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| CACC > SEC Filings for CACC > Form 10-Q on 29-Oct-2009 | All Recent SEC Filings |
29-Oct-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 our ability to access capital on acceptable
terms, accurately forecast Consumer Loan performance, and accept or purchase
Consumer Loans in the volume and on the terms that we anticipate.
Access to Capital
Our strategy for accessing capital on acceptable terms needed to maintain and
grow the business 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 1.2:1 at September 30, 2009. We
currently use three primary sources of financing: (1) a revolving secured line
of credit with a commercial bank syndicate; (2) revolving secured warehouse
facilities with institutional investors; and (3) SEC Rule 144A asset-backed
secured borrowings with qualified institutional investors.
Consumer Loan Performance
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.
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 September 30, 2009, with the forecasts
as of June 30, 2009, as of December 31, 2008, and at the time of assignment,
segmented by year of assignment:
Consumer Loan Forecasted Collection Percentage as of Variance in Forecasted Collection Percentage from Assignment September 30, June 30, December 31, Initial June 30, December 31, Initial Year 2009 2009 2008 Forecast 2009 2008 Forecast 2000 72.6% 72.6% 72.5% 72.8% 0.0% 0.1% -0.2 % 2001 67.4% 67.4% 67.4% 70.4% 0.0% 0.0% -3.0 % 2002 70.4% 70.5% 70.4% 67.9% -0.1% 0.0% 2.5 % 2003 73.7% 73.8% 73.8% 72.0% -0.1% -0.1% 1.7 % 2004 73.1% 73.3% 73.4% 73.0% -0.2% -0.3% 0.1 % 2005 73.9% 74.0% 74.1% 74.0% -0.1% -0.2% -0.1 % 2006 70.5% 70.5% 70.3% 71.4% 0.0% 0.2% -0.9 % 2007 68.4% 68.3% 67.9% 70.7% 0.1% 0.5% -2.3 % 2008 69.0% 68.4% 67.9% 69.7% 0.6% 1.1% -0.7 % 2009(1) 73.9% 72.3% - 71.1% 1.6% - 2.8 % |
(1) The forecasted collection rate for 2009 Consumer Loans as of September 30, 2009 includes both Consumer Loans that were in our portfolio as of June 30, 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
September 30, June 30,
2009 Consumer Loan Assignment Period 2009 2009 Variance
January 1, 2009 through June 30, 2009 74.6 % 72.3 % 2.3 %
July 1, 2009 through September 30, 2009 72.2 % - -
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Consumer Loan performance for the three and nine months ended September 30,
2009 exceeded our forecasts at June 30, 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 reflected both the experience to date on 2006 through 2008 Consumer Loans as well as an expectation that the external environment was likely 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 September 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 September 30, 2009
Forecasted % of Forecast
Loan Assignment Year Collection % Advance % Spread % Realized
2000 72.6% 47.9% 24.7% 99.5%
2001 67.4% 46.0% 21.4% 99.2%
2002 70.4% 42.2% 28.2% 98.8%
2003 73.7% 43.4% 30.3% 98.6%
2004 73.1% 44.0% 29.1% 98.1%
2005 73.9% 46.9% 27.0% 97.3%
2006 70.5% 46.6% 23.9% 91.1%
2007 68.4% 46.5% 21.9% 72.7%
2008 69.0% 44.6% 24.4% 47.2%
2009 73.9% 43.7% 30.2% 16.3%
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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 September 30, 2009 for Purchased Loans and Dealer Loans separately:
Forecasted
Loan Assignment Year Collection % Advance % Spread %
Purchased Loans 2007 68.5 % 48.8 % 19.7 %
2008 68.0 % 46.6 % 21.4 %
2009 73.8 % 45.8 % 28.0 %
Dealer Loans 2007 68.4 % 45.9 % 22.5 %
2008 69.7 % 43.5 % 26.2 %
2009 73.9 % 43.2 % 30.7 %
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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 nine months of 2009.
