<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 1997)
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from ________________to_______________
Commission File Number: 0-24286
EAGLE FINANCE CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 36-2464365
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1425 TRI-STATE PARKWAY, GURNEE, ILLINOIS 60031-4060
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(847) 855-7150
----------------------------------------------------
(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:
10,000,000 shares of common stock, $0.01 par value per share, were authorized
and 4,228,690 shares were issued and outstanding as of September 30, 1997.
<PAGE>
EAGLE FINANCE CORP.
FORM 10-Q
________________________
TABLE OF CONTENTS
________________________
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Income. . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Changes in Stockholders' Equity. . . . . . . . . . . . 5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 2. CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . 22
Item 3. DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . . . . . 22
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . 22
Item 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . 22
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-1
2
<PAGE>
EAGLE FINANCE CORP.
BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND 1996 AND DECEMBER 31, 1996
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------- DECEMBER 31,
1997 1996 1996
------------ ------------- -----------
<S> <C>
Finance receivables, net. . . . . . . . . . . . . . . . . . $ 46,512,640 $118,001,578 $54,663,926
Nonrefundable acquisition discount. . . . . . . . . . . . . (769,956) (3,789,744) (1,443,164)
Allowance for credit losses . . . . . . . . . . . . . . . . (4,075,078) (7,949,865) (6,045,514)
------------ ------------ -----------
41,667,606 106,261,969 47,175,248
Excess servicing receivable . . . . . . . . . . . . . . . . 2,645,331 -- 1,050,590
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,341,969 2,198,112 1,271,594
Money market investments. . . . . . . . . . . . . . . . . . 552,301 545,509 552,651
Prepaid expenses and debt issuance costs. . . . . . . . . . 1,161,996 1,875,702 1,554,082
Repossessed or titled assets. . . . . . . . . . . . . . . . 1,902,452 5,388,343 4,249,443
Income tax receivable . . . . . . . . . . . . . . . . . . . -- -- 4,732,346
Deferred income tax benefit . . . . . . . . . . . . . . . . 1,467,129 4,865,984 1,004,912
Other assets . . . . . . . . . . . . . . . . . . . . . . 2,854,811 543,200 2,176,696
------------ ------------ -----------
$ 54,593,595 $121,678,819 $63,767,562
------------ ------------ -----------
------------ ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior debt . . . . . . . . . . . . . . . . . . . . . . . . 27,996,177 $84,491,239 $32,827,893
Subordinated debt . . . . . . . . . . . . . . . . . . . . . 17,597,981 18,006,905 17,977,720
Accrued interest. . . . . . . . . . . . . . . . . . . . . . 152,710 160,967 468,533
Accounts payable and accrued liabilities. . . . . . . . . . 2,598,322 2,636,405 1,893,737
Unearned insurance commissions. . . . . . . . . . . . . . . 1,179 23,884 5,158
Dealer reserves . . . . . . . . . . . . . . . . . . . . . . 271,357 278,505 286,783
------------ ------------ -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 48,617,726 105,597,905 53,459,824
Stockholders' equity:
Preferred Stock, authorized 3,000,000 shares;
none issued . . . . . . . . . . . . . . . . . . . . . . . -- -- --
Common Stock: $.01 par value, authorized 10,000,000
shares, issued and outstanding 4,228,690 shares . . . . . 42,287 41,891 41,891
Additional paid-in capital. . . . . . . . . . . . . . . . . 13,593,206 13,514,422 13,514,422
Retained earnings . . . . . . . . . . . . . . . . . . . . . (7,659,624) 2,524,601 (3,248,575)
------------ ------------ -----------
Total stockholders' equity. . . . . . . . . . . . . . . . . 5,975,869 16,080,914 10,307,738
------------ ------------ -----------
$54,593,595 $121,678,819 $63,767,562
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
EAGLE FINANCE CORP
STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fee income. . . . . . . . . . . . $2,738,079 $6,949,015 $9,344,063 $22,308,922
Interest expense . . . . . . . . . . . . . . . (1,311,917) (2,406,059) (4,072,396) (7,278,781)
----------- ---------- ----------- ----------
Net interest income . . . . . . . . . . . . . . . 1,426,162 4,542,956 5,271,667 15,030,141
Provision for credit losses . . . . . . . . . . . (1,297,225) (1,730,000) (4,465,546) (6,626,000)
----------- ---------- ----------- ----------
Net interest income after provision
for credit losses . . . . . . . . . . . . . . . 128,937 2,812,956 806,121 8,404,141
Other income:
Servicing income . . . . . . . . . . . . . . . 524,777 1,758,189 2,964,349 4,111,599
Gain on sale of finance receivables. . . . . . 468,563 -- 3,089,795 --
Insurance commissions. . . . . . . . . . . . . -- 8,530 5,044 43,615
----------- ---------- ----------- ----------
Total other income. . . . . . . . . . . . . . . . 993,340 1,766,719 6,059,188 4,155,214
Income before operating expenses. . . . . . . . . 1,122,277 4,579,675 6,865,309 12,559,355
Operating expenses:
Salaries and related costs . . . . . . . . . . 1,941,567 2,033,544 5,928,035 5,915,906
Other operating expenses . . . . . . . . . . . 1,634,133 2,198,669 5,348,323 6,006,450
----------- ---------- ----------- ----------
Total operating expenses. . . . . . . . . . . . . 3,575,700 4,232,213 11,276,358 11,922,356
----------- ---------- ----------- ----------
Income (loss) before income taxes . . . . . . . . (2,453,423) 347,462 (4,411,049) 636,999
Applicable income taxes . . . . . . . . . . . . . -- 133,439 -- 212,423
----------- ---------- ----------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $(2,453,423) $214,023 $(4,411,049) $424,576
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Per share data:
Net income (loss) per common share
(primary) . . . . . . . . . . . . . . . . . . ($0.58) $0.05 ($1.05) $0.10
Net income (loss) per common share
(fully diluted) . . . . . . . . . . . . . . . ($0.58) $0.05 ($1.05) $0.09
Average number of common shares
outstanding (primary) . . . . . . . . . . . . 4,206,313 4,189,100 4,194,901 4,189,100
Average number of common shares
outstanding (fully diluted) . . . . . . . . . 4,206,313 4,189,100 4,194,901 4,195,809
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
EAGLE FINANCE CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Common stock:
Balance at beginning of period . . . . . . . . $ 41,891 $ 41,891 $ 41,891 $ 41,891
Stock grants . . . . . . . . . . . . . . . . . 396 -- 396 --
----------- ---------- ----------- ----------
42,287 41,891 42,287 41,891
----------- ---------- ----------- ----------
Additional paid-in capital:
Balance at beginning and end of period . . . . 13,514,422 13,514,422 13,514,422 13,514,422
Stock grants . . . . . . . . . . . . . . . . . 78,784 -- 78,784 --
----------- ---------- ----------- ----------
13,593,206 13,514,422 13,593,206 13,514,422
----------- ---------- ----------- ----------
Retained earnings:
Balance at beginning of period . . . . . . . . (5,206,201) 2,310,578 (3,248,575) 2,100,024
Net income (loss). . . . . . . . . . . . . . . (2,453,423) 214,023 (4,411,049) 424,577
----------- ---------- ----------- ----------
(7,659,624) 2,524,601 (7,659,624) 2,524,601
----------- ---------- ----------- ----------
Total stockholders' equity. . . . . . . . . . . . $5,975,869 $16,080,914 $5,975,869 $16,080,914
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
EAGLE FINANCE CORP.
