FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: June 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File Number: 0-14786
AUTOINFO, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2867481
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(State or other (I.R.S. Employer
jurisdiction of incorporation Identification number)
or organization)
1600 Route 208, Fair Lawn, New Jersey 07410
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(Address of principal executive office)
(201) 703-0500
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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
--- ---
Number of shares outstanding of the registrant's common stock as of August
12, 1996: 7,954,752 shares of common stock, $.01 par value.
1
AUTOINFO, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information:
Item 1. Financial Statements: Page
Condensed Balance Sheet -
June 30, 1996 and December 31, 1995......................... 3
Condensed Statements of Operations -
Three and six months ended June 30, 1996 and
and May 31, 1995............................................ 4
Condensed Statement of Changes in Financial Position -
Six months ended June 30, 1996 and May 31, 1995............. 5
Notes to Unaudited Condensed Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 9
Part II. Other Information 12
Signatures ............................................................. 13
Exhibit 11 ............................................................. 14
2
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
------------ ------------
Unaudited
ASSETS
Cash $ 1,588,461 $ 964,842
Short-term investments 10,100,984 23,906,459
Installment contracts receivable, net 39,084,061 25,073,858
Fixed assets, net 1,184,027 256,269
Goodwill and other intangibles, net 16,114,824 14,302,274
Other assets 2,399,413 1,291,674
------------ ------------
$ 70,471,770 $ 65,795,376
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Revolving line of credit $ 26,279,025 $ 20,679,024
Subordinated notes and other debt 10,218,113 12,067,166
Accounts payable and accrued liabilities 922,514 1,462,555
Income taxes payable 779,154 568,278
------------ ------------
Total liabilities 38,198,806 34,777,023
------------ ------------
Stockholders' Equity:
Common stock - authorized 20,000,000 shares
$.01 par value; issued and outstanding -
7,954,752 as of June 30, 1996 and
7,772,752 as of December 31, 1995 79,548 77,778
Additional paid-in capital 18,171,282 17,782,677
Officer note receivable (466,797) (466,797)
Deferred compensation under stock bonus plan (395,012) (404,092)
Retained earnings 14,883,943 14,028,787
------------ ------------
Total stockholders' equity 32,272,964 31,018,353
------------ ------------
$ 70,471,770 $ 65,795,376
============ ============
See notes to condensed unaudited financial statements
3
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, May 31, June 30, May 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Revenues
Interest and other finance revenue $ 5,188,038 $ -- $ 2,857,467 $ --
Investment income 515,019 357,971 230,613 252,905
Long distance telephone services 280,149 482,594 137,083 197,888
----------- ----------- ----------- -----------
Total revenues 5,983,206 840,565 3,225,163 450,793
----------- ----------- ----------- -----------
Costs and expenses:
Interest expenses 1,670,531 156,574 848,972 77,915
Operating expenses 2,757,521 2,832,995 1,542,832 2,474,418
Depreciation & amortization 489,123 12,792 252,460 11,709
----------- ----------- ----------- -----------
Total operating expenses 4,917,175 3,002,361 2,644,264 2,564,042
----------- ----------- ----------- -----------
Income (loss) from continuing operations 1,066,031 (2,161,796) 580,899 (2,113,249)
Income taxes (benefit) 210,876 (223,335) 127,293 (199,203)
----------- ----------- ----------- -----------
Net income (loss) from continuing operations 855,155 (1,938,461) 453,606 (1,914,046)
Income from discontinued operations, net -- 9,480,160 -- 9,105,295
----------- ----------- ----------- -----------
Net Income $ 855,155 $ 7,541,699 $ 453,606 $ 7,191,249
=========== =========== =========== ===========
Net Income (loss) per share:
Continuing operations $ .11 $ (.26) $ .06 $ (.26)
Discontinuing operations -- 1.28 -- 1.23
----------- ----------- ----------- -----------
Net income per share $ .11 $ 1.02 $ .06 $ .97
=========== =========== =========== ===========
Weighted average number of common
and common equivalent shares 7,885,487 7,460,196 7,987,088 7,571,812
See notes to condensed unaudited financial statements
4
AUTOINFO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30, May 31,
1996 1995
------------ ------------
Cash flows from operating activities:
Net income $ 855,155 $ 7,541,699
Adjustments to reconcile net income to net cash
provided by (used in) operations activities:
Depreciation and amortization 489,123 12,792
Amortization of deferred compensation 9,081 9,081
Gain on sale of discontinued operations (16,544,329)
Preferred stock investment write-off 1,648,797
Changes in assets and liabilities:
Installment contracts receivable (16,010,203) --
Other current assets 152,994
Other assets (1,107,739) 68,287
Income taxes payable 7,131,543
Accounts payable and accrued liabilities (329,166) 629,540
