SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
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Commission File Number 0-19799
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EXPRESS AMERICA HOLDINGS CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 86-0670679
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, AZ 85004
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 417-8100
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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 (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 Registrant's
classes of common stock, as of the latest practicable date.
3,860,130 Shares of Common Stock outstanding on January 31, 1997
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INDEX
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<CAPTION>
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
(a) Condensed Consolidated Financial Statements........................... 3
(b) Notes to Condensed Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 9
Item 6. Exhibits and Reports on Form 8-K............................................. 9
Signatures................................................................................. 10
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2
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ITEM 1. FINANCIAL STATEMENTS
EXPRESS AMERICA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
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<S> <C> <C>
Assets
Cash and cash equivalents $ 194 $ 238
Investments 2,449 2,462
Accounts receivable 228 216
Notes receivable 3,608 3,587
Costs assigned to management contracts acquired, less
accumulated amortization of $2,265 and $1,943 29,998 30,320
Furniture, fixtures and equipment, less accumulated
depreciation of $1,468 and $1,378 1,057 1,144
Deferred taxes 1,750 1,750
Deferred acquisition costs, less accumulated amortization
of $230 and $131 2,710 1,939
Other assets 1,063 899
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Total assets $ 43,057 $ 42,555
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Liabilities and stockholders' equity
Liabilities:
Net liabilities of discontinued operations $ 3,665 $ 3,392
Notes payable 6,150 3,600
Accounts payable and accrued expenses 2,535 5,775
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Total liabilities 12,350 12,767
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Stockholders' equity:
Common stock, $.01 par value, 10,000,000 shares authorized, 5,377,860
shares issued, with 3,860,130 shares outstanding 54 54
Less: Treasury stock, 1,517,730 shares (8,623) (8,623)
Additional paid-in capital 48,759 48,759
Unrealized gain on investments 286 333
Accumulated deficit (9,769) (10,735)
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Total stockholders' equity 30,707 29,788
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Total liabilities and stockholders' equity $ 43,057 $ 42,555
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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EXPRESS AMERICA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
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1996 1995
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<S> <C> <C>
Revenues
Management and administrative fees $ 3,930 $ 2,981
Distribution fees 466 213
Investment and other income 264 129
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Total revenues 4,660 3,323
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Expenses
General and administrative 1,923 2,057
Selling 1,245 1,347
Amortization and depreciation 527 468
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Total expenses 3,695 3,872
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Net earnings (loss) $ 965 $ (549)
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Net earnings (loss) per common and common share equivalent $ 0.25 $ (0.11)
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Shares used in per share calculation 3,907,871 4,877,860
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</TABLE>
See accompanying notes to condensed consolidated financial statements
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EXPRESS AMERICA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months
Ended December 31,
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1996 1995
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<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 965 $ (549)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Amortization and depreciation 527 468
(Increase) decrease in accounts receivable (33) 55
Decrease in operating liabilities (3,240) (609)
Increase in deferred acquisition costs (873) (135)
(Increase) decrease in other operating assets (175) 3
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Net cash used in operating activities (2,829) (767)
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Cash flows from investing activities
Investment in Pilgrim America Funds (34) --
Sales of furniture, fixtures and equipment 8 115
Purchases of furniture, fixtures and equipment (12) (138)
Cash provided by discontinued operations 273 1,428
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Net cash provided by investing activities 235 1,405
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Cash flows from financing activities
Term debt borrowing 2,550 --
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Net cash provided by financing activities 2,550 --
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Net increase (decrease) in cash and cash equivalents (44) 638
Cash and cash equivalents, beginning of period 238 1,858
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Cash and cash equivalents, end of period $ 194 $ 2,496
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Supplemental disclosures
Interest paid $ 51 $ 13
Income taxes paid -- 2
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
Principles of Consolidation. The accompanying condensed consolidated
financial statements of Express America Holdings Corporation (the "Company")
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. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for fair presentation have been included. Operating results
for the three months ended December 31, 1996 are not necessarily indicative of
the results which may be expected for the fiscal year ending September 30, 1997.
