<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
___ EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
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 1-11513
----------
NATIONAL AUTO CREDIT, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------------------------------------------------------------
(State or other jurisdiction of incorporation of organization)
34-1050582
------------------------------------
(I.R.S. Employer Identification No.)
30000 Aurora Road, Solon, Ohio 44139
-----------------------------------------------------
(Address of principal executive offices and zip code)
(216) 349-1000
----------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------------------
(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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: 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 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: 25,832,872 shares as of November 30, 1995.
<PAGE> 2
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
================================================================================
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAl INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets - October 31, 1995 1
and January 31, 1995
Consolidated Statements of Income - Three Months
and Nine Months Ended October 31, 1995 and 1994 2
Consolidated Statements of Cash Flows -
Nine Months Ended October 31, 1995 and 1994 3
Notes to Consolidated Financial Statements 4-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE> 3
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
October 31, January 31,
1995 1995
----------- -----------
<S> C> <C>
ASSETS
Cash and cash equivalents $ 352 $ 398
Notes receivable (Note B) 265,523 164,154
Prepaid expenses 283 404
Dealership inventory 8,504 23,406
Property and equipment, net of accumulated depreciation
of $5,329 and $4,314, respectively 9,243 10,228
Other assets 12,462 12,273
Assets related to discontinued operations (Note E) 46,952 110,326
-------- --------
$343,319 $321,189
======== ========
LIABILITIES
Dealer holdbacks, net (Note C) $ 53,667 $ 33,816
Self-insurance claims 11,057 24,475
Notes payable 13,254 12,469
Operating debt 446 10,192
Deferred income taxes 21,760 22,543
Accrued disposition expenses (Note E) 4,993 --
Other liabilities 24,650 18,466
-------- --------
129,827 121,961
-------- --------
CONTINGENCIES (Note D)
STOCKHOLDERS' EQUITY
Preferred stock - $.05 par value, authorized 2,000,000 shares,
none issued
Common stock - $.05 par value, authorized 30,000,000 shares,
27,121,797 and 26,946,679 shares issued, respectively 1,357 1,348
Additional paid-in capital 127,395 125,695
Retained earnings, including cumulative foreign currency
translation loss of $1,337 and $1,253, respectively 96,262 82,921
Treasury stock, at cost, 1,289,568 and 1,217,668 shares, respectively (11,522) (10,736)
-------- --------
213,492 199,228
-------- --------
$343,319 $321,189
======== ========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
---------------------- -----------------------
1995 1994 1995 1994
-------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUE
Financial services $ 10,906 $ 6,000 $ 27,590 $ 15,506
Dealership operations 11,849 13,497 50,258 48,512
-------- ------- -------- --------
22,755 19,497 77,848 64,018
COSTS AND EXPENSES
Cost of goods sold and operating expenses:
Financial services 765 718 2,258 1,901
Dealership operations 11,127 12,780 46,541 46,252
Depreciation and amortization 378 356 1,114 1,056
Selling, general and administrative 1,430 976 4,339 3,145
Interest 249 169 746 478
-------- ------- -------- --------
13,949 14,999 54,998 52,832
-------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 8,806 4,498 22,850 11,186
PROVISION FOR INCOME TAXES 3,241 1,610 8,404 4,004
-------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS 5,565 2,888 14,446 7,182
-------- ------- -------- --------
DISCONTINUED OPERATIONS,
NET OF TAX (Note E)
Income (loss) from operations (834) 3,206 (809) 10,187
Loss on disposal of operations (212) -- (212) --
-------- ------- -------- --------
(1,046) 3,206 (1,021) 10,187
-------- ------- -------- --------
NET INCOME $ 4,519 $ 6,094 $ 13,425 $ 17,369
======== ======= ======== ========
EARNINGS (LOSS) PER SHARE
Continuing operations $ 0.22 $ 0.11 $ 0.56 $ 0.28
Discontinued operations (0.04) 0.13 ( 0.04) 0.39
-------- ------- -------- --------
$ 0.18 $ 0.24 $ 0.52 $ 0.67
======== ======= ======== ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000's) 25,815 25,910 25,758 25,828
