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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 MARCH 31, 2008
COMMISSION FILE NUMBER: 0-51027
CONSUMER PORTFOLIO SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
California 33-0459135
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
16355 Laguna Canyon Road, Irvine, California 92618
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 753-6800
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT: N/A
Indicate by check mark whether the registrant (1) 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 [ ]
Indicate by check mark whether the registrant is a large accelerated filer or a
non-accelerated filer. See definition of "accelerated filer and large
accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated Filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of April 22, 2008 the registrant had 18,958,300 common shares outstanding.
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CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2008 and
December 31, 2007...............................................................................3
Unaudited Condensed Consolidated Statements of Operations for the three-month
periods ended March 31, 2008 and 2007 ..........................................................4
Unaudited Condensed Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 2008 and 2007...........................................................5
Notes to Unaudited Condensed Consolidated Financial Statements..................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................................15
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................24
Item 4. Controls and Procedures.........................................................................24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................26
Item 1A. Risk factors....................................................................................26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.....................................26
Item 6. Exhibits........................................................................................26
Signatures......................................................................................................27
2
ITEM 1. FINANCIAL STATEMENTS
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, DECEMBER 31,
2008 2007
----------- -----------
ASSETS
Cash and cash equivalents $ 18,508 $ 20,880
Restricted cash and equivalents 176,646 170,341
Finance receivables 2,026,726 2,068,004
Less: Allowance for finance credit losses (94,833) (100,138)
----------- -----------
Finance receivables, net 1,931,893 1,967,866
Furniture and equipment, net 1,504 1,500
Deferred financing costs, net 13,167 15,482
Deferred tax assets, net 58,845 58,835
Accrued interest receivable 21,400 24,099
Other assets 25,273 23,810
----------- -----------
$ 2,247,236 $ 2,282,813
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 15,828 $ 18,391
Warehouse lines of credit 367,955 235,925
Income taxes payable 19,032 17,706
Residual interest financing 90,000 70,000
Securitization trust debt 1,610,649 1,798,302
Subordinated renewable notes 28,405 28,134
----------- -----------
2,131,869 2,168,458
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value;
authorized 5,000,000 shares; none issued -- --
Series A preferred stock, $1 par value;
authorized 5,000,000 shares;
3,415,000 shares issued; none outstanding -- --
Common stock, no par value; authorized
30,000,000 shares; 19,035,804 and 19,525,042
shares issued and outstanding at March 31, 2008
and December 31, 2007, respectively 54,114 55,216
Additional paid in capital, warrants 794 794
Retained earnings 62,908 60,794
Accumulated other comprehensive loss (2,449) (2,449)
----------- -----------
115,367 114,355
----------- -----------
$ 2,247,236 $ 2,282,813
=========== ===========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
-------------------
2008 2007
-------- --------
REVENUES:
Interest income $ 99,362 $ 80,490
Servicing fees 428 282
Other income 3,511 5,723
-------- --------
103,301 86,495
-------- --------
EXPENSES:
Employee costs 13,482 10,804
General and administrative 7,346 5,969
Interest 39,034 28,646
Interest, related party -- 859
Provision for credit losses 34,909 29,489
Marketing 3,621 4,220
Occupancy 996 931
Depreciation and amortization 139 167
-------- --------
99,527 81,085
-------- --------
Income before income tax expense 3,774 5,410
Income tax expense 1,660 2,179
-------- --------
Net income $ 2,114 $ 3,231
======== ========
Earnings per share:
Basic $ 0.11 $ 0.15
Diluted 0.11 0.14
Number of shares used in computing
earnings per share:
Basic 19,297 21,526
Diluted 19,973 23,718
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
----------------------
2008 2007
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,114 $ 3,231
Adjustments to reconcile net income to net cash
provided by operating activities:
Write up on residual asset -- (2,480)
Amortization of deferred acquisition fees (4,304) (3,379)
Amortization of discount on Class B Notes 1,661 930
Depreciation and amortization 139 167
Amortization of deferred financing costs 2,478 1,926
Provision for credit losses 34,909 29,489
Stock-based compensation expense 342 257
Interest income on residual assets (197) (946)
Changes in assets and liabilities:
Accrued interest receivable 2,699 161
Other assets (1,266) 3,145
Tax assets (10) (1,191)
Accounts payable and accrued expenses (2,563) (1,786)
Tax liabilities 1,326 1,017
--------- ---------
Net cash provided by operating activities 37,328 30,541
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of finance receivables held for investment (176,090) (330,273)
Proceeds received on finance receivables held for investment 181,458 136,127
Increases in restricted cash and equivalents (6,306) (36,574)
Purchase of furniture and equipment (143) (86)
--------- ---------
Net cash used in investing activities (1,081) (230,806)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of securitization trust debt -- 287,423
Proceeds from issuance of subordinated renewable notes 1,457 4,568
Payments on subordinated renewable notes (1,186) (406)
Net proceeds from warehouse lines of credit 132,030 55,234
Proceeds (repayment) of residual interest financing debt 20,000 (3,215)
Repayment of securitization trust debt (189,313) (143,691)
Payment of financing costs (163) (3,626)
Repurchase of common stock (1,519) (428)
Tax benefit from exercise of stock options -- 94
Exercise of options and warrants 75 493
--------- ---------
Net cash provided by (used in) financing activities (38,619) 196,446
--------- ---------
Decrease in cash and cash equivalents (2,372) (3,819)
Cash and cash equivalents at beginning of period 20,880 14,215
--------- ---------
Cash and cash equivalents at end of period $ 18,508 $ 10,396
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 34,886 $ 26,378
Income taxes $ 344 $ 2,259
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We were formed in California on March 8, 1991. We specialize in purchasing and
servicing retail automobile installment sale contracts ("automobile contracts"
or "finance receivables") originated by licensed motor vehicle dealers located
throughout the United States ("dealers") in the sale of new and used
automobiles, light trucks and passenger vans. Through our purchases, we provide
indirect financing to dealer customers for borrowers with limited credit
histories, low incomes or past credit problems ("sub-prime customers"). We serve
as an alternative source of financing for dealers, allowing sales to customers
who otherwise might not be able to obtain financing. In addition to purchasing
installment purchase contracts directly from dealers, we have also (i) acquired
installment purchase contracts in three merger and acquisition transactions,
(ii) purchased immaterial amounts of vehicle purchase money loans from
non-affiliated lenders, and (iii) began lending money directly to consumers for
an immaterial amount of vehicle purchase money loans. In this report, we refer
to all of such contracts and loans as "automobile contracts."
BASIS OF PRESENTATION
Our Unaudited Condensed Consolidated Financial Statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, with the instructions to Form 10-Q and with Article 10 of Regulation
S-X of the Securities and Exchange Commission, and include all adjustments that
are, in our opinion, necessary for a fair presentation of the results for the
interim period presented. All such adjustments are, in our opinion, of a normal
recurring nature. In addition, certain items in prior period financial
statements may have been reclassified for comparability to current period
presentation. Results for the three-month period ended March 31, 2008 are not
necessarily indicative of the operating results to be expected for the full
year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted from these
Unaudited Condensed Consolidated Financial Statements. These Unaudited Condensed
Consolidated Financial Statements should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
included in our Annual Report on Form 10-K for the year ended December 31, 2007.
OTHER INCOME
Other income consists primarily of gains recognized on our Residual interest in
securitizations, recoveries on previously charged off CPS and MFN contracts and
fees paid to us by dealers for certain direct mail services we provide. The gain
recognized related to the residual interest was $40,000 and $2.5 million for the
three months ended March 31, 2008 and 2007, respectively. The recoveries on the
charged-off CPS and MFN contracts were $640,000 and $891,000 for the three
months ended March 31, 2008 and 2007, respectively. The direct mail revenues
were unchanged at $1.3 million for the same period in 2008 and 2007.
STOCK-BASED COMPENSATION
We recognize compensation costs in the financial statements for all share-based
payments granted subsequent to January 1, 2006 based on the grant date fair
value estimated in accordance with the provisions of Statement of Financial
Accounting Standards No. 123(R), "Share-Based Payment, revised 2004" ("SFAS
123R").
For the three months ended March 31, 2008, we recorded stock-based compensation
costs in the amount of $342,000. As of March 31, 2008, unrecognized stock-based
compensation costs to be recognized over future periods equaled $4.6 million.
This amount will be recognized as expense over a weighted-average period of 4.0
years.
