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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1993
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 2-88333
AMERICAN SOUTHWEST FINANCE CO., INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0461972
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2390 East Camelback Road, Suite 225, Phoenix, AZ 85016
(Address of principal executive offices) (Zip Code)
(602) 381-8960
(Registrant's telephone number including area code)
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 _____________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of common stock outstanding as of January 7, 1994:
Class A - 18,000 Class B - 36,000
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AMERICAN SOUTHWEST FINANCE CO., INC.
INDEX
Page No.
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - November 30, 1993
(Unaudited) and August 31, 1993 3
Statements of Income - For the three-months
ended November 30, 1993 and 1992 (Unaudited) 4
Statements of Cash Flows - For the three-
months ended November 30, 1993 and 1992
(Unaudited) 5
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
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PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN SOUTHWEST FINANCE CO., INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
November 30 August 31
1993 1993
------------------- -------------------
(Unaudited)
<S> <C> <C>
Cash and Cash Equivalents $ 36,045 $ 722,092
Receivables Pursuant to Funding
Agreements - Notes 2 and 3
Principal - (Net of issue discount of
$109,295 and $119,688, respectively) 8,871,280 8,860,887
Interest 370,449 92,612
Receivables from Affiliate - Note 4
Principal 1,684,211 979,704
Interest 7,727 6,531
Other Receivables, primarily refundable
income taxes 52,853 55,420
------------------- -------------------
Total Assets $11,022,565 $10,717,246
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Bonds Payable - Notes 2 and 3
Principal - (Net of issue discount of
$109,295 and $119,688, respectively) $ 8,871,280 $ 8,860,887
Interest 370,449 92,612
Accounts Payable 9,125 499
------------------- -------------------
Total Liabilities 9,250,854 8,953,998
------------------- -------------------
Shareholders' Equity
Class A Common Stock, $.10 par value;
100,000 shares authorized; 25,000 shares issued
and 19,000 shares outstanding 2,500 2,500
Class B Common Stock, $.10 par value;
50,000 shares authorized; 36,000 shares issued
and outstanding 3,600 3,600
Capital in excess of par value 100,200 100,200
Retained earnings 1,679,129 1,670,666
------------------- -------------------
1,785,429 1,776,966
Less: Treasury Stock - at cost,
Class A Common Stock, 6,000 shares 13,718 13,718
------------------- -------------------
Total Shareholders' Equity 1,771,711 1,763,248
------------------- -------------------
Total Liabilities and
Shareholders' Equity $11,022,565 $10,717,246
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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AMERICAN SOUTHWEST FINANCE CO., INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the For the
three months three months
ended ended
November 30 November 30
1993 1992
---------------------- -----------------------
<S> <C> <C>
REVENUES
Interest
Pursuant to Funding Agreements - Note 2
$288,230 $ 2,209,317
Other 25,759 7,646
Administrative Fees 551 1,985
Redemption Income - Note 3 786,890
---------------------- -----------------------
314,540 3,005,838
---------------------- -----------------------
COST AND EXPENSES
Interest on Bonds - Note 3 288,230 2,209,317
Other Expenses 15,847 13,814
---------------------- -----------------------
304,077 2,223,131
---------------------- -----------------------
INCOME BEFORE TAXES 10,463 782,707
Provision for Income Taxes 2,000 314,000
---------------------- -----------------------
NET INCOME $ 8,463 $ 468,707
====================== ======================
EARNINGS PER SHARE OF CLASS A COMMON STOCK - Note 5
$ .44 $ 21.30
====================== =======================
Weighted average number of Class A
shares outstanding 19,000 22,000
====================== =======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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AMERICAN SOUTHWEST FINANCE CO., INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the For the
three months three months
ended ended
November 30 November 30
1993 1992
--------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 8,463 $ 468,707
--------------------- -----------
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Amortization of discount on
Receivables Pursuant to Funding (10,393) (11,713)
Agreements
Amortization of discount on Bonds
Payable 10,393 11,713
Increase in Interest Receivable
Pursuant to Funding Agreements (277,837) (109,046)
Increase in Receivables from (705,703)
Affiliate
Decrease in Other Receivables 2,567 38,047
Increase in Interest Payable 277,837 109,046
Increase in Accounts Payable 8,626 958,900
--------------------- ----------------------
Total Adjustments (694,510) 996,947
--------------------- ----------------------
Net cash (used in) provided by operating
activities (686,047) 1,465,654
--------------------- ----------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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AMERICAN SOUTHWEST FINANCE CO., INC.