STATEMENTS OF CASH FLOWS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . $ (2,453,423) $ 214,022 $ (4,411,049) $ 424,576
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Provision for credit losses . . . . . . . . 1,297,225 1,730,000 4,465,546 6,626,000
Net finance receivable (charge-offs)
recoveries against allowance. . . . . . . (1,518,366) (2,672,558) (6,435,982) (9,483,970)
Decrease (increase) in:
Prepaid expenses unrelated to debt. . . . (104,487) 484,003 47,087 (311,265)
Excess servicing receivable . . . . . . . 237,440 -- (1,594,741) --
Repossessed or titled assets. . . . . . . (44,633) (626,362) 2,346,991 (959,203)
Other assets. . . . . . . . . . . . . . . (149,324) 738,948 (678,115) 709,846
Deferred income tax . . . . . . . . . . . 3,400 772,071 4,270,129 --
Increase (decrease) in:
Accrued interest. . . . . . . . . . . . . (350,281) (206,386) (315,823) (341,867)
Accrued income tax. . . . . . . . . . . . (1,925) (729,714) -- (1,412,858)
Accounts payable and accrued
liabilities . . . . . . . . . . . . . . 501,184 (350,539) 704,585 (543,921)
Unearned insurance commissions. . . . . . (30) (6,368) (3,979) (22,231)
Dealer reserves . . . . . . . . . . . . . (2,233) (12,196) (15,426) (34,359)
Nonrefundable dealer reserves . . . . . . (26,980) (1,568,695) (673,208) (5,618,408)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . . . (2,612,433) (3,201,780) (2,293,985) (10,967,660)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of investments . . . . . . . . . . . . 562 8,646 350 (509)
Proceeds from bulk sale/securitization of
vehicle retail installment notes. . . . . . . 6,243,193 9,463,170 36,993,236 43,745,444
Principal collected on finance receivables. . . 3,577,106 10,728,904 13,527,013 37,868,774
Finance receivables originated or
acquired (net of write-offs). . . . . . . . . (16,579,279) (18,719,680) (42,368,963) (53,896,930)
----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities. . . . . . . . . . . . . . . . . . . (6,758,418) 1,481,040 8,151,636 27,716,779
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from draws on bank lines . . . . . . . 24,149,348 12,170,000 15,080,000 41,450,583
Repayments of borrowings. . . . . . . . . . . . (32,235,338) (9,601,631) (18,856,728) (58,082,214)
Debt to affiliate . . . . . . . . . . . . . . . (138,311) 20,195 (1,054,988) 471,313
Proceeds from issuance of other debt. . . . . . 23,085 36,791 73,853 92,519
Repayment of other debt . . . . . . . . . . . . (56,832) -- (453,592) (130,913)
Debt issuance cost. . . . . . . . . . . . . . . 60,824 (360,954) 344,999 (421,512)
Paid in capital . . . . . . . . . . . . . . . . 78,784 -- 78,784 --
Stock grants. . . . . . . . . . . . . . . . . . 396 -- 396 --
----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . 8,053,936 2,264,401 (4,787,276) (16,620,224)
----------- ----------- ----------- -----------
Cash, net change. . . . . . . . . . . . . . . . . (1,316,915) 543,661 1,070,375 128,895
Cash at beginning of period . . . . . . . . . . . 3,658,884 1,654,451 1,271,594 2,069,217
----------- ----------- ----------- -----------
Cash at end of period . . . . . . . . . . . . . . $ 2,341,969 $ 2,198,112 $ 2,341,969 $ 2,198,112
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental cash flow disclosures - cash paid
during the period for:
Interest. . . . . . . . . . . . . . . . . . . $ 1,662,198 $ 1,921,067 $ 4,388,219 $ 5,852,823
Income taxes and Illinois replacement tax. . . $ -- $ 91,082 $ 1,925 $ 1,625,282
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
EAGLE FINANCE CORP.
NOTES TO FINANCIAL STATEMENTS
1. The financial statements of Eagle Finance Corp., a Delaware corporation
(the "Company"), are unaudited, but in the opinion of management reflect all
necessary adjustments, consisting only of normal recurring accruals, for a
fair presentation of results as of the dates and for the periods covered by
the financial statements. The results for the interim periods are not
necessarily indicative of the results of operations that may be expected for
the fiscal year. Management suggests that the unaudited interim financial
statements contained herein be read in conjunction with the financial
statements and the accompanying notes to the financial statements included in
the Company's 1996 Annual Report on Form 10-K.
2. Net income (loss) per common share amounts are based on the weighted
average number of common shares and common stock equivalents outstanding as
reflected on Exhibit 11 to this Quarterly Report on Form 10-Q.
3. As of January 1, 1997, the Company adopted Financial Accounting Standards
Board Statement ("FASB") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("FASB 125"). FASB 125
is effective for transfers and servicing of financial assets and retirements
of liabilities occurring after December 31, 1996, and is to be applied
prospectively. FASB 125 provides accounting and reporting standards for
transfers and servicing of financial assets and retirements of liabilities
based on consistent application of a financial components approach that
focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Adoption of FASB 125 is
expected to have a material impact on the Company's financial position and
results of operations.
4. In February 1997, FASB Statement No. 128, "Earnings Per Share" ("FASB
128"), was issued. FASB 128 supersedes APB Opinion No. 15, Earnings Per Share
and specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. FASB 128 was issued to simplify the computation of
EPS and to make the U.S. standard more compatible with the EPS standards of
other countries and that of the International Accounting Standards Committee.
It replaces the presentation of primary EPS with a presentation of basic EPS
and fully diluted EPS with diluted EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Basic EPS, unlike primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS under APB 15.
FASB 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted (although pro forma EPS disclosure in the footnotes for periods
prior to required adoption is permitted). After adoption, all prior-period
EPS data
7
<PAGE>
presented must be restated to conform with FASB 128. Although no assurances
can be provided, the Company does not expect adoption of FASB 128 to have a
significant impact on the Company's financial condition or results of
operations.
In June 1997, FASB issued FASB Statement No. 130, "Reporting
Comprehensive Income", which is effective for fiscal years beginning after
December 15, 1997 ("FASB 130"). The statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same
prominence as other financial statements. Although no assurances can be
provided, the Company does not expect adoption of FASB 130 to have a
significant impact on the Company's financial condition or results of
operations.
THIS REPORT MAY CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY INTENDS SUCH
FORWARD-LOOKING STATEMENTS TO BE COVERED BY THE SAFE HARBOR PROVISIONS FOR
FORWARD-LOOKING STATEMENTS CONTAINED IN THE PRIVATE SECURITIES REFORM ACT OF
1995, AND IS INCLUDING THIS STATEMENT FOR PURPOSES OF INDICATING SUCH INTENT.
FORWARD-LOOKING STATEMENTS THAT ARE BASED ON CERTAIN ASSUMPTIONS, AND
DESCRIBE FUTURE PLANS, STRATEGIES AND EXPECTATIONS OF THE COMPANY, ARE
GENERALLY IDENTIFIABLE BY USE OF THE WORDS "BELIEVE," "EXPECT," "INTEND,"
"ANTICIPATE," "ESTIMATE," "PROJECT" OR SIMILAR EXPRESSIONS. THE COMPANY'S
ABILITY TO PREDICT RESULTS OR THE ACTUAL EFFECT OF FUTURE PLANS OR STRATEGIES
IS INHERENTLY UNCERTAIN. FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON
THE OPERATIONS AND FUTURE PROSPECTS OF THE COMPANY INCLUDE, BUT ARE NOT
LIMITED TO, CHANGES IN INTEREST RATES, GENERAL ECONOMIC CONDITIONS,
LEGISLATIVE/REGULATORY CHANGES, MONETARY AND FISCAL POLICIES OF THE U.S.
GOVERNMENT, INCLUDING POLICIES OF THE U.S. TREASURY AND THE FEDERAL RESERVE
BOARD, THE QUALITY OR COMPOSITION OF THE COMPANY'S PORTFOLIO OF FINANCE
RECEIVABLES, THE ABILITY OF THE COMPANY TO OBTAIN DEBT OR OTHER FINANCING,
COMPETITION, DEMAND FOR FINANCIAL SERVICES IN THE COMPANY'S MARKET AREA AND
ACCOUNTING PRINCIPLES, POLICIES AND GUIDELINES. THESE RISKS AND UNCERTAINTIES
SHOULD BE CONSIDERED IN EVALUATING FORWARD-LOOKING STATEMENTS AND UNDUE
RELIANCE SHOULD NOT BE PLACED ON SUCH STATEMENTS. FURTHER INFORMATION
CONCERNING THE COMPANY AND ITS BUSINESS, INCLUDING ADDITIONAL FACTORS THAT
COULD MATERIALLY AFFECT THE COMPANY'S FINANCIAL RESULTS, IS INCLUDED IN OTHER
COMPANY FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a specialized financial services company engaged primarily
in acquiring and servicing automobile retail installment sales contracts
("Installment Contracts") for purchases of late model used automobiles by
"non-prime" consumers, who typically have limited access to traditional
sources of consumer credit. To a lesser extent, the Company also makes
direct consumer loans and finance leases and purchases other retail
installment sale contracts (collectively "Other Loans") and offers, as agent,
insurance and other products related to consumer finance transactions
(collectively "Insurance Products"). The Company maintains its corporate
headquarters and a regional office near Chicago in Gurnee, Illinois, and
operates two other regional offices in Tampa and Orlando, Florida.
As of September 30, 1997, the Company had active relationships (I.E., the
Company purchased Installment Contracts from such dealers during the
preceding 90 days) with approximately 380 dealers located primarily in
Florida, Illinois, South Carolina, Georgia and Wisconsin, and, to a lesser
extent, in Indiana, Ohio, Utah, Texas, New Mexico, Tennessee, Wyoming and
Colorado.
The following is management's discussion and analysis of the financial
condition of the Company at September 30, 1997 (unaudited) as compared to
September 30, 1996 (unaudited) and December 31, 1996, and the results of
operations for the three and nine months ended September 30, 1997 and 1996
(unaudited). This discussion should be read in conjunction with the
Company's financial statements and notes thereto appearing elsewhere in this
quarterly report. Data for the three months ended September 30, 1997 are not
necessarily indicative of results expected for the full fiscal year. The
ratios and percentages provided below are calculated using the detailed
financial information contained in the Company's financial statements and the
financial data included elsewhere in this Form 10-Q. References to "net"
finance receivables or Installment Contracts shall mean finance receivables
or Installment Contracts, as appropriate, net of unearned finance charges.
