1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- --------------------
Commission File Number 000-20202
CREDIT ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1999511
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification)
25505 WEST TWELVE MILE ROAD, SUITE 3000
SOUTHFIELD, MICHIGAN 48034-8339
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 248-353-2700
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/. No / /.
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the latest practicable date.
The number of shares outstanding of Common Stock, par value $.01, on
August 9, 2000 was 42,879,954.
2
TABLE OF CONTENTS
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
As of December 31, 1999 and June 30, 2000...................... 1
Consolidated Income Statements -
Three and six months ended June 30, 1999 and June 30, 2000..... 2
Consolidated Statements of Cash Flows -
Six months ended June 30, 1999 and June 30, 2000............... 3
Consolidated Statement of Shareholders' Equity -
Six months ended June 30, 2000................................. 4
Notes to Consolidated Financial Statements........................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................ 6
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.......... 13
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................. 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................... 15
SIGNATURES ........................................................................ 16
INDEX OF EXHIBITS.................................................................. 17
EXHIBITS........................................................................... 18
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PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
As of
-----------------------------------------
(Dollars in thousands) December 31, 1999 June 30, 2000
----------------- -------------
(Unaudited)
ASSETS:
Cash and cash equivalents.......................................... $ 11,122 $ 8,157
Investments........................................................ 11,569 12,170
Installment contracts receivable................................... 570,529 575,155
Allowance for credit losses........................................ (4,742) (4,184)
-------------- --------------
Installment contracts receivable, net.......................... 565,787 570,971
------------- -------------
Retained interest in securitization................................ 4,105 4,782
Floor plan receivables............................................. 15,492 9,825
Notes receivable................................................... 3,610 4,901
Property and equipment, net........................................ 18,243 18,587
Investment in operating leases, net................................ 9,115 32,908
Income taxes receivable............................................ 12,686 6,196
Other assets....................................................... 5,874 4,531
------------- -------------
TOTAL ASSETS............................................................ $ 657,603 $ 673,028
============= =============
LIABILITIES:
Senior notes....................................................... $ 30,579 $ 25,684
Lines of credit.................................................... 36,994 101,496
Mortgage loan payable to bank...................................... 8,215 7,908
Secured financing.................................................. 83,197 34,878
Accounts payable and accrued liabilities........................... 23,105 25,335
Deferred dealer enrollment fees, net............................... 595 1,061
Dealer holdbacks, net.............................................. 202,143 208,987
Deferred income taxes, net......................................... 9,800 9,288
------------- -------------
TOTAL LIABILITIES....................................................... 394,628 414,637
------------- -------------
SHAREHOLDERS' EQUITY
Common stock....................................................... 461 437
Paid-in capital.................................................... 128,917 117,306
Retained earnings.................................................. 132,303 144,182
Accumulated other comprehensive income (loss) - cumulative
translation adjustment.......................................... 1,294 (3,534)
------------- --------------
TOTAL SHAREHOLDERS' EQUITY.............................................. 262,975 258,391
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. $ 657,603 $ 673,028
============= =============
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CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
Three Months Ended Six Months Ended
---------------------------------- ------------------------------
(Dollars in thousands, except per share data) 6/30/99 6/30/00 6/30/99 6/30/00
---------------- ---------------- ---------------- -------------
REVENUE:
Finance charges............................. $ 19,797 $ 20,309 $ 39,202 $ 40,348
Lease revenue............................... 79 3,457 79 5,047
Premiums earned............................. 2,331 2,434 4,776 5,035
Other income................................ 7,301 5,008 15,812 10,245
----------- ----------- ----------- -----------
Total revenue........................... 29,508 31,208 59,869 60,675
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Operating expenses.......................... 14,427 13,034 28,976 25,725
Provision for credit losses................. 2,084 2,576 4,220 5,023
Provision for claims........................ 894 716 1,725 1,492
Depreciation of leased assets............... 34 1,206 34 1,846
Valuation adjustment on retained interest
in securitization..................... 517 - 517 -
Interest.................................... 4,272 4,167 8,799 8,360
----------- ----------- ----------- -----------
Total costs and expenses................ 22,228 21,699 44,271 42,446
----------- ----------- ----------- -----------
Operating income........................ 7,280 9,509 15,598 18,229
Gain on sale of subsidiary....................... 14,720 - 14,720 -
Foreign exchange loss............................ (9) (66) (54) (80)
------------ ------------ ------------ ------------
Income before provision for income taxes......... 21,991 9,443 30,264 18,149
Provision for income taxes....................... 8,220 3,290 11,114 6,270
-------------- ----------- ----------- -----------
Net income....................................... $ 13,771 $ 6,153 $ 19,150 $ 11,879
=========== =========== =========== ===========
Net income per common share:
Basic....................................... $ 0.30 $ 0.14 $ 0.41 $ 0.26
========== =========== =========== ===========
Diluted..................................... $ 0.30 $ 0.14 $ 0.41 $ 0.26
========== =========== =========== ===========
Weighted average shares outstanding:
Basic....................................... 46,303,516 44,532,373 46,301,210 44,967,741
========== =========== ========== ==========
Diluted..................................... 46,545,290 44,863,668 46,625,575 45,269,194
========== =========== ========== ===========
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CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands) Six Months Ended
June 30,
-------------------------------------
1999 2000
------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.......................................................... $ 19,150 $ 11,879
Adjustments to reconcile net income to net cash
provided by operating activities -
Gain on sale of subsidiary................................. (14,720) -
Credit for deferred income taxes........................... (344) (512)
Depreciation of property and equipment..................... 2,190 2,091
Depreciation of leased vehicles............................ 34 1,846
Valuation adjustment on retained interest
in securitization........................................ 517 -
Amortization of retained interest in securitization........ (1,023) (100)
Provision for credit losses................................ 4,223 5,023
Dealer stock option plan expense........................... 66 22
Amortization of deferred leasing costs..................... 3 526
Change in operating assets and liabilities -
Unearned insurance premiums, insurance reserves and fees... 1,162 (616)
Lease payments receivable.................................. - (1,404)
Income taxes receivable.................................... - 6,490
Other assets............................................... (29) 1,343
Accounts payable and accrued liabilities................... 970 2,230
Income taxes payable....................................... 6,123 -
Deferred dealer enrollment fees, net....................... (47) 466
--------------- -------------
Net cash provided by operating activities.............. 18,275 29,284
