<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
COMMISSION FILE NUMBER: 333-22141-03
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
CALIFORNIA 061-429737
-------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
2049 CENTURY PARK EAST, SUITE 350, LOS ANGELES, CALIFORNIA 90067
(310) 229-2600
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(b) 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
----- -----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST POSSIBLE DATE:
CLASS SHARES OUTSTANDING AT AUGUST 18, 1997
----- -------------------------------------
NOT APPLICABLE NOT APPLICABLE
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FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
FORM 10-Q
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
------------------------------ ----
<S> <C> <C>
ITEM 1 FINANCIAL STATEMENTS
--------------------
Balance Sheets - June 30, 1997 and December 31, 1996..................................... 2
Statements of Income - Three and six months ended June 30, 1997 and 1996................. 3
Statements of Cash Flows - Six months ended June 30, 1997 and 1996....................... 4
Statement of Changes in Members' Equity - June 30, 1997.................................. 5
Notes to Financial Statements............................................................ 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
-------------------------------------------------------------------------------------
PART II - OTHER INFORMATION
---------------------------
ITEMS 1-6 NOT APPLICABLE
--------------
SIGNATURES 14
----------
</TABLE>
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
1
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
------ -------- ------------
<S> <C> <C>
Cash.................................................. $ 15 $ --
Interest bearing deposits............................. 2,667 2,594
Securities available for sale......................... 2,581 39,349
Loans and leases held for sale........................ 208,014 98,915
Retained interest in loan securitizations............. 7,002 6,908
Premises and equipment, net........................... 1,433 1,162
Goodwill.............................................. 4,571 4,332
Accrued interest receivable........................... 1,137 560
Other assets.......................................... 5,536 6,356
-------- --------
Total assets..................................... $232,956 $160,176
======== ========
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Book overdraft........................................ $ -- $ 171
Payable to Imperial Credit Industries, Inc. .......... 9,997 17,728
Borrowings............................................ 195,922 125,240
Accrued interest payable.............................. 878 148
Other liabilities..................................... 4,061 2,432
-------- --------
Total liabilities................................ 210,858 145,719
-------- --------
Members' equity:
Members' capital.................................... 5,792 5,792
Retained earnings................................... 16,306 8,665
-------- --------
Total members' equity............................ 22,098 14,457
-------- --------
Total liabilities and members' equity............ $232,956 $160,176
======== ========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Gain on sale of loans............................ $20,047 $ 5,852 $ 19,808 $ 12,520
Interest income.................................. 6,770 601 10,767 1,257
Interest expense................................. 6,040 322 9,394 955
------- --------- -------- --------
Net interest income........................... 730 279 1,373 302
Loan servicing income............................ 736 367 1,376 649
Other income..................................... -- -- -- 63
------- --------- -------- --------
Total other income............................ 736 367 1,376 712
------- --------- -------- --------
Total revenue............................. 21,513 6,498 22,557 13,534
------- --------- -------- --------
EXPENSES:
Personnel and commission......................... 2,067 1,250 4,665 3,901
Professional services............................ 698 470 1,176 602
Travel........................................... 347 121 524 202
Business promotion............................... 176 101 316 198
Occupancy........................................ 161 63 277 122
Goodwill amortization............................ 88 76 169 251
General and administrative expense............... 1,222 267 1,467 495
------- --------- -------- --------
Total expenses............................. 4,759 2,348 8,594 5,771
------- --------- -------- --------
Net Income....................................... $16,754 $ 4,150 $ 13,963 $ 7,763
======= ======== ======== ========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
STATEMENTS OF CASH FLOW
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 13,963 $ 7,763
Adjustments to reconcile net income to net cash provided
(used in) operating activities:
Depreciation and amortization....................................... 388 192
Net (increase) decrease loans and leases held for sale.............. (109,304) 157,213
Decrease (increase) in accrued interest receivable.................. (577) 952
Net change in residual interest due owner........................... -- (526)
Net change in other assets.......................................... 931 (2,615)
Net change in other liabilities..................................... 2,359 (145)
--------- ----------
Net cash provided (used) by operating activities:..................... (92,240) 162,834
--------- ----------
Cash flows from investing activities:
Purchases of premises and equipment................................. (490) (275)
Increase in interest bearing deposits............................... (73) (1,999)
Sale (purchase) of securities available for sale.................... 36,768 (9,691)
Purchase of other investments....................................... (408) --
--------- ----------
Net cash provided (used) by investing activities:..................... 35,797 (11,965)
--------- ----------
Cash flows from financing activities:
Net change in receivables from affiliates........................... -- 675
Net change in borrowings from ICII.................................. (7,731) 7,009
Increase (decrease) in borrowings................................... 70,682 (46,402)
Repayment of bonds.................................................. -- (111,995)
Member distributions................................................ (6,322) --
--------- ----------
Net cash provided (used) by financing activities:..................... 56,629 (150,713)
--------- ----------
Net change in cash.................................................... 186 156
Cash (book overdraft) at beginning of year............................ (171) (445)
--------- ----------
Cash (book overdraft) at end of period................................ $ 15 $ (289)
========= ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
EARNINGS TOTAL
MEMBERS' (ACCUMULATED MEMBERS'
CAPITAL DEFICIT) EQUITY
------- ------------ ---------
<S> <C> <C> <C>
Balance, December 31, 1996.............. $ 5,792 $ 8,665 $14,457
Tax Distribution - ICII................. -- (4,215) (4,215)
Tax Distribution - Knyal................ -- (2,107) (2,107)
Net income.............................. -- 13,963 13,963
------- ------- -------
Balance, June 30, 1997.................. $ 5,792 $16,306 $22,098
======= ======= =======
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and with the instructions to form 10-Q
and 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 normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the balance sheets and revenues and expenses for
the periods presented. Actual results could differ significantly from those
estimates. Prior year's financial statements have been reclassified to conform
to the 1997 presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted on January 1, 1997, Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"), which establishes accounting for
transfers and servicing of financial assets and extinguishment 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 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 125 requires that the
selling entity continue to carry retained interests, including servicing
assets, 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. Transfers not meeting the criteria for sale
recognition are accounted for as a secured borrowing with a pledge of
collateral. SFAS 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 or liability is amortized in
proportion to, and over the period of, net servicing income or loss. Servicing
assets and liabilities are assessed for impairment based on their fair value.