======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Nine Months Ended
October 31,
-----------------------
1995 1994
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,425 $ 17,369
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 15,670 29,740
Loss on sale of discontinued operations 212 --
Provision for loan and advance losses 3,736 1,673
Provision for deferred income taxes (11,496) (7,860)
Changes in assets and liabilities, net of effects from
sale of discontinued operations:
Accounts receivable 4,263 5,890
Current income taxes payable 7,176 (378)
Interest receivable on dealer advances (6,196) (2,191)
Other liabilities 1,918 (2,093)
Self-insurance claims (13,418) (5,883)
Other, net 3,282 4,072
--------- --------
Net cash provided by operating activities 18,572 40,339
( ( --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on installment notes receivable 60,724 30,999
Proceeds from sale of discontinued operations 20,524 --
Purchase of rental automobiles (61) (15,554)
Proceeds from sale of rental automobiles 13,376 22,224
Purchase of dealership inventory (11,042) (3,900)
Purchase of other property and equipment (551) (518)
Advances to dealers and payments of dealer holdbacks (95,010) (34,495)
Other investing activities, net 1,544 (92)
--------- --------
Net cash used in investing activities (10,496) (1,336)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments on operating debt and notes payable (8,961) (40,374)
Payments to acquire treasury stock (786) (1,037)
Other financing activities, net 1,625 2,021
--------- --------
Net cash used in financing activities (8,122) (39,390)
--------- --------
Decrease in cash and cash equivalents (46) (387)
Cash and cash equivalents at beginning of period 398 758
--------- --------
Cash and cash equivalents at end of period $ 352 $ 371
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 900 $ 2,058
========= ========
Income taxes paid $ 13,032 $ 18,751
========= ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
===============================================================================
(A) Summary of Significant Accounting Policies
------------------------------------------
GENERAL:
The accompanying consolidated financial statements include the
accounts of National Auto Credit, Inc. and its subsidiaries (the
Company).
The consolidated balance sheet at October 31, 1995, the consolidated
statements of income for the three-month and nine-month periods ended
October 31, 1995 and 1994 and the consolidated statements of cash
flows for the nine-month periods ended October 31, 1995 and 1994, have
been prepared by the Company without audit. In the opinion of
management, all normal and recurring adjustments necessary to present
fairly the financial position, results of operations and cash flows at
October 31, 1995, and for all periods presented have been made.
Certain information and footnote disclosures, which are normally
included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted. It is
suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes thereto included
in the Company's January 31, 1995 Form 10-K Annual Report. The
results of operations for the three-month and nine-month periods ended
October 31, 1995, may not necessarily be indicative of the operating
results for the full year.
PROPERTY AND EQUIPMENT:
Management periodically reviews depreciation rates and revises, where
appropriate, based upon a variety of factors including the strength of
the used car market, general economic conditions and estimated useful
life. Gains and losses upon the sale of rental automobiles are either
recorded as an adjustment to depreciation expense, in discontinued
operations (Note E), or are included in dealership operations,
depending on the method of disposal. The net gain from the sale of
automobiles totaled $1,061,000 and $889,000 for the quarters ended
October 31, 1995 and 1994, respectively. The gain for the nine months
ended October 31, 1995 and 1994 was $4,832,000 and $2,770,000,
respectively. The number of automobiles sold by the Company, either
through dealership operations or other methods, was 3,180 and 2,070
for the quarters ended October 31, 1995 and 1994, respectively, and
9,175 and 7,977 for the nine months ended October 31, 1995 and 1994,
respectively. Other property and equipment is depreciated using the
straight-line method over its estimated useful life.
RECLASSIFICATIONS:
Certain prior period amounts have been reclassified to conform with
the current period presentation.
