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| CACC > SEC Filings for CACC > Form 10-Q on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-2009
Quarterly Report
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes included in Item 8 -
Financial Statements and Supplementary Data, of our 2008 Annual Report on Form
10-K, as well as Item 1- Consolidated Financial Statements, in this Form 10-Q.
Critical Success Factors
Critical success factors include the ability to accurately forecast Consumer
Loan performance and access to capital.
At the time of Consumer Loan acceptance or purchase, we forecast future
expected cash flows from the Consumer Loan. Based on these forecasts, an advance
or one time payment is made to the related dealer-partner at a level designed to
achieve an acceptable return on capital. If Consumer Loan performance equals or
exceeds our original expectation, it is likely our target return on capital will
be achieved.
Our strategy for accessing capital is to: (1) maintain consistent financial
performance; (2) maintain modest financial leverage; and (3) maintain multiple
funding sources. Our funded debt to equity ratio is 1.4:1 at June 30, 2009. We
currently use 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 with qualified institutional investors; and (4) a residual credit
facility with an institutional investor.
Consumer Loan Performance
We use a statistical model to estimate the expected collection rate for each
Consumer Loan at inception. We continue to evaluate the expected collection rate
of each Consumer Loan subsequent to inception. Our evaluation becomes more
accurate as the Consumer Loans age, as we use actual performance data in our
forecast. By comparing our current expected collection rate for each Consumer
Loan with the rate we projected at the time of assignment, we are able to assess
the accuracy of our initial forecast. The following table compares our forecast
of Consumer Loan collection rates as of June 30, 2009, with the forecasts as of
March 31, 2009, as of December 31, 2008, and at the time of assignment,
segmented by year of assignment:
Forecasted Collection Percentage as of Variance in Forecasted Collection Percentage from
Consumer
Loan
Assignment June 30, March 31, December 31, Initial March 31, December 31, Initial
Year 2009 2009 2008 Forecast 2009 2008 Forecast
2000 72.6% 72.5% 72.5% 72.8% 0.1% 0.1% -0.2%
2001 67.4% 67.4% 67.4% 70.4% 0.0% 0.0% -3.0%
2002 70.5% 70.4% 70.4% 67.9% 0.1% 0.1% 2.6%
2003 73.8% 73.8% 73.8% 72.0% 0.0% 0.0% 1.8%
2004 73.3% 73.3% 73.4% 73.0% 0.0% -0.1% 0.3%
2005 74.0% 74.1% 74.1% 74.0% -0.1% -0.1% 0.0%
2006 70.5% 70.5% 70.3% 71.4% 0.0% 0.2% -0.9%
2007 68.3% 68.2% 67.9% 70.7% 0.1% 0.4% -2.4%
2008 68.4% 67.9% 67.9% 69.7% 0.5% 0.5% -1.3%
2009(1) 72.3% 69.3% - 70.6% 3.0% - 1.7%
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(1) The forecasted collection rate for 2009 Consumer Loans as of June 30, 2009 includes both Consumer Loans that were in our portfolio as of March 31, 2009 and Consumer Loans received during the most recent quarter. The following table provides forecasted collection rates for each of these segments:
Forecasted Collection Percentage as of
June 30, March 31,
2009 Consumer Loan Assignment Period 2009 2009 Variance
January 1, 2009 through March 31, 2009 72.8 % 69.3 % 3.5 %
April 1, 2009 through June 30, 2009 71.7 % - -
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Consumer Loan performance for the three and six months ended June 30, 2009
exceeded our forecasts at March 31, 2009 and 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 Consumer Loans in our current
portfolio will perform like historical Consumer Loans with similar
attributes.
• During 2008, we reduced our forecasts on Consumer Loans assigned in 2006 through 2008 as these Consumer Loans began to perform worse than expected. Additionally, we adjusted our estimated timing of future net cash flows to reflect recent trends relating to Consumer Loan prepayments.
• During 2008, and during the first quarter of 2009, we reduced the expected collection rate on new Consumer Loan assignments. The reductions reflect both the experience to date on 2006 through 2008 Consumer Loans as well as an expectation that the external environment will continue to negatively impact Consumer Loan performance.
• Our current forecasting methodology, when applied against historical data, produces a consistent forecasted collection rate as the Consumer Loans age.
