10-Q 1 v67160e10-q.txt FORM 10-Q 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 2000. ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ______________ COMMISSION FILE NUMBER: 001-11815 CENTRAL FINANCIAL ACCEPTANCE CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 95-4574983 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number)

5480 EAST FERGUSON DRIVE COMMERCE, CALIFORNIA 90022 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (323) 720-8600 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 November 14, 2000: 7,166,000 2 CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES FORM 10-Q INDEX

2 3 PART 1. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

(1) Represents 111,000 and 100,000 treasury shares at September 30, 2000 and December 31, 1999, respectively. The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(1) Taxes applicable to discontinued operations in the three and nine months ended September 30, 1999 were $582,000 and $2,365,000, respectively. The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS The accompanying Condensed Consolidated Financial Statements of Central Financial Acceptance Corporation ("CFAC" or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to 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 only normal recurring adjustments, considered necessary for a fair presentation of the Company's financial condition and operating results for the interim periods presented herein have been included. Operating results for the periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for any subsequent period or for the year ended December 31, 2000. These interim financial statements should be read in conjunction with the Annual Report filed on Form 10-K for the year ended December 31, 1999, as amended by Form 10-K/A filed with the Securities and Exchange Commission on April 26, 2000 and the audited financial statements and notes contained therein. CFAC is a majority owned subsidiary of West Coast Private Equity Partners ("West Coast"). Banner Central Electric, Inc. ("Banner"), which is also wholly owned by West Coast, is a consumer products retailer that provides its customers with financing for the merchandise it sells. Nature of Operations - The Company primarily provides discount travel services, including airline tickets and other travel products to the leisure traveler. The travel product offerings are available primarily through the Company's retail stores in California, Arizona, Illinois, Nevada and Texas. In July 1999, the Company broadened its ticket distribution by (1) opening a toll-free telephone reservation and customer service center and (2) offering airline ticket prices over the Internet at "www.4GreatFares.com" and "www.VuelaBarato.com." The Company's reservation center and customer service center are located at the Company's corporate headquarters. Discontinued Operations - On December 1, 1999, the Company announced that its Board of Directors had approved a plan to discontinue its consumer finance business in order to focus its efforts on its Internet and travel business (see Note 3). Accordingly, the consumer finance business has been classified as discontinued operations in the Condensed Consolidated Financial Statements for all periods presented. The discontinued operations include (1) the purchase and servicing of consumer finance receivables generated by the Company's customers for purchases of high quality brand name consumer products, appliances and furniture sold by Banner, and by independent retailers; (2) providing small unsecured loans to its customers; (3) originating and servicing consumer finance receivables generated by the Company's customers for purchases of airline tickets; (4) providing insurance products and insurance premium financing for its customers; (5) providing financing for purchases of used automobiles sold by Banner through May 30, 1997 and by third parties; (6) providing income tax preparation services through December 31, 1999; (7) providing check cashing services and mortgage loan financing for its customers; and (8) the purchasing of consumer product inventory which it holds under a consignment arrangement until sold by Banner. Substantially all of the Company's discontinued operations are focused in Southern California. On October 2, 2000, the Company's Board of Directors and stockholders owning a majority of the outstanding common stock approved a Plan of Complete Dissolution, Liquidation and Distribution (the "Plan"), under which the operations of CFAC will be separated into two subsidiaries: Hispanic Express, Inc. and Banner Central Finance Company, whose outstanding common shares will be distributed to each CFAC shareholder on a yet to be determined liquidation date. 6 7 CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In connection therewith, CFAC has submitted to the Securities and Exchange Commission (the "SEC") an Information Statement covering pertinent business and financial information required to be filed prior to CFAC effecting its dissolution and liquidation, and making the distribution of the common