Edgar Filing: CREDIT ACCEPTANCE CORP

cacc_q12013form10q.htm

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, 2013



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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of Common Stock, par value $0.01, outstanding on April 19, 2013 was 23,587,496.

TABLE OF CONTENTS




PART I. — FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets – As of March 31, 2013 and December 31, 2012			1

Consolidated Statements of Income – Three months ended March 31, 2013 and 2012			2

Consolidated Statements of Comprehensive Income – Three months ended March 31, 2013 and 2012			3

Consolidated Statements of Cash Flows – Three months ended March 31, 2013 and 2012			4

Notes to Consolidated Financial Statements			5

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			25

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			34

ITEM 4. CONTROLS AND PROCEDURES			34

PART II. — OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			35

ITEM 6. EXHIBITS			35

SIGNATURE			36

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PART I. - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CREDIT ACCEPTANCE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share data)	As of
	March 31, 2013			December 31, 2012
	(Unaudited)
ASSETS:
Cash and cash equivalents	$	7.8		$	9.0
Restricted cash and cash equivalents		116.3			92.4
Restricted securities available for sale		47.5			46.1

Loans receivable (including $6.5 and $5.9 from affiliates as of March 31, 2013 and December 31, 2012, respectively)		2,210.3			2,109.9
Allowance for credit losses		(181.7	)		(176.4	)
Loans receivable, net		2,028.6			1,933.5

Property and equipment, net		22.0			22.2
Income taxes receivable		0.6			1.1
Other assets		25.5			28.9
Total Assets	$	2,248.3		$	2,133.2

LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Accounts payable and accrued liabilities	$	105.2		$	105.8
Revolving secured line of credit		115.9			43.5
Secured financing		885.8			853.0
Mortgage note		4.0			4.0
Senior notes		350.3			350.3
Deferred income taxes, net		137.5			148.4
Income taxes payable		25.0			6.3
Total Liabilities		1,623.7			1,511.3

Commitments and Contingencies - See Note 14

Shareholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued		–			–
Common stock, $.01 par value, 80,000,000 shares authorized, 23,587,496 and 24,114,896 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		0.2			0.2
Paid-in capital		54.5			53.4
Retained earnings		569.9			568.4
Accumulated other comprehensive loss		–			(0.1	)
Total Shareholders' Equity		624.6			621.9
Total Liabilities and Shareholders' Equity	$	2,248.3		$	2,133.2

See accompanying notes to consolidated financial statements.

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CREDIT ACCEPTANCE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In millions, except share and per share data)	For the Three Months Ended March 31,
	2013		2012
Revenue:
Finance charges	$	142.9	$	126.1
Premiums earned		12.0		10.8
Other income		9.8		5.5
Total revenue		164.7		142.4
Costs and expenses:
Salaries and wages		21.9		19.4
General and administrative		7.9		7.4
Sales and marketing		9.0		7.8
Provision for credit losses		5.8		5.2
Interest		16.0		15.2
Provision for claims		9.0		8.6
Total costs and expenses		69.6		63.6
Income before provision for income taxes		95.1		78.8
Provision for income taxes		34.5		28.5
Net income	$	60.6	$	50.3

Net income per share:
Basic	$	2.49	$	1.92
Diluted	$	2.48	$	1.92

Weighted average shares outstanding:
Basic		24,330,027		26,157,672
Diluted		24,426,127		26,283,801

See accompanying notes to consolidated financial statements.

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CREDIT ACCEPTANCE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(In millions)	For the Three Months Ended March 31,
	2013		2012

Net income	$	60.6	$	50.3
Other comprehensive income, net of tax:
Unrealized gain on securities, net of tax of $0.1 for 2013		0.1		–
Other comprehensive income		0.1		–
Comprehensive income	$	60.7	$	50.3

See accompanying notes to consolidated financial statements.

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CREDIT ACCEPTANCE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In millions)	For the Three Months Ended March 31,
	2013			2012
Cash Flows From Operating Activities:
Net income	$	60.6		$	50.3
Adjustments to reconcile cash provided by operating activities:
Provision for credit losses		5.8			5.2
Depreciation		1.4			1.2
Amortization		1.8			1.6
(Benefit) provision for deferred income taxes		(11.0	)		5.9
Stock-based compensation		1.5			0.8
Change in operating assets and liabilities:
(Decrease) increase in accounts payable and accrued liabilities		(0.6	)		11.5
Decrease in income taxes receivable		0.5			0.1
Increase in income taxes payable		18.7			11.5
Decrease in other assets		2.2			1.0
Net cash provided by operating activities		80.9			89.1
Cash Flows From Investing Activities:
Increase in restricted cash and cash equivalents		(23.9	)		(55.4	)
Purchases of restricted securities available for sale		(21.8	)		–
Proceeds from sale of restricted securities available for sale		4.0			–
Maturities of restricted securities available for sale		16.4			–
Principal collected on Loans receivable		345.5			310.9
Advances to Dealers		(378.6	)		(374.4	)
Purchases of Consumer Loans		(27.9	)		(34.8	)
Accelerated payments of Dealer Holdback		(9.5	)		(12.9	)
Payments of Dealer Holdback		(30.0	)		(33.2	)
Net increase in other loans		(0.4	)		–
Purchases of property and equipment		(1.2	)		(3.9	)
Net cash used in investing activities		(127.4	)		(203.7	)
Cash Flows From Financing Activities:
Borrowings under revolving secured line of credit		595.2			607.5
Repayments under revolving secured line of credit		(522.8	)		(477.8	)
Proceeds from secured financing		312.6			492.4
Repayments of secured financing		(279.8	)		(487.1	)
Principal payments under mortgage note		–			(0.1	)
Payments of debt issuance costs		(0.4	)		(1.8	)
Repurchase of common stock		(59.7	)		(20.0	)
Proceeds from stock options exercised		–			0.2
Tax benefits from stock-based compensation plans		0.2			1.3
Net cash provided by financing activities		45.3			114.6
Net decrease in cash and cash equivalents		(1.2	)		–
Cash and cash equivalents, beginning of period		9.0			4.7
Cash and cash equivalents, end of period	$	7.8		$	4.7

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest	$	22.2		$	13.4
Cash paid during the period for income taxes	$	25.7		$	9.7

See accompanying notes to consolidated financial statements.

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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 GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of actual results achieved for full fiscal years. The consolidated balance sheet as of December 31, 2012 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2012 for Credit Acceptance Corporation (the “Company”, “Credit Acceptance”, “we”, “our” or “us”).

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, 2013 for items that could potentially be recognized or disclosed in these financial statements. For additional information regarding subsequent events, see Note 15 of these consolidated financial statements.

2. DESCRIPTION OF BUSINESS

Since 1972, Credit Acceptance has offered automobile dealers financing programs that enable them to sell vehicles to consumers, regardless of their credit history. Our financing programs are 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 automobile dealers who participate in our programs and who share our commitment to changing consumers’ lives as “Dealers”. Upon enrollment in our financing programs, the Dealer enters into a Dealer servicing agreement with us that defines the legal relationship between Credit Acceptance and the Dealer. 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 Dealers to us. We are an indirect lender from a legal perspective, meaning the Consumer Loan is originated by the Dealer and assigned to us.

We have two programs: the Portfolio Program and the Purchase Program. Under the Portfolio Program, we advance money to Dealers (referred to as a “Dealer Loan”) in exchange for the right to service the underlying Consumer Loans. Under the Purchase Program, we buy the Consumer Loans from the Dealers (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 based on unit volumes under each of the programs for each of the last five quarters:

Quarter Ended	Portfolio Program		Purchase Program
March 31, 2012	93.3	%	6.7	%
June 30, 2012	93.6	%	6.4	%
September 30, 2012	93.8	%	6.2	%
December 31, 2012	94.0	%	6.0	%
March 31, 2013	94.4	%	5.6	%

Portfolio Program

As payment for the vehicle, the Dealer 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”).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

2. DESCRIPTION OF BUSINESS – (Concluded)

We record the amount advanced to the Dealer as a Dealer Loan, which is classified within Loans receivable in our consolidated balance sheets. Cash advanced to the Dealer is automatically assigned to the Dealer’s open pool of advances. We generally require Dealers to group advances into pools of at least 100 Consumer Loans. At the Dealer’s option, a pool containing at least 100 Consumer Loans can be closed and subsequent advances assigned to a new pool. All advances within a Dealer’s pool are secured by the future collections on the related Consumer Loans assigned to the pool. For Dealers 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 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 to us; and

·	Fourth, to the Dealer as payment of Dealer Holdback.

If the collections on Consumer Loans from a Dealer’s pool are not sufficient to repay the advance balance and any other amounts due to us, the Dealer will not receive Dealer Holdback.

Dealers have an opportunity to receive an accelerated Dealer Holdback payment each time 100 Consumer Loans have been assigned to us. The amount paid to the Dealer is calculated using a formula that considers the forecasted collections and the advance balance on the related Consumer Loans.

Since typically the combination of the advance and the consumer’s down payment provides the Dealer with a cash profit at the time of sale, the Dealer’s risk in the Consumer Loan is limited. We cannot demand repayment of the advance from the Dealer except in the event the Dealer is in default of the Dealer servicing agreement. Advances are made only after the consumer and Dealer 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 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. The classification as a Dealer Loan for accounting purposes is primarily a result of (1) the Dealer’s financial interest in the Consumer Loan and (2) certain elements of our legal relationship with the Dealer.

Purchase Program

The Purchase Program differs from our Portfolio Program in that the Dealer receives a one-time payment from us at the time of assignment to purchase the Consumer Loan instead of a cash advance at the time of assignment and future Dealer Holdback payments. For accounting purposes, the transactions described under the Purchase Program are considered to be originated by the Dealer and then purchased by us.

Program Enrollment

Dealers may enroll in our program by (1) paying an up-front, one-time fee of $9,850, or (2) agreeing to allow us to retain 50% of their first accelerated Dealer Holdback payment. Dealers are granted access to the Portfolio Program upon enrollment. Access to the Purchase Program is limited and is typically only granted to Dealers that have received their first accelerated Dealer Holdback payment under the Portfolio Program.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Segment Information

We currently operate in one reportable segment which represents our core business of offering Dealers financing programs and related products and services that enable them to sell vehicles to consumers, regardless of their credit history. The consolidated financial statements reflect the financial results of our one reportable operating segment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

Loans Receivable and Allowance for Credit Losses

Consumer Loan Assignment. For accounting and financial reporting purposes, a Consumer Loan is considered to have been assigned to us after all of the following has occurred:

·	the consumer and Dealer have signed a Consumer Loan contract;

·	we have received the original Consumer Loan contract and supporting documentation;

·	we have approved all of the related stipulations for funding; and

·	we have provided funding to the Dealer in the form of either an advance under the Portfolio Program or one-time purchase payment under the Purchase Program.

