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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
OR
     
o   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
(State or other jurisdiction of incorporation or organization)
  38-1999511
(I.R.S. Employer Identification No.)
     
25505 WEST TWELVE MILE ROAD
SOUTHFIELD, MICHIGAN

(Address of principal executive offices)
  48034-8339
(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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The number of shares of Common Stock, par value $0.01, outstanding on April 23, 2010 was 31,019,762.
 
 

 


 

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 EX-31.A
 EX-31.B
 EX-32.A
 EX-32.B

 


Table of Contents

PART I. — FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
                 
    Three Months Ended March 31,  
(Dollars in thousands, except per share data)   2010     2009  
Revenue:
               
Finance charges
  $ 89,663     $ 76,726  
Premiums earned
    7,704       6,460  
Other income
    5,895       4,702  
 
           
Total revenue
    103,262       87,888  
 
           
 
Costs and expenses:
               
Salaries and wages
    16,110       17,121  
General and administrative
    6,542       7,995  
Sales and marketing
    4,810       3,921  
Provision for credit losses
    6,426       164  
Interest
    11,705       7,923  
Provision for claims
    5,212       4,809  
 
           
Total costs and expenses
    50,805       41,933  
 
           
 
Income from continuing operations before provision for income taxes
    52,457       45,955  
 
           
 
Provision for income taxes
    20,442       16,943  
 
           
Income from continuing operations
    32,015       29,012  
 
           
 
Discontinued operations
               
Loss from discontinued United Kingdom operations
    (5 )     (15 )
Provision (benefit) for income taxes
          (4 )
 
           
 
Loss from discontinued operations
    (5 )     (11 )
 
           
 
Net income
  $ 32,010     $ 29,001  
 
           
 
Net income per common share:
               
Basic
  $ 1.03     $ 0.95  
 
           
Diluted
  $ 1.01     $ 0.93  
 
           
 
Income from continuing operations per common share:
               
Basic
  $ 1.03     $ 0.95  
 
           
Diluted
  $ 1.01     $ 0.93  
 
           
 
Loss from discontinued operations per common share:
               
Basic
  $     $  
 
           
Diluted
  $     $  
 
           
 
Weighted average shares outstanding:
               
Basic
    31,042,495       30,479,665  
Diluted
    31,584,326       31,180,146  
See accompanying notes to consolidated financial statements.

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Table of Contents

CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
                 
    As of  
    March 31,     December 31,  
    2010     2009  
(Dollars in thousands, except per share data)   (Unaudited)          
ASSETS:
               
Cash and cash equivalents
  $ 1,602     $ 2,170  
Restricted cash and cash equivalents
    87,148       82,456  
Restricted securities available for sale
    3,072       3,121  
 
               
Loans receivable (including $11,952 and $12,674 from affiliates as of March 31, 2010 and December 31, 2009, respectively)
    1,211,486       1,167,558  
Allowance for credit losses
    (123,144 )     (117,545 )
 
           
Loans receivable, net
    1,088,342       1,050,013  
 
           
 
               
Property and equipment, net
    18,324       18,735  
Income taxes receivable
    787       3,956  
Other assets
    28,481       15,785  
 
           
Total Assets
  $ 1,227,756     $ 1,176,236  
 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY:
               
Liabilities:
               
Accounts payable and accrued liabilities
  $ 102,582     $ 77,295  
Line of credit
    28,400       97,300  
Secured financing
    221,167       404,597  
Mortgage note and capital lease obligations
    4,875       5,082  
Senior notes
    243,845        
Deferred income taxes, net
    88,251       93,752  
Income taxes payable
    7,852        
 
           
Total Liabilities
    696,972       678,026  
 
           
 
               
Shareholders’ Equity:
               
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued
           
Common stock, $.01 par value, 80,000,000 shares authorized, 31,012,513 and 31,038,217 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively
    310       311  
Paid-in capital
    24,631       24,370  
Retained earnings
    506,443       474,433  
Accumulated other comprehensive loss, net of tax of $348 and $526 at March 31, 2010 and December 31, 2009, respectively
    (600 )     (904 )
 
           
Total Shareholders’ Equity
    530,784       498,210  
 
           
Total Liabilities and Shareholders’ Equity
  $ 1,227,756     $ 1,176,236  
 
           
See accompanying notes to consolidated financial statements.

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Table of Contents

CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
                 
    Three Months Ended March 31,  
(Dollars in thousands)   2010     2009  
Cash Flows From Operating Activities:
               
Net income
  $ 32,010     $ 29,001  
Adjustments to reconcile cash provided by operating activities:
               
Provision for credit losses
    6,426       164  
Depreciation and amortization
    1,299       1,371  
(Benefit) provision for deferred income taxes
    (5,679 )     3,541  
Stock-based compensation
    1,183       1,484  
Change in operating assets and liabilities:
               
Increase in accounts payable and accrued liabilities
    25,776       11,187  
Decrease in income taxes receivable / increase in income taxes payable
    11,021       7,330  
Increase in other assets
    (12,696 )     (4,601 )
 
           
Net cash provided by operating activities
    59,340       49,477  
 
           
Cash Flows From Investing Activities:
               
Increase in restricted cash and cash equivalents
    (4,692 )     (6,658 )
Purchases of restricted securities available for sale
    (407 )      
Maturities of restricted securities available for sale
    449       207  
Principal collected on Loans receivable
    206,137       177,045  
Advances to Dealer-Partners and accelerated payments of Dealer Holdback
    (212,317 )     (153,181 )
Purchases of Consumer Loans
    (26,443 )     (41,389 )
Payments of Dealer Holdback
    (12,170 )     (12,811 )
Net decrease (increase) in other loans
    38       (13 )
Purchases of property and equipment
    (781 )     (809 )
 
           
Net cash used in investing activities
    (50,186 )     (37,609 )
 
           
Cash Flows From Financing Activities:
               
Borrowings under line of credit
    99,900       152,300  
Repayments under line of credit
    (168,800 )     (114,300 )
Proceeds from secured financing
          54,900  
Repayments of secured financing
    (183,430 )     (107,210 )
Principal payments under mortgage note and capital lease obligations
    (207 )     (377 )
Proceeds from sale of senior notes
    243,738        
Repurchase of common stock
    (1,896 )     (540 )
Proceeds from stock options exercised
    19       156  
Tax benefits from stock-based compensation plans
    954       153  
 
           
Net cash used in financing activities
    (9,722 )     (14,918 )
 
           
Effect of exchange rate changes on cash
          2  
 
           
Net decrease in cash and cash equivalents
    (568 )     (3,048 )
Cash and cash equivalents, beginning of period
    2,170       3,154  
 
           
Cash and cash equivalents, end of period
  $ 1,602     $ 106  
 
           
Supplemental Disclosure of Cash Flow Information:
               
Cash paid during the period for interest
  $ 13,443     $ 8,729  
Cash paid during the period for income taxes
  $ 5,126     $ 5,557  
See accompanying notes to consolidated financial statements.

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of actual results achieved for full fiscal years. The consolidated balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2009 for Credit Acceptance Corporation (the “Company”, “Credit Acceptance”, “we”, “our” or “us”). Certain prior period amounts have been reclassified to conform to the current presentation.
     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
     We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of March 31, 2010 for items that could potentially be recognized or disclosed in these financial statements.
2. DESCRIPTION OF BUSINESS
     Since 1972, Credit Acceptance has provided auto loans to consumers, regardless of their credit history. Our product is offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same customers; and from sales to customers responding to advertisements for our product, but who actually end up qualifying for traditional financing.
     We refer to dealers who participate in our programs and who share our commitment to changing consumers’ lives as “Dealer-Partners”. Upon enrollment in our financing programs, the Dealer-Partner enters into a dealer servicing agreement with us that defines the legal relationship between Credit Acceptance and the Dealer-Partner. The dealer servicing agreement assigns the responsibilities for administering, servicing, and collecting the amounts due on retail installment contracts (referred to as “Consumer Loans”) from the Dealer-Partners to us. A consumer who does not qualify for conventional automobile financing can purchase a used vehicle from a Dealer-Partner and finance the purchase through us. We are an indirect lender from a legal perspective, meaning the Consumer Loan is originated by the Dealer-Partner and assigned to us.
     We have two programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, we advance money to Dealer-Partners (referred to as a “Dealer Loan”) in exchange for the right to service the underlying Consumer Loan. Under the Purchase Program, we buy the Consumer Loan from the Dealer-Partner (referred to as a “Purchased Loan”) and keep all amounts collected from the consumer. Dealer Loans and Purchased Loans are collectively referred to as “Loans”. The following table shows the percentage of Consumer Loans assigned to us under each of the programs for each of the last five quarters:
                 
Quarter Ended   Portfolio Program   Purchase Program
March 31, 2009
    82.3 %     17.7 %
June 30, 2009
    86.0 %     14.0 %
September 30, 2009
    89.0 %     11.0 %
December 31, 2009
    90.8 %     9.2 %
March 31, 2010
    90.9 %     9.1 %