4
<PAGE> 7
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
============================================================================
(B) Notes Receivable
----------------
The components of notes receivable are as follows:
<TABLE>
<CAPTION>
October 31, January 31,
1995 1995
----------- -----------
(in thousands)
<S> <C> <C>
Installment notes receivable $ 317,514 $ 193,456
Unearned income (49,990) (28,195)
Allowance for loan losses (2,001) (1,107)
--------- ---------
Installment notes receivable, net $ 265,523 $ 164,154
========= =========
</TABLE>
A summary of changes in gross installment notes receivable is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
-------------------------------- -----------------------------
1995 1994 1995 1994
----------- ----------- ----------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 266,992 $ 152,179 $ 193,456 $ 93,233
Contracts accepted 89,541 40,032 229,340 130,093
Cash collected (32,251) (19,007) (86,778) (45,590)
Charge-offs against:
Dealer holdback (4,704) (2,479) (12,357) (4,708)
Unearned income/allowance (2,064) (1,552) (6,147) (3,855)
--------- --------- --------- --------
Balance, end of period $ 317,514 $ 169,173 $ 317,514 $169,173
========= ========= ========= ========
</TABLE>
Installment notes receivable relate to the indirect consumer financing
of used automobiles. The Company records the gross amount of the
contract as an installment note receivable and the amount of its
discount as unearned income. Installment notes generally have initial
terms ranging from 12 to 60 months with an average initial term of 32
months and a gross amount of $8,400. The notes are collateralized by
the related vehicle sold. Installment notes receivable are from
customers residing in all 50 states with no individual state
accounting for more than 10%, except North Carolina with 14.5%. At
October 31 and January 31, 1995, the accrual of interest income was
suspended on 15.2% and 13.3% of net installment notes receivable, 120
days contractually past due. In addition, once these accounts become
120 days contractually past due, previously earned but unpaid income
is reserved for.
The allowance for loan losses is provided for installment notes
receivable with no related dealer holdbacks and for earned but unpaid
finance charges. Beginning in fiscal 1995, the Company ceased
entering into these types of receivables, which were 0.8% and 3.5% of
total gross
5
<PAGE> 8
<TABLE>
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
(B) Notes Receivable (continued)
----------------
installment notes receivable at October 31 and January 31, 1995,
respectively. Changes in the allowance for loan losses are as follows:
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------ ---------------------
1995 1994 1995 1994
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 1,629 $ 1,324 $ 1,107 $ 914
Provision for loan losses 476 103 1,301 830
Net charge-offs (104) (89) (407) (406)
------- ------- ------- -------
Balance, end of period $ 2,001 $ 1,338 $ 2,001 $ 1,338
======= ======= ======= =======
</TABLE>
(C) Dealer Holdbacks
----------------
Dealer holdbacks are the amounts payable to member dealers from the
acceptance of retail installment contracts, net of cash advanced. The
cash advances are based upon certain criteria and are interest-bearing
at the prime rate less 3%. The dealer holdbacks protect the Company
from potential losses associated with the installment contracts and
are not paid until substantially all advances related to a particular
dealer have been recovered. The components of dealer holdbacks are as
follows:
<TABLE>
<CAPTION>
October 31, January 31,
1995 1995
----------- -----------
(in thousands)
<S> <C> <C>
Dealer holdbacks $ 248,294 $ 140,312
Advances (200,870) (108,872)
--------- ---------
47,424 31,440
Dealer advance reserve 6,243 2,376
--------- ---------
Dealer holdbacks, net $ 53,667 $ 33,816
========= =========
</TABLE>
The dealer advance reserve is maintained in the event the
collectibility of a dealer portfolio is not sufficient to insure the
recovery of any outstanding advances. The Company assesses fees to
dealers for the purpose of maintaining this reserve. A summary of
changes in the dealer advance reserve is as follows:
6
<PAGE> 9
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(C) Dealer Holdbacks (continued)
----------------
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------ ----------------------
1995 1994 1995 1994
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 5,255 $ 1,468 $ 2,376 $ 800
Advance reserve fees 632 194 1,640 194
Provision for advance losses 488 175 2,435 843
Net charge-offs (132) (1) (208) (1)
------- ------- ------- -------
Balance, end of period $ 6,243 $ 1,836 $ 6,243 $ 1,836
======= ======= ======= =======
</TABLE>
(D) Contingencies
-------------
In the normal course of its business, the Company is named as a
defendant in legal proceedings. It is the policy of the Company to
vigorously defend litigation and/or enter into settlements of claims
where management deems appropriate.
