UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 COMMISSION FILE NUMBER: 333-22141-03 FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC CALIFORNIA 061-429737 -------------------------------- ------------------------------------ (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) 2049 CENTURY PARK EAST, SUITE 350, LOS ANGELES, CALIFORNIA 90067 (310) 229-2600 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ----- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST POSSIBLE DATE: CLASS SHARES OUTSTANDING AT AUGUST 18, 1997 ----- ------------------------------------- NOT APPLICABLE NOT APPLICABLE FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC FORM 10-Q TABLE OF CONTENTS ----------------- PART I - FINANCIAL INFORMATION PAGE ------------------------------ ---- ITEM 1 FINANCIAL STATEMENTS -------------------- Balance Sheets - June 30, 1997 and December 31, 1996..................................... 2 Statements of Income - Three and six months ended June 30, 1997 and 1996................. 3 Statements of Cash Flows - Six months ended June 30, 1997 and 1996....................... 4 Statement of Changes in Members' Equity - June 30, 1997.................................. 5 Notes to Financial Statements............................................................ 6 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 ------------------------------------------------------------------------------------- PART II - OTHER INFORMATION --------------------------- ITEMS 1-6 NOT APPLICABLE -------------- SIGNATURES 14 ---------- FORWARD-LOOKING STATEMENTS When used in this Form 10-Q or future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "would be", "will allow", "intends to", "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project", or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. 1 ITEM 1. FINANCIAL STATEMENTS FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC BALANCE SHEETS (UNAUDITED) (IN THOUSANDS) JUNE 30, DECEMBER 31, ASSETS 1997 1996 ------ -------- ------------ Cash.................................................. $ 15 $ -- Interest bearing deposits............................. 2,667 2,594 Securities available for sale......................... 2,581 39,349 Loans and leases held for sale........................ 208,014 98,915 Retained interest in loan securitizations............. 7,002 6,908 Premises and equipment, net........................... 1,433 1,162 Goodwill.............................................. 4,571 4,332 Accrued interest receivable........................... 1,137 560 Other assets.......................................... 5,536 6,356 -------- -------- Total assets..................................... $232,956 $160,176 ======== ======== LIABILITIES AND MEMBERS' EQUITY ------------------------------- Book overdraft........................................ $ -- $ 171 Payable to Imperial Credit Industries, Inc. .......... 9,997 17,728 Borrowings............................................ 195,922 125,240 Accrued interest payable.............................. 878 148 Other liabilities..................................... 4,061 2,432 -------- -------- Total liabilities................................ 210,858 145,719 -------- -------- Members' equity: Members' capital.................................... 5,792 5,792 Retained earnings................................... 16,306 8,665 -------- -------- Total members' equity............................ 22,098 14,457 -------- -------- Total liabilities and members' equity............ $232,956 $160,176 ======== ======== See accompanying notes to financial statements 2 FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- REVENUE: Gain on sale of loans............................ $20,047 $ 5,852 $ 19,808 $ 12,520 Interest income.................................. 6,770 601 10,767 1,257 Interest expense................................. 6,040 322 9,394 955 ------- --------- -------- -------- Net interest income........................... 730 279 1,373 302 Loan servicing income............................ 736 367 1,376 649 Other income..................................... -- -- -- 63 ------- --------- -------- -------- Total other income............................ 736 367 1,376 712 ------- --------- -------- -------- Total revenue............................. 21,513 6,498 22,557 13,534 ------- --------- -------- -------- EXPENSES: Personnel and commission......................... 2,067 1,250 4,665 3,901 Professional services............................ 698 470 1,176 602 Travel........................................... 347 121 524 202 Business promotion............................... 176 101 316 198 Occupancy........................................ 161 63 277 122 Goodwill amortization............................ 88 76 169 251 General and administrative expense............... 1,222 267 1,467 495 ------- --------- -------- -------- Total expenses............................. 4,759 2,348 8,594 5,771 ------- --------- -------- -------- Net Income....................................... $16,754 $ 4,150 $ 13,963 $ 7,763 ======= ======== ======== ======== See accompanying notes to financial statements 3 FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC STATEMENTS OF CASH FLOW (UNAUDITED) (IN THOUSANDS) SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1997 JUNE 30, 1996 ------------- ------------- Cash flows from operating activities: Net income........................................................ $ 13,963 $ 7,763 Adjustments to reconcile net income to net cash provided (used in) operating activities: Depreciation and amortization....................................... 388 192 Net (increase) decrease loans and leases held for sale.............. (109,304) 157,213 Decrease (increase) in accrued interest receivable.................. (577) 952 Net change in residual interest due owner........................... -- (526) Net change in other assets.......................................... 931 (2,615) Net change in other liabilities..................................... 2,359 (145) --------- ---------- Net cash provided (used) by operating activities:..................... (92,240) 162,834 --------- ---------- Cash flows from investing activities: Purchases of premises and equipment................................. (490) (275) Increase in interest bearing deposits............................... (73) (1,999) Sale (purchase) of securities available for sale.................... 36,768 (9,691) Purchase of other investments....................................... (408) -- --------- ---------- Net cash provided (used) by investing activities:..................... 