þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
MICHIGAN
(State or other jurisdiction of incorporation or organization)
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38-1999511
(I.R.S. Employer Identification No.)
|
|
25505 WEST TWELVE MILE ROAD
SOUTHFIELD, MICHIGAN
(Address of principal executive offices)
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48034-8339
(Zip Code)
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Large accelerated filer o
|
Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
|
Smaller reporting company o
|
PART I. — FINANCIAL INFORMATION
|
||||
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
|
||||
PART II. — OTHER INFORMATION
|
||||
(In thousands, except per share data)
|
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenue:
|
||||||||||||||||
Finance charges
|
$
|
113,830
|
$
|
95,549
|
$
|
220,333
|
$
|
185,212
|
||||||||
Premiums earned
|
10,190
|
8,245
|
18,733
|
15,949
|
||||||||||||
Other income
|
5,945
|
7,985
|
14,411
|
13,880
|
||||||||||||
Total revenue
|
129,965
|
111,779
|
253,477
|
215,041
|
||||||||||||
Costs and expenses:
|
||||||||||||||||
Salaries and wages
|
15,402
|
14,050
|
31,473
|
30,160
|
||||||||||||
General and administrative
|
6,509
|
5,920
|
12,142
|
12,462
|
||||||||||||
Sales and marketing
|
5,772
|
4,834
|
12,181
|
9,644
|
||||||||||||
Provision for credit losses
|
8,928
|
1,790
|
17,844
|
8,216
|
||||||||||||
Interest
|
14,950
|
12,267
|
27,573
|
23,972
|
||||||||||||
Provision for claims
|
7,771
|
6,282
|
14,370
|
11,494
|
||||||||||||
Total costs and expenses
|
59,332
|
45,143
|
115,583
|
95,948
|
||||||||||||
Income from continuing operations before provision for income taxes
|
70,633
|
66,636
|
137,894
|
119,093
|
||||||||||||
Provision for income taxes
|
25,789
|
17,571
|
49,859
|
38,013
|
||||||||||||
Income from continuing operations
|
44,844
|
49,065
|
88,035
|
81,080
|
||||||||||||
Discontinued operations
|
||||||||||||||||
Loss from discontinued United Kingdom operations
|
-
|
(25
|
)
|
-
|
(30
|
)
|
||||||||||
Provision for income taxes
|
-
|
-
|
-
|
-
|
||||||||||||
Loss from discontinued operations
|
-
|
(25
|
)
|
-
|
(30
|
)
|
||||||||||
Net income
|
$
|
44,844
|
$
|
49,040
|
$
|
88,035
|
$
|
81,050
|
||||||||
Net income per share:
|
||||||||||||||||
Basic
|
$
|
1.73
|
$
|
1.57
|
$
|
3.31
|
$
|
2.61
|
||||||||
Diluted
|
$
|
1.72
|
$
|
1.55
|
$
|
3.29
|
$
|
2.56
|
||||||||
Income from continuing operations per share:
|
||||||||||||||||
Basic
|
$
|
1.73
|
$
|
1.57
|
$
|
3.31
|
$
|
2.61
|
||||||||
Diluted
|
$
|
1.72
|
$
|
1.55
|
$
|
3.29
|
$
|
2.57
|
||||||||
Loss from discontinued operations per share:
|
||||||||||||||||
Basic
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Diluted
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
25,975
|
31,172
|
26,582
|
31,108
|
||||||||||||
Diluted
|
26,111
|
31,601
|
26,796
|
31,601
|
(In thousands, except per share data)
|
As of
|
|||||||
June 30, 2011
|
December 31, 2010
|
|||||||
(Unaudited)
|
||||||||
ASSETS:
|
||||||||
Cash and cash equivalents
|
$
|
5,690
|
$
|
3,792
|
||||
Restricted cash and cash equivalents
|
86,096
|
66,536
|
||||||
Restricted securities available for sale
|
738
|
805
|
||||||
Loans receivable (including $6,360 and $9,031 from affiliates as of June 30, 2011 and December 31, 2010, respectively)
|
1,582,905
|
1,344,881
|
||||||
Allowance for credit losses
|
(144,819
|
)
|
(126,868
|
)
|
||||
Loans receivable, net
|
1,438,086
|
1,218,013
|
||||||
Property and equipment, net
|
16,827
|
16,311
|
||||||
Income taxes receivable
|
2,724
|
12,002
|
||||||
Other assets
|
31,494
|
26,056
|
||||||
Total Assets
|
$
|
1,581,655
|
$
|
1,343,515
|
||||
LIABILITIES AND SHAREHOLDERS' EQUITY:
|
||||||||
Liabilities:
|
||||||||
Accounts payable and accrued liabilities
|
$
|
96,247
|
$
|
75,297
|
||||
Revolving secured line of credit
|
127,200
|
136,700
|
||||||
Secured financing
|
452,665
|
300,100
|
||||||
Mortgage note
|
4,407
|
4,523
|
||||||
Senior notes
|
350,427
|
244,344
|
||||||
Deferred income taxes, net
|
108,798
|
108,077
|
||||||
Total Liabilities
|
1,139,744
|
869,041
|
||||||
Commitments and Contingencies - See Note 12
|
||||||||
Shareholders' Equity:
|
||||||||
Preferred stock, $.01 par value, 1,000 shares authorized, none issued
|
-
|
-
|
||||||
Common stock, $.01 par value, 80,000 shares authorized, 25,640 and 27,304 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively
|
256
|
273
|
||||||
Paid-in capital
|
36,589
|
30,985
|
||||||
Retained earnings
|
405,089
|
443,326
|
||||||
Accumulated other comprehensive loss
|
(23
|
)
|
(110
|
)
|
||||
Total Shareholders' Equity
|
441,911
|
474,474
|
||||||
Total Liabilities and Shareholders' Equity
|
$
|
1,581,655
|
$
|
1,343,515
|
(In thousands)
|
For the Six Months Ended June 30,
|
|||||||
2011
|
2010
|
|||||||
Cash Flows From Operating Activities:
|
||||||||
Net income
|
$
|
88,035
|
$
|
81,050
|
||||
Adjustments to reconcile cash provided by operating activities:
|
||||||||
Provision for credit losses
|
17,844
|
8,216
|
||||||
Depreciation
|
2,040
|
2,317
|
||||||
Amortization
|
2,773
|
3,824
|
||||||
Loss on retirement of property and equipment
|
13
|
-
|
||||||
Provision for deferred income taxes
|
671
|
6,482
|
||||||
Stock-based compensation
|
1,192
|
2,168
|
||||||
Change in operating assets and liabilities:
|
||||||||
Increase in accounts payable and accrued liabilities
|
21,077
|
2,966
|
||||||
Decrease (increase) in income taxes receivable
|
9,278
|
(3,039
|
)
|
|||||
Increase in other assets
|
(2,964
|
)
|
(1,819
|
)
|
||||
Net cash provided by operating activities
|
139,959
|
102,165
|
||||||
Cash Flows From Investing Activities:
|
||||||||
(Increase) decrease in restricted cash and cash equivalents
|
(19,560
|
)
|
18,597
|
|||||
Purchases of restricted securities available for sale
|
(303
|
)
|
(1,018
|
)
|
||||
Maturities of restricted securities available for sale
|
380
|
1,256
|
||||||
Principal collected on Loans receivable
|
494,412
|
392,156
|
||||||
Advances to Dealer-Partners
|
(610,207
|
)
|
(394,863
|
)
|
||||
Purchases of Consumer Loans
|
(63,495
|
)
|
(52,151
|
)
|
||||
Accelerated payments of Dealer Holdback
|
(24,416
|
)
|
(15,320
|
)
|
||||
Payments of Dealer Holdback
|
(34,749
|
)
|
(22,882
|
)
|
||||
Net decrease in other loans
|
538
|
83
|
||||||
Purchases of property and equipment
|
(2,569
|
)
|
(1,926
|
)
|
||||
Net cash used in investing activities
|
(259,969
|
)
|
(76,068
|
)
|
||||
Cash Flows From Financing Activities:
|
||||||||
Borrowings under revolving secured line of credit
|
1,112,200
|
212,700
|
||||||
Repayments under revolving secured line of credit
|
(1,121,700
|
)
|
(305,700
|
)
|
||||
Proceeds from secured financing
|
295,000
|
70,000
|
||||||
Repayments of secured financing
|
(142,435
|
)
|
(234,097
|
)
|
||||
Principal payments under mortgage note and capital lease obligations
|
(116
|
)
|
(417
|
)
|
||||
Proceeds from sale of senior notes
|
106,000
|
243,738
|
||||||
Payments of debt issuance costs
|
(5,164
|
)
|
(12,365
|
)
|
||||
Repurchase of common stock
|
(126,675
|
)
|
(1,896
|
)
|
||||
Proceeds from stock options exercised
|
2,473
|
172
|
||||||
Tax benefits from stock-based compensation plans
|
2,325
|
1,137
|
||||||
Net cash provided by (used in) financing activities
|
121,908
|
(26,728
|
)
|
|||||
Effect of exchange rate changes on cash
|
-
|
(2
|
)
|
|||||
Net increase (decrease) in cash and cash equivalents
|
1,898
|
(633
|
)
|
|||||
Cash and cash equivalents, beginning of period
|
3,792
|
2,170
|
||||||
Cash and cash equivalents, end of period
|
$
|
5,690
|
$
|
1,537
|
||||
Supplemental Disclosure of Cash Flow Information:
|
||||||||
Cash paid during the period for interest
|
$
|
24,690
|
$
|
21,194
|
||||
Cash paid during the period for income taxes
|
$
|
38,030
|
$
|
38,236
|
Quarter Ended
|
Portfolio Program
|
Purchase Program
|
||||||
March 31, 2010
|
90.9
|
%
|
9.1
|
%
|
||||
June 30, 2010
|
90.5
|
%
|
9.5
|
%
|
||||
September 30, 2010
|
90.5
|
%
|
9.5
|
%
|
||||
December 31, 2010
|
91.8
|
%
|
8.2
|
%
|
||||
March 31, 2011
|
92.9
|
%
|
7.1
|
%
|
||||
June 30, 2011
|
92.1
|
%
|
7.9
|
%
|
·
|
a down payment from the consumer;
|
·
|
a non-recourse cash payment (“advance”) from us; and
|
·
|
after the advance has been recovered by us, the cash from payments made on the Consumer Loan, net of certain collection costs and our servicing fee (“Dealer Holdback”).
|
·
|
First, to reimburse us for certain collection costs;
|
·
|
Second, to pay us our servicing fee, which generally equals 20% of collections;
|
·
|
Third, to reduce the aggregate advance balance and to pay any other amounts due from the Dealer-Partner to us; and
|
·
|
Fourth, to the Dealer-Partner as payment of Dealer Holdback.
|
·
|
the consumer and Dealer-Partner have signed a Consumer Loan contract;
|
·
|
we have received the original Consumer Loan contract and supporting documentation;
|
·
|
we have approved all of the related stipulations for funding; and
|
·
|
we have provided funding to the Dealer-Partner in the form of either an advance under the Portfolio Program or one-time purchase payment under the Purchase Program.
|
·
|
the aggregate amount of all cash advances paid;
|
·
|
finance charges;
|
·
|
Dealer Holdback payments;
|
·
|
accelerated Dealer Holdback payments; and
|
·
|
recoveries.
|
·
|
collections (net of certain collection costs); and
|
·
|
write-offs.
|
·
|
the aggregate amount of all amounts paid during the month of purchase to purchase Consumer Loans from Dealer-Partners;
|
·
|
finance charges; and
|
·
|
recoveries.
|
·
|
collections (net of certain collection costs); and
|
·
|
write-offs.
|
(In thousands)
|
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net assumed written premiums
|
$
|
11,740
|
$
|
8,366
|
$
|
26,126
|
$
|
18,676
|
||||||||
Net premiums earned
|
10,190
|
8,245
|
18,733
|
15,950
|
||||||||||||
Provision for claims
|
7,771
|
6,283
|
14,370
|
11,498
|
||||||||||||
Amortization of capitalized acquisition costs
|
246
|
103
|
459
|
321
|
(In thousands)
|
As of
|
||||||||
Balance Sheet location
|
June 30, 2011
|
December 31, 2010
|
|||||||
Trust assets
|
Restricted cash and cash equivalents
|
$
|
40,981
|
$
|
31,246
|
||||
Unearned premium
|
Accounts payable and accrued liabilities
|
32,150
|
24,757
|
||||||
Claims reserve (1)
|
Accounts payable and accrued liabilities
|
1,284
|
1,029
|
(1)
|
The claims reserve is estimated based on historical claims experience.