Consumer Loan Volume
Our ability to maintain and grow Consumer Loan volume is impacted by our
pricing strategy, the number of Dealer-Partners actively participating in our
programs, and the competitive environment. The following table summarizes
changes in Consumer Loan dollar and unit volume in each of the last seven
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 %
September 30, 2009 -13.6 % -5.7 %
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Dollar and unit volume declined during the first three quarters of 2009 as
compared to the same periods in 2008 due to pricing changes implemented during
the first nine months of 2008.
As a result of our success in renewing our debt facilities, we are now in
position to begin growing year over year unit volumes. In September 2009, we
implemented a pricing change that was intended to have a positive impact on unit
volume, in exchange for modestly lower returns on capital. As a result of this
change, unit volume increased by 9.0% in September 2009 as compared to September
of 2008 with dollar volume increasing by 3.0%. We will continue to monitor unit
volumes and will make additional pricing changes with an objective to maximize
economic profit given the capital we have available. Future growth rates will
depend on how unit volumes respond to pricing changes, which will be influenced
to a large degree by how quickly competition returns to our market.
The following table summarizes the changes in Consumer Loan unit volume and active Dealer-Partners:
Three Months Ended September 30,
2009 2008 % change
Consumer Loan unit volume 26,069 27,636 -5.7 %
Active Dealer-Partners (1) 2,240 2,270 -1.3 %
Average volume per active Dealer-Partner 11.6 12.2 -4.9 %
Consumer Loan unit volume from Dealer-Partners
active both periods 17,818 19,529 -8.8 %
Dealer-Partners active both periods 1,293 1,293 0.0 %
Average volume per Dealer-Partners active both
periods 13.8 15.1 -8.8 %
Consumer Loan unit volume from new Dealer-Partners 1,301 1,792 -27.4 %
New active Dealer-Partners (2) 230 300 -23.3 %
Average volume per new active Dealer-Partners 5.7 6.0 -5.0 %
Attrition (3) -29.3 % -20.6 %
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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.
Consumer Loans are assigned to us through either our Portfolio Program or our Purchase Program. The following table summarizes the portion of our Consumer Loan volume that was assigned to us through our Purchase Program:
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
New Purchased Loan unit volume as a
percentage of total unit volume 11.0 % 30.8 % 14.6 % 31.6 %
New Purchased Loan dollar volume as a
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For the three and nine months ended September 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 2008.
As of September 30, 2009 and December 31, 2008, the net Purchased Loan
receivable balance was 28.3% and 30.3%, respectively, of the total net
receivable balance.
Results of Operations
Three and Nine Months Ended September 30, 2009 Compared to Three and Nine
Months Ended September 30, 2008
The following is a discussion of our results of operations and income
statement data on a consolidated basis.
(Dollars in thousands, except per share data)
Three Months Three Months
Ended % of Ended % of
September 30, 2009 Revenue September 30, 2008 Revenue
Revenue:
Finance charges $ 84,489 84.2 % $ 75,617 94.4 %
Premiums earned 11,596 11.6 12 -
Other income 4,183 4.2 4,478 5.6
Total revenue 100,268 100.0 80,107 100.0
Costs and expenses:
Salaries and wages 16,862 16.8 16,766 20.9
General and administrative 7,872 7.9 6,975 8.7
Sales and marketing 3,533 3.6 4,103 5.1
Provision for credit losses (3,591 ) (3.6 ) 8,383 10.5
Interest 8,144 8.1 10,954 13.7
Provision for claims 5,148 5.1 (13 ) -
Total costs and expenses 37,968 37.9 47,168 58.9
Operating income 62,300 62.1 32,939 41.1
Foreign currency gain (loss) 3 - (2 ) -
Income from continuing operations before
provision for income taxes 62,303 62.1 32,937 41.1
Provision for income taxes 21,491 21.4 12,606 15.7
Income from continuing operations 40,812 40.7 20,331 25.4
Discontinued operations
