<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the quarter ended: Commission File Number:
June 30, 1995 033-48300
------------- ---------
AUTOMOBILE CREDIT FINANCE 1992-II, INC.
---------------------------------------
(Exact name of Registrant as specified in its charter)
Texas 75-2437485
----- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
700 North Pearl, Suite 400, Plaza of the Americas, North Tower, Lock Box 401,
--------------------------------------------------------------------------------
Dallas, Texas 75201
-------------------
(Address and zip code of principal executive offices)
(214) 965-6000
--------------
(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
--- ---
<TABLE>
<CAPTION>
Number of Shares Outstanding
Class at July 31, 1995
----- -----------------
<S> <C>
Common Stock, $1.00 par value 1,000
</TABLE>
<PAGE> 2
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTOMOBILE CREDIT FINANCE 1992-II, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, 1995 September 30, 1994
------------- ------------------
(Unaudited)
<S> <C> <C>
Contract receivables, net $2,926,000 $6,644,000
Cash and cash equivalents 336,000 14,000
Restricted cash 2,531,000
Vehicles held for resale 110,000 69,000
Deferred note offering costs,
net of amortization of $1,198,000
and $797,000 respectively 302,000 703,000
Other assets 64,000 8,000
-------------------------- ------------------------
Total assets $6,269,000 $7,438,000
========================== ========================
LIABILITIES AND CAPITAL DEFICIT
Notes payable to investors $10,000,000 $10,000,000
Due to related party 48,000 241,000
Accounts payable 40,000 46,000
Accrued investor interest 125,000 125,000
-------------------------- ------------------------
Total liabilities 10,213,000 10,412,000
CAPITAL DEFICIT
Common stock, $1.00 par value, 50,000
shares authorized, 1,000 shares
issued and outstanding 1,000 1,000
Additional paid-in capital 9,000 9,000
Accumulated deficit (3,954,000) (2,984,000)
-------------------------- ------------------------
Total capital deficit (3,944,000) (2,974,000)
-------------------------- ------------------------
Total liabilities and capital deficit $6,269,000 $7,438,000
========================== ========================
</TABLE>
See accompanying notes
2
<PAGE> 3
AUTOMOBILE CREDIT FINANCE 1992-II, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
(restated - Note 4)
<S> <C> <C>
Interest revenue $1,355,000 $1,699,000
Interest expense (including deferred offering
cost amortization of $401,000 and $324,000,
respectively) 1,525,000 1,447,000
-------------------- ------------------------
Net interest income (loss) (170,000) 252,000
Provision for credit losses 117,000 2,291,000
-------------------- ------------------------
Net interest loss after provision for credit (287,000) (2,039,000)
losses
General and administrative expenses 683,000 656,000
-------------------- ------------------------
Net loss $(970,000) $(2,695,000)
==================== ========================
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
(restated - Note 4)
<S> <C> <C>
Interest revenue $451,000 $553,000
Interest expense (including deferred offering
cost amortization of $140,000 and $113,000,
respectively) 516,000 487,000
---------------------- ------------------------
Net interest income (loss) (65,000) 66,000
Provision for credit losses 6,000 746,000
---------------------- ------------------------
Net interest income (loss) after provision for
credit losses (71,000) (680,000)
General and administrative expenses 203,000 53,000
---------------------- ------------------------
Net loss $(274,000) $(733,000)
====================== ========================
</TABLE>
See accompanying notes
3
<PAGE> 4
AUTOMOBILE CREDIT FINANCE 1992-II, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
(restated - Note 4)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(970,000) $(2,695,000)
Adjustments to reconcile net loss to cash used in
operations:
Amortization of deferred offering cost 401,000 324,000
Increase in allowance for credit losses 117,000 2,291,000
Changes in assets and liabilities:
Increases (decreases) in due to related party (193,000) 393,000
Increase in other assets (56,000) 6,000
Decrease in accounts payable and accrued interest (6,000) (47,000)
------------------- ------------------
Cash provided by (used in) operations (707,000) 272,000
INVESTING ACTIVITIES:
Purchase of contract receivables (942,000) (5,361,000)
Principal payments on contract receivables, including
proceeds from sales vehicles 4,502,000 525,000
Restricted cash (2,531,000) -
------------------- ------------------
Cash provided by (used in) investing activities 1,029,000 (111,000)
Change in cash and cash equivalents 322,000 161,000
Cash and cash equivalents - beginning 14,000 4,000
------------------- ------------------
Cash and cash equivalents - ending $336,000 $165,000
=================== ==================
-------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
Cash paid for interest $1,124,000 $1,123,000
=================== ==================
</TABLE>
See accompanying notes
4
<PAGE> 5
AUTOMOBILE CREDIT FINANCE 1992-II, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL INFORMATION
Automobile Credit Finance 1992-II, Inc. (the Company), is a Texas Corporation
organized on May 26, 1992 by Search Capital Group, Inc. ("Search"), who owns
100% of the Company's common stock. The Company was established to purchase
retail installment sales contracts created by Search to finance sales of used
automobiles and light trucks.
