<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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
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</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
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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, at market.............. 2,581 39,349
Loans and leases held for sale, net of provisions..... 207,789 98,915
Retained interest in loan and lease 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..................................... $232,731 $160,176
======== ========
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Book overdraft........................................ $ -- $ 171
Payable to Imperial Credit Industries, Inc............ 10,245 17,728
Borrowings............................................ 196,552 125,240
Accrued interest payable.............................. -- 148
Other liabilities..................................... 3,836 2,432
-------- --------
Total liabilities................................ 210,633 145,719
-------- --------
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............ $232,731 $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 and leases................. $20,047 $ 5,852 $ 20,033 $ 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 22,782 13,534
------- --------- -------- --------
EXPENSES:
Personnel expense................................ 2,067 1,250 4,665 3,901
Professional services............................ 698 470 1,176 602
Travel........................................... 347 121 524 202
Business promotion............................... 176 101 349 198
Occupancy........................................ 161 63 277 122
Goodwill amortization............................ 88 76 169 251
Telephone and other communications............... 153 72 239 121
General and administrative expense............... 1,069 195 1,420 374
------- --------- -------- --------
Total expenses............................. 4,759 2,348 8,819 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 SIX MONTHS
ENDED 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 by
(used in) operating activities:
Depreciation........................................................ 219 38
Amortization........................................................ 169 154
Net change in franchise loans and leases held for sale.............. (128,907) 144,693
Gain on sale of loans and leases.................................... 20,033 12,520
Net change in accrued interest receivable........................... (577) 952
Net change in retained interest in loan and lease securitizations... (94) --
Net change in accrued interest payable.............................. (148) (1,062)
Net change in residual interest due owner........................... -- (526)
Net change in other assets.......................................... 820 (2,615)
Net change in other liabilities..................................... 1,404 917
--------- ----------
Net cash provided by operating activities:............................ (93,118) 162,834
--------- ----------
Cash flows from investing activities:
Net change in interest bearing deposits............................. (73) (1,999)
Sale (purchase) of securities available for sale.................... 36,768 (9,691)
Purchases of premises and equipment................................. (490) (275)
Cash utilized for acquisitions...................................... (408) --
--------- ----------
Net cash provided by (used in) investing activities:.................. 35,797 (11,965)
--------- ----------
Cash flows from financing activities:
Net change in receivables from affiliates........................... -- 675
Net change in payable to Imperial Credit Industries, Inc............ (7,483) 7,009
Net change in borrowings............................................ 71,312 (46,402)
Repayment of bonds.................................................. -- (111,995)
Distribution to partners............................................ (6,322) --
--------- ----------
Net cash used in financing activities:................................ 57,507 (150,713)
--------- ----------
Net change in cash.................................................... 186 156
Cash at beginning of year............................................. (171) (445)
--------- ----------
Cash at end of period................................................. $ 15 $ (289)
========= ==========
</TABLE>
See accompanying notes to financial statements
4
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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, June 30, 1995 (inception)...... -- -- --
Members' Contribution - ICII............ 8,952 -- 8,952
Members' Contribution - Knyal........... 645 -- 645
Return of capital - ICII................ (3,805) -- (3,805)
Net income.............................. -- 8,665 8,665
------- ------- -------
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 (unaudited)...... 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. ORGANIZATION
On June 30, 1995, Imperial Credit Industries, Inc. (ICII) acquired from
Greenwich Capital Financial Products, Inc. (Greenwich), certain assets of
Greenwich's Franchise Mortgage Acceptance Company division (the FMAC Division),
including all of Greenwich's rights under certain servicing contracts entered
into by the FMAC Division (the Servicing Contracts). The Servicing Contracts
pertain to the servicing of franchise loans that were previously securitized by
Greenwich through the FMAC Division. In connection with the acquisition, the
Company or its affiliates assumed certain liabilities related to the Servicing
Contracts and Greenwich agreed to act as the Company's exclusive agent in
connection with securitization of franchise loans for a period of 24 months.
The net purchase price for these assets was approximately $7.8 million.
Concurrent with the closing of the transactions described above, ICII entered
into an operating agreement with Wayne L. Knyal (Knyal), the former president of
the FMAC Division, for the formation of a California limited liability company
named Franchise Mortgage Acceptance Company LLC (the Company). The Company was
formed to originate, securitize and service franchise mortgage loans. Under the
terms of the operating agreement, in exchange for a 66 2/3% ownership interest
in the Company, ICII contributed to the Company approximately $1.3 million in
cash and all of the assets purchased from Greenwich other than Servicing
Contracts. In exchange for a 33 1/3% ownership interest in the Company, Knyal
caused his wholly owned company, Franchise Mortgage Acceptance Corporation
("FMAC Corporation"), to contribute to the Company all of its rights under a
servicing contract pertaining to franchise mortgage loans that were previously
securitized by FMAC Corporation. The Company's headquarters and operations
center are located in Los Angeles, California.
