<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 JUNE 30, 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 August 14,
1998: 7,277,000.
<PAGE> 2
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
- -------------------------------------------------------------------------------------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 1998 and
December 31, 1997 ................................................... 1
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1998 and 1997.......................... 2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 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........... 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................. 14
Item 5. Other Information.................................................... 14
Item 6. Exhibits and Reports on Form 8-K..................................... 14
Signatures....................................................................... 15
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(unaudited)
A S S E T S
<S> <C> <C>
Cash $ 6,034 $ 4,794
Restricted cash 1,161 930
Finance receivables, net 87,949 102,498
Prepaid expenses and other current assets 1,916 2,865
Note receivable from affiliate 436 4,992
Deferred income taxes 3,843 3,845
Income taxes receivable -- 786
Property and equipment, net 5,955 5,880
Intangible asset, net 8,407 8,559
-------- --------
Total assets $115,701 $135,149
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 38,400 $ 62,000
Accrued expenses and other current liabilities 7,952 6,556
Income taxes payable 463 --
Other debt 850 850
-------- --------
Total liabilities 47,665 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 20,060 17,767
-------- --------
Total stockholders' equity 68,036 65,743
-------- --------
Total liabilities and stockholders' equity $115,701 $135,149
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Interest income on consumer finance receivables $ 5,901 $ 7,498 $ 12,331 $ 15,081
Interest income on auto finance receivables 182 409 412 825
Travel services 2,246 2,200 4,105 3,955
Other income 2,819 3,268 6,355 6,171
---------- ---------- ---------- ----------
Total revenues 11,148 13,375 23,203 26,032
Costs and expenses:
Operating expenses 6,480 6,376 13,425 12,187
Provision for credit losses 1,756 2,818 3,775 5,229
Interest expense 974 1,451 2,182 2,874
---------- ---------- ---------- ----------
Total costs and expenses 9,210 10,645 19,382 20,290
---------- ---------- ---------- ----------
Income before provision for income taxes 1,938 2,730 3,821 5,742
Provision for income taxes 776 1,005 1,528 2,210
---------- ---------- ---------- ----------
Net income $ 1,162 $ 1,725 $ 2,293 $ 3,532
========== ========== ========== ==========
Per Share Data:
Basic earnings per share $ 0.16 $ 0.24 $ 0.32 $ 0.49
Diluted earnings per share $ 0.16 $ 0.24 $ 0.32 $ 0.49
Weighted average common shares outstanding 7,277,000 7,277,000 7,277,000 7,277,000
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,293 $ 3,532
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 476 313
Provision for credit losses 3,775 5,229
Deferred income taxes 2 --
Changes in assets and liabilities:
Note receivable from affiliate 4,556 --
Prepaid expenses and other current assets 1,735 (652)
Restricted cash (231) --
Income taxes payable 463 --
Accrued expenses and other current liabilities 1,396 (248)
-------- --------
Net cash provided by operating activities 14,465 8,174
-------- --------
Cash flows from investing activities:
Installment contracts collected, net 10,774 3,309
Capital expenditures (399) (1,519)
-------- --------
Net cash provided by investing activities 10,375 1,790
-------- --------
Cash flows from financing activities:
Net repayments of notes payable (23,600) (9,424)
-------- --------
Net cash used in financing activities (23,600) (9,424)
-------- --------
Net increase in cash 1,240 540
Cash, beginning of period 4,794 5,848
-------- --------
Cash, end of period $ 6,034 $ 6,388
======== ========
Cash paid during the period for:
Interest $ 2,268 $ 2,940
Income taxes $ 18 $ 2,837
</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 herein have
been included. Operating results for the periods ended June 30, 1998 are not
necessarily indicative of the results that may be expected for any subsequent
period or 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") prior to
the public offering. Banner, which is wholly owned by Banner Holdings, Inc.
("Holdings") is a consumer products retailer that provides its customers with
financing for the merchandise it sells. On June 24, 1996, CFAC, Banner 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 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 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 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. CFAC and its subsidiaries, as reorganized,
are referred to herein as "Central" or the "Company."
