UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report - March 29, 1996*
ANUHCO, INC.
State of Incorporation - Delaware
Commission File No. - 0-12321
IRS Employer Identification No. - 46-0278762
8245 Nieman Road, Suite 100
Lenexa, Kansas 66214
(Address of Principal Executive offices)
Telephone Number - (913)-859-0055
* This Form 8-K/A amends Form 8-K filed by the registrant on April
12, 1996 to report the acquisition of Universal Premium Acceptance
Corporation and UPAC of California, Inc. effective March 29, 1996.
As permitted by Items 7(a)(4) and 7(b)(2) of Form 8-K, the
registrant is filing herewith the audited financial statements and
proforma financial information relative to the acquired businesses
within 60 days of the date on which the original Form 8-K was due.
</PAGE>
BACKGROUND OF TRANSACTION
On March 29, 1996, Anuhco, Inc. ("Anuhco" or "the Company")
completed the acquisition of all of the issued and outstanding
stock of Universal Premium Acceptance Corporation and UPAC of
California, Inc. (together referred to as "UPAC"). UPAC offers
short-term collateralized financing of commercial and personal
insurance premiums through approved insurance agencies in over 30
states throughout the United States. At March 31, 1996, UPAC had
outstanding net finance receivables of approximately $30 million.
This transaction will be accounted for as a purchase. Anuhco
utilized a portion of its available cash and short-term investments
to consummate the purchase at a price of approximately $12 million.
UPAC currently maintains certain financing arrangements with an
outstanding balance of $21.3 million at March 31, 1996. The terms
of the acquisition and the purchase price resulted from
negotiations between Anuhco and William H. Kopman, the former sole
shareholder of UPAC.
In addition to the Stock Purchase Agreement by which Anuhco
acquired all of the UPAC stock, Anuhco entered into a consulting
agreement with Mr. Kopman. Under the consulting agreement, Anuhco
is entitled to consult with Mr. Kopman on industry developments as
well as UPAC operations through December 31, 1998. In addition to
retaining the services of Mr. Kopman under a consulting agreement,
existing executive management personnel of UPAC have been retained
under multiyear employment agreements. Anuhco's acquisition of
UPAC, in combination with its earlier acquisition of Agency Premium
Resource, Inc. ("APR"), gives the Company a nationwide presence in
this financial services industry.
</PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
<S> <C> <C>
(a) Historical Combined Financial Statements of
Universal Premium Acceptance Corporation and
UPAC of California, Inc. (businesses acquired)
Annual Financial Statements
Report of Independent Auditor 11
Combined Balance Sheets as of December 31,
1995 and 1994 12
Combined Statements of Income and Retained
Earnings for the years ended December 31,
1995 and 1994 13
Combined Statements of Cash Flows for the
years ended December 31, 1995 and 1994 14
Notes to Combined Financial Statements 16
(b) Condensed Pro Forma Financial Statements
(Unaudited)
Description of Pro Forma Financial Statements 4
Condensed Pro Forma Balance Sheet as of
December 31, 1995 5
Condensed Pro Forma Statements of Income for
the years ended December 31, 1995 and 1994 6
Notes to Pro Forma Financial Statements 8
</TABLE>
ANUHCO, INC., UNIVERSAL PREMIUM ACCEPTANCE
CORPORATION AND UPAC OF CALIFORNIA, INC.
Description of Condensed Pro Forma
Financial Statements
On March 29, 1996, Anuhco, Inc. ("Anuhco") completed the
acquisition of all of the issued and outstanding stock of Universal
Premium Acceptance Corporation and UPAC of California, Inc.
("UPAC"). The purchase price was approximately $12 million. This
transaction will be accounted for as a purchase.
The entities involved in the pro forma financial statements are
Anuhco and UPAC. Anuhco's and UPAC's normal fiscal year is a
calendar year ending December 31.
The pro forma Balance sheet was prepared using the historical
balance sheets of Anuhco and UPAC as of December 31, 1995. Anuhco
previously reported its information on Form 10-K.
