SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 0-22830
-------
OXFORD RESOURCES CORP.
----------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-2344427
- - --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation) (IRS Employer ID)
270 South Service Road, Melville, NY 11747
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(516) 777-8000
- - --------------------------------------------------------------------------------
(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 .
--- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class May 8, 1996
----- --------------
Class A Common Stock 7,115,662
Class B Common Stock 7,724,000
Page 1 of 34 Pages
Exhibit index located on sequential page number 32
<PAGE>
TABLE OF CONTENTS
Sequential
Part I Financial Information Page #
--------------------- ----------
Item 1. Financial Statements
Consolidated Balance Sheets - As of
March 31, 1996 and June 30, 1995 . . . . . . . . . . . . . . . 3
Consolidated Statements of Income -
Nine and three month periods ended
March 31, 1996 and March 31, 1995 . . . . . . . . . . . . . . 4
Consolidated Statement of Shareholders'
Equity - Nine month period ended
March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows -
Nine month periods ended
March 31, 1996 and March 31, 1995 . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Part II Other Information
-----------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 30
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 30
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . 30
Item 4. Submission of Matters to
a Vote of Security Holders . . . . . . . . . . . . . . . . . 30
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 30
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 30
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Index of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE><CAPTION>
OXFORD RESOURCES CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
====================================================================================================================
March 31, June 30,
1996 1995
(Unaudited)
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $63,426,864 $36,900,005
Available for sale securities, at market value 7,171,712 50,818
Net investment in automobile receivables 61,367,983 22,946,755
Inventories and other assets 26,225,775 23,436,913
Vehicles under operating leases - net 1,289,142,683 1,076,545,431
Property and equipment, less accumulated depreciation 9,263,838 6,028,496
Restricted funds on deposit with banks
(net of $33,340,193 and $30,724,151 of security deposits) 7,223,251 4,341,079
Receivables from related parties 2,837,732 2,952,357
------------------- -----------------------------
$1,466,659,838 $1,173,201,854
=================== =============================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accrued expenses and other liabilities $12,212,526 $10,197,516
Deferred income taxes 21,762,915 13,174,000
Notes payable and obligations under capital leases -
non-recourse 1,347,160,665 1,115,982,573
------------------- -----------------------------
TOTAL LIABILITIES 1,381,136,106 1,139,354,089
------------------- -----------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value - shares authorized
10,000,000; none issued - -
Common stock
Class A, $.01 par value - shares authorized 62,000,000;
issued 7,111,664 and 5,268,000 71,117 52,680
Class B, $.01 par value - shares authorized 8,000,000;
issued 7,724,000 and 8,000,000 77,240 80,000
Additional paid-in capital 61,218,726 24,478,801
Retained earnings 22,785,760 9,236,284
Unrealized appreciation on available for sale securities 1,370,889 0
------------------- -----------------------------
TOTAL SHAREHOLDERS' EQUITY 85,523,732 33,847,765
------------------- -----------------------------
$1,466,659,838 $1,173,201,854
=================== =============================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE><CAPTION>
OXFORD RESOURCES CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
============================================================================================================================
Nine Months Ended Three Months Ended
March 31, March 31,
1996 1995 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $197,389,781 $162,185,690 $68,281,446 $56,239,994
Interest and other income 14,099,241 6,134,688 5,986,890 2,234,681
Gain on vehicle dispositions
and lease terminations 3,400,433 4,089,596 410,624 1,702,653
Servicing income 6,740,972 4,743,758 2,622,980 1,591,046
---------------- ---------------------------------- ---------------------
TOTAL REVENUES 221,630,427 177,153,732 77,301,940 61,768,374
---------------- ---------------------------------- ---------------------
EXPENSES:
Selling, general and administrative 32,010,934 23,998,388 11,313,907 8,823,513
Depreciation and amortization 98,155,576 85,261,451 33,537,318 29,500,793
Interest 69,250,441 52,671,904 24,295,245 18,540,096
---------------- ------------------ --------------- ---------------------
TOTAL EXPENSES 199,416,951 161,931,743 69,146,470 56,864,402
---------------- ------------------ --------------- ---------------------
INCOME BEFORE TAXES ON INCOME 22,213,476 15,221,989 8,155,470 4,903,972
TAXES ON INCOME 8,664,000 5,936,000 3,181,000 1,912,000
---------------- ------------------ --------------- ---------------------
NET INCOME $13,549,476 $9,285,989 $4,974,470 $2,991,972
================ ================== =============== =====================
PER SHARE DATA:
Net income $0.94 $0.70 $0.33 $0.23
================ ================= =============== =====================
Weighted average number of common
and common equivalent shares
outstanding 14,425,933 13,276,811 15,058,670 13,294,432
================ ================= =============== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE><CAPTION>
OXFORD RESOURCES CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
============================================================================================
Common Stock
--------------------------------------------------
Class A Class B
----------------------- ------------------------
Shares Amount Shares Amount
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, July 1, 1995 5,268,000 $52,680 8,000,000 $80,000
Issuance of common stock,
net of underwriting discounts,
commissions and public offering
expenses of $2,482,538 1,821,000 18,210 (276,000) (2,760)
Redemption of stock options 22,664 227 - -
Unrealized appreciation on
available for sale securities - - - -
Net income - - - -
-----------------------------------------------------------
Balance, March 31, 1996 7,111,664 $71,117 7,724,000 $77,240
===========================================================
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Appreciation
Additional on Available Total
Paid-in Retained for Sale Shareholders'
Capital Earnings Securities Equity
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, July 1, 1995 $24,478,801 $9,236,284 $0 $33,847,765
Issuance of common stock,
net of underwriting discounts,
commissions and public offering
expenses of $2,482,538 36,513,262 - 36,528,712
Redemption of stock options 226,663 - 226,890
Unrealized appreciation on
available for sale securities - - 1,370,889 1,370,889
Net income - 13,549,476 - 13,549,476
---------------------------------------------------------------
Balance, March 31, 1996 $61,218,726 $22,785,760 $1,370,889 $85,523,732
===============================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE><CAPTION>
OXFORD RESOURCES CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended March 31, 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $13,549,476 $9,285,989
------------------------------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization on vehicles under
operating leases 96,468,901 84,031,789
Depreciation and amortization on property and equipment 1,686,675 1,229,662
Provision for possible losses 5,786,928 2,705,425
Accrued interest on retail installment contracts sold (1,525,734) (974,191)
Deferred income taxes 8,588,915 5,861,000
Gain on vehicle dispositions and lease terminations (3,400,433) (4,089,596)
Gain on sale of retail installment contracts (7,543,060) (1,735,434)
Decrease (increase) in assets:
Lease termination fees receivable (4,379,679) (3,735,533)
Inventories and other assets (2,065,670) (5,154,342)
Retail installment contracts:
Purchases (185,839,613) (52,546,362)
Sales 158,116,375 50,089,538
Dealer commissions paid (6,862,486) (1,848,370)
Transactions costs paid including hedge gain(loss) 76,598 (433,047)
Principal collections on contracts held for sale 5,651,760 2,824,200
Initial deposits to spread account (3,162,327) (438,895)
Additions to spread account (810,067) (1,233,072)
Withdrawls from spread account 1,765,707 494,958
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities 2,022,129 1,288,436
---------------- -------------------
TOTAL ADJUSTMENTS 64,574,919 76,336,167
---------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 78,124,395 85,622,156
---------------- -------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE><CAPTION>
OXFORD RESOURCES CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended March 31, 1996 1995
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of marketable securities (5,750,005) 0
Purchase of vehicles under operating leases (443,261,712) (341,849,166)
Proceeds from dispositions of vehicles
under operating leases 137,126,491 104,940,595
Retained subordinated investment in
retail installment contracts sold (4,743,491) (1,698,127)
Collections on retained subordinated investment 2,980,374 1,966,424
Increase in net investment in automobile receivables (392,891) 0
Capital expenditures (4,922,017) (2,556,687)
Repayment of (increase in) receivables from related parties 114,625 141,131
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (318,848,626) (239,055,830)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and obligations under
capital leases - non-recourse 483,704,429 364,076,055
Principal payments on notes payable and obligations under
capital leases - non-recourse (252,526,337) (213,942,476)
(Increase) decrease in restricted funds on deposit with banks (675,485) (103,558)
Principal payments on notes payable and obligations under
capital leases (7,119) (43,062)
Issuance of common stock 36,755,602 0
---------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 267,251,090 149,986,959
---------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 26,526,859 (3,446,715)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 36,900,005 26,158,082
---------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $63,426,864 $22,711,367
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
OXFORD RESOURCES CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting. All intercompany accounts and transactions
have been eliminated in consolidation. In the opinion of management all
necessary adjustments (consisting only of normal recurring accruals) have
been included for the periods presented. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the accompanying notes to the consolidated financial
statements contained in the Company's Annual Report on Form 10-K on file
with the Securities and Exchange Commission ("SEC") for the year ended June
30, 1995.
