<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 033-41872
------------- ---------
AUTOMOBILE CREDIT FINANCE, INC.
-------------------------------
(Exact name of Registrant as specified in its charter)
Texas 75-2387750
----- ----------
(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, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, 1995 September 30, 1994
------------- ------------------
(Unaudited)
<S> <C> <C>
Contract receivables, net $258,000 $1,200,000
Cash and cash equivalents 2,000 2,836,000
Vehicles held for resale 3,000 7,000
Deferred note offering costs,
net of amortization of $750,000
and $657,000, respectively - 93,000
-------------------- ------------------
Total assets $263,000 $4,136,000
==================== ==================
LIABILITIES AND CAPITAL DEFICIT
Notes payable to investors $1,530,000 $5,000,000
Due to related party 49,000 138,000
Accounts payable 24,000 17,000
Accrued investor interest - 432,000
------------------- ------------------
Total liabilities 1,603,000 5,587,000
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 (1,350,000) (1,461,000)
-------------------- ------------------
Total capital deficit (1,340,000) (1,451,000)
-------------------- ------------------
Total liabilities and capital deficit $263,000 $4,136,000
==================== ==================
</TABLE>
See accompanying notes
2
<PAGE> 3
AUTOMOBILE CREDIT FINANCE, 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 $201,000 $830,000
Interest expense (including deferred offering
cost amortization of $93,000 and $231,000,
respectively) 318,000 906,000
---------- -------------
Net interest income (loss) (117,000) (76,000)
Provision for (recovery of) credit losses (353,000) 939,000
---------- -------------
Net interest income (loss) after provision for
credit losses 236,000 (1,015,000)
General and administrative 125,000 268,000
---------- -------------
Net income (loss) $111,000 $(1,283,000)
========== =============
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
(restated - Note 4)
<S> <C> <C>
Interest revenue $46,000 $197,000
Interest expense (including deferred offering
cost amortization of $0 and $82,000,
respectively) - 307,000
----------- ----------
Net interest income (loss) 46,000 (110,000)
Provision for (recovery of) credit losses (1,000) 223,000
----------- ----------
Net interest income (loss) after provision
for credit losses 47,000 (333,000)
General and administrative 25,000 64,000
----------- ----------
Net income (loss) $22,000 $(397,000)
=========== ==========
</TABLE>
See accompanying notes
3
<PAGE> 4
AUTOMOBILE CREDIT FINANCE, 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 income (loss) $111,000 $(1,283,000)
Adjustments to reconcile net loss to cash used in
operations:
Amortization of deferred offering cost 93,000 231,000
Provision for (recovery of) credit losses (353,000) 939,000
Changes in assets and liabilities:
Increase (decrease) in due to related party (89,000) 77,000
Increase (decrease) in accounts payable and
accrued interest (18,000) 101,000
-------------- ---------------
Cash provided by (used in) operations (256,000) 65,000
INVESTING ACTIVITIES:
Purchase of contract receivables - (682,000)
Principal payments on contract receivables,
including proceeds from sales of vehicles 1,299,000 2,714,000
-------------- ---------------
Cash provided by investing activities 1,299,000 2,032,000
FINANCING ACTIVITIES:
Repayment of notes payable and accrued interest (3,877,000) -
-------------- ---------------
Cash used in financing activities (3,877,000) -
Change in cash and cash equivalents (2,834,000) 2,097,000
Cash and cash equivalents - beginning 2,836,000 6,000
-------------- ---------------
Cash and cash equivalents - ending $2,000 $2,103,000
============== ===============
--------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
Cash paid for interest $240,000 $561,000
============== ===============
</TABLE>
See accompanying notes
4
<PAGE> 5
AUTOMOBILE CREDIT FINANCE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL INFORMATION
Automobile Credit Finance, Inc. (the Company), is a Texas Corporation organized
on July 16, 1991 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 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. DEFAULT ON AUTOMOBILE CONTRACT NOTES OFFERING
Pursuant to an Indenture dated as of October 1, 1991, with ACAC and Texas
Commerce Trust National Association (the "Trustee") (formerly Ameritrust Texas
National Association), the Company issued $5,000,000 in 18% Automobile Contract
Notes due December 31, 1994 (the "Notes"). The Notes required monthly interest
payments payable monthly at a rate of 15% per annum payable monthly and accrued
deferred interest at a rate of 3% per annum due December 31, 1994. The
Company's public offering of the Notes was completed in May, 1992.
