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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, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER: 1-11416
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: (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 an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 11, 2005 the registrant had 21,632,228 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, 2005
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of
March 31, 2005 and December 31, 2004............................. 3
Unaudited Condensed Consolidated Statements of Operations
for the three-month periods ended March 31, 2005 and 2004 ....... 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the three-month periods ended March 31, 2005 and 2004........ 5
Notes to Unaudited Condensed Consolidated Financial Statements..... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 25
Item 4. Controls and Procedures............................................ 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 26
Item 2. Registered Sales of Equity Securities and Use of Proceeds.......... 26
Item 6. Exhibits and Reports on Form 8-K................................... 26
Signatures................................................................... 27
Certifications............................................................... 28
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,
2005 2004
--------- ---------
ASSETS
Cash $ 9,730 $ 14,366
Restricted cash 150,059 125,113
Finance receivables 666,586 592,806
Less: Allowance for finance credit losses (46,284) (42,615)
--------- ---------
Finance receivables, net 620,302 550,191
Servicing fees receivable 2,876 2,791
Residual interest in securitizations 44,135 50,430
Furniture and equipment, net 1,412 1,567
Deferred financing costs 5,435 5,096
Accrued interest receivable 6,817 6,411
Other assets 9,767 10,634
--------- ---------
$ 850,533 $ 766,599
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 16,836 $ 18,153
Warehouse lines of credit 50,535 34,279
Tax liabilities, net 2,823 2,978
Notes payable 861 1,421
Residual interest financing 16,411 22,204
Securitization trust debt 619,430 542,815
Senior secured debt 59,829 59,829
Subordinated debt 14,000 15,000
--------- ---------
780,725 696,679
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; 21,598,378 and 21,471,478
shares issued and outstanding at March 31, 2005 and
December 31, 2004, respectively 66,521 66,283
Retained earnings 4,865 5,104
Accumulated other comprehensive loss (1,202) (1,017)
Deferred compensation (376) (450)
--------- ---------
69,808 69,920
--------- ---------
$ 850,533 $ 766,599
========= =========
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,
------------------------------
2005 2004
------------ ------------
REVENUES:
Interest income $ 36,172 $ 20,423
Servicing fees 2,265 3,324
Other income 3,396 3,775
------------ ------------
41,833 27,522
------------ ------------
EXPENSES:
Employee costs 10,450 9,653
General and administrative 5,138 3,966
Interest 10,384 5,912
Provision for credit losses 12,312 6,750
Marketing 2,799 1,533
Occupancy 782 943
Depreciation and amortization 207 172
------------ ------------
42,072 28,929
------------ ------------
(Loss) before income tax benefit (239) (1,407)
Income tax benefit -- --
------------ ------------
(Loss) $ (239) $ (1,407)
============ ============
(Loss) per share:
Basic $ (0.01) $ (0.07)
Diluted (0.01) (0.07)
Number of shares used in computing (loss) per share:
Basic 21,528 20,638
Diluted 21,528 20,638
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,
------------------------------
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (239) $ (1,407)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization of deferred acquisition fees (2,614) (1,022)
Amortization of discount on Class B Notes 281 --
Depreciation and amortization 207 171
Amortization of deferred financing costs 755 391
Provision for credit losses 12,312 6,750
Deferred compensation 56 2
Releases of cash from Trusts to Company 8,010 6,232
Net deposits to Trusts to increase Credit Enhancement (3,234) (635)
Interest income on residual assets (1,683) (4,078)
Cash received from residual interest in securitizations 7,980 10,305
Changes in assets and liabilities:
Payments on restructuring accrual (193) (545)
Restricted cash (29,720) 11,948
Other assets 346 230
Accounts payable and accrued expenses (1,314) 40
Tax liabilities, net (155) 961
------------ ------------
Net cash provided by (used in) operating activities (9,205) 29,343
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of finance receivables held for investment (144,165) (93,404)
Proceeds received on finance receivables held for investment 64,355 41,552
Purchase of furniture and equipment (22) (394)
------------ ------------
Net cash used in investing activities (79,832) (52,246)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of residual financing debt -- 44,000
Proceeds from issuance of securitization trust debt 135,924 --
Net proceeds from warehouse lines of credit 16,256 42,267
Repayment of residual interest financing debt (5,793) (1,842)
Repayment of securitization trust debt (59,590) (33,935)
Repayment of senior secured debt -- (15,137)
Repayment of subordinated debt (1,000) --
Repayment of notes payable (560) (665)
Payment of financing costs (1,094) (2,258)
Exercise of options and warrants 258 175
------------ ------------
Net cash provided by (used in) financing activities 84,401 32,605
------------ ------------
Increase (decrease) in cash (4,636) 9,702
Cash at beginning of period 14,366 33,209
------------ ------------
Cash at end of period $ 9,730 $ 42,911
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 9,410 $ 5,580
Income taxes $ 155 $ 173
Supplemental disclosure of non-cash investing and financing activities:
Stock-based compensation $ 56 $ 2
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
Consumer Portfolio Services, Inc. ("CPS") was incorporated in California on
March 8, 1991. CPS and its subsidiaries (collectively, the "Company") specialize
primarily in purchasing, selling and servicing retail automobile installment
sale contracts ("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 its
purchases, the Company provides indirect financing to Dealer customers for
borrowers with limited credit histories, low incomes or past credit problems
("Sub-Prime Customers"). The Company serves as an alternative source of
financing for Dealers, allowing sales to customers who otherwise might not be
able to obtain financing. The Company does not lend money directly to consumers.
Rather, it purchases installment Contracts from Dealers based on its financing
programs (the "CPS Programs").
BASIS OF PRESENTATION
The unaudited Condensed Consolidated Financial Statements of the Company 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 the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, 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, 2005 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 the Company's Annual Report on Form 10-K for the year ended December
31, 2004.
OTHER INCOME
Other Income consists primarily of recoveries on previously charged off MFN
contracts. These Contracts were acquired in the MFN acquisition. No amounts were
allocated for these assets acquired at the time of the acquisition. These
recoveries totaled $1.6 million and $2.6 million for the periods ended March 31,
2005 and 2004, respectively. Other income also includes fees paid to the Company
by Dealers for certain direct mail services the Company provides. Direct mail
fees totaled $1.2 million and $761,000 for the three-month periods ended March
31, 2005 and 2004, respectively.
STOCK BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), the Company accounts for
stock-based employee compensation plans in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations, whereby stock options are recorded at intrinsic value equal to
the excess of the share price over the exercise price at the date of grant. The
Company provides the pro forma net (loss), pro forma earnings (loss) per share,
and stock based compensation plan disclosure requirements set forth in SFAS No.
123. The Company accounts for repriced options as variable awards.
6
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Compensation cost has been recognized for certain stock options in the Unaudited
Condensed Consolidated Financial Statements in accordance with APB Opinion No.
25. Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation," the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated below.
THREE MONTHS ENDED
MARCH 31,
-----------------------
2005 2004
---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net (loss), as reported............................... $ (239) $ (1,407)
Stock-based employee compensation expense,
fair value method, net of tax....................... (200) (186)
Previously recorded stock-based employee
compensation expense, intrinsic value method,
net of tax.......................................... 32 1
---------- ----------
Pro forma net (loss).................................. $ (407) $ (1,592)
========== ==========
Net (loss) per share
Basic, as reported.................................... $ (0.01) $ (0.07)
Diluted, as reported.................................. $ (0.01) $ (0.07)
Pro forma Basic....................................... $ (0.02) $ (0.08)
Pro forma Diluted..................................... $ (0.02) $ (0.08)
PURCHASES OF COMPANY STOCK
During the three-month periods ended March 31, 2005 and 2004, the Company did
not purchase any shares of its common stock.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") published
FASB Statement No. 123 (revised 2004), "Share-Based Payment" ("FAS 123(R)" or
the "Statement"). FAS 123 (R) requires that the compensation cost relating to
share-based payment transactions, including grants of employee stock options, be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. FAS 123(R) permits entities
to use any option-pricing model that meets the fair value objective in the
Statement. Modifications of share-based payments will be treated as replacement
awards with the cost of the incremental value recorded in the financial
statements.