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of subsidiary.................................... 16,147 -
Principal collected on installment contracts receivable............. 170,353 161,407
Advances to dealers and payments of dealer holdback................. (140,662) (164,041)
Operating lease originations........................................ (1,440) (22,708)
Operating lease liquidations........................................ - 807
Net purchases of investments held to maturity....................... (616) (601)
Increase (decrease) in floor plan receivables....................... (4,595) 5,667
Increases in notes receivable....................................... (359) (1,291)
Purchases of property and equipment................................. (2,621) (2,435)
Increase in deferred costs from lease acquisitions.................. (85) (3,550)
--------------- --------------
Net cash provided by (used in) investing activities.... 36,122 (26,745)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under mortgage loan payable to bank..... 4,945 (307)
Net borrowings (repayments) under line of credit agreement.......... (35,216) 64,502
Repayments of senior notes.......................................... (20,000) (4,895)
Repayments of secured financing..................................... - (48,319)
Repurchase of common stock.......................................... - (11,694)
Proceeds from stock options exercised............................... 352 37
-------------- -------------
Net cash used in financing activities.................. (49,919) (676)
--------------- --------------
Effect of exchange rate changes on cash................ (3,678) (4,828)
--------------- --------------
NET (DECREASE) INCREASE IN CASH.......................................... 800 (2,965)
Cash and cash equivalents - beginning of period..................... 13,775 11,122
-------------- -------------
Cash and cash equivalents - end of period........................... $ 14,575 $ 8,157
============== =============
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CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Accumulated
Total Other
Shareholders' Comprehensive Common Paid In Retained Comprehensive
Equity Income Stock Capital Earnings Income (Loss)
-------------- --------------- ---------- ------------ ---------- --------------
Balance - December 31, 1999.................. $ 262,975 $ 461 $ 128,917 $ 132,303 $ 1,294
Comprehensive income:
Net income.......................... 11,879 $ 11,879 11,879
----------
Other comprehensive income:
Foreign currency translation
adjustment...................... (4,828) (4,828) (4,828)
Tax on other comprehensive loss... 1,690
----------
Other comprehensive loss.......... (3,138)
----------
Total comprehensive income.............. $ 8,741
==========
Repurchase and retirement of common
stock................................ (11,694) (24) (11,670)
Stock options exercised................. 37 37
Dealer stock option plan expense........ 22 22
------------ ---------- ----------- ----------- -----------
Balance - June 30, 2000...................... $ 258,391 $ 437 $ 117,306 $ 144,182 $ (3,534)
=========== ========== =========== =========== ===========
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CREDIT ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for interim periods are not necessarily
indicative of actual results achieved for full fiscal years. The consolidated
balance sheet at December 31, 1999 has been derived from the audited financial
statements at that date but does not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Certain amounts in the 1999 financial statements have been
reclassified to conform to the 2000 presentation. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. NET INCOME PER SHARE
Basic net income per share amounts are based on the weighted average
number of common shares outstanding. Diluted net income per share amounts are
based on the weighted average number of common shares and potentially dilutive
securities outstanding. Potentially dilutive securities included in the
computation represent shares issuable upon assumed exercise of stock options
which would have a dilutive effect.
3. BUSINESS SEGMENT INFORMATION
The Company operates in three reportable business segments: CAC North America,
CAC United Kingdom and CAC Automotive Leasing. Selected segment information is
set forth below (in thousands):
Three Months Ended Six Months Ended
------------------------- -------------------------
6/30/99 6/30/00 6/30/99 6/30/00
------------------------- -------------------------
Total revenue:
CAC North America............................. $ 23,522 $ 23,057 $ 46,960 $ 46,365
CAC United Kingdom............................ 4,258 4,979 8,281 9,800
CAC Automotive Leasing........................ 64 3,172 64 4,510
Other......................................... 1,664 - 4,564 -
----------- ----------- ----------- -----------
$ 29,508 $ 31,208 $ 59,869 $ 60,675
=========== =========== =========== ===========
Earnings before interest and taxes:
CAC North America............................. $ 24,203 $ 10,727 $ 34,674 $ 21,817
CAC United Kingdom............................ 2,134 2,042 4,056 3,710
CAC Automotive Leasing........................ (91) 841 (91) 982
Other......................................... 17 - 424 -
----------- ----------- ----------- -----------
$ 26,263 $ 13,610 $ 39,063 $ 26,509
=========== =========== =========== ===========
Reconciliation of total earnings before interest
and taxes to consolidated income before
provision for income taxes:
Total income before interest and taxes........ $ 26,263 $ 13,610 $ 39,063 $ 26,509
Interest expense.............................. (4,272) (4,167) (8,799) (8,360)
------------ ------------ ----------- ------------
Consolidated income before provision for
income taxes...................................... $ 21,991 $ 9,443 $ 30,264 $ 18,149
=========== =========== =========== ===========
Included in the 1999 earnings before interest and taxes for CAC North America is
the $14.7 million gain on sale of the Company's credit reporting subsidiary.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE AND SIX MONTHS
ENDED JUNE 30, 2000
TOTAL REVENUE. Total revenue consists of: i) finance charges on installment
contracts; ii) lease revenue on investments in operating leases; iii) premiums
earned on service contracts, credit life and collateral protection insurance
programs; and iv) other income, which consists primarily of fees earned on third
party service contract products, floor plan financing interest income and dealer
enrollment fees. During the six months ended June 30, 1999, it also consisted of
revenue from the Company's credit reporting and auction services subsidiaries
which were sold on May 7, 1999 and December 15, 1999, respectively. As a result
of the following factors, total revenue increased from $29.5 million and $59.9
million for the three and six months ended June 30, 1999 to $31.2 million and
$60.7 for the same periods in 2000, representing increases of 5.8% and 1.3%,
respectively.
Finance charges increased from $19.8 million and $39.2 for the three and six
months ended June 30, 1999 to $20.3 million and $40.3 million for the same
periods in 2000, representing increases of 2.6% and 2.9%, respectively. These
increases are primarily the result of the increases in the average annualized
yield on the Company's installment contract portfolio. The volume of contract
originations for the Company's North American operations decreased from $105.8
million for the three months ended June 30, 1999 to $97.0 million for the same
period in 2000 and increased from $220.1 million for the six months ended June
30, 1999 to $232.2 million for the same period in 2000. The volume of contract
originations for the Company's United Kingdom operations increased from $29.3
million and $42.9 million for the three and six months ended June 30, 1999 to
$37.5 million and $67.7 million for the same periods in 2000. In an effort to
increase origination volumes, the Company has introduced new advance programs,
both in the United States and United Kingdom, which have increased the Company's
overall advance rates. The Company's advances to dealers and payment of dealer
holdbacks, as a percent of gross installment contracts accepted, increased from
55.6% and 53.7% for the three and six months ended June 30, 1999 to 56.0% and
54.6% for the same periods in 2000. There can be no assurance that higher
advance rates will lead to increased origination volumes in future periods or
that advance rates will not need to be reduced in future periods based on
continued review of dealer profitability and credit quality. While management
expects the increased advance rates to have a positive effect on the Company's
results, higher advance rates increase the Company's risk of loss on dealer
advances.