The Indenture required that all of the Company's excess cash flow after
December 31, 1993, was to 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, 1994 and sale or collection of the remaining
balances on outstanding contracts at December 31, 1994.
The Company paid its offering and organizational fees and costs out of the
gross sales proceeds from the Notes. These fees and costs of $750,000 were
limited to 15% of the gross sales proceeds.
On the December 31, 1994 maturity date for the Company's Notes payables there
was an insufficient cash balance in the sinking fund. The insufficient cash
balance constituted a default under its indenture agreement with the Trustee.
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 115 $274,000 $26,000 248,000
Unimpaired contracts 218 451,000 43,000 408,000
---------- ------------ ------------ ------------
Total 333 $725,000 $69,000 656,000
========== ============ ============
Allowance for credit losses 398,000
------------
Contract receivables, net, after allowance for credit
losses $258,000
============
</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 288 $1,041,000 $89, 000 $952,000
Unimpaired contracts 625 1,758,000 233,000 1,525,000
----------- ----------- ----------- -------------
Total 913 $2,799,000 $322,000 2,477,000
=========== =========== ===========
Allowance for credit losses 1,277,000
-------------
Contract receivables, net, after allowance for credit
losses $1,200,000
=============
</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
receivable $674,000 $50,000 $1,000 $725,000
Less unearned
interest income (65,000) (4,000) - (69,000)
--------------- ----------------- ---------------- ---------------
$609,000 $46,000 $1,000 $656,000
=============== ================= ================ ===============
</TABLE>
The above contract maturity amounts should not be regarded as a forecast of
cash collections. The Company is anticipating repossession rates of 45% to 55%
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, at September 30, 1994 $1,277,000
Allowance recorded upon acquisition of loans -
Recovery or decrease in allowance for credit losses (353,000)
Loans charged off against allowance (526,000)
-------------
Balance, at June 30, 1995 $398,000
=============
</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 the interest income and loss
provision amounts for 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 $(285,000) $(337,000) $(285) $(337)
Effect on interest revenue of
adopting SFAS 114 (59,000) 163,000 (59) 163
Effect on net loss provision of
adopting SFAS 114 (939,000) (223,000) (939) (223)
------------ ---------- -------- ------
Loss as restated $(1,283,000) $(397,000) $(1,283) $(397)
============ ========== ======== ======
</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
purchased 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 generated 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
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
$201,000, compared to $830,000 for the nine months ended June 30, 1994.
Interest revenue decreased due to a decrease in net contract receivables. The
Company reached its sinking fund period on December 31, 1993, and no contracts
have been purchased since that date.
For the nine months ended June 30, 1995, the Company had interest expense of
$318,000, compared to $906,000 for the nine months ended June 30, 1994. On
December 31, 1994, the Company Notes matured at which time management ceased
accruing interest. Interest expense for the nine months ended June 30, 1995
represents three months of interest expense compared to nine months in the same
period of the prior year.
Recovery of provision for credit losses of $353,000 in the nine months ended
June 30, 1995, was caused by improved contract performance. Provision for
credit losses of $939,000 for the nine months ended June 30, 1994 was due to
the deterioration of contract performance.
General and administrative expenses decreased from $268,000 for the nine months
ended June 30, 1994, to $125,000 for the nine months ended June 30, 1995.
General and administrative expenses decreased due to a decrease in contract
receivables 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.
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
$46,000, compared to $197,000 for the three months ended June 30, 1994.
Interest revenue decreased due to a decrease in net contract receivables. The
Company reached its sinking fund period on December 31, 1993, and no contracts
have been purchased since that date.
