e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2009
OR
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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 000-20202
CREDIT ACCEPTANCE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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Michigan
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38-1999511 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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25505 W. Twelve Mile Road |
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Southfield, Michigan
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48034-8339 |
(Address of Principal Executive Offices)
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(Zip Code) |
Registrants telephone number, including area code:
(248) 353-2700
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
Common Stock
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NASDAQ |
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes o
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best
of registrants 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. þ
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer þ
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Non-accelerated filer o (Do not check if a smaller reporting
company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of 4,055,413 shares of the Registrants common stock held by
non-affiliates on June 30, 2009 was approximately $88.6 million. For purposes of this computation
all officers, directors and 10% beneficial owners of the Registrant are assumed to be affiliates.
Such determination should not be deemed an admission that such officers, directors and beneficial
owners are, in fact, affiliates of the Registrant.
At February 19, 2010, there were 31,294,761 shares of the Registrants common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive Proxy Statement pertaining to the 2010 Annual Meeting of
Shareholders (the Proxy Statement) filed pursuant to Regulation 14A are incorporated herein by
reference into Part III of this Annual Report on Form 10-K (this Form 10-K).
CREDIT ACCEPTANCE CORPORATION
YEAR ENDED DECEMBER 31, 2009
INDEX TO FORM 10-K
2
PART I
ITEM 1. BUSINESS
General
Since 1972, Credit Acceptance (referred to as the Company, Credit Acceptance, we, our
or us) has provided auto loans to consumers, regardless of their credit history. Our product is
offered through a nationwide network of automobile dealers who benefit from sales of vehicles to
consumers who otherwise could not obtain financing; from repeat and referral sales generated by
these same customers; and from sales to customers responding to advertisements for our product, but
who actually end up qualifying for traditional financing.
Credit Acceptance was founded to collect retail installment contracts (referred to as
Consumer Loans) originated by automobile dealerships owned by our founder, majority shareholder
and Chairman, Donald Foss. During the 1980s, we began to market this service to non-affiliated
dealers and, at the same time, began to offer dealers a non-recourse cash payment (referred to as
an advance) against anticipated future collections on Consumer Loans serviced for that dealer.
We refer to dealers who participate in our programs and who share our commitment to changing
consumers lives as Dealer-Partners. Upon enrollment in our financing programs, the
Dealer-Partner enters into a dealer servicing agreement with us that defines the legal relationship
between Credit Acceptance and the Dealer-Partner. The dealer servicing agreement assigns the
responsibilities for administering, servicing, and collecting the amounts due on Consumer Loans
from the Dealer-Partners to us. A consumer who does not qualify for conventional automobile
financing can purchase a used vehicle from a Dealer-Partner and finance the purchase through us.
We are an indirect lender from a legal perspective, meaning the Consumer Loan is originated by the
Dealer-Partner and assigned to us.
Consumers and Dealer-Partners benefit from our programs as follows:
Consumers. We help change the lives of consumers who do not qualify for
conventional automobile financing by helping them obtain quality transportation. Without our
product, consumers are often unable to purchase a vehicle or they purchase an unreliable one.
Further, as we report to the three national credit reporting agencies, an important ancillary
benefit of our program is that we provide a significant number of our consumers with an opportunity
to improve their lives by improving their credit score and move on to more traditional sources of
financing.
Dealer-Partners. Our program increases Dealer-Partners profits in the following ways:
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Enables Dealer-Partners to sell cars to consumers who may not be able to obtain
financing without our program. In addition, consumers often become repeat customers by
financing future vehicle purchases either through our program or, after they have
successfully established or reestablished their credit, through conventional financing. |
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Allows Dealer-Partners to share in the profit, not only from the sale of the vehicle,
but also from its financing. |
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Enables Dealer-Partners to attract consumers by advertising guaranteed credit
approval, where allowed by law. The consumers will often use other services of the
Dealer-Partners and refer friends and relatives to them. |
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Enables Dealer-Partners to attract consumers who mistakenly assume they do not qualify
for conventional financing. |
Business Segments
We have two reportable business segments: United States and Other. The United States segment
is our dominant segment and primarily consists of the United States automobile financing business.
The Other segment consists of businesses in liquidation, primarily represented by the discontinued
United Kingdom automobile financing business. For information regarding our reportable segments,
see Note 12 to the consolidated financial statements contained in Item 8 of this Form 10-K, which
is incorporated herein by reference.
3
Principal Business
We have two programs: the Portfolio Program and the Purchase Program. Under the Portfolio
Program, we advance money to Dealer-Partners (referred to as a Dealer Loan) in exchange for the
right to service the underlying Consumer Loan. Under the Purchase Program, we buy the Consumer
Loan from the Dealer-Partner (referred to as a Purchased Loan) and keep all amounts collected
from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans. The
following table shows the percentage of Consumer Loans assigned to us under each of the programs
for each of the last 12 quarters:
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Quarter Ended |
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Portfolio Program |
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Purchase Program |
March 31, 2007 |
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94.8 |
% |
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5.2 |
% |
June 30, 2007 |
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83.8 |
% |
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16.2 |
% |
September 30, 2007 |
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74.5 |
% |
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25.5 |
% |
December 31, 2007 |
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70.6 |
% |
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29.4 |
% |
March 31, 2008 |
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70.2 |
% |
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29.8 |
% |
June 30, 2008 |
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65.4 |
% |
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34.6 |
% |
September 30, 2008 |
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69.2 |
% |
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30.8 |
% |
December 31, 2008 |
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78.2 |
% |
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21.8 |
% |
March 31, 2009 |
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82.3 |
% |
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17.7 |
% |
June 30, 2009 |
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86.0 |
% |
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14.0 |
% |
September 30, 2009 |
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89.0 |
% |
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11.0 |
% |
December 31, 2009 |
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90.8 |
% |
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9.2 |
% |
Portfolio Program
As payment for the vehicle, the Dealer-Partner generally receives the following:
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a down payment from the consumer; |
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a cash advance from us; and |
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after the advance has been recovered by us, the cash from payments made on the Consumer
Loan, net of certain collection costs and our servicing fee (Dealer Holdback). |
We record the amount advanced to the Dealer-Partner as a Dealer Loan, which is classified
within Loans receivable in our consolidated balance sheets. Cash advanced to Dealer-Partners is
automatically assigned to the originating Dealer-Partners open pool of advances. We require
Dealer-Partners to group advances into pools of at least 100 Consumer Loans. At the
Dealer-Partners option, a pool containing at least 100 Consumer Loans can be closed and subsequent
advances assigned to a new pool. All advances due from a Dealer-Partner are secured by the future
collections on the Dealer-Partners portfolio of Consumer Loans assigned to us. For
Dealer-Partners with more than one pool, the pools are cross-collateralized so the performance of
other pools is considered in determining eligibility for Dealer Holdback. We perfect our security
interest in the Dealer Loans by taking possession of the Consumer Loans, which list us as lien
holder on the vehicle title.
The dealer servicing agreement provides that collections received by us during a calendar
month on Consumer Loans assigned by a Dealer-Partner are applied on a pool-by-pool basis as
follows:
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First, to reimburse us for certain collection costs; |
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Second, to pay us our servicing fee, which generally equals 20% of collections; |
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Third, to reduce the aggregate advance balance and to pay any other amounts due from the
Dealer-Partner to us; and |
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Fourth, to the Dealer-Partner as payment of Dealer Holdback. |
Dealer-Partners have an opportunity to receive an accelerated Dealer Holdback payment at the
time a pool of 100 or more Consumer Loans is closed. The amount paid to the Dealer-Partner is
calculated using a formula that considers the forecasted collections and the advance balance on the
closed pool. If the collections on Consumer Loans from a Dealer-Partners pool are not sufficient
to repay the advance balance and any other amounts due to us, the Dealer-Partner will not receive
Dealer Holdback.
Since typically the combination of the advance and the consumers down payment provides the
Dealer-Partner with a cash profit at the time of sale, the Dealer-Partners risk in the Consumer
Loan is limited. We cannot demand repayment of the advance from the Dealer-Partner except in the
event the Dealer-Partner is in default of the dealer servicing agreement. Advances are made only
after the consumer and Dealer-Partner have signed a Consumer Loan contract, we have received the
original Consumer Loan contract and supporting documentation, and we have approved all of the
related stipulations for funding. The Dealer-Partner can also opt to repurchase Consumer Loans
that have been assigned to us under the Portfolio Program, at their discretion, for a fee.
4
For accounting purposes, the transactions described under the Portfolio Program are not
considered to be loans to consumers. Instead, our accounting reflects that of a lender to the
Dealer-Partner. The classification as a Dealer Loan for accounting purposes is primarily a result
of (1) the Dealer-Partners financial interest in the Consumer Loan and (2) certain elements of our
legal relationship with the Dealer-Partner. For each individual Dealer-Partner, the amount of the
Dealer Loan recorded in Loans receivable is comprised of the following:
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the aggregate amount of all cash advances to the Dealer-Partner; |
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finance charges; |
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Dealer Holdback payments; |
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accelerated Dealer Holdback payments; and |
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recoveries. |
Less:
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collections (net of certain collection costs); and |
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write-offs. |
Purchase Program
We began offering a Purchase Program on a limited basis in March of 2005. The Purchase
Program differs from our Portfolio Program in that the Dealer-Partner receives a single payment
from us at the time of origination instead of a cash advance and Dealer Holdback. Purchase Program
volume increased significantly beginning in 2007 as the program was offered to additional
Dealer-Partners and decreased in 2009 as a result of pricing changes we implemented in order to
increase our profitability.
For accounting purposes, the transactions described under the Purchase Program are considered
to be originated by the Dealer-Partner and then purchased by us. The amount of Purchased Loans
recorded in Loans receivable is comprised of the following:
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the aggregate amount of all amounts paid to purchase Consumer Loans from
Dealer-Partners; |
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finance charges; and |
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recoveries. |
Less:
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collections (net of certain collection costs); and |
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write-offs. |
Program Enrollment
Dealer-Partners that enroll in our programs have two enrollment options available to them.
The first enrollment option allows Dealer-Partners to assign Consumer Loans under the Portfolio
Program and requires payment of an upfront, one-time fee of $9,850. The second enrollment option,
which became effective September 1, 2009, allows Dealer-Partners to assign Consumer Loans under the
Portfolio Program and requires payment of an upfront, one-time fee of $1,950 and an agreement to
allow us to keep 50% of their first accelerated Dealer Holdback payment. Prior to September 1,
2009, Dealer-Partners who chose the second enrollment option did not pay an upfront fee but agreed
to allow us to keep 50% of their first accelerated Dealer Holdback payment. For all
Dealer-Partners enrolling in our program after August 31, 2008, access to the Purchase Program is
only granted after the first accelerated Dealer Holdback payment has been made under the Portfolio
Program.
Revenue Sources
Credit Acceptance derives its revenues from the following principal sources:
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Finance charges, which are comprised of: (1) servicing fees earned as a result of
servicing Consumer Loans assigned to us by Dealer-Partners under the Portfolio Program, (2)
finance charge income from Purchased Loans, (3) fees earned from our third party ancillary
product offerings, (4) monthly program fees of $599, charged to Dealer-Partners under the
Portfolio Program; and (5) fees associated with certain Loans; |
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Premiums earned on the reinsurance of vehicle service contracts; and |
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Other income, which primarily consists of: dealer support products and services,
marketing income, dealer enrollment fees, interest income, and vehicle service contract and
Guaranteed Asset Protection (GAP) profit sharing income. For additional information, see
Note 2 to the consolidated financial statements contained in Item 8 to this Form 10-K,
which is incorporated herein by reference. |
5
The following table sets forth the percent relationship to total revenue from continuing
operations of each of these sources:
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Years Ended December 31, |
Percent of Total Revenue from Continuing Operations |
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2009 |
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2008 |
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2007 |
Finance charges |
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86.6 |
% |
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91.8 |
% |
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91.9 |
% |
Premiums earned |
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8.8 |
% |
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1.3 |
% |
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0.2 |
% |
Other income |
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4.6 |
% |
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6.9 |
% |
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7.9 |
% |
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Total revenue |
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100.0 |
% |
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100.0 |
% |
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100.0 |
% |
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Our business is seasonal with peak Consumer Loan acceptances and collections occurring during
the first quarter of the year. However, this seasonality does not have a material impact on our
interim results.
Operations in the United States
Our target market is approximately 60,000 independent and franchised automobile dealers in the
United States. The number of Dealer-Partner enrollments and active Dealer-Partners for each of the
last five years are presented in the table below:
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Years Ended |
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Dealer-Partner |
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Active |
December 31, |
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Enrollments |
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Dealer-Partners (1) |
2005
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956
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1,766 |
2006
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1,172
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2,214 |
2007
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1,835
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2,827 |
2008
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1,646
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3,264 |
2009
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1,338
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3,168 |
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(1) |
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Active Dealer-Partners are Dealer-Partners who have received funding for at least one
Loan during the period. |
A new Dealer-Partner is required to enter into a dealer servicing agreement with Credit
Acceptance that defines the legal relationship between Credit Acceptance and the Dealer-Partner.
The dealer servicing agreement assigns the responsibilities for administering, servicing, and
collecting the amounts due on Consumer Loans from the Dealer-Partners to us. Under the typical
dealer servicing agreement, a Dealer-Partner represents that it will only assign Consumer Loans to
us which satisfy criteria established by us, meet certain conditions with respect to their binding
nature and the status of the security interest in the purchased vehicle, and comply with applicable
state, federal and foreign laws and regulations.
The typical dealer servicing agreement may be terminated by us or by the Dealer-Partner upon
written notice. We may terminate the dealer servicing agreement immediately in the case of an
event of default by the Dealer-Partner. Events of default include, among other things:
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the Dealer-Partners refusal to allow us to audit its records relating to the Consumer
Loans assigned to us; |
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the Dealer-Partner, without our consent, is dissolved; merges or consolidates with an
entity not affiliated with the Dealer-Partner; or sells a material part of its assets
outside the course of its business to an entity not affiliated with the Dealer-Partner; or |
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the appointment of a receiver for, or the bankruptcy or insolvency of, the
Dealer-Partner. |
While a Dealer-Partner can cease assigning Consumer Loans to us at any time without
terminating the dealer servicing agreement, if the Dealer-Partner elects to terminate the dealer
servicing agreement or in the event of a default, the Dealer-Partner must immediately pay us:
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any unreimbursed collection costs on Dealer Loans; |
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any unpaid advances and all amounts owed by the Dealer-Partner to us; and |
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a termination fee equal to 15% of the then outstanding amount of the Consumer Loans
assigned to us. |
Upon receipt of such amounts in full, we reassign the Consumer Loans and our security interest
in the financed vehicles to the Dealer-Partner.
In the event of a termination of the dealer servicing agreement by us, we may continue to
service Consumer Loans assigned by Dealer-Partners accepted prior to termination in the normal
course of business without charging a termination fee.
6
A monthly statement is made available to Dealer-Partners from us summarizing all activity on
Consumer Loans assigned by such Dealer-Partner.
Consumer Loan Assignment. Once a Dealer-Partner has enrolled in our programs, the
Dealer-Partner may begin assigning Consumer Loans to us. For accounting purposes, a Consumer Loan
is considered to have been assigned to us after all of the following has occurred:
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the consumer and Dealer-Partner have signed a Consumer Loan contract; |
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we have received the original Consumer Loan contract and supporting documentation; |
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we have approved all of the related stipulations for funding; and |
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we have provided funding to the Dealer-Partner in the form of either an advance for a
Dealer Loan or the purchase price for a Purchased Loan. |
A Consumer Loan is originated by the Dealer-Partner when a consumer enters into a contract
with a Dealer-Partner that sets forth the terms of the agreement between the consumer and the
Dealer-Partner for the payment of the purchase price of the vehicle. The amount of the Consumer
Loan consists of the total principal and interest that the consumer is required to pay over the
term of the Consumer Loan. In the majority of states, Consumer Loans are written on a contract
form provided by us. Although the Dealer-Partner is named in the Consumer Loan contract, the
Dealer-Partner generally does not have legal ownership of the Consumer Loan for more than a moment
and we, not the Dealer-Partner, are listed as lien holder on the vehicle title. Consumers are
obligated to make payments on the Consumer Loan directly to us, and any failure to make such
payments will result in us pursuing payment through collection efforts.
Virtually all Consumer Loans submitted to us for assignment are processed through our Credit
Approval Processing System (CAPS). CAPS allows Dealer-Partners to input a consumers credit
application and view the response from us via the Internet. CAPS allows Dealer-Partners to: (1)
receive a quick approval from us; and (2) interact with our proprietary credit scoring system to
optimize the structure of each transaction prior to delivery. All responses include the amount of
funding (advance for a Dealer Loan or purchase price for a Purchased Loan), as well as any
stipulations required for funding. The amount of funding is determined using a formula which
considers a number of factors including the timing and amount of cash flows expected on the related
Consumer Loan and our target return on capital at the time the Consumer Loan is submitted to us for
assignment. The estimated future cash flows are determined based upon our proprietary credit
scoring system, which considers numerous variables, including attributes contained in the
consumers credit bureau report, data contained in the consumers credit application, the structure
of the proposed transaction, vehicle information and other factors, to calculate a composite credit
score that corresponds to an expected collection rate. Our proprietary credit scoring system
forecasts the collection rate based upon the historical performance of Consumer Loans in our
portfolio that share similar characteristics. The performance of our proprietary credit scoring
system is evaluated monthly by comparing projected to actual Consumer Loan performance.
Adjustments are made to our proprietary credit scoring system as necessary. For additional
information on adjustments to forecasted collection rates, please see the Critical Accounting
Estimates section in Item 7 of this Form 10-K, which is incorporated herein by reference.
While a Dealer-Partner can submit any legally compliant Consumer Loan to us for assignment,
the decision whether to provide funding to the Dealer-Partner and the amount of any funding is made
solely by us. We perform all significant functions relating to the processing of the Consumer Loan
applications and bear certain costs of Consumer Loan assignment, including the cost of assessing
the adequacy of Consumer Loan documentation, compliance with underwriting guidelines and the cost
of verifying employment, residence and other information provided by the Dealer-Partner.
If we discover a misrepresentation by the Dealer-Partner relating to a Consumer Loan assigned
to us, we can demand that the Consumer Loan be repurchased for the current balance of the Consumer
Loan less the amount of any unearned finance charge plus the applicable termination fee, which is
generally $500. Upon receipt of such amount in full, we will reassign the Consumer Loan and our
security interest in the financed vehicle to the Dealer-Partner. The Dealer-Partner can also opt
to repurchase their Consumer Loan portfolio assigned under the Portfolio Program, at their
discretion, for a fee.
Our business model allows us to share the risk and reward of collecting on the Consumer Loans
with the Dealer-Partners. Such sharing is intended to motivate the Dealer-Partner to assign better
quality Consumer Loans, follow our underwriting guidelines, comply with various legal regulations,
meet our credit compliance requirements, and provide appropriate service and support to the
consumer after the sale. In order to assist the Dealer-Partner in these and other areas, we offer
the services of our Dealer-Partner Service Center (DPSC). We believe this arrangement, along
with the support of the DPSC, aligns our interests with the interests of the Dealer-Partner and the
consumer. During the third quarter of 2005, we began to outsource DPSC functions related to legal
regulation compliance and credit compliance to a company in India. In the second quarter of
2008, we discontinued the outsourcing of our credit compliance function. As of December 31, 2009,
our legal regulation compliance validation function remains outsourced to a company in India.
7
We measure various criteria for each Dealer-Partner against other Dealer-Partners in their
area as well as the top performing Dealer-Partners. Dealer-Partners are assigned a dealer rating
based upon the performance of their Consumer Loans in both the Portfolio and Purchase Programs as
well as other criteria. The dealer rating is one of the factors used to determine the amount paid
to Dealer-Partners as an advance or to acquire a Purchased Loan. Sales representatives regularly
review the performance of each Dealer-Partner and, together with the Dealer-Partner, create an
action plan to improve the Dealer-Partners dealer rating and overall success with our program.
Information on our Consumer Loans is presented in the following table:
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Years Ended December 31, |
Average Consumer Loan Data |
|
2009 |
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2008 |
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2007 |
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2006 |
|
2005 |
Average size of Consumer Loan accepted |
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$ |
12,689 |
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$ |
14,518 |
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$ |
13,878 |
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$ |
12,722 |
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$ |
12,015 |
|
Percentage growth (decline) in average size of Consumer Loan |
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(12.6 |
)% |
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4.6 |
% |
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9.1 |
% |
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5.9 |
% |
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(5.9 |
)% |
Average initial term (in months) |
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38 |
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42 |
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41 |
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37 |
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35 |
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Collections. Our largest group of collectors service Consumer Loans that are in the
early stages of delinquency. These collectors are organized into teams comprised of two job types:
(1) loan collectors; and (2) senior loan collectors. Collection efforts typically consist of
placing a call to the consumer within one day of the missed payment due date. Loan collectors are
assigned Consumer Loans that are segmented into dialing pools by various phone contact profiles in
an effort to maximize contact with the consumer. Our senior loan collectors have a higher skill
level and access to additional tools. These collectors, in addition to securing payment
arrangements, locate consumers by finding new contact information to assist in their teams
collection efforts. The senior loan collectors service Consumer Loans with the following
characteristics:
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no valid phone contact information; |
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valid contact information without any contact in seven days; or |
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various specialty segments (such as military personnel, abandoned vehicles, voluntary
surrenders, and accounts requiring investigation). |
The decision to repossess a vehicle is based on statistical models or policy based criteria.
When a Consumer Loan is approved for repossession, the account is transferred to our repossession
team. Repossession personnel continue to service the Consumer Loan as it is being assigned to a
third party repossession contractor, who works on a contingency fee basis. Once a vehicle has been
repossessed, the consumer can negotiate to redeem the vehicle, whereupon the vehicle is returned to
the consumer in exchange for paying off the Consumer Loan balance; or, where appropriate, or if
required by law, the vehicle is returned to the consumer and the Consumer Loan is reinstated in
exchange for a payment that reduces or eliminates the past due balance. If neither process is
successful, the vehicle is sold at a wholesale automobile auction. Prior to sale, the vehicle is
usually inspected by our remarketing representatives who authorize repair and reconditioning work
in order to maximize the net sale proceeds at auction.
If the vehicle sale proceeds are not sufficient to satisfy the balance owing on the Consumer
Loan, the Consumer Loan is serviced by either: (1) our internal collection team, in the event the
consumer is willing to make payments on the deficiency balance; or (2) where permitted by law, our
external collection team, if it is believed that legal action is required to reduce the deficiency
balance owing on the Consumer Loan. Our external collection team generally assigns Consumer Loans
to third party collection attorneys who work on a contingency fee basis. The third party
collection attorneys then file a claim, and upon obtaining a judgment, garnish wages or other
assets. Additionally, we may sell or assign Consumer Loans to third party collection companies.
Collectors rely on two systems; the Collection System (CS) and the Loan Servicing System
(LSS). The CS and the LSS are connected through a batch interface. The present CS has been in
service since June 2002. The CS interfaces with a predictive dialer and records all activity on a
Consumer Loan, including details of past phone conversations with the consumer, collection letters
sent, promises to pay, broken promises, repossession orders and collection attorney activity. The
LSS maintains a record of all transactions relating to Consumer Loans assigned after July 1990 and
is a primary source of data utilized to:
|
|
|
evaluate our proprietary credit scoring system; |
|
|
|
|
forecast future collections; |
|
|
|
|
establish the amount of revenue recognized by us; and |
|
|
|
|
analyze the profitability of our program. |
During the third quarter of 2005, we began an initiative to outsource a portion of our
collection function to a company in India. In the second quarter of 2006, we entered into another
outsourcing arrangement with a company in Costa Rica. These outsourced collectors service accounts
using the CS and typically service accounts that are less than sixty days past due. We believe
outsourcing these functions reduces the geographic risk of having collection centers only in
the United States and provides
8
additional flexibility to scale our operation, comparable
performance at a lower wage rate and the opportunity to share best practices with outside
collection companies.
Ancillary Products
We provide Dealer-Partners the ability to offer vehicle service contracts to consumers. A
vehicle service contract provides the consumer protection by paying for the repair or replacement
of certain components of the vehicle in the event of a mechanical failure. Buyers Vehicle
Protection Plan, Inc. (BVPP), our wholly-owned subsidiary, has relationships with third party
administrators (TPAs) whereby the TPAs process claims on vehicle service contracts that are
underwritten by third party insurers. BVPP receives a commission for all vehicle service contracts
sold by our Dealer-Partners when the vehicle is financed by us. The commission is included in the
retail price of the vehicle service contract which is added to the Consumer Loan. We provide
Dealer-Partners with an additional advance based on the retail price of the vehicle service
contract. We recognize our commission from the vehicle service contracts as part of finance
charges on a level-yield basis based upon forecasted cash flows. We bear the risk of loss for
claims on certain vehicle service contracts that are reinsured by us.
During the fourth quarter of 2008, we formed VSC Re Company (VSC Re), our wholly-owned
subsidiary that is engaged in the business of reinsuring coverage under vehicle service contracts
sold to consumers by Dealer-Partners on vehicles financed by us. Prior to October 31, 2009, VSC Re
reinsured vehicle service contracts that were underwritten by two of our three third party
insurers. Effective October 31, 2009, we terminated our arrangement with one of our three third
party insurers. VSC Re currently reinsures vehicle service contracts that are underwritten by one
of our two third party insurers. Vehicle service contract premiums, which represent the selling
price of the vehicle service contract to the consumer, less commissions and certain administrative
costs, are contributed to trust accounts controlled by VSC Re. These premiums are used to fund
claims covered under the vehicle service contracts. VSC Re is a bankruptcy remote entity. As
such, the exposure to fund claims is limited to the amount of premium dollars contributed, less
amounts earned and withdrawn, plus $0.5 million of equity contributed. With the reinsurance
structure, we are able to access projected excess trust assets annually and record revenue and
expense on an accrual basis. We formed VSC Re in order to enhance our control and security of the
trust assets that are used to pay future vehicle service contract claims. The amount of income we
earn from the vehicle service contracts over time is not expected to be impacted by the formation
of VSC Re, as both before and after the formation, the income we recognize, excluding our
commissions, is based on the amount by which vehicle service contract premiums exceed claims. The
only change in our risk associated with adverse claims experience relates to the $0.5 million
equity contribution that was required as part of this new structure, which is now at risk in the
event claims exceed premiums. Under the prior structure, our risk was limited to the amount of
premiums contributed to the trusts.
Prior to the formation of VSC Re, our agreements with two of our vehicle service contract TPAs
allowed us to receive profit sharing payments depending upon the performance of the vehicle service
contract programs. The agreements also required that vehicle service contract premiums be placed
in trust accounts. Funds in the trust accounts were utilized by the TPA to pay claims on the
vehicle service contracts. Upon the formation of VSC Re during the fourth quarter of 2008, the
unearned premiums on the majority of the vehicle service contracts that had been written through
these two TPAs were ceded to VSC Re along with any related trust assets. Vehicle service contracts
written prior to 2008 through one of the TPAs remain under this profit sharing arrangement. Profit
sharing payments, if any, on the vehicle service contracts are distributed to us periodically after
the term of the vehicle service contracts have substantially expired provided certain loss rates
are met. We are considered the primary beneficiary of the trusts and as a result, the assets and
liabilities of the remaining trust have been consolidated on our balance sheet.
BVPP also has a relationship with a TPA that allows Dealer-Partners to offer a GAP product to
consumers whereby the TPA processes claims that are underwritten by a third party insurer. GAP
provides the consumer protection by paying the difference between the loan balance and the amount
covered by the consumers insurance policy in the event of a total loss of the vehicle due to
severe damage or theft. We receive a commission for all GAP contracts sold by our Dealer-Partners
when the vehicle is financed by us, and do not bear any risk of loss for claims. The commission is
included in the retail price of the GAP contract which is added to the Consumer Loan. We provide
Dealer-Partners with an additional advance based on the retail price of the GAP contract. We
recognize our commission from the GAP contracts as part of finance charges on a level-yield basis
based upon forecasted cash flows. We are eligible to receive profit sharing payments depending on
the performance of the GAP program. Profit sharing payments from the third party are received once
a year, if eligible.
During 2006, we began to provide Dealer-Partners in certain states the ability to purchase
Global Positioning Systems (GPS) with Starter Interrupt Devices (SID). Through this program,
Dealer-Partners can install a GPS-based SID (GPS-SID) on vehicles financed by us that can be
activated if the consumer fails to make payments on their account, and can result in the prompt
repossession of the vehicle. Installation of the GPS-SID has a positive impact on collections and
therefore on the initial advance paid to the Dealer-Partner. Dealer-Partners purchase the GPS-SID
directly from third parties and ownership of the GPS-SID device resides with the Dealer-Partner.
The third parties pay us a marketing fee for each device sold and installed, at which time the
marketing fee revenue is recognized in other income within our consolidated statements of income.
9
Businesses in Liquidation
Effective June 30, 2003, we stopped originating Consumer Loans in the United Kingdom and we
sold the remainder of the portfolio on December 30, 2005.
Competition
The market for consumers who do not qualify for conventional automobile financing is large and
highly competitive. The market is currently served by buy here, pay here dealerships, banks,
captive finance affiliates of automobile manufacturers, credit unions and independent finance
companies both publicly and privately owned. Many of these companies are much larger and have
greater resources than us. We compete by offering a profitable and efficient method for
Dealer-Partners to finance customers who would be more difficult or less profitable to finance
through other methods. In addition, we compete on the basis of the level of service provided by
our origination and sales personnel.
Customer and Geographic Concentrations
No single Dealer-Partner accounted for more than 10% of total revenues during any of the last
three years. Additionally, no single Dealer-Partners Loans receivable balance accounted for more
than 10% of total Loans receivable balance as of December 31, 2009 or 2008. The following tables
provide information regarding the five states that were responsible for the largest dollar amount
of Consumer Loans assigned to us and the number of active Dealer-Partners in the United States
during 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
Consumer Loans |
|
|
Active Dealer-Partners (1) |
|
(Dollars in thousands) |
|
Dollar Volume |
|
|
% of Total |
|
|
Number |
|
|
% of Total |
|
Michigan |
|
$ |
141,773 |
|
|
|
10.1 |
% |
|
|
197 |
|
|
|
6.2 |
% |
New York |
|
|
101,397 |
|
|
|
7.2 |
|
|
|
178 |
|
|
|
5.6 |
|
Texas |
|
|
100,647 |
|
|
|
7.1 |
|
|
|
250 |
|
|
|
7.9 |
|
Ohio |
|
|
81,422 |
|
|
|
5.8 |
|
|
|
187 |
|
|
|
5.9 |
|
Alabama |
|
|
77,625 |
|
|
|
5.5 |
|
|
|
126 |
|
|
|
4.0 |
|
All other states |
|
|
905,930 |
|
|
|
64.3 |
|
|
|
2,230 |
|
|
|
70.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,408,794 |
|
|
|
100.0 |
% |
|
|
3,168 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
Consumer Loans |
|
|
Active Dealer-Partners (1) |
|
(Dollars in thousands) |
|
Dollar Volume |
|
|
% of Total |
|
|
Number |
|
|
% of Total |
|
Texas |
|
$ |
149,554 |
|
|
|
8.5 |
% |
|
|
240 |
|
|
|
7.4 |
% |
Michigan |
|
|
131,022 |
|
|
|
7.4 |
|
|
|
198 |
|
|
|
6.1 |
|
Alabama |
|
|
119,902 |
|
|
|
6.8 |
|
|
|
120 |
|
|
|
3.7 |
|
Ohio |
|
|
119,133 |
|
|
|
6.8 |
|
|
|
182 |
|
|
|
5.6 |
|
New York |
|
|
93,037 |
|
|
|
5.3 |
|
|
|
174 |
|
|
|
5.3 |
|
All other states |
|
|
1,148,117 |
|
|
|
65.2 |
|
|
|
2,350 |
|
|
|
71.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,760,765 |
|
|
|
100.0 |
% |
|
|
3,264 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
|
Consumer Loans |
|
|
Active Dealer-Partners (1) |
|
(Dollars in thousands) |
|
Dollar Volume |
|
|
% of Total |
|
|
Number |
|
|
% of Total |
|
Texas |
|
$ |
134,758 |
|
|
|
9.1 |
% |
|
|
186 |
|
|
|
6.6 |
% |
Michigan |
|
|
108,055 |
|
|
|
7.3 |
|
|
|
168 |
|
|
|
5.9 |
|
Alabama |
|
|
98,595 |
|
|
|
6.7 |
|
|
|
89 |
|
|
|
3.1 |
|
Ohio |
|
|
86,240 |
|
|
|
5.8 |
|
|
|
157 |
|
|
|
5.6 |
|
Mississippi |
|
|
75,916 |
|
|
|
5.1 |
|
|
|
71 |
|
|
|
2.5 |
|
All other states |
|
|
977,123 |
|
|
|
66.0 |
|
|
|
2,156 |
|
|
|
76.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,480,687 |
|
|
|
100.0 |
% |
|
|
2,827 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Active Dealer-Partners are Dealer-Partners who have received funding for at least one Loan
during the year. |
10
Geographic Financial Information
For the three years ended December 31, 2009, 2008 and 2007, revenues from continuing
operations were primarily derived from operations in the United States and long-lived assets were
primarily located in the United States. For additional geographic financial information, see Note
12 to the consolidated financial statements contained in Item 8 of this Form 10-K, which is
incorporated herein by reference.
Regulation
Our business is subject to laws and regulations, including the Truth in Lending Act, the Equal
Credit Opportunity Act, the Fair Credit Reporting Act and other various state and federal laws and
regulations. These laws and regulations, among other things, require licensing and qualification;
limit interest rates, fees and other charges associated with the Consumer Loans assigned to us;
require specified disclosures by Dealer-Partners to consumers; govern the sale and terms of
ancillary products; and define the rights to repossess and sell collateral. Failure to comply with
these laws or regulations could have a material adverse effect on us by, among other things,
limiting the jurisdictions in which we may operate, restricting our ability to realize the value of
the collateral securing the Consumer Loans, making it more costly or burdensome to do business or
resulting in potential liability. The volume of new or modified laws and regulations has increased
in recent years and has increased significantly in response to issues arising with respect to
consumer lending. From time to time, legislation and regulations are enacted which increase the
cost of doing business, limit or expand permissible activities or affect the competitive balance
among financial services providers. Proposals to change the laws and regulations governing the
operations and taxation of financial institutions and financial services providers are frequently
made in the U.S. Congress, in the state legislatures and by various regulatory agencies. This
legislation may change our operating environment in substantial and unpredictable ways and may have
a material adverse effect on our business. For example, the U.S. House of Representatives has
passed legislation relating to the creation of a consumer financial protection agency that would
provide the U.S. federal government with broad powers to regulate consumer financial services
products. We cannot predict whether any of this potential legislation will be enacted and, if
enacted, the effect that it, or any implemented regulations, would have on our financial condition
or results of operations, but these changes could impact the profitability of our business
activities, require us to change certain of our business practices and expose us to additional
costs (including increased compliance costs). In addition, governmental regulations which would
deplete the supply of used vehicles, such as environmental protection regulations governing
emissions or fuel consumption, could have a material adverse effect on us.