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
2. DESCRIPTION OF BUSINESS — (Continued)
     Portfolio Program
     As payment for the vehicle, the Dealer-Partner generally receives the following:
    a down payment from the consumer;
    a non-recourse cash payment (“advance”) from us; and
    after the advance has been recovered by us, the cash from payments made on the Consumer Loan, net of certain collection costs and our servicing fee (“Dealer Holdback”).
     We record the amount advanced to the Dealer-Partner as a Dealer Loan, which is classified within Loans receivable in our consolidated balance sheets. Cash advanced to Dealer-Partners is automatically assigned to the originating Dealer-Partner’s open pool of advances. We require Dealer-Partners to group advances into pools of at least 100 Consumer Loans. At the Dealer-Partner’s option, a pool containing at least 100 Consumer Loans can be closed and subsequent advances assigned to a new pool. All advances due from a Dealer-Partner are secured by the future collections on the Dealer-Partner’s portfolio of Consumer Loans assigned to us. For Dealer-Partners with more than one pool, the pools are cross-collateralized so the performance of other pools is considered in determining eligibility for Dealer Holdback. We perfect our security interest in the Dealer Loans by taking possession of the Consumer Loans, which list us as lien holder on the vehicle title.
     The dealer servicing agreement provides that collections received by us during a calendar month on Consumer Loans assigned by a Dealer-Partner are applied on a pool-by-pool basis as follows:
    First, to reimburse us for certain collection costs;
    Second, to pay us our servicing fee, which generally equals 20% of collections;
    Third, to reduce the aggregate advance balance and to pay any other amounts due from the Dealer-Partner to us; and
    Fourth, to the Dealer-Partner as payment of Dealer Holdback.
     Dealer-Partners have an opportunity to receive an accelerated Dealer Holdback payment at the time a pool of 100 or more Consumer Loans is closed. The amount paid to the Dealer-Partner is calculated using a formula that considers the forecasted collections and the advance balance on the closed pool. If the collections on Consumer Loans from a Dealer-Partner’s pool are not sufficient to repay the advance balance and any other amounts due to us, the Dealer-Partner will not receive Dealer Holdback.
     Since typically the combination of the advance and the consumer’s down payment provides the Dealer-Partner with a cash profit at the time of sale, the Dealer-Partner’s risk in the Consumer Loan is limited. We cannot demand repayment of the advance from the Dealer-Partner except in the event the Dealer-Partner is in default of the dealer servicing agreement. Advances are made only after the consumer and Dealer-Partner have signed a Consumer Loan contract, we have received the original Consumer Loan contract and supporting documentation, and we have approved all of the related stipulations for funding. The Dealer-Partner can also opt to repurchase Consumer Loans that have been assigned to us under the Portfolio Program, at their discretion, for a fee.
     For accounting purposes, the transactions described under the Portfolio Program are not considered to be loans to consumers. Instead, our accounting reflects that of a lender to the Dealer-Partner. The classification as a Dealer Loan for accounting purposes is primarily a result of (1) the Dealer-Partner’s financial interest in the Consumer Loan and (2) certain elements of our legal relationship with the Dealer-Partner. For each individual Dealer-Partner, the amount of the Dealer Loan recorded in Loans receivable is comprised of the following:
    the aggregate amount of all cash advances to the Dealer-Partner;
    finance charges;
    Dealer Holdback payments;
    accelerated Dealer Holdback payments; and
    recoveries.
     Less:
    collections (net of certain collection costs); and
    write-offs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
2. DESCRIPTION OF BUSINESS — (Concluded)
     Purchase Program
     The Purchase Program differs from our Portfolio Program in that the Dealer-Partner receives a single payment from us at the time of origination instead of a cash advance and Dealer Holdback. For accounting purposes, the transactions described under the Purchase Program are considered to be originated by the Dealer-Partner and then purchased by us. The amount of Purchased Loans recorded in Loans receivable is comprised of the following:
    the aggregate amount of all amounts paid to purchase Consumer Loans from Dealer-Partners;
    finance charges; and
    recoveries.
     Less:
    collections (net of certain collection costs); and
    write-offs.
     Program Enrollment
     Dealer-Partners that enroll in our programs have two enrollment options available to them. The first enrollment option allows Dealer-Partners to assign Consumer Loans under the Portfolio Program and requires payment of an upfront, one-time fee of $9,850. The second enrollment option, which became effective September 1, 2009, allows Dealer-Partners to assign Consumer Loans under the Portfolio Program and requires payment of an upfront, one-time fee of $1,950 and an agreement to allow us to keep 50% of their first accelerated Dealer Holdback payment. Prior to September 1, 2009, Dealer-Partners who chose the second enrollment option did not pay an upfront fee but agreed to allow us to keep 50% of their first accelerated Dealer Holdback payment. For all Dealer-Partners enrolling in our program after August 31, 2008, access to the Purchase Program is only granted after the first accelerated Dealer Holdback payment has been made under the Portfolio Program.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, the exposure to fund claims is limited to the amount of premium dollars contributed, less amounts earned and withdrawn, plus $0.5 million of equity contributed.
     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 (dollars in thousands):
                 
    Three Months Ended March 31,
    2010   2009
Net assumed written premiums
  $ 10,270     $ 9,339  
 
               
Net premiums earned
    7,705       6,455  
 
               
Provision for claims
    5,215       4,807  
 
               
Amortization of capitalized acquisition costs
    218       118  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
     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 (dollars in thousands):
                     
    Balance Sheet location   March 31, 2010   December 31, 2009
Trust assets
  Restricted cash and cash equivalents   $ 43,185     $ 39,127  
 
                   
Unearned premium
  Accounts payable and accrued liabilities     24,394       21,180  
 
                   
Claims reserve (1)
  Accounts payable and accrued liabilities     1,032       965  
 
(1)   The claims reserve is estimated based on historical claims experience.
     Prior to the formation of VSC Re, our agreements with two of our vehicle service contract third party administrators (“TPAs”) allowed us to receive profit sharing payments depending upon the performance of the vehicle service contract programs. The agreements also required that vehicle service contract premiums be placed in trust accounts. Funds in the trust accounts were utilized by the TPA to pay claims on the vehicle service contracts. Upon the formation of VSC Re during the fourth quarter of 2008, the unearned premiums on the majority of the vehicle service contracts that had been written through these two TPAs were ceded to VSC Re along with any related trust assets. Vehicle service contracts written prior to 2008 through one of the TPAs remain under this profit sharing arrangement. Profit sharing payments, if any, on the vehicle service contracts are distributed to us periodically after the term of the vehicle service contracts have substantially expired provided certain loss rates are met. We are considered the primary beneficiary of the trusts and as a result, the assets of the remaining trust and the related liabilities have been consolidated on our balance sheet. As of March 31, 2010 and December 31, 2009, the remaining trust had $4.3 million in assets available to pay claims and a related claims reserve of $3.5 million. The trust assets are included in restricted cash and cash equivalents and restricted securities available for sale. The claims reserve is included in accounts payable and accrued liabilities in the consolidated balance sheets. A third party insures claims in excess of funds in the trust accounts.
     Our determination to consolidate the VSC Re trusts and the profit sharing trusts was based on the following:
    First, we determined that the trusts qualified as variable interest entities. The trusts have insufficient equity at risk as no parties to the trusts were required to contribute assets that provide them with any ownership interest.
    Next, we determined that we have variable interests in the trusts. We have a residual interest in the assets of the trusts, which is variable in nature, given that it increases or decreases based upon the actual loss experience of the related service contracts. In addition, VSC Re is required to absorb any losses in excess of the trusts’ assets.
    Next, we evaluated the purpose and design of the trusts. The primary purpose of the trusts is to provide 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.
Restricted Cash and Cash Equivalents
     Restricted cash and cash equivalents increased to $87.1 million at March 31, 2010 from $82.5 million at December 31, 2009. The following table summarizes restricted cash and cash equivalents:
                 
    As of  
(in thousands)   March 31, 2010     December 31, 2009  
Cash collections related to secured financings
  $ 42,725     $ 42,115  
 
           
Cash held in trusts for future vehicle service contract claims (1)
    44,423       40,341  
 
           
Total restricted cash and cash equivalents
  $ 87,148     $ 82,456  
 
           
 
(1)   The unearned premium and claims reserve associated with the trusts are included in accounts payable and accrued liabilities in the consolidated balance sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Continued)
Restricted Securities Available for Sale
     Restricted securities available for sale consist of amounts held in accordance with vehicle service contract trust agreements. We determine the appropriate classification of our investments in debt securities at the time of purchase and reevaluate such determinations at each balance sheet date. Debt securities for which we do not have the intent or ability to hold to maturity are classified as available for sale, and stated at fair value with unrealized gains and losses, net of income taxes included in the determination of comprehensive income and reported as a component of shareholders’ equity.
     Restricted securities available for sale consisted of the following:
                                 
    As of March 31, 2010  
            Gross     Gross      
            Unrealized     Unrealized     Estimated  
(in thousands)   Cost     Gains     Losses     Fair Value  
US Government and agency securities
  $ 726     $ 14     $ (2 )   $ 738  
Corporate bonds
    2,338       6       (10 )     2,334  
 
                       
Total restricted securities available for sale
  $ 3,064     $ 20     $ (12 )   $ 3,072  
 
                       
                                 
    As of December 31, 2009  
            Gross     Gross      
            Unrealized     Unrealized     Estimated  
(in thousands)   Cost     Gains     Losses     Fair Value  
US Government and agency securities
  $ 726     $ 18     $ (2 )   $ 742  
Corporate bonds
    2,381       7       (9 )     2,379  
 
                       
Total restricted securities available for sale
  $ 3,107     $ 25     $ (11 )   $ 3,121  
 
                       
     The cost and estimated fair values of debt securities by contractual maturity were as follows (securities with multiple maturity dates are classified in the period of final maturity). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
                                 
