure,
neglect, or refusal to perform the Executive's duties hereunder; (iii)
breach of any material covenants contained in this Agreement; or (iv)
conviction (or nolo contenders plea) in connection with any felony or
misdemeanor involving moral turpitude. If the Executive is terminated
for cause, the Corporation will be obligated to pay the Executive (i)
only his base salary up to the date upon which the Corporation notifies
him of his termination for cause, and (ii) subject to the terms thereof,
any benefits which may be due to the Executive under the provisions of
this Agreement, or any
3
<PAGE> 4
employee benefit plan, program, or policy. The Executive hereby
disclaims any right to receive a pro rata portion of any annual bonus
with respect to the fiscal year in which such termination for cause
occurs.
(b) TERMINATION WITHOUT CAUSE: If the Executive is terminated without
cause, the Corporation will be obligated to pay him, commencing
immediately, his base salary for the remaining term of this Agreement,
in addition to any other compensation and/or benefits herein provided.
9. NON-COMPETITION: SOLICITATION:
(a) The Executive agrees that during his employment with the Corporation
and for any period following his resignation or termination which period
is greater than 12 months and for which the Executive has been paid a
lump sum by the Corporation in accordance with this Agreement, he shall
not, without the written consent of the Corporation and except as
otherwise provided herein, directly or indirectly, either individually
or as an employee, agent, partner, shareholder, consultant, option
holder, lender of money, guarantor or in any other capacity, participate
in, engage in or have a financial interest or management position or
other interest in any business, firm, corporation or management position
or other interest in any business, firm, corporation or other entity if
it competes directly with any business operation conducted by the
Corporation or its subsidiaries or affiliates or any successor or assign
thereof, nor will be solicit any other person to engage in any of the
foregoing activities. Participation in the management of any business
operation other than in connection with the management of a business
operation which is in direct competition with the Corporation or its
subsidiaries or affiliates or any successor or assign thereof shall not
be deemed to be a breach of this Section 10(a). The foregoing provisions
of this Section 10(a) shall not prohibit the ownership by the Executive
(as the result of open market purchase) of 1% or less of any class of
capital stock of a corporation which is regularly traded on a national
securities exchange or over-the-counter on the NASDAQ System.
(b) The Executive further agrees that at any time during his employment
with the Corporation and for any period following his resignation or
termination which period is greater than 12 months and for which the
Executive has been paid by the Corporation in accordance with this
Agreement, he shall not solicit (or assist or encourage the solicitation
of) any employee of the Corporation or any of its subsidiaries or
affiliates to work for Executive or for any business, firm, corporation
or other entity in which the Executive, directly or indirectly, in any
capacity described in Section 10(a) hereof, participates or engages (or
expects to participate or engage) or has (or expects to have) a
financial interest or management position.
(c) If any covenant contained in this Section 10, or any part thereof,
is held by a court of competent jurisdiction to be unenforceable because
of the duration of such provision, the activity limited by such
provision, or the subject and/or area covered by such provision, then
the court making such determination shall construe such restriction so
as to thereafter limit or reduce the scope or duration of such provision
or part thereof to be valid and enforceable to the greatest extent
permissible under applicable law.
4
<PAGE> 5
10. TRADE SECRETS, ETC.: The Executive agrees that he shall not,
during or after the termination of this Agreement, divulge, furnish or make
accessible to any person, firm, corporation or other business entity, any
information, trade secrets, technical data or know-how relating to the
business, business practices, methods, products, processes, equipment, clients'
prices or other confidential or secret aspect of the business of the Corporation
and/or any subsidiary or affiliate, except as may be required in good faith in
the course of his employment with the Corporation or by law, without the prior
written consent of the Corporation, unless such information shall become public
knowledge (other than by reason of Executive's breach of the provisions hereof).
11. ACCEPTANCE BY EXECUTIVE: The Executive accepts all of the terms
and provisions of this Agreement and agrees to perform all of the covenants on
his part to be performed hereunder.
12. EQUITABLE REMEDIES: The Executive acknowledges that he has been
employed for his unique talents and that his leaving the employ of the
Corporation would seriously hamper the business of the Corporation and that the
Corporation will suffer irreparable damage if any provisions of Sections 10 or
11 hereof are not performed strictly in accordance with their terms or are
otherwise breached. The Executive hereby expressly agrees that the Corporation
shall be entitled as a matter of right to injunctive or other equitable relief,
in addition to all other remedies permitted by law, to prevent a breach or
violation by the Executive and to secure enforcement of the provisions of
Sections 10 or 11 hereof. Resort to such equitable relief, however, shall not
constitute a waiver or any other rights or remedies which the Corporation may
have.