|
·
|
First, we determined that the trusts qualified as variable interest entities. The trusts have insufficient equity at risk as no parties to the trusts were required to contribute assets that provide them with any ownership interest.
|
·
|
Next, we determined that we have variable interests in the trusts. We have a residual interest in the assets of the trusts, which is variable in nature, given that it increases or decreases based upon the actual loss experience of the related service contracts. In addition, VSC Re is required to absorb any losses in excess of the trusts’ assets.
|
·
|
Next, we evaluated the purpose and design of the trusts. The primary purpose of the trusts is to provide third party administrators (“TPAs”) with funds to pay claims on vehicle service contracts and to accumulate and provide us with proceeds from investment income and residual funds.
|
·
|
Finally, we determined that we are the primary beneficiary of the trusts. We control the amount of premium written and placed in the trusts through Consumer Loan assignments under our Programs, which is the activity that most significantly impacts the economic performance of the trusts. We have the right to receive benefits from the trusts that could potentially be significant. In addition, VSC Re has the obligation to absorb losses of the trusts that could potentially be significant.
|
(In thousands)
|
As of
|
|||||||
June 30, 2011
|
December 31, 2010
|
|||||||
Cash related to secured financings
|
$
|
44,926
|
$
|
35,160
|
||||
Cash held in trusts for future vehicle service contract claims (1)
|
41,170
|
31,376
|
||||||
Total restricted cash and cash equivalents
|
$
|
86,096
|
$
|
66,536
|
(1)
|
The unearned premium and claims reserve associated with the trusts are included in accounts payable and accrued liabilities in the consolidated balance sheets. As of June 30, 2011, the outstanding balance includes $40,981 related to VSC Re and $189 related to a discontinued profit sharing arrangement. As of December 31, 2010, the outstanding balance includes $31,246 related to VSC Re and $130 related to a discontinued profit sharing arrangement.
|
(In thousands)
|
As of June 30, 2011
|
|||||||||||||||
Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Estimated Fair Value
|
|||||||||||||
US Government and agency securities
|
$
|
75
|
$
|
-
|
$
|
-
|
$
|
75
|
||||||||
Corporate bonds
|
651
|
12
|
-
|
663
|
||||||||||||
Total restricted securities available for sale
|
$
|
726
|
$
|
12
|
$
|
-
|
$
|
738
|
||||||||
(In thousands)
|
As of December 31, 2010
|
|||||||||||||||
Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Estimated Fair Value
|
|||||||||||||
US Government and agency securities
|
$
|
298
|
$
|
3
|
$
|
-
|
$
|
301
|
||||||||
Corporate bonds
|
504
|
5
|
(5
|
)
|
504
|
|||||||||||
Total restricted securities available for sale
|
$
|
802
|
$
|
8
|
$
|
(5
|
)
|
$
|
805
|
(In thousands)
|
As of
|
|||||||||||||||
June 30, 2011
|
December 31, 2010
|
|||||||||||||||
Cost
|
Estimated Fair Value
|
Cost
|
Estimated Fair Value
|
|||||||||||||
Contractual Maturity
|
||||||||||||||||
Within one year
|
$
|
221
|
$
|
222
|
$
|
499
|
$
|
496
|
||||||||
Over one year to five years
|
505
|
516
|
303
|
309
|
||||||||||||
Total restricted securities available for sale
|
$
|
726
|
$
|
738
|
$
|
802
|
$
|
805
|
(In thousands)
|
As of June 30, 2011
|
|||||||||||
Dealer Loans
|
Purchased Loans
|
Total
|
||||||||||
Loans receivable
|
$
|
1,331,973
|
$
|
250,932
|
$
|
1,582,905
|
||||||
Allowance for credit losses
|
(131,728
|
)
|
(13,091
|
)
|
(144,819
|
)
|
||||||
Loans receivable, net
|
$
|
1,200,245
|
$
|
237,841
|
$
|
1,438,086
|
||||||
(In thousands)
|
As of December 31, 2010
|
|||||||||||
Dealer Loans
|
Purchased Loans
|
Total
|
||||||||||
Loans receivable
|
$
|
1,082,039
|
$
|
262,842
|
$
|
1,344,881
|
||||||
Allowance for credit losses
|
(113,227
|
)
|
(13,641
|
)
|
(126,868
|
)
|
||||||
Loans receivable, net
|
$
|
968,812
|
$
|
249,201
|
$
|
1,218,013
|
(In thousands)
|
For the Three Months Ended June 30, 2011
|
|||||||||||
Dealer Loans
|
Purchased Loans
|
Total
|
||||||||||
Balance, beginning of period
|
$
|
1,233,387
|
$
|
254,969
|
$
|
1,488,356
|
||||||
New Consumer Loan assignments (1)
|
273,799
|
30,769
|
304,568
|
|||||||||
Principal collected on Loans receivable
|
(203,087
|
)
|
(37,733
|
)
|
(240,820
|
)
|
||||||
Accelerated Dealer Holdback payments
|
12,371
|
-
|
12,371
|
|||||||||
Dealer Holdback payments
|
19,175
|
-
|
19,175
|
|||||||||
Transfers (2)
|
(2,961
|
)
|
2,961
|
-
|
||||||||
Write-offs
|
(476
|
)
|
(61
|
)
|
(537
|
)
|
||||||
Recoveries
|
533
|
27
|
560
|
|||||||||
Net change in other loans
|
(768
|
)
|
-
|
(768
|
)
|
|||||||
Balance, end of period
|
$
|
1,331,973
|
$
|
250,932
|
$
|
1,582,905
|
||||||
(In thousands)
|
For the Three Months Ended June 30, 2010
|
|||||||||||
Dealer Loans
|
Purchased Loans
|
Total
|
||||||||||
Balance, beginning of period
|
$
|
925,094
|
$
|
286,392
|
$
|
1,211,486
|
||||||
New Consumer Loan assignments (1)
|
189,745
|
25,708
|
215,453
|
|||||||||
Principal collected on Loans receivable
|
(149,096
|
)
|
(36,923
|
)
|
(186,019
|
)
|
||||||
Accelerated Dealer Holdback payments
|
8,121
|
-
|
8,121
|
|||||||||
Dealer Holdback payments
|
10,712
|
-
|
10,712
|
|||||||||
Transfers (2)
|
(3,522
|
)
|
3,522
|
-
|
||||||||
Write-offs
|
(672
|
)
|
(24
|
)
|
(696
|
)
|
||||||
Recoveries
|
582
|
20
|
602
|
|||||||||
Net change in other loans
|
(45
|
)
|
-
|
(45
|
)
|
|||||||
Currency translation
|
33
|
-
|
33
|
|||||||||
Balance, end of period
|
$
|
980,952
|
$
|
278,695
|
$
|
1,259,647
|
(In thousands)
|
For the Six Months Ended June 30, 2011
|
|||||||||||
Dealer Loans
|
Purchased Loans
|
Total
|
||||||||||
Balance, beginning of period
|
$
|
1,082,039
|
$
|
262,842
|
$
|
1,344,881
|
||||||
New Consumer Loan assignments (1)
|
610,207
|
63,495
|
673,702
|
|||||||||
Principal collected on Loans receivable
|
(411,546
|
)
|
(82,866
|
)
|
(494,412
|
)
|
||||||
Accelerated Dealer Holdback payments
|
24,416
|
-
|
24,416
|
|||||||||
Dealer Holdback payments
|
34,749
|
-
|
34,749
|
|||||||||
Transfers (2)
|
(7,557
|
)
|
7,557
|
-
|
||||||||
Write-offs
|
(827
|
)
|
(139
|
)
|
(966
|
)
|
||||||
Recoveries
|
1,030
|
43
|
1,073
|
|||||||||
Net change in other loans
|
(538
|
)
|
-
|
(538
|
)
|
|||||||
Balance, end of period
|
$
|
1,331,973
|
$
|
250,932
|
$
|
1,582,905
|
||||||
(In thousands)
|
For the Six Months Ended June 30, 2010
|
|||||||||||
Dealer Loans
|
Purchased Loans
|
Total
|
||||||||||
Balance, beginning of period
|
$
|
869,603
|
$
|
297,955
|
$
|
1,167,558
|
||||||
New Consumer Loan assignments (1)
|
394,863
|
52,151
|
447,014
|
|||||||||
Principal collected on Loans receivable
|
(311,087
|
)
|
(81,069
|
)
|
(392,156
|
)
|
||||||
Accelerated Dealer Holdback payments
|
15,320
|
-
|
15,320
|
|||||||||
Dealer Holdback payments
|
22,882
|
-
|
22,882
|
|||||||||
Transfers (2)
|
(9,665
|
)
|
9,665
|
-
|
||||||||
Write-offs
|
(2,060
|
)
|
(49
|
)
|
(2,109
|
)
|
||||||
Recoveries
|
1,146
|
42
|
1,188
|
|||||||||
Net change in other loans
|
(83
|
)
|
-
|
(83
|
)
|
|||||||
Currency translation
|
33
|
-
|
33
|
|||||||||
Balance, end of period
|
$
|
980,952
|
$
|
278,695
|
$
|
1,259,647
|
(1)
|
The Dealer Loans amount represents advances paid to Dealer-Partners on Consumer Loans assigned under our Portfolio Program. The Purchased Loans amount represents one-time payments made to Dealer-Partners to purchase Consumer Loans assigned under our Purchase Program.
|
(2)
|
Under our Portfolio Program, certain events may result in Dealer-Partners forfeiting their rights to Dealer Holdback. We transfer the Dealer-Partner’s outstanding Dealer Loan balance to Purchased Loans in the period this forfeiture occurs.
