<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 SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-03790
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4574983
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5480 East Ferguson Drive
Commerce, California 90022
---------------------------------------
(Address of principal executive offices)
(213) 720-8600
---------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether Registratnt (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 November 10, 1997: 7,277,000.
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION
FORM 10-Q
INDEX
<TABLE>
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at
September 30, 1997 and December 31, 1996........................1
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1997 and 1996.........2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 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 4. Submission of Matters to a Vote of Security Holders............13
Item 6. Exhibits and Reports on Form 8-K...............................13
Signatures....................................................................14
</TABLE>
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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>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ----------
A S S E T S
<S> <C> <C>
Cash $ 4,938 $ 5,848
Consumer Finance receivables, net 97,858 111,663
Automobile Finance receivables 6,352 8,728
Other receivables 3,439 2,289
Prepaid expenses and other current assets 4,033 1,673
Deferred income taxes 3,531 3,536
Property and equipment, net 5,296 3,425
Intangible asset, net 8,487 8,725
-------- --------
Total assets $133,934 $145,887
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Notes payable $ 57,000 $ 74,024
Accrued expenses and other current liabilities 9,372 8,708
Income taxes payable 112 952
Long-term debt 850 850
-------- --------
Total liabilities 67,334 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 18,624 13,377
-------- --------
Total stockholder's equity 66,600 61,353
-------- --------
Total liabilities and stockholder's equity $133,934 $145,887
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Interest income on consumer finance receivables $ 7,133 $ 6,107 $ 22,214 $ 17,150
Interest income on auto finance receivables 333 461 1,158 1,063
Travel services 2,287 807 6,242 1,412
Insurance products 1,719 718 4,416 1,058
Other income 1,741 1,578 5,215 4,022
-------- -------- -------- --------
Total revenues 13,213 9,671 39,245 24,705
Costs and expenses:
Operating expenses 6,397 3,520 18,584 7,900
Provision for credit losses 2,666 2,189 7,895 6,468
Interest expense 1,236 1,001 4,110 3,483
-------- -------- -------- --------
Total costs and expenses 10,299 6,710 30,589 17,851
-------- -------- -------- --------
Income before discontinued operations &
provision for income taxes 2,914 2,961 8,656 6,854
Provision for income taxes 1,199 1,182 3,409 2,741
Loss from discontinued operations, (net of tax) -- (69) -- (91)
-------- -------- -------- --------
Net income $ 1,715 $ 1,710 $ 5,247 $ 4,022
======== ======== ======== ========
PER SHARE DATA:
Earnings per share from continuing operations $ 0.24 $ 0.25 $ 0.72 $ 0.70
Earnings (loss) per share discontinued
operations -- (0.01) -- (0.01)
-------- -------- -------- --------
Earnings per share $ 0.24 $ 0.24 $ 0.72 $ 0.69
Weighted average common shares outstanding 7,277 7,254 7,277 5,856
Supplementary net income per share -- $ 0.23 -- $ 0.63
Supplementary weighted average number of
common shares outstanding -- 7,277 -- 7,277
</TABLE>
See notes to condensed consolidated financial statements.
2
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,247 $ 4,022
Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation and amortization 529 146
Provision for credit losses 7,895 6,468
Deferred income taxes 5 (162)
Changes in assets and liabilities:
Prepaid expenses and other current assets (2,360) (660)
Other receivables (1,150) (481)
Net assets of discontinued operations 0 1,033
Accrued expenses and other current liabilities (176) 3,446
-------- --------
Net cash provided by operating activities 9,990 13,812
-------- --------
Cash flows from investing activities:
Installment contracts (originated and acquired)
collected, net 8,286 (19,478)
Acquisition of travel companies -- (1,960)
Capital expenditures (2,162) (647)
-------- --------
Net cash provided by (used in )
investing activities 6,124 (22,085)
-------- --------
Cash flows from financing activities:
Capital withdrawal 0 (615)
Net proceeds from public offering 0 22,601
Net (repayments of) notes payable (17,024) (8,513)
-------- --------
Net cash provided by (used in)
financing activities (17,024) 13,473
-------- --------
Net increase (decrease) in cash (910) 5,200
Cash, beginning of period 5,848 57
-------- --------
Cash, end of period $ 4,938 $ 5,257
======== ========
Cash paid during the period for:
Interest $ 4,322 $ 3,570
Income taxes $ 4,244 $ 2,696
</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 notes 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. ("BCE"). BCE 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, BCE 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 BCE 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, BCE 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, BCE 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." BCE,
including the operations of BCE 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. On May 30, 1997, Central Auto Sales,
Inc. stopped selling automobiles and closed its sales lot.
