Credit Acceptance Corporation 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
OR
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o |
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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
(State or other jurisdiction of incorporation or organization)
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38-1999511
(IRS Employer Identification) |
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25505 WEST TWELVE MILE ROAD
SOUTHFIELD, MICHIGAN
(Address of principal executive offices)
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48034-8339
(Zip Code) |
Registrants telephone number, including area code: 248-353-2700
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 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):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers class of common stock, as of the
latest practicable date.
The number of shares of Common Stock, par value $0.01, outstanding on July 31, 2008 was 30,560,715.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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(Dollars in thousands, except per share data) |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenue: |
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Finance charges |
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$ |
70,827 |
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$ |
54,084 |
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$ |
134,502 |
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$ |
105,497 |
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Other income |
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4,178 |
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4,202 |
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11,281 |
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10,140 |
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Total revenue |
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75,005 |
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58,286 |
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145,783 |
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115,637 |
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Costs and expenses: |
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Salaries and wages |
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16,699 |
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13,092 |
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34,439 |
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24,953 |
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General and administrative |
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6,627 |
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7,359 |
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13,751 |
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13,276 |
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Sales and marketing |
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4,542 |
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4,144 |
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9,184 |
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8,616 |
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Provision for credit losses |
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20,760 |
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3,798 |
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23,409 |
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7,671 |
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Interest |
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9,884 |
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9,463 |
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20,748 |
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17,751 |
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Other expense |
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23 |
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33 |
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57 |
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58 |
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Total costs and expenses |
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58,535 |
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37,889 |
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101,588 |
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72,325 |
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Operating income |
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16,470 |
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20,397 |
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44,195 |
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43,312 |
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Foreign currency (loss) gain |
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34 |
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(13 |
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38 |
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Income from continuing operations before
provision for income taxes |
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16,470 |
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20,431 |
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44,182 |
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43,350 |
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Provision for income taxes |
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6,091 |
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7,938 |
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16,222 |
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15,470 |
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Income from continuing operations |
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10,379 |
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12,493 |
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27,960 |
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27,880 |
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Discontinued operations |
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(Loss) gain from discontinued United Kingdom operations |
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(12 |
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(233 |
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44 |
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(271 |
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Provision (credit) for income taxes |
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23 |
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(70 |
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40 |
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(81 |
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(Loss) gain from discontinued operations |
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(35 |
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(163 |
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4 |
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(190 |
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Net income |
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$ |
10,344 |
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$ |
12,330 |
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$ |
27,964 |
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$ |
27,690 |
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Net income per common share: |
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Basic |
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$ |
0.34 |
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$ |
0.41 |
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$ |
0.93 |
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$ |
0.92 |
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Diluted |
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$ |
0.33 |
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$ |
0.39 |
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$ |
0.90 |
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$ |
0.88 |
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Income from continuing operations per common
share: |
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Basic |
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$ |
0.34 |
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$ |
0.41 |
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$ |
0.93 |
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$ |
0.93 |
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Diluted |
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$ |
0.33 |
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$ |
0.40 |
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$ |
0.90 |
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$ |
0.89 |
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(Loss) gain from discontinued operations per
common share: |
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Basic |
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$ |
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$ |
(0.01 |
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$ |
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$ |
(0.01 |
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Diluted |
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$ |
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$ |
(0.01 |
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$ |
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$ |
(0.01 |
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Weighted average shares outstanding: |
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Basic |
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30,252,873 |
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30,140,590 |
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30,179,877 |
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30,097,387 |
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Diluted |
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31,088,428 |
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31,312,139 |
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30,970,387 |
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31,297,484 |
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See accompanying notes to consolidated financial statements.
1
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
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As of |
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June 30, |
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December 31, |
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(Dollars in thousands, except per share data) |
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2008 |
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2007 |
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(Unaudited) |
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ASSETS: |
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Cash and cash equivalents |
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$ |
82 |
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$ |
712 |
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Restricted cash and cash equivalents |
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86,892 |
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74,102 |
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Restricted securities available for sale |
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4,243 |
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3,290 |
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Loans receivable (including $16,723 and $16,125 from affiliates as of
June 30, 2008 and December 31, 2007, respectively) |
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1,144,409 |
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944,698 |
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Allowance for credit losses |
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(132,259 |
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(134,145 |
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Loans receivable, net |
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1,012,150 |
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810,553 |
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Property and equipment, net |
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21,844 |
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20,124 |
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Income taxes receivable |
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12,426 |
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20,712 |
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Other assets |
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14,464 |
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12,689 |
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Total Assets |
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$ |
1,152,101 |
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$ |
942,182 |
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LIABILITIES AND SHAREHOLDERS EQUITY: |
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Liabilities: |
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Accounts payable and accrued liabilities |
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$ |
81,896 |
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$ |
79,834 |
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Line of credit |
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38,100 |
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36,300 |
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Secured financing |
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658,284 |
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488,065 |
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Mortgage note and capital lease obligations |
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6,975 |
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7,765 |
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Deferred income taxes, net |
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69,116 |
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64,768 |
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Total Liabilities |
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854,371 |
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676,732 |
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Shareholders Equity: |
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Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued |
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Common stock, $.01 par value, 80,000,000 shares authorized, 30,544,145
and 30,240,859 shares issued and outstanding as of June 30, 2008 and
December 31, 2007, respectively |
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306 |
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302 |
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Paid-in capital |
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8,647 |
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4,134 |
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Retained earnings |
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288,965 |
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261,001 |
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Accumulated other comprehensive (loss) income, net of tax of $109 and
$(7) at June 30, 2008 and December 31, 2007, respectively |
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(188 |
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13 |
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Total Shareholders Equity |
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297,730 |
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265,450 |
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Total Liabilities and Shareholders Equity |
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$ |
1,152,101 |
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$ |
942,182 |
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See accompanying notes to consolidated financial statements.
2
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Six Months Ended |
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June 30, |
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(Dollars in thousands) |
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2008 |
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2007 |
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Cash Flows From Operating Activities: |
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Net income |
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$ |
27,964 |
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$ |
27,690 |
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Adjustments to reconcile cash provided by operating activities: |
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Provision for credit losses |
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23,408 |
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7,671 |
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Depreciation |
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2,571 |
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2,072 |
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Loss on retirement of property and equipment |
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72 |
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Provision for deferred income taxes |
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4,464 |
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6,353 |
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Stock-based compensation |
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1,807 |
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1,845 |
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Change in operating assets and liabilities: |
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Increase in accounts payable and accrued liabilities |
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1,737 |
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2,461 |
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Decrease in income taxes receivable |
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8,286 |
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7,230 |
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(Decrease) increase in other assets |
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(1,775 |
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1,131 |
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Net cash provided by operating activities |
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68,462 |
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56,525 |
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Cash Flows From Investing Activities: |
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Increase in restricted cash and cash equivalents |
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(12,790 |
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(26,718 |
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Purchases of restricted securities available for sale |
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(1,514 |
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(550 |
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Proceeds from sale of restricted securities available for sale |
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271 |
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Maturities of restricted securities available for sale |
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298 |
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355 |
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Principal collected on Loans receivable |
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314,264 |
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306,964 |
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Advances to dealers and accelerated payments of dealer holdback |
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(321,396 |
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(352,208 |
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Purchases of Consumer Loans |
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(185,274 |
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(41,915 |
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Payments of dealer holdback |
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(32,746 |
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(38,948 |
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Net change in other receivables |
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98 |
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63 |
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Purchases of property and equipment |
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(4,291 |
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(3,028 |
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Net cash used in investing activities |
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(243,080 |
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(155,985 |
) |
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Cash Flows From Financing Activities: |
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Borrowings under line of credit |
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415,900 |
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|
354,700 |
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Repayments under line of credit |
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(414,100 |
) |
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(348,600 |
) |
Proceeds from secured financing |
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407,700 |
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|
365,000 |
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Repayments of secured financing |
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(237,481 |
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(277,513 |
) |
Principal payments under mortgage note and capital lease obligations |
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(790 |
) |
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(736 |
) |
Repurchase of common stock |
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(66 |
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(2,225 |
) |
Proceeds from stock options exercised |
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1,911 |
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|
1,027 |
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Tax benefits from stock based compensation plans |
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|
865 |
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|
1,256 |
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Net cash provided by financing activities |
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|
173,939 |
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|
92,909 |
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Effect of exchange rate changes on cash |
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|
49 |
|
|
|
(148 |
) |
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Net decrease in cash and cash equivalents |
|
|
(630 |
) |
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|
(6,699 |
) |
Cash and cash equivalents, beginning of period |
|
|
712 |
|
|
|
8,528 |
|
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|
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Cash and cash equivalents, end of period |
|
$ |
82 |
|
|
$ |
1,829 |
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Supplemental Disclosure of Cash Flow Information: |
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Cash paid during the period for interest |
|
$ |
20,843 |
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$ |
17,350 |
|
Cash paid during the period for income taxes |
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|
2,039 |
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|
|
383 |
|
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Supplemental Disclosure of Non-Cash Transactions: |
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Property and equipment acquired through capital lease obligations |
|
$ |
|
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|
$ |
122 |
|
See accompanying notes to consolidated financial statements.
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America (generally accepted
accounting principles or GAAP) for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. The results of
operations for interim periods are not necessarily indicative of actual results achieved for full
fiscal years. The consolidated balance sheet at December 31, 2007 has been derived from the audited
financial statements at that date but does not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes thereto included in the
Annual Report on Form 10-K for the year ended December 31, 2007 for Credit Acceptance Corporation
(the Company, Credit Acceptance, we, our or us). Certain prior period amounts have been
reclassified to conform to the current presentation.
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. DESCRIPTION OF BUSINESS
Since 1972, Credit Acceptance 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 program and who share our commitment to changing
consumers lives as dealer-partners. Upon enrollment in our financing program, the
dealer-partner enters 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 retail installment contracts (referred to as Consumer Loans) from the dealer-partners to us.
We are an indirect lender from a legal perspective, meaning the Consumer Loan is originated by
the dealer-partner and immediately assigned to us. 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.
