UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22067
NATIONAL AUTO FINANCE COMPANY, INC
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 65-0688619
- -------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
621 N.W. 53rd Street, Suite 200, Boca Raton, Florida 33487
- --------------------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(561) 997-2413
----------------------------------------------------
(Registrant's telephone number, including area code)
No change
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 7,026,000 shares of common stock, $.01 par value outstanding as of
May 9, 1997.
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements (unaudited)
Balance Sheets -
March 31, 1997 and December 31, 1996. . . . . . . . . . . 3
Income Statements -
Three Months Ended March 31,
1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . 4
Statement of Stockholders Equity as of
March 31, 1997. . . . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows - Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . 6
Notes to Financial Statements. . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . 13
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 22
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
<PAGE>
- --------------------------------------------------------------------------------
Part I.
- --------------------------------------------------------------------------------
Item 1. Financial Statements
NATIONAL AUTO FINANCE COMPANY, INC.
Balance Sheet
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 10,897 5,066
Excess spread receivable 17,932 15,183
Spread accounts 12,056 8,221
Finance receivables, net 1,038 --
Fixed assets, net 679 515
Deferred financing costs 1,117 1,849
Other assets 585 367
---------- ----------
Total assets $ 44,304 31,201
========== ==========
Liabilities and Stockholders' equity
Accounts payable and accrued expenses $ 1,683 1,771
Due to National Auto Finance Corporation -- 178
Deferred income taxes 5,130 --
Accrued interest payable-related parties 84 144
Accrued interest payable-senior subordinated notes 200 339
Junior subordinated notes-related parties 2,032 7,218
Senior subordinated notes 12,000 12,000
---------- ----------
Total liabilities 21,129 21,650
---------- ----------
Stockholders equity
Preferred stock series A - $1,000 par value,
1,000,000 shares authorized, 2,295
shares outstanding 2,295 --
Common stock -$.01 par value, 20,000,000
shares authorized, 7,026,000 shares
outstanding 70 --
Additional paid in capital 20,364 --
Retained earnings 446 --
Partners' capital -- 9,551
---------- ----------
Total stockholders equity 23,175 --
---------- ----------
Total liabilities and stockholders equity $ 44,304 31,201
========== ==========
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
Statements of Income (Loss)
(unaudited, dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenue:
Gain on sales of Loans $ 4,542 2,097
Deferred gain on sales of Loans 308 133
Deferred servicing income 394 141
Deferred income from securitizations 137 167
Interest income from cash
investments 167 3
Other income 22 50
Finance charges earned 19 --
----------- -----------
Total revenue 5,589 2,591
----------- -----------
Expenses:
Interest expense 415 150
Salaries and employee benefits 1,299 661
Direct loan acquisition expenses 701 339
Servicing costs 612 222
Depreciation and amortization 179 96
Provision for credit losses 77 --
Other operating expenses 676 321
----------- -----------
Total expenses 3,959 1,789
----------- -----------
Income before income taxes 1,630 802
Income taxes 630 301 (1)
Net income 1,000 501
Income taxes from reorganization of
Partnership 4,500 --
----------- -----------
Net income (loss) (3,500) (2) 501
----------- -----------
Less preferred stock dividends 27 --
----------- -----------
Net income (loss) available for common shareholders $ (3,527) $ 501
=========== ===========
Earnings (loss) per share as adjusted $ (0.51) (2)
=========== ===========
Pro forma earnings per share $ 0.14 $ 0.07
=========== ===========
Weighted average shares and share equivalents 6,902
===========
Pro forma shares outstanding 6,726
===========
<FN>
(1) Pro forma income taxes for the three-month period ended March 31, 1996
calculated as if the Company had operated as a "C" corporation.
(2) Includes the effects of a one-time, non-cash charge for deferred income
taxes arising from the reorganization of the Company from a partnership
form to a taxable corporate form in connection with the Company's initial
public offering in January 1997.
</FN>
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
Statement of Stockholders Equity
For the three months ended March 31, 1997
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Preferred Common Paid in Retained
Stock Stock Capital Earnings Total
----- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Reorganization of NAFI Partnership
January 29, 1997 $ 2,295 42 7,739 10,076
Issuance of common stock to J.P. Morgan
Investment Management in exchange for
deferred interest on Senior subordinated notes 5 164 169
Income taxes from reorganization
of partnership (4,500) (4,500)
Issuance of 2,300,000 shares for
Initial Public Offering, net of costs 23 16,961 16,984
Dividends on preferred stock (27) (27)
Net income (loss) as adjusted 473 473
------------------------------------------------------------------------
Balance as of March 31, 1997 $ 2,295 70 20,364 446 23,175
====== === ======= ==== =======
</TABLE>
See accompanying notes to the financial statements.
5
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
Statements of Cash Flows
For the three months ended March 31, 1997
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,500) 802
Adjustments to reconcile net income
(loss) to net cash used in operating activities:
Gains on sales of Loans (4,542) (2,097)
Depreciation expense 37 20
Provision for credit losses 77 --
Purchases of Loans held for sale (34,909) (13,870)
Proceeds from sale of Loans 33,813 13,870
Cash received from spread account 2,714 533
Deferred gains and income recognized (702) (274)
Amortization of deferred financing costs 68 37
Amortization of deferred placement costs 74 15
Amortization of deferred interest (138) (167)
Changes in other assets and liabilities:
Prepaid expenses 39 6
Other assets (433) (161)
Accounts payable and accrued expenses (116) 196
Accrued interest payable-related parties (59) 132
Accrued interest payable-senior
subordinated debt 30 --
Income taxes 5,130 --
------------ -----------
Net cash used in operating activities (2,417) (958)
Cash flows from investing activities:
Start-up costs and deferred structuring fees (111) --
Fixed assets purchased (202) (28)
Net received from (invested in) National
Financial Auto Receivable Master Trust (3,765) --
Investment in National Auto Finance 1995-1 trust (27) --
Investment in National Auto Finance 1996-1 trust (42) --
------------ -----------
Net cash used in investing activities (4,147) (28)
Cash flows from financing activities:
Proceeds from junior subordinated notes-related parties -- 545
Payments of junior subordinated notes-related parties (5,186) (590)
Proceeds from initial public offering 17,759 --
Preferred equity partners' contributions -- 335
Due to National Auto Finance Corporation (178) --
------------ -----------
Net cash provided by financing activities 12,935 290
------------ -----------
Net increase (decrease) in cash and cash equivalents 5,831 (696)
Cash and cash equivalents at beginning of period 5,066 824
------------ -----------
Cash and cash equivalents at end of period $ 10,897 128
============ ===========
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
Notes to Financial Statements
March 31, 1997
(1) Basis of Presentation
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and footnotes required by
generally accepted accounting principles for complete financial
statements are not included herein. The interim statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's latest Annual Report on Form 10-K
(capitalized terms used herein and not defined shall have the meanings
ascribed to them in such Form 10-K).