stock of these two subsidiaries to its stockholders. Upon receiving appropriate clearance from the SEC, CFAC will determine the liquidation date under the Plan. Hispanic Express, Inc. has been formed to operate CFAC's travel and small loan businesses, while Banner Central Finance Company has been formed to operate CFAC's mortgage origination business and to purchase consumer receivables which are generated from the sale of consumer products sold by Banner. The Board of Directors decided to adopt the Plan as part of CFAC's continuing objective of enhancing long term shareholder value. The Board of Directors has the ability to abandon, defer or modify the Plan any time prior to the Plan's consummation, should other considerations, including the sale of CFAC's consumer finance business arise. Use of Estimates - The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions. Such estimates and assumptions effect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications - Certain reclassifications have been made to previously reported amounts to conform to the current year presentation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES See Note 2 of Notes to the Consolidated Financial Statements in the Company's Annual Report filed on Form 10-K for the year ended December 31, 1999, as amended, for a summary of significant accounting principles. 3. DISCONTINUED OPERATIONS In accordance with Accounting Principles Board Opinion ("APB") No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the Company has presented its consumer finance business as a discontinued operation for all periods presented. Accordingly, the revenues, costs and expenses, assets and liabilities, and cash flows of these discontinued operations have been excluded from the respective captions in the Condensed Consolidated Financial Statements and have been presented in the Condensed Consolidated Statements of Income as "Income from operations of discontinued operations, net of applicable taxes," in the Condensed Consolidated Balance Sheets as "Net assets of discontinued operations," and in the Condensed Consolidated Statements of Cash Flows as "Net cash provided by (used in) discontinued operations," for all periods presented. Management believes that the net assets of discontinued operations represents a reasonable estimate of the net realizable value of such businesses. This estimate is subject to change based on market conditions, interest rates and other factors that could cause the ultimate amount to be significantly different. 7 8 CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. EARNINGS PER SHARE The following table presents a reconciliation of basic earnings per share and diluted earnings per share. Options to purchase 585,000 shares of common stock at prices ranging from $5.00 to $12.00 per share were outstanding at September 30, 2000. Options to purchase 777,000 shares of common stock at prices ranging from $5.00 to $12.00 per share were outstanding at September 30, 1999. No options were included in the computation of diluted earnings per share in the three or nine months ended September 30, 2000 and 1999 because the effect would be anti-dilutive.

8 9 CENTRAL FINANCIAL ACCEPTANCE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PURCHASE OF LEASEHOLD INTERESTS During 1999, the Company expanded its travel business through the purchase and assumption of 24 leased PanAmericana Travel Systems travel stores located primarily in Southern California, 10 leased TurAmerica Travel Systems stores located in Central California and 4 leased travel locations from Viajes Latinos Travel located in the Dallas/Ft. Worth area. The aggregate purchase price for the leasehold interests was approximately $5.0 million and has been accounted for under the purchase method of accounting, and the results of these new travel offices have been included in operations since the date the Company assumed the leases. 6. RELATED PARTY TRANSACTIONS The financial services segment of the discontinued operations has provided financing to customers purchasing airline tickets from the Company's travel business. Such tickets financed during the three and nine months ended September 30, 2000 were $2.6 million and $7.3 million, respectively. Such tickets financed during the three and nine months ended September 30, 1999 were $2.6 million and $7.1 million, respectively. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain matters discussed in this Quarterly Report on Form 10-Q may constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which Central Financial Acceptance Corporation and its subsidiaries (the "Company" which may be referred to as "we" or "us," when referring only to the parent company) operate in, projections of future performance, perceived opportunities in the market and statements regarding our mission and vision. Our actual results, performance, or achievements may differ significantly from the results, performance, or achievements expressed or implied in such forward-looking statements. For discussion of the factors that might cause such a difference, see "Item 1. Business -- Business Considerations and Certain Factors that May Affect Future Results of Operations and Stock Price" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, as amended. The following tables summarize the results of operations of the Company for the three and nine months ended September 30, 2000 and 1999:

10 11

THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999. NET REVENUES Net revenues for the three months ended September 30, 2000 from travel stores, wholesale operations, and Internet and call center operations were $4.0 million, $0.1 million, and $0.1 million as compared to $4.4 million, $0.2 million, and $0.0 for the three months ended September 30, 1999, respectively. Net revenues from travel stores for the three months ended September 30, 2000 decreased $0.4 million, or 8.2%, to $4.0 million from $4.4 million for the same period in 1999. The decrease in net revenues in the three months ended September 30, 2000 was primarily due to a decrease in airline ticket sales and override commissions earned in 2000 as compared to the same period in 1999. The commission rate earned on airline tickets sold at the Company's retail stores in 2000 decreased to 11.4% from 12.0% in 1999. The decrease in commission rate was primarily the result of a decrease in override commissions for the three months ended September 30, 2000 as compared to the same period in 1999. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses for the three months ended September 30, 2000 increased $0.4 million, or 14.4% to $3.3 million from $2.9 million for the same period in 1999. The increase in selling and administrative expenses is primarily due to the operation of 14 travel stores in 2000 resulting from the purchase and assumption of leases of new travel stores in the third and fourth quarters of 1999. Selling and administrative expenses as a percentage of net revenues increased to 78.4% in the three months ended September 30, 2000 from 62.9% in the three months ended September 30, 1999. 11 12 ADVERTISING Advertising expenses for the three months ended September 30, 2000 decreased $0.1 million, or 27.6% to $0.2 million from $0.3 million for the same period in 1999. The decrease in advertising expenses in the three months ended September 30, 2000 was primarily due to the Company's decision to scale back the operations of its Internet and call center. Advertising expenses as a percentage of net revenues decreased to 4.6% in the three months ended September 30, 2000 from 5.9% in the three months ended September 30, 1999. OCCUPANCY COSTS The Company's occupancy costs includes costs such as rental expense, common area maintenance, insurance, and property and real estate taxes for the Company's travel stores. Occupancy costs for the three months ended September 30, 2000 and 1999 were $0.6 million. Occupancy costs as a percentage of net revenues increased to 14.0% in the three months ended September 30, 2000 from 12.1% in the three months ended September 30, 1999. DEPRECIATION AND AMORTIZATION Depreciation and amortization expenses for the three months ended September 30, 2000 and 1999 were $0.2 million. Depreciation and amortization expenses as a percentage of net revenues increased to 4.7% in the three months ended September 30, 2000 from 3.9% in the three months ended September 30, 1999. INCOME (LOSS) FROM CONTINUING OPERATIONS Loss from continuing operations for the three months ended September 30, 2000 was $0.0 million, compared to income from continuing operations of $0.4 million in the three months ended September 30, 1999. The decrease in income from continuing operations of $0.4 million in the three months ended September 30, 2000 was primarily the result of a decrease in airline ticket sales and override commissions earned in 2000 as compared to the same period in 1999. Loss from continuing operations as a percentage of net revenues was 1.0% in the three months ended September 30, 2000 as compared to income from continuing operations of 9.3% in the three months ended September 30, 1999. NET INCOME (LOSS) Net loss for the three months ended September 30, 2000 was $0.0 million, compared to net income of $1.3 million for the three months ended September 30, 1999. The decrease in net income of $1.3 million is primarily the result of a decrease in income from continuing operations of $0.4 million, as explained above, and a decrease in net income of $0.9 million from discontinued operations. In accordance with APB No. 30, the Company has not recorded any income from discontinued operations in the three months ended September 30, 2000, as such income has previously been estimated and recorded as an offset to the estimated loss on disposal of discontinued operations in the Company's Consolidated Statements of Income for the year ended December 31, 1999 in connection with the Company's decision to sell its consumer financial services business. NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999. NET REVENUES Net revenues for the nine months ended September 30, 2000 from travel stores, wholesale operations and Internet and call center operations were $10.5 