During 2005 the SEC amended the effective date of FAS 123(R) which will now
require the Company to adopt the Statement beginning January 1, 2006. As of the
effective date, the Company will apply the Statement using a modified version of
prospective application. Under that transition method, compensation cost is
recognized for (1) all awards granted after the required effective date and to
awards modified, cancelled, or repurchased after that date and (2) the portion
of prior awards for which the requisite service has not yet been rendered, based
on the grant-date fair value of those awards calculated for pro forma
disclosures under SFAS 123.
The impact of this Statement on the Company in 2006 and beyond will depend upon
various factors, among them being our future compensation strategy. The pro
forma compensation costs presented (in the table above) and in prior filings for
the Company have been calculated using a Black-Scholes option pricing model and
may not be indicative of amounts which should be expected in future periods.
7
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(2) FINANCE RECEIVABLES
MARCH 31, DECEMBER 31,
2005 2004
------------ ------------
Finance Receivables (IN THOUSANDS)
Automobile
Simple Interest............................... $ 605,221 $ 522,346
Pre-compute, net of unearned interest......... 77,516 86,932
------------ ------------
Finance Receivables, net of unearned interest. 682,737 609,278
Less: Unearned acquisition fees and discounts. (16,151) (16,472)
------------ ------------
Finance Receivables........................... $ 666,586 $ 592,806
============ ============
The following table presents the components of Finance Receivables, net of
unearned interest:
MARCH 31, MARCH 31,
2005 2004
------------ ------------
(IN THOUSANDS)
Balance at beginning of period.................... $ 42,615 $ 35,889
Provision for credit losses....................... 12,312 6,750
Charge offs....................................... (11,436) (8,411)
Recoveries........................................ 2,793 2,373
------------ ------------
Balance at end of period.......................... $ 46,284 $ 36,601
============ ============
The following table presents a summary of the activity for the allowance for
credit losses for the three-month periods ended March 31, 2005 and 2004:
(3) RESIDUAL INTEREST IN SECURITIZATIONS
The residual interest in securitizations represents the discounted sum of
expected future cash flows from securitization trusts. The following table
presents the components of the residual interest in securitizations and are
shown at their discounted amounts:
MARCH 31, DECEMBER 31,
2005 2004
------------ ------------
(IN THOUSANDS)
Cash, commercial paper, United States
government securities and other qualifying
investments (Spread Accounts)................... $ 16,733 $ 17,776
Receivables from Trusts (NIRs).................... 10,839 12,483
Overcollateralization............................. 13,487 16,644
Investment in subordinated certificates........... 3,076 3,527
------------ ------------
Residual interest in securitizations.............. $ 44,135 $ 50,430
============ ============
8
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents estimated remaining undiscounted credit losses
included in the fair value estimate of the Residuals as a percentage of the
Company's managed portfolio held by non-consolidated subsidiaries subject to
recourse provisions:
MARCH 31, DECEMBER 31,
2005 2004
------------ ------------
(DOLLARS IN THOUSANDS)
Undiscounted estimated credit losses.............................. $ 17,014 $ 3,588
Managed portfolio held by non-consolidated subsidiaries........... 193,823 233,621
Undiscounted estimated credit losses as percentage of managed
portfolio held by non-consolidated subsidiaries................. 8.8% 10.1%
The key economic assumptions used in measuring all residual interest in
securitizations as of March 31, 2005 and December 31, 2004 are included in the
table below. The pre-tax discount rate remained constant at 14%, except for
certain cash flows from charged off receivables related to the Company's
securitizations from 2001 to 2003 where the Company has used a discount rate of
25%.
MARCH 31, DECEMBER 31,
2005 2004
------------- -------------
Prepayment speed (Cumulative).................. 20.0% - 33.0% 20.0% - 30.5%
Net credit losses (Cumulative)................. 12.9% - 20.4% 13.0% - 20.5%
(4) SECURITIZATION TRUST DEBT
The Company has 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 the Company's Unaudited Condensed
Consolidated Balance Sheets as "Securitization Trust Debt," and the components
of such debt are summarized in the following table:
Weighted
Final Outstanding Outstanding Average
Scheduled Principal at Principal at Interest Rate at
Payment Initial March 31, December 31, March 31,
Series Issue Date Date (1) Principal 2005 2004 2005
- -------------------------------------------------------------------------------------- -------------- ----------------
MFN 2001-A June 28, 2001 June 15, 2007 $ 301,000 $ 1,831 $ 3,382 5.07%
TFC 2002-1 March 19, 2002 August 15, 2007 64,552 1,366 2,574 4.23%
TFC 2002-2 October 9, 2002 March 15, 2008 62,589 6,581 9,152 2.95%
TFC 2003-1 May 20, 2003 January 15, 2009 52,365 14,249 17,703 2.69%
CPS 2003-C September 30, 2003 March 15, 2010 87,500 47,164 53,456 3.03%
CPS 2003-D December 16, 2003 October 15, 2010 75,000 44,581 50,722 3.07%
CPS 2004-A May 5, 2004 October 15, 2010 82,094 60,028 66,737 3.21%
PCR 2004-1 June 24, 2004 March 15, 2010 76,257 42,900 52,633 3.29%
CPS 2004-B August 2, 2004 February 15, 2011 96,369 77,080 84,185 4.17%
CPS 2004-C September 30, 2004 April 15, 2011 100,000 86,724 93,071 3.71%
CPS 2004-D December 21, 2004 December 15, 2011 120,000 111,802 109,200 4.34%
CPS 2005-A March 31, 2005 October 15, 2011 125,124 125,124 N/A 4.23%
------------------------------ --------------
$ 1,242,850 $ 619,430 $ 542,815
============================== ==============
(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
$184.1 Million in 2005, $182.6 Million in 2006, $116.8 Million in 2007, $76.5
Million in 2008, $45.2 Million in 2009, and $14.2 Million in 2010.
9
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
All of the securitization trust debt was sold in private placement transactions
to qualified institutional buyers. The debt was issued through wholly-owned
bankruptcy remote subsidiaries of CPS, TFC or MFN, and is secured by the assets
of such subsidiaries, but not by other assets of the Company. Principal and
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 require that certain delinquency and credit loss
criteria be met with respect to the collateral pool, and require that the
Company maintain minimum levels of liquidity and net worth and not exceed
maximum leverage levels and maximum financial losses. As a result of waivers and
amendments to these covenants throughout 2004 and during the first quarter of
2005, the Company was in compliance with all such covenants as of March 31,
2005. Without the waivers and amendments obtained in the first quarter of 2005,
the Company would have been in breach of covenants related to maintaining a
minimum level of net worth as of March 31, 2005. In addition, certain
securitization and non-securitization related debt contain cross-default
provisions, which would allow certain creditors to declare default if a default
were declared under a different facility.
The Company is responsible for the administration and collection of the
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,
2005, restricted cash under the various agreements totaled approximately $143.2
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. Deferred financing costs related to the
securitization trust debt are amortized in proportion to the principal
distributed to the noteholders. Accordingly, the effective cost of borrowing of
the securitization trust debt is greater than the stated rate of interest.
The wholly-owned, bankruptcy remote subsidiaries of CPS, MFN and TFC were formed
to facilitate the above asset-backed financing transactions. Similar bankruptcy
remote subsidiaries issue the debt outstanding under the Company's 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 the Company or its
affiliates.