2) AVAILABLE FOR SALE SECURITIES, AT MARKET VALUE
The Company classifies and accounts for investments in marketable
securities as available- for-sale since it is not the Company's objective
to generate profits on short-term differences in price. Unrealized holding
gains and losses (determined by specific identification) on investments are
carried as a separate component of shareholders' equity.
3) SHAREHOLDERS' EQUITY
On October 19, 1995, the Company consummated a public offering of 2,645,000
shares (including 1,200,000 primary shares, 345,000 primary shares sold by
the Company upon the exercise by the Underwriters of an over-allotment
option granted to them and 1,100,000 secondary shares ) of its Class A
common stock. The Company recorded the sale by it of an aggregate of
1,545,000 shares of Class A common stock at the public offering price of
$25.25 per share less underwriting discounts, commissions and public
offering expenses in the aggregate of $2,482,538 for total proceeds of
$36,528,712.
Additionally, in conjunction with the public offering, certain shareholders
converted an aggregate of 276,000 shares of Class B common stock into an
equal number of shares of Class A common stock, which were sold in the
public offering.
8
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
------------------------------------------------
General
Oxford Resources Corp. ("Oxford") is a specialized automobile finance
company engaged primarily in the leasing of automobiles to individuals,
servicing such leases during their term and remarketing the automobiles upon the
expiration of the leases. Oxford and its direct and indirect subsidiaries are
hereinafter referred to as the "Company." The Company currently originates
leases in 19 states through approximately 1,200 manufacturer-franchised
automobile dealers. The Company also markets an indirect automobile lending
program in 16 states in which it originates retail installment contracts in
connection with the sale of new and used vehicles by automobile dealers.
All of the leases which the Company originates are operating leases. At
the inception of a lease, no revenue is recognized and the leased vehicle,
together with the initial direct costs of originating the lease, which are
capitalized, appear on the Company's balance sheet under the caption "vehicles
under operating leases-net." Each vehicle is depreciated on a straight-line
basis over the lease term down to an amount equal to the Company's previous
estimate of the projected value of the vehicle at the end of the lease term (the
"Residual"). Lease payments are recognized ratably as rent income over the term
of the lease.
The Company finances substantially all of its leases, on a lease-by-lease
basis, for the duration of the lease term at a fixed interest rate and enters
into a note in connection with each lease with the bank or financial institution
financing such lease (the banks and financial institutions which finance the
Company's leases are hereinafter referred to collectively as the "Lenders") for
the amount financed. The Lender financing a lease assumes all credit risk for
the duration of the lease term. Because the Company's borrowing cost is lower
than the implicit rate it builds into the lease payment stream, the Company
earns a spread. The Company receives the present value of the spread in cash
from the Lender at the time of financing by financing each lease at a premium to
the net lease asset. The amount financed by the Lender is calculated such that
during the lease term, the lessee's monthly payments are sufficient to (i) pay
all interest due at the Company's borrowing rate on the outstanding portion of
the note and (ii) amortize the note, so that at the end of the scheduled lease
term, the remaining principal balance of the note is equal to the Residual for
the related vehicle.
The Company receives the full premium in cash at the time of financing. In
the Company's financial statements this premium (net of the associated
capitalized initial direct costs) is recognized as income over the term of the
lease in the form of the difference between (i) rent income and (ii)
depreciation of vehicles under operating leases and interest expense. The
premium, however, is
9
<PAGE>
not earned evenly over the lease term. In each subsequent month during the
lease term, a greater portion of the premium is recognized than in the prior
month. At any point in time, the difference between the unpaid note balance and
the net book value of the vehicle represents the premium which was received in
cash but has not yet been recognized as income. The following table sets forth
the aggregate amount of the non-recourse notes and capital lease obligations,
the net book value of vehicles under operating leases and the resulting unearned
premium associated with the existing lease portfolio.
At March 31,
------------------
1996 1995
---- ----
(in thousands)
Notes payable and capital
lease obligations - non-
recourse . . . . . . . . $1,347,161 $1,022,375
Receivables from Lenders
and other (1) . . . . . . 10,683 21,389
Net book value of
vehicles under
operating leases . . . . (1,279,061) (978,170)
----------- ---------
Unearned premium . . . . $ 78,783 $ 65,594
========== ========
_________________________________
(1) "Receivables from Lenders and other" represents those leases which have
been submitted to the Lenders for funding in the ordinary course of
business, but for which the Company has not received the cash as of the
dates indicated and those leases which have been partially or not funded by
a Lender.
The lease premium to be recognized on the Company's existing portfolio is
determined for the remainder of the term of the existing leases for a number of
reasons. First, the rent income and the depreciation expense in each lease and
the interest rate on the note financing each lease are all fixed for the
duration of the lease term. Second, when leases terminate prior to their
scheduled termination due to a lessee default as a result of a repossession of,
casualty to or theft of the vehicle, the Company's lease premium is not impacted
since the resulting credit losses are absorbed by the Lenders due to the non-
recourse nature of the notes and capital lease obligations. Third, a lease
which terminates prior to its scheduled termination as a result of the voluntary
purchase of the vehicle by the lessee or the permitted voluntary early
termination of a lease in accordance with its terms only accelerates the
recognition of the unearned premium. In such case, the Company recognizes a
gain on the disposal of the vehicle equal to the disposition proceeds less the
net book value of the vehicle and such gain will exceed the unearned lease
premium.