Although current economic uncertainty increases the risk of poor Consumer
Loan performance, we set prices at Consumer 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 June 30, 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 June 30, 2009
Forecasted % of Forecast
Loan Assignment Year Collection % Advance % Spread % Realized
2000 72.6% 47.9% 24.7% 99.4%
2001 67.4% 46.0% 21.4% 99.1%
2002 70.5% 42.2% 28.3% 98.7%
2003 73.8% 43.4% 30.4% 98.4%
2004 73.3% 44.0% 29.3% 97.7%
2005 74.0% 46.9% 27.1% 96.8%
2006 70.5% 46.6% 23.9% 88.8%
2007 68.3% 46.5% 21.8% 67.7%
2008 68.4% 44.6% 23.8% 39.7%
2009 72.3% 43.4% 28.9% 10.6%
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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 June 30, 2009 for Purchased Loans and Dealer Loans separately:
Forecasted
Loan Assignment Year Collection % Advance % Spread %
Purchased Loans 2007 68.2 % 48.8 % 19.4 %
2008 67.4 % 46.7 % 20.7 %
2009 71.9 % 45.5 % 26.4 %
Dealer Loans 2007 68.4 % 45.9 % 22.5 %
2008 68.9 % 43.5 % 25.4 %
2009 72.5 % 42.9 % 29.6 %
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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 improving
forecasted collection rates during the first six months of 2009.
The following table summarizes changes in Consumer Loan dollar and unit
volume in each of the last six 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 %
June 30, 2009 -30.2 % -16.2 %
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Unit and dollar volume declined during the first two quarters of 2009 as
compared to the same periods in 2008 due to pricing changes implemented during
the first nine months of 2008.
The following table summarizes key information regarding Purchased Loans:
Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
New Purchased Loan unit volume as a percentage
of total unit volume 14.0 % 34.6 % 16.1 % 31.9 %
New Purchased Loan dollar volume as a
percentage of total dollar volume 17.0 % 39.2 % 19.4 % 36.6 %
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For the three and six months ended June 30, 2009, new Purchased Loan unit and
dollar volume as a percentage of total unit and dollar volume, respectively,
decreased as compared to 2008 due to pricing changes implemented during the
first nine months of 2008.
As of June 30, 2009 and 2008, the net Purchased Loan receivable balance was
29.3% and 27.5%, respectively, of the total net receivable balance.
The following table summarizes the changes in Consumer Loan unit volume and active dealer-partners:
Three Months Ended June 30,
2009 2008 % change
Consumer Loan unit volume 26,519 31,639 -16.2 %
Active dealer-partners (1) 2,304 2,291 0.6 %
Average volume per active dealer-partner 11.5 13.8 -16.7 %
Consumer Loan unit volume from dealer-partners active
both periods 17,497 22,496 -22.2 %
Dealer-partners active both periods 1,283 1,283 0.0 %
Average volume per dealer-partners active both periods 13.6 17.5 -22.2 %
Consumer Loan unit volume from new dealer-partners 1,583 1,563 1.3 %
New active dealer-partners (2) 276 291 -5.2 %
Average volume per new active dealer-partners 5.7 5.4 5.6 %
Attrition (3) -28.9 % -19.5 %
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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 and Six Months Ended June 30, 2009 Compared to Three and Six Months
Ended June 30, 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) June 30, 2009 Revenue June 30, 2008 Revenue
Revenue:
Finance charges $ 81,124 87.8 % $ 70,827 94.5 %
Premiums earned 7,201 7.8 21 -
Other income 4,048 4.4 4,157 5.5
Total revenue 92,373 100.0 75,005 100.0
Costs and expenses:
Salaries and wages 16,515 17.9 16,699 22.2
General and administrative 6,897 7.5 6,627 8.8
Sales and marketing 3,566 3.8 4,556 6.1
Provision for credit losses (3,790 ) (4.1 ) 20,760 27.7
Interest 7,285 7.9 9,884 13.2
Provision for claims 4,829 5.2 9 -
Total costs and expenses 35,302 38.2 58,535 78.0
Operating income 57,071 61.8 16,470 22.0
Foreign currency gain 3 - - -
Income from continuing operations before
provision for income taxes 57,074 61.8 16,470 22.0
Provision for income taxes 20,924 22.7 6,091 8.1
Income from continuing operations 36,150 39.1 10,379 13.9
Discontinued operations
Gain (loss) from discontinued United Kingdom
operations 49 0.1 (12 ) -
Provision for income taxes 14 - 23 -
Gain (loss) from discontinued operations 35 0.1 (35 ) -
Net income $ 36,185 39.2 % $ 10,344 13.9 %
Net income per common share:
Basic $ 1.18 $ 0.34
Diluted $ 1.15 $ 0.33
Income from continuing operations per common
share:
Basic $ 1.18 $ 0.34
Diluted $ 1.15 $ 0.33
Gain (loss) from discontinued operations per
common share:
Basic $ - $ -
Diluted $ - $ -
Weighted average shares outstanding:
Basic 30,600,531 30,252,873
Diluted 31,423,187 31,088,428
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Six Months Six Months
Ended % of Ended % of