RECENT DEVELOPMENTS
On August 29, 1997, the Company sold approximately $6.2 million (net) of
Installment Contracts to General Electric Capital Corporation ("GECC") under
an Asset Purchase Agreement dated as of June 25, 1996, between the Company
and GECC (the "GECC Agreement"). As of September 30, 1997, the Company
serviced approximately $67.3 million (net) of Installment Contracts sold
pursuant to the GECC Agreement. Additionally, on October 29, 1997, the
Company sold approximately $429,000 (net) of Wisconsin originated Installment
Contracts to Wisconsin Finance Company. SEE "--Liquidity and Capital
Resources."
In late October, the Company entered into that certain Fourth Amendment
dated as of October 30, 1997, to the amended and restated Revolving Credit
Agreement (as amended and restated, the "Revolving Credit Agreement") which
provides for a revolving credit facility from a group of nine commercial
banks. The Fourth Amendment modifies certain terms of the Revolving Credit
Agreement and provides for the extension of the revolving credit facility
through January 30, 1998. SEE "Liquidity and Capital Resources."
In early November, the Company consolidated regional operations for its
southeastern region into its Tampa, Florida location. Accounts formerly
serviced from the Orlando office will be serviced at the Tampa location.
9
<PAGE>
GENERAL
Installment Contracts represented over 99% of the Company's net finance
receivables at September 30, 1997. Installment Contracts are purchased on a
non-recourse basis from automobile dealers and are typically secured by
medium-priced used automobiles. The automobiles are purchased by non-prime
consumers at retail prices typically ranging from approximately $5,000 to
$15,000. Installment Contracts financing such purchases typically have annual
percentage rates of interest ("APRs") ranging from 21% to 33% and repayment
terms ranging from 12 to 60 months. The average original principal amount
financed under Installment Contracts outstanding at September 30, 1997 was
approximately $7,800, at an average APR of approximately 25.2%, with an
average original term of approximately 39 months. The Company's experience
has shown, however, that the average life of the Company's Installment
Contracts is substantially less than 39 months due to payoffs and
repossessions that occur prior to contract maturity.
The Company's outstanding balance of owned or serviced (i.e., managed)
Installment Contracts declined to $131.4 million at September 30, 1997 from
$151.6 million at December 31, 1996 and from $164.7 million at September 30,
1996. This decline reflects the Company's emphasis on addressing credit
losses (rather than portfolio growth) during 1996 and 1997.
Interest and servicing income on managed Installment Contracts accounts
for most of the Company's revenue. The net amount of Installment Contracts
purchased declined to $54.0 million during the nine months ended September
30, 1997 from $87.1 million during the nine months ended September 30, 1996.
As reflected in the following table, the finance receivables (purchased or
originated) by the Company during the periods presented below consist
primarily of Installment Contracts.
The decrease in Installment Contract purchases in the third quarter and
nine months ended September 30, 1997, relative to comparable periods in 1996,
was primarily attributable to adjustments to the Company's credit guidelines
implemented during January 1997 through the adoption of the Eagle Credit
Index, a proprietary risk management tool developed for the Company. These
changes were directed toward reducing the rate of future charge-offs and
delinquencies. Management expects that contract purchase volume for the
remainder of 1997 will continue to be well below corresponding 1996 levels.
Accordingly, reduced Installment Contract volume combined with increases in
costs associated with borrowings or securitization activity will have a
material adverse effect on the Company's future profitability.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ---------------------------------------
1997 1996 1997 1996
------------------ -------------------- ---------------- --------------------
% OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
--------- ----- ------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Installment
Contracts
purchased (1) . . . . . . $22,980 99% $29,654 100% $53,994 100% $87,131 100%
Net Other
Loans originated (1). . . 136 1% 210 0% 252 0% 385 0%
------- ---- ------- ---- ------- ---- ------ ----
Total. . . . . . . . . . . . $23,116 100% $29,864 100% $54,246 100% $87,516 100%
------- ---- ------- ---- ------- ---- ------ ----
------- ---- ------- ---- ------- ---- ------ ----
</TABLE>
- ----------------
(1) Net of unearned finance charges
10
<PAGE>
SECURITIZATION TRANSACTIONS
The Company sells or securitizes (each, a "Securitization" or
"Securitization Transaction") Installment Contracts on a regular basis in
order to generate liquidity and to enable the Company to purchase additional
Installment Contracts. Securitization Transactions include the sale of
distinct portfolios of Installment Contracts with the servicing of the
Installment Contracts retained by the Company. The servicing arrangements
generally provide for the Company to earn a base servicing fee, computed as a
percentage of the outstanding balance of the Installment Contracts, as
compensation for its duties as servicer. In addition, the servicing
arrangements typically provide that the Company is entitled to certain bonus
and excess servicing fees, which represent collections on the securitized
portfolio of Installment Contracts in excess of the amounts corresponding to
(i) principal reductions on the securitized Installment Contracts, (ii) an
agreed upon rate of return and (iii) certain expenses (including, primarily,
base servicing fees). Base servicing fees, bonus servicing fees and excess
servicing fees are referred to herein, collectively, as "Servicing Fees."
The Company generally recognizes a gain at the time that it engages in a
Securitization Transaction. Gains are determined based upon the difference
between the sale proceeds and the Company's recorded investment in the
Installment Contracts included in a Securitization Transaction.
Additionally, gains are also comprised of the Company's estimates of excess
servicing receivables ("ESRs") for each Securitization Transaction. ESRs
represent the present value of the anticipated Servicing Fees on a
securitized portfolio of Installment Contracts. Aggregate ESRs are recorded
as an asset, and a corresponding gain is recorded in the period the
Securitization occurs. To the extent that the actual future performance of
the subject Installment Contracts results in lower Servicing Fees than
estimated, the recorded ESRs will be adjusted (at least quarterly) with
corresponding charges made against income in the period in which the
adjustment is made. To the extent that the actual Servicing Fees are greater
than estimated, the Company will record additional servicing fee income over
the periods in which excess Servicing Fees are collected during the life of
the subject portfolios.
During the quarter ended September 30, 1997, the Company sold (with
servicing retained) $6.2 million of Installment Contracts to GECC.
Consistent with the Company's adoption of FASB 125, a gain of $469,000 was
recognized and capitalized in the quarter ended September 30, 1997. The
Company intends to continue to record gains or losses, as appropriate,
resulting from future Securitizations in a manner consistent with generally
accepted accounting principles. The net amount of Installment Contracts
serviced by the Company for third parties was $84.9 million and $46.7 million
at September 30, 1997 and 1996, respectively. SEE "--Profitability" and
"--Liquidity and Capital Resources."
PROFITABILITY
The following table sets forth certain data relating to the Company's net
income for the three and nine months ended September 30, 1997 and 1996 and
for the year ended December 31, 1996:
11
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ---------------------- FOR THE YEAR ENDED
1997 1996 1997 1996 DECEMBER 31, 1996
--------- --------- -------- -------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average net finance receivables
Owned. . . . . . . . . . . . . . . . . . . . $ 43,555 $121,806 $50,257 $132,576 $116,797
Serviced . . . . . . . . . . . . . . . . . . 90,195 51,520 89,882 44,995 56,041
-------- -------- ------- -------- --------
Managed. . . . . . . . . . . . . . . . . . . 133,750 173,326 140,139 177,571 172,838
Average interest bearing
liabilities. . . . . . . . . . . . . . . . . 40,906 103,865 34,380 110,441 98,202
Total interest and fee income (owned). . . . . . 2,738 6,949 9,344 22,309 26,653
Total interest expense (owned) . . . . . . . . . 1,312 2,406 4,072 7,279 9,059
-------- -------- ------- -------- --------
Net interest income before
provision for credit losses
(owned). . . . . . . . . . . . . . . . . . . $ 1,426 $ 4,543 $ 5,272 $ 15,030 $ 17,594
-------- -------- ------- -------- --------
Average interest rate earned on
net finance receivables (owned). . . . . . . 25.15% 22.82% 24.79% 22.44% 22.82%
Average interest rate on interest
bearing liabilities (owned). . . . . . . . . 12.83% 9.27% 11.56% 8.79% 9.23%
-------- -------- ------- -------- --------
Net interest spread (owned). . . . . . . . . . . 12.32% 13.55% 13.23% 13.65% 13.59%
-------- -------- ------- -------- --------
Net interest margin (owned) (1). . . . . . . . . 13.10% 14.92% 13.99% 15.12% 15.06%
-------- -------- ------- -------- --------
</TABLE>
_____________________________
(1) Net interest margin represents net interest income on an annualized basis
divided by average net finance receivables.
A principal component of the Company's net income is its net interest
spread. Net interest spread represents the difference between interest
earned on finance receivables and interest paid for borrowed funds. The laws
of certain states establish the maximum interest rates, and prescribe the
types and maximum amounts of fees, insurance premiums and other amounts that
consumers may be charged. As is common in its market segment, the Company's
Installment Contracts generally bear the maximum allowable interest rates,
fees, premiums and other charges permitted under state law. As a result, the
Company has limited ability to offset increases in its cost of funds.
An increasingly larger component of the Company's profitability is the
servicing income earned on Securitization Transactions by the Company.
