The Company's MidAtlantic Regional Center leases approximately 8,000 square feet of space at 863 Glenrock Road, Norfolk, Virginia. The lease runs through April 2001 and provides for an annual rent of $96,000. The Company's Northeast Regional Center leases approximately 10,000 square feet of space at 444 Westport Avenue, Norwalk, Connecticut. The lease runs through May 2001 and provides for an annual rental of $107,500. The Company maintains an operational facility of approximately 800 square feet at 6818 Grover Street, Omaha, Nebraska. The lease for such facility runs through June 1997 at an annual rent of $10,000. The Company rents approximately 2,900 square feet of space at 1600 Route 208, Fair Lawn, New Jersey where it maintains its executive offices. The lease runs through November 1997 at an annual rental of approximately $44,000, subject to certain rent escalation provisions. The Company believes that its present facilities are suitable and adequate for its reasonably foreseeable growth.
The following is a summary of selected consolidated financial data relating to the Company. This summary has been restated to present the businesses sold as discontinued 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.
Average loans receivable $45,394,000 $31,618,000 ----------- ----------- Average debt 37,629,000 30,906,000 ----------- -----------
Interest expense for the year ended December 31, 1996 of $3,990,000 was related to the non-prime automobile financing business and the debt outstanding under the Company's senior credit facilities ($18.1 million as of December 31, 1996), securitized notes ($31.6 million as of December 31, 1996) and subordinated debt ($10.2 million as of December 31, 1996).
continuing value and, accordingly, has taken a charge against operations as of December 31, 1996 of $11,193,000. Furthermore, the Company recorded additional credit losses of $8,100,000 on the acquired automobile receivables and has determined that an additional provision for losses of $5,251,000 is necessary to provide for the anticipated credit losses associated with automobile receivables purchased from CFAW and other dealers during 1996, respectively. These are non-cash charges to income which do not have a direct adverse effect on the Company's liquidity.
1996 1996 1995 1995 ------------- --------- ------------ ------- Amount % Amount % ------------- --------- ------------ ------- 60 to 89 days delinquent $3,290,000 4.1% $2,071,000 4.7% 90 days or more delinquent 1,739,000 2.2% 1,387,000 3.1%
Income from continuing operations before taxes for the seven month period ended December 31, 1995 was $385,000. The income tax benefit for the seven month period ended December 31, 1995 was $176,000. The Company recorded a tax benefit as a result of a substantial portion of its investment income being derived from instruments exempt from federal taxation.
Loss from discontinued operations for the seven month period ended December 31, 1995 was $28,000 and was related solely to the operations of the Company's insurance inspection services business sold in July 1995.
The gain on sale of discontinued operations for the period ended December 31, 1995 was $297,000 and was related solely to the sale of the Company's insurance inspection services business in July 1995.
Preferred stock investment write-off for the year ended May 31, 1995 was $1,804,000. As a result of the sale of the Company's businesses providing computerization and communication services to the automotive industry, the lack of synergistic business opportunity and the inability to remit management fees and preferred stock dividends as they became due, the Company has written off its preferred stock investment in ComputerLogic, Inc. (See Note 6 to the Consolidated Financial Statements)
During the year ended May 31, 1995, increased competition had an adverse impact on the sale of computer systems and the results of operations.
In October 1996, the Company issued $36.3 million of securitized notes backed by $40.3 million of automobile receivables to a group of institutional investors in a private placement transaction. These notes were issued in two classes, $ 34.3 million of 6.53% Class "A" notes rated "AAA" by Standard & Poor's Rating Group and "Aaa" by Moody's Investors Service and $ 2.0 million of 11.31% Class "B" notes rated "BB" by Standard & Poor's Rating Group. The Class "A" notes were credit enhanced with an insurance policy issued by MBIA Insurance Corporation. The proceeds from the securitization were used to fund Cash Reserve accounts ($5.6 million) and the balance was used to reduce the amount outstanding under the Company's Senior Credit facility. Among other provisions, the notes require the maintenance of certain performance standards with respect to the portfolio of loan contracts securitized and certain overall financial consideration of the Company as a whole, including not realizing a net loss from operations in any two consecutive quarters and maintenance of minimum tangible net worth, as defined, of $7 million. At December 31, 1996, the Company had approximately $7.7 million of tangible net worth and was in compliance with all other covenants. The Company expects to maintain compliance with these covenants through 1997 and beyond.
In December 1996, the Company entered into a financing agreement with a lender which provides for a $100 million line of credit to be used for the funding of the acquisition of non-prime automobile receivables. This facility provides for borrowings at LIBOR plus 300 basis points and replaced the Company's existing $42 million facility. Among other provisions, this facility requires the Company to maintain tangible net worth, as defined, of $10 million and is cancelable in the event of a material adverse change in the Company's business. At December 31, 1996, the Company had approximately $10.3 million of tangible net worth and was in compliance with all other covenants. The Company expects to maintain compliance with these covenants through 1997 and beyond.
The Company's liquid assets amounted to $9.2 million as of December 31, 1996. In addition, the Company has $6.4 million in Restricted Cash Reserve accounts established pursuant to the Indenture Agreement executed in conjunction with the issuance of Securitized Notes issued pursuant to the Private Placement Memorandum dated October 11, 1996.
1996 1995 ---- ---- Weighted Weighted Average Average Balance Rate Balance Rate ------- ---- ------- ---- Revolving lines of $18.1 8.75% $20.7 9.75% credit Automobile receivable $31.6 6.75% - - backed notes Subordinated debt $10.2 11.75% $12.0 12.05%
The Company is primarily engaged in the acquisition of automobile receivables. It finances this acquisition program through the utilization of available lines of credit and other forms of debt. Accordingly, an increase in the cost of borrowing could adversely impact the results of operations by impacting the spread between interest earned on existing automobile receivables and the cost of borrowings which, to some degree, are variable. Inflation and changing prices had no material impact on revenues or the results of operations for the year ended December 31, 1996.