STATEMENTS OF CASH FLOWS (CONT'D)
(Unaudited)
<TABLE>
<CAPTION>
For the For the
three months three months
ended ended
November 30 November 30
1993 1992
--------------------- ----------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of Receivables Pursuant to Funding Agreements
39,234,000
--------------------- ----------------------
Net cash provided by investing activities 39,234,000
--------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Reduction of Bonds Payable (39,234,000)
Acquisition and retirement of Class B Treasury Stock
(100)
--------------------- ----------------------
Net cash used in financing activities (39,234,100)
--------------------- ----------------------
Net (decrease) increase in Cash and
Cash Equivalents (686,047) 1,465,554
Cash and Cash Equivalents at beginning of
period 722,092 542,568
--------------------- ----------------------
Cash and Cash Equivalents at end of period $ 36,045 $ 2,008,122
====================== ======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes $ $
===================== ======================
Cash paid for interest $ $ 2,088,559
===================== ======================
</TABLE>
Disclosure of accounting policy:
For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with maturities of three
months or less to be cash equivalents.
The accompanying notes are an integral part of these financial statements.
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AMERICAN SOUTHWEST FINANCE CO., INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
American Southwest Finance Co., Inc. (the
"Company") was organized for the purpose of issuing mortgage-collateralized
bonds ("Bonds") in series ("Series") to facilitate the financing of long-term
residential mortgage loans secured by single-family residences. The Bonds are
collateralized by certificates of the Government National Mortgage Association,
the Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation (collectively, all such certificates are referred to as "Mortgage
Certificates") and by conventional mortgage loans (together with Mortgage
Certificates referred to as "Mortgage Collateral"). The Company does not have
and is not expected to have any significant assets other than cash and the
assets pledged to secure specific Series of Bonds.
Fair Value of Financial Instruments
The carrying value of the Company's
financial instruments approximates fair value.
NOTE 2 - FUNDING AGREEMENTS
The Company and each Finance Company
participating in a Series of Bonds enter into a funding agreement with respect
to each Series of Bonds (collectively the "Funding Agreements") pursuant to
which the Company lends and such Finance Company borrows all or a portion of
the proceeds from the sale of the Bonds of such Series. Each Finance Company
agrees to repay its loan from the Company by causing payments to be made to the
trustee (the "Trustee") for the related Series of Bonds on behalf of the
Company in such amounts as are necessary to pay the principal of and interest
on the Finance Company's loan made from the Company as it becomes due, and each
Finance Company pledges to the
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AMERICAN SOUTHWEST FINANCE CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
(UNAUDITED)
NOTE 2 - FUNDING AGREEMENTS (cont'd)
Company Collateral as security for its loan. The Company assigns to the
Trustee its entire right, title and interest in the Collateral and all proceeds
thereof pledged under the Funding Agreements as security for such Series of
Bonds.
Funds generated by principal and interest
payments on the Funding Agreements securing a Series of Bonds are held by the
Trustee until the payment dates for the Bonds. Amounts not required to make
principal and interest payments on the Bonds of a Series are used to pay
current fees and expenses, held in reserve funds for future fees and expenses,
held in special reserve funds securing the Bonds or paid to the Finance
Companies pursuant to the Funding Agreements.
NOTE 3 - BONDS PAYABLE
Each Series of Bonds that has been issued
is a nonrecourse obligation of the Company payable solely from the Mortgage
Collateral and other collateral (together the "Collateral") pledged to secure
such Series of Bonds. Neither the Company nor the participating finance
companies ("Finance Companies") have guaranteed, or otherwise are obligated
to pay the Bonds of a Series except from the proceeds of the Collateral
securing such Series of Bonds.
