UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Amendment No. 1 to Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 2, 1998
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0465087
(State or other jurisdiction of (I.R.S. Employer
Incorporation) Identification No.)
675 Bering Drive, Suite 710
Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
===============================================================================
===============================================================================
Registrant's telephone number, including area code (713) 977-2600
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The undersigned registrant, in order to provide the financial statements
required to be included in the Current Report on Form 8-K dated October 2, 1998,
in connection with the acquisition of all of the outstanding common stock of
Auto Lenders Acceptance Corporation, hereby amends the Form 8-K filed with the
Securities and Exchange Commission on October 19, 1998, to report the following
items as set forth in the pages attached hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Business Acquired.
The following are filed as an exhibit hereto and incorporated
herein by reference:
Report of Independent Auditors
Auto Lenders Acceptance Corporation Consolidated Balance Sheets as
of December 31, 1997 and 1996 (audited) and August 31, 1998
(unaudited)
Auto Lenders Acceptance Corporation Consolidated Statements of
Operations for the Years Ended December 31, 1997 and 1996 (audited)
and for the Eight Months Ended August 31, 1998 and 1997 (unaudited)
Auto Lenders Acceptance Corporation Consolidated Statements of
Shareholders' Equity for the Years Ended December 31, 1997 and 1996
(audited) and for the Eight Months Ended August 31, 1998 (unaudited)
Auto Lenders Acceptance Corporation Consolidated Statements of Cash
Flows for the Years Ended December 31, 1997 and 1996 (audited) and
for the Eight Months Ended August 31, 1998 and 1997 (unaudited)
Auto Lenders Acceptance Corporation Notes to Consolidated Financial
Statements
(b) Pro Forma Financial Information.
The following are filed as an exhibit hereto and incorporated herein
by reference:
First Investors Financial Services Group, Inc. and Auto Lenders
Acceptance Corporation Pro Forma Consolidated Balance Sheet as of
July 31, 1998 (unaudited)
First Investors Financial Services Group, Inc. and Auto Lenders
Acceptance Corporation Pro Forma Consolidated Statement of
Operations for the Three Months Ended July 31, 1998 (unaudited)
First Investors Financial Services Group, Inc. and Auto Lenders
Acceptance Corporation Pro Forma Consolidated Statement of
Operations for the Year Ended April 30, 1998 (unaudited)
First Investors Financial Services Group, Inc. and Auto Lenders
Acceptance Corporation Explanatory Notes to the pro forma
consolidated financial statements
<PAGE>
(c) Exhibits.
2.1* Stock Purchase Agreement, dated as of September 9, 1998,
between First Investor Financial Services Group, Inc. and
Fortis, Inc. to purchase Auto Lenders Acceptance Corporation a
wholly-owned subsidiary of Fortis, Inc.
21.1* Subsidiaries of the Registrant
99.1 Consolidated Financial Statements of Auto Lenders Acceptance
Corporation
99.2 Unaudited Pro Forma Consolidated Financial Information of
First Investors Financial Services Group, Inc.
--------
* Exhibit previously filed with the Company's Form 8-K dated October
2, 1998, which was filed on October 19, 1998, and incorporated
herein by reference.
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 hereunto duly authorized.
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
/s/Bennie H. Duck
BY:
Bennie H. Duck
Secretary, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: December 11, 1998
EXHIBIT 99.1
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997
AND DECEMBER 31, 1996
WITH REPORT OF INDEPENDENT AUDITORS
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
EIGHT MONTHS ENDED AUGUST 31, 1998
(UNAUDITED)
<PAGE>
INDEX
Report of Independent Auditors...............................................ii
Balance Sheets................................................................1
Statements of Operations......................................................2
Statements of Shareholder's Equity............................................3
Statements of Cash Flows......................................................4
Notes to Financial Statements...............................................6-15
i
<PAGE>
Report of Independent Auditors
Board of Directors
Auto Lenders Acceptance Corporation
We have audited the accompanying consolidated balance sheets of Auto Lenders
Acceptance Corporation and Subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholder's equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Auto Lenders
Acceptance Corporation and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Atlanta, Georgia
/s/ ERNST & YOUNG LLP
February 18, 1998 Ernst & Young LLP
ii
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- AUGUST 31,
1997 1996 1998
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS: (UNAUDITED)
Cash .............................. $ 2,022,266 $ 39,525 $ 3,995,351
Restricted cash ................ 570,010 -- 2,556,833
Automobile receivables held for
securitization ........... 64,000,000 -- --
Automobile receivables, net ....... 45,764,942 31,418,292 59,559,473
Subordinated interest in trust
certificates ..................... 3,918,262 -- 11,873,285
Interest-only strip ............ 2,336,355 -- 4,909,317
Servicing asset ................... 497,458 -- 822,509
Property and equipment, net ....... 3,058,936 1,271,418 2,212,569
Income taxes receivable from Parent 2,731,142 1,898,619 9,873,289
Deferred income taxes ............. 3,508,040 779,938 --
Prepaid expenses ............... 199,915 -- 75,369
Loan Service Fee Receivable .... 164,589 -- 272,095
Other ............................. 30,047 35,063 96,869
------------- ------------- -------------
TOTAL ASSETS ................... $ 128,801,962 $ 35,442,855 $ 96,246,959
============= ============= =============
LIABILITIES:
Accounts payable and accrued
liabilities ...................... $ 2,836,206 $ 841,710 $ 4,133,477
Due to affiliate .................. 283,877 485,242 219,710
Borrowings from Parent ............ 61,500,000 -- 54,500,000
Warehouse line of credit .......... 20,000,000 -- --