For leases which terminate prior to their scheduled termination due to a
lessee default in connection with a repossession of, casualty to or theft of the
vehicle, the Company applies the sale or insurance proceeds and any other
recoveries realized with respect to the vehicle, to extinguish the related non-
recourse obligation which financed such lease. The Company is contractually
permitted to do this on defaulted leases since its
10
<PAGE>
financings are non-recourse during the lease term and the Company's only
obligation is to remit the resulting proceeds to the Lender, up to the
outstanding balance of the obligation. The Company records the difference
between the disposition proceeds and the net book value of the vehicle as a loss
(or gain, on occasion) on the defaulted lease and recognizes an offsetting gain
from the early extinguishment of the related non-recourse obligation at a
discount to its principal balance. Such gain equals the credit loss transferred
to and incurred by the Lender on the defaulted lease and will always exceed the
loss to the Company by an amount equal to the remaining unearned premium related
to the lease (i.e., the amount by which the related non-recourse obligation
exceeds the net book value of the vehicle). The excess of the gain over the
loss is recorded in "gain on vehicle dispositions and lease terminations" in the
Company's Consolidated Statements of Income.
The following table represents the total losses and associated offsetting
gains realized by the Company on defaulted leases in each of the periods
indicated:
Nine Months Three Months
Ended Ended
March 31, March 31,
--------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Gain on
extinguishment of
non-recourse
obligations . . . . . . $1,308 $891 $478 $212
Credit losses on
lessee defaults
and physical losses . . 1,008 623 405 148
----- --- --- ---
Net gain . . . . . . . . $ 300 $268 $ 73 $ 64
====== ==== ==== ====
These gains from the early extinguishment of non-recourse borrowings are
equal to the credit losses incurred by the Lenders and therefore represent the
benefit the Company realized from effectively transferring the credit risk
associated with its leasing operations to the Lenders through the use of non-
recourse borrowings. The Company incurs a cost to derive this benefit from
transferring credit risk in the form of interest expense which is higher than
that which would be incurred if the Company used recourse borrowings.
The strict application of Statement of Financial Accounting Standards No. 4
("SFAS No. 4") would require that the gains on early extinguishment of non-
recourse obligations be presented as an extraordinary item, net of related
income taxes. The Company records the gain on debt extinguishment as part of
continuing operations because (i) such terminations occur frequently in the
ordinary course of the Company's business, (ii) each leased vehicle is pledged
individually and separately to a corresponding non-recourse obligation and,
therefore, the elimination of both the
11
<PAGE>
asset and the corresponding liability on early termination is linked together,
and (iii) such presentation more properly matches the cost in the form of higher
interest expense, which the Company incurs to transfer credit risk to the
Lenders, with the associated benefit of such risk transfer. Such benefit is the
gain on early extinguishment of the non-recourse obligations which represents
the credit losses transferred to and incurred by the Lenders. The Company
believes that to reflect the gain on the debt extinguishment as an extraordinary
item, as prescribed by SFAS No. 4, would result in a mismatched and misleading
presentation insofar as it would not properly portray the direct association
between these gains and the other income statement effects of these early
terminations, as presented above. Accordingly, these gains are included,
together with other gains and losses from early terminations and scheduled
terminations, in income from continuing operations. This presentation has no
effect on net income or shareholders' equity.
The Company's leases generally have terms of 24, 36, 48 or 60 months. The
following table sets forth the weighted average original term of leases
originated by the Company for the periods indicated:
Nine Months Ended March 31,
----------------------------------------
1996 1995
---- ----
(in months)
Weighted average original lease term 35.0 37.9
The Company's decrease in the weighted average original term from the
nine months ended March 31, 1995 to the nine months ended March 31, 1996 is the
result of an increasing proportion of 24 and 36 month leases in the Company's
lease originations. This decrease in term is influenced by numerous factors,
including the desire of automobile manufacturers to shorten the lease period and
thereby increase demand for new automobiles, the advertising related thereto and
the increased consumer acceptance of shorter lease terms.
The following table sets forth for the Company's lease portfolio the lease
delinquencies at March 31, 1996 and 1995 and credit losses for the three month
periods ended March 31, 1996 and 1995. The credit loss data set forth above and
below and the lease delinquency data set forth below is for illustrative
purposes only. Delinquency and credit loss performance may in the future be
influenced by numerous factors, including economic factors. There can be no
assurance that the Company's future delinquency or credit loss performance with
respect to its existing lease portfolio, nor such performance with respect to
leases originated by the Company in the future, will be similar to or consistent
with that set forth herein.
12
<PAGE>
At March 31,
---------------------------
1996 1995
---- ----
Lease delinquencies(1) .67% .65%
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
Lease credit losses(2) .14% .08%
__________________________________
(1) Represents the number of leases which are contractually past due 30 days or
more, expressed as a percent of the number of leases in the portfolio.
(2) Credit losses are borne by the Lenders under the Company's non-recourse
borrowing arrangements. Figures presented represent the total dollars of
net credit losses incurred by the Lenders (proceeds less unpaid principal
balance of notes payable and obligations under capital leases - non-
recourse) in proportion to the average aggregate unpaid principal balance
of non-recourse notes payable and obligations under capital leases
associated with such lease portfolio. Credit loss percentages have been
annualized.
At the end of the scheduled lease term, the Company is obligated to dispose
of the off-lease vehicle and pay to the Lender the remaining note balance which
is equal to the Residual. If a lease terminates prior to its scheduled term,
under the terms of its agreements with the Lenders, the Company has no
obligation to pay the Residual or any other predetermined amount. The Company
recognizes a gain or loss on vehicle disposition at scheduled lease termination
if proceeds and/or other recoveries are more or less than the previously
estimated Residual. Consequently, the Company's obligation to dispose of the
off-lease vehicles is an important aspect of its operations. The Company seeks
to manage its Residual risk through a variety of strategies, including (i)
focusing on the leasing of vehicle models which the Company believes will have a
broad appeal in the used car market and (ii) utilizing multiple remarketing
channels including sales and re-leases to lessees and third parties referred by
lessees, sales through unaffiliated dealers on a consignment basis, sales
directly to dealers and wholesalers and sales through regional auctions. From
time to time, the Company has acquired selected used vehicles for re-sale.
The following table sets forth, for each of the periods indicated, the
number and percentage of vehicles which reached scheduled termination or which
were purchased by the Company for re-sale, which were remarketed by the Company
in each of the Company's remarketing channels.
