<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-11815
-------------
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4574983
- - ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5480 East Ferguson Drive
Commerce, California 90022
----------------------------------------
(Address of principal executive offices)
(213) 720-8600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
----- -----
Number of shares outstanding of the Registrant's Common Stock, as of May 14,
1998: 7,277,000.
<PAGE> 2
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
- - -------------------------------------------------------------------------------------------------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997.............................................................. 1
Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 1998 and 1997........................................................ 2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997....................................................... 3
Notes to Condensed Consolidated Financial Statements .......................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................... 11
PART II. OTHER INFORMATION
Item 6. Exhibits ...................................................................... 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,
1998 1997
--------- ------------
<S> <C> <C>
A S S E T S
Cash $ 8,622 $ 4,794
Restricted cash 1,153 930
Finance receivables, net 93,388 102,498
Prepaid expenses and other current assets 2,179 2,865
Note receivable from affiliate 5,107 4,992
Deferred income taxes 3,901 3,845
Income taxes receivable 290 786
Property and equipment, net 5,915 5,880
Intangible asset, net 8,479 8,559
-------- --------
Total assets $129,034 $135,149
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 53,000 $ 62,000
Accrued expenses and other current liabilities 8,310 6,556
Other debt 850 850
-------- --------
Total liabilities 62,160 69,406
-------- --------
Commitments and contingencies
Stockholders' 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 18,898 17,767
-------- --------
Total stockholders' equity 66,874 65,743
-------- --------
Total liabilities and stockholders' equity $129,034 $135,149
======== ========
</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,
--------------------
1998 1997
------- -------
<S> <C> <C>
Revenues:
Interest income on consumer finance receivables $ 6,430 $ 7,583
Interest income on auto finance receivables 230 416
Travel services 1,859 1,755
Other income 3,536 2,903
------- -------
Total revenues 12,055 12,657
Costs and expenses:
Operating expenses 6,945 5,811
Provision for credit losses 2,019 2,411
Interest expense 1,208 1,423
------- -------
Total costs and expenses 10,172 9,645
------- -------
Income before provision for income taxes 1,883 3,012
Provision for income taxes 752 1,205
------- -------
Net income $ 1,131 $ 1,807
======= =======
Per Share Data:
Basic earnings per share $ 0.16 $ 0.25
Diluted earnings per share $ 0.16 $ 0.25
Weighted average common shares outstanding 7,277 7,277
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,131 $ 1,807
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 238 159
Provision for credit losses 2,019 2,411
Deferred income taxes (56) --
Note receivable from affiliate (115) --
Changes in assets and liabilities:
Prepaid expenses and other current assets 1,182 (305)
Restricted cash (223) --
Other receivables -- (4,616)
Accrued expenses and other current liabilities 1,754 61
-------
Net cash provided by (used in) operating activities 5,930 (483)
------- -------
Cash flows from investing activities:
Installment contracts collected, net 7,091 2,851
Capital expenditures (193) (1,031)
------- -------
Net cash provided by investing activities 6,898 1,820
------- -------
Cash flows from financing activities:
Net repayments of notes payable (9,000) (1,483)
------- -------
Net cash used in financing activities (9,000) (1,483)
------- -------
Net increase (decrease) in cash 3,828 (146)
Cash, beginning of period 4,794 5,848
------- -------
Cash, end of period $ 8,622 $ 5,702
======= =======
Cash paid during the period for:
Interest 1,253 $ 1,312
Income taxes -- $ 415
</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 ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. These interim financial statements should be read in
conjunction with the year ended December 31, 1997 audited 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 stockholders' 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."
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 small loans to its customers; (iii) originates and
services consumer finance receivables generated by the Company's customers for
purchases of airline tickets sold by the Company; and (iv) 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
<PAGE> 7
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 the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
3. EARNINGS PER SHARE
The Company reports earnings per share according to the provisions of
Statements of Financial Account Standards No 128, "Earnings per Share." The
following table presents a reconciliation of basic earnings per share and
diluted earnings per share. Options to purchase 425,000 and 454,000 shares of
common stock at $12.00-$18.25 per share, were outstanding during the first
quarter of 1997 and 1998, respectively, but were not included in the
computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------
1998 1997
-------------------------------------------------
(In thousands, except per share data)
Basic Diluted Basic Diluted
Earnings Earnings Earnings Earnings
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numerator- income from continuing operations $1,131 $1,131 $1,807 $1,807
Denominator-weighted average share outstanding 7,277 7,277 7,277 7,277
Earnings per share $ 0.16 $ 0.16 $ 0.25 $ 0.25
</TABLE>
4. FINANCE RECEIVABLES
Finance receivables consist of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(In thousands)
<S> <C> <C>
Consumer Product Portfolio $ 34,645 $ 38,814
Small Loan Portfolio 54,833 58,659
Automobile Finance Portfolio 5,286 6,382
Travel Finance Portfolio 5,090 6,165
Other 9,155 10,194
-------- --------
109,009 120,214
Less deferred interest 5,775 7,402
Less allowance for credit losses 7,756 7,835
Less deferred administrative fees, ATM
membership fees and insurance revenues 1,506 1,780
Less credit insurance and reserves for
policyholders' benefits 584 699
-------- --------
$ 93,388 $102,498
======== ========
</TABLE>
5
<PAGE> 8
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Wells Fargo Line of Credit $53,000 $62,000
======= =======
</TABLE>
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. Holdings and all of the Company's significant
domestic subsidiaries are guarantors under the Wells Fargo Line of Credit. In
addition, the Company has pledged substantially all of its assets, including its
receivables, and the stock of all of its significant subsidiaries as collateral
for the amounts the Company borrows under the Wells Fargo Line of Credit. 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 $13,400,000 at March 31, 1998.
