-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ITHyP6d44ynJGp7krA6Pct9P53AhoeO460FSduvb7JxZweFdyfG3JnCyFmk/48It yNCv9vi1CLx0A4vsf96YTg== 0000944209-97-001129.txt : 19970820 0000944209-97-001129.hdr.sgml : 19970820 ACCESSION NUMBER: 0000944209-97-001129 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970819 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANCHISE MORTGAGE ACCEPTANCE CO LLC CENTRAL INDEX KEY: 0001035012 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 061429737 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-22141-03 FILM NUMBER: 97666296 BUSINESS ADDRESS: STREET 1: 2029 CENTURY PK E STREET 2: STE 1190 CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 8006613622 MAIL ADDRESS: STREET 1: 2029 CENTURY PARK EAST STREET 2: STE 1190 CITY: LOS ANGELES STATE: CA ZIP: 90067 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 COMMISSION FILE NUMBER: 333-22141-03 FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC CALIFORNIA 061-429737 -------------------------------- ------------------------------------ (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) 2049 CENTURY PARK EAST, SUITE 350, LOS ANGELES, CALIFORNIA 90067 (310) 229-2600 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ----- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST POSSIBLE DATE: CLASS SHARES OUTSTANDING AT AUGUST 18, 1997 ----- ------------------------------------- NOT APPLICABLE NOT APPLICABLE FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC FORM 10-Q TABLE OF CONTENTS -----------------
PART I - FINANCIAL INFORMATION PAGE ------------------------------ ---- ITEM 1 FINANCIAL STATEMENTS -------------------- Balance Sheets - June 30, 1997 and December 31, 1996..................................... 2 Statements of Income - Three and six months ended June 30, 1997 and 1996................. 3 Statements of Cash Flows - Six months ended June 30, 1997 and 1996....................... 4 Statement of Changes in Members' Equity - June 30, 1997.................................. 5 Notes to Financial Statements............................................................ 6 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 ------------------------------------------------------------------------------------- PART II - OTHER INFORMATION --------------------------- ITEMS 1-6 NOT APPLICABLE -------------- SIGNATURES 14 ----------
FORWARD-LOOKING STATEMENTS When used in this Form 10-Q or future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "would be", "will allow", "intends to", "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project", or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investment activities and competitive and regulatory factors, could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from those anticipated or projected. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. 1 ITEM 1. FINANCIAL STATEMENTS FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
JUNE 30, DECEMBER 31, ASSETS 1997 1996 ------ -------- ------------ Cash.................................................. $ 15 $ -- Interest bearing deposits............................. 2,667 2,594 Securities available for sale, at market.............. 2,581 39,349 Loans and leases held for sale, net of provisions..... 207,789 98,915 Retained interest in loan and lease securitizations... 7,002 6,908 Premises and equipment, net........................... 1,433 1,162 Goodwill.............................................. 4,571 4,332 Accrued interest receivable........................... 1,137 560 Other assets.......................................... 5,536 6,356 -------- -------- Total assets..................................... $232,731 $160,176 ======== ======== LIABILITIES AND MEMBERS' EQUITY ------------------------------- Book overdraft........................................ $ -- $ 171 Payable to Imperial Credit Industries, Inc............ 10,245 17,728 Borrowings............................................ 196,552 125,240 Accrued interest payable.............................. -- 148 Other liabilities..................................... 3,836 2,432 -------- -------- Total liabilities................................ 210,633 145,719 -------- -------- Members' equity: Members' capital.................................... 5,792 5,792 Retained earnings................................... 16,306 8,665 -------- -------- Total members' equity............................ 22,098 14,457 -------- -------- Total liabilities and members' equity............ $232,731 $160,176 ======== ========
