<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[___] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 000-20202
---------
CREDIT ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Michigan 38-1999511
- - ----------------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification)
25505 West Twelve Mile Road, Suite 3000, Southfield, Michigan 48034-8339
- - ----------------------------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (810) 353-2700
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
------ ------
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Outstanding at
Class August 9, 1996
------------------------------ ---------------
Common Stock - $.005 par value 45,613,393
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE NO.
-------------------- ---------
Item 1. Financial Statements
Consolidated Balance Sheets -
As of December 31, 1995 and June 30, 1996 .......................... 1
Consolidated Income Statements -
Three and six month periods ended June 30, 1995 and June 30, 1996 .. 2
Consolidated Statements of Cash Flows -
Six months ended June 30, 1995 and June 30, 1996 ................... 3
Consolidated Statement of Shareholders' Equity -
Six months ended June 30, 1996 ..................................... 4
Notes to Consolidated Financial Statements ......................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ................... 6
PART II. OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders ................ 12
Item 6. Exhibits and Reports on Form 8-K ................................... 12
Signatures .................................................................... 13
Index of Exhibits ............................................................. 14
Exhibits ...................................................................... 15
</TABLE>
<PAGE> 3
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of 12/31/95 As of 6/30/96
-------------- -------------
<S> <C> <C> <C>
(Dollars in thousands) (Unaudited)
ASSETS
Cash and cash equivalents $ 1 $ 1
Investments 2,525 3,801
Installment contracts receivable 660,209 818,951
Allowance for credit losses (7,757) (9,357)
------------- ------------
Installment contracts receivable, net 652,452 809,594
Floor plan receivables 13,249 14,996
Notes receivable 3,232 3,008
Property and equipment, net 10,342 11,922
Other assets, net 4,639 3,729
------------- ------------
TOTAL ASSETS $686,440 $847,051
============= ============
LIABILITIES
Senior notes 60,000 60,000
Lines of credit 31,559 105,590
Mortgage loan payable to bank 4,221 4,120
Accounts payable and accrued liabilities 18,279 20,330
Income taxes payable 214 -
Deferred dealer enrollment fees, net 1,649 2,392
Dealer holdbacks, net 363,519 426,693
Deferred income taxes 8,024 8,651
------------- ------------
TOTAL LIABILITIES 487,465 627,776
------------- ------------
SHAREHOLDERS' EQUITY
Common stock 228 228
Paid-in capital 124,105 124,754
Retained earnings 74,977 94,302
Cumulative translation adjustment (335) (9)
------------- ------------
TOTAL SHAREHOLDERS' EQUITY 198,975 219,275
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $686,440 $847,051
============= ============
</TABLE>
1
<PAGE> 4
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) 3 Months Ended 3 Months Ended 6 Months Ended 6 Months Ended
6/30/95 6/30/96 6/30/95 6/30/96
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUE
Finance charges $ 16,599 $ 22,159 $ 30,760 $ 42,532
Interest and other income 1,872 3,556 3,469 6,459
Dealer enrollment fees 663 1,261 1,249 2,225
Premiums earned 1,478 2,236 2,845 4,601
---------- ---------- ---------- ----------
Total revenue 20,612 29,212 38,323 55,817
COSTS AND EXPENSES
Salaries and wages 2,358 2,965 4,446 5,705
General and administrative 2,439 3,513 4,616 6,753
Provision for credit losses 1,580 2,721 3,090 5,447
Sales and marketing 480 945 871 1,847
Provision for claims 440 777 866 1,534
Interest 2,376 2,751 4,165 4,824
---------- ---------- ---------- ----------
Total costs and expenses 9,673 13,672 18,054 26,110
---------- ---------- ---------- ----------
OPERATING INCOME 10,939 15,540 20,269 29,707
---------- ---------- ----------
Foreign exchange gain(loss) (130) 3 (47) 1
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 10,809 15,543 20,222 29,708
Provision for income taxes 3,782 5,406 7,024 10,383
---------- ---------- ---------- ----------
NET INCOME $ 7,027 $ 10,137 $ 13,198 $ 19,325
========== ========== ========== ==========
Net income per common share $ 0.17 $ 0.22 $ 0.31 $ 0.42
========== ========== ========== ==========
Weighted average shares outstanding 42,507,229 46,479,968 42,482,352 46,458,038
========== ========== ========== ==========
</TABLE>
2
<PAGE> 5
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) 6 Months Ended 6 Months Ended
6/30/95 6/30/96
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 13,198 $ 19,325
Adjustments to reconcile net income to net cash
provided by operating activities -
Provision for deferred income taxes 1,293 627
Depreciation and amortization 402 651
Provision for credit losses 3,090 5,447
Change in operating assets and liabilities -
Accounts payable and accrued liabilities 5,680 2,051
