<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1998
[ ] 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)
<TABLE>
<S> <C>
CALIFORNIA 33-0459135
(STATE OR OTHER JURISDICTION OF INCORPORATION (IRS EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
2 ADA, IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
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 [ ]
As of August 13, 1998, the registrant had 15,658,501 common shares
outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements
Condensed consolidated balance sheets as of June 30, 1998
and December 31, 1997..................................... 3
Condensed consolidated statements of earnings for the three
and six month periods ended June 30, 1998 and 1997........ 4
Condensed consolidated statements of cash flows for the six
month periods ended
June 30, 1998 and 1997.................................... 5
Notes to condensed consolidated financial statements........ 6
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................. 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds................... 18
Item 4. Submission of Matters to a Vote of Security holders......... 19
Item 6. Exhibits and Reports on Form 8-K............................ 19
Signatures........................................................... 20
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------
1998 1997
-------- ------------
<S> <C> <C>
Cash........................................................ $ 982 $ 1,745
Contracts held for sale (note 2)............................ 236,908 68,271
Servicing fees receivable................................... 7,243 5,425
Residual interest in securitizations (note 3)............... 164,054 124,616
Furniture and equipment, net................................ 3,984 3,128
Taxes receivable............................................ -- 1,528
Deferred financing costs.................................... 1,678 1,840
Investment in unconsolidated affiliates..................... 4,280 3,892
Related party receivables................................... 8,244 7,295
Other assets................................................ 11,354 8,155
-------- --------
$438,727 $225,895
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses....................... $ 17,186 $ 10,427
Warehouse lines of credit................................... 233,225 61,666
Taxes payable............................................... 18,891 13,143
Capital lease obligation.................................... 1,706 1,492
Notes payable............................................... 2,042 1,506
Residual financing.......................................... 16,000 --
Subordinated debt........................................... 40,000 40,000
Related party debt.......................................... 15,000 15,055
-------- --------
344,050 143,289
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;
15,215,042 and 15,210,042 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively......... 42,304 42,261
Notes receivable from exercise of options................... -- (500)
Retained earnings........................................... 52,373 40,845
-------- --------
94,677 82,606
-------- --------
$438,727 $225,895
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of contracts, net (note
4).................................. $ 16,560 $ 7,942 $ 29,341 $ 15,275
Interest income (note 5).............. 14,524 5,967 23,596 11,673
Servicing fees........................ 5,896 3,301 10,992 6,130
Other................................. 211 901 581 1,290
----------- ----------- ----------- -----------
37,191 18,111 64,510 34,368
----------- ----------- ----------- -----------
EXPENSES:
Employee costs........................ 6,954 3,311 12,350 6,533
General and administrative............ 5,044 3,700 9,576 6,181
Interest.............................. 4,614 2,221 8,529 3,659
Provision for credit losses........... 7,467 569 10,004 1,596
Marketing............................. 2,085 409 2,533 730
Occupancy............................. 498 290 979 534
Depreciation and amortization......... 270 43 603 405
Related party consulting fees......... 19 19 38 38
----------- ----------- ----------- -----------
26,951 10,562 44,612 19,676
----------- ----------- ----------- -----------
Earnings before income taxes.......... 10,240 7,549 19,898 14,692
Income taxes.......................... 4,315 3,163 8,370 6,162
----------- ----------- ----------- -----------
Net earnings.......................... $ 5,925 $ 4,386 $ 11,528 $ 8,530
=========== =========== =========== ===========
Earnings per share (note 6):
Basic............................... $ 0.39 $ 0.31 $ 0.76 $ 0.60
Diluted............................. $ 0.36 $ 0.28 $ 0.70 $ 0.55
Number of shares used in computing
earnings per share (note 6):
Basic............................... 15,215,042 14,297,464 15,215,042 14,233,895
Diluted............................. 16,761,651 15,772,014 16,683,348 15,613,891
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 11,528 $ 8,530
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization........................... 603 405
Amortization of net interest receivables................ 10,424 5,561
Amortization of deferred financing costs................ 162 106
Provision for credit losses............................. 10,004 1,596
NIR gains recognized.................................... (22,885) (12,824)
Loss on sale of fixed asset............................. -- 13
Gain on sale of subsidiary.............................. (56) --
(Gain) loss on investment in unconsolidated
affiliates............................................. (322) (614)
Changes in operating assets and liabilities:
Purchases of contracts held for sale.................. (592,624) (276,095)
Liquidation of contracts held for sale................ 413,982 227,864
Servicing fees receivable............................. (1,818) (2,631)
Initial deposits to spread accounts................... (17,096) (7,759)
Deposits to spread accounts and over-collateralization
accounts............................................. (25,708) (13,049)
Release of cash from spread accounts.................. 15,825 8,773
Other assets.......................................... (4,343) (1,831)
Accounts payable and accrued expenses................. 6,957 8,363
Warehouse lines of credit............................. 171,559 17,737
Taxes payable/receivable.............................. 7,437 4,277
--------- ---------
Net cash used in operating activities............... (16,371) (31,578)
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to related parties............................... (1,113) --
Repayment of related party receivables.................... 165 --
Investment in preferred stock of related party............ -- (14,500)
Investment in unconsolidated affiliate.................... (65) (482)
Purchases of furniture and equipment...................... (1,157) (633)
Net cash from sale of subsidiary.......................... 381 --
Purchase of subsidiary, net of cash acquired.............. -- (80)
--------- ---------
Net cash used in investing activities............... (1,789) (15,695)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in residual financing............................ 16,000 --
Issuance of notes to related party........................ -- 29,500
Issuance of notes payable................................. 1,453 20,000
Repayment of capital lease obligations.................... (267) (47)
Repayment of notes payable................................ (332) (440)
Repayment of related party debt........................... -- (403)
Payment of financing costs................................ -- (1,165)
Exercise of options and warrants.......................... 543 105
--------- ---------
Net cash provided by financing activities........... 17,397 47,550
--------- ---------
Increase (decrease) in cash................................. (763) 277
Cash at beginning of period................................. 1,745 154
--------- ---------
Cash at end of period....................................... $ 982 $ 431
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.............................................. $ 7,842 $ 3,122
Income taxes.......................................... $ 860 $ 2,033
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock upon conversion of debt........ $ -- $ 3,000
Furniture and equipment acquired through capital
leases................................................. $ 482 $ 332
Purchase of CPS Leasing, Inc.
Assets acquired....................................... $ -- $ 2,718
Liabilities assumed................................. -- (2,638)
--------- ---------
Cash paid to acquire business......................... -- 80
Less: cash acquired................................... -- (172)
--------- ---------
Net cash received upon acquisition.................. $ -- $ (92)
========= =========
Sale of PIC Leasing, Inc.
Net assets sold....................................... $ 705 $ --
Net assets retained................................... (155) --
Gain on sale of subsidiary............................ 56 --
--------- ---------
Cash received from sale of subsidiary................. 606 --
Less: cash relinquished upon disposition.............. (225) --
--------- ---------
Net cash received from sale of subsidiary............. $ 381 $ --
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles 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 have been
reclassified for comparability to current period presentation. Results for the
three and six month periods ended June 30, 1998, 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 generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1997.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Alton Receivables Corp., CPS
Receivables Corp., CPS Marketing, Inc., CPS Funding Corp., and CPS Warehouse
Corp. The consolidated financial statements also include the accounts of SAMCO
Acceptance Corp., LINC Acceptance Company, LLC and CPS Leasing, Inc., all of
which are 80% owned subsidiaries of the Company. All significant intercompany
transactions and balances have been eliminated. Investments in affiliates that
are not majority owned are reported using the equity method.
Contracts Held for Sale
Contracts held for sale include automobile installment sales contracts
(generally, "Contracts") on which interest is precomputed and added to the
principal amount financed. The interest on precomputed Contracts is included in
unearned financed charges. Unearned financed charges are amortized over the
remaining period to contractual maturity, using the interest method. Contracts
held for sale are stated at the lower of cost or market value. Market value is
determined by purchase commitments from investors and prevailing market prices.
Gains and losses are recorded as appropriate when Contracts are sold. The
Company considers a transfer of Contracts, where the Company surrenders control
over the Contracts, a sale to the extent that consideration, other than
beneficial interests in the transferred Contracts, is received in exchange for
the Contracts.
Allowance for Credit Losses
The Company provides an allowance for credit losses that management
believes provides adequately for known and inherent losses that may develop in
the Contracts held for sale. Management evaluates the adequacy of the allowance
by examining current delinquencies, the characteristics of the portfolio, the
value of underlying collateral, and general economic conditions and trends.
Contract Acquisition Fees and Discounts
Upon purchase of a Contract from an automobile dealer ("Dealer"), the
Company generally charges the Dealer an acquisition fee or purchases the
Contract at a discount from its face value (some Contracts are purchased at face
value). The acquisition fees and discounts associated with Contract purchases
are deferred until the Contracts are sold. At that time the deferred acquisition
fee or discount is recognized as a component of the gain on sale.
6
<PAGE> 7
CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Residual Interest in Securitizations and Gain on Sale of Contracts
The Company purchases Contracts with the primary intention of reselling
them in securitization transactions as asset-backed securities. The
securitizations are generally structured as follows: First, the Company sells a
portfolio of Contracts to a wholly owned subsidiary ("SPS"), which has been
established for the limited purpose of buying and reselling the Company's
Contracts. The SPS then transfers the same Contracts to either a grantor trust
or an owner trust (the "Trust"). The Trust in turn issues interest-bearing
asset-backed securities (the "Certificates"), generally in an amount equal to
the aggregate principal balance of the Contracts. The Company typically sells
these Contracts at face value and without recourse, except that the Company
gives representation and warranties to the Trust regarding the Contracts, which
are generally similar to the representations and warranties given to the Company
by the originating Dealers. One or more investors purchase the Certificates
issued by the Trust; the proceeds from the sale of the Certificates are then
used to purchase the Contracts from the Company. In addition, the Company
provides a credit enhancement for the benefit of the investors in the form of an
initial cash deposit to a specific account ("Spread Account") held by the Trust.
The agreements governing the securitization transactions (collectively referred
to as the "Servicing Agreements") require that the Spread Accounts be maintained
at specified levels.
