3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of The Securities Act of 1934
Date of Report (Date of Earliest Event Reported) November 11, 1997
GENERAL ACCEPTANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Commission File Number: 0-25760
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Indiana 35-1739977
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1025 Acuff Road
Bloomington, Indiana 47404
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number: (812) 337-6000
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ITEM 5. OTHER EVENTS
The press release dated November 11, 1997, attached hereto as Exhibit
99.3, is incorporated herein by reference.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
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99.3 General Acceptance Corporation Press Release, dated November 11, 1997
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized on November 28, 1997.
GENERAL ACCEPTANCE CORPORATION
By /s/ Martin C. Bozarth
Martin C. Bozarth
Chief Financial Officer
Exhibit 99.3- - More - -
-- More --
For Release At 4:30 P.M. EST On November 11, 1997
General Acceptance Corporation
Contact: Martin C. Bozarth, Chief Financial Officer
(812) 337-6023
Bloomington, Indiana (November 11, 1997) GAC ANNOUNCES EXECUTIVE MANAGEMENT
ADDITIONS, EXIT FROM COMPANY-OWNED DEALERSHIP BUSINESS, THIRD QUARTER RESULTS
Executive Management Additions
General Acceptance Corporation today announced a series of additions and
changes in executive management designed to enhance the Company's executive
management team as the first of several steps to better position the Company
for profitable growth. James J. Larkin, a member of the Company's Board of
Directors since April 1997, has been named to the posts of Chairman of the
Board of Directors and Chief Executive Officer, succeeding Malvin L. Algood.
Mr. Larkin is a Senior Vice President of Conseco Services LLC, where he will
retain certain limited responsibilities, and previously was a Partner with
Ernst & Young LLP. Mr. Algood, a significant stockholder, will remain with
the Company as an advisor to executive management.
James J. Terrell has been named Chief Operating Officer, succeeding Russell E.
Algood, who will retain his post as President. In their respective roles, Mr.
Terrell will devote his full time efforts to directing the company's daily
operations and Mr. Russell E. Algood will focus on strategic initiatives and
industry issues. Mr. Terrell is a Senior Vice President of Conseco Services
LLC and has extensive senior management, marketing and operating experience in
banking and consumer finance, most recently as a Senior Vice President of
Barnett Banks.
The Company welcomes Messrs. Larkin and Terrell as the next step in the
evolution of Conseco's growing financial and operational involvement with the
Company. Conseco is a Fortune 500 financial services company based in Carmel,
Indiana, which, through its subordinated debt investment and warrant position
in the Company, subject to shareholder approval, has the right to acquire
approximately 53% of the total outstanding common stock of the Company.
Exit From Company-Owned Dealership Business
To allow management to focus its efforts on its core auto finance operations,
the Company also announced its decision to exit from the business of operating
company-owned dealerships. The unsatisfactory results of the Company's
dealerships, which have been operated under the name Drive Home USA,
contributed to this decision. All of the Company-owned dealerships will be
closed with the exception of four locations in Indiana which will be sold to a
company to be formed by Messrs. Russell E. Algood and B. Wayne Garland, Vice
President responsible for company-owned dealership operations. Upon the
closing of this transaction, scheduled for January 1998, Mr. Garland will
resign his position with the Company to devote his efforts to the development
of the independent dealership company. Mr. Russell E. Algood will devote his
full time efforts to the Company and will not be active in the day-to-day
operations of the independent dealership company. The sale was approved by
the independent members of the Company's Board of Directors. As part of this
pending sale, restrictions on the sale of Company stock in the open market by
members of the Algood family have been relaxed.
In connection with the discontinuation of this segment of the Company's
business, a charge of $2.6 million was recorded in the third quarter of 1997.
This charge consists of $1.9 million in estimated losses on the closing and
sale of the company-owned dealerships, and $700,000 in estimated operating
losses during the phase-out period. Management believes that this move, while
painful in the short run, will significantly strengthen the Company and allow
it to focus on its core business of non-prime auto finance.
