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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1
Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Fiscal Year Ended December 31, 2004
COMMISSION FILE NUMBER: 1-14116
CONSUMER PORTFOLIO SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0459135
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
16355 LAGUNA CANYON ROAD, IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 753-6800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class: Name of each exchange on which registered:
Rising Interest Subordinated New York Stock Exchange
Redeemable Securities due 2006
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The aggregate market value of the 11,492,807 shares of the registrant's common
stock held by non-affiliates, based upon the closing price of the registrant's
common stock on Nasdaq on June 30, 2004, was approximately $51,717,632. For
purposes of this computation, a registrant sponsored pension plan and all
directors, executive officers, and beneficial owners of 10 percent or more of
the registrant's common stock are deemed to be affiliates. Such determination is
not an admission that such plan, directors, executive officers, and beneficial
owners are, in fact, affiliates of the registrant. The number of shares of the
registrant's Common Stock outstanding on March 14, 2005, was 21,586,828.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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Preliminary Note -- This amendment is filed May 2, 2005 to include information
required by Part III of this report on Form 10-K. Other than with respect to
Part III, the information previously filed as Parts I, II and IV of this report
is not changed by this amendment.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding executive officers of the Company appears in Part I of
this report, under the caption "Executive Officers of the Registrant," and is
incorporated herein by this reference. Information regarding the directors of
the Company appears below:
CHARLES E. BRADLEY, JR., 45, has been the President and a director of the
Company since its formation in March 1991, and was elected Chairman of the Board
of Directors in July 2001. In January 1992, Mr. Bradley was appointed Chief
Executive Officer of the Company. From April 1989 to November 1990, he served as
Chief Operating Officer of Barnard and Company, a private investment firm. From
September 1987 to March 1989, Mr. Bradley, Jr. was an associate of The Harding
Group, a private investment banking firm. Mr. Bradley does not currently serve
on the board of directors of any other publicly-traded companies.
E. BRUCE FREDRIKSON, 67, has been a director of the Company since March 2003. He
is a Professor of Finance, Emeritus, at Syracuse University's Martin J. Whitman
School of Management, where he taught from 1966 to 2003. Mr. Fredrikson has
published numerous papers on accounting and finance topics. He is also a
director of Track Data Corporation and Colonial Commercial Corp.
JOHN E. MCCONNAUGHY, JR., 75, has been a director of the Company since 2001. He
is the Chairman and Chief Executive Officer of JEMC Corporation. From 1981 to
1992 he was the Chairman and Chief Executive Officer of GEO International Corp,
a company in the business of nondestructive testing, screen-printing and oil
field services. Mr. McConnaughy was previously and concurrently Chairman and
Chief Executive Officer of Peabody International Corp., from 1969 to 1986. He
currently serves as a director of Levcor International, Inc., Wave Systems,
Inc., Overhill Farms, Inc., Allis Chalmers Corp. and Positron Corp. Mr.
McConnaughy is also Chairman of the Board of Trustees of the Strang Clinic and
is the Chairman Emeritus of the Board of the Harlem School of the Arts.
JOHN G. POOLE, 62, has been a director of the Company since November 1993 and
its Vice Chairman since January 1996. He is now a private investor, having
previously been a director and Vice President of Stanwich Partners ("SPI") until
July 2001. SPI, which Mr. Poole co-founded in 1982, acquired controlling
interests in companies in conjunction with their existing management. Mr. Poole
is also a director of Reunion Industries, Inc. and Sanitas, Inc.
WILLIAM B. ROBERTS, 67, has been a director of the Company since its formation
in March 1991. Since 1981, he has been the President of Monmouth Capital Corp.,
an investment firm that specializes in management buyouts.
2
JOHN C. WARNER, 57, was elected as a director of the Company in April 2003. Mr.
Warner is chief executive officer of O'Neill Clothing, a manufacturer and
marketer of apparel and accessories. He has held that position since 1996.
