UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1996
Commission file numbers 33-21775, 33-25070 and 33-33261
PREMIER ACCEPTANCE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 41-1615279
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Piper Jaffray Tower, 222 South 9th Street, Minneapolis, Minnesota 55402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 612-342-6000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
1,000 Common shares were outstanding as of December 31, 1996, and were wholly
owned by Piper Jaffray Companies Inc.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A) AND
(B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
<PAGE>
PREMIER ACCEPTANCE CORPORATION
(a wholly owned subsidiary of Piper Jaffray Companies Inc.)
TABLE OF CONTENTS
Page
Number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Statements of Financial Condition 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
PREMIER ACCEPTANCE CORPORATION
(a wholly owned subsidiary of Piper Jaffray Companies Inc.)
STATEMENTS OF FINANCIAL CONDITION
December 31, September 30,
ASSETS 1996 1996
----------- -------------
(unaudited)
Cash .............................................. $ 741,682 $ 591,051
Interest receivable ............................... 300,291 306,333
Investments available-for-sale, carried at
market value ................................... 45,874,824 46,287,924
Receivable from Parent ............................ 15,919 21,693
Unamortized bond issuance costs ................... 1,693,825 1,725,034
=========== ===========
$48,626,541 $48,932,035
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Mortgage-backed bonds payable ...................... $44,439,000 $45,333,000
Interest payable on bonds .......................... 606,275 610,378
Bond redemption payable ............................ 416,000 271,000
Deferred tax liabilities ........................... 1,150,261 972,611
Other liabilities .................................. 1,495 --
----------- -----------
46,613,031 47,186,989
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 1,000 shares authorized
issued and outstanding .......................... 1,000 1,000
Additional paid-in capital ......................... 35,000 35,000
Net unrealized holding gains on investment securities
available for sale ............................. 1,795,455 1,525,917
Retained earnings ................................ 182,055 183,129
----------- -----------
2,013,510 1,745,046
=========== ===========
$48,626,541 $48,932,035
=========== ===========
See accompanying notes to financial statements.
<PAGE>
PREMIER ACCEPTANCE CORPORATION
(a wholly owned subsidiary of Piper Jaffray Companies Inc.)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
---------------------
December 31, December 31,
1996 1995
------------ -----------
REVENUES:
Interest income .................................. $ 913,104 $ 1,071,643
Interest expense ................................. 916,732 1,075,731
----------- -----------
Net interest expense ........................... (3,628) (4,088)
Net gain on accretion of discount on investments . 43,997 78,501
----------- -----------
Total revenue .................................... 40,369 74,413
EXPENSES:
Amortization of bond issuance costs on redemptions 31,210 50,397
General and administrative costs ................. 10,920 11,440
----------- -----------
Total expenses ................................... 42,130 61,837
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .................. (1,761) 12,576
INCOME TAXES (BENEFIT) ............................. (687) 4,905
=========== ===========
NET INCOME (LOSS) .................................. $ (1,074) $ 7,671
=========== ===========
See accompanying notes to financial statements.
<PAGE>
PREMIER ACCEPTANCE CORPORATION
(a wholly owned subsidiary of Piper Jaffray Companies Inc.)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
--------------------------
December 31, December 31,
1996 1995
------------- ------------
OPERATING ACTIVITIES:
Net income (loss) ................................ $ (1,074) $ 7,671
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Amortization of bond issuance costs ........... 31,210 50,397
Deferred income taxes ......................... (2,042) 38,482
Recognition of discount on investments ........ 43,997 78,501
Change in:
Interest receivable ......................... 6,042 10,715
Interest payable on bonds ................... (4,103) (16,274)
Bond redemptions payable .................... 145,000 257,000
Receivable from parent ...................... 5,774 (30,259)
Other ....................................... 1,494 (40)
----------- -----------
Net cash provided by operating activities 226,298 396,193
FINANCING ACTIVITIES:
Redemption of mortgage-backed bonds ........... (894,000) (1,445,000)
Principal redemption on investments pursuant to
mortgage-backed bonds ...................... 818,333 1,450,307
----------- -----------
Net cash (used in) provided by financing (75,667) 5,307
activities
----------- -----------
INCREASE IN CASH ................................. 150,631 401,500
CASH AT BEGINNING OF PERIOD ...................... 591,051 1,047,239
=========== ===========
CASH AT END OF PERIOD ............................ $ 741,682 $ 1,448,739
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the three months ended for:
Interest $ 920,835 $ 1,092,005
Income taxes paid to Parent $ (686) $ 33,577
See accompanying notes to financial statements.