35,797 (11,965) --------- ---------- Cash flows from financing activities: Net change in receivables from affiliates........................... -- 675 Net change in borrowings from ICII.................................. (7,731) 7,009 Increase (decrease) in borrowings................................... 70,682 (46,402) Repayment of bonds.................................................. -- (111,995) Member distributions................................................ (6,322) -- --------- ---------- Net cash provided (used) by financing activities:..................... 56,629 (150,713) --------- ---------- Net change in cash.................................................... 186 156 Cash (book overdraft) at beginning of year............................ (171) (445) --------- ---------- Cash (book overdraft) at end of period................................ $ 15 $ (289) ========= ========== See accompanying notes to financial statements 4 FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC STATEMENT OF CHANGES IN MEMBERS' EQUITY (UNAUDITED) (IN THOUSANDS) RETAINED EARNINGS TOTAL MEMBERS' (ACCUMULATED MEMBERS' CAPITAL DEFICIT) EQUITY ------- ------------ --------- Balance, December 31, 1996.............. $ 5,792 $ 8,665 $14,457 Tax Distribution - ICII................. -- (4,215) (4,215) Tax Distribution - Knyal................ -- (2,107) (2,107) Net income.............................. -- 13,963 13,963 ------- ------- ------- Balance, June 30, 1997.................. $ 5,792 $16,306 $22,098 ======= ======= ======= See accompanying notes to financial statements 5 FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying financial statements have been prepared in conformity with generally accepted accounting principles and with the instructions to form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods presented. Actual results could differ significantly from those estimates. Prior year's financial statements have been reclassified to conform to the 1997 presentation. 2. RECENT ACCOUNTING PRONOUNCEMENTS The Company adopted on January 1, 1997, Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"), which establishes accounting for transfers and servicing of financial assets and extinguishment of liabilities. This statement specifies when financial assets and liabilities are to be removed from an entity's financial statements, the accounting for servicing assets and liabilities and the accounting for assets that can be contractually prepaid in such a way that the holder would not recover substantially all of its recorded investment. Under SFAS 125, an entity recognizes only assets it controls and liabilities it has incurred, discontinues recognition of assets only when control has been surrendered, and discontinues recognition of liabilities only when they have been extinguished. SFAS 125 requires that the selling entity continue to carry retained interests, including servicing assets, relating to assets it no longer recognizes. Such retained interests are based on the relative fair values of the retained interests of the subject assets at the date of transfer. Transfers not meeting the criteria for sale recognition are accounted for as a secured borrowing with a pledge of collateral. SFAS 125 requires an entity to recognize its obligation to service financial assets that are retained in a transfer of assets in the form of a servicing asset or liability. The servicing asset or liability is amortized in proportion to, and over the period of, net servicing income or loss. Servicing assets and liabilities are assessed for impairment based on their fair value. The implementation of SFAS 125 did not have a material impact on the Company's financial condition or results of operations. Under the provisions of SFAS 125, securitization interests retained by the Company as a result of securitization transactions will be held as either available for sale or trading. 3. FINANCIAL GUARANTEES The Company, among other subsidiaries of Imperial Credit Industries, Inc. ("ICII"), has jointly and severally and fully and unconditionally guaranteed ICII's $200 million 9.875% senior notes due January 15, 2007 and ICII's $70 liquidation amount of remarketed par securities. 6 RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 1996 Total revenues increased 230.8% to $21.5 million for the three months ended June 30, 1997 from $6.5 million for the comparable period in 1996. During the same periods, the Company's total expenses increased 108.7% to $4.8 million from $2.3 million. As a result, the Company's net income increased 300.0% to $16.8 million for the three months ended June 30, 1997 as compared to $4.2 million for the same period in 1996. Total revenues increased 66.7% to $22.6 million for the six months ended June 30, 1997 from $13.5 million for the comparable period in 1996. During the same periods, the Company's total expenses increased 48.9% to 8.6 million from $5.8 million. As a result, the Company's net income increased 79.9% to $14.0 million for the six months ended June 30, 1997 as compared to $7.8 million for the same period in 1996. Gain on sale of loans The increase in revenues for the three months ended June 30, 1997 as compared to the same period in 1996 was primarily attributable to a $14.2 million increase in gain on sale of loans. For the three months ended June 30, 1997, the Company sold approximately $158.6 million of loans in a securitization ("1997- A") as compared to $167.4 million of loans sold in a securitization ("1996-A") for the three months ended June 30, 1996. The increase in revenues for the six months ended June 30, 1997 as compared to the same period in 1996, was primarily attributable to a $7.3 million increase in gain on sale of loans. For the six months ended June 30, 1997, the Company sold approximately $158.6 million of loans in a securitization for a gain on sale of $18.8 million (of which $18.4 million was cash) as compared to $272.6 million of loans sold in two securitizations for a gain on sale of $12.5 million (of which $5.8 million was cash) for the six months ended June 30, 1996. The Company also recognized a gain on sale