13
<PAGE>
Three Months Ended March 31,
----------------------------
1996 1995
---------------- ----------------
Number Percent Number Percent
------ ------- ------ -------
Remarketing method
Vehicles sold or re-leased to
lessees or third parties
referred by lessees . . . 2,212 54.7% 1,639 46.1%
Consignment/Retail (1) . . . 147 3.6 250 7.0
Wholesale . . . . . . . . . . 1,684 41.7 1,666 46.9
----- ------ ------ -----
Total . . . . . . . . . . 4,043 100.0% 3,555 100.0%
====== ====== ===== =======
_________________________
(1) Includes sales through its network of unaffiliated dealers on a consignment
basis.
Nine Months Ended March 31,
---------------------------
1996 1995
---------------- -----------------
Number Percent Number Percent
------ ------- ------ -------
Remarketing method
Vehicles sold or re-leased to
lessees or third parties
referred by lessees . . . 5,566 54.2% 4,122 46.3%
Consignment/Retail (1) . . . 654 6.4 1,239 13.9
Wholesale . . . . . . . . . . 4,053 39.4 3,546 39.8
------ ------ ----- ------
Total . . . . . . . . . . 10,273 100.0% 8,907 100.0%
====== ====== ===== ======
_________________________
(1) Includes sales through its network of unaffiliated dealers on a consignment
basis and, for 1995, retail sales through the Company's own retail
automobile sales operations which were discontinued in December 1994.
The number and percentage of vehicles sold or re-leased to lessees and
third parties referred by lessees and sold through the Company's other
remarketing channels relative to the total number of vehicles remarketed will
vary from quarter to quarter due to factors including changes in the used
automobile market in general and in the management of the Company's overall
vehicle inventory.
The Company engages in indirect automobile lending by purchasing retail
installment contracts from manufacturer-franchised automobile dealers in 16
states, which contracts are originated in connection with the sale of new and
used motor vehicles by such dealers. The Company began marketing its current
indirect lending program to dealers in fiscal 1994. Prior thereto, the Company
had originated retail installment contracts solely in conjunction with the sale
of its off-lease vehicles.
The following table sets forth information regarding the Company's serviced
retail installment contract portfolio:
14
<PAGE>
Nine Months Ended March 31,
------------------------------------------
1996 1995
-------------------- -------------------
Net Dollar Net Dollar
Amount(1) Number Amount(1) Number
--------- ------ --------- ------
(dollars in thousands)
Balance serviced,
beginning of period(2) $113,490 11,809 $68,288 7,197
Originations . . . . 185,840 11,995 52,546 4,322
Runoff . . . . . . . (49,360) (2,852) (24,680) (1,240)
------- ------- ------- -------
Balance serviced,
end of period(2) . . $249,970 20,952 $96,154 10,279
======== ====== ======= ======
Balance held for sale,
end of period(3) . . $28,043 1,848 $ 7,220 642
Retail installment
contracts sold in
period:
Amount . . . . . . . $158,116 10,418 $50,090 4,245
Weighted average
coupon(4) . . . . . 13.8% 14.9%
Gain on sale as a per-
centage of dollar amount
of retail installment
contracts sold . . . 4.8% 3.5%
_____________________________________________________
(1) Includes retail installment contracts serviced by the Company,
including those held for sale by the Company and those which have been
sold.
(2) Net of unearned interest.
(3) Included in retail installment contracts serviced. See footnote (1).
(4) Weighted average coupon represents the weighted average, based on
dollar amount, of the annual percentage rates of the retail
installment contracts sold for the respective periods.
15
<PAGE>
Three Months Ended March 31,
-------------------------------------------
1996 1995
------------------- ------------------
Net Dollar Net Dollar
Amount(1) Number Amount(1) Number
---------- ------ ---------- ------
(dollars in thousands)
Balance serviced,
beginning of period (2) $191,085 17,060 $84,669 9,087
Originations . . . . . . . 79,712 5,043 20,760 1,662
Runoff . . . . . . . . . . (20,827) (1,151) (9,275) (470)
-------- -------- ------- ------
Balance serviced,
end of period(2) . . . . $249,970 20,952 $96,154 10,279
======== ====== ======= ======
Balance held for sale,
end of period(3) . . . . $ 28,043 1,848 $ 7,220 642
Retail installment
contracts sold in period:
Amount . . . . . . . . . $ 68,506 4,408 $21,945 1,822
Weighted average
coupon(4) . . . . . . . 13.5% 14.9%
Gain on sale as a
percentage of
dollar amount of retail
installment contracts
sold . . . . . . . . . . . 4.5% 3.6%
___________________________________
(1) Includes retail installment contracts serviced by the Company, including
those held for sale by the Company and those which have been sold.
(2) Net of unearned interest.
(3) Included in retail installment contracts serviced. See footnote (1).
(4) Weighted average coupon represents the weighted average, based on dollar
amount, of the annual percentage rates of the retail installment contracts
sold for the respective periods.
The following tables set forth certain information with respect to (i) the
delinquency of retail installment contracts serviced by the Company, including
those held by the Company and those which have been sold (based on payments
which are 60 days or more past due) for each of the periods presented and
(ii) the credit loss experience of such portfolio for the periods presented.
Because the Company has only limited historical experience with respect to its
indirect automobile lending program, the delinquency and credit loss experience
to date may not be indicative of future performance. Delinquency and credit
loss performance in the future with respect to the Company's indirect automobile
16
<PAGE>
lending program may be influenced by numerous factors, including economic
factors. There can be no assurance that the Company's future delinquency or
credit loss performance with respect to its existing retail installment
contract portfolio, nor such performance with respect to retail installment
contracts originated by the Company in the future, will be similar to or
consistent with that set forth in the tables.
At March 31,
---------------------
1996 1995
---- ----
(dollars in thousands)(1)
Balance of retail installment contracts
outstanding . . . . . . . . . . . . . $249,970 $96,154
Balance of retail installment contracts
contractually past due 60 days or more 1,142 669
Percentage past due . . . . . . . . . . .46% .70%
_____________________________
(1) Includes retail installment contracts serviced by the Company,
including those held for sale by the Company and those which have been
sold. Balances are presented on a net basis (i.e., do not include
unearned interest).
Nine Months Ended March 31,
---------------------------
1996 1995
---- ----
(dollars in thousands)(1)
Net credit losses . . . . . . . . . . . . . $1,390 $983
As a percentage of average principal amount
of contract balances outstanding . . . . 1.04% 1.59%
_____________________________
(1) Includes retail installment contracts serviced by the Company,
including those held for sale by the Company and those which have been
sold. Credit loss percentages have been annualized.
Prior to fiscal 1994, the Company originated retail installment contracts
only in connection with the sale of its off-lease vehicles. In fiscal 1994, the
Company introduced its current indirect automobile lending program to
unaffiliated automobile dealers in connection with the sale of their new and
used vehicles. Since (i) the current program has higher credit underwriting
standards than those under the Company's prior program and (ii) the current
program has accounted for an increasing percentage of the Company's serviced
retail installment contract portfolio, the Company's delinquency and net credit
loss percentages declined from the nine month period ended March 31, 1995 to the
nine month period ended March 31, 1996. In the nine month period ended March
31, 1996, substantially all of the Company's retail installment contracts were
originated through the Company's indirect automobile lending program.