At the closing of each securitization, the Company removes from its
consolidated balance sheet the Contracts held for sale and adds to its
consolidated balance sheet (i) the cash received and (ii) the estimated fair
value of the portion of the Contracts retained from the securitizations
("Residuals"). The Residuals consist of (a) the cash held in the Spread Account,
(b) the over-collateralization accounts, discussed below, and (c) the net
interest receivables ("NIRs"). NIRs represent the estimated discounted cash
flows to be received by the Trust in the future. The excess of the cash received
and the assets retained by the Company over the carrying value of the Contracts
sold, less transaction costs, equals the net gain on sale of Contracts recorded
by the Company in the securitization transaction.
The Company allocates its basis in the Contracts between the portion of the
Contracts sold (as Certificates) and the portion retained (the Residuals) based
on the relative fair values of those portions on the date of the sale. The
Company may recognize gains or losses attributable to the change in the fair
value of the Residuals, which are recorded at estimated fair value and accounted
for as "held-for-trading" securities. The Company is not aware of an active
market for the purchase or sale of such residual interests. Accordingly, the
Company determines the estimated fair value of the Residuals by discounting the
cash flows that it estimates will be released from the Spread Account (the cash
out method), using a discount rate that the Company believes is commensurate
with the risks involved. In valuing the Residuals, the Company has utilized an
effective discount rate of approximately 14% per annum.
The Company receives periodic base servicing fees for its servicing and
collection of the Contracts. In addition, the Company is entitled to the cash
flows from the Residuals that represent collections on the Contracts in excess
of the amounts required to pay (i) the Certificate principal and interest, (ii)
the base servicing fees and (iii) certain other fees (such as trustee and
custodial fees). At the end of each collection period, the aggregate cash
collections from the Contracts are allocated first to the base servicing fees
and certain other fees (such as trustee and custodial fees) for the period, then
to the Certificateholders for interest at the pass-through rate on the
Certificates plus principal as defined in the Servicing Agreements. If the
amount of cash required for the above allocations exceeds the amount collected
during the collection period, the shortfall is drawn from the Spread Account. If
the cash collected during the period exceeds the amount necessary for the above
allocations, and there is no shortfall in the related Spread Account, the excess
is released to the Company, or, in certain cases, transferred to other Spread
Accounts that may be below their required levels. If the Spread Account balance
is not at the required credit enhancement level, then the excess cash collected
is retained in the Spread Account until the specified level is achieved. The
cash in the Spread Accounts is restricted from use by the Company. Cash held in
the various Spread Accounts is invested in either high quality liquid investment
securities, as specified in the Servicing Agreements, or, pursuant to
7
<PAGE> 8
CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
certain Servicing Agreements, is used to make accelerated principal paydowns on
certain Certificates to create excess collateral (over-collateralization or OC
account). Spread Account balances are held by the Trusts on behalf of the
Company as owner of the Residuals. Such balances are generally defined as
percentages of the principal amount remaining unpaid on the Contracts sold to
the respective Trusts. The Spread Account includes both qualified investments
and OC accounts (see Note 3).
The annual percentage rate ("APR") on the Contracts is relatively high in
comparison to the pass-through rate on the Certificates. Accordingly, the
Residuals described above are a significant asset of the Company. In determining
the value of the Residuals described above, the Company must estimate the future
rates of prepayments, delinquencies, defaults and default loss severity as they
affect the amount and timing of estimated future cash flows. The Company
estimates prepayments by evaluating historical prepayment performance of
comparable Contracts and the effect of trends in the industry. The Company's
prepayment and default estimates have resulted in original estimated average
lives of its Contracts of between 22 and 26 months. The Company has used a
prepayment estimate of 7% to 15%. The Company estimates defaults and default
loss severity using available historical loss data for comparable Contracts and
the specific characteristics of the Contracts purchased by the Company. The
Company estimates that default losses as a percentage of the original principal
balance will total approximately 11% to 14%.
In future periods, if the actual performance of the Contracts is better
than originally estimated by the Company, the Company would either recognize
additional revenue from the Residuals or increase their estimated fair value.
Alternatively, if the actual performance of the Contracts is less than
originally estimated by the Company, then a reduction of the carrying value of
the Residuals may be required.
(2) CONTRACTS HELD FOR SALE
The following table presents the components of Contracts held for sale:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Gross receivable balance............................. $282,246 $ 81,906
Unearned finance charges............................. (26,764) (10,077)
Deferred acquisition fees and discounts.............. (7,050) (1,092)
Allowance for credit losses.......................... (11,524) (2,466)
-------- --------
Net contracts held for sale.......................... $236,908 $ 68,271
======== ========
</TABLE>
(3) RESIDUAL INTEREST IN SECURITIZATIONS
The following table presents the components of the residual interest in
securitizations:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash, commercial paper, US government securities and
other qualifying investments (Spread Account)...... $ 86,357 $ 68,513
NIRs................................................. 57,573 45,112
OC accounts.......................................... 19,092 9,621
Investments in subordinated certificates............. 610 791
Funds held by investor............................... 422 579
-------- --------
Residual interest in securitizations:................ $164,054 $124,616
======== ========
</TABLE>
8
<PAGE> 9
CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the activity of the NIRs for the six months
ended June 30, 1998:
<TABLE>
<S> <C>
Balance, beginning of period................................ $ 45,112
NIR gains recognized........................................ 22,885
Amortization of NIRs........................................ (10,424)
--------
Balance, end of period...................................... $ 57,573
========
</TABLE>
Included in NIR balances are estimates of credit losses totaling the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Estimated credit losses............................ $ 115,346 $ 90,814
========== ========
Servicing subject to recourse provisions........... $1,048,599 $830,918
========== ========
Estimated credit losses as percentage of servicing
subject to recourse Provisions................... 11.00% 10.93%
========== ========
</TABLE>
(4) GAIN ON SALE OF CONTRACTS
The following table presents components of net gain on sale of Contracts:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1998 1997 1998 1997
-------- ------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
NIRs gains recognized................ $12,135 $6,723 $22,885 $12,824
Deferred acquisition fees and
discounts.......................... 5,386 2,076 8,311 3,981
Expenses related to sales............ (961) (857) (1,855) (1,530)
------- ------ ------- -------
Net gain on sale of contracts........ $16,560 $7,942 $29,341 $15,275
======= ====== ======= =======
</TABLE>
(5) INTEREST INCOME
The following table presents the components of interest income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1998 1997 1998 1997
-------- ------- -------- -------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest on Contracts held for
sale.............................. $10,793 $4,081 $ 18,632 $ 6,823
Residual interest income............ 9,203 4,860 15,388 10,411
Amortization of NIRs................ (5,472) (2,974) (10,424) (5,561)
------- ------ -------- -------
Net interest income................. $14,524 $5,967 $ 23,596 $11,673
======= ====== ======== =======
</TABLE>
(6) EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, entitled "Earnings per Share" ("SFAS No. 128").
This statement replaces the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any diluted effects of
options. Diluted earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings per share amounts have been
restated to conform to SFAS No. 128.
9
<PAGE> 10
CONSUMER PORTFOLIO SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table illustrates the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED JUNE
JUNE 30, 30,
------------------ ----------------------
1998 1997 1998 1997
------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NUMERATOR:
Numerator for basic earnings per
share -- net earnings..................... $ 5,925 $ 4,386 $11,528 $ 8,530
Interest on borrowings, net of tax effect on
Conversion of convertible subordinated
debt...................................... 117 69 232 78
------- ------- ------- -------
Numerator for diluted earnings per share.... $ 6,042 $ 4,455 $11,760 $ 8,608
======= ======= ======= =======
DENOMINATOR:
Denominator for basic earnings per share --
weighted average number of common shares
outstanding during the period............. 15,215 14,297 15,215 14,234
Incremental common shares attributable to
exercise of outstanding options and
warrants.................................. 801 1,029 722 1,111
Incremental common shares attributable to
Conversion of subordinated debt........... 746 446 746 269
------- ------- ------- -------
Denominator for diluted earnings per
share..................................... 16,762 15,772 16,683 15,614
======= ======= ======= =======
Basic earnings per share.................... $ 0.39 $ 0.31 $ .76 $ .60
======= ======= ======= =======
Diluted earnings per share.................. $ 0.36 $ 0.28 $ .70 $ .55
======= ======= ======= =======
</TABLE>
(7) RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, entitled "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 established Standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS No.
130 is effective for the fiscal years beginning after December 15, 1997.
Comprehensive income for the three and six month periods ended June 30, 1998 and
1997, respectively, was the same as net income as the Company had no components
of other comprehensive income.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Consumer Portfolio Services, Inc. (the "Company") and its subsidiaries
primarily engage in the business of purchasing, selling and servicing retail
automobile installment sale contracts ("Contracts") originated by automobile
dealers ("Dealers") located throughout the Unites States. Through its purchase
of Contracts, the Company provides indirect financing to Dealer customers with
limited credit histories, low incomes or past credit problems, who generally
would not be expected to qualify for financing provided by banks or by
automobile manufacturers' captive finance companies.
The major components of the Company's revenue are gains recognized on the
sale or securitization of its Contracts, servicing fees earned on Contracts
sold, and interest earned on Residuals and Contracts held for sale. Because the
interest earned on the Residuals is dependent in part on the collections
received on sold Contracts, the Company's income is affected by losses incurred
on Contracts, whether such Contracts are held for sale or have been sold in
securitizations.
Residual Interest in Securitizations and Gain on Sale of Contracts
The Company purchases Contracts with the primary intention of reselling
them in securitization transactions as asset-backed securities. The
securitizations are generally structured as follows: First, the Company sells a
portfolio of Contracts to a wholly owned subsidiary ("SPS"), which has been
established for the limited purpose of buying and reselling the Company's
Contracts. The SPS then transfers the same Contracts to either a grantor trust
or an owner trust (the "Trust"). The Trust in turn issues interest-bearing
asset-backed securities (the "Certificates"), generally in an amount equal to
the aggregate principal balance of the Contracts. The Company typically sells
these Contracts at face value and without recourse, except that the normal
representations and warranties provided by the Dealer to the Company are
similarly provided by the Company to the Trust. One or more investors purchase
the Certificates issued by the Trust; the proceeds from the sale of the
Certificates are then used to purchase the Contracts from the Company. In
addition, the Company provides a credit enhancement for the benefit of the
investors in the form of an initial cash deposit to a specific account ("Spread
Account") held by the Trust. The agreements governing the securitization
transactions (collectively referred to as the "Servicing Agreements") require
that the initial deposits to the Spread Accounts be supplemented by a portion of
collections from the Contracts until the Spread Accounts reach specified levels.