The indenture supplements relating to each
Series of Bonds issued by the Company have call provisions which give the
Company the option of redeeming such Bonds in whole or in part when specific
criteria are met. The Company exercised the right to redeem the outstanding
Bonds of all but one of the Series issued by the Company during the fiscal
years ended August 31, 1993, 1992 and 1991 and anticipates redeeming the
remaining Series in February 1994. At the time of a redemption, with the
consent of each participating Finance Company and the Trustee, the Company
sells the underlying Mortgage Collateral and cancels the
8
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AMERICAN SOUTHWEST FINANCE CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
(UNAUDITED)
NOTE 3 - BONDS PAYABLE (cont'd)
appropriate Funding Agreements. The Company simultaneously applies the
proceeds from such sales to redeem the Bonds and remits the remainder to the
participating Finance Companies after charging each a prepayment penalty.
Prepayment penalties, recorded as Redemption Income, are assessed in accordance
with specific policies established by the Company.
NOTE 4 - RELATED PARTY TRANSACTIONS
At November 30, 1993 and August 31, 1993,
Receivables from Affiliate consisted primarily of loans to American Southwest
Financial Corporation ("ASFC"), who utilized the funds to effect optional class
redemptions on certain of its Bonds.
NOTE 5 - EARNINGS PER SHARE
Earnings per share calculations are based
on the weighted average number of Class A common shares outstanding, since
voting and dividend rights are limited to Class A shareholders. Class B
shareholders' rights are limited to a return of capital upon dissolution
together with a share of the Company's profits, if any, upon dissolution,
provided such profits were not paid to Class A shareholders as dividends prior
to such dissolution.
NOTE 6 - ESCROWED RESERVE FUNDS
The Company maintains and invests, on
behalf of participating Finance Companies, certain funds ("Escrowed Reserve
Funds") held primarily for future Bond administration expenses. The Escrowed
Reserve Funds are not included in the Company's assets or liabilities on the
accompanying balance sheets as of November 30, 1993 and August 31, 1993.
9
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AMERICAN SOUTHWEST FINANCE CO., INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company was organized for the purpose
of issuing various Series of Bonds to facilitate the financing of long-term
residential mortgage loans secured by single-family residences. The Company
does not have and is not expected to have any significant assets other than
cash and the assets pledged to secure specific Series of Bonds. On the closing
of a Series of Bonds issued by the Company, the Company applies the net
proceeds of the Bonds toward the simultaneous purchase or the repayment of
indebtedness with respect to the Mortgage Collateral securing such Series of
Bonds or to fund loans to participating Finance Companies pursuant to Funding
Agreements. The Company last issued a Series of Bonds in July 1987. Issuance
fees ("Bond Issuance Fees") charged for each Series of Bonds issued by the
Company are used to pay Bond offering expenses.
Results of Operations
The Company's net income for the
three-month period ended November 30, 1993 was significantly lower when
compared to the same period in 1992. The current three-month period net income
resulted from Other Interest Income while the net income for the 1992
three-month period resulted primarily from Redemption Income and Other Interest
Income.
The Company's principal source of revenue
is Interest Pursuant to Funding Agreements which is completely offset by
Interest Expense on Bonds. See Notes 2 and 3 of the accompanying Financial
Statements. Interest Income and related Interest Expense have declined
significantly due to (i) regular payments and prepayments on the Mortgage
Collateral securing the various series of Bonds, and (ii) the sale of Mortgage
Collateral in conjunction with Bond redemptions. The Company anticipates that
it will no longer receive Interest Income pursuant
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AMERICAN SOUTHWEST FINANCE CO., INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont'd).
to Funding Agreements, nor incur the related Interest Expense subsequent to its
1994 fiscal year if the Company exercises its right to redeem the remaining
Series outstanding. Future operations, if any, will depend upon the Company's
ability to issue new Series of Bonds or engage in other business activities
deemed appropriate by the Company's Board of Directors.