For additional information, refer to the consolidated financial statements and
footnotes thereto for the fiscal year ended September 30, 1996 which are
included in the Company's Form 10-K for the fiscal year then ended.
The condensed consolidated financial statements include the accounts of
the Company's wholly owned subsidiary, Pilgrim America Group, Inc. ("PAG") and
PAG's subsidiaries, Pilgrim America Investments, Inc., a registered investment
advisor, and Pilgrim America Securities, Inc., a registered broker/dealer
(collectively "Pilgrim America"). Pilgrim America commenced operations upon the
Company's acquisition (the "Acquisition") of certain investment assets of
Pilgrim Group, Inc. on April 7, 1995. The condensed consolidated financial
statements also include the accounts of the Company's wholly-owned mortgage
banking subsidiaries, Express America TC, Inc., EAMC Liquidation Corp., the
successor (as of December 27, 1996) to Express America Mortgage Corporation
("EAMC"), EAMC's wholly-owned subsidiaries, Wesav Investment Corporation and
Wesav Investment Inc.-2.
Prior to April 7, 1995, the Company's principal business consisted of
mortgage banking activities, including the origination, sale, and servicing of
loans collateralized by first mortgages on residential real estate. On February
28, 1995, the Company announced the discontinuance of the remainder of its
mortgage banking operations.
Subsequent to the Acquisition on April 7, 1995, the continuing
operating activities of the Company consist primarily of providing investment
management and related services through its subsidiaries to various open-end and
closed-end investment companies operating under the Pilgrim and Pilgrim America
names (the "Funds"). Accordingly, the results of operations reported in the
condensed consolidated financial statements reflect only such activities.
Reclassifications. Certain reclassifications have been made to prior
period financial statements to conform with current period presentation.
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EXPRESS AMERICA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Costs Assigned to Management Contracts Acquired. Costs assigned to
management contracts acquired represents the fair value of the investment
management rights acquired in connection with the Acquisition and also
represents the excess of the purchase price (including liabilities assumed) over
the fair value of net assets acquired and resulting costs from the Acquisition.
Such amounts are being amortized on a straight-line basis over 25 years.
The Company analyzes costs assigned to management contracts acquired
periodically to determine whether any impairment has occurred in its value.
Based upon anticipated future income from operations, in the opinion of
management, there has been no impairment.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
The Company is a holding company that, through its wholly-owned
subsidiaries provides investment management and related services for six
open-end and two closed-end funds (each a "Fund" and collectively the "Pilgrim
America Funds" or the "Funds"). The Company commenced its investment management
operations on April 7, 1995, when it consummated the acquisition (the
"Acquisition") of certain investment assets of Pilgrim Group, Inc. and its
subsidiaries (now known as Atlas Financial Group, Inc. or "Atlas") for $28.1
million and the assumption of certain liabilities.
Prior to the Acquisition, the Company had been engaged in the mortgage
banking business, deriving revenues primarily from mortgage loan servicing and
mortgage loan originations. On February 28, 1995, the Company announced the
discontinuance of all remaining mortgage banking operations and is in the
process of winding down its mortgage operations and selling its remaining
mortgage banking related assets.
Results of Operations
The Company continued its emphasis on marketing its open-end Funds to
the broker dealer community during the quarter through increased contact with
the broker dealer community. As of December 31, 1996, the Company had 60 full
time employees, which included 19 sales and marketing, 14 portfolio management
employees and 27 general and administrative employees.