|
(In thousands)
|
For the Three Months Ended June 30, 2011
|
|||||||||||
Dealer Loans
|
Purchased Loans
|
Total
|
||||||||||
Balance, beginning of period
|
$
|
122,801
|
$
|
13,067
|
$
|
135,868
|
||||||
Provision for credit losses
|
8,870
|
58
|
8,928
|
|||||||||
Write-offs
|
(476
|
)
|
(61
|
)
|
(537
|
)
|
||||||
Recoveries
|
533
|
27
|
560
|
|||||||||
Balance, end of period
|
$
|
131,728
|
$
|
13,091
|
$
|
144,819
|
||||||
(In thousands)
|
For the Three Months Ended June 30, 2010
|
|||||||||||
Dealer Loans
|
Purchased Loans
|
Total
|
||||||||||
Balance, beginning of period
|
$
|
111,372
|
$
|
11,772
|
$
|
123,144
|
||||||
Provision for credit losses
|
802
|
988
|
1,790
|
|||||||||
Write-offs
|
(672
|
)
|
(24
|
)
|
(696
|
)
|
||||||
Recoveries
|
582
|
20
|
602
|
|||||||||
Currency translation
|
31
|
-
|
31
|
|||||||||
Balance, end of period
|
$
|
112,115
|
$
|
12,756
|
$
|
124,871
|
(In thousands)
|
For the Six Months Ended June 30, 2011
|
|||||||||||
Dealer Loans
|
Purchased Loans
|
Total
|
||||||||||
Balance, beginning of period
|
$
|
113,227
|
$
|
13,641
|
$
|
126,868
|
||||||
Provision for credit losses
|
18,298
|
(454
|
)
|
17,844
|
||||||||
Write-offs
|
(827
|
)
|
(139
|
)
|
(966
|
)
|
||||||
Recoveries
|
1,030
|
43
|
1,073
|
|||||||||
Balance, end of period
|
$
|
131,728
|
$
|
13,091
|
$
|
144,819
|
||||||
(In thousands)
|
For the Six Months Ended June 30, 2010
|
|||||||||||
Dealer Loans
|
Purchased Loans
|
Total
|
||||||||||
Balance, beginning of period
|
$
|
108,792
|
$
|
8,753
|
$
|
117,545
|
||||||
Provision for credit losses
|
4,206
|
4,010
|
8,216
|
|||||||||
Write-offs
|
(2,060
|
)
|
(49
|
)
|
(2,109
|
)
|
||||||
Recoveries
|
1,146
|
42
|
1,188
|
|||||||||
Currency translation
|
31
|
-
|
31
|
|||||||||
Balance, end of period
|
$
|
112,115
|
$
|
12,756
|
$
|
124,871
|
(Dollars in thousands)
|
||||||||||||
Financings
|
Wholly-owned Subsidiary
|
Issue Number
|
Close Date
|
Maturity Date
|
Financing Amount
|
Interest Rate as of
June 30, 2011
|
||||||
Revolving Secured Line of Credit
|
n/a
|
n/a
|
June 17, 2011
|
June 22, 2014
|
$
|
205,000
|
At our option, either the LIBOR rate plus 225 basis points or the prime rate plus 125 basis points
|
|||||
Revolving Secured
Warehouse Facility (1)
|
CAC Warehouse Funding Corp. II
|
2003-2
|
June 17, 2011
|
June 17, 2014 (2)
|
$
|
325,000
|
Commercial paper rate plus 275 basis points or LIBOR plus 375 basis points (4) (5)
|
|||||
Revolving Secured
Warehouse Facility (1)
|
CAC Warehouse Funding III, LLC
|
2008-2
|
September 10, 2010
|
September 10, 2013 (6)
|
$
|
75,000
|
Commercial paper rate plus 160 basis points or LIBOR plus 160 basis points (3) (4) (5)
|
|||||
Term ABS 2009-1 (1)
|
Credit Acceptance Funding LLC 2009-1
|
2009-1
|
December 3, 2009
|
May 15, 2011 (2)
|
$
|
110,500
|
Fixed rate
|
|||||
Term ABS 2010-1 (1)
|
Credit Acceptance Funding LLC 2010-1
|
2010-1
|
November 4, 2010
|
October 15, 2012 (2)
|
$
|
100,500
|
Fixed rate
|
|||||
Senior Notes
|
n/a
|
n/a
|
(7)
|
February 1, 2017
|
$
|
350,000
|
Fixed rate
|
(1)
|
Financing made available only to a specified subsidiary of the Company.
|
(2)
|
Represents the revolving maturity date. The outstanding balance will amortize after the maturity date based on the cash flows of the pledged assets.
|
(3)
|
A portion of the outstanding balance is a floating rate obligation that has been converted to a fixed rate obligation via an interest rate swap.
|
(4)
|
The LIBOR rate is used if funding is not available from the commercial paper market.
|
(5)
|
Interest rate cap agreements are in place to limit the exposure to increasing interest rates.
|
(6)
|
Represents the revolving maturity date. The outstanding balance will amortize after the revolving maturity date and any amounts remaining on September 10, 2014 will be due.
|
(7)
|
The close dates associated with the issuance of $250.0 million and $100.0 million of the Senior Notes were on February 1, 2010 and March 3, 2011, respectively.
|
(In thousands)
|
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revolving Secured Line of Credit
|
||||||||||||||||
Maximum outstanding balance
|
$
|
152,500
|
$
|
67,300
|
$
|
152,500
|
$
|
107,900
|
||||||||
Average outstanding balance
|
124,858
|
30,332
|
105,804
|
37,393
|
||||||||||||
Revolving Secured Warehouse Facility (2003-2)
|
||||||||||||||||
Maximum outstanding balance
|
$
|
240,600
|
$
|
66,000
|
$
|
240,600
|
$
|
152,600
|
||||||||
Average outstanding balance
|
211,519
|
31,736
|
168,316
|
42,603
|
||||||||||||
Revolving Secured Warehouse Facility (2008-2)
|
||||||||||||||||
Maximum outstanding balance
|
$
|
75,000
|
$
|
75,000
|
$
|
75,000
|
$
|
75,000
|
||||||||
Average outstanding balance
|
32,813
|
74,945
|
34,144
|
74,972
|
(Dollars in thousands)
|
As of
|
|||||||
June 30, 2011
|
December 31, 2010
|
|||||||
Revolving Secured Line of Credit
|
||||||||
Balance outstanding
|
$
|
127,200
|
$
|
136,700
|
||||
Letter of credit
|
500
|
500
|
||||||
Amount available for borrowing (1)
|
77,300
|
32,800
|
||||||
Interest rate
|
2.52
|
%
|
3.03
|
%
|
||||
Revolving Secured Warehouse Facility (2003-2)
|
||||||||
Balance outstanding
|
$
|
185,000
|
$
|
49,100
|
||||
Amount available for borrowing (1)
|
140,000
|
275,900
|
||||||
Loans pledged as collateral
|
349,154
|
83,692
|
||||||
Restricted cash and cash equivalents pledged as collateral
|
7,873
|
4,037
|
||||||
Interest rate
|
2.96
|
%
|
3.82
|
%
|
||||
Revolving Secured Warehouse Facility (2008-2)
|
||||||||
Balance outstanding
|
$
|
70,000
|
$
|
40,000
|
||||
Amount available for borrowing (1)
|
5,000
|
35,000
|
||||||
Loans pledged as collateral
|
98,760
|
70,639
|
||||||
Restricted cash and cash equivalents pledged as collateral
|
4,279
|
2,409
|
||||||
Interest rate
|
2.20
|
%
|
3.94
|
%
|
||||
Term ABS 2009-1
|
||||||||
Balance outstanding
|
$
|
97,165
|
$
|
110,500
|
||||
Loans pledged as collateral
|
134,290
|
138,090
|
||||||
Restricted cash and cash equivalents pledged as collateral
|
17,362
|
15,554
|
||||||
Interest rate
|
4.46
|
%
|
4.40
|
%
|
||||
Term ABS 2010-1
|
||||||||
Balance outstanding
|
$
|
100,500
|
$
|
100,500
|
||||
Loans pledged as collateral
|
122,987
|
125,161
|
||||||
Restricted cash and cash equivalents pledged as collateral
|
15,412
|
13,160
|
||||||
Interest rate
|
2.36
|
%
|
2.36
|
%
|
||||
Senior Notes
|
||||||||
Balance outstanding (2)
|
$
|
350,427
|
$
|
244,344
|
||||
Interest rate
|
9.13
|
%
|
9.13
|
%
|
(2)
|
The outstanding balance presented for the Senior Notes includes a net unamortized debt premium of $0.4 million as of June 30, 2011 and unamortized debt discount of $5.7 million as of December 31, 2010.
|
(Dollars in thousands)
|
||||||||||||||
Term ABS Financings
|
Issue Number
|
Close Date
|
Net Book Value of Dealer Loans Contributed at Closing
|
Revolving Period
|
Expected Annualized Rates (1)
|
|||||||||
Term ABS 2009-1
|
2009-1
|
December 3, 2009
|
$
|
142,301
|
18 months
(Through May 15, 2011)
|
5.2
|
%
|
|||||||
Term ABS 2010-1
|
2010-1
|
November 4, 2010
|
$
|
126,751
|
24 months
(Through October 15, 2012)
|
3.1
|
%
|
(1)
|
Includes underwriter’s fees and other costs.
|
(In thousands)
|
Fair Value as of
|
||||||||
Balance Sheet location
|
June 30, 2011
|
December 31, 2010
|
|||||||
Derivatives designated as hedging instruments
|
|||||||||
Liability Derivatives
|
|||||||||
Interest rate swap
|
Accounts payable and accrued liabilities
|
$
|
49
|
$
|
176
|
||||
Derivatives not designated as hedging instruments
|
|||||||||
Asset Derivatives
|
|||||||||
Interest rate caps
|
Other assets
|
$
|
45
|
$
|
56
|
||||
Total Derivatives
|
|||||||||
Total Asset Derivatives
|
$
|
45
|
$
|
56
|
|||||
Total Liability Derivatives
|
$
|
49
|
$
|
176
|
(In thousands)
|
|||||||||||||||||
Derivatives in Cash Flow Hedging Relationships
|
(Loss) / Gain Recognized in OCI on Derivative (Effective Portion)
|
(Loss) / Gain Reclassified from Accumulated OCI into Income
(Effective Portion)
|
|||||||||||||||
For the Three Months Ended June 30,
|
For the Three Months Ended June 30,
|
||||||||||||||||
2011
|
2010
|
Location
|
2011
|
2010
|
|||||||||||||
Interest rate swap
|
$
|
(8
|
)
|
$
|
562
|
Interest expense
|
$
|
(74
|
)
|
$
|
(168
|
)
|
|||||
(In thousands)
|
|||||||||||||||||
Derivatives in Cash Flow Hedging Relationships
|
(Loss) / Gain Recognized in OCI on Derivative (Effective Portion)
|
(Loss) / Gain Reclassified from Accumulated OCI into Income
(Effective Portion)
|
|||||||||||||||
For the Six Months Ended June 30,
|
For the Six Months Ended June 30,
|
||||||||||||||||
2011
|
2010
|
Location
|
2011
|
2010
|
|||||||||||||
Interest rate swap
|
$
|
(16
|
)
|
$
|
611
|
Interest expense
|
$
|
(143
|
)
|
$
|
(608
|
)
|
(In thousands)
|
|||||||||||||||||
Derivatives Not Designated as Hedging Instruments
|
Amount of (Loss) / Gain Recognized in Income on Derivatives
|
||||||||||||||||
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
||||||||||||||||
Location
|
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Interest rate caps
|
Interest expense
|
$
|
(121
|
)
|
$
|
(81
|
)
|
$
|
(141
|
)
|
$
|
(157
|
)
|
||||
Interest rate swap
|
Interest expense
|
-
|
-
|
-
|
(590
|
)
|
|||||||||||
Total
|
$
|
(121
|
)
|
$
|
(81
|
)
|
$
|
(141
|
)
|
$
|
(747
|
)
|
(In thousands)
|
As of
|
|||||||||||||||
June 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
Amount
|
Estimated
Fair Value
|
Carrying
Amount
|
Estimated
Fair Value
|
|||||||||||||
Assets
|
||||||||||||||||
Cash and cash equivalents
|
$
|
5,690
|
$
|
5,690
|
$
|
3,792
|
$
|
3,792
|
||||||||
Restricted cash and cash equivalents
|
86,096
|
86,096
|
66,536
|
66,536
|
||||||||||||
Restricted securities available for sale
|
738
|
738
|
805
|
805
|
||||||||||||
Net investment in Loans receivable
|
1,438,086
|
1,455,440
|
1,218,013
|
1,224,830
|
||||||||||||
Derivative instruments
|
45
|
45
|
56
|
56
|
||||||||||||
Liabilities
|
||||||||||||||||
Revolving secured line of credit
|
$
|
127,200
|
$
|
127,200
|
$
|
136,700
|
$
|
136,700
|
||||||||
Secured financing
|
452,665
|
454,379
|
300,100
|
302,377
|
||||||||||||
Mortgage note
|
4,407
|
4,407
|
4,523
|
4,523
|
||||||||||||
Senior notes
|
350,427
|
374,688
|
244,344
|
261,250
|
||||||||||||
Derivative instruments
|
49
|
49
|
176
|
176
|
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.