See accompanying notes to financial statements 2 FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- REVENUE: Gain on sale of loans and leases................. $20,047 $ 5,852 $ 20,033 $ 12,520 Interest income.................................. 6,770 601 10,767 1,257 Interest expense................................. 6,040 322 9,394 955 ------- --------- -------- -------- Net interest income........................... 730 279 1,373 302 Loan servicing income............................ 736 367 1,376 649 Other income..................................... -- -- -- 63 ------- --------- -------- -------- Total other income............................ 736 367 1,376 712 ------- --------- -------- -------- Total revenue............................. 21,513 6,498 22,782 13,534 ------- --------- -------- -------- EXPENSES: Personnel expense................................ 2,067 1,250 4,665 3,901 Professional services............................ 698 470 1,176 602 Travel........................................... 347 121 524 202 Business promotion............................... 176 101 349 198 Occupancy........................................ 161 63 277 122 Goodwill amortization............................ 88 76 169 251 Telephone and other communications............... 153 72 239 121 General and administrative expense............... 1,069 195 1,420 374 ------- --------- -------- -------- Total expenses............................. 4,759 2,348 8,819 5,771 ------- --------- -------- -------- Net Income....................................... $16,754 $ 4,150 $ 13,963 $ 7,763 ======= ======== ======== ========
See accompanying notes to financial statements 3 FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC STATEMENTS OF CASH FLOW (UNAUDITED) (IN THOUSANDS)
SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, 1997 JUNE 30, 1996 ------------- ------------- Cash flows from operating activities: Net income........................................................ $ 13,963 $ 7,763 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation........................................................ 219 38 Amortization........................................................ 169 154 Net change in franchise loans and leases held for sale.............. (128,907) 144,693 Gain on sale of loans and leases.................................... 20,033 12,520 Net change in accrued interest receivable........................... (577) 952 Net change in retained interest in loan and lease securitizations... (94) -- Net change in accrued interest payable.............................. (148) (1,062) Net change in residual interest due owner........................... -- (526) Net change in other assets.......................................... 820 (2,615) Net change in other liabilities..................................... 1,404 917 --------- ---------- Net cash provided by operating activities:............................ (93,118) 162,834 --------- ---------- Cash flows from investing activities: Net change in interest bearing deposits............................. (73) (1,999) Sale (purchase) of securities available for sale.................... 36,768 (9,691) Purchases of premises and equipment................................. (490) (275) Cash utilized for acquisitions...................................... (408) -- --------- ---------- Net cash provided by (used in) investing activities:.................. 35,797 (11,965) --------- ---------- Cash flows from financing activities: Net change in receivables from affiliates........................... -- 675 Net change in payable to Imperial Credit Industries, Inc............ (7,483) 7,009 Net change in borrowings............................................ 71,312 (46,402) Repayment of bonds.................................................. -- (111,995) Distribution to partners............................................ (6,322) -- --------- ---------- Net cash used in financing activities:................................ 57,507 (150,713) --------- ---------- Net change in cash.................................................... 186 156 Cash at beginning of year............................................. (171) (445) --------- ---------- Cash at end of period................................................. $ 15 $ (289) ========= ==========
See accompanying notes to financial statements 4 FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC STATEMENT OF CHANGES IN MEMBERS' EQUITY (UNAUDITED) (IN THOUSANDS)
RETAINED EARNINGS TOTAL MEMBERS' (ACCUMULATED MEMBERS' CAPITAL DEFICIT) EQUITY ------- ------------ --------- Balance, June 30, 1995 (inception)...... -- -- -- Members' Contribution - ICII............ 8,952 -- 8,952 Members' Contribution - Knyal........... 645 -- 645 Return of capital - ICII................ (3,805) -- (3,805) Net income.............................. -- 8,665 8,665 ------- ------- ------- Balance, December 31, 1996.............. 5,792 8,665 14,457 Tax Distribution - ICII................. -- (4,215) (4,215) Tax Distribution - Knyal................ -- (2,107) (2,107) Net income.............................. -- 13,963 13,963 ------- ------- ------- Balance, June 30, 1997 (unaudited)...... 5,792 16,306 22,098 ======= ======= =======