Interim statements are subject to possible adjustments in connection
with the annual audit of the Company's accounts for the full year
1997; in the Company's opinion, all adjustments necessary for a fair
presentation of these interim statements have been included and are of
a normal and recurring nature. The results for the interim periods are
not necessarily indicative of results for a full year. Certain amounts
in the March 31, 1996 financial statements have been reclassified to
conform with current financial statement presentation.
In conjunction with the reorganization from a partnership form to a
taxable corporate form, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax liabilities of a change in tax
rates is recognized in income in the three month period ended March
31, 1997. The cumulative effect of this change in accounting for
income taxes was a non-cash charge of $4.5 million.
The financial statements presented herein, to the extent that they
relate to periods (i) prior to January 1, 1997, are the consolidated
financial statements of the National Auto Partnership and the ACCH
Partnership, and (ii) after December 31, 1996 are the financial
statements of National Auto Finance Company, Inc.
(2) Excess Spread Receivable
The Excess Spread Receivable was as follows at March 31, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Present value of expected future cash flows $23,263 19,463
Allowance for credit losses (5,331) (4,280)
---------- ----------
17,932 15,183
========== ==========
Allowance for credit losses as a percentage of
Loans serviced 4.19% 4.16%
========== ==========
</TABLE>
7
<PAGE>
NATIONAL AUTO FINANCE COMPANY, INC.
Notes to Financial Statements
March 31, 1997
Activity in the Excess Spread Receivable account is as
follows:
<TABLE>
<CAPTION>
Year ended Year ended
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of period $ 15,183 5,140
Gain on sales of Loans 4,542 12,178
Cash received and other reductions during the
period net of amortization (1,793) (2,135)
---------- ----------
Balance at end of period $17,932 15,183
========== ==========
</TABLE>
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinquishment of Liabilities".
This statement specifies when financial assets and liabilities are to
be removed from an entity's financial statements, the accounting for
servicing assets and liabilities and the accounting for assets that
can be contractually prepaid in such a way that the holder would not
recover substantially all of its recorded investment. Under SFAS No.
125, an entity recognizes only assets it controls and liabilities it
has incurred, discontinues recognition of assets only when control has
been surrendered, and discontinues recognition of liabilities only
when they have been extinguished. SFAS No. 125 requires that the
selling entity continue to carry retained interests relating to assets
it no longer recognizes. Such retained interests are based on the
relative fair values of the retained interests of the subject assets
at the date of transfer. Under SFAS No. 125, certain collateralized
borrowings may result in assets no longer being recognized if the
assets are provided as collateral and the secured party takes control
of the collateral. This determination is based upon whether: (1) the
secured party is permitted to repledge or sell the collateral and (2)
the debtor does not have the right to redeem the collateral on short
notice. Extinguishments of liabilities are recognized only when the
debtor pays the creditor and is relieved of its obligation for the
liability, or when the debtor is legally released from being the
primary obligor under the liability, either judicially or by the
creditor. SFAS No. 125 requires an entity to recognize its obligation
to service financial assets that are retained in a transfer of assets
in the form of a servicing asset or liability. The servicing asset is
to be amortized in proportion to, and over the period of, net
servicing income. Servicing assets and liabilities are to be
periodically assessed for impairment based on their fair value. SFAS
No. 125 modifies the accounting for retained interests in
securitizations that can be contractually prepaid or otherwise settled
in such a way that the holder would not recover substantially all of
its recorded investment. In this case, it requires that they be
classified as trading securities. Interest-only strips and retained
interests are to be recorded at fair value. Beginning January 1, 1997,
the Company adopted SFAS No.125. The Excess Spread Receivable is
measured quarterly by (i) calculating the actual income received, net
of actual losses, prepayments, interest carrying costs and servicing
costs and (ii) comparing this amount to the original ESR forecast. The
gain on sale factors are then recalculated according to the trends
developed from historical information and the ESR is recomputed to its
fair value. Any impairment to the ESR is recorded as a charge to
operations, while benefits are deferred until actual cash flow from
the receivables is received.
(3) Securitization of Loans
In January 1995, the Company began using a revolving securitization
facility pursuant to which the Company sells its Loans on a daily
basis to a bankruptcy-remote special purpose subsidiary trust
("Funding Trust I"), which in turn transfers such Loans to the Master
Trust. The Company retains, through Funding Trust I, certain residual
interests in future excess cash flows from the Master Trust, in
exchange for the transfer of Loans to the Master Trust.
8
<PAGE>
To date, the Master Trust has issued Class B Certificates, which are
variable funding (that is, revolving) certificates, and Class C
Certificates, representing a portion of such residual interest
retained by the Company. First Union owns 100% of the outstanding
Class B Certificates. The Company is required to maintain a minimum
equity position in the Master Trust of 10% of the net serviced
receivables. The Company has pledged a portion of the Class C
Certificates and a cash reserve account to protect against future
credit losses.