2. 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.
6
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3. LOANS HELD FOR SALE
Loans held for sale consisted of the following at June 30, 1997 and
December 31, 1996:
(In thousands)
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
1997 1996
------------ ----------------
<S> <C> <C>
Franchise loans held for sale, net of provisions............. $ 188,600 $ 94,490
Franchise equipment loans and leases held for sale........... 21,183 4,385
Net deferred loan fees....................................... (2,932) (750)
Net deferred loan costs...................................... 1,607 --
Unearned lease income........................................ (3,270) (497)
Deferred hedging loss........................................ 2,599 1,287
---------- ---------
$ 207,789 $ 98,915
========== =========
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Franchise Mortgage Acceptance Company is a specialty commercial finance
company engaged in the business of originating and servicing loans and equipment
leases to small businesses, with a primary focus on established national and
regional franchise concepts. Since commencing business in 1991, the Company has
become the leading lender to national and regional Quick Service Restaurant
(QSR) franchisees, according to the Restaurant Finance Reporter. The Company
has expanded its focus to include casual dining concepts, retail energy
licensees (service stations, convenience stores, truck stops, car washes, and
quick lube businesses), and golf operating businesses (golf courses and golf
practice facilities). The Company offers long-term fixed- and variable-rate
loan and lease products and endeavors to sell such loans and leases either
through securitizations or whole loan sales to institutional purchasers on a
servicing-retained basis. The Company believes that the combination of risk-
adjusted yields, loan terms, and prepayment penalties in its loan and lease
products make them attractive financial investments in the secondary market.
Since the Company's inception, it has funded over $1.4 billion in loans and
leases, and at June 30, 1997, the Company had a servicing portfolio of $1.1
billion. At June 30, 1997, the Company's average outstanding loan balance was
$895 thousand. The Company had ten marketing offices in seven states at June
30, 1997.
The Company's focus is to provide funding to broadly based industries that
have been historically been underserved by bankers and other traditional sources
of financing. This requires the Company to develop specific expertise and
industry presence in the sectors in which it operates in order to provide
individualized financial solutions to borrowers. The Company's customers are
small business operators with proven operating experience, primarily independent
multi-unit franchisees. Instead of relying on real estate and other collateral
as the primary basis for small business lending decisions, the Company uses a
combination of enterprise value and historical operating cash flows, along with
the Company's extensive industry research and management experience, to make
credit determinations. The Company also periodically makes equity investments
or receives contingent equity compensation as part of its core lending and
leasing business. The Company believes that, as an unregulated national
financial services provider, it has the opportunity to offer loan terms that are
generally more attractive than those offered by competing institutional lenders.
The Company's delinquency and loss experience has been extremely low due in part
to strict underwriting criteria and the Company's ability to locate replacement-
qualified franchisee/borrowers for delinquent loans. At December 31, 1996 and
June 30, 1997, the percentage of the Company's loans and leases that were 90
days or more delinquent was 0.0% and 0.1%, respectively. The Company suffered
no loan or lease losses during either of such periods.
BUSINESS STRATEGY
The Company's goal is to become a leading national small business lender.
The Company believes this segment has been traditionally underserved by
financial service providers. As an unregulated financial service provider, the
Company believes it has the flexibility and capability, both through the
structure of its offered loan products and that of its securitizations and whole
loan sales, to increase its participation in the small business lending market.
The Company intends to achieve its goals through the following strategies:
Growth in existing sectors - The Company seeks to become a leading lender in
each sector in which it operates The Company plans to replicate its success in
the QSR industry in other sectors, such as retail energy and golf, through
sector focused product development, service, and support. The Company forms
specialty teams within its infrastructure to specifically focus on each sector's
customer needs, generate customer loyalty, and enhance service and support.
Management believes that its industry leadership position, relationships with
major borrowers, franchisers, vendors, and expertise within lending sectors will
assist the Company in achieving its market share goals.