(Dollars in thousands, except per share data) June 30, 2009 Revenue June 30, 2008 Revenue
Revenue:
Finance charges $ 157,850 87.6 % $ 134,502 92.3 %
Premiums earned 13,661 7.6 53 -
Other income 8,750 4.8 11,228 7.7
Total revenue 180,261 100.0 145,783 100.0
Costs and expenses:
Salaries and wages 33,636 18.7 34,439 23.7
General and administrative 14,895 8.3 13,751 9.4
Sales and marketing 7,487 4.1 9,227 6.3
Provision for credit losses (3,626 ) (2.0 ) 23,409 16.1
Interest 15,208 8.4 20,748 14.2
Provision for claims 9,638 5.3 14 -
Total costs and expenses 77,238 42.8 101,588 69.7
Operating income 103,023 57.2 44,195 30.3
Foreign currency gain (loss) 6 - (13 ) -
Income from continuing operations before
provision for income taxes 103,029 57.2 44,182 30.3
Provision for income taxes 37,867 21.0 16,222 11.1
Income from continuing operations 65,162 36.2 27,960 19.2
Discontinued operations
Gain from discontinued United Kingdom operations 34 - 44 -
Provision for income taxes 10 - 40 -
Gain from discontinued operations 24 - 4 -
Net income $ 65,186 36.2 % $ 27,964 19.2 %
Net income per common share:
Basic $ 2.14 $ 0.93
Diluted $ 2.08 $ 0.90
Income from continuing operations per common
share:
Basic $ 2.14 $ 0.93
Diluted $ 2.08 $ 0.90
Gain from discontinued operations per common
share:
Basic $ - $ -
Diluted $ - $ -
Weighted average shares outstanding:
Basic 30,510,439 30,179,877
Diluted 31,285,734 30,970,387
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Continuing Operations
Three and Six Months Ended June 30, 2009 Compared to Three and Six Months
Ended June 30, 2008
The following table highlights changes for the three and six months ended
June 30, 2009, as compared to 2008:
Three Months Ended Six Months Ended
June 30, 2009 June 30, 2009
Average outstanding balance of Loan portfolio 7.1 % 12.5 %
Finance charges 14.5 % 17.4 %
Operating expenses -3.2 % -2.4 %
Provision for credit losses -118.3 % -115.5 %
Interest expense -26.3 % -26.7 %
Income from continuing operations 248.3 % 133.1 %
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Income from continuing operations increased for the three and six months
ended June 30, 2009 primarily due to the following:
• Increased finance charges due primarily to the increase in the average
outstanding balance of our Loan portfolio and an increase in the average
yield on our Loan portfolio;
• Decreased provision for credit losses due to an improvement in the performance of our Loan portfolio;
• Decreased interest expense due to a reduction in market rates on our floating rate outstanding debt and a reduction in the average outstanding debt balance; and
• Decreased operating expenses due to:
• Reduced expenses related to information technology.
• 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.
• Lower sales commissions due to a reduction in unit volume.
In addition to the above, the formation of VSC Re during the fourth quarter of 2008 had a favorable impact on 2009 profitability. The VSC Re earnings are recognized on an accrual basis and recorded as premiums earned less a claims provision. Previously, earnings on vehicle service contracts were recorded as other income and realized when profit sharing payments were received from third party administrators. The following table shows the after-tax earnings from VSC Re and profit sharing payments received and recorded as other income for the three and six months ended June 30, 2009 and 2008:
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2009 2008 2009 2008
Premiums earned less provision for
claims, after tax $ 1,491 $ - $ 2,529 $ -
Earnings from profit sharing payments,
after tax - 9 74 1,404
$ 1,491 $ 9 $ 2,603 $ 1,404
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Finance Charges. For the three months ended June 30, 2009, finance charges
increased $10.3 million, or 14.5%, as compared to the same period in 2008. For
the six months ended June 30, 2009, finance charges increased $23.3 million, or
17.4%, as compared to the same period in 2008. The increases were 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 and an increase in forecasted collection rates during the first six months of 2009. For the three months ended June 30, 2009 and 2008, the average yield on our Loan portfolio was 30.6% and 27.9%, respectively. For the six months ended June 30, 2009 and 2008, the average yield on our Loan portfolio was 30.0% and 28.2%, respectively.
Premiums Earned and Provision for Claims. For the three months ended June 30,
2009, premiums earned and provision for claims increased $7.2 million and
$4.8 million, respectively, as compared to the same period in 2008. For the six
months ended June 30, 2009, premiums earned and provision for claims increased
$13.6 million and $9.6 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
. . .
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