The fiscal years ending December 31, 1995 and 1994 pro forma income
statements were prepared using the historical income statements of
Anuhco and UPAC for the years ended December 31, 1995 and 1994,
Anuhco's historical information having been previously reported on
Form 10-K.
</PAGE>
<TABLE>
ANUHCO, INC., UNIVERSAL PREMIUM ACCEPTANCE
CORPORATION AND UPAC OF CALIFORNIA, INC.
Condensed Pro Forma Balance Sheet
as of December 31, 1995
(Unaudited)
(in thousands)
<CAPTION>
Historical Pro Forma Pro Forma
Anuhco UPAC Combined Adjustments Combined
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets -
Cash & short-term
investments $33,983 $ - $ 33,983 $(11,979)(5) $ 22,004
Finance receivables 8,290 27,974 36,264 509 (2) 37,053
280 (3)
Freight receivables 7,952 - 7,952 - 7,952
Current deferred
tax asset 177 - 177 224 (4) 401
Other current assets 1,291 - 1,291 - 1,291
AFS net assets 16,840 - 16,840 - 16,840
Total current assets 68,533 27,974 96,507 (10,966) 85,541
Net Operating Property 16,223 257 16,480 (95)(1) 16,345
(40)(3)
Intangibles & other 3,670 438 4,108 6,301 (5) 10,081
Assets (328)(1)
Total Assets $88,426 $28,669 $117,095 $ (5,128) $111,967
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities -
Secured notes payable $ - $21,218 $ 21,218 $ 1,224 (1) $ 22,442
Accounts payable &
accrued expenses 7,603 747 8,350 110 (3) 8,460
Subordinated & unse-
cured debt - 1,292 1,292 (1,050)(1) 242
Total Liabilities 7,603 23,257 30,860 284 31,144
Deferred Income Taxes 543 - 543 - 543
Shareholders' Equity 80,280 5,412 85,692 (5,412)(5) 80,280
Total Liabilities &
Shareholders' Equity $88,426 $28,669 $117,095 $ (5,128) $111,967
</TABLE>
This pro forma balance sheet should be read in conjunction with the related
Description and Notes to Condensed Pro Forma Financial Statements and the
Registrant's financial statements contained in its Form 10-K filing with the
Commission.
</PAGE>
<TABLE>
ANUHCO, INC., UNIVERSAL PREMIUM ACCEPTANCE
CORPORATION AND UPAC OF CALIFORNIA, INC.
Condensed Pro Forma Statement of Income
For the year ended December 31, 1995
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
ProForma
Historical Adjust- ProForma
Anuhco UPAC Combined ments Combined
<S> <C> <C> <C> <C> <C>
Operating Revenue $97,444 $4,804 $102,248 $ 81 (4) $102,329
Operating Expenses -
Salaries, wages &
employee benefits 53,854 1,809 55,663 (609)(2) 55,054
Operating supplies (114)(2)
& expenses 12,616 2,021 14,637 483 (2) 15,006
Operating taxes &
licenses 2,577 - 2,577 - 2,577
Insurance & claims 1,873 - 1,873 - 1,873
Depreciation &
amortization 2,821 92 2,913 420 (1) 3,333
Purchased transporta-
tion & rents 20,851 - 20,851 - 20,851
Total operating expenses 94,592 3,922 98,514 180 98,694
Operating Income 2,852 882 3,734 ( 99) 3,635
Nonoperating Income
(Expense) 2,078 - 2,078 (599)(3) 1,479
Income from Continuing
Operations Before
Income Taxes 4,930 882 5,812 (698) 5,114
Income Tax Provision 2,120 - 2,120 79 (5) 2,199
Income from Continuing
Operations 2,810 882 3,692 (777) 2,915
Income from Discontinued
Operations 3,576 - 3,576 - 3,576
Net Income $ 6,386 $ 882 $ 7,268 $(777) $ 6,491
Average Common
Shares Outstanding 7,409 7,409
Net Income Per Share -
Continuing Operations $0.38 $0.39
Discontinued Operations 0.48 0.48
Total $0.86 $0.87
</TABLE>
This pro forma statement of income should be read in conjunction with the
related Description and Notes to Condensed Pro Forma Financial Statements and
the Registrant's financial statements contained in its Form 10-K filing with
the Commission.