    As of March 31, 2010     As of December 31, 2009  
            Estimated             Estimated  
(in thousands)   Cost     Fair Value     Cost     Fair Value  
Contractual Maturity
                               
Within one year
  $ 1,389     $ 1,395     $ 1,486     $ 1,495  
Over one year to five years
    1,574       1,576       1,621       1,626  
Over five years to ten years
    101       101              
 
                       
Total restricted securities available for sale
  $ 3,064     $ 3,072     $ 3,107     $ 3,121  
 
                       
Deferred Debt Issuance Costs
     As of March 31, 2010 and December 31, 2009, deferred debt issuance costs were $12.9 million (net of accumulated amortization of $4.8 million) and $6.4 million (net of accumulated amortization of $8.9 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 and the straight-line method for lines of credit and revolving secured financings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (Concluded)
     Accounting for Transfers of Financial Assets. In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 was incorporated into the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) through Accounting Standards Update (“ASU”) No. 2009-16 and is intended to improve the information provided in financial statements about the transfer of financial assets and the effects of the transfer on financial position and performance, and cash flows for transfers occurring on or after the effective date. The adoption on January 1, 2010 did not have a material impact on our consolidated financial statements.
     Amendments to FASB Interpretation No. 46(R). In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 was incorporated into the FASB ASC through ASU No. 2009-17 and is intended to improve financial reporting related to variable interest entities. The adoption on January 1, 2010 did not have a material impact on our consolidated financial statements, but expanded our disclosures.
4. LOANS RECEIVABLE
     Loans receivable consists of the following (in thousands):
                         
    As of March 31, 2010  
    Dealer Loans     Purchased Loans     Total  
Loans receivable
  $ 925,094     $ 286,392     $ 1,211,486  
Allowance for credit losses
    (111,372 )     (11,772 )     (123,144 )
 
                 
Loans receivable, net
  $ 813,722     $ 274,620     $ 1,088,342  
 
                 
                         
    As of December 31, 2009  
    Dealer Loans     Purchased Loans     Total  
Loans receivable
  $ 869,603     $ 297,955     $ 1,167,558  
Allowance for credit losses
    (108,792 )     (8,753 )     (117,545 )
 
                 
Loans receivable, net
  $ 760,811     $ 289,202     $ 1,050,013  
 
                 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
4. LOANS RECEIVABLE — (Concluded)
     A summary of changes in Loans receivable is as follows (in thousands):
                         
    Three Months Ended March 31, 2010  
    Dealer Loans     Purchased Loans     Total  
Balance, beginning of period
  $ 869,603     $ 297,955     $ 1,167,558  
New Consumer Loan assignments (1)
    212,317       26,443       238,760  
Principal collected on Loans receivable
    (161,991 )     (44,146 )     (206,137 )
Dealer Holdback payments
    12,170             12,170  
Transfers
    (6,143 )     6,143        
Write-offs
    (1,388 )     (25 )     (1,413 )
Recoveries
    564       22       586  
Net change in other loans
    (38 )           (38 )
 
                 
Balance, end of period
  $ 925,094     $ 286,392     $ 1,211,486  
 
                 
                         
    Three Months Ended March 31, 2009  
    Dealer Loans     Purchased Loans     Total  
Balance, beginning of period
  $ 823,567     $ 325,185     $ 1,148,752  
New Consumer Loan assignments (1)
    153,181       41,389       194,570  
Principal collected on Loans receivable
    (137,540 )     (39,505 )     (177,045 )
Dealer Holdback payments
    12,811             12,811  
Transfers
    (4,330 )     4,330        
Write-offs
    (570 )     (21 )     (591 )
Recoveries
    982       15       997  
Net change in other loans
    13             13  
Currency translation
    (23 )           (23 )
 
                 
Balance, end of period
  $ 848,091     $ 331,393     $ 1,179,484  
 
                 
 
(1)   The Dealer Loans amount represents advances and accelerated Dealer Holdback payments made to Dealer-Partners for Consumer Loans assigned under our Portfolio Program. The Purchased Loans amount represents payments made to Dealer-Partners to purchase Consumer Loans assigned under our Purchase Program.
     A summary of changes in the allowance for credit losses is as follows (in thousands):
                         
    Three Months Ended March 31, 2010  
    Dealer Loans     Purchased Loans     Total  
Balance, beginning of period
  $ 108,792     $ 8,753     $ 117,545  
Provision for credit losses
    3,404       3,022       6,426  
Write-offs
    (1,388 )     (25 )     (1,413 )
Recoveries
    564       22       586  
 
                 
Balance, end of period
  $ 111,372     $ 11,772     $ 123,144  
 
                 
                         
    Three Months Ended March 31, 2009  
    Dealer Loans     Purchased Loans     Total  
Balance, beginning of period
  $ 113,831     $ 17,004     $ 130,835  
Provision for credit losses
    (353 )     517       164  
Write-offs
    (570 )     (21 )     (591 )
Recoveries
    982       15       997  
Currency translation
    (21 )           (21 )
 
                 
Balance, end of period
  $ 113,869     $ 17,515     $ 131,384  
 
                 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
5. DEBT
     We currently utilize the following forms of debt financing: (1) a revolving secured line of credit with a commercial bank syndicate; (2) revolving secured warehouse facilities with institutional investors; (3) asset-backed secured financings (“Term ABS”) with qualified institutional investors; and (4) Senior Secured Notes due 2017 issued pursuant to Rule 144A and Regulation S of the Securities Act of 1933, as amended (“Senior Notes”). General information for each of our financing transactions in place as of March 31, 2010 is as follows (dollars in thousands):
                             
    Wholly-owned                       Interest Rate at
Financings   Subsidiary   Issue Number   Close Date   Maturity Date   Financing Amount   March 31, 2010
Revolving Line of Credit
  n/a   n/a   June 15, 2009   June 23, 2011   $ 150,000     At our option, either the Eurodollar rate plus 275 basis points or the prime rate plus 100 basis points
 
                           
Revolving Secured Warehouse Facility (1)
  CAC Warehouse Funding Corp. II   2003-2   August 24, 2009   August 23, 2010 (7)   $ 325,000     Commercial paper rate plus 500 basis points or LIBOR plus 600 basis points (4) (5)
 
                           
Revolving Secured Warehouse Facility (1)
  CAC Warehouse Funding III, LLC   2008-2   August 31, 2009   August 31, 2011 (6)   $ 75,000     Commercial paper rate plus 375 basis points or LIBOR plus 375 basis points (3) (4) (5)
 
                           
Term ABS 2008-1 (1)
  Credit Acceptance
Funding LLC 2008-1
  2008-1   April 18, 2008   April 15, 2009 (2)   $ 150,000     Fixed rate (3)
 
                           
Term ABS 2009-1 (1)
  Credit Acceptance
Funding LLC 2009-1
  2009-1   December 3, 2009   May 15, 2011 (2)   $ 110,500     Fixed rate
 
                           
Senior Notes
  n/a   n/a   February 1, 2010   February 1, 2017   $ 250,000     Fixed rate
 
(1)   Financing made available only to a specified subsidiary of the Company.
 
(2)   Represents the revolving maturity date. Loans will amortize after the maturity date based on the cash flows of the contributed assets.
 
(3)   A portion of the outstanding balance is a floating rate obligation that has been converted to a fixed rate obligation via an interest rate swap.
 
(4)   The LIBOR rate is used if funding is not available from the commercial paper market.
 
(5)   Interest rate cap agreements are in place to limit the exposure to increasing interest rates.
 
(6)   Facility revolves until August 31, 2011 and matures on August 31, 2012.
 
(7)   Facility revolves until August 23, 2010 and matures on August 23, 2011.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
5. DEBT — (Continued)
     Additional information related to the amounts outstanding on each facility is as follows (dollars in thousands):
                 
    Three Months Ended March 31,  
    2010     2009  
Revolving Line of Credit
               
Maximum outstanding balance
  $ 107,900     $ 99,300  
Average outstanding balance
    44,533       66,493  
 
               
Revolving Secured Warehouse Facility (2003-2)
               
Maximum outstanding balance
  $ 152,600     $ 275,000  
Average outstanding balance
    53,591       264,900  
 
               
Revolving Secured Warehouse Facility (2008-2)
               
Maximum outstanding balance
  $ 75,000     $ 50,000  
Average outstanding balance
    75,000       50,000  
                 
    As of  
    March 31, 2010     December 31, 2009  
Revolving Line of Credit
               
Balance outstanding
  $ 28,400     $ 97,300  
Letter(s) of credit
    514       514  
Amount available for borrowing
    121,086       42,186  
Interest rate
    4.25 %     4.25 %
 
               
Revolving Secured Warehouse Facility (2003-2)
               
Balance outstanding
  $     $ 152,600  
Amount available for borrowing
    325,000       172,400  
Contributed eligible Loans (1)
    169,106       192,921  
Interest rate
    5.25 %     5.24 %
 
               
Revolving Secured Warehouse Facility (2008-2)
               
Balance outstanding
  $ 75,000     $ 75,000  
Amount available for borrowing
           
Contributed eligible Loans
    93,957       94,073  
Interest rate
    4.36 %     4.36 %
 
               
Term ABS 2008-1
               
Balance outstanding
  $ 35,667     $ 66,497  
Contributed eligible Loans
    120,088       142,267  
Interest rate
    6.37 %     6.37 %
 
               
Term ABS 2009-1
               
Balance outstanding
  $ 110,500     $ 110,500  
Contributed eligible Loans
    142,359       142,315  
Interest rate
    4.40 %     4.40 %
 
