<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 33-03790
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4574983
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5480 East Ferguson Drive
Commerce, California 90022
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(Address of principal executive offices)
(213) 720-8600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
----- -----
Number of shares outstanding as of May 14, 1997: 7,277,000.
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1997 and December 31, 1996 .............. 1
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 1997 and 1996...................................................................... 2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996..................................................................... 3
Notes to Condensed Consolidated Financial Statements ........................................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 8
PART II. OTHER INFORMATION
Item 5. Other Information............................................................................ 12
Item 6. Exhibits and Reports on Form 8-K............................................................. 12
Signatures..................................................................................................... 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
A S S E T S
<S> <C> <C>
Cash $ 5,702 $ 5,848
Consumer Finance receivables, net 106,728 111,663
Automobile Finance receivables 8,401 8,728
Other receivables 6,905 2,289
Prepaid expenses and other current assets 1,978 1,673
Deferred income taxes 3,536 3,536
Property and equipment, net 4,377 3,425
Intangible asset, net 8,645 8,725
------------ ------------
Total assets $ 146,272 $ 145,887
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable $ 72,541 $ 74,024
Accrued expenses and other current liabilities 7,979 8,708
Income taxes payable 1,742 952
Long-term debt 850 850
------------ ------------
Total liabilities 83,112 84,534
------------ ------------
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 shares
issued and outstanding 73 73
Paid-in capital 47,903 47,903
Retained earnings 15,184 13,377
------------ ------------
Total stockholder's equity 63,160 61,353
------------ ------------
Total liabilities and stockholder's equity $ 146,272 $ 145,887
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
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<S> <C> <C>
Revenues:
Interest income on consumer finance receivables $ 7,583 $ 5,479
Interest income on auto finance receivables 416 260
Travel services 1,755 221
Other income 2,903 1,272
------------ ------------
Total revenues 12,657 7,232
Costs and expenses:
Operating expenses 5,811 2,019
Provision for credit losses 2,411 2,154
Interest expense 1,423 1,241
------------ ------------
Total costs and expenses 9,645 5,414
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Income before discontinued operations &
provision for income taxes 3,012 1,818
Provision for income taxes 1,205 727
Income from discontinued operations, (net of tax) -- 12
------------ ------------
Net income $ 1,807 $ 1,103
============ ============
PER SHARE DATA:
Earnings per share from continuing operations $ 0.25 $ 0.21
Earnings per share discontinued operations -- --
------------ ------------
Earnings per share $ 0.25 $ 0.21
Weighted average common shares outstanding 7,277 5,150
Supplementary net income per share -- $ 0.19
Supplementary weighted average number of common -- 7,277
shares outstanding
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,807 $ 1,103
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 159 34
Provision for credit losses 2,411 2,154
Changes in assets and liabilities:
Prepaid expenses and other current assets (305) (52)
Other receivables (4,616) 0
Net assets of discontinued operations 0 160
Accrued expenses and other current liabilities 61 (654)
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Net cash provided by (used in) operating activities (483) 2,745
------------ ------------
Cash flows from investing activities:
Installment contracts (originated and acquired) collected, net 2,851 2,078
Capital expenditures (1,031) (58)
------------ ------------
Net cash provided by investing activities 1,820 2,020
------------ ------------
Cash flows from financing activities:
Capital withdrawal 0 (1,203)
Net (repayments of) notes payable (1,483) (3,488)
------------ ------------
Net cash used in financing activities (1,483) (4,691)
------------ ------------
Net increase (decrease) in cash (146) 74
Cash, beginning of period 5,848 57
------------ ------------
Cash, end of period $ 5,702 $ 131
============ ============
Cash paid during the period for:
Interest $ 1,312 $ 1,246
Income taxes $ 415 $ 1,178
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
The accompanying condensed consolidated financial statements of Central
Financial Acceptance Corporation ("CFAC") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation of the Company's financial
condition and operating results for the interim periods presented have been
included. Operating results for the quarter are not necessarily indicative of
the results that may be expected for the year ended December 31, 1997. These
interim financial statements should be read in conjunction with the year ended
December 31, 1996 financial statements and notes contained therein, filed with
the Securities and Exchange Commission.
