1
AS FILED WITH THE SEC
URITIES AND EXCHANGE COMMISSION ON MAY 15, 2001.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ______________
COMMISSION FILE NUMBER: 000-31749
HISPANIC EXPRESS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4821102
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5480 EAST FERGUSON DRIVE
COMMERCE, CALIFORNIA 90022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (323) 720-8600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares outstanding of the Registrant's Common Stock, as of May 14,
2001: 7,166,000
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2
HISPANIC EXPRESS, INC.
FORM 10-Q
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000................ 3
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 2001 and March 31, 2000............................................................ 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000...................................................................... 5
Notes to Condensed Consolidated Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................... 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................................................19
Signatures.......................................................................................................19
2
3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HISPANIC EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
ASSETS
Cash $ 4,674,000 $ 4,528,000
Finance receivables, net 32,327,000 43,465,000
Prepaid expenses and other current assets 931,000 950,000
Deferred income taxes 946,000 946,000
Income taxes receivable 2,696,000 3,903,000
Property and equipment, net 7,064,000 7,935,000
Intangible and other assets, net 12,218,000 12,489,000
----------- -----------
TOTAL ASSETS $60,856,000 $74,216,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $11,575,000 $24,813,000
Accrued expenses and other current liabilities 8,485,000 8,522,000
Accounts payable to related party 101,000 241,000
----------- -----------
TOTAL LIABILITIES 20,161,000 33,576,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Stockholders' equity 40,695,000 40,640,000
----------- -----------
Total stockholders' equity 40,695,000 40,640,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $60,856,000 $74,216,000
=========== ===========
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
3
4
HISPANIC EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2001 2000
------------ ------------
REVENUES
Interest income
Small loan portfolio $ 2,386,000 $ 3,217,000
Travel finance portfolio 281,000 289,000
---------- ------------
Total interest income 2,667,000 3,506,000
Travel services, net 2,866,000 3,322,000
Other income 2,256,000 2,728,000
---------- ------------
Total revenues 7,789,000 9,556,000
---------- ------------
COSTS AND EXPENSES
Operating expenses 4,820,000 6,995,000
Provision for credit losses 2,216,000 1,289,000
Interest expense 372,000 865,000
Depreciation and amortization 469,000 416,000
---------- ------------
Total costs and expenses 7,877,000 9,565,000
---------- ------------
Loss from operations (88,000) (9,000)
OTHER INCOME
Gain on sale of property 179,000 --
---------- ------------
Income (loss) before provision for income taxes 91,000 (9,000)
Provision (benefit) for income taxes 36,000 (4,000)
---------- ------------
Net income (loss) $ 55,000 $ (5,000)
=========== ===========
Earnings (loss) per common share (unaudited):
Basic $ 0.01 $ 0.00
Diluted $ 0.01 $ 0.00
Shares used in calculating earnings (loss) per common share:
Basic 7,166,000 7,166,000
Diluted 7,166,000 7,166,000
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
4
5
HISPANIC EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $ 55,000 $ (5,000)
Adjustments to reconcile net income (loss) to net
cash
provided by operating activities:
Gain on sale of property (179,000) --
Proceeds from sale of property 892,000 --
Depreciation and amortization 469,000 416,000
Provision for credit losses 2,216,000 1,289,000
Deferred income taxes -- 437,000
Changes in assets and liabilities:
Prepaid expenses and other current assets 19,000 19,000
Income taxes receivable 1,207,000 387,000
Accrued expenses and other current liabilities (37,000) 1,668,000
Accounts payable to related party (140,000) 1,515,000
------------ ------------
Net cash provided by operating activities 4,502,000 5,726,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Installment contracts and other contract receivables
collected, net of recoveries 8,922,000 3,250,000
Capital expenditures (40,000) (735,000)
------------ ------------
Net cash provided by investing activities 8,882,000 2,515,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (13,238,000) (7,000,000)
Capital contribution from related party -- 723,000
------------ ------------
Net cash used in financing activities (13,238,000) (6,277,000)
------------ ------------
NET (DECREASE) INCREASE IN CASH 146,000 1,964,000
CASH, BEGINNING OF PERIOD 4,528,000 5,208,000
------------ ------------
CASH, END OF PERIOD $ 4,674,000 $ 7,172,000
============ ============
CASH PAID DURING THE YEAR FOR:
INTEREST $ 455,000 $ 905,000
INCOME TAXES 54,000 --
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
5
6
HISPANIC EXPRESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Basis of Presentation --- The condensed consolidated financial statements
of Hispanic Express, Inc. ("Hispanic Express" or the "Company") are unaudited,
other than the consolidated balance sheet at December 31, 2000. In the opinion
of the Company's management, all adjustments of a normal recurring nature
necessary for a fair statement of interim periods presented have been included.