13. ENTIRE AGREEMENT: This Agreement constitutes the entire
agreement between the parties hereto and there are no other terms other than
those contained herein. No variation hereof shall be deemed valid unless in
writing and signed by the parties hereto, and no discharge of the terms hereof
shall be deemed valid unless by full performance of the parties hereto or by a
writing signed by the parties hereto. No waiver by the Corporation or any breach
by the Executive of any provision or condition of this agreement to be
performed by him shall be deemed a waiver of a breach of a similar or
dissimilar provision or condition at the same time or any prior or subsequent
time.
14. SEVERABILITY: The validity and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired in
the event that any provision in this agreement shall be declared invalid,
illegal or unenforceable by any court of competent jurisdiction.
15. NOTICES: All notices, request, demands and other communications
provided for by this Agreement shall be in writing and shall be deemed to have
been given at the time when mailed in the United States enclosed in a
registered or certified post-paid envelope, return receipt requested, and
addressed to the appropriate parties at the address stated below, or to such
changed addresses as such parties may designate by notice:
Correspondence to: 30 Santa Felicia Court
Hillsborough, CA 94010
5
<PAGE> 6
provided, however, that any notice of change of address shall be
effective only upon receipt.
16. SUCCESSORS AND ASSIGNS: This Agreement in personal in its nature and
neither of the parties hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder
(except for an assignment or transfer by the Corporation to a successor
as contemplated by the following proviso), provided, however, that the
provisions hereto shall inure to the benefit of, and be binding upon,
any successor of the Corporation, whether by merger, consolidation,
transfer of all or substantially all of the assets of the Corporation,
or otherwise, and upon the Executive, his heirs, executors,
administrators and legal representatives.
17. GOVERNING LAW: This agreement and its validity, construction and
performance shall be governed in all respects by the internal laws of
the State of California without giving effect to any principles of
conflict of laws.
18. HEADINGS: The headings in this agreement are for convenience of
reference only and shall not control or affect the meaning or
construction of this Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunder set their hands
and seals the day and year first above written.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
By: /s/ GARY CYPRES
---------------------------------
Gary M. Cypres, President and CEO
/s/ ANTHONY FORTUNATO
---------------------------------
Executive, Anthony Fortunato
6
<PAGE> 1
Exhibit 10.27
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
5480 E. FERGUSON DRIVE, COMMERCE, CA 90022 213/720-8608 FAX 213/720-8647
August 30, 1996
SENT VIA FEDERAL EXPRESS
Gerald T. McMahon
Dear Jerry:
This letter will outline the major terms of your potential employment with
Central Financial Acceptance Corporation (CFAC).
1. EMPLOYMENT AND DUTIES: You shall be employed as Executive Vice
President of Credit and Collection.
2. SALARY AND BONUS: Your base salary will be $160,000.00. In addition,
you will be eligible to receive an annual discretionary bonus of up to
20% of your base salary.
3. EMPLOYEE BENEFITS: You will be entitled to participate in such
employee benefit programs as the Company provides from time to time for
employees in your position. You will also receive a company car or
appropriate car allowance.
4. STOCK OPTIONS: You will be awarded a stock option grant to acquire
30,000 common shares pursuant to the Company's Stock Option Plan.
I look forward to having you join Central Financial Acceptance Corporation.
Sincerely,
/s/ GARY CYPRES
- ---------------------
Gary Cypres
Chairman of the Board
<PAGE> 1
EXHIBIT 10.28
AMENDMENT NUMBER TWO AND WAIVER TO THIRD
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDMENT NUMBER TWO TO THIRD AMENDED AND RESTATED LOAN AGREEMENT
(herein this "Amendment"), dated as of December 31, 1996, is entered into
among CENTRAL INSTALLMENT CREDIT CORPORATION, a California corporation
("Borrower") and BANNER'S CENTRAL ELECTRIC, INC., a California corporation
("BCE"), on the one hand, and, on the other hand, the financial institutions
that are signatories hereto (collectively referred to as the "Banks" and
individually as a "Bank"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as agent (hereinafter, in such capacity, together with any
successors thereto in such capacity, referred to as the "Agent") for the Banks
hereunder. This Amendment is made with reference to that certain Third Amended
and Restated Loan Agreement dated as of June 24, 1996 among the Borrower, BCE,
the Agent, and the Banks as amended by Amendment No. One dated as of August,
1996 (the "Loan Agreement"). This Amendment further amends the Loan
Agreement in the manner and to the extent expressly set forth herein.