The following represents stock option activity for the three months ended March
31, 2008:
6
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
WEIGHTED
NUMBER OF WEIGHTED AVERAGE
SHARES AVERAGE REMAINING
(IN THOUSANDS) EXERCISE PRICE CONTRACTUAL TERM
----------------- ------------------ -------------------
Options outstanding at the beginning of period 6,196 $ 4.47 N/A
Granted 565 3.18 N/A
Exercised (25) 1.50 N/A
Forefeited -- -- N/A
------ -------- ----------
Options outstanding at the end of period 6,736 $ 4.37 6.91 years
====== ======== ==========
Options exercisable at the end of period 4,518 $ 3.86 6.17 years
====== ======== ==========
At March 31, 2008, the aggregate intrinsic value of options outstanding and
exercisable was $1.7 million. The total intrinsic value of options exercised was
$28,000 and $554,000 for the three months ended March 31, 2008 and 2007,
respectively. New shares were issued for all options exercised during the
three-month periods ended March 31, 2008 and 2007. At our annual meeting of
shareholders held on June 26, 2007, the shareholders approved an amendment to
our 2006 Long-Term Equity Incentive Plan that increased the number of shares
issuable from 1,500,000 to 3,000,000. There were 195,000 shares available for
future stock option grants under existing plans as of March 31, 2008.
We use the Black-Scholes option valuation model to estimate the fair value of
each option on the date of grant, using the assumptions noted in the following
table. The expected term of options granted is computed as the mid-point between
the vesting date and the end of the contractual term. The risk-free rate is
based on U.S. Treasury instruments in effect at the time of grant whose terms
are consistent with the expected term of our stock options. Expected volatility
is based on historical volatility of our stock. The dividend yield is based on
historical experience and the lack of any expected future changes.
THREE MONTHS ENDED
MARCH 31,
-----------------
2008
-----------------
Risk-free interest rate 3.22%
Expected term, in years 6.0
Expected volatility 48.92%
Dividend yield 0%
PURCHASES OF COMPANY STOCK
During the three-month periods ended March 31, 2008 and 2007, we purchased
514,238 and 64,384 shares, respectively, of our common stock, at average prices
of $2.95 and $6.65, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when pricing an asset or
liability and establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions. Under the standard, fair value
measurements would be separately disclosed by level within the fair value
hierarchy. In February 2008, the FASB issued FASB Staff Position (FSP) No.
157-2, "Effective Date of FASB Statement No. 157", to partially defer FASB
Statement No. 157 for nonfinancial assets and nonfinancial liabilities, except
those that are recognized or disclosed at fair value in the financial statements
on a recurring basis. SFAS 157 is effective for us on January 1, 2008, except
for nonfinancial assets and nonfinancial liabilities that are not recognized or
disclosed at fair value on a recurring basis for which our effective date is
January 1, 2009. The adoption of this statement did not have a material effect
on our financial position or results of operations.
7
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115. SFAS 159 permits an entity to choose to measure many financial instruments
and certain other items at fair value. Most of the provisions of SFAS 159 are
elective, however, the amendment to SFAS 115, Accounting for Certain Investments
in Debt and Equity Securities, applies to all entities with available for sale
or trading securities. SFAS 159 is elective as of the beginning of an entity's
first fiscal year that begins after November 15, 2007. We are currently
assessing this Statement to determine whether or not we would elect to measure
any financial instruments acquired upon adoption of this statement at their fair
value.
RECENT DEVELOPMENTS
UNCERTAINTY OF CAPITAL MARKETS
We are dependent upon the continued availability of warehouse credit facilities
and access to long-term financing through the issuance of asset-backed
securities backed by our automobile contracts. Since 1994, we have completed 48
term securitizations comprising approximately $6.4 billion in contracts. We
conducted four term securitizations in 2006, four in 2007, and our most recent
in April 2008. However, within the period of approximately five months prior to
the filing of this report, we have observed unprecedented adverse changes in the
market for securitized pools of automobile contracts. These changes include
reduced liquidity, increased financial guaranty premiums and reduced demand for
asset-backed securities, including for securities carrying a financial guaranty
and for securities backed by sub-prime automobile receivables. We believe that
these adverse changes in the capital markets are primarily the result of
widespread defaults of sub-prime mortgages securing a variety of term
securitizations and related financial instruments, including instruments
carrying financial guarantees similar to those we typically obtain for our own
term securitizations.
The terms of our most recent securitization, completed in April 2008, required
substantially greater credit enhancement than recent past securitizations,
including a larger spread account and a greater portion of subordinated bonds.
Greater credit enhancement requirements reduce the amount of cash available to
us, both at inception of the securitization, and over the life of the
transaction. Moreover, the recently completed securitization resulted in
significantly higher costs to us in the form of higher premiums for financial
guaranty insurance, higher interest rates paid on bonds sold by the
securitization trust and greater discounts given to purchasers of such bonds.
Due to current conditions in the capital markets, we believe that any additional
securitization transactions that we may execute during 2008 are likely to be
structured to include similar credit enhancement levels and result in similar
costs to the recently completed transaction.
The adverse changes that have taken place in the market to date have caused us
to curtail our purchases of automobile contracts in order to conserve capital
and to extend the time before full use of our warehousing financing capacity
would require us to conduct a term securitization. If the current adverse
circumstances that have affected the capital markets should worsen to the extent
that that we were precluded from completing a future securitization of our
receivables, we might exhaust the capacity of our warehouse credit facilities.
Were that to occur, we would further curtail or cease our purchases of new
automobile contracts. Further adverse changes in the capital markets might
result in our inability to securitize automobile contracts, which could have a
material adverse effect on our operations.
Although we believe that such reductions in contract purchases would allow us to
continue operations, a sufficiently steep decrease in our purchases of
automobile contracts would result in a decrease in the size of our portfolio of
automobile contracts. Such a decrease in portfolio size could have a material
adverse effect on our cash flows and results of operations. However, continuing
cashflows otherwise available to us would be sufficient to meet our remaining
operating needs in the near term.
(2) FINANCE RECEIVABLES
The following table presents the components of Finance Receivables, net of
unearned interest and deferred acquisition fees and originations costs:
8
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, DECEMBER 31,
2008 2007
----------- -----------
Finance Receivables (IN THOUSANDS)
Automobile finance receivables, net of unearned interest 2,052,121 2,091,892
Less: Unearned acquisition fees and originations costs (25,395) (23,888)
----------- -----------
Finance Receivables $ 2,026,726 $ 2,068,004
=========== ===========
The following table presents a summary of the activity for the allowance for
credit losses for the three-month periods ended March 31, 2008 and 2007:
MARCH 31, MARCH 31,
2008 2007
--------- ---------
(IN THOUSANDS)
Balance at beginning of period $ 100,138 $ 79,380
Provision for credit losses on finance receivables 34,909 29,490
Charge offs (48,708) (29,181)
Recoveries 8,494 3,847
--------- ---------
Balance at end of period $ 94,833 $ 83,536
========= =========
Excluded from finance receivables are contracts that were previously classified
as finance receivables but were reclassified as other assets because we have
repossessed the vehicle securing the contract. The following table presents a
summary of such repossessed inventory together with the adjustment for losses in
repossessed inventory that is not included in the allowance for credit losses.
This adjustment results in the repossessed inventory being valued at the
estimated fair value less selling costs.