The results for interim periods are not necessarily indicative of results to be
expected for the entire year. These interim condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements for the year ended December 31, 2000, and the notes thereto in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Hispanic Express, Inc. was formed in September 2000 and was a wholly-owned
subsidiary of Central Financial Acceptance Corporation ("Central Financial"). On
September 6, 2000 the Board of Directors of Central Financial approved a Plan of
Complete Dissolution, Liquidation and Distribution (the "Plan") under which
Central Financial's subsidiaries were reorganized into two public companies,
Hispanic Express and Banner Central Finance Company ("Banner Central Finance").
On February 28, 2001, the Plan was completed and Central Financial was dissolved
and liquidated and Central Financial distributed to its stockholders 100% of the
outstanding Common Stock of Hispanic Express and Banner Central Finance.
Pursuant to the Plan, Central Financial contributed to Hispanic Express its
investment in subsidiaries, which are engaged in the small loan, travel finance
and travel services businesses, and contributed to Banner Central Finance, its
businesses engaged in selling and financing of automobile insurance, its
consumer products receivable portfolio and its mortgage business.
In addition, pursuant to the Plan, Hispanic Express and Banner Central
Finance entered into certain agreements for the purpose of defining their
ongoing relationship (See Note 5), including provisions for the allocation of
certain costs and expenses. Management of Hispanic Express believes that such
agreements provide for reasonable allocation of costs and expenses between the
parties.
The formation of Hispanic Express has been accounted for at historical
cost, in a manner similar to a pooling of interest. The accompanying condensed
consolidated financial statements reflect the combined operations of Hispanic
Express and its subsidiaries, as if they had been consolidated at the beginning
of the periods presented
Nature of Operations --- The Company (i) provides unsecured small loans to
its customers; (ii) provides travel services; (iii) originates and services
consumer finance receivables generated by the Company's customers for the
purchase of travel services sold by the Company; (iv) provides check cashing and
money transfer services; and, (v) provides insurance products. The majority of
the Company's business is focused in Southern California and the Company
experiences the highest demand for its financial products and services between
October and December and the second and fourth quarter for its travel services.
On February 9, 2001, the Company closed one of its finance centers and sold
the property for approximately $892,000. This resulted in a gain from the sale
of property of approximately $179,000 and is included in the condensed
consolidated statements of income.
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of shares of common stock outstanding during the period increased to include the
number of additional common shares that would have been outstanding if dilutive
potential common shares had been issued. The dilutive effect of outstanding
options is reflected in diluted earnings per share by application of the
treasury stock method. Options to purchase 797,000 shares of common stock that
were outstanding at March 31, 2001, were not included in the computation of
diluted earnings per share for the three months ended March 31, 2001 because the
options' exercise price was greater than the average market
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HISPANIC EXPRESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
price of the Company's common stock during this period and, therefore, the
effect would be antidilutive. Basic earnings and diluted earnings per share for
the three months ended March 31, 2000 is based on the number of shares of common
stock issued by the Company pursuant to the Plan and are assumed to be
outstanding as of January 1, 2000.
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
----------- -----------
NUMERATOR:
Net income (loss) $ 55,000 $ (5,000)
----------- -----------
DENOMINATOR:
Denominator for basic earnings (loss) per 7,166,000 7,166,000
Share--- weighted average shares
Outstanding Effect of dilutive securities:
Dilutive options -- --
----------- -----------
Dilutive potential common shares -- --
----------- -----------
Denominator for diluted earnings (loss) per share 7,166,000 7,166,000
=========== ===========
Basic earnings (loss) per share $ 0.01 $ 0.00
=========== ===========
Diluted earnings (loss) per share $ 0.01 $ 0.00
=========== ===========
3. CERTAIN CONSOLIDATED FINANCIAL STATEMENT DETAILS
FINANCE RECEIVABLES
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
Gross finance receivables:
Small loan portfolio $32,613,000 $43,157,000
Travel finance portfolio 3,922,000 4,855,000
----------- -----------
36,535,000 48,012,000
----------- -----------
Less:
Deferred interest 808,000 1,031,000
Allowance for credit losses 2,016,000 1,613,000
Deferred administrative, Efectiva membership
and transaction fees and insurance revenues 1,097,000 1,581,000
Credit insurance and reserves for policyholder's
benefits 287,000 322,000
----------- -----------
4,208,000 4,647,000
----------- -----------
Finance receivables, net $32,327,000 $43,465,000
=========== ===========
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HISPANIC EXPRESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Customers are required to make monthly payments on the Company's receivable
contracts. The aggregate gross balance of accounts with payments 31 days or more
past due are:
MARCH 31, DECEMBER 31,
2001 2000
-------- -----------
Small loan portfolio:
Past due 31 days plus $440,000 $824,000
======== ========
Travel finance portfolio
Past due 31 days plus $26,000 $35,000
======== ========
The allowance for credit losses includes the following:
