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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 June 30, 1999
---------------
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Piper Jaffray Tower, 222 South 9TH Street, Minneapolis, Minnesota 55402
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(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
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Securities registered pursuant to Section 12(g) of the Act: NONE
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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 June 30, 1999, 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.
1
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PREMIER ACCEPTANCE CORPORATION
(a wholly-owned subsidiary of U.S. Bancorp)
TABLE OF CONTENTS
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<CAPTION>
Page
Number
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<S> <C>
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
</TABLE>
2
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PREMIER ACCEPTANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF U.S. BANCORP)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
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(unaudited)
<S> <C> <C>
ASSETS
Cash $ 842,549 $ 1,578,248
Interest receivable on investments 122,771 159,073
Investments available for sale, net of premium or discount,
at market 20,144,214 26,240,897
Other assets 777,003 964,532
--------------- ----------------
Total Assets $ 21,886,537 $ 28,942,750
=============== ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Mortgage-backed bonds payable $ 18,171,000 $ 23,544,000
Interest payable on bonds 261,743 343,305
Bond redemption payable 655,000 1,353,000
Payable to Parent 48,553 5,416
Deferred tax liabilities 1,017,054 1,397,958
Other liabilities 628 848
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20,153,978 26,644,527
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 3,062,760
Accumulated other comprehensive income - net unrealized
holding gains/(losses) on investments available for sale (33,252) 41,373
Retained earnings/(deficit) (1,297,949) (806,910)
--------------- ----------------
Total Stockholder's equity 1,732,559 2,298,223
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Total Liabilities and Stockholder's equity $ 21,886,537 $ 28,942,750
=============== ================
</TABLE>
See accompanying notes to financial statements.
3
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PREMIER ACCEPTANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF U.S. BANCORP)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Interest income $ 388,258 $ 651,750 $ 829,310 $ 1,383,848
Interest expense 412,651 688,874 886,211 1,460,484
--------------- --------------- --------------- ---------------
Net interest expense (24,393) (37,124) (56,901) (76,636)
Net gain on accretion of discount
on investments 107,911 191,283 260,856 366,817
Net loss on amortization of premium
on investments (323,452) (336,802) (787,851) (336,802)
--------------- --------------- --------------- ---------------
Net revenue (239,934) (182,643) (583,896) (46,621)
EXPENSES:
Amortization expense 76,707 138,039 187,528 263,136
General and administrative costs 26,045 7,179 33,557 26,747
--------------- --------------- --------------- ---------------
Total expense 102,752 145,218 221,085 289,883
--------------- --------------- --------------- ---------------
NET (LOSS) BEFORE INCOME TAX (342,686) (327,861) (804,981) (336,504)
INCOME TAX (BENEFIT) (133,648) (131,233) (313,942) (134,604)
--------------- --------------- --------------- ---------------
NET (LOSS) AFTER INCOME TAX $ (209,038) $ (196,628) $ (491,039) $ (201,900)
--------------- --------------- --------------- ---------------
OTHER COMPREHENSIVE INCOME,
NET OF TAX
Unrealized gains/(losses) on securities:
Unrealized holding gains/(losses) arising during
the period $ (193,600) $(4,022,980) $ (649,331) $(2,297,941)
Add: Tax benefit/(expense) 75,504 1,568,962 253,239 896,197
--------------- --------------- --------------- ---------------
Net of tax amount (118,096) (2,454,018) (396,092) (1,401,744)
(Less)/Add: reclassification adjustment for
(gains)/losses included in net income 215,541 145,519 526,995 (30,015)
Add: Tax expense/(benefit) (84,061) (56,752) (205,528) 11,706
--------------- --------------- --------------- ---------------
Net of tax amount 131,480 88,767 321,467 (18,309)
--------------- --------------- --------------- ---------------
OTHER COMPREHENSIVE INCOME (LOSS) 13,384 (2,365,251) (74,625) (1,420,053)
--------------- --------------- --------------- ---------------
COMPREHENSIVE INCOME (195,654) (2,561,879) (565,664) (1,621,953)
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
4
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PREMIER ACCEPTANCE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF U.S. BANCORP)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
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1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (491,039) $ (201,900)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Amortization expense 187,528 263,136
Accretion of discount on investments (260,856) (366,817)
Amortization of premium on investments 787,851 336,802
Deferred income taxes (331,153) (118,697)
Change in:
Interest receivable on investments 36,302 53,104
Interest payable on bonds (81,562) (99,795)
Bond redemptions payable (698,000) 77,000
Other 42,918 (4,255)
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Net cash provided by (used in)
operating activities (808,011) (61,422)
INVESTING ACTIVITIES:
Principal redemption on investments 5,445,312 7,645,017
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Net cash provided by investing activities 5,445,312 7,645,017
FINANCING ACTIVITIES:
Redemption of mortgage-backed bonds (5,373,000) (7,542,000)
---------------- ----------------
Net cash used in financing activities (5,373,000) (7,542,000)
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INCREASE (DECREASE) IN CASH (735,699) 41,595
CASH AT BEGINNING OF PERIOD 1,578,248 1,009,961
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CASH AT END OF PERIOD $ 842,549 $ 1,051,556
==================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) for:
Interest paid $ 494,213 $ 1,560,279
Income taxes - (from) Parent $ (313,942) $ (134,604)
</TABLE>
See accompanying notes to financial statements.