10
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(5) INTEREST INCOME
The following table presents the components of interest income:
THREE MONTHS ENDED
MARCH 31,
---------------------------
2005 2004
------------ ------------
(IN THOUSANDS)
Interest on Finance Receivables................. 33,985 17,199
Residual interest income........................ 1,683 2,744
Other interest income........................... 504 480
------------ ------------
Net interest income............................. 36,172 20,423
============ ============
(6) (LOSS) PER SHARE
Diluted (loss) per share for the three-month period ended March 31, 2005 and
2004 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 (loss) per share for the three-month
period ended March 31, 2005 and 2004:
THREE MONTHS ENDED
MARCH 31,
---------------------------
2005 2004
------------ ------------
(IN THOUSANDS)
Weighted average number of common shares
outstanding during the period used to
compute basic (loss) per share................ 21,528 20,638
Incremental common shares attributable to
exercise of outstanding options and warrants.. -- --
Incremental common shares attributable to
convertible debt.............................. -- --
------------ ------------
Weighted average number of common shares used
to compute diluted (loss) per share........... 21,528 20,638
============ ============
If the anti-dilutive effects of common stock equivalents were considered,
additional shares included in the diluted (loss) per share calculation for the
three-month period ended March 31, 2005 and March 31, 2004 would have included
an additional 2.0 million and 1.7 million shares, respectively, attributable to
the exercise of outstanding options and warrants. Similarly, additional shares
included in the diluted (loss) per share calculation for the three-month period
ended March 31, 2004 would have included an additional 1.1 million, attributable
to the conversion of certain subordinated debt.
(7) INCOME TAXES
As of December 31, 2004, the Company had net deferred tax assets of $9.9
million, which included a valuation allowance of $43.9 million against gross
deferred tax assets of $53.8 million. There were also offsetting gross deferred
tax liabilities of $9.9 million. Tax liabilities, net, at March 31, 2005 and
December 31, 2004 were $2.8 million and $3.0 million, respectively. The Company
increased its valuation allowance by the income tax benefit for the period to
result in no net income tax provision for the three-month period ended March 31,
2005. The Company has evaluated its deferred tax assets and believes that it is
more likely than not that certain deferred tax assets will not be realized due
to limitations imposed by the Internal Revenue Code and expected future taxable
income.
11
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(8) LEGAL PROCEEDINGS
The Company is routinely involved in various legal proceedings resulting from
its consumer finance activities and practices, both continuing and discontinued.
The Company believes that there are substantive legal defenses to such claims,
and intends to defend them vigorously. There can be no assurance, however, as to
the outcome.
(9) EMPLOYEE BENEFITS
The Company sponsors the MFN Financial Corporation Benefit Plan ("the Plan").
Plan benefits were frozen June 30, 2001. No contributions were paid during the
three months ended March 31, 2005 and none are expected to be paid during the
remainder of 2005. The table below sets forth the Plans net periodic benefit
cost for the three months ended March 31, 2005 and the year ended December 31,
2004.
THREE MONTHS ENDED
MARCH 31,
2005 2004
------------ ------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost...................................... $ -- $ --
Interest Cost..................................... 211 205
Expected return on assets......................... (292) (260)
Amortization of transition (asset)/obligation..... (9) (9)
Amortization of prior service cost................ -- --
Recognized net actuarial loss..................... 12 17
------------ ------------
Net periodic benefit cost...................... $ (78) $ (47)
============ ============
(10) COMPREHENSIVE (LOSS)
The components of comprehensive (loss) are as follows:
THREE MONTHS ENDED
MARCH 31,
2005 2004
------------ ------------
COMPONENTS OF COMPREHENSIVE (LOSS)
Net (loss)........................................ $ (239) $ (1,407)
Minimum pension liability, net of tax............. (185) --
------------ ------------
Net periodic benefit cost...................... $ (424) $ (1,407)
============ ============
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Consumer Portfolio Services, Inc. ("CPS," and together with its subsidiaries,
the ("Company") is a consumer finance company specializing in purchasing,
selling and servicing retail automobile installment purchase contracts
("Contracts") originated by licensed motor vehicle dealers ("Dealers") in the
sale of new and used automobiles, light trucks and passenger vans. Through its
purchases, the Company provides indirect financing to Dealer customers with
limited credit histories, low incomes or past credit problems ("Sub-Prime
Customers"). The Company serves as an alternative source of financing for
Dealers, allowing sales to customers who otherwise might not be able to obtain
financing. The Company does not lend money directly to consumers. Rather, it
purchases installment Contracts from Dealers.
CPS was incorporated and began its operations in 1991. In March 2002, CPS
acquired by merger (the "MFN Merger") MFN Financial Corp. and its subsidiaries.
In May 2003, CPS acquired by merger (the "TFC Merger") TFC Enterprises Inc. and
its subsidiaries. Both MFN Financial Corp and TFC Enterprises Inc., through
their respective subsidiaries, were engaged in businesses substantially similar
to that of CPS, and in each merger CPS acquired a portfolio of receivables that
had been held by the acquired company. Each merger was accounted for as a
purchase. The indirect financing programs of subsidiaries of TFC Enterprises,
Inc. were directed principally to members of the United States armed forces. The
Company has continued to offer such financing programs (the "TFC Programs")
subsequent to the TFC merger, in addition to its other financing programs (the
"CPS Programs").
On April 2, 2004, the Company purchased a portfolio of Contracts and certain
other assets (the "SeaWest Asset Acquisition") from SeaWest Financial
Corporation ("SeaWest"). In addition, the Company was named the successor
servicer for three term securitization transactions originally sponsored by
SeaWest (the "SeaWest Third Party Portfolio"). The Company does not intend to
offer financing programs similar to those previously offered by SeaWest.
SECURITIZATION
GENERALLY
Throughout the periods for which information is presented in this report, the
Company has purchased Contracts with the intention of repackaging them in
securitizations. All such securitizations have involved identification of
specific Contracts, sale of those Contracts (and associated rights) to a special
purpose subsidiary of the Company, and issuance of asset-backed securities to
fund the transactions. Depending on the structure of the securitization, the
transaction may be properly accounted for as a sale of the Contracts, or as a
secured financing.
When the transaction is structured as a secured financing, the subsidiary is
consolidated with the Company. Accordingly, the sold Contracts and the related
securitization trust debt appear as assets and liabilities, respectively, of the
Company on its Unaudited Condensed Consolidated Balance Sheet. The Company then
periodically (i) recognizes interest and fee income on the receivables (ii)
recognizes interest expense on the securities issued in the securitization, and
(iii) records as expense a provision for credit losses on the receivables.
When structured as a sale, the subsidiary is not consolidated with the Company.
Accordingly, the securitization removes the sold Contracts from the Company's
Unaudited Condensed Consolidated Balance Sheet, the asset-backed securities
(debt of the non-consolidated subsidiary) do not appear as debt of the Company,
and the Company shows as an asset a retained residual interest in the sold
Contracts. The residual interest represents the discounted value of what the
Company expects will be the excess of future collections on the Contracts over
principal and interest due on the asset-backed securities. That residual
interest appears on the Company's balance sheet as "Residual interest in
securitizations," and the determination of its value is dependent on estimates
of the future performance of the sold Contracts.
13
CHANGE IN POLICY
In August 2003, the Company announced that it would structure its future
securitization transactions related to Contracts purchased under the CPS
Programs as secured financings for financial accounting purposes. Its seven
subsequent term securitizations of finance receivables have been so structured.