The average annualized yield on the Company's installment contract portfolio,
calculated using finance charge revenue divided by average installment contracts
receivable, was approximately 12.7% and 14.1% for the six months ended June 30,
1999 and 2000, respectively. The increase in the average yield is due to a
decrease in the percentage of installment contracts which were in non-accrual
status. The percentage of installment contracts which were in non-accrual status
was 25.9% and 20.0% as of June 30, 1999 and 2000, respectively. The decrease in
the non-accrual loans is primarily due to improvements in credit quality of the
Company's portfolio of installment contracts.
Lease revenue represents income from the Company's automotive leasing business
unit, which began operations in 1999. Income from operating lease assets is
recognized on a straight-line basis over the scheduled lease term. Lease revenue
increased from $79,000 for both the three and six months ended June 30, 1999 to
$3.5 million and $5.0 million for the same periods in 2000. These increases are
the result of the increases in lease originations for the periods, a trend which
the Company expects to continue in future periods. Lease originations were $1.4
million for both the three and six months ended June 30, 1999 compared to $10.7
million and $22.7 million for the same periods in 2000.
Premiums earned increased, from $2.3 million and $4.8 million for the three and
six months ended June 30, 1999 to $2.4 million and $5.0 for the same periods in
2000, representing increases of 4.4% and 5.4%, respectively. Premiums on the
Company's service contract program are earned on a straight-line basis over the
life of the service contracts. Premiums reinsured under the Company's credit
life program are earned over the life of the contracts using the pro rata and
sum-of-digits methods. The increase in premiums earned is consistent with the
increase in finance charges and results primarily from the increase in
origination volumes.
Other income decreased from $7.3 million and $15.8 million for the three and six
months ended June 30, 1999 to $5.0 million and $10.2 million for the same
periods in 2000, representing decreases of 31.4% and 35.2%, respectively. The
decreases are primarily due to: i) the absence of revenues from the Company's
credit reporting and auction services subsidiaries, which were sold on May 7,
1999 and December 15, 1999, respectively; and ii) the decrease in servicing
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fees and interest earned on the retained interest in the Company's July 1998
securitization of advance receivables.
OPERATING EXPENSES. Operating expenses, as a percent of total revenue, decreased
from 48.9% and 48.4% for the three and six months ended June 30, 1999 to 41.8%
and 42.4% for the same periods in 2000. Operating expenses consist of salaries
and wages, general and administrative, and sales and marketing expenses.
The decreases, as a percent of revenue, are primarily due to decreases in
general and administrative expenses and salaries and wages. General and
administrative expenses and salaries and wages decreased primarily due to the
sale of the Company's credit reporting and auction services subsidiaries in
1999. These subsidiaries required proportionately higher operating expenses than
the Company's other businesses. To a lesser extent, the decrease in general and
administrative expenses is due to a decrease in legal fees resulting from a
reduction in further adverse developments in litigation against the Company (see
Part II Item 1. Legal Proceedings). The decreases are partially offset by
operating expenses from the Company's automotive leasing business unit, which
began operations in 1999.
The decreases in general and administrative and salaries and wages expenses are
also partially offset by an increase in sales and marketing expenses. These
expenses increased primarily due to additional sales commissions as a result of
higher contract origination volumes, increases in the Company's total sales
force and an increase in sales related travel expenses. This increase in sales
and marketing expenses is partially offset by the sale of the Company's credit
reporting subsidiary in 1999.
PROVISION FOR CREDIT LOSSES. The provision for credit losses consists of three
components: i) a provision for losses on advances to dealers that are not
expected to be recovered through collections on the related installment contract
receivable portfolio; ii) a provision for earned but unpaid revenue on
installment contracts which were transferred to non-accrual status during the
period; and iii) a provision for expected losses on the investment in operating
leases. The provision for credit losses increased from $2.1 million and $4.2
million for the three and six months ended June 30, 1999 to $2.6 million and
$5.0 million for the same periods in 2000, representing increases of 23.6% and
19.0%, respectively. The increases are primarily due to an increase in the
provision for expected losses on the investment in operating leases resulting
primarily from the significant increase in operating lease originations. To a
lesser extent, the increase is due to an increase in provisions necessary on a
per lease basis as a result of management's analysis of additional historical
information available.
The increases are partially offset by the lower provisions needed for earned but
unpaid revenue primarily resulting from the decrease in the percent of
non-accrual installment contracts receivable.
The amount provided on a consolidated basis for advance losses was comparable
during the three and six months ended June 30, 1999 and 2000. The advance
provision is based on management's analysis of loan performance utilizing the
Company's loan servicing system, which allows management to estimate future
collections for each dealer pool using historical loss experience and a
dealer-by-dealer static pool analysis. The amount provided, as a percent of new
contract originations, was 1.5% and 1.6% for the three and six months ended June
30, 1999 and 1.5% and 1.4% for the same period in 2000. For the Company's North
American operations, the amount provided, as a percent of new contract
originations, declined from 1.6% and 1.5% for the three and six months ended
June 30, 1999 to 0.8% and 0.7% for the same period in 2000 due to continued
improvements in the quality of business originated, based on management's
analysis. This was offset by an increase in the amount provided, as a percent of
new contract originations, from 1.5% and 2.1% for the three and six months ended
June 30, 1999 to 3.4% and 3.9% for the same period in 2000 for the Company's
United Kingdom operations resulting from increases in advance rates in the
United Kingdom.
PROVISION FOR CLAIMS. The amount provided for insurance and service contract
claims, as a percent of total revenue, decreased from 3.0% and 2.9% during the
three and six months ended June 30, 1999 to 2.3% and 2.5% during the same
periods in 2000. The claims reserves are based on estimates of claims reported
but unpaid plus estimates of incurred but unreported claims. Based on such
estimates, the amount provided on a per contract basis for service contract
claims was reduced during the six months ended June 30, 2000.
DEPRECIATION OF LEASED VEHICLES. Depreciation of leased vehicles is recorded on
a straight-line basis to the residual value of the vehicle over the scheduled
lease term. The depreciation expense recorded on leased vehicles increased from
$34,000 for both the three and six months ended June 30, 1999 to $1.2 million
and $1.8 million for the same periods in 2000. These increases are the result of
increases in lease originations for the periods.