Income taxes payable 88 (214)
Unearned insurance premiums, insurance reserves, and fees 1,156 660
Deferred dealer enrollment fees, net 408 743
Other assets (1,371) 910
--------- ---------
Net cash provided by operating activities 23,944 30,200
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on installment contracts receivable 90,231 133,874
Purchase of investments (727) (1,276)
Increase in floor plan receivables (4,094) (1,747)
Decrease(increase) in notes receivable (565) 224
Purchase of property and equipment (967) (2,231)
---------- ---------
Net cash provided by investing activities 83,878 128,844
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of mortgage loan payable to bank (95) (101)
Advances to dealers and payments of dealer holdback (161,776) (233,949)
Net borrowings under line of credit agreement 53,807 74,031
Proceeds from stock options exercised 210 683
Payment of stock issuance costs - (34)
--------- ---------
Net cash used in financing activities (107,854) (159,370)
--------- ---------
Effect of exchange rate changes on cash (3) 326
--------- ---------
NET DECREASE IN CASH (35) 0
Cash and cash equivalents - beginning of period 105 1
--------- ---------
Cash and cash equivalents - end of period $ 70 $ 1
========= =========
</TABLE>
3
<PAGE> 6
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Translation Retained
(Dollars in thousands) Common Stock Paid-In Capital Adjustment Earnings
------------ --------------- ---------- --------
<S> <C> <C> <C> <C>
Balance as of December 31, 1995 $ 228 $124,105 $(335) $74,977
Net income - - - 19,325
Foreign currency translation adjustment - - 326 -
Stock options exercised - 683 - -
Stock issuance costs - (34) - -
------------ -------- ----------- --------
Balance as of June 30, 1996 $ 228 $124,754 $ (9) $94,302
============ ======== =========== ========
</TABLE>
4
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CREDIT ACCEPTANCE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
1. GENERAL
The unaudited consolidated operating results have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting of normal recurring items,
necessary for a fair presentation of the periods. The results of operations
for interim periods are not necessarily indicative of actual results achieved
for full fiscal years.
As contemplated by the Securities and Exchange Commission under rule 10-01
of Regulation S-X, the accompanying consolidated financial statements and
related notes have been condensed and do not contain certain information
included in the Company's annual consolidated financial statements and notes
thereto.
2. NET INCOME PER SHARE
The net income per share amounts are based on the average number of common
shares and common stock equivalents outstanding. All per share amounts have
been adjusted to reflect all stock splits declared by the Company.
3. STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 121
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of." This new accounting standard
requires impairment losses on long-lived assets to be recognized when an
asset's book value exceeds its expected future cash flows (undiscounted).
Measurement of the impairment loss is based on the fair value of the asset.
The adoption of this accounting standard did not impact the Company's financial
position or results of operations.
5
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1996 Compared to Three and Six Months
Ended June 30, 1995
Total Revenue. Total revenue increased from $20.6 million and $38.3 million
for the three and six months ended June 30, 1995 to $29.2 million and $55.8
million for the same periods in 1996, representing increases of 41.7% and
45.6%, respectively. These increases are primarily due to an increase in
finance charge revenue resulting from an increase in the dollar value of
installment contracts receivable. The increase in contracts receivable is
primarily the result of an increase in the number of dealers participating in
the Company's program and an increase in the average contract size. The Company
enrolled 1,423 new dealers into the Company's program during the six months
ended June 30, 1996, bringing the total number of dealers as of June 30, 1996
to 4,511 compared to 2,455 as of June 30, 1995.
The average yield on the Company's installment contract portfolio was
approximately 13.1% and 11.5% for the six months ended June 30, 1995 and 1996,
respectively. The decrease in the average yield principally resulted from an
increase in the percent of installment contracts which were greater than 120
days contractually past due (which were 26.1% and 32.8% of gross installment
contracts as of June 30, 1995 and 1996, respectively). The increase in the
level of contractual past due contracts, while significant, is mitigated by the
fact that when an installment contract is 120 days contractually past due, the
Company (i) transfers the contract to a non-accrual status; and (ii) makes a
provision to credit losses equal to the earned but unpaid revenue previously
recognized on such installment contract. To a lesser extent, the decline in
the average yield was also the result of an increase in the average outstanding
term of the Company's installment contract portfolio.