               
Senior Notes
               
Balance outstanding
  $ 243,845     $  
Interest rate
    9.13 %      
 
(1)   At March 31, 2010, the assets are the property of the wholly-owned subsidiary but are not pledged as collateral for the facility.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
5. DEBT — (Continued)
Senior Notes
     On February 1, 2010, we issued $250.0 million aggregate principal amount of 9.125% First Priority Senior Notes. The Senior Notes were issued pursuant to an indenture, dated as of February 1, 2010 (the “Indenture”), among us, Buyers Vehicle Protection Plan, Inc. (“BVPP”) and Vehicle Remarketing Services, Inc. (“VRS”), as guarantors (the “Guarantors”), and U.S. Bank National Association, as trustee (the “Trustee”). The description of the Indenture is qualified in its entirety by reference to the complete text of the Indenture, a copy of which is filed as Exhibit 4(f)(129) to our Form 8-K filed on February 4, 2010.
     The Senior Notes mature on February 1, 2017 and bear interest at a rate of 9.125% per annum, computed on the basis of 360-day year composed of twelve 30-day months and payable semi-annually on February 1 and August 1 of each year, beginning on August 1, 2010. The Senior Notes were issued at 97.495% of the aggregate principal amount for gross proceeds of $243.7 million, representing a yield to maturity of 9.625%. The discount is 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 line of credit facility. Our other existing and future subsidiaries 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 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 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 line of credit facility.
Line of Credit Facility
     During the first quarter of 2010, we increased the amount of the line of credit facility from $140.0 million to $150.0 million and, concurrently with the issuance of the Senior Notes, amended the agreements governing our line of credit facility to facilitate the issuance of the Senior Notes and certain future secured indebtedness.
     Borrowings under the line of credit facility are subject to a borrowing-base limitation. This limitation equals 80% of the net book value of Loans, less a hedging reserve (not exceeding $1.0 million), the amount of letters of credit issued under the line of credit, and the amount of other debt secured by the collateral which secures the line of credit. Borrowings under the line of credit agreement are secured by a lien on most of our assets. We must pay quarterly fees on the amount of the facility.
Revolving Secured Warehouse Facilities
     We have two revolving secured warehouse facilities that are provided to our wholly-owned subsidiaries. One is a $325.0 million facility with an institutional investor and the other is a $75.0 million facility with another institutional investor.
     Under both warehouse facilities we can contribute Loans to our wholly-owned subsidiaries in return for cash and equity in each subsidiary. In turn, each subsidiary pledges the Loans as collateral to institutional investors to secure financing that will fund the cash portion of the purchase price of the Loans. The financing provided to each subsidiary under the applicable facility is limited to the lesser of 80% of the net book value of the contributed Loans or the facility limit.
     The subsidiaries are liable for any amounts due under the applicable facility. Even though we consolidate our subsidiaries for financial reporting purposes, the financing is non-recourse to us. As the subsidiaries are organized as separate legal entities from us, their assets (including the conveyed Loans) will not be available to satisfy our general obligations. All of each of our subsidiary’s assets have been encumbered to secure its obligations to its respective creditors.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
5. DEBT — (Continued)
     If not renewed prior to August 23, 2010, the $325.0 million facility will cease to revolve. Thereafter, no further advances would be permitted under the facility and the amounts outstanding would be repaid over time by the collections from the Loans securing the facility. If there are any remaining amounts outstanding on the facility when it matures on August 23, 2011, the lender has the right to cause the Loans securing the facility to be sold to repay the outstanding indebtedness.
     Interest on borrowings under the facilities has been limited to a maximum rate of 6.75% through interest rate cap agreements. We have also entered into an interest rate swap to convert $25.0 million of the $75.0 million secured warehouse facility into fixed debt bearing an interest rate of 5.11%. The subsidiaries pay us a monthly servicing fee equal to 6% of the collections received with respect to the conveyed Loans. The fee is paid out of the collections. Except for the servicing fee and holdback payments due to Dealer-Partners, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees and other related costs have been paid in full. If a facility is not amortizing, the applicable subsidiary may be entitled to retain a portion of such collections provided that the borrowing base requirements of the facility are satisfied.
Term ABS Financings
     In 2008 and 2009, 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 2008-1 transaction was initially rated “A” by Standard and Poor’s Rating Services (“S&P”) and as of March 31, 2010 is rated “AAA” by S&P. The Term ABS 2009-1 transaction consists of three classes of notes. The Class A Notes are rated “AAA” by S&P and DBRS, Inc. The Class B Notes are rated “AA” by S&P. The Class C Note does not bear interest, is not rated and has been retained by us.
     Each financing has a specified revolving period during which we may be required, and are likely, to convey additional Loans to each Funding LLC. Each Funding LLC will then convey the Loans to their respective trust. At the end of the revolving period, the debt outstanding under each financing will begin to amortize.
     The financings create loans for which the trusts are liable and which are secured by all the assets of each trust. Such loans are non-recourse to us, even though we are consolidated for financial reporting purposes with the trusts and the Funding LLCs. Because the Funding LLCs are organized as legal entities separate from us, their assets (including the conveyed Loans) are not available to our creditors. We receive a monthly servicing fee on each financing equal to 6% of the collections received with respect to the conveyed Loans. The fee is paid out of the collections. Except for the servicing fee and Dealer Holdback payments due to Dealer-Partners, if a facility is amortizing, we do not have any rights in any portion of such collections until all outstanding principal, accrued and unpaid interest, fees and other related costs have been paid in full. If a facility is not amortizing, the applicable subsidiary may be entitled to retain a portion of such collections provided that the borrowing base requirements of the facility are satisfied. However, in our capacity as servicer of the Loans, we do have a limited right to exercise a “clean-up call” option to purchase Loans from the Funding LLCs and/or the trusts under certain specified circumstances. Alternatively, when a 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 (dollars in thousands):
                             
                        Expected
    Issue       Net Book Value of Dealer       Annualized
Term ABS Financing   Number   Close Date   Loans Conveyed at Closing   Revolving Period   Rates (1)
Term ABS 2008-1
  2008-1   April 18, 2008   $ 86,615     12 months
(Through April 15, 2009)
    6.9 %
 
                           
Term ABS 2009-1
  2009-1   December 3, 2009   $ 142,301     18 months
(Through May 15, 2011)
    5.2 %
 
(1)   Includes underwriter’s fees, insurance premiums and other costs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
5. DEBT — (Concluded)
Debt Covenants
     As of March 31, 2010, we are in compliance with all our debt covenants relating to the 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 assets to debt and 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.
     In addition to the covenants stated above, our revolving secured warehouse facilities and Term ABS financings contain covenants that measure the performance of the contributed assets. As of March 31, 2010, we were in compliance with all such covenants. As of the end of the quarter, we are also in compliance with our covenants under the Senior Notes 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.
6. DERIVATIVE INSTRUMENTS
     Interest Rate Caps. We purchase interest rate cap agreements to manage the interest rate risk on our $325.0 million revolving secured warehouse facility and on $50.0 million of the $75.0 million revolving secured warehouse facility.
     As of March 31, 2010 and December 31, 2009, eight interest rate cap agreements with various maturities between May 2010 and August 2011 were outstanding with a cap rate of 6.75% plus the spread over the LIBOR rate or the commercial paper rate, as applicable, and a nominal fair value.
     The interest rate caps have not been designated as hedging instruments.
     Interest Rate Swaps. As of March 31, 2010 and December 31, 2009, the following were outstanding:
    An interest rate swap to convert the outstanding balance of the 2008-1 floating rate Term ABS financing into fixed rate debt, bearing an interest rate of 6.37%. This interest rate swap has been designated as a cash flow hedging instrument.
 
    An interest rate swap, also related to the outstanding balance of the 2008-1 floating rate Term ABS financing, that requires the counterparties to make a payment depending on our actual debt balance outstanding on the facility relative to our original forecasted balance and on the level of interest rates. This interest rate swap has not been designated as a hedging instrument.
 