<PAGE>
PREMIER ACCEPTANCE CORPORATION
(a wholly owned subsidiary of Piper Jaffray Companies Inc.)
NOTES TO FINANCIAL STATEMENTS
Three Months Ended December 31, 1996 and 1995
1. ORGANIZATION AND BUSINESS ACTIVITY
The Company is a wholly owned subsidiary of Piper Jaffray Companies Inc. (the
"Parent"). The Company's Certificate of Incorporation limits the business
activities in which it may engage to activities in connection with or related to
the issuance of mortgage-backed bonds, as described in Note 3.
The Company's activities include the issuance and sale of securities
collateralized by certain mortgage related investments (certificates), directly
or through trusts formed by the Company, and the investment of the proceeds in
such certificates. The Company or such trusts purchase the certificates prior to
or simultaneously with the issuance of the mortgage-backed bonds.
The Company has filed Registration Statements under the Securities Act of 1933
(the Act) with the Securities and Exchange Commission, pursuant to which
$900,000,000 in aggregate principal amount of the Company's mortgage-backed
bonds were registered under the Act. At December 31, 1996, the Company has
issued thirty-four series of bonds with an aggregate original principal amount
of $529,950,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments pursuant to mortgage-backed securities are classified as available
for sale, and are carried at market value based upon quoted market prices with a
cost of $42,882,401 and $43,744,731 at December 31, 1996 and September 30, 1996,
respectively. The effect on the Company's financial statements was an unrealized
holding gain of $269,538, net of related taxes, for the quarter ended December
31, 1996.
The Company's collateral for outstanding mortgage-backed bonds is classified as
available for sale, however, such securities are not salable before the bonds
are callable, at some future date. The market value of GNMA and FNMA securities
fluctuates significantly as interest rates change;therefore, the market value of
such securities as of the future redemption dates may vary significantly from
the current date, and the realization of any unrealized gain is not assured.
When the market is such that the value of the securities is less than the
amortized cost, the Company has the expectation that such securities would be
held to maturity as collateral for the related mortgage-backed bonds, and the
Company would not realize any unrealized losses. Thus, no tax benefit would be
recognized for unrealized losses for the Company's investment in available for
sale securities. The Company does recognize deferred tax liabilities resulting
from unrealized gains on available for sale securities.
Unamortized bond issuance costs consist of underwriting and other expenses of
issuance and distribution. Such costs are amortized as bonds are redeemed.
Cash includes monthly principal and interest payments from investments pursuant
to mortgage-backed bonds, plus any reinvestment income thereon, which are used
to pay interest and redeem mortgage-backed bonds during the month following
receipt.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. In December 1996, SFAS No. 127 was issued, which defers for one
year the effective date of SFAS No. 125 for secured borrowing, repurchase
agreements, dollar-rolls, securities lending, and certain similar transactions.
The Company will evaluate adoption of SFAS No. 125 as required.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and should be read in conjunction with
the Company's annual report on Form 10-K for the year ended September 30, 1996.
The results of operations for the three months ended December 31, 1996, are not
necessarily indicative of the results to be expected for the year ending
September 30, 1997.
The statement of financial condition as of December 31, 1996 and the information
for the periods ended December 31, 1996 and 1995, is unaudited, but management
of the Company believes that all adjustments (consisting only of normal
recurring accruals) necessary for a fair statement of the results of operations
for the periods have been included.
3. MORTGAGE-BACKED BONDS
The Company periodically issues mortgage-backed bonds (the "bonds") which are
collateralized by GNMA or FNMA certificates and guaranteed as to payment of
principal and interest by the Government National Mortgage Association or the
Federal National Mortgage Association. The bonds are obligations solely of the
Company and bondholders' only recourse is to the underlying series' collateral.
The collateral, which has been purchased with the issuance proceeds, is held by
a trustee and is carried at market value. Principal and interest payments on the
collateral are used to meet the debt service of the respective bonds.