The specified levels are required to be maintained throughout the life of the
certificates. The specified levels are generally computed as a percentage of the
principal amount remaining unpaid under the related Certificates. The specified
levels at which the Spread Accounts are to be maintained will vary depending on
the performance of the portfolios of Contracts held by the Trusts and on other
conditions, and may also be varied by agreement among the Company, the SPS, the
insurer of the Certificates and the trustee. Such levels have increased and
decreased from time to time based on performance of the portfolios, and have
also been varied by agreement. The specified levels applicable to the Company's
sold pools have recently been increased, as is discussed under the heading
"Liquidity and Capital Resources."
At the closing of each securitization, the Company removes from its
consolidated balance sheet the Contracts held for sale and adds to its
consolidated balance sheet (i) the cash received and (ii) the estimated fair
value of the portion of the Contracts retained from the securitizations
("Residuals"). The Residuals consist of (a) the cash held in the Spread Account,
(b) the over-collateralization accounts, discussed below, and (c) the net
interest receivables ("NIRs"). NIRs represent the estimated discounted cash
flows to be received by the Trust in the future. The excess of the cash received
and the assets retained by the Company over the carrying value of the Contracts
sold, less transaction costs, equals the net gain on sale of Contracts recorded
by the Company in the securitization transaction.
The Company allocates its basis in the Contracts between the portion of the
Contracts sold (as Certificates) and the portion retained (the Residuals) based
on the relative fair values of those portions on the date of the sale. The
Company may recognize gains or losses attributable to the change in the fair
value of the Residuals, which are recorded at estimated fair value and accounted
for as "held-for-trading" securities. The
11
<PAGE> 12
Company is not aware of an active market for the purchase or sale of such
residual interests. Accordingly, the Company determines the estimated fair value
of the Residuals by discounting the cash flows that it estimates will be
released from the Spread Account (the cash out method), using a discount rate
that the Company believes is commensurate with the risks involved. In valuing
the Residuals, the Company has utilized an effective discount rate of
approximately 14% per annum. The valuation of the Residuals is dependent on
estimates of future events, and there can be no assurance that such estimates
will prove to be correct. Factors that may affect the accuracy of such estimates
include the inherent credit quality of the Contracts purchased by the Company
and sold to the Trusts, the efficacy of the Company's collection efforts, and
the state of the economy generally, all of which may affect the propensity of
the obligors to pay as agreed.
The Company receives periodic base servicing fees for its servicing and
collection of the Contracts. In addition, the Company is entitled to the cash
flows from the Residuals that represent collections on the Contracts in excess
of the amounts required to pay (i) the Certificate principal and interest, (ii)
the base servicing fees and (iii) certain other fees (such as trustee and
custodial fees). At the end of each collection period, the aggregate cash
collections from the Contracts are allocated first to the base servicing fees
and certain other fees (such as trustee and custodial fees) for the period, then
to the Certificateholders for interest at the pass-through rate on the
Certificates plus principal as defined in the Servicing Agreements. If the
amount of cash required for the above allocations exceeds the amount collected
during the collection period, the shortfall is drawn from the Spread Account. If
the cash collected during the period exceeds the amount necessary for the above
allocations, and there is no shortfall in the related Spread Account, the excess
is released to the Company or in certain cases transferred to other Spread
Accounts that may be below their required levels. If the Spread Account balance
is not at the required credit enhancement level, then the excess cash collected
is retained in the Spread Account until the specified level is achieved. The
cash in the Spread Accounts is restricted from use by the Company. Cash held in
the various Spread Accounts is invested in either high quality liquid investment
securities, as specified in the Servicing Agreements, or, pursuant to certain
Servicing Agreements, is used to make accelerated principal paydowns on certain
Certificates to create excess collateral (over-collateralization or OC account).
Spread Account balances are held by the Trusts on behalf of the Company as owner
of the Residuals. Such balances are generally defined as percentages of the
principal amount remaining unpaid on the Contracts sold to the respective
Trusts. The Spread Account includes both qualified investments and OC accounts
(see Note 3).
The annual percentage rate ("APR") on the Contracts is relatively high in
comparison to the pass-through rate on the Certificates. Accordingly, the
Residuals described above are a significant asset of the Company. In determining
the value of the Residuals described above, the Company must estimate the future
rates of prepayments, delinquencies, defaults and default loss severity as they
affect the amount and timing of estimated future cash flows. The Company
estimates prepayments by evaluating historical prepayment performance of
comparable Contracts and the affect of trends in the industry. The Company's
prepayment and default estimates have resulted in original estimated average
lives of its Contracts of between 22 and 26 months. The Company has used a
prepayment estimate of 7% to 15%. The Company estimates defaults and default
loss severity using available historical loss data for comparable Contracts and
the specific characteristics of the Contracts purchased by the Company. The
Company estimates that default losses as a percentage of the original principal
balance will total approximately 11% to 14%.
In future periods, if the actual performance of the Contracts is better
than originally estimated by the Company, the Company would either recognize
additional revenue from the Residuals or increase their estimated fair value.
Alternatively, if the actual performance of the Contracts is less than
originally estimated by the Company, then a reduction of the carrying value of
the Residuals may be required. The future actual performance of the Contracts
will be dependent on factors that include the inherent credit quality of the
Contracts purchased by the Company and sold to the Trusts, the efficacy of the
Company's collection efforts, and the state of the economy generally, all of
which may affect the propensity of the obligors to pay as agreed.
12
<PAGE> 13
RESULTS OF OPERATIONS
THE THREE MONTH PERIOD ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTH
PERIOD ENDED JUNE 30, 1997
Revenues. During the three months ended June 30, 1998, revenues increased
$19.1 million, or 105.4%, compared to the three month period ended June 30,
1997. Gain on sale of Contracts increased by $8.6 million, or 108.5%, and
represented 44.5% of total revenues for the three month period ended June 30,
1998. The increase in gain on sale is largely due to the increased volume of
Contracts sold in the period. During the three month period ended June 30, 1998,
the Company sold $211.0 million in Contracts, compared to $119.4 million in the
three month period ended June 30, 1997, a 76.7% increase. As of June 30, 1998,
certain direct origination expenses were excluded from gain on sale and expensed
as incurred.
Interest income increased by $8.6 million, or 143.4%, and represented 39.1%
of total revenues for the three month period ended June 30, 1998. The increase
is due to the increase in the volume of Contracts purchased and held for sale,
and the increase in the amount of sold Contracts and related Residuals. During
the three month period ended June 30, 1998, the Company purchased $338.4 million
in Contracts from Dealers, compared to $156.7 million in the three month period
ended June 30, 1997.
Servicing fees increased by $2.6 million, or 78.6%, and represented 15.9%
of total revenues. The increase in servicing fees is due to the Company's
continued expansion of its Contract purchase, sale and servicing activities. As
of June 30, 1998, the Company was earning servicing fees on 98,772 Contracts
with aggregate outstanding principal balances approximating $1,048.6 million,
compared to 57,365 Contracts with aggregate outstanding principal balances
approximating $602.6 million as of June 30, 1997. In addition to the $1,048.6
million in sold Contracts, on which servicing fees were earned, the Company was
holding for sale and servicing an additional $236.9 million in Contracts, for an
aggregate total servicing portfolio of $1,285.5 million.
The growth in the Company's revenue and expenses is a result of increases
in the volume of Contract purchases and in the Company's servicing portfolio.
The Company has achieved these increases primarily by increasing market
penetration in existing geographic areas and increasing the number of marketing
representatives and Dealer relationships. At June 30, 1998, the Company had 104
marketing representatives servicing 4,208 Dealers, compared to 67
representatives servicing 2,292 Dealers at June 30, 1997.
Expenses. During the three month period ended June 30, 1998, operating
expenses increased $16.4 million, or 155.2%, compared to the three month period
ended June 30, 1997. Employee costs increased by $3.6 million, or 110.0%, and
represented 25.8% of total operating expenses. The increase is due to the
addition of staff necessary to accommodate the Company's growth and certain
increases in salaries of existing staff. The Company continues to expand its
staff to accommodate increases in its purchases of Contracts and in its
servicing portfolio. The Company therefore expects to incur commensurate
additional employee costs in future periods. There can be no assurance that such
expansion will occur, as any such expansion is dependent, among other things, on
the availability of qualified personnel. General and administrative expenses
increased by $1.3 million, or 36.3% and represented 18.7% of total operating
expenses. Increases in general and administrative expenses included increases in
telecommunications, stationery, credit reports and other related items as a
result of increases in the volume of purchasing and servicing of Contracts.
Interest expense increased $2.4 million, or 107.7%, and represented 17.1%
of total operating expenses. During the three month period ended June 30, 1998,
interest expense consisted primarily of interest on (i) borrowings under two
warehouse lines of credit ("Warehouse Lines") used to acquire Contracts and hold
them pending securitization, (ii) $20 million of outstanding Rising Interest
Subordinated Redeemable Securities due 2006 ("RISRS"), (iii) $20 million of
outstanding Participating Equity Notes due 2004, (iv) $15 million of unsecured
related party debt due 2004, and borrowings under a revolving line of credit
(the "Revolving Line") due 2003. With respect to the Warehouse Lines, the
Company's cost of borrowed funds varies with market rates, and the total
interest payable is affected in proportion to the amount of Contract purchases
funded under the Warehouse Lines and the average time such Contracts are held
prior to securitization. With respect to the RISRS debt, the interest paid on
the debt increases each calendar year from 10.25% at present to 12.00% in 2004,
and then to 12.50% until maturity at December 31, 2005. With
13
<PAGE> 14
respect to the PENs, interest is payable at a fixed rate of 10.50% per annum.
With respect to the $15 million unsecured related party loan due 2004, interest
is payable at a fixed rate of 9.0% per annum. With respect to the Revolving Line
due 2003, interest is payable at a variable rate of LIBOR + 4.0% of the
outstanding balance. The increase in interest expense as compared to the prior
year's period is due primarily to increased average borrowings under the
Warehouse Lines to finance purchases of Contracts. Also not included in the
prior year's period was interest payable with respect to the Revolving Line.