Portfolio Segments and Classes. We are considered to be a lender to our Dealers for Consumer Loans assigned under our Portfolio Program and a purchaser of Consumer Loans assigned under our Purchase Program. As a result, our Loan portfolio consists of two portfolio segments: Dealer Loans and Purchased Loans. Each portfolio segment is comprised of one class of Consumer Loan assignments, which is Consumer Loans with deteriorated credit quality that were originated by Dealers to finance consumer purchases of vehicles and related ancillary products.

Dealer Loans. Amounts advanced to Dealers for Consumer Loans assigned under the Portfolio Program are recorded as Dealer Loans and are aggregated by Dealer for purposes of recognizing revenue and evaluating impairment. We account for Dealer Loans in a manner consistent with loans acquired with deteriorated credit quality. The outstanding balance of each Dealer Loan included in Loans receivable is comprised of the following:

·	the aggregate amount of all cash advances paid;

·	finance charges;

·	Dealer Holdback payments;

·	accelerated Dealer Holdback payments; and

·	recoveries.

Less:

·	collections (net of certain collection costs); and

·	write-offs.

An allowance for credit losses is maintained at an amount that reduces the net asset value (Dealer Loan balance less the allowance) to the value of forecasted future cash flows discounted at the yield established at the time of assignment. This allowance calculation is completed for each individual Dealer. The discounted value of future cash flows is comprised of estimated future collections on the Consumer Loans, less any estimated Dealer Holdback payments. We write off Dealer Loans once there are no forecasted future cash flows on any of the associated Consumer Loans, which generally occurs 120 months after the last Consumer Loan assignment.

Future collections on Dealer Loans are forecasted based on the historical performance of Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns. Dealer Holdback is forecasted based on the expected future collections and current advance balance of each Dealer Loan. Cash flows from any individual Dealer Loan are often different than estimated cash flows at the time of assignment. If such difference is favorable, the difference is recognized prospectively into income over the remaining life of the Dealer Loan through a yield adjustment. If such difference is unfavorable, a provision for credit losses is recorded immediately as a current period expense and a corresponding allowance for credit losses is established. Because differences between estimated cash flows at the time of assignment and actual cash flows occur often, an allowance is required for a significant portion of our Dealer Loan portfolio. An allowance for credit losses does not necessarily indicate that a Dealer Loan is unprofitable, and during the last several years, very seldom were cash flows from a Dealer Loan insufficient to repay the initial amounts advanced to the Dealer.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

Purchased Loans. Amounts paid to Dealers for Consumer Loans assigned under the Purchase Program are recorded as Purchased Loans and are aggregated into pools based on the month of purchase for purposes of recognizing revenue and evaluating impairment. We account for Purchased Loans as loans acquired with deteriorated credit quality. The outstanding balance of each Purchased Loan pool included in Loans receivable is comprised of the following:

·	the aggregate amount of all amounts paid during the month of purchase to purchase Consumer Loans from Dealers;

·	finance charges; and

·	recoveries.

Less:

·	collections (net of certain collection costs); and

·	write-offs.

An allowance for credit losses is maintained at an amount that reduces the net asset value (Purchased Loan pool balance less the allowance) to the value of forecasted future cash flows discounted at the yield established at the time of assignment. This allowance calculation is completed for each individual monthly pool of Purchased Loans. The discounted value of future cash flows is comprised of estimated future collections on the pool of Purchased Loans. We write off pools of Purchased Loans once there are no forecasted future cash flows on any of the Purchased Loans included in the pool, which generally occurs 120 months after the month of purchase.

Future collections on Purchased Loans are forecasted based on the historical performance of Consumer Loans with similar characteristics, adjusted for recent trends in payment patterns. Cash flows from any individual pool of Purchased Loans are often different than estimated cash flows at the time of assignment. If such difference is favorable, the difference is recognized prospectively into income over the remaining life of the pool of Purchased Loans through a yield adjustment. If such difference is unfavorable, a provision for credit losses is recorded immediately as a current period expense and a corresponding allowance for credit losses is established.

Credit Quality. Substantially all of the Consumer Loans assigned to us are made to individuals with impaired or limited credit histories or higher debt-to-income ratios than are permitted by traditional lenders. Consumer Loans made to these individuals generally entail a higher risk of delinquency, default and repossession and higher losses than loans made to consumers with better credit. Since most of our revenue and cash flows are generated from these Consumer Loans, our ability to accurately forecast Consumer Loan performance is critical to our business and financial results. At the time the Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan. Based on these forecasts, an advance or one-time purchase payment is made to the related Dealer at a price designed to achieve an acceptable return on capital.

We monitor and evaluate the credit quality of Consumer Loans on a monthly basis by comparing our current forecasted collection rates to our initial expectations. We use a statistical model that considers a number of credit quality indicators to estimate the expected collection rate for each Consumer Loan at the time of assignment. The credit quality indicators considered in our model include attributes contained in the consumer’s credit bureau report, data contained in the consumer’s credit application, the structure of the proposed transaction, vehicle information and other factors. We continue to evaluate the expected collection rate of each Consumer Loan subsequent to assignment primarily through the monitoring of consumer payment behavior. Our evaluation becomes more accurate as the Consumer Loans age, as we use actual performance data in our forecast. Since all known, significant credit quality indicators have already been factored into our forecasts and pricing, we are not able to use any specific credit quality indicators to predict or explain variances in actual performance from our initial expectations. Any variances in performance from our initial expectations are the result of Consumer Loans performing differently than historical Consumer Loans with similar characteristics. We periodically adjust our statistical pricing model for new trends that we identify though our evaluation of these forecasted collection rate variances.

When overall forecasted collection rates underperform our initial expectations, the decline in forecasted collections has a more adverse impact on the profitability of the Purchased Loans than on the profitability of the Dealer Loans. For Purchased Loans, the decline in forecasted collections is absorbed entirely by us. For Dealer Loans, the decline in the forecasted collections is substantially offset by a decline in forecasted payments of Dealer Holdback.

Methodology Changes. For the three months ended March 31, 2013 and 2012, we did not make any methodology changes for Loans that had a material impact on our financial results.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

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 Dealers on vehicles financed by us. VSC Re currently reinsures vehicle service contracts that are underwritten by one of our third party insurers. Vehicle service contract premiums, which represent the selling price of the vehicle service contract to the consumer, less fees and certain administrative costs, are contributed to trust accounts controlled by VSC Re. These premiums are used to fund claims covered under the vehicle service contracts. VSC Re is a bankruptcy remote entity. As such, our exposure to fund claims is limited to the trust assets controlled by VSC Re and our net investment in VSC Re.

Premiums from the reinsurance of vehicle service contracts are recognized over the life of the policy in proportion to expected costs of servicing those contracts. Expected costs are determined based on our historical claims experience. Claims are expensed through a provision for claims in the period the claim was incurred. Capitalized acquisition costs are comprised of premium taxes and are amortized as general and administrative expense over the life of the contracts in proportion to premiums earned. A summary of reinsurance activity is as follows:

(In millions)	For the Three Months Ended March 31,
	2013		2012
Net assumed written premiums	$	16.3	$	16.3
Net premiums earned		12.0		10.8
Provision for claims		9.0		8.6
Amortization of capitalized acquisition costs		0.3		0.3

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:

(In millions)		As of
	Balance Sheet location	March 31, 2013		December 31, 2012
Trust assets	Restricted cash and cash equivalents	$	2.4	$	2.2
Trust assets	Restricted securities available for sale		47.5		46.1
Unearned premium	Accounts payable and accrued liabilities		40.0		35.7
Claims reserve (1)	Accounts payable and accrued liabilities		1.5		1.4

(1)

The claims reserve is estimated based on historical claims experience.

Our determination to consolidate the VSC Re 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 third party product providers (“TPPPs”) 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.

Cash and Cash Equivalents

Cash equivalents consist of readily marketable securities with original maturities at the date of acquisition of three months or less. As of March 31, 2013 and December 31, 2012, we had $7.2 million and $4.8 million, respectively, in cash and cash equivalents that were not insured by the Federal Deposit Insurance Corporation (“FDIC”). As of January 1, 2013, the temporary unlimited coverage for noninterest-bearing transaction accounts expired, which increased the amount of cash and cash equivalents not insured by the FDIC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Concluded)

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents increased to $116.3 million as of March 31, 2013 from $92.4 million as of December 31, 2012. The following table summarizes restricted cash and cash equivalents:

(In millions)	As of
	March 31, 2013		December 31, 2012
Cash related to secured financings	$	113.8	$	90.2
Cash held in trusts for future vehicle service contract claims (1)		2.5		2.2
Total restricted cash and cash equivalents	$	116.3	$	92.4

(1)

The unearned premium and claims reserve associated with the trusts are included in accounts payable and accrued liabilities in the consolidated balance sheets. As of March 31, 2013, the outstanding cash balance includes $2.4 million related to VSC Re. As of December 31, 2012, the outstanding cash balance includes $2.2 million related to VSC Re.

As of March 31, 2013 and December 31, 2012, we had $114.3 million and $82.0 million, respectively, in restricted cash and cash equivalents that was not insured by the FDIC. As of January 1, 2013, the temporary unlimited coverage for noninterest-bearing transaction accounts expired, which increased the amount of restricted cash and cash equivalents not insured by the FDIC.

New Accounting Updates

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-2 which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The new guidance requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the income statement or as a separate disclosure in the notes to the financial statements. The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements. ASU 2013-02 is effective for fiscal years beginning after December 15, 2012. The adoption of ASU No. 2013-2 on January 1, 2013 did not have a material impact on our consolidated financial statements.