Our Dealer-Partners must also comply with credit and trade practice statutes and regulations.
Failure of our Dealer-Partners to comply with these statutes and regulations could result in
consumers having rights of rescission and other remedies that could have a material adverse effect
on us.
The sale of vehicle service contracts and GAP by Dealer-Partners in connection with Consumer
Loans assigned to us from Dealer-Partners is also subject to state laws and regulations. As we are
the holder of the Consumer Loans that may, in part, finance these products, some of these state
laws and regulations may apply to our servicing and collection of the Consumer Loans. Although
these laws and regulations do not significantly affect our business, there can be no assurance that
insurance or other regulatory authorities in the jurisdictions in which these products are offered
by Dealer-Partners will not seek to regulate or restrict the operation of our business in these
jurisdictions. Any regulation or restriction of our business in these jurisdictions could
materially adversely affect the income received from these products.
We believe that we maintain all material licenses and permits required for our current
operations and are in substantial compliance with all applicable laws and regulations. Our
agreements with Dealer-Partners provide that the Dealer-Partner shall indemnify us with respect to
any loss or expense we incur as a result of the Dealer-Partners failure to comply with applicable
laws and regulations.
11
Team Members
As of December 31, 2009, we had 911 full and part-time team members. Our team members have no
union affiliations and we believe our relationship with our team members is good. The table below
presents team members by function:
|
|
|
|
|
|
|
|
|
|
|
Number of Team |
|
|
Members |
|
|
Years Ended December 31, |
Function |
|
2009 |
|
2008 |
Originations (1) |
|
|
224 |
|
|
|
260 |
|
Servicing (2) |
|
|
462 |
|
|
|
553 |
|
Support (3) |
|
|
225 |
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
911 |
|
|
|
1,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The originations function includes team members in the DPSC and sales departments. |
|
(2) |
|
The servicing function primarily includes team members in the collections,
repossession, and remarketing departments. |
|
(3) |
|
The support function primarily includes team members in the information technology,
finance, analytics, corporate legal, and human resources departments. |
Available Information
Our Internet address is creditacceptance.com. We make available, free of charge on the web
site, copies of reports we file with or furnish to the Securities and Exchange Commission as soon
as reasonably practicable after we electronically file or furnish such reports.
12
ITEM 1A. RISK FACTORS
Our inability to accurately forecast and estimate the amount and timing of future collections could
have a material adverse effect on results of operations.
Substantially all of the Consumer Loans assigned to us are made to individuals with impaired
or limited credit histories or higher debt-to-income ratios than are permitted by traditional
lenders. Consumer Loans made to these individuals generally entail a higher risk of delinquency,
default and repossession and higher losses than loans made to consumers with better credit. Since
most of our revenue and cash flows from operations are generated from these Consumer Loans, our
ability to accurately forecast Consumer Loan performance is critical to our business and financial
results. At the time of Consumer Loan acceptance or purchase, we forecast future expected cash
flows from the Consumer Loan. Based on these forecasts, which include estimates for wholesale
vehicle prices in the event of vehicle repossession and sale, we make an advance or cash payment to
the related Dealer-Partner at a level designed to achieve an acceptable return on capital. These
forecasts also serve as a critical assumption in our accounting for recognizing finance charge
income and determining our allowance for credit losses. If Consumer Loan performance equals or
exceeds original expectations, it is likely our target return on capital will be achieved.
However, actual cash flows from any individual Consumer Loan are often different than cash flows
estimated at Consumer Loan inception. There can be no assurance that our forecasts will be
accurate or that Consumer Loan performance will be as expected. Recent economic conditions have
made forecasts regarding the performance of Consumer Loans more difficult. In the event that our
forecasts are not accurate, our financial position, liquidity and results of operations could be
materially adversely affected.
We may be unable to execute our business strategy due to current economic conditions.
Our financial position, liquidity and results of operations depend on managements ability to
execute our business strategy. Key factors involved in the execution of our business strategy
include achieving our desired Consumer Loan assignment volume, continued and successful use of CAPS
and pricing strategy, the use of effective credit risk management techniques and servicing
strategies, implementation of effective Consumer Loan servicing and collection practices, continued
investment in technology to support operating efficiency and continued access to funding and
liquidity sources. Although we recently implemented pricing changes that were intended to have a
positive impact on unit volume, in exchange for mostly lower returns on capital, there can be no
assurance that this change will have its intended effect or that lower returns on capital will be
modest. Our failure or inability to execute any element of our business strategy could materially
adversely affect our financial position, liquidity and results of operations.
We may be unable to continue to access or renew funding sources and obtain capital needed to
maintain and grow our business.
We use debt financing to fund new Loans and pay Dealer Holdback. We currently utilize the
following forms of debt financing: (1) a revolving secured line of credit with a commercial bank
syndicate; (2) revolving secured warehouse facilities with institutional investors; (3)
asset-backed secured financings (Term ABS) with qualified institutional investors; and (4) Senior
Secured Notes due 2017 issued pursuant to Rule 144A and Regulation S of the Securities Act of 1933,
as amended (Senior Notes). We cannot guarantee that the revolving secured line of credit or the
revolving secured warehouse facilities will continue to be available beyond their current maturity
dates on acceptable terms or at all, or that we will be able to obtain additional financing on
acceptable terms or at all. The availability of additional financing will depend on a variety of
factors such as market conditions, the general availability of credit and our credit ratings and
capacity for additional borrowing under our existing financing arrangements. If our various
financing alternatives were to become limited or unavailable, we may be unable to maintain or grow
Consumer Loan volume at the level that we anticipate and our operations could be materially
adversely affected.
The terms of our debt limit how we conduct our business.
The agreements that govern our debt contain covenants that restrict our ability to, among
other things:
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incur and guarantee debt; |
|
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|
|
pay dividends or make other distributions on or redeem or repurchase our stock; |
|
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|
make investments or acquisitions; |
|
|
|
|
create liens on our assets; |
|
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|
|
sell assets; |
|
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|
|
merge with or into other companies; |
|
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|
|
enter into transactions with stockholders and other affiliates; and |
|
|
|
|
make capital expenditures. |
13
Some of our debt agreements also impose requirements that we maintain specified financial
measures not in excess of, or not below, specified levels. In particular, our revolving credit
facility requires, among other things, that we maintain (i) at all times a ratio of consolidated
net assets to consolidated funded debt equal to or greater than a specified minimum; (ii) as of the
end of each fiscal quarter, a ratio of consolidated funded debt to consolidated tangible net worth
at or below a specified maximum; (iii) as of the end of each fiscal quarter calculated for the two
fiscal quarters then ending, consolidated net income of not less than a specified minimum; and (iv)
as of the end of each fiscal quarter, a ratio of consolidated income available for fixed charges
for the period of four consecutive fiscal quarters most recently ended to consolidated fixed
charges for that period of not less than a specified minimum. These covenants limit the manner in
which we can conduct our business and could prevent us from engaging in favorable business
activities or financing future operations and capital needs and impair our ability to successfully
execute our strategy and operate our business.
A breach of any of the covenants in our debt instruments would result in an event of default
thereunder if not promptly cured or waived. Any continuing default would permit the creditors to
accelerate the related debt, which could also result in the acceleration of other debt containing a
cross-acceleration or cross-default provision. In addition, an event of default under our revolving
credit facility would permit the lenders thereunder to terminate all commitments to extend further
credit under our revolving credit facility. Furthermore, if we were unable to repay the amounts due
and payable under our revolving credit facility or other secured debt, the lenders thereunder could
cause the collateral agent to proceed against the collateral securing that debt. In the event our
creditors accelerate the repayment of our debt, there can be no assurance that we would have
sufficient assets to repay that debt, and our financial condition, liquidity and results of
operations would suffer.
The conditions of the U.S. and international capital markets may adversely affect lenders with
which we have relationships, causing us to incur additional costs and reducing our sources of
liquidity, which may adversely affect our financial position, liquidity and results of operations.
Turbulence in the global capital markets and the current economic slowdown or recession have
resulted in disruptions in the financial sector and potentially affected lenders with which we have
relationships. The current adverse conditions, the severity and duration of which are unknown, may
increase our exposure to credit risk and adversely affect the ability of lenders to perform under
the terms of their lending arrangements with us. Failure by our lenders to perform under the terms
of our lending arrangements could cause us to incur additional costs that may adversely affect our
liquidity, financial condition and results of operations.
Our substantial debt could negatively impact our business, prevent us from satisfying our debt
obligations and adversely affect our financial condition.
We have a substantial amount of debt. The substantial amount of our debt could have important
consequences, including the following:
|
|
|
our ability to obtain additional financing for Consumer Loan assignments, working
capital, debt refinancing or other purposes could be impaired; |
|
|
|
|
a substantial portion of our cash flows from operations will be dedicated to paying
principal and interest on our debt, reducing funds available for other purposes; |
|
|
|
|
we may be vulnerable to interest rate increases, as some of our borrowings, including
those under our revolving credit facility, bear interest at variable rates; |
|
|
|
|
we could be more vulnerable to adverse developments in our industry or in general
economic conditions; |
|
|
|
|
we may be restricted from taking advantage of business opportunities or making strategic
acquisitions; and |
|
|
|
|
we may be limited in our flexibility in planning for, or reacting to, changes in our
business and the industries in which we operate. |
Due to competition from traditional financing sources and non-traditional lenders, we may not be
able to compete successfully.
The automobile finance market for consumers who do not qualify for conventional automobile
financing is large and highly competitive. The market is served by a variety of companies
including buy here, pay here dealerships. The market is also currently served by banks, captive
finance affiliates of automobile manufacturers, credit unions and independent finance companies
both publicly and privately owned. Many of these companies are much larger and have greater
financial resources than are available to us, and many have long standing relationships with
automobile dealerships. Providers of automobile financing have traditionally competed based on the
interest rate charged, the quality of credit accepted, the flexibility of loan terms offered and
the quality of service provided to dealers and consumers. There is potential that significant
direct competition could emerge and that we may be unable to compete successfully. Additionally,
if we are unsuccessful in maintaining and expanding our relationships with Dealer-Partners, we may
be unable to accept Consumer Loans in the volume and on the terms that we anticipate.
14
We may not be able to generate sufficient cash flows to service our outstanding debt and fund
operations and may be forced to take other actions to satisfy our obligations under such debt.
Our ability to make payments of principal and interest on indebtedness will depend in part on
our cash flows from operations, which are subject to economic, financial, competitive and other
factors beyond our control. We cannot assure you that we will maintain a level of cash flows from
operations sufficient to permit us to meet our debt service obligations. If we are unable to
generate sufficient cash flows from operations to service our debt, we may be required to sell
assets, refinance all or a portion of our existing debt or obtain additional financing. There can
be no assurance that any refinancing will be possible or that any asset sales or additional
financing can be completed on acceptable terms or at all.
Interest rate fluctuations may adversely affect our borrowing costs, profitability and liquidity.
Our profitability may be directly affected by the level of and fluctuations in interest rates,
whether caused by changes in economic conditions or other factors, which affect our borrowing
costs. Our profitability and liquidity could be materially adversely affected during any period of
higher interest rates. We monitor the interest rate environment and employ hedging strategies
designed to mitigate the impact of increases in interest rates. We can provide no assurance,
however, that hedging strategies will mitigate the impact of increases in interest rates.
Reduction in our credit rating could increase the cost of our funding from, and restrict our access
to, the capital markets and adversely affect our liquidity, financial condition and results of
operations.
Credit rating agencies evaluate us, and their ratings of our debt and creditworthiness are
based on a number of factors. These factors include our financial strength and other factors not
entirely within our control, including conditions affecting the financial services industry
generally. In light of the difficulties facing the financial services industry and the financial
markets, there can be no assurance that we will maintain our current ratings. Failure to maintain
those ratings could, among other things, adversely limit our access to the capital markets and
affect the cost and other terms upon which we are able to obtain financing.
We may incur substantially more debt and other liabilities. This could exacerbate further the
risks associated with our current debt levels.
We may be able to incur substantial additional debt in the future. Although the terms of our
debt instruments contain restrictions on our ability to incur additional debt, these restrictions
are subject to exceptions that could permit us to incur a substantial amount of additional debt.
In addition, our debt instruments do not prevent us from incurring liabilities that do not
constitute indebtedness as defined for purposes of those debt instruments. If new debt or other
liabilities are added to our current debt levels, the risks associated with our having substantial
debt could intensify.
The regulation to which we are or may become subject could result in a material adverse effect on
our business.
Our business is subject to laws and regulations including the Truth in Lending Act, the Equal
Credit Opportunity Act, the Fair Credit Reporting Act and other various state and federal laws and
regulations. These laws and regulations, among other things, require licensing and qualification;
limit interest rates, fees and other charges associated with the Consumer Loans assigned to us;
require specified disclosures by Dealer-Partners to consumers; govern the sale and terms of
ancillary products; and define the rights to repossess and sell collateral. Failure to comply with
these laws or regulations could have a material adverse effect on us by, among other things,
limiting the jurisdictions in which we may operate, restricting our ability to realize the value of
the collateral securing the Consumer Loans, making it more costly or burdensome to do business or
resulting in potential liability. The volume of new or modified laws and regulations has increased
in recent years and has increased significantly in response to issues arising with respect to
consumer lending. From time to time, legislation and regulations are enacted which increase the
cost of doing business, limit or expand permissible activities or affect the competitive balance
among financial services providers. Proposals to change the laws and regulations governing the
operations and taxation of financial institutions and financial services providers are frequently
made in the U.S. Congress, in state legislatures and by various regulatory agencies. This
legislation may change our operating environment in substantial and unpredictable ways and may have
a material adverse effect on our business. For example, the U.S. House of Representatives has
passed legislation relating to the creation of a consumer financial protection agency that would
provide the U.S. federal government with broad powers to regulate consumer financial services
products. We cannot predict whether any of this potential legislation will be enacted and, if
enacted, the effect that it, or any implementing regulations, would have on the financial condition
or results of operations of us, but these changes could impact the profitability of our business
activities, require us to change certain of our business practices and expose us to additional
costs (including increased compliance costs). In addition, governmental regulations which would
deplete the supply of used vehicles, such as environmental protection regulations governing
emissions or fuel consumption, could have a material adverse effect on us.
15
Our Dealer-Partners must also comply with credit and trade practice statutes and regulations.
Failure of our Dealer-Partners to comply with these statutes and regulations could result in
consumers having rights of rescission and other remedies that could have a material adverse effect
on us.
The sale of vehicle service contracts and GAP by Dealer-Partners in connection with Consumer
Loans assigned to us by Dealer-Partners is also subject to state laws and regulations. As we are
the holder of the Consumer Loans that may, in part, finance these products, some of these state
laws and regulations may apply to our servicing and collection of the Consumer Loans. Although
these laws and regulations do not significantly affect our business, there can be no assurance that
insurance or other regulatory authorities in the jurisdictions in which these products are offered
by Dealer-Partners will not seek to regulate or restrict the operation of our business in these
jurisdictions. Any regulation or restriction of our business in these jurisdictions could
materially adversely affect the income received from these products.
Adverse changes in economic conditions, the automobile or finance industries, or the non-prime
consumer market could adversely affect our financial position, liquidity and results of operations,
the ability of key vendors that we depend on to supply us with services, and our ability to enter
into future financing transactions.
We are subject to general economic conditions which are beyond our control. Recently, concerns
over the availability and cost of credit, the U.S. mortgage market, a declining real estate market
and geopolitical issues have contributed to increased volatility and diminished expectations for
the economy and financial markets going forward. During periods of economic slowdown or recession,
delinquencies, defaults, repossessions and losses may increase on our Consumer Loans. These
periods are also typically accompanied by decreased consumer demand for automobiles and declining
values of automobiles securing outstanding Consumer Loans, which weakens collateral coverage and
increases the amount of a loss in the event of default. Significant increases in the inventory of
used automobiles during periods of economic recession may also depress the prices at which
repossessed automobiles may be sold or delay the timing of these sales. Additionally, higher
gasoline prices, declining stock market values, unstable real estate values, resets of adjustable
rate mortgages to higher interest rates, increasing unemployment levels, general availability of
consumer credit or other factors that impact consumer confidence or disposable income could
increase loss frequency and decrease consumer demand for automobiles as well as weaken collateral
values of automobiles. Because our business is focused on consumers who do not qualify for
conventional automobile financing, the actual rates of delinquencies, defaults, repossessions and
losses on these Consumer Loans could be higher than that of those experienced in the general
automobile finance industry, and could be more dramatically affected by a general economic
downturn.
We rely on Dealer-Partners to originate Consumer Loans for assignment under our programs.
High levels of Dealer-Partner attrition, due to a general economic downturn or otherwise, could
materially adversely affect our operations. In addition, we rely on vendors to provide us with
services we need to operate our business. Any disruption in our operations due to the untimely or
discontinued supply of these services could substantially adversely affect our operations.
Finally, during an economic slowdown or recession, our servicing costs may increase without a
corresponding increase in service fee income. Any sustained period of increased delinquencies,
defaults, repossessions or losses or increased servicing costs could also materially adversely
affect our financial position, liquidity and results of operations and our ability to enter into
future financing transactions.
Litigation we are involved in from time to time may adversely affect our financial condition,
results of operations and cash flows.
As a result of the consumer-oriented nature of the industry in which we operate and
uncertainties with respect to the application of various laws and regulations in some
circumstances, we are subject to various consumer claims and litigation seeking damages and
statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful
repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud and
breach of contract. As the assignee of Consumer Loans originated by Dealer-Partners, we may also
be named as a co-defendant in lawsuits filed by consumers principally against Dealer-Partners. We
may also have disputes and litigation with Dealer-Partners relating to our dealer servicing and
related agreements, including claims for, among other things, breach of contract or other duties
purportedly owed to the Dealer-Partners. The damages and penalties that may be claimed by consumers
or Dealer-Partners in these types of matters can be substantial. The relief requested by the
plaintiffs varies but may include requests for compensatory, statutory and punitive damages, and
plaintiffs may seek treatment as purported class actions. A significant judgment against us in
connection with any litigation or arbitration could have a material adverse effect on our financial
position, liquidity and results of operations.
Our operations are dependent on technology.
Virtually all Consumer Loans submitted to us for assignment are processed through our
internet-based CAPS application, which enables our Dealer-Partners to interact with our proprietary
credit scoring system. Our Consumer Loan servicing platform is also technology based. We rely on
these systems to record and process significant amounts of data quickly and accurately and believe
that these systems provide us with a competitive advantage. All of these systems are dependent
upon computer and
16
telecommunications equipment, software systems and Internet access. The temporary or
permanent loss of any components of these systems through hardware failures, software errors, the
vulnerability of the Internet, operating malfunctions or otherwise could interrupt our business
operations, harm our business and adversely affect our competitive advantage. In addition, our
competitors could create or acquire systems similar to ours, which would adversely affect our
competitive advantage.
We rely on a variety of measures to protect our technology and proprietary information,
including copyrights, trade secrets and patents. However, these measures may not prevent
misappropriation or infringement of our intellectual property or proprietary information, which
would adversely affect us. In addition, our competitors or other third parties may allege that our
systems, processes or technologies infringe their intellectual property rights.
Our ability to integrate computer and telecommunications technologies into our business is
essential to our success. Computer and telecommunications technologies are evolving rapidly and
are characterized by short product life cycles. We may not be successful in anticipating, managing
or adopting technological changes on a timely basis. While we believe that our existing
information systems are sufficient to meet our current demands and continued expansion, our future
growth may require additional investment in these systems. We cannot assure that adequate capital
resources will be available to us at the appropriate time.
We are dependent on our senior management and the loss of any of these individuals or an inability
to hire additional team members could adversely affect our ability to operate profitably.
Our senior management average over 11 years of experience with us. Our success is dependent
upon the management and the leadership skills of this team. In addition, competition from other
companies to hire our team members possessing the necessary skills and experience required could
contribute to an increase in team member turnover. The loss of any of these individuals or an
inability to attract and retain additional qualified team members could adversely affect us. There
can be no assurance that we will be able to retain our existing senior management or attract
additional qualified team members.
Our reputation is a key asset to our business, and our business may be affected by how we are
perceived in the marketplace.
Our reputation is a key asset to our business. Our ability to attract consumers through our
Dealer-Partners is highly dependent upon external perceptions of our level of service,
trustworthiness, business practices and financial condition. Negative publicity regarding these
matters could damage our reputation among existing and potential consumers and Dealer-Partners,
which could make it difficult for us to attract new consumers and Dealer-Partners and maintain
existing Dealer-Partners. Adverse developments with respect to our industry may also, by
association, negatively impact our reputation or result in greater regulatory or legislative
scrutiny or litigation against us.
The concentration of our Dealer-Partners in several states could adversely affect us.
We are partnered with Dealer-Partners throughout the United States. During the year ended
December 31, 2009, our five largest states (measured by total value of Consumer Loans) contained
approximately 29.6% of our Dealer-Partners. While we believe we have a diverse geographic presence,
for the near term, we expect that significant amounts of Consumer Loan assignments will continue to
be generated by Dealer-Partners in these five states due to the number of Dealer-Partners in these
states and currently prevailing economic, demographic, regulatory, competitive and other conditions
in these states. Changes to conditions in these states could lead to an increase in Dealer-Partner
attrition or a reduction in demand for our service that could materially adversely affect our
financial position, liquidity and results of operations.
Failure to properly safeguard confidential consumer information could subject us to liability,
decrease our profitability and damage our reputation.
If third parties or our team members are able to breach our network security or otherwise
misappropriate our customers personal information or loan information, or if we give third parties
or our team members improper access to our customers personal information or loan information, we
could be subject to liability. This liability could include identity theft or other similar
fraud-related claims. This liability could also include claims for other misuses or losses of
personal information, including for unauthorized marketing purposes. Other liabilities could
include claims alleging misrepresentation of our privacy and data security practices.
We rely on encryption and authentication technology licensed from third parties to provide the
security and authentication necessary to secure online transmission of confidential consumer
information. Advances in computer capabilities, new discoveries in the field of cryptography or
other events or developments may result in a compromise or breach of the algorithms that we use to
protect sensitive customer transaction data. A party who is able to circumvent our security
measures could misappropriate proprietary information or cause interruptions in our operations. We
may be required to expend capital and other resources to protect against such security breaches or
to alleviate problems caused by security breaches. Our security measures are designed to
17
protect against security breaches, but our failure to prevent security breaches could subject
us to liability, decrease our profitability and damage our reputation.
Our founder controls a majority of our common stock, has the ability to control matters requiring
shareholder approval and has interests which may conflict with the interests of our other security
holders.
Our founder owns a large enough stake of the Company to control matters presented to
shareholders, including the election and removal of directors, the approval of significant
corporate transactions, such as any reclassification, reorganization, merger, consolidation or sale
of all or substantially all of our assets, and the control of our management and affairs, including
executive compensation arrangements. His interests may conflict with the interests of our other
security holders.
Reliance on our outsourced business functions could adversely affect our business.
We outsource a portion of our collections functions to companies in India and Costa Rica and a
portion of our dealer-service center functions to a company in India. While we believe there are
benefits to these arrangements, outsourcing increases our operational complexity and decreases our
control. We rely on these service providers to provide a high level of service and support, which
subjects us to risks associated with inadequate or untimely service. For example, the outsourcing
of collection functions could result in lower collection rates on our Consumer Loans than we would
have achieved had we performed the same functions internally. In addition, if these outsourcing
arrangements were not renewed or were terminated or the services provided to us were otherwise
disrupted, we would have to obtain these services from an alternative provider or provide them
using our internal resources. We may be unable to replace, or be delayed in replacing these
sources and there is a risk that we would be unable to enter into a similar agreement with an
alternate provider on terms that we consider favorable or in a timely manner. In the future, we
may outsource other business functions. If any of these or other risks related to outsourcing were
realized, our financial position, liquidity and results of operations could be adversely affected.
Natural disasters, acts of war, terrorist attacks and threats or the escalation of military
activity in response to these attacks or otherwise may negatively affect our business, financial
condition and results of operations.
Natural disasters, acts of war, terrorist attacks and the escalation of military activity in
response to these attacks or otherwise may have negative and significant effects, such as
imposition of increased security measures, changes in applicable laws, market disruptions and job
losses. These events may have an adverse effect on the economy in general. Moreover, the
potential for future terrorist attacks and the national and international responses to these
threats could affect the business in ways that cannot be predicted. The effect of any of these
events or threats could have a material adverse effect on our business, financial condition and
results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
United States and Other
Our headquarters is located at 25505 West Twelve Mile Road, Southfield, Michigan 48034. We
purchased the office building in 1993 and have a mortgage loan from a commercial bank that is
secured by a first mortgage lien on the property. The office building
18
includes approximately 136,000 square feet of space on five floors. We occupy approximately
120,000 square feet of the building, with most of the remainder of the building leased to various
tenants.
We lease approximately 14,000 square feet of office space in Southfield, Michigan and
approximately 20,000 square feet of office space in Henderson, Nevada. The lease for the
Southfield, Michigan space expires in June 2013 and the lease for the Henderson, Nevada space
expires in November 2014.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business and as a result of the consumer-oriented nature of the
industry in which we operate, industry participants are frequently subject to various consumer
claims and litigation. The claims allege, among other theories of liability, violations of state,
federal and foreign truth-in-lending, credit availability, credit reporting, consumer protection,
warranty, debt collection, insurance and other consumer-oriented laws and regulations, including
claims seeking damages for physical and mental damages relating to our repossession and sale of the
consumers vehicle and other debt collection activities. As we accept assignments of Consumer
Loans originated by Dealer-Partners, we may also be named as a co-defendant in lawsuits filed by
consumers principally against Dealer-Partners. We may also have disputes and litigation with
Dealer-Partners relating to our dealer servicing and related agreements, including claims for,
among other things breach of contract or other duties purportedly owed to the Dealer-Partners. The
damages and penalties that may be claimed by consumers or Dealer-Partners in these types of matters
can be substantial. The relief requested by plaintiffs varies but may include requests for
compensatory, statutory and punitive damages, and plaintiffs may seek treatment as purported class
actions. A significant judgment against us in connection with any litigation or arbitration could
have a material adverse effect on our financial position, liquidity and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the fourth quarter of 2009.
19
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Stock Price
During the year ended December 31, 2009 our common stock was traded on The Nasdaq Global
Market® (Nasdaq) under the symbol CACC. The following table sets forth the high and low sale
prices as reported by the Nasdaq for the common stock for the relevant periods during 2009 and
2008. Such bid information reflects inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
Quarter Ended |
|
High |
|
Low |
|
High |
|
Low |
March 31 |
|
$ |
23.99 |
|
|
$ |
13.73 |
|
|
$ |
20.97 |
|
|
$ |
13.20 |
|
June 30 |
|
|
25.00 |
|
|
|
19.01 |
|
|
|
31.52 |
|
|
|
15.43 |
|
September 30 |
|
|
33.96 |
|
|
|
22.10 |
|
|
|
25.94 |
|
|
|
11.00 |
|
December 31 |
|
|
44.93 |
|
|
|
30.56 |
|
|
|
19.97 |
|
|
|
10.59 |
|
As of February 17, 2010, the number of beneficial holders and shareholders of record of the
common stock was approximately 1,600 based upon securities position listings furnished to us.
Dividends
We have not paid any cash dividends during the periods presented. Our credit agreements
contain financial covenants pertaining to our maximum ratio of funded debt to tangible net worth,
which may indirectly limit the payment of dividends on common stock.
Stock Performance Graph
The following graph compares the percentage change in the cumulative total shareholder return
on our common stock during the period beginning January 1, 2005 and ending on December 31, 2009
with the cumulative total return on the Nasdaq Market Index and a peer group index based upon
approximately 100 companies included in the Dow Jones US General Financial Index. The
comparison assumes that $100 was invested on January 1, 2005 in our common stock and in the
foregoing indices and assumes the reinvestment of dividends.
20
Stock Repurchases
In 1999, our board of directors approved a stock repurchase program which authorizes us to
purchase common shares in the open market or in privately negotiated transactions at price levels
we deem attractive. As of December 31, 2009, we have repurchased approximately 20.4 million shares
under the stock repurchase program at a cost of $399.2 million. Included in the stock repurchases
to date are 12.5 million shares of common stock purchased through four modified Dutch auction
tender offers at a cost of $304.4 million. As of December 31, 2009, we have authorization to
repurchase an additional $29.1 million of our common stock.
The following table summarizes our stock repurchases for the three months ended December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Dollar Value |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
that May Yet Be Used |
|
|
|
Total Number |
|
|
|
|
|
|
Part of Publicly |
|
|
to Purchase Shares |
|
|
|
of Shares |
|
|
Average Price |
|
|
Announced Plans |
|
|
Under the Plans |
|
Period |
|
Purchased |
|
|
Paid per Share |
|
|
or Programs |
|
|
or Programs |
|
October 1 through October 31, 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
29,113,295 |
|
November 1 through November 30, 2009 |
|
|
93 |
* |
|
|
|
|
|
|
|
|
|
|
29,113,295 |
|
December 1 through December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,113,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amount represents shares of common stock released to us by employees as payment of tax
withholdings due to us upon the vesting
of restricted stock. |
21
ITEM 6. SELECTED FINANCIAL DATA
The selected income statement and balance sheet data presented below are derived from our
audited consolidated financial statements and should be read in conjunction with our consolidated
financial statements for the years ended December 31, 2009, 2008, and 2007, and notes thereto and
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations,
included elsewhere in this Form 10-K, which is incorporated herein by reference. Certain amounts
for prior periods have been reclassified to conform to the current presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
(Dollars in Thousands, Except Per Share Data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
380,664 |
|
|
$ |
312,186 |
|
|
$ |
239,927 |
|
|
$ |
219,332 |
|
|
$ |
201,268 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
|
66,893 |
|
|
|
68,993 |
|
|
|
55,396 |
|
|
|
41,015 |
|
|
|
39,093 |
|
General and
administrative (A) |
|
|
30,391 |
|
|
|
27,536 |
|
|
|
27,202 |
|
|
|
36,491 |
|
|
|
19,022 |
|
Sales and marketing |
|
|
14,808 |
|
|
|
16,776 |
|
|
|
17,493 |
|
|
|
16,624 |
|
|
|
14,898 |
|
Provision for credit
losses |
|
|
(12,164 |
) |
|
|
46,029 |
|
|
|
19,947 |
|
|
|
11,006 |
|
|
|
5,705 |
|
Interest |
|
|
32,399 |
|
|
|
43,189 |
|
|
|
36,669 |
|
|
|
23,330 |
|
|
|
13,886 |
|
Provision for claims |
|
|
19,299 |
|
|
|
2,651 |
|
|
|
39 |
|
|
|
226 |
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
151,626 |
|
|
|
205,174 |
|
|
|
156,746 |
|
|
|
128,692 |
|
|
|
92,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before provision for
income taxes |
|
|
229,038 |
|
|
|
107,012 |
|
|
|
83,181 |
|
|
|
90,640 |
|
|
|
108,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes |
|
|
82,992 |
|
|
|
39,944 |
|
|
|
29,567 |
|
|
|
31,793 |
|
|
|
40,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
146,046 |
|
|
|
67,068 |
|
|
|
53,614 |
|
|
|
58,847 |
|
|
|
68,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from
operations of
discontinued United
Kingdom segment (B) |
|
|
137 |
|
|
|
307 |
|
|
|
(562 |
) |
|
|
(297 |
) |
|
|
6,194 |
|
(Credit) provision for
income taxes |
|
|
(72 |
) |
|
|
198 |
|
|
|
(1,864 |
) |
|
|
(90 |
) |
|
|
1,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from
discontinued operations |
|
|
209 |
|
|
|
109 |
|
|
|
1,302 |
|
|
|
(207 |
) |
|
|
4,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
146,255 |
|
|
$ |
67,177 |
|
|
$ |
54,916 |
|
|
$ |
58,640 |
|
|
$ |
72,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.78 |
|
|
$ |
2.22 |
|
|
$ |
1.83 |
|
|
$ |
1.78 |
|
|
$ |
1.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
4.62 |
|
|
$ |
2.16 |
|
|
$ |
1.76 |
|
|
$ |
1.66 |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.77 |
|
|
$ |
2.22 |
|
|
$ |
1.78 |
|
|
$ |
1.78 |
|
|
$ |
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
4.61 |
|
|
$ |
2.16 |
|
|
$ |
1.72 |
|
|
$ |
1.67 |
|
|
$ |
1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued
operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.04 |
|
|
$ |
(0.01 |
) |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.04 |
|
|
$ |
(0.01 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
30,590,142 |
|
|
|
30,249,783 |
|
|
|
30,053,129 |
|
|
|
33,035,693 |
|
|
|
36,991,136 |
|
Diluted |
|
|
31,668,895 |
|
|
|
31,105,043 |
|
|
|
31,153,688 |
|
|
|
35,283,478 |
|
|
|
39,207,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
$ |
1,050,013 |
|
|
$ |
1,017,917 |
|
|
$ |
810,553 |
|
|
$ |
625,780 |
|
|
$ |
563,528 |
|
All other assets |
|
|
126,223 |
|
|
|
121,437 |
|
|
|
131,629 |
|
|
|
99,433 |
|
|
|
55,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,176,236 |
|
|
$ |
1,139,354 |
|
|
$ |
942,182 |
|
|
$ |
725,213 |
|
|
$ |
619,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
506,979 |
|
|
$ |
641,714 |
|
|
$ |
532,130 |
|
|
$ |
392,175 |
|
|
$ |
146,905 |
|
Other liabilities |
|
|
171,047 |
|
|
|
159,889 |
|
|
|
144,602 |
|
|
|
122,691 |
|
|
|
99,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
678,026 |
|
|
|
801,603 |
|
|
|
676,732 |
|
|
|
514,866 |
|
|
|
246,368 |
|
Shareholders equity (C) |
|
|
498,210 |
|
|
|
337,751 |
|
|
|
265,450 |
|
|
|
210,347 |
|
|
|
373,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity |
|
$ |
1,176,236 |
|
|
$ |
1,139,354 |
|
|
$ |
942,182 |
|
|
$ |
725,213 |
|
|
$ |
619,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
2006 includes $11.2 million of additional legal expenses related to an increase in our loss
related to a class action lawsuit in the state of Missouri. |
|
(B) |
|
2005 includes gain on sale of United Kingdom loan portfolio of $3.0 million. |
|
(C) |
|
No dividends were paid during the periods presented. |
22
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated
financial statements and related notes contained in Item 8 of this Form 10-K, which is incorporated
herein by reference.
Critical Success Factors
Critical success factors include our ability to access capital on acceptable terms, accurately
forecast Consumer Loan performance, and maintain or grow Consumer Loan volume at the level and on
the terms that we anticipate.
Access to Capital
Our strategy for accessing capital on acceptable terms needed to maintain and grow the
business is to: (1) maintain consistent financial performance; (2) maintain modest financial
leverage; and (3) maintain multiple funding sources. Our funded debt to equity ratio is 1.0:1 at
December 31, 2009. We currently utilize the following forms of debt financing: (1) a revolving
secured line of credit with a commercial bank syndicate; (2) revolving secured warehouse facilities
with institutional investors; (3) asset-backed secured financings with qualified institutional
investors; and (4) Senior Secured Notes due 2017.