1. Definitions of Terms Used Herein. All terms defined in the Loan
Agreement, as amended hereby, and not otherwise defined herein, shall have the
meaning defined in the Loan Agreement, as amended hereby, when used herein.
2. Amendments.
(a) The definition of "Maturity Date" in Section 1.1 is
amended in full to read as follows:
"'Maturity Date' shall mean the earlier of (a) April 30,
1997, and (b) such earlier date of termination if the entire Commitment
is terminated pursuant to the terms of Section 2.11 hereof."
(b) In the last sentence of Section 5.9, the phrase "On or
before April 30, 1997" is substituted for the phrase "Within sixty (60) days
after the Closing Date" appearing therein.
(c) Section 6.6(b) is amended in full to read as follows:
"(b) Past Due Receivables Ratio. Obligor shall not
permit, as of the last day of any of its fiscal months, the
ratio of (i) the total amount owing to obligor under each
Eligible Contract in which any payment is more than sixty (60)
days past due, to (ii) the total amount owing to Obligor under
all Eligible Contracts, to be greater than 0.0625:1.00 from and
including November 1, 1996 to and including March 31, 1997 and
0.0400:1.00 for any fiscal month thereafter."
-1-
<PAGE> 2
(d) Section 6.6(i) is amended in full to read as follows:
"(i) Net Chargeoffs to Net Contracts Ratio. Obligor
shall not permit, as of the last day of its fiscal months, its Net
Chargeoffs to Net Contracts Ratio (defined as the ratio of (i) (A)
chargeoffs minus (B) cash recoveries, minus (C) all unearned interest
or finance charges thereon, all calculated for the twelve (12) month
period then ending, to (ii) the average of Net Contracts for such
period) to be greater than 0.0900:1.0 from and including November 1,
1996 to and including March 31, 1997 and 0.750:1.0 for any fiscal month
thereafter."
(e) Section 7.1(1) is deleted in its entirety.
3. Waiver. subject to the terms hereof, the Agent and the Banks
hereby waive the failure of the Obligor to comply with the following covenants
of the Loan Agreement during the periods described herein:
(a) the failure of the Obligor to comply with Section 6.6(b)
from the month ending July 31, 1996 through the date hereof.
(b) the failure of the Obligor to comply with Section 6.6(c)
for the months ending July 31, 1996, August 31, 1996, and October 31,
1996.
(c) the failure of the Obligor to comply with Section 6.6(i)
from the month ending July 31, 1996 through the date hereof.
Nothing contained herein shall be deemed a waiver of (or otherwise affect the
Agent's or the Banks' ability to enforce) any other default or Event of Default,
including without limitation any default or Event of Default as may now or
hereafter exist and arise from or otherwise be related to the breached covenants
waived herein.
4. Conditions. This Amendment shall become effective (the
"Effective Date") when the following condition is satisfied or waived by the
parties to whose benefit such condition runs:
(a) Each party hereto shall have signed and delivered to
the Agent six original counterpart signatures (which may be provided by
facsimile followed promptly by the executed original) to this Amendment.
5. Representations and Warranties. In order to induce the Agent
and each Bank to enter into this Amendment, the Borrower and BCE each make the
following representations and warranties, which shall be true, correct, and
complete in all respects as of the Effective Date:
-2-
<PAGE> 3
a. The Borrower and BCE each have all requisite corporate power
to execute and deliver this Amendment.
b. This Amendment has been executed and delivered by the
Borrower and BCE and constitutes the legal, valid, and binding obligations of
the Borrower and BCE, enforceable against the Borrower and BCE in accordance
with its terms, except as the enforceability hereof or thereof may be affected
by: (i) bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally; (ii) the
limitation of certain remedies by certain equitable principles of general
applicability; and (iii) the fact that the rights to indemnification thereunder
or hereunder may be limited by federal or state securities laws.