of $1.0 million in the six months ended June 30, 1997 from a whole loan sale of approximately $15.3 million. The increased gain on sale of loans was due to several factors, including the composition of loans in the securitization, the structure of the securitization and market conditions at the time of the securitization transaction. Net interest income Net interest income also contributed to the increase in revenues, increasing 162.0% to $0.7 million for the three months ended June 30, 1997 and 354.6% to $1.4 million for the six months ended June 30, 1997 as compared to $0.3 million and $0.3 million for the same periods in 1996. The increase was primarily due to the significant increase in loans and leases held for sale which resulted from an increase of loan and lease originations. Loan servicing income Loan servicing income increased 100.5% to $0.7 million for the three months ended June 30, 1997 and 112.0% to $1.4 million for the six months ended June 30, 1997 as compared to $0.4 million and $0.7 million for the same periods in 1996. This was primarily due to the increase in loans and leases serviced which resulted from the securitization of $325.1 million in loans from June 1996 through December 1996, with servicing rights retained by the Company. 7 EXPENSES Total expenses increased 108.7% to $4.8 million for the three months ended June 30, 1997 as compared to $2.3 million for the same period of the prior year primarily due to infrastructure additions needed to fund increased loan originations. Personnel expenses increased 65.4% to $2.1 million, professional services increased 48.5% to $0.7 million, and general and administrative expenses increased 444.9% to $1.2 million for the three months ended June 30, 1997 as compared to the three months ended June 30, 1996 Total expenses increased 48.9% to $8.6 million for the six months ended June 30, 1997 as compared to $5.8 million for the same period of the prior year primarily due to infrastructure additions needed to fund increased loan originations. Personnel expenses increased 19.6% to $4.7 million, professional services increased 95.3% to $1.2 million, and general and administrative expenses increased 196.4% to $1.5 million for the six months ended June 30, 1997 as compared to the six months ended June 30, 1996 LIQUIDITY AND CAPITAL RESOURCES The Company requires access to short-term warehouse lines of credit and repurchase facilities in order to fund loan and lease originations pending sale or securitization of such loans and leases. At June 30, 1997, the Company ---------- had the following warehouse lines of credit and repurchase facilities, each of which was guaranteed by ICII: INTEREST COMMITMENT PRINCIPAL LENDER EXPIRATION DATE INDEX RATE AMOUNT OUTSTANDING ------ --------------- ----- -------- ---------- ----------- (DOLLARS IN THOUSANDS) Credit Suisse First Boston December 31, 1998 Libor plus 160 basis points 7.29% $300,000 $167,447 Banco Santander June 1, 1998 Libor plus 160 basis points 7.29% 50,000 16,465 Sanwa Bank September 30, 1997 Eurodollar plus 200 basis points 7.50% 15,000 12,010 -------- -------- Total....................................................................... $365,000 $195,922 ======== ======== The Company expects to add new credit facilities, as well as renew and expand its existing credit facilities, in order to finance its growing levels of loan and lease origination activities. The Company also has a master purchase and sale agreement with Southern Pacific Thrift and Loan Association, a wholly owned subsidiary of ICII ("SPTL") to originate loans for SPTL under mutual agreement, and subject to SPTL underwriting each such loan prior to sale of such loans. Under this agreement, the Company also has the ability to repurchase loans, under mutual agreement with SPTL. There is no specified commitment by either party, and each individual sale is negotiated separately as to pricing. This agreement has no expiration date. At June 30, 1997, loans originated for SPTL (and not repurchased), totaled approximately $104.3 million. The Company does not expect to originate a significant volume of loans for SPTL under this arrangement in the future. The Company's sources of operating cash flow include: (i) loan origination income and fees; (ii) net interest income on loans held for sale; (iii) cash servicing income; (iv) premiums obtained in sales of whole loans (v) borrowing, and (vi) cash proceeds from loan securitization. Cash from loan origination fees, net interest income on loans held for sale and loan servicing fees generally provide adequate liquidity to fund current operating expenses, excluding the difference between the amount funded on loans originated and the amount advanced under the Company's current warehouse facilities (the "haircut"). The Company's excess liquidity needs have been funded by ICII. Excess liquidity needs of the Company have primarily included the haircut on loan originations and investments in certain equity ownership interests. The interest rate on borrowings from ICII was fixed at 12% annually. At June 30, 1997, the outstanding balance was $10.0 million. The Company expects to repay the outstanding balance of this line of credit from the proceeds of the Offering. The Company's whole loan sales and loan securitizations generally result in significant amounts of cash. Excess cash flow from these transactions has been used to repay borrowings from ICII. For the six months ended June 30, 1997, net cash provided by operating activities was $17.1 million. This excludes cash used in net loan originations of $109.3 million, which was attributable to the Company's increased loan origination volume. For the six months ended June 30, 1997, net cash provided by investing activities was $35.8 million, which was primarily attributable to the sale of securities relating to the restructuring of the Company's 1991A securitization. For the six months ended June 30, 1997, net cash provided by financing activities was $56.6 million, which was primarily attributable to increased amounts of warehouse line borrowings resulting from increased loan originations during the period, offset by a $6.3 million LLC distribution to its members. 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC Date: August 26, 1997 By: /s/ Raedelle Walker -------------------------------- Raedelle Walker Executive Vice President and CFO 9