In the ordinary course of its business, the Company sells substantially all
of the retail installment contracts that it originates on either a securitized
or whole loan basis. While the Company currently expects that most of the
future sales will be on a securitized basis, the Company may utilize either of
these two
17
<PAGE>
methods, depending upon the relative benefits of each structure to the Company
at a given time.
At such time that the Company sells its retail installment contracts, a
gain on sale is recognized and reflected in "Interest and other income" on the
Company's statement of income, which is calculated on each sale through a
determination of the present value of the estimated future amounts to be
realized by the Company. These amounts consider estimates of all cash flows
which will arise in relation to the sale transaction including servicing fees,
payments to investors in the transaction (including to the Company with respect
to any retained subordinated investment), credit enhancement expenses,
transaction fees and expenses (including any gain or loss on any hedge
transaction engaged in by the Company in connection with such sale), credit
losses, prepayments and dealer commissions. The gain on sale is reflected in
the balance sheet as "retained financial interest" included in "net investment
in automobile receivables."
The amount of gain on sale which the Company recognizes upon the sale of
retail installment contracts is based, in part, on estimates of the amount and
timing of future credit losses and prepayments. The rate of losses will be
influenced by a variety of economic and other factors, including general
economic conditions and unemployment rates. The rate of prepayments will also
be influenced by a variety of economic and other factors, including general
levels of interest rates and the frequency with which consumers replace their
automobiles. Consequently, the Company's estimates may be subject to change.
There can be no assurance that the rate of future credit losses or prepayments
will not exceed the Company's estimations or historical experience. The Company
continually assesses its methodology and previous estimates as additional
information becomes available. The carrying value of the Company's retained
financial interest may be adjusted periodically to reflect differences between
previous estimates and actual credit losses and prepayment rates at each balance
sheet date using the same discount factor used in the original determination of
the receivable. If actual credit losses or prepayments on retail installment
contracts were to exceed the previous estimates used in calculating the related
gain on sale and retained financial interest, the Company would experience a
loss and a corresponding write-down of the carrying value of the Company's
retained financial interest. While the Company does not expect future changes
in its methodology or future levels of actual credit losses and prepayments to
have a significantly adverse effect on the carrying value of the retained
financial interest, there can be no assurance that such effect will not occur.
Periodic comparison of actual experience to previous estimates may, however,
result in adjustments to that asset.
Due to the recognition of earnings from the gain on sale resulting from the
sale of its retail installment contracts, the Company's reported earnings during
a particular period will be impacted by the amount and timing of additional
sales which the
18
<PAGE>
Company may consummate in such future periods. Variations to quarterly earnings
will result in relation to the amount and timing of the completion of such
retail installment contract sale transactions.
When the Company sells retail installment contracts, it provides additional
credit enhancement by retaining subordinated investments in such contracts
and/or by establishing a restricted cash spread account (a "cash spread
account"). Such retained subordinated investments are reflected on the balance
sheet as "retained subordinated investments" within "net investment in
automobile receivables" and any cash spread accounts are reflected in the
balance sheet as "restricted funds on deposit with banks."
For income tax purposes, the Company treats its leases, other than those
financed by two of the Lenders, as operating leases which, through depreciation
deductions, generate tax benefits for the Company by giving rise to net
operating losses ("NOLs"). These tax benefits have historically allowed the
Company to defer the cash payment of a significant portion of its income tax
liability. The leases which are financed by the remaining two Lenders are
financed on a tax transfer basis and, therefore, the entire lease premium is
recognized immediately upon financing. Other than with respect to the treatment
of the leases for income tax purposes, the Company's financial arrangements with
such two Lenders are similar in substance to those financed with the other
Lenders. For financial reporting purposes, no material distinction is drawn
between the arrangements with such two Lenders and the Company's other Lenders.
As a result of operating losses caused primarily by the tax treatment of
its leases, the Company had $94.1 million in NOL carryforwards for tax reporting
purposes at June 30, 1995. Under Section 382 of the Internal Revenue Code of
1986, as amended (the "Code"), the taxable income of the Company available for
offset by NOL carryforwards and certain built-in tax losses will be subject to
an annual limitation (the "382 Limitation") if an "ownership change" occurs. An
ownership change would occur if the total percentage of stock of the Company
owned by one or more "5-percent shareholders" (taking into account certain
aggregation and segregation rules) increases by more than 50 percentage points
during any three year period. If such an ownership change were to occur, the
382 Limitation would equal the value of the Company immediately before the
ownership change, subject to certain adjustments, multiplied by the long term
tax-exempt rate (as defined in Section 382), which for March 1996 was 5.31%.
To the extent the 382 Limitation exceeded the federal taxable income of the
Company for a given year, the 382 Limitation for the subsequent year would be
increased by such excess. The Company's NOL carryforwards, except to the extent
of certain built-in tax gains, would be disallowed entirely if the Company
failed to satisfy the continuity of business enterprise requirement for the two
year period following such an ownership change. Under the continuity of
business enterprise requirement, the Company must either continue
19
<PAGE>
its historical business or use a significant portion of its pre-ownership change
assets in a business.
Once financed or sold, the Company's leases and retail installment
contracts, respectively, are not affected by future interest rate fluctuations.
For leases, both the implicit rate in each lease and the Company's cost of funds
(i.e., the interest rate on the note payable financing such lease) are fixed for
the duration of the lease term. For retail installment contracts, both the
contract rate and the pass-through rate, which is determined at the time of the
sale, are fixed for the duration of the contract period.
For leases and retail installment contracts, the Company is exposed to
interest rate risk during the holding period between the time that a lease or
contract is originated and the time that it is financed or sold. The Company
typically holds leases prior to financing for less than a month. Any changes in
the Company's borrowing rates affect only new leases submitted for financing
after the date of change. In the case of retail installment contracts, holding
periods are generally longer than for leases and can be for up to six months.
If market interest rates were to increase in a period in which the Company was
holding an inventory of retail installment contracts prior to their sale, the
Company would recognize a reduction in the amount of gain subsequently realized
on the sale of such contracts. In the event that the Company utilizes different
financing structures for its leases and retail installment contracts in the
future, the Company may hold such leases and retail installment contracts for a
longer period prior to finance or sale. While the Company intends to engage in
additional transactions for the sale of its retail installment contract
originations there can be no assurance that any such transactions will be
consummated or of the timing thereof. The gain realized from a particular sale
transaction would be negatively impacted if, prior thereto, market interest
rates increased. From time to time, the Company utilizes hedging strategies
that are intended to decrease the impact of changes in market interest rates on
the gains realized from the sale of its retail installment contracts. These
strategies will not consistently or completely offset adverse interest rate
movements, during periods when the Company holds retail installment contracts
prior to their sale. When calculating the gain on any sale of retail
installment contracts, the Company includes in such gain any gain or loss on
associated hedging transactions.
The Company continues to test-market a used automobile leasing program.
While the Company intends to continue to test-market, and possibly expand, this
leasing program, there can be no assurance that this program will become a
material part of the Company's business or results of operations.