Prior to August 2003, the Company had structured its term securitization
transactions related to the CPS Programs as sales for financial accounting
purposes. In the MFN Merger and in the TFC Merger the Company acquired finance
receivables that had been previously securitized in term securitization
transactions that were reflected as secured financings. As of March 31, 2005,
the Company's Unaudited Condensed Consolidated Balance Sheet included net
finance receivables of approximately $60.5 million and securitization trust debt
of $24.0 million related to finance receivables acquired in the two mergers and
the SeaWest Asset Acquisition, out of totals of net finance receivables of
approximately $620.3 million and securitization trust debt of approximately
$619.4 million.
CREDIT RISK RETAINED
Whether a securitization is treated as a secured financing or as a sale for
financial accounting purposes, the related special purpose subsidiary may be
unable to release excess cash to the Company if the credit performance of the
securitized Contracts falls short of pre-determined standards. Such releases
represent a material portion of the cash that the Company uses to fund its
operations. An unexpected deterioration in the performance of securitized
Contracts could therefore have a material adverse effect on both the Company's
liquidity and its results of operations, regardless of whether such Contracts
are treated as having been sold or as having been financed. For estimation of
the magnitude of such risk, it may be appropriate to look to the size of the
Company's "managed portfolio," which represents both financed and sold Contracts
as to which such credit risk is retained. The Company's managed portfolio as of
March 31, 2005 was approximately $926.3 million (this amount includes $40.5
million related to the SeaWest Third Party Portfolio on which the Company earns
only servicing fees and has no credit risk).
RESULTS OF OPERATIONS
EFFECTS OF CHANGE IN SECURITIZATION STRUCTURE
The Company's decision in the third quarter of 2003 to structure securitization
transactions as borrowings secured by receivables for financial accounting
purposes, rather than as sales of receivables, has affected and will affect the
way in which the transactions are reported. The major effects are these: (i) the
finance receivables are shown as assets of the Company on its balance sheet;
(ii) the debt issued in the transactions is shown as indebtedness of the
Company; (iii) cash deposited to enhance the credit of the securitization
transactions ("Spread Accounts") is shown as "Restricted cash" on the Company's
balance sheet; (iv) cash collected from borrowers and other sources related to
the receivables prior to making the required payments under the Securitization
Agreements is also shown as "Restricted cash" on the Company's balance sheet;
(v) the servicing fee that the Company receives in connection with such
receivables is recorded as a portion of the interest earned on such receivables
in the Company's statements of operations; (vi) the Company has initially and
periodically recorded as expense a provision for estimated credit losses on the
receivables in the Company's statements of operations; and (vii) of scheduled
payments on the receivables and on the debt issued in the transactions, the
portion representing interest is recorded as interest income and expense,
respectively, in the Company's statements of operations.
These changes collectively represent a deferral of revenue and acceleration of
expenses, and thus a more conservative approach to accounting for the Company's
operations compared to the previous term securitization transactions, which were
accounted for as sales at the consummation of the transaction. The changes have
resulted in the Company's reporting lower earnings than it would have reported
if it had continued to structure its securitizations to require recognition of
gain on sale. As a result, reported earnings have been less than they would have
been had the Company continued to structure its securitizations to record a gain
on sale. It should also be noted that growth in the Company's portfolio of
receivables in excess of current expectations would result in an increase in
expenses in the form of provision for credit losses, and would initially have a
negative effect on net earnings. The Company's cash availability and cash
requirements should be unaffected by the change in structure.
14
The Company has conducted seven term securitizations of Contracts originated
under the CPS Programs structured as secured financings. In March 2004, the
Company completed a securitization of its retained interest in eight
securitization transactions previously sponsored by the Company and its
affiliates, which was also structured as a secured financing. In addition, in
June 2004, the Company completed a term securitization of Contracts purchased in
the SeaWest Asset Acquisition and under the TFC Programs, which was structured
as a secured financing. The Company's MFN and TFC subsidiaries completed term
securitizations structured as secured financings prior to their becoming
subsidiaries of the Company.
THE THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 2004
REVENUES. During the three months ended March 31, 2005, revenues were $41.8
million, an increase of $14.3 million, or 52.0%, from the prior year period
revenue of $27.5 million. The primary reason for the increase in revenues is an
increase in interest income. Interest income for the three months ended March
31, 2005 increased $15.7 million, or 77.1%, to $36.2 million from $20.4 million
in the prior year period. The primary reasons for the increase in interest
income are the change in securitization structure implemented during the third
quarter of 2003 as described above (an increase of $17.8 million) and the
interest income earned on the portfolios of Contracts acquired in the SeaWest
Asset Acquisition (an increase of $1.4 million). This increase was partially
offset by the decline in the balance of the portfolio of Contracts acquired in
the MFN Merger (resulting in a decrease of $1.1 million in interest income), a
decline in the balance of the portfolio of Contracts acquired in the TFC Merger
(resulting in a decrease of $1.3 million in interest income) and a decrease in
residual interest income (a decrease of $1.1 million) as a result of the decline
in the residual asset between the periods presented.
Servicing fees totaling $2.3 million in the three months ended March 31, 2005
decreased $1.1 million, or 31.9%, from $3.3 million in the same period a year
earlier. The decrease in servicing fees is the result of the change in
securitization structure and the consequent decline in the Company's managed
portfolio held by non-consolidated subsidiaries. The decrease was partially
offset by the servicing fees earned on the SeaWest Third Party Portfolio, which
totaled $475,000 in the three months ended March 31, 2005, compared to zero in
the same period a year earlier. As a result of the decision to structure future
securitizations as secured financings, the Company's managed portfolio held by
non-consolidated subsidiaries will continue to decline in future periods, and
servicing fee revenue is anticipated to decline proportionately. As of March 31,
2005 and 2004, the Company's managed portfolio owned by consolidated vs.
non-consolidated subsidiaries and other third parties was as follows:
MARCH 31, 2005 MARCH 31, 2004
-------------------- --------------------
AMOUNT % AMOUNT %
-------------------- --------------------
Total Managed Portfolio ($ IN MILLIONS)
Owned by Consolidated Subsidiaries......... $ 692.0 74.7% $ 367.6 49.8%
Owned by Non-Consolidated Subsidiaries..... 193.8 20.9% 370.7 50.2%
SeaWest Third Party Portfolio.............. 40.5 4.4% -- 0.0%
-------------------- --------------------
Total...................................... $ 926.3 100.0% $ 738.3 100.0%
==================== ====================
15
At March 31, 2005, the Company was generating income and fees on a managed
portfolio with an outstanding principal balance approximating $926.3 million
(this amount includes $40.5 million related to the SeaWest Third Party Portfolio
on which the Company earns only servicing fees), compared to a managed portfolio
with an outstanding principal balance approximating $738.3 million as of March
31, 2004. As the portfolios of Contracts acquired in the MFN Merger and the TFC
Merger decrease, the portfolio of Contracts originated under the CPS Programs
continues to expand. At March 31, 2005 and 2004, the managed portfolio
composition was as follows:
MARCH 31, 2005 MARCH 31, 2004
-------------------- --------------------
AMOUNT % AMOUNT %
-------------------- --------------------
ORIGINATING ENTITY ($ IN MILLIONS)
CPS........................................ $ 760.1 82.1% $ 572.1 77.5%
TFC........................................ 83.5 9.0% 112.7 15.3%
MFN........................................ 11.1 1.2% 53.5 7.2%
SeaWest.................................... 31.1 3.4% -- 0.0%
SeaWest Third Party Portfolio.............. 40.5 4.4% -- 0.0%
-------------------- --------------------
Total...................................... $ 926.3 100.0% $ 738.3 100.0%
==================== ====================
Other income decreased $378,000, or 10.0%, to $3.4 million in the three month
period ended March 31, 2005 from $3.8 million during the same period a year
earlier. The period over period decrease resulted primarily from decreases in
recoveries on MFN Contracts ($951,000) and decreases revenue on certain leased
property ($46,000), these decreases were somewhat offset by increased revenue on
the Company's direct mail products ($476,000), increased sales tax refunds
($94,000) and an increase in fees generated from electronic check payments
($49,000).