c. The execution, delivery, and performance by the Borrower and
BCE of this Amendment does not and will not: (i) violate (A) any provision of
any material federal (including the Exchange Act), state, or local law, rule,
or regulation (including Regulations G, T, U, and X of the Federal Reserve
Board) binding on Borrower or BCE, or (B) any order of any domestic
governmental authority, court, arbitration board, or tribunal binding on the
Borrower or BCE, or (C) the articles of incorporation or bylaws of the
Borrower or BCE; or (ii) contravene any provisions of, result in a breach of,
constitute (with the giving of notice or the lapse of time) a material default
under, or result in the creation of any Lien (other than a Permitted Lien)
upon any of the Assets of the Borrower or BCE pursuant to any Contractual
Obligation of Borrower or BCE; or (iii) require termination of
any Contractual Obligation of the Borrower or BCE.
d. No Event of Default or Unmatured Event of Default exists.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an
original. All of such counterparts, taken together, shall constitute but one
and the same Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered as of the date first set forth above.
CENTRAL INSTALLMENT CREDIT CORPORATION
By: /s/ GARY CYPRES
----------------------------------
Title: President
-------------------------------
(signatures continue)
-3-
<PAGE> 4
BANNER'S CENTRAL ELECTRIC, INC.,
a California Corporation
By: GARY CYPRES
_______________________________
Title: President
____________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: LAURA KNIGHT
_______________________________
Title: Vice President
____________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, in its
individual capacity as a Bank
By: PAUL SUTHERLAND
_______________________________
Title: Vice President
_____________________________
SUMITOMO BANK OF CALIFORNIA,
as a Bank
By: STEVE SLOAN
_______________________________
Title: Vice President
_____________________________
SANWA BANK CALIFORNIA, as a Bank
By: JOE ARCO
________________________________
Title: Vice President
_____________________________
-4-
<PAGE> 1
EXHIBIT 10.29
AGREEMENT TO TRANSFER
BUSINESS OPERATIONS
This Agreement To Transfer Automobile Business Operations
("Agreement") is entered into as of the 31st day of July 1996, by and between
Banner's Central Electric, Inc., a California corporation ("BCE"), Central
Consumer Finance Company, a Delaware corporation ("Central"), Central Financial
Acceptance Corporation, a Delaware corporation ("CFAC"), and Central Auto
Sales, Inc., a California corporation ("Central Auto").
WHEREAS, CFAC is the sole shareholder of Central Auto, which engages
in the business of selling used automobiles (the "Automobile Business"), and
Central;
WHEREAS, BCE is the majority shareholder of CFAC;
WHEREAS, Central Auto desires to sell to BCE, and BCE desires to
purchase from Central Auto, certain assets of the Automobile Business, subject
to the assumption by BCE of certain liabilities of the Automobile Business, in
accordance with the provisions of this Agreement; and
WHEREAS, in connection with the transfer of certain assets of the
Automobile Business to BCE, BCE desires to grant to Central the exclusive right
to purchase consumer finance receivables generated by sales of automobiles at
BCE (the "Automobile Finance Receivables").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto mutually agree as follows:
1. Assignment of Automobile Operations. Central Auto hereby
grants to BCE the unconditional right to operate Central Auto's business
effective as of August 1, 1996. In connection therewith, Central Auto assigns,
transfers and conveys to BCE its current inventory of automobiles (the
"Transferred Assets"). Central Auto and/or Central shall retain all consumer
finance receivables generated by sales of automobiles by Central Auto prior to
the date hereof.
2. Lease of Auto Lot. Central Auto currently conducts the
Automobile Business from a lot located at 1900 to 1958 South Main Street, Los
Angeles, California (the "Automobile Lot") pursuant to a month to month lease
with BCE Properties I (the "Automobile Lot Lease") at a rent of $6,250 per
month. Effective August 1, 1996, Central Auto assigns its obligations under
the Automobile Lot Lease to BCE, and BCE assumes all obligations of Central
Auto under the Automobile Lot Lease.