Also contributing to the increase in total revenue were premiums earned on the
Company's credit life and service contract programs. Premiums earned increased
from $1.5 million and $2.8 million for the three and six months ended June 30,
1995 to $2.2 million and $4.6 million for the same periods in 1996,
representing increases of 51.3% and 61.7%, respectively. Interest and other
income increased from $1.9 million and $3.5 million during the three and six
months ended June 30, 1995 to $3.6 million and $6.5 million during the same
periods in 1996, representing increases of 90.0% and 86.2%, respectively. This
increase is primarily due to an increase in revenue earned from the Company's
dual interest collateral protection insurance program. To a lesser extent, the
increase is due to commissions earned on credit life and service contract
products offered by dealers in the United Kingdom, and an increase in interest
earned on floor plan financing which resulted from increased floor plan
balances in 1996. Earned dealer enrollment fees increased from $663,000 and
$1.2 million for the three and six months ended June 30, 1995 to $1.3 million
and $2.2 million for the same periods in 1996, representing increases of 90.2%
and 78.1%, respectively. The increase is due to the continued increase in the
number of dealers participating in the Company's financing program.
Salaries and Wages. Salaries and wages, as a percent of total revenue,
decreased from 11.4% and 11.6% for the three and six months ended June 30, 1995
to 10.1% and 10.2% for the same periods in 1996. The Company continues to
benefit from increased efficiencies which have allowed it to increase revenue
with a less than proportionate increase in personnel costs.
General and Administrative. General and administrative expenses, as a percent
of total revenue, increased from 11.8% and 12.0% for the three and six months
ended June 30, 1995 to 12.0% and 12.1% for the same periods in 1996. This
increase is primarily due to investments in technology which have enabled the
6
<PAGE> 9
Company to more effectively service its growing installment contract portfolio
while having a positive impact on personnel costs.
Provision for Credit Losses. The amount provided for credit losses, as a
percent of total revenue, increased from 7.7% and 8.1% for the three and six
months ended June 30, 1995 to 9.3% and 9.8% for the same periods in 1996. This
increase is the result of an increase in the Company's reserve on advances made
to dealers. The increase is partially offset by a decrease, as a percent of
total revenue, in amounts provided for earned but unpaid revenue on contracts
which have become 120 days contractually past due.
Sales and Marketing. Sales and marketing expenses, as a percent of total
revenue, increased from 2.3% during the three and six months ended June 30,
1995 to 3.2% and 3.3% during the same periods in 1996. This increase is
primarily the result of increased sales commissions as a result of the
increased enrollment of new dealers into the Company's program, as well as an
increase in other costs directly associated with the enrollment of new dealers.
Provision for Claims. The amount provided for insurance and service contract
claims, as a percent of total revenue, increased from 2.1% and 2.3% during the
three and six months ended June 30, 1995 to 2.7% during the same periods in
1996. The increase is principally attributable to an increase in the level of
reserves necessary to cover unpaid claims, including incurred but unreported
claims. The increase is proportionate with the growth in the Company's credit
life and service contract programs.
Interest Expense. Interest expense, as a percent of total revenue, decreased
from 11.5% and 10.9% for the three and six months ended June 30, 1995 to 9.4%
and 8.6% for the same periods in 1996. The decrease, as a percent of revenue,
is primarily a result of a decrease in the level of borrowings under the
Company's revolving credit facility, as proceeds from the Company's equity
offering in September of 1995 were used to pay down this debt. To a lesser
extent, the decrease is also a result of lower average borrowing rates on the
revolving credit facility in 1996.
Operating Income. As a result of the aforementioned factors, operating income
increased from $10.9 million and $20.3 million for the three and six months
ended June 30, 1995 to $15.5 million and $29.7 million for the same periods in
1996, representing increases of 42.1% and 46.6%, respectively.
Foreign Exchange Loss. The Company incurred a foreign exchange loss of
$130,000 and $47,000 for the three and six months ended June 30, 1995 and a
foreign exchange gain of $3,000 and $1,000 for the three and six months ended
June 30, 1996. The gain and loss result from the effect of exchange rate
fluctuations between the U.S. dollar and British pound sterling on unhedged
intercompany balances between the Company and its subsidiary that operates in
the United Kingdom.