MARCH 31, DECEMBER 31,
2008 2007
-------- --------
(IN THOUSANDS)
Gross balance of repossessions in inventory $ 39,752 $ 33,380
Adjustment for losses on repossessed inventory (25,590) (21,850)
-------- --------
Net repossessed inventory included in other assets $ 14,162 $ 11,530
======== ========
9
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(3) SECURITIZATION TRUST DEBT
We have completed a number of securitization transactions that are structured as
secured borrowings for financial accounting purposes. The debt issued in these
transactions is shown on our Unaudited Condensed Consolidated Balance Sheets as
"Securitization trust debt," and the components of such debt are summarized in
the following table:
Weighted
Average
Final Receivables Outstanding Outstanding Contractual
Scheduled Pledged at Principal at Principal at Interest Rate at
Payment March 31, Initial March 31, December 31, March 31,
Series Date (1) 2008 Principal 2008 2007 2008
-------- ----------- ---------- ---------- ---------- ---------- -----------------
(DOLLARS IN THOUSANDS)
CPS 2003-C March 2010 $ 3,995 $ 87,500 $ 4,118 $ 5,683 3.57%
CPS 2003-D October 2010 5,073 75,000 5,100 6,695 3.91%
CPS 2004-A October 2010 7,443 82,094 7,770 9,849 4.32%
CPS 2004-B February 2011 11,889 96,369 12,227 14,937 4.17%
CPS 2004-C April 2011 15,192 100,000 15,410 18,763 4.24%
CPS 2004-D December 2011 21,883 120,000 21,837 25,994 4.44%
CPS 2005-A October 2011 30,552 137,500 28,908 34,154 5.30%
CPS 2005-B February 2012 36,813 130,625 33,790 39,008 4.68%
CPS 2005-C March 2012 62,893 183,300 59,146 67,834 5.14%
CPS 2005-TFC July 2012 21,512 72,525 20,713 24,654 5.75%
CPS 2005-D July 2012 54,901 145,000 54,283 61,857 5.69%
CPS 2006-A November 2012 108,091 245,000 106,979 120,667 5.31%
CPS 2006-B January 2013 131,054 257,500 128,579 144,941 6.31%
CPS 2006-C June 2013 144,029 247,500 141,703 159,308 5.60%
CPS 2006-D August 2013 146,373 220,000 142,945 159,384 5.58%
CPS 2007-A November 2013 216,340 290,000 210,543 233,092 5.57%
CPS 2007-TFC December 2013 74,709 113,293 73,810 84,685 5.79%
CPS 2007-B January 2014 259,940 314,999 254,537 277,878 5.99%
CPS 2007-C May 2014 295,905 327,498 288,251 308,919 6.03%
---------- ---------- ---------- ----------
$1,648,587 $3,245,703 $1,610,649 $1,798,302
========== ========== ========== ==========
-----------------
(1) THE FINAL SCHEDULED PAYMENT DATE REPRESENTS FINAL LEGAL MATURITY OF THE
SECURITIZATION TRUST DEBT. SECURITIZATION TRUST DEBT IS EXPECTED TO BECOME
DUE AND TO BE PAID PRIOR TO THOSE DATES, BASED ON AMORTIZATION OF THE
FINANCE RECEIVABLES PLEDGED TO THE TRUSTS. EXPECTED PAYMENTS, WHICH WILL
DEPEND ON THE PERFORMANCE OF SUCH RECEIVABLES, AS TO WHICH THERE CAN BE NO
ASSURANCE, ARE $519.3 MILLION IN 2008, $531.0 MILLION IN 2009, $327.0
MILLION IN 2010, $171.2 MILLION IN 2011, $58.5 MILLION IN 2012 AND $3.6
MILLION IN 2013.
All of the securitization trust debt was sold in private placement transactions
to qualified institutional buyers. The debt was issued through our wholly-owned
bankruptcy remote subsidiaries and is secured by the assets of such
subsidiaries, but not by our other assets. Principal of $1.5 billion, and the
related interest payments, are guaranteed by financial guaranty insurance
policies issued by third party financial institutions.
The terms of the various securitization agreements related to the issuance of
the securitization trust debt and the warehouse credit facilities require that
certain delinquency and credit loss criteria be met with respect to the
collateral pool, and require that we maintain minimum levels of liquidity and
net worth and not exceed maximum leverage levels and maximum financial losses.
In addition, certain securitization and non-securitization related debt contain
cross-default provisions, which would allow certain creditors to declare a
default if a default were declared under a different facility. As of March 31,
2008, we were in compliance with all such financial covenants.
10
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We are responsible for the administration and collection of the automobile
contracts. The securitization agreements also require certain funds be held in
restricted cash accounts to provide additional collateral for the borrowings or
to be applied to make payments on the securitization trust debt. As of March 31,
2008, restricted cash under the various agreements totaled approximately $176.6
million. Interest expense on the securitization trust debt is composed of the
stated rate of interest plus amortization of additional costs of borrowing.
Additional costs of borrowing include facility fees, insurance and amortization
of deferred financing costs and discounts on notes sold. Deferred financing
costs and discounts on notes sold related to the securitization trust debt are
amortized using a level yield method. Accordingly, the effective cost of
borrowing of the securitization trust debt is greater than the stated rate of
interest.
Our wholly-owned, bankruptcy remote subsidiaries were formed to facilitate the
above asset-backed financing transactions. Similar bankruptcy remote
subsidiaries issue the debt outstanding under our warehouse lines of credit.
Bankruptcy remote refers to a legal structure in which it is expected that the
applicable entity would not be included in any bankruptcy filing by its parent
or affiliates. All of the assets of these subsidiaries have been pledged as
collateral for the related debt. All such transactions, treated as secured
financings for accounting and tax purposes, are treated as sales for all other
purposes, including legal and bankruptcy purposes. None of the assets of these
subsidiaries are available to pay other creditors of ours.
(4) INTEREST INCOME
The following table presents the components of interest income:
THREE MONTHS ENDED
MARCH 31,
-----------------
2008 2007
------- -------
(In thousands)
Interest on Finance Receivables $97,742 $77,208
Residual interest income 197 947
Other interest income 1,423 2,335
------- -------
Net interest income $99,362 $80,490
======= =======
(5) EARNINGS PER SHARE
Earnings per share for the three-month periods ended March 31, 2008 and 2007
were calculated using the weighted average number of shares outstanding for the
related period. The following table reconciles the number of shares used in the
computations of basic and diluted earnings per share for the three-month periods
ended March 31, 2008 and 2007:
THREE MONTHS ENDED
MARCH 31,
----------------
2008 2007
------ ------
(IN THOUSANDS)
Weighted average number of common shares outstanding during
the period used to compute basic earnings per share 19,297 21,526
Incremental common shares attributable to exercise of
outstanding options and warrants 676 2,192
------ ------
Weighted average number of common shares used to compute
diluted earnings per share. 19,973 23,718
====== ======
11
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(6) INCOME TAXES
In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48"), which clarifies the accounting and disclosure for uncertainty in tax
positions, as defined. FIN 48 seeks to reduce the diversity in practice
associated with certain aspects of the recognition and measurement related to
accounting for income taxes. We are subject to the provisions of FIN 48 as of
January 1, 2007, and have analyzed filing positions in all of the federal and
state jurisdictions. As a result of adoption, we recognized a charge of
approximately $1.1 million to the January 1, 2007 retained earnings balance. As
of the date of adoption and after the effect of recognizing the increase in
liability noted above, our gross unrecognized tax benefits totaled $11.6
million. Included in the balance at January 1, 2007, are $1.3 million of
unrecognized tax benefits, the disallowance of which would not affect the annual
effective income tax rate.
We file numerous consolidated and separate income tax returns in the United
States Federal jurisdiction and in many state jurisdictions. With few
exceptions, we are no longer subject to US Federal income tax examinations for
years before 2003 and are no longer subject to state and local income tax
examinations by tax authorities for years before 2002.
We have subsidiaries in various states that are currently under audit for years
ranging from 1998 through 2005. To date, no material adjustments have been
proposed as a result of these audits.
We recognize potential interest and penalties related to unrecognized tax
benefits in income tax expense. In conjunction with the adoption of FIN 48 on
January 1, 2007, we recognized approximately $230,000 for interest and penalties
which is included as a component of the $11.6 million gross unrecognized tax
benefits noted above. During the three months ended March 31, 2008, we did not
recognize a significant amount of potential interest and penalties. To the
extent interest and penalties are not assessed with respect to uncertain tax
positions, amounts accrued will be reduced and reflected as a reduction of the
overall income tax provision.
We do not anticipate that total unrecognized tax benefits will significantly
change due to the settlement of audits and the expiration of statute of
limitations prior to September 30, 2008.
(7) LEGAL PROCEEDINGS
STANWICH LITIGATION. We were for some time a defendant in a class action (the
"Stanwich Case") brought in the California Superior Court, Los Angeles County.
The original plaintiffs in that case were persons entitled to receive regular
payments (the "Settlement Payments") under out-of-court settlements reached with
third party defendants. Stanwich Financial Services Corp. ("Stanwich"), an
affiliate of our former chairman of the board of directors, is the entity that
was obligated to pay the Settlement Payments. Stanwich had defaulted on its
payment obligations to the plaintiffs and in June 2001 filed for reorganization
under the Bankruptcy Code, in the federal Bankruptcy Court of Connecticut. By
February 2005, we had settled all claims brought against us in the Stanwich
Case.
In November 2001, one of the defendants in the Stanwich Case, Jonathan Pardee,
asserted claims for indemnity against us in a separate action, which is now
pending in federal district court in Rhode Island. We have filed counterclaims
in the Rhode Island federal court against Mr. Pardee, and have filed a separate
action against Mr. Pardee's Rhode Island attorneys, in the same court. Each of
these actions in the court in Rhode Island is stayed, awaiting resolution of an
adversary action brought against Mr. Pardee in the bankruptcy court, which is
hearing the bankruptcy of Stanwich.
We have reached an agreement in principle with the representative of creditors
in the Stanwich bankruptcy to resolve the adversary action. Under the agreement
in principle, we would pay the bankruptcy estate $625,000 and abandon our claims
against the estate, while the estate would abandon its adversary action against
Mr. Pardee. The bankruptcy court has rejected that proposed settlement, and the
representative of creditors has appealed that rejection. If the agreement in
principle were to be approved upon appeal, we would expect that the agreement
would result in (i) limitation of our exposure to Mr. Pardee to no more than
some portion of his attorneys fees incurred and (ii) the stays in Rhode Island
12
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
being lifted, causing those cases to become active again. We are unable to
predict whether the ruling of the bankruptcy court will be sustained or reversed
on appeal. There can be no assurance as to the ultimate outcome of these
matters.