EXPENSES. The Company's operating expenses consist primarily of employee costs
and other operating expenses, which are incurred as applications and 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 warrants
and stock options, and are one of the Company's most significant operating
expenses. These costs (other than those relating to stock options) generally
fluctuate with the level of applications and Contracts processed and serviced.
Other operating expenses consist primarily of interest expense, provisions for
credit losses, facilities expenses, telephone and other communication services,
credit services, computer services (including employee costs associated with
information technology support), professional services, marketing and
advertising expenses, and depreciation and amortization.
Total operating expenses were $42.1 million for the three months ended March 31,
2005, compared to $28.9 million for the same period a year earlier, an increase
of $13.1 million, or 45.4%. The increase is primarily due to increases in
provision for credit losses and interest expense, which increased by $5.6
million and $4.5 million, or 82.4% and 75.6% respectively. Both interest expense
and provision for credit losses are directly impacted by the growth in the
Company's portfolio of Contracts held by consolidated affiliates.
Employee costs increased to $10.5 million during the three months ended March
31, 2005, representing 24.5% of total operating expenses, from $9.7 million for
the same period a year earlier, or 33.4% of total operating expenses. The slight
increase is primarily the result of staff additions related to increased
Contract purchases during the previous 12 months. The decrease as a percentage
of total operating expenses reflects the higher total of operating expenses,
primarily a result of the increased provision for credit losses and interest
expense.
16
General and administrative expenses increased $1.2 million, or 29.6% and
represented 12.0% of total operating expenses in the three month period ending
March 31, 2005, as compared to the prior year period when general and
administrative expenses represented 13.7% of total operating expenses. The
decrease as a percentage of total operating expenses reflects the higher
operating expenses primarily a result of the provision for credit losses and
interest expense.
Interest expense for the three month period ended March 31, 2005 increased $4.5
million, or 75.6%, to $10.4 million, compared to $5.9 million in the same period
of the previous year. The increase is primarily the result of changes in the
amount and composition of securitization trust debt carried on the Company's
Consolidated Balance Sheet. Such debt increased as a result of the change in
securitization structure implemented beginning in July 2003 and the SeaWest
Asset Acquisition in April 2004 (a combined increase of approximately $5.3
million), partially offset by the decrease in the balance of the securitization
trust debt acquired in the MFN Merger and the TFC Merger (resulting in a
decrease of approximately $773,000 in interest expense).
Marketing expenses increased by $1.3 million, or 82.6%, and represented 6.6% of
total operating expenses. The increase is primarily due to the increase in
Contracts purchased by the Company during the three months ended March 31, 2005
as compared to the prior year period.
Occupancy expenses decreased by $161,000, or 17.1%, and represented 1.9% of
total operating expenses. The decrease is primarily due to the closure and
sub-leasing during 2004 of certain facilities acquired in the MFN Merger and the
TFC Merger.
Depreciation and amortization expenses increased by $35,000, or 20.3%, to
$207,000 from $172,000.
CREDIT EXPERIENCE
The Company's financial results are dependent on the performance of the
Contracts in which it retains an ownership interest. The table below documents
the delinquency, repossession and net credit loss experience of all Contracts
that the Company was servicing (excluding Contracts from the SeaWest Third Party
Portfolio) as of the respective dates shown. Credit experience for CPS, MFN
(since the date of the MFN Merger), TFC (since the date of the TFC Merger) and
SeaWest (since the date of the SeaWest Asset Acquisition) is shown on a combined
basis in the table below. The Company attributes the decrease in delinquencies
from December 31, 2004 to March 31, 2005 to normal seasonality and to charge
offs during the three-months ended March 31, 2005.
DELINQUENCY EXPERIENCE (1)
CPS, MFN, TFC and SeaWest Combined
MARCH 31, 2005 DECEMBER 31, 2004
-------------------------- --------------------------
NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT
------------ ------------ ------------ ------------
DELINQUENCY EXPERIENCE (Dollars in thousands)
Gross servicing portfolio (1)........................... 83,588 $ 904,557 83,018 $ 873,880
Period of delinquency (2)
31-60 days........................................... 1,015 8,997 2,106 19,010
61-90 days........................................... 577 4,610 1,069 8,051
91+ days............................................. 762 4,908 1,176 7,758
------------ ------------ ------------ ------------
Total delinquencies (2)................................. 2,354 18,515 4,351 34,819
Amount in repossession (3).............................. 1,095 10,602 1,408 14,090
------------ ------------ ------------ ------------
Total delinquencies and amount in repossession (2)...... 3,449 $ 29,117 5,759 $ 48,909
============ ============ ============ ============
Delinquencies as a percentage of gross servicing
portfolio............................................. 2.8% 2.1% 5.2% 4.0%
Total delinquencies and amount in repossession as a
percentage of gross servicing portfolio.............. 4.1% 3.2% 6.9% 5.6%
- ------------------------------------
(1) All amounts and percentages are based on the amount remaining to be repaid
on each Contract, including, for pre-computed Contracts, any unearned interest.
The information in the table represents the gross principal amount of all
Contracts purchased by the company on an other than flow basis, including
Contracts subsequently sold by the Company in securitization transactions that
it continues to service. The table does not include Contracts from the SeaWest
Third Party Portfolio.
(2) The Company considers a 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. Contracts less than 31 days delinquent are not included.
17
(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, DECEMBER 31,
2005 2004
------------ ------------
(DOLLARS IN THOUSANDS)
Average servicing portfolio outstanding.......... $ 870,875 $ 796,436
Net charge-offs as a percentage of average
servicing portfolio (2)........................ 6.6% 7.8%
- -------------------------
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each Contract, net of unearned income on pre-computed Contracts. The
information in the table represents all Contracts serviced by the Company
(excluding 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. March 31, 2005 percentage represents three-months ended March 31,
2005, annualized. December 31, 2004 represents twelve months ended December 31,
2004.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires substantial cash to support its purchases of
Contracts and other operating activities. The Company's primary sources of cash
have been cash flows from operating activities, including proceeds from sales of
Contracts, amounts borrowed under various revolving credit facilities (also
sometimes known as warehouse credit facilities), servicing fees on portfolios of
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 Contracts in which the Company has
retained a residual ownership interest and from the Spread Accounts associated
with such pools. The Company's primary uses of cash have been the purchases of
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 Accounts and
initial overcollateralization, if any, 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 the
Company's 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 Accounts), the rate of expansion or
contraction in the Company's managed portfolio, and the terms upon which the
Company is able to acquire, sell, and borrow against Contracts.
Net cash used in operating activities for the three-month period ended March 31,
2005 was $8.6 million compared to net cash provided by operating activities for
the three-month period ended March 31, 2004 of $29.3 million. Cash from
operating activities is generally provided by the net releases from the
Company's securitization Trusts and cash received from residual interests in
securitizations.
Net cash used in investing activities for the three-month periods ended March
31, 2005 and 2004 was $80.4 million and $52.2 million, respectively. Cash used
in investing activities has generally related to purchases of Contracts.
18
Net cash provided by financing activities for the three months ended March 31,
2005 and 2004, was $84.4 million and $32.6 million respectively. Cash used or
provided by financing activities is primarily attributable to the repayment or
issuance of debt.
Contracts are purchased from Dealers for a cash price generally approximating
their principal amount, and generate cash flow over a period of years. As a
result, the Company has been dependent on warehouse credit facilities to
purchase Contracts, and on the availability of cash from outside sources in
order to finance its continuing operations, as well as to fund the portion of
Contract purchase prices not financed under warehouse credit facilities. As of
March 31, 2005 the Company had $225 million in warehouse credit capacity, in the
form of a $125 million facility and a $100 million facility. The first facility
provides funding for Contracts purchased under the TFC Programs while both
warehouse facilities provide funding for Contracts purchased under the CPS
Programs.