INTEREST EXPENSE. Interest expense, as a percent of total revenue, decreased
from 14.5% and 14.7% for the three and six months ended June 30, 1999 to 13.4%
and 13.8% for the same periods in 2000. The decreases in interest
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expense are primarily the result of a decrease in the amount of average
outstanding borrowings, which resulted from the positive cash flow generated
from: i) collections on installment contracts receivable exceeding cash advances
to dealers and payments of dealer holdbacks; ii) proceeds from the sale of the
Company's credit reporting services subsidiary; and iii) a reduction in federal
tax payments as a result of the taxable loss in 1999. The decreases were
partially offset by higher average interest rates. The weighted average interest
rate increased from 9.8% and 9.4% for the three and six months ended June 30,
1999 to 10.1% and 10.5% for the same periods in 2000. The increases in the
average interest rates are the result of: i) the impact of fixed borrowing
costs, such as facility fees, up front fees and other costs on average interest
rates when average outstanding borrowings are decreasing; ii) an increase on
December 1, 1999 and January 15, 2000 of 50 and 75 basis points, respectively,
in the interest rate on outstanding borrowings under the Company's senior notes
resulting from amendments to the note purchase agreements due to the $47.3
million pre-tax charge in the third quarter of 1999; and iii) an increase in the
average interest rate on the Company's line of credit due to higher average
Eurocurrency rates during the periods.
OPERATING INCOME. As a result of the aforementioned factors, operating income
increased from $7.3 million and $15.6 million for the three and six months ended
June 30, 1999 to $9.5 million and $18.2 million for the same periods in 2000,
representing increases of 30.6% and 16.9%, respectively.
FOREIGN EXCHANGE LOSS. The Company incurred foreign exchange losses of $9,000
and $54,000 for the three and six months ended June 30, 1999 and $66,000 and
$80,000 for the same periods in 2000. The losses result from the effect of
exchange rate fluctuations between the U.S. dollar and foreign currencies on
unhedged intercompany balances between the Company and its foreign subsidiaries.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased from $8.2
million and $11.1 million during the three and six months ended June 30, 1999 to
$3.3 million and $6.3 million during the same periods in 2000. The decreases are
due to a lower level of pre-tax income in 2000, primarily resulting from the
gain on sale of the Company's credit reporting subsidiary in May 1999. For the
six months ended June 30, the effective tax rate was 36.7% in 1999 and 34.5% in
2000. The decrease in the effective tax rate is primarily due to a reduction in
state income taxes that were applicable to the credit reporting subsidiary
divested in the prior year. To a lesser extent, the decrease in the effective
tax rate is due to a reduction in the United Kingdom's statutory tax rates in
April 1999.
INSTALLMENT CONTRACTS RECEIVABLE
The following table summarizes the composition of installment contracts
receivable at the dates indicated (dollars in thousands):
As of
------------------------------------
December 31, 1999 June 30, 2000
----------------- -------------
(Unaudited)
Gross installment contracts receivable.................................... $ 679,247 $ 686,551
Unearned finance charges.................................................. (99,174) (102,468)
Unearned insurance premiums, insurance reserves, and fees................. (9,544) (8,928)
---------------- -------------
Installment contracts receivable.......................................... $ 570,529 $ 575,155
================ =============
A summary of changes in gross installment contracts receivable is as follows
(dollars in thousands):
Three Months Ended Six Months Ended
-------------------------------- -----------------------------
6/30/99 6/30/00 6/30/99 6/30/00
-------------- --------------- ------------- -------------
(Unaudited) (Unaudited)
Balance - beginning of period..................... $ 724,812 $ 693,749 $ 794,831 $ 679,247
Gross amount of installment contracts accepted.... 135,127 134,479 262,973 299,947
Cash collections on installment contracts
receivable..................................... (104,481) (98,912) (215,984) (204,958)
Charge offs....................................... (56,738) (34,476) (139,281) (76,502)
Currency translation.............................. (4,649) (8,289) (8,468) (11,183)
------------- ------------- ------------- -------------
Balance - end of period........................... $ 694,071 $ 686,551 $ 694,071 $ 686,551
============ ============ ============ ============
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INVESTMENT IN OPERATING LEASES
The following table summarizes the composition of investment in operating
leases, net (dollars in thousands):
As of
--------------------------------------
December 31, 1999 June 30, 2000
----------------- --------------
(Unaudited)
Gross leased vehicles.................................................... $ 8,442 $ 30,178
Accumulated depreciation................................................. (453) (2,196)
Deferred costs........................................................... 953 3,877
Lease payments receivable................................................ 264 1,668
------------- ------------
Investment in operating leases........................................... 9,206 33,527
Less: Allowance for lease vehicle losses................................ (91) (619)
-------------- -------------
Investment in operating leases, net...................................... $ 9,115 $ 32,908
============= ============
A summary of changes in gross leased vehicles is as follows (dollars in
thousands):
Three Months Ended Six Months Ended
-------------------------------- --------------------------
6/30/99 6/30/00 6/30/99 6/30/00
-------------- ---------------- ------------- -------------
(Unaudited) (Unaudited)
Balance - beginning of period.................... $ 80 $ 20,060 $ - $ 8,442
Gross operating leases originated................ 1,350 10,662 1,430 22,708
Operating lease liquidations..................... - (544) - (972)
---------------------------------------------------------------
Balance - end of period.......................... $ 1,430 $ 30,178 $ 1,430 $ 30,178
============ ============ ============ ============
DEALER HOLDBACKS
The following table summarizes the composition of dealer holdbacks at the dates
indicated (dollars in thousands):
As of
-----------------------------------------
December 31, 1999 June 30, 2000
----------------- -------------
(Unaudited)
Dealer holdbacks....................................................... 540,799 546,553
Less: Advances (net of reserves of $4,329 and $7,695 at
December 31, 1999 and June 30, 2000, respectively)............. (338,656) (337,566)
------------ -------------
Dealer holdbacks, net.................................................. 202,143 208,987
============ =============
CREDIT POLICY AND EXPERIENCE
When an installment contract is assigned to the Company by a
participating dealer, the Company generally pays a cash advance to the dealer.
The Company maintains a reserve against advances to dealers that are not
expected to be recovered through collections on the related installment contract
portfolio. For purposes of establishing the reserve, future collections are
reduced to present-value in order to achieve a level yield over the remaining
term of the advance equal to the expected yield at the origination of the
impaired advance. The Company's loan servicing system allows the Company to
estimate future collections for each dealer pool using historical loss
experience and a dealer by dealer static pool analysis. Future reserve
requirements will depend in part on the magnitude of the variance between
management's estimate of future collections and the actual collections that are
realized. The Company charges off dealer advances against the reserve at such
time and to the extent that the Company's static pool analysis determines that
the advance is completely or partially impaired.