Servicing income is derived from base servicing fees for Installment Contract
administration and collection services and bonus or excess servicing fees
paid based on the performance of the securitized Installment Contracts. The
increase in servicing income was due to higher levels of Installment
Contracts serviced by the Company. The following table sets forth certain
data relating to servicing fees for the periods shown:
12
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- ------------- FOR THE YEAR ENDED
1997 1996 1997 1996 DECEMBER 31, 1996
-------------------------- -------------------------- -------------------
<S> <C> <C> <C> <C> <C>
Base servicing fees . . . . . . . . . . $690,704 $402,075 $2,065,872 $1,022,754 $1,712,437
Bonus/excess servicing fees(1). . . . . 898,050 1,356,114 2,751,505 3,088,845 3,705,841
Amortization of ESRs(1) . . . . . . . . (1,063,977) -- (1,853,028) -- (310,693)
---------- ---------- ---------- ---------- ----------
Net servicing fees. . . . . . . . . . . $524,777 $1,758,189 $2,964,349 $4,111,599 $5,107,585
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
_____________________________
(1) Servicing Fees in respect of pre-1997 Securitization Transactions with
GECC are recorded as income when received (I.E., on a cash-flow basis).
As a result, there is no amortization of ESRs with respect to Installment
Contracts included in such Securitization Transactions. A portion of the
bonus/excess servicing fees reflects cash flows from pre-1997
Securitization Transactions with GECC.
The Company maintains credit loss reserves to absorb potential losses in
its finance receivables portfolio. Credit loss reserves for the Company's
Installment Contracts portfolio are comprised of nonrefundable acquisition
discount and allowance for credit losses. SEE "--Credit Loss Experience."
The Company's liabilities are generally more interest-rate sensitive than
its finance receivables. As a result, significant increases in the Company's
cost of funds borrowed under its Revolving Credit Agreement are having an
adverse effect on profitability. SEE "--Liquidity and Capital Resources."
For the three and nine months ended September 30, 1997, the average
interest rate earned on net finance receivables (owned) increased 2.33% and
2.35%, respectively, over comparable 1996 periods. Generally, it would be
anticipated that improved margins would result in improved profitability;
however, due to significant increases in funding costs resulting from
subordinated debt representing a higher proportion of outstanding debt and
actions taken by lenders that are party to the Revolving Credit Agreement,
the average interest rate on interest bearing liabilities increased 3.56% and
2.77% for the three and nine months ended September 30, 1997, respectively,
over comparable 1996 periods. The effective cost of borrowing under the
Revolving Credit Agreement increased 5.25% to 14.24% and 3.58% to 11.97% for
the three and nine months ended september 30, 1997 over comparable 1996
periods. The effective cost of borrowing under the Credit Agreement may also
increase in the event that interest rates generally increase. The Company
has attempted to mitigate the adverse effect of these increases in interest
rates by entering into interest rate protection agreements. The Company has
purchased an interest rate cap and interest rate collars that provide limited
interest rate protection. Hedging activity provides benefit when market
changes occur in relation to the index rate; however, hedging activities are
not intended to provide the Company protection from increases to the
Company's base borrowing rate as established by the Company's Lenders. SEE
"--Liquidity and Capital Resources." The Company may utilize alternative
financing structures, such as a fixed rate senior or subordinated debt,
securitizations, whole loan sales or portfolio sales to attempt to mitigate
the adverse effect of interest rate increases.
Another significant component of the Company's profitability is the level
of its operating expenses. Operating expenses are influenced by the level of
volume and delinquency in the Company's installment contracts. The Company is
reducing the number of its employees, operating expenses and increasing
workloads in light of improving asset quality and reduced levels of managed
receivables.
13
<PAGE>
FINANCIAL CONDITION
Total assets decreased $9.2 million (14.4%) to $54.6 million at September
30, 1997 from $63.8 million at December 31, 1996 primarily due to a decrease
in net finance receivables (net of dealer reserves, nonrefundable acquisition
discount and allowance for credit losses) to $41.7 million at September 30,
1997 from $47.2 million at December 31, 1996. This decline in assets and
finance receivables is, in part, attributable to the securitization of
Installment Contracts and lower Installment Contract acquisition levels
resulting in reduced receivables outstanding. The Securitization of
Installment Contracts was part of the Company's financing plan. SEE
"--Liquidity and Capital Resources." The net amount of owned or serviced
Installment Contracts decreased to $131.4 million at September 30, 1997 from
$151.6 million at December 31, 1996. The net amount of owned or serviced
Installment Contracts was $164.2 million at September 30, 1996.
Total liabilities decreased $4.8 million (9.2%) to $48.6 million at
September 30, 1997 from $53.5 million at December 31, 1996, primarily due to
a decrease in total debt to $45.6 million at September 30, 1997 from $50.8
million at December 31, 1996. The decrease in total debt was primarily the
result of a reduction in borrowings under the Revolving Credit Agreement to
$28.0 million at September 30, 1997 from $31.8 million at December 31, 1996.
SEE "--Liquidity and Capital Resources." Total liabilities and stockholders'
equity decreased $9.2 million (14.4%) to $54.6 million at September 30, 1997
from $63.8 million at December 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth certain data relating to the Company's
results of operations for the three and nine months ended September 30, 1997
and 1996:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
-------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Automobile portfolio interest and fee
income . . . . . . . . . . . . . . . . . . . . . . . $2,643 $6,878 $9,168 $22,181
------- ------ ------ -------
Total interest and fee income. . . . . . . . . . . . . $2,738 $6,949 $9,344 $22,309
Total interest expense . . . . . . . . . . . . . . . . 1,312 2,406 4,072 7,279
------- ------ ------ -------
Net interest income before provision for
credit losses. . . . . . . . . . . . . . . . . . . . 1,426 4,543 5,272 15,030
Provision for credit losses. . . . . . . . . . . . . . 1,297 1,730 4,466 6,626
------- ------ ------ -------
Net interest income after provision for
credit losses. . . . . . . . . . . . . . . . . . . . 129 2,813 806 8,404
------- ------ ------ -------
Other Income:
Servicing income (from Installment
Contracts) . . . . . . . . . . . . . . . . . . 525 1,758 2,964 4,111
Gain on securitization . . . . . . . . . . . . . . . 469 -- 3,090 --
Insurance products commissions . . . . . . . . . . . -- 9 5 44
------- ------ ------ -------
Total other income . . . . . . . . . . . . . . . . . . 994 1,767 6,059 4,155
------- ------ ------ -------
Salaries and related costs . . . . . . . . . . . . . . 1,942 2,034 5,928 5,916
Other operating expenses . . . . . . . . . . . . . . . 1,633 2,199 5,348 6,006
------- ------ ------ -------
Total operating expenses . . . . . . . . . . . . . . . 3,575 4,233 11,276 11,922
------- ------ ------ -------
Income (loss) before taxes . . . . . . . . . . . . . . (2,453) 347 (4,411) 637
Taxes . . . . . . . . . . . . . . . . . . . . . . . -- 133 -- 212
------- ------ ------ -------
Net income (loss). . . . . . . . . . . . . . . . . . . $(2,453) $214 $(4,411) $425
------- ------ ------ -------
------- ------ ------ -------
</TABLE>
14
<PAGE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996. The Company experienced a net loss of $4.4 million for
the nine months ended September 30, 1997 compared to net income of $425,000
for the comparable 1996 period, primarily due to the decrease in net interest
income before provision for credit losses. Net interest income before the
provision for credit losses decreased 64.6% or $9.8 million to $5.3 million
for the nine months ended September 30, 1997 from $15.0 million for the
comparable 1996 period, primarily as a result of a decline in the outstanding
balance of net finance receivables owned by the Company. The reduction in
net interest income was only partially offset by a $3.1 million gain recorded
as a result of securitization activity.
Total interest expense decreased to $4.1 million for the nine months
ended September 30, 1997 from $7.3 million for the nine months ended
September 30, 1996. The decrease resulted from a decrease in the amount of
average debt outstanding, which was partially offset by higher borrowing
rates. The total debt outstanding at September 30, 1997 decreased to $45.6
million from $102.5 million at September 30, 1996. The average debt
outstanding for the nine months ended September 30, 1997 decreased to $47.0
million from $110.4 million for the nine months ended September 30, 1996.
The weighted average interest rate paid for borrowed funds increased to 11.6%
for the nine months ended September 30, 1997 from 8.8% for the nine months
ended September 30, 1996. This is a result of the subordinated debt
representing a higher proportion of total debt and the impact of higher
borrowing costs under the Revolving Credit Agreement which increased 42.7%
from the comparable period to 12.0% for the nine months ended September 30,
1997.
The provision for credit losses decreased $2.1 million to $4.5 million
for the nine months ended September 30, 1997 from $6.6 million for the nine
months ended September 30, 1996. The decline in the provision for credit
losses was due, in part, to the decline in the outstanding balance of net
finance receivables owned by the Company. SEE "--Credit Loss Experience."
Other income, consisting primarily of income from Servicing Fees and
gains on Securitization Transactions, increased 88.1% to $7.9 million for the
nine months ended September 30, 1997 from $4.2 million for the nine months
ended September 30, 1996. Servicing income, net of ESR amortization, was
$3.0 million and $4.1 million for the nine months ended September 30, 1997
and 1996, respectively. Gains on sale of $3.1 million were recognized for
the nine months ended September 30, 1997. No comparable gain was recognized
for the nine months ended September 30, 1996. This increase reflects the
increased amount of servicing-retained Securitizations of finance receivables
by the Company. SEE "--Profitability."