CFAC was formed in April 1996 and consummated its initial public offering
on July 2, 1996, when it sold 2.127 million shares of common stock, which
resulted in net proceeds to the Company of approximately $22.5 million. CFAC
was a wholly owned subsidiary of Banner's Central Electric, Inc. Banner's
Central Electric, Inc. is wholly owned by Banner Holdings, Inc. ("Holdings") and
is a consumer products retailer that provides its customers with financing for
the merchandise it sells. On June 24, 1996, CFAC, Banner's Central Electric,
Inc. and Holdings entered into an agreement (the "Reorganization Agreement")
whereby Holdings contributed to Banner its investments in certain wholly owned
subsidiaries, along with the subsidiaries' operations, (the "Holdings
Subsidiaries") and Banner's Central Electric, Inc. contributed to CFAC its
investments in the Holdings Subsidiaries and the finance portion of its consumer
products business, and cash in such amount so as to leave CFAC with $500,000 of
cash on hand. Pursuant to the Reorganization Agreement, the intercompany
accounts between CFAC, Banner's Central Electric, Inc. and Holdings that arose
as a result of the Reorganization Agreement and from other transactions, except
with respect to income taxes, were forgiven and reclassified as stockholder's
equity.
In addition to the Reorganization Agreement, CFAC, Banner's Central
Electric, Inc. and Holdings entered into certain agreements for the purpose of
defining the ongoing relationships among them. The transactions and agreements
entered into pursuant to the Reorganization Agreement are referred to herein as
the "Reorganization." Management of CFAC believes that such agreements provide
for reasonable allocations of costs between the parties.
The reorganization was accounted for at historical cost in a manner similar
to a pooling of interests. The accompanying condensed consolidated financial
statements reflect the combined historical operations of CFAC and its
subsidiaries as if the Reorganization had taken place at the beginning of the
periods presented, except for the contribution of cash in such amount so as to
leave CFAC with $500,000 upon the Reorganization. CFAC and its subsidiaries, as
reorganized, are referred to herein as "Central" or the "Company." Banner's
Central Electric, Inc., including the operations of Banner's Central Electric,
Inc. that remain after contributing the finance portion of its consumer products
business to CFAC, is referred to herein as "Banner."
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
condensed consolidated financial statements have been restated to reflect this
business as a discontinued operation.
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.
4
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
See Note 2 of Notes to Consolidated Financial Statements in Central
Financial Acceptance Corporation's Annual Report on 10-K for the year ended
December 31, 1996.
3. ACQUISITIONS
During 1996, the Company acquired the business of, and assumed the
leasehold interests to 80 travel locations, and 10 automobile insurance agencies
for an aggregate purchase price of approximately $7.5 million. Such acquisitions
were accounted for as purchases and the results of their operation are not
material from a financial point of view, and have been included since the
applicable acquisition dates.
4. EARNINGS PER COMMON 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 on the number of common shares
issued by the Company pursuant to the Reorganization and the number of shares
sold by the Company in its initial public offering, as if all such shares were
outstanding as of January 1, 1996, and also gives effect to a reduction of
interest expense, net of income tax expense, resulting from the reduction of
indebtedness upon application of the net proceeds of the proposed offering as if
it had occurred on January 1, 1996.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards Number 128 (earnings per share) [SFAS 128] and Statement of
Financial Accounting Standards Number 129 (Disclosure of information about
Capital Structure) [SFAS 129]. The Company will be required to adopt SFAS 128
and SFAS 129 in fiscal year 1997. The Company does not expect that the adoption
of SFAS 128 and SFAS 129 will have a material effect on its financial position
or its results of operations in 1997.