The reader should consider that any adverse judgment against us in these cases
for indemnification, in an amount materially in excess of any liability already
recorded in respect thereof, could have a material adverse effect on our
financial position.
OTHER LITIGATION. In December 2006 an individual resident of Ohio, Agborebot
Bate-Eya, filed a purported class counterclaim to a collection lawsuit brought
by SeaWest Financial Corp. ("SeaWest") in Ohio state court. The counterclaim
alleged that a form notice sent by SeaWest to counterplaintiff in December 2000,
and used then and at other times, was not compliant with Ohio law. In August
2007, the counterplaintiff added us as an additional defendant, noting that we
in April 2004 had purchased from SeaWest a number of consumer receivables,
including that of the counterplaintiff. We have filed a motion to dismiss the
counterclaim, and believe that our no more than tenuous connection to the
counterplaintiff will protect us from any material liability or expense. There
can be no assurance, however, as to the outcome of contested litigation,
including this case.
We have recorded a liability as of March 31, 2008 that we believe represents a
sufficient allowance for legal contingencies, including those described above.
Any adverse judgment against us, if in an amount materially in excess of the
recorded liability, could have a material adverse effect on our financial
position.
We are routinely involved in various legal proceedings resulting from our
consumer finance activities and practices, both continuing and discontinued. We
believe that there are substantive legal defenses to such claims, and intend to
defend them vigorously. There can be no assurance, however, as to the outcome.
(8) EMPLOYEE BENEFITS
We sponsor the MFN Financial Corporation Benefit Plan (the "Plan"). Plan
benefits were frozen September 30, 2001. The table below sets forth the Plan's
net periodic benefit cost for the three-month periods ended March 31, 2008 and
2007.
THREE MONTHS ENDED
MARCH 31,
2008 2007
----- -----
(IN THOUSANDS)
-----------------
Components of net periodic cost (benefit)
Service cost $ -- $ --
Interest Cost 237 223
Expected return on assets (305) (327)
Amortization of transition (asset)/obligation -- (3)
Amortization of net (gain) / loss 41 20
----- -----
Net periodic cost (benefit) $ (27) $ (87)
===== =====
We did not make any contributions to the Plan during the three-month period
ended March 31, 2008 and we do not anticipate making any contributions for the
remainder of 2008.
13
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(9) COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS)
2008 2007
------ ------
Net income $2,114 3,231
Minimum pension liability, net of tax -- --
------ ------
Comprehensive income $2,114 $3,231
====== ======
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a specialty finance company engaged in purchasing and servicing new and
used retail automobile contracts originated primarily by franchised automobile
dealerships and, to a lesser extent, by select independent dealers of used
automobiles in the United States. We serve as an alternative source of financing
for dealers, facilitating sales to sub-prime customers, who have limited credit
history, low income or past credit problems and who otherwise might not be able
to obtain financing from traditional sources. In addition to purchasing
installment purchase contracts directly from dealers, we have also (i) acquired
installment purchase contracts in three merger and acquisition transactions
described below, (ii) purchased immaterial amounts of vehicle purchase money
loans from non-affiliated lenders, and (iii) began lending money directly to
consumers for an immaterial amount of vehicle purchase money loans. In this
report, we refer to all of such contracts and loans as "automobile contracts."
We are headquartered in Irvine, California and have three additional
strategically located servicing branches in Virginia, Florida and Illinois.
On March 8, 2002, we acquired MFN Financial Corporation and its subsidiaries in
a merger. On May 20, 2003, we acquired TFC Enterprises, Inc. and its
subsidiaries in a second merger. Each merger was accounted for as a purchase.
MFN Financial Corporation and its subsidiaries and TFC Enterprises, Inc. and its
subsidiaries were engaged in businesses similar to ours: buying automobile
contracts from dealers and servicing those automobile contracts. MFN Financial
Corporation and its subsidiaries ceased acquiring automobile contracts in May
2002; TFC continues to acquire automobile contracts under its "TFC programs,"
which provide financing for vehicle purchases exclusively by members of the
United States Armed Forces.
On April 2, 2004, we purchased a portfolio of automobile contracts and certain
other assets from SeaWest Financial Corporation and its subsidiaries. In
addition, we were named the successor servicer of three term securitization
transactions originally sponsored by SeaWest. We do not intend to offer
financing programs similar to those previously offered by SeaWest.
SECURITIZATION AND WAREHOUSE CREDIT FACILITIES
Throughout the period for which information is presented in this report, we have
purchased automobile contracts with the intention of financing them on a
long-term basis through securitizations, and on an interim basis through our
warehouse credit facilities. All such financings have involved identification of
specific automobile contracts, sale of those automobile contracts (and
associated rights) to one of our special-purpose subsidiaries, and issuance of
asset-backed securities to fund the transactions. Depending on the structure,
these transactions may properly be accounted for under generally accepted
accounting principles as sales of the automobile contracts or as secured
financings.
When structured to be treated as a secured financing for accounting purposes,
the subsidiary is consolidated with us. Accordingly, the sold automobile
contracts and the related debt appear as assets and liabilities, respectively,
on our consolidated balance sheet. We then periodically (i) recognize interest
and fee income on the contracts, (ii) recognize interest expense on the
securities issued in the transaction and (iii) record as expense a provision for
credit losses on the contracts.
Since the third quarter 2003 through March 2008, we have conducted 22 term
securitizations. Of these 22, 17 were quarterly securitizations of automobile
contracts that we purchased from automobile dealers under our regular programs.
In addition, in March 2004 and November 2005, we completed securitizations of
our retained interests in other securitizations that we and our affiliates
previously sponsored. The debt from the March 2004 transaction was repaid in
August 2005 and the debt from the November 2005 transaction was repaid in May
2007. In September 2004, we completed a securitization of automobile contracts
purchased in the SeaWest asset acquisition and under our TFC programs. In
December 2005 and again in May 2007 we completed securitizations that included
automobile contracts purchased under the TFC programs, automobile contracts
purchased under the CPS programs and automobile contracts we repurchased upon
termination of prior securitizations. In April 2008 we completed a
securitization of contracts that included substantially all of our CPS program
originations from October 2007 through January 2008. All such securitizations
since the third quarter of 2003 have been structured as secured financings.
15
UNCERTAINTY OF CAPITAL MARKETS
We are dependent upon the continued availability of warehouse credit facilities
and access to long-term financing through the issuance of asset-backed
securities collateralized by our automobile contracts. Since 1994, we have
completed 48 term securitizations comprising approximately $6.4 billion in
contracts. We conducted four term securitizations in 2006, four in 2007, and our
most recent in April 2008. However, within the period of approximately five
months prior to the filing of this report, we have observed unprecedented
adverse changes in the market for securitized pools of automobile contracts.
These changes include reduced liquidity, increased financial guaranty premiums
and reduced demand for asset-backed securities, including for securities
carrying a financial guaranty and for securities backed by sub-prime automobile
receivables. We believe that these adverse changes in the capital markets are
primarily the result of widespread defaults of sub-prime mortgages securing a
variety of term securitizations and related financial instruments, including
instruments carrying financial guarantees similar to those we typically obtain
for our own term securitizations.
The terms of our most recent securitization, completed in April 2008, required
substantially greater credit enhancement than recent past securitizations,
including a larger spread account and a greater portion of subordinated bonds.
Greater credit enhancement requirements reduce the amount of cash available to
us, both at inception of the securitization, and over the life of the
transaction. Moreover, the recently completed securitization resulted in
significantly higher costs to us in the form of higher premiums for financial
guaranty insurance, higher interest rates paid on bonds sold by the
securitization trust and greater discounts given to purchasers of such bonds.
Due to current conditions in the capital markets, we believe that any additional
securitization transactions that we may execute during 2008 are likely to be
structured to include similar credit enhancement levels and result in similar
costs to the recently completed transaction.
The adverse changes that have taken place in the market to date have caused us
to curtail our purchases of automobile contracts in order to extend the time
when our warehousing financing capacity would require us to conduct a term
securitization. If the current adverse circumstances that have affected the
capital markets should worsen such that we are precluded from completing a
future securitization of our receivables, we may exhaust the capacity of our
warehouse credit facilities which would cause us to further curtail or cease our
purchases of new automobile contracts. Further adverse changes in the capital
markets might result in our inability to securitize automobile contracts which
could lead to a material adverse effect on our operations.