------------- ------------- -------------
TOTAL LIABILITIES .............. $ 84,620,083 $ 1,326,952 $ 58,853,187
------------- ------------- -------------
SHAREHOLDER'S EQUITY:
Common stock $.01 par value; 30,000
shares authorized, 100 issued and
outstanding ...................... $ 1 $ 1 $ 1
Additional paid-in capital ........ 60,000,000 39,738,631 60,000,000
Retained earnings (deficit) ....... (15,818,122) (5,622,729) (22,606,229)
------------- ------------- -------------
TOTAL SHAREHOLDER'S EQUITY ..... $ 44,181,879 $ 34,115,903 $ 37,393,772
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY ............................... $ 128,801,962 $ 35,442,855 $ 96,246,959
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS ENDED
AUGUST 31,
YEAR ENDED YEAR ENDED ---------------------------------
DECEMBER 31, DECEMBER 31, (UNAUDITED) (UNAUDITED)
1997 1996 1998 1997
------------ ------------ ---------------------------------
<S> <C> <C> <C> <C>
Interest Income
Interest income .................. $ 17,837,548 $ 2,512,048 $ 11,640,096 $ 11,188,906
Interest expense ................. (1,726,952) -- (2,429,442) (725,174)
------------ ------------ ------------ ------------
Net interest income
before provision for credit losses.. 16,110,596 2,512,048 9,210,654 10,463,732
------------ ------------ ------------ ------------
Provision for credit losses ......... (21,062,805) (2,236,405) (11,020,472) (11,747,006)
------------ ------------ ------------ ------------
Net interest income
(expense) ...................... (4,952,209) 275,643 (1,809,818) (1,283,274)
------------ ------------ ------------ ------------
Other Income
Gain on automobile
receivables securitized......... 5,280,066 -- 3,550,342 --
Servicing and ancillary
fees ........................... 585,096 12,369 1,755,181 117,523
------------ ------------ ------------ ------------
Total other income ............ 5,865,162 12,369 5,305,523 117,523
------------ ------------ ------------ ------------
Other Expenses
Salaries and benefits ............ 8,175,572 4,049,648 4,982,276 5,084,933
Other operating expenses ......... 6,213,648 1,860,856 6,810,926 4,191,149
Technology costs ................. 762,987 896,170 68,893 749,518
Occupancy ........................ 1,069,813 633,700 789,295 738,407
Bank marketing fees .............. 2,220,235 535,375 327,319 1,527,475
Intercompany management fee ...... 1,582,193 101,486 1,639,361 904,682
Deferral of loan
acquisition costs .............. (3,469,536) (659,000) (712,271) (2,193,690)
------------ ------------ ------------ ------------
Total other expenses .......... 16,554,912 7,418,235 13,905,799 11,002,474
------------ ------------ ------------ ------------
Loss before income taxes ............ (15,641,959) (7,130,223) (10,410,094) (12,168,225)
Income tax benefit .................. (5,446,566) (2,496,250) (3,621,987) (4,248,838)
------------ ------------ ------------ ------------
Net Loss ......................... $(10,195,393) $ (4,633,973) $ (6,788,107) $ (7,919,387)
============ ============ ============ ============
Basic and fully diluted
loss earnings per share ..... $ (101,954) $ (46,340) $ (67,881) $ (79,194)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER ADDITIONAL RETAINED
OF PAID IN EARNINGS\
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
December 31, 1995 ............ 100 $ 1 $ 1,738,631 (988,756) $ 749,876
Cash contribution by
Parent .................... -- -- 38,000,000 -- 38,000,000
Net Loss ..................... -- -- -- (4,633,973) (4,633,973)
------------ ------------ ------------ ------------ ------------
December 31, 1996 ............ 100 $ 1 $ 39,738,631 $ (5,622,729) $ 34,115,903
------------ ------------ ------------ ------------ ------------
Cash contribution by
Parent .................... -- -- 40,261,369 -- 40,261,369
Return of capital to
Parent .................... -- -- (20,000,000) -- (20,000,000)
Net Loss ..................... -- -- -- (10,195,393) (10,195,393)
------------ ------------ ------------ ------------ ------------
December 31, 1997 ............ 100 $ 1 $ 60,000,000 $(15,818,122) $ 44,181,879
============ ============ ============ ============ ============
Net Loss (unaudited) ......... -- -- -- (6,788,107) (6,788,107)
------------ ------------ ------------ ------------ ------------
August 31, 1998
(unaudited) ............... 100 $ 1 $ 60,000,000 $(22,606,229) $ 37,393,772
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS ENDED
AUGUST 31,
YEAR ENDED YEAR ENDED ------------------------------
DECEMBER 31, DECEMBER 31, (UNAUDITED) (UNAUDITED)
1997 1996 1998 1997
------------- ------------- ------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Loss ........................................ $ (10,195,393) $ (4,633,973) $ (6,788,107) (7,919,387)
Adjustments to reconcile net
loss to net cash provided by (used in)
operating activities:
Provision for credit losses ................. 21,062,805 2,236,405 11,020,472 11,747,006
Losses charged to allowance,
net of recoveries ......................... (7,223,804) (200,760) -- (2,505,379)
Amortization of servicing asset ............... 132,584 -- 779,392 --
Depreciation and amortization ................. 1,078,311 354,726 980,817 524,755
Deferred income tax benefit ................... (2,728,102) (596,462) (3,683,895) (4,309,297)
Changes in operating assets and liabilities:
Net increase in income
taxes receivable ......................... (832,523) (1,552,277) -- --
Net increase in accounts payable and
accrued liabilities ...................... 1,994,496 437,641 1,297,276 2,784,113
Net increase (decrease) in discounts
withheld from Dealers .................... 3,064,029 907,837 (589,615) 2,698,434
Net increase in accrued interest
receivable ............................... (1,014,175) (377,139) (59,538) (941,313)
Net increase in automobile receivables
acquisition costs ........................ (1,463,614) (601,643) (349,158) (1,628,468)
Net increase (decrease) in premiums paid
to dealers ............................... (609,755) (105,717) 385,099 (485,051)
Net increase (decrease) in due to
affiliate ................................ (201,365) 73,729 (64,167) (349,321)
Other ...................................... (794,800) 47,902 (1,986,823) --
------------- ------------- ------------- -------------
Net cash provided by (used in) operating