    An interest rate swap to convert $25.0 million of the $75.0 million 2008-2 revolving secured warehouse facility into fixed rate debt, bearing an interest rate of 5.11%. This interest rate swap has been designated as a cash flow hedging instrument.
     At March 31, 2010, we had minimal exposure to credit loss on the interest rate swaps. We do not believe that any reasonably likely change in interest rates would have a materially adverse effect on our financial position, our results of operations or our cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
6. DERIVATIVE INSTRUMENTS — (Concluded)
     Information related to the fair values of derivative instruments in our consolidated balance sheets as of March 31, 2010 and December 31, 2009 is as follows (in thousands):
                         
            Fair Value  
    Balance Sheet   March 31,     December 31,  
    location   2010     2009  
Derivatives designated as hedging instruments
                       
Liability Derivatives
                       
Interest rate swap
  Accounts payable and accrued liabilities   $ 1,480     $ 1,445  
 
                       
Derivatives not designated as hedging instruments
                       
Asset Derivatives
                       
Interest rate caps
  Other assets   $ 6     $ 82  
 
                       
Total Asset Derivatives
          $ 6     $ 82  
 
                   
Total Liability Derivatives
          $ 1,480     $ 1,445  
 
                   
     Information related to the effect of derivative instruments designated as hedging instruments on our consolidated income statements for the three months ended March 31, 2010 and 2009 is as follows (in thousands):
                                         
    Gain / (Loss)        
    Recognized in OCI on Derivative     Loss Reclassified from Accumulated  
  (Effective Portion)     OCI into Income (Effective Portion)  
  Three Months Ended March 31,             Three Months Ended March 31,  
Derivatives in Cash Flow Hedging Relationships   2010     2009     Location   2010     2009  
Interest rate swap
  $ 49     $ (474 )   Interest expense   $ (440 )   $ (1,097 )
     As of March 31, 2010, we expect to reclassify losses of $0.5 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 income statements for the three months ended March 31, 2010 and 2009 is as follows (in thousands):
                         
            Amount of Loss Recognized in  
            Income on Derivative  
            Three Months Ended March 31,  
Derivatives Not Designated as Hedging Instruments   Location     2010     2009  
Interest rate caps
  Interest expense   $ (76 )   $ (1 )
Interest rate swap
  Interest expense     (590 )     (11 )
 
                       
 
                   
Total
          $ (666 )   $ (12 )
 
                   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
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, amount of debt outstanding, and number of months until maturity.
     Liabilities. The fair value of debt is determined using quoted market prices, if available, or calculated using the estimated value of each debt instrument based on current rates offered to us for debt with similar maturities.
     A comparison of the carrying value and estimated fair value of these financial instruments is as follows (in thousands):
                                 
    As of March 31,     As of December 31,  
    2010     2009  
    Carrying     Estimated     Carrying     Estimated  
    Amount     Fair Value     Amount     Fair Value  
Assets
                               
Cash and cash equivalents and restricted cash
  $ 87,148     $ 87,148     $ 84,626     $ 84,626  
Restricted securities available for sale
    3,072       3,072       3,121       3,121  
Net investment in Loans receivable
    1,088,342       1,098,129       1,050,013       1,056,059  
Derivative instruments
    6       6       82       82  
 
                               
Liabilities
                               
Line of credit
  $ 28,400     $ 28,400     $ 97,300     $ 97,300  
Secured financing
    221,167       223,574       404,597       404,725  
Mortgage note
    4,689       4,702       4,744       4,757  
Senior Notes
    243,845       258,002              
Derivative instruments
    1,480       1,480       1,445       1,445  
     Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. We group assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1    Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2    Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3    Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates or assumptions that market participants would use in pricing the asset or liability.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS — (Concluded)
     The following table provides the fair value measurements of applicable assets and liabilities, measured at fair value on a recurring basis, as of March 31, 2010 (in thousands):
                         
                    Total  
    Level 1     Level 2     Fair Value  
Assets
                       
Restricted securities available for sale
  $ 3,072     $     $ 3,072  
Derivative Instruments
          6       6  
 
                       
Liabilities
                       
Derivative instruments
  $     $ 1,480     $ 1,480  
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 $12.0 million and $12.7 million as of March 31, 2010 and December 31, 2009, respectively. Affiliated Dealer Loan balances were 1.3% and 1.5% of total consolidated Dealer Loan balances as of March 31, 2010 and December 31, 2009, respectively. A summary of related party Loan activity is as follows (dollars in thousands):
                                 
    Three Months Ended     Three Months Ended  
    March 31, 2010     March 31, 2009  
    Affiliated             Affiliated        
    Dealer-Partner     % of     Dealer-Partner     % of  
    activity     consolidated     activity     consolidated  
New Dealer and Purchased Loans
  $ 1,599       0.8 %   $ 2,030       1.3 %
 
                               
Dealer Loan revenue
  $ 847       1.2 %   $ 948       1.8 %
 
                               
Dealer Holdback payments
  $ 590       4.9 %   $ 571       4.5 %
     Our majority shareholder and Chairman has indirect control over entities that offer secured lines of credit to automobile dealers and has the right or obligation to reacquire these entities under certain circumstances until December 31, 2014 or the repayment of the related purchase money note.
9. INCOME TAXES
     A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate, excluding the results of the discontinued United Kingdom operations, is as follows:
                 
    Three Months Ended  
    March 31,  
    2010     2009  
U.S. federal statutory rate
    35.0 %     35.0 %
State income taxes
    1.8       1.3  
Interest and penalties
    3.4       0.4  
Other
    (1.2 )     0.2  
 
           
Effective tax rate
    39.0 %     36.9 %
 
           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
9. INCOME TAXES — (Concluded)
     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 and penalties that are included in the provision for income taxes. The increase in 2010, as compared to the same period in 2009, is primarily due to interest related to the ongoing Internal Revenue Service (“IRS”) audit detailed below.
     The federal income tax returns for 2004, 2005, and 2006 have been under examination by the IRS since February 2007, and in March 2010, the IRS began examining the federal returns for 2007 and 2008. In July 2009, we received a revised notice from the IRS, in the form of a 30-day letter, disputing the tax valuation of our Loan portfolio for 2004 through 2006. We disagree with the IRS’s proposed valuation and will vigorously defend our position. We have filed tax returns for 2004 to 2008 applying the portfolio valuation methodology that the IRS disputes. If the IRS were to prevail with their current position without compromise, we would owe $20.2 million of additional federal and state taxes for the period under audit. Additionally, if we used their methodology for 2007, 2008 and 2009, we would owe additional federal and state taxes of $16.7 million. The total amount of $36.9 million of additional taxes for the 2004 through 2009 period is an acceleration of taxes already provided for and recorded as a deferred tax liability in our consolidated balance sheet as of March 31, 2010. We would also owe interest related to the additional federal and state taxes that would reduce our net income by $8.2 million. In February 2010, we have submitted to the IRS a proposal with an alternative portfolio valuation methodology. This proposal is currently under the IRS’s review.
     We believe that the ultimate deductibility of the Loan portfolio valuation position is highly certain, but there is uncertainty about the timing of such deductibility. As of March 31, 2010, we estimate that it is likely that the Loan portfolio valuation position will be settled with the IRS for an amount different from the amounts filed in 2004 through 2008 tax returns. For that reason, we have measured this uncertain tax position by applying the FASB ASC’s recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken in a tax return.
     As of March 31, 2010, we have reduced the deferred income tax liability related to the Loan portfolio valuation and recorded a liability for unrecognized tax benefit in the amount of $7.0 million. This adjustment reflects an acceleration of taxes already provided for in previous periods. We have also recorded interest related to the additional federal and state taxes that is included in the provision for income taxes and decreases our net income by $1.0 million.
10. CAPITAL TRANSACTIONS
     Net Income Per Share
     Basic net income per share has been computed by dividing net income by the basic number of common shares outstanding. Diluted net income per share has been computed by dividing net income by the diluted number of common and common equivalent shares outstanding using the treasury stock method. The share effect is as follows:
                 
    Three Months Ended March 31,  
    2010     2009  
Weighted average common and common equivalent shares outstanding:
               
Basic number of common shares outstanding
    31,042,495       30,479,665  
 
           
 
               
Dilutive effect of stock options
    367,735       541,257  
 
           
Dilutive effect of restricted stock and restricted stock units
    174,096       159,224  
 
           
 
               
Dilutive number of common and common equivalent shares outstanding
    31,584,326       31,180,146  
 
           
     There were no stock options, restricted stock or restricted stock units that would be anti-dilutive for the three months ended March 31, 2010 and 2009.
     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 310,600 as of March 31, 2010.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(UNAUDITED)
10. CAPITAL TRANSACTIONS — (Concluded)
     A summary of the restricted stock activity under the Incentive Plan for the three months ended March 31, 2010 and 2009 is presented below:
                 
    Number of Shares  
    Three Months Ended March 31,  
Restricted Stock   2010     2009  
Outstanding Beginning Balance
    242,277       245,329  
Granted
    19,183       121,736  
Vested
    (142,682 )     (105,682 )
Forfeited
          (5,711 )
 
           
Outstanding Ending Balance
    118,778       255,672  
 
           
     A summary of the restricted stock unit activity under the Incentive Plan for the three months ended March 31, 2010 and 2009 is presented below:
                                         
    Nonvested     Vested     Total  
            Weighted-             Weighted-        
            Average             Average        
    Number of     Grant-Date     Number of     Grant-Date     Number of  
    Restricted Stock     Fair Value     Restricted Stock     Fair Value     Restricted Stock  
Restricted Stock Units   Units     Per Share     Units     Per Share     Units  
Outstanding at December 31, 2009
    648,250     $ 19.35       120,000     $ 26.30       768,250  
Granted
    32,500       39.89                   32,500  (1)
Vested
    (149,650 )     20.24       149,650       20.24        (2)
 
                                 
Outstanding at March 31, 2010
    531,100     $ 20.36       269,650     $ 22.94       800,750  
 
                                 
                                         
    Nonvested     Vested     Total  
            Weighted-             Weighted-        
            Average             Average        
    Number of     Grant-Date     Number of     Grant-Date     Number of  
    Restricted Stock     Fair Value     Restricted Stock     Fair Value     Restricted Stock  
Restricted Stock Units   Units     Per Share     Units     Per Share     Units  
Outstanding at December 31, 2008
    640,000     $ 18.99       60,000     $ 26.30       700,000  
Granted
    62,500       21.38                   62,500  (3)
Vested
    (60,000 )     26.30       60,000       26.30        (4)
Forfeited
    (7,500 )     13.51                   (7,500 )
 
                                   
Outstanding at March 31, 2009
    635,000     $ 18.60       120,000     $ 26.30       755,000  
 
                                 
 
(1)   The distribution date of vested restricted stock units is February 22, 2017.
 