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; (iv) provides insurance
products and insurance premium financing to its customers; and (v) provides
check cashing and tax return preparation services. 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
Statement of Financial Accounting 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 446,000 shares of
common stock at $12.00-$18.25 per share, were outstanding during the first six
months 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>
THREE MONTHS ENDED JUNE 30,
------------------------------------------------
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 $1,162 $1,162 $1,725 $1,725
Denominator-weighted average shares outstanding 7,277 7,277 7,277 7,277
Earnings per share $ 0.16 $ 0.16 $ 0.24 $ 0.24
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------------------
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 $2,293 $2,293 $3,532 $3,532
Denominator-weighted average shares outstanding 7,277 7,277 7,277 7,277
Earnings per share $ 0.32 $ 0.32 $ 0.49 $ 0.49
</TABLE>
5
<PAGE> 8
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. FINANCE RECEIVABLES
Finance receivables consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Consumer Product Portfolio $ 32,492 $ 38,814
Small Loan Portfolio 53,147 58,659
Automobile Finance Portfolio 4,124 6,382
Travel Finance Portfolio 4,970 6,165
Other 7,549 10,194
-------- --------
102,282 120,214
Less deferred interest 4,739 7,402
Less allowance for credit losses 7,712 7,835
Less deferred administrative fees, ATM
membership fees and insurance revenues 1,375 1,780
Less credit insurance and reserves for
policyholders' benefits 507 699
-------- --------
$ 87,949 $102,498
======== ========
</TABLE>
5. NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1998 1997
-------- ------------
(In thousands)
<S> <C> <C>
Wells Fargo Line of Credit $ 38,400 $ 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 $24,200,000 at June 30,
1998.
6
<PAGE> 9
CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 which was due July, 1998 was paid off.
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 the 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 six months
ended June 30, 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 $213,000 for the
six months ended June 30, 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.
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 $760,000 and $781,000 for the six months ended June 30, 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 the 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, projections of future performance, perceived opportunities in
the market and statements regarding the Company's mission and vision. The
Company's actual results, performance, or achievements may differ significantly
from the results, performance, or achievements expressed or implied in such
forward-looking statements. For discussion of the factors that might cause such
a difference, see "Item 1: Business -- Business Considerations and Certain
Factors that May Affect Future Results of Operations and Stock Price" 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL TRENDS (000's omitted)
Gross receivables (at end of period) $ 98,158 $124,006 $ 98,158 $124,006
Deferred interest (at end of period) 4,283 11,293 4,283 11,293
-------- -------- -------- --------
Net receivables (at end of period) 93,875 112,713 93,875 112,713
Deferred administrative and membership fees
& insurance (at end of period) 1,375 1,120 1,375 1,120
Allowance for credit losses (at end of period) 7,712 7,360 7,712 7,360
-------- -------- -------- --------
Net carrying value $ 84,788 $104,233 $ 84,788 $104,233
======== ======== ======== ========
Average net receivables $ 95,661 $114,192 $ 99,851 $116,539
Average interest bearing liabilities(1) 46,850 66,483 52,671 69,379
Administrative and membership fee income 816 564 1,583 1,030
Total interest income(2) 5,901 7,498 12,331 15,081
Total interest expense 974 1,451 2,182 2,874
-------- -------- -------- --------
Net interest income before provision for credit losses 4,927 6,047 10,149 12,207
Net provision for credit losses 1,756 2,818 3,775 5,229
Net write-offs 1,800 2,578 3,898 4,655
Average interest rate on average net receivables 24.7% 26.3% 24.7% 25.9%
Average interest rate on interest bearing liabilities 8.3% 8.7% 8.3% 8.3%
-------- -------- -------- --------
Net interest spread 16.4% 17.6% 16.4% 17.6%
======== ======== ======== ========
</TABLE>
8
<PAGE> 11
(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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
1998 1997 1998 1997
-------- ------- ------- --------
<S> <C> <C> <C> <C>
CREDIT QUALITY (000's omitted)
Average net receivables $ 95,661 $114,192 $ 99,851 $116,539
Net provision for credit losses 1,756 2,818 3,775 5,229
Net write-offs 1,800 2,578 3,898 4,655
Provision for credit losses as a % of average net receivables 7.3% 9.9% 7.6% 9.0%
Net write-offs as a % of average net receivables 7.5% 9.0% 7.8% 8.0%
END OF PERIOD (000's omitted)
Net receivables $ 93,875 $112,713
Allowance for credit losses 7,712 7,360
Allowance for credit losses as a % of net receivables 8.2% 6.5%
DELINQUENCY EXPERIENCE (000's omitted)
Past due accounts (gross receivables)
31-60 days $ 1,725 $ 3,274
61 days or more 6,383 6,690
Accounts with payments 31 days or more past due
as a percentage of end of period gross receivables 8.3% 8.0%
</TABLE>
9
<PAGE> 12
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 1997.
Total revenues in the three months ended June 30, 1998 decreased to $11.1
million from $13.4 million in the three months ended June 30, 1997, a decrease
of $2.3 million.
Interest income on the consumer finance receivables portfolio in the three
months ended June 30, 1998 decreased to $5.9 million from $7.5 million in the
three months ended June 30, 1997, a decrease of $1.6 million. This decrease was
primarily attributable to a decrease in the consumer finance receivables
portfolio which averaged $95.7 million in the three months ended June 30, 1998,
compared to $114.2 million in the three months ended June 30, 1997. The average
interest rate the Company charged on this portfolio decreased to 24.7% for the
three months ended June 30, 1998, compared to 26.3% for the three months ended
June 30, 1997.