THREE MONTHS ENDED MARCH 31,
-----------------------------
2001 2000
----------- -----------
Allowance for credit losses, beginning of the year $ 1,613,000 $ 2,981,000
Provision for credit losses 2,216,000 1,289,000
Charge-offs, net of recoveries (1,813,000) (1,289,00)
----------- -----------
Allowance for credit losses, end of period $ 2,016,000 $ 2,981,000
=========== ===========
PROPERTY AND EQUIPMENT
MARCH 31, DECEMBER 31,
2001 2000
---------- ------------
Land $1,567,000 $1,936,000
Buildings and improvements 3,792,000 4,125,000
Furniture, equipment and software 3,563,000 3,726,000
---------- ----------
8,922,000 9,787,000
Less: Accumulated depreciation 1,858,000 1,852,000
---------- ----------
$7,064,000 $7,935,000
========== ==========
INTANGIBLE AND OTHER ASSETS
MARCH 31, DECEMBER 31,
2001 2000
----------- -----------
Goodwill $13,533,000 $13,533,000
Deferred loan costs on line of credit 459,000 564,000
Non-compete agreements 408,000 408,000
Other 3,000 3,000
----------- -----------
14,403,000 14,508,000
Less: Accumulated amortization 2,185,000 2,019,000
----------- -----------
$12,218,000 $12,489,000
=========== ===========
8
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HISPANIC EXPRESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER INCOME
THREE MONTHS ENDED MARCH 31,
---------------------------------
2001 2000
---------- ----------
Membership and administrative fees $ 737,000 $ 903,000
Late charges 450,000 578,000
Insurance products 713,000 754,000
Check cashing fees and other 356,000 493,000
---------- ----------
$2,256,000 $2,728,000
========== ==========
4. NOTES PAYABLE
Notes payable consists of the following:
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Note payable to bank $ 6,250,000 $23,600,000
Note payable to related party 5,325,000 1,213,000
----------- -----------
$11,575,000 $24,813,000
=========== ===========
On August 11, 2000 as amended, Central Consumer Finance Company ("Central
Consumer"), a wholly owned subsidiary of the Company entered into a new credit
agreement with several banks and Union Bank of California, N. A. as Agent
("Union Bank Line of Credit") that provided for the issuance of notes up to
$27,000,000. Central Financial had Letters of Credit outstanding for various
purposes in the amount of $550,000 at March 31, 2001. Borrowings under the Union
Bank Line of Credit is limited to 70% of eligible receivable contracts as
defined in the credit agreement. The total amount of available credit under the
facility was limited to $25.6 million at March 31, 2001, of which $6.8 million
was outstanding, including letters of credit. Substantially all of the assets
and stock of Central Consumer has been pledged as collateral for amounts
borrowed under the Union Bank Line of Credit. The Union Bank Line of Credit
requires, among other things, that Central Consumer maintain specific financial
ratios and satisfy certain financial covenants and restricts, among other
things, Central Consumer's ability to incur additional indebtedness, pay
dividends, make certain restricted payments or consummate certain asset sales.
At March 31, 2001, Central Consumer and its subsidiaries had total assets of
approximately $46.3 million and stockholders' equity of approximately $38.1
million. Interest on the Union Bank Line of Credit is determined at Central
Consumer's option, equal to either, (a) 87.5 basis points above the higher of
the prime rate Union Bank of California announces or the federal funds rate plus
50 basis points or (b) 225 basis points above the interest rate per annum at
which Union Bank of California offers deposits in dollars to prime banks in the
London Eurodollar market. Borrowings under the facility bore interest at the
weighted average rate of 7.8% at March 31, 2001.
Central Consumer is required to pay a commitment fee of 0.375% per annum
for unused portions of its lines of credit. These fees totaled $25,000 and
$44,000 for the three months ended March 31, 2001 and 2000, respectively. These
amounts have been included in interest expense in the condensed consolidated
statements of income for the periods presented.
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HISPANIC EXPRESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At March 31, 2001, the Company had a note payable to Banner Central Finance
Company, a related party, in the amount of $5,325,000 which bears interest per
annum at the prime rate calculated at the beginning of each month (8.0% at March
31, 2001) and is payable on March 31, 2004. Interest expense on the note payable
to Banner Central Finance was $23,000 for the three months ended March 31, 2001.
The note payable to Banner Central Finance contains a change in control
provision if Mr. Cypres ceases to be Chairman of Board of Directors or any
person or group other than Mr. Cypres and his affiliates has beneficial
ownership of more than 50% of the outstanding shares of voting stock of the
Company. The note payable also contains certain financial covenants which, among
other things, requires the Company to maintain an aggregate non-delinquent
balance of the Small Loan and Travel Finance Portfolio of $14,000,000.
5. RELATED PARTY TRANSACTIONS
In connection with its formation, the Company, Central Financial and Banner
Central Finance entered into certain agreements; including, the Operating
Agreement and the Tax Sharing Agreement, for defining their ongoing
relationships.
The Operating Agreement provides, among other things, that the Company and
its subsidiaries are obligated to provide to Banner Central Finance, and Banner
Central Finance is obligated to utilize, certain services, including receivable
servicing and collection and payment processing, accounting, management
information systems and employee benefits. The Operating Agreement also provides
for the Company to guarantee up to $4,000,000 of bank or similar financing of
Banner Central Finance, pursuant to certain conditions. If such services involve
an allocation of expenses, such allocation shall be made on a reasonable basis.
