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, 1994
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 8, 1995:
Class A - 15,000 Class B - 34,000
AMERICAN SOUTHWEST FINANCE CO., INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - November 30, 1994
(Unaudited) and August 31, 1994 3
Statements of Income - For the three-months
ended November 30, 1994 and 1993 (Unaudited) 4
Statements of Cash Flows - For the three-
months ended November 30, 1994 and 1993
(Unaudited) 5
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN SOUTHWEST FINANCE CO., INC.
BALANCE SHEETS
ASSETS
November 30 August 31
1994 1994
(Unaudited)
Cash and Cash Equivalents $ 16,646 $ 637,473
Receivables Pursuant to Funding
Agreements - Notes 2 and 3
Principal 2,333,721
Interest 19,184
Receivables from Affiliate - Note 5
Principal 1,270,000
Interest 14,657
Other Receivables, primarily refundable
income taxes 5,783
Total Assets $ 2,369,551 $ 1,927,913
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts Payable $ 8,317 $
Payable to Affiliate - Notes 3 and 5 759,620
Total Liabilities $ 767,937 $
Shareholders' Equity
Class A Common Stock, $.10 par value;
100,000 shares authorized; 15,000 shares
issued and outstanding at November 30, 1994;
25,000 shares issued and 18,000 shares
outstanding at August 31, 1994. 1,500 2,500
Class B Common Stock, $.10 par value;
50,000 shares authorized; 34,000 shares
issued and outstanding at November 30, 1994;
36,000 shares issued and 35,000 shares
outstanding at August 31, 1994 3,400 3,600
Capital in excess of par value 88,100 100,200
Retained earnings 1,508,614 1,872,620
1,601,614 1,978,920
Less: Treasury Stock - at cost, Class A
Common Stock, 7,000 shares and Class B
Common Stock 1,000 shares at August 31, 1994 51,007
Total Shareholders' Equity 1,601,614 1,927,913
Total Liabilities and Shareholders'
Equity $ 2,369,551 $ 1,927,913
The accompanying notes are an integral part of these financial statements.
AMERICAN SOUTHWEST FINANCE CO., INC.
STATEMENTS OF INCOME
(Unaudited)
For the For the
three months three months
ended ended
November 30 November 30
1994 1993
REVENUES
Interest
Pursuant to Funding Agreements $ 22,066 $ 288,230
Other - Note 3 19,368 25,759
Other Income 103 551
41,537 314,540
COSTS AND EXPENSES
Interest on Bonds 288,230
Interest on loan from Affiliates - Note 5 5,451
Other Expenses 8,512 15,847
13,963 304,077
INCOME BEFORE TAXES 27,574 10,463
Provision for Income Taxes 6,100 2,000
NET INCOME $ 21,474 $ 8,463
EARNINGS PER SHARE OF CLASS A COMMON
STOCK - Note 6 $ 1.23 $ .44
Weighted average number of Class A
shares outstanding 17,440 19,000
The accompanying notes are an integral part of these financial statements.
AMERICAN SOUTHWEST FINANCE CO., INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the For the
three months three months
ended ended
November 30 November 30
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 21,474 $ 8,463
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Amortization of discount on Receivables
Pursuant to Funding Agreements (10,393)
Amortization of discount on Bonds
Payable 10,393
Increase in Interest Receivable
Pursuant to Funding Agreements (19,184) (277,837)
Decrease (Increase) in Receivables from
Affiliate 1,284,657 (705,703)
Decrease in Other Receivables 5,783 2,567
Increase in Interest Payable 277,837
Increase in Accounts Payable 8,317 8,626
Total Adjustments 1,279,573 (694,510)
Net cash provided by (used in) operating
activities 1,301,047 (686,047)
The accompanying notes are an integral part of these financial statements.
AMERICAN SOUTHWEST FINANCE CO., INC.
STATEMENTS OF CASH FLOWS (CONT'D)
(Unaudited)
For the For the
three months three months
ended ended
November 30 November 30
1994 1993
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Receivables Pursuant to
Funding Agreements (2,342,221)
Principal Collection of Funding Agreements 8,500
Net cash used in investing activities (2,333,721)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan from Affiliate 759,620
Acquisition of Class A Treasury Stock (347,673)
Acquisition of Class B Treasury Stock (100)
Net cash used in financing activities (411,847)
Net decrease in Cash and Cash Equivalents (620,827) (686,047)
Cash and Cash Equivalents at beginning of
period 637,473 722,092
Cash and Cash Equivalents at end of period $ 16,646 $ 36,045
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for income taxes $ $
Cash paid for interest $ 597 $
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.
AMERICAN SOUTHWEST FINANCE CO., INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. They do not include all information and notes required by
generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there has been no material change in the
information disclosed in the notes to the financial statements included in the
Annual Report on Form 10-K for the year ended August 31, 1994. In the opinion
of Management, all adjustments considered necessary for a fair presentation
have been included. Operating results for the three-month period ended
November 30, 1994 are not necessarily indicative of the results that may be
expected in future periods.
NOTE 2 - ORGANIZATION AND OTHER MATTERS
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 Company last issued a Series of
Bonds in July 1987 and redeemed all of its then outstanding Bonds in
February 1994. The Bonds were 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's Articles of Incorporation limit the
Company's business activities to those related to the issuance of Bonds.