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) provided 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
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.
4
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 or were
antidilutive.
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], Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income," and Statement of Financial Accounting
Standards No. 131 "Disclosures about Segments of Enterprise and related
information." The Company will be required to adopt SFAS 128 and SFAS 129 in
fiscal year 1997 and SFAS 130 and 131 in fiscal year 1998. 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
---------------------------- ----------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ----------- ------------
1997 1996 1997 1996
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Gross receivables $113,483 $134,477 $ 7,562 $ 11,002
Deferred interest 7,763 14,775 1,210 2,274
-------- -------- -------- --------
Net receivable 105,720 119,702 6,352 8,728
Deferred administrative fee & insurance(1) 502 1,253 -- --
Allowance for credit losses 7,360 6,786 -- --
-------- -------- -------- --------
$ 97,858 $111,663 $ 6,352 $ 8,728
======== ======== ======== ========
</TABLE>
(1) Deferred membership fee of $990,000 at September 30, 1997 on the Efectiva
card, which commenced issuance on April 23, 1997 is included in accrued expenses
and other current liabilities.
Other receivables consist of commissions receivables from automobile
insurance companies of $122,000 and $101,000 at September 30, 1997 and December
31, 1996, respectively, receivables from insurance company for insurance
products sold of $249,000 and $2,188,000 at September 30, 1997 and December 31,
1996, respectively, and $3,068,000 receivables from an affiliate at September
30, 1997. Amounts due from or to affiliates bear interest after 30 days at the
Company's average borrowing rate for the applicable period.
5
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CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. NOTES PAYABLE
<TABLE>
Notes payable consist of:
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Bank of America line of credit $ -- $ 35,208
Wells Fargo line of credit 57,000 38,816
------------- ------------
$ 57,000 $ 74,024
============= ============
</TABLE>
The Company had a credit agreement with Bank of America National Trust and
Savings Association (the "Bank of America Line of Credit") that, as amended,
provided for the issuance of notes up to $60,000,000, subject to an allowable
borrowing base. The Bank of America Line of Credit was repaid on June 13, 1997.
The Company had a credit agreement with Wells Fargo Bank National
Association that provided for the issuance of notes up to $50,000,000 subject to
an allowable borrowing base. The Wells Fargo line of credit was repaid on June
13, 1997.
The Company entered into a credit agreement with several banks and Wells
Fargo Bank National Association, as Agent, (the "Wells Fargo Line of Credit") on
June 13, 1997 that provides for the issuance of notes up to $100,000,000 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 all receivables in the Company. The Wells Fargo
Line of Credit expires on June 12, 2000. 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
$14,880,000 at September 30, 1997.
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. As a result of increasing delinquencies in the Consumer
Products Portfolio, the Company and Banner's amended the Financing Agreement,
effective July 1, 1997 to permit the Company for the year ended December 31,
1997 to return to Banner's up to 8% of the balance of the Consumer Products
Portfolio at December 31, 1996 or approximately $4.95 million.
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 nine months ended September 30, 1997, Banner sold approximately $26.2
million of Consumer Product Receivables, net of $3.8 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. On May 30, 1997, Central Auto Sales Inc. discontinued its business.