20
<PAGE>
Results of Operations
The following table sets forth information with respect to the Company's
sources of revenue for the three and nine month periods ended March 31, 1996
and 1995.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
----------------------------------- --------------------------------------
1996 1995 1996 1995
----------------- ----------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Rental income . . . . . $197,390 89.1% $162,186 91.5% $68,281 88.3% $56,240 91.1%
Interest and other
income . . . . . . . . 14,099 6.4 6,135 3.5 5,987 7.8 2,235 3.6
Gain on vehicle
dispositions and lease
terminations . . . . . 3,400 1.5 4,089 2.3 411 .5 1,702 2.7
Servicing income . . . 6,741 3.0 4,744 2.7 2,623 3.4 1,591 2.6
------- ---- -------- ----- ------- ------ ------- ----
Total revenues . . . $221,630 100.0% $177,154 100.0% $77,302 100.0% $61,768 100.0%
======== ====== ======== ====== ======= ====== ======= =======
</TABLE>
Three months ended March 31, 1996 compared to three months ended March 31,
1995
Revenues for the three months ended March 31, 1996 increased to
$77.3 million from $61.8 million for the three months ended March 31,
1995, representing an increase of 25.1%.
Rental income for the three months ended March 31, 1996 increased to $68.3
million from $56.2 million for the same three month period in the prior fiscal
year, representing an increase of 21.4%. The increase in rental income was
attributable to the increase in the Company's aggregate lease portfolio. At
March 31, 1996, the Company's lease portfolio had increased to $1.3 billion
(82,186 leases) from $989.3 million (63,199 leases) at March 31, 1995,
representing an increase of 30.3%. For the three months ended March 31,
1996, the Company originated $147.2 million of leases (8,934 leases), an
increase of 25.1% over the $117.7 million of leases (5,703 leases) originated
in the same period in the prior fiscal year.
Interest and other income for the three months ended March 31, 1996
increased to $6.0 million from $2.2 million for the same three month period
in the prior fiscal year, representing an increase of 167.9%. This increase
was primarily attributable to an increase in the gain on sale of retail
installment contracts sold. The gain on sale of retail installment
contracts sold for the three month period ended March 31, 1996 increased
to $3.1 million from $789,000 for the three month period ended March 31,
1995. If the Company increases its originations of retail installment
contracts in the future, interest and other income could grow due to
increases in interest income on retail installment contracts held for
sale and due to the associated gain on sale of such contracts. Interest and
other income would vary quarter to quarter due to the timing of
21
<PAGE>
such sales and the realization of associated gain on sale income.
Gain on vehicle dispositions and lease terminations for the three months
ended March 31, 1996 decreased to $411,000 from $1.7 million for the same period
in the prior fiscal year, representing a decrease of 75.9%. This decrease was
due to the lower average sales prices realized by the Company on the disposition
of its off-lease vehicles relative to their residual values due to reduced
vehicle demand primarily as a result of the harsh winter conditions in the
Northeast, where the Company's remarketing efforts are concentrated. The
decrease was also due to the decrease in the percentage of off-lease vehicles
sold by the Company on a consignment basis during the three month period ended
March 31, 1996 compared to the three month period ended March 31, 1995. The
total number of vehicles remarketed, including off-lease and repossessed
vehicles, for the three month periods ended March 31, 1996 and 1995 was 4,311
and 3,745, respectively. Direct vehicle repair and marketing costs associated
with such sales decreased to $1.4 million from $1.7 million, and are included in
selling, general and administrative expenses. The decrease in such expenses per
vehicle was primarily due to the increase in the percentage of off-lease
vehicles which were sold or re-leased to the lessees or third parties referred
by the lessees, and the decrease in the percentage of off-lease vehicles which
were sold on a consignment basis.
Servicing income for the three months ended March 31, 1996 increased to
$2.6 million from $1.6 million for the three months ended March 31, 1995,
representing an increase of 64.9%. This increase was attributable to the
increase in the number of leases and retail installment contracts serviced by
the Company.
Total expenses for the three months ended March 31, 1996 increased to $69.1
million from $56.9 million for the same period in the prior fiscal year,
representing an increase of 21.6%.
Substantially all of the Company's depreciation and amortization expense is
derived from the straight line depreciation and amortization of the Company's
vehicles under operating leases and capitalized initial direct costs,
respectively. Depreciation and amortization expense directly associated with
the Company's leased vehicles, for the three month period ended March 31, 1996,
increased to $32.9 million from $29.1 million for the same period in the prior
fiscal year, representing an increase of 13.0%. The increase in depreciation
and amortization expense was principally attributable to the increase in the
Company's aggregate lease portfolio from March 31, 1996 to March 31, 1995.
Substantially all of the Company's interest expense is the cost of the
borrowings attributable to the aggregate lease portfolio. Interest expense
directly associated with the Company's lease borrowings, for the three month
period ended March 31, 1996, increased to $24.2 million from $18.5 million for
the same period in the prior fiscal year, representing an increase of 30.9%.
22
<PAGE>
The increase in such interest expense was primarily due to the increased
borrowings attributable to the Company's aggregate lease portfolio. At
March 31, 1996, such aggregate non-recourse borrowings had increased to $1.3
billion from $1.0 billion at March 31, 1995, representing an increase of 31.8%.
Selling, general and administrative expenses for the three month period
ended March 31, 1996 increased to $11.3 million from $8.8 million for the same
period in the prior fiscal year, representing an increase of 28.2%. This
increase was primarily due to the increased costs associated with the increased
lease and loan originations for the three month period ended March 31, 1996 over
the same period in the previous fiscal year and from servicing such expanded
lease and loan portfolios.
As a result of the above factors, net income for the three month period
ended March 31, 1996 increased to $5.0 million from $3.0 million for the same
period in the prior fiscal year, representing an increase of 66.3%.
Nine months ended March 31, 1996 compared to nine months ended March 31,
1995
Revenues for the nine months ended March 31, 1996 increased to $221.6
million from $177.2 million for the nine months ended March 31, 1995,
representing an increase of 25.1%.
Rental income for the nine months ended March 31, 1996 increased to $197.4
million from $162.2 million for the same nine month period in the prior fiscal
year, representing an increase of 21.7%. The increase in rental income was
attributable to the increase in the Company's aggregate lease portfolio. For
the nine months ended March 31, 1996, the Company originated $443.3 million of
leases (25,799 leases), an increase of 29.7% over the $341.8 million of leases
(17,148 leases) originated in the same period in the prior fiscal year.
Interest and other income for the nine months ended March 31, 1996
increased to $14.1 million from $6.1 million for the same nine month period in
the prior fiscal year, representing an increase of 129.8%. This increase was
primarily attributable to an increase in the gain on sale of retail installment
contracts sold. The gain on sale of retail installment contracts sold for the
nine month period ended March 31, 1996 increased to $7.5 million from $1.7
million for the nine month period ended March 31, 1995.