|
(In thousands)
|
As of June 30, 2011
|
As of December 31, 2010
|
||||||||||||||||||||||
Level 1
|
Level 2
|
Total
Fair Value
|
Level 1
|
Level 2
|
Total
Fair Value
|
|||||||||||||||||||
Assets
|
||||||||||||||||||||||||
Restricted securities available for sale
|
$
|
738
|
$
|
-
|
$
|
738
|
$
|
805
|
$
|
-
|
$
|
805
|
||||||||||||
Derivative instruments
|
-
|
45
|
45
|
-
|
56
|
56
|
||||||||||||||||||
Liabilities
|
||||||||||||||||||||||||
Derivative instruments
|
$
|
-
|
$
|
49
|
$
|
49
|
$
|
-
|
$
|
176
|
$
|
176
|
(In thousands)
|
For the Three Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
|||||||||||||||
Affiliated
Dealer-Partner
activity
|
% of
consolidated
|
Affiliated
Dealer-Partner
activity
|
% of
consolidated
|
|||||||||||||
Dealer Loan revenue
|
$
|
436
|
0.5
|
%
|
$
|
801
|
1.1
|
%
|
||||||||
New Consumer Loan assignments (1)
|
313
|
0.1
|
%
|
920
|
0.4
|
%
|
||||||||||
Accelerated Dealer Holdback payments
|
-
|
0.0
|
%
|
119
|
1.5
|
%
|
||||||||||
Dealer Holdback payments
|
640
|
3.3
|
%
|
469
|
4.4
|
%
|
(In thousands)
|
For the Six Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
|||||||||||||||
Affiliated
Dealer-Partner
activity
|
% of
consolidated
|
Affiliated
Dealer-Partner
activity
|
% of
consolidated
|
|||||||||||||
Dealer Loan revenue
|
$
|
981
|
0.5
|
%
|
$
|
1,648
|
1.2
|
%
|
||||||||
New Consumer Loan assignments (1)
|
660
|
0.1
|
%
|
2,418
|
0.5
|
%
|
||||||||||
Accelerated Dealer Holdback payments
|
24
|
0.1
|
%
|
220
|
1.4
|
%
|
||||||||||
Dealer Holdback payments
|
1,105
|
3.2
|
%
|
1,059
|
4.6
|
%
|
(1)
|
Represents advances paid to Dealer-Partners on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealer-Partners to purchase Consumer Loans assigned under our Purchase Program.
|
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
U.S. federal statutory rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
||||||||
State income taxes
|
2.6
|
%
|
1.7
|
%
|
2.2
|
%
|
1.9
|
%
|
||||||||
Changes in reserve for uncertain tax positions as a result of settlements and lapsed statutes and related interest
|
-0.6
|
%
|
-10.6
|
%
|
-0.8
|
%
|
-5.2
|
%
|
||||||||
Other
|
-0.5
|
%
|
0.3
|
%
|
-0.2
|
%
|
0.2
|
%
|
||||||||
Effective tax rate
|
36.5
|
%
|
26.4
|
%
|
36.2
|
%
|
31.9
|
%
|
(In thousands)
|
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Weighted average shares outstanding:
|
||||||||||||||||
Common shares
|
25,547
|
30,902
|
26,186
|
30,873
|
||||||||||||
Vested restricted stock units
|
428
|
270
|
396
|
235
|
||||||||||||
Basic number of weighted average shares outstanding
|
25,975
|
31,172
|
26,582
|
31,108
|
||||||||||||
Dilutive effect of stock options
|
105
|
365
|
140
|
366
|
||||||||||||
Dilutive effect of restricted stock and restricted stock units
|
31
|
64
|
74
|
127
|
||||||||||||
Dilutive number of weighted average shares outstanding
|
26,111
|
31,601
|
26,796
|
31,601
|
(In thousands)
|
Number of Shares
|
|||||||
For the Six Months Ended June 30,
|
||||||||
Restricted Stock
|
2011
|
2010
|
||||||
Outstanding Beginning Balance
|
112
|
242
|
||||||
Granted
|
9
|
19
|
||||||
Vested
|
(63
|
)
|
(142
|
)
|
||||
Forfeited
|
(3
|
)
|
(3
|
)
|
||||
Outstanding Ending Balance
|
55
|
116
|
(In thousands, except per share data)
|
Nonvested
|
Vested
|
Total
|
|||||||||||||||||
Restricted Stock Units
|
Number of Restricted Stock Units
|
Weighted Average Grant-Date Fair Value Per Share
|
Number of Restricted Stock Units
|
Weighted Average Grant-Date Fair Value Per Share
|
Number of Restricted Stock Units
|
|||||||||||||||
Outstanding as of December 31, 2010
|
521
|
$
|
19.99
|
270
|
$
|
22.94
|
791
|
|||||||||||||
Granted
|
5
|
62.20
|
-
|
-
|
5
|
(1)
|
||||||||||||||
Vested
|
(158
|
)
|
20.99
|
158
|
20.99
|
-
|
(2)
|
|||||||||||||
Forfeited
|
(6
|
)
|
13.19
|
-
|
-
|
(6
|
)
|
|||||||||||||
Outstanding as of June 30, 2011
|
362
|
$
|
20.10
|
428
|
$
|
22.14
|
790
|
|||||||||||||
(In thousands, except per share data)
|
Nonvested
|
Vested
|
Total
|
|||||||||||||||||
Restricted Stock Units
|
Number of Restricted Stock Units
|
Weighted Average Grant-Date Fair Value Per Share
|
Number of Restricted Stock Units
|
Weighted Average Grant-Date Fair Value Per Share
|
Number of Restricted Stock Units
|
|||||||||||||||
Outstanding as of December 31, 2009
|
648
|
$
|
19.35
|
120
|
$
|
26.30
|
768
|
|||||||||||||
Granted
|
33
|
39.89
|
-
|
-
|
33
|
(3)
|
||||||||||||||
Vested
|
(150
|
)
|
20.24
|
150
|
20.24
|
-
|
(4)
|
|||||||||||||
Outstanding as of June 30, 2010
|
531
|
$
|
20.36
|
270
|
$
|
22.94
|
801
|
(1)
|
The distribution date of vested restricted stock units is February 22, 2018.
|
(2)
|
The distribution date of vested restricted stock units is February 22, 2014 for 60 restricted stock units, February 22, 2016 for 90 restricted stock units and February 22, 2017 for 8 restricted stock units.
|
(3)
|
The distribution date of vested restricted stock units is February 22, 2017.
|
(4)
|
The distribution date of vested restricted stock units is February 22, 2014 for 60 restricted stock units and February 22, 2016 for 90 restricted stock units.
|
(In thousands)
|
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Restricted stock
|
$
|
164
|
$
|
126
|
$
|
380
|
$
|
460
|
||||||||
Restricted stock units
|
437
|
859
|
812
|
1,708
|
||||||||||||
Total
|
$
|
601
|
$
|
985
|
$
|
1,192
|
$
|
2,168
|
(In thousands)
|
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net income
|
$
|
44,844
|
$
|
49,040
|
$
|
88,035
|
$
|
81,050
|
||||||||
Unrealized gain on securities available for sale, net of tax
|
5
|
12
|
7
|
7
|
||||||||||||
Unrealized gain on interest rate swap, net of tax
|
41
|
462
|
80
|
771
|
||||||||||||
Comprehensive income
|
$
|
44,890
|
$
|
49,514
|
$
|
88,122
|
$
|
81,828
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Forecasted Collection Percentage as of
|
Variance in Forecasted Collection Percentage from
|
|||||||||||||||||||||||||||
Consumer Loan Assignment Year
|
June 30, 2011
|
March 31, 2011
|
December 31, 2010
|
Initial
Forecast
|
March 31, 2011
|
December 31, 2010
|
Initial
Forecast
|
|||||||||||||||||||||
2002
|
70.5
|
%
|
70.5
|
%
|
70.5
|
%
|
67.9
|
%
|
0.0
|
%
|
0.0
|
%
|
2.6
|
%
|
||||||||||||||
2003
|
73.7
|
%
|
73.7
|
%
|
73.7
|
%
|
72.0
|
%
|
0.0
|
%
|
0.0
|
%
|
1.7
|
%
|
||||||||||||||
2004
|
73.0
|
%
|
73.0
|
%
|
73.0
|
%
|
73.0
|
%
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
||||||||||||||
2005
|
73.7
|
%
|
73.7
|
%
|
73.7
|
%
|
74.0
|
%
|
0.0
|
%
|
0.0
|
%
|
-0.3
|
%
|
||||||||||||||
2006
|
70.1
|
%
|
70.2
|
%
|
70.2
|
%
|
71.4
|
%
|
-0.1
|
%
|
-0.1
|
%
|
-1.3
|
%
|
||||||||||||||
2007
|
68.0
|
%
|
68.0
|
%
|
67.9
|
%
|
70.7
|
%
|
0.0
|
%
|
0.1
|
%
|
-2.7
|
%
|
||||||||||||||
2008
|
70.0
|
%
|
70.0
|
%
|
69.9
|
%
|
69.7
|
%
|
0.0
|
%
|
0.1
|
%
|
0.3
|
%
|
||||||||||||||
2009
|
78.9
|
%
|
78.6
|
%
|
78.5
|
%
|
71.9
|
%
|
0.3
|
%
|
0.4
|
%
|
7.0
|
%
|
||||||||||||||
2010
|
76.0
|
%
|
75.4
|
%
|
75.8
|
%
|
73.6
|
%
|
0.6
|
%
|
0.2
|
%
|
2.4
|
%
|
||||||||||||||
2011 (1)
|
73.6
|
%
|
73.0
|
%
|
-
|
73.1
|
%
|
0.6
|
%
|
-
|
0.5
|
%
|
(1)
|
The forecasted collection rate for 2011 Consumer Loans as of June 30, 2011 includes both Consumer Loans that were in our portfolio as of March 31, 2011 and Consumer Loans assigned during the most recent quarter. The following table provides forecasted collection rates for each of these segments:
|
Forecasted Collection Percentage as of
|
||||||||||||
2011 Consumer Loan Assignment Period
|
June 30, 2011
|
March 31, 2011
|
Variance
|
|||||||||
January 1, 2011 through March 31, 2011
|
74.3
|
%
|
73.0
|
%
|
1.3
|
%
|
||||||
April 1, 2011 through June 30, 2011
|
72.7
|
%
|
-
|
-
|
As of June 30, 2011
|
||||||||||||||||
Consumer Loan Assignment Year
|
Forecasted Collection %
|
Advance % (1)
|
Spread %
|
% of Forecast Realized (2)
|
||||||||||||
2002
|
70.5
|
%
|
42.2
|
%
|
28.3
|
%
|
99.4
|
%
|
||||||||
2003
|
73.7
|
%
|
43.4
|
%
|
30.3
|
%
|
99.4
|
%
|
||||||||
2004
|
73.0
|
%
|
44.0
|
%
|
29.0
|
%
|
99.2
|
%
|
||||||||
2005
|
73.7
|
%
|
46.9
|
%
|
26.8
|
%
|
98.9
|
%
|
||||||||
2006
|
70.1
|
%
|
46.6
|
%
|
23.5
|
%
|
97.9
|
%
|
||||||||
2007
|
68.0
|
%
|
46.5
|
%
|
21.5
|
%
|
94.9
|
%
|
||||||||
2008
|
70.0
|
%
|
44.6
|
%
|
25.4
|
%
|
86.4
|
%
|
||||||||
2009
|
78.9
|
%
|
43.9
|
%
|
35.0
|
%
|
72.0
|
%
|
||||||||
2010
|
76.0
|
%
|
44.7
|
%
|
31.3
|
%
|
37.7
|
%
|
||||||||
2011
|
73.6
|
%
|
45.3
|
%
|
28.3
|
%
|
8.5
|
%
|
(1)
|
Represents advances paid to Dealer-Partners on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealer-Partners to purchase Consumer Loans assigned under our Purchase Program as a percentage of the initial balance of the Consumer Loans. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.
|
(2)
|
Presented as a percentage of total forecasted collections.
|
Consumer Loan Assignment Year
|
Forecasted Collection %
|
Advance % (1)
|
Spread %
|
||||||||||
Dealer Loans
|
2007
|
68.0
|
%
|
45.8
|
%
|
22.2
|
%
|
||||||
2008
|
70.5
|
%
|
43.3
|
%
|
27.2
|
%
|
|||||||
2009
|
79.0
|
%
|
43.5
|
%
|
35.5
|
%
|
|||||||
2010
|
76.0
|
%
|
44.4
|
%
|
31.6
|
%
|
|||||||
2011
|
73.5
|
%
|
45.0
|
%
|
28.5
|
%
|
|||||||
Purchased Loans
|
2007
|
68.2
|
%
|
49.1
|
%
|
19.1
|
%
|
||||||
2008
|
69.1
|
%
|
46.7
|
%
|
22.4
|
%
|
|||||||
2009
|
78.8
|
%
|
45.4
|
%
|
33.4
|
%
|
|||||||
2010
|
76.0
|
%
|
46.9
|
%
|
29.1
|
%
|
|||||||
2011
|
74.1
|
%
|
49.0
|
%
|
25.1
|
%
|
(1)
|
Represents advances paid to Dealer-Partners on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealer-Partners to purchase Consumer Loans assigned under our Purchase Program as a percentage of the initial balance of the Consumer Loans. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.
