National Auto Credit Announces Financial Results for Fiscal 1998 and 1999
30 July 1999
National Auto Credit Announces Financial Results for Fiscal 1998 and 1999; Reports Losses for Two Prior Fiscal Years and Restatement of Previously Issued Results
SOLON, Ohio, July 29 -- National Auto Credit, Inc.
(OTC Bulletin Board: NAKD) today announced financial results for its fiscal
years ended January 31, 1998 and 1999, and the restatement of previously
issued results for fiscal years 1995, 1996 and 1997.
National Auto Credit (NAC) hired the independent accounting firm of Grant
Thornton LLP in 1998 to re-audit its fiscal 1997 financial statements and to
audit the statements for fiscal 1998 and 1999. The audit report of Grant
Thornton LLP was unqualified but did indicate that "substantial doubt about
the company's ability to continue as a going concern" exists as the result of
the company's fiscal 1998 and 1999 losses, its lack of debt financing, pending
stockholder litigation and regulatory investigations.
NAC's previously released financial statements have been restated to
reflect the following:
* the provision for credit losses for fiscal 1997 was increased to
$40,855,000 from $11,005,000 as previously reported for that period, to
reflect the use of corrected information and a refinement of its
credit-loss estimation methods;
* the provision for self-insurance claims in fiscal 1997 was decreased by
$7,880,000 for losses paid in that fiscal period, but which should have
been reserved for in fiscal 1996;
* the fiscal 1997 charge relating to the settlement of an employee class-
action lawsuit concerning overtime pay was reduced by $3,000,000 to
accrue that additional portion of the loss as having been probable by
the end of fiscal 1996;
* additional adjustments, totaling a net of $381,000, were made to
correct other errors, including reporting the loss on certain Florida
real estate in fiscal 1997, rather than in the first quarter of fiscal
1998, as previously reported;
* the income tax provision for fiscal 1997 was reduced by $7,221,000 to
reflect the tax effects of the adjustments previously outlined; and
* stockholders' equity as of the beginning of fiscal 1997 was decreased
by $10,154,000 to reflect corrections to fiscal 1995 and 1996 related
to foreign currency accounting, the accrual of the additional self-
insurance claims in fiscal 1996 and the accrual of the additional
employee litigation cost in fiscal 1996.
For the fiscal year ended January 31, 1997, the company's restated net
income totaled $7,171,000, or $0.25 per share, on revenues of $63,872,000.
Income from continuing operations, as restated, was $7,568,000, or $0.26 per
share.
For the fiscal year ended January 31, 1998, NAC incurred a net loss of
$91,684,000, or $3.21 per share, primarily due to a 43.0 percent decline in
revenues and an increase in the provision for credit losses to $116,049,000.
The loss from continuing operations was $85,711,000, or $3.00 per share.
For the fiscal year ended January 31, 1999, NAC reported a net loss of
$15,615,000, or $0.55 per share, as revenues declined 55.3 percent to
$16,279,000, due primarily to a reduction in the size of the company's loan
portfolio. The company did not obtain any new debt financing in 1999. The
company financed its operation and the repayment of $83,838,000 of outstanding
bank and subordinated note debt with the cash flows from the collections on
installment loans and a $52,079,000 refund of previously paid income taxes
generated by the carryback of its 1998 losses. Cash flows from the
collections on installment loans produced a $79,734,000 net reduction in the
size of the loan portfolio. During the year, the company incurred $9,585,000
in costs associated with the stockholder litigation, regulatory
investigations, internal investigations and management changes that commenced
after the January 1998 resignation of Deloitte & Touche LLP as the company's
independent auditors.
"These financial results have been long in coming, but it was important to
ensure the information was thoroughly reviewed so that a solid foundation
exists to build upon going forward," said Allen D. Rice, president of NAC.
"We are committed to managing through this unfortunate situation, and that
includes continuing to focus on the business at hand while we also do all we
can to minimize any adverse impact of the pending stockholder litigation and
regulatory investigations.
"In the meantime, we want to get back to rebuilding the business and
increasing stockholder value," Rice added. He cautioned, however, that the
company is currently without financing to purchase new loans. "We continue to
pursue new debt or equity financing, but the pending litigation is making such
efforts difficult," he explained.
Rice said that progress is being made in stabilizing the affairs of the
company and ensuring the proper financial controls and reporting systems are
in place. He cited the formation of an internal audit function in July 1998
and the hiring of an internal auditor in October of that year.
"NAC's current cash balance of approximately $40 million, combined with
the cash flows from loan collections, are expected to be sufficient to pay
operating expenses, existing liabilities and to make some level of new loan
purchases over the next 12 months," Rice said.
The company said it expects to hold its annual meeting of stockholders on
Wednesday, September 15, 1999. The annual report and proxy are expected to be
mailed to all stockholders of record as of August 2, 1999.