On June 15, 1992, former employees of the Company filed a class action
lawsuit which is currently in the United States District Court for the
Northern District of California. The complaint alleged that the
Company violated certain sections of the California Labor Law,
including those relating to the payment of overtime. In November
1994, the liability phase of this case was tried to the Court without
a jury. On June 16, 1995, the Court issued a finding as to partial
liability against the Company. The case is now proceeding into the
damages phase. The Company estimates that claims for damages,
penalties, interest and attorneys fees could range from $2 million,
which has been accrued, to $5 million. The amount of the ultimate
liability or damages which might finally exist is subject to numerous
variables and cannot be more precisely estimated.
(E) Discontinued Operations
-----------------------
During the second quarter of fiscal 1996, the Company made the
determination that the rental car segment, operating under the name of
Agency Rent-A-Car, would be sold and therefore has accounted for this
segment as discontinued operations. Accordingly, the assets and
operating results of the rental car segment, for all periods
presented, have been restated to reflect discontinuation.
Effective September 30, 1995, the Company finalized an agreement with
a subsidiary of Avis, Inc., principally selling certain assets
(delivery vehicles, field furniture and fixtures and prepaid assets)
for their net book value of $2,524,000, selling intellectual property
(including tradename rights, permits and telephone numbers) for
$18,000,000 in cash, leasing the rental
7
<PAGE> 10
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
(E) Discontinued Operations (continued)
-----------------------
fleet for a term of up to twelve months and providing certain support
services (predominantly computer related) during an interim transition
period. The estimated pre-tax gain on the sale was $3,325,000. After
taxes of $3,537,000, the sale resulted in an estimated loss of
$212,000. This loss includes the write-off of goodwill, accruals for
costs incurred in connection with the sale, adjustment for the
estimated future realizability of related assets not sold and
management's current estimate of future discontinued operations costs.
All liabilities related to the segment, principally self-insurance
claims and deferred taxes, are being retained by the Company.
Summarized asset data related to discontinued operations is as follows:
<TABLE>
<CAPTION>
October 31, January 31,
1995 1995
---------- -----------
(in thousands)
<S> <C> <C>
Accounts receivable, net of allowance for
doubtful accounts of $5,890 and $3,720,
respectively $ 3,477 $ 9,500
Rental automobiles, net of accumulated
depreciation of $29,488 and $44,572,
respectively 38,001 81,580
Other property and equipment, net 1,058 6,096
Other assets 4,416 13,150
--------- ---------
$ 46,952 $ 110,326
========= =========
</TABLE>
8
<PAGE> 11
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(E) Discontinued Operations (continued)
-----------------------
Summarized results of discontinued operations are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
-------------------------- ----------------------
1995 1994 1995 1994
--------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Revenue $ 11,562 $ 31,862 $ 49,542 $107,120
Direct operating expenses 6,447 13,687 25,354 46,140
Depreciation and amortization 3,435 8,340 14,556 28,684
Other expenses 2,794 4,424 10,308 15,239
--------- -------- -------- --------
12,676 26,451 50,218 90,063
--------- -------- -------- --------
Income (loss) before income taxes (1,114) 5,411 (676) 17,057
Provision (benefit) for income taxes (280) 2,205 133 6,870
--------- -------- -------- --------
Net income (loss) $ (834) $ 3,206 $ (809) $ 10,187
========= ========== ======== ========
</TABLE>
9
<PAGE> 12
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
===============================================================================
RESULTS OF OPERATIONS
- ---------------------
Overview
--------
National Auto Credit, Inc. (the Company), had net income from continuing
operations of $5.6 million or $.22 per share for the quarter ended October 31,
1995 as compared to $2.9 million or $.11 per share for the quarter ended
October 31, 1994.
For the nine months ended October 31, 1995, net income from continuing
operations was $14.4 million or $.56 per share, a 100% increase from the $7.2
million or $.28 per share earned in the prior year.
It is anticipated that the Company's earnings from its continuing
operations will continue to show significant increases due to the planned growth
of the installment notes receivable portfolio funded by the proceeds realized by
the strategic exiting from the automobile rental business through disposal.
The Company has accounted for the automobile rental segment of its
business, formerly operating under the name of Agency Rent-A-Car, as
discontinued operations. The sale of this name plus certain other select
assets of the segment were sold to a division of Avis, Inc. effective September
30, 1995. The Company is now devoting its full resources on its expanding core
finance company business.