3. Lease of Furniture and Equipment. Central Auto shall lease to
BCE the following furniture and equipment at a monthly rent of Three Thousand
($3,000), subject to
1
<PAGE> 2
termination by any of Central Auto, CFAC or BCE upon thirty (30) days written
notice to the other party;
(i) All fixtures and improvements attached to the
Automobile Lot; and
(ii) All machinery, apparatus, furniture and fixtures,
materials, supplies, telephone lines, computer equipment, desks, chairs,
signage (attached and detached) and other equipment which is located at the
Automobile Lot or used by Central Auto to conduct the Automobile Business.
4. Assumption of Central Auto's Liabilities. BCE hereby assumes
all of the outstanding liabilities of Central Auto as of August 1, 1996 and all
future liabilities incurred in the operation of the Automobile Business.
5. Purchase Price. In consideration for the purchase of the
Transferred Assets and the transfer of the Automobile Business, BCE shall pay,
by wire transfer to Central Auto, an amount equal to the net book value of the
Transferred Assets.
6. Exclusive Rights to Purchase or Finance Automobile Finance
Receivables. In connection with the transfer of the Automobile Business to
BCE, BCE hereby grants to Central, the exclusive right, at BCE's option, (i) to
purchase Automobile Finance Receivables originated by BCE or (ii) to provide
financing directly to BCE's customers for sales of automobiles, with full
recourse to BCE at any time after the borrower on such consumer finance
receivable is 31 days or more delinquent. BCE agrees that, so long as BCE
originates Automobile Finance Receivables, it will not offer any automobile
financing except on such terms, conditions and according to such underwriting
criteria as may be directed by Central from time to time, and, if Central shall
originate consumer finance receivables directly to BCE's customers, BCE agrees
that it will not offer any automobile financing without the prior written
consent of Central.
7. Term. This Agreement shall be in effect for a period of
fifteen (15) years from the date hereof, subject to termination by Central or
Central Auto upon one (1) year's prior written notice.
8. Representations and Warranties of Central Auto. Central Auto
represents, warrants and agrees as follows:
(a) Central Auto is the sole owner of and has good and
marketable title to all of the Transferred Assets being transferred hereby with
full right to dispose of them as Central Auto may choose, and no one has any
claim, right, title, interest, or lien in, to or on said Transferred Assets.
2
<PAGE> 3
(b) Central Auto agrees that in the event it becomes
necessary to pay sales taxes or any other applicable transfer tax on the
Transferred Assets as a result of this transaction, Central Auto shall pay such
taxes.
(c) Central Auto has the full capacity, right, power and
authority to enter into this Agreement. The execution, delivery and
performance of this Agreement by Central Auto and the execution, delivery and
performance of any related agreements or contemplated transactions by Central
Auto will not violate, or constitute a breach or default (whether upon lapse of
time and/or the occurrence of any act or event or otherwise) under, the
articles of incorporation or bylaws of Central Auto, or any material contract
of Central Auto, or violate any laws or regulations. No permits or approvals
are required to be obtained by Central Auto to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement
by Central Auto and the performance of this Agreement and any related or
contemplated transactions by Central Auto will not require filing or
registration with, or the issuance of any permit by, any other third party or
governmental entity.
(d) Central Auto holds all material permits that are
required by any governmental entity to permit it to conduct its business as now
conducted. To the best knowledge of Central Auto no suspension, cancellation
or termination of any of such permits is threatened or imminent.
9. Representations and Warranties of BCE. BCE represents and
warrants as follows: BCE has the full capacity, right, power and authority to
enter into this Agreement. The execution, delivery and performance of this
Agreement by BCE and the execution, delivery and performance of any related
agreements or contemplated transactions by BCE will not violate, or constitute
a breach or default (whether upon lapse of time and/or the occurrence of any
act or event or otherwise) under the Articles of Incorporation or Bylaws of
BCE, or any material contract of BCE, or violate any laws or regulations. No
permits or approvals are required to be obtained by BCE to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement by BCE and the performance of this Agreement and any related or
contemplated transactions by BCE will not require filing a registration with,
or the issuance of any permit by, any other third party or governmental entity.
10. General.
(a) This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of California applicable in contracts made and performed in such State.
(b) If any provision of this Agreement is determined to
be invalid, illegal or unenforceable by any governmental body, the remaining
provisions of this Agreement to the extent permitted by law shall remain in
full force and effect provided that the economic and legal substance of the
transactions contemplated is not affected in any manner adverse to any party.