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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------
1997 1996 1997 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL TRENDS (000's omitted)
Gross receivables (at end of period) $113,483 $119,796 $113,483 $119,796
Deferred interest (at end of period) 7,763 13,104 7,763 13,104
-------- -------- -------- --------
Net receivables (at end of period) 105,720 106,692 105,720 106,692
Deferred administrative fees & insurance
(at end of period)(1) 502 1,118 502 1,118
Allowance for credit losses (at end of period) 7,360 6,582 7,360 6,582
-------- -------- -------- --------
Net carrying value $ 97,858 $ 98,992 $ 97,858 $ 98,992
======== ======== ======== ========
Average net receivables $110,400 $101,719 $114,465 $ 96,947
Average interest bearing liabilities(2) 62,083 50,933 66,700 58,742
Administrative fee income 377 519 1,382 1,388
Total interest income(3) 7,133 6,107 22,214 17,150
Total interest expense 1,236 1,001 4,110 3,483
-------- -------- -------- --------
Net interest income before provision
for credit losses 5,897 5,106 18,104 13,667
Net provision for credit losses 2,666 2,189 7,895 6,468
Net write-off "s 2,666 1,851 7,321 4,841
Average interest rate on average
net receivables 25.8% 24.0% 25.9% 23.6%
Average interest rate on interest
bearing liabilities 8.0% 7.9% 8.2% 7.9%
-------- -------- -------- --------
Net interest spread 17.8% 16.1% 17.7% 15.7%
======== ======== ======== ========
</TABLE>
- - ----------
(1) Deferred membership fee of $990,000 at September 30, 1997 on the
Efectiva card, which commenced issuance on April 23, 1997 is included in
accrued expenses and other current liabilities.
(2) The amounts represent borrowings under the Company's lines of credit,
excluding amounts related to the Company's other borrowings.
(3) 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------------
1997 1996 1997 1996
------- -------- ------- -------
CREDIT QUALITY (000's omitted)
<S> <C> <C> <C> <C>
Average net receivables $110,400 $101,719 $114,465 $ 96,947
Net provision for credit losses 2,666 2,189 7,895 6,468
Net write-off's 2,666 1,851 7,321 4,841
Provision for credit losses as a %
of average net receivables 9.7% 8.6% 9.2% 8.9%
Net write-off's as a % of average
net receivables 9.7% 7.3% 8.5% 6.7%
END OF PERIOD (000's omitted)
Net receivables $105,720 $106,692
Allowance for credit losses 7,360 6,582
Allowance for credit losses as a % of net receivables 7.0% 6.2%
DELINQUENCY EXPERIENCE (000's omitted)
Past due accounts (gross receivables)
31-60 days $ 3,804 $ 3,588
61 days or more 7,314 4,458
Accounts with payments 31 days or more past due
as a percentage of end of period gross receivables 9.8% 6.7%
</TABLE>
AUTOMOBILE FINANCE PORTFOLIO
At September 30, 1997 and September 30, 1996, the gross receivable of this
portfolio was $7.6 million and $11.2 million, respectively; the net receivable
was $6.4 million and $8.7 million, respectively.
9
<PAGE> 12
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THE RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996.
Total revenues in the three months ended September 30, 1997 increased to
$13.2 million from $9.7 million in the three months ended September 30, 1996, an
increase of $3.5 million or 36.6%.
Interest income on the consumer finance receivables portfolio in the three
months ended September 30, 1997 increased to $7.1 million from $6.1 million in
the three months ended September 30, 1996, an increase of $1.0 million or 16.8%.
This increase was primarily attributable to an increase in the consumer finance
receivable portfolio which averaged $110.4 million in the three months ended
September 30, 1997, compared to $101.7 million in the three months ended
September 30, 1996. The average interest rate the Company charged on this
portfolio increased to 25.8% for the three months ended September 30, 1997,
compared to 24.0% for the three months ended September 30, 1996.