The information presented herein includes adjustments which the Company
management believes are necessary for fair presentation of its financial
position and results of operations. Substantially all of the disclosures
required for annual financial reports have been omitted. These interim
financial statements and related notes are unaudited, and should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
September 30, 1994.
Search and its wholly owned subsidiaries, Automobile Credit Acceptance
Corporation ("ACAC") and Consumer-Dealer AUTOCREDIT ("CDAC"), are engaged
primarily in the motor vehicle receivable purchasing and servicing business.
ACAC and CDAC have formed a network of new and used third party vehicle dealers
who generate vehicle receivables and sell them to the Company or other ACAC
designees.
2. AUTOMOBILE CONTRACT NOTES OFFERING
Pursuant to an Indenture dated as of August 1, 1992, with ACAC and Texas
Commerce Trust National Association (the "Trustee") (formerly Ameritrust Texas
National Association), the Company issued $10,000,000 in 15% Automobile
Contract Notes due December 31, 1995 (the "Notes"). The Notes require monthly
interest payments payable monthly at a rate of 15% per annum. The Company's
public offering of the Notes was completed in December 1992.
The Indenture requires that all of the Company's excess cash flow after
December 31, 1994, must be deposited into a sinking fund held by the Trustee
for payment of the Notes. Under the terms of the Indenture, and with approval
of the Trustee in the event of default, the Company would be able to repay the
Notes, in part, through sinking fund cash from collections on outstanding
contracts through December 31, 1995 and sale or collection of the remaining
balances on outstanding contracts at December 31, 1995.
The Company paid its offering and organizational fees and costs out of the
gross sales proceeds from the Notes. These fees and costs of $1,500,000 were
limited to 15% of the gross sales proceeds.
It is currently estimated that the Company will have insufficient sinking fund
cash to pay the holders of the Company's Notes in full, due to the collection
performance of contracts owned by the Company. The Company, as of June 30,
1995, had net contract receivables of $2,926,000 and a cash balance of
$2,531,000 in the sinking fund. See further discussion in Item 2 under
management's discussion of liquidity and capital resources of management's
intention to convert the Company's existing notes payable into common shares
and a new class of preferred shares of Search.
5
<PAGE> 6
3. INTEREST INCOME, CONTRACT RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
The Company recorded contract purchases at cost. An initial reserve was
recorded for the difference between the remaining contractual finance amount at
the time of acquisition and the acquisition cost. Contractual finance charges
were initially recorded to unearned interest and recorded to interest income
using the interest method. The Company evaluates the impairment of loans based
on contract delinquency and other factors. Reserves are established for
impaired loans to reduce the net receivable to the lower of collateral value or
estimated net realizable value. Interest income is not recognized on loans
where concern exists about the collectibility of the account. Reserve
requirements in excess of the initial reserve are provided, as needed, through
a charge to provision for credit losses.