To the extent that such services directly relate to the finance portion of the
consumer products business contributed by Central Financial to Banner Central
Finance, or to the extent that other costs are incurred by the Company or its
subsidiaries that directly relate to Banner Central Finance, Banner Central
Finance is obligated to pay the Company and its subsidiaries the actual cost of
providing such services or incurring such costs. The Operating Agreement
continues until terminated by either the Company or Banner Central Finance upon
one year's prior written notice. Termination may be made on a service-by-service
basis or in total. Such allocated expenses to Banner Central Finance totaled
$525,000 and $912,000 for the three months ended March 31, 2001 and 2000,
respectively.
The Company, Central Financial and Banner Central Finance have entered into
a Tax Sharing Agreement which provides, among other things, for the payment of
federal, state and other income tax remittances or refunds for periods during
which the Company was included in the same consolidated group for federal income
tax purposes; the allocation of responsibility for the filing of such tax
returns and various related matters. For periods in which the Company was
included in Central Financial's consolidated federal income tax returns, the
Company will be required to pay its allocable portion of the consolidated
federal, state and other income tax liabilities of the group and will be
entitled to receive refunds determined as if the Company had filed separate
income tax returns. With respect to Central Financial's liability for payment of
taxes for all periods during which the Company was so included in Central
Financial's consolidated federal income tax returns, the Company will indemnify
Central Financial for all federal, state and other income tax liabilities of the
Company for such periods. February 28, 2001 was the last day on which the
Company was required to be included in Central Financial's consolidated federal
income tax returns.
In connection with the adoption of the Plan, the Company entered into a new
lease with BCE Properties II, Inc., an affiliated company, for its executive and
administrative offices. The new lease is for a period of 15 years with annual
rent of $300,000 per year subject to CPI increases. Rent expense for this lease
in the three months ended March 31, 2001 was approximately $75,000.
Additionally, the Company entered into a 15 year agreement to lease
approximately 30,000 square feet of retail space to Banner's Central Electric,
Inc., an affiliated company, with annual rent of $200,000 per year subject to
CPI increases. Rental income in connection with this lease for the three months
ended March 31, 2001 was approximately $50,000.
For the three months ended March 31, 2000, the Company received capital
contributions from its parent company of $723,000, which was used primarily to
repay notes payable.
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HISPANIC EXPRESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SEGMENT INFORMATION
The Company has identified three reporting segments in accordance with SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information",
Consumer Finance Business, Travel Business and Corporate Overhead. The factors
for determining the reportable segments were based on the distinct nature of
their operations. The Consumer Finance Business and Travel Business are managed
as separate business units because each requires and is responsible for
executing a unique business strategy. The Consumer Finance Business includes the
Small Loan Portfolio, Travel Finance Portfolio and insurance and other products
provided to customers of the Consumer Finance Business. The Company's Travel
Business is comprised of the retail travel stores and travel internet business.
Corporate Overhead is comprised of unallocated corporate overhead expenses.
Substantially all of the operations of the above businesses are concentrated in
California.
The accounting policies of these reportable segments are the same as those
described in the summary of significant accounting policies in the Company's
2000 Form 10-K. The Company evaluates the performance of its operating segments
based on revenues and operating income. Operating income for each segment
includes revenue and operating expenses directly attributable to the segment.
Operating income for each segment excludes other income and expense and certain
expenses that are managed outside the reportable segment. Costs excluded from
segment operating income include various corporate expenses and income taxes.
Corporate expenses include separately managed general and administrative
expenses. Summary information by segment follows:
REVENUES
THREE MONTHS ENDED MARCH 31,
-------------------------------
2001 2000
------------ ------------
Consumer Finance Business $ 4,923,000 $ 6,234,000
Travel Business 2,866,000 3,322,000
Corporate Overhead -- --
------------ ------------
Total revenues $ 7,789,000 $ 9,556,000
============ ============
INCOME (LOSS) FROM OPERATIONS
THREE MONTHS ENDED MARCH 31,
-------------------------------
2001 2000
------------ ------------
Consumer Finance Business $ 1,034,000 $ 2,226,000
Travel Business (112,000) (839,000)
Corporate Overhead (1,010,000) (1,396,000)
---------- ----------
Total loss from operations $ (88,000) $ (9,000)
============ ============
TOTAL ASSETS
MARCH 31, DECEMBER 31,
2001 2000
------------ ------------
Consumer Finance Business $ 48,908,000 $ 61,961,000
Travel Business 11,948,000 12,255,000
Corporate Overhead -- --
------------ ------------
Total assets $ 60,856,000 $ 74,216,000
============ ============
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed in this Quarterly Report on Form 10-Q may
constitute forward-looking statements under Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). These statements may
involve risks and uncertainties. These forward-looking statements relate to,
among other things, expectations of the business environment in which Hispanic
Express, Inc. and its subsidiaries (the "Company" which may be referred to as
"we" or "us," when referring only to the parent company) operate in, projections
of future performance, perceived opportunities in the market and statements
regarding our mission and vision. Our actual results, performance, or
achievements may differ significantly from the results, performance, or
achievements expressed or implied in such forward-looking statements. For
discussion of the factors that might cause such a difference, see "Item 1.