The Company maintains an allowance for credit losses which, in the
opinion of management, adequately reserves against losses in the portfolio of
receivables. The risk of loss to the Company related to the installment
contracts receivable balances relates primarily to the earned but unpaid revenue
on installment contracts which were transferred to non-accrual status during the
period. Servicing fees, which are booked as finance charges, are recognized
under the interest method of accounting until the underlying obligation is 90
days past due on a recency basis. At such time, the Company suspends the accrual
of revenue and makes a provision for credit losses equal to the earned but
9
12
unpaid revenue. In all cases, contracts on which no material payment has been
received for nine months are charged off against dealer holdbacks, unearned
finance charges and the allowance for credit losses.
The Company also maintains an allowance for lease vehicle losses which
consists of a reserve for residual losses on leased vehicles and a reserve for
earned but unpaid revenue on operating leases. The residual values represent
estimates of the values of the assets at the end of the lease contracts and are
initially recorded based on estimates. Realization of the residual values is
dependent on the Company's future ability to market the vehicles under then
prevailing market conditions. The unpaid revenue is fully reserved at 90 days
past due on a recency basis. Management reviews these reserves periodically to
determine that the allowance for lease vehicle losses is appropriate.
Ultimate losses may vary from current estimates and the amount of
provision, which is a current period expense, may be either greater or less than
actual charge offs.
The following tables set forth information relating to charge offs, the
allowance for credit losses, the reserve on advances, and the reserve on
investment in operating leases (dollars in thousands):
Three Months Ended Six Months Ended
------------------------------- -----------------------------
6/30/99 6/30/00 6/30/99 6/30/00
-------------- -------------- ------------- -------------
(Unaudited) (Unaudited)
CHARGE OFFS
Charged against dealer holdbacks.................. $ 45,480 $ 27,652 $ 111,533 $ 61,167
Charged against unearned finance charges.......... 10,365 6,482 25,472 14,415
Charged against allowance for credit losses....... 893 342 2,276 920
------------ ------------ ------------ ------------
Total contracts charged off....................... $ 56,738 $ 34,476 $ 139,281 $ 76,502
============ ============ ============ ============
Net charge offs against the reserve on advances... $ 2,626 $ 578 $ 7,508 $ 578
============ ============ ============ ============
Three Months Ended Six Months Ended
-------------------------------- -----------------------------
6/30/99 6/30/00 6/30/99 6/30/00
-------------- --------------- ------------- -------------
(Unaudited) (Unaudited)
ALLOWANCE FOR CREDIT LOSSES
Balance - beginning of period.................... $ 5,849 $ 4,435 $ 7,075 $ 4,742
Provision for loan losses........................ 180 130 372 415
Charge offs...................................... (893) (342) (2,276) (920)
Currency translation............................. (22) (39) (57) (53)
------------- ------------- ------------- -------------
Balance - end of period.......................... $ 5,114 $ 4,184 $ 5,114 $ 4,184
============ ============ ============ ============
Three Months Ended Six Months Ended
-------------------------------- -----------------------------
6/30/99 6/30/00 6/30/99 6/30/00
-------------- --------------- ------------- -------------
(Unaudited) (Unaudited)
RESERVE ON ADVANCES
Balance - beginning of period.................... $ 16,884 $ 6,292 $ 19,954 $ 4,329
Provision for advance losses..................... 1,894 1,927 3,838 3,918
Advance reserve fees............................. 4 - 8 -
Charge offs...................................... (2,626) (578) (7,508) (578)
Currency translation............................. (66) 54 (202) 26
------------- ------------ ------------- ------------
Balance - end of period.......................... $ 16,090 $ 7,695 $ 16,090 $ 7,695
============ ============ ============ ============
Three Months Ended Six Months Ended
-------------------------------- ---------------------------
06/30/99 06/30/00 06/30/99 06/30/00
--------------- -------------- ------------- -----------
ALLOWANCE FOR LEASE VEHICLE LOSSES
Balance - beginning of period.................... $ - $ 203 $ - $ 91
Provision for lease vehicle losses............... 10 519 10 690
Charge offs...................................... - (103) - (162)
-------------- -------------- ------------ -------------
Balance - end of period.......................... $ 10 $ 619 $ 10 $ 619
============== ============= ============ ============
10
13
As of
--------------------------------------
December 31, 1999 June 30, 2000
------------------- ---------------
(Unaudited)
CREDIT RATIOS
Allowance for credit losses as a percent of gross installment contracts
receivable............................................................ 0.7% 0.6%
Reserve on advances as a percent of advances............................. 1.3% 2.2%
Allowance for lease vehicle losses as a percent of investment in operating
leases................................................................ 1.0% 1.8%
Gross dealer holdbacks as a percent of gross installment contracts
receivable............................................................ 79.6% 79.6%
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for capital is to fund cash advances made
to dealers in connection with the acceptance of installment contracts, for the
payment of dealer holdbacks to dealers who have repaid their advance balances
and to fund the origination of used vehicle leases. These cash outflows to
dealers increased from $142.1 million during the six months ended June 30, 1999
to $186.7 million during the same period in 2000. These amounts have
historically been funded from cash collections on installment contracts, cash
provided by operating activities and borrowings under the Company's credit
agreements. The Company maintains a significant dealer holdback on installment
contracts accepted which assists the Company in funding its long-term cash flow
requirements. During the first six months of 2000, the Company's total balance
sheet indebtedness increased from $159.0 million as of December 31, 1999 to
$170.0 million as of June 30, 2000.
The Company has a $115 million credit agreement with a commercial bank
syndicate. The facility has a commitment period through June 12, 2001 and is
subject to annual extensions for additional one year periods at the request of
the Company with the consent of each of the banks in the facility. The agreement
provides that, at the Company's discretion, the interest rate is payable at
either the Eurocurrency rate plus 140 basis points, or at the prime rate. The
Eurocurrency borrowings may be fixed for periods up to six months. The credit
agreement has certain restrictive covenants, including limits on the ratio of
the Company's debt to equity, debt to advances, debt to installment contracts
receivable, advances to installment contracts receivable, fixed charges to net
income, limits on the Company's investment in its foreign subsidiaries and
requirements that the Company maintain a specified minimum level of net worth.
Borrowings under the credit agreement are secured through a lien on most of the
Company's assets on an equal and ratable basis with the Company's senior notes.
As of June 30, 2000, there was approximately $100.6 million outstanding under
this facility.