DANIEL S. WOOD, 46, has been a director of the Company since July 2001. Mr. Wood
is president of Carclo Technical Plastics, a manufacturer of custom injection
moldings. Previously, from 1988 to September 2000, he was the chief operating
officer and co-owner of Carrera Corporation.
BANKRUPTCY PROCEEDINGS. In December 2001 Mr. Bradley resigned from his position
as chairman of the board of LINC Acceptance Company, LLC ("LINC"). LINC was a
limited liability company organized under the laws of Delaware, and its board of
members has certain management authority. The operating agreement of LINC
designated the chairman of the board of members as LINC's chief executive
officer. LINC was a majority-owned subsidiary of the Company, which engaged in
the business of purchasing retail motor vehicle installment purchase contracts,
and selling such contracts to the Company or other affiliates. LINC ceased
operations in the second quarter of 1999. On October 29, 1999, three former
employees of LINC filed an involuntary petition in the United States Bankruptcy
Court for the District of Connecticut seeking LINC's liquidation under Chapter 7
of the United States Bankruptcy Code. Mr. McConnaughy was the Chairman of the
Board of The Excellence Group, LLC, which on January 13, 1999, filed a voluntary
petition for in the United States Bankruptcy Court for the District of
Connecticut for reorganization under Chapter 11 of the United States Bankruptcy
Code. The Excellence Group's subsidiaries produced labels for a variety of
customers.
The Board of Directors has established an Audit Committee. The members of the
Audit Committee are E. Bruce Fredrikson (chairman), John E. McConnaughy, Jr. and
John G. Poole. The Audit Committee is empowered by the Board of Directors to
review the financial books and records of the Company in consultation with the
Company's accounting and auditing staff and its independent auditors and to
review with the accounting staff and independent auditors any questions raised
with respect to accounting and auditing policy and procedure.
The Audit Committee members do not serve as professional accountants or auditors
and their functions are not intended to duplicate or to certify the activities
of management and the independent auditors. The Committee serves a board-level
oversight role where it receives information from, consults with, and provides
its views and directions to, management and the independent auditors on the
basis of the information it receives and the experience of its members in
business, financial and accounting matters. Pursuant to the terms of its
charter, the Audit Committee approves the engagement of auditing services and
permitted non-audit services including the related fees and general terms.
The Board of Directors has concluded that each member of the Audit Committee is
independent in accordance with the director independence standards prescribed by
NASDAQ, and has determined that none of them have a material relationship with
the Company which would impair the independence from management or otherwise
compromise the ability to act as an independent director. The Board of Directors
has further determined that Mr. Fredrikson has the qualifications and experience
necessary to serve as an "audit committee financial expert" as such term is
defined in Item 401(h) of Regulation S-K promulgated by the SEC. Such
qualifications and experience are described above in this section.
The Company does not have a Nominating Committee. Nominations for board
positions are considered by the members of the Board of Directors who are
"independent directors." When considering a potential nominee, the independent
directors consider the benefits to the Company of such nomination, based on the
nominee's skills and experience related to managing a significant business, the
willingness and ability of the nominee to serve, and the nominee's character and
reputation. Shareholders who wish to suggest individuals for possible future
consideration for board positions, or to otherwise communicate with the Board of
Directors, should direct written correspondence to the Board of Directors at the
Company's principal executive offices.
3
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors, executive officers and holders of in excess of 10% of the Company's
common stock are required to file reports concerning their transactions in and
holdings of equity securities of the Company. Based on a review of reports filed
by each such person, and inquiry of each regarding holdings and transactions,
the Company believes that all reports required with respect to the year 2004
were timely filed, except that Mr. Bradley filed one report late, relating to
two transactions, and each other director (Messrs. Thomas L. Chrystie,
Fredrikson, McConnaughy, Poole, Roberts, Warner and Wood) and five executive
officers (Messrs. Brockman, Powell, Riedl, Creatura, and Chris Terry) filed one
report late relating to one transaction.
CODE OF ETHICS
The Company has adopted a Code of Ethics for Senior Financial Officers. A copy
of the Code of Ethics may be obtained at no charge by written request to the
Corporate Secretary at the Company's principal executive offices.