Gain on vehicle dispositions and lease terminations for the nine months
ended March 31, 1996 decreased to $3.4 million from $4.1 million for the same
nine month period in the prior fiscal year. This decrease was due to the lower
average sales prices realized by the Company on the disposition of its off-lease
vehicles relative to their residual values due to reduced vehicle demand
primarily as a result of the harsh winter conditions in
23
<PAGE>
the Northeast, where the Company's remarketing efforts are concentrated. The
decrease was also due to the decrease in the percentage of off-lease vehicles
sold by the Company on a consignment basis during the nine month period ended
March 31, 1996 compared to the nine month period ended March 31, 1995. The
total number of vehicles remarketed, including off-lease and repossessed
vehicles, increased to 10,977 for the nine month period ended March 31, 1996
from 9,537 for the nine month period ended March 31, 1995 and direct vehicle
repair and marketing costs associated with such sales decreased to $3.7 million
from $4.1 million, and are included in selling, general and administrative
expenses. The decrease in such expenses per vehicle was primarily due to the
increase in the percentage of off-lease vehicles which were sold or re-leased to
the lessees or third parties referred by the lessees, and the decrease in the
percentage of off-lease vehicles which were sold on a consignment basis.
Servicing income for the nine months ended March 31, 1996 increased to $6.7
million from $4.7 million for the nine months ended March 31, 1995, representing
an increase of 42.1%. This increase was attributable to the increase in the
number of leases and retail installment contracts serviced by the Company.
Total expenses for the nine months ended March 31, 1996 increased to $199.4
million from $161.9 million for the same period in the prior fiscal year,
representing an increase of 23.1%.
Depreciation and amortization expense directly associated with the
Company's leased vehicles, for the nine month period ended March 31, 1996,
increased to $96.5 million from $84.0 million for the same period in the prior
fiscal year, representing an increase of 14.8%. The increase in depreciation
and amortization expense was principally attributable to the increase in the
Company's aggregate lease portfolio from March 31, 1995 to March 31, 1996.
Interest expense directly associated with the Company's lease borrowings,
for the nine month period ended March 31, 1996, increased to $69.2 million from
$52.6 million for the same period in the prior fiscal year, representing an
increase of 31.4%. The increase in such interest expense was primarily due to
the increased borrowings attributable to the Company's aggregate lease
portfolio.
Selling, general and administrative expenses for the nine month period
ended March 31, 1996 increased to $32.0 million from $24.0 million for the same
period in the prior fiscal year, representing an increase of 33.4%. This
increase was primarily due to the increased costs associated with the increased
lease and loan originations for the nine month period ended March 31, 1996 over
the same period in the previous fiscal year and from servicing such expanded
lease and loan portfolios.
24
<PAGE>
As a result of the above factors, net income for the nine month period
ended March 31, 1996 increased to $13.5 million from $9.3 million for the same
period in the prior fiscal year, representing an increase of 45.9%.
25
<PAGE>
Liquidity and Capital Resources
The following table sets forth the major components of the increase
(decrease) in cash and cash equivalents:
Nine Months Ended March 31,
--------------------------
1996 1995
---- ----
(in thousands)
Net cash provided by operating activities $ 78,124 $85,622
Net cash used in investing activities . . (318,848) (239,056)
Net cash provided by financing activities 267,251 149,987
-------- --------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . $ 26,527 ($3,447)
======== =========
The Company's net cash provided by operating activities in the periods
indicated above has been significantly greater than its net income. Included in
the net cash provided by operating activities is net income plus non-cash
adjustments aggregating $64.6 million and $76.3 million for the nine months
ended March 31, 1996 and 1995, respectively. Depreciation expense was the major
component of such non-cash adjustments in each period.
The Company's most significant uses of cash include the purchase of
vehicles subject to operating leases and the principal payments on "notes
payable - non-recourse." The cash used to purchase vehicles is generated by the
Company's financing such leases on a non-recourse basis with various Lenders.
At March 31, 1996, the Company's non-recourse borrowings associated with its
vehicles under operating leases aggregated $1.3 billion. The Company has no
binding commitments from any Lender to fund future leases nor has the Company
committed to provide lease receivables to any Lender.
Furthermore, the Company's ability to finance substantially all of its
leases at a premium to the respective vehicle costs provides a substantial
source of cash. The following table sets forth information regarding the net
excess cash derived from financing its lease originations during each period
indicated.
26
<PAGE>
Nine Months Ended March 31,
---------------------------
1996 1995
---- ----
(in thousands)
Proceeds from notes payable and obligations
under capital leases - non-recourse(1) . . $476,491 $356,916
Purchases of vehicles under operating
leases(2) . . . . . . . . . . . . . . . . 436,314 326,523
------- ---------
Total net cash proceeds . . . . . . . . . . $ 40,177 $ 30,393
======== =========
_________________________________
(1) Excludes those leases which have been partially funded by a Lender
representing proceeds of $7.2 million for each of the nine months ended
March 31, 1996 and 1995.
(2) Excludes those leases which have been partially or not funded by a Lender
representing purchases of vehicles under operating leases of $6.9 million
and $15.3 million for the nine months ended March 31, 1996 and 1995,
respectively.
The cash used for principal payments on notes payable - non-recourse is
principally generated from the pass-through of monthly lease payments which are
pledged as collateral to the notes and from the proceeds realized from the
disposal of vehicles. The Company is obligated to dispose of those vehicles
which reach scheduled lease termination and to pay their associated Residuals to
the Lenders. The Company expects to realize proceeds from the remarketing of
such corresponding vehicles in an amount sufficient to pay such Residuals,
although there can be no assurances that it will be able to do so.
During the nine month period ended March 31, 1996, the Company also used
cash (i) to purchase retail installment contracts, including the payment of
dealer commissions, (ii) to provide credit enhancement with respect to the sale
of retail installment contracts and (iii) to finance its inventory of off-lease
automobiles.
In order to facilitate the purchase of motor vehicle retail installment
contracts, the Company has sold substantially all of its retail installment
contracts in securitization transactions and on a whole loan basis. During the
nine months ended March 31, 1996, the Company purchased and sold, respectively,
$185.8 million and $158.1 million of retail installment contracts. The
difference between the amount originated and sold during such period is
primarily due to the timing of retail installment contract sale transactions.
The Company has never had any difficulty in selling its retail installment
contracts on terms favorable to the Company, although there can be no assurance
that it will be able to continue to do so. The Company expects to continue to
sell, primarily on a securitized basis, substantially all of the retail
installment contracts it originates, but there can be no assurance that any such
transactions will be consummated. Whether or not any such transactions are
consummated in the future, and the timing thereof, is dependent upon numerous
factors, including the new and used automobile sale market, the general
interest rate environment,
27
<PAGE>
market competition, the condition of the asset-backed securitization markets and
the Company's ability to warehouse any retail installment contracts originated
by it.
During the three month period ended March 31, 1996, the Company negotiated
an increase in its commercial paper conduit facility to provide the Company with
up to $250.0 million of availability to securitize its retail installment
contract originations through March 31, 1997. The Company sold approximately
$158.1 million of retail installment contracts to such facility during the nine
months ended March 31, 1996. The Company intends to sell additional retail
installment contracts into such facility in the future, subject to prevailing
interest rates and other factors. After giving effect to the $68.5 million of
retail installment contracts sold to the facility during the three month period
ended March 31, 1996, the Company has $77.9 million of remaining availability
under such facility.