On August 5, 1999, the Company's Board of Directors authorized a common
stock repurchase program of up to 1,000,000 shares of the Company's common
stock. On each of February 7, 2000, June 7, 2000 and July 13, 2000, the
Company's Board of Directors authorized increases in the Company's stock
repurchase program of an additional 1,000,000 shares. As of June 30, 2000, the
Company has repurchased approximately 2.6 million shares of the 4 million shares
authorized to be repurchased under this program at a cost of $13.2 million.
On August 8, 2000, the Company completed a secured financing of advance
receivables. Pursuant to this transaction, the Company contributed dealer
advances having a carrying amount of approximately $82.4 million and received
approximately $63.9 million in financing, which is net of both the underwriter's
fees and the required escrow account, from an institutional investor. The money
received was used to reduce outstanding borrowings under the line of credit. The
financing, which is nonrecourse to the Company, bears interest at a floating
rate equal to the commercial paper rate plus 57.5 basis points with a maximum
rate of 8.5% and is anticipated to fully amortize within twenty months. The
financing is secured by the contributed dealer advances, the rights to
collections on the related installment contracts receivable and certain related
assets up to the sum of the contributed dealer advances and the Company's
servicing fee. The Company will receive a monthly servicing fee equal to 6% of
the collections of the contributed installment contracts receivable. Except for
the servicing fee and payments due to dealers, the Company will not receive any
portion of collections on the installment contracts receivable until the
underlying indebtedness has been repaid in full.
The Company has $9.7 million of principal maturing on its senior notes
in the fourth quarter of 2000 which the Company expects to repay from cash
generated from operations and amounts available under its $115 million credit
agreement.
The Company's short and long-term cash flow requirements are materially
dependent on future levels of originations. For the six months ended June 30,
2000, the Company experienced an increase in originations over the
11
14
same period in 1999. The Company expects this trend to continue in future
periods and, to the extent this trend does continue, the Company will experience
an increase in its need for capital.
The Company is currently under examination by the Internal Revenue
Service for its tax years ended December 31, 1993, 1994 and 1995. The IRS has
identified and taken under advisement the tax treatment of certain items.
Although the Company is unable to quantify its potential liability from the
audit, the resolution of these items in a manner unfavorable to the
Company may have a material adverse effect on the Company's financial position,
liquidity and results of operations.
In connection with the audit, the Company has been notified that the
IRS intends to issue a Technical Advice Memorandum which would directly impact
the timing of tax recognition of income accrual with respect to certain items.
The Company expects the views expressed in the Memorandum to be contrary to the
Company's tax accounting method for such items. The total amount of exposure
from this tax issue cannot be reasonably estimated due to the lack of available
information required for such estimation and due to the uncertainties of
computation, the methodology for which must be agreed upon by the IRS. In the
worst case, the application of the ruling to the Company's financing activities
could result in the recognition of taxable income with respect to certain items
exceeding the current net income reported for book purposes. The Company will
have the right to appeal the ruling once issued, or may challenge the positions
of the IRS in court.
Based upon anticipated cash flows, management believes that amounts
available under its credit agreement, cash flow from operations and various
financing alternatives available will provide sufficient financing for current
debt maturities and for future operations. If the various financing alternatives
were to become limited or unavailable to the Company, the Company's operations
could be materially adversely affected.
FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis contains a number of forward
looking statements within the meaning of the Securities Act of 1933 and the
Securities Exchange Act of 1934, both as amended, with respect to expectations
for future periods which are subject to various risks and uncertainties. The
risks and uncertainties are detailed from time to time in reports filed by the
Company with the Securities and Exchange Commission, including forms 8-K, 10-Q,
and 10-K, and include, among others, competition from traditional financing
sources and from non-traditional lenders, availability of funding at competitive
rates of interest, adverse changes in applicable laws and regulations, adverse
changes in economic conditions, adverse changes in the automobile or finance
industries or in the non-prime consumer finance market, the Company's ability to
maintain or increase the volume of installment contracts or leases accepted, the
Company's inability to accurately forecast and estimate future collections and
historical collection rates, the Company's inability to accurately estimate the
residual values of the lease vehicles and the Company's ability to complete
various financing alternatives.
12
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Refer to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 for a complete discussion of the Company's market risk. There
have been no material changes to the market risk information included in the
Company's 1999 Annual Report on Form 10-K.
13
16
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed in the Company's 1999 Annual Report on Form
10-K, the Company was a defendant in a class action proceeding commenced on
October 15, 1996 in the United States District Court for the Western District of
Missouri seeking money damages for alleged violations of a number of state and
federal consumer protection laws (the "Missouri Litigation"). On October 9,
1997, the District Court certified two classes on the claims brought against the
Company, one relating to alleged overcharges of official fees, the other
relating to alleged overcharges of post-maturity interest. On August 4, 1998,
the District Court granted partial summary judgment on liability in favor of the
plaintiffs on the interest overcharge claims based upon the District Court's
finding of certain violations but denied summary judgment on certain other
claims. The District Court also entered a number of permanent injunctions, which
among other things, restrained the Company from collecting the amounts found to
be uncollectible. The Court also ruled in favor of the Company on certain claims
raised by class plaintiffs. Because the entry of an injunction is immediately
appealable as of right, the Company appealed the summary judgment order to the
United States Court of Appeals for the Eighth Circuit. Oral argument on the
appeals was heard on April 19, 1999. On September 1, 1999, the United States
Court of Appeals for the Eighth Circuit overturned the August 4, 1998 partial
summary judgment order and injunctions against the Company. The Court of Appeals
held that the District Court lacked jurisdiction over the interest overcharge
claims and directed the District Court to sever those claims and remand them to
state court. On February 18, 2000, the District Court entered an order remanding
the post-maturity interest class to Missouri state court while retaining
jurisdiction on the official fee class. The Company then filed a motion
requesting that the District Court reconsider that portion of its order of
August 4, 1998, in which the District Court had denied the Company's motion to
dismiss the federal official fee overcharge claims. On May 26, 2000 the District
Court entered an order dismissing the federal official fee claims against the
Company and directed the Clerk of the Court to remand the remaining state law
official fee claims to the appropriate state court. The parties are presently
awaiting assignment to a state court. The Company will continue its vigorous
defense of all remaining claims. However, an adverse ultimate disposition of
this litigation could have a material negative impact on the Company's financial
position, liquidity and results of operations.