Provision for Income Taxes. The provision for income taxes increased from $3.8
million and $7.0 million during the three and six months ended June 30, 1995 to
$5.4 million and $10.4 million during the same periods in 1996. The increase
is due to a higher level of pretax income in 1996. For the six months ended
June 30, the effective tax rate was 35.0% in 1996 and 34.7% in 1995. The
increase in the effective tax rate is due to the elimination of certain
deductions previously available to the Company's credit insurance subsidiary.
7
<PAGE> 10
INSTALLMENT CONTRACTS RECEIVABLE
The following table summarizes the composition of installment contracts
receivable at the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands) AS OF AS OF
12/31/95 06/30/96
--------- ---------
(Unaudited)
<S> <C> <C>
Gross installment contracts receivable
Unearned finance charges $ 790,607 $ 981,145
Unearned insurance premiums, insurance (125,536) (156,672)
reserves, and fees
(4,862) (5,522)
Installment contracts receivable --------- ---------
$660,209 $818,951
========= =========
Non-accrual installment contracts as a percent
of total gross installment contracts 31.8% 32.8%
===== =====
</TABLE>
A summary of changes in gross installment contracts receivable is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(Dollars in thousands) JUNE 30, JUNE 30,
------------------ ------------------
1995 1996 1995 1996
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Balance, beginning of period $553,341 $885,121 $486,897 $790,607
Gross amount of installment
contracts accepted 171,703 220,288 308,352 424,214
Cash collections on installment
contracts receivable (64,354) (92,514) (122,437) (179,792)
Charge offs (18,362) (31,750) (30,484) (53,884)
-------- -------- -------- --------
Balance, end of period $642,328 $981,145 $642,328 $981,145
======== ======== ======== ========
</TABLE>
DEALER HOLDBACKS
The following table summarizes the composition of dealer holdbacks at the
dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands) AS OF AS OF
12/31/95 06/30/96
-------- --------
(Unaudited)
<S> <C> <C>
Dealer Holdbacks
Less: Advances (net of reserves of $3,214 $ 628,386 $ 781,846
and $5,780 at December 31, 1995 and
June 30, 1996, respectively)
(264,867) (355,153)
Dealer holdbacks, net --------- ---------
$ 363,519 $ 426,693
========= =========
</TABLE>
8
<PAGE> 11
CREDIT POLICY AND EXPERIENCE
The Company maintains an allowance for credit losses which, in the opinion
of management, adequately reserves against expected future losses. The risk of
loss to the Company related to the installment contracts receivable balance
relates primarily to the earned but unpaid servicing fee or finance charge
recognized on contractually delinquent accounts. To the extent that the
Company does not collect the gross amount of the contract, the remaining gross
installment receivable contract balance is charged off against the related
unearned finance charges and dealer holdback first, pursuant to the dealer
servicing agreement, and then against the allowance for credit losses, as
necessary. The Company also maintains a reserve against advances to dealers
that are not expected to be recovered through collections on the related
installment contract receivable portfolio. Advance balances are reviewed by
management on a monthly basis, and those which are deemed to be unrecoverable
are charged against the reserve. Credit loss experience, changes in the
character and size of the receivables portfolio and the advance balance, and
management's judgment are primary factors used in assessing the overall
adequacy of the allowance and advance reserve and the resulting provisions for
credit losses. Ultimate losses may vary from current estimates and the amount
of the provision, which is a current expense, may be either greater or less
than actual charge offs.
Servicing fees, which are booked as finance charges, are recognized under
the interest method of accounting until the underlying obligation is 120 days
contractually past due. At such time, the Company suspends the accrual of
revenue and makes a provision for credit losses equal to the earned but unpaid
revenue. In all cases, installment contracts on which no material payment has
been received for one year are charged off against the related dealer holdback
and the allowance for credit losses. As future payments on any remaining
aggregate contracts from a given dealer are available to recover all advances
from such dealer, the risk of loss to the Company is mitigated.