4
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all compensation earned during the three fiscal
years ended December 31, 2004, 2003, and 2002 by the Company's chief executive
officer and by the four most highly compensated individuals (such five
individuals, the "named executive officers") who were serving as executive
officers at December 31, 2004.
SUMMARY COMPENSATION TABLE
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Long Term
Compensation for Compensation All Other
period shown Awards (1) Compensation ($)
Name and Principal Position Year Salary ($) Bonus ($) Options/SARs (2)
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CHARLES E. BRADLEY, JR. 2004 700,000 700,000 240,000 1,600
President & Chief 2003 650,000 650,000 40,000 1,525
Executive Officer 2002 600,000 850,000 185,000 450
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NICHOLAS P. BROCKMAN 2004 252,000 159,000 20,000 1,600
Senior Vice President - 2003 240,000 166,000 20,000 1,513
Collections 2002 222,000 174,792 25,000 450
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CURTIS K. POWELL 2004 252,000 177,000 20,000 1,600
Senior Vice President - 2003 238,000 186,000 20,000 1,511
Originations & Marketing 2002 222,000 154,734 25,000 450
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ROBERT E. RIEDL 2004 240,000 144,000 80,000 1,576
Senior Vice President - 2003 200,000 158,000 95,000 428
Finance & Chief Financial 2002 -- -- -- --
Officer (3)
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MARK A. CREATURA 2004 205,000 121,000 20,000 1,492
Senior Vice President & 2003 195,000 150,000 20,000 1,455
General Counsel 2002 184,000 100,832 25,000 404
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(1) Number of shares that might be purchased upon exercise of
options that were granted in the period shown.
(2) Amounts in this column represent (a) any Company contributions
to the Employee Savings Plan (401(k) Plan), and (b) premiums
paid by the Company for group life insurance, as applicable to
the named executive officers. Company contributions to the
401(k) Plan were zero per individual in 2002 and $1,000 in
2003 and 2004.
(3) Mr. Riedl joined the Company in January 2003.
OPTION AND SAR GRANTS
The Company in the year ended December 31, 2004, did not grant any stock
appreciation rights to any of the named executive officers. The Company has from
time to time granted options to substantially all of its management and
marketing employees, and did so in April 2004. Under these grants, each named
executive officer other than the chief executive officer and the chief financial
officer, received grants with respect to 20,000 shares. The chief executive
officer received a grant with respect to 240,000 shares and the chief financial
officer received a grant with respect to 80,000 shares. All such options become
exercisable in five equal annual increments and are exercisable at $4.00 per
share, except for the grant of 240,000 shares to Mr. Bradley, which vested as to
200,000 shares on the date of the grant and become exercisable as to 40,000
shares in five equal annual increments.
5
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Potential Realizable
Value at Assumed
Annual Rates
of Stock Price
OPTIONS/GRANTS IN LAST FISCAL YEAR - Appreciation for Option
INDIVIDUAL GRANTS Term
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Name Number of Percent of
Shares Total Options Exercise
Underlying Granted to or Base
Options Employees Price Expiration
Granted in 2004 ($/Share) Date 5% ($) 10% ($) NOTES
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Charles E. Bradley, Jr. 240,000 25.07% $4.00 4/26/2014 $ 603,739 $1,529,993 (1)
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Nicholas P. Brockman 20,000 2.09% $4.00 4/26/2014 $ 50,312 $ 127,499 (2)
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Curtis K. Powell 20,000 2.09% $4.00 4/26/2014 $ 50,312 $ 127,499 (2)
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Robert E. Riedl 80,000 8.36% $4.00 4/26/2014 $201,246 $ 509,998 (2)
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Mark Creatura 20,000 2.09% $4.00 4/26/2014 $ 50,312 $ 127,499 (2)
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(1) Becomes exercisable as to 200,000 shares on April 26, 2004,
and as to 40,000 shares in five equal installments on each
April 26, 2005-2009.