5. FINANCE AND OTHER RECEIVABLES
<TABLE>
<CAPTION>
CONSUMER AUTOMOBILE
FINANCE RECEIVABLES FINANCE RECEIVABLES
------------------------- -------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
----------- ----------- ----------- -----------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross receivables $ 127,972 $ 134,477 $ 10,421 $ 11,002
Deferred interest 12,975 14,775 2,020 2,274
----------- ----------- ----------- -----------
Net receivable 114,997 119,702 8,401 8,728
Deferred administrative fee & insurance 1,149 1,253 -- --
Allowance for credit losses 7,120 6,786 -- --
----------- ----------- ----------- -----------
$ 106,728 $ 111,663 $ 8,401 $ 8,728
=========== =========== =========== ===========
</TABLE>
Other receivables consist of commissions receivables from automobile
insurance companies of $260,000 and $101,000 at March 31, 1997 and December 31,
1996, respectively, receivables from insurance company for insurance products
sold of $964,000 and $2,188,000 at March 31, 1997 and December 31, 1996,
respectively, and $5,681,000 receivables from an affiliate at March 31, 1997,
which was repaid on April 15, 1997.
5
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------ ------------
1997 1996
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<S> <C> <C>
Bank of America line of credit $ 30,800 $ 35,208
Wells Fargo line of credit 41,741 38,816
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$ 72,541 $ 74,024
============ ============
</TABLE>
The Company has a credit agreement with Bank of America National Trust and
Savings Association (the "Bank of America Line of Credit") that, as amended,
provides for the issuance of notes up to $60,000,000, subject to an allowable
borrowing base. The amounts outstanding under these notes bear interest at rates
that are determined by the type of borrowing. Borrowings under the notes are
collateralized by certain receivables in the Company's consumer finance
receivable portfolio and Banner is a guarantor. The Bank of America Line of
Credit, as amended, matures on May 31, 1997 and contains certain restrictive
covenants that require, among other things, the maintenance of certain financial
ratios and amounts. The amount of unused credit under the facility was limited
by the allowable borrowing base and was approximately $1,066,000 at March 31,
1997 and $1,572,000 at December 31, 1996.
The Company has a credit agreement with Wells Fargo Bank National
Association (the "Wells Fargo Line of Credit") that, as amended on October 10,
1996, 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 certain receivables in the Company's consumer
finance receivable portfolio and by the Company's automobile finance receivable
portfolio. The Wells Fargo Line of Credit, as amended, expires on May 30, 1997.
The credit facility contains certain restrictive covenants that require, among
other things, the maintenance of certain financial ratios and amounts. The
amount of unused credit under the facility was limited by the allowable
borrowing base and was approximately $1,005,000 and $6,624,000 at March 31, 1997
and December 31, 1996, respectively.
The Company is currently negotiating for a new single line of credit to
replace the current Bank of America Line of Credit and Wells Fargo Line of
Credit. The Company believes its new line of credit will be in place by May 31,
1997, or, if not, that it will be able to renew the current Bank of America Line
of Credit and Wells Fargo Line of Credit until such time as the new line of
credit is finalized.
7. LONG-TERM DEBT
Long-term debt consists of a promissory note payable to a bank that bears
interest at the bank's reference rate. Interest is payable monthly and the
principal is due July 1998. The note is secured by a deed of trust.
8. 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").
6
<PAGE> 9
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 condensed 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
the first three months ended March 31, 1997, Banner sold approximately $9
million of Consumer Product Receivables, net of $.6 million which the Company
returned pursuant to the Financing Agreement.
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.