9
<PAGE> 12
The following table sets forth information relating to charge offs, the
allowance for credit losses, the reserve on advances, and dealer holdbacks.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(Dollars in thousands) JUNE 30, JUNE 30,
----------------------- ------------------
1995 1996 1995 1996
---- ----- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Provision for credit losses-installment contracts $ 1,013 $ 1,295 $ 2,268 $ 2,814
Provision for credit losses-advances 567 1,426 822 2,633
Charged against dealer holdbacks 14,745 25,379 24,502 43,092
Charged against unearned finance charges 3,148 5,663 5,203 9,578
Charged against allowance for credit losses 469 708 779 1,214
-------- ------- ------- -------
Total contracts charged off $18,362 $31,750 $30,484 $53,884
======== ======= ======= =======
Net charge offs against the reserve on advances $ - $ 23 $ - $ 67
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
(Dollars in thousands) JUNE 30, 1995 JUNE 30, 1996
------------- --------------
<S> <C> <C>
(Unaudited)
Allowance for credit losses as a percent of gross
installment contracts receivable 0.9% 1.0%
Reserve on advances as a percent of advances 1.2% 1.6%
Dealer holdbacks as a percent of gross installment
contracts receivable 79.3% 79.7%
</TABLE>
The Company's relatively low level of amounts charged against the
allowance for credit losses is due to, among other factors:
(i) the requirement that each installment contract accepted must
meet established, formula-based criteria prior to the Company making
an advance on such contract;
(ii) experienced personnel, using computer-assisted accounts
receivable management and collection systems;
(iii) the security interest the Company receives in the vehicle at
the time it accepts an installment contract; and
(iv) the high level of dealer holdbacks, relative to the amount of
installment contracts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for capital is to fund cash advances made to
dealers in connection with the acceptance of installment contracts and for the
payment of dealer holdbacks to dealers who have repaid their advance balances.
These cash outflows to dealers increased from $161.8 million during the six
months ended June 30, 1995 to $233.9 million during the same period in 1996.
These amounts were funded from cash collections on installment contracts,
income from operations, and advances under the Company's credit agreement.
During the first six months of 1996, the Company borrowed approximately $74.0
million under its line of credit agreements to assist in funding the Company's
operations. The increased need for capital is primarily a result of the
continued growth in new installment contracts accepted. To a lesser extent,
the increased need for capital is also due to an increase in the amount
advanced per contract, continued increases in dealers' utilization of service
contract products offered by the Company, and amounts needed to fund the
continued growth of the Company's operations in the United Kingdom.
The Company has a $152 million credit agreement with a commercial bank
syndicate. The agreement consists of a $92 million line of credit facility
with a commitment period through January 12, 1997 and a $60 million revolving
credit facility with a commitment period through January 13, 1999. Both
facilities are subject to annual extension for additional one year periods at
the request of the Company with the consent of each of the banks in the
facility. The borrowings are unsecured with interest payable at the
Eurocurrency rate plus a minimum of 80 basis points and a maximum of 140 basis
points (currently 105 basis points) dependent on the Company's debt rating, or
at the prime rate. The Eurocurrency borrowings may be fixed for periods up to
one year. The credit agreement has certain restrictive covenants, including
limits on the ratio of the Company's debt-to-equity, limits on the Company's
investment in its subsidiary in the United Kingdom, and requirements that the
Company maintain a specified minimum level of net worth. As of June 30, 1996,
there was approximately $103.0 million outstanding under these facilities.
The Company also has a 2.0 million British pound sterling line of credit
agreement with a commercial bank in the United Kingdom, which is used to fund
the day to day cash flow requirements of
10
<PAGE> 13
the Company's subsidiary which operates in the United Kingdom. The borrowings
are secured by a letter of credit issued by the Company's principal commercial
bank with interest payable at the United Kingdom bank's base rate (currently
5.75%) plus 65 basis points or at the LIBOR rate plus 56.25 basis points. The
rates may be fixed for periods up to six months. As of June 30, 1996, there
was approximately 1.7 million British pounds ($2.6 million U.S. dollars)
outstanding under this facility.
The Company maintains a significant dealer holdback on installment
contracts accepted which assists the Company in funding its long-term cash flow
requirements. In future periods, the Company's short and long-term cash flow
requirements will continue to be funded primarily through earnings from
operations, cash flow from the collection of installment contracts, and the
Company's credit facilities. The Company will continue to utilize various
sources of financing available from time to time to fund the continuing
growth of the Company, both in the United States and the United Kingdom. The
Company believes that such amounts will be sufficient to meet its short-term
and long-term cash flow requirements.
11
<PAGE> 14
PART II.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 20, 1996, at
which the shareholders considered and voted on the election of six directors.
Each of the nominees for director at the meeting was an incumbent and all
nominees were elected. The following table sets forth the number of shares for
and withheld with respect to each nominee.