Other Interest Income consists primarily
of interest earned on the Company's Cash, Cash Equivalents and Receivables from
Affiliate. The Company's increase in Other Interest Income for the three-month
period ended November 30, 1993 as compared to the same period in 1992 is due to
greater amounts of cash generated from net income and available for investment.
The Company derives Administrative Fees by
charging Finance Companies for administration of current Bond administration
funds. Fees vary depending on investment returns on these funds held by the
Company specifically for payment of current Bond administration expenses. At
the time of a full redemption of a Series of Bonds, excess current Bond
administration funds are returned to the Finance Companies. The redemptions of
all but one Series of Bonds have resulted in a reduction of Bond administration
funds and a like reduction of Administrative Fees for the three-month period
ended November 30, 1993 as compared to the same period in 1992. Current Bond
administration funds are a portion of the Escrowed Reserve Funds administered
and invested by the Company on behalf of the Finance Companies. See Note 6 of
the accompanying financial statements.
The amount of interest income received on
the Collateral securing the various Series of Bonds issued by the Company, the
rate at which principal prepayments are made on such Collateral, the amount of
Other Interest Income
11
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AMERICAN SOUTHWEST FINANCE CO., INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont'd).
earned on the Company's Cash and Cash Equivalents, and the amounts ("Surplus")
distributed to the Finance Companies depend upon prevailing interest rates and
are significantly affected by interest rate fluctuations. However, since
Surplus (generally, the right to receive the remaining cash flow available on
Collateral after debt service and payment of administrative expenses on Bonds)
is payable to the Finance Companies, the risks associated with fluctuations in
interest rates are borne primarily by the Finance Companies rather than by the
Company.
Liquidity and Capital Resources
During the three-month period ended
November 30, 1993 the Company collected the loan to ASFC of $979,704 with
interest and made additional loans to ASFC of $1,684,211. The increase in
Receivables from Affiliate was the primary use of capital during this
three-month period. The loans were repaid with interest on January 4, 1994 at
a yield of 6.00%.
The Company anticipates that funds to meet
its current and future operating needs will be provided from current cash and
future operations.
Impact of Inflation and Changing Prices
The primary revenue producing activities
of the Company, Bond issuances and redemptions, are impacted by interest rates
which in turn are affected by numerous factors. These factors include
conditions in financial markets, the fiscal and monetary policies of the United
States government and the Board of Governors of the Federal Reserve System,
international economic and financial conditions and other factors, none of
which can be predicted with any certainty.
Virtually all of the assets and
liabilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact
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AMERICAN SOUTHWEST FINANCE CO., INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (cont'd).
on the performance of the Company than the effects of general levels of
inflation since changes in prevailing interest rates will affect the
availability, cost, and expected maturity of Collateral. This in turn will
affect the Company's ability to issue new Series of Bonds and earn Bond
Issuance Fees. Changes in interest rates (particularly long-term interest
rates) also affect the timing and profit potential of Bond redemptions, with
lower rates being a positive factor and higher rates being a negative factor.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the price of goods and services since such prices are affected by
inflation while interest rates generally are not affected to the same degree.
Nevertheless, neither changes in interest rates nor inflationary pressures are
expected to significantly affect the ability of the Company to meet its
obligations as they become due because (i) each Series of Bonds is secured by
Collateral paying interest at fixed rates, and (ii) interest on each Class of
Bonds is paid at fixed rates.
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AMERICAN SOUTHWEST FINANCE CO., INC.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
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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.
AMERICAN SOUTHWEST FINANCE CO., INC.
Date: January 12, 1994 /s/ G. Thomas Eggebrecht
_________________________
G. Thomas Eggebrecht
President and Chief Executive Officer
Date: January 12, 1994 /s/ Richard H. Hackett
__________________________
Richard H. Hackett
Executive Vice President, Treasurer and Chief
Financial and Accounting Officer
15