5
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PREMIER ACCEPTANCE CORPORATION
(a wholly-owned subsidiary of U.S. Bancorp)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Six Months Ended June 30, 1999 and 1998
1. ORGANIZATION AND BUSINESS ACTIVITY
Premier Acceptance Corporation (the "Company") is a wholly-owned subsidiary of
U.S. Bancorp Piper Jaffray Companies Inc. (the "Parent"), which in turn is a
wholly-owned subsidiary of U.S. Bancorp. Effective May 1, 1998, U.S. Bancorp
acquired 100% of the stock of the Parent for cash in a merger accounted for as a
purchase. The purchase effectively resulted in the recording of the May 1, 1998
market value of investments available for sale, including the related unrealized
gains, as the Company's new cost of such investments. At the same time, the
Company's equity accounts were recapitalized and unrealized gains were recorded
as additional paid-in capital.
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 June 30, 1999, 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
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130,
REPORTING COMPREHENSIVE INCOME during 1998. The Statement establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. For the Company, other
comprehensive income consists of unrealized gains and losses on investments
available for sale.
The Company adopted SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES during fiscal 1995. Investments pursuant to mortgage-backed
securities are classified as available for sale, and are carried at market value
based upon quoted market prices with an original cost of $17,534,000 and
$22,718,455 at June 30, 1999, and December 31, 1998, respectively.
Until the merger, the Company's investments available for sale were carried on
the books at a discount to par, subject to a mark to market adjustment for
unrealized gains or losses. The Company amortized such discount proportionate
with the receipt of principal paydowns and recognized income as net gain
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on accretion of discount on investments. On the effective date of the merger,
the Company capitalized all unrealized gains over original cost by recording
a premium over par value in its investment accounts. Subsequent to this
adjustment, the Company has amortized such premium proportionate with the
receipt of principal paydowns and has recognized a net loss on amortization
of premium on investments. The Company expects that the statement of
operations will continue to show net losses as a result of this accounting
treatment.
The Company's collateral for outstanding mortgage-backed bonds is classified as
available for sale, although such securities are not saleable 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. The
Company recognizes deferred tax liabilities resulting from unrealized gains and
losses on available for sale securities.
When the market is such that the value of the securities is less than the
original 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 the unrealized losses or related tax benefits from
such circumstance.
Other assets consist of excess cost over net assets acquired. Such assets 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, both of 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 December 31, 1998.
The results of operations for the six months ended June 30, 1999, are not
necessarily indicative of the results to be expected for the year ending
December 31, 1999.
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.
Certain reclassifications were made to the prior year comparative information to
be consistent with the accounting presentation as of June 30, 1999, and December
31, 1998. Such reclassifications had no effect total stockholder's equity.
The statement of financial condition as of June 30, 1999, and the information
for the periods ended June 30, 1999 and 1998 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.
7
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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 under SFAS No. 115, as discussed in
Note 2. Principal and interest payments on the collateral are used to meet the
debt service of the respective bonds.
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 six months ended June 30, 1999 and 1998, the Company was
charged $10,500 and $10,500, 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 or premiums on the
collateral are amortized as the respective bonds and collateral 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 $56,901 for the six months ended June 30, 1999, and net interest
expense of $76,636 for the same six 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 net interest
expense in future periods relating to the sale of such residual interests.
The Company's purchase accounting treatment of the unrealized gains in
investment securities has caused the Company to record losses related to the
amortization of premiums over par. Until the merger, the Company's investments
available for sale were carried on the books at a discount to par, subject to a
mark to market adjustment for unrealized gains or losses. The Company amortized
such
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discount proportionate with the receipt of principal paydowns and recognized
income as net gain on accretion of discount on investments. On the effective
date of the merger, the Company capitalized all unrealized gains over
original cost by recording a premium over par value in its investments
accounts. Subsequent to this adjustment, the Company has amortized such
premium proportionate with the receipt of principal paydowns and recognized a
net loss on amortization of premium on investments. The Company expects that
the statement of operations will continue to show net losses as a result of
this accounting treatment.
YEAR 2000
Management of the Company believes that Year 2000 issues will not have a
material adverse impact on the Company's financial statements. The Company has
no employees and limited operations and systems. Management is satisfied with
the qualified assurances received from the national bank which serves as trustee
for the collateral and the bonds issued against such collateral of its Year 2000
readiness.
9
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PART II. OTHER INFORMATION:
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 June 30, 1999.
10
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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 August 13, 1999 /s/
--------------------------------------------
SANDRA G. SPONEM
Treasurer (Principal Financial and Accounting Officer)
11
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PREMIER ACCEPTANCE CORPORATION AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 842,549
<SECURITIES> 20,144,214
<RECEIVABLES> 122,771
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,886,537
<CURRENT-LIABILITIES> 965,924
<BONDS> 18,171,000
0
0
<COMMON> 1,000
<OTHER-SE> 1,731,559
<TOTAL-LIABILITY-AND-EQUITY> 21,886,537
<SALES> 0<F2>
<TOTAL-REVENUES> 1,090,166<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 221,085
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,674,062<F3>
<INCOME-PRETAX> (804,981)
<INCOME-TAX> (313,942)
<INCOME-CONTINUING> (491,039)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (491,039)
<EPS-BASIC> 0<F4>
<EPS-DILUTED> 0<F4>
<FN>
<F1>NOT APPLICABLE - CO DOES NOT HAVE CLASSIFIED BALANCE SHEET
<F2>REVENUES CONSIST OF INTEREST INCOME AND DISCOUNT ACCRETION ONLY
<F3>INTEREST EXPENSE INCLUDES AMORTIZATION OF PREMIUM ON INVESTMENT
<F4>NOT APPLICABLE - CO DOES NOT COMPUTE EPS
</FN>
</TABLE>