Consumer Loan Performance
At the time the Consumer Loan is submitted to us for assignment, we forecast future expected
cash flows from the Consumer Loan. Based on these forecasts, an advance or one-time payment is
made to the related Dealer-Partner at a price designed to achieve an acceptable return on capital.
If Consumer Loan performance equals or exceeds our original expectation, it is likely our target
return on capital will be achieved.
We use a statistical model to estimate the expected collection rate for each Consumer Loan at
the time of assignment. We continue to evaluate the expected collection rate of each Consumer Loan
subsequent to assignment. Our evaluation becomes more accurate as the Consumer Loans age, as we
use actual performance data in our forecast. By comparing our current expected collection rate for
each Consumer Loan with the rate we projected at the time of assignment, we are able to assess the
accuracy of our initial forecast. The following table compares our forecast of Consumer Loan
collection rates as of December 31, 2009, with the forecasts as of December 31, 2008, as of
December 31, 2007, and at the time of assignment, segmented by year of assignment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
Loan |
|
Forecasted Collection Percentage as of |
|
Variance in Forecasted Collection Percentage from |
Assignment |
|
December 31, |
|
December 31, |
|
December 31, |
|
Initial |
|
December 31, |
|
December 31, |
|
Initial |
Year |
|
2009 |
|
2008 |
|
2007 |
|
Forecast |
|
2008 |
|
2007 |
|
Forecast |
2000 |
|
|
72.5 |
% |
|
|
72.5 |
% |
|
|
72.4 |
% |
|
|
72.8 |
% |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
-0.3 |
% |
2001 |
|
|
67.5 |
% |
|
|
67.4 |
% |
|
|
67.3 |
% |
|
|
70.4 |
% |
|
|
0.1 |
% |
|
|
0.2 |
% |
|
|
-2.9 |
% |
2002 |
|
|
70.4 |
% |
|
|
70.4 |
% |
|
|
70.6 |
% |
|
|
67.9 |
% |
|
|
0.0 |
% |
|
|
-0.2 |
% |
|
|
2.5 |
% |
2003 |
|
|
73.7 |
% |
|
|
73.8 |
% |
|
|
74.1 |
% |
|
|
72.0 |
% |
|
|
-0.1 |
% |
|
|
-0.4 |
% |
|
|
1.7 |
% |
2004 |
|
|
73.1 |
% |
|
|
73.4 |
% |
|
|
73.5 |
% |
|
|
73.0 |
% |
|
|
-0.3 |
% |
|
|
-0.4 |
% |
|
|
0.1 |
% |
2005 |
|
|
73.7 |
% |
|
|
74.1 |
% |
|
|
73.8 |
% |
|
|
74.0 |
% |
|
|
-0.4 |
% |
|
|
-0.1 |
% |
|
|
-0.3 |
% |
2006 |
|
|
70.3 |
% |
|
|
70.3 |
% |
|
|
70.9 |
% |
|
|
71.4 |
% |
|
|
0.0 |
% |
|
|
-0.6 |
% |
|
|
-1.1 |
% |
2007 |
|
|
68.3 |
% |
|
|
67.9 |
% |
|
|
71.1 |
% |
|
|
70.7 |
% |
|
|
0.4 |
% |
|
|
-2.8 |
% |
|
|
-2.4 |
% |
2008 |
|
|
70.0 |
% |
|
|
67.9 |
% |
|
|
|
|
|
|
69.7 |
% |
|
|
2.1 |
% |
|
|
|
|
|
|
0.3 |
% |
2009 |
|
|
75.6 |
% |
|
|
|
|
|
|
|
|
|
|
71.9 |
% |
|
|
|
|
|
|
|
|
|
|
3.7 |
% |
As a result of current economic conditions and uncertainty about future conditions, our
forecasts of future collection rates are subject to a greater than normal degree of risk. Our
pricing strategy considers this in that we have established advance rates that are intended to
allow us to achieve acceptable levels of profitability, even if collection rates are less than we
currently forecast.
During 2008, our forecasted collection rates declined as payment patterns were worse than
historical payment patterns for Consumer Loans with similar attributes. During the latter part of
2008, we adjusted the expected collection rate of new Consumer Loan assignments downward to reflect
this unfavorable trend in Consumer Loan performance. During 2009, payment patterns improved for
Consumer Loans assigned during both 2008 and 2009. The improvement in payment patterns, together
with our
reduced expectations, have caused our forecasted collection rates to exceed our initial
forecast for Consumer Loans assigned during 2008 and 2009.
23
The following table presents forecasted Consumer Loan collection rates, advance rates
(includes amounts paid to acquire Purchased Loans), the spread (the forecasted collection rate less
the advance rate), and the percentage of the forecasted collections that had been realized as of
December 31, 2009. Payments of Dealer Holdback and accelerated Dealer Holdback are not included in
the advance percentage paid to the Dealer-Partner. All amounts are presented as a percentage of
the initial balance of the Consumer Loan (principal + interest). The table includes both Dealer
Loans and Purchased Loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
Consumer Loan |
|
Forecasted |
|
|
|
|
|
|
|
|
|
% of Forecast |
Assignment Year |
|
Collection % |
|
Advance % |
|
Spread % |
|
Realized |
2000 |
|
|
72.5 |
% |
|
|
47.9 |
% |
|
|
24.6 |
% |
|
|
99.6 |
% |
2001 |
|
|
67.5 |
% |
|
|
46.0 |
% |
|
|
21.5 |
% |
|
|
99.2 |
% |
2002 |
|
|
70.4 |
% |
|
|
42.2 |
% |
|
|
28.2 |
% |
|
|
99.0 |
% |
2003 |
|
|
73.7 |
% |
|
|
43.4 |
% |
|
|
30.3 |
% |
|
|
98.8 |
% |
2004 |
|
|
73.1 |
% |
|
|
44.0 |
% |
|
|
29.1 |
% |
|
|
98.3 |
% |
2005 |
|
|
73.7 |
% |
|
|
46.9 |
% |
|
|
26.8 |
% |
|
|
97.8 |
% |
2006 |
|
|
70.3 |
% |
|
|
46.6 |
% |
|
|
23.7 |
% |
|
|
93.2 |
% |
2007 |
|
|
68.3 |
% |
|
|
46.5 |
% |
|
|
21.8 |
% |
|
|
77.2 |
% |
2008 |
|
|
70.0 |
% |
|
|
44.6 |
% |
|
|
25.4 |
% |
|
|
53.4 |
% |
2009 |
|
|
75.6 |
% |
|
|
43.9 |
% |
|
|
31.7 |
% |
|
|
21.4 |
% |
The risk of a material change in our forecasted collection rate declines as the Consumer Loans
age. For 2006 and prior Consumer Loan assignments, the risk of a material forecast variance is
modest, as we have currently realized in excess of 90% of the expected collections. Conversely,
the forecasted collection rate for 2007, 2008, and 2009 Consumer Loan assignments are less certain
as a significant portion of our forecast has not been realized.
The following table presents forecasted Consumer Loan collection rates, advance rates
(includes amounts paid to acquire Purchased Loans), and the spread (the forecasted collection rate
less the advance rate) as of December 31, 2009 for Purchased Loans and Dealer Loans separately:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loan |
|
Forecasted |
|
|
|
|
|
|
Assignment Year |
|
Collection % |
|
Advance % |
|
Spread % |
Purchased Loans |
|
|
2007 |
|
|
|
68.7 |
% |
|
|
48.7 |
% |
|
|
20.0 |
% |
|
|
|
2008 |
|
|
|
69.3 |
% |
|
|
46.4 |
% |
|
|
22.9 |
% |
|
|
|
2009 |
|
|
|
76.1 |
% |
|
|
45.8 |
% |
|
|
30.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealer Loans |
|
|
2007 |
|
|
|
68.3 |
% |
|
|
45.9 |
% |
|
|
22.4 |
% |
|
|
|
2008 |
|
|
|
70.5 |
% |
|
|
43.6 |
% |
|
|
26.9 |
% |
|
|
|
2009 |
|
|
|
75.5 |
% |
|
|
43.5 |
% |
|
|
32.0 |
% |
Although the advance rate on Purchased Loans is higher as compared to the advance rate on
Dealer Loans, Purchased Loans do not require us to pay Dealer Holdback. The increase in the spread
between the forecasted collection rate and the advance rate during 2008 and 2009 occurred as a
result of pricing changes implemented during the first nine months of 2008 and improving forecasted
collection rates during 2009. The positive impact of these two factors on the spread for 2009 was
partially offset by pricing changes implemented during the last four months of 2009.
24
Consumer Loan Volume
Our ability to maintain and grow Consumer Loan volume is impacted by our pricing strategy, the
number of Dealer-Partners actively participating in our programs, and the competitive environment.
The following table summarizes changes in Consumer Loan dollar and unit volume in each of the last
12 quarters as compared with the same period in the previous year:
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
Year over Year Percent Change |
Three Months Ended |
|
Dollar Volume |
|
Unit Volume |
March 31, 2007 |
|
|
41.1 |
% |
|
|
25.0 |
% |
June 30, 2007 |
|
|
43.9 |
% |
|
|
26.8 |
% |
September 30, 2007 |
|
|
2.2 |
% |
|
|
0.2 |
% |
December 31, 2007 |
|
|
23.3 |
% |
|
|
13.8 |
% |
March 31, 2008 |
|
|
28.5 |
% |
|
|
16.0 |
% |
June 30, 2008 |
|
|
40.6 |
% |
|
|
26.1 |
% |
September 30, 2008 |
|
|
27.5 |
% |
|
|
26.9 |
% |
December 31, 2008 |
|
|
-21.0 |
% |
|
|
-13.4 |
% |
March 31, 2009 |
|
|
-26.3 |
% |
|
|
-13.0 |
% |
June 30, 2009 |
|
|
-30.2 |
% |
|
|
-16.2 |
% |
September 30, 2009 |
|
|
-13.6 |
% |
|
|
-5.7 |
% |
December 31, 2009 |
|
|
2.1 |
% |
|
|
7.6 |
% |
Dollar and unit volume declined during the first three quarters of 2009 as compared to the
same periods in 2008 due to pricing changes implemented during the first nine months of 2008. The
growth in dollar and unit volume during the fourth quarter of 2009 was the result of pricing
changes implemented during the last four months of 2009 that reduced per unit profitability in
exchange for increased loan volume.
As a result of our success in renewing our debt facilities during the third quarter of 2009
and securing additional financing during the fourth quarter of 2009 and February 2010, we are now
in position to grow year over year unit volumes. We will continue to monitor unit volumes and will
make additional pricing changes with an objective to maximize economic profit given the capital we
have available. Future growth rates will depend on how unit volumes respond to pricing changes,
which will be influenced to a large degree by how quickly competition returns to our market.
Unit volume for the two months ended February 28, 2010 increased by
5.6% as compared to the same period in 2009.
25
The following tables summarize the changes in Consumer Loan unit volume and active
Dealer-Partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2009 |
|
2008 |
|
% change |
Consumer Loan unit volume |
|
|
111,029 |
|
|
|
121,282 |
|
|
|
-8.5 |
% |
Active Dealer-Partners (1) |
|
|
3,168 |
|
|
|
3,264 |
|
|
|
-2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average volume per active Dealer-Partner |
|
|
35.0 |
|
|
|
37.2 |
|
|
|
-5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loan unit volume from Dealer-Partners active both periods |
|
|
91,647 |
|
|
|
101,063 |
|
|
|
-9.3 |
% |
Dealer-Partners active both periods |
|
|
2,075 |
|
|
|
2,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average volume per Dealer-Partners active both periods |
|
|
44.2 |
|
|
|
48.7 |
|
|
|
-9.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loan unit volume from new Dealer-Partners |
|
|
18,789 |
|
|
|
21,659 |
|
|
|
-13.3 |
% |
New active Dealer-Partners (2) |
|
|
1,055 |
|
|
|
1,202 |
|
|
|
-12.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average volume per new active Dealer-Partners |
|
|
17.8 |
|
|
|
18.0 |
|
|
|
-1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Attrition (3) |
|
|
-16.7 |
% |
|
|
-10.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2008 |
|
2007 |
|
% change |
Consumer Loan unit volume |
|
|
121,282 |
|
|
|
106,693 |
|
|
|
13.7 |
% |
Active Dealer-Partners (1) |
|
|
3,264 |
|
|
|
2,827 |
|
|
|
15.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average volume per active Dealer-Partner |
|
|
37.2 |
|
|
|
37.7 |
|
|
|
-1.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loan unit volume from Dealer-Partners active both periods |
|
|
99,176 |
|
|
|
95,067 |
|
|
|
4.3 |
% |
Dealer-Partners active both periods |
|
|
2,020 |
|
|
|
2,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average volume per Dealer-Partners active both periods |
|
|
49.1 |
|
|
|
47.1 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loan unit volume from new Dealer-Partners |
|
|
21,659 |
|
|
|
19,914 |
|
|
|
8.8 |
% |
New active Dealer-Partners (2) |
|
|
1,202 |
|
|
|
1,162 |
|
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average volume per new active Dealer-Partners |
|
|
18.0 |
|
|
|
17.1 |
|
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Attrition (3) |
|
|
-10.9 |
% |
|
|
-10.5 |
% |
|
|
|
|
|
|
|
(1) |
|
Active Dealer-Partners are Dealer-Partners who have received funding for at least one
Loan during the period. |
|
(2) |
|
New active Dealer-Partners are Dealer-Partners who enrolled in our program and have
received funding for their first Loan from us during the periods presented. |
|
(3) |
|
Attrition is measured according to the following formula: decrease in Consumer Loan
unit volume from Dealer-Partners who have received funding for at least one Loan during the
comparable period of the prior year but did not receive funding for any Loans during the
current period divided by prior year comparable period Consumer Loan unit volume. |
Consumer Loans are assigned to us through either our Portfolio Program or our Purchase
Program. The following table summarizes the portion of our Consumer Loan volume that was assigned
to us through our Purchase Program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2009 |
|
2008 |
|
2007 |
New Purchased Loan unit volume as a percentage of total unit volume |
|
|
13.4 |
% |
|
|
29.8 |
% |
|
|
17.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
New Purchased Loan dollar volume as a percentage of total dollar volume |
|
|
16.2 |
% |
|
|
34.8 |
% |
|
|
19.6 |
% |
For the year ended December 31, 2009, new Purchased Loan unit and dollar volume as a
percentage of total unit and dollar volume, respectively, decreased as compared to 2008 due to
pricing changes implemented during 2008. For the year ended
December 31, 2008, new Purchased Loan unit and dollar volume as a percentage of total unit and
dollar volume, respectively, increased as compared to 2007 as the Purchase Program was offered to
additional Dealer-Partners.
As of December 31, 2009 and 2008, the net Purchased Loan receivable balance was 27.5% and
30.3%, respectively, of the total net Loans receivable balance.
26
Results of Operations
The following is a discussion of our results of operations and income statement data on a
consolidated basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
% Change |
|
|
|
December 31, |
|
|
2009 to |
|
|
2008 to |
|
(Dollars in thousands, except per share data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance charges |
|
$ |
329,437 |
|
|
$ |
286,823 |
|
|
$ |
220,473 |
|
|
|
14.9 |
% |
|
|
30.1 |
% |
Premiums earned |
|
|
33,605 |
|
|
|
3,967 |
|
|
|
361 |
|
|
|
747.1 |
% |
|
|
998.9 |
% |
Other income |
|
|
17,622 |
|
|
|
21,396 |
|
|
|
19,093 |
|
|
|
-17.6 |
% |
|
|
12.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
380,664 |
|
|
|
312,186 |
|
|
|
239,927 |
|
|
|
21.9 |
% |
|
|
30.1 |
% |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
|
66,893 |
|
|
|
68,993 |
|
|
|
55,396 |
|
|
|
-3.0 |
% |
|
|
24.5 |
% |
General and administrative |
|
|
30,391 |
|
|
|
27,536 |
|
|
|
27,202 |
|
|
|
10.4 |
% |
|
|
1.2 |
% |
Sales and marketing |
|
|
14,808 |
|
|
|
16,776 |
|
|
|
17,493 |
|
|
|
-11.7 |
% |
|
|
-4.1 |
% |
Provision for credit losses |
|
|
(12,164 |
) |
|
|
46,029 |
|
|
|
19,947 |
|
|
|
-126.4 |
% |
|
|
130.8 |
% |
Interest |
|
|
32,399 |
|
|
|
43,189 |
|
|
|
36,669 |
|
|
|
-25.0 |
% |
|
|
17.8 |
% |
Provision for claims |
|
|
19,299 |
|
|
|
2,651 |
|
|
|
39 |
|
|
|
628.0 |
% |
|
|
6697.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
151,626 |
|
|
|
205,174 |
|
|
|
156,746 |
|
|
|
-26.1 |
% |
|
|
30.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income taxes |
|
|
229,038 |
|
|
|
107,012 |
|
|
|
83,181 |
|
|
|
114.0 |
% |
|
|
28.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
82,992 |
|
|
|
39,944 |
|
|
|
29,567 |
|
|
|
107.8 |
% |
|
|
35.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
146,046 |
|
|
|
67,068 |
|
|
|
53,614 |
|
|
|
117.8 |
% |
|
|
25.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued United Kingdom operations |
|
|
137 |
|
|
|
307 |
|
|
|
(562 |
) |
|
|
-55.4 |
% |
|
|
-154.6 |
% |
(Credit) provision for income taxes |
|
|
(72 |
) |
|
|
198 |
|
|
|
(1,864 |
) |
|
|
-136.4 |
% |
|
|
-110.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from discontinued operations |
|
|
209 |
|
|
|
109 |
|
|
|
1,302 |
|
|
|
91.7 |
% |
|
|
-91.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
146,255 |
|
|
$ |
67,177 |
|
|
$ |
54,916 |
|
|
|
117.7 |
% |
|
|
22.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.78 |
|
|
$ |
2.22 |
|
|
$ |
1.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
4.62 |
|
|
$ |
2.16 |
|
|
$ |
1.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.77 |
|
|
$ |
2.22 |
|
|
$ |
1.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
4.61 |
|
|
$ |
2.16 |
|
|
$ |
1.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from discontinued operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
30,590,142 |
|
|
|
30,249,783 |
|
|
|
30,053,129 |
|
|
|
|
|
|
|
|
|
Diluted |
|
|
31,668,895 |
|
|
|
31,105,043 |
|
|
|
31,153,688 |
|
|
|
|
|
|
|
|
|
27
Continuing Operations
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
The following table highlights changes for the year ended December 31, 2009, as compared to
2008:
|
|
|
|
|
|
|
Year Ended |
|
|
December 31, 2009 |
Average outstanding balance of Loan portfolio |
|
|
7.3 |
% |
|
|
|
|
|
Finance charges |
|
|
14.9 |
% |
|
|
|
|
|
Premiums earned, net of provision for claims |
|
|
987.1 |
% |
|
|
|
|
|
Operating expenses |
|
|
-1.1 |
% |
|
|
|
|
|
Provision for credit losses |
|
|
-126.4 |
% |
|
|
|
|
|
Interest expense |
|
|
-25.0 |
% |
|
|
|
|
|
Income from continuing operations |
|
|
117.8 |
% |
Income from continuing operations increased for the year ended December 31, 2009 primarily due
to the following:
|
|
|
decreased provision for credit losses due to an improvement in the performance of our
Loan portfolio; |
|
|
|
|
increased finance charges due primarily to an increase in the average yield on our Loan
portfolio and an increase in the average outstanding balance of our Loan portfolio; |
|
|
|
|
decreased interest expense due to a reduction in the average outstanding debt balance and
a reduction in market rates on our floating rate outstanding debt; and |
|
|
|
|
increased premiums earned, net of provision for claims, due to the formation of VSC Re
during the fourth quarter of 2008. |
VSC Re earnings are recognized on an accrual basis and recorded as premiums earned less
premium tax and provision for claims. Previously, earnings on vehicle service contracts, excluding
our commissions, were recorded as other income and realized when profit sharing payments were
received from third party administrators. The following table shows the after-tax earnings from
VSC Re and profit sharing payments received and recorded as other income for the years ended
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
Premiums earned less premium tax and provision for claims (after tax) |
|
$ |
8,814 |
|
|
$ |
754 |
|
Earnings from profit sharing payments (after tax) |
|
|
74 |
|
|
|
1,928 |
|
|
|
|
|
|
|
|
|
|
$ |
8,888 |
|
|
$ |
2,682 |
|
|
|
|
|
|
|
|
The financial results from VSC Re for the year ended December 31, 2009 include $2.1 million of
after-tax earnings related to a revision in our timing used to recognize premiums earned. During
the third quarter of 2009, we revised our timing in order to better match the timing of our revenue
recognition with our expected costs of servicing our vehicle service contracts, which is based on
our historical claims experience.
Finance Charges. For the year ended December 31, 2009, finance charges increased $42.6
million, or 14.9%, as compared to 2008. The increase was primarily the result of:
|
|
|
An increase in the average yield on our Loan portfolio resulting from pricing
changes implemented during the first nine months of 2008, partially offset by pricing
changes implemented during the fourth quarter of 2009, and an increase in
forecasted collection rates during 2009. For the years ended December 31, 2009 and 2008, the
average yield on our Loan portfolio was 31.4% and 28.5%, respectively. |
|
|
|
|
An increase in the average Loans receivable balance due to growth of 13.3% in new Loan
dollar volume during 2008, partially offset by a 20.9% decline in new Loan dollar volume
during 2009. |
Premiums Earned and Provision for Claims. For the year ended December 31, 2009, premiums
earned and provision for claims increased $29.6 million and $16.6 million, respectively, as
compared to 2008. The increases were the result of our formation of VSC Re during the fourth
quarter of 2008.
28
We formed VSC Re in order to enhance our control over and the security in the trust assets
that are used to pay future vehicle service contract claims. Prior to October 31, 2009, VSC Re
reinsured vehicle service contracts that were underwritten by two of our three third party
insurers. Effective October 31, 2009, we terminated our arrangement with one of our three third
party insurers. VSC Re currently reinsures vehicle service contracts that are underwritten by one
of our two third party insurers. Premiums from the reinsurance of vehicle service contracts are
recognized over the life of the policy in proportion to expected costs of servicing those
contracts. Expected costs are determined based on historical claims experience. A provision for
claims is recognized in the period the claims are incurred. The amount of income we earn from the
vehicle service contracts over time is not expected to be impacted by the formation of VSC Re, as
both before and after the formation, the income we recognize, excluding our commissions, is based
on the amount by which vehicle service contract premiums exceed claims. However, the formation of
VSC Re impacts the timing of income recognition and the income statement presentation. Prior to
the formation of VSC Re, our agreements with vehicle service contract TPAs allowed us to receive
profit sharing payments depending upon the performance of the vehicle service contract programs.
Profit sharing payments were received periodically, primarily during the first quarter of each
year, and were recognized on a net basis (premiums earned less claims incurred) as other income in
the period received.
Premiums earned for the year ended December 31, 2009 include $3.5 million of revenue related
to a revision in our revenue recognition timing. We revised our revenue recognition timing in
order to better match the timing with our expected costs of servicing those contracts.
Other Income. For the year ended December 31, 2009, other income decreased $3.8 million, or
17.6%, as compared to 2008. The decrease was primarily the result of:
|
|
|
The formation of VSC Re, as discussed above, which eliminated the profit sharing
arrangements related to vehicle service contracts, except for vehicle service contracts
written prior to 2008 through one of the TPAs. For the year ended December 31, 2008, we
earned $3.1 million related to vehicle service contract profit sharing payments compared to
$0.1 million for the same period in 2009. |
|
|
|
|
Decreased interest income on restricted cash related to the secured financings due to a
decrease in interest rates earned on cash investments relating to secured financing
transactions and a decrease in the average outstanding balance. For the year ended
December 31, 2008, we earned $1.4 million in interest income related to secured financings
compared to $0.2 million for the same period in 2009. |
|
|
|
|
Decreased GAP profit sharing payments resulting from an increase
in GAP claims paid as a percentage of premiums written. For the year ended December 31,
2008, we received $0.7 million in GAP profit sharing payments compared to $0.1 million for
the same period in 2009. |
Salaries and Wages. For the year ended December 31, 2009, salaries and wages expense
decreased $2.1 million, or 3.0%, as compared to 2008. The decrease was primarily the result of:
|
|
|
A decrease of $2.4 million in salaries and wages related to Information Technology. |
|
|
|
|
An increased percentage of Loan underwriting costs being deferred due to an increase in
Dealer Loan unit volume as a percentage of total unit volume. For Dealer Loans, certain
underwriting costs are considered Dealer Loan origination costs and are deferred and
expensed over the life of the Dealer Loan as an adjustment to finance charge revenue while,
for Purchased Loans, all underwriting costs are expensed immediately. Since Dealer Loans
represent a larger proportion of total unit volume during 2009 as compared to the same
period in prior year, the deferral was higher for the year ended December 31, 2009, as
compared to 2008. Deferring the same proportion of underwriting costs during the year ended
December 31, 2009 would have increased salaries and wages by approximately $2.2 million;
partially offset by |
|
|
|
|
An increase of $2.2 million related to stock-based compensation primarily due to the
grant of restricted stock awards during 2009. |
General and Administrative. For the year ended December 31, 2009, general and administrative
expense increased $2.9 million, or 10.4%, as compared to 2008 primarily resulting from (1)
increased legal costs and (2) expenses related to the ongoing examination by the Internal Revenue
Service.
Sales and Marketing. For the year ended December 31, 2009, sales and marketing expense
decreased $2.0 million, or 11.7%, as compared to 2008. The decrease was primarily due to lower
sales commissions reflecting a decrease of 8.5% in Consumer Loan unit volume for the year ended
December 31, 2009 and the discontinuance of certain Dealer-Partner support programs and lower
utilization of various other Dealer-Partner programs.
Provision for Credit Losses. For the year ended December 31, 2009, the provision for credit
losses decreased $58.2 million, or 126.4%, as compared to 2008. The decrease was the result of an
improvement in the performance of our Loan portfolio. During the
29
year ended December 31, 2009,
forecasted collection rates increased on previously impaired Loan pools and as a result, a portion
of this increase was recognized as a reversal of previously recorded provision for credit losses.
During the second quarter of 2008, as a result of lower than expected realized collection rates, we
reduced estimated future net cash flows by $22.2 million, or 1.7% of the total undiscounted net
cash flow stream expected from our Loan portfolio, which resulted in a provision for credit losses
of $20.8 million. During the fourth quarter of 2008, we reduced estimated future net cash flows by
an additional $9.5 million, or 0.7% of the total undiscounted net cash flow stream expected from
our Loan portfolio. In addition, during the fourth quarter of 2008, we revised the estimated
timing of future collections to reflect reduced prepayment expectations as a result of recent
trends. The fourth quarter of 2008 forecast modifications resulted in a provision for credit
losses of $10.6 million. For additional information regarding the changes in forecasted collection
rates during 2009 and 2008, see discussions of Consumer Loan Performance and Critical Accounting
Estimates in this Item 7 of this Form 10-K.
Interest. For the year ended December 31, 2009, interest expense decreased $10.8 million, or
25.0%, as compared to 2008. The following table shows interest expense, the average outstanding
debt balance and the pre-tax average cost of debt for the years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
(Dollars in thousands) |
|
2009 |
|
2008 |
Interest expense |
|
$ |
32,399 |
|
|
$ |
43,189 |
|
|
|
|
|
|
|
|
|
|
Average outstanding debt balance |
|
$ |
575,482 |
|
|
$ |
660,804 |
|
|
|
|
|
|
|
|
|
|
Pre-tax average cost of debt |
|
|
5.6 |
% |
|
|
6.5 |
% |
For the year ended December 31, 2009, the decrease in interest expense was due to a
reduction in the average outstanding debt balance and a reduction in our pre-tax average cost of
debt due to reductions in market rates. The reductions in market rates were slightly offset by
less favorable pricing on our revolving credit facilities.
Provision for Income Taxes. For the year ended December 31, 2009, the effective tax rate
decreased to 36.2%, from 37.3% in 2008. The decrease was primarily due to the decrease in the
reserve for uncertain tax positions recorded during the third and fourth quarters of 2009.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
The following table highlights changes for the year ended December 31, 2008, as compared to
2007:
|
|
|
|
|
|
|
Year Ended |
|
|
December 31, 2008 |
Average outstanding balance of Loan portfolio |
|
|
33.8 |
% |
|
|
|
|
|
Finance charges |
|
|
30.1 |
% |
|
|
|
|
|
Premiums earned, net of provision for claims |
|
|
308.7 |
% |
|
|
|
|
|
Operating expenses |
|
|
13.2 |
% |
|
|
|
|
|
Provision for credit losses |
|
|
130.8 |
% |
|
|
|
|
|
Interest expense |
|
|
17.8 |
% |
|
|
|
|
|
Income from continuing operations |
|
|
25.1 |
% |
Income from continuing operations increased for the year ended December 31, 2008 primarily due
to the following:
|
|
|
Increased finance charges due primarily to an increase in the average outstanding balance
of our Loan portfolio, partially offset by a decrease in the average yield on our Loan
portfolio; and |
|
|
|
|
Increased premiums earned, net of provision for claims, due to the formation of VSC Re
during the fourth quarter of 2008. |
30
These increases were partially offset by:
|
|
|
Increased provision for credit losses resulting from reductions in forecasted collection
rates during the second and fourth quarters of 2008; |
|
|
|
|
Increased interest expense due to an increase in the average outstanding debt balance
partially offset by a reduction in our pre-tax average cost of debt; and |
|
|
|
|
Increased operating expenses primarily related to salaries and wages. |
Finance Charges. For the year ended December 31, 2008, finance charges increased $66.4
million, or 30.1%, as compared to 2007. The increase was primarily the result of an increase in
the average outstanding balance of our Loan portfolio due to an increase in the number of active
Dealer-Partners partially offset by a reduction in volume per active Dealer-Partner; partially
offset by a decrease in the average yield on our Loan portfolio primarily due to declining Loan
performance partially offset by more attractive pricing on 2008 originations. For the years ended
December 31, 2008 and 2007, the average yield on our Loan portfolio was 28.4% and 29.6%,
respectively.
Premiums Earned and Provision for Claims. For the year ended December 31, 2008, premiums
earned and provision for claims increased $3.6 million and $2.6 million, respectively. During the
fourth quarter of 2008, we formed VSC Re in order to enhance our control and the security of the
trust assets that are used to pay future vehicle service contract claims. During 2008, VSC Re
reinsured vehicle service contracts that were underwritten by two of our three third party
insurers. Our financial results for the year ended December 31, 2008 reflect two months of VSC Re
activity, including $3.9 million in premiums earned and $2.7 million in provision for claims.
Other Income. For the year ended December 31, 2008, other income increased $2.3 million, or
12.1%, as compared to 2007. The increase was primarily the result of increased periodic vehicle
service contract and GAP profit sharing payments received during the year from third party vehicle
service contract and guaranteed asset protection providers. Since we had only received these
payments since 2007, the amounts of these payments were not estimable due to a lack of historical
information. As a result, the revenue related to these payments was recognized in the period the
payments were received. For the year ended December 31, 2008 we received a total of $3.7 million
in vehicle service contract and GAP profit sharing payments compared to $1.2 million in payments
received in 2007.
Salaries and Wages. For the year ended December 31, 2008, salaries and wages expense
increased $13.6 million, or 24.5%, as compared to 2007. The increase was primarily a result of:
|
|
|
An increase of $6.6 million related to our support functions. This increase was
primarily related to increases in Information Technology, Analytics, and Finance to support
current and expected future growth. |
|
|
|
|
An increase of $5.1 million related to our servicing functions primarily due to the 33.8%
increase in the average outstanding balance of our Loan portfolio. |
|
|
|
|
An increase of $2.1 million related to our originations functions due to a decreased
percentage of Loan underwriting costs being deferred due to a decrease in Dealer Loan unit
volume as a percentage of total unit volume. For Dealer Loans, certain underwriting costs
are considered Dealer Loan origination costs and are deferred and expensed over the life of
the Dealer Loan as an adjustment to finance charge revenue while, for Purchased Loans, all
underwriting costs are expensed immediately. Since Dealer Loans represent a smaller
proportion of total unit volume during 2008 as compared to the same period in prior year,
the deferral was smaller for the year ended December 31, 2008, as compared to 2007.
Deferring the same proportion of underwriting costs during the year ended December 31, 2008
would have decreased salaries and wages by approximately $1.4 million. |
Sales and Marketing. For the year ended December 31, 2008, sales and marketing expense
decreased $0.7 million, or 4.1%, as compared to 2007. The decrease was primarily due to the
discontinuance of certain Dealer-Partner support programs, lower utilization of various other
Dealer-Partner programs, and the elimination of our national Dealer-Partner convention during 2008.
These decreases were offset by an increase in sales commissions reflecting an increase of 13.7% in
Consumer Loan unit volume for the year ended December 31, 2008.
Provision for Credit Losses. For the year ended December 31, 2008, the provision for credit
losses increased $26.1 million, or 130.8%, as compared to 2007. The increase was primarily due to
reductions in our forecasted collection rates during the second and fourth quarters of 2008 as a
result of lower than expected realized collection rates during these periods. During the second
quarter of 2008, we reduced estimated future net cash flows by $22.2 million, or 1.7% of the total
undiscounted net cash flow stream expected from our Loan portfolio, which resulted in a provision
for credit losses of $20.8 million. During the fourth quarter of 2008, we reduced estimated future
net cash flows by an additional $9.5 million, or 0.7% of the total undiscounted net cash flow
stream expected from our Loan portfolio. In addition, during the fourth quarter of 2008, we
revised the estimated timing of future collections to reflect declining trends in Consumer Loan
prepayments. The fourth quarter of 2008 forecast modifications resulted in
31
a provision for credit losses of $10.6 million. For additional information regarding the
reduction in forecasted collection rates, see discussions of Consumer Loan Performance and Critical
Accounting Estimates in this Item 7 of this Form 10-K.
Interest. For the year ended December 31, 2008, interest expense increased $6.5 million, or
17.8%, as compared to 2007. The following table shows interest expense, the average outstanding
debt balance and the pre-tax average cost of debt for the years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
(Dollars in thousands) |
|
2008 |
|
2007 |
Interest expense |
|
$ |
43,189 |
|
|
$ |
36,669 |
|
|
|
|
|
|
|
|
|
|
Average outstanding debt balance |
|
$ |
660,804 |
|
|
$ |
469,704 |
|
|
|
|
|
|
|
|
|
|
Pre-tax average cost of debt |
|
|
6.5 |
% |
|
|
7.8 |
% |
The increase in interest expense was primarily the result of an increase in the average
outstanding debt balance from borrowings used to fund new Loans, offset by a reduction in our
pre-tax average cost of debt due to reductions in market rates.
Provision for Income Taxes. For the year ended December 31, 2008, the effective tax rate
increased to 37.3%, from 35.6% in the same period of 2007. The increase was primarily due to a
decrease in our reserve for uncertain tax positions recorded in 2007.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP). The preparation of these financial
statements requires management to make estimates and judgments that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, we review our accounting policies, assumptions, estimates and judgments to
ensure that our financial statements are presented fairly and in accordance with GAAP.