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. In October 2010, the FASB issued ASU No. 2010-26, which amends Topic 944 (Financial Services – Insurance). ASU No. 2010-26 is intended to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments specify which costs incurred in the acquisition of new and renewal contracts should be capitalized. ASU No. 2010-26 is effective for fiscal years beginning after December 15, 2011. While the guidance in this ASU is required to be applied prospectively upon adoption, retrospective application is also permitted (to all prior periods presented). Early adoption is also permitted, but only at the beginning of an entity’s annual reporting period. The adoption of ASU No. 2010-26 on January 1, 2012 did not have a material impact on our consolidated financial statements.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. In May 2011, the FASB issued ASU No. 2011-04 which amends Topic 820 (Fair Value Measurement). ASU No. 2011-04 is intended to provide a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. The amendments in ASU No. 2011-04 include changes regarding how and when the valuation premise of highest and best use applies, the application of premiums and discounts, and new required disclosures. ASU No. 2011-04 is to be applied prospectively upon adoption and is effective for interim and annual periods beginning after December 15, 2011 with early adoption prohibited. The adoption of ASU No. 2011-04 on January 1, 2012 did not have a material impact on our consolidated financial statements, but expanded our disclosures related to fair value measurements.

4. RESTRICTED SECURITIES AVAILABLE FOR SALE

Restricted securities available for sale consist of amounts held in trusts related to VSC Re. 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

4. RESTRICTED SECURITIES AVAILABLE FOR SALE – (Concluded)

Restricted securities available for sale consisted of the following:

(In millions)	As of March 31, 2013
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
US Government and agency securities	$	21.4	$	–	$	(0.1	)	$	21.3
Commercial paper		19.9		–		–			19.9
Corporate bonds		3.1		–		–			3.1
Certificates of deposit		3.2		–		–			3.2
Total restricted securities available for sale	$	47.6	$	–	$	(0.1	)	$	47.5

(In millions)	As of December 31, 2012
	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
US Government and agency securities	$	20.6	$	–	$	(0.1	)	$	20.5
Commercial paper		18.9		–		(0.1	)		18.8
Corporate bonds		3.3		–		–			3.3
Certificates of deposit		3.3		–		–			3.3
Foreign Government bonds		0.2		–		–			0.2
Total restricted securities available for sale	$	46.3	$	–	$	(0.2	)	$	46.1

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.

(In millions)	As of
	March 31, 2013				December 31, 2012
	Cost		Estimated Fair Value		Cost		Estimated Fair Value
Contractual Maturity
Within one year	$	35.0	$	34.9	$	33.8	$	33.7
Over one year to five years		8.9		8.9		8.6		8.6
Over five years to ten years		3.7		3.7		3.9		3.8
Total restricted securities available for sale	$	47.6	$	47.5	$	46.3	$	46.1

5. LOANS RECEIVABLE

Loans receivable consists of the following:

(In millions)	As of March 31, 2013
	Dealer Loans			Purchased Loans			Total
Loans receivable	$	1,973.1		$	237.2		$	2,210.3
Allowance for credit losses		(172.9	)		(8.8	)		(181.7	)
Loans receivable, net	$	1,800.2		$	228.4		$	2,028.6

(In millions)	As of December 31, 2012
	Dealer Loans			Purchased Loans			Total
Loans receivable	$	1,869.4		$	240.5		$	2,109.9
Allowance for credit losses		(167.4	)		(9.0	)		(176.4	)
Loans receivable, net	$	1,702.0		$	231.5		$	1,933.5

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

5. LOANS RECEIVABLE – (Continued)

A summary of changes in Loans receivable is as follows:

(In millions)	For the Three Months Ended March 31, 2013
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	1,869.4		$	240.5		$	2,109.9
New Consumer Loan assignments (1)		378.6			27.9			406.5
Principal collected on Loans receivable		(309.3	)		(36.2	)		(345.5	)
Accelerated Dealer Holdback payments		9.5			–			9.5
Dealer Holdback payments		30.0			–			30.0
Transfers (2)		(5.0	)		5.0			–
Write-offs		(1.1	)		–			(1.1	)
Recoveries (3)		0.6			–			0.6
Net change in other loans		0.4			–			0.4
Balance, end of period	$	1,973.1		$	237.2		$	2,210.3

(In millions)	For the Three Months Ended March 31, 2012
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	1,506.5		$	246.4		$	1,752.9
New Consumer Loan assignments (1)		374.4			34.8			409.2
Principal collected on Loans receivable		(269.7	)		(41.2	)		(310.9	)
Accelerated Dealer Holdback payments		12.9			–			12.9
Dealer Holdback payments		33.2			–			33.2
Transfers (2)		(5.2	)		5.2			–
Write-offs		(0.6	)		(0.1	)		(0.7	)
Recoveries (3)		0.6			–			0.6
Balance, end of period	$	1,652.1		$	245.1		$	1,897.2

(1)

The Dealer Loans amount represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program. The Purchased Loans amount represents one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program.

(2)

Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. We transfer the Dealer’s outstanding Dealer Loan balance to Purchased Loans in the period this forfeiture occurs.

(3) Represents collections received on previously written off Loans.

Contractual net cash flows are comprised of the contractual repayments of the underlying Consumer Loans for Dealer and Purchased Loans, less the related Dealer Holdback payments for Dealer Loans. The difference between the contractual net cash flows and the expected net cash flows is referred to as the nonaccretable difference. This difference is neither accreted into income nor recorded in our balance sheets. We do not believe that the contractual net cash flows of our Loan portfolio are relevant in assessing our financial position. We are contractually owed repayments on many Consumer Loans, primarily those older than 120 months, where we are not forecasting any future net cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

5. LOANS RECEIVABLE – (Continued)

The excess of expected net cash flows over the carrying value of the Loans is referred to as the accretable yield and is recognized on a level-yield basis as finance charge income over the remaining lives of the Loans. A summary of changes in the accretable yield is as follows:

(In millions)	For the Three Months Ended March 31, 2013
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	602.9		$	115.2		$	718.1
New Consumer Loan assignments (1)		163.6			11.7			175.3
Finance charge income		(124.1	)		(18.8	)		(142.9	)
Forecast changes		(0.2	)		3.0			2.8
Transfers (2)		(2.2	)		3.3			1.1
Balance, end of period	$	640.0		$	114.4		$	754.4

(In millions)	For the Three Months Ended March 31, 2012
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	508.0		$	120.1		$	628.1
New Consumer Loan assignments (1)		157.7			16.1			173.8
Finance charge income		(105.7	)		(20.4	)		(126.1	)
Forecast changes		3.5			0.7			4.2
Transfers (2)		(2.4	)		3.9			1.5
Balance, end of period	$	561.1		$	120.4		$	681.5

(1)

The Dealer Loans amount represents the net cash flows expected at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related advances paid to Dealers. The Purchased Loans amount represents the net cash flows expected at the time of assignment on Consumer Loans assigned under our Purchase Program, less the related one-time payments made to Dealers.

(2)

Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. We transfer the Dealer’s outstanding Dealer Loan balance and related expected future net cash flows to Purchased Loans in the period this forfeiture occurs.

Additional information related to new Consumer Loan assignments is as follows:

(In millions)	For the Three Months Ended March 31, 2013
	Dealer Loans		Purchased Loans		Total
Contractual net cash flows at the time of assignment (1)	$	578.6	$	54.8	$	633.4
Expected net cash flows at the time of assignment (2)		542.1		39.7		581.8
Fair value at the time of assignment (3)		378.6		27.9		406.5

(In millions)	For the Three Months Ended March 31, 2012
	Dealer Loans		Purchased Loans		Total
Contractual net cash flows at the time of assignment (1)	$	576.0	$	71.2	$	647.2
Expected net cash flows at the time of assignment (2)		532.0		50.9		582.9
Fair value at the time of assignment (3)		374.4		34.8		409.2

(1)

The Dealer Loans amount represents the repayments that we were contractually owed at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related Dealer Holdback payments that we would be required to make if we collected all of the contractual repayments. The Purchased Loans amount represents the repayments that we were contractually owed at the time of assignment on Consumer Loans assigned under our Purchase Program.

(2)

The Dealer Loans amount represents the repayments that we expected to collect at the time of assignment on Consumer Loans assigned under our Portfolio Program, less the related Dealer Holdback payments that we expected to make. The Purchased Loans amount represents the repayments that we expected to collect at the time of assignment on Consumer Loans assigned under our Purchase Program.

(3)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

5. LOANS RECEIVABLE – (Continued)

Credit Quality

We monitor and evaluate the credit quality of Consumer Loans assigned under our Portfolio and Purchase Programs on a monthly basis by comparing our current forecasted collection rates to our initial expectations. For additional information regarding credit quality, see Note 3 to the consolidated financial statements. The following table compares our forecast of Consumer Loan collection rates as of March 31, 2013, with the forecasts as of December 31, 2012, and at the time of assignment, segmented by year of assignment:

	Forecasted Collection Percentage as of (1)						Variance in Forecasted Collection Percentage from
Consumer Loan Assignment Year	March 31, 2013		December 31, 2012		Initial Forecast		December 31, 2012		Initial Forecast
2004	73.1	%	73.0	%	73.0	%	0.1	%	0.1	%
2005	73.6	%	73.6	%	74.0	%	0.0	%	-0.4	%
2006	69.9	%	69.9	%	71.4	%	0.0	%	-1.5	%
2007	68.0	%	68.0	%	70.7	%	0.0	%	-2.7	%
2008	70.4	%	70.3	%	69.7	%	0.1	%	0.7	%
2009	79.5	%	79.5	%	71.9	%	0.0	%	7.6	%
2010	77.4	%	77.3	%	73.6	%	0.1	%	3.8	%
2011	74.2	%	74.1	%	72.5	%	0.1	%	1.7	%
2012	72.7	%	72.2	%	71.4	%	0.5	%	1.3	%

(1)	Represents the total forecasted collections we expect to collect on the Consumer Loans as a percentage of the repayments that we were contractually owed on the Consumer Loans at the time of assignment. Contractual repayments include both principal and interest.

Advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program are aggregated into pools for purposes of recognizing revenue and evaluating impairment. As a result of this aggregation, we are not able to segment the carrying value of the majority of our Loan portfolio by year of assignment. We are able to segment our Loan portfolio by the performance of the Loan pools. Performance considers both the amount and timing of expected net cash flows and is measured by comparing the balance of the Loan pool to the discounted value of the expected future net cash flows of each Loan pool using the yield established at the time of assignment. The following table segments our Loan portfolio by the performance of the Loan pools:

(In millions)	As of March 31, 2013
	Loan Pool Performance Meets or Exceeds Initial Estimates						Loan Pool Performance Less than Initial Estimates
	Dealer Loans		Purchased Loans		Total		Dealer Loans			Purchased Loans			Total
Loans receivable	$	567.7	$	211.3	$	779.0	$	1,405.4		$	25.9		$	1,431.3
Allowance for credit losses		–		–		–		(172.9	)		(8.8	)		(181.7	)
Loans receivable, net	$	567.7	$	211.3	$	779.0	$	1,232.5		$	17.1		$	1,249.6

(In millions)	As of December 31, 2012
	Loan Pool Performance Meets or Exceeds Initial Estimates						Loan Pool Performance Less than Initial Estimates
	Dealer Loans		Purchased Loans		Total		Dealer Loans			Purchased Loans			Total
Loans receivable	$	564.1	$	205.8	$	769.9	$	1,305.3		$	34.7		$	1,340.0
Allowance for credit losses		–		–		–		(167.4	)		(9.0	)		(176.4	)
Loans receivable, net	$	564.1	$	205.8	$	769.9	$	1,137.9		$	25.7		$	1,163.6

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

5. LOANS RECEIVABLE – (Concluded)

A summary of changes in the allowance for credit losses is as follows:

(In millions)	For the Three Months Ended March 31, 2013
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	167.4		$	9.0		$	176.4
Provision for credit losses		6.0			(0.2	)		5.8
Write-offs		(1.1	)		–			(1.1	)
Recoveries (1)		0.6			–			0.6
Balance, end of period	$	172.9		$	8.8		$	181.7

(In millions)	For the Three Months Ended March 31, 2012
	Dealer Loans			Purchased Loans			Total
Balance, beginning of period	$	141.7		$	12.6		$	154.3
Provision for credit losses		6.6			(1.4	)		5.2
Write-offs		(0.6	)		(0.1	)		(0.7	)
Recoveries (1)		0.6			–			0.6
Balance, end of period	$	148.3		$	11.1		$	159.4

(1)	Represents collections received on previously written off Loans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

6. DEBT

We currently utilize the following primary forms of debt financing: (1) a revolving secured line of credit; (2) revolving secured warehouse (“Warehouse”) facilities; (3) asset-backed secured financings (“Term ABS”) and (4) 9.125% First Priority Senior Secured Notes due 2017 (“Senior Notes”). General information for each of our financing transactions in place as of March 31, 2013 is as follows:

(Dollars in millions)

Financings

Wholly-owned Subsidiary

Close Date

Maturity Date

Financing Amount

Interest Rate as of

March 31, 2013

Revolving Secured Line of Credit

n/a

06/15/2012

06/22/2015

235.0

At our option, either LIBOR plus 187.5 basis points or the prime rate plus 87.5 basis points

Warehouse Facility II (1)

CAC Warehouse Funding Corp. II

12/27/2012

12/27/2015

(2)

325.0

Commercial paper rate or LIBOR plus 200 basis points (3)

Warehouse Facility III (1)

CAC Warehouse Funding III, LLC

06/29/2012

09/10/2015

(4)

75.0

LIBOR plus 160 basis points (3)

Warehouse Facility IV (1)

CAC Warehouse Funding LLC IV

08/19/2011

02/19/2014

(2)

75.0

LIBOR plus 275 basis points (3)

Term ABS 2010-1 (1)

Credit Acceptance Funding LLC 2010-1

11/04/2010

10/15/2012

(2)

100.5

Fixed rate

Term ABS 2011-1 (1)

Credit Acceptance Funding LLC 2011-1

10/06/2011

09/16/2013

(2)

200.5

Fixed rate

Term ABS 2012-1 (1)

Credit Acceptance Funding LLC 2012-1

03/29/2012

03/17/2014

(2)

201.3

Fixed rate

Term ABS 2012-2 (1)

Credit Acceptance Funding LLC 2012-2

09/20/2012

09/15/2014

(2)

252.0

Fixed rate

Senior Notes

n/a

(5)

02/01/2017

350.0

Fixed rate

(1)

Financing made available only to a specified subsidiary of the Company.

(2)

Represents the revolving maturity date. The outstanding balance will amortize after the maturity date based on the cash flows of the pledged assets.

(3)

Interest rate cap agreements are in place to limit the exposure to increasing interest rates.

(4)

Represents the revolving maturity date. The outstanding balance will amortize after the revolving maturity date and any amounts remaining on September 10, 2017 will be due.

(5)

The close dates associated with the issuance of $250.0 million and $100.0 million of the Senior Notes were on February 1, 2010 and March 3, 2011, respectively.

Additional information related to the amounts outstanding on each facility is as follows:

(In millions)	For the Three Months Ended March 31,
	2013		2012
Revolving Secured Line of Credit
Maximum outstanding balance	$	179.3	$	185.5
Average outstanding balance		73.3		102.7

Warehouse Facility II
Maximum outstanding balance	$	153.6	$	177.2
Average outstanding balance		90.0		158.9

Warehouse Facility III
Maximum outstanding balance	$	–	$	73.0
Average outstanding balance		–		67.3

Warehouse Facility IV
Maximum outstanding balance	$	39.6	$	39.6
Average outstanding balance		37.7		37.9

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

6. DEBT – (Continued)

(Dollars in millions)	As of
	March 31, 2013			December 31, 2012
Revolving Secured Line of Credit
Balance outstanding	$	115.9		$	43.5
Amount available for borrowing (1)		119.1			191.5
Interest rate		2.23	%		2.08	%

Warehouse Facility II
Balance outstanding	$	142.1		$	81.3
Amount available for borrowing (1)		182.9			243.7
Loans pledged as collateral		217.2			105.2
Restricted cash and cash equivalents pledged as collateral		4.3			3.0
Interest rate		2.20	%		2.22	%

Warehouse Facility III
Balance outstanding	$	–		$	–
Amount available for borrowing (1)		75.0			75.0
Loans pledged as collateral		–			–
Restricted cash and cash equivalents pledged as collateral		0.3			0.4
Interest rate		1.80	%		1.82	%

Warehouse Facility IV
Balance outstanding	$	37.6		$	37.6
Amount available for borrowing (1)		37.4			37.4
Loans pledged as collateral		48.3			47.7
Restricted cash and cash equivalents pledged as collateral		3.4			2.5
Interest rate		2.95	%		2.96	%

Term ABS 2010-1
Balance outstanding	$	52.3		$	80.3
Loans pledged as collateral		96.5			111.6
Restricted cash and cash equivalents pledged as collateral		14.5			12.5
Interest rate		2.64	%		2.44	%

Term ABS 2011-1
Balance outstanding	$	200.5		$	200.5
Loans pledged as collateral		243.4			243.8
Restricted cash and cash equivalents pledged as collateral		30.4			23.5
Interest rate		2.90	%		2.90	%

Term ABS 2012-1
Balance outstanding	$	201.3		$	201.3
Loans pledged as collateral		244.0			244.7
Restricted cash and cash equivalents pledged as collateral		28.8			22.3
Interest rate		2.38	%		2.38	%

Term ABS 2012-2
Balance outstanding	$	252.0		$	252.0
Loans pledged as collateral		310.2			311.9
Restricted cash and cash equivalents pledged as collateral		32.1			26.0
Interest rate		1.63	%		1.63	%

Senior Notes
Balance outstanding (2)	$	350.3		$	350.3
Interest rate		9.13	%		9.13	%

(1)	Availability may be limited by the amount of assets pledged as collateral.

(2)	As of March 31, 2013 and December 31, 2012, the outstanding balance presented for the Senior Notes includes a net unamortized debt premium of $0.3 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

6. DEBT – (Continued)

Revolving Secured Line of Credit Facility

We have a $235.0 million revolving secured line of credit facility with a commercial bank syndicate.

Borrowings under the revolving secured line of credit facility, including any letters of credit issued under the facility, are subject to a borrowing-base limitation. This limitation equals 80% of the net book value of Loans, less a hedging reserve (not exceeding $1.0 million), and the amount of other debt secured by the collateral which secures the revolving secured line of credit facility. Borrowings under the revolving secured line of credit facility agreement are secured by a lien on most of our assets.

Warehouse Facilities

We have three Warehouse facilities with total borrowing capacity of $475.0 million. Each of the facilities are with different institutional investors, and the facility limit is $325.0 million for Warehouse Facility II and $75.0 million for both Warehouse Facility III and IV.

Under each Warehouse facility, we can contribute Loans to our wholly-owned subsidiaries in return for cash and equity in each subsidiary. In turn, each subsidiary pledges the Loans as collateral to institutional investors to secure financing that will fund the cash portion of the purchase price of the Loans. The financing provided to each subsidiary under the applicable facility is limited to the lesser of 80% of the net book value of the contributed Loans plus the cash collected on such Loans or the facility limit.

The financings create indebtedness for which the subsidiaries are liable and which is secured by all the assets of each subsidiary. Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the subsidiaries. Because the subsidiaries are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors.

The subsidiaries pay us a monthly servicing fee equal to 6% of the collections received with respect to the contributed Loans. The fee is paid out of the collections. Except for the servicing fee and holdback payments due to Dealers, 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 2010, 2011 and 2012, four of our wholly-owned subsidiaries (the “Funding LLCs”), completed secured financing transactions with qualified institutional investors. In connection with these transactions, we contributed Loans on an arms-length basis to each Funding LLC for cash and the sole membership interest in that Funding LLC. In turn, each Funding LLC contributed the Loans to a respective trust that issued notes to qualified institutional investors. The Term ABS 2010-1, 2011-1, 2012-1 and 2012-2 transactions each consist of three classes of notes. The Class A and Class B Notes for each Term ABS financing bear interest. The Class C Notes for each Term ABS financing do not bear interest and have been retained by us.

Each financing at the time of issuance has a specified revolving period during which we may be required, and are likely, to contribute additional Loans to each Funding LLC. Each Funding LLC will then contribute the Loans to their respective trust. At the end of the revolving period, the debt outstanding under each financing will begin to amortize.