During the three month period ended June 30, 1998, the provision for losses
on Contracts held for sale increased by $6.9 million, or 1,212.3%, and
represented 27.7% of total operating expenses. The provision for losses on
Contracts held for sale and the related allowance for credit losses vary from
quarter to quarter based on a number of factors, including (i) the dollar amount
of Contracts held for sale at the end of the period, (ii) the relative age of
those Contracts, (iii) the estimated credit risk of those Contracts, and (iv)
the portion of Contracts that are seriously past due or are assigned for, or in,
repossession. The principal factor that caused the provision for losses on
Contracts held for sale to increase as compared to the prior year's period was
an increase in the amount of Contracts held for sale.
In March 1997, the Company opened a satellite collections facility in
Chesapeake, Virginia. In April 1998, the Company obtained additional contiguous
space at the Virginia facility. In addition, the Company obtained additional
leased space in the vicinity of its California headquarters in September 1997.
Lease of such additional space resulted in increased occupancy and general and
administrative expenses in the three month period ended June 30, 1998, which
should be expected to increase further in future periods. In October 1997, the
Company entered into an agreement to have constructed a building of
approximately 115,000 square feet, and to lease that building for a ten-year
period commencing with its completion. The Company intends to occupy the new
building, located approximately two miles from the Company's current principal
location, as its headquarters. Increased occupancy expenses commensurate with
the increase in space leased should be anticipated for future periods.
THE SIX MONTH PERIOD ENDED JUNE 30, 1998, COMPARED TO THE SIX MONTH PERIOD
ENDED JUNE 30, 1997
Revenues. During the six months ended June 30, 1998, revenues increased
$30.1 million, or 87.7%, compared to the six month period ended June 30, 1997.
Net gain on sale of Contracts increased by $14.1 million, or 92.1%, and
represented 45.5% of total revenues for the six month period ended June 30,
1998. The increase in gain on sale is largely due to the increased volume of
Contracts which were sold in the period. During the six month period ended June
30, 1998, the Company sold $398.0 million in Contracts, compared to $221.7
million in the six month period ended June 30, 1997. As of June 30, 1998,
certain direct origination expenses were excluded from gain on sale and expensed
as incurred.
Interest income increased by $11.9 million, or 102.1%, and represented
36.6% of total revenues for the six month period ended June 30, 1998. The
increase is due to the increase in the volume of Contracts purchased and held
for sale and the increase in the amount of sold Contracts and related Residuals.
During the six month period ended June 30, 1998, the Company purchased $592.6
million in Contracts from Dealers, compared to $276.1 million in the six month
period ended June 30, 1997.
Servicing fees increased by $4.9 million, or 79.3%, and represented 17.0%
of total revenues. The increase in servicing fees is due to the Company's
continued expansion of its Contract purchase, sale and servicing activities.
Expenses. During the six month period ended June 30, 1998, operating
expenses increased $24.9 million, or 126.7%, compared to the six month period
ended June 30, 1997. Employee costs increased by $5.8 million, or 89.0%, and
represented 27.7% of total operating expenses. The increase is due to the
addition of staff necessary to accommodate the Company's growth and certain
increases in salaries of existing staff. General and administrative expenses
increased by $3.4 million, or 54.9% and represented 21.5% of total operating
expenses. Increases in general and administrative expenses included increases in
telecommunications, stationery, credit reports and other related items as a
result of increases in the volume of purchasing and servicing of Contracts.
14
<PAGE> 15
Interest expense increased $4.9 million, or 133.1%, and represented 19.1%
of total operating expenses. During the six month period ended June 30, 1998,
interest expense consisted primarily of interest on (i) borrowings under two
warehouse lines of credit ("Warehouse Lines") used to acquire Contracts and hold
them pending securitization, (ii) $20 million of outstanding Rising Interest
Subordinated Redeemable Securities due 2006 ("RISRS"), (iii) $20 million of
outstanding Participating Equity Notes due 2004, (iv) $15 million of unsecured
related party debt due 2004, and borrowings under a revolving line of credit
(the "Revolving Line") due 2003. With respect to the Warehouse Lines, the
Company's cost of borrowed funds varies with market rates, and the total
interest payable is affected in proportion to the amount of Contract purchases
funded under the Warehouse Lines and the average time such Contracts are held
prior to securitization. With respect to the RISRS debt, the interest paid on
the debt increases each calendar year from 10.25% at present to 12.00% in 2004,
and then to 12.50% until maturity at December 31, 2005. With respect to the
PENs, interest is payable at a fixed rate of 10.50% per annum. With respect to
the $15 million unsecured related party loan due 2004, interest is payable at a
fixed rate of 9.0% per annum. With respect to the Revolving Line due 2003,
interest is payable at a variable rate of LIBOR + 4.0% of the outstanding
balance. The increase in interest expense as compared to the prior year's period
is due primarily to increased average borrowings under the Warehouse Lines to
finance purchases of Contracts. Also not included in the prior year's period was
interest payable with respect to the Revolving Line.
During the six month period ended June 30, 1998, the provision for losses
on Contracts held for sale increased by $8.4 million, or 526.8%, and represented
22.4% of total operating expenses.
In March 1997, the Company opened a satellite collections facility in
Chesapeake, Virginia. In April 1998, the Company obtained additional contiguous
space at the Virginia facility. In addition, the Company obtained additional
leased space in the vicinity of its California headquarters in September 1997.
Lease of such additional space resulted in increased occupancy and general and
administrative expenses in the three month period ended June 30, 1998, which
should be expected to increase further in future periods. In October 1997, the
Company entered into an agreement to have constructed a building of
approximately 115,000 square feet, and to lease that building for a ten-year
period commencing with its completion. The Company intends to occupy the new
building, located approximately two miles from the Company's current principal
location, as its headquarters. Increased occupancy expenses commensurate with
the increase in space leased should be anticipated for future periods.
The Company continues to expand its staff to accommodate increases in its
purchases of Contracts and in its servicing portfolio. The Company therefore
expects to incur commensurate additional employee costs in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash from operating activities include
amounts borrowed under the Warehouse Lines, servicing fees on portfolios of
Contracts it has previously sold, cash flows released from Spread Accounts,
proceeds from sales of Contracts, customer payments on Contracts held for sale,
and interest earned on Contracts held for sale. The Company's primary uses of
cash include the purchase of Contracts, repayment of amounts borrowed under the
Warehouse Lines, operating expenses such as employee, interest, and occupancy
expenses, the establishment of and further contributions to Spread Accounts, and
income taxes.
Net cash used in operating activities was $16.4 million during the six
month period ended June 30, 1998, compared to net cash used in operating
activities of $31.6 million during the six month period ended June 30, 1997.
Cash used for purchasing Contracts was $592.6 million, an increase of $316.5
million, or 114.6%, over cash used for purchasing Contracts in the prior year's
period. Cash provided from the liquidation of Contracts was $414.0 million, an
increase of $186.1 million, or 81.7%, over cash provided from the liquidation of
Contracts in the prior year's period.
The Company's cash requirements have been and will continue to be
significant. The Servicing Agreements require the Company to make a significant
initial cash deposit, for purposes of credit enhancement, to the Spread
Accounts. Excess cash flows from the securitized Contracts are also deposited
into the
15
<PAGE> 16
Spread Accounts until such time as the Spread Account balance reaches its
requisite level, which is computed as a specified percent of the outstanding
balance of the related asset-backed securities.
During the six month period ended June 30, 1998, cash used for initial
deposits to Spread Accounts was $17.1 million, an increase of $9.3 million, or
120.3%, from the amount of cash used for initial deposits to Spread Accounts in
the prior year's period. The cash used increased because (i) the Company sold
more Contracts in the current period than in the prior year's period, and (ii)
in order to achieve the desired ratings for the transactions, the required
percentage initial deposit was raised from 3.5% in the prior year's transactions
to 5.0% in the transactions completed in the current period. The required
initial deposit has since been raised again, to a level of 8.0%, which would
increase the Company's future cash requirements. However, the Company is
reviewing alternative structures for its securitization, which may involve
reduced cash deposits. Cash deposited to Spread Accounts for the six month
period ended June 30, 1998, was $25.7 million, an increase of $12.7 million, or
97.0%, over cash deposited to Spread Accounts in the prior year's period. The
cash deposited in Spread Accounts for the six month period ended June 30, 1998,
includes $9.5 million of cash used to pay down certain Certificates to create
excess collateral in an over-collateralization account.
Cash released from Spread Accounts for the six month period ended June 30,
1998, was $15.8 million, an increase of $7.1 million, or 80.0%, over cash
released from Spread Accounts in the prior year's period. Changes in deposits to
and releases from Spread Accounts are affected by the relative size, seasoning
and performance of the various pools of sold Contracts that make up the
Company's servicing portfolio. The Company expects that cash releases from
Spread Accounts for the remainder of 1998 may be less than those for the first
six months of 1998.
The Servicing Agreements call for the requisite levels of the various
Spread Accounts to increase if the related receivables experience delinquencies,
repossessions or net losses in excess of certain predetermined levels. During
the Company's history, the predetermined levels have frequently been reached,
causing the requisite levels of certain Spread Accounts to be raised. The
requisite levels of the Spread Accounts may be returned to the original lower
levels if the related receivables delinquency, repossession and net loss
performance is reduced below the pre-determined levels. In addition, on two
occasions, the parties to the pertinent agreements have made modifications that
effectively raised the permissible delinquency, repossession and net loss
levels, thus resulting in Spread Accounts reverting to their original requisite
levels. As of June 30, 1998, the Spread Accounts for seven of the Company's 23
securitized pools were at higher than original requisite levels due to
delinquency, repossession or net loss performance. Such Spread Account balances
therefore included approximately $5.1 million more than would have been required
at the original requisite level.