The $125 million warehouse facility is structured to allow the Company to fund a
portion of the purchase price of Contracts by drawing against a floating rate
variable funding note issued by CPS Warehouse Trust. This facility was
established on March 7, 2002, in the maximum amount of $100 million. Such
maximum amount was increased to $125 million in November 2002. Up to 76.5% of
the principal balance of Contracts may be advanced to the Company under this
facility, subject to collateral tests and certain other conditions and
covenants. Notes under this facility bear interest at a rate of one-month
commercial paper plus 1.50% per annum. This facility was renewed on April 12,
2005 and expires on April 11, 2006.
The $100 million warehouse facility is similarly structured to allow CPS to fund
a portion of the purchase price of Contracts by drawing against a floating rate
variable funding note issued by Page Funding LLC. Approximately 73.5% of the
principal balance of Contracts may be advanced to the Company under this
facility, subject to collateral tests and certain other conditions and
covenants. Notes under this facility accrue interest at a rate of one-month
LIBOR plus 1.50% per annum. This facility was entered into on June 30, 2004. and
expires on June 30, 2007. The lender has annual termination options at its sole
discretion on each June 30, through 2007, at which time the agreement expires.
These facilities are independent of each other. With the two currently existing
facilities, two different financial institutions purchase the notes issued by
these facilities, and two different insurers insure the notes (each a "Note
Insurer"). The lenders are the controlling party on each facility. Up through
June 30, 2003, sales of Contracts to the special purpose subsidiaries ("SPS")
related to two of the three then existing facilities had been treated as sales
for financial accounting purposes. The Company, therefore, removed these
securitized Contracts and related debt from its Unaudited Condensed Consolidated
Balance Sheet and recognized a gain on sale in the Company's Unaudited Condensed
Consolidated Statement of Operations. Indebtedness related to Contracts funded
by the third facility, however, was retained on the Company's Unaudited
Condensed Consolidated Balance Sheet and no gain on sale has ever been
recognized in the Company's Unaudited Condensed Consolidated Statement of
Operations. During July 2003, each of the first two facilities was amended, with
the effect that subsequent use of such facilities is treated for financial
accounting purposes as a borrowing secured by such receivables, rather than as a
sale of receivables. The effects of that amendment are similar to those
discussed above with respect to the change in securitization structure.
For the portfolio owned by consolidated subsidiaries, cash used to increase
Credit Enhancement amounts to required levels for the three-month periods ended
March 31, 2005 and 2004 was $3.2 million and $635,000, respectively. Cash
released from Trusts and their related Spread Accounts to the Company for the
three-month periods ended March 31, 2005 and 2004, was $8.0 million and $6.2
million, respectively. Changes in the amount of Credit Enhancement required for
term securitization transactions and releases from Trusts and their related
Spread Accounts are affected by the relative size, seasoning and performance of
the various pools of Contracts securitized that make up the Company's managed
portfolio to which the respective Spread Accounts are related. The Company did
not make any initial deposits to Spread Accounts or fund initial
overcollateralization related to term securitization transactions owned by
non-consolidated subsidiaries during the three months ended March 31, 2005 or
March 31, 2004.
19
The acquisition of Contracts for subsequent sale in securitization transactions,
and the need to fund 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 the Company's 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 Accounts either release cash to the
Company or capture cash from collections on securitized Contracts. The Company
is limited in its ability to purchase Contracts by its available cash and the
capacity of its warehouse facilities. As of March 31, 2005, the Company had
unrestricted cash on hand of $9.7 million and available Contract purchase
commitments financing from its warehouse credit facilities of $174.5 million,
subject to collateral availability. The Company's plans to manage its need for
liquidity include the completion of additional term securitizations that would
provide additional credit availability from the warehouse credit facilities, and
matching its levels of Contract purchases to its availability of cash. There can
be no assurance that the Company will be able to complete term securitizations
on favorable economic terms or that the Company will be able to complete term
securitizations at all. If the Company is unable to complete such
securitizations, interest income and other portfolio related income would
decrease.
The Company's primary means of ensuring that its cash demands do not exceed its
cash resources is to match its levels of Contract purchases to its availability
of cash. The Company's ability to adjust the quantity of Contracts that it
purchases and securitizes 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 Contract acquisition can be maintained or
increased. While the specific terms and mechanics of each Spread Account vary
among transactions, the Company's Securitization Agreements generally provide
that the Company 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 Contracts in the pool are below certain predetermined
levels. In the event delinquencies, defaults or net losses on the 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 the Company of excess cash flows associated with other
pools; or (iii) in certain circumstances, may permit the insurers to require the
transfer of servicing on some or all of the Contracts to another servicer. There
can be no assurance that collections from the related Trusts will continue to
generate sufficient cash.
Certain of the Company's securitization transactions and the warehouse credit
facilities contain various financial covenants requiring certain minimum
financial ratios and results. Such covenants include maintaining minimum levels
of liquidity and net worth and not exceeding maximum leverage levels and maximum
financial losses. As a result of waivers and amendments to these covenants
throughout 2004 and during the first quarter of 2005, the Company was in
compliance with all such covenants as of March 31, 2005. Without the waivers and
amendments obtained in the first quarter of 2005, the Company would have been in
breach of covenants related to maintaining a minimum level of net worth as of
March 31, 2005. In addition, certain securitization and non-securitization
related debt contain cross-default provisions, which would allow certain
creditors to declare default if a default were declared under a different
facility.
The Securitization Agreements of the Company's term securitization transactions
and one of the warehouse credit facilities are terminable by the Note Insurers
in the event of certain defaults by the Company and under certain other
circumstances. Similar termination rights are held by the lender in the other
warehouse credit facility. Were a Note Insurer (or the lender in such warehouse
facility) in the future to exercise its option to terminate the Securitization
Agreements, such a termination would have a material adverse effect on the
Company's liquidity and results of operations. The Company continues to receive
Servicer extensions on a monthly and/or quarterly basis, pursuant to the
Securitization Agreements.
20
CRITICAL ACCOUNTING POLICIES
(a) ALLOWANCE FOR FINANCE CREDIT LOSSES
In order to estimate an appropriate allowance for losses incurred on finance
receivables held on the Company's Unaudited Condensed Consolidated Balance
Sheet, the Company uses a loss allowance methodology commonly referred to as
"static pooling," which stratifies its finance receivable portfolio into
separately identified pools. Using analytical and formula-driven techniques, the
Company estimates an allowance for finance credit losses, which management
believes is adequate for probable credit losses that can be reasonably estimated
in its portfolio of finance receivable Contracts. Provision for losses is
charged to the Company's 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, the Company's level of provisioning and/or allowance may
change as well.
(b) TREATMENT OF SECURITIZATIONS
Gain on sale may be recognized on the disposition of Contracts either outright
or in securitization transactions. In those securitization transactions that
were treated as sales for financial accounting purposes, the Company, or a
wholly-owned, consolidated subsidiary of the Company, retains a residual
interest in the Contracts that were sold to a wholly-owned, unconsolidated
special purpose subsidiary. The Company's securitization transactions include
"term" securitizations (the purchaser holds the Contracts for substantially
their entire term) and "continuous" or "warehouse" securitizations (which
finance the acquisition of the Contracts for future sale into term
securitizations).
As of March 31, 2005 and December 31, 2004 the line item "Residual interest in
securitizations" on the Company's Unaudited Consolidated Balance Sheet
represents the residual interests in certain term securitizations that were
accounted for as sales. Warehouse securitizations accounted for as secured
financings are accordingly reflected in the line items "Finance receivables" and
"Warehouse lines of credit" on the Company's Unaudited Condensed Consolidated
Balance Sheet, and the term securitizations accounted for as secured financings
are reflected in the line items "Finance receivables" and "Securitization trust
debt." The "Residual interest in securitizations" represents the discounted sum
of expected future releases from securitization trusts. Accordingly, the
valuation of the residual is heavily dependent on estimates of future
performance.
