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 September 30, 1998
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 September 30, 1998, and were wholly
owned by U.S. Bancorp Piper Jaffray Companies Inc., a wholly owned subsidiary of
U.S. Bancorp.
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 U.S. Bancorp)
TABLE OF CONTENTS
Page
Number
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Statements of Financial Condition 3
Statements of Operations 4-5
Statements of Cash Flows 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. OTHER INFORMATION:
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
PART I FINANCIAL INFORMATION
Item I. Financial Statements
PREMIER ACCEPTANCE CORPORATION
(a wholly owned subsidiary of U.S. Bancorp)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
September 30, September 30,
1998 1997
---------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 1,470,846 $ 771,448
Interest receivable 183,398 271,887
Investments available for sale,
carried at market value 29,752,111 42,100,057
Receivable from Parent 624 3,004
Unamortized bond issuance costs 1,090,402 1,547,387
---------------- ----------------
$ 32,497,381 $ 44,693,783
================ ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Mortgage-backed bonds payable $ 27,146,000 $ 40,240,000
Interest payable on bonds 393,300 550,313
Bond redemption payable 1,224,000 469,000
Deferred tax liabilities 1,399,278 1,268,162
Other liabilities 946 1,357
---------------- ----------------
30,163,524 42,528,832
Stockholder's equity:
Common stock, $1 par value, 1,000 shares
authorized, issued and outstanding 1,000 1,000
Additional paid-in capital 3,062,760 35,000
Net unrealized holding gains (loss) on
investment securities available for sale (731,786) 1,962,793
Retained earnings 1,883 166,158
---------------- ----------------
2,333,857 2,164,951
---------------- ----------------
$ 32,497,381 $ 44,693,783
================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PREMIER ACCEPTANCE CORPORATION
(a wholly owned subsidiary of U.S. Bancorp)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Pre-Acquisition Post-Acquisition
Four Months Five Months
Ended Ended Nine Months Ended
April 30, September 30, September 30,
----------------------------------- -----------------------------------
1998 1998 1998 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Interest income $ 954,842 $ 1,008,960 $ 1,963,802 $ 2,576,409
Interest expense 1,012,646 1,063,308 2,075,954 2,611,362
----------------- ----------------- ----------------- -----------------
Net interest expense 57,804 54,348 112,152 34,953
Net gain on accretion of discount
on investments 254,873 264,474 519,347 206,899
----------------- ----------------- ----------------- -----------------
Net revenue 197,069 210,126 407,195 171,946
EXPENSES:
Amortization of bond issuance
costs on redemptions 183,156 189,605 372,761 146,438
General and administrative costs 20,959 17,434 38,393 50,685
----------------- ----------------- ----------------- -----------------
Total expenses 204,115 207,039 411,154 197,123
----------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) BEFORE INCOME TAXES (7,046) 3,087 (3,959) (25,177)
INCOME TAXES (BENEFIT) (2,748) 1,204 (1,544) (9,280)
----------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) $ (4,298) $ 1,883 $ (2,415) $ (15,897)
================= ================= ================= =================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PREMIER ACCEPTANCE CORPORATION
(a wholly owned subsidiary of U.S. Bancorp)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended
September 30,
-----------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
REVENUES:
Interest income $ 579,954 $ 830,843
Interest expense 615,470 843,157
----------------- -----------------
Net interest expense 35,516 12,314
Net gain on accretion of discount
on investments 152,530 71,178
----------------- -----------------
Net revenue 117,014 58,864
EXPENSES:
Amortization of bond issuance
costs on redemptions 109,625 50,790
General and administrative costs 11,646 9,374
----------------- -----------------
Total expenses 121,271 60,164
----------------- -----------------
NET LOSS BEFORE INCOME TAX BENEFIT (4,257) (1,300)
INCOME TAXES (BENEFIT) (1,660) (481)
----------------- -----------------
NET LOSS $ (2,597) $ (819)
================== =================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PREMIER ACCEPTANCE CORPORATION
(a wholly owned subsidiary of U.S. Bancorp)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Pre-Acquisition Post-Acquisition
Four Months Five Months
Ended Ended Nine Months Ended
April 30, September 30, September 30,
----------------------------------- -----------------------------------
1998 1998 1998 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (4,298) $ 1,883 $ (2,415) $ (15,897)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Amortization of bond issuance costs 183,156 189,605 372,761 146,438
Deferred income taxes 8,388 7,636 16,024 6,342
Recognition of discount on investments 254,873 264,474 519,347 206,899
Change in:
Interest receivable 35,463 36,714 72,177 28,404
Interest payable on bonds (52,054) (77,410) (129,464) (55,962)
Bond redemptions payable 948,000 (441,000) 507,000 53,000
Receivable from parent - (624) (624) 12,915
Other (142) (196) (338) (138)
----------------- ----------------- ----------------- -----------------
Net cash provided by (used in) 1,373,386 (18,918) 1,354,468 382,001
operating activities
FINANCING ACTIVITIES:
Redemption of mortgage-backed bonds (5,249,000) (5,432,000) (10,681,000) (4,199,000)
Principal redemption on investments
pursuant to mortgage-backed bonds 4,809,632 4,978,136 9,787,768 3,846,765
Net issuance of notes payable
to Parent (3) (348) (351) -
----------------- ----------------- ----------------- -----------------
Net cash used in
financing activities (439,371) (454,212) (893,583) (352,235)
----------------- ----------------- ----------------- -----------------
INCREASE IN CASH 934,015 (473,130) 460,885 29,766
CASH AT BEGINNING OF PERIOD 1,009,961 1,943,976 1,009,961 741,682
----------------- ----------------- ----------------- -----------------
CASH AT END OF PERIOD $ 1,943,976 $ 1,470,846 $ 1,470,846 $ 771,448
================= ================= ================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period ended for:
Interest $ 1,064,700 $ 1,140,718 $ 2,205,418 $ 2,667,324
Income taxes paid Parent $ 11,136 $ 6,432 $ 17,568 $ 14,953
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PREMIER ACCEPTANCE CORPORATION
(a wholly owned subsidiary of U.S. Bancorp)
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1998 and 1997
1. ORGANIZATION AND BUSINESS ACTIVITY
The Company is a wholly owned subsidiary of U.S. Bancorp Piper Jaffray Companies
Inc., formerly known as Piper Jaffray Companies Inc. (the "Parent"), which is a
wholly owned subsidiary of U.S. Bancorp. On April 30, 1998, the shareholders of
Piper Jaffray Companies Inc. approved the acquisition of the Parent by U.S.