Interest income on the automobile finance receivables portfolio in the
three months ended June 30, 1998 decreased to $0.2 million from $0.4 million in
the three months ended June 30, 1997. This decrease was due to a decrease in the
automobile finance receivables which averaged $4.1 million in the three months
ended June 30, 1998, compared to $7.9 million in the three months ended June 30,
1997.
Revenue from travel services held constant at $2.2 million for the three
months ended June 30, 1998 compared to the three months ended June 30, 1997.
Other income for the three months ended June 30, 1998 decreased to $2.8
million from $3.3 million in the three months ended June 30, 1997, a decrease of
$0.5 million. Other income in the three months ended June 30, 1998 includes an
increase of $0.3 million in administrative and membership fee income earned on
small loans, offset by a decrease of $0.2 million earned by the Company's
captive insurance company, a decrease of $0.2 million in late charges as a
result of a decrease in the Company's consumer receivables portfolio and a $0.4
million decrease in commission and broker fees on income from the sale of
automobile insurance contracts.
Operating expenses in the three months ended June 30, 1998 increased to
$6.5 million from $6.4 million in the three months ended June 30, 1997, an
increase of $0.1 million. The increase of $0.1 million was primarily due to the
expansion of the small loan business, including an increase in rent, number of
employees and related payroll expenses.
The provision for credit losses in the three months ended June 30, 1998
decreased to $1.8 million from $2.8 million in the three months ended June 30,
1997, a decrease of $1.0 million. This decrease was primarily due to the decline
experienced by the Company in its consumer receivables portfolio.
Interest expense in the three months ended June 30, 1998 decreased to $1.0
million from $1.5 million in the three months ended June 30, 1997. This decrease
was due to a decrease in the amounts borrowed on the lines of credit which
averaged $46.9 million in the three months ended June 30, 1998, compared to
$66.5 million in the three months ended June 30, 1997.
As a result of the foregoing factors, net income in the three months ended
June 30, 1998 decreased to $1.2 million from $1.7 million in the three months
ended June 30, 1997.
10
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1997.
Total revenues in the six months ended June 30, 1998 decreased to $23.2
million from $26.0 million in the six months ended June 30, 1997, a decrease of
$2.8 million.
Interest income on the consumer finance receivables portfolio in the six
months ended June 30, 1998 decreased to $12.3 million from $15.1 million in the
six months ended June 30, 1997, a decrease of $2.8 million. This decrease was
primarily attributable to a decrease in the consumer finance receivables
portfolio which averaged $99.9 million in the six months ended June 30, 1998,
compared to $116.5 million in the six months ended June 30, 1997. The average
interest rate the Company charged on this portfolio decreased to 24.7% for the
six months ended June 30, 1998, compared to 25.9% for the six months ended June
30, 1997.
Interest income on the automobile finance receivables portfolio in the six
months ended June 30, 1998 decreased to $0.4 million from $0.8 million in the
six months ended June 30, 1997. This decrease was due to a decrease in the
automobile finance receivables which averaged $4.6 million in the six months
ended June 30, 1998, compared to $8.2 million in the six months ended June 30,
1997.
Revenue from travel services increased $0.1 million for the six months
ended June 30, 1998 to $4.1 million from $4.0 million for the six months ended
June 30, 1997. The increase in travel services revenue was a result of an
increase in gross ticket bookings of $1.2 million during the six months ended
June 30, 1998 compared to the six months ended June 30, 1997.
Other income for the six months ended June 30, 1998 increased to $6.4
million from $6.2 million in the six months ended June 30, 1997, an increase of
$0.2 million. Other income in the six months ended June 30, 1998 includes an
increase of $0.6 million in administrative and membership fee income earned on
small loans, and an increase of $0.6 million earned by the Company's captive
insurance company, offset by a decrease of $0.4 million in late charges as a
result of a decrease in the Company's consumer receivables portfolio and a $0.6
million decrease in commission and broker fees on income from the sale of
automobile insurance contracts.
Operating expenses in the six months ended June 30, 1998 increased to
$13.4 million from $12.2 million in the six months ended June 30, 1997, an
increase of $1.2 million. Of this increase, $0.6 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, number
of employees and related payroll expenses.
The provision for credit losses in the six months ended June 30, 1998
decreased to $3.8 million from $5.2 million in the six months ended June 30,
1997, a decrease of $1.4 million. This decrease was primarily due to the decline
experienced by the Company in its consumer receivables portfolio.