Interest on the Class B Certificates is charged (i) during the month
in which the Loan is sold to the Master Trust, at First Union's prime
rate of interest, and (ii) thereafter, based upon a formula of the
London Interbank Offered Rate ("LIBOR") plus between 75 and 300 basis
points. The amount of funds available under the Class B Certificates
is governed by a borrowing-base formula that provides availability as
a multiple of the overcollateralization capital pledged and is
restricted by a number of financial covenants. Since the Master
Trust's borrowing rates under the securitization are floating and the
interest rates charged on the Loans are fixed, increases in the
interest rates charged on the Master Trust's borrowings could have an
effect both on cash flows from the Master Trust to the Company and on
the Company's reported net income. In order to mitigate the negative
impact of rising interest rates, the Master Trust has entered into
interest rate swap agreements which have the effect of fixing the
rates charged on a portion of the Master Trust's indebtedness.
In November 1996 and 1995, the Master Trust refinanced its receivables
through the transfer of the related Loans to separate trusts, the
1996-1 Trust and the 1995-1 Trust, respectively (collectively, the
"Permanent Trusts"), which issued to various third-party investors $62
million and $38 million, respectively, of fixed-rate asset-backed
securities. The payment of the principal and interest on those
securities is insured by a payment guaranty issued by FSA. The
proceeds of the transactions were used by the Master Trust to repay
the then-outstanding balance of the Class B Certificates. The Master
Trust then commenced re-borrowing against the Class B Certificates to
finance its purchase of additional Loans from the Company through
Funding Trust I.
The Permanent Trust securitizations were accomplished by Funding Trust
I reacquiring the Loans and transferring them to the Permanent Trusts.
In addition to offering fixed-rate financing, the Permanent Trusts
securitizations as insured by FSA offered lower overcollateralization
levels than those required by the Master Trust facility. The Company
retains, through a second bankruptcy-remote special purpose subsidiary
trust ("Funding Trust II"), certain residual interests in future
excess cash flows from the Permanent Trusts.
The Master Trust organizational documents required the consent of all
certificate holders to transfer (sell) the Loans. In 1995 and 1996,
substantially all eligible Loans in the Master Trust were transferred
to the Permanent Trusts. The Permanent Trusts acquired the Loans from
the Master Trust at par with the net proceeds of the offering of
certificates by the Permanent Trusts, which are guaranteed by FSA.
The terms of the transactions between the Company and the Master Trust
which resulted in the issuance of the Class B and Class C Certificates
were negotiated by the Company with First Union. The terms of the
reacquisition of the Loans from the Master Trust were negotiated with
FSA, the certificate holders, and First Union at the time of
acquisition.
The Permanent Trusts' transactions did not affect the accounting sale
treatment previously applied to the transfers of the Loans to the
Master Trust, inasmuch as the transactions required the consent of all
certificate holders as provided in the Master Trust documents, and
therefore were consistent with the sale treatment.
9
<PAGE>
During the three months ended March 31, 1997 and 1996, the following
activity took place with respect to securitization:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
---- ----
(dollars in thousands)
<S> <C> <C>
Original customer principal balance
of Loans sold, as of period end $ 35,712 14,612
========= ========
Gain on sales, as of period end $ 4,542 2,097
========= ========
Remaining principal balance of Loans
sold since inception, as of period end $ 127,094 53,534
========= ========
Weighted average coupon rate on Loans sold
as of period end 18.8% 18.4%
========= ========
Weighted average original term (months) on Loans sold 51 52
as of period end
========= ========
Weighted average discount rate of Excess Spread Receivable 11% 11%
========= ========
</TABLE>
(4) Junior Subordinated Notes
The debt is payable on January 31, 2002 to principal equity holders of
the National Auto Partnership and certain affiliates and carries
interest at eight percent. Interest expense recognized for this debt
for the periods ending March 31, 1997 and 1996 was $84,129 and
$140,289, respectively.
(5) Senior Subordinated Debt
In August 1996, the Company completed a $12 million senior
subordinated debt financing with J.P. Morgan Investment Management,
Inc., acting on behalf of certain institutional investors (the "Morgan
Group"). The principal amount of the senior subordinated debt is due
in August 2001 and carries a 10% coupon payable quarterly. Prior to
the consummation of the Offering, there was also an additional 3%
deferred-interest coupon that accrued interest on a compounded basis
and was payable in August 2006, but was converted into 470,000 shares
of the Common Stock upon the consummation of the Offering. Through
January 29, 1997, the Company accrued the additional 3% interest on
the deferred-interest coupon, which amount totaled approximately
$169,000 at January 29, 1997. On January 29, 1997, upon the conversion
of such coupon to equity, such amounts were accounted for as paid-in
capital of the Company. The senior subordinated debt generally
prohibits the payment of dividends on Common Stock following
consummation of an initial public offering of Common Stock so long as
any amount remains outstanding on such debt.
10
<PAGE>
(6) Stock Option Plan
In 1996 the Board of Directors of the Company adopted a share
incentive plan (the "1996 Share Incentive Plan"). The 1996 Share
Incentive Plan is intended to provide incentives which will attract,
retain and motivate highly competent persons, each of whom will
contribute to the success and future growth and profitability of the
Company, as executive management, employees and directors of the
Company and of any parent or subsidiary of the Company, by providing
them the opportunity to acquire shares of Common Stock or to receive
monetary payments based on the value of such shares pursuant to
certain benefits contemplated by the 1996 Share Incentive Plan.
Furthermore, the 1996 Share Incentive Plan is intended to assist in
aligning the interests of the Company's executive management,
employees and directors with those if its stockholders .
The 1996 Share Incentive Plan provides for the granting of certain
benefits in any one or a combination of (i) stock options, (ii) stock
appreciation rights, (iii) stock awards, (iv) performance awards and
(v) stock units. The aggregate number of shares of Common Stock that
may be subject to such benefits, including stock options, is 500,000
shares of Common Stock (subject to adjustment in the event of a
merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spinoff,
combination of shares, exchange of shares, dividend in kind or other
like change in capital structure or distribution).