See accompanying notes to financial statements 5 FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION On June 30, 1995, Imperial Credit Industries, Inc. (ICII) acquired from Greenwich Capital Financial Products, Inc. (Greenwich), certain assets of Greenwich's Franchise Mortgage Acceptance Company division (the FMAC Division), including all of Greenwich's rights under certain servicing contracts entered into by the FMAC Division (the Servicing Contracts). The Servicing Contracts pertain to the servicing of franchise loans that were previously securitized by Greenwich through the FMAC Division. In connection with the acquisition, the Company or its affiliates assumed certain liabilities related to the Servicing Contracts and Greenwich agreed to act as the Company's exclusive agent in connection with securitization of franchise loans for a period of 24 months. The net purchase price for these assets was approximately $7.8 million. Concurrent with the closing of the transactions described above, ICII entered into an operating agreement with Wayne L. Knyal (Knyal), the former president of the FMAC Division, for the formation of a California limited liability company named Franchise Mortgage Acceptance Company LLC (the Company). The Company was formed to originate, securitize and service franchise mortgage loans. Under the terms of the operating agreement, in exchange for a 66 2/3% ownership interest in the Company, ICII contributed to the Company approximately $1.3 million in cash and all of the assets purchased from Greenwich other than Servicing Contracts. In exchange for a 33 1/3% ownership interest in the Company, Knyal caused his wholly owned company, Franchise Mortgage Acceptance Corporation ("FMAC Corporation"), to contribute to the Company all of its rights under a servicing contract pertaining to franchise mortgage loans that were previously securitized by FMAC Corporation. The Company's headquarters and operations center are located in Los Angeles, California. 2. BASIS OF PRESENTATION The accompanying financial statements have been prepared in conformity with generally accepted accounting principles and with the instructions to form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods presented. Actual results could differ significantly from those estimates. Prior year's financial statements have been reclassified to conform to the 1997 presentation. 6 3. LOANS HELD FOR SALE Loans held for sale consisted of the following at June 30, 1997 and December 31, 1996: (In thousands)
AT JUNE 30, AT DECEMBER 31, 1997 1996 ------------ ---------------- Franchise loans held for sale, net of provisions............. $ 188,600 $ 94,490 Franchise equipment loans and leases held for sale........... 21,183 4,385 Net deferred loan fees....................................... (2,932) (750) Net deferred loan costs...................................... 1,607 -- Unearned lease income........................................ (3,270) (497) Deferred hedging loss........................................ 2,599 1,287 ---------- --------- $ 207,789 $ 98,915 ========== =========
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Franchise Mortgage Acceptance Company is a specialty commercial finance company engaged in the business of originating and servicing loans and equipment leases to small businesses, with a primary focus on established national and regional franchise concepts. Since commencing business in 1991, the Company has become the leading lender to national and regional Quick Service Restaurant (QSR) franchisees, according to the Restaurant Finance Reporter. The Company has expanded its focus to include casual dining concepts, retail energy licensees (service stations, convenience stores, truck stops, car washes, and quick lube businesses), and golf operating businesses (golf courses and golf practice facilities). The Company offers long-term fixed- and variable-rate loan and lease products and endeavors to sell such loans and leases either through securitizations or whole loan sales to institutional purchasers on a servicing-retained basis. The Company believes that the combination of risk- adjusted yields, loan terms, and prepayment penalties in its loan and lease products make them attractive financial investments in the secondary market. Since the Company's inception, it has funded over $1.4 billion in loans and leases, and at June 30, 1997, the Company had a servicing portfolio of $1.1 billion. At June 30, 1997, the Company's average outstanding loan balance was $895 thousand. The Company had ten marketing offices in seven states at June 30, 1997. The Company's focus is to provide funding to broadly based industries that have been historically been underserved by bankers and other traditional sources of financing. This requires the Company to develop specific expertise and industry presence in the sectors in which it operates in order to provide individualized financial solutions to borrowers. The Company's customers are small business operators with proven operating experience, primarily independent multi-unit franchisees. Instead of relying on real estate and other collateral as the primary basis for small business lending decisions, the Company uses a combination of enterprise value and historical operating cash flows, along with the Company's extensive industry research and management experience, to make credit determinations. The Company also periodically makes equity investments or receives contingent equity compensation as part of its core lending and leasing business. The Company believes that, as an unregulated national financial services provider, it has the opportunity to offer loan terms that are generally more attractive than