We have two primary programs: the Portfolio Program and the Purchase Program. The following
table shows the percentage of loans assigned to us under each of the programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Portfolio Program |
|
|
65.4 |
% |
|
|
83.8 |
% |
|
|
68.1 |
% |
|
|
90.2 |
% |
Purchase Program |
|
|
34.6 |
% |
|
|
16.2 |
% |
|
|
31.9 |
% |
|
|
9.8 |
% |
Prior to January 1, 2008, dealer-partners had the option to assign Consumer Loans under either
program and signed a separate agreement for each program type. Beginning January 1, 2008,
dealer-partners that enroll in our program have two options. Dealer-partners choosing option one
pay a one-time enrollment fee of $9,850 and have access to both the Portfolio Program and the
Purchase Program. Dealer-partners choosing the second option to defer payment of the enrollment
fee only have access to the Portfolio Program and agree to allow us to keep 50% of their first
accelerated dealer holdback payment. This payment, called Portfolio Profit Express, is paid to
qualifying dealer-partners after a pool of 100 Consumer Loans has
been closed. After the first accelerated dealer holdback payment, the dealer-partner is
granted access to 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.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
2. DESCRIPTION OF BUSINESS (Concluded)
Portfolio Program
As payment for the vehicle, the dealer-partner generally receives the following:
|
(i) |
|
a down payment from the consumer; |
|
|
(ii) |
|
a cash advance from us; and |
|
|
(iii) |
|
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. 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.
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; |
|
|
|
|
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 a portion of the dealer holdback on an
accelerated basis 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, the dealer-partner will not receive dealer
holdback or accelerated 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 from the dealer-partner of the advance except in the
event the dealer-partner is in default of the dealer servicing agreement. Advances are made only
after the Consumer Loan is approved, accepted and assigned to us and all other stipulations
required for funding have been satisfied. The dealer-partner can also opt to repurchase Consumer
Loans assigned under the Portfolio Program at their own discretion.
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 (i) the dealer-partners financial interest in the Consumer Loan and (ii) certain elements of
our legal relationship with the dealer-partner. The cash amount advanced to the dealer-partner is
recorded as an asset on our balance sheet. The aggregate amount of all advances to an individual
dealer-partner, plus accrued income, less repayments comprises the amount of the Dealer Loan
recorded in Loans receivable.
Purchase Program
We began offering a Purchase Program on a limited basis in March of 2005. The Purchase
Program differs from our traditional 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.
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 cash amount paid to the
dealer-partner is recorded as an asset on our balance sheet. The aggregate amount of all amounts
paid to purchase Consumer Loans from dealer-partners, plus accrued income, less repayments,
comprises the amount of Purchased Loans recorded in Loans receivable.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
3. SIGNIFICANT ACCOUNTING POLICIES
Restricted Cash and Cash Equivalents
The carrying amount of restricted cash and cash equivalents approximate their fair value due
to the short maturity of these instruments. Restricted cash and cash equivalents increased to
$86.9 million as of June 30, 2008 from $74.1 million at December 31, 2007. The balance consists
of: (i) $61.0 million of cash collections related to secured financings, and (ii) $25.9 million of
cash held in trusts for future vehicle service contract claims. The claims reserve associated with
the trusts are included in accounts payable and accrued liabilities in the consolidated balance
sheets.
Deferred Debt Issuance Costs
As of June 30, 2008 and December 31, 2007, deferred debt issuance costs were $4.1 million (net
of accumulated amortization of $3.7 million) and $3.3 million (net of accumulated amortization of
$2.0 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.
New Accounting Pronouncements
Fair Value Measurements. In September 2006, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework and gives guidance regarding the
methods used for measuring fair value, and expands disclosures about fair value measurements. SFAS
157 is effective for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods of those fiscal years. However, on February 12, 2008, the FASB issued
FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2),
which delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). FSP FAS 157-2 defers the effective date of SFAS 157 to fiscal
years beginning after November 15, 2008, and interim periods within those fiscal years for items
within the scope of FSP FAS 157-2. We adopted the applicable portions of SFAS 157 on January 1,
2008 (See Note 7). The deferred portions of SFAS 157 will not have an impact on our financial
statements. The adoption of the applicable portions of SFAS 157 for financial assets and
liabilities did not have a material impact on our consolidated financial statements.
Fair Value Option for Financial Assets and Liabilities. In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159).
SFAS 159 permits entities to choose to measure financial assets and liabilities (except for those
that are specifically exempted from SFAS 159) at fair value. The election to measure a financial
asset or liability at fair value can be made on an instrument-by-instrument basis and is
irrevocable. The difference between carrying value and fair value at the election date is recorded
as a transition adjustment to opening retained earnings. Subsequent changes in fair value are
recognized in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007.
At this time, we have not elected to measure any financial asset or liabilities at fair value under
SFAS 159.
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 is intended to improve financial reporting about derivative instruments and
hedging activities by requiring enhanced disclosures. This statement is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. We are currently evaluating the impact that SFAS 161 will have on our
consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
4. LOANS RECEIVABLE
A summary of changes in Loans receivable is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
831,605 |
|
|
$ |
216,788 |
|
|
$ |
1,048,393 |
|
New loans (1) |
|
|
141,423 |
|
|
|
91,214 |
|
|
|
232,637 |
|
Transfers (2) |
|
|
(584 |
) |
|
|
584 |
|
|
|
|
|
Dealer holdback payments |
|
|
15,504 |
|
|
|
|
|
|
|
15,504 |
|
Net cash collections on loans |
|
|
(125,920 |
) |
|
|
(23,871 |
) |
|
|
(149,791 |
) |
Write-offs |
|
|
(2,368 |
) |
|
|
(6 |
) |
|
|
(2,374 |
) |
Recoveries |
|
|
|
|
|
|
9 |
|
|
|
9 |
|
Other |
|
|
13 |
|
|
|
|
|
|
|
13 |
|
Currency translation |
|
|
18 |
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
859,691 |
|
|
$ |
284,718 |
|
|
$ |
1,144,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
798,679 |
|
|
$ |
37,171 |
|
|
$ |
835,850 |
|
New loans (1) |
|
|
138,988 |
|
|
|
28,959 |
|
|
|
167,947 |
|
Transfers (2) |
|
|
(811 |
) |
|
|
811 |
|
|
|
|
|
Dealer holdback payments |
|
|
18,328 |
|
|
|
|
|
|
|
18,328 |
|
Net cash collections on loans |
|
|
(139,186 |
) |
|
|
(6,676 |
) |
|
|
(145,862 |
) |
Write-offs |
|
|
(3,028 |
) |
|
|
(23 |
) |
|
|
(3,051 |
) |
Recoveries |
|
|
|
|
|
|
7 |
|
|
|
7 |
|
Other |
|
|
90 |
|
|
|
|
|
|
|
90 |
|
Currency translation |
|
|
132 |
|
|
|
|
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
813,192 |
|
|
$ |
60,249 |
|
|
$ |
873,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
804,245 |
|
|
$ |
140,453 |
|
|
$ |
944,698 |
|
New loans (1) |
|
|
321,396 |
|
|
|
185,274 |
|
|
|
506,670 |
|
Transfers (2) |
|
|
(2,098 |
) |
|
|
2,098 |
|
|
|
|
|
Dealer holdback payments |
|
|
32,746 |
|
|
|
|
|
|
|
32,746 |
|
Net cash collections on loans |
|
|
(271,451 |
) |
|
|
(43,103 |
) |
|
|
(314,554 |
) |
Write-offs |
|
|
(25,096 |
) |
|
|
(19 |
) |
|
|
(25,115 |
) |
Recoveries |
|
|
|
|
|
|
15 |
|
|
|
15 |
|
Other |
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
Currency translation |
|
|
(49 |
) |
|
|
|
|
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
859,691 |
|
|
$ |
284,718 |
|
|
$ |
1,144,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
724,645 |
|
|
$ |
29,926 |
|
|
$ |
754,571 |
|
New loans (1) |
|
|
352,208 |
|
|
|
41,915 |
|
|
|
394,123 |
|
Transfers (2) |
|
|
(1,979 |
) |
|
|
1,979 |
|
|
|
|
|
Dealer holdback payments |
|
|
38,948 |
|
|
|
|
|
|
|
38,948 |
|
Net cash collections on loans |
|
|
(293,821 |
) |
|
|
(13,430 |
) |
|
|
(307,251 |
) |
Write-offs |
|
|
(7,183 |
) |
|
|
(160 |
) |
|
|
(7,343 |
) |
Recoveries |
|
|
|
|
|
|
19 |
|
|
|
19 |
|
Other |
|
|
226 |
|
|
|
|
|
|
|
226 |
|
Currency translation |
|
|
148 |
|
|
|
|
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
813,192 |
|
|
$ |
60,249 |
|
|
$ |
873,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
New Dealer Loans includes advances to dealer-partners and
accelerated payments of dealer holdback. |
|
(2) |
|
Transfers relate to Dealer Loans that are now considered to be Purchased Loans when
we exercise our right to the dealer holdback of certain dealer-partners Consumer Loans
once they are inactive and have originated less than 100 Consumer Loans. |
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
4. LOANS RECEIVABLE (Concluded)
Our forecast as of March 31, 2008 assumed that Loans within our current portfolio would
produce similar collection rates as produced by historical Loans with the same attributes and we
expected net cash flows of $1.3 billion from our Loan portfolio. During the second quarter of 2008
we modified our forecasting methodology which now assumes that Loans originated in 2006, 2007 and
2008 will perform 100 to 300 basis points lower than historical Loans with the same attributes. As a result we
reduced our estimate of future cash flows on these same Loans by $22.2 million, or 1.7%. Of the
total reduction, $20.8 million was recorded as a current period
expense, $1.0 million was recorded
as a current period reduction in Loan revenue and $0.5 million will be recorded as a reduction in
Loan revenue in future periods. This new expectation is consistent with recent experience and
includes both the lower realized collection rates experienced during the second quarter of 2008 as
well as lower expected recoveries on repossession sales as a result in a decline in used vehicle
values that occurred during the second quarter of 2008. We did not modify our forecast related to
2005 and prior Loans as these Loans continue to perform as expected.