8
<PAGE>
Controlled expansion - Management believes that substantial opportunities
exist to extend the Company's lending expertise into other franchise and
franchise related sectors. The Company's philosophy is to provide complete
business solutions to undercapitalized industries by developing strategies and
financial solutions, which are based on each borrower's specific needs. The
Company believes that its experience in lending to QSRs allowed it to develop a
template for efficiently originating and servicing loans and leases in other
industry sectors. The Company continually analyzes potential new industry
segments which are underserved by banks and other traditional lending sources
and exhibit financial characteristics similar to the Company's existing customer
base, such as strong operating cash flow, experienced management and the
availability of industry information to facilitate meaningful borrower
performance analysis. Management believes that the Company's infrastructure
provides the basis for successfully developing profitable new lending sectors.
Maintain Superior Credit Quality - The Company's credit quality has been
exceptional, with only two loans becoming more than ninety days delinquent as of
June 30, 1997. The Company's success to date has been a result of careful
underwriting, detailed industry knowledge, and active oversight of its existing
servicing portfolio.
Capital Markets Performance - The Company has realized superior
securitization execution on its loan portfolio due to the attractive terms and
credit quality of the loans that the Company is originating. Unlike many
specialty finance lenders, the Company has recognized significant cash gains on
its securitizations in contrast to GAAP based present value gains practices
which result in larger retained interest in loan securitizations, commonly
referred to as residual interests.
Revenue Diversification - Management is committed to developing a diversified
revenue base to reduce revenue volatility and enhance profitability. The
Company continually monitors and administers its loan and securitization
products to enlarge the stability of its cash flows. Revenue sources include
loan origination points and fees, interest income earned prior to the sale of
the loans, whole loan sale profits, securitization profits, loan servicing fees,
and equity investment returns.
LOAN ORIGINATIONS
LENDING DIVISIONS
The Company's original focus was to provide secured financing to franchisees
of Taco Bell Corporation. After establishing an infrastructure and credit
expertise, the Company began expanding into related business sectors. FMAC
carefully reviews vertical industries seeking a combination of large capital
investments, proven cash flow generating capabilities, common operations, and a
scarcity of long-term, fixed-rate funding sources. This formula provides the
template to identify, test, and determine the potential value of entering into
new lending sectors. For the six months ended June 30, 1997, the Company
originated $300.5 million in franchise loans and leases.
To date, the Company has expanded its lending activities to the following
sectors:
Restaurant Finance. The restaurant finance group was organized in 1991 to
provide loans to top-tier national and regional QSR franchise concepts such as
Taco Bell, Burger King, Hardee's, KFC, Wendy's, and Pizza Hut. In 1995, the
Company began making loans to second tier franchises and casual dining concepts
such as TGIF, Applebee's, Denny's, and others. In 1995, the Company introduced
DEVCO loans and expanded the approved QSR concepts to include successful-tier
restaurants such as Carl's Jr., Church's Chicken, and Jack in the Box. As of
June 30, 1997, the restaurant finance group originated loans through a network
of ten offices in seven states.
Energy Finance. The energy finance group was organized in February 1997 to
provide loans to top-tier national and regional businesses that distribute
retail petroleum products such as service stations, convenience stores, truck
stops, car
9
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washes, and quick lube businesses. Customers to date have included major
national chains such as Texaco, Chevron, and Arco. As of June 30, 1997, the
energy finance group originated loans through a network of six offices in five
states.
Golf Finance. The golf finance group was organized in 1996 to provide loans to
experienced owners and operators of golf courses and golf facilities, such as
driving ranges and practice facilities, nationwide.
Equipment Finance. The equipment finance group was organized in 1996 to provide
equipment financing to experienced owners and operators in those sectors in
which the Company operates.
SECURITIZATIONS AND WHOLE LOAN SALES
The Company endeavors to sell all of its loans originated either through
securitization or securitizes a majority of loans originated or purchased by
bulk sales to institutional purchasers of whole loans.
Securitizations. In a securitization, the Company sells loans that it has
originated or purchased to a trust for a cash purchase price and an interest in
the loans securitized called residual interests. The cash purchase price is
raised through an offering of senior certificates by the trust. Following the
securitization, purchasers of senior certificates receive the principal
collected, including prepayments, and the investor pass-through interest rate on
the principal balance, while the Company receives the cash flows from the
residual interests, after payment of servicing fees, guarantor fees, and other
trust expenses and provided the specified over-collateralization requirements
are met. The Company recognizes gain on sale of the loans, which represents the
excess of the estimated fair value of the residual interests, less closing and
underwriting costs, over the carrying value of the loans sold, in the fiscal
quarter in which such loans are sold. Concurrent with recognizing such gain on
sale, the Company records the residual interests as assets on its balance sheet.
The recorded values of these residual interests are amortized as distributions
are received from the trust holding the respective loan pool.