those offered by competing institutional lenders. The Company's delinquency and loss experience has been extremely low due in part to strict underwriting criteria and the Company's ability to locate replacement- qualified franchisee/borrowers for delinquent loans. At December 31, 1996 and June 30, 1997, the percentage of the Company's loans and leases that were 90 days or more delinquent was 0.0% and 0.1%, respectively. The Company suffered no loan or lease losses during either of such periods. BUSINESS STRATEGY The Company's goal is to become a leading national small business lender. The Company believes this segment has been traditionally underserved by financial service providers. As an unregulated financial service provider, the Company believes it has the flexibility and capability, both through the structure of its offered loan products and that of its securitizations and whole loan sales, to increase its participation in the small business lending market. The Company intends to achieve its goals through the following strategies: Growth in existing sectors - The Company seeks to become a leading lender in each sector in which it operates The Company plans to replicate its success in the QSR industry in other sectors, such as retail energy and golf, through sector focused product development, service, and support. The Company forms specialty teams within its infrastructure to specifically focus on each sector's customer needs, generate customer loyalty, and enhance service and support. Management believes that its industry leadership position, relationships with major borrowers, franchisers, vendors, and expertise within lending sectors will assist the Company in achieving its market share goals. 8 Controlled expansion - Management believes that substantial opportunities exist to extend the Company's lending expertise into other franchise and franchise related sectors. The Company's philosophy is to provide complete business solutions to undercapitalized industries by developing strategies and financial solutions, which are based on each borrower's specific needs. The Company believes that its experience in lending to QSRs allowed it to develop a template for efficiently originating and servicing loans and leases in other industry sectors. The Company continually analyzes potential new industry segments which are underserved by banks and other traditional lending sources and exhibit financial characteristics similar to the Company's existing customer base, such as strong operating cash flow, experienced management and the availability of industry information to facilitate meaningful borrower performance analysis. Management believes that the Company's infrastructure provides the basis for successfully developing profitable new lending sectors. Maintain Superior Credit Quality - The Company's credit quality has been exceptional, with only two loans becoming more than ninety days delinquent as of June 30, 1997. The Company's success to date has been a result of careful underwriting, detailed industry knowledge, and active oversight of its existing servicing portfolio. Capital Markets Performance - The Company has realized superior securitization execution on its loan portfolio due to the attractive terms and credit quality of the loans that the Company is originating. Unlike many specialty finance lenders, the Company has recognized significant cash gains on its securitizations in contrast to GAAP based present value gains practices which result in larger retained interest in loan securitizations, commonly referred to as residual interests. Revenue Diversification - Management is committed to developing a diversified revenue base to reduce revenue volatility and enhance profitability. The Company continually monitors and administers its loan and securitization products to enlarge the stability of its cash flows. Revenue sources include loan origination points and fees, interest income earned prior to the sale of the loans, whole loan sale profits, securitization profits, loan servicing fees, and equity investment returns. LOAN ORIGINATIONS LENDING DIVISIONS The Company's original focus was to provide secured financing to franchisees of Taco Bell Corporation. After establishing an infrastructure and credit expertise, the Company began expanding into related business sectors. FMAC carefully reviews vertical industries seeking a combination of large capital investments, proven cash flow generating capabilities, common operations, and a scarcity of long-term, fixed-rate funding sources. This formula provides the template to identify, test, and determine the potential value of entering into new lending sectors. For the six months ended June 30, 1997, the Company originated $300.5 million in franchise loans and leases. To date, the Company has expanded its lending activities to the following sectors: Restaurant Finance. The restaurant finance group was organized in 1991 to provide loans to top-tier national and regional QSR franchise concepts such as Taco Bell, Burger King, Hardee's, KFC, Wendy's, and Pizza Hut. In 1995, the Company began making loans to second tier franchises and casual dining