On a day-to-day basis, the Company funds its purchases of Contracts from
Dealers by drawing on either of two Warehouse Lines of Credit (collectively
referred to as the "Warehouse Lines"), and pledges the purchased Contracts to
one or the other warehouse lender. The amount borrowed under the Warehouse Lines
increases until the Company sells the pledged Contracts in a securitization
transaction, at which time the majority of the proceeds of the sale are used to
pay down the balance of the Warehouse Lines. Securitization transactions are
typically completed on a quarterly basis. The Company has experienced continued
growth in the levels of Contracts purchased and securitized and expects that
such growth may continue. The amount of Contracts that the Company can hold for
sale prior to a securitization is limited by its available cash and the two
Warehouse Lines, which Warehouse Lines aggregated to $280 million at June 30,
1998. In July 1998, one of the existing lenders agreed to increase the amount
available under its Warehouse Line from $180 million to $200 million, giving the
Company a total of $300 million of Warehouse Line availability.
The Company funds the increase in its servicing portfolio through off
balance sheet securitization transactions, and funds its other capital needs
with cash from operations and with the proceeds from the issuance of various
debt instruments. During the six month period ended June 30, 1998, the Company
engaged in two securitization transactions, and established a $33.3 million
revolving line of credit, discussed below. The interest rate payable on the
senior Certificates issued in the securitization transaction ranged from 6.00% -
6.09% as compared with 6.55% - 6.65% payable on the similar securities issued in
the prior year's period. The change in the rates is primarily due to changes in
rates payable on U.S. Treasuries of similar maturities.
16
<PAGE> 17
In April 1998, the Company established a $33.3 million revolving line of
credit (the "Revolving Line") with State Street Bank and Trust Company,
Prudential Insurance and an affiliate of Prudential. Borrowings under the
Revolving Line bear interest at LIBOR + 4.0%, and are secured by the Company's
assets, including its residual interest in Securitizations. The Revolving Line
is a revolving facility for one year, after which it converts into a loan with a
maximum term of four years.
There can be no assurance that such financing will continue to be available
to the Company, nor that the cost of any such financing will not increase
materially in the future.
Due to the Company's ongoing growth and the need to fund Spread Accounts,
the Company will be required to obtain new capital in order to continue to meet
its projected cash requirements. The Company is exploring its alternatives to
raise capital of approximately $100 million, which could include sale of debt or
equity instruments. The sale of any equity or convertible debt could be dilutive
to existing stockholders. The terms of any such issuance have not been
determined as of the date of this report, and there can be no assurance that any
such transaction will occur. The Company has also received $5 million of new
capital from the sale of common stock to an affiliated party.
In January 1997, the Company acquired a company engaged in the equipment
leasing business. Any material growth in that subsidiary's business will require
significant capital resources, to allow that subsidiary to purchase equipment
for lease. As of June 30, 1998, the leasing company had a line of credit for
$20.0 million to purchase equipment for lease. Borrowings under the line are
collateralized by the underlying equipment and bear interest at a variable rate
ranging from 1.85% to 3.0% over the five year U.S. Treasuries rate, depending on
the investment rating of the lessee to whom the equipment is leased. The line of
credit expires December 31, 2005.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131") SFAS No. 131 establishes
standards for reporting financial and descriptive information about an
enterprise's operating segments in its annual financial statements and selected
segment information in interim financial reports. SFAS No. 131 becomes effective
for the Company's 1998 annual financial statements. Reclassification or
restatement of comparative financial statements or financial information for
earlier periods is required upon adoption of SFAS No. 131. Application of SFAS
No. 131 is not expected to have a material impact on the Company's consolidated
financial position, results of operations or liquidity.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in foreign operation, an
unrecognized firm commitment, an available for sale security, or a
foreign-currency-denominated forecasted transaction.
Under SFAS 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
17
<PAGE> 18
YEAR 2000
The Company has performed an examination of its major software applications
to ensure that each system is prepared to accommodate the year 2000. This
examination included a review of program code that is maintained by the Company
as well as obtaining confirmation from outside software vendors that their
products are year 2000 compliant. In addition, the Company has communicated with
firms with whom it does significant business to determine their readiness for
the year 2000. The Company believes, based on its current examination, that the
year 2000 will not have a material adverse impact on the Company's operations.
However, there can be no assurance that software incompatibility with the year
2000 on the part of the Company or any of its significant suppliers does not in
fact exist or that any such incompatibility will not have a material adverse
effect on the Company.
FORWARD-LOOKING STATEMENTS
The descriptions of the Company's business and activities set forth in this
Form 10-Q and in other past and future reports and announcements by the Company
may contain forward-looking statements and assumptions regarding the future
activities and results of operations of the Company. In particular, the
statement that the Company expects continued growth in levels of Contracts
purchased is a forward-looking statement. Statements concerning uses of cash in
connection with Contracts and Spread Accounts, and the levels of cash required
to be contributed to Spread Accounts for credit enhancement are also
forward-looking statements, as are statements regarding future capital
requirements and liquidity, the availability and terms of future financing and
statements regarding expansion of operations or increases in personnel. Actual
results may be adversely affected by various factors including the following:
increases in unemployment or other changes in domestic economic conditions which
adversely affect the sales of new and used automobiles and may result in
increased delinquencies, foreclosures and losses on Contracts; adverse economic
conditions in geographic areas in which the Company's business is concentrated;
changes in interest rates, adverse changes in the market for securitized
receivables pools, or a substantial lengthening of the Company's warehousing
period, each of which could restrict the Company's ability to obtain cash for
new Contract originations and purchases; increases in the amounts required to be
set aside in Spread Accounts for existing or future securitizations or to be
expended for other forms of credit enhancement to support future
securitizations; the reduction or unavailability of warehouse lines of credit
which the Company uses to accumulate Contracts for securitization transactions;
increased competition from other automobile finance sources; reduction in the
number and amount of acceptable Contracts submitted to the Company by its
automobile dealer network; changes in government regulations affecting consumer
credit; and other economic, financial and regulatory factors beyond the
Company's control.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 21, 1998, the Company sold 443,459 shares of its common stock for
cash consideration of $5 million. The securities were sold in a private
transaction to Stanwich Financial Services Corp., which is a corporation of
which the Company's chairman of the board, Charles E. Bradley, Sr., is the sole
director, chief executive officer, and principal shareholder. No underwriting
discount or commission was involved in this transaction. The Company believes
this transaction was exempt from registration under the Securities Act of 1933
under Section 4(2) of that Act as a transaction not involving a public offering.
The number of persons to whom these securities were offered was less than ten.
18
<PAGE> 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on June 25,
1998. At the meeting, each of the six nominees to the Board of Directors was
elected for a one-year term by the shareholders, with votes cast as follows:
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES WITHHELD
------- ---------- --------------
<S> <C> <C>
Charles E. Bradley, Sr............................ 12,798,729 27,828
Charles E. Bradley, Jr............................ 12,798,829 27,728
Thomas L. Chrystie................................ 12,798,829 27,728
John G. Poole..................................... 12,798,829 27,728
William B. Roberts................................ 12,798,829 27,728
Robert A. Simms................................... 12,798,829 27,728
</TABLE>
The shareholders also approved each other proposal placed before the annual
meeting. Such proposals were (i) approval of the Company's 1998 Key Executive
Incentive Plan, and (ii) ratification of the appointment of KPMG Peat Marwick
LLP as independent auditors of the Company. Votes on such proposals were cast as
follows:
<TABLE>
<CAPTION>
KEY EXECUTIVE RATIFICATION OF SELECTION OF
INCENTIVE PLAN INDEPENDENT PUBLIC ACCOUNTANTS
-------------- ------------------------------
<S> <C> <C>
For................................... 12,079,410 12,700,138
Against............................... 507,788 18,001
Abstain............................... 135,408 108,418
Broker nonvote........................ 103,951 0
---------- ----------
Total................................. 12,826,557 12,826,557
========== ==========
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 Amendment dated July 17, 1998 to the Receivables Funding and
Servicing Agreement relating to First Union Warehouse Line.
10.2 Subscription Agreement regarding shares issued in July 1998.
10.3 Registration Rights Agreement regarding shares issued in
July 1998.
27 Financial Data Schedule.
</TABLE>
(b) During the three-month period ended June 30, 1998, the Company filed
two reports on Form 8-K. The table below presents information
concerning such reports:
<TABLE>
<CAPTION>
DATE OF THE REPORT
(DATE OF EVENT TO WHICH REPORT RELATES) TYPE OF INFORMATION INCLUDED IN REPORT
- --------------------------------------- --------------------------------------
<C> <S>
May 1, 1998 Item 5 and Item 7. The Item 5 disclosure
announced that certain exhibits were being
filed. The exhibits were related to the
Company's May 1998 securitization of
receivables.
May 8, 1998 Item 5 and Item 7. The Item 5 disclosure
announced that certain exhibits were being
filed. The exhibits were related to the
Company's May 1998 securitization of
receivables.
</TABLE>
No financial statements were filed with either of such reports.
19
<PAGE> 20
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)
<TABLE>
<S> <C>
Date: August 13, 1998 /s/ CHARLES E. BRADLEY, JR.
----------------------------------------------
Charles E. Bradley, Jr.
Director, President, Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1998 /s/ JEFFREY P. FRITZ
----------------------------------------------
Jeffrey P. Fritz
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 Amendment dated July 17, 1998 to the Receivables Funding and
Servicing Agreement relating to First Union Warehouse Line.
10.2 Subscription Agreement regarding shares issued in July 1998.
10.3 Registration Rights Agreement regarding shares issued in
July 1998.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 2
TO THE
RECEIVABLES FUNDING AND SERVICING AGREEMENT,
AS AMENDED
dated as of July 17, 1998
AMENDMENT NO. 2 TO THE RECEIVABLES FUNDING AND SERVICING
AGREEMENT, AS AMENDED, dated as of July 17, 1998 ("Amendment No. 2") to that
certain Receivables Funding and Servicing Agreement, as amended, dated as of
November 24, 1997 (the "Receivables Funding and Servicing Agreement") among CPS
WAREHOUSE CORP., a Delaware corporation (the "Borrower"), the financial
institutions listed on the signature pages of this Agreement under the heading
"Investors" and their respective successors and assigns; VARIABLE FUNDING
CAPITAL CORPORATION, a Delaware corporation, ("VFCC") as lender (a "Lender"),
FIRST UNION CAPITAL MARKETS, a division of WHEAT FIRST SECURITIES, INC.