The recorded investment and related allowance for credit losses is summarized
below:
<TABLE>
<CAPTION>
As of June 30, 1995
-------------------
Number of Total Net
Active Unpaid Unearned Contract
Contracts Installments Interest Receivables
--------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Impaired contracts 328 $1,828,000 $248,000 $1,580,000
Unimpaired contracts 1,069 4,375,000 703,000 3,672,000
---------- ------------ --------- -----------
Total 1,397 $6,203,000 $951,000 5,252,000
========== ============ =========
Allowance for credit losses 2,326,000
-----------
Contract receivables, net, after
allowance for credit losses $2,926,000
===========
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1994
-------------------------
Number of Total Net
Active Unpaid Unearned Contract
Contracts Installments Interest Receivables
--------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Impaired contracts 533 $3,242,000 $467,000 $2,775,000
Unimpaired contracts 1,877 10,668,000 2,152,000 8,516,000
---------- ------------ ----------- -----------
Total 2,410 $13,910,000 $2,619,000 11,291,000
========== ============ ===========
Allowance for credit losses 4,647,000
-----------
Contract receivables, net, after
allowance for credit losses $6,644,000
===========
</TABLE>
6
<PAGE> 7
At June 30, 1995, maturities of existing contract receivables and projected
interest income on existing receivables were as follows:
<TABLE>
<CAPTION>
12 Months Ending June 30,
-------------------------
1996 1997 1998 Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
Future payments receivables $4,277,000 $1,849,000 $77,000 $6,203,000
Less unearned interest income (771,000) (177,000) (3,000) (951,000)
----------- ----------- ----------- ----------
$3,506,000 $1,672,000 $74,000 $5,252,000
=========== =========== =========== ==========
</TABLE>
The above contract maturity amounts should not be regarded as a forecast of
cash collections. The Company is anticipating repossession rates of 55% to 60%
over the life of the loan portfolio. Management anticipates that many of the
contracts will be liquidated through repossession proceeds before contract
maturity. Also, a portion of the loan portfolio could be prepaid before or
extended past the contract maturity date.
The change in the allowance for doubtful collections is summarized as follows:
<TABLE>
<S> <C>
Balance, as of September 30, 1994 $4,647,000
Allowance recorded upon acquisition of loans 508,000
Increase in allowance for credit losses 117,000
Loans charged off against allowance (2,946,000)
--------------
Balance, June 30, 1995 $2,326,000
==============
</TABLE>
In the fourth quarter 1994, the Company adopted SFAS 114 and SFAS 118 and has
accordingly restated the earlier 1994 quarters (see Note 4).
Most of the Company's contract receivables are due from individuals in the
major metropolitan areas of Texas and other southern states. To some extent,
realization of the receivables will be dependent on local economic conditions.
The Company holds vehicle titles as collateral for all contract receivables
until such receivables are paid in full. The contract receivables are pledged
as collateral for the Company's Notes.
7
<PAGE> 8
4. ADJUSTMENT TO THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1994
In the fourth quarter of 1994, the Company elected early adoption of SFAS 114
and SFAS 118 ("SFAS 114"). This adoption results in the restatement of all
prior interim periods of fiscal 1994 and affects this interest income and loss
provision amounts on the three month and nine months periods ended June 30,
1994. The accompanying financial statements have been restated to reflect
these items. The effect of the restatement on the results of operations for
the three months and nine months ended June 30, 1994 is as follows:
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
6/30/94 6/30/94 6/30/94 6/30/94
amount amount per share per share
------ ------ --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) attributable to
common shareholders:
As previously reported $(244,000) $(445,000) $(244) $(445)
Effect on interest revenue of adopting
SFAS 114 (160,000) 458,000 (160) 458
Effect on net loss provision of adopting
SFAS 114 (2,291,000) (746,000) (2,291) (746)
------------- ----------- --------- -------
Loss as restated $(2,695,000) $(733,000) $(2,695) $(733)
============= =========== ========= =======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is an industry specific financial services company specializing in
the purchase, management, and securitization of used motor vehicle receivables.
These receivables are secured by medium-priced, used automobiles and light
trucks which typically have been purchased by consumers with substandard credit
histories at retail prices ranging from $5,000 to $10,000. The Company
purchases these receivables from a network of unaffiliated new and used
automobile dealers (the "Dealer Network") at discounts ranging generally from
40% to 55% of total unpaid installments, which installments include both
principal and interest. The members of the Dealer Network generate the
receivables and offer them for sale on a non-exclusive basis to the Company.