concepts such as TGIF, Applebee's, Denny's, and others. In 1995, the Company introduced DEVCO loans and expanded the approved QSR concepts to include successful-tier restaurants such as Carl's Jr., Church's Chicken, and Jack in the Box. As of June 30, 1997, the restaurant finance group originated loans through a network of ten offices in seven states. Energy Finance. The energy finance group was organized in February 1997 to provide loans to top-tier national and regional businesses that distribute retail petroleum products such as service stations, convenience stores, truck stops, car 9 washes, and quick lube businesses. Customers to date have included major national chains such as Texaco, Chevron, and Arco. As of June 30, 1997, the energy finance group originated loans through a network of six offices in five states. Golf Finance. The golf finance group was organized in 1996 to provide loans to experienced owners and operators of golf courses and golf facilities, such as driving ranges and practice facilities, nationwide. Equipment Finance. The equipment finance group was organized in 1996 to provide equipment financing to experienced owners and operators in those sectors in which the Company operates. SECURITIZATIONS AND WHOLE LOAN SALES The Company endeavors to sell all of its loans originated either through securitization or securitizes a majority of loans originated or purchased by bulk sales to institutional purchasers of whole loans. Securitizations. In a securitization, the Company sells loans that it has originated or purchased to a trust for a cash purchase price and an interest in the loans securitized called residual interests. The cash purchase price is raised through an offering of senior certificates by the trust. Following the securitization, purchasers of senior certificates receive the principal collected, including prepayments, and the investor pass-through interest rate on the principal balance, while the Company receives the cash flows from the residual interests, after payment of servicing fees, guarantor fees, and other trust expenses and provided the specified over-collateralization requirements are met. The Company recognizes gain on sale of the loans, which represents the excess of the estimated fair value of the residual interests, less closing and underwriting costs, over the carrying value of the loans sold, in the fiscal quarter in which such loans are sold. Concurrent with recognizing such gain on sale, the Company records the residual interests as assets on its balance sheet. The recorded values of these residual interests are amortized as distributions are received from the trust holding the respective loan pool. With respect to certain of the aforementioned securitizations, the Company arranged for the related trusts to purchase credit enhancements for the senior certificates in the related trusts in the form of insurance policies provided by one AAA/Aaa rated monoline insurance company and, as a result, the senior certificates in each trust received a rating of "AAA" from Standard & Poor's Ratings Services and "Aaa" from Moody's Investors Service, Inc. The Company may continue to arrange for credit enhancements on future securitizations. There are no assurances that actual performance of any of the Company's securitized loan portfolios will be consistent with the Company's estimates and assumptions. To the extent that actual prepayment speeds, losses, or market discount rates materially differ from the Company's estimates, the estimated value of its residuals may increase or decrease, which may have a material impact on the Company's results of operations, financial condition, and liquidity. Whole Loan Sales. Depending on market conditions, the Company also sells for cash loan originations through sales in which the Company disposes of its entire economic interest in the loans (excluding servicing rights) for a cash price that represents a premium over the principal balance of the loans sold. The Company seeks to maximize its premium on whole loan sale revenues by closely monitoring institutional purchasers' requirements and focusing on originating or purchasing the types of loans that meet those requirements and for which institutional purchasers tend to pay higher premiums. Whole loan sales are made on a non-recourse basis pursuant to a purchase agreement containing customary representations and warranties by the Company regarding the underwriting criteria applied by the Company and the origination process. The Company, therefore, may be required to repurchase or substitute a loan in the event of a breach of its representations and warranties. In addition, the Company sometimes commits to repurchase or substitute a loan if a payment default occurs within the first month following the date the loan is funded, unless other arrangements are made 10 between the Company and the purchaser. The Company is also required in some cases to repurchase or substitute a loan if the loan documentation is alleged to contain fraudulent misrepresentations made by the borrower. The Company may be required either to repurchase or to replace loans, which do not conform to the