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The following table presents comparative quarterly data regarding Fund
assets under management and Fund sales for the five quarters ended December 31,
1996:
<TABLE>
<CAPTION>
Pilgrim America Funds
Selected Fund Data (Unaudited)
($ 000,000)
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December 31, March 31, June 30, September 30, December 31,
1995 1996 1996 1996 1996
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<S> <C> <C> <C> <C> <C>
Direct Sales $ 11.3 $ 31.5 $ 40.5 $ 38.3 $ 49.0
Exchanges Out (1) (1.5) (1.8) (1.2) (0.5) (1.1)
Redemptions (9.2) (11.0) (9.1) (9.8) (15.9)
---------- ---------- ---------- ---------- ----------
Net Sales $ 0.6 $ 18.7 $ 30.2 $ 28.0 $ 32.0
========== ========== ========== ========== ==========
Ending Assets Under
Management (2) $ 1,372.6 $ 1,413.1 $ 1,451.7 $ 1,704.5 $ 2,022.6
========== ========== ========== ========== ==========
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(1) Net exchanges to the Company's sponsored money market fund.
(2) Includes net assets plus borrowings by Pilgrim America Prime Rate Trust for
investment purposes of $286 million and $179 million at December 31, 1996
and September 30, 1996, respectively.
Quarter Ended December 31, 1996 Compared to the Quarter Ended December 31, 1995.
Net earnings for the quarter amounted to $965,000, or $0.25 per share
as compared to a net loss of $549,000 or $0.11 per share for the quarter ended
December 31, 1995.
Revenues. Revenues for the quarter ended December 31, 1996 increased by
$1.3 million over revenues for the quarter ended December 31, 1995. Revenues
increased primarily because management and administrative fees increased by
$949,000 between the two periods. This increase was a result of an increase in
assets managed by the Company. Assets under management, which totaled $2.0
billion at December 31, 1996, increased by $650 million since December 31, 1995.
Additionally, an increase in the Company's open-end Funds' assets under
management resulted in an increase in distribution fees of $253,000 in the
quarter ended December 31, 1996 as compared to the quarter ended December 31,
1995.
Expenses. Total expenses for the quarter ended December 31, 1996
decreased by $177,000 compared to the quarter ended December 31, 1995. This
decrease was primarily a result of decreased personnel costs due to a reduction
in the number of employees and a decrease in selling and marketing costs.
Amortization and depreciation expense increased slightly between the
quarter ended December 31, 1996 and the quarter ended December 31, 1995
primarily as a result of an increase in the amortization of deferred acquisition
costs. Deferred acquisition costs represent commissions paid for the sale of
certain Fund shares and are capitalized and then amortized over a six-year
period.
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Liquidity
The Company intends to continue funding its investment management
operations with cash provided by operations and borrowings obtained under its
Credit Agreement discussed in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1996. The Company believes that it will have
adequate cash necessary to meet expected cash requirements.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company acquired its now discontinued mortgage banking operation
from the Resolution Trust Corporation ("RTC") on May 16, 1991 following a
competitive bidding process. The Company previously disclosed that the RTC filed
a complaint in the United States District Court, District of Arizona on December
8, 1995, against the Company, Rauscher Pierce Refsnes, Inc., Smith Barney,
Harris Upham & Co., Incorporated and five individuals and their spouses
including the current CEO and CFO of the Company and two former officers of the
Company. The complaint alleges various irregularities in the bidding process and
the closing of the acquisition. The RTC has asked for at least $20 million in
actual damages and at least $60 million in punitive damages from all defendants.
The RTC ceased operating on December 31, 1995 and the Federal Deposit Insurance
Corporation (the "FDIC") assumed responsibility for the case.
The Company believes that it has strong meritorious defenses and it
will continue to vigorously defend itself against the RTC's claims.
The Company notified its Officer and Director liability carrier of the
FDIC action in January 1996 seeking coverage as permitted by the policy in
connection with the losses which it may incur in connection with this action.
The Company is presently in discussions with the carrier regarding a settlement
of the liability, if any, the carrier may have in connection with this claim.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.0 Financial Data Schedules
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 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.
EXPRESS AMERICA HOLDINGS CORPORATION
Date: February 4, 1997 By: /s/ James R. Reis
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James R. Reis
Vice-Chairman and Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000882860
<NAME> Express America Holdings
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
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