Members forego some future profit on each receivable sold to the Company in
exchange for an immediate return of their invested capital.
8
<PAGE> 9
RESULTS OF OPERATIONS
Contract Purchases
Operational results are primarily driven by the Company's contract purchases.
The Company's contract purchases by quarter were:
<TABLE>
<CAPTION>
Fiscal Fiscal
Quarter Year Quantity Cost
------- ---- -------- ----
<S> <C> <C> <C>
Q3 1992 207 $841,000
Q4 1992 854 3,559,000
Q1 1993 1,032 4,315,000
Q2 1993 606 2,520,000
Q3* 1993 369 1,636,000
Q1 1994 300 1,406,000
Q2 1994 321 1,569,000
Q3 1994 460 2,385,000
Q4 1994 337 1,692,000
Q1 1995 259 941,000
Q2 1995 - -
Q3 1995 - -
--------- ------------------
Total 4,745 $20,864,000
========= ==================
</TABLE>
*Effective September 30, 1993, the Company changed its fiscal reporting year
end to September 30.
Comparison of Nine Month Periods Ended June 30, 1995 and 1994
For the nine months ended June 30, 1995, the Company had interest revenue of
$1,355,000, compared to $1,699,000 for the nine months ended June 30, 1994.
Interest revenue decreased due to a decrease in net contract receivables. On
January 1, 1995, the Company reached its sinking fund period. Thus, no
additional contracts were purchased during the six month period ended June 30,
1995.
For the nine months ended June 30, 1995, the Company had interest expense of
$1,525,000, compared to $1,447,000 for the nine months ended June 30, 1994.
Interest expense increased due to an increase in amortization of deferred
offering cost.
The provision for credit losses for the nine months ended June 30, 1995, was
$117,000 compared to $2,291,000 for the nine months ended June 30, 1994. The
decrease in provision is primarily due to improvement in contract performance,
prior provisions on loan contracts, and a decrease in loans outstanding.
General and administrative expenses increased from $656,000 for the nine months
ended June 30, 1994, to $683,000 for the nine months ended June 30, 1995.
General and administrative expenses consist primarily of repossession, vehicle
repair, maintenance expenses, servicing fees, bank, accounting, and attorney
and trustee fees. Servicing fees are paid to ACAC monthly at the current rate
of $22.30 for each receivable that is not in default. The increase in general
and administrative expenses is due to additional repossessions that occurred
during the six month period ended June 30, 1995 from earlier contract
purchases.
Comparison of Three Month Periods Ended June 30, 1995 and 1994
For the three months ended June 30, 1995, the Company had interest revenue of
$451,000, compared to $553,000 for the three months ended June 30, 1994.
Interest revenue decreased due to the Company reaching its sinking fund
9
<PAGE> 10
period on January 1, 1995. Thus no additional contracts were purchased during
the six month period ended June 30, 1995.
For the three months ended June 30, 1995, the Company had interest expense of
$516,000 compared to $487,000 for the three months ended June 30, 1994.
Interest expense increased due to an increase in amortization of deferred
offering cost.
The provision for credit losses for the three months ended June 30, 1995 was
$6,000 compared to $746,000 for the three months ended June 30, 1994. The
decrease was due to improvement in contract performance and the aging of the
portfolio.
General and Administrative expenses increased from $53,000 for the three months
ended June 30, 1994 to $202,000 for the three months ended June 30, 1995.
General and administrative expenses increased due to additional repossession
expense incurred during the six month period ending June 30, 1995 from earlier
contract purchases.
LIQUIDITY AND CAPITAL RESOURCES
The Company reached minimum subscription amount and began purchasing contract
receivables in August 1992. The Company had completed raising the total
subscription amount of $10,000,000 by December 1992, and the Company completed
its initial investment of net proceeds of $8,500,000 during the fourth quarter
of calendar 1993. By applying note proceeds, surplus cash collections, and
repossession proceeds, the Company has purchased a total of $20,864,000 in
contract receivables.
The Company's liquidity is a function of, among other things, cash flow from
receivables owned by the Company and Company expenditures.