Interest expense in the six months ended June 30, 1998 decreased to $2.2
million from $2.9 million in the six months ended June 30, 1997. This decrease
was due to a decrease in the amounts borrowed on the lines of credit which
averaged $52.7 million in the six months ended June 30, 1998, compared to $69.4
million in the six months ended June 30, 1997.
As a result of the foregoing factors, net income in the six months ended
June 30, 1998 decreased to $2.3 million from $3.5 million in the six months
ended June 30, 1997.
11
<PAGE> 14
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 six months ended June 30, 1998, net cash provided by operating
activities totaled $14.5 million, while investing activities provided $10.4
million of cash flow. During this period the Company paid down $23.6 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 June 30, 1998
under the Wells Fargo Line of Credit, approximately $40.5 million was
outstanding, including letters of credit, and $24.2 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.
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
operations and its growth plans, or that such financing will be available to the
Company on favorable terms.
On June 26, 1998, Holdings received a dividend of approximately $6 million
from one of its subsidiary companies, Central Rents, Inc. Holdings loaned the $6
million to Banner, who in turn paid the Company $4 million on the note
receivable from affiliate.
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs which have been
written using two digits rather than four to define the applicable year. The
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions or engage in
similar normal business activities.
12
<PAGE> 15
The Company has engaged an outside consulting firm to convert its computer
systems to be year 2000 compliant so that they will recognize the difference
between dates using "99" and "00" as one year instead of negative 99 years.
Testing and conversion of system applications is expected to cost $300,000 and
is expected to be completed by December 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
<PAGE> 16
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 27,
1998.
(b) At the Meeting, management's nominees as set forth in
the proxy statement for the Meeting, Gary M. Cypres,
Salvatore J. Caltagirone, Jose de Jesus Legaspi and
William R. Sweet, were elected. The election of Mr.
Cypres was approved by a vote of 7,089,690 shares in
favor and 0 shares withheld and each of Messrs.
Caltagirone, Legaspi and Sweet was approved by a vote of
7,089,590 shares in favor and 100 shares withheld.
(c) The proposal to ratify the appointment of Arthur
Andersen LLP as the Company's independent public
accountants for the year ending December 31, 1998 was
approved by a vote of 7,089,590 shares in favor, 100
shares against and 0 shares abstained.
There were no broker non-votes for the election of
directors or ratification of independent public
accountants at the Annual Meeting.
ITEM 5. OTHER INFORMATION
The proxy materials for the 1998 Annual Meeting of Stockholders
held on May 27, 1998 were mailed to stockholders of the Company on
April 27, 1998. Stockholder proposals to be presented at the 1999
Annual Meeting of Stockholders must be received at the Company's
executive offices at 5480 East Ferguson Drive, Commerce, California
90022 addressed to the attention of the Corporate Secretary by
December 28, 1998 in order to be considered for inclusion in the
proxy materials relating to such meeting. In addition, in the event
a stockholder proposal is not submitted to the Company at its
executive offices prior to March 13, 1999, the proxy to be solicited
by the Board of Directors for the 1999 Annual Meeting of
Stockholders will confer discretionary authority on the holders of
the proxy to vote the shares in accordance with their best judgment
and discretion if the proposal is presented at the 1999 Annual
Meeting of Stockholders without any discussion of the proposal in
the proxy statement for such meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL FINANCIAL ACCEPTANCE CORPORATION
August 14, 1998 /s/ Gary M. Cypres
----------------------------------------
Gary M. Cypres
Chairman of the Board
August 14, 1998 /s/ Anthony S. Fortunato
----------------------------------------
Anthony S. Fortunato
President
August 14, 1998 /s/ A. Keith Wall
----------------------------------------
A. Keith Wall
Chief Financial Officer
August 14, 1998 /s/ Neal E. Gower
----------------------------------------
Neal E. Gower
Principal Accounting Officer
15
<PAGE> 18
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-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,195
<SECURITIES> 0
<RECEIVABLES> 95,661
<ALLOWANCES> 7,712
<INVENTORY> 0
<CURRENT-ASSETS> 101,339
<PP&E> 6,789
<DEPRECIATION> 834
<TOTAL-ASSETS> 115,701
<CURRENT-LIABILITIES> 46,815
<BONDS> 850
0
0
<COMMON> 73
<OTHER-SE> 67,963
<TOTAL-LIABILITY-AND-EQUITY> 115,701
<SALES> 0
<TOTAL-REVENUES> 11,148
<CGS> 0
<TOTAL-COSTS> 6,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,756
<INTEREST-EXPENSE> 974
<INCOME-PRETAX> 1,938
<INCOME-TAX> 776
<INCOME-CONTINUING> 1,162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,162
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