<TABLE>
<S> <C> <C>
Nominee Votes For Votes Withheld
------- --------- --------------
Donald A. Foss 42,099,881 47,804
Richard E. Beckman 42,099,981 47,704
Harry E. Craig 42,117,381 30,304
Thomas A. FitzSimmons 42,099,981 47,704
David T. Harrison 42,123,181 24,504
Sam M. LaFata 42,123,481 24,204
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
</TABLE>
(a) Exhibits
See Index of Exhibits following the signature page.
(b) Reports on Form 8-K
The Company was not required to file a current report on
Form 8-K during the quarter ended June 30, 1996 and none were
filed during that period.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CREDIT ACCEPTANCE CORPORATION
(Registrant)
Date: August 12, 1996 /S/Brett A. Roberts
--------------------------------------------
Treasurer and Chief Financial Officer
Signing on behalf of the registrant and as
principal financial officer.
Date: August 12, 1996 /S/John P. Cavanaugh
--------------------------------------------
John P. Cavanaugh
Corporate Controller and Assistant Secretary
Principal accounting officer.
13
<PAGE> 16
INDEX OF EXHIBITS
Exhibit Number Description
- - -------------- -----------
10(q) (3) Second Amendment to Credit Acceptance Corporation
$152,000,000 Amended and Restated Credit Agreement dated as
of January 8, 1996
11(1) Statement of Computation of Net Income Per Common Share
27 Financial Data Schedule
14
<PAGE> 1
EXHIBIT 10q(3)
SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT ("Second Amendment") is
made as of this 1st day of July, 1996 by and among Credit Acceptance
Corporation, a Michigan corporation ("Company"), Credit Acceptance
Corporation UK Limited, a corporation organized under the laws of
England ("Permitted Borrower"), Comerica Bank and the other banks
signatory hereto (individually, a "Bank" and collectively, the "Banks")
and Comerica Bank, as agent for the Banks (in such capacity, "Agent").
RECITALS
A. Company, Permitted Borrower, Agent and the Banks entered into
that certain Amended and Restated Credit Agreement dated as of January
8, 1996, as amended by First Amendment dated April 19, 1996 (as so
amended, the "Credit Agreement") under which the Banks renewed and
extended (or committed to extend) credit to the Company, as set forth
therein;
B. The Company and the Permitted Borrower have requested that Agent
and the Banks agree to make certain amendments to the Credit Agreement
(including increasing the amount of the Line of Credit), and Agent and
the Banks are willing to do so, but only on the terms and conditions set
forth in this Second Amendment.
NOW THEREFORE, Company, Permitted Borrower, Agent and the Banks agree:
1. Section 1.90 of the Credit Agreement (establishing the "Line of
Credit Maximum Amount") is hereby amended to increase the amount shown
therein from Sixty Million Dollars ($60,000,000) to Ninety-Two Million
Dollars ($92,000,000).
2. Section 1.93 of the Credit Agreement (the definition of
"Majority Banks") is hereby amended and restated in its entirety as
follows:
"1.93. 'Majority Banks' shall mean at any time Banks holding at
least 66-2/3% of the Weighted Percentages (regardless of the
aggregate principal amount of the Indebtedness then outstanding
hereunder), or if all of the Banks' commitments to extend credit
hereunder shall have terminated, then Banks holding 66-2/3% of the
aggregate principal amount of the Indebtedness then outstanding
(using the Current Dollar Equivalent of any such Indebtedness
outstanding in any Alternate Currency, and provided that, for
purposes of determining Majority Banks hereunder, Indebtedness
outstanding under the Swing Line Note shall be allocated among the
Banks based upon their respective Percentages of the Revolving
Credit)."
3. Section 1.145 is added, as follows:
"1.145. `Weighted Percentage' shall mean with respect to any Bank,
its percentage share of the credit facility provided to CAC and/or the
Permitted Borrower under this Agreement, such percentage share equal to
(a) the aggregate amount of such Bank's commitments with respect to the
Revolving Credit plus the Line of Credit divided by (b) the sum of the
Revolving Credit Maximum Amount plus the Line of Credit Maximum Amount,
as such
<PAGE> 2
Weighted Percentage is set forth on Exhibit "D" under Column 3, as such
Exhibit may be revised from time to time by Agent in accordance with
Section 13.8(d)hereof."
4. Section 8.5(e) is hereby amended to add at the beginning of said
section the following:
"Debt consisting of interest rate protection agreements or foreign
currency exchange agreements (including foreign currency hedges and
swaps) entered into between the Company and/or the Permitted Borrower
and a Bank, or any Affiliate of a Bank, to manage existing or
anticipated interest rate or foreign exchange rate risk and not for
speculative purposes, and".