Bonds outstanding at December 31, 1996, have stated maturities through 2025 and
interest rates ranging from 8% to 8.15%. The actual maturities may be shortened
by prepayments on related collateral.
The issuance of six series of bonds with an aggregate original principal amount
of $176,145,000 and the related purchase of collateral certificates has been
accounted for financial reporting purposes as a sale. Accordingly, the assets,
liabilities, interest income, and interest expense relating to these series do
not appear on the financial statements of the Company. At December 31, 1996, and
September 30, 1996, the aggregate amount outstanding was approximately
$21,478,000 and $22,293,000, respectively.
4. RELATED PARTY TRANSACTIONS
The Company maintains an agreement with the Parent, stating that Premier may
advance excess cash to the Parent for a specified period of time and the Parent
shall pay interest to Premier at the stated rate of one-half of one percent over
the broker call rate. During the three months ended December 31, 1996 and 1995
the Company received $270 and $1,177, respectively, in interest income from the
Parent. At December 31, 1996 and September 30, 1996, $15,919 and $21,693,
respectively, was receivable from the Parent.
The Company is charged for certain expenses by the Parent based on specifically
identified cost allocations. In addition, the Company's Parent provides the
Company with accounting and administrative services, including services of
officers. For the three months ended December 31, 1996 and 1995, the Company was
charged $5,250 and $4,750, respectively, for such accounting services. These
charges are subject to periodic reevaluation based upon the number of
mortgage-backed bond series outstanding and the nature of services provided. The
Company's costs are not necessarily indicative of the costs that would have been
incurred had the Company operated independently.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Resources and Liquidity
The Company's source of funds with respect to the mortgage-backed bonds is the
receipt of payments of principal and interest, including prepayments, on the
certificates securing the bonds, together with the reinvestment income thereon.
The Company expects that, at all times, the aggregate future receipts of
principal and interest on the certificates, together with reinvestment income
thereon, will exceed the aggregate of future amounts due as payments of
principal and interest on the mortgage-backed bonds, as well as payments of
other liabilities.
The deferred bond issuance costs and original issue discounts on the collateral
are amortized as bonds are redeemed.
Results of Operations
The Company's interest income and interest expense are directly related to the
issuance and sale of mortgage-backed bonds. The Company recorded net interest
expense of $3,628 and $4,088 for the three months ended December 31, 1996 and
1995, respectively, related to the fiscal 1995 sale of residual interests in one
series of mortgage-backed bonds. The Company anticipates that it will incur
additional interest expense in future years relating to the sale of such
residual interests.
<PAGE>
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
(a).Exhibits
None applicable
(b).Reports on Form 8-K
The Company was not required to file any reports on Form 8-K to
the Securities and Exchange Commission during the quarter ended
December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMIER ACCEPTANCE CORPORATION
(Registrant)
Dated February 12, 1997 /s/ Deborah K. Roesler
-----------------------
DEBORAH K. ROESLER
Treasurer (Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS OF PREMIER ACCEPTANCE CORPORATION AS OF AND FOR
THE PERIODS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 741682
<SECURITIES> 45874824
<RECEIVABLES> 316210
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 48626541
<CURRENT-LIABILITIES> 1022275
<BONDS> 44439000
0
0
<COMMON> 1000
<OTHER-SE> 2012510
<TOTAL-LIABILITY-AND-EQUITY> 48626541
<SALES> 0 <F2>
<TOTAL-REVENUES> 957101
<CGS> 0 <F3>
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 42130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 916732
<INCOME-PRETAX> (1761)
<INCOME-TAX> (687)
<INCOME-CONTINUING> (1074)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1074)
<EPS-PRIMARY> 0 <F4>
<EPS-DILUTED> 0 <F4>
<FN>
<F1> NOT APPLICABLE - COMPANY DOES NOT HAVE A CLASSIFIED BALANCE SHEET
<F2> REVENUES CONSIST OF INTEREST INCOME ONLY
<F3> NOT APPLICABLE - THE COMPANY HAS NO SALES, ONLY INTEREST INCOME AS REVENUE
<F4> NOT APPLICABLE - THE COMPANY DOES NOT COMPUTE EARNINGS PER SHARE
</FN>
</TABLE>