</PAGE>
<TABLE>
ANUHCO, INC., UNIVERSAL PREMIUM ACCEPTANCE
CORPORATION AND UPAC OF CALIFORNIA, INC.
Condensed Pro Forma Statement of Income
For the year ended December 31, 1994
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
ProForma
Historical Adjust- ProForma
Anuhco UPAC Combined ments Combined
<S> <C> <C> <C> <C> <C>
Operating Revenue $95,772 $5,614 $101,386 $ (58)(4) $101,328
Operating Expenses -
Salaries, wages &
employee benefits 51,732 2,423 54,155 (1,108)(2) 53,047
Operating supplies (108)(2)
& expenses 10,869 2,045 12,914 483 (2) 13,289
Operating taxes &
licenses 2,597 - 2,597 - 2,597
Insurance & claims 2,209 - 2,209 - 2,209
Depreciation &
amortization 2,315 249 2,564 420 (1) 2,984
Purchased transporta-
tion & rents 20,829 - 20,829 - 20,829
Total operating expenses 90,551 4,717 95,268 (313) 94,955
Operating Income 5,221 897 6,118 255 6,373
Nonoperating Income
(Expense) 274 - 274 (753)(3) (479)
Income from Continuing
Operations Before
Income Taxes 5,495 897 6,392 (498) 5,894
Income Tax Provision - - - - (5) -
Income from Continuing
Operations 5,495 897 6,392 (498) 5,894
Income from Discontinued
Operations 54,845 - 54,845 - 54,845
Net Income $60,340 $ 897 $ 61,237 $ (498) $ 60,739
Average Common
Shares Outstanding 7,545 7,545
Net Income Per Share -
Continuing Operations $0.73 $0.78
Discontinued Operations 7.27 7.27
Total $8.00 $8.05
</TABLE>
This pro forma statement of income should be read in conjunction with the
related Description and Notes to Condensed Pro Forma Financial Statements and
the Registrant's financial statements contained in its Form 10-K filing with
the Commission.
</PAGE>
ANUHCO, INC., UNIVERSAL PREMIUM ACCEPTANCE
CORPORATION AND UPAC OF CALIFORNIA, INC.
Notes to Pro Forma Financial Statements
(Unaudited)
1. These Notes to Pro Forma Financial Statements are not intended to
disclose all data of significance related to the historical financial
statements of the entities. The Notes and the related Pro Forma Financial
Statements should be read in conjunction with the historical annual financial
statements of Anuhco, Inc. ("Anuhco") filed with the Commission on Form 10-K.
Anuhco knows of no material non-recurring credits or charges from the
acquisition of Universal Premium Acceptance Corporation and UPAC of
California, Inc. ("UPAC") from Mr. William H. Kopman that will be included in
Anuhco's statement of income subsequent to March 29, 1996 (the date of
acquisition).
2. Pro Forma balance sheet adjustments
See Description of Condensed Pro Forma Financial Statements for a
description of the historical balance sheets used to prepare the Condensed
Pro Forma Balance Sheet. The following descriptions correspond to the
numbering of the adjustments set forth on the Condensed Pro Forma Balance
Sheet.
(1) In conjunction with the closing of the purchase, UPAC collected
certain receivables from and paid certain obligations to the former
shareholder. The funds for such settlement were provided by an advance
under UPAC's credit agreement. Following is a listing of the items settled:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Repayment of subordinated and unsecured
notes payable............................. $1,050
Collection of notes receivable.............. (328)
Sale of company automobiles at net
book value................................ ( 95)
Dividend distributed to former stockholder.. 295
Payment of bonuses to certain UPAC employees 302
Additional advance on UPAC credit agreement. $1,224
</TABLE>
(2) The net finance receivable balance was adjusted for the cumulative
difference in unearned finance charges recorded by UPAC under the collections
method from the unearned finance charges that would have been recorded under
the interest method which is used by APR.