(2)   The distribution date of vested restricted stock units is February 22, 2014 for 60,000 restricted stock units and February 22, 2016 for 89,650 restricted stock units.
 
 
(3)   The distribution date of vested restricted stock units is February 22, 2016.
 
(4)   The distribution date of vested restricted stock units is February 22, 2014.
     Stock compensation expense consists of the following (in thousands):
                 
    Three Months Ended March 31,  
    2010     2009  
Restricted stock
  $ 334     $ 510  
Restricted stock units
    849       974  
 
           
 
  $ 1,183     $ 1,484  
 
           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Concluded)
(UNAUDITED)
11. BUSINESS SEGMENT INFORMATION
     We have two reportable business segments: United States and Other. The United States segment is our dominant segment and primarily consists of the United States automobile financing business. The Other segment consists of businesses in liquidation.
     Selected segment information is set forth below (in thousands):
                 
    Three Months Ended March 31,  
    2010     2009  
Revenue:
               
United States
  $ 103,261     $ 87,886  
Other
    1       2  
 
           
Total revenue
  $ 103,262     $ 87,888  
 
           
 
               
Income (loss) from continuing operations before provision for income taxes:
               
United States
  $ 52,470     $ 45,970  
Other
    (13 )     (15 )
 
           
Total income from continuing operations before provision for income taxes
  $ 52,457     $ 45,955  
 
           
                 
 
    As of  
    March 31, 2010     December 31, 2009  
Segment Assets
               
United States
  $ 1,227,678     $ 1,175,550  
Other
    78       686  
 
           
Total Assets
  $ 1,227,756     $ 1,176,236  
 
           
12. COMPREHENSIVE INCOME
     Our comprehensive income information is set forth below (in thousands):
                 
    Three Months Ended March 31,  
    2010     2009  
Net income
  $ 32,010     $ 29,001  
Unrealized loss on securities available for sale, net of tax
    (5 )     (1 )
Unrealized gain on interest rate swap, net of tax
    309       386  
 
           
Comprehensive income
  $ 32,314     $ 29,386  
 
           

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included in Item 8 — Financial Statements and Supplementary Data, of our 2009 Annual Report on Form 10-K, as well as Item 1- Consolidated Financial Statements, of this Form 10-Q, which is incorporated herein by reference.
Critical Success Factors
     Critical success factors include our ability to access capital on acceptable terms, accurately forecast Consumer Loan performance, and maintain or grow Consumer Loan volume at the level and on the terms that we anticipate.
Access to Capital
     Our strategy for accessing capital on acceptable terms needed to maintain and grow the business is to: (1) maintain consistent financial performance; (2) maintain modest financial leverage; and (3) maintain multiple funding sources. Our funded debt to equity ratio is 0.9:1 at March 31, 2010. We currently utilize the following forms of debt financing: (1) a revolving secured line of credit with a commercial bank syndicate; (2) revolving secured warehouse facilities with institutional investors; (3) Term ABS financings with qualified institutional investors; and (4) our Senior Notes.
Consumer Loan Performance
     At the time the Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan. Based on these forecasts, an advance or one-time payment is made to the related Dealer-Partner at a price designed to achieve an acceptable return on capital. If Consumer Loan performance equals or exceeds our original expectation, it is likely our target return on capital will be achieved.
     We use a statistical model to estimate the expected collection rate for each Consumer Loan at the time of assignment. We continue to evaluate the expected collection rate of each Consumer Loan subsequent to assignment. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast. By comparing our current expected collection rate for each Consumer Loan with the rate we projected at the time of assignment, we are able to assess the accuracy of our initial forecast. The following table compares our forecast of Consumer Loan collection rates as of March 31, 2010, with the forecasts as of December 31, 2009, and at the time of assignment, segmented by year of assignment:
                                         
    Forecasted Collection Percentage as of   Variance in Forecasted Collection Percentage from
Consumer        
Loan                        
Assignment   March 31,   December 31,   Initial   December 31,   Initial
Year   2010   2009   Forecast   2009   Forecast
2001
    67.5 %     67.5 %     70.4 %     0.0 %     -2.9 %
2002
    70.5 %     70.4 %     67.9 %     0.1 %     2.6 %
2003
    73.7 %     73.7 %     72.0 %     0.0 %     1.7 %
2004
    73.1 %     73.1 %     73.0 %     0.0 %     0.1 %
2005
    73.8 %     73.7 %     74.0 %     0.1 %     -0.2 %
2006
    70.3 %     70.3 %     71.4 %     0.0 %     -1.1 %
2007
    68.1 %     68.3 %     70.7 %     -0.2 %     -2.6 %
2008
    69.8 %     70.0 %     69.7 %     -0.2 %     0.1 %
2009
    76.4 %     75.6 %     71.9 %     0.8 %     4.5 %
     Consumer Loans assigned in 2002-2004 and 2008-2009 have performed better than our initial expectations while Consumer Loans assigned in 2001 and 2005-2007 have performed worse. During the first quarter of 2010, forecasted collection rates increased for Consumer Loans assigned in 2009, and decreased modestly for 2007 and 2008 Consumer Loan assignments.
     As a result of current economic conditions and uncertainty about future conditions, our forecasts of future collection rates are subject to a greater than normal degree of risk. Our pricing strategy considers this in that we have established advance rates that are intended to allow us to achieve acceptable levels of profitability, even if collection rates are less than we currently forecast.

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     The following table presents forecasted Consumer Loan collection rates, advance rates (includes amounts paid to acquire Purchased Loans), the spread (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of March 31, 2010. Payments of Dealer Holdback and accelerated Dealer Holdback are not included in the advance percentage paid to the Dealer-Partner. All amounts are presented as a percentage of the initial balance of the Consumer Loan (principal + interest). The table includes both Dealer Loans and Purchased Loans.
                                 
    As of March 31, 2010  
Consumer Loan   Forecasted                     % of Forecast  
Assignment Year   Collection %     Advance %     Spread %     Realized  
2001
    67.5 %     46.0 %     21.5 %     99.2 %
2002
    70.5 %     42.2 %     28.3 %     99.0 %
2003
    73.7 %     43.4 %     30.3 %     98.9 %
2004
    73.1 %     44.0 %     29.1 %     98.4 %
2005
    73.8 %     46.9 %     26.9 %     97.9 %
2006
    70.3 %     46.6 %     23.7 %     94.8 %
2007
    68.1 %     46.5 %     21.6 %     82.3 %
2008
    69.8 %     44.6 %     25.2 %     61.3 %
2009
    76.4 %     43.9 %     32.5 %     32.0 %
2010
    73.4 %     44.9 %     28.5 %     3.9 %
     The risk of a material change in our forecasted collection rate declines as the Consumer Loans age. For 2006 and prior Consumer Loan assignments, the risk of a material forecast variance is modest, as we have currently realized in excess of 90% of the expected collections. Conversely, the forecasted collection rates for more recent Consumer Loan assignments are less certain as a significant portion of our forecast has not been realized.
     The spread between the forecasted collection rate and the advance rate declined during the 2003-2007 period as we increased advance rates during this period in response to a more difficult competitive environment. During 2008 and 2009, the spread increased as the competitive environment improved, and we reduced advance rates. In addition, during 2009 the spread was positively impacted by better than expected Consumer Loan performance. The decline in the spread for 2010 Consumer Loan assignments reflects advance rate increases implemented during the last four months of 2009 and the first quarter of 2010.
     The following table presents forecasted Consumer Loan collection rates, advance rates (includes amounts paid to acquire Purchased Loans), and the spread (the forecasted collection rate less the advance rate) as of March 31, 2010 for Purchased Loans and Dealer Loans separately. Payments of Dealer Holdback and accelerated Dealer Holdback are not included in the advance percentage paid to the Dealer-Partner. All amounts are presented as a percentage of the initial balance of the Consumer Loan (principal + interest).
                                 
    Consumer Loan     Forecasted              
    Assignment Year     Collection %     Advance %     Spread %  
Purchased Loans
    2007       68.3 %     48.7 %     19.6 %
 
    2008       68.8 %     46.3 %     22.5 %
 
    2009       76.5 %     45.3 %     31.2 %
 
    2010       72.9 %     47.1 %     25.8 %
 
                               
Dealer Loans
    2007       68.1 %     45.9 %     22.2 %
 
    2008       70.3 %     43.6 %     26.7 %
 
    2009       76.4 %     43.6 %     32.8 %
 
    2010       73.5 %     44.6 %     28.9 %
 
                               
     Although the advance rate on Purchased Loans is higher as compared to the advance rate on Dealer Loans, Purchased Loans do not require us to pay Dealer Holdback.