On January 29, 1997, stock options with respect to an aggregate of
260,000 shares of Common Stock were granted to eleven key employees
and one director at the fair market value at the date of grant
($8.50). All employee stock options vest one-third immediately,
one-third in 1998 and one-third in 1999, and director stock options
vest in 1998. All stock options expire 10 years from date of grant.
On October 23, 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes financial
accounting standards for stock-based employee compensation plans. SFAS
No. 123 permits the Company to choose either a fair value-based method
or the intrinsic value-based method that is contained in APB Opinion
25. SFAS No. 123 requires pro forma disclosures of net income and
earnings per share computed as if the fair value based method has been
applied in financial statements of companies that continue to follow
current practice in accounting for such arrangements under Opinion 25.
SFAS No. 123 applies to all stock-based employee compensation plans in
which an employer grants shares of its stock or other equity
instruments to employees except for employee stock ownership plans.
SFAS No. 123 also applies to plans in which the employer incurs
liabilities to employees in amounts based on the price of the
employer's stock (i.e. stock option plans, stock purchase plans,
restricted stock plans and stock appreciation rights). The statement
also specifies the accounting for transactions in which a company
issues stock options or other equity instruments for services provided
by non-employees or to acquire goods or services from outside
suppliers or vendors. The recognition provisions of SFAS No. 123 for
companies choosing to adopt the new fair value based method of
accounting for stock-based compensation arrangements may be adopted
immediately and will apply to all transactions entered into in fiscal
years that begin after December 15, 1995. The disclosure provisions of
SFAS No. 123 are effective for fiscal years beginning after December
15, 1995; however, disclosure of the pro forma net income and earnings
per share, as if the fair value method of accounting for stock-based
compensation has been elected, is required for all awards granted in
fiscal years beginning after December 31, 1994. The Company has
elected to continue to account for stock-based compensation under APB
Opinion 25 and, as a result, pro forma disclosures have been provided.
11
<PAGE>
Had compensation for the Company's stock based compensation plan been
determined with the fair value based method of SFAS No.123, the
Company's net loss and net earnings per share (EPS) would have been
reduced to the proforma amounts indicated below:
Three months ended
March 31, 1997
--------------
Net loss as reported $ (3,527)
Pro forma $ (3,740)
Primary EPS as reported $ (0.51)
Pro forma $ (0.54)
Fully Diluted EPS as reported $ (0.51)
Pro forma $ (0.54)
The per share weighted average fair value of stock options granted
during 1997 was approximately $2.50 dollars. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
zero dividend yield, expected volatility of approximately 44.7%, risk
free interest rates of approximately 5.95% and an expected life of
approximately 2 years.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following management's discussion and analysis provides
information regarding the Company's financial condition as of March
31, 1997 and 1996, and its results of operations for the three months
ended March 31, 1997 and 1996. This management's discussion and
analysis should be read in conjunction with (i) the Company's
Financial Statements and the related notes and (ii) the Company's
Annual Report on Form 10-K with respect the . (Capitalized terms used
but not defined herein have the meanings set forth in such Form 10-K).
The ratios and percentages provided below are calculated using
detailed financial information contained in the Company's Financial
Statements, the notes thereto and the other financial data included
elsewhere in this report.
Overview
The Company is a specialized consumer finance company engaged in the
purchase, securitization and servicing of Non-Prime Consumer Loans
originated by Dealers. The Company acquires Loans principally from
manufacturer-franchised Dealers in connection with their sale of new
and used automobiles to Non-Prime Consumers. Until the Company's
initial public offering of Common Stock on January 29, 1997, the
Company operated as two limited partnerships. As such, the income tax
effects of all earnings or losses of the Company were passed directly
to the partners and no provisions for income taxes were required.
The Company's plan of operation for 1997 is to increase the number of
Loans that it purchases, securitizes and services by:
1. Ut services directly to Dealers.anagers to market the Company's
products and
2. Continuing the implementation of the First Union Strategic
Alliance, including the expansion throughout FUSF's Southeastern
and Northeastern Franchises.
3. Establishing strategic referral and marketing alliances with
several smaller financial institutions and Dealer groups.
4. Strategically purchasing portfolios of Non-Prime Consumer Loans
that meet the Company's strict underwriting criteria from third
party originators.
The Company believes that the net proceeds of the initial public
offering completed on January 29, 1997, together with the net proceeds
of subordinated debt borrowings from certain affiliates of the Company
and from institutional investors, will be sufficient to meet the
Company's cash requirements and fund operations for approximately the
next 9 to 12 months, assuming the Company completes additional
Permanent Securitizations.
Historical Development and Growth
From the inception of the Company in October 1994 through January 16,
1995, the primary source of revenue for the Company was net interest
income on Loans purchased by the Company. In January 1995, the Company
began using a Revolving Securitization pursuant to which the Company
sells its Loans on a daily basis to the Master Trust. The Revolving
Securitization was implemented effective January 16, 1995. On that
date, the Company sold to the Master Trust 407 Loans (approximately $5
million principal amount) that were purchased by the Company from
October 12, 1994 through January 16, 1995. Thereafter, the Company
commenced selling Loans purchased by it to the Master Trust on a daily
basis.
The Company's first Permanent Securitization, completed November 22,
1995, involved the transfer by the Master Trust to the National Auto
Finance 1995-1 Trust (the "1995-1 Trust") of Loans with an aggregate
principal amount totaling $42 million. The Company's next Permanent
Securitization, completed November 13, 1996, involved the sale by the
Master Trust to the National Auto Finance 1996-1 Trust (the "1996-1
13
<PAGE>
Trust") of Loans with an aggregate principal amount totaling $68
million. The Company retains a residual interest and a cash investment
with respect to each of the Master Trust, the 1995-1 Trust and the
1996-1 Trust, which are reflected as the 'excess spread receivable'
("ESR") and the 'spread accounts' on the Company's balance sheet.