(2) Becomes exercisable in five equal installments on each April
26, 2005-2009.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth, as of December 31, 2004, and for the year then
ended, the number of unexercised options held by each of the named executive
officers, the number of shares subject to then exercisable and unexercisable
options held by such persons and the value of all unexercised options held by
such persons. Each option referred to in the table was granted under the
Company's 1991 Stock Option Plan or under the 1997 Long-Term Incentive Stock
Plan, at an option price per share no less than the fair market value per share
on the date of grant.
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Value of Unexercised In-the-
Shares Number of Unexercised Options Money Options at December
Acquired Value at December 31, 2004 31, 2004 (1)
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Charles E. Bradley, Jr. 11,620 $39,934 682,002 305,197 $1,568,390 $736,463
Nicholas P. Brockman 11,800 33,335 32,000 73,000 84,280 165,520
Curtis K. Powell 29,000 96,115 32,000 63,000 84,280 123,070
Robert E. Riedl 0 0 19,000 156,000 53,170 282,280
Mark A. Creatura 8,000 21,000 32,000 63,000 84,280 123,070
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6
(1) Valuation based on the last sales price on December 31, 2004
of $4.87 per share, as reported by Nasdaq.
BONUS PLAN
The named executive officers and other officers participate in a management
bonus plan, pursuant to which such employees are entitled to earn cash bonuses,
if the Company achieves certain net income levels or goals established by the
Board of Directors, and if such employees achieve certain individual objectives.
The amount of bonus payable to each officer is determined by the Compensation
Committee of the Board of Directors.
DIRECTOR COMPENSATION
During the year ended December 31, 2004, the Company paid all directors,
excluding Mr. Bradley, a retainer of $2,000 per month and an additional fee of
$1,000 PER DIEM for attendance at meetings of the board, and $500 for meetings
of committees. Mr. Bradley received no additional compensation for his service
as a director. Pursuant to the Company's policy that is applicable to all of its
non-employee members, the Board on April 26, 2004, issued options with respect
to 10,000 shares to each non-employee director. All such options are exercisable
at $4.00 per share, the exercise price being the market price prevailing at date
of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER TRADING
The members of the Compensation and Stock Option Committee throughout the fiscal
year ended December 31, 2004 were Daniel S. Wood (chairman), Thomas L. Chrystie,
John E. McConnaughy, Jr. and William B. Roberts. This Committee makes
recommendations to the Board of Directors as to general levels of compensation
for all employees of the Company, the annual salary of each of the executive
officers of the Company, authorizes the grants of options to employees under the
Company's 1997 Long-Term Stock Incentive Plan, and reviews and approves
compensation and benefit plans of the Company. None of the members of the
committee is or has been an officer or employee of the Company or any of its
subsidiaries.
7
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of CPS Common
Stock (its only class of voting securities) owned beneficially as of April 4,
2005, by (i) each person known to CPS to own beneficially more than 5% of the
outstanding Common Stock, (ii) each director, nominee or named executive officer
of CPS, and (iii) all directors, nominees and executive officers of CPS as a
group. Except as otherwise indicated, and subject to applicable community
property and similar laws, each of the persons named has sole voting and
investment power with respect to the shares shown as beneficially owned by such
persons. The address of Messrs. Bradley, Jr., Brockman, Powell, Riedl and
Creatura is c/o Consumer Portfolio Services, Inc., 16355 Laguna Canyon Road,
Irvine, CA 92618.