On the closing of a Series of Bonds issued by the Company, the Company
applied the net proceeds of the Bonds toward the simultaneous purchase or the
repayment of indebtedness with respect to the securing such Series of Bonds or
to fund loans to participating finance companies ("Finance Companies")
pursuant to funding agreements ("Funding Agreements") (defined in Note 3).
NOTE 3 - FUNDING AGREEMENTS
The Company and each participating Finance Company entered into a
Funding Agreement with respect to each Series of Bonds pursuant to which the
Finance Company borrowed and the Company loaned all or a portion of the
proceeds from the sale of the Bonds of such Series. All Funding Agreement
receivables were collected in February 1994. However, on October 26, 1994,
the Company purchased as an investment from its affiliate, American Southwest
Financial Corporation ("ASFC"), ASFC's rights and obligations in and to
certain Funding Agreements that ASFC owned free and clear of any Bond
obligations. The purchase price, which was equal to ASFC's carrying amount
(par value of the Funding Agreements), included principal of $2,342,221 and
accrued interest of $26,440. The Company paid $607,153 in cash, eliminated
its receivable from ASFC in the amount of $1,276,741 including accrued
interest to October 26, 1994 (included in other interest income) and signed an
unsecured note to ASFC in the amount of $484,767 which bears interest at prime
as published in the Wall Street Journal. The weighted average rate of the
Funding Agreements at the purchase date was 9.715%.
NOTE 4 - TREASURY STOCK
The Company acquired 3,000 shares of Class A Common Stock from three
shareholders during the three-month period ended November 30, 1994, and
retired those shares along with 7,000 Class A shares held at August 31, 1994.
The Company also acquired 1,000 shares of Class B Common Stock from another
shareholder, and retired those shares along with 1,000 Class B shares held at
August 31, 1994. At November 30, 1994, the Company had no treasury stock
holdings.
NOTE 5 - RELATED PARTY TRANSACTIONS
During the three-month period ended November 30, 1994, advances to
affiliates were eliminated as part of the Company's acquisition of Funding
Agreements from ASFC (see Note 3). As part of that transaction, however, the
Company signed an unsecured note to ASFC which bears interest at prime as
published in the Wall Street Journal. Additional funds were borrowed from
ASFC pursuant to unsecured notes bearing interest at prime as published in the
Wall Street Journal for the Company's treasury stock acquisitions. At
November 30, 1994, the principal balance owed to ASFC was $754,767 plus
accrued interest of $4,853. The prime rate at November 30, 1994, was 8.5%.
On November 30, 1994 the Company was acquired by American Southwest
Holdings, Inc. ("Holdings") in conjunction with a tax free exchange by the
Company's Class A shareholders of 100% of the Company's Class A Common Stock,
together with 100% of Class A Common Stock of ASFC and American Southwest
Affiliated Companies, for shares of Class A Common Stock of Holdings. As a
result of the change in shareholder ownership the Company changed from an
August 31 fiscal year end to a December 31 calendar year end. The change will
facilitate both financial and tax reporting in the future.
NOTE 6 - 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 the Class A shareholder. 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 the
Class A shareholder as dividends prior to such dissolution.
NOTE 7 - SUBSEQUENT EVENTS
On December 30, 1994, the Company sold its investment in Funding
Agreements (see Notes 3 and 5) for cash. The Company acquired a 100% interest
in two corporations which previously were owned by an affiliate. These two
entities, Westam Mortgage Financial Corporation and American Southwest
Financial Securities Corporation are both issuers of mortgage backed
securities.
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's Articles of Incorporation
limit the Company's business activities to those related to the issuance of
Bonds. The Company last issued a Series of Bonds in July 1987 and redeemed
all of its then outstanding Bonds in February 1994.
Results of Operations
The Company's net income for the three-month period ended November 30,
1994, increased compared to the three-month period ended November 30, 1993.
Net income for the current period resulted primarily from interest income
pursuant to the Funding Agreements acquired during the quarter. Net income
for the 1993 period presented resulted primarily from other interest since the
interest income pursuant to Funding Agreements was completely offset by the
interest expense on the Bonds.
Included in other interest income is interest earned on the Company's
cash and cash equivalents and advances to affiliates. Income from these
sources dropped slightly as a result of the Company's investment in the
Funding Agreements, as well as the collection of receivables from affiliates.
Other expenses are primarily professional fees resulting from normal
business operations.
Liquidity and Capital Resources
At November 30, 1994, the Company had cash and cash equivalents of
$16,646. The Company utilized its cash during the quarter to purchase its
investment in Funding Agreements.
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:
The Company filed reports on Form 8-K on the following date:
1. Form 8-K filed on December 9, 1994 reporting pursuant to
Item 5 of the Form 8-K the change in fiscal year from
August 31 to December 31.
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, 1995 /s/ Jeffrey A. Newman
Jeffrey A. Newman
Senior Vice President
Date: January 12, 1995 /s/ Richard H. Hackett
Richard H. Hackett
Executive Vice President, Treasurer
and Chief Financial and Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> NOV-30-1994
<CASH> 16,646
<SECURITIES> 0
<RECEIVABLES> 2,352,905
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,369,551
<CURRENT-LIABILITIES> 767,937
<BONDS> 0
<COMMON> 4,900
0
0
<OTHER-SE> 1,596,714
<TOTAL-LIABILITY-AND-EQUITY> 2,369,551
<SALES> 0
<TOTAL-REVENUES> 41,537
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,451
<INCOME-PRETAX> 27,574
<INCOME-TAX> 6,100
<INCOME-CONTINUING> 21,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,474
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