Although we believe that such reductions in contract purchases would allow us to
continue operations, a sufficiently steep decrease in our purchases of
automobile contracts would result in a decrease in the size of our portfolio of
automobile contracts. Such a decrease in portfolio size could have a material
adverse effect on our cash flows and results of operations. However, continuing
cashflows otherwise available to us would be sufficient to meet our remaining
operating needs in the near term.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE-MONTHS ENDED MARCH 31, 2008 WITH
THE THREE-MONTHS ENDED MARCH 31, 2007
REVENUES. During the three months ended March 31, 2008, revenues were $103.3
million, an increase of $16.8 million, or 19.4%, from the prior year revenue of
$86.5 million. The primary reason for the increase in revenues is an increase in
interest income. Interest income for the three months ended March 31, 2008
increased $18.9 million, or 23.4%, to $99.4 million from $80.5 million in the
prior year. The primary reason for the increase in interest income is the
increase in finance receivables held by consolidated subsidiaries (resulting in
an increase of $20.5 million in interest income). This increase was partially
offset by decreased interest earned on restricted cash balances and a decrease
in interest earned on our residual interest in securitizations.
Servicing fees totaling $428,000 in the three months ended March 31, 2008
increased $146,000, or 51.8%, from $282,000 million in the prior year. The
16
increase in servicing fees is the result of recoveries on the SeaWest Third
Party portfolio. Such recoveries have been treated as servicing fees since
September 2007; prior to that time they were applied to an outstanding note
obligation of SeaWest to CPS, in accordance with the terms of the related
agreements. We expect servicing fees generally to decrease as the SeaWest Third
Party portfolio and related recoveries decline. As of March 31, 2008 and 2007,
our managed portfolio owned by consolidated vs. non-consolidated subsidiaries
and other third parties was as follows:
MARCH 31, 2008 MARCH 31, 2007
------------------- ------------------
AMOUNT % AMOUNT %
---------- ----- ---------- -----
Total Managed Portfolio ($ IN MILLIONS)
Owned by Consolidated Subsidiaries $ 2,091.9 100.0% $ 1,702.4 98.6%
Owned by Non-Consolidated Subsidiaries -- 0.0% 22.1 1.3%
SeaWest Third Party Portfolio 0.2 0.0% 2.2 0.1%
---------- ----- ---------- -----
Total $ 2,092.1 100.0% $ 1,726.7 100.0%
========== ===== ========== =====
At March 31, 2008, we were generating income and fees on a managed portfolio
with an outstanding principal balance of $2,092.1 million (this amount includes
$221,000 of automobile contracts securitized by SeaWest, on which we earn only
servicing fees), compared to a managed portfolio with an outstanding principal
balance of $1,726.7 million as of March 31, 2007. At March 31, 2008 and 2007,
the managed portfolio composition was as follows:
MARCH 31, 2008 MARCH 31, 2007
------------------ --------------------
AMOUNT % AMOUNT %
---------- ---- ---------- ----
Originating Entity ($ in millions)
CPS $ 2,028.8 97.0% $ 1,655.1 95.9%
TFC 62.6 3.0% 65.4 3.8%
MFN 0.0 0.0% 0.9 0.1%
SeaWest 0.5 0.0% 3.1 0.2%
SeaWest Third Party Portfolio 0.2 0.0% 2.2 0.1%
---------- ---- ---------- ----
Total $ 2,092.1 100.0% $ 1,726.7 100.0%
========== ===== ========== =====
Other income decreased $2.2 million, or 38.7%, to $3.5 million in the three
months ended March 31, 2008 from $5.7 million during the prior year. The year
over year decrease is the result of a variety of factors. Prior year other
income includes $2.5 million resulting from an increase in the carrying value of
our residual interest in securitizations. The carrying value was increased
primarily as a result of the underlying receivables having incurred fewer losses
than we had previously estimated, which in turn resulted in actual cash flows
exceeding cash flows that were estimated in our valuation of the residual asset
at December 31, 2006. We do not expect that future cash flows will significantly
exceed the estimates we are currently using for the valuation of our residual
interest. In addition, in 2008 we experienced increases in convenience fees
charged to obligors for certain transaction types (an increase of $772,000).
These increases to other income were somewhat offset by decreases in recoveries
on MFN and certain other automobile contracts (a decrease of $250,000) compared
to the prior year.
EXPENSES. Our operating expenses consist largely of provisions for credit
losses, interest expense, employee costs and general and administrative
expenses. Provisions for credit losses and interest expense are significantly
affected by the volume of automobile contracts we purchased during a period and
by the outstanding balance of finance receivables held by consolidated
subsidiaries. Employee costs and general and administrative expenses are
incurred as applications and automobile contracts are received, processed and
serviced. Factors that affect margins and net income include changes in the
automobile and automobile finance market environments, and macroeconomic factors
such as interest rates and the unemployment level.
Employee costs include base salaries, commissions and bonuses paid to employees,
and certain expenses related to the accounting treatment of outstanding stock
options, and are one of our most significant operating expenses. These costs
(other than those relating to stock options) generally fluctuate with the level
of applications and automobile contracts processed and serviced.
17
Other operating expenses consist largely of facilities expenses, telephone and
other communication services, credit services, computer services, marketing and
advertising expenses, and depreciation and amortization.
Total operating expenses were $99.5 million for the three months ended March 31,
2008, compared to $81.1 million for the prior year, an increase of $18.4
million, or 22.7%. The increase is primarily due to increases in provision for
credit losses and interest expense, which increased by $5.4 million and $9.5
million, or 18.4% and 32.3%, respectively. Both interest expense and provision
for credit losses are directly affected by the growth in our portfolio of
automobile contracts held by consolidated affiliates.
Employee costs increased by 24.8% to $13.5 million during the three months ended
March 31, 2008, representing 13.5% of total operating expenses, from $10.8
million for the prior year, or 13.3% of total operating expenses. The increase
in employee costs is the result of additions to our staff, generally throughout
all areas of the Company, to accommodate greater volumes of contract purchases
and the resulting higher balance of our managed portfolio. As of March 31, 2008
we had 924 employees compared to 832 employees at March 31, 2007.
General and administrative expenses increased by 23.1% to $7.3 million and
represented 7.4% of total operating expenses in the three months ending March
31, 2008. General and administrative expenses include costs associated with
purchasing and servicing our portfolio of finance receivables including expenses
for facilities, credit services, telecommunications and marketing.
Interest expense for the three months ended March 31, 2008 increased $9.5
million, or 32.3%, to $39.0 million, compared to $29.5 million in the previous
year. The increase is primarily the result of changes in the amount and
composition of securitization trust debt carried on our consolidated balance
sheet. Interest on securitization trust debt increased by $6.7 million in the
three months ended March 31, 2008 compared to the prior year. We also
experienced increases in warehouse interest expense and residual interest
financing interest expenses of $1.9 million and $1.3 million, respectively. A
portion of the increase in interest expense can also be attributed to a gradual
increase in market interest rates during 2007 during which time new
securitization trust debt was added at fixed rates that were generally higher
than the fixed rates on other securitization trust debt that was fully or
partially repaid. Increases in interest expense for securitization trust debt,
warehouse and residual interest financing were somewhat offset by a decrease of
$378,000 in interest expense for subordinated debt. Subsequent to the end of the
quarter, we completed a securitization of receivables. The transaction involved
repayment of outstanding warehouse lines of credit, and issuance of new
securitization trust debt. We will pay more interest on the new securitization
trust debt than on the warehouse indebtedness it replaced; accordingly, the
reader should expect that our interest expense will increase in future periods.
Marketing expenses consist primarily of commission-based compensation paid to
our employee marketing representatives and decreased by $600,000, or 14.2%, to
$3.6 million, compared to $4.2 million in the previous year and represented 3.6%
of total operating expenses. The decrease is primarily due to the decrease in
automobile contracts we purchased during the three months ended March 31, 2008
as compared to the prior year. During the three months ended March 31, 2008, we
purchased 11,093 automobile contracts aggregating $176.1 million, compared to
21,570 automobile contracts aggregating $330.3 million in the prior year.
Occupancy expenses increased slightly by $65,000 or 7.0%, to $996,000 million
compared to $931,000 million in the previous year and represented 1.0% of total
operating expenses.
Depreciation and amortization expenses decreased by $28,000, or 16.8%, to
$139,000 from $167,000 in the previous year.
For the three months ended March 31, 2008, we recorded tax expense of $1.7
million or 44.0% of income before income taxes. For the three months ended March
31, 2007, we recorded income taxes of $2.2 million or 40.3% of income before
income taxes. The increased effective tax rate is primarily related to the
impact of 2008 projected permanent differences from stock based compensation. As
of March 31, 2008, we had net deferred tax assets of $58.8 million.
