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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1994
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 2-88333
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AMERICAN SOUTHWEST FINANCE CO., INC.
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(Exact name of registrant as specified in its charter)
Arizona 86-0461972
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2390 East Camelback Road, Suite 225, Phoenix, AZ 85016
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(Address of principal executive offices) (Zip Code)
(602) 381-8960
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of common stock outstanding as of July 11, 1994:
Class A - 18,000 Class B - 35,000
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AMERICAN SOUTHWEST FINANCE CO., INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - May 31, 1994
(Unaudited) and August 31, 1993 3
Statements of Income - For the three months
and the nine months ended May 31, 1994
and 1993 (Unaudited) 4
Statements of Cash Flows - For the nine
months ended May 31, 1994 and 1993
(Unaudited) 5
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
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PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements.
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AMERICAN SOUTHWEST FINANCE CO., INC.
BALANCE SHEETS
ASSETS May 31 August 31
1994 1993
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(Unaudited)
Cash and Cash Equivalents $ 1,179,888 $ 722,092
Receivables Pursuant to Funding
Agreements - Notes 3 and 4
Principal - (Net of issue discount of
$119,688 at August 31, 1993) 8,860,887
Interest 92,612
Receivables from Affiliates - Note 5
Principal 723,000 979,704
Interest 748 6,531
Other Receivables, primarily refundable income 8,835 55,420
taxes ------------------- --------------------
Total Assets $ 1,912,471 $ 10,717,246
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Bonds Payable - Notes 3 and 4
Principal - (Net of issue discount of
$119,688 at August 31, 1993) $ $ 8,860,887
Interest 92,612
Accounts Payable 499
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Total Liabilities 8,953,998
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Shareholders' Equity
Class A Common Stock, $.10 par value; 100,000
shares authorized; 25,000 shares issued and
18,000 shares outstanding at May 31, 1994
(19,000 shares at August 31, 1993) 2,500 2,500
Class B Common Stock, $.10 par value; 50,000
shares authorized; 36,000 shares issued and
35,000 shares outstanding at May 31, 1994
(36,000 shares at August 31, 1993) 3,600 3,600
Capital in excess of par value 100,200 100,200
Retained earnings 1,857,178 1,670,666
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1,963,478 1,776,966
Less: Treasury Stock - at cost,
Class A Common Stock, 7,000 shares at May 31,
1994 and 6,000 shares at August 31, 1993;
Class B Common Stock 1,000 shares at May 31, 1994 51,007 13,718
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Total Shareholders' Equity 1,912,471 1,763,248
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Total Liabilities and
Shareholders' Equity $ 1,912,471 $ 10,717,246
==================== ====================
The accompanying notes are an integral part of these financial statements.
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AMERICAN SOUTHWEST FINANCE CO., INC.
STATEMENTS OF INCOME
(Unaudited)
For the For the For the For the
three months three months nine months nine months
ended ended ended ended
May 31 May 31 May 31 May 31
1994 1993 1994 1993
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REVENUES
Interest
Pursuant to Funding
Agreements $ $ 730,537 $ 582,749 $ 4,242,963
Other 20,902 14,267 69,012 37,780
Administrative Fees 15 1,290 986 4,772
Redemption Income -
Note 4 115,225 261,462 1,523,623
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20,917 861,319 914,209 5,809,138
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COSTS AND EXPENSES
Interest on Bonds 730,537 582,749 4,242,963
Other Expenses 1,883 7,184 22,948 26,180
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1,883 737,721 605,697 4,269,143
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INCOME BEFORE TAXES 19,034 123,598 308,512 1,539,995
Provision for Income Taxes 8,000 51,000 122,000 615,000
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NET INCOME $ 11,034 $ 72,598 $ 186,512 $ 924,995
================== ================== ================= ==================
EARNINGS PER SHARE OF
CLASS A COMMON STOCK - $ .61 $ 3.59 $ 10.11 $ 43.67
Note 6 ================== ================== ================= ==================
Weighted average
number of Class A 18,000 20,217 18,443 21,179
shares outstanding ================== ================== ================= ==================
The accompanying notes are an integral part of these financial statements.