(3) The historical carrying values of certain assets and liabilities
have been adjusted to the estimated fair value of such assets and liabilities
as follows: the allowance for credit losses recorded by UPAC was adjusted to
the balance deemed by Anuhco to be adequate to cover potential credit losses;
a reserve has been provided for the fair value of furniture and other
equipment; and, liabilities have been established for certain benefits
payable to employees of UPAC resulting from the acquisition.
(4) The former stockholder of UPAC had elected "S" corporation
treatment under the Internal Revenue Code. In connection with the purchase
deferred tax assets were recorded for the cumulative temporary differences
between financial reporting and tax basis of assets and liabilities,
primarily relating to the allowance for credit losses, at the statutory
income tax rates expected to be in effect when such differences reverse.
(5) To record the acquisition as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Anuhco cash payment to UPAC shareholder.. $11,979
Fair value of assets acquired and liabil-
ities assumed.......................... 5,678
Intangibles acquired, including goodwill. $ 6,301
</TABLE>
3. Pro Forma income statement adjustments.
See Description of Condensed Pro Forma Financial Statements for a
description of the historical income statements used to prepare the Condensed
Pro Forma Income Statements. For consistency of presentation, the historical
operating revenues of UPAC are shown net of interest expense on borrowings
secured by finance receivables. The following descriptions correspond to the
numbering of the adjustments and eliminations set forth on the Condensed Pro
Forma Income Statements.
(1) Amortization of intangibles, including goodwill, arising in the
acquisition using the straight-line method of amortization over an estimated
useful life of 15 years.
(2) Adjustment to record payment of consulting fees to the former
stockholder of UPAC, pursuant to a consulting agreement, in lieu of salary
and certain other expenses recorded in UPAC's historical income statements.
(3) Adjustment to reflect reduction of interest income on short-term
investments or additional interest expense on borrowings assuming payment of
the purchase price at the beginning of each period.
(4) Adjustment to reflect the effect on earned finance charges of the
change from the collection method used by UPAC to the interest method used by
APR.
(5) Adjustment to record an income tax provision for UPAC's income
before income taxes and the income tax benefit from the net pro forma
adjustments to income before income taxes at Anuhco's effective income tax
rate, 43% and 0%, for the years ended December 31, 1995 and 1994,
respectively.
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, hereunto duly authorized.
ANUHCO, INC.
/s/ Timothy P. O'Neil
By: Timothy P. O'Neil, President &
Chief Financial Officer
Date: May 14, 1996
</PAGE>
INDEPENDENT AUDITORS' REPORT
Boards of Directors
Universal Premium Acceptance Corporation and
UPAC of California, Inc.
St. Louis, Missouri
We have audited the accompanying combined balance sheets of Universal Premium
Acceptance Corporation (a Missouri Corporation) and UPAC of California, Inc.
(a California Company) as of December 31, 1995 and 1994, and the related
combined statements of income and retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Companies management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Universal Premium
Acceptance Corporation and UPAC of California as of December 31, 1995 and
1994, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ BROWN SMITH WALLACE, L.L.C.
BROWN SMITH WALLACE, L.L.C.
St. Louis, Missouri
February 9, 1996
</PAGE>
<TABLE>
UNIVERSAL PREMIUM ACCEPTANCE CORPORATION
AND
UPAC OF CALIFORNIA, INC.