18
CREDIT EXPERIENCE
Our financial results are dependent on the performance of the automobile
contracts in which we retain an ownership interest. The table below documents
the delinquency, repossession and net credit loss experience of all automobile
contracts that we were servicing (excluding automobile contracts from the
SeaWest Third Party Portfolio) as of the respective dates shown. Credit
experience for CPS, MFN (since the date of the MFN transaction), TFC (since the
date of the TFC transaction) and SeaWest (since the date of the SeaWest
transaction) is shown on a combined basis in the table below.
DELINQUENCY EXPERIENCE (1)
CPS, MFN, TFC AND SEAWEST COMBINED
MARCH 31, 2008 MARCH 31, 2007 DECEMBER 31, 2007
----------------------- ------------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ---------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
DELINQUENCY EXPERIENCE
Gross servicing portfolio (1) 168,346 $2,094,174 138,659 $1,729,683 168,260 $2,128,656
Period of delinquency (2)
31-60 days 2,588 29,045 1,865 20,915 4,227 48,134
61-90 days 1,255 14,423 823 8,994 2,370 27,877
91+ days 1,453 17,624 685 6,457 2,039 24,888
------- ---------- ------- ---------- ------- ----------
Total delinquencies (2) 5,296 61,092 3,373 36,366 8,636 100,899
Amount in repossession (3) 3,563 39,789 2,241 24,968 3,049 33,400
------- ---------- ------- ---------- ------- ----------
Total delinquencies and amount in repossession (2) 8,859 $ 100,881 5,614 $ 61,334 11,685 $ 134,299
======= ========== ======= ========== ======= ==========
Delinquencies as a percentage of gross servicing
portfolo 3.1 % 2.9 % 2.4 % 2.1 % 5.1 % 4.7 %
Total delinquencies and amount in repossession as
a percentage of gross servicing portfolio 5.3 % 4.8 % 4.0 % 3.5 % 6.9 % 6.3 %
------------------------------------
(1) ALL AMOUNTS AND PERCENTAGES ARE BASED ON THE AMOUNT REMAINING TO BE REPAID
ON EACH AUTOMOBILE CONTRACT, INCLUDING, FOR PRE-COMPUTED AUTOMOBILE CONTRACTS,
ANY UNEARNED INTEREST. THE INFORMATION IN THE TABLE REPRESENTS THE GROSS
PRINCIPAL AMOUNT OF ALL AUTOMOBILE CONTRACTS PURCHASED BY US, INCLUDING
AUTOMOBILE CONTRACTS SUBSEQUENTLY SOLD BY US IN SECURITIZATION TRANSACTIONS THAT
WE CONTINUE TO SERVICE. THE TABLE DOES NOT INCLUDE AUTOMOBILE CONTRACTS FROM THE
SEAWEST THIRD PARTY PORTFOLIO.
(2) WE CONSIDER AN AUTOMOBILE CONTRACT DELINQUENT WHEN AN OBLIGOR FAILS TO MAKE
AT LEAST 90% OF A CONTRACTUALLY DUE PAYMENT BY THE FOLLOWING DUE DATE, WHICH
DATE MAY HAVE BEEN EXTENDED WITHIN LIMITS SPECIFIED IN THE SERVICING AGREEMENTS.
THE PERIOD OF DELINQUENCY IS BASED ON THE NUMBER OF DAYS PAYMENTS ARE
CONTRACTUALLY PAST DUE. AUTOMOBILE CONTRACTS LESS THAN 31 DAYS DELINQUENT ARE
NOT INCLUDED.
(3) AMOUNT IN REPOSSESSION REPRESENTS FINANCED VEHICLES THAT HAVE BEEN
REPOSSESSED BUT NOT YET LIQUIDATED.
NET CHARGE-OFF EXPERIENCE (1)
CPS, MFN, TFC AND SEAWEST COMBINED
MARCH 31, MARCH 31, DECEMBER 31,
2008 2007 2007
--------- --------- ------------
(DOLLARS IN THOUSANDS)
Average servicing portfolio outstanding $2,112,414 $1,663,165 $ 905,162
Annualized net charge-offs as a percentage of
average servicing portfolio (2) 6.7 % 5.1 % 5.3 %
-------------------------
(1) ALL AMOUNTS AND PERCENTAGES ARE BASED ON THE PRINCIPAL AMOUNT SCHEDULED TO
BE PAID ON EACH AUTOMOBILE CONTRACT, NET OF UNEARNED INCOME ON PRE-COMPUTED
AUTOMOBILE CONTRACTS. THE INFORMATION IN THE TABLE REPRESENTS ALL AUTOMOBILE
CONTRACTS SERVICED BY US (EXCLUDING AUTOMOBILE CONTRACTS FROM THE SEAWEST THIRD
PARTY PORTFOLIO).
(2) NET CHARGE-OFFS INCLUDE THE REMAINING PRINCIPAL BALANCE, AFTER THE
APPLICATION OF THE NET PROCEEDS FROM THE LIQUIDATION OF THE VEHICLE (EXCLUDING
ACCRUED AND UNPAID INTEREST) AND AMOUNTS COLLECTED SUBSEQUENT TO THE DATE OF
CHARGE-OFF, INCLUDING SOME RECOVERIES WHICH HAVE BEEN CLASSIFIED AS OTHER INCOME
IN THE ACCOMPANYING INTERIM FINANCIAL STATEMENTS. MARCH 31, 2008 AND MARCH 31,
2007 PERCENTAGE REPRESENTS THREE MONTHS ENDED MARCH 31, 2008 AND MARCH 31, 2007
ANNUALIZED. DECEMBER 31, 2007 REPRESENTS 12 MONTHS ENDED DECEMBER 31, 2007.
19
LIQUIDITY AND CAPITAL RESOURCES
Our business requires substantial cash to support our purchases of automobile
contracts and other operating activities. Our primary sources of cash have been
cash flows from operating activities, including proceeds from sales of
automobile contracts, amounts borrowed under various revolving credit facilities
(also sometimes known as warehouse credit facilities), servicing fees on
portfolios of automobile contracts previously sold in securitization
transactions or serviced for third parties, customer payments of principal and
interest on finance receivables, and releases of cash from securitized pools of
automobile contracts in which we have retained a residual ownership interest and
from the spread account associated with such pools. Our primary uses of cash
have been the purchases of automobile contracts, repayment of amounts borrowed
under lines of credit and otherwise, operating expenses such as employee,
interest, occupancy expenses and other general and administrative expenses, the
establishment of spread account and initial overcollateralization, and the
increase of credit enhancement to required levels in securitization
transactions, and income taxes. There can be no assurance that internally
generated cash will be sufficient to meet our cash demands. The sufficiency of
internally generated cash will depend on the performance of securitized pools
(which determines the level of releases from those pools and their related
spread account), the rate of expansion or contraction in our managed portfolio,
and the terms upon which we are able to acquire, sell, and borrow against
automobile contracts.
Net cash provided by operating activities for the three-month period ended March
31, 2008 was $37.3 million compared to net cash provided by operating activities
for the three-month period ended March 31, 2007 of $30.5 million. Cash provided
by operating activities is affected by our increased net earnings before the
significant increase in the provision for credit losses.
Net cash used in investing activities for the three-month period ended March 31,
2008 and 2007 was $1.1 million and $230.8 million, respectively. Cash used in
investing activities has primarily related to purchases of automobile contracts
less principal amortization on our consolidated portfolio of automobile
contracts.
Net cash used by financing activities for the three months ended March 31, 2008
was $38.6 million compared to net cash provided by financing activities of
$196.4 million in the prior year period. Cash provided by financing activities
is generally related to the issuance of new securitization trust debt. We issued
no new securitization trust debt in the three months ended March 31, 2008
compared to $287.4 million in the prior year period. Cash used in financing
activities also includes the repayment of securitization trust debt of $189.3
million and $143.7 million for the three-month periods ended March 31, 2008 and
2007, respectively.
We purchase automobile contracts from dealers for a cash price approximating
their principal amount, adjusted for an acquisition fee that may either increase
or decrease the automobile contract purchase price. Those automobile contracts
generate cash flow, however, over a period of years. As a result, we have been
dependent on warehouse credit facilities to purchase automobile contracts, and
on the availability of cash from outside sources in order to finance our
continuing operations, as well as to fund the portion of automobile contract
purchase prices not financed under revolving warehouse credit facilities. As of
March 31, 2008, we had $400 million in warehouse credit capacity, in the form of
two $200 million senior facilities. One $200 million senior facility provides
funding for automobile contracts purchased under the TFC programs while both
senior facilities provide funding for automobile contracts purchased under the
CPS programs.