The implementation of SFAS 125 did not have a material impact on the Company's
financial condition or results of operations. Under the provisions of SFAS
125, securitization interests retained by the Company as a result of
securitization transactions will be held as either available for sale or
trading.
3. FINANCIAL GUARANTEES
The Company, among other subsidiaries of Imperial Credit Industries, Inc.
("ICII"), has jointly and severally and fully and unconditionally guaranteed
ICII's $200 million 9.875% senior notes due January 15, 2007 and ICII's $70
liquidation amount of remarketed par securities.
6
<PAGE>
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 1996
Total revenues increased 230.8% to $21.5 million for the three months ended
June 30, 1997 from $6.5 million for the comparable period in 1996. During the
same periods, the Company's total expenses increased 108.7% to $4.8 million from
$2.3 million. As a result, the Company's net income increased 300.0% to $16.8
million for the three months ended June 30, 1997 as compared to $4.2 million for
the same period in 1996.
Total revenues increased 66.7% to $22.6 million for the six months ended June
30, 1997 from $13.5 million for the comparable period in 1996. During the same
periods, the Company's total expenses increased 48.9% to 8.6 million from $5.8
million. As a result, the Company's net income increased 79.9% to $14.0 million
for the six months ended June 30, 1997 as compared to $7.8 million for the same
period in 1996.
Gain on sale of loans
The increase in revenues for the three months ended June 30, 1997 as compared
to the same period in 1996 was primarily attributable to a $14.2 million
increase in gain on sale of loans. For the three months ended June 30, 1997, the
Company sold approximately $158.6 million of loans in a securitization ("1997-
A") as compared to $167.4 million of loans sold in a securitization ("1996-A")
for the three months ended June 30, 1996.
The increase in revenues for the six months ended June 30, 1997 as compared to
the same period in 1996, was primarily attributable to a $7.3 million increase
in gain on sale of loans. For the six months ended June 30, 1997, the Company
sold approximately $158.6 million of loans in a securitization for a gain on
sale of $18.8 million (of which $18.4 million was cash) as compared to $272.6
million of loans sold in two securitizations for a gain on sale of $12.5 million
(of which $5.8 million was cash) for the six months ended June 30, 1996. The
Company also recognized a gain on sale of $1.0 million in the six months ended
June 30, 1997 from a whole loan sale of approximately $15.3 million. The
increased gain on sale of loans was due to several factors, including the
composition of loans in the securitization, the structure of the securitization
and market conditions at the time of the securitization transaction.
Net interest income
Net interest income also contributed to the increase in revenues, increasing
162.0% to $0.7 million for the three months ended June 30, 1997 and 354.6% to
$1.4 million for the six months ended June 30, 1997 as compared to $0.3 million
and $0.3 million for the same periods in 1996. The increase was primarily due to
the significant increase in loans and leases held for sale which resulted from
an increase of loan and lease originations.
Loan servicing income
Loan servicing income increased 100.5% to $0.7 million for the three months
ended June 30, 1997 and 112.0% to $1.4 million for the six months ended June 30,
1997 as compared to $0.4 million and $0.7 million for the same periods in 1996.
This was primarily due to the increase in loans and leases serviced which
resulted from the securitization of $325.1 million in loans from June 1996
through December 1996, with servicing rights retained by the Company.