(c) INCOME TAXES
The Company and its subsidiaries file consolidated federal income and combined
state franchise tax returns. The Company utilizes 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. The Company has estimated a valuation
allowance against that portion of the deferred tax asset whose utilization in
future periods 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 periods in which net operating
losses might otherwise expire.
21
FORWARD LOOKING STATEMENTS
This report on Form 10-Q includes certain "forward-looking statements,"
including, without limitation, the statements or implications to the effect that
prepayments as a percentage of original balances will approximate 20.1% to 33.0%
cumulatively over the lives of the related Contracts, that charge-offs as a
percentage of original balances will approximate 17.1% to 26.3% cumulatively
over the lives of the related Contracts, with recovery rates approximating 3.1%
to 5.9% of original principal balances. Other forward-looking statements may be
identified by the use of words such as "anticipates," "expects," "plans,"
"estimates," or words of like meaning. As to the specifically identified
forward-looking statements, 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 Contracts,
changes in laws respecting consumer finance, which could affect the ability of
the Company to enforce rights under 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 the Company's revenues in the
current year include the levels of cash releases from existing pools of
Contracts, which would affect the Company's ability to purchase Contracts, the
terms on which the Company is able to finance such purchases, the willingness of
Dealers to sell Contracts to the Company on the terms that it offers, and the
terms on which the Company is able to complete term securitizations once
Contracts are acquired. Factors that could affect the Company's expenses in the
current year include competitive conditions in the market for qualified
personnel, and interest rates (which affect the rates that the Company pays on
Notes issued in its securitizations). The statements concerning the Company
structuring future securitization transactions as secured financings and the
effects of such structures on financial items and on the Company's future
profitability also are forward-looking statements. Any change to the structure
of the Company's securitization transaction could cause such forward-looking
statements not to be accurate. Both the amount of the effect of the change in
structure on the Company's profitability and the duration of the period in which
the Company's 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 the Company purchases and sells Contracts, any changes in that
rate, the credit performance of such Contracts, the financial terms of future
securitizations, any changes in such terms over time, and other factors that
generally affect the Company's profitability.
Additional risk factors, any of which could have a material effect on the
Company's performance, are set forth below:
DEPENDENCE ON WAREHOUSE FINANCING. The Company's primary source of day-to-day
liquidity is continuous securitization of Contracts, under which it sells or
pledges Contracts, as often as once a week, to either of two special-purpose
affiliated entities. Such transactions function as a "warehouse" in which
Contracts are held. The Company expects to continue to effect similar
transactions (or to obtain replacement or additional financing) as current
arrangements expire or become fully utilized; however, there can be no assurance
that such financing will be obtainable on favorable terms. To the extent that
the Company is unable to maintain its existing structure or is unable to arrange
new warehouse facilities, the Company may have to curtail Contract purchasing
activities, which could have a material adverse effect on the Company's
financial condition, results of operations and liquidity.
DEPENDENCE ON SECURITIZATION PROGRAM. The Company is dependent upon its ability
to continue to finance pools of Contracts in term securitizations in order to
generate cash proceeds for new purchases. Adverse changes in the market for
securitized Contract pools, or a substantial lengthening of the warehousing
period, would burden the Company's financing capabilities, could require the
Company to curtail its purchase of Contracts, and could have a material adverse
effect on the Company. In addition, as a means of reducing the percentage of
cash collateral that the Company would otherwise be required to deposit and
maintain in Spread Accounts, all of the Company's securitizations since June
1994 have utilized credit enhancement in the form of financial guaranty
insurance policies issued by monoline financial guaranty insurers. The Company
believes that financial guaranty insurance policies reduce the costs of
securitizations relative to alternative forms of credit enhancements available
to the Company. No insurer is required to insure Company-sponsored
securitizations and there can be no assurance that any will continue to do so.
Similarly, there can be no assurance that any securitization transaction will be
available on terms acceptable to the Company, or at all. The timing of any
securitization transaction is affected by a number of factors beyond the
Company's control, any of which could cause substantial delays, including,
without limitation, market conditions and the approval by all parties of the
terms of the securitization.
22
RISK OF GENERAL ECONOMIC DOWNTURN. The Company's business is directly related to
sales of new and used automobiles, which are affected by employment rates,
prevailing interest rates and other domestic economic conditions. Delinquencies,
repossessions and losses generally increase during economic slowdowns or
recessions. Because of the Company's focus on Sub-Prime Customers, the actual
rates of delinquencies, repossessions and losses on such Contracts could be
higher under adverse economic conditions than those experienced in the
automobile finance industry in general. Any sustained period of economic
slowdown or recession could adversely affect the Company's ability to sell or
securitize pools of Contracts. The timing of any economic changes is uncertain,
and sluggish sales of automobiles and weakness in the economy could have an
adverse effect on the Company's business and that of the Dealers from which it
purchases Contracts.
DEPENDENCE ON PERFORMANCE OF SECURITIZED CONTRACTS. Under the financial
structures the Company has used to date in its term securitizations, certain
excess cash flows generated by the Contracts sold in the term securitizations
are used to increase overcollateralization or are retained in a Spread Account
within the securitization trusts to provide liquidity and credit enhancement.
While the specific terms and mechanics of each Spread Account vary among
transactions, the Company's Securitization Agreements generally provide that the
Company will receive excess cash flows only if the amount of Credit Enhancement
has reached specified levels and/or the delinquency or losses related to the
Contracts in the pool are below certain predetermined levels. In the event
delinquencies and losses on the 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 the Company of
excess cash flows associated with other pools; or (iii) in certain
circumstances, may permit the insurers to require the transfer of servicing on
some or all of the Contracts to another servicer. Any of these conditions could
materially adversely affect the Company's liquidity, financial condition and
operations.
CREDITWORTHINESS OF CONSUMERS. The Company specializes in the purchase, sale and
servicing of Contracts to finance automobile purchases by Sub-Prime Customers,
which entail a higher risk of non-performance, higher delinquencies and higher
losses than Contracts with more creditworthy customers. While the Company
believes that the underwriting criteria and collection methods it employs enable
it to control the higher risks inherent in Contracts with Sub-Prime Customers,
no assurance can be given that such criteria and methods will afford adequate
protection against such risks. The Company has experienced fluctuations in the
delinquency and charge-off performance of its Contracts. In the event that
portfolios of Contracts sold and serviced by the Company experience greater
defaults, higher delinquencies or higher net losses than anticipated, the
Company's income could be negatively affected. A larger number of defaults than
anticipated could also result in adverse changes in the structure of the
Company's future securitization transactions, such as a requirement of increased
cash collateral or other Credit Enhancement in such transactions.
PROBABLE INCREASE IN COST OF FUNDS. The Company's profitability is determined
by, among other things, the difference between the rate of interest charged on
the Contracts purchased by the Company and the rate of interest payable to
purchasers of Notes issued in securitizations. The Contracts purchased by the
Company generally bear finance charges close to or at the maximum permitted by
applicable state law. The interest rates payable on such Notes are fixed, based
on interest rates prevailing in the market at the time of sale. Consequently,
increases in market interest rates tend to reduce the "spread" or margin between
Contract finance charges and the interest rates required by investors and, thus,
the potential operating profits to the Company from the purchase, securitization
and servicing of Contracts. Operating profits expected to be earned by the
Company on portfolios of Contracts previously securitized are insulated from the
adverse effects of increasing interest rates because the interest rates on the
related Notes were fixed at the time the Contracts were sold. With interest
rates near historical lows as of the date of this report, it is reasonable to
expect that interest rates will increase in the near to intermediate term. Any
future increases in interest rates would likely increase the interest rates on
Notes issued in future term securitizations and could have a material adverse
effect on the Company's results of operations and liquidity.