Third Quarter Results
The Company today also reported results for the third quarter and nine months
ended September 30, 1997. The loss from continuing operations for the third
quarter of 1997 was $(630,000) compared to a loss of $(1.4 million) for the
third quarter of 1996. The loss from continuing operations for the third
quarter of 1997 includes a $776,000 non-cash guarantee fee, which is discussed
further below. Without the guarantee fee, income from continuing operations
for the third quarter of 1997 would have been $146,000. Beginning in the
third quarter of 1997, the Company classified the company-owned dealerships as
discontinued operations. The loss from operations of the discontinued
company-owned dealership business was $(1.6 million) for the third quarter of
1997 compared to a loss of $(934,000) for the third quarter of 1996. In
addition, a charge of $2.6 million was recorded in the third quarter of 1997
related to losses expected to be incurred from the closure and sale of the
company-owned dealerships, which included $700,000 in projected operating
losses during the phase-out period. On a per share basis, the loss from
continuing operations for third quarter of 1997 was $(0.10) compared to
$(0.24) for the comparable period of 1996, and the net loss for the third
quarter of 1997 was $(0.80) compared to $(0.39) for the comparable period of
1996.
The loss from continuing operations for the first nine months of 1997 was
$(4.3 million) compared to income of $328,000 for the first nine months of
1996. The loss from continuing operations for the first nine months of 1997
includes a $776,000 non-cash guarantee fee, which is discussed further below.
Without the guarantee fee, the loss from continuing operations for the first
nine months of 1997 would have been $(3.5 million). The loss from operations
of the discontinued company-owned dealership business was $(6.3 million) for
the first nine months of 1997 compared to $(2.0 million) for the comparable
period of 1996. In addition, a charge of $2.6 million was recorded in the
first nine months of 1997 related to losses expected to be incurred from the
closure and sale of the company-owned dealerships, which included $700,000 in
projected operating losses during the phase-out period. On a per share basis,
the loss from continuing operations for the first nine months of 1997 was
$(0.71) compared to income from continuing operations of $0.05 for the
comparable period of 1996, and the net loss for the first nine months of 1997
was $(2.18) compared to $(0.27) for the comparable period of 1996.
Total finance revenues for the third quarter of 1997 were $3.9 million
compared to $7.7 million for the third quarter of 1996, a decrease of 49.7%.
For the first nine months of 1997, total finance revenues were $13.6 million
compared to $22.6 million for the comparable period of 1996, a decrease of
39.7%. The decrease for both periods was due primarily to a 38.8% reduction
in total contracts receivable as of the end of the third quarter of 1997 as
compared to the end of the third quarter of 1996. This reduction in contracts
receivable resulted from the sale of $45.0 million of contracts in accordance
with the Company's previously announced closure of finance operations in
certain geographic markets and the resulting lower origination volume in the
first nine months of 1997.
Results for the third quarter of 1997 included a provision for credit losses
of $200,000 compared to $4.7 million for the third quarter of 1996. The
provision for credit losses was $5.9 million for both the first nine months of
1997 and 1996. The $200,000 provision for credit losses recorded in the third
quarter of 1997 restored the allowance and discount available for credit
losses to a level deemed adequate to cover expected future credit losses.
As of September 30, 1997, the Company's total reserves available for credit
losses were $8.7 million, which represented 11.3% of total contracts
receivable. The comparable total reserves available for credit losses as a
percent of contracts receivable as of June 30, 1997 and December 31, 1996 were
11.6% and 10.6%, respectively. The Company's contractual 60-day delinquency
rate was 2.7% as of September 30, 1997 as compared to 1.5% as of June 30,
1997, and 1.8% as of December 31, 1996. The Company attributes the increase
in delinquency rates during the third quarter of 1997 to general conditions in
the sub-prime auto finance industry and to the transitional effects of the
installation in September 1997 of a predictive dialing system which is
expected to ultimately enhance the Company's collection capabilities.
The previously announced sale of $13.25 million in convertible subordinated
notes and the issuance of 500,000 warrants, subject to shareholder approval,
had conversion and exercise prices which were below the market value of the
Company's stock on the date of issuance. These securities were issued and the
conversion price was adjusted to compensate Conseco for its guarantee of a
portion of the Company's indebtedness to its primary lender. Accordingly, as
prescribed by generally accepted accounting principles, the Company recorded
in the third quarter of 1997 a $24.1 million prepaid guarantee fee, with an
offsetting increase to additional paid-in capital. This amount represents the
number of shares issuable at a conversion or exercise price of $1.00 per share
times the per share discount from market value of the Company's common stock.