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AMERICAN SOUTHWEST FINANCE CO., INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the For the
nine months nine months
ended ended
May 31 May 31
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 186,512 $ 924,995
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Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization of discount on Receivables
Pursuant to Funding Agreements (119,688) (34,069)
Amortization of discount on Bonds Payable 119,688 34,069
Decrease in Interest Receivable
Pursuant to Funding Agreements 92,612 297,247
Decrease in Receivables from Affiliate 262,487
Decrease in Other Receivables 46,585 32,568
Decrease in Interest Payable (92,612) (297,247)
(Decrease) Increase in Accounts Payable (499) 571,908
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Total Adjustments 308,573 604,476
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Net cash provided by
operating activities 495,085 1,529,471
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The accompanying notes are an integral part of these financial statements.
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AMERICAN SOUTHWEST FINANCE CO., INC.
STATEMENTS OF CASH FLOWS (CONT'D)
(Unaudited)
For the For the
nine months nine months
ended ended
May 31 May 31
1994 1993
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CASH FLOWS FROM INVESTING ACTIVITIES
Collection of receivables pursuant to
Funding Agreements 8,980,574 88,743,495
Purchase of investments, net (1,000,000)
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Net cash provided by investing
activities 8,980,574 87,743,495
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal Reduction of Bonds Payable (8,980,574) (88,743,495)
Acquisition of Class A Treasury Stock (37,189) (9,540)
Acquisition of Class B Treasury Stock (100) (100)
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Net cash used in financing activities (9,017,863) (88,753,135)
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Net increase in Cash and
Cash Equivalents 457,796 519,831
Cash and Cash Equivalents at
beginning of period 722,092 542,568
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Cash and Cash Equivalents at end of
period $ 1,179,888 $ 1,062,399
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for income taxes $ 126,403 $ 19,000
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Cash paid for interest $ 555,673 $ 4,506,141
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Disclosure of accounting policy:
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For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with maturities of three months or less to be cash
equivalents.
The accompanying notes are an integral part of these financial statements.
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AMERICAN SOUTHWEST FINANCE CO., INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. They do not include all information and notes
required by generally accepted accounting principles for complete financial
statements. However, except as disclosed herein, there has been no material
change in the information disclosed in the notes to the financial statements
included in the Annual Report on Form 10-K for the year ended August 31, 1993.
In the opinion of Management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three and
nine-month periods ended May 31, 1994 are not necessarily indicative of the
results that may be expected for the year ending August 31, 1994.
NOTE 2 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
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American Southwest Finance Co., Inc. (the "Company") was
organized for the purpose of issuing mortgage-collateralized bonds ("Bonds") in
series ("Series") to facilitate the financing of long-term residential mortgage
loans secured by single-family residences. The Bonds are collateralized by
certificates of the Government National Mortgage Association, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation
(collectively, all such certificates are referred to as "Mortgage
Certificates") and by conventional mortgage loans (together with Mortgage
Certificates referred to as "Mortgage Collateral"). Each Series of Bonds that
has been issued is a nonrecourse obligation of the Company payable solely from
the Mortgage Collateral and other collateral (together the "Collateral")
pledged to secure such Series of Bonds. Neither the Company nor the
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AMERICAN SOUTHWEST FINANCE CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
(UNAUDITED)
NOTE 2 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont'd)
participating finance companies ("Finance Companies") have guaranteed, or
otherwise are obligated to pay the Bonds of a Series except from the proceeds
of the Collateral securing such Series of Bonds.
NOTE 3 - FUNDING AGREEMENTS
The Company and each Finance Company participating in a
Series of Bonds enter into a funding agreement with respect to each Series of
Bonds (collectively the "Funding Agreements") pursuant to which the Company
lends a portion of the proceeds from the sale of the Bonds of such Series.
Each Finance Company agrees to repay its loan from the Company by causing
payments on its Mortgage Collateral to be made to the trustee (the "Trustee")
for the related Series of Bonds on behalf of the Company in such amounts as are
necessary to pay the principal of and interest on the Finance Company's loan
made from the Company as it becomes due, and each Finance Company pledges to
the Company Collateral as security for its loan. The Company assigns to the
Trustee its entire right, title and interest in the Collateral and all proceeds
are pledged under the Funding Agreements as security for such Series of Bonds.