activities ............................... 2,268,694 (4,009,731) 941,753 (383,908)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Automobile receivables
originated ................................. (172,557,707) (35,782,472) (34,532,562) (109,313,366)
Collection of principal on
auto receivables ........................... 29,094,635 2,612,343 15,076,158 16,451,045
Capital expenditures .......................... (3,000,526) (1,145,362) (134,449) (2,315,911)
------------- ------------- ------------- -------------
Net cash used in investing
activities ............................... (146,463,598) (34,315,491) (19,590,853) (95,178,232)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from loan securitization ............. 44,416,276 -- 47,622,185 --
Advances on note payable to affiliate ......... 95,500,000 -- 24,500,000 69,135,212
Repayments on note payable to affiliate ....... (34,000,000) -- (31,500,000) (12,547,123)
Advances on warehouse line of credit .......... 38,000,000 -- 23,500,000 26,069,104
Repayments on warehouse line of credit ........ (18,000,000) -- (43,500,000) (26,069,104)
Capital contributions from Parent ............. 40,261,369 38,000,000 -- 40,261,369
Capital returned to Parent .................... (20,000,000) -- -- --
------------- ------------- ------------- -------------
Net cash provided by financing activities.. 146,177,645 38,000,000 20,622,185 96,849,458
------------- ------------- ------------- -------------
Net increase(decrease) in cash
and cash equivalents .......................... 1,982,741 (325,222) 1,973,085 1,287,318
Cash and cash equivalents,
beginning of period ........................... 39,525 364,747 2,022,266 39,525
------------- ------------- ------------- -------------
Cash and cash equivalents, end
of period ..................................... $ 2,022,266 $ 39,525 $ 3,995,351 $ 1,326,843
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE EIGHT MONTHS ENDED
AUGUST 31,
YEAR ENDED YEAR ENDED ------------------------------
DECEMBER 31, DECEMBER 31, (UNAUDITED) (UNAUDITED)
1997 1996 1998 1997
------------- ------------- ------------------------------
<S> <C> <C> <C> <C>
Supplemental disclosures
Cash paid during the year
for:
Interest expense ....................... $ 1,679,964 $ -- $ 2,429,442 $ 684,375
Non-cash operating and
investing Activities:
Automobile receivables
transferred to automobile
receivables held for
securitization ......................... $121,001,040 $ -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND AUGUST 31, 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Auto Lenders Acceptance Corporation (the Company) was incorporated May 24,
1995 in the State of Delaware. The Company is a wholly owned subsidiary of
Fortis, Inc. ("Parent"). The principal business activity of the Company is
purchasing and servicing retail automobile sales contracts. The company
serves as a financing source to buyers of new and used automobiles at
automobile dealerships. These buyers typically have limited or substandard
credit records. The Company markets its program through financial
institutions who have pre-existing relationships with automobile dealers.
The Parent is a financial services company that, through its operating
companies and affiliates, provides specialty insurance and investment
products to businesses, associations, financial service organizations and
individuals in the United States. The Parent is part of Fortis, a
worldwide group of companies active in the fields of insurance, banking,
and investments, with assets in excess of $160 billion. Fortis is jointly
owned by Fortis AMEV of The Netherlands and Fortis AG of Belgium.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Auto Lenders
Acceptance Corporation and its wholly owned subsidiaries ALAC Receivables
Corp. and ALAC, LLC which are limited purpose corporations formed to
accommodate the structure under which the Company securitizes its retail
automobile sales contracts. All significant intercompany balances and
transactions have been eliminated in consolidation.
INCOME RECOGNITION
Interest income from automobile receivables is recognized on the accrual
basis using the interest method. Accrual of interest income on automobile
receivables is suspended and any accrued and unpaid interest is reversed
when a loan is contractually delinquent for sixty days or more. The
accrual of interest is resumed when the loan becomes contractually
current, and any past-due interest income is recognized at that time.
ASSET SECURITIZATION
The Company securitizes a substantial portion of its automobile
receivables through ALAC Automobile Receivables Trust (the "Trust).
Automobile receivables are transferred to the Trust, which issues notes
and certificates representing undivided ownership interest in the Trust.
The Company retains an interest in the Trust ("Subordinated Interest in
Trust Certificates" on the balance sheet) in an amount equal to the amount
of the retained certificates of each series held by the Company. Although
the Company continues to service the underlying automobile receivables and
maintains the customer relationships, these transactions are treated as
sales and the securitized
6
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND AUGUST 31, 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
automobile receivables are not reflected on the balance sheet. The Company
has receivables from and payables to the Trust as a result of
securitizations, including amounts deposited in accounts held by the
trustee for the benefit of the Trust's noteholders. Such amounts are
included in Restricted Cash.
The Company adopted the requirements of Statement of Financial Accounting
Standards (SFAS) No. 125, "Accounting for the Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," effective for all
such transactions. The Company records gains on the securitization of
automobile receivables based on the estimated fair value of assets
obtained and liabilities incurred in the sale. Gains represent the present
value of estimated cash flows the Company has retained over the estimated
outstanding period of the receivables. Certain estimates inherent in the
determination of the fair value of the retained interest are influenced by
factors outside the Company's control, and as a result, such estimates
could materially change in the near term.