Our significant accounting policies are discussed in Note 2 to the consolidated financial
statements contained in Item 8 of this Form 10-K, which is incorporated herein by reference. We
believe that the following accounting estimates are the most critical to aid in fully understanding
and evaluating our reported financial results, and involve a high degree of subjective or complex
judgment, and the use of different estimates or assumptions could produce materially different
financial results.
Finance Charge Revenue & Allowance for Credit Losses
|
|
|
Balance Sheet Captions:
|
|
Loans receivable |
|
|
|
|
|
Allowance for credit losses |
|
|
|
Income Statement Captions:
|
|
Finance charges |
|
|
|
|
|
Provision for credit losses |
|
|
|
Nature of Estimates Required:
|
|
Estimating the amount and timing of future collections and
Dealer Holdback payments. |
|
|
|
Assumptions and Approaches Used:
|
|
For accounting purposes, we are not considered to be an
originator of Consumer Loans, but instead are considered to be a lender to our
Dealer-Partners for Consumer Loans assigned under our Portfolio Program, and a purchaser
of Consumer Loans assigned under our Purchase Program. As a result of this
classification, our accounting policies for recognizing finance charge revenue and
determining our allowance for credit losses may be different from other lenders in our
market, who, based on their different business models, may be considered to be a direct
lender to consumers for accounting purposes. For additional information regarding our
classification as a lender to our Dealer-Partners for accounting purposes, see Note 1 to
the consolidated financial statements contained in Item 8 of this Form 10-K, which is
incorporated herein by reference. |
|
|
|
|
|
We recognize finance charges under the interest
method such that revenue is recognized on a level-yield basis
based upon forecasted cash flows. For |
32
|
|
|
|
|
Dealer Loans, finance charge revenue and the allowance for
credit losses are calculated after first aggregating Dealer
Loans outstanding for each Dealer-Partner. For the same
purpose, Purchased Loans are aggregated according to the month
the Loan was purchased. An allowance for credit losses is
maintained at an amount that reduces the net asset value (Loan
balance less the allowance) to the value of forecasted future
cash flows discounted at the yield established at the
inception of the Loan (origination date for a Dealer Loan or
purchase date for a Purchased Loan). The discounted value of
future cash flows is comprised of estimated future collections
on the Loans, less any estimated Dealer Holdback payments
related to Dealer Loans. We write off Loans once there are no
forecasted future collections on any of the associated
Consumer Loans. |
|
|
|
|
|
Cash flows from any individual Dealer Loan or pool of
Purchased Loans are often different than estimated cash flows
at Loan inception. If such difference is favorable, the
difference is recognized prospectively into income over the
remaining life of the Dealer Loan or pool of Purchased Loans
through a yield adjustment. If such difference is
unfavorable, a provision for credit losses is recorded
immediately as a current period expense and a corresponding
allowance for credit losses is established. Because
differences between estimated cash flows at inception and
actual cash flows occur often, an allowance is required for a
significant portion of our Loan portfolio. An allowance for
credit losses does not necessarily indicate that a Dealer Loan
or pool of Purchased Loans is unprofitable, and in recent
years, very seldom are cash flows from a Dealer Loan or pool
of Purchased Loans insufficient to repay the initial amounts
advanced or paid to the Dealer-Partner. |
|
|
|
|
|
Future collections on Dealer and Purchased Loans are
forecasted based on the historical performance of Consumer
Loans with similar characteristics, adjusted for recent trends
in payment patterns. Dealer Holdback is forecasted based on
the expected future collections and current advance balance of
each Dealer Loan. During the first quarter of 2008, we
implemented a new methodology for forecasting future
collections on Consumer Loans. The new methodology increased
the dollar amount of overall forecasted collections by 0.3%.
While the new methodology produces overall collection rates
that are very similar to those produced by the prior
methodology, the new methodology utilizes a more sophisticated
approach which allows us to expand the number of variables on
which the forecast is based. As a result, we believe the new
forecast improves the precision of our estimates in two
respects: (i) the new forecast is believed to be more accurate
when applied to a smaller group of Consumer Loans, which
allows us to forecast more accurately at the dealer pool level
and more precisely measure the performance of specific
segments of our portfolio and (ii) the new forecast is
believed to be more sensitive to changes in Consumer Loan
performance and will allow us to react more quickly to changes
in Consumer Loan performance. Implementation of the new
methodology resulted in a reversal of $3.4 million in
provision for credit losses as higher forecasted collections
reduced the amount of Loan impairment. In conjunction with
our implementation of the new forecasting methodology, we
reevaluated our forecast of future collections on old,
fully-reserved Dealer Loans. As a result, we wrote off $22.7
million of Dealer Loans and the related allowance for credit
losses as we were no longer forecasting any future collections
on these Dealer Loans. This write-off had no impact on net
income for the first quarter of 2008 as all of these Dealer
Loans were fully-reserved. |
|
|
|
|
|
Our forecast of future collections prior to the second quarter
of 2008 assumed that Consumer Loans within our current
portfolio would produce similar collection rates as produced
by historical Consumer Loans with the same attributes. During
the second quarter of 2008, we modified our forecast to assume
that Consumer Loans assigned during 2006, 2007 and 2008 would
perform 100 to 300 basis points lower than historical Consumer
Loans with the same attributes. As a result, we reduced our
estimate of future cash flows by $22.2 million, or 1.7% of the
total |
33
|
|
|
|
|
undiscounted cash flow stream expected from our Loan
portfolio. Of the total reduction, $20.8 million was recorded
as provision for credit losses during the second quarter of
2008. We did not modify our forecast related to 2005 and
prior Consumer Loans as these Consumer Loans continued to
perform as expected. |
|
|
|
|
|
During the fourth quarter of 2008, we again realized lower
than expected collection rates and as a result implemented an
additional modification to our forecasting methodology. This
modification reduced estimated future net cash flows by $9.5
million, or 0.7% of the total undiscounted cash flow stream
expected from our Loan portfolio. The adjustment impacted
only Consumer Loans assigned during the fourth quarter of 2007
and during 2008. Forecasted collection rates on Consumer
Loans assigned on or before September 30, 2007 were not
modified as collection results during the fourth quarter of
2008 were consistent with our expectations. In addition,
during the fourth quarter of 2008, we revised the estimated
timing of future collections to reflect declining trends in
Consumer Loan prepayments. During 2008, we experienced a
reduction in prepayments, which typically result from payoffs
that occur when consumers reestablish a positive credit
history, trade-in their vehicle, and finance another vehicle
purchase with a more traditional auto loan. As the
availability of traditional financing was curtailed during
this period as a result of economic conditions, prepayment
rates had declined. As a result of these forecast
modifications, we recognized a provision for credit losses of
$10.6 million during the fourth quarter of 2008. |
|
|
|
Key Factors:
|
|
Variances in the amount and timing of future collections and Dealer
Holdback payments from current estimates could materially impact earnings in future
periods. |
|
|
|
|
|
A 1% decline in the forecasted future net cash flows on Loans
at December 31, 2009 would have reduced 2009 net income by
approximately $3.8 million. |
Premiums Earned
|
|
|
Balance Sheet Captions:
|
|
Accounts payable and accrued liabilities |
|
|
|
Income Statement Caption:
|
|
Premiums earned |
|
|
|
Nature of Estimates Required:
|
|
Estimating the pattern of future claims on vehicle service contracts. |
|
|
|
Assumptions and Approaches Used:
|
|
Premiums from the reinsurance of vehicle service contracts
are recognized over the life of the policy in proportion to the expected costs of
servicing those contracts. Expected costs are determined based on our historical claims
experience. In developing our cost expectations, we stratify our historical claims
experience into groupings based on contractual term, as this characteristic has led to
different patterns of cost incurrence in the past. We will continue to update our
analysis of historical costs under the vehicle service contract program as appropriate,
including the consideration of other characteristics that may have led to different
patterns of cost incurrence, and revise our revenue recognition timing for any changes in
the pattern of our expected costs as they are identified. |
|
|
|
|
|
Premiums earned for the year ended December 31, 2009 include
$3.5 million of revenue related to a revision in our revenue
recognition timing. We revised our revenue recognition timing
during the third quarter of 2009 in order to better match the
timing with our expected costs of servicing those contracts. |
|
|
|
Key Factors:
|
|
Variances in the pattern of future claims
from our current estimates would impact
the timing of premiums recognized in
future periods. A 10% change in premiums
earned for the year ended December 31,
2009 would have affected 2009 net income
by approximately $2.1 million. |
34
Stock-Based Compensation Expense
|
|
|
Balance Sheet Caption:
|
|
Paid-in capital |
|
|
|
Income Statement Caption:
|
|
Salaries and Wages |
|
|
|
Nature of Estimates Required:
|
|
Stock-based compensation expense is based on the fair value on
the date the equity instrument is granted or awarded by us, and is recognized over the
expected vesting period of the equity instrument. We also estimate expected forfeiture
rates of restricted stock awards. |
|
|
|
Assumptions and Approaches Used:
|
|
In recognizing restricted stock compensation expense, we make
assumptions regarding the expected forfeiture rates of the restricted stock awards. We
also make assumptions regarding the expected vesting dates of performance-based
restricted stock awards. |
|
|
|
|
|
The fair value of restricted stock awards are estimated as if
they were vested and issued on the grant date and are
recognized over the expected vesting period of the restricted
stock award. For additional information, see Notes 2 and 11
to the consolidated financial statements contained in Item 8
of this Form 10-K, which are incorporated herein by reference. |
|
|
|
Key Factors:
|
|
Changes in the expected vesting dates of performance-based restricted
stock awards and expected forfeiture rates would impact the amount and timing of
stock-based compensation expense recognized in future periods. A 10% change in
stock-based compensation expense for the year ended December 31, 2009 would have affected
2009 net income by approximately $0.4 million. |
Litigation and Contingent Liabilities
|
|
|
Balance Sheet Caption:
|
|
Accounts payable and accrued liabilities |
|
|
|
Income Statement Caption:
|
|
General and administrative expense |
|
|
|
Nature of Estimates Required:
|
|
Estimating the likelihood of adverse legal judgments and any
resulting damages owed. |
|
|
|
Assumptions and Approaches Used:
|
|
With assistance from our legal counsel, we determine if the
likelihood of an adverse judgment for various claims and litigation is remote, reasonably
possible, or probable. To the extent we believe an adverse judgment is probable and the
amount of the judgment is estimable, we recognize a liability. For information regarding
the potential various claims against us, see Note 13 to the consolidated financial
statements contained in Item 8 of this Form 10-K, which is incorporated herein by
reference. |
|
|
|
Key Factors:
|
|
Negative variances in the ultimate disposition of claims and litigation
outstanding from current estimates could result in additional expense in future periods. |
35
Uncertain Tax Positions
|
|
|
Balance Sheet Captions:
|
|
Income taxes receivable |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
Income Statement Caption:
|
|
Provision for income taxes |
|
|
|
Nature of Estimates Required:
|
|
Estimating the impact of an uncertain income tax position on the
income tax return. |
|
|
|
Assumptions and Approaches Used:
|
|
We follow a two-step approach for recognizing uncertain tax
positions. First, we evaluate the tax position for recognition by determining if the
weight of available evidence indicates it is more-likely-than-not that the position will
be sustained upon examination, including resolution of related appeals or litigation
processes, if any. Second, for positions that we determine are more-likely-than-not to
be sustained, we recognize the tax benefit as the largest benefit that has a greater than
50% likelihood of being sustained. We establish a liability for unrecognized tax
benefits and related interest and penalties. We adjust this liability in the period in
which an uncertain tax position is effectively settled, the statute of limitations
expires for the relevant taxing authority to examine the tax position, or more
information becomes available. For additional information, see Note 10 to the
consolidated financial statements contained in Item 8 of this Form 10-K, which is
incorporated herein by reference. |
|
|
|
Key Factors:
|
|
To the extent we prevail in matters for which a liability has been
established or are required to pay amounts in excess of our established liability, our
effective income tax rate in future periods could be materially affected. |
36
Liquidity and Capital Resources
We need capital to fund new Loans and pay Dealer Holdback. Our primary sources of capital are
cash flows from operating activities, collections of Consumer Loans and borrowings under: (1) a
revolving secured line of credit with a commercial bank syndicate; (2) revolving secured warehouse
facilities with institutional investors; (3) asset-backed secured financings with qualified
institutional investors; and (4) Senior Secured Notes due 2017. There are various restrictive debt
covenants for each financing arrangement and we are in compliance with those covenants as of
December 31, 2009. For information regarding these financings and the covenants included in the
related documents, see Note 7 to the consolidated financial statements contained in Item 8 of this
Form 10-K, which is incorporated herein by reference.
During the fourth quarter of 2009, we completed a $110.5 million asset-backed secured
financing, and on February 1, 2010, we issued $250.0 million of Senior Notes. The net proceeds
from these financings were used to repay outstanding indebtedness under our revolving credit
facility and our $325.0 million secured warehouse facility. After these repayments, we have over
$450.0 million in available borrowing capacity. Our first priority is to ensure we have the
available capacity to fund expected new Consumer Loan assignments. While the successful completion
of these financings will improve our position in that regard, we intend to continue to work to (1)
secure additional borrowing capacity, (2) increase the diversity of our funding sources, and (3)
extend the term of one or more of our revolving credit facility and our revolving secured warehouse
facilities. To the extent we determine our ability to fund expected new Consumer Loan assignments
has been effectively provided for, we may then consider share repurchases or cash dividends, for
which borrowed funds could be used if then available.
Cash and cash equivalents decreased to $2.2 million as of December 31, 2009 from $3.2 million
at December 31, 2008. Our total balance sheet indebtedness decreased to $507.0 million at December
31, 2009 from $641.7 million at December 31, 2008 as the net cash provided by our operating
activities and principal collections from our Loan portfolio exceeded the cash used to fund new
Loans.
Restricted cash and cash equivalents increased to $82.5 million at December 31, 2009 from
$80.3 million at December 31, 2008. The following table summarizes restricted cash and cash
equivalents:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Cash collections related to secured financings |
|
$ |
42,115 |
|
|
$ |
48,956 |
|
Cash held in trusts for future vehicle service
contract claims (1) |
|
|
40,341 |
|
|
|
31,377 |
|
|
|
|
|
|
|
|
Total restricted cash and cash equivalents |
|
$ |
82,456 |
|
|
$ |
80,333 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The unearned premium and claims reserve associated with the trusts are included in accounts
payable and accrued liabilities in the
consolidated balance sheets. |
As of December 31, 2009 and 2008, restricted securities available for sale were $3.1
million and $3.3 million, respectively. Restricted securities available for sale consist of
amounts held in accordance with vehicle service contract trust agreements.
Senior Notes
The Senior Notes were issued pursuant to an indenture, dated as of February 1, 2010 (the
Indenture), among the Company; our wholly-owned subsidiaries BVPP and Vehicle
Remarketing Services, Inc. (VRS and together with BVPP, the Guarantors); and U.S. Bank National
Association, as trustee (the Trustee). The description of the Indenture below is qualified in
its entirety by reference to the complete text of the Indenture, a copy of which is filed as
Exhibit 4(f)(129) to our Form 8-K filed on February 5, 2010.
Concurrently with the issuance of the Senior Notes, we entered into the Ninth Amendment (the
Ninth Amendment), dated as of February 1, 2010, to its Fourth Amended and Restated Credit
Agreement, dated as of February 7, 2006, as amended (the Credit Agreement), with the financial
institutions party thereto (collectively, the Banks), and Comerica Bank, as administrative agent
for the Banks; and the Company and the Guarantors entered into the Fourth Amended and Restated
Security Agreement (the Amended Security Agreement), dated as of February 1, 2010, with Comerica
Bank, as collateral agent, amending and restating the Third Amended and Restated Security Agreement
dated as of February 7, 2006, as previously amended (the Security Agreement), and an Amended and
Restated Intercreditor Agreement (the Amended Intercreditor Agreement), dated as of February 1,
2010, with the Trustee and Comerica Bank, as the collateral agent and the administrative agent,
amending and restating the Intercreditor
Agreement, dated as of December 15, 1998, as previously amended (the Intercreditor
Agreement). The Ninth Amendment, the Amended Security Agreement and the Amended Intercreditor
Agreement make technical adjustments to the Credit Agreement, the
37
Security Agreement and the
Intercreditor Agreement, respectively, to facilitate the issuance of the Senior Notes and future
secured indebtedness.
The Senior Notes mature on February 1, 2017 and bear interest at a rate of 9.125% per annum.
Interest on the Senior Notes is computed on the basis of a 360-day year composed of twelve 30-day
months and is payable semi-annually on February 1 and August 1 of each year, beginning on August 1,
2010. The Senior Notes were issued at 97.495% of the aggregate principal amount for gross proceeds
of $243.7 million, representing a yield to maturity of 9.625%.
Guarantees and security The Senior Notes are guaranteed on a senior secured basis by the
Guarantors, which are also guarantors of obligations under the Credit Agreement. Our other
existing and future subsidiaries may become guarantors of the Senior Notes in the future. The
Indenture provides for a guarantor of the Senior Notes to be released from its obligations under
its guarantee of the Senior Notes under specified circumstances.
The Senior Notes and the Guarantors Senior Note guarantees are secured on a first-priority
basis (subject to specified exceptions and permitted liens), together with all indebtedness
outstanding from time to time under the Credit Agreement and, under certain circumstances, certain
future indebtedness, by a security interest in substantially all of our assets and the Guarantors,
subject to certain exceptions such as real property, cash (except to the extent it is deposited
with the collateral agent), certain leases and equity interests of our subsidiaries (other than
those of specified subsidiaries including the Guarantors). Our assets and the Guarantors securing
the Senior Notes and the Senior Note guarantees (the Senior Notes collateral) will not include
our assets transferred to special purpose subsidiaries in connection with securitization
transactions and will generally be the same as the collateral securing indebtedness under the
Credit Agreement and, under certain circumstances, certain future indebtedness, subject to certain
limited exceptions as provided in the Amended Security Agreement and Amended Intercreditor
Agreement.
Redemption options - On or after February 1, 2014, the Issuers may redeem all or a part of the
Senior Notes at the redemption prices set forth in the Indenture, plus accrued and unpaid interest
and special interest, if any, to the applicable redemption date. In addition, at any time prior to
February 1, 2014, the Issuers may, on one or more than one occasions, redeem some or all of the
Senior Notes at any time at a redemption price equal to 100% of the principal amount of the Senior
Notes redeemed, plus a make-whole premium as of, and accrued and unpaid interest and special
interest, if any, to, the applicable redemption date. At any time prior to February 1, 2013, the
Issuers may also redeem up to 35% of the aggregate principal amount of Senior Notes, using the
proceeds of certain qualified equity offerings, at a redemption price of 109.125% of the principal
amount.
Requirements to repurchase - If we experience specified change of control events, the Issuers
must offer to repurchase the Senior Notes at a repurchase price equal to 101% of the principal
amount of the Senior Notes repurchased, plus accrued and unpaid interest and special interest, if
any, to the applicable repurchase date. If we or our subsidiaries sell assets under specified
circumstances, the Issuers must offer to repurchase the Senior Notes at a repurchase price equal to
100% of the principal amount of the Senior Notes repurchased, plus accrued and unpaid interest and
special interest, if any, to the applicable repurchase date.
Covenants - The Indenture requires that we maintain a ratio of consolidated funded debt to
consolidated tangible net worth of no more than 3.25 to 1.0 as of the end of each fiscal quarter
and a collateral coverage ratio of at least 1.25 to 1.0. The Indenture also contains covenants that
limit our ability and our subsidiaries ability to, among other things: (i) incur or guarantee
additional indebtedness; (ii) pay dividends or purchase capital stock; (iii) make investments; (iv)
sell assets; (v) incur liens; (vi) merge, consolidate or sell all or substantially all of their
assets; and (vii) enter into transactions with affiliates. These covenants are subject to a number
of important limitations and exceptions. As of December 31, 2009, we are in compliance with all
our debt covenants including those that require the maintenance of certain financial ratios and
other financial conditions.
38
Contractual Obligations
A summary of the total future contractual obligations requiring repayments as of December 31,
2009 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
Other |
|
Long-term debt, including current
maturities and capital leases (1) |
|
$ |
506,979 |
|
|
$ |
110,677 |
|
|
$ |
392,525 |
|
|
$ |
3,777 |
|
|
$ |
|
|
Operating lease obligations |
|
|
2,878 |
|
|
|
782 |
|
|
|
1,783 |
|
|
|
313 |
|
|
|
|
|
Purchase obligations (2) |
|
|
642 |
|
|
|
642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other future obligations (3) |
|
|
11,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations (4) |
|
$ |
522,329 |
|
|
$ |
112,101 |
|
|
$ |
394,308 |
|
|
$ |
4,090 |
|
|
$ |
11,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Long-term debt obligations included in the above table consist solely of principal
repayments. We are also obligated to make interest payments at the applicable interest
rates, as discussed in Note 7 to the consolidated financial statements contained in Item 8
of this Form 10-K, which is incorporated herein by reference. Based on the actual amounts
outstanding under our revolving line of credit and warehouse facilities at December 31,
2009, the forecasted amounts outstanding on all other debt and the actual interest rates in
effect as of December 31, 2009, interest is expected to be approximately $14.7 million
during 2010; $11.0 million during 2011; and $2.6 million during 2012 and thereafter. See
Note 14 to the consolidated financial statements contained in Item 8 of this Form 10-K,
which is incorporated herein by reference, for information regarding additional long-term
debt obligations arising in 2010 as a result of the Senior Notes. |
|
(2) |
|
Purchase obligations consist solely of contractual obligations related to our
information system needs. |
|
(3) |
|
Other future obligations included in the above table consist solely of reserves for
uncertain tax positions. Payments are contingent upon examination and would occur in the
periods in which the uncertain tax positions are settled. |
|
(4) |
|
We have contractual obligations to pay Dealer Holdback to our Dealer-Partners; however,
as payments of Dealer Holdback are contingent upon the receipt of consumer payments and the
repayment of advances, these obligations are excluded from the table above. |
Based upon anticipated cash flows, management believes that cash flows from operations
and its various financing alternatives will provide sufficient financing for debt maturities and
for future operations. Our ability to borrow funds may be impacted by economic and financial
market conditions. If the various financing alternatives were to become limited or unavailable to
us, our operations and liquidity could be materially and adversely affected.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a
material current or future effect on our financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Market Risk
We are exposed primarily to market risks associated with movements in interest rates. Our
policies and procedures prohibit the use of financial instruments for speculative purposes. A
discussion of our accounting policies for derivative instruments is included in Note 2 to the
consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated
herein by reference.
Interest Rate Risk. We rely on various sources of financing, some of which contain floating
rates of interest and expose us to risks associated with increases in interest rates. We manage
such risk primarily by entering into interest rate cap and interest rate swap agreements.
As of December 31, 2009, we had $97.3 million of floating rate debt outstanding on our
revolving secured line of credit, with no interest rate protection. For every 1.0% increase in
rates on our revolving secured line of credit, annual after-tax earnings would decrease by
approximately $0.6 million, assuming we maintain a level amount of floating rate debt.
As of December 31, 2009, we had $152.6 million and $50.0 million in floating rate debt
outstanding under our $325.0 million revolving secured warehouse facility and our $75.0 million
revolving secured warehouse facility, respectively, covered by interest rate caps with cap rates of
6.75% on the underlying benchmark rate. Based on the difference between the rates on our revolving
secured warehouse facilities at December 31, 2009 and the interest rate caps rate, our maximum
interest rate risk on the $325.0 million and $75.0 million secured warehouse facilities is 6.51%
and 6.52%, respectively. This maximum interest rate risk would reduce annual after-tax earnings by
approximately $8.3 million, assuming we maintain a level amount of floating rate debt.
39
We have entered into an interest rate swap to convert the remaining $25.0 million of the $75.0
million revolving secured warehouse facility into fixed rate debt, bearing an interest rate of
5.1%. This interest rate swap was executed in September 2009. The fair value of this interest
rate swap is based on quoted prices for similar instruments in active markets, which are influenced
by a number of factors, including interest rates, amount of debt outstanding, and number of months
until maturity.
As of December 31, 2009 we had $66.5 million in floating rate debt outstanding under our
asset-backed secured financing. We have entered into an interest rate swap, which was effective on
the funding date to convert the floating rate asset-backed secured borrowing into fixed rate debt
bearing a rate of 6.37%. The fair value of the interest rate swap is based on quoted prices for
similar instruments in active markets, which are influenced by a number of factors, including
interest rates, amount of debt outstanding, and number of months until maturity.
We have designated the interest rate swaps related to the $25.0 million revolving secured
warehouse facility and the $66.5 million asset-backed secured financing as cash flow hedges. The
effective portion of changes in the fair value of the swaps will be recorded in other comprehensive
income, net of income taxes, and the ineffective portion of changes in fair value are recorded in
interest expense. There has been no such ineffectiveness in either swap since the inception of the
hedges through December 31, 2009.
New Accounting Pronouncements
See Note 2 to the consolidated financial statements contained in Item 8 of this Form 10-K,
which is incorporated herein by reference, for information concerning the following new accounting
pronouncements and the impact of the implementation of these pronouncements on our financial
statements:
|
|
|
Disclosures About Derivative Instruments and Hedging Activities |
|
|
|
|
Interim Disclosures about Fair Value of Financial Instruments |
|
|
|
|
Recognition and Presentation of Other-Than-Temporary Impairments |
|
|
|
|
Subsequent Events |
|
|
|
|
Accounting for Transfers of Financial Assets |
|
|
|
|
Amendments to FASB Interpretation No. 46(R) |
|
|
|
|
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles |
Forward-Looking Statements
We make forward-looking statements in this report and may make such statements in future
filings with the Securities and Exchange Commission. We may also make forward-looking statements
in our press releases or other public or shareholder communications. Our forward-looking
statements are subject to risks and uncertainties and include information about our expectations
and possible or assumed future results of operations. When we use any of the words may, will,
should, believe, expect, anticipate, assume, forecast, estimate, intend, plan,
target or similar expressions, we are making forward-looking statements.
We claim the protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. These
forward-looking statements represent our outlook only as of the date of this report. While we
believe that our forward-looking statements are reasonable, actual results could differ materially
since the statements are based on our current expectations, which are subject to risks and
uncertainties. Factors that might cause such a difference include, but are not limited to, the
factors set forth under Item 1A of this Form 10-K, which is incorporated herein by reference,
elsewhere in this report and the risks and uncertainties discussed in our other reports filed or
furnished from time to time with the SEC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by Item 7A is incorporated herein by reference from the information
in Item 7 under the caption Market Risk in this Form 10-K.
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders of Credit Acceptance Corporation
We have audited the accompanying consolidated balance sheets of Credit Acceptance Corporation (a
Michigan Corporation) and subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of income, shareholders equity and comprehensive income, and cash flows
for each of the three years in the period ended December 31, 2009. These financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Credit Acceptance Corporation and subsidiaries as of
December 31, 2009 and 2008, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Credit Acceptance Corporation and subsidiaries internal control over
financial reporting as of December 31, 2009, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 3, 2010 expressed an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting.
/s/ GRANT THORNTON LLP
Southfield, Michigan
March 3, 2010
42
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
(Dollars in thousands, except per share data) |
|
2009 |
|
|
2008 |
|
ASSETS: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,170 |
|
|
$ |
3,154 |
|
Restricted cash and cash equivalents |
|
|
82,456 |
|
|
|
80,333 |
|
Restricted securities available for sale |
|
|
3,121 |
|
|
|
3,345 |
|
|
|
|
|
|
|
|
|
|
Loans receivable (including $12,674 and $15,383 from affiliates as of
December 31, 2009 and December 31, 2008, respectively) |
|
|
1,167,558 |
|
|
|
1,148,752 |
|
Allowance for credit losses |
|
|
(117,545 |
) |
|
|
(130,835 |
) |
|
|
|
|
|
|
|
Loans receivable, net |
|
|
1,050,013 |
|
|
|
1,017,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
18,735 |
|
|
|
21,049 |
|
Income taxes receivable |
|
|
3,956 |
|
|
|
|
|
Other assets |
|
|
15,785 |
|
|
|
13,556 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
1,176,236 |
|
|
$ |
1,139,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
77,295 |
|
|
$ |
83,948 |
|
Line of credit |
|
|
97,300 |
|
|
|
61,300 |
|
Secured financing |
|
|
404,597 |
|
|
|
574,175 |
|
Mortgage note and capital lease obligations |
|
|
5,082 |
|
|
|
6,239 |
|
Deferred income taxes, net |
|
|
93,752 |
|
|
|
75,060 |
|
Income taxes payable |
|
|
|
|
|
|
881 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
678,026 |
|
|
|
801,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies See Note 13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued |
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 80,000,000 shares authorized, 31,158,217 and
30,666,691 shares issued and outstanding as of December 31, 2009 and
December 31, 2008, respectively |
|
|
311 |
|
|
|
306 |
|
Paid-in capital |
|
|
24,370 |
|
|
|
11,829 |
|
Retained earnings |
|
|
474,433 |
|
|
|
328,178 |
|
Accumulated other comprehensive loss, net of tax of $526 and $1,478 at December 31, 2009 and December 31, 2008, respectively |
|
|
(904 |
) |
|
|
(2,562 |
) |
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
498,210 |
|
|
|
337,751 |
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
1,176,236 |
|
|
$ |
1,139,354 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
43
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
(Dollars in Thousands, Except Per Share Data) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Finance charges |
|
$ |
329,437 |
|
|
$ |
286,823 |
|
|
$ |
220,473 |
|
Premiums earned |
|
|
33,605 |
|
|
|
3,967 |
|
|
|
361 |
|
Other income |
|
|
17,622 |
|
|
|
21,396 |
|
|
|
19,093 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
380,664 |
|
|
|
312,186 |
|
|
|
239,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
|
66,893 |
|
|
|
68,993 |
|
|
|
55,396 |
|
General and administrative |
|
|
30,391 |
|
|
|
27,536 |
|
|
|
27,202 |
|
Sales and marketing |
|
|
14,808 |
|
|
|
16,776 |
|
|
|
17,493 |
|
Provision for credit losses |
|
|
(12,164 |
) |
|
|
46,029 |
|
|
|
19,947 |
|
Interest |
|
|
32,399 |
|
|
|
43,189 |
|
|
|
36,669 |
|
Provision for claims |
|
|
19,299 |
|
|
|
2,651 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
151,626 |
|
|
|
205,174 |
|
|
|
156,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income taxes |
|
|
229,038 |
|
|
|
107,012 |
|
|
|
83,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
82,992 |
|
|
|
39,944 |
|
|
|
29,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
146,046 |
|
|
|
67,068 |
|
|
|
53,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued United Kingdom operations |
|
|
137 |
|
|
|
307 |
|
|
|
(562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Credit) provision for income taxes |
|
|
(72 |
) |
|
|
198 |
|
|
|
(1,864 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from discontinued operations |
|
|
209 |
|
|
|
109 |
|
|
|
1,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
146,255 |
|
|
$ |
67,177 |
|
|
$ |
54,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.78 |
|
|
$ |
2.22 |
|
|
$ |
1.83 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
4.62 |
|
|
$ |
2.16 |
|
|
$ |
1.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.77 |
|
|
$ |
2.22 |
|
|
$ |
1.78 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
4.61 |
|
|
$ |
2.16 |
|
|
$ |
1.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from discontinued operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.01 |
|
|
$ |
|
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
30,590,142 |
|
|
|
30,249,783 |
|
|
|
30,053,129 |
|
Diluted |
|
|
31,668,895 |
|
|
|
31,105,043 |
|
|
|
31,153,688 |
|
See accompanying notes to consolidated financial statements.