("FCMC"), as deal agent (the "Deal Agent"); FIRST UNION NATIONAL BANK ("First
Union"), as the liquidity agent (the "Liquidity Agent") and as the collateral
agent (the "Collateral Agent") and CONSUMER PORTFOLIO SERVICES, INC., a
California corporation (as such, together with its successors and assigns, the
"Parent"), as servicer hereunder (as such, together with its successors and
permitted assigns, the "Servicer").
PRELIMINARY STATEMENTS
WHEREAS, the parties hereto have entered into that certain
Receivables Funding and Servicing Agreement, whereby the Lenders make advances
to the Borrower and such advances are secured by certain receivables and other
collateral owned by the Borrower;
WHEREAS, pursuant to Section 2.01(c) of the Receivables
Funding and Servicing Agreement, the Borrower may by written notice to the Deal
Agent, request an increase in the Maximum Facility Amount; and
WHEREAS, Section 14.06 provides the Receivables Funding and
Servicing Agreement may be amended in writing by the parties thereto;
NOW, THEREFORE, in consideration of the promises and the
mutual agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Definitions. Unless otherwise defined herein, all
capitalized terms shall have the meaning set forth in the Receivables Funding
and Servicing Agreement thereto.
<PAGE> 2
2. Amendment to Receivables Funding and Servicing Agreement.
(a) Section 1.01 is hereby amended by:
(i) deleting the definition of "Advance Rate" and by
replacing such definition with the following:
"Advance Rate" means, for any Receivable within a
Subgroup of Receivables and date within a Report Period, a percentage
equal to the lesser of (a) 95% and (b) 1 minus the product of (i) three
(3) and (ii) the Net Loss Factor applicable to the related Subgroup of
Receivables during such Report Period.
(ii) deleting the definition of "CP Rate" and by
replacing such definition with the following:
"CP Rate" means for any Fixed Period, the per annum
rate equivalent to the weighted average of the per annum rates paid or
payable by VFCC from time to time as interest on or otherwise (by means
of interest rate hedges or otherwise) in respect of the short-term
promissory notes issued by VFCC that are allocated, in whole or in
part, by the Deal Agent (on behalf of VFCC) to fund or maintain the
Contracts during such Fixed Period, as determined by the Deal Agent (on
behalf of VFCC) and reported to the Borrower and the Servicer, which
rates shall reflect and give effect to the reasonable and customary
commissions of placement agents and dealers in respect of such
promissory notes, to the extent such commissions are allocated, in
whole or in part, to such promissory notes by the Deal Agent (on behalf
of VFCC); provided, however, that if any component of such rate is a
discount rate, in calculating the "CP Rate" for such Fixed Period, the
Deal Agent shall for such component use the rate resulting from
converting such discount rate to an interest-bearing equivalent rate
per annum.
(iii) adding the following after the word "months" in
the first line of item (d) in the definition of "Eligible Receivables":
"(or, in the case of a Contract originated under the
Super Alpha Program (as defined in the Credit and Collection Policies),
seventy-two (72) months)"
(iv) deleting the definition of "Final Maturity Date"
and by replacing such definition with the following:
"Final Maturity Date" means July 16, 1999 or, if
extended, in the sole discretion of VFCC and each Investor in
accordance with the terms of Section 2.01(b), the Extension Date.
(v) deleting the definition of "Maximum Facility
Amount" and by replacing such definition with the following:
"Maximum Facility Amount" means at any time,
$200,000,000, as such amount may be adjusted from time to time pursuant
to Section 2.01(c) and Section 2.03,
2
<PAGE> 3
provided, however, that at all times, on or after the Termination Date,
the "Maximum Facility Amount" shall mean the aggregate outstanding
principal amount of Advances.
(vi) deleting the word "and" in the fifth line of
item (iii) in the definition of "Portfolio Requirements" and by adding
the following clause after the words "Settlement Period" in the last
line thereof:
", and (c) originated under the Super Alpha Program
(as defined in the Credit and Collection Policies) with an initial
Contract term in excess of sixty (60) months shall not exceed 5% of the
aggregate Contract Principal Balance of Eligible Receivables at the end
of such Settlement Period"
(vii) deleting the definition of "Yield Rate" and by
replacing such definition with the following:
"Yield Rate" For any Fixed Period for all principal
amounts of Advances allocated to such Fixed Period:
(a) to the extent the relevant Lender will be funding
the applicable Advance on the first day of such Fixed Period through
the issuance of commercial paper, a rate equal to the sum of (i) the CP
Rate and (ii) the Applicable Margin for such Fixed Period, and
(b) to the extent the relevant Lender will not be
funding the applicable Advance on the first day of such Fixed Period
through the issuance of commercial paper, a rate equal to the sum of
(i) the Alternative Rate and (ii) the Applicable Margin for such Fixed
Period or such other rate as the Deal Agent and the Borrower shall
agree to in writing.
(b) Section 14.11 is hereby amended by inserting "(a)" before
the first sentence thereof and by adding the following at the end thereof:
"(b) Notwithstanding anything contained in this Agreement,
VFCC shall have no obligation to pay any amount required to be paid by it
hereunder or thereunder to any of the Liquidity Agent, the Documentation Agent,
the Deal Agent or any Investor, in excess of any amount available to VFCC after
paying or making provision for the payment of its Commercial Paper Notes. All
payment obligations of VFCC hereunder are contingent upon the availability of
funds in excess of the amounts necessary to pay Commercial Paper Notes; and each
of the Liquidity Agent, the Documentation Agent, the Deal Agent and each
Investor agrees that they shall not have a claim under Section 101(5) of the
United States Bankruptcy Code if and to the extent that any such payment
obligation exceeds the amount available to the Seller to pay such amounts after
paying or making provision for the payment of its Commercial Paper Notes."
(c) Article XIV is hereby amended by adding the following
section:
"Section 14.12 Investor Assumption of Hedging Instruments.
3
<PAGE> 4
Upon a funding of the Liquidity Facility on behalf of the
Investors specified in the Liquidity Purchase Agreement, the following
provisions shall apply with respect to the Hedging Instruments. Capitalized
terms used in this Section 14.12 and not otherwise defined in this Agreement
shall have the meanings ascribed to them in the Liquidity Purchase Agreement:
Each Investor shall assume and hereby does agree to assume a
pro rata interest (equal to its Percentage Interest) in obligations (including,
without limitation, any obligations to make termination payments thereunder) and
duties of VFCC under each Hedging Instrument as of the date of such purchase and
shall also be entitled to a corresponding portion of the rights and benefits of
VFCC under the related Hedging Instrument subsequent to such date.
VFCC shall execute and deliver all Required Assignment
Documentation that may be requested by the Deal Agent or VFCC in connection
therewith."
3. Full Force and Effect. Except as modified by this Amendment
No. 2, the Receivables Funding and Servicing Agreement shall otherwise remain in
full force and effect against any and all of the parties thereunder.
4. Governing Law. This Amendment No. 2 shall be governed by,
and construed in accordance with, the laws of the State of New York, without
reference to its conflicts of laws provisions, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance therewith.
5. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
4
<PAGE> 5
IN WITNESS WHEREOF the parties have executed this Amendment No. 2 as of the date
first above written.
CONSUMER PORTFOLIO SERVICES, INC.,
as Servicer
By: ___________________________________
Name:
Title:
CPS WAREHOUSE CORP., as
Borrower
By: ___________________________________
Name:
Title:
VARIABLE FUNDING CAPITAL CORPORATION,
as a Lender
By: First Union Capital Markets, a
division of Wheat First Securities,
Inc., as attorney-in-fact
By: ___________________________________
Name:
Title:
FIRST UNION CAPITAL MARKETS, a division
of WHEAT FIRST SECURITIES, INC.,
as Deal Agent
By: ___________________________________
Name:
Title:
FIRST UNION NATIONAL BANK, as
Liquidity Agent
By: ___________________________________
Name:
Title:
5
<PAGE> 6
FIRST UNION NATIONAL BANK, as
Collateral Agent
By: ___________________________________
Name:
Title:
FIRST UNION NATIONAL BANK, as Investors
By: ___________________________________
Name:
Title:
Commitment: $200,000,000
6
<PAGE> 1
EXHIBIT 10.2
SUBSCRIPTION AGREEMENT FOR COMMON STOCK
SUBSCRIPTION AGREEMENT made as of the 21st day of July, 1998 between
Consumer Portfolio Services, Inc., a California corporation ("Issuer"), and
Stanwich Financial Services Corp., a Rhode Island corporation ("Purchaser").
CPS desires to increase its capital by selling shares of its common
stock. SFSC desires to purchase 443,459 such shares.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto do hereby agree as follows:
1. SUBSCRIPTION FOR SHARES AND REPRESENTATIONS BY PURCHASER
1.1 Purchaser agrees to purchase 443,459 shares (the "Shares") of the
common stock of Issuer for consideration of Five Million Dollars ($5,000,000).
1.2 Purchaser recognizes that the purchase of the Shares involves a high
degree of risk and is suitable only for investors that have no need for
immediate liquidity in this investment.
1.3 The Purchaser acknowledges that it has been furnished by the Issuer
during the course of this transaction with all information regarding the Issuer
that Purchaser requested or desired to know; that all other documents which
could be reasonably provided have been made available for Purchaser's inspection
and review; and that Purchaser has been afforded the opportunity to ask
questions of and receive answers from duly authorized officers or other
representatives of the Issuer concerning the terms and conditions of the
offering, and any additional information that Purchaser has requested.
1.4 The Purchaser hereby acknowledges that this offering of Shares has
been a nonpublic offering pursuant to Section 4(2) of the Securities Act of
1933, as amended (the "1933 Act"). The Purchaser represents that the Shares are
being purchased for its own account, for investment and not for distribution or
resale to unless they are registered under the 1933 Act or unless an exemption
from such registration is available. The Purchaser is aware that registration of
the Shares with the SEC cannot be assured.
1.5 The Purchaser understands that the Shares have not been registered
under the 1933 Act by reason of a claimed exemption under the provisions of the
1933 Act which depends, in part, upon Purchaser's investment intention. In this
connection, the Purchaser understands that it is the position of the Securities
and Exchange Commission (the "SEC") that the statutory basis for such exemption
would not be present if Purchaser's representation merely meant that Purchaser's
present intention was to hold the Shares for a short period, for a deferred
sale, or for any other fixed period. The Purchaser realizes that, in the view of
the SEC, a purchase now with an intent to resell would represent a purchase with
an intent inconsistent with Purchaser's representation to the Issuer, and the
SEC might regard such a sale, transfer or other disposition as a deferred sale
for which the exemption is not available.