|
Year over Year Percent Change
|
||||||||
Three Months Ended
|
Unit Volume
|
Dollar Volume (1)
|
||||||
March 31, 2010
|
11.2
|
%
|
21.6
|
%
|
||||
June 30, 2010
|
22.7
|
%
|
42.2
|
%
|
||||
September 30, 2010
|
26.9
|
%
|
51.5
|
%
|
||||
December 31, 2010
|
37.7
|
%
|
66.9
|
%
|
||||
March 31, 2011
|
36.7
|
%
|
59.3
|
%
|
||||
June 30, 2011
|
28.7
|
%
|
41.3
|
%
|
(1)
|
Represents advances paid to Dealer-Partners on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealer-Partners to purchase Consumer Loans assigned under our Purchase Program. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.
|
For the Six Months Ended June 30,
|
||||||||||||
2011
|
2010
|
% Change
|
||||||||||
Consumer Loan unit volume
|
95,050
|
71,439
|
33.1
|
%
|
||||||||
Active Dealer-Partners (1)
|
3,190
|
2,657
|
20.1
|
%
|
||||||||
Average volume per active Dealer-Partner
|
29.8
|
26.9
|
10.8
|
%
|
||||||||
Consumer Loan unit volume from Dealer-Partners active both periods
|
76,519
|
64,905
|
17.9
|
%
|
||||||||
Dealer-Partners active both periods
|
2,070
|
2,070
|
-
|
|||||||||
Average volume per Dealer-Partners active both periods
|
37.0
|
31.4
|
17.9
|
%
|
||||||||
Consumer Loan unit volume from new Dealer-Partners
|
6,620
|
5,151
|
28.5
|
%
|
||||||||
New active Dealer-Partners (2)
|
644
|
435
|
48.0
|
%
|
||||||||
Average volume per new active Dealer-Partners
|
10.3
|
11.8
|
-12.7
|
%
|
||||||||
Attrition (3)
|
-9.1
|
%
|
-17.4
|
%
|
|
(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 period.
|
|
(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.
|
For the Three Months Ended June 30,
|
For the Six Months Ended June 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
New Dealer Loan unit volume as a percentage of total unit volume
|
92.1
|
%
|
90.5
|
%
|
92.5
|
%
|
90.7
|
%
|
||||||||
New Dealer Loan dollar volume as a percentage of total dollar volume (1)
|
89.9
|
%
|
88.1
|
%
|
90.6
|
%
|
88.3
|
%
|
(1)
|
Represents advances paid to Dealer-Partners on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealer-Partners to purchase Consumer Loans assigned under our Purchase Program. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.
|
(Dollars in thousands, except per share data)
|
For the Three Months Ended June 30,
|
|||||||||||
2011
|
2010
|
% Change
|
||||||||||
Revenue:
|
||||||||||||
Finance charges
|
$
|
113,830
|
$
|
95,549
|
19.1
|
%
|
||||||
Premiums earned
|
10,190
|
8,245
|
23.6
|
%
|
||||||||
Other income
|
5,945
|
7,985
|
-25.5
|
%
|
||||||||
Total revenue
|
129,965
|
111,779
|
16.3
|
%
|
||||||||
Costs and expenses:
|
||||||||||||
Salaries and wages
|
15,402
|
14,050
|
9.6
|
%
|
||||||||
General and administrative
|
6,509
|
5,920
|
9.9
|
%
|
||||||||
Sales and marketing
|
5,772
|
4,834
|
19.4
|
%
|
||||||||
Provision for credit losses
|
8,928
|
1,790
|
398.8
|
%
|
||||||||
Interest
|
14,950
|
12,267
|
21.9
|
%
|
||||||||
Provision for claims
|
7,771
|
6,282
|
23.7
|
%
|
||||||||
Total costs and expenses
|
59,332
|
45,143
|
31.4
|
%
|
||||||||
Income from continuing operations before provision for income taxes
|
70,633
|
66,636
|
6.0
|
%
|
||||||||
Provision for income taxes
|
25,789
|
17,571
|
46.8
|
%
|
||||||||
Income from continuing operations
|
44,844
|
49,065
|
-8.6
|
%
|
||||||||
Discontinued operations
|
||||||||||||
Loss from discontinued United Kingdom operations
|
-
|
(25
|
)
|
100.0
|
%
|
|||||||
Provision for income taxes
|
-
|
-
|
0.0
|
%
|
||||||||
Loss from discontinued operations
|
-
|
(25
|
)
|
100.0
|
%
|
|||||||
Net income
|
$
|
44,844
|
$
|
49,040
|
-8.6
|
%
|
||||||
Net income per share:
|
||||||||||||
Basic
|
$
|
1.73
|
$
|
1.57
|
||||||||
Diluted
|
$
|
1.72
|
$
|
1.55
|
||||||||
Income from continuing operations per share:
|
||||||||||||
Basic
|
$
|
1.73
|
$
|
1.57
|
||||||||
Diluted
|
$
|
1.72
|
$
|
1.55
|
||||||||
Loss from discontinued operations per share:
|
||||||||||||
Basic
|
$
|
-
|
$
|
-
|
||||||||
Diluted
|
$
|
-
|
$
|
-
|
||||||||
Weighted average shares outstanding:
|
||||||||||||
Basic
|
25,975
|
31,172
|
||||||||||
Diluted
|
26,111
|
31,601
|
(In thousands)
|
Change
|
|||
Income from continuing operations for the three months ended June 30, 2010
|
$
|
49,065
|
||
Increase in finance charges
|
18,281
|
|||
Increase in premiums earned
|
1,945
|
|||
Decrease in other income
|
(2,040
|
)
|
||
Increase in operating expenses (1)
|
(2,879
|
)
|
||
Increase in provision for credit losses
|
(7,138
|
)
|
||
Increase in interest
|
(2,683
|
)
|
||
Increase in provision for claims
|
(1,489
|
)
|
||
Increase in provision for income taxes
|
(8,218
|
)
|
||
Income from continuing operations for the three months ended June 30, 2011
|
$
|
44,844
|
(1)
|
Operating expenses consist of salaries and wages, general and administrative, and sales and marketing expenses.
|
(Dollars in thousands)
|
For the Three Months Ended June 30,
|
|||||||||||
2011
|
2010
|
Change
|
||||||||||
Average net Loans receivable balance
|
$
|
1,398,782
|
$
|
1,113,511
|
$
|
285,271
|
||||||
Average yield on our Loan portfolio
|
32.6
|
%
|
34.3
|
%
|
-1.7
|
%
|
(In thousands)
|
Year over Year Change
|
|||
Impact on finance charges:
|
For the Three Months Ended June 30, 2011
|
|||
Due to an increase in the average net Loans receivable balance
|
$
|
24,479
|
||
Due to a decrease in the average yield
|
(6,198
|
)
|
||
Total increase in finance charges
|
$
|
18,281
|
·
|
An increase in salaries and wages expense of $1.4 million, or 9.6%, primarily due to higher servicing expenses resulting from increased staffing levels needed to manage the greater volume of Consumer Loans in our portfolio.
|
·
|
An increase in sales and marketing expense of $0.9 million, or 19.4%, primarily due to increased variable origination expenses resulting from our growth in Consumer Loan assignment volume and the expansion of our sales force.
|
·
|
An increase in general and administrative expense of $0.6 million, or 9.9%, primarily due to increased legal costs, consulting fees and premium taxes on vehicle service contracts.
|
(Dollars in thousands)
|
For the Three Months Ended June 30,
|
|||||||
2011
|
2010
|
|||||||
Interest expense
|
$
|
14,950
|
$
|
12,267
|
||||
Average outstanding debt balance
|
918,153
|
509,867
|
||||||
Pre-tax average cost of debt
|
6.5
|
%
|
9.6
|
%
|
(Dollars in thousands, except per share data)
|
For the Six Months Ended June 30,
|
|||||||||||
2011
|
2010
|
% Change
|
||||||||||
Revenue:
|
||||||||||||
Finance charges
|
$
|
220,333
|
$
|
185,212
|
19.0
|
%
|
||||||
Premiums earned
|
18,733
|
15,949
|
17.5
|
%
|
||||||||
Other income
|
14,411
|
13,880
|
3.8
|
%
|
||||||||
Total revenue
|
253,477
|
215,041
|
17.9
|
%
|
||||||||
Costs and expenses:
|
||||||||||||
Salaries and wages
|
31,473
|
30,160
|
4.4
|
%
|
||||||||
General and administrative
|
12,142
|
12,462
|
-2.6
|
%
|
||||||||
Sales and marketing
|
12,181
|
9,644
|
26.3
|
%
|
||||||||
Provision for credit losses
|
17,844
|
8,216
|
117.2
|
%
|
||||||||
Interest
|
27,573
|
23,972
|
15.0
|
%
|
||||||||
Provision for claims
|
14,370
|
11,494
|
25.0
|
%
|
||||||||
Total costs and expenses
|
115,583
|
95,948
|
20.5
|
%
|
||||||||
Income from continuing operations before provision for income taxes
|
137,894
|
119,093
|
15.8
|
%
|
||||||||
Provision for income taxes
|
49,859
|
38,013
|
31.2
|
%
|
||||||||
Income from continuing operations
|
88,035
|
81,080
|
8.6
|
%
|
||||||||
Discontinued operations
|
||||||||||||
Loss from discontinued United Kingdom operations
|
-
|
(30
|
)
|
100.0
|
%
|
|||||||
Provision for income taxes
|
-
|
-
|
0.0
|
%
|
||||||||
Loss from discontinued operations
|
-
|
(30
|
)
|
100.0
|
%
|
|||||||
Net income
|
$
|
88,035
|
$
|
81,050
|
8.6
|
%
|
||||||
Net income per share:
|
||||||||||||
Basic
|
$
|
3.31
|
$
|
2.61
|
||||||||
Diluted
|
$
|
3.29
|
$
|
2.56
|
||||||||
Income from continuing operations per share:
|
||||||||||||
Basic
|
$
|
3.31
|
$
|
2.61
|
||||||||
Diluted
|
$
|
3.29
|
$
|
2.57
|
||||||||
Loss from discontinued operations per share:
|
||||||||||||
Basic
|
$
|
-
|
$
|
-
|
||||||||
Diluted
|
$
|
-
|
$
|
-
|
||||||||
Weighted average shares outstanding:
|
||||||||||||
Basic
|
26,582
|
31,108
|
||||||||||
Diluted
|
26,796
|
31,601
|
(In thousands)
|
Change
|
|||
Income from continuing operations for the six months ended June 30, 2010
|
$
|
81,080
|
||
Increase in finance charges
|
35,121
|
|||
Increase in premiums earned
|
2,784
|
|||
Increase in other income
|
531
|
|||
Increase in operating expenses (1)
|
(3,530
|
)
|
||
Increase in provision for credit losses
|
(9,628
|
)
|
||
Increase in interest
|
(3,601
|
)
|
||
Increase in provision for claims
|
(2,876
|
)
|
||
Increase in provision for income taxes
|
(11,846
|
)
|
||
Income from continuing operations for the six months ended June 30, 2011
|
$
|
88,035
|
(1)
|
Operating expenses consist of salaries and wages, general and administrative, and sales and marketing expenses.
|
(Dollars in thousands)
|
For the Six Months Ended June 30,
|
|||||||||||
2011
|
2010
|
Change
|
||||||||||
Average net Loans receivable balance
|
$
|
1,328,786
|
$
|
1,082,121
|
$
|
246,665
|
||||||
Average yield on our Loan portfolio
|
33.2
|
%
|
34.2
|
%
|
-1.0
|
%
|
(In thousands)
|
Year over Year Change
|
|||
Impact on finance charges:
|
For the Six Months Ended June 30, 2011
|
|||
Due to an increase in the average net Loans receivable balance
|
$
|
42,218
|
||
Due to a decrease in the average yield
|
(7,097
|
)
|
||
Total increase in finance charges
|
$
|
35,121
|
·
|
An increase in sales and marketing expense of $2.5 million, or 26.3%, primarily due to increased variable origination expenses resulting from our growth in Consumer Loan assignment volume and the expansion of our sales force.