Interest income on the automobile finance receivables portfolio in the
three months ended September 30, 1997 decreased to $0.3 million from $0.5
million in the three months ended September 30, 1996. This decrease was due to
an decrease in the Automobile Finance Receivables which averaged $6.9 million in
the three months ended September 30, 1997, compared to $10.9 million in the
three months ended September 30, 1996. On May 30, 1997, Central Auto Sales Inc.
ceased the sale and the Company ceased the financing of used automobiles.
Travel services revenue in the three months ended September 30, 1997
increased to $2.3 million from $0.8 million in the three months ended September
30, 1996. This increase was due to acquisitions made in the fourth quarter of
1996.
Insurance products revenues in the three months ended September 30, 1997
increased to $1.7 million from $0.7 million in the three months ended September
30, 1996. This increase was primarily due to the start up of new automobile
insurance agencies and captive insurance companies in the second and third
quarters of 1996.
Other income for the three months ended September 30, 1997 increased to
$1.7 million from $1.6 million in the three months ended September 30, 1996, an
increase of $0.2 million. Other income in the three months ended September 30,
1997 includes an increase of $0.3 million in ATM card member fees earned on the
"Efectiva" ATM card, and a $0.1 million decrease in administrative fees earned
on small loans.
Operating expenses in the three months ended September 30, 1997 increased
to $6.4 million from $3.5 million in the three months ended September 30, 1996,
an increase of $2.9 million . Of this increase, $1.3 million is attributable to
operating costs and expenses incurred in connection with the sale of airline
tickets and $0.5 million incurred in the sale of auto insurance, which business
commenced in July 1996. The remaining increase of $1.1 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 September 30,
1997 increased to $2.7 million from $2.2 million in the three months ended
September 30, 1996, an increase of $0.5 million or 21.8% . 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 September 30, 1997 increased to
$1.2 million from $1.0 million in the three months ended September 30, 1996.
This increase was due to an increase in the amounts borrowed on the lines of
credit which averaged $62.1 million in the three months ended September 30,
1997, compared to $50.9 million in the three months ended September 30, 1996.
As a result of the foregoing factors, net income in the three months ended
September 30, 1997 was flat at $1.7 million.
10
<PAGE> 13
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THE RESULTS OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996.
Total revenues in the nine months ended September 30, 1997 increased to
$39.2 million from $24.7 million in the nine months ended September 30, 1996, an
increase of $14.5 million or 58.9%.
Interest income on the consumer finance receivables portfolio in the nine
months ended September 30, 1997 increased to $22.2 million from $17.2 million in
the nine months ended September 30, 1996, an increase of $5.0 million or 29.5%.
This increase was primarily attributable to an increase in the consumer finance
receivable portfolio which averaged $114.5 million in the nine months ended
September 30, 1997, compared to $96.9 million in the nine months ended September
30, 1996. The average interest rate the Company charged on this portfolio
increased to 25.9% for the nine months ended September 30, 1997, compared to
23.6% for the nine months ended September 30, 1996.
Interest income on the automobile finance receivables portfolio in the
nine months ended September 30, 1997 increased to $1.2 million from $1.1 million
in the nine months ended September 30, 1996. This increase was due to an
increase in the Automobile Finance Receivables which averaged $7.8 million in
the nine months ended September 30, 1997, compared to $6.7 million in the nine
months ended September 30, 1996.
Travel services revenue in the nine months ended September 30, 1997
increased to $6.2 million from $1.4 million in the nine months ended September
30, 1996. This increase was due to acquisitions made in the fourth quarter of
1996.
Insurance products revenues in the nine months ended September 30, 1997
increased to $4.4 million from $1.1 million in the nine months ended September
30, 1996. This increase was primarily due to the start up of the automobile
insurance agencies and captive insurance companies in the second and third
quarters of 1996.