Since initiation of the Revolving Securitization, the Company's
earnings have been primarily attributable to the gains recognized on
the sale of Loans into the Master Trust. For the three month period
ended March 31, 1997, such gains accounted for approximately 81% of
the Company's revenues.
Components of Revenue and Expenses
Revenues. The Company derives revenues principally from the purchase
and daily sale of Loans to the Master Trust pursuant to the Revolving
Securitization. In determining its reported gain from these
securitization activities, the Company adds the total interest
payments due from borrowers and the dollar amount of the discount at
which the Loans were purchased from Dealers. The Company then deducts
an estimated reserve for future Loan losses, prepayments, borrowing
charges and deferred servicing costs and discounts the remaining cash
flow to its net present value. The resulting amount is reported as
gain on sale of loans on the Company's income statement.
In addition to interest income from Loans that were not securitized
and the interest return on cash investments, other revenues are earned
primarily from:
1. Amortization of the deferred servicing costs which are
recognized to offset the direct servicing expenses incurred by
the Company.
2. Amortization of the deferred gain of Loans attributable to the
time value of money
3. Amortization of a deferred gain attributable the 1995-1
Permanent Securitization that was financed at a lower rate than
was used in calculating the gain on sale when the Loans were
sold to the Master Trust.
EXPENSES. The Company's expenses consist of interest and operating
expenses. Interest expense is the interest incurred on notes to
certain affiliates of the Company and notes to certain institutional
investors.
Operating expenses consist primarily of personnel, general and
administrative and servicing expenses. Depreciation of the Company's
capital expenditures for furniture and equipment that is being
recognized over five years on a straight-line basis is also included
in this category.
RESULTS OF OPERATIONS
Three month period ended March 31, 1997, as compared to the three
month period ended March 31, 1996.
INCOME FROM OPERATIONS. The Company reported net income for the three
month period ended March 31, 1997 of 1.0 million, before a one time,
non-cash deferred income tax charge to earnings of $4.5 million that
reflects a deferred income tax liability arising from the
reorganization of the Company's business from a partnership form to a
taxable corporate form in connection with the Company's initial public
offering in January 1997. This is an increase of 100%, as compared to
pro forma net income of $501,000 for the three month period ended
March 31, 1996.
GAIN ON SALES OF LOANS. The Company's Loan purchasing and servicing
operations expanded significantly during the three month period ended
March 31, principal amount of Loans from Dealers and $7.8 million or
761 Loans were acquired through the Company's Portfolio Acquisition
Program ("PAC") during the three month period ended March 31, 1997. Of
these amounts, $34.8 million or 97% were subsequently sold to the
Master Trust. This compares to 1,185 or $14.6 million principal amount
of Loans purchased from Dealers during the three month period ended
March 31, 1996, all of which were sold to the Master Trust.
14
<PAGE>
For the three month period ended March 31, 1997, the Company
recognized a gain on securitization of $3.8 million from Loans
purchased from Dealers and $784,000 from PAC, representing a 116%
increase over the $2.0 million of gains recognized for the three month
period ended March 31, 1996. This increase was primarily the result of
a 145% increase in the dollar volume of Loans purchased for the three
month period ended March 31, 1997, as compared to the three month
period ended March 31, 1996.
The table below sets forth certain information relating to the
Company's Loan purchasing activities, including the specific number
and aggregate principal amount of Loans purchased, the aggregate
amount funded to Dealers and the related amount of deferred gain and
deferred servicing revenue from the securitization of such Loans:
<TABLE>
<CAPTION>
Three month period ended
March 31,
------------------------------
1997 1996
(dollars in thousands)
<S> <C> <C>
Number of Loans purchased from Dealers during period 2,117 1,185
Number of Loans purchased as portfolios (PAC) 761 0
--------- -----------
Total number of Loans purchased 2.878 1,185
========= ===========
Principal balance of Loans from Dealers purchased during period $ 28,010 $ 14,611
Principal balance of Loans in portfolios (PAC) 7,762 0
--------- -----------
Total Balance of Loans purchased $ 35,772 $ 14,611
========= ===========
Amount funded (1) $ 34,909 $ 13,870
Percent sold to trusts 97.26% 100.00%
Gain on sales of Loans $ 4,542 $ 2,097
Amortization of deferred gain and servicing $ 702 $ 274
Finance charges $ 19 $ 0
Gain on sale revenue as a percent of total revenue 81.26% 80.93%
- ------------------
</TABLE>
(1) Amount funded represents the price at which the Company purchases a Loan
from a Dealer (i.e., the amount actually paid to a Dealer), calculated
as the principal of the Loan purchased less a negotiated discount.
LOAN LOSS PROVISION AND RESERVES
The Company's gain on sale of Loans calculation assumes potential charge-offs
from the Loan portfolio securitized. For the three month period ended March 31,
1997, the provision for Loan losses was approximately $ 2.3 million, or 6.7%of
the amount funded, as compared to approximately $869,000, or 6.3% of the amount
funded for the three month period ended March 31, 1996.
The Company's gain on sale of Loans calculation assumes estimates of potential
prepayments from the Loan portfolio securitized. For the three month period
ended March 31, 1997, the provision for Loan prepayments was approximately $4.5
million, or 13.03% of the amount funded, as compared to approximately $1.8
million or 13.16% of the amount funded, for the three month period ended March
31, 1996.
The Company's total reserves as of March 31, 1997 were $16.97 million or 13.35%
of net serviced receivables. An increase in losses above levels provided for
would result in reduced cash flow to the Company and a possible write-down of
the ESR and spread account.
15
<PAGE>
OTHER INCOME
The Company generated approximately $1.0 million of other income for the three
month period ended March 31, 1997, as compared to $494,000 for the three month
period ended March 31, 1996. The principal sources of the Company's other income
were $308,000 of amortized deferred gain, $394,000 of servicing income and
$208,000 of interest and miscellaneous income for the three month period ended
March 31, 1997 as compared to $133,000, $141,000 and $53,000, respectively, for
the three month period ended March 31, 1996. An additional $137,000 was
recognized for the three month period ended March 31, 1997 as compared to
$167,000 for the three month period ended March 31, 1996 from the amortization
of additional deferred gain that resulted from the transfer of receivables from
the Master Trust to the 1996-1 Trust. This deferred gain resulted from the fact
that the Permanent Securitization was accomplished at a lower borrowing rate
than the Company assumed in calculating its gain on the sale of such Loans to
the Master Trust.