|
·
|
An increase in salaries and wages expense of $1.3 million, or 4.4%, primarily due to higher servicing expenses resulting from increased staffing levels needed to manage the greater volume of Consumer Loans in our portfolio.
|
(Dollars in thousands)
|
For the Six Months Ended June 30,
|
|||||||
2011
|
2010
|
|||||||
Interest expense
|
$
|
27,573
|
$
|
23,972
|
||||
Average outstanding debt balance
|
820,967
|
500,968
|
||||||
Pre-tax average cost of debt
|
6.7
|
%
|
9.6
|
%
|
(In thousands)
|
||||
Year
|
Scheduled Principal Debt Maturities (1)
|
|||
Remainder of 2011
|
$
|
46,616
|
||
2012
|
65,281
|
|||
2013
|
106,408
|
|||
2014
|
258,846
|
|||
2015
|
107,121
|
|||
Thereafter
|
350,000
|
|||
Total
|
$
|
934,272
|
(1)
|
The principal maturities of certain financings are estimated based on forecasted collections.
|
·
|
Our inability to accurately forecast and estimate the amount and timing of future collections could have a material adverse effect on results of operations.
|
·
|
We may be unable to execute our business strategy due to current economic conditions.
|
·
|
We may be unable to continue to access or renew funding sources and obtain capital needed to maintain and grow our business.
|
·
|
The terms of our debt limit how we conduct our business.
|
·
|
A violation of the terms of our Term ABS facilities or revolving secured warehouse facilities could have a materially adverse impact on our operations.
|
·
|
The conditions of the U.S. and international capital markets may adversely affect lenders with which we have relationships, causing us to incur additional costs and reducing our sources of liquidity, which may adversely affect our financial position, liquidity and results of operations.
|
·
|
Our substantial debt could negatively impact our business, prevent us from satisfying our debt obligations and adversely affect our financial condition.
|
·
|
Due to competition from traditional financing sources and non-traditional lenders, we may not be able to compete successfully.
|
·
|
We may not be able to generate sufficient cash flows to service our outstanding debt and fund operations and may be forced to take other actions to satisfy our obligations under such debt.
|
·
|
Interest rate fluctuations may adversely affect our borrowing costs, profitability and liquidity.
|
·
|
Reduction in our credit rating could increase the cost of our funding from, and restrict our access to, the capital markets and adversely affect our liquidity, financial condition and results of operations.
|
·
|
We may incur substantially more debt and other liabilities. This could exacerbate further the risks associated with our current debt levels.
|
·
|
The regulation to which we are or may become subject could result in a material adverse effect on our business.
|
·
|
Adverse changes in economic conditions, the automobile or finance industries, or the non-prime consumer market could adversely affect our financial position, liquidity and results of operations, the ability of key vendors that we depend on to supply us with services, and our ability to enter into future financing transactions.
|
·
|
Litigation we are involved in from time to time may adversely affect our financial condition, results of operations and cash flows.
|
·
|
Changes in tax laws and the resolution of uncertain income tax matters could have a material adverse effect on our results of operations and cash flows from operations.
|
·
|
Our operations are dependent on technology.
|
·
|
Reliance on third parties to administer our ancillary product offerings could adversely affect our business and financial results.
|
·
|
We are dependent on our senior management and the loss of any of these individuals or an inability to hire additional team members could adversely affect our ability to operate profitably.
|
·
|
Our reputation is a key asset to our business, and our business may be affected by how we are perceived in the marketplace.
|
·
|
The concentration of our Dealer-Partners in several states could adversely affect us.
|
·
|
Failure to properly safeguard confidential consumer information could subject us to liability, decrease our profitability and damage our reputation.
|
·
|
Our founder controls a majority of our common stock, has the ability to control matters requiring shareholder approval and has interests which may conflict with the interests of our other security holders.
|
·
|
Reliance on our outsourced business functions could adversely affect our business.
|
·
|
Natural disasters, acts of war, terrorist attacks and threats or the escalation of military activity in response to these attacks or otherwise may negatively affect our business, financial condition and results of operations.
|
CREDIT ACCEPTANCE CORPORATION
|
|||
(Registrant)
|
|||
By:
|
/s/ Kenneth S. Booth
|
||
Kenneth S. Booth
|
|||
Chief Financial Officer
|
|||
(Principal Financial Officer and Principal Accounting Officer)
|
|||
Date: August 1, 2011
|
Exhibit
No.
|
Description
|
|
4(f)(146)
|
1
|
Fifth Amended and Restated Credit Agreement, dated as of June 17, 2011, among the Company, the Banks which are parties thereto from time to time, and Comerica Bank as Administrative Agent and Collateral Agent for the Banks.
|
4(f)(147)
|
1
|
Amendment No. 1, dated as of June 17, 2011, to Fourth Amended and Restated Loan and Security Agreement dated as of June 16, 2010 among the Company, CAC Warehouse Funding Corporation II, Variable Funding Capital Company LLC, Wells Fargo Securities, LLC, and Wells Fargo Bank, National Association.
|
31(a)
|
2
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31(b)
|
2
|
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.
|
101(INS)
|
4
|
XBRL Instance Document.
|
101(SCH)
|
4
|
XBRL Taxonomy Extension Schema Document.
|
101(CAL)
|
4
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
101(LAB)
|
4
|
XBRL Taxonomy Extension Label Linkbase Document.
|
101(PRE)
|
4
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
1
|
Previously filed as an exhibit to the Company’s Current Report on Form 8-K, dated June 17, 2011, and incorporated herein by reference.
|
2
|
Filed herewith.
|
3
|
Furnished herewith.
|
4
|
Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
|
Date: August 1, 2011
|
By:
|
/s/ Brett A. Roberts
|
|
Brett A. Roberts
|
|||
Chief Executive Officer
|
|||
(Principal Executive Officer)
|
Date: August 1, 2011
|
By:
|
/s/ Kenneth S. Booth
|
|
Kenneth S. Booth
|
|||
Chief Financial Officer
|
|||
(Principal Financial Officer)
|
|
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: August 1, 2011
|
By:
|
/s/ Brett A. Roberts
|
|
Brett A. Roberts
|
|||
Chief Executive Officer
|
|||
(Principal Executive Officer)
|
|
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: August 1, 2011
|
By:
|
/s/ Kenneth S. Booth
|
|
Kenneth S. Booth
|
|||
Chief Financial Officer
|
|||
(Principal Financial Officer)
|
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data |
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Consolidated Balance Sheets | Â | Â |
Loans receivable, from affiliates | $ 6,360 | $ 9,031 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 1,000 | 1,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 80,000 | 80,000 |
Common stock, shares issued | 25,640 | 27,304 |
Common stock, shares outstanding | 25,640 | 27,304 |
Document And Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Jul. 22, 2011
|
|
Document And Entity Information | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Entity Registrant Name | CREDIT ACCEPTANCE CORP | Â |
Entity Central Index Key | 0000885550 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Filer Category | Accelerated Filer | Â |
Entity Common Stock, Shares Outstanding | Â | 25,656,848 |
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Fair Value Of Financial Instruments
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
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Fair Value Of Financial Instruments | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Of Financial Instruments | 7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate their value.
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents. The carrying amount of cash and cash equivalents and restricted cash and cash equivalents approximate their fair value due to the short maturity of these instruments.
Restricted Securities Available for Sale. Restricted securities consist of amounts held in trusts by TPAs to pay claims on vehicle service contracts. Securities for which we do not have the intent or ability to hold to maturity are classified as available for sale and stated at fair value. The fair value of restricted securities are based on quoted market values.
Net Investment in Loans Receivable. Loans receivable, net represents our net investment in Consumer Loans. The fair value is determined by calculating the present value of future Loan payment inflows and Dealer Holdback outflows estimated by us utilizing a discount rate comparable with the rate used to calculate our allowance for credit losses.
Derivative Instruments. The fair value of interest rate caps and interest rate swaps are based on quoted prices for similar instruments in active markets, which are influenced by a number of factors, including interest rates, notional amount of the derivative, and number of months until maturity.
Liabilities. The fair value of debt is determined using quoted market prices, if available, or calculated using the estimated value of each debt instrument based on current rates offered to us for debt with similar maturities. A comparison of the carrying value and estimated fair value of these financial instruments is as follows:
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We group assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
The following table provides the fair value measurements of applicable assets and liabilities, measured at fair value on a recurring basis, as of June 30, 2011 and December 31, 2010:
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Litigation And Contingent Liabilities
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Jun. 30, 2011
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Litigation And Contingent Liabilities | Â |
Litigation And Contingent Liabilities | 12. LITIGATION AND CONTINGENT LIABILITIES
In the normal course of business and as a result of the customer-oriented nature of the industry in which we operate, industry participants are frequently subject to various customer claims and litigation seeking damages and statutory penalties. The claims allege, among other theories of liability, violations of state, federal and foreign truth-in-lending, credit availability, credit reporting, customer protection, warranty, debt collection, insurance and other customer-oriented laws and regulations, including claims seeking damages for physical and mental damages relating to our repossession and sale of the customer's vehicle and other debt collection activities. As the assignee of Consumer Loans originated by Dealer-Partners, we may also be named as a co-defendant in lawsuits filed by customers principally against Dealer-Partners. We may also have disputes and litigation with Dealer-Partners. The claims may allege, among other theories of liability, that we breached its dealer servicing agreement. Many of these cases are filed as purported class actions and seek damages in large dollar amounts. An adverse ultimate disposition in any such action could have a material adverse impact on our financial position, liquidity and results of operations.
On December 3, 2010, we received a civil investigative demand from the Missouri Attorney General Office relating to our practices regarding collections from Missouri consumers who claim to have not received title from the Dealer-Partner at the time of their purchase. On January 24, 2011, we provided an initial response and on May 16, 2011, we filed a supplemental response. We are in continued discussions with the Attorney General with respect to the demand for information. We are cooperating with the inquiry. |
Summary Of Significant Accounting Policies
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Summary Of Significant Accounting Policies | 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Segment Information
We currently operate in one reportable segment which represents our core business of offering auto loans, and related products and services to consumers through our network of Dealer-Partners. The consolidated financial statements reflect the financial results of our one reportable operating segment.
Loans Receivable and Allowance for Credit Losses
Consumer Loan Assignment. For accounting purposes, a Consumer Loan is considered to have been assigned to us after all of the following has occurred:
Portfolio Segments and Classes. We are considered to be a lender to our Dealer-Partners for Consumer Loans assigned under our Portfolio Program and a purchaser of Consumer Loans assigned under our Purchase Program. As a result, our Loan portfolio consists of two portfolio segments: Dealer Loans and Purchased Loans. We have only one class of Consumer Loans assigned under our programs, which are retail installment contracts with deteriorated credit quality that were originated by Dealer-Partners to finance consumer purchases of vehicles and related ancillary products.
Dealer Loans. Amounts advanced to Dealer-Partners for Consumer Loans assigned under the Portfolio Program are recorded as Dealer Loans and are aggregated by Dealer-Partner for purposes of recognizing revenue and evaluating impairment. We account for Dealer Loans in a manner consistent with loans acquired with deteriorated credit quality. The outstanding balance of each Dealer Loan included in Loans receivable is comprised of the following:
Less:
An allowance for credit losses is maintained at an amount that reduces the net asset value (Dealer Loan balance less the allowance) to the value of forecasted future cash flows discounted at the yield established at the time of assignment. This allowance calculation is completed for each individual Dealer-Partner. The discounted value of future cash flows is comprised of estimated future collections on the Consumer Loans, less any estimated Dealer Holdback payments. We write off Dealer Loans once there are no forecasted future collections on any of the associated Consumer Loans, which generally occurs 120 months after the last Consumer Loan assignment.
Future collections on Dealer Loans are forecasted based on the historical performance of Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns. Dealer Holdback is forecasted based on the expected future collections and current advance balance of each Dealer Loan. Cash flows from any individual Dealer Loan are often different than estimated cash flows at the time of assignment. If such difference is favorable, the difference is recognized prospectively into income over the remaining life of the Dealer Loan through a yield adjustment. If such difference is unfavorable, a provision for credit losses is recorded immediately as a current period expense and a corresponding allowance for credit losses is established. Because differences between estimated cash flows at the time of assignment and actual cash flows occur often, an allowance is required for a significant portion of our Dealer Loan portfolio. An allowance for credit losses does not necessarily indicate that a Dealer Loan is unprofitable, and in recent years, very seldom are cash flows from a Dealer Loan insufficient to repay the initial amounts advanced to the Dealer-Partner.