For the three months ended June 30, 1994 the Company had interest expense of
$307,000, which consisted of interest on the face amount of notes payable and
of amortization of deferred offering cost. On December 31, 1994, the Company
Notes matured. As of December 31, 1994, deferred offering cost was fully
amortized, and there was no interest expense recorded for the quarters ended
March 31, 1995 and June 30, 1995.
There was a recovery of provision for credit losses of $1,000 in the three
months ended June 30, 1995. That recovery compared to a provision for credit
losses of $223,000 for the same period in the prior year and was due to an
improvement in contract performance.
General and Administrative expenses decreased from $64,000 for the three months
ended June 30, 1994, to $25,000 for the three months ended June 30, 1995.
General and administrative expenses decreased due to a decrease in net contract
receivables and the fact that the Company reached its sinking fund period on
December 31, 1993, when it ceased buying contracts.
LIQUIDITY AND CAPITAL RESOURCES
The Company reached minimum subscription amount and began purchasing contract
receivables in February 1992. The Company had completed raising the total
subscription amount of $5,000,000 by June 1992, and completed its initial
investment of net proceeds of $4,164,000 during the fourth quarter of calendar
year 1992. By applying note proceeds, surplus cash collections, and
repossession proceeds, the Company has purchased a total of $9,424,000 in
contract receivables.
9
<PAGE> 10
On the December 31, 1994 maturity date for the Company's Notes payables, there
was $3,175,000 in the sinking fund to be applied to obligations of $5,406,000
($5,000,000 principal and 3% interest deferred until maturity). The
insufficient cash balance constituted a default under its indenture agreement
with the Texas Commerce Bank National Association ("Trustee"). With the
occurrence of a default the Trustee has the option to sell the Company's
assets, to institute judicial proceedings to force complete or partial
foreclosure of the Company, and to take any other appropriate actions to
protect and enforce the rights and remedies of the Trustee and, the Company's
noteholders.
In addition to sinking fund cash, at December 31, 1994, the Company had
$1,895,000 of remaining principal and interest on contract receivables and
$20,000 in repossessed vehicles. As of June 30, 1995, the unpaid installments,
unearned interest, and related allowance for credit losses is summarized below:
<TABLE>
<CAPTION>
As of June 30, 1995
-------------------
Total Unpaid Unearned Related Net
Installments Interest Allowance Receivables
------------ -------- --------- -----------
<S> <C> <C> <C> <C>
Total contracts $725,000 $69,000 $398,000 $258,000
======== ======= ======== ========
</TABLE>
As these assets are sold or collected the proceeds will be applied to the
remaining balance to the noteholders after Trustee fees and expenses. Trustee
expenses can include servicing, banking, legal, accounting, repossession,
repair, liquidation and taxation expenditures. A noteholder committee was
formed and worked with the Trustee and the Company to determine how to dispose
of the remaining receivables and vehicles. The Trustee and the noteholder
committee has decided to continue to use Search to service the Company's
receivables and agreed to reimburse Search for normal expenses incurred in
collecting the Company's receivables until all of the remaining receivables are
collected and any repossessed vehicles are sold.
Since the time the sinking fund began on January 1, 1994, 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 were 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 was 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 and the payment of certain allowed expenses, including servicing fees.
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
time of 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 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.
10
<PAGE> 11
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 in full.
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> <C>
AUTOMOBILE CREDIT FINANCE, 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> 0000891317
<NAME> AUTOMOBILE CREDIT FINANCE, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 2,000
<SECURITIES> 0
<RECEIVABLES> 258,000
<ALLOWANCES> 0
<INVENTORY> 3,000
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 263,000
<CURRENT-LIABILITIES> 1,603,000
<BONDS> 0
<COMMON> 1,000
0
0
<OTHER-SE> (1,341,000)
<TOTAL-LIABILITY-AND-EQUITY> 263,000
<SALES> 0
<TOTAL-REVENUES> 201,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 125,000
<LOSS-PROVISION> (353,000)
<INTEREST-EXPENSE> 318,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