In
3
<PAGE> 4
the event of any such determination, the parties agree to negotiate in good
faith to modify this Agreement to fulfill as closely as possible the original
intents and purposes hereof. To the extent permitted by law, the parties
hereby to the same extent waive any provision of law that renders any provision
hereof prohibited or unenforceable in any respect.
(c) The parties are independent engaged in the operation
of their respective businesses. No party has the authority to enter into
contracts or assume any obligations for any other party or is to be considered
as the agent or employee of any other party for any purpose whatsoever.
Nothing in this Agreement shall be construed to establish a relationship of
partners or joint venturers among the parties.
(d) This Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective successors and permitted
assigns. This Agreement may not be assigned or delegated by any party without
the consent of the other parties; provided, however, Central may assign its
rights under Section 6 hereof to any direct or indirect subsidiary of CFAC at
any time without the consent of any party hereto.
(e) All notices, requests, demands and other
communications provided for by this Agreement shall be in writing (including
telecopier or similar writing) and shall be deemed to have been given at the
time when mailed in any general or branch office of the United States Postal
Service, enclosed in a registered or certified postpaid envelope, or sent by
Federal Express or other similar overnight courier service, addressed to the
appropriate party at 5480 East Ferguson Drive, Commerce, California 90022,
Attention: Secretary, or to such changed address as
4
<PAGE> 5
such party may have fixed by notice or, if given by telecopier, when such
telecopy is transmitted and the appropriate answer back is received.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
BANNER'S CENTRAL ELECTRIC, INC., CENTRAL AUTO SALES, INC.,
a California corporation a California corporation
By: /s/ GARY M. CYPRES By: /s/ GARY M. CYPRES
----------------------------- ----------------------------
Gary M. Cypres Gary M. Cypres
Its: Chairman, President and Its: Chairman, President and
Chief Executive Officer Chief Executive Officer
CENTRAL FINANCIAL ACCEPTANCE CENTRAL CONSUMER FINANCE
CORPORATION, COMPANY,
a Delaware corporation a Delaware corporation
By: /s/ GARY M. CYPRES By: /s/ GARY M. CYPRES
_____________________________ ___________________________
Gary M. Cypres Gary M. Cypres
Its: Chairman, President and Its: Chairman, President and
Chief Executive Officer Chief Executive Officer
5
<PAGE> 1
EXHIBIT 10.30
WAIVER AGREEMENT AND TEMPORARY AMENDMENT
----------------------------------------
This Waiver Agreement and Temporary Amendment ("Waiver"), dated as of
January 31, 1997, is entered into with reference to the Credit Agreement dated
as of December 14, 1993 between CENTRAL CONSUMER FINANCE COMPANY, a Delaware
corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION (the
"Bank") (as amended from time to time, the "Credit Agreement"). The Credit
Agreement referred to above has been amended by a series of amendments, the
most recent of which was the Ninth Amendment to Credit Agreement, dated as of
October 10, 1996. Terms defined in the Credit Agreement are used herein with
the same meaning.
RECITALS
--------
A. Pursuant to Section 4.9(d) of the Credit Agreement, Borrower is
obligated to maintain a ratio of Bad Debt Expense to Net Contracts which does
not exceed .05 to 1.0.
B. Based on Borrower's September 30, 1996 financial statements,
Borrower's ratio of Bad Debt Expense to net Contracts was .0507 to 1.0 and,
therefore, in excess of that permitted. Borrower also anticipates that its
ratio of Bad Debt Expense to Net Contracts will exceed the permitted ratio
specified in Section 4.9(d) for the fiscal period ending December 31, 1996.
C. Pursuant to Section 5.2 of the Credit Agreement, Borrower is
not permitted to make any additional investments in fixed assets in any fiscal
year in excess of an aggregate of $100,000. As reflected in Borrower's
September 30, 1996 financial statements, Borrower's investments in fixed assets
during the portion of Borrower's 1996 fiscal year ending as of such date was
$333,056 and, therefore, in excess of that permitted.
D. Borrower has requested that the Bank temporarily modify the
Borrowing Base set forth in Section 1.1(a) of the Credit Agreement to provide
for a 75% advance rate against Borrower's Eligible Loan Contracts Receivables,
Borrower's Eligible Auto Contracts Receivables and Borrower's Eligible Travel
Contracts Receivables.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Borrower and the Bank hereby agree as follows:
-1-
<PAGE> 2
AGREEMENT
---------
1. Representation and Warranty. Borrower represents and warrants
to the Bank that, other than the defaults regarding the foregoing described
ratio of Bad Debt Expense to Net Contracts and expenditures for fixed assets,
no Event of Default has occurred and remains continuing under the Credit
Agreement.