COMBINED BALANCE SHEETS
December 31, 1995 and 1994
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Finance Receivables:
Finance receivables (note E) $30,260,501 $32,794,113
Unearned finance charges (1,600,009) (1,610,626)
Allowance for credit losses (686,867) (844,527)
Finance receivables, net 27,973,625 30,338,960
Property and Equipment, net (note B) 257,237 379,901
Other Assets (note D) 438,173 352,258
TOTAL ASSETS $28,669,035 $31,071,119
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Notes payable, secured (note E) $21,218,132 $23,117,323
Accounts payable and accrued expenses 746,839 1,256,188
Subordinated and unsecured debt
(note F) 1,292,077 1,270,608
Total Liabilities 23,257,048 25,644,119
Stockholder's Equity:
Common Stock
Universal Premium Acceptance Corporation -
authorized 1,500 shares of
$100 par value; issued and outstanding
400 shares 40,000 40,000
UPAC of California, Inc. - authorized
10,000 shares of $1 par value; issued
and outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 76,500 76,500
Retained earnings 5,294,487 5,309,500
Total Stockholder's Equity 5,411,987 5,427,000
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $28,669,035 $31,071,119
</TABLE>
The accompanying notes are an integral part of this statement.
</PAGE>
<TABLE>
UNIVERSAL PREMIUM ACCEPTANCE CORPORATION
AND
UPAC OF CALIFORNIA, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years ended December 31, 1995 and 1994
<CAPTION>
1995 1994
<S> <C> <C>
Revenues
Interest income $5,256,780 $5,342,412
Service revenue 1,507,730 1,841,174
Other revenue 35,607 70,016
6,800,117 7,253,602
Expenses
Salaries and benefits 1,893,557 2,423,215
Commission expense 380,285 390,408
Occupancy 160,187 161,056
Depreciation and amortization 92,318 249,291
Other operating expenses 1,079,285 1,223,353
Total operating expenses 3,605,632 4,447,323
Provision for credit losses 317,277 270,299
Interest expense 1,995,623 1,639,382
Other expenses 2,312,900 1,909,681
Total expenses 5,918,532 6,357,004
NET INCOME 881,585 896,598
Retained earnings, beginning
of year 5,309,500 4,412,902
Less dividends (896,598) -
Retained earnings, end of year $5,294,487 $5,309,500
</TABLE>
The accompanying notes are an integral part of this statement.
</PAGE>
<TABLE>
UNIVERSAL PREMIUM ACCEPTANCE CORPORATION
AND
UPAC OF CALIFORNIA, INC.
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 881,585 $ 896,598
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 92,318 249,291
Provision for credit losses 317,277 270,299
Accounts charged off, net of
recoveries (474,937) (1,292,494)
(Increase) decrease in finance
receivables 2,533,613 1,325,520
Increase (decrease) in unearned
finance charges (10,617) ( 96,148)
(Increase) decrease in other assets (34,954) ( 3,704)
Increase (decrease) in accounts
payable and accrued expenses (509,350) (862,555)
Net cash provided by
operating activities 2,794,935 486,807
Cash flows from investing activities:
Payment on officer loan - 125,000
Purchases of property and equipment (20,731) (121,923)
Net cash provided by (used in)
investing activities (20,731) 3,077
Cash flows from financing activities:
Proceeds from unsecured debt 21,469 -
Net borrowings (repayment) on notes
payable, secured (1,899,191) (129,093)
Dividends paid (896,598) -
Principal payments on subordinated
and unsecured debt - (360,393)
Net cash used in financing
activities (2,744,320) (489,486)
INCREASE IN CASH AND CASH EQUIVALENTS (116) 398
Cash and cash equivalents at beginning
of year 1,936 1,538
Cash and cash equivalents at end of year $ 1,820 $ 1,936
</TABLE>
The accompanying notes are an integral part of this statement.
</PAGE>
UNIVERSAL PREMIUM ACCEPTANCE CORPORATION
AND
UPAC OF CALIFORNIA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1995
Note A - Summary of Operations and Significant Accounting Policies
A summary of the Companies operations and significant accounting policies
applied in the preparation of the accompanying financial statements follows:
Nature of Operations
Universal Premium Acceptance Corporation is a premium finance company
licensed and conducting business in most of the fifty states. UPAC of
California, Inc. is a premium finance Company licensed and conducting
business in California. These companies have been combined because they are
commonly owned and have significant interrelated activity. All intercompany
transactions between these entities have been eliminated in the combination.