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Consumer Loan Volume
     Our ability to maintain and grow Consumer Loan volume is impacted by our pricing strategy, the number of Dealer-Partners actively participating in our programs, and the competitive environment. The following table summarizes changes in Consumer Loan assignment volume in each of the last five quarters as compared to the same period in the previous year:
                 
    Year over Year Percent Change  
Three Months Ended   Unit Volume     Dollar Volume (1)  
March 31, 2009
    -13.0 %     -28.9 %
June 30, 2009
    -16.2 %     -33.5 %
September 30, 2009
    -5.7 %     -13.0 %
December 31, 2009
    7.6 %     5.9 %
March 31, 2010
    11.2 %     21.6 %
 
(1)   Represents payments made to Dealer-Partners for advances on Dealer Loans and the acquisition of Purchased Loans. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.
     Dollar and unit volume increased during the first quarter of 2010 as compared to the same period in 2009 due to pricing changes implemented during the last four months of 2009 and the first quarter of 2010 that reduced per unit profitability in exchange for increased unit volume.
     As a result of our success in renewing our debt facilities during the third quarter of 2009, securing additional financing during the fourth quarter of 2009 and issuing our Senior Notes in the first quarter of 2010, we are in position to grow year over year unit volumes. We will continue to monitor unit volumes and will make additional pricing changes with an objective to maximize economic profit given the capital we have available. Future growth rates will partially depend on how unit volumes respond to pricing changes, which will be influenced to a large degree by how quickly competition returns to our market.
     The following table summarizes the changes in Consumer Loan unit volume and active Dealer-Partners:
                         
    Three Months Ended March 31,  
    2010     2009     % change  
Consumer Loan unit volume
    38,903       34,991       11.2 %
Active Dealer-Partners (1)
    2,346       2,305       1.8 %
 
                   
Average volume per active Dealer-Partner
    16.6       15.2       9.2 %
 
                       
Consumer Loan unit volume from Dealer-Partners active both periods
    28,821       27,728       3.9 %
Dealer-Partners active both periods
    1,524       1,524        
 
                   
Average volume per Dealer-Partners active both periods
    18.9       18.2       3.9 %
 
                       
Consumer Loan unit volume from new Dealer-Partners
    1,741       2,228       -21.9 %
New active Dealer-Partners (2)
    216       338       -36.1 %
 
                   
Average volume per new active Dealer-Partners
    8.1       6.6       22.7 %
 
                       
Attrition (3)
    -20.8 %     -25.4 %        
 
(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 periods presented.
 
(3)   Attrition is measured according to the following formula: decrease in Consumer Loan unit volume from Dealer-Partners who have received funding for at least one Loan during the comparable period of the prior year but did not receive funding for any Loans during the current period divided by prior year comparable period Consumer Loan unit volume.

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     Consumer Loans are assigned to us through either our Portfolio Program or our Purchase Program. The following table summarizes the portion of our Consumer Loan volume that was assigned to us through our Purchase Program:
                 
    Three Months Ended  
    March 31,  
    2010     2009  
New Purchased Loan unit volume as a percentage of total unit volume
    9.1 %     17.7 %
 
               
New Purchased Loan dollar volume as a percentage of total dollar volume
    11.1 %     21.3 %
     For the three months ended March 31, 2010, new Purchased Loan unit and dollar volume as a percentage of total unit and dollar volume, respectively, decreased as compared to 2009 primarily due to the continued impact of program enrollment eligibility changes we made in 2008. For all Dealer-Partners enrolling in our program after August 31, 2008, access to our Purchase Program is only granted after the first accelerated Dealer Holdback payment has been made under the Portfolio Program.
     As of March 31, 2010 and December 31, 2009, the net Purchased Loans receivable balance was 25.2% and 27.5%, respectively, of the total net Loans receivable balance.

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Results of Operations
     Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
     The following is a discussion of our results of operations and income statement data on a consolidated basis.
                         
    Three Months Ended March 31,        
(Dollars in thousands, except per share data)   2010     2009     % Change  
Revenue:
                       
Finance charges
  $ 89,663     $ 76,726       16.9 %
Premiums earned
    7,704       6,460       19.3 %
Other income
    5,895       4,702       25.4 %
 
                 
Total revenue
    103,262       87,888       17.5 %
 
                 
Costs and expenses:
                       
Salaries and wages
    16,110       17,121       -5.9 %
General and administrative
    6,542       7,995       -18.2 %
Sales and marketing
    4,810       3,921       22.7 %
Provision for credit losses
    6,426       164       3818.3 %
Interest
    11,705       7,923       47.7 %
Provision for claims
    5,212       4,809       8.4 %
 
                 
Total costs and expenses
    50,805       41,933       21.2 %
 
                 
 
                       
Income from continuing operations before provision for income taxes
    52,457       45,955       14.1 %
 
                 
Provision for income taxes
    20,442       16,943       20.7 %
 
                 
Income from continuing operations
    32,015       29,012       10.4 %
 
                 
Discontinued operations
                       
Loss from discontinued United Kingdom operations
    (5 )     (15 )     -66.7 %
Provision (benefit) for income taxes
          (4 )     -100.0 %
 
                 
Loss from discontinued operations
    (5 )     (11 )     -54.5 %
 
                 
Net income
  $ 32,010     $ 29,001       10.4 %
 
                 
 
                       
Net income per common share:
                       
Basic
  $ 1.03     $ 0.95          
 
                   
Diluted
  $ 1.01     $ 0.93          
 
                   
Income from continuing operations per common share:
                       
Basic
  $ 1.03     $ 0.95          
 
                   
Diluted
  $ 1.01     $ 0.93          
 
                   
Loss from discontinued operations per common share:
                       
Basic
  $     $          
 
                   
Diluted
  $     $          
 
                   
Weighted average shares outstanding:
                       
Basic
    31,042,495       30,479,665          
Diluted
    31,584,326       31,180,146          

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Continuing Operations
     Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
     The following table highlights changes in income from continuing operations for the three months ended March 31, 2010, as compared to 2009:
         
Income from continuing operations, March 31, 2009
  $ 29,012  
Increase in finance charges
    12,937  
Decrease in operating expenses (1)
    1,575  
Increase in provision for credit losses
    (6,262 )
Increase in interest
    (3,782 )
Increase in provision for income taxes
    (3,499 )
Other (2)
    2,034  
 
     
Income from continuing operations, March 31, 2010
  $ 32,015  
 
     
 
(1)   Operating expenses consist of salaries and wages, general and administrative, and sales and marketing expenses.
 
(2)   Other consists of premiums earned, other income, and provision for claims.
     Finance Charges. For the three months ended March 31, 2010, finance charges increased $12.9 million, or 16.9%, as compared to the same period in 2009. The increase is primarily the result of:
    An increase in the average yield on our Loan portfolio resulting from an increase in forecasted collection rates throughout 2009 as well as higher yields on Consumer Loans assigned during the last three quarters of 2009 and the first quarter of 2010. For the three months ended March 31, 2010 and 2009, the average yield on our Loan portfolio was 34.6% and 29.2%, respectively.
 
    A 2.9% increase in the average Loans receivable balance due to growth in new Loan volume during the last quarter of 2009 and first quarter of 2010.
     Premiums Earned. For the three months ended March 31, 2010, premiums earned increased $1.2 million, or 19.3%, as compared to the same period in 2009. The increase is primarily due to a 2009 revision in our revenue recognition timing of vehicle service contracts reinsured through VSC Re. During the third quarter of 2009, we revised our revenue recognition timing in order to better match the timing with our expected costs of servicing vehicle contracts.
     Other Income. For the three months ended March 31, 2010, other income increased $1.2 million, or 25.4%, as compared to the same period in 2009. The increase is primarily due to an increase in Guaranteed Asset Protection (“GAP”) profit sharing payments due to decreased GAP claims paid as a percentage of premiums written. For the three months ended March 31, 2010, we received GAP profit sharing payments of $0.7 million compared to $0.1 million for the same period in 2009.
     Salaries and wages. For the three months ended March 31, 2010, salaries and wages decreased $1.0 million, or 5.9%, as compared to the same period in 2009, due primarily to a $0.9 million decrease related to Information Technology.
     General and Administrative. For the three months ended March 31, 2010, general and administrative expense decreased $1.5 million, or 18.2%, as compared to the same period in 2009 due primarily to decreased legal costs.
     Sales and Marketing. For the three months ended March 31, 2010, sales and marketing expense increased $0.9 million, or 22.7%, as compared to the same period in 2009 due primarily to increased sales commissions.
     Provision for Credit Losses. For the three months ended March 31, 2010, the provision for credit losses increased $6.3 million, or 3818.3%, as compared to the same period in 2009. Under GAAP, when forecasted future cash flows decline relative to the cash flows expected at the time of assignment, a provision for credit losses is recorded immediately as a current period expense and a corresponding allowance for credit losses is established. For purposes of calculating the required allowance, Dealer Loans are grouped by Dealer-Partner and Purchased Loans are grouped by month of purchase. As a result, regardless of the overall performance of the portfolio of Consumer Loans, a provision can be required if any individual Loan pool performs worse than expected.