Purchased Loans. Amounts paid to Dealer-Partners for Consumer Loans assigned under the Purchase Program are recorded as Purchased Loans and are aggregated into pools based on the month of purchase for purposes of recognizing revenue and evaluating impairment. We account for Purchased Loans as loans acquired with deteriorated credit quality. The outstanding balance of each Purchased Loan pool included in Loans receivable is comprised of the following:
Less:
An allowance for credit losses is maintained at an amount that reduces the net asset value (Purchased Loan pool balance less the allowance) to the value of forecasted future cash flows discounted at the yield established at the time of assignment. This allowance calculation is completed for each individual pool of Purchased Loans. The discounted value of future cash flows is comprised of estimated future collections on the pool of Purchased Loans. We write off pools of Purchased Loans once there are no forecasted future collections on any of the Purchased Loans included in the pool, which generally occurs 120 months after the month of purchase.
Future collections on Purchased Loans are forecasted based on the historical performance of Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns. Cash flows from any individual pool of Purchased Loans are often different than estimated cash flows at the time of assignment. If such difference is favorable, the difference is recognized prospectively into income over the remaining life of the pool of Purchased Loans through a yield adjustment. If such difference is unfavorable, a provision for credit losses is recorded immediately as a current period expense and a corresponding allowance for credit losses is established.
Credit Risk. Substantially all of the Consumer Loans assigned to us are made to individuals with impaired or limited credit histories or higher debt-to-income ratios than are permitted by traditional lenders. Consumer Loans made to these individuals generally entail a higher risk of delinquency, default and repossession and higher losses than loans made to consumers with better credit. Since most of our revenue and cash flows are generated from these Consumer Loans, our ability to accurately forecast Consumer Loan performance is critical to our business and financial results. At the time the Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan. Based on these forecasts, an advance or one-time purchase payment is made to the related Dealer-Partner at a price designed to achieve an acceptable return on capital. We use a statistical model that considers a number of credit quality indicators to estimate the expected collection rate for each Consumer Loan at the time of assignment. Since all known, significant credit quality indicators have already been factored into our forecasts and pricing, we are not able to use any credit quality indicators to predict or explain variances in actual performance from our initial expectations. Any variances in performance from our initial expectations are the result of Consumer Loans performing differently than historical Consumer Loans with similar characteristics. When overall forecasted collection rates underperform our initial expectations for certain Consumer Loan assignment periods, the decline in forecasted collections has a more adverse impact on Purchased Loans than Dealer Loans. For Purchased Loans, the decline in forecasted collections is absorbed entirely by us. For Dealer Loans, the decline in the forecasted collections is substantially offset by a decline in forecasted payments of Dealer Holdback.
Forecast Methodology Changes and Modifications. For the three and six months ended June 30, 2011 and 2010, we did not make any methodology changes or significant modifications to our forecasts of future collections on Consumer Loans that had a material impact on our financial results.
Reinsurance
VSC Re Company ("VSC Re"), our wholly-owned subsidiary, is engaged in the business of reinsuring coverage under vehicle service contracts sold to consumers by Dealer-Partners on vehicles financed by us. VSC Re currently reinsures vehicle service contracts that are underwritten by one of our two third party insurers. Vehicle service contract premiums, which represent the selling price of the vehicle service contract to the consumer, less commissions and certain administrative costs, are contributed to trust accounts controlled by VSC Re. These premiums are used to fund claims covered under the vehicle service contracts. VSC Re is a bankruptcy remote entity. As such, our exposure to fund claims is limited to the trust assets controlled by VSC Re and our net investment in VSC Re.
Premiums from the reinsurance of vehicle service contracts are recognized over the life of the policy in proportion to expected costs of servicing those contracts. Expected costs are determined based on our historical claims experience. Claims are expensed through a provision for claims in the period the claim was incurred. Capitalized acquisition costs are comprised of premium taxes and are amortized as general and administrative expense over the life of the contracts in proportion to premiums earned. A summary of reinsurance activity is as follows:
We are considered the primary beneficiary of the trusts and as a result, the trusts have been consolidated on our balance sheet. The trust assets and related reinsurance liabilities are as follows:
Our determination to consolidate the VSC Re trusts was based on the following:
Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents increased to $86.1 million as of June 30, 2011 from $66.5 million as of December 31, 2010. The following table summarizes restricted cash and cash equivalents:
Restricted Securities Available for Sale
Restricted securities available for sale consist of amounts held in a trust in accordance with a discontinued vehicle service contract profit sharing arrangement. 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:
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.
Deferred Debt Issuance Costs
As of June 30, 2011 and December 31, 2010, deferred debt issuance costs were $18.0 million and $15.6 million, respectively, and are included in other assets in the consolidated balance sheets. Expenses associated with the issuance of debt instruments are capitalized and amortized as interest expense over the term of the debt instrument using the effective interest method for term secured financings and Senior Notes (as defined below in Note 5) and the straight-line method for lines of credit and revolving secured financings.
Derivative and Hedging Instruments
We rely on various sources of financing, some of which contain floating rates of interest and expose us to risks associated with increases in interest rates. We manage such risk primarily by entering into interest rate cap and interest rate swap agreements ("derivative instruments").
For derivative instruments that are designated and qualify as hedging instruments, we formally document all relationships between the hedging instruments and hedged items, as well as their risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivative instruments that are designated as cash flow hedges to specific assets and liabilities on the balance sheet. We also formally assess (both at the hedge's inception and on a quarterly basis) whether the derivative instruments that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivative instruments may be expected to remain highly effective in the future periods. The effective portion of changes in the fair value of the derivative instruments is recorded in other comprehensive income, net of income taxes. If it is determined that a derivative instrument is not (or has ceased to be) highly effective as a hedge, we would discontinue hedge accounting prospectively and the ineffective portion of changes in fair value would be recorded in interest expense. For derivative instruments not designated as hedges, changes in the fair value of these agreements increase or decrease interest expense.
We recognize derivative instruments as either other assets or accounts payable and accrued liabilities on our consolidated balance sheets. For additional information regarding our derivative and hedging instruments, see Note 6 to the consolidated financial statements.
New Accounting Updates
Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. In October 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-26, which amends Topic 944 (Financial Services – Insurance). ASU No. 2010-26 is intended to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments specify which costs incurred in the acquisition of new and renewal contracts should be capitalized. ASU No. 2010-26 is effective for fiscal years beginning after December 15, 2011. While the guidance in this ASU is required to be applied prospectively upon adoption, retrospective application is also permitted (to all prior periods presented). Early adoption is also permitted, but only at the beginning of an entity's annual reporting period. The adoption of ASU No. 2010-26 beginning on January 1, 2012 is not expected to have a material impact on our consolidated financial statements.
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. In May 2011, the FASB issued ASU No. 2011-04 which amends Topic 820 (Fair Value Measurement). ASU No. 2011-04 is intended to provide a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. The amendments in ASU No. 2011-04 include changes regarding how and when the valuation premise of highest and best use applies, the application of premiums and discounts, and new required disclosures. ASU No. 2011-04 is to be applied prospectively upon adoption and is effective for interim and annual periods beginning after December 15, 2011 with early adoption prohibited. While the adoption of ASU No. 2011-04 is not expected to have a material impact on our consolidated financial statements, we expect that it will expand our disclosures related to fair value measurements.
Presentation of Comprehensive Income. In June 2011, the FASB issued ASU No. 2011-05 which amends Topic 220 (Comprehensive Income). ASU No. 2011-05 is intended to enhance comparability between entities that report under US GAAP and those that report under IFRS, and to provide a more consistent method of presenting non-owner transactions that affect an entity's equity. ASU No. 2011-05 eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The amended guidance allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU No. 2011-05 is to be applied retrospectively upon adoption and is effective for interim and annual periods beginning after December 15, 2011 with early adoption permitted. We expect the adoption of ASU No. 2011-05 will change the presentation of our consolidated financial statements. |
Income Taxes
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Income Taxes | 9. INCOME TAXES
A reconciliation of the U.S. federal statutory rate to our effective tax rate, excluding the results of the discontinued United Kingdom operations, is as follows:
The differences between the U.S. federal statutory rate and our effective tax rate are primarily due to state income taxes and reserves for uncertain tax positions and related interest that are included in the provision for income taxes.
The increase in the effective tax rate for the three and six months ended June 30, 2011, as compared to the same periods in 2010, is primarily due to changes in the reserve for uncertain tax positions. During the three and six months ended June 2010, we reversed certain reserves for uncertain tax positions that were resolved and settled with the IRS. This reversal decreased our effective tax rate for the 2010 periods. |
Capital Transactions
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Capital Transactions | 10. CAPITAL TRANSACTIONS
Net Income Per Share
Basic net income per share has been computed by dividing net income by the basic number of weighted average shares outstanding. Diluted net income per share has been computed by dividing net income by the diluted number of weighted average shares outstanding using the treasury stock method. The share effect is as follows:
For the three and six months ended June 30, 2011 and 2010, there were no stock options, restricted stock or restricted stock units that would have been anti-dilutive.
Stock Repurchases
During the first quarter of 2011, we commenced a tender offer to repurchase 1.9 million shares of our common stock at a price of $65.625 per share. Upon expiration of the tender offer during the first quarter of 2011, we repurchased 1.9 million common shares at a cost of $125.0 million, which included 1.3 million shares beneficially owned by Donald A. Foss, our Chairman of the Board, and 0.5 million shares beneficially owned by the trustee of certain grantor retained annuity trusts created by Mr. Foss. We financed the repurchase of our common stock in the tender offer using the proceeds from the issuance of $100.0 million of Senior Notes and by borrowing under our revolving secured line of credit facility.
Stock Compensation Plans
Pursuant to our Amended and Restated Incentive Compensation Plan (the "Incentive Plan"), the number of shares reserved for granting of restricted stock, restricted stock units, stock options, and performance awards to team members, officers, directors, and contractors at any time prior to April 6, 2019 is 1.5 million shares. The shares available for future grants under the Incentive Plan totaled 322,560 as of June 30, 2011.
A summary of the restricted stock activity under the Incentive Plan for the six months ended June 30, 2011 and 2010 is presented below:
A summary of the restricted stock unit activity under the Incentive Plan for the six months ended June 30, 2011 and 2010 is presented below:
Stock compensation expense consists of the following:
While the restricted stock units are expected to vest in equal, annual installments over a five-year period, the related stock compensation expense is not recognized on a straight-line basis over this period. Each installment is accounted for as a separate award and as a result, the fair value of each installment is recognized as stock compensation expense on a straight-line basis over the related vesting period. |
Related Party Transactions
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Related Party Transactions | 8. RELATED PARTY TRANSACTIONS
In the normal course of our business, affiliated Dealer-Partners assign Consumer Loans to us under the Portfolio and Purchase Programs. Dealer Loans and Purchased Loans with affiliated Dealer-Partners are on the same terms as those with non-affiliated Dealer-Partners. Affiliated Dealer-Partners are comprised of Dealer-Partners owned or controlled by: (1) our majority shareholder and Chairman; and (2) a member of the Chairman's immediate family.
Affiliated Dealer Loan balances were $6.4 million and $9.0 million as of June 30, 2011 and December 31, 2010, respectively. Affiliated Dealer Loan balances were 0.5% and 0.8% of total consolidated Dealer Loan balances as of June 30, 2011 and December 31, 2010, respectively. A summary of related party Loan activity is as follows:
Our majority shareholder and Chairman has indirect control over entities that, in the past, offered secured lines of credit to automobile dealers, and has the right or obligation to reacquire these entities under certain circumstances until December 31, 2014 or the repayment of the related purchase money note. |
Basis Of Presentation
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Basis Of Presentation | Â |
Basis Of Presentation | 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 GAAP 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 as of December 31, 2010 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP 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, 2010 for Credit Acceptance Corporation (the "Company", "Credit Acceptance", "we", "our" or "us").