Bancorp. The acquisition closed on May 1, 1998 and was accounted for as a
purchase transaction. At the time of the acquisition, the Parent changed its
name to U.S. Bancorp Piper Jaffray Companies Inc.
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 September 30, 1998, the Company has
issued thirty-four series of bonds with an aggregate original principal amount
of $529,950,000.
On July 31, 1998, the Company's Board of Directors approved a resolution to
change the Company's year end from September 30 to December 31.
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 $26,193,243 and $38,828,738 at September 30, 1998 and September 30,
1997, respectively.
The Company's collateral for outstanding mortgage-backed bonds is classified as
available for sale and such securities are not salable before the bonds are
callable, at some future date. In addition, the market value of GNMA and FNMA
securities fluctuate 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 recognize any unrealized losses or related tax
benefits. 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 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, 1997.
The results of operations for the period ended September 30, 1998, are not
necessarily indicative of the results to be expected for the year. As a result
of the May 1, 1998 acquisition, the statements of operations and cash flows for
the three and nine months ended September 30, 1998 have been presented pre and
post acquisition. This presentation provides the post acquisition periods as
consolidated in the U.S. Bancorp consolidated financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of 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.
The statement of financial condition as of September 30, 1998 and the
information for the periods ended April 30, 1998 and September 30, 1998 and
1997, are 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 September 30, 1998, 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. On August 27, 1998 the
Company redeemed the outstanding bonds for the Series 1990-I, original principal
of $50,000,000, which had been originally accounted for as a sale. The
redemption had no affect on the financial statements of the Company. At
September 30, 1998, all such bonds had been redeemed. At September 30, 1997, the
aggregate amount outstanding was approximately $17,486,000.
4. RELATED PARTY TRANSACTIONS
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 nine months ended September 30, 1998 and 1997, the Company was
charged $15,750 and $15,750, 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.
The Company maintains an agreement with the Parent, whereby interest is paid or
received on the net intercompany payable or receivable at the stated rate of
one-half of one percent over the broker call rate. The Company paid interest of
$131 and $43 during the nine months ended September 30, 1998 and 1997,
respectively, under this agreement. At June 30, 1998 and September 30, 1997,
$624 and $3,004, respectively, was receivable from the Parent.
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 $112,152 for the nine months ended June 30, 1998 and $34,953 for the
same nine months of the prior year, which 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.
PART II. OTHER INFORMATION:
Item 5. Other Information
Change in Parent Company
The Registrant is a wholly owned subsidiary of U.S. Bancorp Piper Jaffray
Companies Inc., formerly known as Piper Jaffray Companies Inc. On May 1, 1998
U.S. Bancorp acquired Piper Jaffray Companies Inc. pursuant to an Agreement and
Plan of Merger dated as of December 14, 1997 by and among Piper Jaffray
Companies Inc., U.S. Bancorp and Cub Acquisition Corporation (the "Merger").
Also on May 1, 1998, the name of Piper Jaffray Companies Inc. was changed to
U.S. Bancorp Piper Jaffray Companies Inc. As a result of the Merger, the
Registrant became a wholly owned subsidiary of U.S. Bancorp held through U.S.
Bancorp Piper Jaffray Companies Inc.
Change in Fiscal Year
On July 31, 1998, the Company's Board of Directors approved a resolution to
change the Company's year end from September 30 to December 31.
Item 6. Exhibits and Reports on Form 8-K
(a).Exhibits
27 - Financial Data Schedule - EDGAR version only (filed electronically).
(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 September 30,
1998.
<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 November 12, 1998 /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 PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,470,846
<SECURITIES> 29,752,111
<RECEIVABLES> 183,398
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,497,381
<CURRENT-LIABILITIES> 1,399,278
<BONDS> 27,146,000
0
0
<COMMON> 1,000
<OTHER-SE> 2,332,857
<TOTAL-LIABILITY-AND-EQUITY> 32,497,381
<SALES> 0 <F2>
<TOTAL-REVENUES> 2,483,149
<CGS> 0 <F3>
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 411,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,075,954
<INCOME-PRETAX> (3,959)
<INCOME-TAX> (1,544)
<INCOME-CONTINUING> (2,415)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,415)
<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>