Total operating expenses decreased 5.0% to $11.3 million for the nine
months ended September 30, 1997 compared to $11.9 million for the nine months
ended September 30, 1996. The number of full time equivalent employees
decreased 23.9% at September 30, 1997 when compared to September 30, 1996.
The full financial impact of staffing reductions will be reflected in future
periods. The Company's other operating expenses decreased 11.0% to $5.3
million for the nine months ended September 30, 1997 compared to $6.0 million
the nine months ended September 30, 1996. Total operating expenses
(annualized) as a percentage of average net finance receivables owned or
serviced increased to 10.7% for the nine months ended September 30, 1997 as
compared to 8.9% for the nine months ended September 30, 1996, principally as
a result of a decrease in owned or serviced finance receivables.
No income tax expense was recorded for the nine months ended September 30,
1997, while $212,000 was recorded for the nine months ended September 30, 1996.
The decrease was due to the net
15
<PAGE>
loss experienced for the nine months ended September 30, 1997 as compared to
a net profit for the corresponding period in 1996.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THREE MONTHS ENDED
SEPTEMBER 30, 1996. The Company experienced a net loss of $2.5 million for
the three months ended September 30, 1997 compared to net income of $214,000
for the comparable 1996 period.
Net interest income before the provision for credit losses decreased
68.9% to $1.4 million for the three months ended September 30, 1997 from $4.5
million for the comparable 1996 period, primarily as a result of a decline in
the outstanding balance of net finance receivables owned by the Company.
Total interest expense decreased to $1.3 million for the three months
ended September 30, 1997 from $2.4 million for the three months ended
September 30, 1996. The decrease in interest expense resulted from a
reduction in the amount of average debt outstanding, partially offset by
higher borrowing rates. The weighted average interest rate paid for borrowed
funds increased to 12.8% for the three months ended September 30, 1997 from
9.3% for the three months ended September 30, 1996, primarily as a result of
a higher proportion of subordinated debt and the impact of higher borrowing
costs under the Revolving Credit Agreement, which increased 58.4% from the
comparable 1996 period to 14.2% for the three months ended September 30, 1997.
The provision for credit losses decreased $0.4 million to $1.3 million
for the three months ended September 30, 1997 from $1.7 million for the three
months ended September 30, 1996. SEE "--Credit Loss Experience."
Other income, consisting primarily of income from Servicing Fees and
gains on Securitization Transactions, decreased 43.8% to 993,000 for the
three months ended September 30, 1997 from $1.8 million for the three months
ended September 30, 1996. Servicing income, net of ESR amortization, was
$525,000 and $1.8 million for the three months ended September 30, 1997 and
1996, respectively. Gains on sale of $469,000 were recognized for the three
months ended September 30, 1997. No comparable gain was recognized for the
three months ended September 30, 1996. This increase reflects the increased
amount of servicing-retained Securitizations of finance receivables by the
Company. SEE "--Profitability."
Total operating expenses decreased to $3.6 million for the three months
ended September 30, 1997 compared to $4.2 million for the three months ended
September 30, 1996. Salaries and related costs decreased 4.5% or $92,000
from the corresponding period in 1996 to $1.9 million for the three months
ended September 30, 1997, due primarily to a decrease in the number of
employees and corresponding benefit costs as offset by normal pay increases.
The Company's other operating expenses decreased 25.7% to $1.6 million for
the three months ended September 30, 1997 compared to $2.2 million the three
months ended September 30, 1996. Total operating expenses (annualized) as a
percentage of average net finance receivables owned or serviced increased to
10.7% for the three months ended September 30, 1997 as compared to 9.5% for
the three months ended September 30, 1996.
No income tax expense was recorded for the three months ended September
30, 1997, while $133,000 was recorded for the three months ended September
30, 1996. The decrease was due to the cumulative net loss experienced for the
1997 tax year as compared to a net profit for the corresponding period in
1996.
16
<PAGE>
CREDIT LOSS EXPERIENCE
The Company's credit loss reserves are comprised of three components:
nonrefundable acquisition discount, allowance for credit losses and
refundable dealer reserves. The total of allowance for credit losses,
nonrefundable acquisition discount and dealer reserves equaled 11.0% and
10.2% of net owned finance receivables at September 30, 1997 and 1996,
respectively.
NONREFUNDABLE ACQUISITION DISCOUNT AND DEALER RESERVES. In order to
achieve an acceptable rate of return and appropriately reflect credit risks
generally associated with the Company's automobile finance business, the
Company purchases Installment Contracts from dealers at a discount from their
principal amount. The Company negotiates the amount of the discount with
dealers based upon various criteria, including the credit risk associated
with the contracts being purchased and market pricing factors. The discount
is nonrefundable, is equal to the difference between (a) the total principal
amount to be repaid under the Installment Contract and (b) net funds paid to
the dealer, and is allocated to the nonrefundable acquisition discount
account. As part of the Company's financing of retail installment sales
contracts (other than Installment Contracts), refundable dealer reserves may
be established to protect the Company from losses associated with such
contracts, and are shown as a liability of the Company.
The following table presents a reconciliation of the changes in
nonrefundable acquisition discount and dealer reserves for the three and nine
months ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
------- ------ ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period. . . . . . . . . $1,070 $5,649 $1,730 $ 9,721
Additions applicable to new volume. . . . . . . 1,843 3,261 4,945 8,642
Reductions applicable to accounts sold. . . . . (749) -- (3,853) (3,982)
Losses charged, net of recoveries . . . . . . . (1,123) (4,842) (1,781) (10,313)
------ ------ ------ -------
Balance at end of period. . . . . . . . . . . . $1,041 $4,068 $1,041 $ 4,068
------ ------ ------ -------
------ ------ ------ -------
Balance at end of period as a percentage
of net finance receivables (owned) at
end of period . . . . . . . . . . . . . . . . 2.24% 3.45% 2.24% 3.45%
</TABLE>
ALLOWANCE AND PROVISION FOR CREDIT LOSSES/CHARGE-OFFS. The Company
maintains an allowance for credit losses at a level that management believes
is adequate to absorb potential losses in its finance receivables portfolio.
Management evaluates the adequacy of the allowance for credit losses by
reviewing credit loss experience and delinquency trends using static pool
analysis, the value of the underlying collateral and general economic
conditions and trends. If the amount of nonrefundable acquisition discount
associated with a specific pool of Installment Contracts is determined to be
insufficient, in the opinion of management, to absorb projected losses for
that pool, a provision for credit losses would be charged against earnings.
The Company's general policy is to charge-off delinquent accounts when they
are deemed uncollectible, and in any event prior to their becoming 90 days
contractually delinquent. The Company's charge-offs through nonrefundable
acquisition discount and allowance for credit losses, as a percentage of
average owned Installment Contracts (net) annualized, was $2.6 million, or
21.2%, during the three months ended September 30, 1997, and $7.5 million, or
22.7%, during the corresponding period in 1996.
17
<PAGE>
The following table reflects the Company's allowance and provision for
credit losses for the three and nine months ended September 30, 1997 and
1996:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
------- ------ ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at beginning of period . . . . . . . $4,296 $8,892 $6,046 $10,807
Provision charged to expense . . . . . . . . 1,297 1,730 4,466 6,626
Losses charged net of recoveries . . . . . . (1,518) (2,672) (6,437) (9,483)
------ ------ ------ -------
Balance at end of period . . . . . . . . . . $4,075 $7,950 $4,075 $7,950
------ ------ ------ -------
------ ------ ------ -------
Allowance as a percentage of net
finance receivables (owned) at end of
period. . . . . . . . . . . . . . . . . . 8.76% 6.47% 8.76% 6.47%
</TABLE>
DELINQUENCIES
The Company monitors delinquencies in the managed finance receivables
portfolio to gauge overall credit trends. Managed finance receivables that
were 30 days and greater contractually delinquent (net of unearned finance
charges) were $11.4 million, $16.6 million and $15.4 million, representing
8.7%, 11.0% and 9.3% of net managed finance receivables, as of September 30,
1997, December 31, 1996, and September 30, 1996, respectively. Managed
finance receivables that were 60 days and greater contractually delinquent
(net of unearned finance charges) were $3.1 million, $3.1 million and $3.3
million, representing 2.4%, 2.2% and 1.9% of net managed finance receivables
as of September 30, 1997, December 31, 1996, and September 30, 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations through cash flow from operations,
borrowings under the Revolving Credit Agreement, proceeds from subordinated
indebtedness and from the periodic sale or securitization of Installment
Contracts and other finance receivables.