On August 1, 1995, the Company began trading on the New York Stock
Exchange, Inc. under the symbol, NAK.
Financial Services
------------------
Financial services revenue, generated by NAC, Inc., consisting primarily
of interest and fee income, increased to $10.9 million during the quarter ended
October 31, 1995 from $6.0 million for the quarter ended October 31, 1994 and
increased to $27.6 million from $15.5 million for the nine months then ended.
This revenue growth is attributable to the growth in the gross installment
notes receivable portfolio and in enrolled dealers as follows:
<TABLE>
<CAPTION>
Gross Installment Number of
Notes Receivable Number of Enrolled
Balance as of: (in millions) Contracts Dealers
- ------------------ --------------------- ------------ -------
<S> <C> <C> <C>
January 31, 1993 $ 5.1 1,000 100
October 31, 1993 70.2 9,500 700
January 31, 1994 93.2 12,900 900
October 31, 1994 169.2 24,900 1,300
January 31, 1995 193.5 28,400 1,400
October 31, 1995 317.5 48,300 2,100
</TABLE>
10
<PAGE> 13
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
===============================================================================
Financial Services (continued)
------------------
Operating margins continue to remain strong exceeding 90% for both the
current quarter as well as the nine months ended October 31, 1995. Net
operating expenses remained relatively consistent between the third quarter of
this year compared to last year due to operating efficiencies gained by the
elimination of the branch offices late last fiscal year and the benefit of
additional fee income which offsets certain operating expenses.
The percent of delinquencies and the rate of charge-offs in the third
quarter were consistent with the experience for preceding periods.
Management continues its efforts to make NAC the leading company in the
alternative financial services industry. This is being accomplished by
expanding our physical presence in the marketplace, introducing innovative
products and providing a higher level of services and benefits to our member
dealers. During the second and third quarters of this year the dealer advance
was changed to take into consideration the model year of the car purchased. In
addition the Company introduced its own line of warranty products. It is
through these continual improvements coupled with an increased sales staff that
management expects the gross installment notes receivable balance to exceed $350
million with an enrolled dealer population of over 2,300 by fiscal year end.
Dealership Operations
---------------------
Dealership operations represents the Company's used car sales division,
National Motors, Inc. (NMI). Revenue was $11.8 million for the quarter ended
October 31, 1995 as compared to $13.5 million for the quarter ended October 31,
1994 and increased to $50.3 million from $48.5 million for the nine month
periods then ended.
The 1,732 units sold during the quarter ended October 31, 1995 brought the
nine month total to 7,237 cars, as compared to 1,836 and 6,589 cars
respectively in the prior year. Gross margins improved during both the third
quarter and year-to-date versus fiscal 1995 due largely to the purchase of
auction vehicles and subsequent sale of these units at higher margins than the
Company's retired rental units. These units were introduced in certain markets
where the supply of retired rental units was not sufficient. The Company has
suspended the purchase of auction units. This portion of the Company's
business is expected to decline as the rental fleet is eliminated and NAC
introduces alternative options to the Program Car benefit currently offered to
its member dealers.
NMI continues to be a servicing operation that processes and distributes
cars to NAC member dealers for retail sale. At October 31, 1995 and 1994 there
were nine servicing centers, but this number will decrease as service centers
are consolidated.
11
<PAGE> 14
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
==============================================================================
Other Costs and Expenses
------------------------
Depreciation and amortization expense, relating primarily to corporate
facilities, computer equipment and furniture and fixtures, remained consistent
for the three months and nine months ended October 31, 1995 as compared to the
prior year.
Selling, general and administrative expenses remained relatively
consistent as a percent of revenue for the three and nine-month periods ended
October 31, 1995 compared to the same periods for the prior year, except for
initial one-time costs incurred during August 1995 relating to the Company's
listing on the New York Stock Exchange and certain fixed costs previously
absorbed by discontinued operations.
Interest expense increased from last year, both for the quarter and nine-
month periods ended October 31, 1995 as notes payable, which are used to
purchase treasury stock, increased $2.6 million from October 31, 1994 to the
October 31, 1995 balance of $13.3 million. In addition, the effective interest
rate increased from 3.9% in fiscal 1995 to 6.0% for the nine-month period ended
October 31, 1995.