44
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
Shareholders |
|
|
Comprehensive |
|
|
Common Stock |
|
|
Paid-In |
|
|
Retained |
|
|
Comprehensive |
|
(Dollars and Shares in Thousands) |
|
Equity |
|
|
Income |
|
|
Number |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
Balance, January 1, 2007 |
|
$ |
210,347 |
|
|
|
|
|
|
|
30,180 |
|
|
$ |
302 |
|
|
$ |
828 |
|
|
$ |
209,253 |
|
|
$ |
(36 |
) |
Cumulative affect due to adoption of FIN 48 |
|
|
(87 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87 |
) |
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
54,916 |
|
|
$ |
54,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,916 |
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities
available for sale,
net of tax of $(26) |
|
|
49 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
$ |
54,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
4,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,659 |
|
|
|
|
|
|
|
|
|
Restricted stock awards, net of forfeitures |
|
|
|
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
(9,530 |
) |
|
|
|
|
|
|
(371 |
) |
|
|
|
|
|
|
(6,449 |
) |
|
|
(3,081 |
) |
|
|
|
|
Stock options exercised |
|
|
2,584 |
|
|
|
|
|
|
|
375 |
|
|
|
|
|
|
|
2,584 |
|
|
|
|
|
|
|
|
|
Tax benefit for exercised stock options |
|
|
2,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
265,450 |
|
|
|
|
|
|
|
30,241 |
|
|
|
302 |
|
|
|
4,134 |
|
|
|
261,001 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
67,177 |
|
|
$ |
67,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,177 |
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on interest rate swap,
net of tax of $1,488 |
|
|
(2,580 |
) |
|
|
(2,580 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,580 |
) |
Unrealized gain on securities
available for sale,
net of tax of $(3) |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
$ |
64,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
4,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,309 |
|
|
|
|
|
|
|
|
|
Restricted stock awards, net of forfeitures |
|
|
|
|
|
|
|
|
|
|
124 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
(66 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
(66 |
) |
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
2,375 |
|
|
|
|
|
|
|
306 |
|
|
|
3 |
|
|
|
2,372 |
|
|
|
|
|
|
|
|
|
Tax benefit for exercised stock options |
|
|
1,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
337,751 |
|
|
|
|
|
|
|
30,667 |
|
|
|
306 |
|
|
|
11,829 |
|
|
|
328,178 |
|
|
|
(2,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
146,255 |
|
|
$ |
146,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,255 |
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate swap,
net of tax of $(957) |
|
|
1,667 |
|
|
|
1,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,667 |
|
Unrealized loss on securities
available for sale,
net of tax of $5 |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
$ |
147,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
6,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,805 |
|
|
|
|
|
|
|
|
|
Restricted stock awards, net of forfeitures |
|
|
|
|
|
|
|
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
(541 |
) |
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
(541 |
) |
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
1,941 |
|
|
|
|
|
|
|
359 |
|
|
|
5 |
|
|
|
1,936 |
|
|
|
|
|
|
|
|
|
Tax benefit for exercised stock options |
|
|
4,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
$ |
498,210 |
|
|
|
|
|
|
|
31,158 |
|
|
$ |
311 |
|
|
$ |
24,370 |
|
|
$ |
474,433 |
|
|
$ |
(904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
45
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
(Dollars in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
146,255 |
|
|
$ |
67,177 |
|
|
$ |
54,916 |
|
Adjustments to reconcile cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
(12,164 |
) |
|
|
46,029 |
|
|
|
19,947 |
|
Depreciation |
|
|
5,139 |
|
|
|
5,342 |
|
|
|
4,105 |
|
Loss on retirement of property and equipment |
|
|
100 |
|
|
|
74 |
|
|
|
196 |
|
Provision for deferred income taxes |
|
|
17,740 |
|
|
|
11,777 |
|
|
|
20,346 |
|
Stock-based compensation |
|
|
6,805 |
|
|
|
4,309 |
|
|
|
4,659 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in accounts payable and accrued liabilities |
|
|
(4,029 |
) |
|
|
46 |
|
|
|
1,453 |
|
(Increase) decrease in income taxes receivable / increase (decrease) in
income taxes payable |
|
|
(4,837 |
) |
|
|
21,593 |
|
|
|
(8,978 |
) |
(Increase) decrease in other assets |
|
|
(2,229 |
) |
|
|
(867 |
) |
|
|
1,106 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
152,780 |
|
|
|
155,480 |
|
|
|
97,750 |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in restricted cash and cash equivalents |
|
|
(2,123 |
) |
|
|
(6,231 |
) |
|
|
(28,493 |
) |
Purchases of restricted securities available for sale |
|
|
(1,451 |
) |
|
|
(1,514 |
) |
|
|
(550 |
) |
Proceeds from sale of restricted securities available for sale |
|
|
|
|
|
|
373 |
|
|
|
|
|
Maturities of restricted securities available for sale |
|
|
1,661 |
|
|
|
1,094 |
|
|
|
898 |
|
Principal collected on Loans receivable |
|
|
661,246 |
|
|
|
610,029 |
|
|
|
577,244 |
|
Advances to Dealer-Partners and accelerated payments of Dealer Holdback |
|
|
(533,465 |
) |
|
|
(524,496 |
) |
|
|
(571,197 |
) |
Purchases of Consumer Loans |
|
|
(103,283 |
) |
|
|
(280,326 |
) |
|
|
(139,340 |
) |
Payments of Dealer Holdback |
|
|
(44,269 |
) |
|
|
(58,503 |
) |
|
|
(70,950 |
) |
Net increase in other loans |
|
|
(152 |
) |
|
|
(120 |
) |
|
|
(436 |
) |
Purchases of property and equipment |
|
|
(2,925 |
) |
|
|
(6,341 |
) |
|
|
(7,659 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(24,761 |
) |
|
|
(266,035 |
) |
|
|
(240,483 |
) |
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under line of credit |
|
|
630,900 |
|
|
|
809,700 |
|
|
|
633,500 |
|
Repayments under line of credit |
|
|
(594,900 |
) |
|
|
(784,700 |
) |
|
|
(635,600 |
) |
Proceeds from secured financing |
|
|
397,000 |
|
|
|
605,700 |
|
|
|
619,500 |
|
Repayments of secured financing |
|
|
(566,578 |
) |
|
|
(519,590 |
) |
|
|
(476,579 |
) |
Principal payments under mortgage note and capital lease obligations |
|
|
(1,157 |
) |
|
|
(1,526 |
) |
|
|
(1,429 |
) |
Repurchase of common stock |
|
|
(541 |
) |
|
|
(66 |
) |
|
|
(9,530 |
) |
Proceeds from stock options exercised |
|
|
1,941 |
|
|
|
2,375 |
|
|
|
2,584 |
|
Tax benefits from stock-based compensation plans |
|
|
4,341 |
|
|
|
1,081 |
|
|
|
2,512 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(128,994 |
) |
|
|
112,974 |
|
|
|
134,958 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(9 |
) |
|
|
23 |
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(984 |
) |
|
|
2,442 |
|
|
|
(7,816 |
) |
Cash and cash equivalents, beginning of period |
|
|
3,154 |
|
|
|
712 |
|
|
|
8,528 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
2,170 |
|
|
$ |
3,154 |
|
|
$ |
712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
32,080 |
|
|
$ |
43,255 |
|
|
$ |
36,131 |
|
Cash paid during the period for income taxes |
|
$ |
67,563 |
|
|
$ |
3,681 |
|
|
$ |
14,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment acquired through capital lease obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
563 |
|
See accompanying notes to consolidated financial statements.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Principal Business. Since 1972, Credit Acceptance (referred to as the Company, Credit
Acceptance, we, our or us) has provided auto loans to consumers, regardless of their credit
history. Our product is offered through a nationwide network of automobile dealers who benefit
from sales of vehicles to consumers who otherwise could not obtain financing; from repeat and
referral sales generated by these same customers; and from sales to customers responding to
advertisements for our product, but who actually end up qualifying for traditional financing.
We refer to dealers who participate in our programs and who share our commitment to changing
consumers lives as Dealer-Partners. Upon enrollment in our financing programs, the
Dealer-Partner enters into a dealer servicing agreement with us that defines the legal relationship
between Credit Acceptance and the Dealer-Partner. The dealer servicing agreement assigns the
responsibilities for administering, servicing, and collecting the amounts due on retail installment
contracts (referred to as Consumer Loans) from the Dealer-Partners to us. A consumer who does
not qualify for conventional automobile financing can purchase a used vehicle from a Dealer-Partner
and finance the purchase through us. We are an indirect lender from a legal perspective, meaning
the Consumer Loan is originated by the Dealer-Partner and assigned to us.
We have two programs: the Portfolio Program and the Purchase Program. Under the Portfolio
Program, we advance money to Dealer-Partners (referred to as a Dealer Loan) in exchange for the
right to service the underlying Consumer Loan. Under the Purchase Program, we buy the Consumer
Loan from the Dealer-Partner (referred to as a Purchased Loan) and keep all amounts collected
from the consumer. Dealer Loans and Purchased Loans are collectively referred to as Loans. The
following table shows the percentage of Consumer Loans assigned to us under each of the programs
for each of the last 12 quarters:
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Portfolio Program |
|
Purchase Program |
March 31, 2007 |
|
|
94.8 |
% |
|
|
5.2 |
% |
June 30, 2007 |
|
|
83.8 |
% |
|
|
16.2 |
% |
September 30, 2007 |
|
|
74.5 |
% |
|
|
25.5 |
% |
December 31, 2007 |
|
|
70.6 |
% |
|
|
29.4 |
% |
March 31, 2008 |
|
|
70.2 |
% |
|
|
29.8 |
% |
June 30, 2008 |
|
|
65.4 |
% |
|
|
34.6 |
% |
September 30, 2008 |
|
|
69.2 |
% |
|
|
30.8 |
% |
December 31, 2008 |
|
|
78.2 |
% |
|
|
21.8 |
% |
March 31, 2009 |
|
|
82.3 |
% |
|
|
17.7 |
% |
June 30, 2009 |
|
|
86.0 |
% |
|
|
14.0 |
% |
September 30, 2009 |
|
|
89.0 |
% |
|
|
11.0 |
% |
December 31, 2009 |
|
|
90.8 |
% |
|
|
9.2 |
% |
Portfolio Program
As payment for the vehicle, the Dealer-Partner generally receives the following:
|
|
|
a down payment from the consumer; |
|
|
|
|
a non-recourse cash payment (advance) from us; and |
|
|
|
|
after the advance has been recovered by us, the cash from payments made on the Consumer
Loan, net of certain collection costs and our servicing fee (Dealer Holdback). |
We record the amount advanced to the Dealer-Partner as a Dealer Loan, which is classified
within Loans receivable in our consolidated balance sheets. Cash advanced to Dealer-Partners is
automatically assigned to the originating Dealer-Partners open pool of advances. We require
Dealer-Partners to group advances into pools of at least 100 Consumer Loans. At the
Dealer-Partners option, a pool containing at least 100 Consumer Loans can be closed and subsequent
advances assigned to a new pool. All advances due from a Dealer-Partner are secured by the future
collections on the Dealer-Partners portfolio of Consumer Loans assigned to us. For
Dealer-Partners with more than one pool, the pools are cross-collateralized so the performance of
other pools is considered in determining eligibility for Dealer Holdback. We perfect our security
interest in the Dealer Loans by taking possession of the Consumer Loans, which list us as lien
holder on the vehicle title.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS (Continued)
The dealer servicing agreement provides that collections received by us during a calendar
month on Consumer Loans assigned by a Dealer-Partner are applied on a pool-by-pool basis as
follows:
|
|
|
First, to reimburse us for certain collection costs; |
|
|
|
|
Second, to pay us our servicing fee, which generally equals 20% of collections; |
|
|
|
|
Third, to reduce the aggregate advance balance and to pay any other amounts due from the
Dealer-Partner to us; and |
|
|
|
|
Fourth, to the Dealer-Partner as payment of Dealer Holdback. |
Dealer-Partners have an opportunity to receive an accelerated Dealer Holdback payment at the
time a pool of 100 or more Consumer Loans is closed. The amount paid to the Dealer-Partner is
calculated using a formula that considers the forecasted collections and the advance balance on the
closed pool. If the collections on Consumer Loans from a Dealer-Partners pool are not sufficient
to repay the advance balance and any other amounts due to us, the Dealer-Partner will not receive
Dealer Holdback.
Since typically the combination of the advance and the consumers down payment provides the
Dealer-Partner with a cash profit at the time of sale, the Dealer-Partners risk in the Consumer
Loan is limited. We cannot demand repayment of the advance from the Dealer-Partner except in the
event the Dealer-Partner is in default of the dealer servicing agreement. Advances are made only
after the consumer and Dealer-Partner have signed a Consumer Loan contract, we have received the
original Consumer Loan contract and supporting documentation, and we have approved all of the
related stipulations for funding. The Dealer-Partner can also opt to repurchase Consumer Loans
that have been assigned to us under the Portfolio Program, at their discretion, for a fee.
For accounting purposes, the transactions described under the Portfolio Program are not
considered to be loans to consumers. Instead, our accounting reflects that of a lender to the
Dealer-Partner. The classification as a Dealer Loan for accounting purposes is primarily a result
of (1) the Dealer-Partners financial interest in the Consumer Loan and (2) certain elements of our
legal relationship with the Dealer-Partner. For each individual Dealer-Partner, the amount of the
Dealer Loan recorded in Loans receivable is comprised of the following:
|
|
|
the aggregate amount of all cash advances to the Dealer-Partner; |
|
|
|
|
finance charges; |
|
|
|
|
Dealer Holdback payments; |
|
|
|
|
accelerated Dealer Holdback payments; and |
|
|
|
|
recoveries. |
Less:
|
|
|
collections (net of certain collection costs); and |
|
|
|
|
write-offs. |
Purchase Program
We began offering a Purchase Program on a limited basis in March of 2005. The Purchase
Program differs from our Portfolio Program in that the Dealer-Partner receives a single payment
from us at the time of origination instead of a cash advance and Dealer Holdback. Purchase Program
volume increased significantly beginning in 2007 as the program was offered to additional
Dealer-Partners and decreased in 2009 as a result of pricing changes we implemented in order to
increase our profitability.
For accounting purposes, the transactions described under the Purchase Program are considered
to be originated by the Dealer-Partner and then purchased by us. The amount of Purchased Loans
recorded in Loans receivable is comprised of the following:
|
|
|
the aggregate amount of all amounts paid to purchase Consumer Loans from
Dealer-Partners; |
|
|
|
|
finance charges; and |
|
|
|
|
recoveries. |
Less:
|
|
|
collections (net of certain collection costs); and |
|
|
|
|
write-offs. |
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS (Concluded)
Program Enrollment
Dealer-Partners that enroll in our programs have two enrollment options available to them.
The first enrollment option allows Dealer-Partners to assign Consumer Loans under the Portfolio
Program and requires payment of an upfront, one-time fee of $9,850. The second enrollment option,
which became effective September 1, 2009, allows Dealer-Partners to assign Consumer Loans under the
Portfolio Program and requires payment of an upfront, one-time fee of $1,950 and an agreement to
allow us to keep 50% of their first accelerated Dealer Holdback payment. Prior to September 1,
2009, Dealer-Partners who chose the second enrollment option did not pay an upfront fee but agreed
to allow us to keep 50% of their first accelerated Dealer Holdback payment. For all
Dealer-Partners enrolling in our program after August 31, 2008, access to the Purchase Program is
only granted after the first accelerated Dealer Holdback payment has been made under the Portfolio
Program.
Businesses in Liquidation. Effective June 30, 2003, we stopped originating Consumer Loans in
the United Kingdom and we sold the remainder of the portfolio on December 30, 2005.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include our accounts and our wholly-owned subsidiaries.
All significant intercompany transactions have been eliminated. Our primary subsidiaries are:
Buyers Vehicle Protection Plan, Inc., Vehicle Remarketing Services, Inc., VSC Re Company, CAC
Warehouse Funding Corp. II, CAC Warehouse Funding III, LLC, Credit Acceptance Funding LLC 2006-1,
Credit Acceptance Funding LLC 2006-2, Credit Acceptance Funding LLC 2007-1, Credit Acceptance
Funding LLC 2007-2, Credit Acceptance Funding LLC 2008-1, and Credit Acceptance Funding LLC 2009-1.
Reportable Business Segments
We have two reportable business segments: United States and Other. For information regarding
our reportable segments, see Note 12 to the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America (GAAP) requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The accounts which are subject to significant estimation
include the allowance for credit losses, finance charge revenue, premiums earned, stock-based
compensation expense, contingencies, and uncertain tax positions. Actual results could materially
differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of readily marketable securities with original maturities at the date
of acquisition of three months or less.
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents increased to $82.5 million at December 31, 2009 from
$80.3 million at December 31, 2008. The following table summarizes restricted cash and cash
equivalents:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Cash collections related to secured financings |
|
$ |
42,115 |
|
|
$ |
48,956 |
|
Cash held in trusts for future vehicle service contract claims (1) |
|
|
40,341 |
|
|
|
31,377 |
|
|
|
|
|
|
|
|
Total restricted cash and cash equivalents |
|
$ |
82,456 |
|
|
$ |
80,333 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The unearned premium and claims reserve associated with the trusts are included in
accounts payable and accrued liabilities in the consolidated balance sheets. |
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Restricted Securities Available for Sale
Restricted securities available for sale consist of amounts held in accordance with vehicle
service contract trust agreements. We determine the appropriate classification of our investments
in debt securities at the time of purchase and reevaluate such determinations at each balance sheet
date. Debt securities for which we do not have the intent or ability to hold to maturity are
classified as available for sale, and stated at fair value with unrealized gains and losses, net of
income taxes included in the determination of comprehensive income and reported as a component of
shareholders equity.
Restricted securities available for sale consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
(in thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
US Government and agency securities |
|
$ |
726 |
|
|
$ |
18 |
|
|
$ |
(2 |
) |
|
$ |
742 |
|
Corporate bonds |
|
|
2,381 |
|
|
|
7 |
|
|
|
(9 |
) |
|
|
2,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted securities available for sale |
|
$ |
3,107 |
|
|
$ |
25 |
|
|
$ |
(11 |
) |
|
$ |
3,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Estimated |
|
(in thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
US Government and agency securities |
|
$ |
842 |
|
|
$ |
53 |
|
|
$ |
|
|
|
$ |
895 |
|
Corporate bonds |
|
|
2,475 |
|
|
|
9 |
|
|
|
(34 |
) |
|
|
2,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted securities available for sale |
|
$ |
3,317 |
|
|
$ |
62 |
|
|
$ |
(34 |
) |
|
$ |
3,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The cost and estimated fair values of debt securities by contractual maturity were as
follows (securities with multiple maturity dates are classified in the period of final maturity).
Expected maturities will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Estimated |
|
(in thousands) |
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
Contractual Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year |
|
$ |
1,486 |
|
|
$ |
1,495 |
|
|
$ |
1,665 |
|
|
$ |
1,670 |
|
Over one year to five years |
|
|
1,621 |
|
|
|
1,626 |
|
|
|
1,652 |
|
|
|
1,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted securities available for sale |
|
$ |
3,107 |
|
|
$ |
3,121 |
|
|
$ |
3,317 |
|
|
$ |
3,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Charges
Finance charges is comprised of: (1) servicing fees earned as a result of servicing Consumer
Loans assigned to us by Dealer-Partners under the Portfolio Program; (2) finance charge income from
Purchased Loans; (3) fees earned from our third party ancillary product offerings; (4) monthly
program fees charged to Dealer-Partners under the Portfolio Program; and (5) fees associated with
certain Loans. We recognize finance charges under the interest
method such that revenue is recognized on a level-yield basis based upon forecasted cash flows.
For Dealer Loans only, certain direct origination costs such as salaries and credit reports are
deferred and the net costs are recognized as an adjustment to finance charges over the life of the
related Dealer Loan on a level-yield basis.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
We provide Dealer-Partners the ability to offer vehicle service contracts to consumers. A
vehicle service contract provides the consumer protection by paying for the repair or replacement
of certain components of the vehicle in the event of a mechanical failure. Buyers Vehicle
Protection Plan, Inc. (BVPP), our wholly-owned subsidiary, has relationships with third party
administrators (TPAs) whereby the TPAs process claims on vehicle service contracts that are
underwritten by third party insurers. BVPP receives a commission for all vehicle service contracts
sold by our Dealer-Partners when the vehicle is financed by us. The commission is included in the
retail price of the vehicle service contract which is added to the Consumer Loan. We provide
Dealer-Partners with an additional advance based on the retail price of the vehicle service
contract. We recognize our commission from the vehicle service contracts as part of finance
charges on a level-yield basis based upon forecasted cash flows. We bear the risk of loss for
claims on certain vehicle service contracts that are reinsured by us.
BVPP also has a relationship with a TPA that allows Dealer-Partners to offer a Guaranteed
Asset Protection (GAP) product to consumers whereby the TPA processes claims that are
underwritten by a third party insurer. GAP provides the consumer protection by paying the
difference between the loan balance and the amount covered by the consumers insurance policy in
the event of a total loss of the vehicle due to severe damage or theft. We receive a commission
for all GAP contracts sold by our Dealer-Partners when the vehicle is financed by us, and do not
bear any risk of loss for claims. The commission is included in the retail price of the GAP
contract which is added to the Consumer Loan. We provide Dealer-Partners with an additional
advance based on the retail price of the GAP contract. We recognize our commission from the GAP
contracts as part of finance charges on a level-yield basis based upon forecasted cash flows.
Program fees represent monthly fees of $599 charged to Dealer-Partners for access to our
Credit Approval Processing System (CAPS); administration, servicing and collection services
offered by us; documentation related to or affecting our program; and all tangible and intangible
property owned by Credit Acceptance. We charge a monthly fee of $599 to Dealer-Partners
participating in our Portfolio Program and we collect it from future Dealer Holdback payments. As
a result, we record program fees under the Portfolio Program as a yield adjustment, recognizing
these fees as finance charge revenue over the forecasted net cash flows of the Dealer Loan.
Reinsurance
During the fourth quarter of 2008, we formed VSC Re Company (VSC Re), our wholly-owned
subsidiary that is engaged in the business of reinsuring coverage under vehicle service contracts
sold to consumers by Dealer-Partners on vehicles financed by us. Prior to October 31, 2009, VSC Re
reinsured vehicle service contracts that were underwritten by two of our three third party
insurers. Effective October 31, 2009, we terminated our arrangement with one of our three third
party insurers. VSC Re currently reinsures vehicle service contracts that are underwritten by one
of our two third party insurers. Vehicle service contract premiums, which represent the selling
price of the vehicle service contract to the consumer, less commissions and certain administrative
costs, are contributed to trust accounts controlled by VSC Re. These premiums are used to fund
claims covered under the vehicle service contracts. VSC Re is a bankruptcy remote entity. As
such, the exposure to fund claims is limited to the amount of premium dollars contributed, less
amounts earned and withdrawn, plus $0.5 million of equity contributed. With the reinsurance
structure, we are able to access projected excess trust assets annually and record revenue and
expense on an accrual basis. We formed VSC Re in order to enhance our control and security of the
trust assets that are used to pay future vehicle service contract claims. The amount of income we
earn from the vehicle service contracts over time is not expected to be impacted by the formation
of VSC Re, as both before and after the formation, the income we recognize, excluding our
commissions, is based on the amount by which vehicle service contract premiums exceed claims. The
only change in our risk associated with adverse claims experience relates to the $0.5 million
equity contribution that was required as part of this new structure, which is now at risk in the
event claims exceed premiums. Under the prior structure, our risk was limited to the amount of
premiums contributed to the trusts.
Premiums from the reinsurance of vehicle service contracts are recognized over the life of the
policy in proportion to expected costs of servicing those contracts. Expected costs are determined
based on our historical claims experience. Claims are expensed through a provision for claims in
the period the claim was incurred. For the year ended December 31, 2009 and 2008, net assumed
written premiums were $29.1 million and $27.5 million, respectively; net premiums earned were $33.6
million and $3.9 million, respectively; and provision for claims was $19.3 million and $2.7
million, respectively. For the year ended December 31, 2009 and 2008, we amortized $0.7 million
and $0.1 million of capitalized acquisition costs related to premium tax, respectively.
Capitalized acquisition costs are amortized over the life of the contracts in proportion to
premiums earned. We are considered the primary beneficiary of the trusts and as a result, trust
assets of $39.1 million and $29.3 million at December 31, 2009 and 2008, respectively, have been
consolidated on our balance sheet as restricted cash and cash equivalents. As of December 31, 2009
and 2008, accounts payable and accrued liabilities include $21.1 million and $23.3 million of
unearned premium, respectively, and $1.0 million and $0.9 million of claims reserve related to our
reinsurance of vehicle service contracts, respectively. The claims reserve is estimated based on
historical claims experience.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Prior to the formation of VSC Re, our agreements with two of our vehicle service contract TPAs
allowed us to receive profit sharing payments depending upon the performance of the vehicle service
contract programs. The agreements also required that vehicle service contract premiums be placed
in trust accounts. Funds in the trust accounts were utilized by the TPA to pay claims on the
vehicle service contracts. Upon the formation of VSC Re during the fourth quarter of 2008, the
unearned premiums on the majority of the vehicle service contracts that had been written through
these two TPAs were ceded to VSC Re along with any related trust assets. Vehicle service contracts
written prior to 2008 through one of the TPAs remain under this profit sharing arrangement. Profit
sharing payments, if any, on the vehicle service contracts are distributed to us periodically after
the term of the vehicle service contracts have substantially expired provided certain loss rates
are met. We are considered the primary beneficiary of the trusts and as a result, the assets and
liabilities of the remaining trust have been consolidated on our balance sheet. As of December 31,
2009 and 2008, the remaining trust had $4.3 million and $5.4 million, respectively, in assets
available to pay claims and a related claims reserve of $3.5 million and $4.7 million,
respectively. The trust assets are included in restricted cash and cash equivalents and restricted
securities available for sale. The claims reserve is included in accounts payable and accrued
liabilities in the consolidated balance sheets. A third party insures claims in excess of funds in
the trust accounts.
Our determination to consolidate the VSC Re trusts and the profit sharing trusts was based on
the following:
|
|
|
First, we determined that the trusts qualified as variable interest entities. The
trusts have insufficient equity at risk as no parties to the trusts were required to
contribute assets that provide them with any ownership interest. |
|
|
|
|
Next, we determined that we have variable interests in the trusts. We have a residual
interest in the assets of the trusts, which is variable in nature, given that it increases
or decreases based upon the actual loss experience of the related service contracts. In
addition, VSC Re is required to absorb any losses in excess of the trusts assets. |
|
|
|
|
Finally, we determined that we are the primary beneficiary of the trusts. The trusts
are not expected to generate losses that need to be absorbed by the parties to the trusts.
The trusts are expected to generate residual returns and we are entitled to all of those
returns. |
The limited amounts of premiums earned and provision for claims in 2007 relate to coverage we
reinsured under credit life and disability insurance sold to consumers by Dealer-Partners on
vehicles financed by us. We ceased financing this product in 2006.
Other Income
Other income consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Dealer support products and services |
|
$ |
7,011 |
|
|
$ |
6,630 |
|
|
$ |
6,016 |
|
Marketing income |
|
|
6,276 |
|
|
|
4,198 |
|
|
|
2,691 |
|
Dealer enrollment fees |
|
|
1,943 |
|
|
|
1,905 |
|
|
|
1,859 |
|
Interest income |
|
|
394 |
|
|
|
2,019 |
|
|
|
3,020 |
|
Vehicle service contract and GAP profit sharing income |
|
|
228 |
|
|
|
3,738 |
|
|
|
1,201 |
|
Other |
|
|
1,770 |
|
|
|
2,906 |
|
|
|
4,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,622 |
|
|
$ |
21,396 |
|
|
$ |
19,093 |
|
|
|
|
|
|
|
|
|
|
|
Dealer support products and services revenue primarily consists of remarketing fees
retained from the sale of repossessed vehicles by Vehicle Remarketing Services, Inc. (VRS), our
wholly-owned subsidiary that is responsible for remarketing vehicles for Credit Acceptance. VRS
coordinates vehicle repossessions with a nationwide network of repossession agents, the redemption
of the vehicle by the consumer, or the sale of the vehicle through a nationwide network of vehicle
auctions. VRS recognizes income from the retained fees at the time of the sale and does not retain
a fee if a repossessed vehicle is redeemed by the consumer prior to the sale. Dealer support
products and services revenue also includes income from products and services provided to
Dealer-Partners to assist with their vehicle inventory and is recognized in the period the service
is provided.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Marketing income primarily consists of payments received on a monthly basis from vendors that
charge a fee to consumers to process or expedite their payments. We recognize marketing income in
the period the services are provided to the consumer. Marketing income also includes fees we
receive from third parties for providing Dealer-Partners in certain states the ability to purchase
Global Positioning Systems (GPS) with Starter Interrupt Devices (SID). Through this program,
Dealer-Partners can install a GPS-based SID (GPS-SID) on vehicles financed by us that can be
activated if the consumer fails to make payments on their account, and can result in the prompt
repossession of the vehicle. Dealer-Partners purchase the GPS-SID directly from third parties and
the third parties pay us a marketing fee for each device sold. GPS-SID revenue is recognized when
the unit is sold and installed in the consumers vehicle.
Dealer enrollment fees include fees from Dealer-Partners that enroll in our programs under our
two enrollment options. The first enrollment option requires payment of an upfront, one-time fee
of $9,850. A portion of this fee is considered to be dealer support products and services revenue.
The remaining portion of this fee is considered to be a dealer enrollment fee, which is amortized
on a straight-line basis over the estimated life of the Dealer-Partner relationship. The second
enrollment option requires payment of an upfront, one-time fee of $1,950 and an agreement to allow
us to keep 50% of their first accelerated Dealer Holdback payment. For Dealer-Partners that choose
the second enrollment option, the entire upfront fee is considered to be dealer support products
and services revenue and the 50% portion of the first accelerated Dealer Holdback payment is
considered to be a dealer enrollment fee. Under this option, we do not recognize any dealer
enrollment fees until the Dealer-Partner has met the eligibility requirements to receive an
accelerated Dealer Holdback payment and the amount of the first payment, if any, has been
calculated. Once the accelerated Dealer Holdback payment has been calculated, we defer the 50%
portion that we keep and recognize it on a straight-line basis over the remaining estimated life of
the Dealer-Partner relationship.
Interest income includes income on restricted cash relating to collections on securitized
Loans and amounts in the vehicle service contract trust accounts and is recognized in the period
earned.
Vehicle service contract and GAP profit sharing income is from payments received from TPAs
based upon the performance of vehicle service contracts and GAP products provided by BVPP. The
formation of VSC Re eliminated the profit sharing arrangements related to vehicle service
contracts, except for vehicle service contracts written prior to 2008 through one of the TPAs.
Profit sharing payments from the TPAs are received periodically during the year, if eligible.
Profit sharing payments are currently not estimable and therefore, revenue related to these
payments is recognized in the period the payments are received.
Loans Receivable and Allowance for Credit Losses
Consumer Loan Assignment. For accounting purposes, a Consumer Loan is considered to have been
assigned to us after all of the following has occurred:
|
|
|
the consumer and Dealer-Partner have signed a Consumer Loan contract; |
|
|
|
|
we have received the original Consumer Loan contract and supporting documentation; |
|
|
|
|
we have approved all of the related stipulations for funding; and |
|
|
|
|
we have provided funding to the Dealer-Partner in the form of either an advance for a
Dealer Loan or the purchase price for a Purchased Loan. |
Dealer Loans. Amounts advanced to Dealer-Partners for Consumer Loans assigned under the
Portfolio Program are computed on a formula basis and are recorded as Dealer Loans. The Dealer
Loan is increased as revenue is recognized, Dealer Holdback payments are made, and accelerated
Dealer Holdback payments are made, and decreased as collections (net of certain collection costs)
are received and write-offs are recorded. An allowance for credit losses is maintained at an amount that reduces the net asset value (Dealer
Loan balance less the allowance) to the value of forecasted future cash flows discounted at the
yield established at the inception of the Dealer Loan. This allowance is calculated on a
Dealer-Partner by Dealer-Partner basis. The discounted value of future cash flows is comprised of
estimated future collections on the Consumer Loans, less any estimated Dealer Holdback payments.
We write off Dealer Loans once there are no forecasted future collections on any of the associated
Consumer Loans.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Future collections on Dealer Loans are forecasted based on the historical performance of
Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns.
Dealer Holdback is forecasted based on the expected future collections and current advance balance
of each Dealer Loan. Cash flows from any individual Dealer Loan are often different than estimated
cash flows at Dealer Loan inception. If such difference is favorable, the difference is recognized
prospectively into income over the remaining life of the Dealer Loan through a yield adjustment.
If such difference is unfavorable, a provision for credit losses is recorded immediately as a
current period expense and a corresponding allowance for credit losses is established. Because
differences between estimated cash flows at inception and actual cash flows occur often, an
allowance is required for a significant portion of our Dealer Loan portfolio. An allowance for
credit losses does not necessarily indicate that a Dealer Loan is unprofitable, and in recent
years, very seldom are cash flows from a Dealer Loan insufficient to repay the initial amounts
advanced to the Dealer-Partner.
Purchased Loans. Amounts paid to Dealer-Partners for Consumer Loans assigned under the
Purchase Program are computed on a formula basis and are recorded as Purchased Loans. The
Purchased Loan amount reflected on our balance sheet is increased as revenue is recognized and
decreased as collections (net of certain collection costs) are received and write-offs are
recorded. We aggregate Purchased Loans into pools based on the month of purchase for revenue
recognition and impairment purposes. An
allowance for credit losses is maintained at an amount that reduces the net asset value (Purchased
Loan pool balance less the allowance) to the value of forecasted future cash flows discounted at
the yield established at the date of purchase. The discounted value of future cash flows is
comprised of estimated future collections on the pool of Purchased Loans. We write off pools of
Purchased Loans once there are no forecasted future collections on any of the Purchased Loans
included in the pool.
Future collections on Purchased Loans are forecasted based on the historical performance of
Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns. Cash
flows from any individual pool of Purchased Loans are often different than estimated cash flows at
the date of purchase. If such difference is favorable, the difference is recognized prospectively
into income over the remaining life of the pool of Purchased Loans through a yield adjustment. If
such difference is unfavorable, a provision for credit losses is recorded immediately as a current
period expense and a corresponding allowance for credit losses is established.
Property and Equipment
Purchases of property and equipment are recorded at cost. Depreciation is provided on a
straight-line basis over the estimated useful life of the asset. Estimated useful lives are
generally as follows: buildings 40 years, building improvements 10 years, data processing
equipment 3 years, software 5 years, office furniture and equipment 7 years, and leasehold
improvements the lesser of the lease term or 7 years. The cost of assets sold or retired and the
related accumulated depreciation are removed from the balance sheet at the time of disposition and
any resulting gain or loss is included in operations. Maintenance, repairs and minor replacements
are charged to operations as incurred; major replacements and improvements are capitalized. We
evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Costs incurred during the application development stage of software developed for internal use
are capitalized and generally amortized on a straight-line basis over five years. Costs incurred
to maintain existing product offerings are expensed as incurred.
Deferred Debt Issuance Costs
As of December 31, 2009 and 2008, deferred debt issuance costs were $6.4 million (net of
accumulated amortization of $8.9 million) and $3.4 million (net of accumulated amortization of $5.6
million), respectively, and are included in other assets in the consolidated balance sheets.
Expenses associated with the issuance of debt instruments are capitalized and amortized as interest
expense over the term of the debt instrument on a level-yield basis for term secured financings and
on a straight-line basis for lines of credit and revolving secured financings.
Income Taxes
Provisions for federal, state and foreign income taxes are calculated on reported pre-tax
earnings based on current tax law and also include, in the current period, the cumulative effect of
any changes in tax rates from those used previously in determining deferred tax assets and
liabilities. Such provisions differ from the amounts currently receivable or payable because
certain items of income and expense are recognized in different time periods for financial
reporting purposes than for income tax purposes.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred income tax balances reflect the effects of temporary differences between the carrying
amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected
to be in effect when taxes are actually paid or recovered.
We follow a two-step approach for recognizing uncertain tax positions. First, we evaluate the
tax position for recognition by determining if the weight of available evidence indicates it is
more-likely-than-not that the position will be sustained upon examination, including resolution of
related appeals or litigation processes, if any. Second, for positions that we determine are
more-likely-than-not to be sustained, we recognize the tax benefit as the largest benefit that has
a greater than 50% likelihood of being sustained. We establish a liability for unrecognized tax
benefits and related interest and penalties. We consider many factors when evaluating and
estimating our tax positions and tax benefits, which may require periodic adjustments and which may
not accurately anticipate actual outcomes. We recognize interest and penalties related to
uncertain tax positions in the provision for income taxes.
Derivative Instruments
We rely on various sources of financing, some of which contain floating rates of interest and
expose us to risks associated with increases in interest rates. We manage such risk primarily by
entering into interest rate cap and interest rate swap agreements (derivative instruments).
For derivative instruments that are designated and qualify as hedging instruments, we formally
document all relationships between the hedging instruments and hedged items, as well as their
risk-management objective and strategy for undertaking various hedge transactions. This process
includes linking all derivative instruments that are designated as cash flow hedges to specific
assets and liabilities on the balance sheet. We also formally assess (both at the hedges
inception and on a quarterly basis) whether the derivative instruments that are used in hedging
transactions have been highly effective in offsetting changes in the cash flows of hedged items and
whether those derivative instruments may be expected to remain highly effective in the future
periods. The effective portion of changes in the fair value of the derivative instruments is
recorded in other comprehensive income, net of income taxes. When it is determined that a
derivative instrument is not (or has ceased to be) highly effective as a hedge, we would
discontinue hedge accounting prospectively and the ineffective portion of changes in fair value
would be recorded in interest expense.
For derivative instruments not designated as hedges, changes in the fair value of these
agreements increase or decrease interest expense.
We recognize derivative instruments as either other assets or accounts payable and accrued
liabilities on our consolidated balance sheets.
