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| CACC > SEC Filings for CACC > Form 10-Q on 29-Apr-2009 | All Recent SEC Filings |
29-Apr-2009
Quarterly Report
Forecasted Collection Percentage as of Variance in Forecasted Collection Percentage from
Loan Assignment March 31, December 31, Initial December 31, Initial
Year 2009 2008 Forecast 2008 Forecast
2000 72.5% 72.5% 72.8% 0.0% -0.3%
2001 67.4% 67.4% 70.4% 0.0% -3.0%
2002 70.4% 70.4% 67.9% 0.0% 2.5%
2003 73.8% 73.8% 72.0% 0.0% 1.8%
2004 73.3% 73.4% 73.0% -0.1% 0.3%
2005 74.1% 74.1% 74.0% 0.0% 0.1%
2006 70.5% 70.3% 71.4% 0.2% -0.9%
2007 68.2% 67.9% 70.7% 0.3% -2.5%
2008 67.9% 67.9% 69.7% 0.0% -1.8%
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During the first quarter of 2009, actual Loan performance was consistent with
our forecast at December 31, 2008. As a result of current economic conditions
and uncertainty about future conditions, we continue to be cautious about our
forecasts of future collection rates. However, we believe our current estimates
are reasonable for the following reasons:
• Our forecasts start with the assumption that Loans in our current portfolio
will perform like historical Loans with similar attributes.
• During 2008, we reduced our forecasts on Loans originated in 2006 through 2008 as these Loans began to perform worse than expected. Additionally, we adjusted our estimated timing of future net cash flows to reflect recent trends relating to Loan prepayments and reduced the forecasted collection rate used at Loan inception to price new Loan originations.
• During 2008, and during the first quarter of 2009, we reduced the expected collection rate on new Loan originations. The reductions reflect both the experience to date on 2006 through 2008 Loans as well as an expectation that the external environment will continue to negatively impact Loan performance.
• Our current forecasting methodology, when applied against historical data, produces a consistent forecasted collection rate as the Loans age.
• During the first quarter of 2009, realized net Loan cash flows were consistent with our current forecast.
Although current economic uncertainly increases the risk of poor Loan
performance, we set prices at Loan inception to increase the likelihood of
achieving an acceptable return on capital, even if collection results are worse
than we currently forecast.
The following table presents forecasted Consumer Loan collection rates,
advance rates (includes amounts paid to acquire Purchased Loans), the spread
(the forecasted collection rate less the advance rate), and the percentage of
the forecasted collections that had been realized as of March 31, 2009. Payments
of dealer holdback and Portfolio Profit Express are not included in the advance
percentage paid to the dealer-partner. All amounts are presented as a percentage
of the initial balance of the Consumer Loan (principal + interest). The table
includes both Dealer Loans and Purchased Loans.
As of March 31, 2009
Forecasted % of Forecast
Loan Assignment Year Collection % Advance % Spread % Realized
2000 72.5% 47.9% 24.6% 99.3%
2001 67.4% 46.0% 21.4% 98.9%
2002 70.4% 42.2% 28.2% 98.6%
2003 73.8% 43.4% 30.4% 98.3%
2004 73.3% 44.0% 29.3% 97.4%
2005 74.1% 46.9% 27.2% 96.2%
2006 70.5% 46.6% 23.9% 86.0%
2007 68.2% 46.5% 21.7% 62.1%
2008 67.9% 44.6% 23.3% 31.3%
2009 69.3% 42.6% 26.7% 4.5%
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The following table presents forecasted Consumer Loan collection rates, advance rates (includes amounts paid to acquire Purchased Loans), and the spread (the forecasted collection rate less the advance rate) as of March 31, 2009 for Purchased Loans and Dealer Loans separately:
Forecasted
Loan Assignment Year Collection % Advance % Spread %
Purchased loans 2007 67.9 % 48.9 % 19.0 %
2008 66.9 % 46.9 % 20.0 %
2009 68.2 % 44.9 % 23.3 %
Dealer loans 2007 68.2 % 45.9 % 22.3 %
2008 68.4 % 43.4 % 25.0 %
2009 69.5 % 42.0 % 27.5 %
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Although the advance rate on Purchased Loans is higher as compared to the advance rate on Dealer Loans, Purchased Loans do not require the Company to pay dealer holdback. The increase in the spread between the forecasted collection rate and the advance rate during 2008 and 2009 occurred as a result of pricing changes implemented during the first nine months of 2008 and stable forecasted collection rates during the first quarter of 2009.