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's,
Holdings' or their affiliates' actual cost of providing such services or
incurring such costs. Employee benefit expenses are allocated to the Company
based on the ratio of actual payroll expenses of employees in the consumer
products business contributed by Banner to the Company compared to total actual
payroll expenses of Banner before such allocation. Accounting expenses are
allocated 50% to the Company. The operating costs of Banner's management
information systems function are allocated initially 50% to the Company for a
period of five years, subject to adjustment from time to time to reflect
changing costs and usage. Except for management information systems services,
the Operating Agreement continues until terminated by either the Company,
Holdings or Banner upon one year's prior written notice. Termination may be made
on a service-by-service basis or in total.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements in this Report on Form 10-Q constitute "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995 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" contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
The following sets forth certain information relating to the Company's
financial trends, credit quality and delinquency experienced for the Company's
consumer finance receivable portfolio, for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
FINANCIAL TRENDS (000's omitted)
Gross receivables (at end of period) $ 127,972 $ 102,114
Deferred interest (at end of period) 12,975 10,972
------------ ------------
Net receivables (at end of period) 114,997 91,142
Deferred administrative fees & insurance (at end of period) 1,149 905
Allowance for credit losses (at end of period) 7,120 5,648
------------ ------------
Net carrying value $ 106,728 $ 84,589
============ ============
Average net receivables $ 118,543 $ 94,081
Average interest bearing liabilities(1) 72,307 61,856
Administrative fee income 466 414
Total interest income(2) 7,583 5,479
Total interest expense 1,423 1,241
------------ ------------
Net interest income before provision for credit losses 6,160 4,238
Net provision for credit losses 2,411 2,154
Net write-off's 2,077 1,460
Average interest rate on average net receivables 25.6% 23.3%
Average interest rate on interest bearing liabilities 7.9% 8.0%
------------ ------------
Net interest spread 17.7% 15.3%
============ ============
</TABLE>
(1) The amounts represent borrowings and related interest expense on the
Company's lines of credit, excluding amounts related to the Company's
other borrowings.
(2) The amounts represent interest income on consumer finance receivables,
excluding administrative fees, late charges and other charges, which
are included in the Condensed Consolidated Statements of Operations.
8
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CREDIT QUALITY (000's omitted)
Average net receivables $ 118,543 $ 94,081
Net provision for credit losses 2,411 2,154
Net write-off's 2,077 1,460
Provision for credit losses as a % of average net receivables 8.1% 9.2%
Net write-off's as a % of average net receivables 7.0% 6.2%
END OF PERIOD (000's omitted)
Net receivables $ 114,997 $ 91,142
Allowance for credit losses 7,120 5,648
Allowance for credit losses as a % of net receivables 6.2% 6.2%
DELINQUENCY EXPERIENCE (000's omitted)
Past due accounts (gross receivables)
31-60 days $ 3,297 $ 2,178
61 days or more 6,360 3,115
Accounts with payments 31 days or more past due
as a percentage of end of period gross receivables 7.5% 5.2%
</TABLE>
AUTOMOBILE FINANCE PORTFOLIO
At March 31, 1997 and March 31, 1996, the gross receivable of this
portfolio was $10.4 million and $7.7 million, respectively; the net receivable
was $8.4 million and $5.9 million, respectively.
9
<PAGE> 12
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THE RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 1996.
Total revenues in the three months ended March 31, 1997 increased to $12.7
million from $7.2 million in the three months ended March 31, 1996, an increase
of $5.4 million or 75.0%.
Interest income on the consumer finance receivables portfolio in the three
months ended March 31, 1997 increased to $7.6 million from $5.5 million in the
three months ended March 31, 1996, an increase of $2.1 million or 38.4%. This
increase was primarily attributable to an increase in the consumer finance
receivable portfolio which averaged $118.5 million in the three months ended
March 31, 1997, compared to $94.1 million in the three months ended March 31,
1996. The average interest rate the Company charged on this portfolio increased
to 25.6% for the three months ended March 31, 1997, compared to 23.3% for the
three months ended March 31, 1996.