Stock Compensation Plans
We apply a fair-value-based measurement method in accounting for stock-based payment
transactions with team members. We recognize stock-based compensation expense over the requisite
service period of the grant as salaries and wages expense. At December 31, 2009, we have three
stock-based compensation plans for team members and non-employee directors, which are described
more fully in Note 11 to the consolidated financial statements.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Employee Benefit Plan
We sponsor a 401(k) plan that covers substantially all of our team members. We made changes
to this plan effective April 1, 2008 and January 1, 2009. A summary of the 401(k) plan
contributions and vesting is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2009 |
|
April 1, 2008 |
|
January 1, 2007 |
|
|
to |
|
to |
|
to |
|
|
December 31, 2009 |
|
December 31, 2008 |
|
March 31, 2008 |
Team member contribution |
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of gross pay (1) |
|
1% - 75% |
|
1% - 75% |
|
1% - 20% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Acceptance contribution |
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of team member contribution |
|
50%(2) |
|
50%(3) |
|
50%(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting |
|
100% immediately |
|
100% on a 6 year graded schedule (4) |
|
100% on a 6 year graded schedule (4) |
|
|
|
(1) |
|
Subject to statutory limitations |
|
(2) |
|
Up to a maximum of 3% of each team members eligible annual gross pay |
|
(3) |
|
Up to a maximum of $1,250 per team member |
|
(4) |
|
Effective January 1, 2009, all previous matching contributions became 100% vested |
We recognized compensation expense of $1.0 million in 2009, and $0.5 million in 2008 and 2007
for our matching contributions to the plan.
Beginning January 1, 2010, we will make matching contributions equal to 100% on the first 1%
team members contribute and an additional 50% up to the next 5% team members contribute.
Advertising Costs
Advertising costs are expensed as incurred. There were nominal advertising expenses for the
year ended December 31, 2009. Advertising expenses were $0.4 million for the years ended December
31, 2008 and 2007.
New Accounting Pronouncements
Disclosures About Derivative Instruments and Hedging Activities. In March 2008, the FASB
issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities (SFAS
161). SFAS 161 was incorporated into the Financial Accounting Standards Board Accounting
Standards Codification (FASB ASC) through Accounting Standards Update (ASU) No. 2009-01 on June
30, 2009 and is intended to improve financial reporting about derivative instruments and
hedging activities by requiring enhanced disclosures. The adoption on January 1, 2009 had no
financial impact on our consolidated financial statements, but expanded our disclosures.
Interim Disclosures about Fair Value of Financial Instruments. In April 2009, the FASB issued
FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments
(FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 was incorporated into the FASB ASC
through ASU No. 2009-01 on June 30, 2009 and is intended to enhance consistency in
financial reporting by increasing the frequency of fair value disclosures. The adoption during the
second quarter of 2009 had no financial impact on our consolidated financial statements, but
expanded our interim disclosures.
Recognition and Presentation of Other-Than-Temporary Impairments. In April 2009, the FASB
issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments (FSP FAS 115-2 and FAS 124-2). FSP FAS 115-2 and FAS 124-2 was incorporated into
the FASB ASC through ASU No. 2009-01 on June 30, 2009 and amends the other-than-temporary
impairment guidance in GAAP for debt securities to make the guidance more operational and to
improve the presentation and disclosure of other-than-temporary impairments on debt and equity
securities in the financial statements. The adoption during the second quarter of 2009 did not
have an impact on our consolidated financial statements.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Concluded)
Subsequent Events. In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS
165). SFAS 165 was incorporated into the FASB ASC through ASU No. 2009-01 on June 30, 2009 and is
intended to establish principles and requirements for subsequent
events. In February 2010, the FASB issued ASU No. 2010-09, which
removes the requirement for an SEC filer to disclose the date through
which subsequent events have been evaluated. Management's
responsibility to evaluate subsequent events through the date of
issuance remains unchanged. The adoption during 2009 had no financial impact on our financial statements, but expanded our
disclosures.
Accounting for Transfers of Financial Assets. In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140 (SFAS 166).
SFAS 166 was incorporated into the FASB ASC through ASU No. 2009-16 and is intended to improve the
information provided in financial statements about the transfer of financial assets and the effects
of the transfer on financial position and performance, and cash flows. The pending content of ASU
No. 2009-16 will be effective for interim and annual reporting periods beginning after November 15,
2009, with early adoption prohibited. This statement must be applied to transfers occurring on or
after the effective date. We do not expect SFAS 166 to have a material impact on our consolidated
financial statements.
Amendments to FASB Interpretation No. 46(R). In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R) (SFAS 167). SFAS 167 was incorporated into the
FASB ASC through ASU No. 2009-17 and is intended to improve financial reporting related to variable
interest entities. ASU No. 2009-17 is effective at the start of a reporting entitys first fiscal
year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity, with
early adoption prohibited. We do not expect ASU No. 2009-17 to have a material impact on our
consolidated financial statements.
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles. In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB
Statement No. 162 (SFAS 168). SFAS 168 was incorporated into the FASB ASC through ASU No.
2009-02 on June 30, 2009 and identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP in the United States (the GAAP hierarchy). The
adoption did not have a material impact on our consolidated financial statements.
Reclassification
Certain amounts for prior periods have been reclassified to conform to the current
presentation.
Subsequent Events
We have evaluated events and transactions occurring subsequent to the consolidated balance
sheet date of December 31, 2009, for items that could potentially be recognized or disclosed in
these financial statements. For additional information regarding subsequent events, see Note
14 of these consolidated financial statements.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate their value.
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents. The carrying amount of
cash and cash equivalents and restricted cash and cash equivalents approximate their fair value due
to the short maturity of these instruments.
Restricted Securities Available for Sale. Restricted securities consist of amounts held in
trusts by TPAs to pay claims on vehicle service contracts. Securities for which we do not have the
intent or ability to hold to maturity are classified as available for sale and stated at fair
value. The fair value of restricted securities are based on quoted market values.
Net Investment in Loans Receivable. Loans receivable, net represents our net investment in
Consumer Loans. The fair value is determined by calculating the present value of future Loan
payment inflows and Dealer Holdback outflows estimated by us utilizing a discount rate comparable
with the rate used to calculate our allowance for credit losses.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS (Concluded)
Derivative Instruments. The fair value of interest rate caps and interest rate swaps are
based on quoted prices for similar instruments in active markets, which are influenced by a number
of factors, including interest rates, amount of debt outstanding, and number of months until
maturity.
Liabilities. The fair value of debt is determined using quoted market prices, if available,
or calculated using the estimated value of each debt instrument based on current rates offered to
us for debt with similar maturities.
A comparison of the carrying value and estimated fair value of these financial instruments is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2009 |
|
2008 |
|
|
Carrying |
|
Estimated |
|
Carrying |
|
Estimated |
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash |
|
$ |
84,626 |
|
|
$ |
84,626 |
|
|
$ |
83,487 |
|
|
$ |
83,487 |
|
Restricted securities available for sale |
|
|
3,121 |
|
|
|
3,121 |
|
|
|
3,345 |
|
|
|
3,345 |
|
Net investment in Loans receivable |
|
|
1,050,013 |
|
|
|
1,056,059 |
|
|
|
1,017,917 |
|
|
|
1,042,790 |
|
Derivative instruments |
|
|
82 |
|
|
|
82 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line of credit |
|
$ |
97,300 |
|
|
$ |
97,300 |
|
|
$ |
61,300 |
|
|
$ |
61,300 |
|
Secured financing |
|
|
404,597 |
|
|
|
404,725 |
|
|
|
574,175 |
|
|
|
569,811 |
|
Mortgage note |
|
|
4,744 |
|
|
|
4,757 |
|
|
|
5,274 |
|
|
|
5,415 |
|
Derivative instruments |
|
|
1,445 |
|
|
|
1,445 |
|
|
|
4,895 |
|
|
|
4,895 |
|
Fair value is an exit price, representing the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. We group assets and liabilities at
fair value in three levels, based on the markets in which the assets and liabilities are traded and
the reliability of the assumptions used to determine fair value. These levels are:
|
|
|
Level 1
|
|
Valuation is based upon quoted prices for identical instruments traded in active markets. |
|
|
|
Level 2
|
|
Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions
are observable in the market. |
|
|
|
Level 3
|
|
Valuation is generated from model-based techniques that use at least one significant assumption not observable in the
market. These unobservable assumptions reflect estimates or assumptions that market participants would use in pricing
the asset or liability. |
The following table provides the fair value measurements of applicable assets and liabilities,
measured at fair value on a recurring basis, as of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Level 1 |
|
Level 2 |
|
Fair Value |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted securities available for sale |
|
$ |
3,121 |
|
|
$ |
|
|
|
$ |
3,121 |
|
Derivative instruments |
|
|
|
|
|
|
82 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
$ |
|
|
|
$ |
1,445 |
|
|
$ |
1,445 |
|
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. LOANS RECEIVABLE
Loans receivable consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
Loans receivable |
|
$ |
869,603 |
|
|
$ |
297,955 |
|
|
$ |
1,167,558 |
|
Allowance for credit losses |
|
|
(108,792 |
) |
|
|
(8,753 |
) |
|
|
(117,545 |
) |
|
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
$ |
760,811 |
|
|
$ |
289,202 |
|
|
$ |
1,050,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
Loans receivable |
|
$ |
823,567 |
|
|
$ |
325,185 |
|
|
$ |
1,148,752 |
|
Allowance for credit losses |
|
|
(113,831 |
) |
|
|
(17,004 |
) |
|
|
(130,835 |
) |
|
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
$ |
709,736 |
|
|
$ |
308,181 |
|
|
$ |
1,017,917 |
|
|
|
|
|
|
|
|
|
|
|
A summary of changes in Loans receivable is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
Balance, beginning of period |
|
$ |
823,567 |
|
|
$ |
325,185 |
|
|
$ |
1,148,752 |
|
New Consumer Loan assignments (1) |
|
|
533,465 |
|
|
|
103,283 |
|
|
|
636,748 |
|
Principal collected on Loans receivable |
|
|
(515,847 |
) |
|
|
(145,399 |
) |
|
|
(661,246 |
) |
Dealer Holdback payments |
|
|
44,269 |
|
|
|
|
|
|
|
44,269 |
|
Transfers |
|
|
(14,935 |
) |
|
|
14,935 |
|
|
|
|
|
Write-offs |
|
|
(4,234 |
) |
|
|
(95 |
) |
|
|
(4,329 |
) |
Recoveries |
|
|
2,996 |
|
|
|
46 |
|
|
|
3,042 |
|
Net change in other loans |
|
|
152 |
|
|
|
|
|
|
|
152 |
|
Currency translation |
|
|
170 |
|
|
|
|
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
869,603 |
|
|
$ |
297,955 |
|
|
$ |
1,167,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
Balance, beginning of period |
|
$ |
804,245 |
|
|
$ |
140,453 |
|
|
$ |
944,698 |
|
New Consumer Loan assignments (1) |
|
|
524,496 |
|
|
|
280,326 |
|
|
|
804,822 |
|
Principal collected on Loans receivable |
|
|
(506,600 |
) |
|
|
(103,429 |
) |
|
|
(610,029 |
) |
Dealer Holdback payments |
|
|
58,503 |
|
|
|
|
|
|
|
58,503 |
|
Transfers |
|
|
(7,953 |
) |
|
|
7,953 |
|
|
|
|
|
Write-offs |
|
|
(48,966 |
) |
|
|
(146 |
) |
|
|
(49,112 |
) |
Recoveries |
|
|
|
|
|
|
28 |
|
|
|
28 |
|
Net change in other loans |
|
|
120 |
|
|
|
|
|
|
|
120 |
|
Currency translation |
|
|
(278 |
) |
|
|
|
|
|
|
(278 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
823,567 |
|
|
$ |
325,185 |
|
|
$ |
1,148,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
Balance, beginning of period |
|
$ |
724,645 |
|
|
$ |
29,926 |
|
|
$ |
754,571 |
|
New Consumer Loan assignments (1) |
|
|
571,197 |
|
|
|
139,340 |
|
|
|
710,537 |
|
Principal collected on Loans receivable |
|
|
(543,846 |
) |
|
|
(33,398 |
) |
|
|
(577,244 |
) |
Dealer Holdback payments |
|
|
70,950 |
|
|
|
|
|
|
|
70,950 |
|
Transfers |
|
|
(4,748 |
) |
|
|
4,748 |
|
|
|
|
|
Write-offs |
|
|
(14,658 |
) |
|
|
(192 |
) |
|
|
(14,850 |
) |
Recoveries |
|
|
|
|
|
|
29 |
|
|
|
29 |
|
Net change in other loans |
|
|
436 |
|
|
|
|
|
|
|
436 |
|
Currency translation |
|
|
269 |
|
|
|
|
|
|
|
269 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
804,245 |
|
|
$ |
140,453 |
|
|
$ |
944,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Dealer Loans amount represents advances and accelerated Dealer Holdback payments made to Dealer-Partners for Consumer Loans
assigned under our Portfolio Program. The Purchased Loans amount represents payments made to Dealer-Partners to purchase Consumer
Loans assigned under our Purchase Program. |
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. LOANS RECEIVABLE (Concluded)
A summary of changes in the allowance for credit losses is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
Balance, beginning of period |
|
$ |
113,831 |
|
|
$ |
17,004 |
|
|
$ |
130,835 |
|
Provision for credit losses |
|
|
(3,962 |
) |
|
|
(8,202 |
) |
|
|
(12,164 |
) |
Write-offs |
|
|
(4,234 |
) |
|
|
(95 |
) |
|
|
(4,329 |
) |
Recoveries |
|
|
2,996 |
|
|
|
46 |
|
|
|
3,042 |
|
Currency translation |
|
|
161 |
|
|
|
|
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
108,792 |
|
|
$ |
8,753 |
|
|
$ |
117,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
Balance, beginning of period |
|
$ |
133,201 |
|
|
$ |
944 |
|
|
$ |
134,145 |
|
Provision for credit losses |
|
|
29,851 |
|
|
|
16,178 |
|
|
|
46,029 |
|
Write-offs |
|
|
(48,966 |
) |
|
|
(146 |
) |
|
|
(49,112 |
) |
Recoveries |
|
|
|
|
|
|
28 |
|
|
|
28 |
|
Currency translation |
|
|
(255 |
) |
|
|
|
|
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
113,831 |
|
|
$ |
17,004 |
|
|
$ |
130,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
Balance, beginning of period |
|
$ |
127,881 |
|
|
$ |
910 |
|
|
$ |
128,791 |
|
Provision for credit losses |
|
|
19,750 |
|
|
|
197 |
|
|
|
19,947 |
|
Write-offs |
|
|
(14,658 |
) |
|
|
(192 |
) |
|
|
(14,850 |
) |
Recoveries |
|
|
|
|
|
|
29 |
|
|
|
29 |
|
Currency translation |
|
|
228 |
|
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
133,201 |
|
|
$ |
944 |
|
|
$ |
134,145 |
|
|
|
|
|
|
|
|
|
|
|
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. LEASED PROPERTIES
We lease office space and office equipment. We expect that in the normal course of business,
leases will be renewed or replaced by other leases. Total rental expense from continuing
operations on all operating leases was $1.3 million, $1.0 million and $0.8 million for 2009, 2008
and 2007, respectively. Contingent rentals under the operating leases were insignificant. Our
total minimum future lease commitments under operating leases as of December 31, 2009 are as
follows (in thousands):
|
|
|
|
|
Minimum Future |
| | |
|
Lease Commitments |
| | |
2010 |
|
$ |
782 |
|
2011 |
|
|
675 |
|
2012 |
|
|
635 |
|
2013 |
|
|
473 |
|
2014 |
|
|
313 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
2,878 |
|
|
|
|
|
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2008 |
|
Land and land improvements |
|
$ |
2,251 |
|
|
$ |
2,582 |
|
Building and improvements |
|
|
11,790 |
|
|
|
11,926 |
|
Data processing equipment and software |
|
|
34,765 |
|
|
|
37,381 |
|
Office furniture and equipment |
|
|
2,937 |
|
|
|
3,472 |
|
Leasehold improvements |
|
|
111 |
|
|
|
344 |
|
|
|
|
|
|
|
|
Total property and equipment |
|
|
51,854 |
|
|
|
55,705 |
|
Less: |
|
|
|
|
|
|
|
|
Accumulated depreciation on property and equipment |
|
|
(30,581 |
) |
|
|
(32,574 |
) |
Accumulated depreciation on capital leased assets |
|
|
(2,538 |
) |
|
|
(2,082 |
) |
|
|
|
|
|
|
|
Total accumulated depreciation |
|
|
(33,119 |
) |
|
|
(34,656 |
) |
|
|
|
|
|
|
|
|
|
$ |
18,735 |
|
|
$ |
21,049 |
|
|
|
|
|
|
|
|
Property and equipment included capital leased assets of $2.7 million as of December 31,
2009 and 2008. Depreciation expense on property and equipment, including capital leased assets,
was $5.1 million, $5.3 million and $4.1 million in 2009, 2008 and 2007, respectively.
For the years ended December 31, 2009, 2008 and 2007, we capitalized software developed for
internal use of $1.0 million, $3.4 million, and $1.5 million, respectively. As of December 31,
2009 and 2008, capitalized software costs, net of accumulated depreciation, totaled $4.1 million
and $4.8 million, respectively.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEBT
We currently utilize the following forms of debt financing: (1) a revolving secured line of
credit with a commercial bank syndicate; (2) revolving secured warehouse facilities with
institutional investors; (3) asset-backed secured financings (Term ABS) with qualified
institutional investors; and (4) Senior Secured Notes due 2017 issued pursuant to Rule 144A and
Regulation S of the Securities Act of 1933, as amended (Senior Notes). For information on the
Senior Notes, which were issued subsequent to December 31, 2009, see Note 14 of these consolidated
financial statements. General information for each of our financing transactions in place as of
December 31, 2009 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-owned |
|
Issue |
|
|
|
Revolving Maturity |
|
Financing |
|
Interest Rate at |
Financings |
|
Subsidiary |
|
Number |
|
Close Date |
|
Date |
|
Amount |
|
December 31, 2009 |
Revolving Line of Credit |
|
n/a |
|
n/a |
|
June 15, 2009 |
|
June 23, 2011 |
|
$ |
140,000 |
|
|
At our option, either Eurodollar rate plus 275 basis points or the prime rate plus 100 basis points |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Secured
Warehouse Facility (1) |
|
CAC Warehouse Funding Corp. II |
|
2003-2 |
|
August 24, 2009 |
|
August 23, 2011 (7) |
|
$ |
325,000 |
|
|
Commercial paper rate plus 500 basis points or LIBOR plus 600 basis points (4) (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Secured
Warehouse Facility (1) |
|
CAC Warehouse Funding III, LLC |
|
2008-2 |
|
August 31, 2009 |
|
August 31, 2012 (6) |
|
$ |
75,000 |
|
|
Commercial paper rate plus 375 basis points or LIBOR plus 375 basis points (3) (4) (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 2008-1 (1) |
|
Credit Acceptance Funding LLC 2008-1 |
|
2008-1 |
|
April 18, 2008 |
|
April 15, 2009 (2) |
|
$ |
150,000 |
|
|
Fixed rate (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 2009-1 (1) |
|
Credit Acceptance Funding LLC 2009-1 |
|
2009-1 |
|
December 3, 2009 |
|
May 15, 2011 (2) |
|
$ |
110,500 |
|
|
Fixed rate |
|
|
|
(1) |
|
Financing made available only to a specified subsidiary of the Company. |
|
(2) |
|
Loans will amortize after the maturity date based on the cash flows of the contributed assets. |
|
(3) |
|
A portion of the outstanding balance is a floating rate obligation that has been converted to a fixed rate obligation via an interest rate swap. |
|
(4) |
|
The LIBOR rate is used if funding is not available from the commercial paper market. |
|
(5) |
|
Interest rate cap agreements are in place to limit the exposure to increasing interest rates. |
|
(6) |
|
Facility revolves until August 31, 2011 and matures on August 31, 2012. |
|
(7) |
|
Facility revolves until August 23, 2010 and matures on August 23, 2011. |
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEBT (Continued)
Additional information related to the amounts outstanding on each facility is as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2009 |
|
2008 |
Revolving Line of Credit |
|
|
|
|
|
|
|
|
Maximum outstanding balance |
|
$ |
128,900 |
|
|
$ |
128,400 |
|
Average outstanding balance |
|
|
90,494 |
|
|
|
59,991 |
|
|
|
|
|
|
|
|
|
|
Revolving Secured Warehouse Facility (2003-2) (1) |
|
|
|
|
|
|
|
|
Maximum outstanding balance |
|
$ |
325,000 |
|
|
$ |
320,000 |
|
Average outstanding balance |
|
|
260,798 |
|
|
|
262,884 |
|
|
|
|
|
|
|
|
|
|
Revolving Secured Warehouse Facility (2008-2) |
|
|
|
|
|
|
|
|
Maximum outstanding balance |
|
$ |
75,000 |
|
|
$ |
50,000 |
|
Average outstanding balance |
|
|
55,068 |
|
|
|
50,000 |
|
|
|
|
(1) |
|
2008 data includes amounts owing after February 12, 2008 to an institutional investor that did not
renew their participation in the facility. The amount due did not reduce the amount available on
the
Warehouse Facility. See Revolving Secured Warehouse Facilities for additional information. |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
2009 |
|
2008 |
Revolving Line of Credit |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
97,300 |
|
|
$ |
61,300 |
|
Letter(s) of credit |
|
|
514 |
|
|
|
555 |
|
Amount available for borrowing |
|
|
42,186 |
|
|
|
91,645 |
|
Interest rate |
|
|
4.25 |
% |
|
|
1.70 |
% |
|
|
|
|
|
|
|
|
|
Revolving Secured Warehouse Facility (2003-2) |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
152,600 |
|
|
$ |
256,000 |
|
Amount available for borrowing |
|
|
172,400 |
|
|
|
69,000 |
|
Contributed eligible Loans |
|
|
192,921 |
|
|
|
344,111 |
|
Interest rate |
|
|
5.24 |
% |
|
|
3.33 |
% |
|
|
|
|
|
|
|
|
|
Revolving Secured Warehouse Facility (2008-2) |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
75,000 |
|
|
$ |
50,000 |
|
Amount available for borrowing |
|
|
|
|
|
|
|
|
Contributed eligible Loans |
|
|
94,073 |
|
|
|
62,562 |
|
Interest rate |
|
|
4.36 |
% |
|
|
2.21 |
% |
|
|
|
|
|
|
|
|
|
Term ABS 2007-1 |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
|
|
|
$ |
33,915 |
|
Contributed eligible Dealer Loans |
|
|
|
|
|
|
87,155 |
|
Interest rate |
|
|
|
|
|
|
5.32 |
% |
|
|
|
|
|
|
|
|
|
Term ABS 2007-2 |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
|
|
|
$ |
84,260 |
|
Contributed eligible Dealer Loans |
|
|
|
|
|
|
114,054 |
|
Interest rate |
|
|
|
|
|
|
6.22 |
% |
|
|
|
|
|
|
|
|
|
Term ABS 2008-1 |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
66,497 |
|
|
$ |
150,000 |
|
Contributed eligible Loans |
|
|
142,267 |
|
|
|
184,595 |
|
Interest rate |
|
|
6.37 |
% |
|
|
6.37 |
% |
|
|
|
|
|
|
|
|
|
Term ABS 2009-1 |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
110,500 |
|
|
$ |
|
|
Contributed eligible Loans |
|
|
142,315 |
|
|
|
|
|
Interest rate |
|
|
4.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residual Credit Facility |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
|
|
|
$ |
|
|
Certificate Pledged |
|
|
|
|
|
|
52,944 |
|
Interest rate |
|
|
|
|
|
|
4.83 |
% |
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEBT (Continued)
Line of Credit Facility
During the second quarter of 2009, we extended the maturity of the line of credit facility
with a commercial bank syndicate from June 22, 2010 to June 23, 2011, and we reduced the amount of
the facility from $153.5 million to $140.0 million. The interest rate on borrowings under the
facility was increased from the prime rate minus 0.60% or the Eurodollar rate plus 1.25%, at our
option, to the prime rate plus 1.0% or the Eurodollar rate plus 2.75%, at our option. The
Eurodollar rate is subject to a floor of 1.50%. In addition, certain financial covenants were
modified as follows:
|
|
|
The maximum funded debt to tangible net worth ratio was reduced from 4.0 to 1.0 to a
ratio of 3.25 to 1.0 |
|
|
|
|
The minimum fixed charge coverage ratio was increased from 1.75 to 1.0 to a ratio of 2.0
to 1.0 |
|
|
|
|
The minimum asset coverage ratio was increased from 1.0 to 1.0 to a ratio of 1.1 to 1.0 |
Borrowings under the line of credit facility are subject to a borrowing-base limitation. This
limitation equals 80% of the net book value of Loans, less a hedging reserve (not exceeding $1.0
million), the amount of letters of credit issued under the line of credit, and the amount of other
debt secured by the collateral which secures the line of credit. Borrowings under the line of
credit agreement are secured by a lien on most of our assets. We must pay quarterly fees on the
amount of the facility.
Revolving Secured Warehouse Facilities
We have two revolving secured warehouse facilities that are provided to our wholly-owned
subsidiaries. One is a $325.0 million facility with an institutional investor and the other is a
$75.0 million facility with another institutional investor.
During the third quarter of 2009, the maturity of the $325.0 million revolving secured
warehouse facility was extended. The agreement was modified to provide that in the event that the
facility is not renewed after the revolving period ends on August 23, 2010, and the borrower is in
compliance with the terms and conditions of the agreement, the facility will amortize for a twelve
month period ending August 23, 2011. During this time, the outstanding debt will be paid down
through the collections on the contributed assets. At the end of the twelve month period, the
balance of the facility will be due and payable. Additionally, the interest rate on borrowings
under the facility was increased from the commercial paper rate plus 100 basis points to the
commercial paper rate plus 500 basis points. Finally, under the terms of the extension, the
minimum levels for the three month average net yield percentage to avoid early amortization or
termination of the facility were reduced from 6% and 5%, respectively, to 2% and 1%, respectively.
The net yield percentage for any month is equal to the product of (i) 12, and (ii) 20% of
collections less the amount of interest and fees due on the facility, divided by the average
borrowing base during the month. There were no other material changes to the terms of the
facility.
During the third quarter of 2009, the amount of the $50.0 million revolving secured warehouse
facility was increased to $75.0 million. In addition, the expiration of the revolving period on the
facility was extended from May 23, 2010 to August 31, 2011 and the maturity of the facility was
extended from May 23, 2011 to August 31, 2012. Finally, the interest rate on the facility was
increased from a floating rate equal to LIBOR plus 177.5 basis points to LIBOR plus 375 basis
points. There were no other material changes to the terms of the facility.
Under both warehouse facilities we can contribute Loans to our wholly-owned subsidiaries in
return for cash and equity in each subsidiary. In turn, each subsidiary pledges the Loans as
collateral to institutional investors to secure financing that will fund the cash portion of the
purchase price of the Loans. The financing provided to each subsidiary under the applicable
facility is limited to the lesser of 80% of the net book value of the contributed Loans or the
facility limit.
The subsidiaries are liable for any amounts due under the applicable facility. Even though we
consolidate our subsidiaries for financial reporting purposes, the financing is non-recourse to us.
As our subsidiaries are organized as separate legal entities from us, their assets (including the
conveyed Loans) will not be available to satisfy our general obligations. All of each of our
subsidiarys assets have been encumbered to secure its obligations to its respective creditors.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEBT (Continued)
Interest on borrowings under the facilities has been limited to a maximum rate of 6.75%
through interest rate cap agreements. We have also entered into an interest rate swap to convert
$25.0 million of the $75.0 million secured warehouse facility into fixed debt bearing an interest
rate of 5.1%. The subsidiaries pay us a monthly servicing fee equal to 6% of the collections
received with respect to the conveyed Loans. The fee is paid out of the collections. Except for
the servicing fee and holdback payments due to Dealer-Partners, if a facility is amortizing, we do
not have any rights in any portion of such collections until all outstanding principal, accrued and
unpaid interest, fees and other related costs have been paid in full. If a facility is not
amortizing, the applicable subsidiary may be entitled to retain a portion of such collections
provided that the borrowing base requirements of the facility are satisfied.
Term ABS Financings
In 2007, 2008, and 2009, four of our wholly-owned subsidiaries (the Funding LLCs), each
completed a secured financing transaction. In connection with these transactions, we conveyed
Loans on an arms-length basis to each Funding LLC for cash and the sole membership interest in that
Funding LLC. In turn, each Funding LLC contributed the Loans to a respective trust that issued
notes to qualified institutional investors. Financial insurance policies were issued in connection
with the 2007 transactions. The policies guarantee the timely payment of interest and ultimate
repayment of principal on the final scheduled distribution date. In the 2007 transactions, the
notes were initially rated Aaa by Moodys Investor Service (Moodys) and AAA by Standard &
Poors Rating Services (S&P) based upon the financial insurance policy. As of December 31, 2009,
both 2007 transactions have been paid off. The Term ABS 2008-1 transaction was not issued with a
financial insurance policy and is rated A by S&P. The Term ABS 2009-1 transaction consists of
three classes of notes. The Class A notes are rated AAA by S&P and DBRS, Inc. The Class B Notes
are rated AA by S&P. The Class C Note does not bear interest, is not rated and is being retained
by us.
Each financing has a specified revolving period during which we may be required, and are
likely, to convey additional Loans to each Funding LLC. Each Funding LLC will then convey the
Loans to their respective trust. At the end of the revolving period, the debt outstanding under
each financing will begin to amortize.
The financings create loans for which the trusts are liable and which are secured by all the
assets of each trust. Such loans are non-recourse to us, even though we are consolidated for
financial reporting purposes with the trusts and the Funding LLCs. Because the Funding LLCs are
organized as legal entities separate from us, their assets (including the conveyed Loans) are not
available to our creditors. We receive a monthly servicing fee on each financing equal to 6% of
the collections received with respect to the conveyed Loans. The fee is paid out of the
collections. Except for the servicing fee and Dealer Holdback payments due to Dealer-Partners, if
a facility is amortizing, we do not have any rights in any portion of such collections until all
outstanding principal, accrued and unpaid interest, fees and other related costs have been paid in
full. If a facility is not amortizing, the applicable subsidiary may be entitled to retain a
portion of such collections provided that the borrowing base requirements of the facility are
satisfied. However, in our capacity as servicer of the Loans, we do have a limited right to
exercise a clean-up call option to purchase Loans from the Funding LLCs and/or the trusts under
certain specified circumstances. Alternatively, when a trusts underlying indebtedness is paid in
full, either through collections or through a prepayment of the indebtedness, the trust is to pay
any remaining collections over to its Funding LLC as the sole beneficiary of the trust. The
collections will then be available to be distributed to us as the sole member of the respective
Funding LLC.
The table below sets forth certain additional details regarding the outstanding Term ABS
Financings (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value of Dealer |
|
|
|
|
|
Expected |
|
|
Issue |
|
|
|
|
|
Loans Conveyed at |
|
|
|
|
|
Annualized |
Term ABS Financing |
|
Number |
|
Close Date |
|
Closing |
|
Revolving Period |
|
Rates (1) |
Term ABS 2008-1 |
|
|
2008-1 |
|
|
April 18, 2008 |
|
$ |
86,615 |
|
|
12 months (Through April 15, 2009) |
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 2009-1 |
|
|
2009-1 |
|
|
December 3, 2009 |
|
$ |
142,301 |
|
|
18 months (Through May 15, 2011) |
|
|
5.2 |
% |
|
|
|
(1) |
|
Includes underwriters fees, insurance premiums and other costs. |
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEBT (Concluded)
Residual Credit Facility
Another wholly-owned subsidiary, Credit Acceptance Residual Funding LLC (Residual Funding),
had a $50.0 million secured credit facility with an institutional investor. On August 26, 2009,
the $50.0 million residual credit facility matured and was not renewed. No amounts were
outstanding under the $50.0 million credit facility at the maturity date.
Mortgage Loan
During 2009, the mortgage note on our Southfield headquarters was amended to extend the
maturity date from June 9, 2009 to June 22, 2014. Additionally, the interest rate on the note was
increased from 5.35% to 5.70%. There was $4.7 million and $5.3 million outstanding on this loan as
of December 31, 2009 and 2008, respectively.
Capital Lease Obligations
As of December 31, 2009, we had various capital lease obligations outstanding for computer
equipment, with monthly payments totaling approximately $0.1 million. The total amount of capital
lease obligations outstanding as of December 31, 2009 and 2008 were $0.3 million and $1.0 million,
respectively. These capital lease obligations bear interest at rates ranging from 6.41% to 8.59%
and have maturity dates between June 2010 and October 2010.
Letters of Credit
Letters of credit are issued by a commercial bank syndicate and reduce amounts available under
our revolving line of credit. As of December 31, 2009 and December 31, 2008, we had letters of
credit outstanding of $0.5 million and $0.6 million, respectively. The letters of credit relate to
reinsurance agreements. The letters of credit expire on May 26, 2010 and October 31, 2010, at
which time they will be automatically extended for a period of one year unless we are notified
otherwise by the commercial bank syndicate.
Principal Debt Maturities
The scheduled principal maturities of our debt at December 31, 2009 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Secured |
|
|
|
|
|
|
Mortgage Note and |
|
|
|
|
|
|
Line of Credit |
|
|
Warehouse |
|
|
Term ABS |
|
|
Capital Lease |
|
|
|
|
Year |
|
Facility |
|
|
Facilities |
|
|
Financings (1) |
|
|
Obligations |
|
|
Total |
|
2010 |
|
$ |
|
|
|
$ |
43,621 |
|
|
$ |
66,497 |
|
|
$ |
559 |
|
|
$ |
110,677 |
|
2011 |
|
|
97,300 |
|
|
|
130,418 |
|
|
|
54,338 |
|
|
|
235 |
|
|
|
282,291 |
|
2012 |
|
|
|
|
|
|
53,561 |
|
|
|
56,162 |
|
|
|
248 |
|
|
|
109,971 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263 |
|
|
|
263 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,777 |
|
|
|
3,777 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
97,300 |
|
|
$ |
227,600 |
|
|
$ |
176,997 |
|
|
$ |
5,082 |
|
|
$ |
506,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The principal maturities of the Term ABS transactions are estimated based on
forecasted collections. |
Debt Covenants
As of December 31, 2009, we are in compliance with all our debt covenants including those that
require the maintenance of certain financial ratios and other financial conditions. The covenants
require a minimum ratio of our assets to debt and a minimum ratio of our earnings before interest,
taxes and non-cash expenses to fixed charges. The covenants also limit the maximum ratio of our
funded debt to tangible net worth. Additionally, we must maintain consolidated net income of not
less than $1 for the two most recently ended fiscal quarters. Some of the debt covenants may
indirectly limit the repurchase of common stock or payment of dividends on common stock.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DERIVATIVE INSTRUMENTS
Interest Rate Caps. We purchase interest rate cap agreements to manage the interest rate risk
on our $325.0 million revolving secured warehouse facility and on $50.0 million of the $75.0
million revolving secured warehouse facility.
As of December 31, 2009, eight interest rate cap agreements with various maturities between
May 2010 and August 2011 were outstanding with a cap rate of 6.75% plus the spread over the LIBOR
rate or the commercial paper rate, as applicable, and a nominal fair value. As of December 31,
2008, seven interest rate cap agreements with various maturities between July 2009 and February
2011 were outstanding with a cap rate of 6.75% plus the spread over the LIBOR rate or the
commercial paper rate, as applicable, and a nominal fair value.