Net cash provided by (used in) operating activities totaled ($2.6)
million and ($3.2) million during the three months ended September 30, 1997
and 1996, respectively. For the nine months ended September 30, 1997 and
1996, net cash provided by (used in) operating activities totaled ($2.3)
million and ($11.0) million, respectively. During these periods, the primary
source of net cash provided by (used in) operating activities has been net
income for the 1996 periods, and the net changes in the provision for credit
losses and the nonrefundable acquisition discount accounts. Net cash
provided by operating activities was affected by reductions in income tax
receivables and repossessed assets for the three and nine months ended
September 30, 1997. Net cash used in operating activities for the three and
nine months ended September 30, 1997 and 1996 was affected by the significant
decline in the nonrefundable acquisition discount account and by the net
change in the allowance for credit losses.
Net cash provided by (used in) investing activities represents the net
investment in, or liquidation of, finance receivables, which for the
three-month period ended September 30, 1997 and 1996 was ($6.8) million and
$1.5 million, respectively. For the nine months ended September 30, 1997 and
1996, net cash provided by (used in) investing activities was $8.2 million
and $27.7 million, respectively. During the three months ended September 30,
1997 and 1996, cash provided from the sale/securitization of Installment
Contracts was $9.5 million and $6.2 million, respectively. Cash provided
from the
18
<PAGE>
sale/securitization of Installment Contracts was $37.0 million and $43.8
million for the nine months ended September 30, 1997 and 1996, respectively.
Net cash provided by (used in) financing activities for the three and
nine months ended September 30, 1997 and the comparable 1996 periods largely
result from borrowings and repayments under the Revolving Credit Agreement.
Net cash provided by (used in) financing activities for the three months
ended September 30, 1997 was $8.1 million and net cash provided by financing
activities for the three months ended September 30, 1996 was $2.3 million.
For the nine months ended September 30, 1997 and 1996, net cash provided by
(used in) financing activities was ($4.8) million and ($16.6) million,
respectively.
The self-liquidating nature of Installment Contracts and Other Loans
enables the Company to maintain higher debt-to-equity ratios than in most
other businesses. The amount of debt the Company incurs from time to time
depends on the Company's need for cash and its ability to borrow under the
terms of the Revolving Credit Agreement. Although no assurances can be
provided in this regard, the Company intends to meet its short- and long-term
liquidity needs with cash flow from operations, borrowings under the
Revolving Credit Agreement, the sale or securitization of finance receivables
and the proceeds from the issuance of securities in the capital markets.
The maximum availability under the Revolving Credit Agreement was $2.0
million at September 30, 1997 and, pursuant to the Fourth Amendment to the
Resolving Credit Agreement, the facility matures January 30, 1998. The
Company has the right to borrow funds under the Revolving Credit Agreement at
an interest rate equal to the prime rate of the agent bank plus 3.0% (which
rate represents an increase from the borrowing rate that was available to the
Company through September 30, 1997). The prime rate was 8.5% on September
30, 1997.
The Company must comply with customary financial and other covenants
under the Revolving Credit Agreement. At September 30, 1997, the Company was
in breach of the tangible net worth, interest coverage ratio and subordinated
debt limitation covenant under the Revolving Credit Agreement and the
interest coverage ratio covenant under its agreements with GECC. The Company
has received waivers with respect to the breaches under the Revolving Credit
Agreement for all periods through September 30, 1997 and, as of the date of
this filing, the Company is negotiating with GECC for waivers with respect to
the breaches under the GECC Agreement. The Fourth Amendment also provides
for, among other things: (i) a total facility of $30 million; (ii)
incremental stepdowns in the total amount of the facility; and (iii) a
reduction in the borrowing base, generally, to 75% of eligible receivables.
The Company expects to remain in violation of these covenants.
The Company is continuing negotiations with its current lenders and
alternative lenders to provide financing. In any event, the Company
anticipates relying more heavily upon alternative funding sources, such as
Securitization Transactions. No assurance can be given that an equivalent
facility to the Revolving Credit Agreement will be available, or that
alternative funding transactions will be successfully completed.
At September 30, 1997, the Company had total debt of $45.6 million as
compared to $50.8 million at December 31, 1996 and $102.5 million at
September 30, 1996. At September 30, 1997, $2.0 million was available under
the Revolving Credit Agreement.
19
<PAGE>
The following table presents the Company's debt instruments and the weighted
average interest rates on such instruments for the periods indicated:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- AS OF AND FOR THE TWELVE MONTHS
1997 1996 ENDED DECEMBER 31, 1996
----------------- ------------------ -------------------------------
BALANCE RATE BALANCE RATE BALANCE RATE
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SENIOR:
Revolving Credit Agreement. . . . . . $27,986 11.97% $83,018 8.39% $31,763 8.86%
Loan from Commonly Controlled
Company. . . . . . . . . . . . . . 10 4.12% 1,473 4.88% 1,065 5.62%
SUBORDINATED:
Notes payable . . . . . . . . . . . . 17,598 11.04% 18,007 11.04% 17,978 11.05%
------- -------- -------
Total debt. . . . . . . . . . . . . . $45,594 11.56% $102,498 8.79% $50,806 9.23%
------- -------- -------
------- -------- -------
</TABLE>
The following table sets forth information with respect to maturities of
senior and subordinated debt at September 30, 1997;
LOANS FROM
COMMONLY
SENIOR BANK CONTROLLED SUBORDINATED
YEAR LINES OF CREDIT COMPANY NOTES PAYABLE TOTAL
---- --------------- ---------- ------------- --------
(DOLLARS IN THOUSANDS)
1997 . . . . . . . . . . $10,000 $10 $ 58 $10,068
1998 . . . . . . . . . . 17,986 14 18,000
1999 . . . . . . . . . . 812 812
2000 . . . . . . . . . . 808 808
2001 . . . . . . . . . . 872 872
Thereafter . . . . . . . 15,034 15,034
--------- ------ --------- --------
Total . . . . . . . . $29,986 $10 $17,598 $45,594
--------- ------ --------- --------
--------- ------ --------- --------
The Company has purchased interest rate caps and interest rate collars in
an aggregate notional amount of $35 million. The interest rate cap purchased
by the Company in an aggregate notional amount of $15 million protects the
Company against increases in the interest rate of a portion of its revolving
debt if the three-month LIBOR rate exceeds 10.5%. The interest rate cap
expires in July, 1998.
The interest rate collars purchased by the Company in an aggregate
notional amount of $20 million protect the Company against increases in the
interest rate of its revolving debt when the three-month LIBOR rate exceeds
8%. The Company must make payments to the counterparties to the interest
rate collars if three-month LIBOR falls below 5%. The interest rate collars
expire in September, 2000.
The GECC Agreement provides for the purchase by GECC of Installment
Contracts, on a revolving basis, having a maximum principal amount of up to
$80 million (net) outstanding at any time. As of September 30, 1997, $67.3
million (net) principal amount of Installment Contracts was outstanding
pursuant to the GECC Agreement. The term of the GECC Agreement expires June
25, 1998; however, GECC has verbally indicated to the Company that it would
not make additional Installment Contract purchases until an adequate
replacement is found for the Revolving Credit Agreement.
20
<PAGE>
Total stockholders' equity at September 30, 1997 was $6.0 million as
compared to $10.3 million at December 31, 1996 and $16.1 million at September
30, 1996. The Company's ability to pay dividends is limited by the Revolving
Credit Agreement.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In addition to the lawsuits described below, the Company is involved in
litigation in the normal course of business. The Company believes that the
resolution of such normal-course-of-business matters will not have a material
adverse effect on its financial position or results of operations. The Company
regularly initiates legal proceedings as a plaintiff in connection with its
routine collection activities.
The company has been named as a defendant in the following described
lawsuits:
1. REHM V. EAGLE FINANCE CORP. is pending in the United States District
Court for the Northern District of Illinois and is designated by case number
96 C 2455. The plaintiff has filed a class action complaint alleging that
the Company and three of its directors and officers have violated Section
10(b) of the Securities and Exchange Act and Rule 10b-5 promulgated
thereunder. The litigation is now proceeding with discovery, although no
depositions have been taken. The Company intends to defend vigorously the
claims made in the complaint.
2. CLEVELAND V. WALLACE AUTO SALES, INC. ET AL. was filed on September
19, 1996 in the United States District Court for the Northern District of
Illinois and is designated by Case Number 96 C 6045. The complaint alleges
that the Company has violated the Illinois Consumer Fraud Act, the Illinois
Sales Finance Agency Act and the Federal Racketeer Influenced and Corrupt
Organizations Act arising out of the Company's purchase of retail installment
sales contracts through which the plaintiffs purchased a used automobile.
The complaint is alleged as a class action, and includes unnamed, and still
unknown, directors and officers of the Company. The Company has filed a
Motion to Dismiss, and the parties are awaiting a ruling from the court.
Written discovery has been taken. The Company intends to defend vigorously
the claims made in the complaint.
3. SOLARMAR SYSTEMS CORP V. EAGLE FINANCE CORP., RONALD B. CLONTS ET
AL. was filed on September 14, 1995 in Circuit Court of the Eleventh Judicial
Circuit, Dade County, Florida, and is designated as Case No. 95-18056-CA-01.