Subordinated interest in trust certificates represents interests in the
securitized receivables which are subordinated to the noteholders
interests. These certificates represent a credit enhancement in order for
the securitization to achieve a specific rating from the credit rating
agencies. The investment is valued at the present value of estimated
future cash flows.
Interest-only strips result from the sale of automobile receivables
through securitization whereby the Company retains an interest in the
excess interest cash flows. Interest-only strips are computed as the
differential between the weighted average interest rate earned on the
automobile receivables securitized and the rate paid to the purchasers of
the automobile receivables, adjusted for any contractual servicing fees to
be paid to the Company. The resulting differential represents an asset in
the period in which the automobile receivables are securitized equal to
the present value of estimated future excess interest cash flows adjusted
for anticipated prepayments and losses. The estimated future cash flows
have been discounted using discount rates that the Company would expect
market participants to use for similar instruments.
The Company has classified interest-only strips as available for sale in
accordance with Statement No. 125, and accordingly, any difference between
fair value and the carrying amount are recorded in stockholder's equity,
net of the related tax effects.
The Company retains the rights to service all automobile receivables it
securitizes. Servicing assets, which can be capitalized upon
securitization, represent the present value of the estimated future
earnings to be received from servicing securitized automobile receivables.
These earnings are calculated by estimating future servicing revenues,
including contractually specified servicing fees, late charges and other
ancillary income and netting them against the actual cost to service
automobile receivables. The fair value of servicing assets at December 31,
1997 approximates the carrying amount.
7
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND AUGUST 31, 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CREDIT LOSSES
Provisions for credit losses are charged to income in amounts sufficient
to maintain the allowance for credit losses at a level considered adequate
to cover inherent losses of principal and interest in the existing
portfolio. A receivable is charged off when the earliest of these events
occurs:
o management determines the automobile receivable is
uncollectable and repossession of the collateral is doubtful;
o collateral has been repossessed and sold, with sale proceeds
applied to reduce the outstanding principal balance;
o a receivable becomes contractually delinquent for 120 days or
more.
The Company utilizes static pool analyses and other analytical tools to
evaluate the adequacy of the allowance for credit losses.
USE OF ESTIMATES
The financial statements are prepared in accordance with generally
accepted accounting principles which require management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Material estimates that are susceptible to significant change
in the near term relate primarily to the determination of the allowance
for credit losses and the evaluation of potential impairment in the
retained interest in securitizations.
LOAN ORIGINATION FEES AND COSTS
Fees received and direct costs incurred for the acquisition of automobile
receivables are deferred and amortized to interest income over the
contractual lives of the automobile receivables using the interest method.
Unamortized amounts are recognized in income at the time that automobile
receivables are sold or paid in full.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization are calculated using
straight-line methods over the estimated useful lives of the assets.
INCOME TAXES
The results of the Company's operations are included in the consolidated
income tax return of the Parent. The total provision or benefit for income
taxes is made in these financial statements as if the Company was filing a
separate tax return. The Company makes payments to or receives
8
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND AUGUST 31, 1998 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
refunds from the parent for the entire current portion of the provision or
benefit amount annually under a tax-sharing agreement.
The Company recognizes deferred tax assets and liabilities based upon the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect of a change in tax rates
on deferred tax assets and liabilities is recognized in the period in
which the enactment is effective. Deferred taxes result primarily from
differences in book and tax basis of securitized assets and the allowance
for credit losses.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
130, which establishes new rules for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The new rules require that all items that are
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. The rules require companies
to (a) display items of other comprehensive income either below the total
for net income, in a separate statement of comprehensive income, or in a
statement of changes in equity, the alternative we believe many companies
will follow, and (b) disclose the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. Statement 130
does not specify a format for the financial statement that portrays the
components of comprehensive income but requires that a company display an
amount representing total comprehensive income for the periods reported in
that financial statement. Application of Statement 130 will not impact
amounts previously reported for net income or affect the comparability of
previously issued financial statements.
RECLASSIFICATIONS
Prior year amounts have been reclassified to conform to current year
presentation.
9
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND AUGUST 31, 1998 (UNAUDITED)
2. AUTOMOBILE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES
Automobile receivables are summarized as follows:
December 31
1997 1996
------------- -------------
Principal balance of automobile receivables . $119,745,406 $ 33,283,374
Unamortized:
Dealer discount .......................... (3,975,645) (911,616)
Dealer premium ........................... 715,472 105,717
Acquisition costs ........................ 2,066,419 602,805
Accrued interest ............................. 1,393,498 379,323
------------- -------------
Automobile receivables before
allowance for credit losses ............ 119,945,150 33,459,603
Allowance for credit losses .................. (10,180,208) (2,041,311)
------------- -------------
Automobile receivables ................... $ 109,764,942 $ 31,418,292
Automobile receivables held for
securitization ............................... (64,000,000) --
============= =============
Automobile receivables, net .............. $ 45,764,942 $ 31,418,292
============= =============
On December 31, 1997, contractual maturities of finance receivables were
as follows:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest ............... $ 22,713,081 $ 18,067,643 $ 13,142,636 $ 7,309,785 $ 1,737,424 $ 62,970,569
Principal
Balance
of
Finance
Receivables ............ 21,141,506 22,392,569 26,726,304 29,269,910 20,215,117 119,745,406
------------ ------------ ------------ ------------ ------------ ------------
Total .............. $ 43,854,587 $ 40,460,212 $ 39,868,940 $ 36,579,695 $ 21,952,541 $182,715,975
============ ============ ============ ============ ============ ============
</TABLE>
It is the Company's estimate, based upon industry standards, that a
substantial portion of the consumer loan portfolio generally is repaid
before contractual maturity dates. The above tabulation, therefore, is not
to be regarded as a forecast of future cash flows.