A summary of changes in the Allowance for credit losses is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
112,653 |
|
|
$ |
1,172 |
|
|
$ |
113,825 |
|
Provision for credit losses (1) |
|
|
15,513 |
|
|
|
5,269 |
|
|
|
20,782 |
|
Write-offs |
|
|
(2,368 |
) |
|
|
(6 |
) |
|
|
(2,374 |
) |
Recoveries |
|
|
|
|
|
|
10 |
|
|
|
10 |
|
Currency translation |
|
|
16 |
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
125,814 |
|
|
$ |
6,445 |
|
|
$ |
132,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
127,191 |
|
|
$ |
1,058 |
|
|
$ |
128,249 |
|
Provision for credit losses (2) |
|
|
4,151 |
|
|
|
(185 |
) |
|
|
3,966 |
|
Write-offs |
|
|
(3,028 |
) |
|
|
(23 |
) |
|
|
(3,051 |
) |
Recoveries |
|
|
|
|
|
|
7 |
|
|
|
7 |
|
Currency translation |
|
|
111 |
|
|
|
|
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
128,425 |
|
|
$ |
857 |
|
|
$ |
129,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
133,201 |
|
|
$ |
944 |
|
|
$ |
134,145 |
|
Provision for credit losses (3) |
|
|
17,751 |
|
|
|
5,505 |
|
|
|
23,256 |
|
Write-offs |
|
|
(25,096 |
) |
|
|
(19 |
) |
|
|
(25,115 |
) |
Recoveries |
|
|
|
|
|
|
15 |
|
|
|
15 |
|
Currency translation |
|
|
(42 |
) |
|
|
|
|
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
125,814 |
|
|
$ |
6,445 |
|
|
$ |
132,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007 |
|
|
|
Dealer Loans |
|
|
Purchased Loans |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period |
|
$ |
127,881 |
|
|
$ |
910 |
|
|
$ |
128,791 |
|
Provision for credit losses (4) |
|
|
7,602 |
|
|
|
88 |
|
|
|
7,690 |
|
Write-offs |
|
|
(7,183 |
) |
|
|
(160 |
) |
|
|
(7,343 |
) |
Recoveries |
|
|
|
|
|
|
19 |
|
|
|
19 |
|
Currency translation |
|
|
125 |
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
128,425 |
|
|
$ |
857 |
|
|
$ |
129,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include a provision for credit losses of $(22) related to other items. |
|
(2) |
|
Does not include a provision for credit losses of $(168) related to other items. |
|
(3) |
|
Does not include a provision for credit losses of $153 related to other items. |
|
(4) |
|
Does not include a provision for credit losses of $(19) related to other items. |
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
5. DEBT
We currently use four primary sources of debt financing: (i) a revolving secured line of
credit with a commercial bank syndicate; (ii) revolving secured warehouse facilities with
institutional investors; (iii) SEC Rule 144A asset-backed secured financings (Term ABS 144A) with
qualified institutional investors; and (iv) a residual credit facility with an institutional
investor. General information for each of our financing transactions in place as of June 30, 2008
is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly owned |
|
Issue |
|
|
|
Revolving Maturity |
|
Financing |
|
Interest Rate at |
Financings |
|
Subsidiary * |
|
Number |
|
Close Date |
|
Date |
|
Amount |
|
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Line of Credit
|
|
n/a
|
|
n/a
|
|
January 25, 2008
|
|
June 22, 2010
|
|
$ |
153,500 |
|
|
Either Eurodollar
rate plus 125 basis
points (3.72%) or
the prime rate
minus 165 basis
points (3.35%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Secured
Warehouse Facility*
|
|
CAC Warehouse
Funding Corp. II
|
|
2003-2
|
|
February 12, 2008
|
|
February 11, 2009
|
|
$ |
325,000 |
|
|
Commercial paper
rate plus 65 basis
points (3.36%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Secured
Warehouse Facility*
|
|
CAC Warehouse
Funding III, LLC
|
|
2008-2
|
|
May 27, 2008
|
|
May 23, 2010
|
|
$ |
50,000 |
|
|
Commercial paper
rate plus 77.5
basis points
(3.49%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 144A 2006-2*
|
|
Credit Acceptance
Funding LLC 2006-2
|
|
2006-2
|
|
November 21, 2006
|
|
November 15, 2007**
|
|
$ |
100,000 |
|
|
Fixed rate (5.38%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 144A 2007-1*
|
|
Credit Acceptance
Funding LLC 2007-1
|
|
2007-1
|
|
April 12, 2007
|
|
April 15, 2008**
|
|
$ |
100,000 |
|
|
Fixed rate (5.32%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 144A 2007-2*
|
|
Credit Acceptance
Funding LLC 2007-2
|
|
2007-2
|
|
October 29, 2007
|
|
October 15, 2008**
|
|
$ |
100,000 |
|
|
Fixed rate
(6.22%)*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 144A 2008-1*
|
|
Credit Acceptance
Funding LLC 2008-1
|
|
2008-1
|
|
April 18, 2008
|
|
April 15, 2009**
|
|
$ |
150,000 |
|
|
Fixed rate
(6.43%)*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residual Credit Facility*
|
|
Credit Acceptance
Residual Funding
LLC
|
|
2006-3
|
|
September 11, 2007
|
|
September 9, 2008
|
|
$ |
50,000 |
|
|
LIBOR plus 145
basis points
(3.91%) or the
commercial paper
rate plus 145 basis points (4.16%) |
|
|
|
* |
|
Financing made available only to a specified subsidiary of the Company. |
|
** |
|
Loans will amortize after the revolving maturity date based on the cash flows of the contributed assets. |
|
*** |
|
Includes a floating rate obligation that has been converted to a fixed rate via an interest rate swap. |
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
5. DEBT (Continued)
Additional information related to the amounts outstanding on each facility is as follows (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Revolving Line of Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum outstanding balance |
|
$ |
128,400 |
|
|
$ |
70,200 |
|
|
$ |
128,400 |
|
|
$ |
70,200 |
|
Average outstanding balance |
|
|
74,819 |
|
|
|
43,764 |
|
|
|
60,431 |
|
|
|
42,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Secured Warehouse Facility (2003-2)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum outstanding balance |
|
$ |
297,211 |
|
|
$ |
293,500 |
|
|
$ |
297,211 |
|
|
$ |
293,500 |
|
Average outstanding balance |
|
|
272,398 |
|
|
|
219,049 |
|
|
|
264,245 |
|
|
|
215,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Secured Warehouse Facility (2008-2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum outstanding balance |
|
$ |
50,000 |
|
|
$ |
|
|
|
$ |
50,000 |
|
|
$ |
|
|
Average outstanding balance |
|
|
50,000 |
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
* |
|
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 June 30, |
|
As of December 31, |
|
|
2008 |
|
2007 |
Revolving Line of Credit |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
38,100 |
|
|
$ |
36,300 |
|
Letter(s) of credit |
|
|
173 |
|
|
|
173 |
|
Amount available for borrowing |
|
|
115,227 |
|
|
|
38,527 |
|
Interest rate |
|
|
3.35 |
% |
|
|
5.60 |
% |
|
|
|
|
|
|
|
|
|
Revolving Secured Warehouse Facility (2003-2) |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
264,061 |
|
|
$ |
198,100 |
|
Amount available for borrowing |
|
|
60,939 |
|
|
|
226,900 |
|
Contributed eligible Loans |
|
|
328,507 |
|
|
|
254,294 |
|
Interest rate |
|
|
3.36 |
% |
|
|
5.76 |
% |
|
|
|
|
|
|
|
|
|
Revolving Secured Warehouse Facility (2008-2) |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
50,000 |
|
|
$ |
|
|
Amount available for borrowing |
|
|
|
|
|
|
|
|
Contributed eligible Loans |
|
|
62,565 |
|
|
|
|
|
Interest rate |
|
|
3.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 144A 2006-2 |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
27,927 |
|
|
$ |
89,965 |
|
Contributed eligible Dealer Loans |
|
|
107,484 |
|
|
|
129,950 |
|
Interest rate |
|
|
5.38 |
% |
|
|
5.38 |
% |
|
|
|
|
|
|
|
|
|
Term ABS 144A 2007-1 |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
81,295 |
|
|
$ |
100,000 |
|
Contributed eligible Dealer Loans |
|
|
117,376 |
|
|
|
130,841 |
|
Interest rate |
|
|
5.32 |
% |
|
|
5.32 |
% |
|
|
|
|
|
|
|
|
|
Term ABS 144A 2007-2 |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
100,000 |
|
|
$ |
100,000 |
|
Contributed eligible Dealer Loans |
|
|
125,009 |
|
|
|
132,695 |
|
Interest rate |
|
|
6.22 |
% |
|
|
6.22 |
% |
|
|
|
|
|
|
|
|
|
Term ABS 144A 2008-1 |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
135,000 |
|
|
$ |
|
|
Contributed eligible Dealer Loans |
|
|
176,511 |
|
|
|
|
|
Interest rate |
|
|
6.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residual Credit Facility |
|
|
|
|
|
|
|
|
Balance outstanding |
|
$ |
|
|
|
$ |
|
|
Contributed eligible Dealer Loans |
|
|
82,993 |
|
|
|
28,513 |
|
Interest rate |
|
|
4.16 |
% |
|
|
6.56 |
% |
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
5. DEBT (Continued)
Line of Credit Facility
During the first quarter of 2008, we increased the amount of our line of credit facility with
a commercial bank syndicate from $75.0 million to $153.5 million. In addition, the maturity of the
line of credit facility was extended from June 20, 2009 to June 22, 2010. There were no other
material changes to the terms of the line of credit facility.
Borrowings under the 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 credit
agreement are secured by a lien on most of our assets. We must pay annual and quarterly fees on
the amount of the facility.
Revolving Secured Warehouse Facilities
We
have two revolving secured warehouse facilities that are provided to
wholly owned subsidiaries of the Company. One is a
$325.0 million facility with an institutional investor and the
other is a
$50.0 million facility with another institutional investor.
During
the first quarter of 2008, we extended the maturity of $325.0 million
facility from February 13, 2008 to February 11, 2009. The amount of the
facility was reduced from $425.0 million to $325.0 million. The reduction in the amount of the facility is due
to one of the two institutional investors (the Nonextending Investor) not renewing their
participation in the facility. The amount owing to the Nonextending
Investor has been reduced to zero.