Provision for Income Taxes
--------------------------
The effective income tax rate for continuing operations increased from
35.8% to 36.8% for both the quarter and year-to-date from the prior year. This
increase is attributable to the diminishing effect of the tax credits generated
from the Company's investment in certain affordable housing limited
partnerships applied to a higher income base.
Discontinued Operations
-----------------------
The Company entered into an agreement with a subsidiary of Avis, Inc. to
dispose of its automobile rental operations through sale of certain assets and
through certain leases, as disclosed in Note E to the Consolidated Financial
Statements.
Commencing October 1, 1995, Avis leased the entire remaining 6,500 car
rental fleet, (16,000 cars a year earlier) from the Company, thus ending the
Company's operations in the automobile rental segment. Revenue from
discontinued operations therefore decreased over 50% from the prior year in
both the quarter and nine-month periods.
Operating and other expenses decreased disproportionately from the change
in revenue due to higher maintenance expense on an aging fleet and an
unanticipated increase in bad debt expense realized as a result of the
downsizing.
12
<PAGE> 15
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of internally generated funds include net
cash provided by operating activities, principal collected on installment notes
receivable, proceeds from sale of rental automobiles and proceeds received
during the third quarter of this year for the sale of discontinued operations.
External sources of funds available to the Company at October 31, 1995
amounted to $200 million in unsecured short-term commercial paper, $112 million
in unsecured uncommitted short-term bank lines of credit and $40 million in
unsecured committed bank lines of credit, none of which have compensating
balance requirements. The committed bank facility expires on June 28, 1996.
Outstanding borrowings at October 31, 1995 amounted to $13.7 million in
unsecured uncommitted short-term lines of credit.
The Company believes it has sufficient internal and external sources of
funds available to meet its current obligations, to fund current operating and
capital requirements and to finance future growth. In addition, as a result of
the sale of certain assets of the Company's rental operations and the
liquidation of the rental fleet, additional funds will be available to fund the
continued growth of the financial services business.
The ratio of operating debt to total capital was 0.2% at October 31, 1995
and 4.4% at January 31, 1995. It is anticipated that debt levels will remain
minimal through the end of this fiscal year.
13
<PAGE> 16
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
OTHER INFORMATION
==============================================================================
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Exhibits
--------
Exhibit 27 - Financial Data Schedule
------------------------------------
Electronically filed with the Securities and Exchange
Commission pursuant to Item 601(c) of Regulation S-K.
b) Reports on Form 8-K
-------------------
On October 6, 1995 a Form 8-K was filed announcing the
completion of the sale of the replacement auto rental
business to a subsidiary of Avis, Inc.
14
<PAGE> 17
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL AUTO CREDIT, INC.
Date: December 13, 1995
------------------ By: /s/ Robert J. Bronchetti
----------------------------
Robert J. Bronchetti
President and Chief Executive
Officer and Director
By: /s/ Davida S. Howard
----------------------------
Davida S. Howard
Vice President-Finance and
Controller (Principal
Financial and Accounting
Officer)
15
<PAGE> 18
INDEX OF EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Balance Sheet
Income Statement
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> 0
<CASH> 352
<SECURITIES> 0
<RECEIVABLES> 267,524
<ALLOWANCES> (2,001)
<INVENTORY> 8,504
<CURRENT-ASSETS> 0
<PP&E> 14,572
<DEPRECIATION> 5,329
<TOTAL-ASSETS> 343,319
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 1,357
0
0
<OTHER-SE> 212,135
<TOTAL-LIABILITY-AND-EQUITY> 343,319
<SALES> 50,258
<TOTAL-REVENUES> 77,848
<CGS> 46,541
<TOTAL-COSTS> 48,799
<OTHER-EXPENSES> 1,114
<LOSS-PROVISION> 3,736
<INTEREST-EXPENSE> 746
<INCOME-PRETAX> 22,850
<INCOME-TAX> 8,404
<INCOME-CONTINUING> 14,446
<DISCONTINUED> (1,021)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,425
<EPS-PRIMARY> .52
<EPS-DILUTED> 0
</TABLE>