The Companies earn substantially all their revenues from the interest charged
on insurance premiums financed. The Companies have principal offices
located in St. Louis, Missouri and Alto Zuma, California. As part of its
normal course of business, the Companies grant credit to its customers in the
form of insurance premium finance agreements. At December 31, 1995 and 1994,
finance receivables had an average maturity of four to five months. The
Companies have a security interest in the gross unearned premiums of the
insurance policies financed.
Finance Charges
The Companies account for transfers to realized earnings by the collections
method, whereby 15% of the unearned finance charge is recognized as earnings
when the loan is made and the remainder is transferred to earnings monthly in
proportion to the liquidation of the receivables. Prepayment refunds are
charged to earned finance charges. Late charges are credited to income when
received.
Allowance for Credit Losses
The allowance for credit losses is maintained through direct charges to
operations at a level deemed to be adequate to cover estimated losses. It is
the Companies general policy to charge off accounts when they are deemed
uncollectible.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Balance, beginning of year $ 844,527 $1,866,722
Provision for credit losses 317,277 270,299
Total 1,161,804 2,137,021
Less:
Accounts charged off, net of
recoveries 474,937 1,292,494
Balance, end of year $ 686,867 $ 844,527
</TABLE>
Property and Equipment
Property and equipment are carried at cost. Depreciation is charged to
operations on the straight-line and accelerated methods over the estimated
useful lives of the assets. Leasehold improvements are amortized over the
estimated useful lives of the assets. In computing its taxable income, the
Companies utilize the methods and lives as prescribed by the current Internal
Revenue Code.
Income Taxes and Cash Dividends Paid or Accrued
Effective January 1, 1988, the stockholder of the Companies have elected the
Companies to be treated as "S" Corporations under provisions of the Internal
Revenue Code which provides that, in lieu of corporation income taxes, the
stockholder is taxed on his share of the Companies taxable income.
Therefore, no provision or liability for federal and state income taxes is
reflected in these financial statements.
As a result of this election, the Companies distribute, as they deem
necessary, cash dividends in amounts approximating the individual income tax
liabilities incurred by the stockholder. Dividends of $896,598 were paid in
1995 with respect to the prior years' taxable income. No dividends were paid
or accrued during 1994.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Actual results could differ from those estimates.
Note B - Property and Equipment
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Automobiles $105,333 $ 158,456
Furniture and equipment 832,965 826,677
Leasehold improvements 19,922 19,922
958,220 1,005,055
Less accumulated depreciation
and amortization 700,893 625,154
Total $257,327 $379,901
</TABLE>
Depreciation and amortization expense charged to operations in the years
ended December 31, 1995 and 1994 amounted to $92,318 and $124,558,
respectively.
Note C - Note Receivable - Officer
On August 17, 1992, the Universal Premium Acceptance Corporation loaned to
its sole stockholder the sum of $330,000, with interest at the rate of 7% per
annum. Principal is due on demand and interest is to be paid annually, due on
December 31 each year. The stockholder paid $125,000 on this note in June
1994. In 1995, a company car with a net book value of $51,077 was transferred
to the stockholder and the note receivable was increased by this amount. The
note balance, including accrued interest, of $328,098 and $258,345 at
December 31, 1995 and 1994, respectively is included in other assets.
Accrued interest recognized as income in the years ended December 31, 1995
and 1994 amounted to $18,676 and $21,038, respectively.
Note D - Notes Payable, Secured
Notes payable, secured consist of borrowings under a credit agreement
("Agreement") dated as of August 1, 1990 with three banks, secured by the
Companies receivables, whereby, as amended on August 14, 1995 and July 29,
1994, the aggregate maximum principal amount outstanding shall not exceed the
lesser of $37,500,000 or 85% of the qualified notes assigned to the banks and
the sum of the outstanding principal of and the accrued interest on, the
additional obligations to insurance agents with whom the Companies do
business evidenced by promissory notes. Borrowings under the Agreement not
subject to the LIBOR (London Inter-Bank EuroDollar Market) Pricing Option,
are at an annual effect rate of the bank's base rate (prime rate).