2. Waiver. In reliance upon the foregoing, the Bank hereby waives
the Bad Debt Expense to Net Contracts ratio covenant contained in Section
4.9(d) of the Credit Agreement for the fiscal quarters ended September 30, 1996
and December 31, 1996 only. The Bank also waives the limitation on additional
investments in fixed assets for the 1996 fiscal year, provided, however, that
the aggregate amount of such investments for such fiscal year does not exceed
$500,000 as of December 31, 1996. The Bank shall be entitled to require full
compliance with Sections 4.9(d) and 5.2 of the Credit Agreement with respect to
each other fiscal period of Borrower.
3. Temporary Amendment. Section 1.1(a) is hereby amended by
deleting each reference therein to "seventy percent (70%)" and substituting for
said percentage "seventy-five percent (75%)". The foregoing amendment shall be
of no further force and effect as of April 1, 1997.
4. Conditions Precedent. The effectiveness of this Waiver shall be
conditioned upon the receipt by the Bank of a counterpart of this Waiver
executed by Borrower and delivered to the Bank on or before February 28, 1997.
5. Confirmation. In all other respects, the terms of the Credit
Agreement and the other Loan Documents are hereby ratified and confirmed and
shall remain in full force and effect, without waiver or modification.
IN WITNESS WHEREOF, Borrower and the Bank have caused this
Waiver to be executed as of the date first written above by their duly
authorized representatives.
CENTRAL CONSUMER WELLS FARGO BANK,
FINANCE COMPANY NATIONAL ASSOCIATION
By: /s/ GARY CYPRES By: /s/ PERRY MORETH
------------------------- -------------------
Perry Moreth
Gary Cypres Vice President
-------------------------
[Printed Name and Title]
-2-
<PAGE> 1
EXHIBIT 10.31
AMENDMENT ONE TO FINANCING AGREEMENT
This Amendment One to Financing Agreement (this "Amendment") is dated
as of July 1, 1996 among Central Installment Credit Corporation, a California
corporation ("Central") and a wholly-owned subsidiary of Central Financial
Acceptance Corporation ("CFAC"), Banner's Central Electric, Inc., a California
corporation ("BCE"), Central Ram, Inc., a Delaware corporation ("Ram" and with
BCE collectively referred to as "Banner") and Banner Holdings, Inc., a Delaware
corporation ("Holdings").
RECITALS
WHEREAS, in connection with CFAC's initial public offering, CFAC, BCE
and Holdings entered into a Reorganization Agreement dated as of June 24, 1996
pursuant to which CFAC acquired the capital stock of certain subsidiaries of
BCE and Holdings (the "Reorganization");
WHEREAS, concurrent with the Reorganization, Central, Banner and
Holdings entered into that certain Financing Agreement dated as of June 24,
1996 (the "Financing Agreement") pursuant to which Banner granted Central the
exclusive right to purchase consumer finance receivables generated by sales at
Banner stores;
WHEREAS, Central, Banner and Holdings have agreed to certain changes
in the terms and conditions of the Financing Agreement and have agreed to amend
the Financing Agreement to reflect such changes;
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
Financing Agreement is hereby amended as follows:
1. Section 1(b) of the Financing Agreement is hereby amended in
full as follows:
"(b) As long as Banner shall originate Consumer Finance
Receivables, Central shall have the right to purchase such
receivables at their net amount (i.e., the amount of the gross
receivable balance less deferred interest and any deferred
charges), less a transaction fee which shall initially be set
at 2.5% and shall be subject to renegotiation at six month
intervals, or if Central shall originate such Consumer Finance
Receivables, Banner shall pay Central a transaction fee in an
amount to be initially established by the parties and subject
to renegotiation at six month intervals."
2. Section 1(d) is added to the Financing Agreement as follows:
1
<PAGE> 2
"(d) Obligation to Purchase Consumer Finance Receivables.