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     During the most recent period, overall Consumer Loan performance was consistent with our expectations at the start of the period. However, a $6.4 million provision for credit losses was recorded consisting of the following components: (1) $3.4 million related to specific Dealer Loan pools that experienced a decline in forecasted future cash flows during the period and (2) $3.0 million related to specific Purchased Loan pools that experienced a decline in forecasted cash flows during the period. We recognized a minimal amount of provision for credit losses for the three months ended March 31, 2009 primarily due to a slight improvement in forecasted collection rates during the period.
     Interest. For the three months ended March 31, 2010, interest expense increased $3.8 million, or 47.7%, as compared to the same period in 2009. The following table shows interest expense, the average outstanding debt balance, and the pre-tax average cost of debt for the three months ended March 31, 2010 and 2009:
                 
    Three Months Ended March 31,  
(Dollars in thousands)   2010     2009  
Interest expense
  $ 11,705     $ 7,923  
Average outstanding debt balance
  $ 492,069     $ 624,279  
Pre-tax average cost of debt
    9.5 %     5.1 %
     For the three months ended March 31, 2010, the increase in interest expense is primarily due to an increase in our pre-tax average cost of debt due to the issuance of the Senior Notes during the first quarter of 2010 and an increase in available and unused credit capacity.
     Provision for income taxes. For the three months ended March 31, 2010, the effective tax rate increased to 39.0%, from 36.9% in the same period in 2009 primarily due to an increase in reserves for uncertain tax positions and interest related to the ongoing IRS audit.
Liquidity and Capital Resources
     We need capital to fund new Loans and pay Dealer Holdback. Our primary sources of capital are cash flows from operating activities, collections of Consumer Loans and borrowings under: (1) a revolving secured line of credit with a commercial bank syndicate; (2) revolving secured warehouse facilities with institutional investors; (3) Term ABS financings with qualified institutional investors; and (4) our Senior Notes. There are various restrictive debt covenants for each financing arrangement and we are in compliance with those covenants as of March 31, 2010. For information regarding these financings and the covenants included in the related documents, see Note 5 to the consolidated financial statements contained in Item 1 of this Form 10-Q, which is incorporated herein by reference.
     During the first quarter of 2010, we issued $250.0 million aggregate principal amount of 9.125% First Priority Senior Notes. Concurrently with the issuance of the Senior Notes, we amended the agreements governing our line of credit facility with a commercial bank syndicate to facilitate the issuance of the Senior Notes and future secured indebtedness. The net proceeds from the offering of the Senior Notes were used to repay all outstanding borrowings under our line of credit facility and to repay all outstanding borrowings under our $325.0 million revolving secured warehouse facility, subject to our ability to reborrow in each case.
     The Senior Notes were issued pursuant to an Indenture, dated as of February 1, 2010, among us, BVPP and VRS, as Guarantors, and U.S. Bank National Association, as Trustee. The description of the Indenture is qualified in its entirety by reference to the complete text of the Indenture, a copy of which is filed as Exhibit 4(f)(129) to our Form 8-K filed on February 4, 2010.
     The Senior Notes mature on February 1, 2017 and bear interest at a rate of 9.125% per annum, computed on the basis of 360-day year composed of twelve 30-day months and payable semi-annually on February 1 and August 1 of each year, beginning on August 1, 2010. The Senior Notes were issued at 97.495% of the aggregate principal amount for gross proceeds of $243.7 million, representing a yield to maturity of 9.625%.

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     Cash and cash equivalents decreased to $1.6 million as of March 31, 2010 from $2.2 million at December 31, 2009. Our total balance sheet indebtedness decreased to $498.3 million at March 31, 2010 from $507.0 million at December 31, 2009 as the net cash provided by our operating activities and principal collections from our Loan portfolio exceeded the cash used to fund new Loans.
Contractual Obligations
     A summary of the total future contractual obligations requiring repayments as of March 31, 2010 is as follows (in thousands):
                                                 
    Payments Due by Period  
            Less than                     More than        
    Total     1 Year     1-3 Years     3-5 Years     5 Years     Other  
Long-term debt, including current maturities and capital leases (1)
  $ 504,442     $ 36,077     $ 214,657     $ 3,708     $ 250,000     $  
Operating lease obligations
    2,658       729       1,701       228              
Purchase obligations (2)
    1,336       1,336                          
Other future obligations (3)
    19,872                               19,872  
 
                                   
Total contractual obligations (4)
  $ 528,308     $ 38,142     $ 216,358     $ 3,936     $ 250,000     $ 19,872  
 
                                   
 
(1)   Long-term debt obligations included in the above table consist solely of principal repayments. We are also obligated to make interest payments at the applicable interest rates, as discussed in Note 5 to the consolidated financial statements contained in Item 1 of this Form 10-Q which is incorporated herein by reference. Based on the actual amounts outstanding under our revolving line of credit, our warehouse facilities, and our Senior Notes at March 31, 2010, the forecasted amounts outstanding on all other debt and the actual interest rates in effect as of March 31, 2010, interest is expected to be approximately $18.6 million during 2010; $26.5 million during 2011; and $118.5 million during 2012 and thereafter.
 
(2)   Purchase obligations consist solely of contractual obligations related to the information system needs.
 
(3)   Other future obligations included in the above table consist solely of reserves for uncertain tax positions. Payments are contingent upon examination and would occur in the periods in which the uncertain tax positions are settled.
 
(4)   We have contractual obligations to pay Dealer Holdback to our Dealer-Partners; however, as payments of Dealer Holdback are contingent upon the receipt of customer payments and the repayment of advances, these obligations are excluded from the table above.
     Based upon anticipated cash flows, management believes that cash flows from operations and its various financing alternatives will provide sufficient financing for debt maturities and for future operations. Our ability to borrow funds may be impacted by economic and financial market conditions. If the various financing alternatives were to become limited or unavailable to us, our operations and liquidity could be materially and adversely affected.
Critical Accounting Estimates
     Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we review our accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2009 discusses several critical accounting estimates, which we believe involve a high degree of judgment and complexity. There have been no material changes to the estimates and assumptions associated with these accounting estimates from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2009.

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Off-Balance Sheet Arrangements
     We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Forward-Looking Statements
     We make forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission. We may also make forward-looking statements in our press releases or other public or shareholder communications. Our forward-looking statements are subject to risks and uncertainties and include information about our expectations and possible or assumed future results of operations. When we use any of the words “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “assume,” “forecast,” “estimate,” “intend,” “plan,” “target” or similar expressions, we are making forward-looking statements.
     We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. These forward-looking statements represent our outlook only as of the date of this report. While we believe that our forward-looking statements are reasonable, actual results could differ materially since the statements are based on our current expectations, which are subject to risks and uncertainties. Factors that might cause such a difference include, but are not limited to, the factors set forth in Item 1A of our Form 10-K for the year ended December 31, 2009, other risk factors discussed herein or listed from time to time in our reports filed with the Securities and Exchange Commission and the following:
    Our inability to accurately forecast and estimate the amount and timing of future collections could have a material adverse effect on results of operations.
 
    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.
 
    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.
 
    Our operations are dependent on technology.
 
    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.

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    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.
     Other factors not currently anticipated by management may also materially and adversely affect our results of operations. We do not undertake, and expressly disclaim any obligation, to update or alter our statements whether as a result of new information, future events or otherwise, except as required by applicable law.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
     Refer to our Annual Report on Form 10-K for the year ended December 31, 2009 for a complete discussion of our market risk. There have been no material changes to the market risk information included in our 2009 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES.
     Evaluation of disclosure controls and procedures.
     (a) Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
     (b) Internal Control Over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. — OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Stock Repurchases
     In 1999, our board of directors approved a stock repurchase program which authorizes us to purchase common shares in the open market or in privately negotiated transactions at price levels we deem attractive. As of March 31, 2010, we have repurchased approximately 20.4 million shares under the stock repurchase program at a cost of $399.2 million. Included in the stock repurchases to date are 12.5 million shares of common stock purchased through four modified Dutch auction tender offers at a cost of $304.4 million. As of March 31, 2010, we have authorization to repurchase up to $29.1 million of our common stock.
     The following table summarizes stock repurchases for the three months ended March 31, 2010:
                                 
                    Total Number of     Maximum Dollar Value  
                    Shares Purchased as     that May Yet Be Used  
    Total Number             Part of Publicly     to Purchase Shares  
    of Shares     Average Price     Announced Plans     Under the Plans  
Period   Purchased     Paid per Share     or Programs     or Programs  
January 1 to January 31, 2010
        $           $ 29,113,295  
February 1 to February 28, 2010
    47,187 *                 29,113,295  
March 1 to March 31, 2010
                      29,113,295  
 
                         
 
        $                
 
                         
 
*   Amount represents shares of common stock released to us by team members as payment of tax withholdings due to us upon the vesting of restricted stock.
ITEM 6. EXHIBITS
     See Index of Exhibits following the signature page, which is incorporated herein by reference.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  CREDIT ACCEPTANCE CORPORATION
(Registrant)
 
 
  By:   /s/ Kenneth S. Booth    
    Kenneth S. Booth   
  Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
April 29, 2010  
 

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INDEX OF EXHIBITS
             
Exhibit        
No.   Description
4(f)(129)
    1     Indenture, dated as of February 1, 2010, among the Company, the Guarantors named therein and U.S. Bank National Association, as trustee.
 
           
4(f)(130)
    1     Registration Rights Agreement, dated February 1, 2010, among the Company, Buyers Vehicle Protection Plan, Inc., Vehicle Remarketing Services, Inc. and the representative of the initial purchasers of the Company’s 9.125% First Priority Senior Secured Notes due 2017.
 
           
4(f)(131)
    1     Ninth Amendment, dated as of February 1, 2010, to the Fourth Amended and Restated Credit Agreement, dated February 7, 2006, among the Company, the lenders which are parties thereto from time to time and Comerica Bank, as administrative agent.
 
           
4(f)(132)
    1     Fourth Amended and Restated Security Agreement, dated as of February 1, 2010, among the Company, the other Debtors party thereto and Comerica Bank, as collateral agent.
 
           
4(g)(6)
    1     Amended and Restated Intercreditor Agreement, dated as of February 1, 2010, among Credit Acceptance Corporation, the other Grantors party thereto, representatives of the Secured Parties thereunder and Comerica Bank, as administrative agent under the Original Credit Agreement (as defined therein) and as collateral agent.
 
           
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)
    2     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)
    2     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.
 
Previously filed as an exhibit to the Company’s Current Report on Form 8-K, dated February 5, 2010, and incorporated herein by reference.
 
Filed herewith.

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