Interest income on the automobile finance receivables portfolio in the
three months ended March 31, 1997 increased to $0.4 million from $0.3 million in
the three months ended March 31, 1996. This increase was due to an increase in
the Automobile Finance Receivables which averaged $8.6 million in the three
months ended March 31, 1997, compared to $4.9 million in the three months ended
March 31, 1996.
Other income for the three months ended March 31, 1997 increased to $2.9
million from $1.3 million in the three months ended March 31, 1996, an increase
of $1.6 million. Other income in the three months ended March 31, 1997 includes
an increase of $0.1 million in administrative fee income earned on small loans,
a $0.3 million increase in late and extension charges, a $0.1 million increase
in transaction fees charged on consumer product installment contracts, and an
increase of $.7 million in commissions and broker fees income from sales of
automobile insurance contracts and $.04 million in income from the sale of
credit life, accident and health and property insurance.
Operating expenses in the three months ended March 31, 1997 increased to
$5.8 million from $2.0 million in the three months ended March 31, 1996, an
increase of $3.8 million. Of this increase, $1.7 million is attributable to
operating costs and expenses incurred in connection with the sale of airline
tickets and $0.8 million incurred in the sale of auto insurance, which business
commenced in July 1996. The remaining increase of $1.3 million was primarily due
to the expansion of the small loan business and unaffiliated retailer business,
including an increase in the number of employees and related payroll expenses.
The provision for credit losses in the three months ended March 31, 1997
increased to $2.4 million from $2.2 million in the three months ended March 31,
1996, an increase of $.3 million or 11.9%. This increase was primarily due to
the growth experienced by the Company in its unaffiliated third party retailers
receivable portfolio, and to higher levels of delinquencies and write-off's.
Interest expense in the three months ended March 31, 1997 increased to $1.4
million from $1.2 million in the three months ended March 31, 1996. This
increase was due to an increase in the amounts borrowed on the lines of credit
which averaged $72.3 million in the three months ended March 31, 1997, compared
to $61.9 million in the three months ended March 31, 1996.
As a result of the foregoing factors, net income in the three months ended
March 31, 1997 increased to $1.8 million from $1.1 million in the three months
ended March 31, 1996, an increase of $.7 million or 63.8%.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through the cash flow
generated from operations, borrowings under its Lines of Credit, and from
periodic contributions to capital made by Holdings and related entities.
For the three months ended March 31, 1997, net cash utilized in operating
activities totalled $0.5 million, while investing activities provided $1.8
million of cash flow. During this period the Company paid down $1.5 million of
notes payable.
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 certain eligible contracts in the Company's consumer finance receivable
portfolio. As of March 31, 1997, the total amount available to the Company under
the Bank of America Line of Credit was $31.9 million, of which $30.8 million was
outstanding. The Bank of America Line of Credit was amended as of April 30,
1997, to extend the expiration date to May 31, 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. As of March 31, 1997, the total amount available to the Company under
the Wells Fargo Line of Credit, as amended as of April 30,1997 to extend the
expiration date to May 30, 1997, was $42.7 million, of which approximately $41.7
million was outstanding. The Company is currently negotiating for a new single
line of credit to replace the current Bank of America Line of Credit and Wells
Fargo Line of Credit. The Company believes its new line of credit will be in
place by May 31, 1997, or, if not, that it will be able to renew the current
Bank of America Line of Credit and Wells Fargo Line of Credit until such time as
the new line of credit is finalized.
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. However, there can be no assurance that
the Company will have access to financing sources necessary to sustain its
operation and its growth plans, or that such financing will be available to the
Company on favorable terms.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
10.32 Amendment Number Three to Third Amended and Restated Loan
Agreement dated as of April 30, 1997 among the financial
institutions named therein, Central Installment Credit
Corporation and Banner's Central Electric, Inc.
10.33 Extension of Maturity Date to credit agreement dated as of
April 28, 1997, by and between Central Consumer Finance
Company and Wells Fargo Bank NTSA.
