<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES ACT OF 1934
For the quarter ended: Commission File Number:
June 30, 1995 033-77932
------------- ---------
AUTOMOBILE CREDIT FINANCE VI, INC.
----------------------------------
(Exact name of Registrant as specified in its charter)
Texas 75-2533095
----- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
700 North Pearl, Suite 400, Plaza of the Americas, North Tower, Lock Box 401,
--------------------------------------------------------------------------------
Dallas, Texas 75201
-------------------
(Address and zip code of principal executive offices)
(214) 965-6000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
<TABLE>
<CAPTION>
Number of Shares Outstanding
Class at July 31, 1995
----- ----------------
<S> <C>
Common Stock, $1.00 par value 1,000
</TABLE>
<PAGE> 2
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTOMOBILE CREDIT FINANCE VI, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, 1995 September 30, 1994
-------------- ------------------
(Unaudited)
<S> <C> <C>
Contract receivables, net $7,406,000 $8,356,000
Cash and cash equivalents 145,000 12,000
Vehicles held for resale 219,000 48,000
Deferred note offering costs,
net of amortization of $213,000
and $29,000, respectively 630,000 682,000
Loan origination costs,
net of amortization of $179,000
and $36,000, respectively 187,000 208,000
--------------------- --------------------
Total assets $8,587,000 $9,306,000
===================== ====================
LIABILITIES AND CAPITAL DEFICIT
Notes payable to investors $10,675,000 $8,896,000
Due to related party 329,000 532,000
Accounts payable 165,000 82,000
Accrued investor interest 107,000 84,000
--------------------- --------------------
Total liabilities 11,276,000 9,594,000
CAPITAL DEFICIT
Common stock, $1.00 par value, 50,000
shares authorized, 1,000 shares
issued and outstanding 1,000 1,000
Additional paid-in capital 9,000 9,000
Accumulated deficit (2,699,000) (298,000)
--------------------- --------------------
Total capital deficit (2,689,000) (288,000)
--------------------- --------------------
Total liabilities and capital deficit $8,587,000 $9,306,000
===================== ====================
</TABLE>
See accompanying notes
2
<PAGE> 3
AUTOMOBILE CREDIT FINANCE VI, INC.
CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
June 30, 1995
-------------
<S> <C>
Interest revenue (net of loan origination cost
amortization of $143,000) $1,984,000
Interest expense (including deferred offering
cost amortization of $184,000) 1,129,000
-------------------------
Net interest income 855,000
Provision for credit losses 2,264,000
-------------------------
Net interest loss after provision for (1,409,000)
credit losses
General and administrative expenses 991,000
-------------------------
Net loss $(2,400,000)
=========================
Three Months
Ended
June 30, 1995
-------------
Interest revenue (net of loan origination cost
amortization of $49,000) $677,000
Interest expense (including deferred offering
cost amortization of $59,000) 378,000
----------------------
Net interest income 299,000
Provision for credit losses 222,000
----------------------
Net interest income after provision for 77,000
credit losses
General and administrative expenses 451,000
----------------------
Net loss $(374,000)
======================
</TABLE>
See accompanying notes
3
<PAGE> 4
AUTOMOBILE CREDIT FINANCE VI, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended
June 30, 1995
-------------
<S> <C>
OPERATING ACTIVITIES:
Net loss $(2,400,000)
Adjustments to reconcile net loss to cash used in operations:
Amortization of deferred offering cost 184,000
Amortization of loan origination cost 143,000
Increase in allowance for credit losses 2,264,000
Changes in assets and liabilities:
Decrease in due to related party (203,000)
Increase in accounts payable and
accrued interest 105,000
----------------------
Cash used in operations 93,000
----------------------
INVESTING ACTIVITIES:
Purchase of contract receivables (4,353,000)
Loan origination costs (123,000)
Principal payments on contract receivables,
including proceeds from sales of vehicles (2,869,000)
----------------------
Cash used in investing activities (1,607,000)
----------------------
FINANCING ACTIVITIES:
Notes payable proceeds 1,779,000
Notes payable offering costs (132,000)
----------------------
Cash provided by financing activities 1,647,000
----------------------
Change in cash and cash equivalents 133,000
Cash and cash equivalents - beginning 12,000
----------------------
Cash and cash equivalents - ending $145,000
======================
-------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION:
Cash paid for interest $922,000
======================
</TABLE>
See accompanying notes
4
<PAGE> 5
AUTOMOBILE CREDIT FINANCE VI, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL INFORMATION
Automobile Credit Finance VI, Inc. (the Company), is a Texas Corporation
organized on April 6, 1994 by Search Capital Group, Inc. ("Search"), who owns
100% of the Company's common stock. The Company was established to purchase
retail installment sales contracts created by Search to finance sales of used
automobiles and light trucks.