------------ ------------
Net cash provided by (used in) continuing operations (16,093,749) 650,404
------------ ------------
Net cash used by discontinued operations
and non-cash charges -- (238,087)
------------ ------------
Cash flows from investing activities:
Proceeds from the sale of discontinued operations 30,350,000
Officer note receivable (466,797)
Capital expenditures (1,229,431) (2,476)
Proceeds from redemptions short term investments 21,717,616 --
Purchases of short term investments (7,912,141) (30,759,038)
------------ ------------
Net cash provided (used in) investing activities 12,576,044 (878,311)
Cash flows from financing activities:
Increase in (reduction of) borrowings 3,750,948 (346,549)
Issuance of common stock 390,375 --
Exercise of stock options -- 1,235,895
------------ ------------
Net cash used for financing activities 4,141,323 889,346
------------ ------------
Net (decrease) increase in cash 623,618 423,352
Cash at beginning of period 964,842 98,516
------------ ------------
Cash at end of period $ 1,588,460 $ 521,868
============ ============
See notes to condensed unaudited financial statements
5
AUTOINFO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and Summary of Significant Accounting Policies
Business
On December 6, 1995, AutoInfo, Inc. (the "Company"), through a wholly owned
subsidiary, acquired the operating assets of FALK Finance Company (FFC), a
Norfolk, Virginia based specialized financial services company. As a result of
this acquisition, the Company's primary business is to purchase non-prime
automobile retail installment contracts from new and used automobile dealers.
The Company services these dealers by providing specialized financing programs
for buyers who typically have impaired credit histories and are unable to access
traditional sources of available consumer credit.
During the fiscal year ended May 31,1995 and on July 20, 1995, the Company
sold substantially all of its operating assets for $34,100,000 in cash in two
separate transactions. As a result, the Company's sole operating business which
remained provides long distance telephone communications services. The long
distance telephone communication service is marketed to over 1,400 customers
through an independent commissioned sales force
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
Installment Contracts Receivable
Installment contracts receivable represent retail installment sales
contracts purchased from new and used automobile dealers at discounts ranging
from 10% to 20%.
Allowance for Credit Losses
The Company established an allowance for credit losses in the acquired
portfolio as of the date of acquisition based upon an evaluation of a number of
factors including prior loss experience, contractual delinquencies, the value of
underlying collateral and other factors. All discounts on the purchase of
installment contracts from dealers are added to the allowance. The allowance is
evaluated for adequacy based upon estimated future losses inherent in the
existing finance receivable portfolio. A provision for losses, if any, is
charged to income in order to maintain the allowance at an adequate level.
Revenue Recognition
The Company recognizes interest income from installment contracts
receivable on the interest method. The accrual of interest income is suspended
when a loan is ninety days contractually delinquent. All discounts on the
purchase of installment contracts from dealers are held in reserve and are
considered to cover future anticipated credit losses. The Company recognizes
revenue from long distance telephone communications services as services are
rendered.
6
Goodwill and Other Intangibles
The excess of cost over the fair value of net assets acquired is allocated
to goodwill and other intangibles and is being amortized using the straight-line
method over periods of up to twenty years. In March 1995, the Financial
Accounting Standards Board issued SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of." This statement requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company adopted
SFAS No.121 to evaluate the carrying amount of goodwill commencing with the
period ended December 31, 1995 and no impairment of goodwill existed as of
December 31, 1995 or June 30, 1996.
Fiscal Year
On February 28, 1996, the Company made an election to change its fiscal
year-end from May 31 to December 31. The Company believes that this change
provides shareholders with information on a basis more comparable to other
public entities in the specialized automobile finance industry. The Company will
continue to present the most comparable prior year fiscal period, the three and
six month periods ended May 31, 1995 for this Form 10-Q Report.
Note 2 - General
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions for 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 accruals considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1996 and May 31, 1995 are not necessarily indicative of the results that may
be expected for a full fiscal year. For further information, refer to the
financial statement and footnotes thereto included in the Company's transition
period report on Form 10-K for the seven month period ended December 31, 1995.