Amount and Nature
of Beneficial Percent
Name and Address of Beneficial Owner Ownership (1) of Class
------------------------------------ ------------- --------
Charles E. Bradley, Jr. ......................................................... 3,218,218(2) 14.9%
E. Bruce Fredrikson.............................................................. 41,000 0.2%
34437 N. 93rd Place, Scottsdale, AZ 85262
John E. McConnaughy, Jr.......................................................... 220,337 1.0%
Atlantic Capital Partners, 3 Parkland Drive, Darien, CT 06820
John G. Poole.................................................................... 697,193 3.2%
1 Rye Road, Port Chester, NY 10573
William B. Roberts............................................................... 1,084,882 5.0%
Monmouth Capital Corp., 126 East 56th Street, New York, NY 10022
John C. Warner................................................................... 40,000 0.2%
17 Pasteur, Irvine, CA 92618
Daniel S. Wood................................................................... 60,000 0.3%
600 Depot St., Latrobe, PA 05650
Nicholas P. Brockman............................................................. 229,297 1.1%
Curtis K. Powell................................................................. 201,671 0.9%
Robert E. Riedl.................................................................. 50,804 0.2%
Mark A. Creatura................................................................. 129,657 0.6%
All directors, nominees and executive officers combined (13 persons) 6,064,163(3) 28.1%
Charles E. Bradley, Sr........................................................... 1,267,860(4) 5.9%
Stanwich Partners, Inc., 62 Southfield Avenue, Stamford, CT 06902
Levine Leichtman Capital Partners II, L.P........................................ 4,553,500(5) 21.1%
335 North Maple Drive, Suite 240, Beverly Hills, CA 90210
(1) Includes certain shares that may be acquired within 60 days after April
4, 2005 from the Company upon exercise of options, as follows: Mr.
Bradley, Jr., 788,101 shares; Mr. Fredrikson, 40,000 shares; Mr.
McConnaughy, 20,000 shares; Mr. Poole, 10,000 shares; Mr. Roberts,
10,000 shares; Mr. Warner, 40,000 shares; Mr. Wood, 20,000 shares; Mr.
Brockman, 47,000 shares; Mr. Powell, 47,000 shares; Mr. Riedl, 50,000
shares; and Mr. Creatura, 47,000 shares. The calculation of beneficial
ownership also includes, in the case of the executive officers, an
approximate number of shares each executive officer could be deemed to
hold through contributions made to the Company's Employee 401(k) Plan
(the "401(k) Plan"). The 401(k) Plan provides an option for all
participating employees to indirectly purchase stock in the Company
through buying units in a mutual fund. Each "unit" in the mutual fund
represents an interest in Company stock, cash and cash equivalents.
(2) Includes 1,058,818 shares held by trusts of which Mr. Bradley is the
co-trustee, and as to which shares Mr. Bradley has shared voting and
investment power. One such trust holds 211,738 shares for the benefit
of Mr. Bradley. The co-trustee, who has shared voting and investment
power as to all such shares (representing 4.9% of outstanding shares),
is Kimball Bradley, whose address is 11 Stanwix Street, Pittsburgh, PA
15222.
8
(3) Includes 1,197,601 shares that may be acquired within 60 days after
April 4, 2005, upon exercise of options and conversion of convertible
securities.
(4) Includes 207,490 shares owned by the named person's spouse and
1,002,800 shares that have been pledged to secure a loan, as to all of
which he has no voting or investment power, and 50,832 shares owned by
a corporation (Stanwich Consulting Corp.) of which the named person is
controlling stockholder, president and a director.
(5) Comprises 4,552,500 issued shares and 1,000 shares that are issuable
upon exercise of an outstanding warrant.
The table below presents information regarding securities authorized for
issuance under equity compensation plans.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING COMPENSATION PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS COLUMN (a))
---------------------------- --------------------------- --------------------------- -------------------------------
DECEMBER 31, 2004
(a) (b) (c)
Equity compensation plans
approved by security 4,052,049 $2.51 1,391,631
holders
---------------------------- --------------------------- --------------------------- -------------------------------
Equity compensation plans
not approved by security None N/A N/A
holders
---------------------------- --------------------------- --------------------------- -------------------------------
Total 4,052,049 $2.51 1,391,631
---------------------------- --------------------------- --------------------------- -------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
LEVINE LEICHTMAN. At December 31, 2003, the Company was indebted to Levine
Leichtman Capital Partners II, L.P. ("LLCP") in the amount of approximately $50
million. Such debt comprised three parts, represented by the "Term B Note,"
"Term C Note" and "Term D Note," respectively. The Term B Note was due January
2004, the Term C Note repayment schedule was based on the performance of one of
the Company's securitized pools, and the Term D Note was due January 2004.