1.6 Purchaser represents that (i) it has not been formed for the purpose
of acquiring the Shares, (ii) the person signing this Agreement on behalf of the
Purchaser has been authorized to do so.
1.7 The Purchaser agrees that the Issuer may refuse to permit the
transfer of the Shares by the Purchaser unless the Issuer is supplied an opinion
of counsel reasonably satisfactory to the Issuer that the proposed sale,
transfer or disposition does not result in a violation of the 1933 Act or any
applicable state "blue sky" laws (collectively, "Securities Laws"). The
Purchaser agrees to hold the Issuer and its directors, officers and any
controlling persons and their respective heirs, representatives, successors and
assigns harmless and to indemnify them against all liabilities, costs and
expenses incurred by them as a result of any sale, transfer or other disposition
of the Shares by the Purchaser in violation of any Securities Laws or any
misrepresentation herein.
<PAGE> 2
1.8 The Purchaser consents to the placement of a legend on any
certificate evidencing the Shares stating that they have not been registered
under the 1933 Act and setting forth or referring to the restrictions on the
sale, transfer or other disposition thereof.
2. REPRESENTATIONS BY THE ISSUER.
The Issuer represents and warrants to the Purchaser as follows:
(a) The Issuer is a corporation duly organized, existing and in good
standing under the laws of the State of California.
(b) The execution, delivery and performance of this Agreement by the
Issuer has been duly approved by the board of directors of the Issuer.
3. MISCELLANEOUS
3.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, addressed to the Issuer at 2 Ada, Irvine, California 92618,
and to the Purchaser at the address indicated below Purchaser's signature.
3.2 This Agreement shall not be changed, modified, or amended except by a
writing signed by the parties to be charged, and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged.
3.3 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, legal representatives, successors
and assigns. This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter thereof and merges and supersedes
all prior discussions, agreements and understandings of any and every nature
among them.
3.4 This Agreement and its validity, construction and performance shall
be governed in all respects by the internal laws of the State of California.
3.5 This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
STANWICH FINANCIAL SERVICES CORP.
a Rhode Island corporation
By:_____________________________________
Address: c/o Stanwich Partners, Inc.
62 Southfield Ave.
Stamford, CT 06902
CONSUMER PORTFOLIO SERVICES, INC.
By:_____________________________________
<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
AGREEMENT made as of July 21, 1998, between CONSUMER PORTFOLIO
SERVICES, INC., a California corporation (the "Company"), and STANWICH FINANCIAL
SERVICES CORP., a Rhode Island corporation ("Purchaser").
RECITALS
This Agreement is made pursuant to the Subscription Agreement for
Common Stock ("Subscription Agreement"), dated July 21, 1998, between the
Company and the Purchaser, under which the Company has agreed to issue and sell,
and the Purchaser has agreed to buy, Four Hundred Forty-Three Thousand Four
Hundred Fifty-Nine shares of the common stock, no par value, of the Company.
To induce the Purchaser to provide funds to the Company pursuant to the
terms of the Subscription Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement. This Agreement shall become
effective upon the issuance of any shares of common stock of the Company to the
Purchaser (or any other assignee of the Purchaser's rights under the
Subscription Agreement) pursuant to the terms of the Subscription Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "Agreement" shall mean this Registration Rights Agreement.
(b) "Exchange Act" shall mean the Securities Exchange Act of
1934, as the same has been or may hereafter be amended.
(c) "Holder" means any person owning or having the right to
acquire the Shares or the Prior Shares, respectively.
(d) "Indemnified Party" shall mean a party entitled to
indemnification under Section 7 of this Agreement.
(e) "Indemnifying Party" shall mean the party required to
provide indemnification under Section 7 of this Agreement.
(f) "Other Shareholders" shall mean, collectively, officers or
directors of the Company who own common stock of the Company or other holders of
the Company common stock who are entitled, by contract with the Company, to have
their common stock included in a registration of the Company's securities.
(g) "Prior Shares" shall mean the shares of capital stock of
the Company defined as the "Shares" in that certain Registration Rights
Agreement between the Company and the Purchaser dated as of June 12, 1997.
(h) "Register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and
<PAGE> 2
applicable rules and regulations thereunder, and such registration statement
becoming effective.
(i) "Registration Expenses" shall mean all expenses incurred
by the Company in compliance with Sections 2 and 3, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration,
but excluding fees and disbursements of counsel to, or other experts retained
by, any Holder.
(j) "Securities Act" shall mean the Securities Act of 1933, as
the same has been or may hereafter be amended.
(k) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of securities registered.
(l) "Shares" shall mean the 443,459 shares of the common stock
of the Company issued pursuant to the Subscription Agreement, and any shares of
the Company's capital stock issued in respect of or exchange for such shares,
whether by stock split, stock dividend or otherwise.
2. Registration under Securities Act, etc.
2.1 Demand Registration.
(a) Request. At any time on or after the date of this
Agreement, upon the written request of the Purchaser, or an assignee of Shares
as provided in Section 9, that the Company effect the registration under the
Securities Act of all or part of the Shares specifying the number of Shares to
be registered and the intended method of disposition thereof, the Company will
give prompt written notice of such request to all registered holders of the
Shares, and thereupon the Company will use its best efforts to effect the
registration under the Securities Act of:
(i) those Shares that the Company has been requested
to register by the Purchaser, and
(ii) all other Shares that the Company has been
requested to register by written request of the Holders thereof given to the
Company within 30 days after the giving of the aforesaid written notice by the
Company (specifying the intended method of disposition of such Shares), all to
the extent requisite to permit the intended disposition of the Shares to be so
registered.
(b) Registration of Other Securities. Whenever the Company
shall effect a registration pursuant to this Section 2.1 in connection with an
underwritten offering by one or more Holders of the Shares, no securities other
than the Shares and the Prior Shares shall be included among the securities
covered by such registration unless (i) the managing underwriter of such
offering shall have advised the Purchaser in writing that the inclusion of such
other securities would not adversely affect such offering or (ii) the Purchaser
shall have consented in writing to the inclusion of such other securities.
(c) Registration Statement Form. Registrations under this
Section 2.1 shall be on such appropriate registration form (i) as shall be
selected by the Company and as shall be reasonably acceptable to the Purchaser
and (ii) as shall permit the disposition of the Shares in accordance with the
intended method or methods of disposition specified in the request for such
registration. The Company agrees to include in any such registration statement
all information which, in the opinion of counsel to the Purchaser and counsel to
the Company, is required to be included.
2
<PAGE> 3
(d) Effective Registration Statement. A registration statement
requested pursuant to this Section 2.1 shall not be deemed to have been effected
and will not be considered a demand registration which may be requested pursuant
to this Agreement (i) unless a registration statement with respect thereto has
become effective, (ii) if after it has become effective, it does not remain
effective for a period of at least 180 days (unless the Shares registered
thereunder have been sold or disposed of prior to the expiration of such 180 day
period) or such registration is interfered with by any stop order, injunction or
other order or requirement of the Securities and Exchange Commission ("SEC") or
other governmental agency or court for any reason and has not thereafter become
effective, or (iii) if the conditions to closing specified in the underwriting
agreement entered into in connection with such registration are not satisfied or
waived other than by reason of the failure or refusal of a Holder of Shares to
satisfy or perform a condition to such closing.
(e) Priority in Demand Registrations. If a demand registration
pursuant to this Section 2.1 involves an underwritten offering, and the managing
underwriter shall advise the Company in writing (with a copy sent to each Holder
of the Shares requesting registration) that the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering within a price range acceptable to the Purchaser, or such other Person
demanding registration pursuant to Section 9 hereof, such registration will
include only that number of the Shares and Prior Shares which the Company is so
advised can be sold in such offering, drawn pro rata from the Holders of the
Shares and the Prior Shares requesting such registration on the basis of the
percentage of Shares and the Prior Shares held by the Holders of Shares which
have requested that such securities be included. In connection with any such
registration, no securities other than the Shares and the Prior Shares shall be
covered by such registration.
(f) Demand Registration. Without limiting the ability of other
Holders of Shares to have such securities registered once a demand registration
has been requested, a demand registration may only be requested by the Purchaser
and any other Person entitled to demand registration pursuant to Section 9
hereof, and notwithstanding anything in this Section 2.1 to the contrary, the
Company shall not be required to effect more than one registration pursuant to
this Section 2.1; provided, however, that the Purchaser, or any other Person
entitled to demand registration pursuant to Section 9 hereof, shall be entitled
to one additional demand registration if all of the Shares which the Purchaser
or such other Person requested to be included in any prior demand registration
were not, for whatever reason, registered pursuant to such prior demand
registration.
2.2 Company Registration.
(a) If at any time during the period commencing on the date on
which the Shares are issued pursuant to the Subscription Agreement and ending on
the third anniversary of such date, the Company proposes to register (including
for this purpose a registration effected by the Company for shareholders other
than the Holders) any of its stock or other securities under the Securities Act
in connection with the public offering of such securities solely for cash (other
than (i) a registration on Form S-8 of securities to be offered to employees
pursuant to an employee benefit plan, (ii) a registration in connection with an
exchange offer or any acquisition, (iii) a registration of asset-backed
securities to be issued by a trust, or (iv) a registration on any form which
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Shares), the
Company shall, each such time, give each Holder written notice of such proposed
registration at least twenty (20) days prior to filing the registration
statement respecting such proposed registration. Upon the written request of any
Holder given within fifteen (15) days after mailing of such notice by the
Company, the Company shall cause to be registered under the Securities Act all
of the Shares that each such Holder has requested to be registered, subject to
Section 6 hereof.
3
<PAGE> 4
(b) Priority in Incidental Registrations. In a registration
pursuant to this Section 2.2 involving an underwritten offering of the
securities so being registered, whether or not for sale for the account of the
Company by or through one or more underwriters of recognized standing, if the
managing underwriter of such underwritten offering shall inform the Company and
the Holders of the Shares requesting registration in such offering by letter of
its belief that the number or type of securities to be included in such
registration would materially adversely affect its ability to effect such
offering, then the Company will be required to include in such registration only
that number, if any, and type of Shares which it is so advised can be sold in
such offering, drawn pro rata from the Holders of the Shares and Prior Shares
requesting such registration on the basis of the percentage of the Shares and
Prior Shares held by the Holders of Shares and Prior Shares which have requested
that such securities be included.
3. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Shares, the Company shall use its best efforts
to, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Shares and use its best efforts to cause such registration
statement to become effective.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Shares owned by
them.
(d) Make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a registration statement, or the
lifting of any suspension of the qualification of any of the Shares for sale in
any jurisdiction, at the earliest possible moment;
(e) Register and qualify the securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as shall be reasonably requested by the Holders provided that in
no event shall: the Company be required to qualify to do business in any state
or to take any action which would subject it to general or unlimited service of
process in any state where it is not now so subject, any stockholder be required
to escrow their shares of capital stock of the Company, or the Company or any
stockholder be required to comply with any other requirement which they deem
unduly burdensome; and
(f) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make generally available
to its security holders earnings statements satisfying the provisions of Section
11(a) of the Securities Act, no later than 90 days after the end of any 12-month
period (i) commencing at the end of any fiscal quarter in which Shares are sold
to underwriters in a firm or best efforts underwriting offering and (ii)
beginning with the first day of the Company's first fiscal quarter next
succeeding each sale of Shares after the effective date of a registration
statement, which statements shall cover said 12-month periods;
The Company may require each holder of Shares as to which any
registration is being effected to furnish to the Company such information
regarding such Holder and the distribution of such Shares as the Company may
from time to time reasonably request in writing in order to comply with the
Securities Act. Each Holder of Shares as to which any registration is being
effected agrees to notify the Company as promptly as practicable of any
inaccuracy or change in information previously furnished by such Holder to
4
<PAGE> 5
the Company or of the happening of any event in either case as a result of which
any prospectus relating to such registration contains an untrue statement of a
material fact regarding such Holder or the distribution of such Shares or omits
to state any material fact regarding such Holder or the distribution of such
Shares required to be stated therein or necessary to make the statement therein
not misleading in light of the circumstances then existing, and to promptly
furnish to the Company any additional information required to correct and update
any previously furnished information or required such that such prospectus shall
not contain, with respect to such Holder or the distribution of such Shares, an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
Each Holder of Shares agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(d)
hereof, or notice from the Company that revision or correction of any of the
information contained in such registration statement or prospectus is then
required, such holder will forthwith discontinue disposition of such Shares
covered by such registration statement or prospectus until such Holder's receipt
of the copies of the supplemented or amended prospectus relating to such
registration statement or prospectus, or until it is advised in writing by the
Company that the use of the applicable prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in such Prospectus, and, if so directed by the Company, such Holder
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering the Shares current at the time of receipt of such notice.
(g) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
4. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement, that
the selling Holders shall furnish to the Company such information regarding
themselves, the Shares held by them, and the intended method of disposition of
such securities as shall be required to effect the registration of their Shares.
5. Expenses Of Registration. All expenses incurred in connection with
any registration pursuant to this Agreement (other than underwriter's
commissions and fees or any fees of others employed by a selling Holder,
including attorneys' fees), including without limitation all registration,
filing and qualification fees, printers' and accounting fees, and fees and
disbursements of counsel for the Company, shall be borne by the Company.
6. Underwriting Requirements. In connection with any offering involving
an underwriting of securities being issued by the Company, the Company shall not
be required under Section 2 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity, if any, as will not, in the opinion of the underwriters, jeopardize or
in any way reduce the success of the offering by the Company. If the total
amount of Shares that all Holders with registration rights under Section 2 and
any Holders of Prior Shares request to be included in such offering exceed the
amount of such securities that the underwriters reasonably believe compatible
with the success of the offering, then the Company shall be required to include
in the offering only that number of Shares and Prior Shares of the Holders that
the underwriters believe will not jeopardize the success of the offering;
provided that the Shares and Prior Shares to be included in such case shall be
apportioned pro rata among the Holders according to the total amount of Shares
and Prior Shares requested to be registered.
5
<PAGE> 6
7. Indemnification. In the event any Shares are included in a
registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers and directors of each Holder, any underwriter
(as defined in the Exchange Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Securities Act or
Securities Exchange Act of 1934, as amended ("Exchange Act") against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or any state securities law
or regulation, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law; and the
Company will reimburse each such Holder, officer or director, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in a connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this paragraph 7(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person or his or their
representative or agent.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors and officers, any
underwriter (as defined in the Securities Act) for the Company, each person, if
any, who controls the Company or any such underwriter within the meaning of the
Securities Act or the Exchange Act, and any other holder selling securities in
such registration statement or any of its directors or officers or any person
who controls such Holder, against any losses, claims, damages, or liabilities
(or actions in respect thereto) which arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder or his representative or agent expressly for use in
connection with such registration; and each such Holder will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer, any person who controls the Company, any underwriter or controlling
person of any such underwriter, any other such Holder, officer, director, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this paragraph 7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld), and provided further that the obligations of each
selling Holder hereunder shall be limited to an amount equal to the proceeds of
each such selling Holder of the shares sold by such selling Holder pursuant to
such registration.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 7, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however,
6
<PAGE> 7
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to notify an indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such indemnifying party
of any liability that it may have to any indemnified party otherwise than under
this Section 7.
8. Reports Under the Exchange Act. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration form which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC,
the Company agrees that it shall, for at least three (3) years from the date on
which the Shares are issued pursuant to exercise of the conversion right under
the Note:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) Furnish to any Holder, so long as the Holder owns any Shares,
forthwith upon reasonable request (i) a written statement by the Company that it
has complied with the reporting requirements of the Exchange Act (at any time
after it has become subject to such reporting requirements), (ii) a copy of the
most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC
permitting the selling of any such securities without registration or pursuant
to such form.
9. Assignment of Registration Rights. The rights to cause the Company
to register Shares pursuant to this Agreement may be assigned by a Holder to a
transferee or assignee of such securities by providing the Company, within a
reasonable time after such transfer, with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; provided, however, that such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act, (i) such transferee explicitly accepts all obligations of
the transferor hereunder, and (ii) such transfer is of not less than 50% of the
total number of the Shares initially issued under the Subscription Agreement.
10. Exceptions to Registration. Notwithstanding any other provision of
this Agreement, the Company shall not be required to register any of the Shares
if and to the extent that the Holder may at such time dispose of all of such
Shares pursuant to Rule 144 promulgated under the Securities Act, or pursuant to
any currently effective registration statement previously filed by the Company.
11. Nominees for Beneficial Owners. In the event that any Shares are
held by a nominee for the beneficial owner thereof, the beneficial owner thereof
may, at its election, be treated as the holder of such securities for purposes
of any request or other action by any holder or holders of securities pursuant
to this Agreement or any determination of any number or percentage of shares of
securities held by any holder
7
<PAGE> 8
or holders of securities contemplated by this Agreement. If the beneficial owner
of any Shares so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Shares.
12. Legend. Prior to the sale of the Shares pursuant to a registration
under the Securities Act, a legend in substantially the following form will be
placed on all documents or certificates evidencing the Shares:
"THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAW OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
13. Transfer of Note and/or Shares. The Purchaser hereby represents
that the Note and the Shares are being acquired solely for investment purposes,
for the Purchaser's own account and not for the interest of any other Person and
not with a view to the resale or distribution thereof other than pursuant to an
exemption under the Securities Act and in compliance with the terms hereof.
14. GENERAL AND MISCELLANEOUS
14.1 Survival Of Warranties. The warranties, representations and
covenants of the parties contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement.
14.2 Entire Agreement. This Agreement constitutes the entire agreement
among the parties concerning registration of the Shares, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, guarantees or covenants except as specifically set forth in
this Agreement. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
14.3 Governing Law. This Agreement shall be governed by and construed
under the internal laws of the State of California without regard to conflicts
of law.
14.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.5 Notices. Except as otherwise provided herein, all notices, demands
and requests that any party is required or elects to give to any other shall be
in writing, or by a telecommunications device capable of creating a written
record, and any such notice shall become effective (a) upon personal delivery
thereof, including, but not limited to, delivery by overnight mail and courier
service, (b) three (3) days after it shall have been mailed by United States
mail, first class, certified or registered, return receipt requested, with
postage prepaid, or (c) in the case of notice by such a telecommunications
device, when properly transmitted, in each case addressed to the party to be
notified as follows:
8
<PAGE> 9
If to Purchaser: Stanwich Financial Services Corp.
c/o Stanwich Partners, Inc.
One Stamford Landing
62 Southfield Ave.
Stamford, CT 06902
Attention: Chief Executive Officer
If to the Company: Consumer Portfolio Services, Inc.
2 Ada
Irvine, CA 92618
Attention: Chief Executive Officer
or to such other address as each party may designate for itself by like notice.
14.6 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written.
CONSUMER PORTFOLIO SERVICES, INC.
a California corporation
By:_____________________________________
Its:____________________________________
STANWICH FINANCIAL SERVICES CORP.
a Rhode Island corporation
By:_____________________________________
Its:____________________________________
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 982 1,745
<SECURITIES> 0 0
<RECEIVABLES> 225,384 73,696
<ALLOWANCES> 11,524 2,465
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 3,984 3,128
<DEPRECIATION> 2,056 1,734
<TOTAL-ASSETS> 438,727 225,095
<CURRENT-LIABILITIES> 250,411 72,092
<BONDS> 40,000 40,000
0 0
0 0
<COMMON> 42,304 41,761
<OTHER-SE> 52,373 40,845
<TOTAL-LIABILITY-AND-EQUITY> 438,727 225,895
<SALES> 0 0
<TOTAL-REVENUES> 37,191 18,111
<CGS> 0 0
<TOTAL-COSTS> 26,951 10,562
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 7,467 569
<INTEREST-EXPENSE> 4,614 2,221
<INCOME-PRETAX> 10,240 7,549
<INCOME-TAX> 4,315 3,163
<INCOME-CONTINUING> 5,925 4,386
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,925 4,386
<EPS-PRIMARY> 0.39 0.31
<EPS-DILUTED> 0.36 0.28
</TABLE>