The Company requires a substantial amount of cash to purchase retail
installment contracts and to hold them prior to sale. Historically, the Company
has funded such activity with available cash. As retail installment contract
originations continue to grow, the Company expects that it will need to obtain
interim warehouse funding. No assurance can be made that such financing will be
obtainable on favorable terms.
The Company also utilizes cash both to fund dealer commissions in
connection with the origination of retail installment contracts and to fund
credit enhancement associated with the sale of such contracts either in the form
of retained subordinated investments and/or cash spread accounts. For the nine
months ended March 31, 1996, dealer commissions associated with the Company's
retail installment contract originations were $7.2 million. With respect to
retail installment contracts sold in the nine months ended March 31, 1996,
initial deposits to cash spread accounts and retained subordinated investments
in such contracts sold totalled $7.9 million. The indirect automobile lending
operations generate cash flow from collections on retained subordinated
investments and withdrawals from cash spread accounts (i.e., excess cash flow).
Such cash flow is available to fund the Company's dealer commissions, retained
subordinated investments and cash spread accounts. For the nine months ended
March 31, 1996, excess cash flow and collections on retained subordinated
investments received by the Company from previously sold contracts were, in the
aggregate, $3.5 million. Excess cash flow and collections on retained
subordinated investments to be realized by the Company in the future from
contracts previously sold are expected to enable the Company to recover the
retained financial interest, retained subordinated investments and cash spread
accounts associated with such sold contracts. As retail installment contract
originations continue to grow, the Company expects to fund dealer commissions
and credit enhancement from available cash, excess cash flow and collections on
retained subordinated investments from contracts previously sold. Although the
Company believes it will be able to
28
<PAGE>
obtain financing and achieve liquidity (including through any required
warehousing arrangements) adequate to support its current and future indirect
automobile lending operations, there can be no assurance that it will be able to
do so.
The Company enters into hedging transactions from time to time in an
attempt to reduce its exposure to interest rate risk during the period that the
Company holds retail installment contracts prior to their sale. By entering
into such hedging transactions, the Company attempts to obtain an inverse
relationship between the value of the retail installment contracts held for sale
and the value of the hedge positions entered into by the Company when market
interest rates change. This includes certain risks created by the cash versus
non-cash relationship of the hedging instruments and the related sale of the
retail installment contracts. This relationship arises because the hedging
instruments are settled with current cash payments while the gain associated
with the sale of the retail installment contracts represents the present value
of estimated future cash flows. In the event that losses result from hedging
transactions, the resulting cash payments would adversely impact the Company's
liquidity.
The Company's vehicle inventory at March 31, 1996 was $13.6 million as
compared to $19.8 million at March 31, 1995. Because the Company expects to
increase the number of vehicles sold in each of the next several years due to an
increasing number of vehicles reaching scheduled lease termination, vehicle
inventories are expected to increase. The Company expects to finance its
vehicles held for sale with its revolving credit facilities and available cash.
The Company maintains a $3.0 million revolving credit facility at an
interest rate of prime plus 1.0% to finance automobile inventory held for sale.
At March 31, 1996, the Company had an aggregate availability under the facility
of $3.0 million. The Company also maintains an additional $10.0 million line of
credit facility at an interest rate of prime rate to finance its automobile
inventory held for sale. At March 31, 1996, the Company had an aggregate
availability under the facility of $10.0 million.
The Company incurred capital expenditures of $4.9 million in the nine
months ended March 31, 1996. The Company is continuing to review and upgrade
its current computer data processing and servicing systems and expects to
continue to invest capital to obtain new hardware and software for such systems.
The Company also expects to make certain additional capital improvements to its
new reconditioning and remarketing facility during the current quarter and
beyond. In addition, the Company is considering the possibility of relocating
some or all of its corporate headquarters to additional space or a larger
facility due to space limitations at its current corporate headquarters. If the
Company does so, it may be required to expend capital to acquire and/or
refurbish (if necessary) such new space. The Company has no other material
commitments for capital expenditures.
29
<PAGE>
The Company believes, based on its historical cash requirements and
anticipated uses of cash, that the cash derived from its operating and financing
activities will be sufficient to meet its cash requirements and implement its
business plan through the end of fiscal 1996.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable.
-----------------
Item 2. Changes in Securities - Not Applicable.
---------------------
Item 3. Defaults Upon Senior Securities - Not Applicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders -
---------------------------------------------------
Not Applicable.
Item 5. Other Information - Not Applicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Please see Index of Exhibits following the signature page of this Report.
(b) Reports on Form 8-K
-------------------
The Company was not required to file a current report on Form 8-K during
the quarter ended March 31, 1996 and none were filed during that period.
30
<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.
OXFORD RESOURCES CORP.
(Registrant)
Date: May 9, 1996 By Christopher S. Pascucci
-------------------------
Christopher S. Pascucci
Executive Vice President &
Chief Financial Officer
Signing on behalf of the registrant
and as principal financial officer
31
<PAGE>
INDEX OF EXHIBITS
Sequential
Exhibit Number Description Page No.
- - -------------- ----------- ----------
11 Statement of Computation of Net 33
Income Per Common Share
27 Financial Data Schedule 34
32
Exhibit 11
Oxford Resources Corp.
and Subsidiaries
Statement of Computation of
Net Income Per Share
Nine Months Ended
March 31,
1996 1995
- - -------------------------------------------------------------------------------
(In thousands except per share data)
Net income $13,549 $9,286
-------------- ----------
Weighted average common shares
outstanding 14,195 13,268
Common stock equivalents 231 9
Weighted average number of common -------------- ----------
and common equivalent shares outstanding 14,426 13,277
============== ==========
Primary earnings per share $0.94 $0.70
============== ==========
33
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS CONTAINED
IN THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 63,426,864
<SECURITIES> 7,171,712
<RECEIVABLES> 61,367,983<F1>
<ALLOWANCES> 0
<INVENTORY> 26,225,775<F2>
<CURRENT-ASSETS> 0
<PP&E> 9,263,838
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,466,659,838<F3>
<CURRENT-LIABILITIES> 0
<BONDS> 0<F4>
0
0
<COMMON> 148,357
<OTHER-SE> 85,375,375
<TOTAL-LIABILITY-AND-EQUITY> 1,466,659,838
<SALES> 0
<TOTAL-REVENUES> 221,630,427
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 130,166,510<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,250,441
<INCOME-PRETAX> 22,213,476
<INCOME-TAX> 8,664,000
<INCOME-CONTINUING> 13,549,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,549,476
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
<FN>
<F1> Net investment in automobile receivables
<F2> Inventory and other assets
<F3> Includes vehicles under operating leases-net
<F4> Notes payable and obligations under capital leases-non-recourse
<F5> Selling, general and administrative and depreciation
</FN>
</TABLE>