The Company was not in compliance with certain financial covenants as of
March 31, 1998; however, the Company is in the process of obtaining a waiver
from each of the lenders in the Wells Fargo Line of Credit for these defaults.
6. 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.
7. 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 contracts
purchased can be returned to Banner at amortized principal balance. The Company
returned $5.8 million of contracts purchased for the year ended December 31,
1997. The Company did not return any contracts purchased for the three months
ended March 31, 1998. The Company can terminate the Financing Agreement at any
time upon one year's prior written notice to Banner. All unpaid amounts are due
within 18 months and bear interest at the Company's borrowing rate. Interest
expense charged on the amount due to Banner was approximately $103,000 for the
three months ended March 31, 1998.
In the accompanying condensed consolidated financial statements the
transaction fee is computed based upon 2.5% of average net receivables in the
consumer product portfolio.
In August 1996, CFAC sold its used automobile business back to Banner, which
discontinued this business in May, 1997. Under the terms of the sale covering
this transaction, 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.
6
<PAGE> 9
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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. Termination may be made
on a service-by-service basis or in total. Such allocated expenses totaled
approximately $433,000 and $371,000 for the three months ended March 31, 1998
and 1997, respectively.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed in this Quarterly Report on Form 10-Q may
constitute forward-looking statements under Section 27A of Securities Act of
1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). These statements may
involve risks and uncertainties. These forward-looking statements relate to,
among other things, expectations of the business environment in which the
Company operates in, projections of future performance, perceived opportunities
in the market and statements regarding our mission and vision. The Company's
actual results, performance, or achievements may differ significantly from the
results, performance, or achievements express 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" contained in the Company's
Annual Report on Form 10-K for year ended December 31, 1997.
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. Such amounts
exclude the Automobile Portfolio. (see note)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
FINANCIAL TRENDS (000's omitted)
Gross receivables (at end of period) $103,723 $127,972
Deferred interest (at end of period) 5,102 12,975
-------- --------
Net receivables (at end of period) 98,621 114,997
Deferred administrative and membership fees & insurance
(at end of period) 1,506 1,149
Allowance for credit losses (at end of period) 7,756 7,120
-------- --------
Net carrying value $ 89,359 $106,728
======== ========
Average net receivables $103,709 $118,543
Average interest bearing liabilities(1) 58,575 72,307
Administrative and membership fee income 767 466
Total interest income(2) 6,430 7,583
Total interest expense 1,208 1,423
-------- --------
Net interest income before provision for credit losses 5,222 6,160
Net provision for credit losses 2,019 2,411
Net write-offs 2,098 2,077
Average interest rate on average net receivables 24.8% 25.6%
Average interest rate on interest bearing liabilities 8.2% 7.9%
-------- --------
Net interest spread 16.6% 17.7%
======== ========
</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,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
CREDIT QUALITY (000's omitted)
Average net receivables $103,709 $118,543
Net provision for credit losses 2,019 2,411
Net write-offs 2,098 2,077
Provision for credit losses as a % of average net receivables 7.8% 8.1%
Net write-offs as a % of average net receivables 8.1% 7.0%
END OF PERIOD (000's omitted)
Net receivables $ 98,621 $114,997
Allowance for credit losses 7,756 7,120
Allowance for credit losses as a % of net receivables 7.9% 6.2%
DELINQUENCY EXPERIENCE (000's omitted)
Past due accounts (gross receivables)
31-60 days $ 2,331 $ 3,297
61 days or more 6,356 6,360
Accounts with payments 31 days or more past due
as a percentage of end of period gross receivables 8.4% 7.5%
</TABLE>
9
<PAGE> 12
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THE RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 1997.