million, $0.5 million, and $0.2 million as compared to $9.7 million, $0.5 million, and $0.0 for the nine months ended September 30, 1999, respectively. Net revenues from travel stores for the nine months ended September 30, 2000 increased $0.8 million, or 8.1%, to $10.5 million from $9.7 million for the same period in 1999. The increase in net revenues in the nine months ended September 30, 2000 was primarily due to an increase in service charges and an increase in net revenues from the operation of 38 travel stores in 2000 resulting from the purchase and assumption of leases of new travel stores at various times throughout 1999, offset by a decrease in override commissions earned in 2000. The commission rate earned on airline tickets sold at the Company's retail stores was 10.5% in the nine months ended September 30, 2000 as compared to 10.8% in the nine months ended September 30, 1999. 12 13 SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses for the nine months ended September 30, 2000 increased $2.2 million, or 31.2% to $9.4 million from $7.2 million for the same period in 1999. Of this $2.2 million increase, $1.6 million reflects the increase in selling and administrative expenses from the operation of 38 travel stores in 2000 resulting from the purchase and assumption of leases of new travel stores at various times during 1999. The remaining increase of $0.6 million is primarily the result of an increase in Internet and call center operating expenses which commenced operation in July 1999, offset by a decrease in corporate overhead. Selling and administrative expenses as a percentage of net revenues increased to 84.0% in the nine months ended September 30, 2000 from 69.8% in the nine months ended September 30, 1999. ADVERTISING Advertising expenses for the nine months ended September 30, 2000 increased $0.8 million, or 154.4% to $1.3 million from $0.5 million for the same period in 1999. The increase in advertising expenses in the nine months ended September 30, 2000 was primarily due to an advertising campaign launched by the Company to increase the brand awareness of the Company's Internet websites "VuelaBarato.com" and "4GreatFares.com" during the first six months of fiscal 2000. Advertising expenses as a percentage of net revenues increased to 11.2% in the nine months ended September 30, 2000 from 4.8% in the nine months ended September 30, 1999. OCCUPANCY COSTS The Company's occupancy costs includes costs such as rental expense, common area maintenance, insurance, and property and real estate taxes for the Company's travel stores. Occupancy costs for the nine months ended September 30, 2000 increased $0.4 million, or 24.2% to $1.8 million from $1.4 million for the same period in 1999. The increase in occupancy costs in the nine months ended September 30, 2000 was primarily due to the operation of 38 travel locations resulting from the purchase and assumption of leases of new travel stores at various times throughout 1999. Occupancy costs as a percentage of net revenues increased to 15.8% in the nine months ended September 30, 2000 from 13.9% in the nine months ended September 30, 1999. DEPRECIATION AND AMORTIZATION Depreciation and amortization expenses for the nine months ended September 30, 2000 increased $0.1 million, or 28.3% to $0.5 million from $0.4 million for the same period in 1999. The increase in depreciation and amortization expenses was primarily the result of the purchase and assumption of leases of 38 new travel stores at various times throughout 1999. Depreciation and amortization expenses as a percentage of net revenues increased to 4.8% in the nine months ended September 30, 2000 from 4.1% in the nine months ended September 30, 1999. INCOME (LOSS) FROM CONTINUING OPERATIONS Loss from continuing operations for the nine months ended September 30, 2000 was $1.1 million, compared to income from continuing operations of $0.5 million in the nine months ended September 30, 1999. The decrease in income from continuing operations of $1.6 million in the nine months ended September 30, 2000 was primarily the result of losses due to the Company's Internet and call center operations which commenced operations in July 1999. Loss from continuing operations as a percentage of net revenues was 15.8% in the nine months ended September 30, 2000 as compared to income from continuing operations of 7.4% in the nine months ended September 30, 1999. NET INCOME (LOSS) Net loss for the nine months ended September 30, 2000 was $1.1 million, compared to net income of $4.0 million for the nine months ended September 30, 1999. The decrease in net income of $5.1 million is primarily the result of a decrease in income from continuing operations of $1.6 million, as explained above, and a decrease in net income of $3.5 million from discontinued operations. In accordance with APB No. 30, the Company has not recorded any income from discontinued operations in the nine months ended September 30, 2000, as such income has previously been estimated and recorded as an offset to the estimated loss on disposal of discontinued operations in the Company's Consolidated Statements of Income for the year ended December 31, 1999 in connection with the Company's decision to sell its consumer financial services business. 