OPERATING EXPENSES
The Company reported operating expenses of $3.7 million (net of depreciation and
amortization expense of approximately $179,000 and a bad debt expense reserve
for unsecuritized finance receivables of $77,000) for the three month period
ended March 31, 1997, as compared to approximately $1.7
of depreciation and amortization expense of approximately $96,000) for the
three month period ended March 31, 1996. These expenses consisted primarily of
subordinated note interest, and personnel, loan acquisition, portfolio servicing
and other corporate operating expenses. Operating expenses, as a percentage of
loans purchased, decreased from 11.59% as of March 31, 1996 to 10.35% as of
March 31, 1997. Management currently expects that operating costs might rise
throughout fiscal year 1997 as the result of anticipated growth in the number of
Loans purchased and serviced by the Company and the hiring of additional
personnel in connection with the expansion of the First Union Strategic Alliance
to FUSF's Northeastern Franchise. In addition, operating costs will also
increase as the Company implements its own in-house servicing operations.
Increased operating expenses will decrease the Company's operating margins and
the Company's overall profitability.
Personnel expenses for the three month period ended March 31, 1997 were
approximately $1.3 million, as compared to approximately $661,000 for the three
month period ended March 31, 1996, decreasing to 3.63% from 4.52% of Loans
purchased for the quarter. Personnel expenses consisted primarily of salaries
and wages, performance incentives, employee benefits and payroll taxes. The
Company's number of full-time employees increased from 45 as of March 31, 1996
to 90 as of March 31, 1997. The Company expects that its number of full-time
employees will continue to increase commensurate with the growth of the
Company's Loan purchasing and intended future in-house servicing activities.
Corporate operating expenses for the three month period ended March 31, 1997
were approximately $676,000, as compared to approximately $321,000 for the three
month period ended March 31, 1996, decreasing to 1.89% from 2.20% of Loans
purchased for the quarter. These expenses consisted primarily of
telecommunications, travel, professional fees, insurance expenses and management
information systems expenses.
Servicing expenses for the three month period ended March 31, 1997 were $612,000
as compared to $222,000 for the three month period ended March 31, 1996. This
represents a .27% increase in annualized servicing expenses as a percentage of
loans serviced from 1.66% as of March 31, 1996 to 1.93% as of March 31, 1997.
Servicing expenses consist primarily of a monthly fee to an outside servicer for
each active Loan. Servicing fees paid to World Omni for the three month period
ended March 31, 1997 were $480,000 as compared to $183,000 for the three month
period ended March 31, 1996. The increase in expenses primarily reflected the
growth in the amount of Loans purchased and serviced by the Company. The
Company's total serviced Loan portfolio as of March 31, 1997 was approximately
$127.1 million, or 11,321 outstanding Loans, as compared to approximately $53.5
million, or 4,567 outstanding Loans, as of March 31, 1996.
16
<PAGE>
Interest expense for the three month period ended March 31, 1997 was $415,000,
as compared to $150,000 for the three month period ended March 31, 1996. This
increase is a result of the interest expense incurred with respect to the
Company's $12 million principal amount of Senior Subordinated Notes and related
Deferred Additional Interest Notes. The Company's Junior Subordinated Notes bear
interest at a rate of 8% per annum, payable quarterly in arrears, cmmencing on
September 30, 1996. The Senior Subordinated Notes bear interest at a rate of 10%
per annum payable quarterly in arrears, commencing October 31, 1996.
FINANCIAL CONDITION
As of March 31, 1997, the Company had total assets of $44.3 million, as compared
to $31.2 million as of March 31, 1996. For the three months ended March 31, 1997
and March 31, 1996, these assets consisted primarily of cash, subordinated
securities, ESRs from the securitization trusts and finance receivables held for
sale, net of allowances for credit losses.
As of March 31, 1997, the Company had cash and cash equivalents totaling
approximately $10.9 million. As of such date, the Company also had approximately
$2.3 million in cash balances held in restricted bank accounts, representing
credit enhancement in the form of Loan loss reserves for the securitization
trusts, which amount was included in the total amount of the Company's ESRs as
of such date.
As of March 31, 1997, the Company retained approximately $17.9 million of ESRs
and approximately $12.0 million of subordinated securities. These assets
represented 67% of the total assets of the Company as of such date. The value of
these assets would be reduced in the event of a material increase in the Loan
loss and prepayment experience relative to the amounts estimated by the Company
for such items at the time of the sale of the related Loans to the Master Trust.
As of March 31, 1997, the principal amount owed by the Company on Junior
Subordinated Notes was approximately $ 2.0 million (including $84,000 of accrued
interest), which bear interest at an annual rate of 8%.
LOAN LOSS AND DELINQUENCY EXPERIENCE
The Company regularly reviews the adequacy of its net loss reserves on Loans.
The reserves are set at levels considered to be sufficient to cover the expected
future losses on existing Loans. Changes in reserves are based directly on the
dollar value of the Loans transferred to the Master Trust, historical loss
experience and, to a lesser extent, current economic conditions and other
factors that management deems relevant. Losses are continuously monitored on an
overall portfolio and individual month-of-purchase pool basis.
The Company's charge-off policy is based upon a Loan-by-Loan review of
delinquent accounts. The Company generally charges off a Loan at the time its
related collateral is liquidated, although certain Loans may be charged off
sooner if management determines them to be uncollectible.
As of March 31, 1997, the loans purchased and securitized by the Company had net
charge-offs of $5.4 million, or 3.16% of the aggregate principal purchased since
October 1994, as compared to $1.3 million or 2.01%, as of March 31, 1996.