representations, and warranties made by the Company in the pooling and servicing agreements entered into when the loans are pooled and sold through secritizations. LOAN AND LEASE SERVICING Servicing. The Company's Servicing Department is responsible for loan accounting, compliance monitoring and, if necessary, problem loan collections. As of June 30, 1997, the Company serviced approximately 1,565 loans located in the United States representing approximately $1.0 billion in principal balances. The Company's servicing operations are located in Greenwich, Connecticut. WAREHOUSE CREDIT AND REPURCHASE FACILITIES The Company is dependant upon its ability to access warehouse credit and repurchase facilities, in addition to its ability to continue to securitize or sell loans in the secondary market, in order to fund new originations. The Company has warehouse lines of credit and repurchase facilities under which it had available an aggregate of approximately $365 million in financing at June 30, 1997. Outstanding amounts available at June 30, 1997 are as follows: (In thousands)
WEIGHTED AVERAGE INTEREST RATE COMMITMENT OUTSTANDING INDEX --------- ---------- ----------- ----- Southern Pacific Thrift & Loan............ 9.17% $ -- $ -- Coupon - approx. 50 bp's Banco Santander........................... 7.29% 50,000 16,560 Libor + 160 bp's Sanwa Bank................................ 7.50% 15,000 12,092 Eurodollars + 200 bp's CS First Boston........................... 7.29% 300,000 167,900 Libor + 160 bp's -------- -------- $365,000 $196,552 ======== ========
EQUITY INVESTMENTS The Company periodically makes equity investments in companies operating in the sectors served by its lending and leasing businesses. Such investments may be made in conjunction with loans and leases or independent of any borrowing relationship. The Company's equity investments, which are generally made through subsidiary limited liability companies, have taken the form of common stock equivalents, contingent equity interests such as warrants, and combinations thereof. At June 30, 1997, the Company had investments in entities operating 250 QSRs, including Taco Bell, Church's Chicken, KFC, and Hot `N Now franchisees. In certain cases, concurrent equity investments have been made by ICII and Wayne Knyal, the Company's Chairman and Chief Executive Officer. 11 RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 1996 Total revenues increased $15.0 million or 230.8% to $21.5 million for the three months ended June 30, 1997 from $6.5 million for the comparable period in 1996. During the same periods, the Company's total expenses increased $2.5 million or 108.7% to $4.8 million from $2.3 million. As a result, the Company's net income increased $12.6 million or 300.0% to $16.8 million for the three months ended June 30, 1997 as compared to $4.2 million for the same period in 1996. Total revenues increased $9.3 million or 68.9% to $22.8 million for the six months ended June 30, 1997 from $13.5 million for the comparable period in 1996. During the same periods, the Company's total expenses increased $3.0 million or 51.7% to $8.8 million from $5.8 million. As a result, the Company's net income increased $6.2 million or 79.5% to $14.0 million for the six months ended June 30, 1997 as compared to $7.8 million for the same period in 1996. Gain on sale of loans The $15.0 million increase in revenues for the three months ended June 30, 1997 as compared to the same period in 1996 was primarily attributable to a $14.2 million increase in gain on sale of loans. For the three months ended June 30, 1997, the Company sold approximately $158.6 million of loans in a securitization ("1997-A") as compared to $167.4 million of loans sold in a securitization ("1996-A") for the three months ended June 30, 1996. The increased gain on sale of loans was due to several factors: amount of loans sold, composition of loans in the securitization, structure of the securitization, and market influences at the time of securitization execution. The $9.3 million increase in revenues for the six months ended June 30, 1997 as compared to the same period in 1996 was primarily attributable to a $7.5 million increase in gain on sale of loans. This increase is primarily due to the above referenced securitizations. Net interest income Net interest income also contributed to the increase in revenues, increasing $0.5 million or 162.0% to $0.7 million for the three months ended June 30, 1997 and $1.1 million or 366.7% to $1.4 million for the six months ended June 30, 1997 as compared to $0.3 million and $0.3 million for the same periods in 1996. The increase was primarily due to the significant increase in loans held for sale which resulted from an increase in loan originations to $534.1 million or 60% for the twelve months ended June 30, 1997 as compared to loan originations for the twelve months prior totaling $334.8 million. Loan servicing income Loan servicing income increased $0.3 million or 100.5% to $0.7 million for the three months ended June 30, 1997 and $0.7 million or 112.0% to $1.4 million for the six months ended June 30, 1997 as compared to $0.4 million and $0.6 million for