As previously disclosed in the Company's 1999 Annual Report on Form
10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2000,
during the first quarter of 1998, several putative class action complaints were
filed by shareholders against the Company and certain officers and directors of
the Company in the United States District Court for the Eastern District of
Michigan seeking money damages for alleged violations of the federal securities
laws. On August 14, 1998, a Consolidated Class Action Complaint, consolidating
the claims asserted in those cases, was filed. The Complaint generally alleged
that the Company's financial statements issued during the period August 14, 1995
through October 22, 1997 did not accurately reflect the Company's true financial
condition and results of operations because such reported results failed to be
in accordance with generally accepted accounting principles and such results
contained material accounting irregularities in that they failed to reflect
adequate reserves for credit losses. The Complaint further alleged that the
Company issued public statements during the alleged class period which
fraudulently created the impression that the Company's accounting practices were
proper. On April 23, 1999, the Court granted the Company's and the defendant
officers' and directors' motion to dismiss the Complaint and entered a final
judgment dismissing the action with prejudice. On May 6, 1999, plaintiffs filed
a motion for reconsideration of the order dismissing the Complaint or, in the
alternative, for leave to file an amended complaint. On July 13, 1999, the Court
granted the plaintiffs' motion for reconsideration and granted the plaintiffs
leave to file an amended complaint. Plaintiffs filed their First Amended
Consolidated Class Action Complaint on August 2, 1999. On September 30, 1999,
the Company and the defendant officers and directors filed a motion to dismiss
that complaint. On or about November 10, 1999, plaintiffs sought and were
granted leave to file a Second Amended Consolidated Class Action Complaint. A
hearing on the defendants' motion to dismiss the Second Amended Consolidated
Class Action Complaint was held on March 1, 2000 and on March 24, 2000 the Court
granted the Company's and the defendant officers' and directors' motion to
dismiss the Second Amended Consolidated Class Action Complaint and entered a
final judgment dismissing the action with prejudiced. On April 7, 2000,
plaintiffs filed a notice of appeal from the District Court's judgment. The
Company and the defendant officers and directors will continue to vigorously
defend this action. While the Company believes it has meritorious legal and
factual defenses, an adverse ultimate disposition of this litigation could have
a material negative impact on the Company's financial position, liquidity and
results of operations.
14
17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 22, 2000 at which the
shareholders elected five directors. Each of the nominees for director at the
meeting was an incumbent and all nominees were elected. The following table sets
forth the number of votes for and withheld with respect to each nominee.
Nominee Votes For Votes Withheld
Donald A. Foss 42,089,074 26,215
Harry E. Craig 42,089,074 26,215
Thomas A. FitzSimmons 42,089,074 26,215
Sam M. LaFata 42,089,174 26,115
Thomas N. Tryforos 42,089,174 26,115
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index of Exhibits following the signature page.
(b) Reports on Form 8-K
The Company was not required to file a current report on
Form 8-K during the quarter ended June 30, 2000 and none
were filed during that period.
15
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CREDIT ACCEPTANCE CORPORATION
(Registrant)
/S/DOUGLAS W. BUSK
-----------------------------------
DOUGLAS W. BUSK
Treasurer and Chief Financial Officer
August 14, 2000
- ---------------
(Principal Financial Officer and Duly Authorized Officer)
/S/LINDA M. CARDINALE
-----------------------------------
LINDA M. CARDINALE
Vice President - Accounting
August 14, 2000
- ---------------
(Principal Accounting Officer)
16
19
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
4(a)(8) Seventh Amendment dated April 27, 2000 to Note Purchase
Agreement dated October 1, 1994 between various insurance
companies and the Company (filed as exhibit 4 (a) (8) to
the Company's Quarterly Report on Form 10-Q for the period
ended March 31, 2000 and incorporated herein by
reference).
4(b)(6) Fifth Amendment dated April 27, 2000 to Note Purchase
Agreement dated August 1, 1996 between various insurance
companies and the Company (filed as exhibit 4 (b) (6) to
the Company's Quarterly Report on Form 10-Q for the period
March 31, 2000 and incorporated herein by reference).
4(c)(7) Second Amendment dated April 28, 2000 to the Third Amended
and Restated Credit Agreement dated as of June 15, 1999
between the Company, Comerica Bank as Administrative Agent
and Collateral Agent, NationsBank, N.A., as Syndications
Agent and Banc of America Securities, LLC as Sole Lead
Arranger and Sole Bank Manager (filed as exhibit 4 (c) (7)
to the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 2000 and incorporated herein by
reference).
4(c)(8) Third Amendment dated June 13, 2000 to the Third Amended
and Restated Credit Agreement dated as of June 15, 1999
between the Company, Comerica Bank, as Administrative
Agent and Collateral Agent, NationsBank, N.A., as
Syndications Agent and Banc of America Securities, LLC, as
Sole Lend Arranger and Sole Bank Manager.
4(e)(6) Fifth Amendment dated April 27, 2000 to Note Purchase
Agreement dated March 25, 1997 between various insurance
companies and the Company (filed as exhibit 4 (e) (6) to
the Company's Quarterly Report on Form 10-Q for the period
ended March 31, 2000 and incorporated herein by
reference).
27 Financial Data Schedule
17
1
EXHIBIT 4(c)(8)
EXECUTION COPY
THIRD AMENDMENT
TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
("Third Amendment") is made as of this 13th day of June, 2000 by and among
Credit Acceptance Corporation, a Michigan corporation ("Company"), the Permitted
Borrowers signatory hereto (each, a "Permitted Borrower" and collectively, the
"Permitted Borrowers"), Comerica Bank and the other banks signatory hereto
(individually, a "Bank" and collectively, the "Banks") and Comerica Bank, as
agent for the Banks (in such capacity, "Agent").
RECITALS
A. Company, Permitted Borrowers, Agent and the Banks entered into that
certain Third Amended and Restated Credit Agreement dated as of June 15, 1999, a
First Amendment dated as of December 10, 1999 and a Second Amendment dated as of
April 28, 2000 (collectively, the "Credit Agreement") under which the Banks
renewed and extended (or committed to extend) credit to the Company and the
Permitted Borrowers, as set forth therein.
B. The Company and the Permitted Borrowers have requested that Agent
and the Banks agree to a further amendment to the Credit Agreement and Agent and
the Banks are willing to do so, but only on the terms and conditions set forth
in this Third Amendment.
NOW, THEREFORE, Company, Permitted Borrowers, Agent and the Banks
agree:
l. Section 1 of the Credit Agreement is hereby amended by amending
and restating the following definitions:
(a) "`Aggregate Sublimit' shall mean, as of any applicable date
of determination, that amount equal to thirty-five percent
(35%) of Company's Consolidated Tangible Net Worth,
determined as of the end of each fiscal quarter based upon
the financial statements required to be delivered under
Section 7.3(b) or 7.3(c) hereof, as the case may be, or
(subject to the terms hereof) determined on a monthly basis
at the request of the Company based on monthly financial
statements to be delivered pursuant to Section 2.14(b)
hereof, (and giving effect to any changes in net worth
shown in the applicable financial statements on the
required date of delivery thereof)."; and
(b) "`Revolving Credit Maturity Date' shall mean the earlier to
occur of (i) June 12, 2001, as such date may be extended
from time to time pursuant to Section
2
4(c)(8)
2.16 hereof, and (ii) the date on which the Revolving
Credit Maximum Amount shall be terminated pursuant to
Section 2.15 or 9.2 hereof.".