During the second quarter of 2008, we entered into a $50.0 million revolving warehouse
facility with an institutional investor. This facility was fully drawn as of June 30, 2008.
Under
these 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
the subsidiaries and the Company are consolidated for financial reporting purposes, the financing
is non-recourse to us. As the subsidiaries are organized as separate legal entities from the
Company, assets of the subsidiaries (including the conveyed Loans) will not be available to satisfy
the general obligations of the Company. All of each subsidiaries assets have been encumbered to
secure its obligations to its respective creditors.
Interest on borrowings under the facilities has been limited to a maximum rate of 6.75%
through interest rate cap agreements. 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, 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 are paid in full.
Term ABS 144A Financings
In 2006, 2007 and 2008, five 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 conveyed the Loans to a respective trust that issued notes
to qualified institutional investors. Financial insurance policies were issued in connection with
the 2006 and 2007 transactions. The policies guarantee the timely payment of interest and ultimate
repayment of principal on the final scheduled distribution date. In the 2006 and 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. Due
to downgrades in the debt ratings of the insurers, at June 30, 2008 the 2006 transaction was rated
A by S&P and A3 by Moodys. The 2007 transactions were rated A- by S&P and A3 by Moodys.
The 2008 transaction was rated A by S&P.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
5. DEBT (Continued)
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 the trusts, the Funding LLCs
and the Company are consolidated for financial reporting purposes. Because the Funding LLCs are
organized as separate legal entities from the Company, their assets (including the conveyed Loans)
are not available to satisfy our general obligations. 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. Aside from the servicing fee and payments due to dealer-partners, we
do not receive, or have any rights in the collections. 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 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 144A
Financings (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Book Value of Dealer |
|
|
|
Expected |
Term ABS 144A |
|
Issue |
|
|
|
Loans Conveyed at |
|
|
|
Annualized |
Financing |
|
Number |
|
Close Date |
|
Closing |
|
Revolving Period |
|
Rates * |
|
|
|
|
|
|
|
|
|
|
|
Term ABS 144A 2006-2 |
|
2006-2 |
|
November 21, 2006 |
|
$125,600 |
|
12 months |
|
7.4% |
|
|
|
|
|
|
|
|
(Through November 15, 2007) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 144A 2007-1 |
|
2007-1 |
|
April 12, 2007 |
|
$125,700 |
|
12 months |
|
7.2% |
|
|
|
|
|
|
|
|
(Through April 15, 2008) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 144A 2007-2 |
|
2007-2 |
|
October 29, 2007 |
|
$125,000 |
|
12 months |
|
8.0% |
|
|
|
|
|
|
|
|
(Through October 15, 2008) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Term ABS 144A 2008-1 |
|
2008-1 |
|
April 18, 2008 |
|
$ 86,615 |
|
12 months |
|
7.0% |
|
|
|
|
|
|
|
|
(Through April 15, 2009) |
|
|
|
|
|
* |
|
Includes underwriters fees, insurance premiums and other costs. |
Residual Credit Facility
Another wholly owned subsidiary, Credit Acceptance Residual Funding LLC (Residual Funding),
has a $50.0 million secured credit facility with an institutional investor. This facility allows
Residual Funding to finance its purchase of trust certificates from special-purpose entities (the
Term SPEs) that have purchased Dealer Loans under our term securitization transactions.
Historically, the Term SPEs residual interests in Dealer Loans, represented by their trust
certificates, have proven to have value that increases as their term securitization obligations
amortize. This facility enables the Term SPEs to realize and distribute to us up to 70% of that
increase in value prior to the time the related term securitization senior notes are paid in full.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
5. DEBT (Concluded)
Residual Fundings interests in Dealer Loans, represented by its purchased trust certificates,
are subordinated to the interests of term securitization senior noteholders. However, the entire
arrangement is non-recourse to us. Residual Funding is organized as a separate legal entity from
the Company. Therefore its assets, including purchased trust certificates, are not available to
satisfy our general obligations, even though Residual Funding and the Company are consolidated for
financial reporting purposes.
Debt Covenants
As of June 30, 2008, we are in compliance with various restrictive debt covenants that require
the maintenance of certain financial ratios and other financial conditions. The most restrictive
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 $1.00 for the two consecutive quarters. Some of the debt covenants may indirectly
limit the payment of dividends on common stock.
6. DERIVATIVE INSTRUMENTS
Interest Rate Caps. We purchase interest rate cap agreements to manage the interest rate risk
on our secured financings. As we have not designated these agreements as hedges as defined under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as
amended by SFAS No. 138 and SFAS No. 149, changes in the fair value of these agreements will
increase or decrease net income.
As of June 30, 2008, six interest rate cap agreements were outstanding with a cap rate of
6.75% and totaled (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
Commercial Paper |
|
|
|
Fair |
Amount |
|
Cap Rate |
|
Term |
|
Value |
$ |
700,000 |
|
|
|
6.75 |
% |
|
Various maturities between July 2009 and June 2010. |
|
$ |
57 |
|
As of December 31, 2007, four interest rate cap agreements were outstanding with a cap rate of
6.75% and totaled (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
Commercial Paper |
|
|
|
Fair |
Amount |
|
Cap Rate |
|
Term |
|
Value |
$ |
525,000 |
|
|
|
6.75 |
% |
|
Various maturities between September 2005 and June 2010. |
|
$ |
6 |
|
Interest Rate Swaps. As of June 30, 2008 we had $159.2 million in fixed rate debt, and $185.0
million in floating rate debt outstanding under Term ABS 144A asset-backed secured borrowings. We
have entered into two interest rate swaps to convert $50.0 million and $135.0 million in floating
rate Term ABS 144A asset-backed secured borrowings into fixed rate debt bearing a rate of 6.28% and
6.43%, respectively. The fair value of the interest rate swaps is based on quoted market values,
which are influenced by a number of factors, including interest rates, amount of debt outstanding,
and number of months until maturity. As we have not designated the interest rate swap related to
the $50.0 million in floating rate debt as a hedge as defined under SFAS 133, changes in the fair
value of this swap will increase or decrease interest expense. For the three and six months ended
June 30, 2008, the impact on interest expense was ($0.6) million and $0.2 million, respectively.
As of June 30, 2008, the interest rate swap had a fair value of ($0.7) million.
We have designated the interest rate swap related to the $135.0 million floating rate debt as
a cash flow hedge as defined under SFAS 133. The effective portion of changes in the fair value
will be recorded in other comprehensive income, net of income taxes, and the ineffective portion of changes in fair value will be recorded in
interest expense. There has been no such ineffectiveness since the inception of this hedge through
the second quarter of 2008. For the three and six months ended June 30, 2008, the impact on other
comprehensive income, net of tax, was ($0.2) million. As of June 30, 2008, the interest rate swap had a fair value of
($0.3) million.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
6.
DERIVATIVE INSTRUMENTS (Concluded)
For those 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
its risk-management objective and strategy for undertaking various hedge transactions. This process
includes linking all derivatives 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 derivatives that are used in hedging transactions have been highly
effective in offsetting changes in the cash flows of hedged items and whether those derivatives may
be expected to remain highly effective in the future periods. When it is determined that a
derivative is not (or has ceased to be) highly effective as a hedge,
we would discontinue hedge
accounting prospectively.
At June 30, 2008, 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.
We recognize our derivative financial instruments as either assets or liabilities on our
consolidated balance sheets.
7. FAIR VALUE MEASUREMENTS
Effective January 1, 2008, we adopted SFAS 157, which clarifies that 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. As a basis for considering such assumptions, SFAS 157
establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair
value. As required under SFAS 157, 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 as of June 30, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
Level 2 |
|
Fair Value |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted securities available for sale |
|
|
$ |
4,243 |
|
|
$ |
|
|
|
$ |
4,243 |
|
Derivative instruments |
|
|
|
|
|
|
|
57 |
|
|
|
57 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
|
$ |
|
|
|
$ |
1,051 |
|
|
$ |
1,051 |
|
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
8. RELATED PARTY TRANSACTIONS
In the normal course of our business, we have Dealer Loans with affiliated dealer-partners
owned or controlled by: (i) our majority shareholder and Chairman; and (ii) a member of the
Chairmans immediate family. Our Dealer Loans to affiliated dealer-partners and non-affiliated
dealer-partners are on the same terms.
Affiliated Dealer Loan balances were $16.7 million and $16.1 million as of June 30, 2008 and
December 31, 2007, respectively. Affiliated Dealer Loan balances were 1.9% and 2.0% of total
consolidated Dealer Loan balances as of June 30, 2008 and December 31, 2007, respectively. A
summary of related party Dealer Loan activity is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
June 30, 2008 |
|
June 30, 2007 |
|
|
Affiliated |
|
|
|
|
|
Affiliated |
|
|
|
|
dealer-partner |
|
% of |
|
dealer-partner |
|
% of |
|
|
activity |
|
consolidated |
|
activity |
|
consolidated |
New loans |
|
$ |
2,832 |
|
|
|
2.0 |
% |
|
$ |
2,346 |
|
|
|
1.7 |
% |
Affiliated
dealer-partner revenue |
|
$ |
1,028 |
|
|
|
1.9 |
% |
|
$ |
1,195 |
|
|
|
2.5 |
% |
Dealer holdback payments |
|
$ |
591 |
|
|
|
3.8 |
% |
|
$ |
466 |
|
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Six Months Ended |
|
|
June 30, 2008 |
|
June 30, 2007 |
|
|
Affiliated |
|
|
|
|
|
Affiliated |
|
|
|
|
dealer-partner |
|
% of |
|
dealer-partner |
|
% of |
|
|
activity |
|
consolidated |
|
activity |
|
consolidated |
New loans |
|
$ |
6,519 |
|
|
|
2.0 |
% |
|
$ |
6,558 |
|
|
|
1.9 |
% |
Affiliated
dealer-partner revenue |
|
$ |
2,013 |
|
|
|
2.0 |
% |
|
$ |
2,413 |
|
|
|
2.5 |
% |
Dealer holdback payments |
|
$ |
1,130 |
|
|
|
3.5 |
% |
|
$ |
1,023 |
|
|
|
2.6 |
% |
Beginning in 2002, entities owned by our majority shareholder and Chairman began offering
secured lines of credit to third parties in a manner similar to a program previously offered by us.