23
PREPAYMENTS AND CREDIT LOSSES. Gains from the sale of Contracts in the Company's
past securitization transactions structured as sales for financial accounting
purposes have constituted a significant portion of the revenue of the Company. A
portion of the gains is based in part on management's estimates of future
prepayments and credit losses and other considerations in light of then-current
conditions. If actual prepayments with respect to Contracts occur more quickly
than was projected at the time such Contracts were sold, as can occur when
interest rates decline, or if credit losses are greater than projected at the
time such Contracts were sold, a charge to income may be required and would be
recorded in the period of adjustment. If actual prepayments occur more slowly or
if net losses are lower than estimated with respect to Contracts sold, total
revenue would exceed previously estimated amounts.
Provisions for credit losses are recorded in connection with the origination and
throughout the life of Contracts that are held on the Company's Unaudited
Condensed Consolidated Balance Sheet. Such provisions are based on management's
estimates of future credit losses in light of then-current conditions. If actual
credit losses in a given period exceed the allowance for credit losses, a bad
debt expense during the period would be required.
COMPETITION. The automobile financing business is highly competitive. The
Company competes with a number of national, local and regional finance
companies. In addition, competitors or potential competitors include other types
of financial services companies, such as commercial banks, savings and loan
associations, leasing companies, credit unions providing retail loan financing
and lease financing for new and used vehicles and captive finance companies
affiliated with major automobile manufacturers such as General Motors Acceptance
Corporation and Ford Motor Credit Corporation. Many of the Company's competitors
and potential competitors possess substantially greater financial, marketing,
technical, personnel and other resources than the Company. Moreover, the
Company's future profitability will be directly related to the availability and
cost of its capital relative to that of its competitors. The Company's
competitors and potential competitors include far larger, more established
companies that have access to capital markets for unsecured commercial paper and
investment grade rated debt instruments, and to other funding sources which may
be unavailable to the Company. Many of these companies also have long-standing
relationships with Dealers and may provide other financing to Dealers, including
floor plan financing for the Dealers' purchases of automobiles from
manufacturers, which is not offered by the Company. There can be no assurance
that the Company will be able to continue to compete successfully.
LITIGATION. Because of the consumer-oriented nature of the industry in which the
Company operates and the application of certain laws and regulations, industry
participants are regularly named as defendants in class-action litigation
involving alleged violations of federal and state laws and regulations and
consumer law torts, including fraud. Many of these actions involve alleged
violations of consumer protection laws. Although the Company is not involved in
any such material consumer protection litigation, a significant judgment against
the Company or within the industry in connection with any such litigation, or an
adverse outcome in the litigation identified under the caption "Legal
Proceedings" in this report and in the Company's most recently filed report on
Form 10-K, could have a material adverse effect on the Company's financial
condition, results of operations and liquidity.
DEPENDENCE ON DEALERS. The Company is dependent upon establishing and
maintaining relationships with unaffiliated Dealers to supply it with Contracts.
During the three- and nine-month periods ended March 31, 2005, no Dealer
accounted for as much as 1.0% of the Contracts purchased by the Company. The
Dealer Agreements do not require Dealers to submit a minimum number of Contracts
for purchase by the Company. The failure of Dealers to submit Contracts that
meet the Company's underwriting criteria would have a material adverse effect on
the Company's financial condition, results of operations and liquidity.
GOVERNMENT REGULATIONS. The Company's business is subject to numerous federal
and state consumer protection laws and regulations, which, among other things:
(i) require the Company to obtain and maintain certain licenses and
qualifications; (ii) limit the interest rates, fees and other charges the
Company is allowed to charge; (iii) limit or prescribe certain other terms of
its Contracts; (iv) require the Company to provide specified disclosures; and
(v) regulate certain servicing and collection practices and define its rights to
repossess and sell collateral. An adverse change in existing laws or
regulations, or in the interpretation thereof, the promulgation of any
additional laws or regulations, or the failure to comply with such laws and
regulations could have a material adverse effect on the Company's financial
condition, results of operations and liquidity.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company is subject to interest rate risk during the period between when
Contracts are purchased from Dealers and when such Contracts become part of a
term securitization. Specifically, the interest rates on the warehouse
facilities are adjustable while the interest rates on the Contracts are fixed.
Historically, the Company's term securitization facilities have had fixed rates
of interest. To mitigate some of this risk, the Company has in the past, and
intends to continue to, structure certain of its securitization transactions to
include pre-funding structures, whereby the amount of Notes issued exceeds the
amount of Contracts inititally sold to the Trusts. In pre-funding, the proceeds
from the pre-funded portion are held in an escrow account until the Company
sells the additional Contracts to the Trust in amounts up to the balance of the
pre-funded escrow account. In pre-funded securitizations, the Company locks in
the borrowing costs with respect to the Contracts it subsequently delivers to
the Trust. However, the Company incurs 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 Contracts and the interest rate
paid on the Notes outstanding, the amount as to which there can be no assurance.
There have been no material changes in market risks since December 31, 2004.
ITEM 4. CONTROLS AND PROCEDURES
CPS maintains a system of internal controls and procedures designed to provide
reasonable assurance as to the reliability of its published financial statements
and other disclosures included in this report. As of the end of the period
covered by this report, CPS evaluated the effectiveness of the design and
operation of such disclosure controls and procedures. Based upon that
evaluation, the principal executive officer (Charles E. Bradley, Jr.) and the
principal financial officer (Robert E. Riedl) concluded that the disclosure
controls and procedures are effective in recording, processing, summarizing and
reporting, on a timely basis, material information relating to CPS that is
required to be included in its 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 the Company's
Annual Report on Form 10-K for the year ended December 31, 2004, is incorporated
herein by reference. In addition, the reader should be aware of the following:
The Company is routinely involved in various legal proceedings resulting from
its consumer finance activities and practices, both continuing and discontinued.
The Company believes that there are substantive legal defenses to such claims,
and intends to defend them vigorously. There can be no assurance, however, as to
the outcome.
ITEM 2. REGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2005, the Company did not purchase any
shares of its common stock.
ITEM 6. EXHIBITS
(a) The following exhibits are filed with this report:
10.1 Second Amended and Restated Sale and Servicing Agreement dated
April 13, 2005 by and among CPS Warehouse Trust (CPSWT), CPS,
Wells Fargo Bank, National Association (WFBNA) and WestLB AG
(WLBAG) (filed as Exhibit 10.29 to the registrant's
registration statement on Form S-2, file no. 333-121913, and
incorporated herein by reference)
10.2 Second Amended and Restated Annex A to Agreement filed as
Exhibit 10.1 (filed as Exhibit 10.30 to the registrant's
registration statement on Form S-2, file no. 333-121913, and
incorporated herein by reference)
10.3 Second Amended and Restated Indenture dated as of April 13,
2005 by and among CPSWT, WLBAG and WFBNA (filed as Exhibit
10.31 to the registrant's registration statement on Form S-2,
file no. 333-121913, and incorporated herein by reference)
10.4 Second Amended and Restated Note Purchase Agreement dated
April 13, 2005 by and among CPSWT, CPS, Paradigm Funding LLC
and WLBAG (filed as Exhibit 10.33 to the registrant's
registration statement on Form S-2, file no. 333-121913, and
incorporated herein by reference)
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: May 13, 2005
/s/ CHARLES E. BRADLEY, JR.
--------------------------------------
Charles E. Bradley, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
Date: May 16, 2005
/s/ ROBERT E. RIEDL
-------------------------------------------------
Robert E. Riedl
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
27