The estimated fair value of automobile receivables has been calculated
based on discounted cash flow analyses, using interest rates being
currently offered on automobile receivables with similar terms. The
estimated fair value of automobile receivables as of December 31, 1997 and
1996 approximated $121,843,000 and $38,045,000 respectively.
10
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND AUGUST 31, 1998 (UNAUDITED)
2. AUTOMOBILE RECEIVABLES AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)
Changes in the allowance for credit losses are summarized as follows:
December 31,
1997 1996
------------- -------------
Balance at beginning of period ....... $ 2,041,311 $ 5,666
Provision for credit losses ........... 21,062,805 2,236,405
Charged-off automobile receivables .... (8,290,648) (200,953)
Recoveries ............................ 1,066,844 193
Allowance released with
Securitization ............................. (5,700,104) --
------------ ------------
Balance at end of period .............. $ 10,180,208 $ 2,041,311
============ ============
The Company's automobile receivables consist of individual consumer
installment contracts secured by motor vehicles and as such are
susceptible to overall economic trends.
3. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following:
December 31,
1997 1996
------------- -------------
Computer equipment ...................... $ 2,203,991 $ 973,093
Leasehold improvements ................... 898,693 296,242
Furniture and other equipment ............ 1,330,680 404,218
----------- -----------
Total cost ............................. 4,433,364 1,673,553
Less: accumulated depreciation
and amortization ....................... (1,374,428) (402,135)
----------- -----------
Property & equipment, net ................ $ 3,058,936 $ 1,271,418
=========== ===========
Depreciation and amortization expense for the years ended December 31,
1997 and December 31, 1996 was $1,078,311 and $354,726, respectively.
4. RELATED PARTY TRANSACTIONS
The Company has an $85 million Promissory Note ("Note") with the Parent at
a fixed interest rate of 6.25%. This Note may be drawn upon by the Company
at any time, and may be paid in part or in full at any time. The Note
matures on December 31, 1998. As of December 31, 1997, the Company had
outstanding debt payable to the Parent of $61,500,000. In addition, the
Company has a $3 million line of credit with an affiliate at a fixed
interest rate of 9%. This line of credit may be drawn upon by the Company
at any time, and may be paid in part or in full at any time. The line of
credit matures on May 24, 1998. During the year ended December 31, 1997,
the Company received no advances related to this line of credit.
11
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND AUGUST 31, 1998 (UNAUDITED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has entered into an Administrative Services Agreement with an
affiliate to provide the Company with marketing and sales assistance,
accounting, human resource activities, legal services and such other
services as the parties mutually agree to for a monthly fee calculated as
one-twelfth of one percent of the outstanding principal balance of
automobile receivables purchased and/or serviced by the Company. Amounts
paid under the provisions of this agreement for the years ended December
31, 1997 and December 31, 1996 were $1,289,926 and $101,486, respectively.
Beginning in 1997, the Company began paying a management fee to the
Parent. For the year ended December 31, 1997 the management fee paid to
the Parent was $292,267.
At December 31, 1997 and 1996, the Company had accrued $2,731,142 and
$1,898,619, respectively of current tax benefit receivable from the Parent
under a tax sharing agreement.
5. INCOME TAXES
The current and deferred income tax benefits are as follows:
December 31,
Current: 1997 1996
---------- ----------
Federal ............................ $2,718,464 $1,899,788
State .............................. -- --
---------- ----------
Total Current ........................ $2,718,464 $1,899,788
---------- ----------
Deferred:
Federal ............................ $2,728,102 $ 596,462
State .............................. -- --
---------- ----------
Total Deferred ....................... $2,728,102 $ 596,462
---------- ----------
Income Tax Benefit ................... $5,446,566 $2,496,250
========== ==========
For the years ended December 31, 1997 and December 31, 1996, the effective
tax rate of the Company approximated statutory rates.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities, which represent
the difference between the amount reported for financial reporting
purposes and the amounts used for income tax purposes. The components of
the Company's net deferred tax assets were as follows:
12
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND AUGUST 31, 1998 (UNAUDITED)
5. INCOME TAXES (CONTINUED)
December 31,
1997 1996
----------- -----------
Deferred tax assets:
Software expense ...................... $ 277,629 $ 153,234
Credit loss provision ................. 5,558,109 714,459
Accrued expenses ...................... 155,918 101,500
Depreciation of property
and equipment ........................ 96,630 21,727
----------- -----------
Total deferred tax assets ........... 6,088,286 990,920
Deferred tax liabilities:
Gain on loan securitization ........... (1,396,560) --
Contract acquisition costs ............ (1,183,686) (210,982)
----------- -----------
Net deferred tax asset .............. $ 3,508,040 $ 779,938
=========== ===========
6. EMPLOYEE BENEFITS
The Company participates in a noncontributory defined benefit pension plan
of the Parent covering substantially all employees. Benefits are based on
certain years of service and the employee's compensation during certain
such years of service.
The Company's funding policy is to contribute amounts to the plan, through
the Parent, sufficient to meet the minimum funding requirements set forth
in the Employee Retirement Income Security Act of 1974, plus such
additional amounts as the Company may determine to be appropriate from
time to time up to the maximum permitted. Contributions are intended to
provide not only for benefits attributed to service to date but also for
those expected to be earned in the future.
The Company, through the Parent, has a contributory profit sharing plan
covering substantially all employees that provides benefits payable to
participants on retirement or disability and to beneficiaries of
participants in the event of the participant's death.