In December 2004, our majority shareholder and Chairman sold his ownership interest in these
entities; however, he continues to have indirect control over these entities and has the right or
obligation to reacquire the entities under certain circumstances until December 31, 2014 or the
repayment of the related purchase money note.
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
9. CAPITAL TRANSACTIONS
Net Income Per Share
Basic net income per share has been computed by dividing net income by the weighted average
number of common shares outstanding. Diluted net income per share has been computed by dividing net
income by the total of the weighted average number of common shares and dilutive common stock
equivalents outstanding. Dilutive common stock equivalents included in the computation represent
shares issuable upon assumed exercise of stock options that would have a dilutive effect using the
treasury stock method. The share effect is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Weighted average common shares outstanding |
|
|
30,252,873 |
|
|
|
30,140,590 |
|
|
|
30,179,877 |
|
|
|
30,097,387 |
|
Dilutive effect of common stock equivalents |
|
|
835,555 |
|
|
|
1,171,549 |
|
|
|
790,510 |
|
|
|
1,200,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and common
stock equivalents |
|
|
31,088,428 |
|
|
|
31,312,139 |
|
|
|
30,970,387 |
|
|
|
31,297,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no stock options that would be anti-dilutive for the three and six months ended
June 30, 2008 and 2007.
Stock Compensation Plans
Pursuant to our Incentive Compensation Plan (the Incentive 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
employees, officers, and directors at any time prior to April 1, 2014. Shares available for future
grants under the Incentive Plan totaled 426,852 as of June 30, 2008.
A summary of the activity under the Incentive Plan for the six months ended June 30, 2008 and
2007 is presented below:
|
|
|
|
|
Restricted Stock |
|
Number of Shares |
Outstanding as of December 31, 2007 |
|
|
201,872 |
|
Granted |
|
|
80,123 |
|
Vested |
|
|
(20,198 |
) |
Forfeited |
|
|
(9,655 |
) |
|
|
|
|
|
Outstanding as of June 30, 2008 |
|
|
252,142 |
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock |
|
Number of Shares |
Outstanding as of December 31, 2006 |
|
|
146,028 |
|
Granted |
|
|
56,669 |
|
Vested |
|
|
(708 |
) |
Forfeited |
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2007 |
|
|
201,989 |
|
|
|
|
|
|
On February 22, 2007, the compensation committee approved an award of 300,000 restricted stock
units to our Chief Executive Officer. Each restricted stock unit represents and has a value equal
to one share of our common stock. The restricted stock units will be earned over a five year
period based upon the annual increase in our adjusted economic profit. Any earned shares will be
distributed on February 22, 2014. As of June 30, 2008, 60,000 restricted stock units have been
earned.
Expenses related to restricted stock grants and the award of restricted stock units is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Restricted stock compensation expense |
|
$ |
367 |
|
|
$ |
384 |
|
|
$ |
713 |
|
|
$ |
437 |
|
Restricted stock units compensation expense |
|
|
531 |
|
|
|
990 |
|
|
|
1,097 |
|
|
|
1,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expense |
|
$ |
898 |
|
|
$ |
1,374 |
|
|
$ |
1,810 |
|
|
$ |
1,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(UNAUDITED)
10. BUSINESS SEGMENT INFORMATION
We have two reportable business segments: United States and Other. The United States segment
primarily consists of the United States automobile financing business. We are currently
liquidating all businesses classified in the Other segment.
Selected segment information is set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
74,995 |
|
|
$ |
58,249 |
|
|
$ |
145,755 |
|
|
$ |
115,562 |
|
Other |
|
|
10 |
|
|
|
37 |
|
|
|
28 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
75,005 |
|
|
$ |
58,286 |
|
|
$ |
145,783 |
|
|
$ |
115,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
16,431 |
|
|
$ |
20,324 |
|
|
$ |
44,292 |
|
|
$ |
43,248 |
|
Other |
|
|
39 |
|
|
|
107 |
|
|
|
(110 |
) |
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income from continuing operations before provision for income taxes |
|
$ |
16,470 |
|
|
$ |
20,431 |
|
|
$ |
44,182 |
|
|
$ |
43,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
Segment Assets |
|
|
|
|
|
|
|
|
United States |
|
$ |
1,150,865 |
|
|
$ |
940,307 |
|
Other |
|
|
1,236 |
|
|
|
1,875 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
1,152,101 |
|
|
$ |
942,182 |
|
|
|
|
|
|
|
|
11. COMPREHENSIVE INCOME
Our comprehensive income information is set forth below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
Net income |
|
$ |
10,344 |
|
|
$ |
12,330 |
|
|
$ |
27,964 |
|
|
$ |
27,690 |
|
Unrealized (loss) gain on securities available for sale, net of tax |
|
|
(38 |
) |
|
|
(7 |
) |
|
|
5 |
|
|
|
4 |
|
Unrealized (loss) gain on interest rate swap, net of tax |
|
|
(206 |
) |
|
|
|
|
|
|
(206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
10,100 |
|
|
$ |
12,323 |
|
|
$ |
27,763 |
|
|
$ |
27,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
ITEM 2. 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 included in Item 8 Financial Statements and Supplementary
Data, of our 2007 Annual Report on Form 10-K, as well as Item 1 Consolidated Financial Statements,
in this Form 10-Q.
Critical Success Factors
Critical success factors for us include access to capital and the ability to accurately
forecast Consumer Loan performance.
Our strategy for accessing the capital required to grow is to: (i) maintain consistent
financial performance, (ii) maintain modest financial leverage, and (iii) maintain multiple funding
sources. At June 30, 2008 our funded debt to equity ratio is 2.4:1. We currently use four primary
sources of debt financing: (i) a revolving secured line of credit with a commercial bank syndicate;
(ii) revolving secured warehouse facilities with institutional investors; (iii) SEC Rule 144A
asset-backed secured borrowings (Term ABS 144A) with qualified institutional investors; and (iv)
a residual credit facility with an institutional investor.
At the time of Consumer Loan acceptance or purchase, 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 level 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.
Consumer Loan Performance
The following table compares our forecast of Consumer Loan collection rates as of June 30,
2008, with the forecasts as of March 31, 2008, segmented by year of origination.
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
March 31, 2008 |
|
|
Loan Origination Year |
|
Forecasted Collection % |
|
Forecasted Collection % |
|
Variance |
1999
|
|
72.1%
|
|
72.1%
|
|
0.0% |
2000
|
|
72.5%
|
|
72.4%
|
|
0.1% |
2001
|
|
67.4%
|
|
67.3%
|
|
0.1% |
2002
|
|
70.4%
|
|
70.4%
|
|
0.0% |
2003
|
|
74.0%
|
|
74.0%
|
|
0.0% |
2004
|
|
73.5%
|
|
73.5%
|
|
0.0% |
2005
|
|
74.1%
|
|
74.1%
|
|
0.0% |
2006
|
|
70.2%
|
|
70.6%
|
|
-0.4% |
2007
|
|
68.2%
|
|
70.6%
|
|
-2.4% |
2008
|
|
69.0%
|
|
69.7%
|
|
-0.7% |
We forecast future Loan cash flows by comparing Loans in our current portfolio to historical
Loans with the same attributes. The attributes include both variables captured at Loan origination
such as credit bureau, application, Loan and vehicle data as well as variables captured subsequent
to Loan origination such as collection and delinquency data. Our forecast as of March 31, 2008
assumed that Loans within our current portfolio would produce similar collection rates as produced
by historical Loans with the same attributes. During the second quarter of 2008 we modified our
forecasting methodology which now assumes that Loans originated in 2006, 2007 and 2008 will perform
100 to 300 basis points lower than historical Loans with the same attributes. The amount of the reduction varies
based on the initial Loan term and the number of months the Loan has aged with longer-term, more
recent Loans impacted more severely. This new expectation is consistent with recent experience and
includes both the lower realized collection rates experienced during the second quarter of 2008 as
well as lower expected recoveries on repossession sales as a result in a decline in used vehicle
values that occurred during the second quarter of 2008. We did not modify our forecast related to
2005 and prior Loans as these Loans continue to perform as expected.
18
Although we cannot guarantee that future revisions to our forecast will not be required, we
believe our current estimates are realizable for the following reasons:
|
|
|
The revised forecast applied
to historical loans produces a consistent result as the Loans age. |
|
|
|
|
The risk of a future material forecast revision on 2006 Loans has lessened since
73.7% of our forecast has been realized. |
|
|
|
|
2006 Loans have been collected during periods of economic
stress including higher levels of unemployment and rising gas prices. |
|
|
|
|
We have assumed significantly lower values for future repossession proceeds based on
the decline in used vehicle values experienced to date. |
|
|
|
|
Except for the assumption related to repossession values, we
have assumed that Loans originated in 2007 and 2008 will perform
similarly to Loans originated in 2006. The reduction in forecasted
repossession values has a greater impact on more recently originated Loans. |
During July of 2008, realized net Loan cash flows were consistent with our revised forecast.
The
revised forecasted collection
rates are modestly lower than the collection rates we expected when the Loans were originated.
The following table compares, for each of the last 10 years, our most current forecast of Loan
performance with our initial forecast:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
|
|
|
|
Loan Origination Year |
|
Forecasted Collection % |
|
Initial Forecast |
|
Variance |
|
% of Forecast Realized |
1999
|
|
72.1%
|
|
73.6%
|
|
-1.5%
|
|
99.6% |
2000
|
|
72.5%
|
|
72.8%
|
|
-0.3%
|
|
99.2% |
2001
|
|
67.4%
|
|
70.4%
|
|
-3.0%
|
|
98.6% |
2002
|
|
70.4%
|
|
67.9%
|
|
2.5%
|
|
98.1% |
2003
|
|
74.0%
|
|
72.0%
|
|
2.0%
|
|
97.5% |
2004
|
|
73.5%
|
|
73.0%
|
|
0.5%
|
|
96.2% |
2005
|
|
74.1%
|
|
74.0%
|
|
0.1%
|
|
92.2% |
2006
|
|
70.2%
|
|
71.4%
|
|
-1.2%
|
|
73.7% |
2007
|
|
68.2%
|
|
70.7%
|
|
-2.5%
|
|
40.0% |
2008
|
|
69.0%
|
|
70.4%
|
|
-1.4%
|
|
9.2% |
Although Loans originated in 2006 through 2008 are not performing as well as Loans originated
in 2002 through 2005, they are still expected to produce acceptable returns on capital.