Funds generated by principal and interest payments on the
Funding Agreements securing a Series of Bonds are held by the Trustee until the
payment dates for the Bonds. Amounts not required to make principal and
interest payments on the Bonds of a Series are used to pay current fees and
expenses, held in reserve funds for future fees and expenses (see Note 7), held
in special reserve funds securing the Bonds or paid to the Finance Companies
pursuant to the Funding Agreements.
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AMERICAN SOUTHWEST FINANCE CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
(UNAUDITED)
NOTE 4 - BONDS PAYABLE
The indenture supplements relating to each Series of Bonds
issued by the Company have provisions which give the Company the option of
redeeming such Bonds in whole or in part when specific criteria are met. At
the time of a redemption, with the consent of each participating Finance
Company and the Trustee, the Company sells the underlying Mortgage Collateral
and cancels the appropriate Funding Agreements. The Company simultaneously
applies the proceeds from such sales to redeem the Bonds and remits the
remainder to the participating Finance Companies after charging each a
prepayment penalty. Prepayment penalties, recorded as Redemption Income, are
assessed in accordance with specific policies established by the Company. As
of May 31, 1994, all Series of Bonds issued by the Company have been redeemed.
NOTE 5 - RELATED PARTY TRANSACTIONS
At May 31, 1994, Receivables from Affiliates consisted of
loans and accrued interest to American Southwest Affiliated Companies ("ASAC")
and American Southwest Financial Corporation ("ASFC"). The loans earn at the
prime rate of interest as published in the Wall Street Journal. At August 31,
1993, Receivables from Affiliates included primarily loans to ASFC, who
utilized the funds to effect optional class redemptions of certain of its
Bonds.
NOTE 6 - EARNINGS PER SHARE
Earnings per share calculations are based on the weighted
average number of Class A common shares outstanding, since voting and dividend
rights are limited to Class A shareholders. Class B shareholders' rights are
limited to a return of
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AMERICAN SOUTHWEST FINANCE CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
(UNAUDITED)
NOTE 6 - EARNINGS PER SHARE (cont'd)
capital upon dissolution together with a share of the Company's profits, if
any, upon dissolution, provided such profits were not paid to Class A
shareholders as dividends prior to such dissolution.
NOTE 7 - ESCROWED RESERVE FUNDS
While there were Series of Bonds outstanding, the Company
maintained and invested, on behalf of participating Finance Companies, certain
funds ("Escrowed Reserve Funds") held primarily for future Bond administration
expenses. After the final Series of Bonds was redeemed February 1, 1994, all
excess Escrowed Reserve Funds were returned to the Finance Companies. The
Escrowed Reserve Funds are not included in the Company's assets or liabilities
on the accompanying balance sheet as of August 31, 1993.
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AMERICAN SOUTHWEST FINANCE CO., INC.
Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations.
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The Company was organized for the purpose of issuing
various Series of Bonds to facilitate the financing of long-term residential
mortgage loans secured by single-family residences. On the closing of a Series
of Bonds issued by the Company, the Company applies the net proceeds of the
Bonds toward the simultaneous purchase or the repayment of indebtedness with
respect to the Mortgage Collateral securing such Series of Bonds or to fund
loans to participating Finance Companies pursuant to Funding Agreements. The
Company last issued a Series of Bonds in July 1987. Issuance fees ("Bond
Issuance Fees") charged for each Series of Bonds issued by the Company are used
to pay Bond offering expenses.
Results of Operations
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The Company's net income for the three-month and nine-month
periods ended May 31, 1994 was significantly lower when compared to the same
periods in 1993. This decrease is primarily due to lower Redemption Income in
the current periods.
The Company's principal source of revenue for the
nine-month period ended May 31, 1994 was Interest Pursuant to Funding
Agreements, which is completely offset by Interest Expense on Bonds. See Notes
3 and 4 of the accompanying Financial Statements. Interest Income and related
Interest Expense have declined significantly during the nine months ended May
31, 1994 and have been completely eliminated for the quarter ended May 31, 1994
due to (i) regular payments and prepayments on the Mortgage Collateral securing
the various Series of Bonds, and (ii) the sale of Mortgage Collateral in
conjunction with Bond redemptions. The Company will no longer receive Interest
Income pursuant to Funding Agreements or incur related Interest Expense due to
the February 1, 1994 redemption of the Company's final outstanding Series of
Bonds. Future operations will depend upon
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AMERICAN SOUTHWEST FINANCE CO., INC.
Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations (cont'd).
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the Company's ability to issue new Series of Bonds or engage in other business
activities deemed appropriate by the Company's Board of Directors.
The Company's principal source of income for the
three-month period ended May 31, 1994 was Other Interest Income, which consists
of interest earned on the Company's Cash, Cash Equivalents and Receivables from
Affiliates. The Company's increase in Other Interest Income for the
three-month and nine-month periods ended May 31, 1994 as compared to the same
periods in 1993 is due to greater amounts of cash available for investment as a
result of redemptions.
While there were outstanding Series of Bonds, the Company
derived Administrative Fees by charging Finance Companies for administration of
current Bond administration funds. Fees varied depending on investment returns
on these funds held by the Company specifically for payment of current Bond
administration expenses. At the time of each full redemption of a Series of
Bonds, excess current Bond administration funds were returned to the
participating Finance Companies. Consequently, because of such reductions,
there is a reduction of Administrative Fees for the three-month and nine-month
periods ended May 31, 1994 as compared to the same periods in 1993 which is
somewhat offset by increased interest income as mentioned above. The Company
will not receive Administrative Fees in future periods unless new Series of
Bonds are issued. Current Bond administration funds were included in the
Escrowed Reserve Funds administered and invested by the Company on behalf of
the Finance Companies. See Note 7 of the accompanying financial statements.
Liquidity and Capital Resources
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During the nine-month period ended May 31, 1994, the
Company collected a loan to ASFC of $979,704 with interest. At May 31, 1994
the Company had
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AMERICAN SOUTHWEST FINANCE CO., INC.
Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations (cont'd).
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receivables of $560,111 and $163,636 due from ASFC and ASAC, respectively.
These loans earn interest at the prime rate of interest as published in the
Wall Street Journal.
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The Company anticipates that funds to meet its current and
future operating needs will be provided from current cash and future
operations.
Impact of Inflation and Changing Prices
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The primary revenue producing activities of the Company,
Bond issuances and redemptions, are impacted by interest rates which in turn
are affected by numerous factors. These factors include conditions in
financial markets, the fiscal and monetary policies of the United States
government and the Board of Governors of the Federal Reserve System,
international economic and financial conditions and other factors, none of
which can be predicted with any certainty.
Virtually all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a more significant
impact on the performance of the Company than the effects of general levels of
inflation since changes in prevailing interest rates will affect the
availability, cost, and expected maturity of Collateral. This in turn will
affect the Company's ability to issue new Series of Bonds and earn Bond
Issuance Fees. Interest rates do not necessarily move in the same direction or
in the same magnitude as the price of goods and services since such prices are
affected by inflation while interest rates generally are not affected to the
same degree.
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AMERICAN SOUTHWEST FINANCE CO., INC.
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of shareholders of American Southwest Finance Co.,
Inc. was held on May 16, 1994. The Class A voting shareholders
elected the Board of Directors of American Southwest Finance Co., Inc.
for the ensuing year or until their successors are elected and have
qualified. The names of the Directors elected at the meeting are as
follows:
G. Thomas Eggebrecht Kirby Korth
Michael H. Feinstein Phillip J. Polich
Jon A. Grove J. Larry Sorsby
Alan D. Hamberlin
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None.
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(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.
AMERICAN SOUTHWEST FINANCE CO., INC.
Date: July 12, 1994 /s/ G. Thomas Eggebrecht
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G. Thomas Eggebrecht
President and Chief Executive Officer
Date: July 12, 1994 /s/ Richard H. Hackett
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Richard H. Hackett
Executive Vice President, Treasurer and
Chief Financial and Accounting Officer
Date: July 12, 1994 /s/ Michael H. Feinstein
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Michael H. Feinstein
Executive Vice President and Chief
Operating Officer
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