Note C - Finance Receivables, Net

12 Months Ended

Apr. 30, 2012

C - Finance Receivables, Net

The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts typically include interest rates ranging from 11% to 19% per annum, are collateralized by the vehicle sold and typically provide for payments over periods ranging from 18 to 36 months. The components of finance receivables as of April 30, 2012 and 2011 are as follows:

	Years Ended April 30,
(In thousands)	2012			2011

Gross contract amount	$	359,364		$	317,956
Less unearned finance charges		(42,430	)		(35,478	)
Principal balance		316,934			282,478
Less allowance for credit losses		(65,831	)		(60,173	)

Finance receivables, net	$	251,103		$	222,305

Changes in the finance receivables, net for the years ended April 30, 2012, 2011 and 2010 are as follows:

	Years Ended April 30,
(In thousands)	2012			2011			2010

Balance at beginning of period	$	222,305		$	205,423		$	182,041
Finance receivable originations		354,328			311,249			283,626
Finance receivables from acquisition of business		-			-			70
Finance receivable collections		(200,697	)		(188,840	)		(169,902	)
Provision for credit losses		(81,638	)		(70,964	)		(62,277	)
Losses on claims for payment protection plan		(6,053	)		(4,927	)		(4,504	)
Inventory acquired in repossession and payment protection plan claims		(37,142	)		(29,636	)		(23,631	)

Balance at end of period	$	251,103		$	222,305		$	205,423

Changes in the finance receivables allowance for credit losses for the years ended April 30, 2012, 2011 and 2010 are as follows:

	Years Ended April 30,
(In thousands)	2012			2011			2010

Balance at beginning of period	$	60,173		$	55,628		$	49,310
Provision for credit losses		81,638			70,964			62,277
Allowance related to acquisition of business, net change		-			-			(70	)
Charge-offs, net of recovered collateral		(75,980	)		(66,419	)		(55,889	)

Balance at end of period	$	65,831		$	60,173		$	55,628

The factors which influenced management’s judgment in determining the amount of the additions to the allowance charged to provision for credit losses are described below:

The level of actual charge-offs, net of recovered collateral, is the most important factor in determining the charges to the provision for credit losses. This is due to the fact that once a contract becomes delinquent the account is either made current by the customer, the vehicle is repossessed or the account is written off if the collateral cannot be recovered. Higher sales volumes had the effect of increasing required additions to the allowance charged to the provision for the three fiscal years ending April 30, 2012. In fiscal 2012 the increase was partially offset by a decrease in the allowance percentage from 22% to 21.5% (a $1.5 million effect), based on the overall quality of the portfolio at April 30, 2012 and several consecutive years of good credit results. In fiscal 2010, the increases were tempered to an extent by the lower relative charge-off amount, but higher charge-offs in fiscal 2011 had the effect of increasing additions to the allowance charged to the provision.

Collections and delinquency levels can have a significant effect on additions to the allowance and are reviewed frequently. Collections as a percentage of average finance receivables were slightly lower but fairly consistent between years limiting somewhat the required additions to the allowance. Overall principal dollars collected and the average principal dollars collected per account in fiscal 2012 increased over fiscal 2011. Delinquencies greater than 30 days increased to 4.1% for April 30, 2012 compared to 2.9% at April 30, 2011.

Macro-economic factors as well as proper execution of operational policies and procedures have a significant effect on additions to the allowance charged to the provision. Higher unemployment levels, higher gasoline prices and higher prices for staple items can potentially have a significant effect. While overall macro-economic factors were still somewhat unfavorable during fiscal 2012, the Company is focused on continuing operational improvements within the collections area as well as market share gains and governmental stimulus funds directly benefitting most of the Company’s customers were positive as related to credit results when compared to the prior years.

Credit quality information for finance receivables is as follows:

(Dollars in thousands)	April 30, 2012					April 30, 2011

	Principal Balance		Percent of Portfolio			Principal Balance		Percent of Portfolio
Current	$	262,325		82.77	%	$	243,266		86.12	%
3 - 29 days past due		41,508		13.10	%		30,975		10.97	%
30 - 60 days past due		8,818		2.78	%		6,003		2.13	%
61 - 90 days past due		3,627		1.14	%		2,036		0.72	%
> 90 days past due		656		0.21	%		198		0.07	%
Total	$	316,934		100.00	%	$	282,478		100.00	%

Accounts one and two days past due are considered current for this analysis, due to the varying payment dates and variation in the day of the week at each period end. Delinquencies may vary from period to period based on the average age of the portfolio, seasonality within the calendar year, the day of the week and overall economic factors. The above categories are consistent with internal operational measures used by the Company to monitor credit results.

Substantially all of the Company’s automobile contracts involve contracts made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. Contracts made with buyers who are restricted in their ability to obtain financing from traditional lenders generally entail a higher risk of delinquency, default and repossession, and higher losses than contracts made with buyers with better credit. The Company monitors contract term length, down payment percentages, and collections for credit quality indicators.

	Years Ended April 30,
	2012			2011

Principal collected as a percent of average finance receivables		65.6	%		68.5	%
Average down-payment percentage		7.0	%		7.2	%

	April 30, 2012			April 30, 2011

Average originating contract term (in months)		26.8			26.3
Portfolio weighted average contract term, including modifications (in months)		28.1			27.3

The decrease in the principal collected as a percent of average finance receivables is primarily attributed to the higher average portfolio interest rate and slightly longer average contract term, together with a slight increase in contract modifications as well as the fact that the overall portfolio is younger when compared to this time last year. The Company did modify a higher number of accounts during fiscal 2012 and had more delinquent accounts on average as management worked with customers experiencing delays with income tax refunds during the end of the third quarter and throughout the fourth quarter. The Company schedules special payments during tax refund time as a significant number of customers receive income tax refunds. These special payments assist in efforts to keep payments affordable and terms short. The increases in contract terms are primarily related to the increased average selling price and efforts to keep payments affordable for customers.