The information presented herein includes adjustments which the Company
management believes are necessary for fair presentation of its financial
position and results of operations. Substantially all of the disclosures
required for annual financial reports have been omitted. These interim
financial statements and related notes are unaudited, and should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
September 30, 1994.
Search and its wholly owned subsidiaries Automobile Credit Acceptance
Corporation ("ACAC"), and Consumer-Dealer AUTOCREDIT ("CDAC"), are engaged
primarily in the motor vehicle receivable purchasing and servicing business.
ACAC and CDAC have a network of new and used third party vehicle dealers who
generate vehicle receivables and sell them to the Company or other ACAC
designees.
2. AUTOMOBILE CONTRACT NOTES OFFERING
Pursuant to an Indenture dated as of May 1, 1994, with ACAC and Texas Commerce
Trust National Association (the "Trustee"), the Company offered $40,000,000 in
12% Automobile Contract Notes due June 30, 1998 (the "Notes"). The Notes
require monthly interest payments payable monthly at a rate of 12% per annum,
and quarterly payments of outstanding principal beginning September 15, 1997.
The Company issued its first Notes on June 17, 1994, and has raised
$10,675,000, through completion of the offering, December 1994.
The Indenture requires that all of the Company's excess cash flow after June
30, 1997, must be deposited into a sinking fund held by the trustee for payment
of the Notes. Under the terms of the indenture, and with approval of the
Trustee in the event of a default, the Company would be able to repay the
Notes, in part, through sinking fund cash from collections and outstanding
contracts through maturity and sales or collection of the remaining balances on
outstanding contracts after maturity.
It is currently estimated that the Company will have insufficient sinking fund
cash to pay the holders of the Company's notes in full, due to the collection
performance of contracts owned by the Company and will be in default under the
terms of the indenture on the maturity date. See further discussion in Item 2
under management's discussion of liquidity and capital resources of
management's intention to convert the Company's existing notes payable into
common shares and a new class of preferred shares of Search.
The Company paid its offering and organizational fees and costs out of the
gross sales proceeds from the Notes. These fees and costs of $843,000 were are
limited to 8% of the gross sales proceeds.
5
<PAGE> 6
3. INTEREST INCOME, CONTRACT RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
The Company records contract purchases at cost. An initial reserve is recorded
for the difference between the remaining contractual finance amount at the time
of acquisition and the acquisition cost. Contractual finance charges are
initially recorded to unearned interest and recorded to interest income using
the interest method. The Company evaluates the impairment of loans based on
contract delinquency and other factors. Reserves are established for impaired
loans to reduce the net receivable to the lower of collateral value or
estimated net realizable value. Interest income is not recognized on loans
where concern exists about the collectibility of the account. Reserve
requirements in excess of the initial reserve are provided, as needed, through
a charge to provision for credit losses.
The recorded investment and related allowance for credit losses is summarized
below:
<TABLE>
<CAPTION>
As of June 30, 1995
--------------------
Number of Total Net
Active Unpaid Unearned Contract
Contracts Installments Interest Receivables
--------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Impaired contracts 317 $2,512,000 $382,000 $2,130,000
Unimpaired contracts 1,673 11,982,000 2,496,000 9,486,000
----------------- ------------- -------------- --------------
Total 1,990 $14,494,000 $2,878,000 11,616,000
================= ============= ==============
Allowance for credit losses 4,210,000
--------------
Contract receivables, net, after
allowance for credit losses $7,406,000
==============
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1994
-------------------------
Number of Total Net
Active Unpaid Unearned Contract
Contracts Installments Interest Receivables
--------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Impaired contracts 92 $883,000 $196,000 $687,000
Unimpaired contracts 1,750 15,824,000 3,867,000 11,957,000
----------------- ------------- -------------- --------------
Total 1,842 $16,707,000 $4,063,000 12,644,000
================= ============= =============
Allowance for credit losses 4,288,000
--------------
Contract receivables, net, after
allowance for credit losses $8,356,000
==============
</TABLE>
6
<PAGE> 7
At June 30, 1995, maturities of existing contract receivables and projected
interest income on existing receivables were as follows:
<TABLE>
<CAPTION>
12 Months Ending June 30,
-------------------------
1996 1997 1998 Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
Future payments
receivable $7,941,000 $5,663,000 $890,000 $14,494,000
Less unearned
interest income (2,112,000) (722,000) (44,000) (2,878,000)
------------------- -------------------- --------------- -------------------
$5,829,000 $4,941,000 $846,000 $11,616,000
=================== ==================== =============== ===================
</TABLE>
The above contract maturity amounts should not be regarded as a forecast of
cash collections. The Company is anticipating repossession rates of 45% to 55%
over the life of the loan portfolio. Management anticipates that many of the
contracts will be liquidated through repossession proceeds before contract
maturity. Also, a portion of the loan portfolio could be prepaid before or
extended past the contract maturity date.