5. Section 10 of the Credit Agreement is amended as follows:
(i) Section 10.2 (Application of Proceeds) is
amended by deleting the word "Indebtedness" in
the eighth line thereof and by adding the phrase
"of the Revolving Credit and of the Line of
Credit" immediately following the phrase
"Percentages of the" in the seventh line
thereof.
(ii) Section 10.3 (Pro-rata Recovery) is amended
by adding the phrase "Revolving Credit or of the
Line of Credit, as the case may be," immediately
following the term "Percentages" in the eleventh
line thereof.
6. Section 12 of the Credit Agreement is amended as follows:
(a) Section 12.1 (Appointment of Agent) is amended by adding the term
"Weighted" between the words "such Bank's" and "Percentage" in the
fifteenth line thereof.
(b) Section 12.12 (Indemnification) is amended by adding the term
"Weighted" between the words "respective" and "Percentages" in the
fourth line thereof.
7. Section 13 of the Credit Agreement is amended as follows:
(a) Section 13.4 (Interest) is amended by adding the phrase "of the
Revolving Credit or of the Line of Credit, as applicable," immediately
following the words "such Bank's Percentage" in the seventh line
thereof.
(b) Section 13.11 (Amendment and Waiver) is amended by deleting the
"or" immediately preceding the "(h)" in the seventh line of the
carry-over page thereof and by adding the following new clause (i)
immediately following the words "this Section 13.11,":
"or (i) change the definition of 'Majority Banks' or 'Weighted
Percentage',".
8. New Exhibit "D" (setting forth the applicable Percentages, as revised
hereunder) in the form attached to this Second Amendment as Attachment 1 shall
replace existing Exhibit "D".
9. This Second Amendment shall become effective upon satisfaction by the
Company and the Permitted Borrower of the following conditions:
<PAGE> 3
(a) Agent shall have received counterpart originals of this Second
Amendment, together with replacement Line of Credit Notes (reflecting the
aforesaid increase in the Line of Credit, taking into account the new
Percentages established under replacement Exhibit "D", attached hereto), in
each case duly executed and delivered by Company and by the Permitted Borrower,
in form satisfactory to Agent and the Banks;
(b) Agent shall have received from the Company and the Permitted Borrower
a certification that all necessary actions have been taken by such parties to
authorize execution and delivery of this Second Amendment and the replacement
Line of Credit Notes, supported by such resolutions or other evidence of
corporate authority or action as reasonably required by Agent and the Majority
Banks; and
(c) Company shall have paid to Agent a closing fee in accordance with that
certain fee letter entered into between Company and Agent as of June 26, 1996,
for distribution to the Banks in accordance with such fee letter.
10. Company and Permitted Borrower ratify and confirm, as of the date
hereof, each of the representations and warranties set forth in Sections 6.1
through 6.22, inclusive, of the Credit Agreement and acknowledge that such
representations and warranties are and shall remain continuing representations
and warranties during the entire life of the Credit Agreement.
11. Except as specifically set forth above, this Second Amendment shall
not be deemed to amend or alter in any respect the terms and conditions of the
Credit Agreement, any of the Notes issued thereunder or any of the other Loan
Documents, or to constitute a waiver by the Banks or Agent of any right or
remedy under the Credit Agreement, any of the Notes issued thereunder or any of
the other Loan Documents.
12. Unless otherwise defined to the contrary herein, all capitalized terms
used in this Second Amendment shall have the meaning set forth in the Credit
Agreement.
13. This Second Amendment may be executed in counterpart in accordance
with Section 13.10 of the Credit Agreement.
[SIGNATURES FOLLOW ON SUCCEEDING PAGES.]
<PAGE> 4
WITNESS the due execution hereof as of the day and year first above written.
COMERICA BANK, CREDIT ACCEPTANCE CORPORATION
as Agent
By: By:
----------------------- -----------------------
Its: Its:
----------------------- -----------------------
One Detroit Center
500 Woodward Avenue
Detroit, Michigan 48226
Attention: Douglas Busk
CREDIT ACCEPTANCE CORPORATION
UK LIMITED
By:
-----------------------
Its:
-----------------------
BANKS:
COMERICA BANK LASALLE NATIONAL BANK
By: By:
----------------------- -----------------------
Its: Its:
----------------------- -----------------------
NBD BANK BANK HAPOALIM, B.M.