Forecasting future collection rates is difficult. Knowing this, we set prices at Loan inception so
that an acceptable return on capital will be achieved, even if
collection results are materially lower than we forecasted. For
Dealer Loans, a 100 basis point change in the collection rate impacts
the after tax return on capital by approximately 35 basis points
(approximately 70 basis points for Purchased Loans).
19
Since the cash flows available to repay Loans are generated, in most cases, from the
underlying Consumer Loans, the performance of the Consumer Loans is critical to our financial
results. 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
June 30, 2008. Payments of dealer holdback and accelerated payments of 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 June 30, 2008 |
|
|
Forecasted |
|
|
|
|
|
% of Forecast |
Loan Origination Year |
|
Collection % |
|
Advance % |
|
Spread % |
|
Realized |
1999
|
|
72.1%
|
|
48.7%
|
|
23.4%
|
|
99.6% |
2000
|
|
72.5%
|
|
47.9%
|
|
24.6%
|
|
99.2% |
2001
|
|
67.4%
|
|
46.0%
|
|
21.4%
|
|
98.6% |
2002
|
|
70.4%
|
|
42.2%
|
|
28.2%
|
|
98.1% |
2003
|
|
74.0%
|
|
43.4%
|
|
30.6%
|
|
97.5% |
2004
|
|
73.5%
|
|
44.0%
|
|
29.5%
|
|
96.2% |
2005
|
|
74.1%
|
|
46.9%
|
|
27.2%
|
|
92.2% |
2006
|
|
70.2%
|
|
46.6%
|
|
23.6%
|
|
73.7% |
2007
|
|
68.2%
|
|
46.5%
|
|
21.7%
|
|
40.0% |
2008
|
|
69.0%
|
|
45.3%
|
|
23.7%
|
|
9.2% |
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
June 30, 2008 for Purchased Loans and Dealer Loans separately:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasted |
|
|
|
|
|
|
Loan Origination Year |
|
Collection % |
|
Advance % |
|
Spread % |
Purchased loans |
|
|
2007 |
|
|
|
68.2 |
% |
|
|
49.2 |
% |
|
|
19.0 |
% |
|
|
|
2008 |
|
|
|
68.3 |
% |
|
|
47.6 |
% |
|
|
20.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dealer loans |
|
|
2007 |
|
|
|
68.2 |
% |
|
|
45.8 |
% |
|
|
22.4 |
% |
|
|
|
2008 |
|
|
|
69.4 |
% |
|
|
44.0 |
% |
|
|
25.4 |
% |
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
occurred as a result of pricing changes implemented during the first six months of 2008. It is
expected that the spread will continue to increase during the remainder of 2008 as the spread on
current originations exceeds the average spread for Loans originated thus far in 2008. In
addition, we implemented an additional pricing change on August 1, 2008 which is expected to
further increase the spread on new originations.
20
Results of Operations
Three and Six Months Ended June 30, 2008 Compared to Three and Six Months Ended June 30,
2007
The following is a discussion of our results of operations and income statement data on a
consolidated basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
June 30, |
|
|
% of |
|
|
June 30, |
|
|
% of |
|
(Dollars in thousands, except per share data) |
|
2008 |
|
|
Revenue |
|
|
2007 |
|
|
Revenue |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance charges |
|
$ |
70,827 |
|
|
|
94.4 |
% |
|
$ |
54,084 |
|
|
|
92.8 |
% |
Other income |
|
|
4,178 |
|
|
|
5.6 |
|
|
|
4,202 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
75,005 |
|
|
|
100.0 |
|
|
|
58,286 |
|
|
|
100.0 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
|
16,699 |
|
|
|
22.2 |
|
|
|
13,092 |
|
|
|
22.5 |
|
General and administrative |
|
|
6,627 |
|
|
|
8.8 |
|
|
|
7,359 |
|
|
|
12.6 |
|
Sales and marketing |
|
|
4,542 |
|
|
|
6.1 |
|
|
|
4,144 |
|
|
|
7.1 |
|
Provision for credit losses |
|
|
20,760 |
|
|
|
27.7 |
|
|
|
3,798 |
|
|
|
6.5 |
|
Interest |
|
|
9,884 |
|
|
|
13.2 |
|
|
|
9,463 |
|
|
|
16.2 |
|
Other
expense |
|
|
23 |
|
|
|
|
|
|
|
33 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
58,535 |
|
|
|
78.0 |
|
|
|
37,889 |
|
|
|
65.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
16,470 |
|
|
|
22.0 |
|
|
|
20,397 |
|
|
|
35.0 |
|
Foreign currency gain |
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income taxes |
|
|
16,470 |
|
|
|
22.0 |
|
|
|
20,431 |
|
|
|
35.1 |
|
Provision for income taxes |
|
|
6,091 |
|
|
|
8.1 |
|
|
|
7,938 |
|
|
|
13.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
10,379 |
|
|
|
13.9 |
|
|
|
12,493 |
|
|
|
21.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued United Kingdom operations |
|
|
(12 |
) |
|
|
|
|
|
|
(233 |
) |
|
|
(0.4 |
) |
Provision (credit) for income taxes |
|
|
23 |
|
|
|
|
|
|
|
(70 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(35 |
) |
|
|
|
|
|
|
(163 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
10,344 |
|
|
|
13.9 |
% |
|
$ |
12,330 |
|
|
|
21.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.34 |
|
|
|
|
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.33 |
|
|
|
|
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.34 |
|
|
|
|
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.33 |
|
|
|
|
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
|
|
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
|
|
|
|
|
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
30,252,873 |
|
|
|
|
|
|
|
30,140,590 |
|
|
|
|
|
Diluted |
|
|
31,088,428 |
|
|
|
|
|
|
|
31,312,139 |
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
June 30, |
|
|
% of |
|
|
June 30, |
|
|
% of |
|
(Dollars in thousands, except per share data) |
|
2008 |
|
|
Revenue |
|
|
2007 |
|
|
Revenue |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance charges |
|
$ |
134,502 |
|
|
|
92.3 |
% |
|
$ |
105,497 |
|
|
|
91.2 |
% |
Other income |
|
|
11,281 |
|
|
|
7.7 |
|
|
|
10,140 |
|
|
|
8.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
145,783 |
|
|
|
100.0 |
|
|
|
115,637 |
|
|
|
100.0 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
|
34,439 |
|
|
|
23.7 |
|
|
|
24,953 |
|
|
|
21.4 |
|
General and administrative |
|
|
13,751 |
|
|
|
9.4 |
|
|
|
13,276 |
|
|
|
11.5 |
|
Sales and marketing |
|
|
9,184 |
|
|
|
6.3 |
|
|
|
8,616 |
|
|
|
7.5 |
|
Provision for credit losses |
|
|
23,409 |
|
|
|
16.1 |
|
|
|
7,671 |
|
|
|
6.6 |
|
Interest |
|
|
20,748 |
|
|
|
14.2 |
|
|
|
17,751 |
|
|
|
15.4 |
|
Other expense |
|
|
57 |
|
|
|
|
|
|
|
58 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
101,588 |
|
|
|
69.7 |
|
|
|
72,325 |
|
|
|
62.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
44,195 |
|
|
|
30.3 |
|
|
|
43,312 |
|
|
|
37.5 |
|
Foreign currency (loss) gain |
|
|
(13 |
) |
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income taxes |
|
|
44,182 |
|
|
|
30.3 |
|
|
|
43,350 |
|
|
|
37.5 |
|
Provision for income taxes |
|
|
16,222 |
|
|
|
11.1 |
|
|
|
15,470 |
|
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
27,960 |
|
|
|
19.2 |
|
|
|
27,880 |
|
|
|
24.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued United Kingdom operations |
|
|
44 |
|
|
|
|
|
|
|
(271 |
) |
|
|
(0.2 |
) |
Provision (credit) for income taxes |
|
|
40 |
|
|
|
|
|
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations |
|
|
4 |
|
|
|
|
|
|
|
(190 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
27,964 |
|
|
|
19.2 |
% |
|
$ |
27,690 |
|
|
|
23.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.93 |
|
|
|
|
|
|
$ |
0.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.90 |
|
|
|
|
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.93 |
|
|
|
|
|
|
$ |
0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.90 |
|
|
|
|
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
|
|
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
|
|
|
|
|
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
30,179,877 |
|
|
|
|
|
|
|
30,097,387 |
|
|
|
|
|
Diluted |
|
|
30,970,387 |
|
|
|
|
|
|
|
31,297,484 |
|
|
|
|
|
22
Continuing Operations
Three and Six Months Ended June 30, 2008 Compared to Three and Six Months Ended June 30, 2007
For the three months ended June 30, 2008, income from continuing operations decreased to $10.4
million, or $0.33 per diluted share, from $12.5 million, or $0.40 per diluted share for the same
period in 2007. The decrease was primarily due to a $17.0 million increase in our provision for
credit losses resulting from lower than expected collection results and a reduction in estimated
future collection rates. The negative impact of the provision for credit losses was partially
offset by an increase in finance charge revenue primarily due to a 35.5% increase in the average outstanding balance of our Loan portfolio, which was the
result of increases in both the number of dealer-partners actively participating in our program and
volume per active dealer-partner.
For the six months ended June 30, 2008, income from continuing operations increased to $28.0
million and $0.90 per diluted share, from $27.9 million, or $0.89 per diluted share for the same
period in 2007. The increase was primarily due to a 33.4% increase in the average outstanding
balance of our Loan portfolio for the reasons discussed above. The positive impact of our Loan
growth was partially offset by the additional provision for credit
losses discussed above as well
as a decline in the yield on our Loan portfolio primarily due to the continued impact of pricing
changes made during 2006 and early 2007.