the same periods in 1996. This was primarily due to the increase in loans serviced which resulted from the securitization of $281.8 million in loans from June 1996 through December 1996, with servicing rights retained by the Company. Loss on sale of investments The loss on sale of investments reported in the first quarter of 1997 of $403 thousand relating to the Company's repurchase of bonds from a securitization of the Company's loans in 1991 ("1991-A") was reclassified into gain on sale of loans in the second quarter of 1997. The Company repurchased the remaining bonds totaling approximately $35 million in 12 December of 1996, financed by a loan from Greenwich Capital. In January of 1997, approximately $20 million of the loans were securitized resulting in a loss of $403 thousand. The remaining loans of approximately $15 million were retained by the Company, the majority of which were refinanced with the borrowers. EXPENSES The 108.7% or $2.5 million increase in total expenses to $4.8 million for the three months ended June 30, 1997 as compared to $2.3 million for the same period of the prior year resulted from the growth in operations of the Company due to the dramatic increase in loan originations. Personnel expenses increased $0.8 million or 65.4%, professional services increased $0.2 million or 48.5%, and general and administrative expenses increased $0.9 million or 444.9% for the three months ended June 30, 1997 as compared to the three months ended June 30, 1996 The 52.8% or $3.0 million increase in total expenses to $8.8 million for the six months ended June 30, 1997 as compared to $5.8 million for the same period of the prior year resulted from the growth in operations of the Company due to the dramatic increase in loan originations. Personnel expenses increased $0.8 million or 19.6%, professional services increased $0.6 million or 95.3%, and general and administrative expenses increased $1.0 million or 279.7% for the six months ended June 30, 1997 as compared to the six months ended June 30, 1996 LIQUIDITY AND CAPITAL RESOURCES The Company's principal liquidity requirements result from the need for the Company to fund franchise mortgage loans originated or acquired for purposes of sale or investment. In addition, the Company, as a loan servicer, requires funding to make advances of delinquent principal and interest payments and escrow balances, and as basic working capital. The Company has an ongoing need for capital to finance its lending activities. This need is expected to increase as the volume of the Company's loan and lease originations and acquisitions increases. The Company's primary cash requirements include the funding of (i) loan and lease originations and acquisitions pending their pooling and sale, (ii) points and expenses paid in connection with the acquisition of wholesale loans, (iii) fees and expenses incurred in connection with its securitization programs, (iv) overcollateralization or reserve account requirements in connection with loans and leases pooled and sold, (v) ongoing administrative and other operating expenses, and (vi) the costs of the Company's warehouse credit and repurchase facilities with certain financial institutions. The Company has financed its activities through warehouse lines of credit from financial institutions, borrowings from ICII, securitizations, and whole loan sales. The Company believes that such sources will be sufficient to fund the Company's liquidity requirements for the foreseeable future. The Company currently pools and sells through securitization a substantial portion of the loans or leases which it originates or purchases. Accordingly, adverse changes in the securitization market could impair the Company's ability to originate, purchase and sell loans or leases on a favorable or timely basis. The Company is dependent upon its ability to access warehouse credit and repurchase facilities, in addition to its ability to continue to pool and sell loans and leases in the secondary market, in order to fund new originations and purchases. The Company has warehouse lines of credit and repurchase facilities under which it had available an aggregate of approximately $365.0 million in financing at June 30, 1997. The Company believes that, with liquidity available, its lending activities will be adequately funded. The combination of cash from operations and borrowings from ICII have allowed the Company to meet its required liquidity needs for 1996 and 1997. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FRANCHISE MORTGAGE ACCEPTANCE COMPANY LLC Date: August 18, 1997 By: /s/ Raedelle Walker -------------------------------- Raedelle Walker Executive Vice President and CFO 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 6-MOS DEC-31-1997 DEC-31-1997 APR-01-1997 JAN-01-1997 JUN-30-1997 JUN-30-1997 2,682 2,682 9,583 9,583 208,926 208,926 0 0 0 0 221,191 221,191 11,810 11,810 (270) (270) 232,731 232,731 210,633 210,633 0 0 0 0 0 0 0 0 22,098 22,098 232,731 232,731 21,513 22,782 21,513 22,782 0 0 0 0 4,759 8,819 0 0 0 0 16,754 13,963 0 0 16,754 13,963 0 0 0 0 0 0 16,754 13,963 0 0 0 0
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