By: By:
----------------------- -----------------------
Its: Its:
----------------------- -----------------------
<PAGE> 5
FIFTH THIRD BANK OF HARRIS TRUST AND SAVINGS BANK
NORTHWESTERN OHIO, N.A.
By: By:
----------------------- -----------------------
Its: Its:
----------------------- -----------------------
MERCANTILE BANK OF ST. LOUIS THE BANK OF NEW YORK
NATIONAL ASSOCIATION
By: By:
----------------------- -----------------------
Its: Its:
----------------------- -----------------------
THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By:
-----------------------
Its:
-----------------------
By:
-----------------------
Its:
-----------------------
<PAGE> 6
EXHIBIT D
<TABLE>
<CAPTION>
Percentages of Amount of Revolving Percentages of Line
Banks Revolving Credit Credit Commitment of Credit
----- ---------------- ------------------- -------------------
<S> <C> <C> <C>
Comerica Bank 25.00000% $15,000,000 23.36955%
LaSalle National Bank 16.66667% $10,000,000 21.19565%
Bank Hapoalim, B.M. 12.50000% $ 7,500,000 8.15217%
NBD Bank 12.50000% $ 7,500,000 13.58696%
The Sumitomo Bank,
Limited, Chicago
Branch 8.33333% $ 5,000,000 7.60870%
Harris Trust and
Savings Bank 8.33333% $ 5,000,000 7.60870%
The Bank of New York 8.33333% $ 5,000,000 10.86957%
Mercantile Bank of
St. Louis National
Association 4.16667% $ 2,500,000 3.80435%
Fifth Third Bank of
Northwestern Ohio,
N.A. 4.16667% $ 2,500,000 3.80435%
Total 100.00000% $60,000,000 100.00000%
========= =========== =========
<CAPTION>
Amount of Line of Total Amount of
Banks Credit Commitment Weighted Percentages Commitments
----- ----------------- -------------------- ---------------
<S> <C> <C> <C>
Comerica Bank $21,500,000 24.01316% $ 36,500,000
LaSalle National Bank $19,500,000 19.40789% $ 29,500,000
Bank Hapoalim, B.M. $ 7,500,000 9.86842% $ 15,000,000
NBD Bank $12,500,000 13.15789% $ 20,000,000
The Sumitomo Bank,
Limited, Chicago
Branch $ 7,000,000 7.89474% $ 12,000,000
Harris Trust and
Savings Bank $ 7,000,000 7.89474% $ 12,000,000
The Bank of New York $10,000,000 9.86842% $ 15,000,000
Mercantile Bank of
St. Louis National
Association $ 3,500,000 3.94737% $ 6,000,000
Fifth Third Bank of
Northwestern Ohio,
N.A. $ 3,500,000 3.94737% $ 6,000,000
Total $92,000,000 100.00000% $152,000,000
============ ========= ============
</TABLE>
<PAGE> 1
EXHIBIT 11(1)
CREDIT ACCEPTANCE CORPORATION
STATEMENT OF COMPUTATION OF NET
INCOME PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30,
-------- --------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actual
Net income .................................. $ 7,027 $ 10,137 $ 13,198 $ 19,325
Weighted average common shares outstanding... 41,296,650 45,576,894 41,296,650 45,540,966
Common stock equivalents .................... 1,210,579 903,074 1,185,702 917,072
Weighted average common shares and
common stock equivalents .................. 42,507,229 46,479,968 42,482,352 46,458,038
---------- ---------- ----------- -----------
Net earnings per share ...................... $ .17 $ .22 $ .31 $ .42
=========== ========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1
<SECURITIES> 3,801
<RECEIVABLES> 818,951
<ALLOWANCES> (9,357)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 14,756
<DEPRECIATION> (2,834)
<TOTAL-ASSETS> 847,051
<CURRENT-LIABILITIES> 0
<BONDS> 64,120
0
0
<COMMON> 228
<OTHER-SE> 219,047
<TOTAL-LIABILITY-AND-EQUITY> 847,051
<SALES> 0
<TOTAL-REVENUES> 55,817
<CGS> 0
<TOTAL-COSTS> 14,305
<OTHER-EXPENSES> 1534
<LOSS-PROVISION> 5,447
<INTEREST-EXPENSE> 4,824
<INCOME-PRETAX> 29,708
<INCOME-TAX> 10,383
<INCOME-CONTINUING> 19,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,325
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