Other income for the nine months ended September 30, 1997 increased to
$5.2 million from $4.0 million in the nine months ended September 30, 1996, an
increase of $1.2 million. Other income in the nine months ended September 30,
1997 includes an increase of $0.3 million in ATM card member fees earned on the
"Efectiva" ATM card , and a $0.5 million increase in late and extension charges,
a $0.2 million increase in transaction fees charged on consumer product
installment contracts, and an increase of $0.2 million in miscellaneous income.
Operating expenses in the nine months ended September 30, 1997 increased
to $18.6 million from $7.9 million in the nine months ended September 30, 1996,
an increase of $10.7 million . Of this increase, $4.7 million is attributable to
operating costs and expenses incurred in connection with the sale of airline
tickets and $2.0 million incurred in the sale of auto insurance, which business
commenced in July 1996. The remaining increase of $4.0 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 nine months ended September 30, 1997
increased to $7.9 million from $6.5 million in the nine months ended September
30, 1996, an increase of $1.4 million or 22.1% . 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 nine months ended September 30, 1997 increased to
$4.1 million from $3.5 million in the nine months ended September 30, 1996. This
increase was due to an increase in the amounts borrowed on the lines of credit
which averaged $66.7 million in the nine months ended September 30, 1997,
compared to $58.7 million in the nine months ended September 30, 1996.
As a result of the foregoing factors, net income in the nine months ended
September 30, 1997 increased to $5.2 million from $4.0 million in the nine
months ended September 30, 1996, an increase of $1.2 million or 30.5%.
11
<PAGE> 14
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 nine months ended September 30, 1997, net cash provided by
operating activities totalled $10.0 million, while investing activities provided
$6.1 million of cash flow. During this period the Company paid down $17.0
million of notes payable.
The Company funds its lending activities and operations with borrowings
under the Wells Fargo Line of Credit. Banner Holdings is a guarantor under the
Wells Fargo Line of Credit. 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
September 30, 1997, the total amount available to the Company under the Wells
Fargo Line of Credit was $74.0 million, of which approximately $59.1 million was
outstanding, including letters of credit.
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability of financing and the terms thereof. The
amount of debt the Company requires from time to time depends on the Company's
needs for cash, as determined by its operating performance and its ability to
borrow under the terms of its loan agreement. The Company intends to meet its
short-term liquidity needs with cash flow from operations and borrowings under
its line 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.
12
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders was held on May 22, 1997.
(b) At the meeting, management's nominees as set forth in the proxy
statement for the meeting, Louis Caldera, Gary M. Cypres and Jose
de Jesus Legaspi, were elected.
(c) The proposal to ratify the appointment of Arthur Andersen LLP as
the Company's independent public accountants for the year ending
December 31, 1997 was approved by a vote of 7,126,952 share in
favor, 0 shares against and 0 shares abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 September 30, 1997.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
November 13, 1997 /s/ GARY M. CYPRES
-----------------------------------------
Gary M. Cypres
Chairman of the Board,
Chief Executive
Officer and President
November 13, 1997 /s/ NEAL E. GOWER
----------------------------------------
Neal E. Gower
Principal Accounting Officer
14
<PAGE> 17
INDEX TO EXHIBITS
Exhibit
Number Description
- - ------ -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,938
<SECURITIES> 0
<RECEIVABLES> 111,570
<ALLOWANCES> 7,360
<INVENTORY> 0
<CURRENT-ASSETS> 120,151
<PP&E> 5,677
<DEPRECIATION> 381
<TOTAL-ASSETS> 133,934
<CURRENT-LIABILITIES> 66,484
<BONDS> 850
0
0
<COMMON> 73
<OTHER-SE> 66,527
<TOTAL-LIABILITY-AND-EQUITY> 133,394
<SALES> 0
<TOTAL-REVENUES> 13,213
<CGS> 0
<TOTAL-COSTS> 6,397
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,666
<INTEREST-EXPENSE> 1,236
<INCOME-PRETAX> 2,914
<INCOME-TAX> 1,199
<INCOME-CONTINUING> 1,715
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,715
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