During 1997 the Company implemented a long-term incentive plan. This plan
is designed to compensate key management positions based upon the
performance of the Company. Awards are made annually and vest over four
years. As of December 31, 1997 these awards had no value.
7. COMMITMENTS AND CONTINGENT LIABILITIES
The Company, through the Parent, leases its corporate offices under
noncancelable operating lease agreements with initial terms ranging from
one to five years. These leases generally require the Company to reimburse
the landlord for certain common area expenses, such as real estate taxes,
utilities and maintenance. Such expenses are included in rent expense.
Charges to expense with respect to all operating leases totaled $1,036,870
and $274,076 for the year end December 31,
13
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND AUGUST 31, 1998 (UNAUDITED)
7. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
1997 and December 31, 1996 respectively. As of December 31, 1997, the
future minimum lease payments for noncancelable operating leases were as
follows:
1998 .................. $1,046,476
1999 .................. 193,132
2000 .................. 144,849
2001 .................. --
2002 and thereafter ... --
----------
Total.................. $1,384,457
==========
8. CAPITAL COMMITMENT
The Parent has entered into an agreement with the Company to provide
operating capital in an aggregate amount not exceeding $80,000,000 for the
purpose of supporting the Company's operations and obligations. During the
year, the Company received capital contributions in the amount of
$40,261,369 and returned $20,000,000 to the Parent. At December 31, 1997
the Parent's contributed capital equaled $60,000,000.
9. DEBT
During 1997 the Company entered into a warehouse loan facility with
Prudential Securities Credit Corp. which allows the Company to borrow up
to $200 million, subject to a defined borrowing base. Aggregate borrowings
of $20,000,000 were outstanding as of December 31, 1997. Borrowings under
the facility are collateralized by certain auto loan receivables and bear
interest at LIBOR plus 1.0%. This facility was renegotiated effective
December 31, 1997 and allows the Company to borrow up to $150 million,
subject to a defined borrowing base and portfolio performance. Borrowings
under this facility will be collateralized by certain auto loan
receivables and bear interest at LIBOR plus 0.75%. This facility expires
July 31, 1998.
10. SECURITIZATION OF AUTOMOBILE RECEIVABLES
On September 25, 1997, the Company completed the sale of $57,001,040 of
automobile receivables to ALAC Automobile Receivables Trust 1997-1. The
proceeds received by the Company were used to repay indebtedness to the
Parent. The Company recognized a gain on the sale of automobiles in the
amount of $5,280,066.
For this transaction, the Company is required to establish and maintain a
cash reserve and collection account with a trustee with respect to the
securitized pool of automobile receivables. The amounts set aside would be
used to supplement certain shortfalls in payments, if any, to investors.
These balances are subject to an increase up to a maximum amount as
specified in the securitization indenture and are invested in certain
instruments as permitted by the trust agreement. To the extent balances on
deposit exceed specified levels, distributions are made to the Company
and, at the
14
<PAGE>
AUTO LENDERS ACCEPTANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FORTIS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND AUGUST 31, 1998 (UNAUDITED)
10. SECURITIZATION OF AUTOMOBILE RECEIVABLES (CONTINUED)
termination of the transaction, any remaining amounts on deposit are
distributed to the Company. Such amounts are included in restricted cash
and totaled $570,010 at December 31, 1997.
11. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - AUGUST 31, 1998 (UNAUDITED)
On February 2, 1998, the Company completed the sale of $63,920,833 of
automobile receivables to ALAC Automobile Receivables Trust 1998-1. The
proceeds received by the Company were used to repay indebtedness to the
Parent. The Company recognized a gain on the sale of automobiles in the
amount of $3,550,342.
For this transaction, the Company is required to establish and maintain a
cash reserve and collection account with a trustee with respect to the
securitized pool of automobile receivables. The amounts set aside would be
used to supplement certain shortfalls in payments, if any to investors.
These balances are subject to an increase up to a maximum amount as
specified in the securitization indenture and are invested in certain
instruments as permitted by the trust agreement. To the extent balances on
deposit exceed specified levels, distributions are made to the Company
and, at the termination of the transaction, any remaining amounts on
deposit are distributed to the Company. Such amounts are included in
restricted cash and totaled $2,556,833 at August 31, 1998.
15
EXHIBIT 99.2
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements of
First Investors Financial Services Group, Inc. ("First Investors") give effect
to the acquisition of 100% of the issued and outstanding common stock of Auto
Lenders Acceptance Corporation ("Auto Lenders") from Fortis, Inc. on October 2,
1998. The acquisition was accounted for under the purchase method of accounting,
which requires the purchase price to be allocated to the assets acquired and
liabilities assumed of Auto Lenders on the basis of their estimated fair values
as of the date of acquisition.
The following unaudited pro forma consolidated balance sheet gives effect
to the acquisition of Auto Lenders as if it had occurred on July 31, 1998, and
the unaudited pro forma consolidated statements of operations reflects the
results of operations of First Investors for the three month period ended July
31, 1998, and the fiscal year ended April 30, 1998, as if the acquisition of
Auto Lenders had occurred on May 1, 1998, (the first day of fiscal year 1999)
and May 1, 1997, ( the first day of fiscal year 1998) and includes adjustments
directly attributable to the acquisition and expected to have a continuing
impact on the company. The unaudited pro forma consolidated financial
information has been prepared based on preliminary estimates of certain direct
costs and liabilities associated with the transaction, and amounts actually
recorded may change upon final determination of such amounts.