Business -- Business Considerations and Certain Factors that May Affect Future
Results of Operations and Stock Price" contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, as amended.
FINANCIAL TRENDS
PORTFOLIOS
The following sets forth certain information relating to our portfolios for
the periods indicated:
SMALL LOAN PORTFOLIO
THREE MONTHS ENDED MARCH 31,
-----------------------------
2001 2000
----------- -----------
Gross receivable (at end of period) $32,613,000 $51,858,000
Deferred interest (at end of period) 382,000 644,000
----------- -----------
Net receivable (at end of period) 32,231,000 51,214,000
Deferred administrative fees, ATM fees and
insurance revenues (at end of period) 1,097,000 1,602,000
----------- -----------
Net carrying value (at end of period) $31,134,000 $49,612,000
=========== ===========
Average net receivable (1) $37,745,000 $52,115,000
Number of contracts (at end of period) 61,500 76,242
Average net contract balance (at end of period) $ 524 $ 672
Total interest income (2) $ 2,386,000 $ 3,217,000
Total administrative and membership fee income 737,000 903,000
Late charge and extension fee income 408,000 534,000
Provision for credit losses $ 2,113,000 $ 1,264,000
Provision for credit loss as a percentage of
average net receivable (3) 22.4% 9.7%
Net write-offs $ 1,725,000 $ 1,264,000
Net write-offs as a percentage of average net
receivable (3) 18.3% 9.7%
Average interest rate on average net
receivable (3) 25.3% 24.5%
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(1) Average net receivable is defined as the average gross receivables, less
the average deferred interest and insurance.
(2) Amounts represent interest on the small loan portfolio, excluding
administrative and membership fees, late and other fees included in other
income in the condensed consolidated statements of income appearing
elsewhere herein.
(3) Percentages for the three months ended March 31, 2001 and 2000 are
annualized.
TRAVEL FINANCE PORTFOLIO
THREE MONTHS ENDED MARCH 31,
---------------------------
2001 2000
---------- ----------
Gross receivable (at end of period) $3,922,000 $4,634,000
Deferred interest (at end of period) 426,000 412,000
---------- ----------
Net receivable (at end of period) $3,496,000 $4,222,000
========== ==========
Average net receivable (1) $3,995,000 $4,404,000
Number of contracts (at end of period) 11,500 10,959
Average net contract balance (at end of period) $ 304 $ 385
Total interest income $ 281,000 $ 289,000
Late charge and extension fee income 42,000 44,000
Provision for credit losses $ 103,000 $ 25,000
Provision for credit loss as a percentage of
average net receivable (2) 10.3% 2.3%
Net write-offs $ 88,000 $ 25,000
Net write-offs as a percentage of average
net receivable (2) 8.8% 2.3%
Average interest rate on average net
Receivable (2) 28.1% 26.3%
(1) Average net receivable is defined as the average gross receivables, less
the average deferred interest.
(2) Percentages for the three months ended March 31, 2001 and 2000 are
annualized.
CREDIT QUALITY
The provision for credit losses in our small loan and travel portfolios are
made following the origination of loans over the period that the events giving
rise to the credit losses are estimated to occur. Our portfolios comprise
smaller-balance, homogenous loans that are evaluated collectively to determine
an appropriate allowance for credit losses. The allowance for credit losses is
maintained at a level considered adequate to cover losses in the existing
portfolios. We pursue collection of past due accounts, and when the
characteristics of an individual account indicate that collection is unlikely,
the account is charged off and turned over to a collection agency. We accrue
interest up to the time we charge off an account. In the fourth quarter of 2000,
our loan business was negatively impacted by a bus strike in the Los Angeles
area which lasted approximately five weeks. As a result of the bus strike and a
deteriorating economic climate, our delinquencies have increased and in response
we tightened our credit guidelines and we reevaluated our current charge-off
policies and charged-off accounts that were past due at December 31, 2000 and
which did not make any payments after year end and we began to implement a
program to reduce customer credit limits on our Efectiva Card to amounts
generally not to exceed $500. Prior to that, our charge off policy was to
automatically charge-off delinquent accounts over 150 days past due. Our
delinquencies have continued to remain at these increased levels during the
first quarter of 2001.
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The allowance for loan losses is increased by charges to income and
decreased by charge-offs, net of recoveries. Our management's periodic
evaluation of the adequacy of the allowance is based on our past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay and current economic conditions.
For information concerning our provisions for credit loses and charge-offs
experienced in our small loan and travel portfolios, see "Financial Trends ---
Portfolios" above.