(Loss) gain from discontinued United
Kingdom operations (13 ) - 504 0.6
Provision for income taxes 65 0.1 178 0.2
(Loss) gain from discontinued operations (78 ) (0.1 ) 326 0.4
Net income $ 40,734 40.6 % $ 20,657 25.8 %
Net income per common share:
Basic $ 1.33 $ 0.68
Diluted $ 1.29 $ 0.67
Income from continuing operations per
common share:
Basic $ 1.33 $ 0.67
Diluted $ 1.29 $ 0.66
(Loss) gain from discontinued operations
per common share:
Basic $ - $ 0.01
Diluted $ - $ 0.01
Weighted average shares outstanding:
Basic 30,658,969 30,310,053
Diluted 31,539,119 31,024,455
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(Dollars in thousands, except per share data)
Nine Months Nine Months
Ended % of Ended % of
September 30, 2009 Revenue September 30, 2008 Revenue
Revenue:
Finance charges $ 242,339 86.4 % $ 210,119 93.0 %
Premiums earned 25,257 9.0 65 -
Other income 12,933 4.6 15,706 7.0
Total revenue 280,529 100.0 225,890 100.0
Costs and expenses:
Salaries and wages 50,498 18.0 51,205 22.7
General and administrative 22,767 8.1 20,726 9.2
Sales and marketing 11,020 4.0 13,330 5.9
Provision for credit losses (7,217 ) (2.6 ) 31,792 14.1
Interest 23,352 8.3 31,702 14.0
Provision for claims 14,786 5.3 1 -
Total costs and expenses 115,206 41.1 148,756 65.9
Operating income 165,323 58.9 77,134 34.1
Foreign currency gain (loss) 9 - (15 ) -
Income from continuing operations before
provision for income taxes 165,332 58.9 77,119 34.1
Provision for income taxes 59,358 21.1 28,828 12.7
Income from continuing operations 105,974 37.8 48,291 21.4
Discontinued operations
Gain from discontinued United Kingdom
operations 21 - 548 0.2
Provision for income taxes 75 - 218 0.1
(Loss) gain from discontinued operations (54 ) - 330 0.1
Net income $ 105,920 37.8 % $ 48,621 21.5 %
Net income per common share:
Basic $ 3.47 $ 1.61
Diluted $ 3.38 $ 1.57
Income from continuing operations per
common share:
Basic $ 3.47 $ 1.60
Diluted $ 3.38 $ 1.56
(Loss) gain from discontinued operations
per common share:
Basic $ - $ 0.01
Diluted $ - $ 0.01
Weighted average shares outstanding:
Basic 30,540,274 30,223,586
Diluted 31,370,580 30,994,466
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Continuing Operations
Three and Nine Months Ended September 30, 2009 Compared to Three and Nine
Months Ended September 30, 2008
The following table highlights changes for the three and nine months ended
September 30, 2009, as compared to 2008:
Three Months Ended Nine Months Ended
September 30, 2009 September 30, 2009
Average outstanding balance of Loan portfolio 2.5 % 9.0 %
Finance charges 11.7 % 15.3 %
Operating expenses 1.5 % -1.1 %
Provision for credit losses -142.8 % -122.7 %
Interest expense -25.7 % -26.3 %
Income from continuing operations 100.7 % 119.4 %
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Income from continuing operations increased for the three and nine months
ended September 30, 2009 primarily due to the following:
• Increased finance charges due primarily to an increase in the average yield
on our Loan portfolio and an increase in the average outstanding balance of
our Loan portfolio;
• Decreased provision for credit losses due to an improvement in the performance of our Loan portfolio; and
• 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.
For the nine months ended September 30, 2009, the increase in income from
continuing operations was further impacted by decreased operating expenses due
to:
• An increased percentage of Loan origination costs being deferred due to an
increase in the Dealer Loan unit volume as a percentage of total unit
volume.
• Reduced expenses related to information technology.
• 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 premium tax and provision for claims. Previously, earnings on vehicle service contracts, excluding our commissions, 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 nine months ended September 30, 2009 and 2008:
(Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Premiums earned less premium tax and provision
for claims (after tax) $ 3,843 $ - $ 6,288 $ -
Earnings from profit sharing payments (after tax) - - 74 1,404
. . .
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