The following table summarizes changes in Consumer Loan dollar and unit volume in each of the last 5 quarters as compared to the same period in the previous year:
Consumer Loans
Year over Year Percent Change
Three Months Ended Dollar Volume Unit Volume
March 31, 2008 28.5 % 16.0 %
June 30, 2008 40.6 % 26.1 %
September 30, 2008 27.5 % 26.9 %
December 31, 2008 -21.0 % -13.4 %
March 31, 2009 -26.3 % -13.0 %
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Unit and dollar volume declined during the first quarter of 2009 as compared
to the same period in 2008 due to pricing changes implemented during 2008.
The following table summarizes key information regarding Purchased Loans:
Three Months Ended
March 31,
2009 2008
New Purchased Loan unit volume as a percentage of total unit
volume 17.7 % 29.8 %
New Purchased Loan dollar volume as a percentage of total
dollar volume 21.3 % 36.8 %
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As of March 31, 2009 and 2008, the net Purchased Loan receivable balance was
29.9% and 23.1%, respectively, of the total net receivable balance.
The following table summarizes the changes in active dealer-partners and
corresponding Consumer Loan unit volume:
Three Months Ended March 31,
2009 2008 % change
Consumer Loan unit volume 34,991 40,217 -13.0 %
Active dealer-partners (1) 2,305 2,292 0.6 %
Average volume per active dealer-partner 15.2 17.5 -13.1 %
Consumer Loan unit volume from dealer-partners
active both periods 23,490 29,982 -21.7 %
Dealer-partners active both periods 1,297 1,297 0.0 %
Average volume per dealer-partners active both
periods 18.1 23.1 -21.7 %
Consumer Loan unit volume from new dealer-partners 2,228 3,011 -26.0 %
New active dealer-partners (2) 338 347 -2.6 %
Average volume per new active dealer-partners 6.6 8.7 -24.1 %
Attrition (3) -25.4 % -18.1 %
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(1) Active dealer-partners are dealer-partners who have received funding for at least one Loan during the period.
(2) New active dealer-partners are dealer-partners who enrolled in our program and have received funding for their first Loan from us during the periods presented.
(3) Attrition is
measured
according to
the following
formula:
decrease in
Consumer Loan
unit volume
from
dealer-partners
who have
received
funding for at
least one Loan
during the
comparable
period of the
prior year but
did not receive
funding for any
Loans during
the current
period divided
by prior year
comparable
period Consumer
Loan unit
volume.
Results of Operations
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008
The following is a discussion of our results of operations and income
statement data on a consolidated basis.
Three Months Three Months
Ended % of Ended % of
(Dollars in thousands, except per share data) March 31, 2009 Revenue March 31, 2008 Revenue
Revenue:
Finance charges $ 76,726 87.3 % $ 63,675 90.0 %
Premiums earned 6,460 7.4 32 -
Other income 4,702 5.3 7,071 10.0
Total revenue 87,888 100.0 70,778 100.0
Costs and expenses:
Salaries and wages 17,121 19.5 17,740 25.1
General and administrative 7,998 9.1 7,124 10.1
Sales and marketing 3,921 4.4 4,671 6.6
Provision for credit losses 164 0.2 2,649 3.7
Interest 7,923 9.0 10,864 15.3
Provision for claims 4,809 5.5 5 -
Total costs and expenses 41,936 47.7 43,053 60.8
Operating income 45,952 52.3 27,725 39.2
Foreign currency gain (loss) 3 - (13 ) -
Income from continuing operations before provision
for income taxes 45,955 52.3 27,712 39.2
Provision for income taxes 16,943 19.3 10,131 14.3
Income from continuing operations 29,012 33.0 17,581 24.9
Discontinued operations
(Loss) gain from discontinued United Kingdom
operations (15 ) - 56 0.1
(Benefit) provision for income taxes (4 ) - 17 -
(Loss) gain from discontinued operations (11 ) - 39 0.1
Net income $ 29,001 33.0 % $ 17,620 25.0 %
Net income per common share:
Basic $ 0.95 $ 0.59
Diluted $ 0.93 $ 0.57
Income from continuing operations per common
share:
Basic $ 0.95 $ 0.58
Diluted $ 0.93 $ 0.57
(Loss) gain from discontinued operations per
common share:
Basic $ - $ -
Diluted $ - $ -
Weighted average shares outstanding:
Basic 30,479,665 30,106,881
Diluted 31,180,146 30,891,227
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Continuing Operations
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008
The following table highlights changes for the three months ended March 31,
2009, as compared to 2008:
Three Months Ended
March 31, 2009