Finance Charges. The increase in finance charges was primarily due to an increase in average
Loans receivable. For the three and six months ended June 30, 2008, average Loans receivable
increased by 35.5% and 33.4%, respectively. Finance charges grew slower than Loans receivable due
to the continued impact of pricing changes made during 2006 and early 2007 in response to a
difficult competitive environment. Loans receivable increased as a result of an increase in the
number of new Loans and an increase in the average Loan amount. The increase in the number of new
Loans was primarily due to an increase in the number of active dealer-partners and increased
average volume per active dealer-partner. The increase in the average Loan amount was due to an
increase in the percentage of Purchased Loans accepted by us. On average, the amount paid to
acquire a Purchased Loan is larger than the amount advanced on a Dealer Loan.
The following table summarizes the changes in active dealer-partners and corresponding
Consumer Loan unit volume:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
2008 |
|
2007 |
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loan unit volume |
|
|
31,639 |
|
|
|
25,084 |
|
|
|
26.1 |
|
Active dealer-partners (1) |
|
|
2,291 |
|
|
|
1,985 |
|
|
|
15.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average volume per active dealer-partner |
|
|
13.8 |
|
|
|
12.6 |
|
|
|
9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loan unit volume from dealer-partners active both periods |
|
|
22,031 |
|
|
|
20,187 |
|
|
|
9.1 |
|
Dealer-partners active both periods |
|
|
1,287 |
|
|
|
1,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average volume per dealer-partner active both periods |
|
|
17.1 |
|
|
|
15.7 |
|
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loan unit volume from new dealer-partners |
|
|
1,563 |
|
|
|
1,528 |
|
|
|
2.3 |
|
New active dealer-partners (2) |
|
|
291 |
|
|
|
272 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average volume per new active dealer-partner |
|
|
5.4 |
|
|
|
5.6 |
|
|
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Attrition (3) |
|
|
19.5 |
% |
|
|
19.6 |
% |
|
|
|
|
|
|
|
(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. |
23
Beginning January 1, 2008, dealer-partners that enroll in our program have two options.
Dealer-partners choosing option one pay a one-time enrollment fee of $9,850 and have access to both
the Portfolio Program and the Purchase Program. Dealer-partners choosing the second option to
defer payment of the enrollment fee only have access to the Portfolio Program and agree to allow us
to keep 50% of their first accelerated dealer holdback payment (Portfolio Profit Express). We
estimate that we will realize higher per dealer-partner enrollment fee revenue from those
dealer-partners choosing this option and qualifying for a Portfolio Profit Express payment.
Through June 30, 2008, 130 of the 2,943 dealer-partners that have enrolled under the deferred
option have earned Portfolio Profit Express payments. On average, the amount kept by the Company
(50% of the first Portfolio Profit Express payment) was $12,200 per dealer-partner. Approximately
64% of the dealer-partners that enrolled during the six months ended June 30, 2008 took advantage
of the deferred enrollment option.
Other Income. The decrease for the three and six months ended June 30, 2008, as a percentage
of revenue, was primarily a result of decreases in income from dealer support products due to the
discontinuance of certain dealer-partner support programs and services and interest income on
secured financing due to a decrease in interest rates earned on cash
investments relating to secured financing transactions.
The decrease for the six months ended June 30, 2008 discussed above was partially offset by
profit-sharing payments received from vehicle service contract and guaranteed asset protection
providers. For the six months ended June 30, 2008 we received a total of $2.9 million in profit
sharing-payments compared to $1.2 million in payments received in the same period of 2007.
Profit-sharing payments from third parties are received once a year, if eligible. Since we have
only received these payments since 2007, the amounts of these payments are currently not estimable
due to a lack of historical information. As a result, the revenue related to these payments is
recognized in the period the payments are received.
Salaries and Wages. For the three and six months ended June 30, 2008, salaries and wages
increased, as compared to the same periods in 2007, as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
June 30, |
|
June 30, |
2008 |
|
2007 |
|
% change |
|
2008 |
|
2007 |
|
% change |
|
16,699
|
|
13,092
|
|
27.6%
|
|
34,439
|
|
24,953
|
|
38.0% |
The primary drivers of salaries and wages expense include unit volume of Loan originations and
the number of delinquent accounts in our Loan portfolio. The following table shows the increase in
these drivers for the three and six months ended June 30, 2008, as compared to the same periods in
2007:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30 |
|
June 30 |
Unit volume of loan originations |
|
|
26.1 |
% |
|
|
20.3 |
% |
Number of delinquent accounts |
|
|
20.5 |
% |
|
|
17.4 |
% |
The following factors contributed to a greater than proportionate increase in salaries and
wages:
|
|
|
Deferrals of Loan origination costs. A smaller percentage of Loan origination costs
were deferred during the three and six months ended June 30, 2008, as compared to the
same periods in 2007. For Dealer Loans, certain underwriting costs are considered loan
origination costs and are deferred and expensed over the life of the
loan as an adjustment to finance charge revenue while, for
Purchased Loans, all underwriting costs are expensed immediately. Since Purchased Loans
represent a greater proportion of our business, the deferral was lower for the three and
six months ended June 30, 2008, as compared to the same periods in 2007. Deferring the
same proportion of expenses during the three and six months ended June 30, 2008 would
have reduced salaries and wages by approximately $0.8 million and $1.8 million,
respectively. |
24
|
|
|
Support function salaries and wages. For the six
months ended June 30, 2008 salaries and wages related to
various support functions, increased by $4.9 million, or 35.1%. The increases include
salaries and wages related to Information Technology ($2.5 million) and Analytics
($0.7 million), with the remaining increases spread among Legal, Finance and
Operations Improvement. For the three months ended June 30, 2008
salaries and wages related to support functions increased
proportionately with drivers cited above. |
General and Administrative. The decrease for the three and six months ended June 30, 2008, as
a percentage of revenue, was primarily a result of reductions from the prior year in data
processing and consulting fees related to investments in new systems and processes to support
growth initiatives, corporate legal expense related to a legal settlement, and the Michigan
business tax being recorded in provision for income taxes starting in 2008 due to a change in the
nature of the tax.
Sales and Marketing. The decrease for the three and six months ended June 30, 2008, as a
percentage of revenue, was primarily a result of the discontinuance of certain dealer-partner
support programs and lower utilization of various other dealer-partner programs, in addition to
decreased sales salaries and commissions as a percentage of revenue.
Sales commissions grew slower than revenue as such commissions are
tied to unit volume which grew slower than revenue as a result of an
increase in the average loan size.
Provision for Credit Losses. The increase in the provision for credit losses for the three
and six months ended June 30, 2008 was primarily due to a reduction in estimated future collection
rates resulting from a modification of our forecasting methodology on Consumer Loans during the
second quarter of 2008. The modified methodology increased the provision for credit losses by
$16.8 million for the three and six months ended June 30, 2008, as lower forecasted collection
rates increased the amount of Loan impairments. For additional information, see discussion of
Critical Accounting Estimates.
Interest. The increase for the three and six months ended June 30, 2008 was primarily due to
an increase in the amount of average outstanding debt as a result of borrowings used to fund new
Loans. The average outstanding debt balance increased to $686.1 million for the three months ended
June 30, 2008 from $473.1 million for the same period in 2007. For the first six months of 2008,
the average outstanding debt balance increased to $635.5 million compared to $442.9 million for the
same period in 2007. The overall increase in interest expense was
partially offset by a reduction in our pre-tax
average cost of debt which decreased to 6.1% for the first quarter of 2008, compared to 8.0% for
the same period in 2007. For the first six months of 2008, the average cost of debt decreased to
6.5%, compared to 8.0% for the same period in 2007.
Provision for Income Taxes. The effective tax rate decreased to 37.0% for the three months
ended June 30, 2008, from 38.9% for the same period in 2007. The decrease for the quarter was
primarily due to a decrease in the provision for uncertain state tax positions recorded in the
second quarter of 2008. For the six months ended June 30, 2008, the effective tax rate increased
to 36.7%, from 35.7% in the same period of 2007. The increase was primarily due to a decrease in
our reserve for uncertain tax positions recorded in the first quarter of 2007.
25
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 through four
primary sources of financing: (i) a revolving secured line of credit with a commercial bank
syndicate; (ii) revolving secured warehouse facilities with institutional investors; (iii) SEC Rule
144A asset-backed secured borrowings (Term ABS 144A) with qualified institutional investors; and
(iv) a residual credit facility with an institutional investor. There are various restrictive debt
covenants for each source of financing and we are in compliance with those covenants as of June 30,
2008. For information regarding these financings and the covenants included in the related
documents, see Note 5 to the consolidated financial statements, which are incorporated herein by
reference.
Since the beginning of 2008 we have:
|
|
|
Renewed and expanded our bank line of credit to $153.5 million |
|
|
|
|
Renewed our $325.0 million warehouse facility |
|
|
|
|
Completed a $150.0 million asset-backed secured financing with an institutional
investor |
|
|
|
|
Completed a $50.0 million two-year revolving credit facility with another institutional
investor |
Based on our progress to date, we have the financing necessary to support approximately 20%
origination growth through the end of 2008. However, in order to continue to grow Loan
originations in 2009, we will need to secure additional financing and extend the maturity of our
warehouse facility, and there can be no assurance that such financing or extension will be
available on terms acceptable to us or at all. If we are unsuccessful in obtaining additional
financing and/or renewing our warehouse facility, we will be required to reduce origination levels.
Cash and cash equivalents decreased to $0.1 million at June 30, 2008 from $0.7 million at
December 31, 2007. Our total balance sheet indebtedness increased to $703.4 million at June 30,
2008 from $532.1 million at December 31, 2007. This increase was primarily a result of borrowings
used to fund new Loans in 2008.
Restricted cash and cash equivalents increased to $86.9 million at June 30, 2008 from $74.1
million at December 31, 2007. The balance at June 30, 2008 consists of: (i) $61.0 million of cash
collections related to secured financings, and (ii) $25.9 million of cash held in trusts for future
vehicle service contract claims. The claims reserve associated with the trusts are included in
accounts payable and accrued liabilities in the consolidated balance sheets.