Notwithstanding anything to the contrary in the Financing
Agreement, Central shall have the right to require Banner to
purchase, and Banner shall purchase if requested by Central,
at face value Consumer Finance Receivables which were either
contributed by Banner to Central or purchased by Central in an
aggregate amount of up to $1,500,000 in each of the years
ending December 31, 1996 and 1997. In such case, Central will
continue to collect such receivables, on behalf of Banner, in
accordance with its standard practices."
3. Section 5 is hereby amended by deleting the last sentence of
Section 5 and substituting the following sentence in its
place:
"This Agreement may not be assigned or delegated by any party
without the consent of the other parties hereto, except that
Central may, without the consent of the other parties hereto,
assign or delegate this Agreement to any direct or indirect
wholly-owned subsidiary of CFAC."
Except as specifically provided herein, all terms and conditions of
the Financing Agreement remain in full force and effect, without waiver or
modification. Except as specifically defined herein, all terms defined in the
Financing Agreement shall have the same meaning when used in this Amendment.
This Amendment and the Financing Agreement shall be read together, as one
document.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first written above.
CENTRAL INSTALLMENT CREDIT
CORPORATION
By: /s/ GARY CYPRES
-------------------------------------
Gary M. Cypres, Chief Executive
Officer and President
BANNER'S CENTRAL ELECTRIC, INC.
By: /s/ GARY CYPRES
-------------------------------------
Gary M. Cypres, Chief Executive
Officer and President
CENTRAL RAM, INC.
By: /s/ GARY CYPRES
-------------------------------------
Gary M. Cypres, Chief Executive
Officer and President
BANNER HOLDINGS, INC.
By: /s/ GARY CYPRES
-------------------------------------
Gary M. Cypres, Chief Executive
Officer and President
3
<PAGE> 1
EXHIBIT 11
STATEMENT RECOMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
PRIMARY SUPPLEMENTARY PRIMARY SUPPLEMENTARY
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net income from continuing
operations........................... $5,970,000 $ 5,970,000 $3,069,000 $ 3,069,000
Net income (loss) from discontinued
operations........................... (91,000) (91,000) 50,000 50,000
Interest, net of taxes................. 543,000 1,114,000
---------- ---------- ---------- ----------
Net income............................. $5,879,000 $ 6,422,000 $3,119,000 $ 4,233,000
Weighted average common shares
outstanding.......................... 6,213,500 7,277,000 5,150,000 7,277,000
Earnings per share from continuing
operations........................... $ 0.96 -- $ 0.60 --
Income (Loss) per share discontinued
operations........................... (0.01) -- 0.01 --
---------- ---------- ---------- ----------
Net income per share................... $ 0.95 -- $ 0.61 --
Supplementary net income per share..... -- $ 0.88 $ 0.58
</TABLE>
<TABLE>
<CAPTION>
1994
----------------------------
PRIMARY SUPPLEMENTARY
---------- -------------
<S> <C> <C>
Net income from continuing operations.............................. $2,182,000 $ 2,182,000
Net income (loss) from discontinued operations..................... -- --
Interest, net of taxes............................................. 926,000
---------- -------------
Net income......................................................... $2,182,000 $ 3,108,000
Weighted average common shares outstanding......................... 5,150,000 7,277,000
Earnings per share from continuing operations...................... $ 0.42 --
Income (loss) per share discontinued operations.................... -- --
---------- -------------
Net income per share............................................... $ 0.42 --
Supplementary net income per share................................. -- $ 0.43
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,848,000
<SECURITIES> 0
<RECEIVABLES> 127,177,000
<ALLOWANCES> 6,786,000
<INVENTORY> 0
<CURRENT-ASSETS> 133,737,000
<PP&E> 3,623,000
<DEPRECIATION> 198,000
<TOTAL-ASSETS> 145,887,000
<CURRENT-LIABILITIES> 83,684,000
<BONDS> 850,000
0
0
<COMMON> 73,000
<OTHER-SE> 61,280,000
<TOTAL-LIABILITY-AND-EQUITY> 145,887,000
<SALES> 0
<TOTAL-REVENUES> 36,427,000
<CGS> 0
<TOTAL-COSTS> 12,676,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,105,000
<INTEREST-EXPENSE> 4,697,000
<INCOME-PRETAX> 9,949,000
<INCOME-TAX> 3,979,000
<INCOME-CONTINUING> 5,970,000
<DISCONTINUED> (91,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,879,000
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.95
</TABLE>