The amortization of the prepaid guarantee fee will result in a non-cash charge
to operations over the term of the guarantee, which runs from September 16,
1997 to January 1, 1999. For the third quarter and first nine months of 1997,
the amount of this non-cash charge was $776,000.
As a result of the losses incurred by the company-owned dealership business in
the third quarter of 1997, the Company failed to comply with an interest
coverage covenant contained in its agreement with its primary lender. The
Company is in discussions with the lender to resolve this issue.
This release contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include statements about enhancing the company's collections
capabilities and the level of expected future credit losses. These
statements, and any other forward-looking statements contained herein, are
subject to risks, including risks outside the Company's control, that could
cause results to vary materially from the statements set forth herein. Some
of these risks include, but are not limited to, general economic conditions,
the level of competition from other sub-prime auto finance providers and the
Company's ability to maintain its underwriting policies and guidelines.
General Acceptance Corporation is a specialized consumer finance company
principally engaged in purchasing and servicing installment sale contracts
relating to the sale of used automobiles to consumers with limited access to
traditional financing sources. The Company acquires these contracts from
unaffiliated dealers as well as from, through January 1998, used vehicle
dealerships operated by the Company. The Company is headquartered in
Bloomington, Indiana, and has regional offices in Indiana, Ohio and Florida.
The Company's stock is traded on NASDAQ under the symbol "GACC."
GENERAL ACCEPTANCE CORPORATION
(In thousands, except per share amounts)
CONDENSED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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1997 1996 1997 1996
-------------------- ------------------- --------- --------
Finance revenues:
Interest and discount $ 3,731 $ 7,022 $ 13,026 $20,511
Ancillary products 64 619 162 1,781
Other 55 11 445 316
-------------------- ------------------- --------- --------
Total finance revenues 3,850 7,652 13,633 22,608
Expenses:
Interest 1,726 2,185 5,375 6,661
Provision for credit losses 200 4,700 5,884 5,925
Guarantee fee 776 --- 776 ---
Operating expenses 1,778 3,140 5,869 9,475
-------------------- ------------------- --------- --------
Total expenses 4,480 10,025 17,904 22,061
-------------------- ------------------- --------- --------
Income (loss) from continuing operations
before taxes (630) (2,373) (4,271) 547
Provision for income tax --- (949) --- 219
-------------------- ------------------- --------- --------
Income (loss) from continuing operations (630) (1,424) (4,271) 328
-------------------- ------------------- --------- --------
Discontinued operations:
Loss from operations (1,579) (934) (6,283) (1,979)
Loss on abandonment and sale (2,600) --- (2,600) ---
-------------------- ------------------- --------- --------
(4,179) (934) (8,883) (1,979)
-------------------- ------------------- --------- --------
Net loss $ (4,809) $ (2,358) $(13,154) $(1,651)
==================== =================== ========= ========
Income (loss) from continuing operations per
share $ 0.10) $ (0.24) $ (0.71) $ 0.05
==================== =================== ========= ========
Net loss per share $ (0.80) $ (0.39) $ (2.18) $ (0.27)
==================== =================== ========= ========
Weighted average shares outstanding 6,023 6,022 6,025 6,022
==================== =================== ========= ========
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GENERAL ACCEPTANCE CORPORATION
(In thousands, except per share amounts)
CONDENSED BALANCE SHEETS
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SEPTEMBER 30, DECEMBER 31, 1996
1997
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Contracts receivable:
Held for investment $ 76,563 $ 62,263
Held for sale --- 54,868
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76,563 117,131
Allowance and discount available for credit losses (7,485) (10,611)
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Contracts receivable, net 69,078 106,520
Repossession inventory 939 7,534
Purchased and trade inventory 5,905 2,518
Prepaid guarantee fee 23,286 ---
Other assets 7,323 7,074
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Total assets $ 106,531 $ 123,646
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Revolving line of credit $ 55,202 $ 93,977
Bank line of credit --- 4,500
Subordinated notes 14,750 1,000
Accounts payable and accrued expenses 4,230 4,651
Accrual for discontinued operations 2,600 ---
Dealer participation reserves available for credit losses 1,177 1,855
Stockholders' equity 28,572 17,663
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Total liabilities and stockholders' equity $ 106,531 $ 123,646
=============== ===================
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