Borrowings under the LIBOR Pricing Option, are at an annual effective rate of
the LIBOR rate plus 2.00% for each applicable interest period. In addition,
the Agreement provides for an agent's fee of 0.25% per annum of the aggregate
outstanding amount of the Bank Obligations and a commitment fee at a rate of
0.125% per annum on the average daily unused amount of the Revolving Loan
Commitment as defined in the Agreement.
The Agreement contains various warranties and covenants that must be complied
with on a continuing basis, including, but not limited to, restrictions on
investments, indebtedness, allowance for credit losses on finance
receivables, capital maintenance, financial ratios and dividends. The
maturity date of the Agreement is August 31, 1996, however, if the Companies
do not receive notice at least 120 days before such date from any bank of the
occurrence of such maturity date, then the maturity date shall thereafter
extend from year to year. Should terms of this agreement be changed, the
Companies operations could be affected adversely.
The Companies domestic banking system provides for the daily replenishment of
major bank accounts for check clearing requirements. Accordingly,
outstanding checks of $1,708,844 and $521,926 at December 31, 1995 and 1994,
respectively, are reflected in notes payable, secured.
Note E - Subordinated and Unsecured Debt
At December 31, 1995 and 1994 subordinated and unsecured debt consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Subordinated capital debentures -
subordinated to all other debts
of the Company:
17.94% originally due in 1988 $ 98,391 $ 100,000
8.5% originally due in 1990 - 50,000
Unsecured promissory demand notes,
3.62% - 11.00% in 1995 and 1994 1,193,686 1,120,608
$1,292,077 $1,270,608
</TABLE>
Subordinated capital debentures and unsecured promissory demand notes due to
the Companies sole stockholder amounted to $1,050,000 at December 31, 1995
and 1994.
Note F - Benefit Plans
During the year ended July 31, 1985, Universal Premium Acceptance Corporation
established a profit sharing plan. All employees who meet certain age and
length of service requirements are eligible to participate in the Company's
profit sharing plan. An amount determined at the sole discretion by the
Company will be contributed annually. No contributions were charged to
operations in the years ended December 31, 1995 and 1994.
In 1993, the Company added a 401(k) provision to the profit sharing plan.
The plan requires a Company matching contribution in an amount equal to fifty
percent of a plan participant's contribution, which is not in excess of five
percent of that participant's compensation. The Company may also make an
additional matching contribution at the discretion of its Board of Directors.
In 1995 and 1994, the Company's required matching contribution was $11,971
and $16,933, respectively. No discretionary matching contribution was made
for either year.
Note G - Commitments and Contingencies
Rent Expense
The Companies lease property under operating leases expiring through the year
2000. Rent expense for the years ended December 31, 1995 and 1994 amounted
to $105,251 and $99,430, respectively.
Minimum future rental payments under the lease agreements for the next five
years and in aggregate are as follows:
<TABLE>
<CAPTION>
Year ending December 31 Amount
<S> <C>
1996 $ 91,320
1997 91,320
1998 103,112
1999 104,184
2000 17,364
Total minimum future
rental payments $407,300
</TABLE>
UPAC of California, Inc. subleases a portion of its office to another company
on a month-to-month basis for $335 per month and received $3,015 in rental
income for the year ended December 31, 1995. The Company offset its rent
expense by this amount.
Litigation
The Companies are a defendant in certain lawsuits arising in the ordinary
course of business. In management's opinion, the Companies have adequate
legal defenses respecting these lawsuits and do not believe these lawsuits
will materially affect the Companies operations or financial position.
Stock Sale
On December 18, 1995, the sole stockholder entered into an agreement to sell
all of his stock in Universal Premium Acceptance Corporation and UPAC of
California, Inc. The closing date is expected to occur by March 31, 1996.
Note H - Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash paid for interest expense
amounted to: $2,016,085 $1,596,641
</TABLE>