The unaudited pro forma consolidated financial information and related
notes are provided for informational purposes only and are not necessarily
indicative of what First Investors actual financial position or results of
operations would have been had the foregoing transaction been consummated on
such dates, nor does it give effect to the synergies, cost savings and other
changes expected to result from the acquisition, including certain purchase
adjustments made as of the closing date to restate the acquired assets to their
estimated fair market value as of the closing date. Accordingly, the pro forma
consolidated financial information does not purport to be indicative of First
Investors financial position or results of operations as of the date hereof or
for any period ended on the date hereof or as of or for any other future date or
period.
The following unaudited pro forma consolidated financial information is
based in part on the historical consolidated financial statements of First
Investors, and the related notes thereto, which are included in First Investors'
Annual Report on Form 10-K for the fiscal year ended April 30, 1998, and First
Investors' Quarterly Report on Form 10-Q for the three month period ended July
31, 1998, and the historical consolidated financial statements of Auto Lenders
for those applicable periods. Auto Lenders fiscal year end is December 31;
however, Auto Lenders pro forma historical consolidated statements have been
adjusted to reflect the fiscal year end and applicable quarter end of First
Investors.
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
AND AUTO LENDERS ACCEPTANCE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JULY 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
FIRST
FIRST AUTO PRO FORMA INVESTORS
INVESTORS LENDERS ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Receivables Held for Investment, inclusive of unamortized
premium and net of allowance for credit losses .............. $146,145,010 $ 0 $ 0 $146,145,010
Receivables Acquired for Investment ........................... 0 58,519,897 (5,457,258)(e) 53,062,639
Investment in Trust Certificates .............................. 0 12,250,623 0 12,250,623
Interest - Only Strip ......................................... 0 5,118,300 0 5,118,300
Cash and Short-Term Investments ............................... 4,346,885 6,929,043 0 11,275,928
Other Receivables:
Due from servicer ........................................... 9,274,003 0 0 9,274,003
Accrued interest ............................................ 2,286,963 0 0 2,286,963
Assets Held for Sale .......................................... 2,009,906 0 0 2,009,906
Other Assets:
Funds held under reinsurance agreement ...................... 2,673,215 0 0 2,673,215
Deferred financing costs and other, net of accumulated
amortization .............................................. 1,358,876 600,581 1,262,720 (e) 3,222,177
Property and equipment, net ................................. 197,490 2,333,835 0 2,531,325
Servicing asset ............................................. 0 884,832 0 884,832
Deferred income tax asset ................................... 352,931 0 0 352,931
Federal income tax receivable ............................... 233,783 0 0 233,783
Tax benefit receivable from Fortis, Inc. .................... 0 9,791,686 (9,791,686)(e) 0
------------ ------------ ------------ ------------
TOTAL ASSETS .................................................. $168,879,062 $ 96,428,797 $(13,986,224) $251,321,635
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt:
Secured credit facilities ................................... $137,552,601 $ -- $75,000,000 (e) $212,552,601
Unsecured bank credit line .................................. 3,680,000 -- 0 3,680,000
Promissory Note to Fortis Inc. .............................. 0 54,500,000 (54,500,000)(e) 0
Other Liabilities:
Due to dealers .............................................. 223,724 -- 0 223,724
Accounts payable and accrued liabilities .................... 1,837,513 4,391,312 3,051,261 (e) 9,280,086
Current income taxes payable ................................ 109,771 -- 0 109,771
------------ ------------ ------------ ------------
TOTAL LIABILITIES ............................................. 143,403,609 58,891,312 23,551,261 225,846,182
------------ ------------ ------------ ------------
Shareholders' Equity
Common stock, $0.001 par value, 10,000,000 shares
authorized, 5,566,669 shares issued and outstanding ....... 5,567 1 (1)(e) 5,567
Paid in capital ............................................. 18,464,918 60,000,000 (60,000,000)(e) 18,464,918
Retained earnings ........................................... 7,004,968 (22,462,516) 22,462,516 (e) 7,004,968
------------ ------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY .................................... 25,475,453 37,537,485 (37,537,485) 25,475,453
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................... $168,879,062 $ 96,428,797 $(13,986,224) $251,321,635
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
AND AUTO LENDERS ACCEPTANCE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
---------------------------
FIRST
FIRST AUTO PRO FORMA INVESTORS
INVESTORS LENDERS ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income ......................................... $ 5,658,594 $ 5,392,091 $2,387,467 (d) $ 13,438,152
Interest Expense ........................................ 2,224,471 860,408 662,384 (c) 3,747,263
------------ ------------ ------------ ------------
Net Interest Income ................................ 3,434,123 4,531,683 1,725,083 9,690,889
Provision for Credit Losses ............................. 950,000 7,159,719 0 8,109,719
------------ ------------ ------------ ------------
Net Interest Income After Provision for Credit Losses ... 2,484,123 (2,628,036) 1,725,083 1,581,170
------------ ------------ ------------ ------------
Other Income:
Servicing and ancillary fees ....................... 0 616,506 0 616,506
Late fees and other ................................ 159,603 0 0 159,603
------------ ------------ ------------ ------------
Total other income ............................ 159,603 616,506 0 776,109
------------ ------------ ------------ ------------
Operating Expenses:
Servicing fees ..................................... 505,917 0 0 505,917
Salaries and benefits .............................. 855,834 1,449,927 0 2,305,761
Technology costs ................................... 0 19,150 0 19,150
Occupancy .......................................... 41,457 283,686 0 325,143
Bank marketing fees ................................ 0 62,934 0 62,934