With respect to certain of the aforementioned securitizations, the Company
arranged for the related trusts to purchase credit enhancements for the senior
certificates in the related trusts in the form of insurance policies provided by
one AAA/Aaa rated monoline insurance company and, as a result, the senior
certificates in each trust received a rating of "AAA" from Standard & Poor's
Ratings Services and "Aaa" from Moody's Investors Service, Inc. The Company may
continue to arrange for credit enhancements on future securitizations.
There are no assurances that actual performance of any of the Company's
securitized loan portfolios will be consistent with the Company's estimates and
assumptions. To the extent that actual prepayment speeds, losses, or market
discount rates materially differ from the Company's estimates, the estimated
value of its residuals may increase or decrease, which may have a material
impact on the Company's results of operations, financial condition, and
liquidity.
Whole Loan Sales. Depending on market conditions, the Company also sells for
cash loan originations through sales in which the Company disposes of its entire
economic interest in the loans (excluding servicing rights) for a cash price
that represents a premium over the principal balance of the loans sold.
The Company seeks to maximize its premium on whole loan sale revenues by
closely monitoring institutional purchasers' requirements and focusing on
originating or purchasing the types of loans that meet those requirements and
for which institutional purchasers tend to pay higher premiums.
Whole loan sales are made on a non-recourse basis pursuant to a purchase
agreement containing customary representations and warranties by the Company
regarding the underwriting criteria applied by the Company and the origination
process. The Company, therefore, may be required to repurchase or substitute a
loan in the event of a breach of its representations and warranties. In
addition, the Company sometimes commits to repurchase or substitute a loan if a
payment default occurs within the first month following the date the loan is
funded, unless other arrangements are made
10
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between the Company and the purchaser. The Company is also required in some
cases to repurchase or substitute a loan if the loan documentation is alleged to
contain fraudulent misrepresentations made by the borrower.
The Company may be required either to repurchase or to replace loans, which
do not conform to the representations, and warranties made by the Company in the
pooling and servicing agreements entered into when the loans are pooled and sold
through secritizations.
LOAN AND LEASE SERVICING
Servicing. The Company's Servicing Department is responsible for loan
accounting, compliance monitoring and, if necessary, problem loan collections.
As of June 30, 1997, the Company serviced approximately 1,565 loans located in
the United States representing approximately $1.0 billion in principal balances.
The Company's servicing operations are located in Greenwich, Connecticut.
WAREHOUSE CREDIT AND REPURCHASE FACILITIES
The Company is dependant upon its ability to access warehouse credit and
repurchase facilities, in addition to its ability to continue to securitize or
sell loans in the secondary market, in order to fund new originations. The
Company has warehouse lines of credit and repurchase facilities under which it
had available an aggregate of approximately $365 million in financing at June
30, 1997. Outstanding amounts available at June 30, 1997 are as follows: (In
thousands)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST
RATE COMMITMENT OUTSTANDING INDEX
--------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Southern Pacific Thrift & Loan............ 9.17% $ -- $ -- Coupon - approx. 50 bp's
Banco Santander........................... 7.29% 50,000 16,560 Libor + 160 bp's
Sanwa Bank................................ 7.50% 15,000 12,092 Eurodollars + 200 bp's
CS First Boston........................... 7.29% 300,000 167,900 Libor + 160 bp's
-------- --------
$365,000 $196,552
======== ========
</TABLE>
EQUITY INVESTMENTS
The Company periodically makes equity investments in companies operating in
the sectors served by its lending and leasing businesses. Such investments may
be made in conjunction with loans and leases or independent of any borrowing
relationship. The Company's equity investments, which are generally made
through subsidiary limited liability companies, have taken the form of common
stock equivalents, contingent equity interests such as warrants, and
combinations thereof. At June 30, 1997, the Company had investments in entities
operating 250 QSRs, including Taco Bell, Church's Chicken, KFC, and Hot `N Now
franchisees. In certain cases, concurrent equity investments have been made by
ICII and Wayne Knyal, the Company's Chairman and Chief Executive Officer.
11
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RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 1996
Total revenues increased $15.0 million or 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 $2.5
million or 108.7% to $4.8 million from $2.3 million. As a result, the Company's
net income increased $12.6 million or 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 $9.3 million or 68.9% to $22.8 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 $3.0 million or
51.7% to $8.8 million from $5.8 million. As a result, the Company's net income
increased $6.2 million or 79.5% 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 $15.0 million 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
increased gain on sale of loans was due to several factors: amount of loans
sold, composition of loans in the securitization, structure of the
securitization, and market influences at the time of securitization execution.