National Auto Credit, Inc. is a specialized financial services company
which invests in sub-prime, used-automobile consumer loans and which take the
form of installment loans collateralized by the related vehicle. The company
purchases such loans from used-automobile dealerships that participate in the
company's loan purchase program. It also performs the underwriting and
collections functions for all the loans purchased. NAC's operations enable
these dealers to provide financing to customers who have limited access to
more traditional consumer credit sources or might otherwise be unable to
obtain financing.
This press release may include statements that constitute forward-looking
statements, usually containing the words "believe," "estimate," "project,"
"expects," or similar expressions. These statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements inherently involve risks and uncertainties
that could cause actual results to differ materially from the forward-looking
statements. By making these forward-looking statements, the Company
undertakes no obligation to update these statements for revisions or changes
after the date of this press release.
(see selected financial data tables)
National Auto Credit, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
January 31,
1999 1998
ASSETS
Cash and cash equivalents $32,109 $4,682
Installment loans, net 70,401 152,447
Property and equipment, net of
accumulated depreciation
of $5,262 and $7,188, respectively 8,558 8,615
Affordable housing investments 10,270 10,034
Income taxes refundable 3,295 54,877
Other assets 2,659 3,459
TOTAL ASSETS $127,292 $234,114
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Self-insurance claims $4,880 $9,144
Notes payable -- 83,838
Accrued income taxes 6,510 5,955
Other liabilities 16,126 19,887
Total 27,516 118,824
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock - $.05 par value,
authorized 2,000,000 shares,
none issued -- --
Common stock - $.05 par value,
authorized 40,000,000 shares, issued
29,982,512 and 29,906,112 shares,
respectively 1,500 1,495
Additional paid-in capital 166,168 166,072
Retained deficit (55,789) (40,174)
Treasury stock, at cost,
1,345,968 shares (12,103) (12,103)
Total 99,776 115,290
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $127,292 $234,114
National Auto Credit, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Years Ended January 31,
1999 1998 1997
(Restated)
REVENUE
Interest income $15,322 $35,304 $56,573
Fees and other income 957 1,092 7,299
Total 16,279 36,396 63,872
COSTS AND EXPENSES
Provision for credit losses 2,961 116,049 40,855
Operating 11,078 13,527 5,501
General and administrative 4,938 5,746 5,167
Litigation and non-recurring
charges 9,585 7,645 --
Interest 3,726 6,298 2,713
Total 32,288 149,265 54,236
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES (16,009) (112,869) 9,636
Provision (benefit) for
income taxes 56 (27,158) 2,068
(LOSS) INCOME FROM
CONTINUING OPERATIONS (16,065) (85,711) 7,568
DISCONTINUED OPERATIONS,
NET OF TAX 450 (5,973) (397)
NET (LOSS) INCOME $(15,615) $(91,684) $7,171
BASIC AND DILUTED (LOSS)
EARNINGS PER SHARE
Continuing operations $(0.56) $(3.00) $0.26
Discontinued operations 0.01 (0.21) (0.01)
Net (loss) earnings
per share $(0.55) $(3.21) $0.25
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (000's)
Basic 28,609 28,542 28,501
Diluted 28,609 28,542 28,621
National Auto Credit, Inc.
Installment Loans, Net
(in thousands)
Gross Credit Allowance Installment
Finance Unearned Loss for Credit Loans,
Receivable Income Discount Losses Net
Balance,
January 31, 1996 $299,215 $(53,833) $-- $(23,284) $222,098
Purchases 264,548 (71,582) -- -- 192,966
Cash collected (148,971) -- -- -- (148,971)
Charge-offs (14,847) 9,965 -- 4,882 --
Provision for
credit losses -- -- -- (40,855) (40,855)
Interest income 13,598 42,975 -- -- 56,573
Reclassification -- 28,810 (28,810) -- --
Dealer fees charged 5,737 -- -- (4,050) 1,687
Balance,
January 31, 1997 419,280 (43,665) (28,810) (63,307) 283,498
Purchases 177,449 (31,838) (20,383) -- 125,228
Cash collected (166,216) -- -- -- (166,216)
Charge-offs (160,823) -- 33,938 126,885 --
Provision for
credit losses (a) -- -- -- (116,049) (116,049)
Interest income -- 35,304 -- -- 35,304
Reclassification -- 19,665 (19,665) -- --
Dealer fees charged -- -- -- (9,318) (9,318)
Balance,
January 31, 1998 269,690 (20,534) (34,920) (61,789) 152,447
Purchases 44,349 (1,840) (15,316) -- 27,193
Cash collected (120,934) -- -- -- (120,934)
Charge-offs (77,632) -- 29,046 48,586 --
Provision for
credit losses -- -- -- (2,961) (2,961)
Interest income -- 15,322 -- -- 15,322
Reclassification -- -- -- -- --
Dealer fees charged -- -- -- (666) (666)
Balance,
January 31, 1999 $115,473 $(7,052) $(21,190) $(16,830) $70,401
(a) Includes $41,667,000 attributable to the effects of utilizing
discounting as of February 1, 1997, in the determination of the
allowance for credit losses.