PAYMENT AND COLLECTIONS
Industry studies estimate that a significant percentage of the adult
population in the United States does not maintain a checking account, which is a
standard prerequisite for obtaining a consumer loan credit card or other form of
credit from most consumer credit sources. Our customers are required to make
their monthly payments using a payment schedule or statement that we provide to
them. The vast majority of our customers make their payments in cash at our
payment facilities in Banner's Central Electric's stores.
We consider payments past due if a borrower fails to make any payment in
full on or before its due date, as specified in the installment credit or small
loan contract the customer signs. We currently attempt to contact borrowers
whose payments are not received by the due date within 10 days after such due
date. We contact these borrowers by both letter and telephone. If no payment is
remitted to us after the initial contact, we make additional contacts every
seven days, and, after a loan becomes 31 days delinquent, we generally turn over
the account to our credit collectors. Under our guidelines, we generally
charge-off and turn over an account to a collection agency when we determine
that the account is uncollectible.
DELINQUENCY EXPERIENCE AND ALLOWANCE FOR CREDIT LOSSES
Borrowers under our contracts are required to make monthly payments. The
following table sets forth our delinquency experience for accounts with payments
31 days or more past due and allowance for credit losses for our finance
receivables.
FINANCE RECEIVABLES (1)
THREE MONTHS ENDED MARCH 31,
-------------------------------
2001 2000
------------- ------------
Past due accounts 31 days or more
(gross receivable) $ 466,000 $ 3,633,000
Accounts with payments 31 days or
more past due as a percentage of end
of period gross receivables 1.3% 6.4%
Allowance for credit losses $ 2,016,000 $ 2,981,000
Allowance for credit losses as a percentage
of net receivables 5.6% 5.4%
(1) Includes receivables in our small loan and travel finance portfolios.
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The accounts with payments 31 days or more past due as a percentage of end
of period gross receivables have decreased as a percentage of net receivables to
1.3% from 6.4% as of March 31, 2001 and 2000, respectively. The decrease in the
percentage of accounts with payments 31 days or more past due as a percentage of
end of period gross receivables is primarily due to a change in the Company's
charge off policy and our decision in December 2000 to charge-off accounts at
year-end that were past due and which did not make any payments after year end.
Write-offs trends as a percentage of average net receivables for the Small Loan
Portfolio and Travel Finance Portfolio have increased to 18.3% and 8.8% in the
three months ended March 31, 2001 from 9.7% and 2.3% in the three months ended
March 31, 2000, respectively. As a result of the increased write-offs, the
allowance for credit losses as a percentage of net receivables increased to 5.6%
from 5.4% as of March 31, 2001 and 2000, respectively. These increases since the
fourth quarter of 2000 occurred primarily with respect to our existing
customers, rather than new credit customers. We believe these increases were a
result of excessive credit burdens for some customers, due to an aggregate over
extension of credit in the marketplace, coupled with uncertainty over
legislative reforms potentially impacting our customers and their extended
families. Additionally, delinquency trends were negatively impacted in the
fourth quarter of 2000 by a five-week bus strike in the Los Angeles area and a
deteriorating economic climate in the market we serve.
The following tables summarize the results of operations of the Company for
the three months ended March 31, 2001 and 2000:
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2001 2000
----------- -----------
REVENUES
Interest income
Small loan portfolio $ 2,386,000 $ 3,217,000
Travel finance portfolio 281,000 289,000
----------- -----------
Total interest income 2,667,000 3,506,000
Travel services, net 2,866,000 3,322,000
Other income 2,256,000 2,728,000
----------- -----------
Total revenues 7,789,000 9,556,000
----------- -----------
COSTS AND EXPENSES
Operating expenses 4,820,000 6,995,000
Provision for credit losses 2,216,000 1,289,000
Interest expense 372,000 865,000
Depreciation and amortization 469,000 416,000
----------- -----------
Total costs and expenses 7,877,000 9,565,000
----------- -----------
Loss from operations (88,000) (9,000)
OTHER INCOME
Gain on sale of property 179,000 --
----------- -----------
Income (loss) before provision for income taxes 91,000 (9,000)
Provision (benefit) for income taxes 36,000 (4,000)
----------- -----------
Net income (loss) $ 55,000 $ (5,000)
=========== ===========
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THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THE RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 2000
Total revenues in the three months ended March 31, 2001 decreased to $7.8
million from $9.6 million in the three months ended March 31, 2000, a decrease
of $1.8 million or 18.5%.
Total interest income for the three months ended March 31, 2001 decreased
to $2.7 million from $3.5 million in the three months ended March 31, 2000, a
decrease of $0.8 million or 23.9%. This decrease was primarily due to a decrease
in the interest earned on the small loan portfolio as a result of a decrease in
the average balance of the small loan portfolio, which averaged $37.8 million
for the three months ended March 31, 2001 compared to the average balance of
$52.1 million for the three months ended March 31, 2000.