The change in the allowance for doubtful collections is summarized as follows:
<TABLE>
<S> <C>
Balance, at September 30, 1994 $4,288,000
Allowance recorded upon acquisition of loans 1,899,000
Increase in allowance for credit losses 2,264,000
Loans charged off against allowance (4,241,000)
-----------
Balance at June 30, 1995 $4,210,000
===========
</TABLE>
Most of the Company's contract receivables are due from individuals in the
major metropolitan areas of Texas and other southern states. To some extent,
realization of the receivables will be dependent on local economic conditions.
The Company holds vehicle titles as collateral for all contract receivables
until such receivables are paid in full. The contract receivables are pledged
as collateral for the Company's Notes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is an industry specific financial services company specializing in
the purchase, management, and securitization of used motor vehicle receivables.
These receivables are secured by medium-priced, used automobiles and light
trucks which typically have been purchased by consumers with substandard
credit histories at retail prices ranging from $5,000 to $10,000. The Company
purchases these receivables from a network of unaffiliated new and used
automobile dealers (the "Dealer Network") at discounts ranging generally from
40% to 55% of total unpaid installments, which installments include both
principal and interest. The members of the Dealer Network generate the
receivables and offer them for sale on a non-exclusive basis to the Company.
Members forego some future profit on each receivable sold to the Company in
exchange for an immediate return of their invested capital.
7
<PAGE> 8
RESULTS OF OPERATIONS
Contract Purchases
Operational results are primarily driven by the Company's contract purchases.
The Company's contract purchases by quarter were:
<TABLE>
<CAPTION>
Fiscal Fiscal
Quarter Year Quantity Cost
------- ---- -------- ----
<S> <C> <C> <C>
Q3 1994 54 $ 267,000
Q4 1994 1,858 9,092,000
Q1 1995 152 620,000
Q2 1995 400 1,687,000
Q3 1995 486 2,046,000
--------------- -------------------
Total 2,950 $ 13,712,000
=============== ===================
</TABLE>
Discussion of Nine Month Period Ended June 30, 1995
The company began purchasing contracts during the third fiscal quarter of 1994.
Thus, a comparison of the two fiscal quarters is not meaningful. The Company
purchased 1038 contracts during the nine months ended June 30, 1995 at a cost,
including loan origination fees, of $4,476,000 ($4,312 per contract).
For the nine months ended June 30, 1995, the Company had interest revenue of
$1,984,000. Interest revenue is generated primarily from contract receivables.
The Company began purchasing its first contracts in June of 1994.
Interest expense for the nine months ended June 30, 1995 was $1,129,000.
The provision for credit losses was $2,264,000 for the nine months ended June
30, 1995 due to deterioration in contract performance which resulted in
required reserves in excess of the original allowance recorded at the contract
acquisition.
For the nine months ended June 30, 1995, the Company had general and
administrative expenses of $991,000. General and administrative expenses
consist primarily of repossession, vehicle repair, maintenance expenses,
servicing fees, bank, accounting, and attorney and trustee fees. Servicing
fees are paid to ACAC monthly at the current rate of $22.30 for each receivable
that is not in default.
Discussion of Three Month Period Ended June 30, 1995
For the three months ended June 30, 1995, the Company had interest revenue of
$677,000. Interest revenue is generated primarily from contract purchases and
the amortization of the unearned interest.
Interest expense for the three months ended June 30, 1995 was $378,000.
The provision for credit losses was $222,000 for the three months ended June
30, 1995 due to deterioration in contract performance which resulted in
reserves in excess of the original allowance recorded at acquisition.
For the three months ended June 30, 1995, the Company had general and
administrative expenses of $451,000. General and administrative expenses
consist primarily of repossession, vehicle repair, maintenance expenses,
servicing fees, bank, accounting, and attorney and trustee fees. Servicing
fees are paid to ACAC monthly at the current rate of $22.30 for each receivable
that is not in default.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Company reached minimum subscription amount and began purchasing contract
receivables in June 1994. The Company had completed raising the total
subscription amount of $10,675,000 by December 1994 and the Company completed
its initial investment of net proceeds of $9,832,000 during the first quarter
of calendar 1995. By applying note proceeds, surplus cash collections, and
repossession proceeds, the Company has purchased a total of $13,712,000 in
contract receivables.
The Company's liquidity is a function of, among other things, cash flow from
receivables owned by the Company and Company expenditures.
Based on the most recent collection performance of contracts owned by the
Company, it is currently estimated that the Company may not have sufficient
sinking fund cash to pay the holders of the Company's Notes in full at maturity
on June 30, 1998. While the sale or collection of remaining receivables after
maturity may reduce the shortfall, there can be no assurance that the Company
will be able to obtain a buyer for the receivables and it is likely that the
proceeds from sale or collection will not be sufficient to pay the Noteholders
in full.