This suit arose out of a settlement agreement entered in 1988 between the
plaintiff and the predecessor to the Company (the "Settlement Agreement"),
following the plaintiff's bankruptcy. The Company (E.F. Wonderlic &
Associates, Inc.) purchased promissory notes from the plaintiff that the
plaintiff had received in connection with the sale of hot water heating
systems to Florida homeowners. The complaint filed against the Company
alleges that the Company breached the Settlement Agreement and fraudulently
induced the plaintiff to enter into it. The plaintiff's complaint was
dismissed in June, 1996, with leave to amend, primarily on the grounds that
the claims were time-barred by the applicable Florida statute of limitations.
The plaintiff filed an amended complaint in June, 1996, which asserted
essentially the same claims of fraud, violations of the Federal Racketeer
Influenced and Corrupt Organizations Act and fraud in the inducement. The
Company intends to defend vigorously the claims made in the complaint.
4. DRAKE V. EAGLE FINANCE CORP., was filed on June 13, 1997 in the
Circuit Court of Cook County, Illinois, and is designated as Case No. 97 L
6521. The class action Complaint alleges that he
21
<PAGE>
Company has violated the Uniform Commercial Code, the Illinois Consumer Fraud
Act and the Illinois Sales Finance Agency Act arising out of the notice that
the Company sent to the plaintiff's after the Company repossessed their car.
The case is in the initial pleading stages with the plaintiff recently filing
an amended complaint, and written discovery has begun. The Company intends
to defend vigorously the claims made in the Complaint.
5. HALL V. EAGLE FINANCE CORP., was filed on July 28, 1997 in the
Circuit Court of Cook County, Illinois, and is designated as Case No. 97 CH
9328. The class action Complaint alleges that the Company has violated the
Illinois Wage Assignment Act arising out of the Company's attempt to enforce
the wage assignment that the plaintiff executed when he purchased a car. The
case is in its initial pleading stage, and no discovery has been taken.
During October, 1997, the Company began preliminary settlement discussions
with the Plaintiff's attorney which are ongoing. The Company believes
settlement will be less costly than trial.
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
-------- -----------
10.1 Fourth Amendment to Amended and Restated
Revolving Credit Agreement dated as of
October 30, 1997
11 Statement re computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K - The Company did not file any reports on
Form 8-K during the three months ended September 30, 1997
22
<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.
EAGLE FINANCE CORP.
Date: November 13, 1997 ROBERT J. BRAASCH
--------------------------------
Robert J. Braasch
President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
S-1
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
10.1 Fourth Amendment to Amended and Restated Revolving Credit Agreement
dated as of October 30, 1997
11 Statement re computation of per share earnings
27 Financial Data Schedule
<PAGE>
FOURTH AMENDMENT TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This Fourth Amendment to Amended and Restated Revolving Credit Agreement
("Fourth Amendment") dated as of October 30, 1997 by and among EAGLE FINANCE
CORP., a Delaware corporation ("Borrower"), CORESTATES BANK, N.A., a national
banking association, HARRIS TRUST AND SAVINGS BANK, an Illinois banking
corporation, BANK ONE, CHICAGO, N.A., a national banking association, COLE
TAYLOR BANK, an Illinois banking corporation, FLEET BANK, N.A. (successor in
interest to Natwest Bank N.A.), NBD BANK, a Michigan banking association,
LASALLE NATIONAL BANK, a national banking association, THE SUMITOMO BANK,
LIMITED, Chicago branch, a bank organized under the laws of Japan (successor in
interest to The Daiwa Bank, Limited), THE NORTHERN TRUST COMPANY (successor in
interest to Northern Trust Bank\O'Hare, N.A.) (each individually a "Bank" and
collectively "Banks" and CORESTATES BANK, N.A., as agent for the Banks hereunder
(in such capacity as "Agent").
BACKGROUND
A. Borrower, Banks and Agent are parties to a certain Amended and
Restated Revolving Credit Agreement dated as of June 30, 1995, as amended (the
"Credit Agreement"), which they are willing to further amend on the terms and
conditions set forth herein.
<PAGE>
B. Capitalized terms used but not otherwise defined in this Fourth
Amendment shall have the meanings respectively ascribed to them in the Credit
Agreement.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby promise and agree as follows:
1. AMENDMENTS.
A. The Credit Agreement is amended by deleting the definitions of
"Termination Date" and "Borrowing Base" contained in Section 1.01 of the Credit
Agreement in their entirety and replacing such definitions with the following
respective definitions:
"Termination Date" means the earlier of (1) January 30, 1998, or
(2) the date of termination of the Commitments pursuant to Section
2.02 or Section 9.01.
"Borrowing Base" means seventy-five percent (75%) of Eligible
Receivables.
B. The Credit Agreement is amended by adding the following new
definition to Section 1.01 of the Credit Agreement:
"NET WORTH" means the amount of capital stock of Borrower on a
consolidated basis, PLUS (or minus in the case of a deficit) the
capital surplus and earned surplus of Borrower on a consolidated basis
minus the cost of Treasury shares.
C. The Credit Agreement is amended by modifying the definition of
"Eligible Receivable" by deleting Subsections "(xii)" "(xiii)", "(xiv)" and
"(xvi)" thereof, and inserting the following new subsections "(xii)" and
"(xiii")":
-2-
<PAGE>
(xii) the receivable is not D Paper;
(xiii) there has been no Modification with respect to the
receivable.
Subsection "(xv)" of the definition "Eligible Receivable" is
renumbered as subsection "(xiv)" and subsection "(xvii)" thereof is renumbered
as subsection "(xv)".
D. The number "$30,000,000" presently contained in the 29th line of
Section 2.01 of the Credit Agreement shall automatically be reduced to
"$25,000,000" as of November 20, 1997, to "$20,000,000" as of December 19, 1997
and to "$15,000,000" as of January 20, 1998. In connection with each such
above-stated reduction in the aggregate Commitments of all of the Banks, each
Bank's Commitment will be reduced pro rata to the amount opposite each Bank's
name on the Schedule "A" attached hereto and made part hereof. Each such
reduction in the aggregate Commitments of all of the Banks shall be accompanied
by a mandatory prepayment of outstanding Loans to the extent necessary to reduce
the amount of Loans outstanding to the then applicable amount of the aggregate
Commitments of the Banks.
E. The LIBOR Interest Rate option is no longer available to Borrower
and all Loans shall hereafter be Base Rate Loans. All references to LIBOR Loans
contained in the Credit Agreement shall be of no further force or effect. The
Credit Agreement is amended by deleting subsections 2.05(1) and (2) thereof in
their entirety and replacing such subsections with the following:
-3-
<PAGE>
For any Base Rate Loan, at a per annum rate equal to the Prime Rate
plus three (3) percentage points.
F. The Credit Agreement is amended by deleting Section 2.11 thereof
in its entirety and replacing such Section with the following:
SECTION 2.11 TERM. The term of the Commitments and the Credit
Facility under which Revolving Credit Loans shall be made available to
Borrower under the terms of this Agreement shall expire on January 30,
1998, as of which date no further Loans shall be made available by
Banks to Borrower and on which date all of Borrower's obligations of
every kind and nature shall, unless sooner becoming due under the
terms of this Agreement, become due and payable in full.
G. The Credit Agreement is amended by adding new subsections
6.11(19), 6.11(20) and 6.11(21) thereto as follows:
(19) Within twenty-five (25) days after each month end, a company
prepared balance sheet as of the end of such month, a statement
of income and retained earnings of Borrower for such month and on
a fiscal year to date basis and a statement of cash flows of
Borrower for such month and on a fiscal year to date basis, all
in reasonable detail and all prepared in accordance with GAAP
consistently applied (subject to year-end adjustment) and
certified by the chief financial officer of Borrower;
(20) Within five (5) days of (a) the last day of each month and
(b) the fifteenth day of each month, statements of receivable
delinquency, certified as to accuracy by Borrower's chief
financial officer; and
(21) Within five (5) days of (a) the last day of each month and
(b) the fifteenth day of each month, certified as to accuracy by
Borrower's chief financial officer, to the best of his knowledge,
a borrowing base or availability certificate showing the interim
calculations for the Borrowing Base. Borrower reconfirms its
obligation to provide a borrowing base or availability
certificate with the submission of each Advance Request form.
-4-
<PAGE>
H. The Credit Agreement is amended by deleting subsection 6.11(4) in
is entirety and replacing such subsection with the following:
(4) (a) Contemporaneously with the delivery of the financial
statements called for under Section 6.11(1), (2) and (19), a
certificate of the chief financial officer of Borrower,
certifying that to the best of his knowledge no Default or Event
of Default has occurred and is continuing or, if a Default or
Event of Default has occurred and is continuing, a statement as
to the nature thereof and the action which is proposed to be
taken with respect thereto; and (b) as soon as available and in
any event within sixty (60) days after the end of each of the
first three fiscal quarters of each fiscal year of Borrower, a
Quarterly Compliance Certificate with computations demonstrating
compliance with the covenants contained in Article VIII;
I. The Credit Agreement is amended by adding the following sentence
to the end of Section 6.14:
In addition to the foregoing examinations, Borrower shall cause BDO
Seidman to perform an additional examination of Borrower and to cause
a written report thereof to be promptly submitted to Banks prior to
December 31, 1997 (the cost and expenses of which shall be the sole
responsibility of Borrower), which examination shall include a review
of Borrower's reports related to underwriting exceptions for newly
purchased accounts (which review shall include a sampling of such
accounts to test the validity of the reports), verification of the
accuracy of the Borrowing Base and a review of Borrower's collections
and delinquencies.