Certain amounts for prior periods have been reclassified to conform to the current presentation. We have changed the presentation of our consolidated statement of cash flows to present depreciation and amortization as separate operating activities. Under our previous presentation, depreciation and amortization were presented as a combined operating activity. We have also changed the presentation of our consolidated statement of cash flows to reflect the increased significance of debt issuance costs. Under our current presentation, payments of debt issuance costs are presented as a separate financing activity and the related amortization is presented within operating activities as amortization. Under our previous presentation, payments of debt issuance costs and the related amortization were presented as a net change in other assets within operating activities. We have also changed the presentation of our consolidated statement of cash flows to present advances to Dealer-Partners (as defined in Note 2) and accelerated payments of Dealer Holdback (as defined in Note 2) as separate investing activities. Under our previous presentation, advances to Dealer-Partners and accelerated payments of Dealer Holdback were presented as a combined investing activity.
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.
We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of June 30, 2011 for items that could potentially be recognized or disclosed in these financial statements. We did not identify any items which would require disclosure in or adjustment to the financial statements. |
Loans Receivable
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Loans Receivable | 4. LOANS RECEIVABLE
Loans receivable consists of the following:
A summary of changes in Loans receivable is as follows:
A summary of changes in the allowance for credit losses is as follows:
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Debt
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Debt | 5. DEBT
We currently utilize the following primary forms of debt financing: (1) a revolving secured line of credit with a commercial bank syndicate; (2) revolving secured warehouse facilities with institutional investors; (3) asset-backed secured financings ("Term ABS") with qualified institutional investors; and (4) 9.125% First Priority Senior Secured Notes due 2017 ("Senior Notes"). General information for each of our financing transactions in place as of June 30, 2011 is as follows:
Additional information related to the amounts outstanding on each facility is as follows:
(1) Availability may be limited by the amount of assets pledged as collateral.
Senior Notes
We have outstanding $350.0 million aggregate principal amount of our 9.125% First Priority Senior Secured Notes due 2017, $100.0 million of which we issued on March 3, 2011 and $250.0 million of which we issued on February 1, 2010. The Senior Notes are governed by an indenture, dated as of February 1, 2010, as amended and supplemented (the "Indenture"), among us, as the issuer; our subsidiaries Buyers Vehicle Protection Plan, Inc. and Vehicle Remarketing Services, Inc., as guarantors (the "Guarantors"); and U.S. Bank National Association, as trustee. The Senior Notes issued on March 3, 2011 have the same terms as the previously issued Senior Notes, other than issue price and issue date, and all of the Senior Notes are treated as a single class under the Indenture.
The Senior Notes mature on February 1, 2017 and bear interest at a rate of 9.125% per annum, computed on the basis of a 360-day year comprised of twelve 30-day months and payable semi-annually on February 1 and August 1 of each year, beginning on August 1, 2010. The Senior Notes issued on March 3, 2011 were issued at a price of 106.0% of their aggregate principal amount, resulting in gross proceeds of $106.0 million, and a yield to maturity of 7.83% per annum. The Senior Notes issued on February 1, 2010 were issued at a price of 97.495% of their aggregate principal amount, resulting in gross proceeds of $243.7 million, and a yield to maturity of 9.625% per annum. The premium with respect to the Senior Notes issued on March 3, 2011 and the discount with respect to the Senior Notes issued on February 1, 2010 are being amortized over the life of the Senior Notes using the effective interest method.
The Senior Notes are guaranteed on a senior secured basis by the Guarantors, which are also guarantors of obligations under our revolving secured line of credit facility. Other existing and future subsidiaries of ours may become guarantors of the Senior Notes. The Senior Notes and the Guarantors' Senior Note guarantees are secured on a first-priority basis (subject to specified exceptions and permitted liens), together with all indebtedness outstanding from time to time under the revolving secured line of credit facility and, under certain circumstances, certain future indebtedness, by a security interest in substantially all of our assets and those of the Guarantors, subject to certain exceptions such as real property, cash (except to the extent it is deposited with the collateral agent), certain leases, and equity interests of our subsidiaries (other than those of specified subsidiaries including the Guarantors). Our assets and those of the Guarantors securing the Senior Notes and the Senior Note guarantees will not include our assets transferred to special purpose subsidiaries in connection with securitization transactions and will generally be the same as the collateral securing indebtedness under the revolving secured line of credit facility and, under certain circumstances, certain future indebtedness, subject to certain limited exceptions as provided in the security and intercreditor agreements related to the revolving secured line of credit facility.
Revolving Secured Line of Credit Facility
During the second quarter of 2011, we extended the maturity of our revolving secured line of credit facility from June 22, 2012 to June 22, 2014. Additionally, the amount of the facility was increased from $170.0 million to $205.0 million. The interest rate on borrowings under the facility remains the same at the prime rate plus 1.25% or the LIBOR rate plus 2.25%, at our option. The financial covenant that required us to maintain a minimum ratio of assets to debt and the floor on the LIBOR rate was eliminated.
Borrowings under the revolving secured line of credit facility, including any letters of credit issued under the 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), and the amount of other debt secured by the collateral which secures the revolving secured line of credit facility. Borrowings under the revolving secured line of credit facility agreement are secured by a lien on most of our assets. We must pay quarterly fees on the amount of the facility. Revolving Secured Warehouse Facilities
We have two revolving secured warehouse facilities that are provided to our wholly-owned subsidiaries. One is a $325.0 million facility with an institutional investor and the other is a $75.0 million facility with another institutional investor.
During the second quarter of 2011, we extended the date on which our $325.0 million revolving secured warehouse facility will cease to revolve from June 15, 2013 to June 17, 2014. The interest rate on borrowings under the facility was decreased from the commercial paper rate plus 3.5% to the commercial paper rate plus 2.75%.
During the second quarter of 2011, we decreased the interest rate on our $75.0 million revolving secured warehouse facility from LIBOR plus 3.0% to LIBOR plus 1.6%.
Under both revolving secured warehouse facilities we can contribute Loans to our wholly-owned subsidiaries in return for cash and equity in each subsidiary. In turn, each subsidiary pledges the Loans as collateral to institutional investors to secure financing that will fund the cash portion of the purchase price of the Loans. The financing provided to each subsidiary under the applicable facility is limited to the lesser of 80% of the net book value of the contributed Loans plus the cash collected on such Loans or the facility limit. The financings create indebtedness for which the subsidiaries are liable and which is secured by all the assets of each subsidiary. Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the subsidiaries. Because the subsidiaries are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors.
Interest on borrowings under the $325.0 million revolving secured warehouse facility has been limited through interest rate cap agreements to a maximum rate of 6.75% plus the spread over the LIBOR rate or the commercial paper rate, as applicable. Interest on borrowings for a portion of the $75.0 million revolving secured warehouse facility has also been limited through interest rate cap agreements to a maximum rate of 6.75% plus the spread over the LIBOR rate or the commercial paper rate, as applicable. We have also entered into an interest rate swap to convert $25.0 million of the $75.0 million revolving secured warehouse facility into fixed rate debt bearing an interest rate of 2.96%. For additional information, see Note 6 of these consolidated financial statements.
The subsidiaries pay us a monthly servicing fee equal to 6% of the collections received with respect to the contributed Loans. The fee is paid out of the collections. Except for the servicing fee and holdback payments due to Dealer-Partners, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees and other related costs have been paid in full. If a facility is not amortizing, the applicable subsidiary may be entitled to retain a portion of such collections provided that the borrowing base requirements of the facility are satisfied.
Term ABS Financings
In 2009 and 2010, two of our wholly-owned subsidiaries (the "Funding LLCs"), each completed a secured financing transaction. In connection with these transactions, we contributed Loans on an arms-length basis to each Funding LLC for cash and the sole membership interest in that Funding LLC. In turn, each Funding LLC contributed the Loans to a respective trust that issued notes to qualified institutional investors. The Term ABS 2010-1 and 2009-1 transactions consist of three classes of notes. The Class A Notes for each Term ABS financing were rated by S&P and DBRS, Inc. and the Class B Notes for each Term ABS financing were rated by S&P. The Class C Notes for each Term ABS financing do not bear interest, were not rated and have been retained by us.
Each financing at the time of issuance has a specified revolving period during which we may be required, and are likely, to contribute additional Loans to each Funding LLC. Each Funding LLC will then contribute 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 indebtedness for which the trusts are liable and which is secured by all the assets of each trust. Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the trusts and the Funding LLCs. Because the Funding LLCs are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors. We receive a monthly servicing fee on each financing equal to 6% of the collections received with respect to the contributed Loans. The fee is paid out of the collections. Except for the servicing fee and Dealer Holdback payments due to Dealer-Partners, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees and other related costs have been paid in full. If a facility is not amortizing, the applicable subsidiary may be entitled to retain a portion of such collections provided that the borrowing base requirements of the facility are satisfied. However, in our capacity as servicer of the Loans, we do have a limited right to exercise a "clean-up call" option to purchase Loans from the Funding LLCs and/or the trusts under certain specified circumstances. Alternatively, when a trust's underlying indebtedness is paid in full, either through collections or through a prepayment of the indebtedness, the trust is to pay any remaining collections over to its Funding LLC as the sole beneficiary of the trust. The collections will then be available to be distributed to us as the sole member of the respective Funding LLC.
The table below sets forth certain additional details regarding the outstanding Term ABS Financings:
Debt Covenants
As of June 30, 2011, we were in compliance with all our debt covenants relating to the revolving secured line of credit facility, including those that require the maintenance of certain financial ratios and other financial conditions. These covenants require a minimum ratio of our earnings before interest, taxes and non-cash expenses to fixed charges. These covenants also limit the maximum ratio of our funded debt to tangible net worth. Additionally, we must maintain consolidated net income of not less than $1 for the two most recently ended fiscal quarters. Some of these debt covenants may indirectly limit the repurchase of common stock or payment of dividends on common stock.
Our revolving secured warehouse facilities and Term ABS financings also contain covenants that measure the performance of the contributed assets. As of June 30, 2011, we were in compliance with all such covenants. As of the end of the quarter, we were also in compliance with our covenants under the Indenture. The Indenture includes covenants that limit the maximum ratio of our funded debt to tangible net worth and also require a minimum collateral coverage ratio. |
Derivative And Hedging Instruments
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Derivative And Hedging Instruments | 6. DERIVATIVE AND HEDGING INSTRUMENTS
Interest Rate Caps. As of June 30, 2011, we had interest rate cap agreements to manage the interest rate risk on our $325.0 million revolving secured warehouse facility with various maturities between August 2011 and June 2013. As of December 31, 2010, we had interest rate cap agreements to manage the interest rate risk on our $325.0 million revolving secured warehouse facility with various maturities between February 2011 and May 2012. As of June 30, 2011 and December 31, 2010, we also had an interest rate cap agreement that matures on September 19, 2013 to manage the interest rate risk on a portion of our $75.0 million revolving secured warehouse facility. These instruments limit the interest rate on both revolving secured warehouse facilities to 6.75% plus the spread over the LIBOR rate or the commercial paper rate, as applicable.
The interest rate caps have not been designated as hedging instruments.
Interest Rate Swaps. As of June 30, 2011 and December 31, 2010, we had an interest rate swap outstanding which matures in August 2011 to convert $25.0 million of the $75.0 million revolving secured warehouse facility into fixed rate debt, bearing an interest rate of 2.96% and 4.36%, respectively. The decline in the fixed interest rate, as of June 30, 2011, was due to the 140 basis point reduction in the spread during the second quarter of 2011. This interest rate swap has been designated as a cash flow hedging instrument.
As of June 30, 2011, we had minimal exposure to credit loss on the outstanding interest rate swap. 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.
Information related to the fair values of derivative instruments in our consolidated balance sheets as of June 30, 2011 and December 31, 2010 is as follows:
Information related to the effect of derivative instruments designated as hedging instruments in our consolidated financial statements is as follows:
As of June 30, 2011, we expect to reclassify losses less than $0.1 million from accumulated other comprehensive income into income during the next twelve months.
Information related to the effect of derivative instruments not designated as hedging instruments on our consolidated statements of income for the three and six months ended June 30, 2011 and 2010 is as follows:
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