The financings create indebtedness for which the trusts are liable and which is secured by all the assets of each trust. Such indebtedness is non-recourse to us, even though we are consolidated for financial reporting purposes with the trusts and the Funding LLCs. Because the Funding LLCs are organized as legal entities separate from us, their assets (including the contributed Loans) are not available to our creditors. We receive a monthly servicing fee on each financing equal to 6% of the collections received with respect to the contributed Loans. The fee is paid out of the collections. Except for the servicing fee and Dealer Holdback payments due to Dealers, 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

6. DEBT – (Concluded)

The table below sets forth certain additional details regarding the outstanding Term ABS Financings:

(Dollars in millions)
Term ABS Financings	Close Date	Net Book Value of Loans Contributed at Closing		Revolving Period
Term ABS 2010-1	November 4, 2010	$	126.8	24 months (Through October 15, 2012)
Term ABS 2011-1	October 6, 2011	$	250.8	24 months (Through September 16, 2013)
Term ABS 2012-1	March 29, 2012	$	251.7	24 months (Through March 17, 2014)
Term ABS 2012-2	September 20, 2012	$	315.1	24 months (Through September 15, 2014)

Senior Notes

We have outstanding $350.0 million aggregate principal amount of our 9.125% First Priority Senior Secured Notes due 2017, $100.0 million of which we issued on March 3, 2011 and $250.0 million of which we issued on February 1, 2010. The Senior Notes are governed by an indenture, dated as of February 1, 2010, as amended and supplemented (the “Indenture”), among us, as the issuer; our subsidiaries Buyers Vehicle Protection Plan, Inc. and Vehicle Remarketing Services, Inc., as guarantors (the “Guarantors”); and U.S. Bank National Association, as trustee. The Senior Notes issued on March 3, 2011 have the same terms as the previously issued Senior Notes, other than issue price and issue date, and all of the Senior Notes are treated as a single class under the Indenture.

The Senior Notes mature on February 1, 2017 and bear interest at a rate of 9.125% per annum, computed on the basis of a 360-day year comprised of twelve 30-day months and payable semi-annually on February 1 and August 1 of each year. The Senior Notes issued on March 3, 2011 were issued at a price of 106.0% of their aggregate principal amount, resulting in gross proceeds of $106.0 million, and a yield to maturity of 7.83% per annum. The Senior Notes issued on February 1, 2010 were issued at a price of 97.495% of their aggregate principal amount, resulting in gross proceeds of $243.7 million, and a yield to maturity of 9.625% per annum. The premium with respect to the Senior Notes issued on March 3, 2011 and the discount with respect to the Senior Notes issued on February 1, 2010 are being amortized over the life of the Senior Notes using the effective interest method.

The Senior Notes are guaranteed on a senior secured basis by the Guarantors, which are also guarantors of obligations under our revolving secured line of credit facility. Other existing and future subsidiaries of ours may become guarantors of the Senior Notes. The Senior Notes and the Guarantors’ Senior Note guarantees are secured on a first-priority basis (subject to specified exceptions and permitted liens), together with all indebtedness outstanding from time to time under the revolving secured line of credit facility and, under certain circumstances, certain future indebtedness, by a security interest in substantially all of our assets and those of the Guarantors, subject to certain exceptions such as real property, cash (except to the extent it is deposited with the collateral agent), certain leases, and equity interests of our subsidiaries (other than those of specified subsidiaries including the Guarantors). Our assets and those of the Guarantors securing the Senior Notes and the Senior Note guarantees will not include our assets transferred to special purpose subsidiaries in connection with Warehouse facilities and Term ABS financings and will generally be the same as the collateral securing indebtedness under the revolving secured line of credit facility and, under certain circumstances, certain future indebtedness, subject to certain limited exceptions as provided in the security and intercreditor agreements related to the revolving secured line of credit facility.

Debt Covenants

As of March 31, 2013, we were in compliance with all our debt covenants relating to the revolving secured line of credit facility, including those that require the maintenance of certain financial ratios and other financial conditions. These covenants require a minimum ratio of our earnings before interest, taxes and non-cash expenses to fixed charges. These covenants also limit the maximum ratio of our funded debt to tangible net worth. Additionally, we must maintain consolidated net income of not less than $1 for the two most recently ended fiscal quarters. Some of these debt covenants may indirectly limit the repurchase of common stock or payment of dividends on common stock.

Our Warehouse facilities and Term ABS financings also contain covenants that measure the performance of the contributed assets. As of March 31, 2013, we were in compliance with all such covenants. As of the end of the quarter, we were also in compliance with our covenants under the Indenture. The Indenture includes covenants that limit the maximum ratio of our funded debt to tangible net worth and also require a minimum collateral coverage ratio.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

7. DERIVATIVE AND HEDGING INSTRUMENTS

Interest Rate Caps. We utilize interest rate cap agreements to manage the interest rate risk on our Warehouse facilities. The following table provides the terms of our interest rate cap agreements that were in effect as of March 31, 2013 and December 31, 2012:

As of March 31, 2013 and December 31, 2012
Facility (in millions)		Facility Name	Purpose	Start	End	Notional (in millions)			Cap Interest Rate (1)
$	325.0	Warehouse Facility II	Cap Floating Rate	07/2011	06/2013	$	325.0		6.75	%
	75.0	Warehouse Facility III	Cap Floating Rate	09/2010	09/2013		37.5		6.75	%
	75.0	Warehouse Facility III	Cap Floating Rate	06/2012	07/2015		18.8	(2)	5.00	%
	75.0	Warehouse Facility IV	Cap Floating Rate	08/2011	09/2015		75.0		5.50	%

(1)	Rate excludes the spread over the LIBOR rate or the commercial paper rate, as applicable.

(2)	The notional amount increases to $56.3 million in September 2013 when the original Warehouse Facility III interest rate cap for $37.5 million ends.

The interest rate caps have not been designated as hedging instruments. As of March 31, 2013 and December 31, 2012, the interest rate caps had a fair value of less than $0.1 million as the capped rates were significantly above market rates.

8. 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 TPPPs 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 generally based on quoted market values in active markets. For commercial paper, we use model-based valuation techniques for which all significant assumptions are observable in the market.

Net Investment in Loans Receivable. Loans receivable, net represents our net investment in 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.

Liabilities. The fair value of our Senior Notes is determined using quoted market prices in an active market. The fair value of our Term ABS financings is also determined using quoted market prices, however, these instruments trade in a market with much lower trading volume. For our revolving secured line of credit, our Warehouse Facilities and our mortgage note, the fair values are calculated using the estimated value of each debt instrument based on current rates for debt with similar risk profiles and maturities.

A comparison of the carrying value and estimated fair value of these financial instruments is as follows:

(In millions)
	As of March 31, 2013				As of December 31, 2012
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Cash and cash equivalents	$	7.8	$	7.8	$	9.0	$	9.0
Restricted cash and cash equivalents		116.3		116.3		92.4		92.4
Restricted securities available for sale		47.5		47.5		46.1		46.1
Net investment in Loans receivable		2,028.6		2,044.7		1,933.5		1,951.4

Liabilities
Revolving secured line of credit	$	115.9	$	115.9	$	43.5	$	43.5
Secured financing		885.8		872.8		853.0		863.0
Mortgage note		4.0		4.0		4.0		4.0
Senior notes		350.3		380.6		350.3		381.9

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

8. FAIR VALUE OF FINANCIAL INSTRUMENTS – (Concluded)

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.

The following table provides the level of measurement used to determine the fair value for each of our financial instruments on a recurring basis, as of March 31, 2013 and December 31, 2012:

(In millions)
	As of March 31, 2013
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Cash and cash equivalents	$	7.8	$	–	$	–	$	7.8
Restricted cash and cash equivalents		116.3		–		–		116.3
Restricted securities available for sale		27.6		19.9		–		47.5
Net investment in Loans receivable		–		–		2,044.7		2,044.7

Liabilities
Revolving secured line of credit	$	–	$	115.9	$	–	$	115.9
Secured financing		–		872.8		–		872.8
Mortgage note		–		4.0		–		4.0
Senior notes		380.6		–		–		380.6

(In millions)
	As of December 31, 2012
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Cash and cash equivalents	$	9.0	$	–	$	–	$	9.0
Restricted cash and cash equivalents		92.4		–		–		92.4
Restricted securities available for sale		27.3		18.8		–		46.1
Net investment in Loans receivable		–		–		1,951.4		1,951.4

Liabilities
Revolving secured line of credit	$	–	$	43.5	$	–	$	43.5
Secured financing		–		863.0		–		863.0
Mortgage note		–		4.0		–		4.0
Senior notes		381.9		–		–		381.9

9. RELATED PARTY TRANSACTIONS

In the normal course of our business, affiliated Dealers assign Consumer Loans to us under the Portfolio and Purchase Programs. Dealer Loans and Purchased Loans with affiliated Dealers are on the same terms as those with non-affiliated Dealers. Affiliated Dealers are comprised of Dealers owned or controlled by: (1) our Chairman and significant shareholder; and (2) a member of the Chairman’s immediate family.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

9. RELATED PARTY TRANSACTIONS – (Concluded)

Affiliated Dealer Loan balances were $6.5 million and $5.9 million as of March 31, 2013 and December 31, 2012, respectively. As of March 31, 2013 and December 31, 2012, affiliated Dealer Loan balances were 0.3% of total consolidated Dealer Loan balances. A summary of related party Loan activity is as follows:

(In millions)	For the Three Months Ended March 31,
	2013				2012
	Affiliated Dealer activity		% of consolidated		Affiliated Dealer activity		% of consolidated
Dealer Loan revenue	$	0.3	0.2	%	$	0.3	0.3	%
New Consumer Loan assignments (1)		1.1	0.3	%		1.2	0.3	%
Accelerated Dealer Holdback payments		–	0.3	%		0.1	0.5	%
Dealer Holdback payments		0.6	2.0	%		1.0	3.0	%

(1)

Represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program.

Our Chairman and significant shareholder has indirect control over entities that, in the past, offered secured lines of credit to automobile dealers, and has the right or obligation to reacquire these entities under certain circumstances until December 31, 2014 or the repayment of the related purchase money note.