The Company monitors historical loss experience on a static pool basis. Loans
purchased and securitized to the Master Trust in each calendar month are
segregated into individual static pools. The Company considers a pool of Loans
to be "seasoned" when it has been aged for an average of 18 to 24 months. Actual
pool losses are then compared to the estimates for the net loss reserve for each
pool that were established at the pools' inception and adjustments for any
additional losses will be reflected in the current period earnings. As of March
31, 1997, no such additional loss adjustments have been made.
17
<PAGE>
The following Table summarizes the Trusts' Loan losses and repossession loss
experience:
<TABLE>
<CAPTION>
As of March 31,
------------------
1997 1996
(dollars in thousands)
<S> <C> <C>
Aggregate number of Loans purchased............................ 13,553 5,071
Aggregate principal balance of Loans purchased................. $170,547 $64,405
Principal balance of outstanding Loans......................... $127,094 $53,534
Number of outstanding Loans.................................... 11,321 4,567
Gross charge-off principal balance(1).......................... $11,336 $2,965
Liquidation recoveries......................................... 5,944 1,619
-------- -------
$5,392 $1,346
======== =======
Net charge-offs as a percentage of aggregate principal balance
of Loans purchased........................................... 3.16% 2.01%
Principal balance of Loans related to vehicles held in
inventory.................................................... $2,579 $362
</TABLE>
- ------------------
(1) Does not include vehicles repossessed and held in inventory.
The Company considers a Loan to be delinquent if the borrower fails to make any
payment substantially in full on or before the due date as specified by the
terms of the Loan. The Company typically initiates contact with borrowers whose
payments are not received by the due date on the fifth day following the due
date. The following table summarizes the delinquency experience with respect to
outstanding Loans sold to the Master Trust:
<TABLE>
<CAPTION>
As of March 31,
------------------
1997 1996
(dollars in thousands)
<S> <C> <C>
Principal balance outstanding......................... $ 127,094 $53,534
Period of delinquency
31 to 60 days....................................... 6,816 2,057
61 to 90 days....................................... 1,500 212
91 days or more, average............................ 1,854 164
Total delinquencies................................... $ 10,170 $2,433
Total delinquencies as a percentage of the current
principal balance of outstanding Loans.............. 8.00% 4.54%
</TABLE>
Management of the Company believes that the payment practices of Non-Prime
Consumers are partially a function of seasonality. Since Non-Prime Consumers
typically have low disposable incomes, they frequently tend to fall behind in
payments on their Loans during the early winter months, when the holiday season
generates demands for their limited disposable income and when these borrowers
encounter weather-related work slow-downs and other seasonal demands on their
18
<PAGE>
disposable income. As a result, absent unforeseen circumstances, management
expects delinquencies to be highest in the first calendar quarter and the fourth
calendar quarter. Generally, there is a 60- to 120-day lag between initial
delinquency and charge-off.
Since October 1994, the Company has maintained, at its own expense, supplemental
vendor's single interest ("VSI") insurance that protects the Company's interest
in Loan collateral against uninsured physical damage (including total loss) and
instances where neither the vehicle nor the borrower can be found.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Since inception, the Company has funded its operations and the growth of its
Loan purchasing activities primarily through five principal sources of capital:
(i) cash flows from operating activities, (ii) proceeds from securitization
transactions, (iii) cash flows from servicing fees, (iv) proceeds from the
issuance of senior subordinated debt to institutional investors, and (v)
proceeds from the issuance of junior subordinated debt to, and from the capital
contributions of, certain affiliates of the Company.
Net cash used in operating activities was $2.4 million during the three month
period ended March 31, 1997, compared to net cash used of $958,000 during the
three month period ended March 31, 1996. Cash used for purchasing Loans was
$34.9 million, an increase of $21.0 million, or 151.68%, over cash used for
purchasing Loans in the prior year's first quarter period. Cash provided from
the sale of Loans to the Master Trust was $33.8 million, an increase of 19.9
million, or 143.48%, over cash provided from the sale of loans to the Master
Trust in the prior year's first quarter year's period.
The Company's securitization financing activities are capital-intensive and will
require significant additional capital to fund the Company's required equity
commitment to the Revolving Securitization facility and related securitization
expenses as the Company's Loan purchasing activities grow in the future. The
Company will use the proceeds of the Initial Public Offering and the Senior
Subordinated Notes to fund, among other things, the Company's required equity
commitment to the Revolving Securitization. The Company believes that the net
proceeds of the Initial Public Offering, together with the net proceeds received
from the issuance of the Senior Subordinated Notes and the Junior Subordinated
Notes and from the capital contributions of certain affiliates of the Company
will be sufficient to meet the Company's cash requirements and to fund
operations through the end of the first quarter of fiscal year 1998, assuming
the Company completes additional Permanent Securitizations within the next 9 to
12 month period.
During the three month period ended March 31, 1997, cash used for initial
deposits to Spread Accounts was $3.8 million. Cash from excess servicing
distributed to the Company from Spread Accounts for the three month period ended
March 31, 1997 was $2.7 million, an increase of 2.2 million or 412%, over cash
distributed from Spread Accounts in the prior year's period. Changes in the
distributions from the various Spread Accounts are impacted by the relative size
and seasoning of the pools of sold Loans that make up the Company's servicing
portfolio.
The Company's management team possesses significant servicing, collections and
related management information systems expertise, which will enable the Company
to establish its own internal servicing operation. The Company has developed
plans to commence operations of an in-house servicing operation in the third
quarter of the current year and has established a budget of $3.9 million for
such operation in 1997.
19
<PAGE>
SECURITIZATION PROGRAM
The Company currently finances its purchases of Loans primarily through an asset
securitization program that involves (i) the securitized warehousing of all of
its Loans through their daily sale to the Master Trust pursuant to the Revolving
Securitization, followed by (ii) the refinancing of such warehoused Loans, from
time to time, through Permanent Securitizations.