Note 3 - Marketable Securities
Effective June 1, 1994, the Company, as required, adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". This pronouncement establishes the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. This
statement supersedes Statement No. 12 "Accounting for Certain Marketable
Securities".
In connection with the adoption of SFAS No. 115, debt and equity securities
used as part of the Company's investment management that may be sold in response
to cash needs, changes in interest rates, and other factors have been classified
as securities available for sale. Such securities are reported at cost which
approximates fair value and have maturities of less than one year and included
common stock and bond funds ($3,675,944 as of June 30, 1996 and $3,613,394 as of
December 31, 1995), money market instruments ($2,131,236 as of June 30, 1996 and
$4,585,558 as of December 31, 1995) and municipal bonds ($4,356,488 as of June
30, 1996 and $15,727,507 as of December 31, 1995). As of June 30, 1996 and
December 31, 1995, unrealized gains and losses were not material. Unrealized
gains and losses, if material, would be excluded from earnings and reported as a
separate component of stockholders' equity. During the six month period ended
June 30, 1996, there were no material gains or losses arising from the
disposition of marketable securities. Gains and losses on disposition of
securities are recognized on the specific identification method in the period in
which they occur.
7
Note 4 - Installment Contracts Receivable
The following is a summary of Installment contracts receivable as of June
30, 1996 and December 31, 1995:
June 30, December 31,
1996 1995
------------ ------------
Gross installment contracts receivable $ 64,140,379 $ 44,070,860
Less: Unearned finance charges and fees (17,582,558) (12,178,807)
Less: Allowance for credit losses (7,473,760) (6,818,195)
------------ ------------
Installment contracts receivable, net $ 39,084,061 $ 25,073,858
------------ ------------
Note 5 - Adjustment of the Fair Market Value of Assets Acquired
In connection with the acquisition of FALK Finance Company in December
1995, the Company allocated a portion of the purchase price to the Allowance for
Credit Losses based upon certain estimates. Based upon the completion of the
evaluation of the Allowance for Credit Losses, the preliminary allocation of the
purchase price has been adjusted to reflect an additional $2,000,000 which has
been added to the allowance and the excess cost over the fair market value of
net assets acquired (goodwill).
8
AUTOINFO, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition
And
Results of Operations
Liquidity and Capital Resources
The Company's liquid assets amounted to $10.1 million as of June 30, 1996.
The Company has sufficient liquid assets to meet its short and long term capital
requirements.
The total amount of debt outstanding as of June 30, 1996 was $38.2 million,
none of which is due in less than one year. This debt was comprised of
subordinated notes of $10.2 million included in the liabilities assumed with the
acquisition of FFC in December 1995, and $2 million of subordinated notes issued
by the Company in January 1994. The Company retired $1.6 million of subordinated
notes during the three months ended March 31, 1996. The Company has adequate
resources to meet these obligations.
Inflation and changing prices had no material impact on revenues or the
results of operations for the six month period ended June 30, 1996. There are no
trends or commitments which may have an impact on the Company's liquidity.
Installment contracts receivable increased by approximately $16.1 million
in the six month period ended June 30, 1996 as a result of an increase in the
number of contracts purchased from dealers due to the Company's expanded
marketing program.
Short term investments decreased by approximately $13.8 million as a direct
result of funding the Company's growth in installment contract receivable and
the retirement of $1.6 million in subordinated notes.
Results of Operations
On April 1, 1995, the Company consummated the sale of certain assets, net
of certain liabilities, constituting the operating assets of the Orion Network,
Compass Network, Checkmate Computer Systems, and Insurance Parts Locator
businesses. On July 20, 1995, the Company consummated the sale of the operating
assets of its insurance inspection services business. The Results of Operations
of these businesses have been classified as discontinued operations.
On December 6, 1995, the Company, through a wholly owned subsidiary,
acquired the operating assets of FALK Finance Company (FFC), a Norfolk, Virginia
based specialized financial services company. As a result of this acquisition,
the Company's primary business is to purchase non-prime automobile retail
installment contracts from new and used automobile dealers. The Company services
these dealers by providing specialized financing programs for buyers who
typically have impaired credit histories and are unable to access traditional
sources of available consumer credit.
On February 28, 1996, the Company made an election to change its fiscal
year-end from May 31 to December 31. The Company believes that this change
provides shareholders with information on a basis more comparable to other
public entities in the specialized automobile finance industry. The Company will
continue to present the most comparable prior year fiscal period, the three
months ended May 31, 1995 for this Form 10-Q Report.