10. INCOME TAXES

A reconciliation of the U.S. federal statutory rate to our effective tax rate is as follows:

	For the Three Months Ended March 31,
	2013		2012
U.S. federal statutory rate	35.0	%	35.0	%
State income taxes	1.4	%	1.4	%
Changes in reserve for uncertain tax positions as a result of settlements and lapsed statutes and related interest	-0.3	%	-0.4	%
Other	0.2	%	0.1	%
Effective tax rate	36.3	%	36.1	%

The differences between the U.S. federal statutory rate and our effective tax rate are primarily due to state income taxes and reserves for uncertain tax positions and related interest that are included in the provision for income taxes.

11. NET INCOME PER SHARE

Basic net income per share has been computed by dividing net income by the basic number of weighted average shares outstanding. Diluted net income per share has been computed by dividing net income by the diluted number of weighted average shares outstanding using the treasury stock method. The share effect is as follows:

	For the Three Months Ended March 31,
	2013	2012
Weighted average shares outstanding:
Common shares	23,692,780	25,635,487
Vested restricted stock units	637,247	522,185
Basic number of weighted average shares outstanding	24,330,027	26,157,672

Dilutive effect of stock options	39,266	57,555
Dilutive effect of restricted stock and restricted stock units	56,834	68,574
Dilutive number of weighted average shares outstanding	24,426,127	26,283,801

For the three months ended March 31, 2013, there were no stock options, restricted stock or restricted stock units that would have been anti-dilutive. For the three months ended March 31, 2012, there were 9,558 shares of restricted stock outstanding, excluded from the calculation of diluted net income per share because the impact would have been anti-dilutive.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONTINUED)

(UNAUDITED)

12. STOCK REPURCHASES

On August 5, 1999, our board of directors approved a stock repurchase program which authorizes us to repurchase common shares in the open market or in privately negotiated transactions at price levels we deem attractive. On March 7, 2013, the board of directors authorized the repurchase of up to one million shares of our common stock in addition to the board’s prior authorizations. As of March 31, 2013, we had authorization to repurchase 1,003,417 shares of our common stock.

The following table summarizes our stock repurchases for the three months ended March 31, 2013 and 2012:

(Dollars in millions)	For the Three Months Ended March 31,
	2013			2012
Stock Repurchases	Number of Shares Repurchased	Cost		Number of Shares Repurchased	Cost
Open Market	530,795	$	59.0	190,843	$	18.7
Other (1)	6,259		0.7	13,053		1.2
Total	537,054	$	59.7	203,896	$	19.9

(1)	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 and restricted stock units.

13. STOCK-BASED COMPENSATION PLANS

On March 26, 2012, our board of directors approved an amendment to our Amended and Restated Incentive Compensation Plan (the “Incentive Plan”) increasing the number of shares authorized for issuance by 500,000 shares, to 2 million shares. Pursuant to the Incentive Plan, we can grant restricted stock, restricted stock units, stock options, and performance awards to team members, officers, directors, and contractors at any time prior to March 26, 2022. The shares available for future grants under the Incentive Plan totaled 314,320 as of March 31, 2013.

On March 26, 2012, the compensation committee of our board of directors approved an award of 310,000 restricted stock units and 190,000 shares of restricted stock to our Chief Executive Officer. The 310,000 restricted stock units and 90,000 shares of restricted stock are eligible to vest over a ten year period beginning in 2012 based on the cumulative improvement in our annual adjusted economic profit, a non-GAAP financial measure. The remaining 100,000 shares of restricted stock are eligible to vest in equal annual installments over a five year period beginning in 2022 based on the attainment of annual adjusted economic profit targets.

Stock-based compensation expense consists of the following:

(In millions)	For the Three Months Ended March 31,
	2013		2012
Restricted stock	$	0.6	$	0.2
Restricted stock units		0.9		0.6
Total	$	1.5	$	0.8

While the restricted stock units and shares of restricted stock are generally expected to vest in equal, annual installments over the corresponding requisite service periods of the grants, the related stock-based compensation expense is not recognized on a straight-line basis over the same periods. Each installment is accounted for as a separate award and as a result, the fair value of each installment is recognized as stock-based compensation expense on a straight-line basis over the related vesting period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (CONCLUDED)

(UNAUDITED)

13. STOCK-BASED COMPENSATION PLANS – (Concluded)

As of March 31, 2013, there was $44.8 million of total unrecognized compensation costs related to non-vested equity compensation arrangements. The following table details how the expenses associated with restricted stock and restricted stock units, which are expected to be recognized over a weighted average period of 3.6 years, will be recorded assuming performance targets are achieved in the periods currently estimated:

(In millions)
Year	Restricted Stock Units		Restricted Stock		Total Projected Expense
Remainder of 2013	$	4.9	$	2.5	$	7.4
2014		5.0		2.6		7.6
2015		4.3		2.1		6.4
2016		3.8		1.9		5.7
2017		3.1		1.7		4.8
Thereafter		5.5		7.4		12.9
Total	$	26.6	$	18.2	$	44.8

14. LITIGATION AND CONTINGENT LIABILITIES

In the normal course of business and as a result of the customer-oriented nature of the industry in which we operate, industry participants are frequently subject to various customer claims and litigation seeking damages and statutory penalties. The claims allege, among other theories of liability, violations of state, federal and foreign truth-in-lending, credit availability, credit reporting, customer protection, warranty, debt collection, insurance and other customer-oriented laws and regulations, including claims seeking damages for physical and mental damages relating to our repossession and sale of the customer’s vehicle and other debt collection activities. As the assignee of Consumer Loans originated by Dealers, we may also be named as a co-defendant in lawsuits filed by customers principally against Dealers. We may also have disputes and litigation with Dealers. The claims may allege, among other theories of liability, that we breached our Dealer servicing agreement. Many of these cases are filed as purported class actions and seek damages in large dollar amounts. The following matters include current actions to which we are a party and updates to matters that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

On February 1, 2013, six Dealers, who had previously commenced a putative consolidated arbitration proceeding against the Company before the American Arbitration Association ("AAA") that was deemed not properly filed by the AAA on October 9, 2012, filed individual arbitrations against the Company before the AAA in Southfield, Michigan. These arbitration demands seek unspecified money damages for claims relating to the Dealer servicing agreements of these Dealers. The Company intends to vigorously defend itself against these arbitrations.

An adverse ultimate disposition in any action to which we are a party or otherwise subject could have a material adverse impact on our financial position, liquidity and results of operations.

15. SUBSEQUENT EVENTS

During the second quarter of 2013, we extended the date on which Warehouse IV will cease to revolve from February 19, 2014 to April 5, 2016. The interest rate on borrowings under the facility was decreased from LIBOR plus 275 basis points to LIBOR plus 225 basis points. There were no other material changes to the terms of the facility.

During the second quarter of 2013, we announced that certain trusts affiliated with our founder and Chairman of the Company, Donald A. Foss and Karol A. Foss and certain individuals and entities associated with Prescott General Partners LLC have concluded an underwritten public offering of 1,500,000 shares of our common stock. We did not sell any shares in the offering and did not receive any proceeds from the offering.

During the second quarter of 2013, we completed a $140.3 million Term ABS financing which was used to repay outstanding indebtedness. The financing has an expected annualized cost of approximately 1.8% (including the initial purchaser’s fees and other costs) and it will revolve for 24 months after which it will amortize based upon the cash flows on the contributed Loans.

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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 2012 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.

Overview

We offer automobile dealers financing programs that enable them to sell vehicles to consumers regardless of their credit history. Our financing programs are 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.

For the three months ended March 31, 2013, consolidated net income was $60.6 million, or $2.48 per diluted share, compared to $50.3 million, or $1.92 per diluted share, for the same period in 2012. The increase in consolidated net income for the three months ended March 31, 2013 was primarily due to an increase in the average balance of our Loan portfolio.

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, with an objective to maximize economic profit. Economic profit is a financial metric we use to evaluate our financial results and determine incentive compensation. Economic profit measures how efficiently we utilize our total capital, both debt and equity, and is a function of the return on capital in excess of the cost of capital and the amount of capital invested in the business.

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 2.2:1 as of March 31, 2013. We currently utilize the following primary forms of debt financing: (1) a revolving secured line of credit; (2) Warehouse facilities; (3) Term ABS financings; and (4) Senior Notes.

Consumer Loan Performance

At the time a Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan. Based on the amount and timing of these forecasts and expected expense levels, an advance or one-time purchase payment is made to the related Dealer at a price designed to achieve an acceptable return on capital. If Consumer Loan performance equals or exceeds our initial 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, 2013, with the forecasts as of December 31, 2012, 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 Year	March 31, 2013		December 31, 2012		Initial Forecast		December 31, 2012		Initial Forecast
2004	73.1	%	73.0	%	73.0	%	0.1	%	0.1	%
2005	73.6	%	73.6	%	74.0	%	0.0	%	-0.4	%
2006	69.9	%	69.9	%	71.4	%	0.0	%	-1.5	%
2007	68.0	%	68.0	%	70.7	%	0.0	%	-2.7	%
2008	70.4	%	70.3	%	69.7	%	0.1	%	0.7	%
2009	79.5	%	79.5	%	71.9	%	0.0	%	7.6	%
2010	77.4	%	77.3	%	73.6	%	0.1	%	3.8	%
2011	74.2	%	74.1	%	72.5	%	0.1	%	1.7	%
2012	72.7	%	72.2	%	71.4	%	0.5	%	1.3	%

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Consumer Loans assigned in 2009 through 2012 have yielded forecasted collection results materially better than our initial estimates, while Consumer Loans assigned in 2006 and 2007 have yielded forecasted collection results materially worse than our initial estimates. For all other assignment years presented, actual results have been very close to our initial estimates. For the three months ended March 31, 2013, forecasted collection rates improved for Consumer Loans assigned in 2012 and were generally consistent with expectations at the start of the period for all other assignment years presented.

Forecasting collection rates precisely at Loan inception is difficult. With this in mind, we establish advance rates that are intended to allow us to achieve acceptable levels of profitability, even if collection rates are less than we currently forecast.

The following table presents forecasted Consumer Loan collection rates, advance rates, 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, 2013. All amounts, unless otherwise noted, 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, 2013
Consumer Loan Assignment Year	Forecasted Collection %		Advance % (1)		Spread %		% of Forecast Realized (2)
2004	73.1	%	44.0	%	29.1	%	99.6	%
2005	73.6	%	46.9	%	26.7	%	99.5	%
2006	69.9	%	46.6	%	23.3	%	99.1	%
2007	68.0	%	46.5	%	21.5	%	98.2	%
2008	70.4	%	44.6	%	25.8	%	97.2	%
2009	79.5	%	43.9	%	35.6	%	96.3	%
2010	77.4	%	44.7	%	32.7	%	83.4	%
2011	74.2	%	45.5	%	28.7	%	58.5	%
2012	72.7	%	46.3	%	26.4	%	27.4	%
2013	71.5	%	47.2	%	24.3	%	3.3	%

(1)

Represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program as a percentage of the initial balance of the Consumer Loans. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.