Revenues earned on the sales of travel services decreased to $2.9 million
for the three months ended March 31, 2001 compared to $3.3 million in the three
months ended March 31, 2000, a decrease of $0.4 million or 13.7%. This decrease
was primarily due to a decrease in commissions earned from the sale of airline
tickets in 2001 and a decrease in bonus commissions.
Other income for the three months ended March 31, 2001 decreased to $2.3
million from $2.7 million in the three months ended March 31, 2000, a decrease
of $0.4 million or 17.3%. Other income primarily includes administrative fees
earned on the small loan portfolio, membership fees earned on the Efectiva Card,
late charge income and extension fees and income earned on the sale of insurance
products. This decrease was primarily due to a reduction in Efectiva membership
and administrative fees earned on the small loan portfolio of $0.2 million, a
decrease of $0.1 million of late charge income, and a decrease of $0.1 million
in check cashing fees.
The decrease in income from our Efectiva membership and administrative fees
and late charge income was primarily due to a decrease in the average balance of
the small loan portfolio in the three months ended March 31, 2001 compared to
the three months ended March 31, 2000. The average interest rate earned on the
small loan portfolio was 25.3% for the three months ended March 31, 2001
compared to 24.5% in the three months ended March 31, 2000. The decrease in
check cashing fees was primarily attributable to the operation of fewer check
cashing facilities in the three months ended March 31, 2001 as compared to the
same period in 2000.
Operating expenses for the three months ended March 31, 2001 decreased to
$4.8 million from $7.0 million in the three months ended March 31, 2000, a
decrease of $2.2 million or 31.1%. Of this decrease, $1.2 million was
attributable to a decrease in expenses related to our Internet travel business,
of which $0.6 miilion related to advertising expenses. The operations of our
Internet travel business were curtailed in July 2000. The remaining decrease in
operating expenses was attributable to a decrease of $0.8 million of credit and
collection costs and corporate overhead expenses and a $0.2 million decrease in
advertising expenses related to the consumer finance business.
The provision for credit losses in the three months ended March 31, 2001
increased to $2.2 million from $1.3 million in the three months ended March 31,
2000, an increase of $0.9 million or 71.9%. This increase was primarily
attributable to increased write-offs and delinquencies in the small loan
portfolio.
Interest expense for the three months ended March 31, 2001 decreased to
$0.4 million from $0.9 million in the three months ended March 31, 2000, a
decrease of $0.5 million or 57.0%. This decrease is primarily due to a declining
average balance of debt outstanding in the three months ended March 31, 2001
compared to the three months ended March 31, 2000.
Depreciation and amortization for the three months ended March 31, 2001
increased to $0.5 million from $0.4 million in the three months ended March 31,
2000, an increase of $0.1 million or 12.7%. This increase is primarily due to
increased amortization of deferred loan costs due the Company's decision to
decrease the commitment under the line of credit in the three months ended March
31, 2001.
Loss from operations increased to $0.1 million in the three months ended
March 31, 2001 from $0.0 million in the three months ended March 31, 2000 as a
result of the foregoing factors.
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Gain on sale of property in the amount of $0.2 million in the three months
ended March 31 2001 resulted from the sale of the property of one of the
Company's check cashing locations.
Net income for the three months ended March 31, 2001 was $0.1 million
compared to $0.0 million for the three months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through cash flow generated from
operations and borrowings under our notes payable.
Net cash provided from operations totaled $4.5 million and $5.7 million for
the three months ended March 31, 2001 and 2000, respectively. In 2001 and 2000,
the source of cash primarily consisted of net operating income after non-cash
items. Non-cash items include depreciation and amortization, gain on sale of
property, provision for credit losses and deferred income taxes. Other items
affecting cash flows from operating activities include cash flows from increases
(decreases) in notes receivable, prepaid expenses and other assets, accrued
expenses and other current liabilities, and other intangibles.
Net cash provided by investing activities totaled $8.9 million and $2.5
million for the three months ended March 31, 2001 and 2000, respectively. Net
cash provided by investing activities in consisted of installment contracts and
other contract receivables collected (originated) offset by capital
expenditures.
Net cash used in financing activities totaled $13.2 million and $6.3
million in the three months ended March 31, 2001 and 2000, respectively. Net
cash used in financing activities consisted of repayment of notes payable
totaling $13.2 million and $7.0 million for the three months ended March 31,
2001 and 2000, respectively, and capital contributions from Central Financial in
the amount of $0.7 million in 2000.
We require substantial capital to finance our business. Consequently, our
current level of operations are affected by the availability of financing and
the terms thereof. Currently, we fund operations and receivable financing
activities with borrowings made by Central Consumer, our wholly owned
subsidiary, under the Line of Credit which expires August 11, 2003. Central
Consumer and all of its significant subsidiaries are guarantors under the Line
of Credit. At March 31, 2001, Central Consumer had total assets of $46.3 million
and stockholders' equity of approximately $38.1 million. Central Consumer has
pledged substantially all of its assets, including its receivables and the stock
of all of its significant subsidiaries as collateral for the amounts it borrows
under the Line of Credit. The maximum amount available under the Line of Credit,
as amended, is $27.0 million. However, the amount of credit available at any one
time under the Line of Credit is limited to 70% of eligible contracts. As of
March 31, 2001 the total amount available to us was $25.6 million, of which
approximately $6.8 million was outstanding, including letters of credit. Central
Consumer pays commitment fees to the lenders for the unused portion of the Line
of Credit. These commitment fees are equal to 37.5 basis points per year times
the average daily amount by which the maximum amount available under the Line of
Credit exceed the amount we have borrowed under the line.