27.1 Financial Data Schedule
(b) Reports
No reports on Form 8-K were required to be filed by the
Company during the three month period ended March 31, 1997.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
May 14, 1997 /S/ GARY M. CYPRES
-------------------------------------------
Gary M. Cypres
Chairman of the Board, Chief Executive
Officer and President
May 14, 1997 /S/ NEAL E. GOWER
-------------------------------------------
Neal E. Gower
Principal Accounting Officer
13
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
10.32 Amendment Number Three to Third Amended and Restated Loan
Agreement dated as of April 30, 1997 among the financial
institutions named therein, Central Installment Credit Corporation
and Banner's Central Electric, Inc.
10.33 Extension of Maturity Date to credit agreement dated as of April
28, 1997, by and between Central Consumer Finance Company and
Wells Fargo Bank NTSA.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
AMENDMENT NUMBER THREE AND WAIVER TO THIRD
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDMENT NUMBER THREE TO THIRD AMENDED AND RESTATED LOAN AGREEMENT
(herein this "Amendment"), dated as of April 30, 1997, 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 Number One dated as of August, 1996, and Amendment Number
Two dated as of December 31, 1996 (as amended, 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) May 31,
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 date "April 30,
1997" is amended to read "May 31, 1997."
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 in a timely manner
with Sections 5.2(b), 5.2(d), and 5.2(h) for the months ended January
31, 1997, and February 28, 1997.
(b) the failure of the Obligor to comply with Section 5.2(r)
with respect to projections for the fiscal year ending December 31,
1997.
- 1 -
<PAGE> 2
(c) the failure of the Obligor to comply with Section 6.6(i)
for the months ended December 31, 1996, January 31, 1997, and February
28, 1997.
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:
(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
- 2 -
<PAGE> 3
(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
-------------------------------
BANNER'S CENTRAL ELECTRIC, INC.,
a California corporation
By: /s/ GARY CYPRES
----------------------------------
Title: President
-------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By:
----------------------------------
Title:
-------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, in its
individual capacity as a Bank
By:
----------------------------------
Title:
-------------------------------
(signatures continue)
- 3 -
<PAGE> 4
(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:
----------------------------------
Title:
-------------------------------
BANNER'S CENTRAL ELECTRIC, INC.,
a California corporation
By:
----------------------------------
Title:
-------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ LAURA KNIGHT
----------------------------------
Laura Knight
Title: Vice President
-------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, in its
individual capacity as a Bank
By:
----------------------------------
Title:
-------------------------------
(signatures continue)
- 3 -
<PAGE> 5
(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:
----------------------------------
Title:
-------------------------------
BANNER'S CENTRAL ELECTRIC, INC.,
a California corporation
By:
----------------------------------
Title:
-------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By:
----------------------------------
Title:
-------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, in its
individual capacity as a Bank
By: /s/ PAUL F. SUTHERLEN
----------------------------------
Paul F. Sutherlen
Title: Vice President
-------------------------------
(signatures continue)
- 3 -
<PAGE> 6
SUMITOMO BANK OF CALIFORNIA,
as a Bank
By:
----------------------------------
Title:
-------------------------------
SANWA BANK CALIFORNIA, as a Bank
By: /s/ JOSEPH C. ARCO
----------------------------------
Joseph C. Arco
Title: Vice President
-------------------------------
- 4 -
<PAGE> 7
SUMITOMO BANK OF CALIFORNIA,
as a Bank
By: /s/ Steve Sloan
----------------------------------
Title: VP
-------------------------------
SANWA BANK CALIFORNIA, as a Bank
By:
----------------------------------
Title:
-------------------------------
- 4 -
<PAGE> 1
[WELLS FARGO BANK LETTERHEAD]
April 28, 1997
Central Consumer Finance Company
5480 East Ferguson Drive
Commerce, California 90022
Attention: Mr. Gary M. Cypres
Chief Executive Officer
Re: Extension of Maturity Date
------------------------------
Dear Gary:
Reference is made to (i) that certain 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") and (ii) that certain
Revolving Line of Credit Note dated as of September 24, 1996 made by Borrower to
the order of the Bank in the original principal amount of up to $50,000,000.00
(as amended from time to time, the "Note"). Capitalized terms used herein but
not otherwise defined shall have the meanings specified for such terms in the
Credit Agreement.