(2)

Presented as a percentage of total forecasted collections.

The risk of a material change in our forecasted collection rate declines as the Consumer Loans age. For 2009 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 2005 through 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. During the 2010 through 2013 period, the spread decreased as we again increased advance rates in response to the competitive environment.

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The following table presents forecasted Consumer Loan collection rates, advance rates, and the spread (the forecasted collection rate less the advance rate) as of March 31, 2013 for Dealer Loans and Purchased Loans separately. All amounts are presented as a percentage of the initial balance of the Consumer Loan (principal + interest).

	Consumer Loan Assignment Year	Forecasted Collection %		Advance % (1)		Spread %
Dealer Loans	2007	67.9	%	45.8	%	22.1	%
	2008	70.8	%	43.3	%	27.5	%
	2009	79.5	%	43.5	%	36.0	%
	2010	77.4	%	44.4	%	33.0	%
	2011	74.1	%	45.2	%	28.9	%
	2012	72.7	%	46.1	%	26.6	%
	2013	71.5	%	46.9	%	24.6	%

Purchased Loans	2007	68.4	%	49.1	%	19.3	%
	2008	69.7	%	46.7	%	23.0	%
	2009	79.6	%	45.3	%	34.3	%
	2010	77.3	%	46.4	%	30.9	%
	2011	74.4	%	48.0	%	26.4	%
	2012	73.5	%	49.3	%	24.2	%
	2013	71.8	%	51.0	%	20.8	%

(1)

The advance rates presented for each Consumer Loan assignment year change over time due to the impact of transfers between Dealer and Purchased Loans. Under our Portfolio Program, certain events may result in Dealers forfeiting their rights to Dealer Holdback. We transfer the Dealer’s Consumer Loans from the Dealer Loan portfolio to the Purchased Loan portfolio in the period this forfeiture occurs.

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.

Consumer Loan Volume

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, 2012	10.6	%	10.7	%
June 30, 2012	7.3	%	7.9	%
September 30, 2012	5.4	%	3.1	%
December 31, 2012	2.4	%	6.0	%
March 31, 2013	-2.9	%	-0.4	%

(1)

Represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.

Consumer Loan assignment volumes depend on a number of factors including (1) the overall demand for our product, (2) the amount of capital available to fund new Loans, and (3) our assessment of the volume that our infrastructure can support. Our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of capital and infrastructure constraints.

Unit and dollar volumes decreased 2.9% and 0.4%, respectively, during the first quarter of 2013 as the number of active Dealers grew 21.2% and average volume per active Dealer declined 20.1%. We believe the decline in volume per Dealer is the result of increased competition.

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The following table summarizes the changes in Consumer Loan unit volume and active Dealers:

	For the Three Months Ended March 31,
	2013	2012	% Change
Consumer Loan unit volume	57,105	58,796	-2.9	%
Active Dealers (1)	4,355	3,594	21.2	%
Average volume per active Dealer	13.1	16.4	-20.1	%

(1) Active Dealers are Dealers who have received funding for at least one Loan during the period.

The following table provides additional information on the changes in Consumer Loan unit volume and active Dealers:

	For the Three Months Ended March 31,
	2013		2012		% Change
Consumer Loan unit volume from Dealers active both periods	42,207		51,521		-18.1	%
Dealers active both periods	2,525		2,525		–
Average volume per Dealers active both periods	16.7		20.4		-18.1	%

Consumer Loan unit volume from new Dealers	3,440		4,089		-15.9	%
New active Dealers (1)	678		554		22.4	%
Average volume per new active Dealers	5.1		7.4		-31.1	%

Attrition (2)	-12.4	%	-9.2	%

(1)

New active Dealers are Dealers who enrolled in our program and have received funding for their first Loan from us during the period.

(2)

Attrition is measured according to the following formula: decrease in Consumer Loan unit volume from Dealers 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.

Consumer Loans are assigned to us as either Dealer Loans through our Portfolio Program or Purchased Loans through our Purchase Program. The following table summarizes the portion of our Consumer Loan volume that was assigned to us as Dealer Loans:

	For the Three Months Ended March 31,
	2013		2012
Dealer Loan unit volume as a percentage of total unit volume	94.4	%	93.3	%
Dealer Loan dollar volume as a percentage of total dollar volume (1)	93.1	%	91.5	%

(1)

Represents advances paid to Dealers on Consumer Loans assigned under our Portfolio Program and one-time payments made to Dealers to purchase Consumer Loans assigned under our Purchase Program. Payments of Dealer Holdback and accelerated Dealer Holdback are not included.

For the three months ended March 31, 2013, Dealer Loan unit and dollar volume as a percentage of total unit and dollar volume were generally consistent with the same period in 2012.

As of March 31, 2013 and December 31, 2012, the net Dealer Loans receivable balance was 88.7% and 88.0%, respectively, of the total net Loans receivable balance.

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Results of Operations

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

The following is a discussion of our results of operations and income statement data on a consolidated basis.

(In millions, except share and per share data)	For the Three Months Ended March 31,
	2013		2012		% Change
Revenue:
Finance charges	$	142.9	$	126.1	13.3	%
Premiums earned		12.0		10.8	11.1	%
Other income		9.8		5.5	78.2	%
Total revenue		164.7		142.4	15.7	%
Costs and expenses:
Salaries and wages		21.9		19.4	12.9	%
General and administrative		7.9		7.4	6.8	%
Sales and marketing		9.0		7.8	15.4	%
Provision for credit losses		5.8		5.2	11.5	%
Interest		16.0		15.2	5.3	%
Provision for claims		9.0		8.6	4.7	%
Total costs and expenses		69.6		63.6	9.4	%
Income before provision for income taxes		95.1		78.8	20.7	%
Provision for income taxes		34.5		28.5	21.1	%
Net income	$	60.6	$	50.3	20.5	%

Net income per share:
Basic	$	2.49	$	1.92	29.7	%
Diluted	$	2.48	$	1.92	29.2	%

Weighted average shares outstanding:
Basic		24,330,027		26,157,672	-7.0	%
Diluted		24,426,127		26,283,801	-7.1	%

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The following table highlights changes in net income for the three months ended March 31, 2013, as compared to 2012:

(In millions)	Change
Net income for the three months ended March 31, 2012	$	50.3
Increase in finance charges		16.8
Increase in premiums earned		1.2
Increase in other income		4.3
Increase in operating expenses (1)		(4.2	)
Increase in provision for credit losses		(0.6	)
Increase in interest		(0.8	)
Increase in provision for claims		(0.4	)
Increase in provision for income taxes		(6.0	)
Net income for the three months ended March 31, 2013	$	60.6

(1)

Operating expenses consist of salaries and wages, general and administrative, and sales and marketing expenses.

Finance Charges. For the three months ended March 31, 2013, finance charges increased $16.8 million, or 13.3%, as compared to the same period in 2012. The increase was primarily the result of an increase in the average net Loans receivable balance partially offset by a decrease in the average yield on our Loan portfolio, as follows:

(Dollars in millions)	For the Three Months Ended March 31,
	2013			2012			Change
Average net Loans receivable balance	$	1,964.3		$	1,649.7		$	314.6
Average yield on our Loan portfolio		29.1	%		30.6	%		-1.5	%

The following table summarizes the impact each component had on the overall increase in finance charges for the three months ended March 31, 2013:

(In millions)	Year over Year Change
Impact on finance charges:	For the Three Months Ended March 31, 2013
Due to an increase in the average net Loans receivable balance	$	24.0
Due to a decrease in the average yield		(7.2	)
Total increase in finance charges	$	16.8

The increase in the average net Loans receivable balance was primarily due to the growth in new Consumer Loan assignments in recent years, which resulted in the dollar volume of new Consumer Loan assignments exceeding the principal collected on Loans throughout 2012 and the first quarter of 2013. The growth in new Consumer Loan assignments in recent years was the result of an increase in active Dealers, partially offset by a decline in volume per active Dealer. The average yield on our Loan portfolio for the three months ended March 31, 2013 decreased as compared to the same period in 2012 due to higher advance rates on new Consumer Loan assignments, partially offset by improvements in forecasted collection rates throughout 2012 and the first quarter of 2013.

Premiums Earned. For the three months ended March 31, 2013, premiums earned increased $1.2 million, or 11.1%, as compared to the same period in 2012. The increase was primarily due to growth in the size of our reinsurance portfolio, which was the result of premiums written on vehicle service contracts from new Consumer Loan assignments throughout 2012 and the first quarter of 2013.

Other Income. For the three months ended March 31, 2013, other income increased $4.3 million, or 78.2%, as compared to the same period in 2012. The increase was primarily due to a $3.2 million increase in Global Positioning Systems with Starter Interrupt Devices (“GPS-SID”) fee income due to an increase in the fee earned per unit partially offset by a decrease in the number of units purchased by Dealers from TPPPs. In addition, income from Dealer support products and services increased by $0.5 million.

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Operating Expenses. For the three months ended March 31, 2013, operating expenses increased $4.2 million, or 12.1%, as compared to the same period in 2012. The change in operating expenses was primarily due to the following:

·	An increase in salaries and wages expense of $2.5 million, or 12.9%, comprised of the following:

·	An increase of $1.8 million, excluding stock-based compensation, related to increases of $1.3 million in loan servicing and $0.7 million for support functions, partially offset by a decrease of $0.2 million in loan originations.

·	An increase of $0.7 million in stock-based compensation expense.

·	An increase in sales and marketing expense of $1.2 million, or 15.4%, primarily as a result of the increase in the size of our field sales force and an increase in Dealer support products and services.

Provision for Credit Losses. For the three months ended March 31, 2013, the provision for credit losses increased $0.6 million, or 11.5%, as compared to the same period in 2012. Under GAAP, when the present value of forecasted future cash flows decline relative to our expectations 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 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. Conversely, a previously recorded provision can be reversed if any previously impaired individual Loan pool experiences an improvement in performance.