Total revenues in the three months ended March 31, 1998 decreased to $12.1
million from $12.7 million in the three months ended March 31, 1997, a decrease
of $0.6 million.
Interest income on the consumer finance receivables portfolio in the three
months ended March 31, 1998 decreased to $6.4 million from $7.6 million in the
three months ended March 31, 1997, a decrease of $1.2 million. This decrease was
primarily attributable to a decrease in the consumer finance receivable
portfolio which averaged $103.7 million in the three months ended March 31,
1998, compared to $118.5 million in the three months ended March 31, 1997. The
average interest rate the Company charged on this portfolio decreased to 24.6%
for the three months ended March 31, 1998, compared to 25.6% for the three
months ended March 31, 1997.
Interest income on the automobile finance receivables portfolio in the
three months ended March 31, 1998 decreased to $0.2 million from $0.4 million in
the three months ended March 31, 1997. This decrease was due to a decrease in
the automobile finance receivables which averaged $5.1 million in the three
months ended March 31, 1998, compared to $8.6 million in the three months ended
March 31, 1997.
Other income for the three months ended March 31, 1998 increased to $3.5
million from $2.9 million in the three months ended March 31, 1997, an increase
of $0.6 million. Other income in the three months ended March 31, 1998 includes
an increase of $0.3 million in administrative and membership fee income earned
on small loans, an increase of $0.7 million earned by the Company's captive
insurance company, offset by a decrease of $0.2 million in late charges as a
result of a decrease in the Company's consumer receivable portfolio and a $0.3
million decrease in commission and broker fees on income from the sale of
automobile contracts.
Operating expenses in the three months ended March 31, 1998 increased to
$6.9 million from $5.8 million in the three months ended March 31, 1997, an
increase of $1.1 million . Of this increase, $0.5 million is attributable to
operating costs and expenses incurred in connection with the Company's captive
insurance company. The remaining increase of $0.6 million was primarily due to
the expansion of the small loan business, including an increase in rent, the
number of employees and related payroll expenses.
The provision for credit losses in the three months ended March 31, 1998
decreased to $2.0 million from $2.4 million in the three months ended March 31,
1997, a decrease of $0.4 million. This decrease was primarily due to the decline
experienced by the Company in its consumer receivable portfolio.
Interest expense in the three months ended March 31, 1998 decreased to $1.2
million from $1.4 million in the three months ended March 31, 1997. This
decrease was due to a decrease in the amounts borrowed on the lines of credit
which averaged $58.6 million in the three months ended March 31, 1998, compared
to $72.3 million in the three months ended March 31, 1997.
As a result of the foregoing factors, net income in the three months ended
March 31, 1998 decreased to $1.1 million from $1.8 million in the three months
ended March 31, 1997.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations primary through the cash flow generated
from operations and borrowings under its lines of credit.
For the three months ended March 31, 1998, net cash provided by operating
activities totalled $6.0 million, while investing activities provided $6.9
million of cash flow. During this period the Company paid down $9 million of
notes payable.
The Company funds its lending activities and operations with borrowings
under the Wells Fargo Line of Credit. Holdings and all of the Company's
significant domestic subsidiaries are guarantors under the Wells Fargo Line of
Credit. In addition, the Company has pledged substantially all of its assets,
including its receivables, and the stock of all of its significant subsidiaries
as collateral for the amounts the Company borrows 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 March 31, 1998
under the Wells Fargo Line of Credit, approximately $55.1 million was
outstanding, including letters of credit, and $13.4 million was available to the
Company.
The Wells Fargo Line of Credit also contains certain restrictive covenants
that require, among other things, the Company to maintain specific financial
ratios and to satisfy certain financial tests. At March 31, 1998, the Company
did not comply with certain of the financial ratios and tests. However, the
Company is in the process of obtaining a waiver from each of the lenders in
the Wells Fargo Line of Credit for these defaults.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports
On February 24, 1998, the Company filed a report on Form 8-K
under Item 5, "Other Events" in connection with its definitive
agreement to acquire Mission Savings and Loan Association, a
federally chartered savings association.
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, 1998 /s/ Gary M. Cypres
-----------------------------------------
Gary M. Cypres
Chairman of the Board and Chief Executive
Officer
May 14, 1998 /s/ Neal E. Gower
-----------------------------------------
Neal E. Gower
Principal Accounting Officer
13
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,622
<SECURITIES> 0
<RECEIVABLES> 101,144
<ALLOWANCES> 7,756
<INVENTORY> 0
<CURRENT-ASSETS> 114,640
<PP&E> 6,586
<DEPRECIATION> 671
<TOTAL-ASSETS> 129,034
<CURRENT-LIABILITIES> 61,310
<BONDS> 850
0
0
<COMMON> 73
<OTHER-SE> 66,801
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