Intercompany management fees ....................... 0 551,519 (551,519)(a) 0
Deferral of loan acquisition costs ................. 0 (127,071) 0 (127,071)
Other .............................................. 744,482 2,234,515 (873,000)(b) 2,105,997
------------ ------------ ------------ ------------
Total operating expenses ...................... 2,147,690 4,474,660 (1,424,519) 5,197,831
------------ ------------ ------------ ------------
Income Before Provision for Income Taxes ................ 496,036 (6,486,190) 3,149,602 (2,840,552)
Provision for Income Taxes .............................. 181,053 (2,270,214) 1,052,360 (f) (1,036,801)
------------ ------------ ------------ ------------
Net Income (Loss) ....................................... $ 314,983 $ (4,215,976) $ 2,097,242 $ (1,803,751)
============ ============ ============ ============
Basic and Diluted Net Income (Loss) per Common Share .... $ 0.06 $ (0.32)
============ ============
Weighted average shares outstanding for:
Basic earnings per common share ....................... 5,566,669 5,566,669
Diluted earnings per common share ..................... 5,566,778 5,566,778
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
AND AUTO LENDERS ACCEPTANCE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
FIRST
FIRST AUTO PRO FORMA INVESTORS
INVESTORS LENDERS ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income .............................................. $ 20,049,129 $ 18,942,593 $ 7,851,132 (j) $ 46,842,854
Interest Expense ............................................. 7,833,677 3,005,367 2,279,477 (i) 13,118,521
------------ ------------ ------------ ------------
Net Interest Income ..................................... 12,215,452 15,937,226 5,571,655 33,724,333
Provision for Credit Losses .................................. 3,900,966 20,597,650 0 24,498,616
------------ ------------ ------------ ------------
Net Interest Income After Provision for Credit Losses ........ 8,314,486 (4,660,424) 5,571,655 9,225,717
------------ ------------ ------------ ------------
Other Income:
Gain on securitization of loans ......................... 0 8,830,408 0 8,830,408
Servicing and ancillary fees ............................ 0 1,579,765 0 1,579,765
Late fees and other ..................................... 617,140 0 0 617,140
------------ ------------ ------------ ------------
Total other income ................................. 617,140 10,410,173 0 11,027,313
------------ ------------ ------------ ------------
Operating Expenses:
Servicing fees .......................................... 1,838,002 0 0 1,838,002
Salaries and benefits ................................... 2,639,080 8,954,598 0 11,593,678
Technology costs ........................................ 0 765,718 0 765,718
Occupancy ............................................... 127,634 1,150,177 0 1,277,811
Bank marketing fees ..................................... 0 1,765,155 0 1,765,155
Intercompany management fee ............................. 0 2,295,259 (2,295,259)(g) 0
Deferral of loan acquisition costs ...................... 0 (3,075,866) 0 (3,075,866)
Other ................................................... 2,398,770 8,287,401 (2,216,438)(h) 8,469,733
------------ ------------ ------------ ------------
Total operating expenses ........................... 7,003,486 20,142,442 (4,511,697) 22,634,231
------------ ------------ ------------ ------------
Income Before Provision for Income Taxes ..................... 1,928,140 (14,392,693) 10,083,352 (2,381,201)
Provision for Income Taxes ................................... 703,771 (4,985,903) 3,412,994 (k) (869,138)
------------ ------------ ------------ ------------
Net Income (Loss) ............................................ $ 1,224,369 $ (9,406,790) $ 6,670,358 $ (1,512,063)
============ ============ ============ ============
Basic and Diluted Net Income (Loss) per Common Share ......... $ 0.22 $ (0.27)
============ ============
Weighted average shares outstanding for:
Basic earnings per common share ............................ 5,566,669 5,566,669
Diluted earnings per common share .......................... 5,567,297 5,567,297
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements.
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Notes to the Pro Forma Consolidated Balance Sheet as of July 31, 1998 and Pro
Forma Consolidated Statement of Operations for the Three Months Ended July
31, 1998:
(a) Adjustment to eliminate the intercompany management fee charged to Auto
Lenders by its parent company, Fortis Inc.
(b) Adjustment to eliminate expenses incurred by Auto Lenders in preparation for
the sale of the company. Amounts include expenses for legal and consulting fees.
(c) Adjustment to eliminate the interest expense associated with Auto Lenders'
promissory note to Fortis Inc. To record the interest expense associated with
First Investors note payable to First Union for the financing of the acquisition
of Auto Lenders.
(d) Adjustment to record increased yield on receivables acquired for investment
based on discounted purchase price. The adjustment to record increased yield on
receivables acquired for investment for the three months ended July 31 for
fiscal years 2000, 2001, and 2002 would be $1,341,935, $670,662 and $275,292,
respectively.
(e) Adjustment to record the purchase price.
(f) Adjustment to reflect income tax expense for certain pro forma adjustments
based upon an assumed composite rate of federal and state income taxes of 36.5%.
Notes to the Pro Forma Consolidated Statement of Operations for the Year Ended
April 30, 1998:
(g) Adjustment to eliminate the intercompany management fee charged to Auto
Lenders by its parent company, Fortis Inc.
(h) Adjustment to eliminate expenses incurred by Auto Lenders in preparation for
the sale of the company. Amounts include expenses for retention bonuses for
employees.
(i) Adjustment to eliminate the interest expense associated with Auto Lenders'
promissory note to Fortis Inc. and to a third party lender. To record the
interest expense associated with First Investors note payable to First Union for
the financing of the acquisition of Auto Lenders.
(j) Adjustment to record increased yield on receivables held for investment
based on discounted purchase price. The adjustment to record increased yield on
receivables held for investment for the year ended April 30 for fiscal years
2000, 2001 and 2002 would be $4,247,979, $2,030,259 and $668,604, respectively.
(k) Adjustment to reflect income tax expense for certain pro forma adjustments
based upon an assumed composite rate of federal and state income taxes of 36.5%.