The interest rate caps have not been designated as hedging instruments.
Interest Rate Swaps. As of December 31, 2009 and 2008, we had two interest rate swaps
outstanding that convert $50.0 million and $150.0 million in floating rate Term ABS asset-backed
secured financings into fixed rate debt, bearing interest rates of 6.28% and 6.37%, respectively.
During 2009, we entered into a third interest rate swap to convert $25.0 million of the $75.0
million revolving secured warehouse facility into fixed rate debt, bearing an interest rate of
5.1%, which was also outstanding as of December 31, 2009.
At December 31, 2009, we had minimal exposure to credit loss on the interest rate swaps. We
do not believe that any reasonably likely change in interest rates would have a materially adverse
effect on our financial position, our results of operations or our cash flows.
The interest rate swaps related to the $150.0 million in floating rate Term ABS asset-backed
secured financings and the $25.0 million of the $75.0 million revolving secured warehouse facility
have been designated as cash flow hedging instruments.
The interest rate swap related to the $50.0 million in floating rate Term ABS asset-backed
secured financings has not been designated as a hedging instrument.
Information related to the fair values of derivative instruments in our consolidated balance
sheets as of December 31, 2009 and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
Balance Sheet |
|
|
December 31, |
|
|
|
location |
|
|
2009 |
|
|
2008 |
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
Other assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
Accounts payable and accrued liabilities |
|
$ |
1,445 |
|
|
$ |
4,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
Other assets |
|
$ |
82 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
Accounts payable and accrued liabilities |
|
$ |
|
|
|
$ |
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Asset Derivatives |
|
|
|
|
|
$ |
82 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liability Derivatives |
|
|
|
|
|
$ |
1,445 |
|
|
$ |
4,895 |
|
|
|
|
|
|
|
|
|
|
|
|
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DERIVATIVE INSTRUMENTS (Concluded)
Information related to the effect of derivative instruments on our consolidated income
statements for the years ended December 31, 2009, 2008 and 2007 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain / (Loss) |
|
Gain / (Loss) |
|
|
Recognized in OCI on Derivative |
|
Reclassified from Accumulated |
Derivatives in Cash |
|
(Effective Portion) |
|
OCI into Income (Effective Portion) |
Flow Hedging |
|
Years Ended December 31, |
|
|
|
|
|
Years Ended December 31, |
Relationships |
|
2009 |
|
2008 |
|
2007 |
|
Location |
|
2009 |
|
2008 |
|
2007 |
Interest rate swap |
|
$ |
(1,017 |
) |
|
$ |
(4,903 |
) |
|
$ |
|
|
|
Interest expense |
|
$ |
(3,641 |
) |
|
$ |
(835 |
) |
|
$ |
|
|
As of December 31, 2009, we expect to reclassify losses of $1.4 million from accumulated
other comprehensive income into income during the next twelve months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain / (Loss) Recognized in |
|
|
|
|
|
|
|
Income on Derivative |
|
Derivatives Not Designated as |
|
|
|
|
|
Years Ended December 31, |
|
Hedging Instruments |
|
Location |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Interest rate caps |
|
Interest expense |
|
$ |
(112 |
) |
|
$ |
(117 |
) |
|
$ |
(62 |
) |
Interest rate swap |
|
Interest expense |
|
|
106 |
|
|
|
(1,193 |
) |
|
|
(433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
(6 |
) |
|
$ |
(1,310 |
) |
|
$ |
(495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. RELATED PARTY TRANSACTIONS
In the normal course of our business, affiliated Dealer-Partners assign Consumer Loans to us
under the Portfolio and Purchase Programs. Dealer Loans and Purchased Loans with affiliated
Dealer-Partners are on the same terms as those with non-affiliated Dealer-Partners. Affiliated
Dealer-Partners are comprised of Dealer-Partners owned or controlled by: (1) our majority
shareholder and Chairman; and (2) a member of the Chairmans immediate family.
Affiliated Dealer Loan balances were $12.7 million and $15.4 million as of December 31, 2009
and 2008, respectively. Affiliated Dealer Loan balances were 1.5% and 1.9% of total consolidated
Dealer Loan balances as of December 31, 2009 and 2008, respectively. A summary of related party
Loan activity is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
2009 |
|
2008 |
|
2007 |
|
|
Affiliated |
|
|
|
|
|
Affiliated |
|
|
|
|
|
Affiliated |
|
|
|
|
Dealer-Partner |
|
% of |
|
Dealer-Partner |
|
% of |
|
Dealer-Partner |
|
% of |
|
|
activity |
|
consolidated |
|
activity |
|
consolidated |
|
activity |
|
consolidated |
New Dealer and Purchased Loans |
|
$ |
5,977 |
|
|
|
1.1 |
% |
|
$ |
10,325 |
|
|
|
2.0 |
% |
|
$ |
10,111 |
|
|
|
1.8 |
% |
|
Dealer Loan revenue |
|
$ |
3,714 |
|
|
|
1.5 |
% |
|
$ |
4,045 |
|
|
|
1.9 |
% |
|
$ |
4,529 |
|
|
|
2.4 |
% |
|
Dealer Holdback payments |
|
$ |
1,787 |
|
|
|
4.0 |
% |
|
$ |
2,121 |
|
|
|
3.6 |
% |
|
$ |
1,801 |
|
|
|
2.5 |
% |
Our majority shareholder and Chairman has indirect control over entities that offer
secured lines of credit to automobile dealers and has the right or obligation to reacquire these
entities under certain circumstances until December 31, 2014 or the repayment of the related
purchase money note.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES
The income tax provision, excluding the results of the discontinued United Kingdom operations,
consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Income (loss) from continuing operations
before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
228,885 |
|
|
$ |
107,319 |
|
|
$ |
82,966 |
|
Foreign |
|
|
153 |
|
|
|
(307 |
) |
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
229,038 |
|
|
$ |
107,012 |
|
|
$ |
83,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision (benefit) for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
63,321 |
|
|
$ |
23,800 |
|
|
$ |
8,446 |
|
State |
|
|
2,197 |
|
|
|
3,333 |
|
|
|
93 |
|
Foreign |
|
|
(7 |
) |
|
|
(27 |
) |
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
65,511 |
|
|
|
27,106 |
|
|
|
8,498 |
|
|
|
|
|
|
|
|
|
|
|
Deferred provision (benefit) for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
15,120 |
|
|
|
13,541 |
|
|
|
19,201 |
|
State |
|
|
3,583 |
|
|
|
(1,783 |
) |
|
|
1,159 |
|
Foreign |
|
|
|
|
|
|
5 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,703 |
|
|
|
11,763 |
|
|
|
20,371 |
|
|
|
|
|
|
|
|
|
|
|
Interest and penalties (benefit) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
(29 |
) |
|
|
1,227 |
|
|
|
749 |
|
Penalties |
|
|
(1,193 |
) |
|
|
(152 |
) |
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,222 |
) |
|
|
1,075 |
|
|
|
698 |
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
82,992 |
|
|
$ |
39,944 |
|
|
$ |
29,567 |
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2008 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for credit losses |
|
$ |
43,070 |
|
|
$ |
47,330 |
|
Stock-based compensation |
|
|
6,102 |
|
|
|
3,395 |
|
Deferred state net operating loss |
|
|
659 |
|
|
|
995 |
|
Other, net |
|
|
3,911 |
|
|
|
4,537 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
53,742 |
|
|
|
56,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Valuation of Loans receivable |
|
|
142,280 |
|
|
|
126,606 |
|
Deferred Loan origination costs |
|
|
2,318 |
|
|
|
1,817 |
|
Depreciable assets |
|
|
1,110 |
|
|
|
1,382 |
|
Other, net |
|
|
1,786 |
|
|
|
1,512 |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
147,494 |
|
|
|
131,317 |
|
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
93,752 |
|
|
$ |
75,060 |
|
|
|
|
|
|
|
|
The deferred state net operating loss tax asset arising from the operating loss carry forward
for state income tax purposes is expected to be fully realized by 2012.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES (Concluded)
A reconciliation of the U.S. federal statutory rate to our effective tax rate, excluding the
results of the discontinued United Kingdom operations, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2009 |
|
2008 |
|
2007 |
U.S. federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes |
|
|
1.6 |
|
|
|
0.9 |
|
|
|
1.0 |
|
Distributed foreign earnings |
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
0.7 |
|
Interest and penalties |
|
|
(0.6 |
) |
|
|
1.0 |
|
|
|
0.8 |
|
Other |
|
|
0.1 |
|
|
|
0.5 |
|
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
36.2 |
% |
|
|
37.3 |
% |
|
|
35.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rates for 2009, 2008 and 2007 differed from the federal statutory tax rate
of 35% primarily due to state income taxes and reserves for uncertain tax positions and related
interest and penalties that are included in the provision for income taxes. As a result of an
adjustment to the deferred tax liability arising from changes in the effective state income tax
rate, the effective tax rate for 2009 was increased by approximately 30 basis points, while the
effective tax rate for 2008 was reduced by approximately 100 basis points.
The following table is a summary of changes of the reserve for unrecognized gross tax benefits
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Gross tax contingencies balance at January 1, |
|
$ |
12,274 |
|
|
$ |
9,451 |
|
|
$ |
9,974 |
|
Additions based on tax position related to current year |
|
|
2,564 |
|
|
|
1,897 |
|
|
|
2,162 |
|
Additions for tax positions of prior years |
|
|
|
|
|
|
1,081 |
|
|
|
59 |
|
Reductions for tax positions of prior years |
|
|
(836 |
) |
|
|
|
|
|
|
(2,518 |
) |
Settlements |
|
|
(559 |
) |
|
|
|
|
|
|
|
|
Reductions as a result of a lapse of the statute of limitations |
|
|
(1,613 |
) |
|
|
(155 |
) |
|
|
(226 |
) |
|
|
|
|
|
|
|
|
|
|
Gross tax contingencies balance at December 31, |
|
$ |
11,830 |
|
|
$ |
12,274 |
|
|
$ |
9,451 |
|
|
|
|
|
|
|
|
|
|
|
The total amount of unrecognized tax benefit, that if recognized would favorably reduce our
effective income tax rate in future periods was $11.8 million as of December 31, 2009. Accrued
interest and penalties related to uncertain tax positions were $3.9 million and $5.1 million as of
December 31, 2009 and 2008, respectively.
We are subject to U.S. federal income tax as well as income tax in multiple state
jurisdictions. We have substantially concluded all U.S. federal income tax matters for years
through 2003. Substantially all material state and local tax matters have been concluded for years
through 2003 and foreign tax matters have been concluded through 2008. The federal income tax
returns for 2004, 2005 and 2006 have been under examination by the Internal Revenue Service (IRS)
since February 2007.
In July 2009, we received a revised notice from the IRS, in the form of a 30-day letter,
disputing the tax valuation of our Loan portfolio for 2004 through 2006. We disagree with the
IRSs proposed valuation and will vigorously defend our position. We have filed tax returns for
2004 to 2008 applying the portfolio valuation methodology that the IRS disputes. If the IRS were
to prevail with their current position without compromise, we would owe $20.4 million of additional
federal and state taxes for the period under audit. Additionally, if we used their methodology for
2007, 2008 and 2009, we would owe additional federal and state taxes of $16.9 million. The total
amount of $37.3 million of additional taxes is an acceleration of taxes already provided for and
recorded as a deferred income tax liability in our balance sheet as of December 31, 2009 and
therefore would have no effect on our income statement. We would also owe interest related to the
additional federal and state taxes that would reduce our net income by $7.6 million. As we believe
our position will be upheld, we have not recorded a reserve for the interest amounts.
During 2009, 2008 and 2007, we remitted substantially all of our accumulated earnings from
foreign subsidiaries as profits to the U.S. and accrued or paid U.S. income taxes accordingly.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. CAPITAL TRANSACTIONS
Net Income Per Share
Basic net income per share has been computed by dividing net income by the basic number of
common shares outstanding. Diluted net income per share has been computed by dividing net income
by the diluted number of common and common equivalent shares outstanding using the treasury stock
method. The share effect is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2009 |
|
2008 |
|
2007 |
Weighted average common and common equivalent shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic number of common shares outstanding |
|
|
30,590,142 |
|
|
|
30,249,783 |
|
|
|
30,053,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options |
|
|
623,459 |
|
|
|
596,541 |
|
|
|
1,040,575 |
|
Dilutive effect of restricted stock and restricted stock units |
|
|
455,294 |
|
|
|
258,719 |
|
|
|
59,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive number of common and common equivalent shares outstanding |
|
|
31,668,895 |
|
|
|
31,105,043 |
|
|
|
31,153,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no stock options or restricted stock that would be anti-dilutive for the years
presented.
Stock Repurchase Program
In 1999, our board of directors approved a stock repurchase program which authorizes us to
purchase common shares in the open market or in privately negotiated transactions at price levels
we deem attractive. As of December 31, 2009, we have repurchased approximately 20.4 million shares
under the stock repurchase program at a cost of $399.2 million. Included in the stock repurchases
to date are 12.5 million shares of common stock purchased through four modified Dutch auction
tender offers at a cost of $304.4 million. As of December 31, 2009, we have authorization to
repurchase an additional $29.1 million of our common stock.
Stock Compensation Plans
Pursuant to our Incentive Compensation Plan, which was approved by shareholders on May 13,
2004, we reserved 1.0 million shares of our common stock for the future granting of restricted
stock, restricted stock units, stock options, and performance awards to team members, officers, and
directors at any time prior to April 1, 2014. At our annual meeting of shareholders on May 21,
2009, our shareholders adopted the Credit Acceptance Corporation Amended and Restated Incentive
Compensation Plan, amended and restated as of April 6, 2009 (the Incentive Plan), which increased
the number of shares reserved for granting of restricted stock, restricted stock units, stock
options, and performance awards to team members, officers, directors, and contractors at any time
prior to April 6, 2019, to 1.5 million shares. The shares available for future grants under the
Incentive Plan totaled 362,283 as of December 31, 2009.
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. CAPITAL TRANSACTIONS (Continued)
A summary of the restricted stock activity under the Incentive Plan for the years ended
December 31, 2009, 2008 and 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant-Date |
|
|
Number of |
|
Fair Value |
Restricted Stock |
|
Shares |
|
Per Share |
Outstanding at January 1, 2007 |
|
|
146,028 |
|
|
$ |
22.34 |
|
Granted |
|
|
56,669 |
|
|
|
26.29 |
|
Vested |
|
|
(808 |
) |
|
|
20.28 |
|
Forfeited |
|
|
(17 |
) |
|
|
23.14 |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
201,872 |
|
|
$ |
23.25 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
80,123 |
|
|
|
16.54 |
|
Vested |
|
|
(20,399 |
) |
|
|
25.71 |
|
Forfeited |
|
|
(16,267 |
) |
|
|
21.37 |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
245,329 |
|
|
$ |
21.65 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
121,736 |
|
|
|
17.82 |
|
Vested |
|
|
(105,983 |
) |
|
|
20.17 |
|
Forfeited |
|
|
(18,805 |
) |
|
|
17.78 |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
242,277 |
|
|
$ |
20.23 |
|
|
|
|
|
|
|
|
|
|
The shares of restricted stock are part of the annual incentive compensation program and
are granted annually based on attaining certain individual and company performance criteria. Based
on the terms of individual restricted stock grants, time-based shares generally vest over a period
of three to five years, based on continuous employment, while performance-based shares generally
vest based on the increase in adjusted net income per diluted share, a non-GAAP financial measure.
A summary of the restricted stock unit activity under the Incentive Plan for the years ended
December 31, 2009, 2008 and 2007 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested |
|
Vested |
|
Total |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
Number of |
|
Grant-Date |
|
Number of |
|
Grant-Date |
|
Number of |
|
|
Restricted Stock |
|
Fair Value |
|
Restricted Stock |
|
Fair Value |
|
Restricted Stock |
Restricted Stock Units |
|
Units |
|
Per Share |
|
Units |
|
Per Share |
|
Units |
Outstanding at January 1, 2007 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
Granted |
|
|
300,000 |
|
|
|
26.30 |
|
|
|
|
|
|
|
|
|
|
|
300,000 |
(1) |
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
300,000 |
|
|
$ |
26.30 |
|
|
|
|
|
|
$ |
|
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
400,000 |
|
|
|
14.61 |
|
|
|
|
|
|
|
|
|
|
|
400,000 |
(2) |
Vested |
|
|
(60,000 |
) |
|
|
26.30 |
|
|
|
60,000 |
|
|
|
26.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
640,000 |
|
|
$ |
18.99 |
|
|
|
60,000 |
|
|
$ |
26.30 |
|
|
|
700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
100,750 |
|
|
|
23.89 |
|
|
|
|
|
|
|
|
|
|
|
100,750 |
(3) |
Vested |
|
|
(60,000 |
) |
|
|
26.30 |
|
|
|
60,000 |
|
|
|
26.30 |
|
|
|
|
|
Forfeited |
|
|
(32,500 |
) |
|
|
13.51 |
|
|
|
|
|
|
|
|
|
|
|
(32,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
648,250 |
|
|
$ |
19.35 |
|
|
|
120,000 |
|
|
$ |
26.30 |
|
|
|
768,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The distribution date of vested restricted stock units is February 22, 2014. |
|
(2) |
|
The distribution date of vested restricted stock units is February 22, 2016. |
|
(3) |
|
The distribution date of vested restricted stock units is February 22, 2016 for 80,750 restricted stock units and February 22, 2017 for 20,000 restricted
stock units. |
The restricted stock units are part of a long-term incentive compensation program. Each restricted stock unit represents and has a value
equal to one share of common stock. The restricted stock units will be earned over a five year period based upon the annual increase in our adjusted
economic profit, a non-GAAP financial measure.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. CAPITAL TRANSACTIONS (Continued)
Pursuant to our 1992 Stock Option Plan (the 1992 Plan), we had reserved 8.0 million shares
of our common stock for the future granting of options to officers and other team members.
Pursuant to our Director Stock Option Plan (the Director Plan), we had reserved 200,000 shares of
our common stock for future granting of options to members of our Board of Directors. The exercise
price of the options is no less than the fair market value on the date of the grant. Options
expire ten years from the date of grant. The 1992 Plan and the Director Plan were terminated as to
future grants on May 13, 2004, with shareholder approval of the Incentive Plan. All options
outstanding at December 31, 2009 and 2008 are vested.
Additional stock option information relating to the 1992 Plan and the Director Plan is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1992 Plan |
|
Director Plan |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Aggregate |
|
|
|
|
|
Average |
|
Aggregate |
|
|
Number of |
|
Exercise Per |
|
Intrinsic Value |
|
Number of |
|
Exercise Per |
|
Intrinsic Value |
|
|
Options |
|
Share |
|
(in thousands) |
|
Options |
|
Share |
|
(in thousands) |
Outstanding at January 1, 2007 |
|
|
1,653,041 |
|
|
$ |
7.68 |
|
|
|
|
|
|
|
100,000 |
|
|
$ |
17.25 |
|
|
|
|
|
Options granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(374,985 |
) |
|
|
6.90 |
|
|
$ |
6,933 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Options forfeited |
|
|
(1,000 |
) |
|
|
6.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
1,277,056 |
|
|
$ |
7.91 |
|
|
|
|
|
|
|
100,000 |
|
|
$ |
17.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(306,047 |
) |
|
|
7.76 |
|
|
$ |
3,004 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Options forfeited |
|
|
(1,500 |
) |
|
|
7.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
969,509 |
|
|
$ |
8.14 |
|
|
|
|
|
|
|
100,000 |
|
|
$ |
17.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(358,745 |
) |
|
|
5.41 |
|
|
$ |
9,200 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Options forfeited |
|
|
(2,200 |
) |
|
|
9.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
608,564 |
|
|
$ |
9.75 |
|
|
|
|
|
|
|
100,000 |
|
|
$ |
17.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
1,277,056 |
|
|
$ |
7.91 |
|
|
$ |
17,115 |
|
|
|
100,000 |
|
|
$ |
17.25 |
|
|
$ |
407 |
|
2008 |
|
|
969,509 |
|
|
$ |
8.14 |
|
|
$ |
5,630 |
|
|
|
100,000 |
|
|
$ |
17.25 |
|
|
$ |
|
|
2009 |
|
|
608,564 |
|
|
$ |
9.75 |
|
|
$ |
19,688 |
|
|
|
100,000 |
|
|
$ |
17.25 |
|
|
$ |
2,486 |
|
The following tables summarize information about options outstanding under the 1992 Plan
and the Director Plan at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable |
|
|
|
|
|
|
Weighted-Average |
|
Weighted-Average |
Range of Exercisable |
|
Options as of |
|
Remaining Contractual |
|
Exercise Price Per |
Prices |
|
12/31/2009 |
|
Life |
|
Share |
1992 Plan |
|
|
|
|
|
|
|
|
|
|
|
|
$3.63-$6.64 |
|
|
7,360 |
|
|
1.1 |
Years |
|
$ |
5.90 |
|
$6.64-$9.95 |
|
|
559,019 |
|
|
|
2.0 |
|
|
$ |
9.66 |
|
$9.95-$13.27 |
|
|
34,380 |
|
|
|
1.8 |
|
|
$ |
10.37 |
|
$16.59-$17.05 |
|
|
7,805 |
|
|
|
4.2 |
|
|
$ |
17.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
608,564 |
|
|
|
2.0 |
|
|
$ |
9.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director Plan |
|
|
|
|
|
|
|
|
|
|
|
|
$17.25 |
|
|
100,000 |
|
|
4.2 |
Years |
|
$ |
17.25 |
|
All outstanding options were fully vested as of December 31, 2007. The total fair value
of options vested during the year ended December 31, 2007 was $0.6 million.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. CAPITAL TRANSACTIONS (Concluded)
Stock compensation expense consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Restricted stock |
|
$ |
2,208 |
|
|
$ |
2,138 |
|
|
$ |
1,216 |
|
Restricted stock units |
|
|
4,597 |
|
|
|
2,171 |
|
|
|
3,374 |
|
Stock options |
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,805 |
|
|
$ |
4,309 |
|
|
$ |
4,659 |
|
|
|
|
|
|
|
|
|
|
|
The following table details how the expenses associated with restricted stock and
restricted stock units, which are expected to be recognized over a weighted average period of 1.2
years, will be recorded assuming performance targets are achieved in the periods currently
estimated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
Restricted Stock |
|
|
Restricted Stock |
|
|
Total Projected |
|
December 31, |
|
Unit Award |
|
|
Awards |
|
|
Expense (pre-tax) |
|
2010 |
|
$ |
2,850 |
|
|
$ |
845 |
|
|
$ |
3,695 |
|
2011 |
|
|
1,604 |
|
|
|
288 |
|
|
|
1,892 |
|
2012 |
|
|
742 |
|
|
|
31 |
|
|
|
773 |
|
2013 |
|
|
340 |
|
|
|
|
|
|
|
340 |
|
2014 |
|
|
23 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,559 |
|
|
$ |
1,164 |
|
|
$ |
6,723 |
|
|
|
|
|
|
|
|
|
|
|
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. BUSINESS SEGMENT INFORMATION
Reportable Segment Overview
We have two reportable business segments: United States and Other. The United States segment
is our dominant segment and primarily consists of the United States automobile financing business.
The Other segment consists of businesses in liquidation, primarily represented by the discontinued
United Kingdom automobile financing business. We are currently liquidating all businesses
classified in the Other segment.
Measurement
The table below presents information for each reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United |
|
|
|
|
|
Total |
|
|
States |
|
Other |
|
Company |
Year Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance charges |
|
$ |
329,428 |
|
|
$ |
9 |
|
|
$ |
329,437 |
|
Premiums earned |
|
|
33,605 |
|
|
|
|
|
|
|
33,605 |
|
Other income |
|
|
17,622 |
|
|
|
|
|
|
|
17,622 |
|
Provision for credit losses |
|
|
(12,184 |
) |
|
|
20 |
|
|
|
(12,164 |
) |
Interest expense |
|
|
32,399 |
|
|
|
|
|
|
|
32,399 |
|
Depreciation expense |
|
|
5,139 |
|
|
|
|
|
|
|
5,139 |
|
Provision (benefit) for income taxes |
|
|
82,999 |
|
|
|
(7 |
) |
|
|
82,992 |
|
Income from continuing operations |
|
|
145,885 |
|
|
|
161 |
|
|
|
146,046 |
|
Segment assets |
|
|
1,175,550 |
|
|
|
686 |
|
|
|
1,176,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance charges |
|
$ |
286,791 |
|
|
$ |
32 |
|
|
$ |
286,823 |
|
Premiums earned |
|
|
3,967 |
|
|
|
|
|
|
|
3,967 |
|
Other income |
|
|
21,391 |
|
|
|
5 |
|
|
|
21,396 |
|
Provision for credit losses |
|
|
45,883 |
|
|
|
146 |
|
|
|
46,029 |
|
Interest expense (income) |
|
|
43,248 |
|
|
|
(59 |
) |
|
|
43,189 |
|
Depreciation expense |
|
|
5,342 |
|
|
|
|
|
|
|
5,342 |
|
Provision (benefit) for income taxes |
|
|
39,966 |
|
|
|
(22 |
) |
|
|
39,944 |
|
Income (loss) from continuing operations |
|
|
67,354 |
|
|
|
(286 |
) |
|
|
67,068 |
|
Segment assets |
|
|
1,139,214 |
|
|
|
140 |
|
|
|
1,139,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance charges |
|
$ |
220,386 |
|
|
$ |
87 |
|
|
$ |
220,473 |
|
Premiums earned |
|
|
361 |
|
|
|
|
|
|
|
361 |
|
Other income |
|
|
19,055 |
|
|
|
38 |
|
|
|
19,093 |
|
Provision for credit losses |
|
|
19,807 |
|
|
|
140 |
|
|
|
19,947 |
|
Interest expense (income) |
|
|
36,716 |
|
|
|
(47 |
) |
|
|
36,669 |
|
Depreciation expense |
|
|
4,105 |
|
|
|
|
|
|
|
4,105 |
|
Provision (benefit) for income taxes |
|
|
29,596 |
|
|
|
(29 |
) |
|
|
29,567 |
|
Income from continuing operations |
|
|
53,370 |
|
|
|
244 |
|
|
|
53,614 |
|
Segment assets |
|
|
940,307 |
|
|
|
1,875 |
|
|
|
942,182 |
|
Information About Geographic Locations
We operate primarily in the United States. As such, our revenues from continuing operations
and long-lived assets are evaluated primarily through the above reportable segments. Therefore, no
enterprise-wide disclosures of information about geographic locations are necessary.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. BUSINESS SEGMENT INFORMATION (Concluded)
Information About Products and Services
We manage our product and service offerings primarily through the above reportable segments.
Therefore, no enterprise-wide disclosures of information about products and services are necessary.
Major Customers
We did not have any Dealer-Partners that provided 10% or more of our revenue during 2009, 2008
or 2007. Additionally, no single Dealer-Partners Loans receivable balance accounted for more than
10% of total Loans receivable as of December 31, 2009 or 2008.
13. LITIGATION AND CONTINGENT LIABILITIES
In the normal course of business and as a result of the customer-oriented nature of the
industry in which we operate, industry participants are frequently subject to various customer
claims and litigation seeking damages and statutory penalties. The claims allege, among other
theories of liability, violations of state, federal and foreign truth-in-lending, credit
availability, credit reporting, customer protection, warranty, debt collection, insurance and other
customer-oriented laws and regulations, including claims seeking damages for physical and mental
damages relating to our repossession and sale of the customers vehicle and other debt collection
activities. As the assignee of Consumer Loans originated by Dealer-Partners, we may also be named
as a co-defendant in lawsuits filed by customers principally against Dealer-Partners. We may also
have disputes and litigation with Dealer-Partners. The claims may allege, among other theories of
liability, that we breached its dealer servicing agreement. Many of these cases are filed as
purported class actions and seek damages in large dollar amounts. An adverse ultimate disposition
in any such action could have a material adverse impact on our financial position, liquidity and
results of operations.
14. SUBSEQUENT EVENTS
On February 1, 2010, we issued $250.0 million aggregate principal amount of 9.125% First
Priority Senior Secured Notes due 2017 (the Senior Notes). Concurrently with the issuance of the
Senior Notes, we amended the agreements governing our line of credit facility with a commercial
bank syndicate to facilitate the issuance of the Senior Notes and future secured indebtedness. The
net proceeds from the offering of the Senior Notes were used to repay all outstanding borrowings
under our line of credit facility and to repay all outstanding borrowings under our $325.0 million
revolving secured warehouse facility, subject to our ability to reborrow in each case.
The Senior Notes were issued pursuant to an indenture, dated as of February 1, 2010 (the
Indenture), among us, BVPP and VRS, as guarantors, and U.S. Bank National Association, as
trustee. The description of the Indenture is qualified in its entirety by reference to the
complete text of the Indenture, a copy of which is filed as Exhibit 4(f)(129) to our Form 8-K filed
on February 4, 2010.
The Senior Notes mature on February 1, 2017 and bear interest at a rate of 9.125% per annum,
computed on the basis of 360-day year composed of twelve 30-day months and payable semi-annually on
February 1 and August 1 of each year, beginning on August 1, 2010. The Senior Notes were issued at
97.495% of the aggregate principal amount for gross proceeds of $243.7 million, representing a
yield to maturity of 9.625%.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. QUARTERLY FINANCIAL DATA (unaudited)
The following is a summary of the quarterly financial position and results of operations
as of and for the years ended December 31, 2009 and 2008, which have been prepared in accordance
with accounting principles generally accepted in the United States of America. Certain amounts for
prior periods have been reclassified to conform to the current presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
Quarter Ended |
|
(Dollars in thousands, except per share data) |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
$ |
1,048,100 |
|
|
$ |
1,056,941 |
|
|
$ |
1,057,100 |
|
|
$ |
1,050,013 |
|
All other assets |
|
|
128,877 |
|
|
|
114,351 |
|
|
|
120,801 |
|
|
|
126,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,176,977 |
|
|
$ |
1,171,292 |
|
|
$ |
1,177,901 |
|
|
$ |
1,176,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
627,027 |
|
|
$ |
590,114 |
|
|
$ |
544,276 |
|
|
$ |
506,979 |
|
Other liabilities |
|
|
181,560 |
|
|
|
174,017 |
|
|
|
182,017 |
|
|
|
171,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
808,587 |
|
|
|
764,131 |
|
|
|
726,293 |
|
|
|
678,026 |
|
Shareholders equity (1) |
|
|
368,390 |
|
|
|
407,161 |
|
|
|
451,608 |
|
|
|
498,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,176,977 |
|
|
$ |
1,171,292 |
|
|
$ |
1,177,901 |
|
|
$ |
1,176,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
87,888 |
|
|
$ |
92,373 |
|
|
$ |
100,268 |
|
|
$ |
100,135 |
|
Costs and expenses |
|
|
41,933 |
|
|
|
35,299 |
|
|
|
37,965 |
|
|
|
36,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income taxes |
|
|
45,955 |
|
|
|
57,074 |
|
|
|
62,303 |
|
|
|
63,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
16,943 |
|
|
|
20,924 |
|
|
|
21,491 |
|
|
|
23,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
29,012 |
|
|
|
36,150 |
|
|
|
40,812 |
|
|
|
40,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain from discontinued operations, net of tax |
|
|
(11 |
) |
|
|
35 |
|
|
|
(78 |
) |
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
29,001 |
|
|
$ |
36,185 |
|
|
$ |
40,734 |
|
|
$ |
40,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.95 |
|
|
$ |
1.18 |
|
|
$ |
1.33 |
|
|
$ |
1.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.93 |
|
|
$ |
1.15 |
|
|
$ |
1.29 |
|
|
$ |
1.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.95 |
|
|
$ |
1.18 |
|
|
$ |
1.33 |
|
|
$ |
1.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.93 |
|
|
$ |
1.15 |
|
|
$ |
1.29 |
|
|
$ |
1.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) gain from discontinued operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
30,479,665 |
|
|
|
30,600,531 |
|
|
|
30,658,969 |
|
|
|
30,798,119 |
|
Diluted |
|
|
31,180,146 |
|
|
|
31,423,187 |
|
|
|
31,539,119 |
|
|
|
31,868,441 |
|
|
|
|
(1) |
|
No dividends were paid during the periods presented. |
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
15. QUARTERLY FINANCIAL DATA (unaudited) (Concluded)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
Quarter Ended |
|
(Dollars in thousands, except per share data) |
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
$ |
934,568 |
|
|
$ |
1,012,150 |
|
|
$ |
1,036,407 |
|
|
$ |
1,017,917 |
|
All other assets |
|
|
145,210 |
|
|
|
139,951 |
|
|
|
133,949 |
|
|
|
121,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,079,778 |
|
|
$ |
1,152,101 |
|
|
$ |
1,170,356 |
|
|
$ |
1,139,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
638,814 |
|
|
$ |
703,359 |
|
|
$ |
691,937 |
|
|
$ |
641,714 |
|
Other liabilities |
|
|
155,069 |
|
|
|
151,012 |
|
|
|
158,693 |
|
|
|
159,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
793,883 |
|
|
|
854,371 |
|
|
|
850,630 |
|
|
|
801,603 |
|
Shareholders equity (1) |
|
|
285,895 |
|
|
|
297,730 |
|
|
|
319,726 |
|
|
|
337,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,079,778 |
|
|
$ |
1,152,101 |
|
|
$ |
1,170,356 |
|
|
$ |
1,139,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
70,778 |
|
|
$ |
75,005 |
|
|
$ |
80,107 |
|
|
$ |
86,296 |
|
Costs and expenses |
|
|
43,066 |
|
|
|
58,535 |
|
|
|
47,170 |
|
|
|
56,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income taxes |
|
|
27,712 |
|
|
|
16,470 |
|
|
|
32,937 |
|
|
|
29,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
10,131 |
|
|
|
6,091 |
|
|
|
12,606 |
|
|
|
11,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
17,581 |
|
|
|
10,379 |
|
|
|
20,331 |
|
|
|
18,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations, net of tax |
|
|
39 |
|
|
|
(35 |
) |
|
|
326 |
|
|
|
(221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
17,620 |
|
|
$ |
10,344 |
|
|
$ |
20,657 |
|
|
$ |
18,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.59 |
|
|
$ |
0.34 |
|
|
$ |
0.68 |
|
|
$ |
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.57 |
|
|
$ |
0.33 |
|
|
$ |
0.67 |
|
|
$ |
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.58 |
|
|
$ |
0.34 |
|
|
$ |
0.67 |
|
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.57 |
|
|
$ |
0.33 |
|
|
$ |
0.66 |
|
|
$ |
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
30,106,881 |
|
|
|
30,252,873 |
|
|
|
30,310,053 |
|
|
|
30,327,802 |
|
Diluted |
|
|
30,891,227 |
|
|
|
31,088,428 |
|
|
|
31,024,455 |
|
|
|
31,038,088 |
|
|
|
|
(1) |
|
No dividends were paid during the periods presented. |
78
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
(a) Disclosure Controls and Procedures. Our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, our disclosure controls and procedures
are effective in recording, processing, summarizing and reporting, on a timely basis, information
required to be disclosed by us in the reports that we file or submit under the Exchange Act and are
effective in ensuring that information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
(b) Internal Control Over Financial Reporting. There have not been any changes in our
internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the quarter ended December 31, 2009 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Managements Report on Internal Control over Financial Reporting.