-5-
<PAGE>
J. The Credit Agreement is amended by deleting Section 8.01 in its
entirety and replacing such Section with the following:
SECTION 8.01. NET WORTH. Borrower shall maintain a Net Worth of
not less than the greater of ("Minimum Net Worth") (a) $5,000,000 or
(b) Borrower's actual Net Worth as shown on Borrower's balance sheet
prepared as of September 30, 1997.
The Minimum Net Worth requirement shall be reduced from time to
time by an amount equal to 20% of the net cash proceeds received by
Borrower from any sales of receivables permitted hereunder, provided
that such covenant requirement shall never decrease below $3,500,000.
K. The Credit Agreement is amended by deleting Section 8.05 in its
entirety.
L. The Credit Agreement is amended by deleting Section 8.07 in its
entirety and replacing such Section with the following:
(1) Borrower shall not permit the sum of aggregate Net
Owned Receivables with payments 31 days or more
contractually past due to exceed $8,000,000 as of the last
day of each calendar month. Borrower shall not permit the
sum of aggregate Net Owned Receivables with payments 62 days
or more contractually past due to exceed $2,500,000 as of
the last day of each calendar month.
M. The Credit agreement in amended by deleting Section 11.04 in its
entirety and replacing such Section with the following:
SECTION 11.04. SUCCESSORS, ASSIGNS AND PARTICIPATIONS. (a) This
Agreement shall be binding upon and inure to the benefit of Borrower,
each Bank
-6-
<PAGE>
and Agent and their respective successors and assigns except
that Borrower may not assign or transfer any of its rights or
obligations under any Loan Document without the prior written consent
of all Banks. Each bank may assign all of its rights and interest in
the Loans provided, however, that (i) the parties execute an
assignment agreement in form and substance satisfactory to Agent, (ii)
the assigning Bank pays Agent a $3,000.00 assignment fee for Agent's
account, (iii) any such assignee shall become a Bank for all purposes
hereunder, (iv) any such assignment is for an amount not less than the
full amount of such Bank's Commitment, (v) the assignment is to a
single financial institution and (vi) such assigning Bank receives the
prior written consent of Agent and Borrower which consent may be
withheld at the discretion of Agent or Borrower, provided, however,
that Borrower's consent shall not be required after January 20, 1998
or after the occurrence of an Event of Default of the type described
in Section 9.01(1) herein, including without limitation Borrower's
failure to timely make any mandatory prepayment required by Section
2.07 hereof or in Section 9.01(5) herein.
(b) (i) Any Bank may in the ordinary course of its business and in
accordance with applicable law, with the prior written consent of
Agent, which consent shall not unreasonably be withheld, at any time
sell to one
-7-
<PAGE>
or more banks or other entities ("Participants") participating
interests in its respective share of the Loans, any Note held by
such Bank, any Commitment of such Bank or any other interest of such
Bank under the Loan Documents. In the event of any such sale by a
Bank of a participating interest to a Participant, such Bank's
obligations under the Loan Documents shall remain unchanged, such
Bank shall remain solely responsible to the other parties hereto for
the performance of such obligations, such Bank shall remain the
owner of its Loans and the holder of any Note issued to it in
evidence thereof for all purposes under the Loan Documents, all
amounts payable by the Borrower under this Agreement shall be
determined as if such Bank had not sold such participating interest,
and the Borrower and the Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and
obligations under the Loan Documents.
(ii) Each Bank shall retain the sole right to approve, without
the consent of any Participant, any amendment, modification or waiver
of any provision of the Loan Documents other than any amendment,
modification or waiver with respect to any Loan or Commitment in which
any such Participant has an interest which forgives principal,
interest or fees or reduces the interest rate or fees payable with
respect to any such Loan or
-8-
<PAGE>
Commitment, extends the Termination Date, postpones any date fixed
for any regularly-scheduled payment of principal of, or interest or
fees on, any such Loan or Commitment; releases any guarantor of any
such Loan or releases all or any substantial part of the
Collateral, if any, securing any such Loan.
(c) Each Bank may from time to time provide financial and other
information concerning Borrower to any purchaser, participant or
prospective purchaser or participant, provided such party executes a
confidentiality agreement.
2. EXTENSION FEE.
Borrower shall, contemporaneously with the execution hereof, pay to
Agent in good funds, for the benefit of Banks, an extension fee of $300,000.
Agent shall distribute $150,000 of such fee to Banks based on their respective
Pro Rata Percentages. The balance of such Fee shall be held by Agent in escrow
until January 30, l998, at which time, if Borrower terminates the Commitments
and satisfies all obligations of every kind of Borrower to Agent and Banks by
January 30, 1998, Agent will refund the $150,000 balance of such fee to Borrower
and, if such conditions have not been satisfied, Agent shall distribute such
amount to Banks, together with any interest earned thereon, in accordance with
their respective Pro Rata Percentages.
-9-
<PAGE>
3. MISCELLANEOUS.
A. Borrower represents and warrants to Banks and Agent that it has
taken all necessary corporate action to authorize the execution, delivery and
performance of this Fourth Amendment. This Fourth Amendment is, or when
executed by Borrower and delivered to Agent will be, duly executed and
constitute valid and legally binding obligations of Borrower, enforceable
against Borrower in accordance with its terms. Borrower hereby ratifies and
restates each of the representations and warranties of Borrower set forth in
Article V of the Credit Agreement as being true and correct on the date
hereof.
B. This Fourth Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the
same agreement.
C. This Fourth Amendment shall amend and is incorporated into the
Credit Agreement. To the extent of any express inconsistency between the
terms hereof and the terms of the Credit Agreement, the terms hereof shall
control. Except as expressly amended by this Fourth Amendment, all of the
terms and conditions of the Credit Agreement remain in full force and effect.
D. Borrower acknowledges, confirms, represents and covenants that
as of October 30, 1997, (a) it is indebted to Banks, without defense, setoff,
counterclaim or recoupment of any nature, in the aggregate principal amount
of $29,319,000 for
-10-
<PAGE>
Revolving Credit Loans made pursuant to the Credit Agreement and (b) all
security interests and liens in the Collateral granted to Agent (for the
benefit of Agent and Banks) under the Credit Agreement continue to be first
priority perfected security interests and continue to secure all obligations
and indebtedness of every kind owing from Borrower to Banks and/or Agent.
IN WITNESS WHEREOF, the parties have caused this Fourth Amendment to be
executed by their respective duly authorized officers as of the date first above
written.
EAGLE FINANCE CORP.
By: __________________________
__________________________
(print name and title)
HARRIS TRUST AND SAVINGS BANK
By:___________________________
(print name and title)
CORESTATES BANK, N.A.
By:____________________________
(print name and title)
11
<PAGE>
EXHIBIT 11
EAGLE FINANCE CORP.
COMPUTATION OF NET INCOME PER SHARE
For the Three and Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1996 1997 1996
------- ---- ------- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Income data:
1. Income (loss) before income taxes. . . . . . . . . $(2,453) $347 $(4,411) $637
2. Applicable income taxes. . . . . . . . . . . . . . -- 133 -- 212
------- ---- ------- ----
3. Net income . . . . . . . . . . . . . . . . . . . . $(2,453) $214 (4,411) $425
------- ---- ------- ----
------- ---- ------- ----
Number of outstanding shares:
4. Weighted average common shares
outstanding, adjusted for stock splits. . . . . 4,206 4,189 4,195 4,189
5. Weighted average shares of treasury
stock outstanding, adjusted for stock splits. . -- -- -- --
6. Weighted average shares reserved for stock
options (utilizing the treasury stock method) . -- -- -- 7
7. Common shares outstanding (Line 4-5+6) . . . . . . 4,206 4,189 4,195 4,196
Net income per share:
8. Net income (loss) per common shares (Line 3/4) . . $(0.58) $0.05 $(1.05) $0.10
9. Fully diluted net income (loss) per common (Line 3/7) $(0.58) $0.05 $(1.05) $0.09
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,341,969
<SECURITIES> 552,301
<RECEIVABLES> 46,512,640
<ALLOWANCES> 4,845,034
<INVENTORY> 0
<CURRENT-ASSETS> 44,561,876
<PP&E> 10,031,719<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,593,595
<CURRENT-LIABILITIES> 31,019,745
<BONDS> 17,597,981
0
0
<COMMON> 42,287
<OTHER-SE> 5,933,582
<TOTAL-LIABILITY-AND-EQUITY> 54,593,595
<SALES> 0
<TOTAL-REVENUES> 15,403,251
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,276,358
<LOSS-PROVISION> 4,465,546
<INTEREST-EXPENSE> 4,072,396
<INCOME-PRETAX> (4,411,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,411,049)
<EPS-PRIMARY> (1.05)
<EPS-DILUTED> (1.05)
<FN>
<F1>PP&E DOES NOT APPLY FIGURE REPRESENTS OTHER ASSETS
</FN>
</TABLE>