The first of two warehouse facilities mentioned above is structured to allow us
to fund a portion of the purchase price of automobile contracts by drawing
against a floating rate variable funding note issued by our consolidated
subsidiary Page Three Funding, LLC. This facility was established on November
15, 2005, and expires on November 6, 2008, although it is renewable with the
mutual agreement of the parties. On November 8, 2006 the facility was increased
20
from $150 million to $200 million and the maximum advance rate was increased to
83% from 80% of eligible contracts, subject to collateral tests and certain
other conditions and covenants. The advance rate is subject to the lender's
valuation of the collateral, which in turn is affected by factors such as the
credit performance of our managed portfolio and the terms and conditions of our
term securitizations, including the expected yields required for bonds issued in
our term securitizations, and is currently less than the maximum advance rate.
Notes under this facility accrue interest at a rate of one-month LIBOR plus
2.50% per annum. At March 31, 2008, $172.4 million was outstanding under this
facility, of which $94.5 million was repaid upon closing of our April 2008
securitization.
The second of two warehouse facilities is similarly structured to allow us to
fund a portion of the purchase price of automobile contracts by drawing against
a floating rate variable funding note issued by our consolidated subsidiary Page
Funding LLC. This facility was entered into on June 30, 2004. On June 29, 2005
the facility was increased from $100 million to $125 million and further amended
to provide for funding for automobile contracts purchased under the TFC
programs, in addition to our CPS programs. The available credit under the
facility was increased again to $200 million on August 31, 2005. In April 2006,
the terms of this facility were amended to allow advances to us of up to 80% of
the principal balance of automobile contracts that we purchase under our CPS
programs, and of up to 70% of the principal balance of automobile contracts that
we purchase under our TFC programs, in all events subject to collateral tests
and certain other conditions and covenants. On June 30, 2006, the terms of this
facility were amended to allow advances to us of up to 83% of the principal
balance of automobile contracts that we purchase under our CPS programs, in all
events subject to collateral tests and certain other conditions and covenants.
The advance rate is subject to the lender's valuation of the collateral which,
in turn, is affected by factors such as the credit performance of our managed
portfolio and the terms and conditions of our term securitizations, including
the expected yields for bonds issued in our term securitizations, and is
currently less than the maximum advance rate. Notes under this facility accrue
interest at a rate of one-month LIBOR plus 2.00% per annum. The facility expires
on September 30, 2008, unless renewed by us and the lender before that time. At
March 31, 2008, $195.6 million was outstanding under this facility, of which
$175.4 was repaid upon closing of our April 2008 securitization.
The balance under these warehouse facilities generally will increase as we
purchase additional automobile contracts, until we effect a securitization
utilizing automobile contracts pledged to the warehouse facilities. Proceeds
from the securitization are then used to pay down the outstanding balance of the
warehouse facilities.
The acquisition of automobile contracts for subsequent sale in securitization
transactions, and the need to fund the spread accounts and initial
overcollateralization, if any, and increase credit enhancement levels when those
transactions take place, results in a continuing need for capital. The amount of
capital required is most heavily dependent on the rate of our automobile
contract purchases, the advance rate on the warehouse facilities, the required
level of initial credit enhancement in securitizations, and the extent to which
the previously established trusts and their related spread account either
release cash to us or capture cash from collections on securitized automobile
contracts. We are limited in our ability to purchase automobile contracts by our
available cash and the capacity of our warehouse facilities. As of March 31,
2008, we had unrestricted cash on hand of $18.5 million and available capacity
from our warehouse credit facilities of $32.0 million, subject to the
availability of suitable automobile contracts to serve as collateral and of
sufficient cash to fund the portion of such automobile contracts purchase price
not advanced under the warehouse facilities. Upon closing of our April 2008
securitization, we repaid $269.9 million of warehouse debt. Our plans to manage
our liquidity include the completion of additional term securitizations that may
result in additional unrestricted cash through repayment of the warehouse
facilities, and matching our levels of automobile contract purchases to our
availability of cash. There can be no assurance that we will be able to complete
term securitizations on favorable economic terms or that we will be able to
complete term securitizations at all. If we were unable to complete such
securitizations, interest income and other portfolio related income would
decrease.
Our primary means of ensuring that our cash demands do not exceed our cash
resources is to match our levels of automobile contract purchases to our
availability of cash. Our ability to adjust the quantity of automobile contracts
that we purchase and securitize will be subject to general competitive
conditions and the continued availability of warehouse credit facilities. There
can be no assurance that the desired level of automobile contract acquisition
21
can be maintained or increased. While the specific terms of our securitization
transactions vary, our securitization agreements generally provide that we will
receive excess cash flows only if the amount of credit enhancement has reached
specified levels and/or the delinquency, defaults or net losses related to the
automobile contracts in the pool are below certain predetermined levels. In the
event delinquencies, defaults or net losses on the automobile contracts exceed
such levels, the terms of the securitization: (i) may require increased credit
enhancement to be accumulated for the particular pool; (ii) may restrict the
distribution to us of excess cash flows associated with other pools; or (iii) in
certain circumstances, may permit the note insurers to require the transfer of
servicing on some or all of the automobile contracts to another servicer. There
can be no assurance that collections from the related Trusts will continue to
generate sufficient cash.
In November 2005, we completed a securitization in which a wholly-owned
bankruptcy remote consolidated subsidiary of ours issued $45.8 million of
asset-backed notes secured by its retained interest in ten term securitization
transactions. At December 31, 2006 there was $19.6 million outstanding on this
facility and in May 2007 the notes were fully repaid. In December 2006 we
entered into a $35 million residual credit facility that was secured by our
retained interests in additional term securitizations. At December 31, 2006,
there was $12.2 million outstanding under this facility. In July 2007, we
established a combination term and revolving residual credit facility and used a
portion of our initial draw under that facility to repay our remaining
outstanding debt under the December 2006 $35 million residual facility.
Under the combination term and revolving residual credit facility, we have used
and intend to use eligible residual interests in securitizations as collateral
for floating rate borrowings. The amount that we may borrow is computed using an
agreed valuation methodology of the residuals, subject to an overall maximum
principal amount of $120 million, represented by (i) a $60 million Class A-1
variable funding note (the "revolving note"), and (ii) a $60 million Class A-2
term note (the "term note"). The term note was fully drawn in July 2007 and is
due in July 2009. As of March 31, 2008, we have drawn $30 million on the
revolving note. The facility's revolving feature expires in July 2008. If we do
not negotiate a renewal of the revolving feature by its maturity, we plan to
repay the amounts due from a combination of the following: (i) additional
proceeds from the offering of subordinated renewable notes; and (ii) a possible
senior secured financing similar to our prior senior secured financings. There
can be no assurance that we will be able to complete these transactions.
The terms of the various securitization agreements related to the issuance of
the securitization trust debt and the warehouse credit facilities require that
certain delinquency and credit loss criteria be met with respect to the
collateral pool, and require that we maintain minimum levels of liquidity and
net worth and not exceed maximum leverage levels and maximum financial losses.
In addition, certain securitization and non-securitization related debt contain
cross-default provisions, which would allow certain creditors to declare a
default if a default were declared under a different facility. As of March 31,
2008, we were in compliance with all such financial covenants.
The securitization agreements of our term securitization transactions are
terminable by the note insurers in the event of certain defaults by us and under
certain other circumstances. Similar termination rights are held by the lenders
in the warehouse credit facilities. Were a note insurer (or the lenders in such
warehouse facilities) in the future to exercise its option to terminate the
securitization agreements, such a termination would have a material adverse
effect on our liquidity and results of operations. We continue to receive
servicer extensions on a monthly and/or quarterly basis, pursuant to the
securitization agreements.
22
CRITICAL ACCOUNTING POLICIES
(A) ALLOWANCE FOR FINANCE CREDIT LOSSES
In order to estimate an appropriate allowance for losses incurred on finance
receivables held on our Unaudited Condensed Consolidated Balance Sheet, we use a
loss allowance methodology commonly referred to as "static pooling," which
stratifies our finance receivable portfolio into separately identified pools.
Using analytical and formula-driven techniques, we estimate an allowance for
finance credit losses, which management believes is adequate for probable credit
losses that can be reasonably estimated in our portfolio of finance receivable
automobile contracts. Provision for losses is charged to our Unaudited
Consolidated Statement of Operations. Net losses incurred on finance receivables
are charged to the allowance. Management evaluates the adequacy of the allowance
by examining current delinquencies, the characteristics of the portfolio and the
value of the underlying collateral. As conditions change, our level of
provisioning and/or allowance may change as well.
(B) CONTRACT ACQUISITION FEES AND ORIGINATIONS COSTS
Upon purchase of a contract from a dealer, we generally charge or advance the
dealer an acquisition fee. For contracts securitized in pools which were
structured as sales for financial accounting purposes, the acquisition fees
associated with contract purchases were deferred until the contracts were
securitized, at which time the deferred acquisition fees were recognized as a
component of the gain on sale.