We are responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
Our internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that:
|
|
|
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our assets; |
|
|
|
|
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and |
|
|
|
|
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on our
consolidated financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. In addition, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions and that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of December
31, 2009. In making this assessment, we used the criteria set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our assessment, we believe that as of December 31, 2009, our internal control over
financial reporting is effective based on those criteria.
Our independent registered public accounting firm, Grant Thornton LLP, audited our internal
control over financial reporting as of December 31, 2009 and their report dated March 3, 2010
expressed an unqualified opinion on our internal control over financial reporting and is included
in this Item 9A.
79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders of Credit Acceptance Corporation
We have audited Credit Acceptance Corporation (a Michigan Corporation) and subsidiaries internal
control over financial reporting as of December 31, 2009, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Credit Acceptance Corporation and subsidiaries management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying
Managements Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on Credit Acceptance Corporation and subsidiaries internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Credit Acceptance Corporation and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal ControlIntegrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Credit Acceptance Corporation and
subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income,
shareholders equity and comprehensive income, and cash flows for each of the three years in the
period ended December 31, 2009 and our report dated March 3, 2010 expressed an unqualified
opinion on those financial statements.
/s/ GRANT THORNTON LLP
Southfield, Michigan
March 3, 2010
80
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information is contained under the captions Matters to Come Before the Meeting Election of
Directors (excluding the Report of the Audit Committee) and Section 16 (a) Beneficial Ownership
Reporting Compliance in our Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information is contained under the caption Compensation of Executive Officers (excluding the
Report of the Executive Compensation Committee) in our Proxy Statement and is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information is contained under the caption Common Stock Ownership of Certain Beneficial
Owners and Management in our Proxy Statement and is incorporated herein by reference.
Our Incentive Compensation Plan (the Incentive Plan), which was approved by shareholders on
May 13, 2004, provides for the granting of restricted stock, restricted stock units, stock options,
and performance awards to team members, officers, and directors. We also have two stock option
plans pursuant to which we have granted stock options with time or performance-based vesting
requirements to team members, officers, and directors. Our 1992 Stock Option Plan (the 1992
Plan) was approved by shareholders in 1992 prior to our initial public offering and was terminated
as to future grants on May 13, 2004, when shareholders approved the Incentive Plan. Our Director
Stock Option Plan (the Director Plan) was approved by shareholders in 2002 and was terminated as
to future grants on May 13, 2004, with shareholder approval of the Incentive Plan.
The following table sets forth, with respect to each of the equity compensation plans, (1) the
number of shares of common stock to be issued upon the exercise of outstanding options or
restricted stock units, (2) the weighted average exercise price of outstanding options, and (3) the
number of shares remaining available for future issuance, as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares |
|
|
|
Number of shares to be |
|
|
|
|
|
|
remaining available for |
|
|
|
issued upon exercise of |
|
|
Weighted-average |
|
|
future issuance under |
|
|
|
outstanding options, |
|
|
exercise price of |
|
|
equity compensation |
|
Plan Category |
|
warrants and rights |
|
|
outstanding options |
|
|
plans (a) |
|
Equity compensation plans approved by shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
1992 Plan |
|
|
608,564 |
|
|
$ |
9.75 |
|
|
|
|
|
Director Plan |
|
|
100,000 |
|
|
|
17.25 |
|
|
|
|
|
Incentive Plan |
|
|
768,250 |
|
|
|
|
|
|
|
362,283 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,476,814 |
|
|
$ |
10.81 |
|
|
|
362,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
For additional information regarding our equity compensation plans, see Note 11 to the
consolidated financial statements contained in Item 8 of this Form 10-K, which is incorporated
herein by reference. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information is contained under the caption Certain Relationships and Transactions and
Matters to Come Before the Meeting Election of Directors Meetings and Committees of the Board
of Directors in our Proxy Statement and is incorporated herein by reference.
81
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information is contained under the caption Independent Accountants in our Proxy Statement
and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
(a)(1) |
|
The following consolidated financial statements of the Company and
Report of Independent Public Accountants are contained in Item 8
Financial Statements and Supplementary Data of this Form 10-K,
which is incorporated herein by reference. |
|
|
|
|
Report of Independent Public Accountants |
|
|
|
|
Consolidated Financial Statements: |
|
|
|
Consolidated Balance Sheets as of December 31, 2009 and 2008 |
|
|
|
|
Consolidated Income Statements for the years ended December 31,
2009, 2008 and 2007 |
|
|
|
|
Consolidated Statements of Shareholders Equity for the years
ended December 31, 2009, 2008 and 2007 |
|
|
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2009, 2008 and 2007 |
|
|
|
Notes to Consolidated Financial Statements |
|
|
(2) |
|
Financial Statement Schedules have been omitted because they are
not applicable or are not required or the information required to
be set forth therein is included in the Consolidated Financial
Statements or Notes thereto. |
|
|
(3) |
|
The Exhibits filed in response to Item 601 of Regulation S-K are
listed in the Exhibit Index, which is incorporated herein by
reference. |
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
CREDIT ACCEPTANCE CORPORATION
|
|
|
By: |
/s/ BRETT A. ROBERTS
|
|
|
|
Brett A. Roberts |
|
|
|
Chief Executive Officer
(Principal Executive Officer) |
|
Date: March 3, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on March 3, 2010 on behalf of the registrant and in
the capacities indicated.
|
|
|
Signature |
|
Title |
|
|
/s/ BRETT A. ROBERTS
|
|
Chief Executive Officer and Director |
|
|
|
Brett A. Roberts
|
|
(Principal Executive Officer) |
|
|
|
/s/ KENNETH S. BOOTH
|
|
Chief Financial Officer |
|
|
|
Kenneth S. Booth
|
|
(Principal Financial Officer and
Principal Accounting Officer) |
|
|
|
/s/ GLENDA J. CHAMBERLAIN
|
|
Director |
|
|
|
Glenda J. Chamberlain |
|
|
|
|
|
/s/ DONALD A. FOSS
|
|
Director and Chairman of the Board |
|
|
|
Donald A. Foss |
|
|
|
|
|
/s/ THOMAS N. TRYFOROS
|
|
Director |
|
|
|
Thomas N. Tryforos |
|
|
|
|
|
/s/ SCOTT J. VASSALLUZZO
|
|
Director |
|
|
|
Scott J. Vassalluzzo |
|
|
83
EXHIBIT INDEX
The following documents are filed as part of this report. Those exhibits previously filed and
incorporated herein by reference are identified below. Exhibits not required for this report have
been omitted. The Companys commission file number is 000-20202.
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
No. |
|
|
|
|
|
Description |
|
3(a)(1)
|
|
|
1 |
|
|
Articles of Incorporation, as amended July 1, 1997. |
|
|
|
|
|
|
|
3(b)
|
|
|
2 |
|
|
Amended and Restated Bylaws of the Company, as amended, February
24, 2005. |
|
|
|
|
|
|
|
4(c)(19)
|
|
|
3 |
|
|
Amendment No. 1, dated September 20, 2006, to the Fourth Amended
and Restated Credit Agreement as of February 7, 2006, among the
Company, the Lenders which are parties thereto from time to time
and Comerica Bank as administrative agent. |
|
|
|
|
|
|
|
4(c)(20)
|
|
|
3 |
|
|
Amendment No. 2, dated January 19, 2007, to the Fourth Amended
and Restated Credit Agreement as of February 7, 2006, among the
Company, the Lenders which are parties thereto from time to time
and Comerica Bank as administrative agent. |
|
|
|
|
|
|
|
4(c)(21)
|
|
|
3 |
|
|
Amendment No. 3, dated June 14, 2007, to the Fourth Amended and
Restated Credit Agreement as of February 7, 2006, among the
Company, the Lenders which are parties thereto from time to time
and Comerica Bank as administrative agent. |
|
|
|
|
|
|
|
4(c)(22)
|
|
|
4 |
|
|
Amendment No. 4, dated January 25, 2008, to the Fourth Amended
and Restated Credit Agreement as of February 7, 2006, among the
Company, the Lenders which are parties thereto from time to time
and Comerica Bank as administrative agent. |
|
|
|
|
|
|
|
4(f)(40)
|
|
|
5 |
|
|
Second Amendment, dated as of June 10, 2002, to the Intercreditor
Agreement dated as of December 15, 1998, among Comerica Bank, as
collateral agent, and various lenders and note holders. |
|
|
|
|
|
|
|
4(f)(53)
|
|
|
6 |
|
|
Contribution Agreement, dated September 30, 2003, between the
Company and CAC Warehouse Funding Corporation II. |
|
|
|
|
|
|
|
4(f)(55)
|
|
|
6 |
|
|
Back-Up Servicing Agreement, dated September 30, 2003, among the
Company, Systems & Services Technologies, Inc., Wachovia Capital
Markets, LLC, and CAC Warehouse Funding Corporation II. |
|
|
|
|
|
|
|
4(f)(67)
|
|
|
7 |
|
|
The Fourth Amended and Restated Credit Agreement, dated February
7, 2006, between the Company, the Lenders which are parties
thereto from time to time, Comerica Bank, as administrative
agent, and Banc of America Securities LLC as sole lead arranger
and sole book manager. |
|
|
|
|
|
|
|
4(f)(68)
|
|
|
7 |
|
|
Third Amended and Restated Security Agreement, dated February 7,
2006, between the Company, certain subsidiaries of the Company
and Comerica Bank, as agent. |
|
|
|
|
|
|
|
4(f)(77)
|
|
|
8 |
|
|
Certificate Funding Agreement, dated September 20, 2006, between
the Company, Credit Acceptance Residual Funding LLC, Wachovia
Bank, National Association, Variable Funding Capital Company LLC
and Wachovia Capital Markets, LLC. |
|
|
|
|
|
|
|
4(f)(78)
|
|
|
9 |
|
|
Indenture, dated November 21, 2006, between Credit Acceptance
Auto Dealer Loan Trust 2006-2 and Deutsche Bank Trust Company
Americas. |
|
|
|
|
|
|
|
4(f)(79)
|
|
|
9 |
|
|
Sale and Servicing Agreement, dated November 21, 2006, among the
Company, Credit Acceptance Auto Dealer Loan Trust 2006-2, Credit
Acceptance Funding LLC 2006-2, Deutsche Bank Trust Company
Americas, N.A., and Systems & Services Technologies, Inc. |
|
|
|
|
|
|
|
4(f)(80)
|
|
|
9 |
|
|
Backup Servicing Agreement, dated November 21, 2006, among the
Company, Credit Acceptance Funding LLC 2006-2, Credit Acceptance
Auto Dealer Loan Trust 2006-2, Systems & Services Technologies,
Inc., Radian Asset Assurance Inc., XL Capital Assurance Inc. and
Deutsche Bank Trust Company Americas. |
|
|
|
|
|
|
|
4(f)(81)
|
|
|
9 |
|
|
Amended and Restated Trust Agreement, dated November 21, 2006,
between Credit Acceptance Funding LLC 2006-2 and U.S. Bank Trust
National Association. |
|
|
|
|
|
|
|
4(f)(82)
|
|
|
9 |
|
|
Contribution Agreement, dated November 21, 2006, between the
Company and Credit Acceptance Funding LLC 2006-2. |
84
|
|
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|
|
|
|
Exhibit |
|
|
|
|
|
|
No. |
|
|
|
|
|
Description |
|
4(f)(87)
|
|
|
10 |
|
|
Indenture, dated April 12, 2007, between Credit Acceptance Auto
Dealer Loan Trust 2007-1 and Wells Fargo Bank, National
Association. |
|
|
|
|
|
|
|
4(f)(88)
|
|
|
10 |
|
|
Sale and Servicing Agreement, dated April 12, 2007, among the
Company, Credit Acceptance Auto Dealer Loan Trust 2007-1, Credit
Acceptance Funding LLC 2007-1 and Wells Fargo Bank, National
Association. |
|
|
|
|
|
|
|
4(f)(89)
|
|
|
10 |
|
|
Backup Servicing Agreement, dated April 12, 2007, among the
Company, Credit Acceptance Funding LLC 2007-1, Credit Acceptance
Auto Dealer Loan Trust 2007-1, Wells Fargo Bank, National
Association, and XL Capital Assurance Inc. |
|
|
|
|
|
|
|
4(f)(90)
|
|
|
10 |
|
|
Amended and Restated Trust Agreement, dated April 12, 2007,
between Credit Acceptance Funding LLC 2007-1 and U.S. Bank Trust
National Association. |
|
|
|
|
|
|
|
4(f)(91)
|
|
|
10 |
|
|
Contribution Agreement, dated April 12, 2007, between the Company
and Credit Acceptance Funding LLC 2007-1. |
|
|
|
|
|
|
|
4(f)(93)
|
|
|
11 |
|
|
Second Amended and Restated Loan and Security Agreement, dated
August 31, 2007, between the Company, CAC Warehouse Funding
Corporation II, Wachovia Bank, National Association, JPMorgan
Chase Bank, N.A., Variable Funding Capital Company, LLC, Park
Avenue Receivables Company, LLC, Wachovia Capital Markets, LLC
and Systems & Services Technologies, Inc. |
|
|
|
|
|
|
|
4(f)(94)
|
|
|
12 |
|
|
Amendment No. 1, dated September 11, 2007, to the Certificate
Funding Agreement dated as of September 20, 2006, between the
Company, Credit Acceptance Residual Funding LLC, Wachovia Bank,
National Association, Variable Funding Capital Company LLC and
Wachovia Capital Markets, LLC. |
|
|
|
|
|
|
|
4(f)(95)
|
|
|
13 |
|
|
Indenture, dated October 29, 2007, between Credit Acceptance Auto
Dealer Loan Trust 2007-2 and Wells Fargo Bank, National
Association. |
|
|
|
|
|
|
|
4(f)(96)
|
|
|
13 |
|
|
Sale and Servicing Agreement, dated October 29, 2007, among the
Company, Credit Acceptance Auto Dealer Loan Trust 2007-2, Credit
Acceptance Funding LLC 2007-2 and Wells Fargo Bank, National
Association. |
|
|
|
|
|
|
|
4(f)(97)
|
|
|
13 |
|
|
Backup Servicing Agreement, dated October 29, 2007, among the
Company, Credit Acceptance Funding LLC 2007-2, Credit Acceptance
Auto Dealer Loan Trust 2007-2, Wells Fargo Bank, National
Association, and XL Capital Assurance Inc. |
|
|
|
|
|
|
|
4(f)(98)
|
|
|
13 |
|
|
Amended and Restated Trust Agreement, dated October 29, 2007,
between Credit Acceptance Funding LLC 2007-2 and U.S. Bank Trust
National Association. |
|
|
|
|
|
|
|
4(f)(99)
|
|
|
13 |
|
|
Contribution Agreement, dated October 29, 2007, between the
Company and Credit Acceptance Funding LLC 2007-2. |
|
|
|
|
|
|
|
4(f)(100)
|
|
|
14 |
|
|
Amendment No. 1, dated December 21, 2007, to the Second Amended
and Restated Loan and Security Agreement dated as of August 31,
2007, between the Company, CAC Warehouse Funding Corporation II,
Wachovia Bank, National Association, JPMorgan Chase Bank, N.A.,
Variable Funding Capital Company, LLC, Park Avenue Receivables
Company, LLC, Wachovia Capital Markets, LLC and Systems &
Services Technologies, Inc. |
|
|
|
|
|
|
|
4(f)(101)
|
|
|
15 |
|
|
Amendment No. 2 dated as of February 13, 2008, to the Second
Amended and Restated Loan and Security Agreement, dated as of
August 31, 2007, among the Company, CAC Warehouse Funding
Corporation II, Wachovia Bank, National Association, JPMorgan
Chase Bank, N.A., Variable Funding Capital Company, LLC, Park
Avenue Receivables Company LLC, Wachovia Capital Markets, LLC and
Systems & Services Technologies, Inc. |
|
|
|
|
|
|
|
4(f)(102)
|
|
|
16 |
|
|
New Bank Addendum, dated as of February 26, 2008, to the Fourth
Amended and Restated Credit Agreement, dated February 7, 2006, by
and among the Company, the Banks and Comerica Bank, as Agent for
the Banks. |
|
|
|
|
|
|
|
4(f)(103)
|
|
|
17 |
|
|
Indenture dated April 18, 2008 between Credit Acceptance Auto
Loan Trust 2008-1 and Wells Fargo Bank, National Association. |
|
|
|
|
|
|
|
4(f)(104)
|
|
|
17 |
|
|
Sale and Servicing Agreement dated April 18, 2008 among the
Company, Credit Acceptance Auto Loan Trust 2008-1, Credit
Acceptance Funding LLC 2008-1, and Wells Fargo Bank, National
Association. |
85
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
No. |
|
|
|
|
|
Description |
|
4(f)(105)
|
|
|
17 |
|
|
Backup Servicing Agreement dated April 18, 2008 among the
Company, Credit Acceptance Funding LLC 2008-1, Credit Acceptance
Auto Loan Trust 2008-1, and Wells Fargo Bank, National
Association. |
|
|
|
|
|
|
|
4(f)(106)
|
|
|
17 |
|
|
Amended and Restated Trust Agreement dated April 18, 2008 between
Credit Acceptance Funding LLC 2008-1 and U.S. Bank Trust National
Association. |
|
|
|
|
|
|
|
4(f)(107)
|
|
|
17 |
|
|
Contribution Agreement dated April 18, 2008 between the Company
and Credit Acceptance Funding LLC 2008-1. |
|
|
|
|
|
|
|
4(f)(109)
|
|
|
18 |
|
|
Loan and Security Agreement dated May 23, 2008 among the Company,
CAC Warehouse Funding III, LLC, Fifth Third Bank, Relationship
Funding Company, LLC and Systems & Services Technologies, Inc. |
|
|
|
|
|
|
|
4(f)(110)
|
|
|
18 |
|
|
Backup Servicing Agreement dated May 23, 2008 among the Company,
CAC Warehouse Funding III, LLC, Fifth Third Bank and Systems &
Services Technologies, Inc. |
|
|
|
|
|
|
|
4(f)(111)
|
|
|
18 |
|
|
Contribution Agreement dated May 23, 2008 between the Company and
CAC Warehouse Funding III, LLC. |
|
|
|
|
|
|
|
4(f)(112)
|
|
|
18 |
|
|
Intercreditor Agreement dated May 23, 2008 among the Company, CAC
Warehouse Funding Corporation II, Credit Acceptance Funding LLC
2006-2, Credit Acceptance Auto Dealer Loan Trust 2006-2, Credit
Acceptance Funding LLC 2007-1, Credit Acceptance Auto Dealer Loan
Trust 2007-1, Credit Acceptance Funding LLC 2007-2, Credit
Acceptance Auto Dealer Loan Trust 2007-2, Credit Acceptance
Funding LLC 2008-1, Credit Acceptance Auto Loan Trust 2008-1, CAC
Warehouse Funding III, LLC, Wachovia Capital Markets, LLC, as
agent, Deutsche Bank Trust Company Americas, as agent, Wells
Fargo Bank, National Association, as agent, Comerica Bank, as
agent, and Fifth Third Bank, as agent. |
|
|
|
|
|
|
|
4(f)(113)
|
|
|
19 |
|
|
Amendment No. 4 as of August 27, 2008, to the Second Amended and
Restated Loan and Security Agreement, dated as of August 31, 2007
among the Company, CAC Warehouse Funding Corporation II, Wachovia
Bank, National Association, Variable Funding Capital Company,
LLC, Wachovia Capital Markets, LLC and Systems & Services
Technologies, Inc. |
|
|
|
|
|
|
|
4(f)(114)
|
|
|
19 |
|
|
Second Amendment dated as of August 27, 2008, to the Certificate
Funding Agreement dated September 20, 2006, among the Company,
Credit Acceptance Residual Funding LLC, Wachovia Bank, National
Association, Variable Funding Capital Company LLC, and Wachovia
Capital Markets, LLC. |
|
|
|
|
|
|
|
4(f)(115)
|
|
|
20 |
|
|
Amendment No. 3 dated as of July 10, 2008, to the Second Amended
and Restated Loan and Security Agreement, dated as of August 31,
2007, among the Company, CAC Warehouse Funding Corporation II,
Wachovia Bank, National Association, JPMorgan Chase Bank, N.A.,
Variable Funding Capital Company, LLC, Park Avenue Receivables
Company LLC, Wachovia Capital Markets, LLC and Systems & Services
Technologies, Inc. |
|
|
|
|
|
|
|
4(f)(116)
|
|
|
20 |
|
|
Third Amendment, dated as of July 31, 2008, to Intercreditor
Agreement dated as of December 15, 1998, among Comerica Bank, as
collateral agent, and various lenders and note holders. |
|
|
|
|
|
|
|
4(f)(117)
|
|
|
20 |
|
|
Fifth Amendment, dated as of July 31, 2008, to the Fourth Amended
and Restated Credit Agreement, dated February 7, 2006, between
the Company, the Banks which are parties thereto from time to
time, and Comerica Bank as Administrative Agent for the Banks. |
|
|
|
|
|
|
|
4(f)(118)
|
|
|
21 |
|
|
First Amendment, dated as of November 21, 2008, to the Third
Amended and Restated Security Agreement, dated February 7, 2006,
between the Company, certain subsidiaries of the Company and
Comerica Bank, as agent. |
86
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
No. |
|
|
|
|
|
Description |
|
4(f)(119)
|
|
|
21 |
|
|
Sixth Amendment, dated as of December 9, 2008, to the Fourth Amended
and Restated Credit Agreement, dated February 7, 2006, between the
Company, the Banks which are parties thereto from time to time, and
Comerica Bank as Administrative Agent for the Banks. |
|
|
|
|
|
|
|
4(f)(120)
|
|
|
22 |
|
|
Seventh Amendment, dated as of June 15, 2009, to Fourth Amended and
Restated Credit Agreement, dated February 7, 2006, between the Company,
the Banks which are parties thereto from time to time, and Comerica Bank as
Administrative Agent for the Banks. |
|
|
|
|
|
|
|
4(f)(121)
|
|
|
23 |
|
|
Third Amended and Restated Loan and Security Agreement, dated as of
August 24, 2009 among the Company, CAC Warehouse Funding
Corporation II, Wachovia Bank, National Association, Variable Funding
Capital Company LLC, Wells Fargo Securities, LLC, and Wells Fargo Bank,
National Association. |
|
|
|
|
|
|
|
4(f)(122)
|
|
|
24 |
|
|
First Amendment to Loan and Security Agreement, dated as of August 31,
2009 among the Company, CAC Warehouse Funding III, LLC, Fifth Third
Bank and Relationship Funding Company, LLC. |
|
|
|
|
|
|
|
4(f)(123)
|
|
|
25 |
|
|
Indenture, dated December 3, 2009, between Credit Acceptance Auto Loan
Trust 2009-1 and Wells Fargo Bank, National Association. |
|
|
|
|
|
|
|
4(f)(124)
|
|
|
25 |
|
|
Sale and Servicing Agreement dated December 3, 2009, among the
Company, Credit Acceptance Auto Loan Trust 2009-1, Credit Acceptance
Funding LLC 2009-1, and Wells Fargo Bank, National Association. |
|
|
|
|
|
|
|
4(f)(125)
|
|
|
25 |
|
|
Backup Servicing Agreement dated December 3, 2009, among the Company,
Credit Acceptance Funding LLC 2009-1, Credit Acceptance Auto Loan Trust
2009-1, and Wells Fargo Bank, National Association. |
|
|
|
|
|
|
|
4(f)(126)
|
|
|
25 |
|
|
Amended and Restated Trust Agreement dated December 3, 2009, between
Credit Acceptance Funding LLC 2009-1 and U.S. Bank Trust National
Association. |
|
|
|
|
|
|
|
4(f)(127)
|
|
|
25 |
|
|
Sale and Contribution Agreement dated December 3, 2009, between the
Company and Credit Acceptance Funding LLC 2009-1. |
|
|
|
|
|
|
|
4(f)(128)
|
|
|
25 |
|
|
Intercreditor Agreement dated December 3, 2009, among the Company,
CAC Warehouse Funding Corporation II, CAC Warehouse Funding III,
LLC, Credit Acceptance Funding LLC 2008-1, Credit Acceptance Funding
LLC 2009-1, Credit Acceptance Auto Loan Trust 2008-1, Credit Acceptance
Auto Loan Trust 2009-1, Wells Fargo Securities, LLC, as agent, Fifth Third
Bank, as agent, Wells Fargo Bank, National Association, as agent, and
Comerica Bank, as agent. |
|
|
|
|
|
|
|
4(f)(129)
|
|
|
26 |
|
|
Indenture, dated as of February 1, 2010, among the Company, the Guarantors
named therein and U.S. Bank National Association, as trustee. |
|
|
|
|
|
|
|
4(f)(130)
|
|
|
26 |
|
|
Registration Rights Agreement, dated February 1, 2010, among the
Company, Buyers Vehicle Protection Plan, Inc., Vehicle Remarketing
Services, Inc. and the representative of the initial purchasers of the
Companys 9.125% First Priority Senior Secured Notes due 2017. |
|
|
|
|
|
|
|
4(f)(131)
|
|
|
26 |
|
|
Ninth Amendment, dated as of February 1, 2010, to the Fourth Amended and
Restated Credit Agreement, dated February 7, 2006, among the Company,
the lenders which are parties thereto from time to time and Comerica Bank,
as administrative agent. |
|
|
|
|
|
|
|
4(f)(132)
|
|
|
26 |
|
|
Fourth Amended and Restated Security Agreement, dated as of February 1,
2010, among the Company, the other Debtors party thereto and Comerica
Bank, as collateral agent. |
|
|
|
|
|
|
|
4(f)(133)
|
|
|
42 |
|
|
Eighth Amendment, dated as of October 20, 2009, to the Fourth Amended
and Restated Credit Agreement, dated February 7, 2006, between the
Company, the Banks which are parties thereto from time to time, and
Comerica Bank as Administrative Agent for the Banks. |
|
|
|
|
|
|
|
4(g)(2)
|
|
|
27 |
|
|
Intercreditor Agreement, dated as of December 15, 1998, among Comerica
Bank, as collateral agent, and various lenders and note holders. |
87
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
No. |
|
|
|
|
|
Description |
|
4(g)(5)
|
|
|
28 |
|
|
First Amendment, dated as of March 30, 2001, to the Intercreditor
Agreement dated as of December 15, 1998, among Comerica Bank, as
collateral agent, and various lenders and note holders. |
|
|
|
|
|
|
|
4(g)(6)
|
|
|
26 |
|
|
Amended and Restated Intercreditor Agreement, dated as of February 1,
2010, among Credit Acceptance Corporation, the other Grantors party
thereto, representatives of the Secured Parties thereunder and Comerica
Bank, as administrative agent under the Original Credit Agreement (as
defined therein) and as collateral agent. |
|
|
|
|
|
|
|
Note:
|
|
|
|
|
|
Other instruments, notes or extracts from agreements defining the
rights of holders of long-term debt of the Company or its
subsidiaries have not been filed because (i) in each case the
total amount of long-term debt permitted there under does not
exceed 10% of the Companys consolidated assets and (ii) the
Company hereby agrees that it will furnish such instruments,
notes and extracts to the Securities and Exchange Commission upon
its request |
|
|
|
|
|
|
|
10(d)(9)
|
|
|
29 |
|
|
Form of Servicing Agreement, as of April 2003. |
|
|
|
|
|
|
|
10(d)(10)
|
|
|
30 |
|
|
Purchase Program Agreement Recitals, as of April 2007. |
|
|
|
|
|
|
|
10(f)(4)*
|
|
|
31 |
|
|
Credit Acceptance Corporation 1992 Stock Option Plan, as amended
and restated May 1999. |
|
|
|
|
|
|
|
10(p)
|
|
|
32 |
|
|
Credit Acceptance Corporation Director Stock Option Plan. |
|
|
|
|
|
|
|
10(q)*
|
|
|
33 |
|
|
Credit Acceptance Corporation Incentive Compensation Plan,
effective April 1, 2004. |
|
|
|
|
|
|
|
10(q)(2)*
|
|
|
34 |
|
|
Form of Restricted Stock Grant Agreement. |
|
|
|
|
|
|
|
10(q)(3)*
|
|
|
35 |
|
|
Incentive Compensation Bonus Formula for 2005. |
|
|
|
|
|
|
|
10(q)(4)*
|
|
|
36 |
|
|
Form of Restricted Stock Grant Agreement, dated February 22, 2007. |
|
|
|
|
|
|
|
10(q)(5)*
|
|
|
36 |
|
|
Credit Acceptance Corporation Restricted Stock Unit Award
Agreement, dated February 22, 2007. |
|
|
|
|
|
|
|
10(q)(6)*
|
|
|
37 |
|
|
Credit Acceptance Corporation Restricted Stock Unit Award
Agreement, dated October 2, 2008. |
|
|
|
|
|
|
|
10(q)(7)*
|
|
|
38 |
|
|
Credit Acceptance Corporation Restricted Stock Unit Award
Agreement, dated November 13, 2008. |
|
|
|
|
|
|
|
10(q)(8)*
|
|
|
38 |
|
|
Credit Acceptance Corporation Restricted Stock Unit Award
Agreement, dated November 13, 2008. |
|
|
|
|
|
|
|
10(q)(9)*
|
|
|
39 |
|
|
Credit Acceptance Corporation Restricted Stock Unit Award
Agreement, dated March 27, 2009. |
|
|
|
|
|
|
|
10(q)(10)*
|
|
|
40 |
|
|
Credit Acceptance Corporation Amended and Restated Incentive
Compensation Plan, as amended, April 6, 2009. |
|
|
|
|
|
|
|
10(q)(11)*
|
|
|
41 |
|
|
Form of Credit Acceptance Corporation Restricted Stock Unit Award
Agreement. |
|
|
|
|
|
|
|
10(q)(12)*
|
|
|
41 |
|
|
Form of Credit Acceptance Corporation Board of Directors
Restricted Stock Unit Award Agreement. |
|
|
|
|
|
|
|
21(1)(a)
|
|
|
42 |
|
|
Schedule of Credit Acceptance Corporation Subsidiaries. |
|
|
|
|
|
|
|
23(a)
|
|
|
42 |
|
|
Consent of Grant Thornton LLP. |
|
|
|
|
|
|
|
31(a)
|
|
|
42 |
|
|
Certification of Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act. |
|
|
|
|
|
|
|
31(b)
|
|
|
42 |
|
|
Certification of Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act. |
|
|
|
|
|
|
|
32(a)
|
|
|
42 |
|
|
Certification of Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
32(b)
|
|
|
42 |
|
|
Certification of Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Management compensatory contracts and arrangements. |
88
|
|
|
1 |
|
Previously filed as an exhibit to the Companys Form 10-Q for the quarterly period ended June
30, 1997, and incorporated herein by reference. |
|
2 |
|
Previously filed as an exhibit to the Companys Annual Report on Form 10-K for the year ended
December 31, 2004, and incorporated herein by reference. |
|
3 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated June 19,
2007, and incorporated herein by reference. |
|
4 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated January 31,
2008, and incorporated herein by reference. |
|
5 |
|
Previously filed as an exhibit to the Companys Form 10-Q for the quarterly period ended June
30, 2002, and incorporated herein by reference. |
|
6 |
|
Previously filed as an exhibit to the Companys Form 10-Q for the quarterly period ended
September 30, 2003, and incorporated herein by reference. |
|
7 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K dated February 10,
2006, and incorporated herein by reference. |
|
8 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated September
22, 2006, and incorporated herein by reference. |
|
9 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated November
27, 2006, and incorporated herein by reference. |
|
10 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated April 18,
2007, and incorporated herein by reference. |
|
11 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated September
7, 2007, and incorporated herein by reference. |
|
12 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated September
13, 2007, and incorporated herein by reference. |
|
13 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated November 2,
2007, and incorporated herein by reference. |
|
14 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated December
27, 2007, and incorporated herein by reference. |
|
15 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated February
15, 2008, and incorporated herein by reference. |
|
16 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated March 3,
2008, and incorporated herein by reference. |
|
17 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated April 24,
2008, and incorporated herein by reference. |
|
18 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated June 2,
2008, and incorporated herein by reference. |
89
|
|
|
19 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated August 29,
2008, and incorporated herein by reference. |
|
20 |
|
Previously filed as an exhibit to the Companys Form 10-Q for the quarterly period ended
September 30, 2008, and incorporated herein by reference. |
|
21 |
|
Previously filed as an exhibit to the Companys Form 10-K Annual Report for the year ended
December 31, 2008, and incorporated herein by reference. |
|
22 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated June 18,
2009, and incorporated herein by reference. |
|
23 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated August 27,
2009, and incorporated herein by reference. |
|
24 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated August 31,
2009, and incorporated herein by reference. |
|
25 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K dated December 9,
2009, and incorporated herein by reference. |
|
26 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated February 5,
2010, and incorporated herein by reference. |
|
27 |
|
Previously filed as an exhibit to the Companys Form 10-K Annual Report for the year ended
December 31, 1998, and incorporated herein by reference. |
|
28 |
|
Previously filed as an exhibit to the Companys Form 10-Q for the quarterly period ended
March 31, 2001, and incorporated herein by reference. |
|
29 |
|
Previously filed as an exhibit to the Companys Form 10-Q for the quarterly period ended June
30, 2003, and incorporated herein by reference. |
|
30 |
|
Previously filed as an exhibit to the Companys Form 10-Q for the quarterly period ended
March 31, 2007, and incorporated herein by reference. |
|
31 |
|
Previously filed as an exhibit to the Companys Form 10-Q for the quarterly period ended June
30, 1999, and incorporated herein by reference. |
|
32 |
|
Previously filed as an exhibit to the Companys Form 10-K Annual Report for the year ended
December 31, 2001, and incorporated herein by reference. |
|
33 |
|
Previously filed as an exhibit to the Companys Form 10-Q for the quarterly period ended June
30, 2004, and incorporated herein by reference. |
|
34 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K dated March 2,
2005, and incorporated herein by reference. |
|
35 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K dated April 4,
2005, and incorporated herein by reference. |
|
36 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated February
28, 2007, and incorporated herein by reference. |
|
37 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated October 7,
2008, and incorporated herein by reference. |
90
|
|
|
38 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated November
19, 2008, and incorporated herein by reference. |
|
39 |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated April 2,
2009, and incorporated herein by reference. |
|
40 |
|
Previously filed as Annex A to the Companys Definitive Proxy Statement on Schedule 14A,
dated April 10, 2009, and incorporated herein by reference. |
|
41 |
|
Previously filed as an exhibit to the Companys Form 10-Q for the quarterly period ended
September 30, 2009, and incorporated herein by reference. |
|
42 |
|
Filed herewith. |
91