(c) "Revolving Credit Maximum Amount" shall mean One Hundred
Fifteen Million Dollars ($115,000,000), subject to any
increases in the Revolving Credit Maximum Amount pursuant
to Section 2.18 of this Agreement, by an amount not to
exceed the Revolving Credit Optional Increase, and subject
to any reductions or termination of the Revolving Credit
Maximum Amount under Sections 2.15 or 9.2 of this
Agreement.
(d) "Revolving Credit Optional Increase" shall mean an amount
up to Twenty-Five Million Dollars ($25,000,000), minus the
portions thereof applied from time to time under Section
2.18 hereof to increase the Revolving Credit Maximum
Amount.
2. Section 7.23(b)(iii) of the Credit Agreement is amended to change
the reference to "AutoNet.net Finance Company" (in the third line
of Section 7.23(b)) to "AutoNet Finance Company.Com, Inc. and CAC
Leasing, Inc.," and to change the reference to "CAC Leasing" (in
the last line of Section 7.23(b)) to "CAC Auto Leasing or AutoNet
Finance.com".
3. Replacement Exhibit D (Percentages) to the Credit Agreement set
forth on Attachment 1 hereto shall replace, in its entirety,
existing Exhibit D to the Credit Agreement and replacement
Schedule 6.15 (Litigation) to the Credit Agreement set forth on
Attachment 2 hereto shall replace, in its entirety, existing
Schedule 6.15 to the Credit Agreement.
4. This Third Amendment shall become effective, according to the
terms and as of the date hereof, upon satisfaction by the Company
and the Permitted Borrowers, on or before June 13, 2000, of the
following conditions:
(a) Agent shall have received counterpart originals of this
Third Amendment, in each case duly executed and delivered
by Company, the Permitted Borrowers and the requisite
Banks, in form satisfactory to Agent and the Banks; and
(b) Agent shall have received from the Company and each of the
Permitted Borrowers a certification (i) that all necessary
actions have been taken by such parties to authorize
execution and delivery of this Third Amendment, supported
by such resolutions or other evidence of corporate
authority or action as reasonably required by Agent and the
Majority Banks and that no consents or other authorizations
of any third parties are required in connection therewith;
and (ii) that, after giving effect to this Third Amendment,
no Default or Event of Default has occurred and is
continuing on the proposed effective date of the Third
Amendment.
3
4(c)(8)
If the foregoing conditions have not been satisfied or waived on
or before June 13, 2000, this Third Amendment shall lapse and be
of no further force and effect.
5. Each of the Company and the Permitted Borrowers ratifies and
confirms, as of the date hereof and after giving effect to the
amendments contained herein, each of the representations and
warranties set forth in Sections 6.1 through 6.22, inclusive, of
the Credit Agreement and acknowledges that such representations
and warranties are and shall remain continuing representations
and warranties during the entire life of the Credit Agreement.
6. Except as specifically set forth above, this Third Amendment
shall not be deemed to amend or alter in any respect the terms
and conditions of the Credit Agreement, any of the Notes issued
thereunder or any of the other Loan Documents, or to constitute a
waiver by the Banks or Agent of any right or remedy under or a
consent to any transaction not meeting the terms and conditions
of the Credit Agreement, any of the Notes issued thereunder or
any of the other Loan Documents.
7. Unless otherwise defined to the contrary herein, all capitalized
terms used in this Third Amendment shall have the meaning set
forth in the Credit Agreement.
8. This Third Amendment may be executed in counterpart in accordance
with Section 13.10 of the Credit Agreement.
9. Comerica Bank - Canada having been designated by Comerica Bank,
in its capacity as swing line bank (and as a Bank) under the
Credit Agreement to fund Comerica Bank's advances in $C pursuant
to Section 11.12 of the Credit Agreement, has executed this Third
Amendment to evidence its approval of the terms and conditions
thereof.
10. This Third Amendment shall be construed in accordance with and
governed by the laws of the State of Michigan.
[SIGNATURES FOLLOW ON SUCCEEDING PAGES]
4
4(c)(8)
WITNESS the due execution hereof as of the day and year first above
written.
COMERICA BANK, CREDIT ACCEPTANCE CORPORATION
as Agent
By: /S/SCOTTIE KNIGHT By: /S/DOUGLAS W. BUSK
Its: VICE PRESIDENT Its: CHIEF FINANCIAL OFFICER
One Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226
Attention: Scottie Knight
COMERICA BANK - CANADA CREDIT ACCEPTANCE CORPORATION
UK LIMITED
By: /S/DAVID WRIGHT By: /S/DOUGLAS W. BUSK
Its: RELATIONSHIP MANAGER Its: TREASURER
CAC OF CANADA LIMITED
By: /S/DOUGLAS W. BUSK
Its: TREASURER
CREDIT ACCEPTANCE CORPORATION
IRELAND LIMITED
By: /S/DOUGLAS W. BUSK
Its: TREASURER
5
4(c)(8)
BANKS:
COMERICA BANK NATIONAL CITY BANK OF MINNEAPOLIS
By: /S/STEVEN R. BERGLUND
By: /S/SCOTTIE KNIGHT Its: VICE PRESIDENT
Its: VICE PRESIDENT
LASALLE BANK NATIONAL BANK OF AMERICA, N.A.
ASSOCIATION
By: /S/TERRY M. KEATING By: /S/ELIZABETH KURILECZ
Its: SENIOR VICE PRESIDENT Its: MANAGING DIRECTOR
HARRIS TRUST AND SAVINGS BANK UNION BANK OF CALIFORNIA, N.A.
By: /S/MICHAEL A. CAMELI By: /S/ROBERT C. NAGEL
Its: VICE PRESIDENT Its: VICE PRESIDENT
Signature Page For
CAC Third Amendment
5
1,000
6-MOS
DEC-31-2000
JAN-01-2000
JUN-30-2000
8,157
12,170
575,155
4,184
0
0
32,701
14,114
673,028
0
68,470
437
0
0
257,954
673,028
0
60,675
0
27,571
1,492
5,023
8,360
18,149
6,270
11,879
0
0
0
11,879
.26
.26