13 14 LIQUIDITY AND CAPITAL RESOURCES Continuing Operations We primarily finance our continuing operations through the cash flow generated from operations and existing cash balances. Net cash provided by continuing operations totaled $0.7 million during the nine months ended September 30, 2000. During this period the primary source of net cash provided by operating activities was changes in accrued expenses and other current liabilities. Net cash provided by continuing operations totaled $6.6 million during the nine months ended September 30, 1999. During this period the primary source of net cash provided by operating activities was from changes in accrued expenses and other current liabilities, changes in notes receivable from affiliates and income tax receivables. In the nine months ended September 30, 2000, cash flows provided by the operating activities of continuing operations totaled $0.7 million and together with existing cash balances funded capital expenditures of $0.9 million. Net cash provided by discontinued operations totaled $0.2 million during the nine months ended September 30, 2000. In the nine months ended September 30, 1999, cash flows provided by the operating activities of continuing operations totaled $6.6 million. Cash used in investing activities included the purchase and assumption of leases of new travel stores in the amount of $4.0 million and capital expenditures of $1.2 million. Net cash by used by financing activities to purchase treasury stock totaled $0.7 million during the nine months ended September 30, 1999. Net cash used by discontinued operations totaled $3.1 million during the nine months ended September 30, 1999. Our continuing operations generate sufficient capital to fund their ongoing operating activities. Capital expenditures for renewals and betterments for our ongoing operations can be met from the Company's existing operating cash flows. However, development of our Internet business will require substantial capital to support advertising, systems development and expansion. Additional expansion of the Company's network of travel agencies and continued development of our Internet business will require substantial capital and is expected to be funded through the sale of our discontinued operations. Discontinued Operations Our discontinued operations are funded with cash flow from operations and with borrowings under our Credit Agreement. On August 11, 2000, a new credit agreement was entered into with several banks and Union Bank of California, N.A. as Agent ("Union Bank Line of Credit) that provides for the issuance of notes up to $55,000,000 subject to an allowable borrowing base. Our previous line of credit with several banks and Wells Fargo Bank National Association, as Agent, was repaid on August 11, 2000. The amount outstanding under the Union Bank Line of Credit, including $0.6 million of Letters of Credit outstanding totaled $25.6 million at September 30, 2000 and are included in net assets of discontinued operations in the Consolidated Condensed Balance Sheet. The amount of unused credit under the facility was limited by the allowable borrowing base and was approximately $8.3 million at September 30, 2000. Borrowings under the Union Bank Line of Credit are limited to 70% of eligible receivable contracts as defined in the credit agreement. Substantially all of the assets and stock of Central Consumer Finance Company ("CCFC"), a wholly owned subsidiary of the Company, has been pledged as collateral for amounts borrowed under the Union Bank Line of Credit. The Union Bank Line of Credit requires, among other things, that the Company maintain specific financial ratios and satisfy certain financial covenants with respect to CCFC and restricts, among other things, CCFC's ability to incur additional indebtedness, pay dividends, make certain restricted payments or consummate certain asset sales. Interest on the Union Bank Line of Credit is determined at the Company's option, equal to either, (a) 87.5 basis points above the higher of the prime rate Union Bank of California announces or the federal funds rate plus 50 basis points or (b) 225 basis points above the interest rate per annum at which Union Bank of California offers deposits in dollars to prime banks in the London Eurodollar market. YEAR 2000 ISSUE Subsequent to the end of 1999, the Company's systems and operations are fully functioning and have not experienced any significant issues related to the Year 2000. While the Company is encouraged by the results of its Year 2000 efforts, monitoring for any potential problems will continue throughout 2000. The travel systems utilized to conduct business are provided to each of our travel stores and our Internet business through global distribution systems (GDS), operated by Sabre, Amadeus and Worldspan. Sabre, Amadeus and 14 15 Worldspan are world leaders in the electronic distribution of travel-related products and services. GDS systems provide us with electronic booking systems and databases containing flight schedules and availability, and published fares information for approximately 400 airlines located throughout the world. We have received assurances from the GDS's that their systems are Year 2000 compliant and have noted no problems to date. Although the Company does not believe any continued exposure exists for its operations, the Company has a contingency plan for possible Year 2000 issues and will continue to update these plans based on assessments of any subsequent Year 2000 issues as additional information becomes available. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The following risk management discussions contain forward-looking statements concerning certain adverse market conditions that may occur. Actual results in the future may differ materially from these projected results due to changes in our debt mix and developments in the global financial markets. We derive substantially all of our revenue from continuing operations from a combination of: (1) sales of discounted air fares; (2) commissions on published fares for both domestic travel in the United States and travel to Latin America; and, (3) performance-based compensation referred to as "override commissions." We depend on our established airline relationships for access to non-published fares; however, we have no long-term or exclusive contracts. Our business could be hurt if the airlines we do business with (1) refuse to renew our contracts for non-published fares; (2) renew the contracts on less favorable terms; or (3) cancel our contracts. Non-published fares are tickets we acquire from the airlines and resell to our customers at discounts off published fares. We have contracts with 11 airlines that permit us to acquire non-published fares. These contracts are typically for a short period, are cancelable upon short notice and do not require the airlines to provide us with a specific quantity of tickets or deal with us exclusively. A significant portion of our revenue depends on commissions paid on published fares and override commissions paid to us by the airlines for bookings made through our travel stores and Internet sites. The airlines we do business with are not obligated to pay any specific commissions, or to pay commissions at all. Most recently, there has been a general trend by the airlines to reduce commissions paid to travel agents in order to reduce their distribution costs and many travel industry experts believe that airlines will eliminate all commissions in the near future. In response to these changes, many travel agencies, including us, have begun to charge service fees to their customers. Although our domestic travel business has been subject to the same downward trends on commission rates, our commission rates on tickets to Latin America, which account for 75% of our travel business, have not been subject to these general trends. From time to time, however, certain airlines have reduced commission rates on Latin American routes, but have generally reinstated them in order to meet competitive conditions. While we believe that the pressure on airlines to reduce their distribution costs will continue and eventually effect our present Latin American commission rates, we believe this trend will be implemented by the airlines more slowly, because our travel stores represent the airlines' primary distribution channel to Hispanics living in the United States. Despite this, we have begun to charge service fees in certain markets where commissions have been reduced and are prepared to introduce service charges throughout all of our travel stores should conditions warrant it. A large percentage of our travel business depends upon a limited number of airlines and our business could be hurt if any of these carriers temporarily curtail operations, are shut down, or go out of business. In November of 1999, Taesa Airlines, one of the major Mexican carriers, was shut down by the Mexican government and eventually was declared bankrupt. The suspension and ultimate cessation of Taesa Airlines had a significant adverse effect on our operations in the first quarter of 2000. Results will continue to be adversely impacted in 2000 until the Taesa route system is absorbed by other carriers. In response to the cessation of Taesa, Mexicana and Aeromexico, which are controlled by a common parent, reduced commissions on routes from Tijuana to other parts of Mexico. To offset this decline in commissions, we have begun to charge our customers a service charge. 15 16 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K None 16 17 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. CENTRAL FINANCIAL ACCEPTANCE CORPORATION November 14, 2000 /s/ Gary M. Cypres ----------------------------------------- Gary M. Cypres Chairman of the Board November 14, 2000 /s/ Howard Weitzman ----------------------------------------- Howard Weitzman Chief Financial Officer November 14, 2000 /s/ Wanda Anesh ----------------------------------------- Wanda Anesh Controller 17

CENTRAL FINANCIAL ACCEPTANCE CORP 10-Q