Pursuant to Section 1.1(a) of the Credit Agreement, April 30, 1997 is
the scheduled last day on which the Bank will make advances under the Line of
Credit to Borrower. Similarly, the Note provides that the outstanding balance
thereof shall be due and payable in full on April 30, 1997. Central Financial
Acceptance Corporation, the parent company of Borrower, and the Bank (in its
capacity as syndication agent) are currently involved in negotiations regarding
certain proposed credit facilities that would (if made) refinance and replace
the existing Line of Credit evidenced by the
<PAGE> 2
Central Consumer Finance Company
April 28, 1997
Page 2
Credit Agreement and the Note. To accommodate continued negotiations for such
credit facilities, Borrower has requested that Bank extend the maturity date of
the Line of Credit to May 30, 1997. Subject to the terms hereof, the Bank agrees
to extend the maturity date of the Line of Credit to May 30, 1997. Therefore,
Section 1.1(a) of the Credit Agreement is hereby amended by deleting "April 30,
1997" as the last day on which the Bank will make advances under the Line of
Credit, and by substituting for said date "May 30, 1997". In addition, the
reference to "April 30, 1997" on page 5 of the Note as the maturity date thereof
is deleted and the day "May 30, 1997" substituted therefor.
Pursuant to that certain Waiver Agreement and Temporary Amendment dated
as of January 31, 1997 by and between Borrower and the Bank (the "January
Waiver"), the Bank agreed to increase the advance rate against Borrower's
various eligible contracts from 70% to 75%. According to the January Waiver,
such increase was to terminate as of April 1, 1997. The Bank has permitted the
75% advance rate to remain in effect since April 1, 1997 and will continue to do
so until May 30, 1997.
The effectiveness of this letter is conditioned upon receipt by the Bank
of an original counterpart hereof executed by Borrower and delivered to the Bank
on or before April 30, 1997.
Except as expressly provided herein, all terms and conditions of the
Credit Agreement and the other Loan Documents (including the Note) shall
continue in full force and effect, without waiver or modification, and the Bank
reserves all of its rights, privileges and remedies in connection therewith.
<PAGE> 3
Central Consumer Finance Company
April 28, 1997
Page 3
Please arrange to have this letter or a copy hereof executed and
returned to the Bank in accordance with the foregoing.
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ PERRY MORETH
----------------
Perry Moreth
Vice President
ACKNOWLEDGED AND AGREED TO
THIS 29 DAY OF APRIL, 1997:
CENTRAL CONSUMER FINANCE COMPANY,
a Delaware corporation
By: /s/ GARY CYPRES
---------------
Title: President
------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,702
<SECURITIES> 0
<RECEIVABLES> 122,249
<ALLOWANCES> 7,120
<INVENTORY> 0
<CURRENT-ASSETS> 133,250
<PP&E> 4,654
<DEPRECIATION> 277
<TOTAL-ASSETS> 146,272
<CURRENT-LIABILITIES> 83,962
<BONDS> 850
0
0
<COMMON> 73
<OTHER-SE> 63,087
<TOTAL-LIABILITY-AND-EQUITY> 146,272
<SALES> 0
<TOTAL-REVENUES> 12,657
<CGS> 0
<TOTAL-COSTS> 5,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,411
<INTEREST-EXPENSE> 1,423
<INCOME-PRETAX> 3,012
<INCOME-TAX> 1,205
<INCOME-CONTINUING> 1,807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,807
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