During the three months ended March 31, 2013, overall Consumer Loan performance exceeded our expectations at the start of the period. However, the performance of certain Loan pools declined from our expectations during the period, resulting in a provision for credit losses of $5.8 million for the three months ended March 31, 2013, of which $6.0 million related to Dealer Loans partially offset by a reversal of a provision of $0.2 million related to Purchased Loans. During the three months ended March 31, 2012, overall Consumer Loan performance was generally consistent with our expectations at the start of the period. However, the performance of certain Loan pools declined from our expectations during the period, resulting in a provision for credit losses of $5.2 million for the three months ended March 31, 2012, of which $6.6 million related to Dealer Loans partially offset by a reversal of a provision of $1.4 million related to Purchased Loans.

Interest. For the three months ended March 31, 2013, interest expense increased $0.8 million, or 5.3%, as compared to the same period in 2012. The following table shows interest expense, the average outstanding debt balance, and the average cost of debt for the three months ended March 31, 2013 and 2012:

(Dollars in millions)	For the Three Months Ended March 31,
	2013			2012
Interest expense	$	16.0		$	15.2
Average outstanding debt balance		1,273.1			1,031.2
Average cost of debt		5.0	%		5.9	%

For the three months ended March 31, 2013, the increase in interest expense was primarily due to the increase in the average outstanding debt balance, partially offset by a decline in our average cost of debt. The average outstanding debt balance increased compared to the same period in 2012 due to the use of the debt proceeds to fund the growth in new Consumer Loan assignments and stock repurchases. The decline in our average cost of debt was primarily a result of a change in the mix of our outstanding debt.

Provision for Claims. For the three months ended March 31, 2013, provision for claims increased $0.4 million, or 4.7%, as compared to the same period in 2012. The increase was due to an increase in the size of our reinsurance portfolio partially offset by a decrease in claims paid per reinsured vehicle service contract.

Provision for Income Taxes. For the three months ended March 31, 2013, the effective tax rate of 36.3% was generally consistent with the effective tax rate of 36.1% in the same period in 2012.

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Liquidity and Capital Resources

We need capital to maintain and grow our business. 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; (2) Warehouse facilities; (3) Term ABS financings; and (4) Senior Notes. There are various restrictive debt covenants for each financing arrangement and we were in compliance with those covenants as of March 31, 2013. For information regarding these financings and the covenants included in the related documents, see Note 6 to the consolidated financial statements contained in Item 1 of this Form 10-Q, which is incorporated herein by reference.

Cash and cash equivalents as of March 31, 2013 and December 31, 2012 was $7.8 million and $9.0 million, respectively. Our total balance sheet indebtedness increased $105.2 million to $1,356.0 million as of March 31, 2013 from $1,250.8 million as of December 31, 2012 due to the growth in new Consumer Loan assignments and stock repurchases.

Contractual Obligations

A summary of our scheduled principal debt maturities as of March 31, 2013 is as follows:

(In millions)
Year	Scheduled Principal Debt Maturities (1)
Remainder of 2013	$	102.7
2014		399.4
2015		355.2
2016		148.4
2017		350.0
Total	$	1,355.7

(1)

The principal maturities of certain financings are estimated based on forecasted collections.

The amounts presented exclude the net unamortized debt premium of $0.3 million.

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, 2012 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, 2012.

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.

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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 (“SEC”). 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, 2012, other risk factors discussed herein or listed from time to time in our reports filed with the SEC 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.

·	A violation of the terms of our Term ABS facilities or Warehouse facilities could have a materially adverse impact on our operations.

·	The conditions of the U.S. and international capital markets may adversely affect lenders with which we have relationships, causing us to incur additional costs and reducing our sources of liquidity, which may adversely affect our financial position, liquidity and results of operations.

·	Our substantial debt could negatively impact our business, prevent us from satisfying our debt obligations and adversely affect our financial condition.

·	Due to competition from traditional financing sources and non-traditional lenders, we may not be able to compete successfully.

·	We may not be able to generate sufficient cash flows to service our outstanding debt and fund operations and may be forced to take other actions to satisfy our obligations under such debt.

·	Interest rate fluctuations may adversely affect our borrowing costs, profitability and liquidity.

·	Reduction in our credit rating could increase the cost of our funding from, and restrict our access to, the capital markets and adversely affect our liquidity, financial condition and results of operations.

·	We may incur substantially more debt and other liabilities. This could exacerbate further the risks associated with our current debt levels.

·	The regulation to which we are or may become subject could result in a material adverse effect on our business.

Adverse changes in economic conditions, the automobile or finance industries, or the non-prime consumer market could adversely affect our financial position, liquidity and results of operations, the ability of key vendors that we depend on to supply us with services, and our ability to enter into future financing transactions.

·	Litigation we are involved in from time to time may adversely affect our financial condition, results of operations and cash flows.

·	Changes in tax laws and the resolution of uncertain income tax matters could have a material adverse effect on our results of operations and cash flows from operations.

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·	Our dependence on technology could have a material adverse effect on our business.

·	Reliance on third parties to administer our ancillary product offerings could adversely affect our business and financial results.

·	We are dependent on our senior management and the loss of any of these individuals or an inability to hire additional team members could adversely affect our ability to operate profitably.

·	Our reputation is a key asset to our business, and our business may be affected by how we are perceived in the marketplace.

·	The concentration of our Dealers 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 Chairman and founder controls a significant percentage of our common stock, has the ability to significantly influence 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2012 for a complete discussion of our market risk. There have been no material changes to the market risk information included in our 2012 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

On August 5, 1999, our board of directors approved a stock repurchase program which authorizes us to repurchase common shares in the open market or in privately negotiated transactions at price levels we deem attractive. On March 7, 2013, the board of directors authorized the repurchase of up to one million shares of our common stock in addition to the board’s prior authorizations. As of March 31, 2013, we have authorization to repurchase 1,003,417 shares of our common stock.

The following table summarizes stock repurchases for the three months ended March 31, 2013:


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 to January 31, 2013	–		$	–	–	534,212
February 1 to February 28, 2013	406,896	*		107.81	403,831	130,381
March 1 to March 31, 2013	130,158	**		121.80	126,964	1,003,417
	537,054		$	111.20	530,795

*Amount includes 3,065 shares of common stock released to us by team members as payment of tax withholdings due to us upon the vesting of restricted stock.

**Amount includes 3,194 shares of common stock released to us by team members as payment of tax withholdings due to us upon the vesting of restricted stock and restricted stock units.

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)
	Date: April 30, 2013

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INDEX OF EXHIBITS

The following documents are filed as part of this report. Those exhibits previously filed and incorporated herein by reference are identified below. Exhibits not required for this report have been omitted. Unless otherwise noted, the Company’s commission file number for all exhibits incorporated by reference herein is 000-20202.


Exhibit No.		Description
	4.84	First Amendment to Loan and Security Agreement dated as of April 5, 2013 among the Company, CAC Warehouse Funding LLC IV, Bank of Montreal, BMO Capital Markets Corp., and Wells Fargo Bank, National Association (incorporated by reference to an exhibit to the Company’s Current Report on Form 8-K, dated April 5, 2013)
	4.85	Amended and Restated Sale and Contribution Agreement dated as of April 5, 2013 between the Company and CAC Warehouse Funding LLC IV (incorporated by reference to an exhibit to the Company’s Current Report on Form 8-K, dated April 5, 2013)
	4.86	Indenture dated as of April 25, 2013, between Credit Acceptance Auto Loan Trust 2013-1 and Wells Fargo Bank, National Association (incorporated by reference to an exhibit to the Company’s Current Report on Form 8-K, dated April 29, 2013)
	4.87	Sale and Servicing Agreement dated as of April 25, 2013 among the Company, Credit Acceptance Auto Loan Trust 2013-1, Credit Acceptance Funding LLC 2013-1, and Wells Fargo Bank, National Association (incorporated by reference to an exhibit to the Company’s Current Report on Form 8-K, dated April 29, 2013)
	4.88	Backup Servicing Agreement dated as of April 25, 2013, among the Company, Credit Acceptance Funding LLC 2013-1, Credit Acceptance Auto Loan Trust 2013-1, and Wells Fargo Bank, National Association (incorporated by reference to an exhibit to the Company’s Current Report on Form 8-K, dated April 29, 2013)
	4.89	Amended and Restated Trust Agreement dated as of April 25, 2013, between Credit Acceptance Funding LLC 2013-1 and U.S. Bank Trust National Association (incorporated by reference to an exhibit to the Company’s Current Report on Form 8-K, dated April 29, 2013)
	4.90	Sale and Contribution Agreement dated as of April 25, 2013, between the Company and Credit Acceptance Funding LLC 2013-1 (incorporated by reference to an exhibit to the Company’s Current Report on Form 8-K, dated April 29, 2013)
	4.91	Amended and Restated Intercreditor Agreement dated April 25, 2013, among the Company, CAC Warehouse Funding Corporation II, CAC Warehouse Funding III, LLC, CAC Warehouse Funding LLC IV, Credit Acceptance Funding LLC 2013-1, Credit Acceptance Funding LLC 2012-2, Credit Acceptance Funding LLC 2012-1, Credit Acceptance Funding LLC 2011-1, Credit Acceptance Funding LLC 2010-1, Credit Acceptance Auto Loan Trust 2013-1, Credit Acceptance Auto Loan Trust 2012-2, Credit Acceptance Auto Loan Trust 2012-1, Credit Acceptance Auto Loan Trust 2011-1, Credit Acceptance Auto Loan Trust 2010-1, Fifth Third Bank, as agent, Wells Fargo Bank, National Association, as agent, Bank of Montreal, as agent and Comerica Bank, as agent (incorporated by reference to an exhibit to the Company’s Current Report on Form 8-K, dated April 29, 2013)
	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	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.
	32.2	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.
101(INS)		XBRL Instance Document. *
101(SCH)		XBRL Taxonomy Extension Schema Document. *
101(CAL)		XBRL Taxonomy Extension Calculation Linkbase Document. *
101(DEF)		XBRL Taxonomy Extension Definition Linkbase Document. *
101(LAB)		XBRL Taxonomy Extension Label Linkbase Document. *
101(PRE)		XBRL Taxonomy Extension Presentation Linkbase Document. *

Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.