Restricted Securities Available for Sale
Restricted securities 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 June 30, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(in thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
US Government and agency securities |
|
$ |
1,135 |
|
|
$ |
42 |
|
|
$ |
|
|
|
$ |
1,177 |
|
Corporate bonds |
|
|
3,080 |
|
|
|
14 |
|
|
|
(28 |
) |
|
|
3,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted securities available for sale |
|
$ |
4,215 |
|
|
$ |
56 |
|
|
$ |
(28 |
) |
|
$ |
4,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
Estimated |
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(in thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
US Government and agency securities |
|
$ |
1,584 |
|
|
$ |
40 |
|
|
$ |
|
|
|
$ |
1,624 |
|
Corporate bonds |
|
|
1,686 |
|
|
|
10 |
|
|
|
(30 |
) |
|
|
1,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted securities
available for sale |
|
$ |
3,270 |
|
|
$ |
50 |
|
|
$ |
(30 |
) |
|
$ |
3,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2008 |
|
|
As of December 31, 2007 |
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Estimated |
|
(in thousands) |
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
Contractual Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year |
|
$ |
955 |
|
|
$ |
959 |
|
|
$ |
1,096 |
|
|
$ |
1,100 |
|
Over one year to five years |
|
|
3,260 |
|
|
|
3,284 |
|
|
|
2,174 |
|
|
|
2,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted securities available for sale |
|
$ |
4,215 |
|
|
$ |
4,243 |
|
|
$ |
3,270 |
|
|
$ |
3,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
A summary of the total future contractual obligations requiring repayments as of June 30, 2008
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1 year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
Other |
|
Long-tem debt, including current
maturities and capital leases (1) |
|
$ |
703,359 |
|
|
$ |
448,794 |
|
|
$ |
254,565 |
|
|
$ |
|
|
|
$ |
|
|
Operating lease obligations |
|
|
2,081 |
|
|
|
875 |
|
|
|
712 |
|
|
|
494 |
|
|
|
|
|
Purchase obligations (2) |
|
|
1,200 |
|
|
|
1,004 |
|
|
|
196 |
|
|
|
|
|
|
|
|
|
Other long-term obligations (3) |
|
|
10,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations (4) |
|
$ |
717,209 |
|
|
$ |
450,673 |
|
|
$ |
255,473 |
|
|
$ |
494 |
|
|
$ |
10,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 5 to the consolidated financial statements. Based on the actual amounts
outstanding under our revolving line of credit and warehouse facilities at June 30, 2008, the
forecasted amounts outstanding on all other debt and the actual interest rates in effect as of
June 30, 2008, interest is expected to be approximately $9.1 million during 2008; $8.9 million
during 2009; and $3.9 million during 2010 and thereafter. |
|
(2) |
|
Purchase obligations consist solely of contractual obligations related to the information
system and facilities needs of the Company. |
|
(3) |
|
Other long-term obligations included in the above table consist solely of reserves for
uncertain tax positions recognized under FASB issued Interpretation No. 48, Accounting for
Uncertainty in Income Tax An Interpretation of FASB Statement No. 109 (FIN 48). |
|
(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 customer 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 many economic and financial market
conditions. If the various financing alternatives were to become limited or unavailable to us, our
operations could be materially and adversely affected.
27
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation
of these financial statements requires us 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.
Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2007 discusses several
critical accounting estimates, which we believe involve a high degree of judgment and complexity.
There have been no material changes to the estimates and assumptions associated with these
accounting estimates from those discussed in our Annual Report on Form 10-K for the year ended
December 31, 2007, except as described below:
The recognition of finance charge revenue and the allowance for credit losses involve
significant estimates based on our forecast of future collections. 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 are 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 as of March 31, 2008 assumed that Loans within our current portfolio would
produce similar collection rates as produced by historical Loans with the same attributes and we
expected net cash flows of $1.3 billion from our Loan portfolio. During the second quarter of 2008
we modified our forecasting methodology which now assumes that Loans originated in 2006, 2007 and
2008 will perform 100 to 300 basis points lower than historical Loans with the same attributes. As a result we
reduced our estimate of future cash flows on these same Loans by $22.2 million, or 1.7%. Of the
total reduction $20.8 million was recorded as a current period
expense, $1.0 million was recorded
as a current period reduction in Loan revenue and $0.5 million will be recorded as a reduction in
Loan revenue in future periods. This new expectation is consistent with recent experience and
includes both the lower realized collection rates experienced during the second quarter of 2008 as
well as lower expected recoveries on repossession sales as a result in a decline in used vehicle
values that occurred during the second quarter of 2008. We did not modify our forecast related to
2005 and prior Loans as these Loans continue to perform as expected.
28
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.
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, believes, expects, anticipates, assumes, forecasts, estimates, intends,
plans 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 in Item 1A of our Form 10-K for the year ended December 31, 2007, other risk
factors discussed herein or listed from time to time in our reports filed with the Securities and
Exchange Commission and the following:
|
|
|
Our inability to accurately forecast and estimate the amount and timing of future
collections could have a material adverse effect on results of operations. |
|
|
|
|
Due to increased competition from traditional financing sources and non-traditional
lenders, we may not be able to compete successfully. |
|
|
|
|
We may be unable to continue to access funding sources and obtain capital on favorable
terms needed to maintain and grow the business. |
|
|
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|
We may not be able to generate sufficient cash flow to service our outstanding debt and
fund operations. |
|
|
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|
Requirements under credit facilities to meet financial and portfolio performance
covenants. |
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|
Interest rate fluctuations may adversely affect our borrowing costs, profitability and
liquidity. |
|
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|
The substantial regulation to which we are subject could result in potential liability. |
|
|
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|
Adverse changes in economic conditions, or in the automobile or finance industries or
the non-prime consumer market, could adversely affect our financial position, liquidity and
results of operations and our ability to enter into future financing transactions. |
|
|
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|
Litigation we are involved in from time to time may adversely affect our financial
condition, results of operations and cash flows. |
|
|
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|
We are dependent on our senior management and the loss of any of these individuals or an
inability to hire additional personnel could adversely affect our ability to operate
profitably. |
|
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Our inability to properly safeguard confidential consumer information. |
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|
Our operations could suffer from telecommunications or technology downtime or increased
costs. |
|
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|
Natural disasters, acts of war, terrorist attacks and threats or the escalation of
military activity in response to such attacks or otherwise may negatively affect our
business, financial condition and results of operations. |
Other factors not currently anticipated by management may also materially and adversely affect
our results of operations. We do not undertake, and expressly disclaim any obligation, to update
or alter our statements whether as a result of new information, future events or otherwise, except
as required by applicable law.
29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Refer to our Annual Report on Form 10-K for the year ended December 31, 2007 for a complete
discussion of our market risk. There have been no material changes to the market risk information
included in our 2007 Annual Report on Form 10-K.
ITEM 4. 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 fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
30
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our Annual Meeting of Shareholders on May 21, 2008 at which the shareholders
considered the following proposals:
|
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Election of five directors to serve until the 2009 Annual Meeting of Shareholders. |
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Ratify the selection of Grant Thornton LLP as our independent registered public
accounting firm for 2008. |
Each of the five director nominees were elected and the selection of Grant Thornton LLP was
ratified. The following table summarizes the votes:
|
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|
|
|
Director Nominee |
|
Votes For |
|
Votes Withheld |
|
|
|
|
|
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|
|
|
Donald A. Foss |
|
|
28,679,187 |
|
|
|
59,291 |
|
Glenda J. Chamberlain |
|
|
28,377,198 |
|
|
|
361,280 |
|
Brett A. Roberts |
|
|
28,678,216 |
|
|
|
60,262 |
|
Thomas N. Tryforos |
|
|
28,365,322 |
|
|
|
373,156 |
|
Scott J. Vassalluzzo |
|
|
28,372,483 |
|
|
|
365,995 |
|
|
|
|
|
|
|
|
|
|
Auditor Selection |
|
Votes For |
|
Votes Against |
|
|
|
|
|
|
|
|
|
Grant Thornton LLP |
|
|
28,736,646 |
|
|
|
1,832 |
|
31
ITEM 6. EXHIBITS
See Index of Exhibits following the signature page, which is incorporated herein by reference.
32
SIGNATURE
Pursuant to the requirements 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.
|
|
|
|
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|
CREDIT ACCEPTANCE CORPORATION
(Registrant)
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By: |
/s/ Kenneth S. Booth
|
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|
Kenneth S. Booth |
|
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Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) August 6, 2008 |
|
|
33
INDEX OF EXHIBITS
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
|
|
No. |
|
|
|
|
|
Description |
|
|
|
|
|
|
|
4(f)(103)
|
|
|
1 |
|
|
Indenture dated April 18, 2008 between Credit
Acceptance Auto Loan Trust 2008-1 and Wells Fargo Bank,
National Association. |
4(f)(104)
|
|
|
1 |
|
|
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. |
4(f)(105)
|
|
|
1 |
|
|
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)
|
|
|
1 |
|
|
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)
|
|
|
1 |
|
|
Contribution Agreement dated April 18, 2008 between the
Company and Credit Acceptance Funding LLC 2008-1. |
4(f)(108)
|
|
|
1 |
|
|
Intercreditor Agreement dated April 18, 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, Wachovia Capital Markets, LLC, as
agent, Deutsche Bank Trust Company Americas, as agent,
Wells Fargo Bank, National Association, as agent, and
Comerica Bank, as agent. |
4(f)(109)
|
|
|
2 |
|
|
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)
|
|
|
2 |
|
|
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)
|
|
|
2 |
|
|
Contribution Agreement dated May 23, 2008 between the
Company and CAC Warehouse Funding III, LLC . |
4(f)(112)
|
|
|
2 |
|
|
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. |
31(a)
|
|
|
3 |
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
31(b)
|
|
|
3 |
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
32(a)
|
|
|
3 |
|
|
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)
|
|
|
3 |
|
|
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. |
|
|
|
1. |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated
April 24, 2008, and incorporated herein by reference. |
|
2. |
|
Previously filed as an exhibit to the Companys Current Report on Form 8-K, dated
June 2, 2008, and incorporated herein by reference. |
|
3. |
|
Filed herewith. |
34