The Company's projected insufficient cash balance at the maturity date of the
Notes payable on June 30, 1998 will constitute a default at maturity date under
its Indenture agreement with Texas Commerce Bank National Association (the
"Trustee"). With the occurrence of a default, the Trustee has the option to
sell the Company's assets, to institute judicial proceedings to force complete
or partial foreclosure of the Company, and to take any other appropriate
actions to protect and enforce the rights and remedies of the Trustee and, the
Company's noteholders. At the time of default, the collections from assets and
sale proceeds of repossessed vehicles will be applied to the remaining balance
due Noteholders after Trustee fees and expenses. Trustee expenses can include
servicing, banking, legal, accounting, repossession, repair, liquidation and
taxation expenditures.
Operational cash along with principal payments on contract receivables allow
additional contract purchases to be made even after the initial note offering
proceeds are invested. When the sinking fund begins on July 1, 1997, the cash
provided by operations and principal payments on contract receivables would be
deposited into a sinking fund trust account and no additional contracts would
be purchased. The funds in the sinking fund would be invested until maturity
at money market fund rates.
In 1994, the Company joined in a pre-existing tax benefits sharing agreement
with Search. Under the terms of this agreement, the Company is required to
reimburse Search for any income tax payments made by Search on the Company's
behalf and to reimburse Search for the costs accruing to the Company from any
tax losses or credits of Search that are used to offset the taxable income of
the Company. Search is required to reimburse the Company for benefits accruing
to the other participants in the sharing agreement from any tax losses or
credits of the Company that are used to offset tax payments of the other
participants.
Proceeds from the Company's receivables are restricted to repayment of the
Notes, the payment of interest, the payment of certain allowed expenses,
including servicing fees, and, until commencement of the sinking fund period,
the purchase of additional receivables. The Notes require interest payments
only until maturity.
Until maturity the difference between collections and interest due each month
is first applied to allowed expenses of the Company (primarily repossession,
repair and maintenance expenses, servicing, investor relations and purchasing
fees, bank, accounting, attorney and trustee fees, and income taxes). Prior to
the sinking fund period, any remaining cash flow is invested in the purchase of
additional receivables. Servicing, investor relations and purchasing fees are
an allowed expense of the Company and are paid to ACAC. If there is a
remaining unpaid balance on the Notes after maturity, the Notes will be in
default, and the Note Trustee will determine which expenses are reimbursed,
including whether the Company may use contract proceeds to pay servicing,
investor relations and purchasing fees to ACAC.
Management is currently pursuing a plan to convert the existing notes payable
into common and preferred shares of Search. It is anticipated that both the
common and the preferred shares will be fully tradable securities and that the
preferred shares will pay quarterly dividends at 9% per annum. The plan would
necessitate that the Company file under Chapter 11 of the United States
Bankruptcy Code. An ad hoc noteholder committee has been formed to determine
the terms of the conversion plan with the Company. During the period from the
filing of the Chapter 11 petition until the plan is approved by the noteholders
and the Bankruptcy Court has issued a final order of confirmation of a
reorganization plan, the Company intends to continue to use Search to service
the Company's receivables until either all of the remaining receivables are
collected and any repossessed vehicles are sold or until the conversion plan is
9
<PAGE> 10
consummated. If the plan of reorganization is not approved by the Bankruptcy
Court, the Company may have to seek another company to service the Company's
receivables since Search has indicated that, in the absence of the conversion
of the notes payable into Search common and preferred shares, it may not have
sufficient resources to continue servicing the Company's receivables.
Neither Search nor any subsidiary or affiliate of Search has guaranteed
repayment of the Company's Notes or has any current or future obligation to
support the Company. Except for the sale and collection of the Company's
receivables, the Company does not anticipate that it will have any other source
of capital to satisfy the Notes.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
AUTOMOBILE CREDIT FINANCE VI, INC.
DATE: August 4, 1995 BY: s/ Lucian D. Vandergrift, III
-----------------------------
Lucian D. Vandergrift, III
Reporting Officer
DATE: August 4, 1995 BY: s/ Robert D. Idzi
-----------------------------
Robert D. Idzi
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
</TABLE>
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922053
<NAME> AUTOMOBILE CREDIT FINANCE VI
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 145,000
<SECURITIES> 0
<RECEIVABLES> 7,406,000
<ALLOWANCES> 0
<INVENTORY> 219,000
<CURRENT-ASSETS> 817,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,587,000
<CURRENT-LIABILITIES> 11,276,000
<BONDS> 0
<COMMON> 1,000
0
0
<OTHER-SE> (2,690,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,587,000
<SALES> 0
<TOTAL-REVENUES> 1,984,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 991,000
<LOSS-PROVISION> 2,264,000
<INTEREST-EXPENSE> 1,129,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,400,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