7
<PAGE>
EXPENSES
Total expenses increased 108.7% to $4.8 million for the three months ended
June 30, 1997 as compared to $2.3 million for the same period of the prior year
primarily due to infrastructure additions needed to fund increased loan
originations. Personnel expenses increased 65.4% to $2.1 million, professional
services increased 48.5% to $0.7 million, and general and administrative
expenses increased 444.9% to $1.2 million for the three months ended June 30,
1997 as compared to the three months ended June 30, 1996
Total expenses increased 48.9% to $8.6 million for the six months ended June
30, 1997 as compared to $5.8 million for the same period of the prior year
primarily due to infrastructure additions needed to fund increased loan
originations. Personnel expenses increased 19.6% to $4.7 million, professional
services increased 95.3% to $1.2 million, and general and administrative
expenses increased 196.4% to $1.5 million for the six months ended June 30, 1997
as compared to the six months ended June 30, 1996
LIQUIDITY AND CAPITAL RESOURCES
The Company requires access to short-term warehouse lines of credit and
repurchase facilities in order to fund loan and lease originations pending
sale or securitization of such loans and leases. At June 30, 1997, the Company
----------
had the following warehouse lines of credit and repurchase facilities, each of
which was guaranteed by ICII:
<TABLE>
<CAPTION>
INTEREST COMMITMENT PRINCIPAL
LENDER EXPIRATION DATE INDEX RATE AMOUNT OUTSTANDING
------ --------------- ----- -------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Credit Suisse First
Boston December 31, 1998 Libor plus 160 basis points 7.29% $300,000 $167,447
Banco Santander June 1, 1998 Libor plus 160 basis points 7.29% 50,000 16,465
Sanwa Bank September 30, 1997 Eurodollar plus 200 basis points 7.50% 15,000 12,010
-------- --------
Total....................................................................... $365,000 $195,922
======== ========
</TABLE>
The Company expects to add new credit facilities, as well as renew and
expand its existing credit facilities, in order to finance its growing levels
of loan and lease origination activities.
The Company also has a master purchase and sale agreement with Southern
Pacific Thrift and Loan Association, a wholly owned subsidiary of ICII
("SPTL") to originate loans for SPTL under mutual agreement, and subject to
SPTL underwriting each such loan prior to sale of such loans. Under this
agreement, the Company also has the ability to repurchase loans, under mutual
agreement with SPTL. There is no specified commitment by either party, and
each individual sale is negotiated separately as to pricing. This agreement
has no expiration date. At June 30, 1997, loans originated for SPTL (and not
repurchased), totaled approximately $104.3 million. The Company does not
expect to originate a significant volume of loans for SPTL under this
arrangement in the future.
The Company's sources of operating cash flow include: (i) loan origination
income and fees; (ii) net interest income on loans held for sale; (iii) cash
servicing income; (iv) premiums obtained in sales of whole loans (v) borrowing,
and (vi) cash proceeds from loan securitization. Cash from loan origination
fees, net interest income on loans held for sale and loan servicing fees
generally provide adequate liquidity to fund current operating expenses,
excluding the difference between the amount funded on loans originated and the
amount advanced under the Company's current warehouse facilities (the
"haircut").
The Company's excess liquidity needs have been funded by ICII. Excess
liquidity needs of the Company have primarily included the haircut on loan
originations and investments in certain equity ownership interests. The interest
rate on borrowings from ICII was fixed at 12% annually. At June 30, 1997, the
outstanding balance was $10.0 million. The Company expects to repay the
outstanding balance of this line of credit from the proceeds of the Offering.
The Company's whole loan sales and loan securitizations generally result in
significant amounts of cash. Excess cash flow from these transactions has been
used to repay borrowings from ICII.
For the six months ended June 30, 1997, net cash provided by operating
activities was $17.1 million. This excludes cash used in net loan originations
of $109.3 million, which was attributable to the Company's increased loan
origination volume.
For the six months ended June 30, 1997, net cash provided by investing
activities was $35.8 million, which was primarily attributable to the sale of
securities relating to the restructuring of the Company's 1991A
securitization.
For the six months ended June 30, 1997, net cash provided by financing
activities was $56.6 million, which was primarily attributable to increased
amounts of warehouse line borrowings resulting from increased loan
originations during the period, offset by a $6.3 million LLC distribution to
its members.
8
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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.
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
Date: August 26, 1997 By: /s/ Raedelle Walker
--------------------------------
Raedelle Walker
Executive Vice President and CFO
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 2,682 2,682
<SECURITIES> 9,583 9,583
<RECEIVABLES> 209,151 209,151
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 221,416 221,416
<PP&E> 11,810 11,810
<DEPRECIATION> (270) (270)
<TOTAL-ASSETS> 232,956 232,956
<CURRENT-LIABILITIES> 210,858 210,858
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 22,098 22,098
<TOTAL-LIABILITY-AND-EQUITY> 232,956 232,956
<SALES> 21,513 22,557
<TOTAL-REVENUES> 21,513 22,557
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 4,759 8,594
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 16,754 13,963
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 16,754 13,963
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16,754 13,963
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