In January 2004, the Company repaid in full the Term C Note and repaid $10.0
million of the Term D Note. In addition, the maturities of the Term B Note and
the Term D Note were extended to December 15, 2005 and the coupons on both notes
were decreased to 11.75% per annum from 14.50% and 12.00%, respectively. The
Company paid LLCP fees equal to $921,000 for these amendments, which will be
amortized over the remaining life of the notes. As of December 31, 2004, the
outstanding principal balances of the Term B Note and the Term D Note were $19.8
million and $15.0 million, respectively.
On May 28, 2004 and June 25, 2004, the Company borrowed $15 million and $10
million, respectively, from LLCP. The indebtedness, represented by the "Term E
Note," and the "Term F Note," respectively, bears interest at 11.75% per annum.
Both the Term E Note and the Term F Note mature two years from their respective
funding dates. As of December 31, 2004, the outstanding principal balances of
the Term E Note and the Term F Note were $15.0 million and $10.0 million,
respectively.
All of the Company's indebtedness to LLCP is secured by a blanket security
interest in favor of LLCP. The terms of the transactions between the Company and
LLCP were determined by negotiation.
9
SFSC. At December 31, 2003, the Company was indebted to Stanwich Financial
Services Corp. ("SFSC") in the principal amount of $16.5 million. SFSC is a
corporation wholly-owned by Stanwich Holdings, Inc., which in turn is
wholly-owned by Charles E. Bradley, Sr. Mr. Bradley, Sr. holds in excess of 5%
of the Company's common stock (subject to limitations disclosed above), is the
father of the Company's president, Charles E. Bradley, Jr., and was the chairman
of the Company's Board of Directors from March 1991 until June 2001. The Company
in 2004 paid interest in the aggregate amount of $780,000 with respect to its
debt to SFSC, representing interest for the period January through June 2004.
The Company repaid the outstanding debt in June 2004. The Company at December
31, 2003 was also indebted to John G. Poole, a director, in the principal amount
of $1,000,000, and in 2004 paid interest in the aggregate amount of $62,500 with
respect to that debt, representing interest for the period January through June
2004. Mr. Poole exercised the conversion option of his debt as of June 2004,
receiving in satisfaction of the debt 333,333 shares of the Company's common
stock.
CPS LEASING. The Company holds 80% of the outstanding shares of the capital
stock of CPS Leasing, Inc. ("CPSL"). The remaining 20% of CPSL is held by
Charles E. Bradley, Jr., who is the President and a director of the Company.
CPSL engaged in the equipment leasing business, and is currently in the process
of liquidation as its leases come to term. CPSL financed its purchases of the
equipment that it leases to others through either of two lines of credit.
Amounts borrowed by CPSL under one of those two lines of credit have been
guaranteed by the Company. As of December 31, 2004 both lines of credit have
been paid. The Company has also financed the operations of CPSL by making
operating advances and by advancing to CPSL the fraction of the purchase prices
of its leased equipment that CPSL did not borrow under its lines of credit. The
aggregate amount of advances made by the Company to CPSL as of December 31,
2004, is approximately $2.0 million. The advances related to operations bear
interest at the rate of 8.5% per annum. The advances related to the fraction of
the purchase price of leased equipment are not interest bearing.
EMPLOYEE INDEBTEDNESS. To assist certain officers in exercising stock options,
the Company or a subsidiary lent to such officers the exercise price of options
such officers exercised in May and July 2002. The loans are fully secured by
common stock of the Company, bear interest at 5% per annum and are due in 2007.
The chief executive officer (Mr. Bradley) and five officers other than executive
officers borrowed money on those terms and still have a balance outstanding. The
highest balances of the loans for the period January 1, 2002 through April 30,
2005, were $350,000 for Mr. Bradley and $27,375 for one non-executive officer.
Pursuant to the Sarbanes-Oxley Act of 2002, Company has ceased providing any
loans to its executive officers.