Average outstanding balance of Loan portfolio 18.4 %
Finance charges 20.5 %
Operating expenses -1.7 %
Interest expense -27.1 %
Income from continuing operations 65.0 %
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Income from continuing operations increased for the three months ended
March 31, 2009 primarily due to the following:
• Increased finance charges due primarily to the increase in the average
outstanding balance of our Loan portfolio;
• Decreased operating expenses due to efficiencies gained; and
• Decreased interest expense due to a reduction in market rates on our outstanding debt.
The changes in premiums earned, other income, and provision for claims are
related to accounting and reporting changes resulting from the formation of VSC
Re during the fourth quarter of 2008 and did not have a significant impact on
income from continuing operations for the three months ended March 31, 2009 as
compared to the same period in 2008.
Finance Charges. For the three months ended March 31, 2009, finance charges
increased $13.1 million, or 20.5%, as compared to the same period in 2008. The
increase was primarily the result of:
• An increase in the average Loans receivable balance due to growth in new
Loan volume in 2007 and during the first nine months of 2008.
• An increase in the average yield on our Loan portfolio resulting from pricing changes implemented during the first nine months of 2008 partially offset by a decline in Loan performance during 2008.
Premiums Earned and Provision for Claims. For the three months ended
March 31, 2009, premiums earned and provision for claims increased $6.4 million
and $4.8 million, respectively, as compared to the same period in 2008. During
the fourth quarter of 2008, we formed VSC Re in order to enhance our control
over and the security in the trust assets that will be used to pay future
vehicle service contract claims. VSC Re currently reinsures vehicle service
contracts that are underwritten by two of our three third party insurers. Our
financial results for the three months ended March 31, 2009 include $6.5 million
in premiums earned and $4.8 million in provision for claims related to VSC Re.
Premiums are earned over the life of the vehicle service contract using an
accelerated method (an average of the pro rata and rule of 78 methods), as this
method best matches the timing of historical claims. A provision for claims is
recognized in the period the claims were incurred.
The amount of income we expect to earn from the vehicle service contracts
over time is not expected to be impacted by the formation of VSC Re, as both
before and after the formation of VSC Re, the income we receive is based on the
amount by which vehicle service contract premiums exceed claims. However, the
formation of VSC Re impacts the timing of income recognition and the income
statement presentation. Prior to the formation of VSC Re, our agreements with
vehicle service contract third party administrators ("TPAs") allowed us to
receive profit sharing payments depending upon the performance of the vehicle
service contract programs. Profit sharing payments were received periodically,
primarily during the first quarter of each year, and were recognized on a net
basis (premiums earned less claims incurred) as other income in the period
received.
Other Income. For the three months ended March 31, 2009, other income
decreased $2.4 million, or 33.5%, as compared to the same period in 2008. The
following table highlights the changes, as a percentage of revenue, of other
income for the three months ended March 31, 2009, as compared to 2008:
Three Months Ended
Percentage of Revenue, March 31, 2008 10.0 %
Vehicle service contract and GAP profit sharing income -3.8 %
Interest income on restricted cash relating to secured financings -0.5 %
Other -0.4 %
Percentage of Revenue, March 31, 2009 5.3 %
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The decrease in other income, as a percentage of revenue, was primarily a
result of:
• Decreased vehicle service contract and guaranteed asset protection ("GAP")
profit sharing income due to the following:
• The formation of VSC Re, as discussed above, which eliminated the profit sharing arrangements related to vehicle service contracts, except for vehicle service contracts written prior to 2008 through one of the TPAs, as further discussed below. For the three months ended March 31, 2008, we received $1.8 million in vehicle service contract profit sharing payments.