For contracts purchased and securitized in pools which are structured as secured
financings for financial accounting purposes, dealer acquisition fees and
deferred originations costs are reduced against the carrying value of finance
receivables and are accreted into earnings as an adjustment to the yield over
the estimated life of the contract using the interest method.
(C) INCOME TAXES
We and our subsidiaries file consolidated federal income and combined state
franchise tax returns. We utilize the asset and liability method of accounting
for income taxes, under which deferred income taxes are recognized for the
future tax consequences attributable to the differences between the financial
statement values of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is recorded against that
portion of the deferred tax asset whose utilization in future period is not more
than likely.
In determining the possible realization of deferred tax assets, future taxable
income from the following sources are considered: (a) the reversal of taxable
temporary differences; (b) future operations exclusive of reversing temporary
differences; and (c) tax planning strategies that, if necessary, would be
implemented to accelerate taxable income into a period in which net operating
losses might otherwise expire.
(D) STOCK-BASED COMPENSATION
We recognize compensation costs in the financial statements for all share-based
payments granted subsequent to December 31, 2005 based on the grant date fair
value estimated in accordance with the provisions of Statement of Financial
Accounting Standards No. 123(R), "Share-Based Payment, revised 2004" ("SFAS
123R").
In December 2005, the Compensation Committee of the Board of Directors approved
accelerated vesting of all the outstanding stock options issued by us. Options
to purchase 2,113,998 shares of our common stock, which would otherwise have
vested from time to time through 2010, became immediately exercisable as a
result of the acceleration of vesting. The decision to accelerate the vesting of
the options was made primarily to reduce non-cash compensation expenses that
would have been recorded in our income statement in future period upon the
adoption of Financial Accounting Standards Board Statement No. 123(R) in January
2006.
For the three months ended March 31, 2008, we recorded $342,000 in stock-based
compensation costs, resulting from grants of options during the period and
vesting of previously granted options. As of March 31, 2008, there were $4.6
million in unrecognized stock-based compensation costs to be recognized over
future periods.
23
FORWARD LOOKING STATEMENTS
This report on Form 10-Q includes certain "forward-looking statements."
Forward-looking statements may be identified by the use of words such as
"anticipates," "expects," "plans," "estimates," or words of like meaning. Our
provision for credit losses is a forward-looking statement, as it is dependent
on our estimates as to future chargeoffs and recovery rates. Factors that could
affect charge-offs and recovery rates include changes in the general economic
climate, which could affect the willingness or ability of obligors to pay
pursuant to the terms of automobile contracts, changes in laws respecting
consumer finance, which could affect our ability to enforce rights under
automobile contracts, and changes in the market for used vehicles, which could
affect the levels of recoveries upon sale of repossessed vehicles. Factors that
could affect our revenues in the current year include the levels of cash
releases from existing pools of automobile contracts, which would affect our
ability to purchase automobile contracts, the terms on which we are able to
finance such purchases, the willingness of dealers to sell automobile contracts
to us on the terms that we offer, and the terms on which we are able to complete
term securitizations once automobile contracts are acquired. Factors that could
affect our expenses in the current year include competitive conditions in the
market for qualified personnel and interest rates (which affect the rates that
we pay on notes issued in our securitizations). The statements concerning our
structuring future securitization transactions as secured financings and the
effects of such structures on financial items and on our future profitability
also are forward-looking statements. Any change to the structure of our
securitization transaction could cause such forward-looking statements not to be
accurate. Both the amount of the effect of the change in structure on our
profitability and the duration of the period in which our profitability would be
affected by the change in securitization structure are estimates. The accuracy
of such estimates will be affected by the rate at which we purchase automobile
contracts, any changes in that rate, the credit performance of such automobile
contracts, the financial terms of future securitizations, any changes in such
terms over time, and other factors that generally affect our profitability.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We are subject to interest rate risk during the period between when automobile
contracts are purchased from dealers and when such automobile contracts become
part of a term securitization. Specifically, the interest rates on the warehouse
facilities are adjustable while the interest rates on the automobile contracts
are fixed. Historically, our term securitization facilities have had fixed rates
of interest. To mitigate some of this risk, we have in the past, and intend to
continue to, structure certain of our securitization transactions to include
pre-funding structures, in which the amount of notes issued exceeds the amount
of automobile contracts initially sold to the trusts. In pre-funding, the
proceeds from the pre-funded portion are held in an escrow account until we sell
the additional automobile contracts to the trust in amounts up to the balance of
the pre-funded escrow account. In pre-funded securitizations, we lock in the
borrowing costs with respect to the automobile contracts it subsequently
delivers to the trust. However, we incur an expense in pre-funded
securitizations equal to the difference between the money market yields earned
on the proceeds held in escrow prior to subsequent delivery of automobile
contracts and the interest rate paid on the notes outstanding, as to the amount
of which there can be no assurance.
There have been no material changes in market risks since December 31, 2007.
ITEM 4. CONTROLS AND PROCEDURES
We maintain a system of internal controls and procedures designed to provide
reasonable assurance as to the reliability of our published financial statements
and other disclosures included in this report. As of the end of the period
covered by this report, we evaluated the effectiveness of the design and
operation of such disclosure controls and procedures. Based upon that
24
evaluation, the principal executive officer (Charles E. Bradley, Jr.) and the
principal financial officer (Jeffrey P. Fritz) concluded that the disclosure
controls and procedures are effective in recording, processing, summarizing and
reporting, on a timely basis, material information relating to us that is
required to be included in our reports filed under the Securities Exchange Act
of 1934. There have been no significant changes in our internal controls over
financial reporting during our most recently completed fiscal quarter that
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
25
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information provided under the caption "Legal Proceedings" in our Annual
Report on Form 10-K for the year ended December 31, 2007, is incorporated herein
by reference.
ITEM 1A. RISK FACTORS
We remind the reader that risk factors are set forth in Item 1A of our report on
Form 10-K, filed with the U.S. Securities and Exchange Commission on March 9,
2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2008, we purchased a total of 514,238
shares of our common stock, as described in the following table:
ISSUER PURCHASES OF EQUITY SECURITIES
TOTAL NUMBER OF APPROXIMATE DOLLAR
Total Shares Purchased as Value of Shares that
Number of Average Part of Publicly May Yet be Purchased
Shares Price Paid Announced Plans or Under the Plans or
Period(1) Purchased per Share Programs(2) Programs
--------- ------- -------- ------------------- --------------------
January 2008 184,889 $ 2.99 184,889 $5,448,980
February 2008 132,834 3.21 132,834 5,022,845
March 2008 196,515 2.75 196,515 4,482,142
------- -------- ----------
Total 514,238 $ 2.95 514,238
======== ========= ==========
--------------------
(1) EACH MONTHLY PERIOD IS THE CALENDAR MONTH.
(2) OUR BOARD OF DIRECTORS IN JANUARY 2008 AUTHORIZED THE PURCHASE OF UP TO AN
ADDITIONAL $5 MILLION OF OUR OUTSTANDING SECURITIES.
ITEM 6. EXHIBITS
The Exhibits listed below are filed with this report.
4.14 Instruments defining the rights of holders of long-term debt of certain
consolidated subsidiaries of the registrant are omitted pursuant to the
exclusion set forth in subdivisions (b)(iv)(iii)(A) and (b)(v) of Item
601 of Regulation S-K (17 CFR 229.601). The registrant agrees to
provide copies of such instruments to the United States Securities and
Exchange Commission upon request.
4.27 Indenture dated as of March 1, 2008, respecting notes issued by CPS
Auto Receivables Trust 2008-A (exhibit 4.27 to Form 8-K filed by the
registrant on April 15, 2008)
4.28 Sale and Servicing Agreement dated as of March 1, 2008, re CPS Auto
Receivables Trust 2008-A (exhibit 4.28 to Form 8-K filed by the
registrant on April 15, 2008)
31.1 Rule 13a-14(a) Certification of the Chief Executive Officer of the
registrant.
31.2 Rule 13a-14(a) Certification of the Chief Financial Officer of the
registrant.
32 Section 1350 Certifications.*
* These Certifications shall not be deemed "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that section. These Certifications shall not be
deemed to be incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Exchange Act, except to the extent that the
registration statement specifically states that such Certifications are
incorporated therein.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CONSUMER PORTFOLIO SERVICES, INC.
(Registrant)
Date: April 25, 2008
By: /s/ CHARLES E. BRADLEY, JR.
----------------------------------
Charles E. Bradley, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
Date: April 25, 2008
By: /s/ JEFFREY P. FRITZ
-------------------------------------
Jeffrey P. Fritz
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
(Principal Financial Officer)