10
The agreements and transactions described above (other than those between the
Company and LLCP) were entered into by the Company with parties who personally
benefited from such transactions and who had a control or fiduciary relationship
with the Company. In each case such agreements and transactions have been
reviewed and approved by the members of the Company's Board of Directors who are
disinterested with respect thereto.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The principal accountant engaged to audit the Company's financial statements for
the year ended December 31, 2003, and to review the Company's interim financial
statements through September 30, 2004, was KPMG LLP ("KPMG"). The Company
engaged McGladrey & Pullen, LLP ("McGladrey") as the principal accountant to
audit the Company's financial statements for the year ended December 31, 2004.
Information relating to the fees billed by those firms to the Company appears
below.
AUDIT FEES
The aggregate fees billed by McGladrey for professional services rendered for
the audit of the Company's annual financial statements for the fiscal year ended
December 31, 2004, and for the review of the financial statements included in
the Company's quarterly report for the period ended September 30, 2004 on Form
10-Q, for that fiscal year were $300,000.
The aggregate fees billed by KPMG for professional services rendered for the
review of the financial statements included in the Company's quarterly reports
on Form 10-Q for the three-and nine-month periods ended September 30, 2004 were
$122,400.
The aggregate fees billed by KPMG for professional services rendered for the
audit of the Company's annual financial statements for the fiscal year ended
December 31, 2003, and for the review of the financial statements included in
the Company's quarterly reports on Form 10-Q for that fiscal year were $360,200.
AUDIT-RELATED FEES
The aggregate fees billed by McGladrey for audit-related services were $80,000
for the fiscal year ended December 31, 2004. These professional services were
rendered in conjunction with the Company's securitization and financing
transactions, the audit of the MFN Financial Corporation's benefit plan.
The aggregate fees billed by KPMG for audit-related services were $137,260 for
the fiscal year ended December 31, 2004. These professional services were
rendered in conjunction with the Company's securitization and financing
transactions.
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The aggregate fees billed by KPMG for audit-related services were $295,621 for
the fiscal year ended December 31, 2003. These professional services were
rendered in conjunction with the Company's securitization and financing
transactions, the audit of the Company's 401(k) Employee Savings Plan and the
acquisition of TFC Enterprises, Inc.
TAX FEES
McGladrey has not rendered any professional tax services for the fiscal year
ended December 31, 2004.
The aggregate fees billed in each of the last two fiscal years for tax services
by KPMG were $383,655 related to the fiscal year ended December 31, 2004 and
$1,533,622 related to the fiscal year ended December 31, 2003. The large
increase in fees billed for tax services during the fiscal year ended December
31, 2003 was largely attributable to work undertaken by KPMG to recover certain
state tax claims on behalf of the Company related to several tax years.
ALL OTHER FEES
No other fees were billed by McGladrey in the last fiscal year ended December
31, 2004.
The aggregate fees billed by KPMG for other services were $34,500 for the fiscal
year ended December 31, 2004. These other professional services were rendered in
conjunction with the Company's Registration Statement on Form S-8 and its
Registration Statement on Form S-2 filed with the S.E.C. No other fees were
billed by KPMG for the fiscal year ended December 31, 2003.
The Audit Committee acts pursuant to a written charter adopted by the Board of
Directors. Pursuant to the charter, the Audit Committee pre-approves the audit
and permitted non-audit fees to be paid to the independent auditor, and
authorizes on behalf of the Company the payment of such fees, or refuses such
authorization. The Audit Committee has delegated to its chairman the authority
to approve performance of services on an interim basis.
In the course of its meetings, the Audit Committee has considered whether the
provision of the non-audit fees outlined above is compatible with maintaining
the independence of the respective audit firms, and has concluded that such
independence is not impaired.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CONSUMER PORTFOLIO SERVICES, INC.
(REGISTRANT)
May 2, 2005 By: /s/ Charles E. Bradley, Jr.
------------------------------------------
Charles E. Bradley, Jr., PRESIDENT
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