Based on the collection performance of contracts owned by the Company, it is
currently estimated that the Company will have insufficient sinking fund cash
to pay the holders of the Company's Notes in full at maturity on December 31,
1995. While the sale or collection of remaining receivables after maturity may
reduce the shortfall, there can be no assurance that the Company will be able
to obtain a buyer for the receivables and it is likely that the proceeds from
sale or collection will not be sufficient to pay the Noteholders in full.
Since the time the sinking fund began on January 1, 1995, the cash provided by
operations and principal payments on contract receivables has been deposited
into a sinking fund trust account and no additional contracts have been
purchased. The funds in the sinking fund will be invested until maturity at
money market fund rates.
In 1992, the Company joined in a pre-existing tax benefits sharing agreement
with Search. Under the terms of this agreement, the Company is required to
reimburse Search for any income tax payments made by Search on the Company's
behalf and to reimburse Search for the costs accruing to the Company from any
tax losses or credits of Search that are used to offset the taxable income of
the Company. Search is required to reimburse the Company for benefits accruing
to the other participants in the sharing agreement from any tax losses or
credits of the Company that are used to offset tax payments of the other
participants.
Proceeds from the Company's receivables are restricted to repayment of the
Notes, the payment of interest and the payment of certain allowed expenses,
including servicing fees. The Notes require interest payments only until
maturity.
10
<PAGE> 11
Until maturity the difference between collections and interest due each month
is first applied to allowed expenses of the Company (primarily repossession,
repair and maintenance expenses, servicing, investor relations expenses, bank,
accounting and attorney and trustee fees). Servicing and investor relations
expenses are an allowed expense of the Company and are paid to ACAC. If there
is a remaining unpaid balance on the Notes after maturity, the Notes will be in
default, and the Trustee will determine which expenses are reimbursed,
including whether the Company may use contract proceeds to pay servicing,
investor relations and purchasing fees to ACAC.
Management is currently pursuing a plan to convert the existing notes payable
into common and preferred shares of Search. It is anticipated that both the
common and the preferred shares will be fully tradable securities and that the
preferred shares will pay quarterly dividends at 9% per annum. The plan would
necessitate that the Company file under Chapter 11 of the United States
Bankruptcy code. An ad hoc noteholder committee has been formed to determine
the terms of the conversion plan with the Company. During the period from the
filing of the Chapter 11 petition until the plan is approved by the noteholders
and the Bankruptcy court has issued a final order of confirmation of a
reorganization plan, the company intends to continue to use Search to service
the Company's receivables until either all of the remaining receivables are
collected and any repossessed vehicles are sold or until the conversion plan is
consummated. If the plan of reorganization is not approved by the Bankruptcy
Court, the Company may have to seek another company to service the Company's
receivables since Search has indicated that, in the absence of the conversion
of the notes payable into Search common and preferred shares, it may not have
sufficient resources to continue servicing the Company's receivables.
Neither Search nor any subsidiary or affiliate of Search has guaranteed
repayment of the Company's Notes or has any current or future obligation to
support the Company. Except for the sale and collection of the Company's
receivables, the Company does not anticipate that it will have any other source
of capital to satisfy the Notes.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
AUTOMOBILE CREDIT FINANCE 1992-II, INC.
DATE: August 4, 1995 BY: /s/ Lucian D. Vandergrift, III
------------------------------
Lucian D. Vandergrift, III
Reporting Officer
DATE: August 4, 1995 BY: /s/ Robert D. Idzi
------------------------------
Robert D. Idzi
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
</TABLE>
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000877665
<NAME> AUTOMOBILE CREDIT FINANCE 1992-II
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 2,867,000
<SECURITIES> 0
<RECEIVABLES> 2,926,000
<ALLOWANCES> 0
<INVENTORY> 110,000
<CURRENT-ASSETS> 366,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,269,000
<CURRENT-LIABILITIES> 10,213,000
<BONDS> 0
<COMMON> 1,000
0
0
<OTHER-SE> (3,945,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,269,000
<SALES> 0
<TOTAL-REVENUES> 1,355,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 683,000
<LOSS-PROVISION> 117,000
<INTEREST-EXPENSE> 1,525,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (970,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