Interest on amounts outstanding under the Line of Credit is, at the option
of Central Consumer, equal to either (a) 87.5 basis points above the higher of
the prime rate Union Bank of California, N.A. announces or the federal funds
rate plus 50 basis points, or (b) 225 basis points above the interest rate per
annum at which Union Bank of California, N.A., deposits in dollars to prime
banks in the London Eurodollar market. Borrowings under the Line of Credit bore
interest at the average rate of 7.8% at March 31, 2001.
The Line of Credit restricts, among other things, Central Consumer's
ability to (1) incur additional indebtedness; (2) pay indebtedness prior to the
date when due; (3) pay dividends, make certain other restricted payments or
consummate certain assets sales; (4) merge or consolidate with any other person;
(5) enter into certain transactions with affiliates; (6) incur indebtedness that
is subordinate in priority and right of payment to amounts outstanding under the
Line of Credit; and, (7) make future acquisitions in excess of an aggregate
amount.
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The Line of Credit also contains certain restrictive covenants that
require, among other things, Central Consumer to maintain specific financial
ratios and to satisfy certain financial tests. These include: (a) Interest
Coverage Ratio (as defined in the Line of Credit) as of the end of each quarter
of not less than 1.75 to 1.00 for the period August 11, 2000 to July 31, 2001
and 1.75 to 1.00, thereafter; and, (b) Leverage Ratio (as defined in the Line of
Credit) as of the end of each quarter of no more than 2.00 to 1.00. Central
Consumer is also required to maintain a Tangible Net Worth (as defined in the
Line of Credit) as of the end of each quarter of not less than $23.5 million,
plus an amount equal to 75% of Net Income (as defined in the Line of Credit)
earned in each quarter (with no deduction for a net loss in a quarter), plus an
amount equal to 75% of the aggregate increases in stockholders' equity as a
result of the sale of any of Central Consumer's capital stock. The breach of any
of these covenants or other terms of the Line of Credit could result in a
default under the Line of Credit, in which event the lenders could seek to
declare all amounts outstanding under the Line of Credit, together with accrued
and unpaid interest, to be immediately due and payable. At March 31, 2001,
Central Consumer was in compliance with the financial ratios and tests.
Based on our current business plan, we expect our existing capital
resources will adequately satisfy our long-term working capital requirements
through the period of our Line of Credit which expires August 11, 2003. Future
working capital requirements, however, depend on many factors, including our
ability to execute on our business plan.
In addition, our inability at any time to renew or replace our Line of
Credit or other senior credit facilities on acceptable terms could have a
material adverse effect on our results of operations and financial condition.
See " -- Business Considerations and Certain Factors that May Affect Future
Results of Operations and Stock Price -- Restrictions Imposed by the Line of
Credit," and " -- Business Considerations and Certain Factors that May Affect
Future Results of Operations and Stock Price -- Need for Senior Credit Facility"
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000, as amended.
Our Board of Directors has authorized open-market purchases of up to 3
million shares of our common stock, subject to applicable law and depending on
market considerations and other considerations that may affect open market
repurchases of such shares pursuant to authorization from time to time. Any
decision to purchase such shares will be based on the price of such shares and
whether we have capital available for such purchase.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The risk management discussion and the estimated amounts generated from the
analysis that follows are forward-looking statements of interest rate risk
assuming certain adverse market conditions occur. Actual results in the future
may differ materially from these projected results due to changes in our debt
mix and developments in the global financial markets. The analytical methods we
use to assess and mitigate these risks should not be considered projections of
future events or operating performances.
We are exposed to interest rate risk in the form of variable interest rates
on the Company's note payable and Line of Credit of the Company's wholly owned
subsidiary. For the three months ended March 31, 2001, the average interest rate
charged on the note payable and Line of Credit, which totaled $11.6 million at
March 31, 2001 was 7.9%.
For an immediate 1.0% increase in interest rates, projected after-tax
earning would decline approximately $0.1 million in 2001 and $0.1 million in
2002. An immediate 1.0% rise in interest rates is a hypothetical rate scenario
used to estimate risk, and does not currently represent management's
expectations of future market developments.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.8 Note Payable to Banner Central Finance Company.
(b) Reports on Form 8-K
None.
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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.
HISPANIC EXPRESS, INC.
May 15, 2001 /s Gary M Cypres
------------------------------------
Gary M. Cypres
Chairman of the Board
May 15, 2001 /s/ Howard Weitzman
------------------------------------
Howard Weitzman
Chief Financial Officer
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