The $9.3 million increase in revenues for the six months ended June 30, 1997
as compared to the same period in 1996 was primarily attributable to a $7.5
million increase in gain on sale of loans. This increase is primarily due to
the above referenced securitizations.
Net interest income
Net interest income also contributed to the increase in revenues, increasing
$0.5 million or 162.0% to $0.7 million for the three months ended June 30, 1997
and $1.1 million or 366.7% 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 held for
sale which resulted from an increase in loan originations to $534.1 million or
60% for the twelve months ended June 30, 1997 as compared to loan originations
for the twelve months prior totaling $334.8 million.
Loan servicing income
Loan servicing income increased $0.3 million or 100.5% to $0.7 million for the
three months ended June 30, 1997 and $0.7 million or 112.0% to $1.4 million for
the six months ended June 30, 1997 as compared to $0.4 million and $0.6 million
for the same periods in 1996. This was primarily due to the increase in loans
serviced which resulted from the securitization of $281.8 million in loans from
June 1996 through December 1996, with servicing rights retained by the Company.
Loss on sale of investments
The loss on sale of investments reported in the first quarter of 1997 of $403
thousand relating to the Company's repurchase of bonds from a securitization of
the Company's loans in 1991 ("1991-A") was reclassified into gain on sale of
loans in the second quarter of 1997. The Company repurchased the remaining
bonds totaling approximately $35 million in
12
<PAGE>
December of 1996, financed by a loan from Greenwich Capital. In January of 1997,
approximately $20 million of the loans were securitized resulting in a loss of
$403 thousand. The remaining loans of approximately $15 million were retained by
the Company, the majority of which were refinanced with the borrowers.
EXPENSES
The 108.7% or $2.5 million increase in total expenses 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 resulted from the growth in operations of the Company due to
the dramatic increase in loan originations. Personnel expenses increased $0.8
million or 65.4%, professional services increased $0.2 million or 48.5%, and
general and administrative expenses increased $0.9 million or 444.9% for the
three months ended June 30, 1997 as compared to the three months ended June 30,
1996
The 52.8% or $3.0 million increase in total expenses to $8.8 million for the
six months ended June 30, 1997 as compared to $5.8 million for the same period
of the prior year resulted from the growth in operations of the Company due to
the dramatic increase in loan originations. Personnel expenses increased $0.8
million or 19.6%, professional services increased $0.6 million or 95.3%, and
general and administrative expenses increased $1.0 million or 279.7% for the six
months ended June 30, 1997 as compared to the six months ended June 30, 1996
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements result from the need for the
Company to fund franchise mortgage loans originated or acquired for purposes of
sale or investment. In addition, the Company, as a loan servicer, requires
funding to make advances of delinquent principal and interest payments and
escrow balances, and as basic working capital.
The Company has an ongoing need for capital to finance its lending
activities. This need is expected to increase as the volume of the Company's
loan and lease originations and acquisitions increases. The Company's primary
cash requirements include the funding of (i) loan and lease originations and
acquisitions pending their pooling and sale, (ii) points and expenses paid in
connection with the acquisition of wholesale loans, (iii) fees and expenses
incurred in connection with its securitization programs, (iv)
overcollateralization or reserve account requirements in connection with loans
and leases pooled and sold, (v) ongoing administrative and other operating
expenses, and (vi) the costs of the Company's warehouse credit and repurchase
facilities with certain financial institutions. The Company has financed its
activities through warehouse lines of credit from financial institutions,
borrowings from ICII, securitizations, and whole loan sales. The Company
believes that such sources will be sufficient to fund the Company's liquidity
requirements for the foreseeable future.
The Company currently pools and sells through securitization a substantial
portion of the loans or leases which it originates or purchases. Accordingly,
adverse changes in the securitization market could impair the Company's ability
to originate, purchase and sell loans or leases on a favorable or timely basis.
The Company is dependent upon its ability to access warehouse credit and
repurchase facilities, in addition to its ability to continue to pool and sell
loans and leases in the secondary market, in order to fund new originations and
purchases. The Company has warehouse lines of credit and repurchase facilities
under which it had available an aggregate of approximately $365.0 million in
financing at June 30, 1997.
The Company believes that, with liquidity available, its lending activities
will be adequately funded. The combination of cash from operations and
borrowings from ICII have allowed the Company to meet its required liquidity
needs for 1996 and 1997.
13
<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.
FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC
Date: August 18, 1997 By: /s/ Raedelle Walker
--------------------------------
Raedelle Walker
Executive Vice President and CFO
14
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<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
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<SECURITIES> 9,583 9,583
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