9
The Company's continuing operations consist of its non-prime automobile
finance business and its long distance telephone services business. Except as
otherwise noted, the following discussion of the results of operations is with
respect to the Company's continuing operations. Due to this change in both
operations and fiscal periods, the following discussion and analysis focuses on
the current quarter ended June 30, 1996.
Three and Six Months Ended June 30, 1996
Revenues
Revenues for the three and six month periods ended June 30, 1996 were
derived from the non-prime automobile finance business ($2,857,000 and
$5,188,000, respectively), the long-distance telephone service business
($137,000 and $280,000, respectively) and investment income ($231,000 and
$515,000, respectively).
Net Interest Income on Automobile Installment Contracts Receivable
The Company's principal revenue source is the net interest income, or net
spread, earned on its automobile installment contracts receivable. This net
spread is the differential between interest income received on loans receivable
and the interest expense on related loans payable. The following table
summarizes the pertinent data on the Company's automobile contracts receivable
portfolio for the three and six month periods ended June 30, 1996:
Six months ended Three months ended
June 30, June 30,
1996 1996
------------ ------------
Average loans receivable $ 38,071,000 $ 42,089,000
Average loan payable 30,687,000 31,185,000
------------ ------------
Interest income $ 4,980,000 $ 2,721,000
Interest expense 1,595,000 811,000
------------ ------------
Net interest expense $ 3,385,000 $ 1,910,000
------------ ------------
(1) (1)
Yield on loans 26.2% 25.9%
Cost of funds 10.4% 10.4%
------------ ------------
Net interest spread 15.8% 15.5%
------------ ------------
Net interest margin (2) 17.8% 18.2%
------------ ------------
(1) Percentages are presented on an annualized basis
(2) Net interest margin is net interest income divided by average
loans outstanding
10
Costs and Expenses
Interest expense for the three and six month periods ended June 30, 1996
($848,000 and $1,671,000, respectively) was primarily related to the debt
outstanding under the Company's senior credit facility ($26.3 million as of June
30, 1996) and subordinated notes ($10.2 million as of June 30, 1996).
Operating expenses for the three and six month periods ended June 30, 1996
($1,543,000 and $2,758,000, respectively) consisted primarily of the operating
expenses of the non-prime automobile finance business and corporate overhead.
Depreciation and amortization expense for the three and six month periods
ended June 30, 1996 ($252,000 and $489,000, respectively) consisted primarily of
the amortization of goodwill and other intangible assets associated with the
acquisition of FFC in December 1995.
Income from Operations
Income from continuing operations for the three and six month periods ended
June 30, 1996 was $581,000 and $1,066,000, respectively. Income taxes were
$127,000 and $211,000, respectively, or an effective tax rate of 22% and 20%,
respectively, as a result of a portion of the Company's investment income being
derived from instruments exempt from federal taxation.
Installment contracts receivable
The following table provides information regarding the Company's allowance for
credit losses as of June 30, 1996:
Allowance for credit losses $ 7,474,000
Percentage of outstanding installment contracts 16.1%
The following table summarizes the Company's delinquent accounts that are more
than 60 days delinquent as of June 30, 1996:
Amount %(1)
--------------------
60 to 89 days delinquent $2,176,000 3.5%
90 days or more delinquent 1,151,000 2.0%
--------------------
Total delinquent loans $3,327,000 5.5%
--------------------
(1) All percentages are gross loans outstanding and are presented on an
annualized basis
Management has reviewed its past due loans and repossessed collateral as of June
30, 1996 and, in management's opinion, the allowance for credit losses is
adequate to absorb losses in the portfolio.
11
AUTOINFO, INC. AND SUBSIDIARIES
Part II - OTHER INFORMATION
Item 1 - 3: Inapplicable
Item 4: Submission of Matters to a Vote of Security Holders None
Item 5: Inapplicable
Item 6(a): The following exhibits are filed with this report.
Exhibit 11 - Calculation of Earnings Per Share.
Item 6(b): No reports on Form 8-K were filed by the Registrant during the
quarter for which this report is filed.
12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto authorized.
AUTOINFO, INC.
(Registrant)
/s/ Scott Zecher
-----------------------------------
Scott Zecher
President & Chief Operating Officer
Date: August 12, 1996 /s/ William I. Wunderlich
-----------------------------------
William I. Wunderlich
Treasurer, Secretary And
Principal Financial Officer
13