• An increase in GAP claims paid as a percentage of premiums written. For the three months ended March 31, 2009 and 2008, we received GAP profit sharing payments of $0.1 million and $0.7 million, respectively.
• A change in the timing of the profit sharing payment related to vehicle service contracts written prior to 2008 through one of the TPAs. We receive profit sharing payments periodically after the term of the vehicle service contracts have substantially expired provided certain loss rates are met. We experienced a decline in the percentage of underlying contracts that substantially expired during the period and as a result, our profit sharing payment decreased to $0.1 million for the three months ended March 31, 2009 from $0.5 million for the same period in 2008. We recognize income in the period the payment is received as the amounts of these payments are currently not estimable due to a lack of historical information.
• Decreased interest income on restricted cash related to the secured financings due to a decrease in interest rates earned on cash investments relating to secured financing transactions.
Salaries and Wages. For the three months ended March 31, 2009, salaries and
wages expense decreased $0.6 million, or 3.5%, as compared to the same period in
2008. The decrease was primarily the result of:
• An increased percentage of Loan origination costs being deferred due to a
decrease in the Purchased Loan unit volume as a percentage of total unit
volume. For Dealer Loans, certain underwriting costs are considered Loan
origination costs and are deferred and expensed over the life of the Loan as
an adjustment to finance charge revenue while, for Purchased Loans, all
underwriting costs are expensed immediately.
• A decrease in salaries and wages related to Information Technology.
Sales and Marketing. For the three months ended March 31, 2009, sales and
marketing expense decreased $0.8 million, or 16.1%, as compared to the same
period in 2008. The decrease in sales and marketing expense was primarily due to
lower sales commissions reflecting a 13.0% decrease in the unit volume of Loan
originations, and the discontinuance of certain dealer-partner support programs
and lower utilization of various other dealer-partner programs.
Provision for Credit Losses. For the three months ended March 31, 2009, the
provision for credit losses decreased $2.5 million, or 93.8%, as compared to the
same period in 2008. The decrease was primarily a result of an improvement in
the performance of our Loan portfolio. Our forecasted collection rates at
March 31, 2009 for Loans originated in 2006, 2007, and 2008 were consistent with
our forecasted collection rates at December 31, 2008. During the first quarter
of 2008, forecasted collection rates declined.
Interest. For the three months ended March 31, 2009, interest expense decreased $2.9 million, or 27.1%, as compared to the same period in 2008. The following table shows interest expense, the average outstanding debt balance, and the pre-tax average cost of debt for the three months ended March 31, 2009 and 2008:
Three Months Ended March 31,
(Dollars in thousands) 2009 2008
Interest expense $ 7,923 $ 10,864
Average outstanding debt balance $ 624,279 $ 584,794
Pre-tax average cost of debt 5.3 % 6.9 %
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The decrease in interest expense was primarily the result of a reduction in our pre-tax average cost of debt due to reductions in market rates, offset by an increase in the average outstanding debt balance due to an increase in the average outstanding balance of our Loan portfolio.
Liquidity and Capital Resources
We need capital to fund new Loans and pay dealer holdback. Our primary
sources of capital are cash flows from operating activities, collections of
Consumer Loans and borrowings through four primary sources of financing: (1) a
revolving secured line of credit with a commercial bank syndicate; (2) revolving
secured warehouse facilities with institutional investors; (3) SEC Rule 144A
asset-backed secured borrowings ("Term ABS 144A") with qualified institutional
investors; and (4) a residual credit facility with an institutional investor.
There are various restrictive debt covenants for each source of financing and we
are in compliance with those covenants as of March 31, 2009. For information
regarding these financings and the covenants included in the related documents,
see Note 5 to the consolidated financial statements, which are incorporated
herein by reference.
Based on our available capital, we are targeting a 10% reduction in Consumer
Loan unit volume for the first half of 2009. Our target growth rate in the
. . .
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