Specifically, pursuant to the Revolving Securitization the Company sells Loans
that it has purchased from Dealers on a daily basis to a special-purpose
subsidiary, which then sells the Loans to the Master Trust in exchange for
certain residual interests in future excess cash flows from the Master Trust.
The Master Trust, to date, has issued two classes of investor certificates:
"Class B Certificates", which are variable funding (i.e., revolving)
certificates bearing interest at floating rates, and "Class C Certificates",
representing a portion of the residual interest of the Company's special-purpose
subsidiary in future excess cash flows from the Master Trust after required
payments to the holders of the Class B Certificates, deposit of funds to a
restricted cash account as a reserve for future Loan losses (which provides
additional credit enhancement for the holders of the Class B Certificates) and
payment of certain other expenses and obligations of the Master Trust. First
Union National Bank of North Carolina currently owns 100% of the outstanding
Class B Certificates.
The Company is required to maintain a minimum equity position in the Revolving
Securitization of 10% of the net serviced receivables. This equity currently
consists of cash invested by the Company and the unamortized dealer discount. As
of March 31, 1997, the Company had an 20.39 % equity investment in the Revolving
Securitization.
In November 1995, the Master Trust refinanced $42.0 million of its receivables
in a private placement of asset-backed securities through a Permanent
Securitization. In such transaction, the 1995-1 Trust was formed and issued
$42.0 million of asset-backed securities to various private investors. In
November 1996, the 1996-1 Trust was formed and the Master Trust refinanced $68.0
million of its receivables in a public offering by the 1996-1 Trust of
asset-backed securities through a Permanent Securitization. Payment of principal
of, and interest on, $38.0 million and $62.0 million, respectively, of the
securities issued in such transactions is insured by payment guarantees issued
by FSA, and such securities are rated AAA and Aaa by S&P and Moody's,
respectively. The proceeds of each of such Permanent Securitization transactions
were used by the Master Trust to repay the then-outstanding balance of the Class
B Certificates. Since such time, the Master Trust has issued additional
beneficial interests in Loans purchased by the Master Trust, as evidenced by the
Class B Certificates, to finance its purchase of Loans from the Company. The
Company expects additional Permanent Securitizations to be consummated in the
future in order to refinance periodically amounts outstanding under such Class B
Certificates.
Collection of the indebtedness evidenced by the Loans in each of the Master
Trust and the 1995-1 Trust and the 1996-1 Trust and related administration is
handled by World Omni. World Omni is primarily responsible for invoicing
customers, and collecting and processing payments. The Company acts as master
servicer for the Loans sold to each of the trusts and receives monthly fees from
the trusts at base rates of 2% per annum for the 1996-1 Trust and the 1997-1
Trust and 4% per annum for the Master Trust, plus certain late fees and
prepayment charges received on the securitized Loans.
20
<PAGE>
The Company relies in part on cash flow from the Master Trust to support its
operations. Since the Master Trust's interest rates under the Revolving
Securitization are floating and the interest rates charged on the Loans (which
are generally at or near the maximum rates permitted by applicable state laws)
are fixed, increases in the interest rates incurred with respect to the Class B
Certificates could have a material adverse effect both on cash flows from the
Master Trust and on the Company's net income, thereby adversely affecting the
Company's financial condition and results of operations. In order to mitigate
the negative impact of rising interest rates, the Master Trust has entered into
interest rate swap agreements, which have the effect of fixing the rates charged
on a portion of the Master Trust's indebtedness. Although these agreements
provide the Master Trust (and therefore to the Company) some protection against
rising interest rates, these agreements also reduce the benefits to the Master
Trust (and therefore to the Company) when interest rates decline below the rates
set forth in such agreements. In addition, upon refinancing of Loans through
Permanent Securitizations, the interest spread with respect to such refinanced
Loans may be fixed.
21
<PAGE>
- --------------------------------------------------------------------------------
Part II - Other Information
- --------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description Method of Filing
------ ----------- ----------------
11 Computation of Earnings Filed with this
per Common Share document
27 Financial Data Schedule Filed with this
document
(b) Reports on Form 8-K
On April 22, 1997 the Company filed an 8-K announcing its
First Quarter 1997 earnings.
22
<PAGE>
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.
NATIONAL AUTO FINANCE COMPANY, INC.
Date: May 14, 1997 /s/ Keith B. Stein
-----------------------------------------
Keith B. Stein
Vice Chairman, Treasurer and Secretary
Date: May 14, 1997 /s/ Kevin G. Adams
-----------------------------------------
Kevin G. Adams
Vice President, Chief Financial Officer
23
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
11 Computation of Earnings Per Common Share
27 Financial Data Schedule
Exhibit 11
National Auto Finance Company, Inc.
Computation of Earnings per Common Share
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Average number of common shares
outstanding 6,898
Proforma shares outstanding 6,726
Common equivalent
Shares outstanding
Stock options 4 --
Total common and common equivalent
shares outstanding 6,902 6,726
===============
===========
Net income $1,000 $501
=============== ===========
Net income (loss) as adjusted $(3,500) --
=============== ===========
Earnings per share $0.14 --
=============== ===========
=============== ===========
Earnings per share as adjusted $(0.51) --
===============
===========
Proforma earnings per share $.07
===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 10,897
<SECURITIES> 0
<RECEIVABLES> 31,026
<ALLOWANCES> 77
<INVENTORY> 0
<CURRENT-ASSETS> 41,923
<PP&E> 895
<DEPRECIATION> (216)
<TOTAL-ASSETS> 44,304
<CURRENT-LIABILITIES> 1,967
<BONDS> 12,032
2,295
0
<COMMON> 70
<OTHER-SE> 20,810
<TOTAL-LIABILITY-AND-EQUITY> 44,304
<SALES> 0
<TOTAL-REVENUES> 5,589
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,467
<LOSS-PROVISION> 77
<INTEREST-EXPENSE> 415
<INCOME-PRETAX> 1,630
<INCOME-TAX> 5,130
<INCOME-CONTINUING> (3,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,500)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
