Credit Acceptance(CACC) - 2021 Q4 - Annual Report

Part I Business The company provides auto financing programs via a dealer network for consumers with limited or impaired credit histories - The company's business model focuses on financing programs for automobile dealers to sell vehicles to consumers with sub-par credit histories[10] - The company operates under two primary financing programs, with the Portfolio Program accounting for 67.9% of unit volume and 65.0% of dollar volume in 2021[17] - The company faces ongoing regulatory inquiries from multiple state Attorneys General, the BCFP, and the DOJ regarding its business practices[72][74][75] - In 2021, the company resolved regulatory matters with Massachusetts for a $27.2 million settlement and with Mississippi for a $450,000 payment[70][71] Consumer Loan Assignment Volume by FICO Score | Year | Percentage of volume with FICO® scores below 650 or no FICO® score | | :--- | :--- | | 2021 | 91.0% | | 2020 | 94.9% | | 2019 | 95.9% | Revenue Sources as a Percentage of Total Revenue | Revenue Source | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Finance charges | 93.9% | 93.6% | 92.0% | | Premiums earned | 3.2% | 3.4% | 3.4% | | Other income | 2.9% | 3.0% | 4.6% | Dealer Network Statistics | Year | Dealer Enrollments | Active Dealers | | :--- | :--- | :--- | | 2021 | 2,804 | 11,410 | | 2020 | 3,413 | 12,690 | | 2019 | 4,482 | 13,399 | Risk Factors The company faces operational, macroeconomic, capital, technology, and significant legal and regulatory risks - The COVID-19 pandemic adversely affected business through supply chain disruptions and a significant decline in Consumer Loan assignments[89][90] - A core risk is the inability to accurately forecast future collections from subprime consumer loans, which is critical for profitability[95] - The company faces substantial competition from larger entities with greater financial resources, including banks and captive finance affiliates[96] - Debt agreements contain restrictive covenants that limit financial flexibility, with breaches potentially leading to debt acceleration[121][122] - The business is highly dependent on its proprietary systems (CAPS) and servicing platforms, making it vulnerable to technology failures and cyber attacks[140][141] - The company is subject to numerous consumer claims, litigation, and regulatory investigations that could result in substantial damages and fines[152] - A small number of shareholders, including Prescott General Partners (18.3%), can significantly influence shareholder-approved matters[117] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[157] Properties The company owns its Michigan headquarters and leases office space in Nevada - Owns two office buildings in Southfield, Michigan, serving as its headquarters[158] - Leases approximately 31,000 square feet of office space in Henderson, Nevada, with the lease expiring in December 2022[159] Legal Proceedings The company is subject to various legal and regulatory actions inherent to the consumer finance industry - The company is involved in various legal proceedings and regulatory investigations that could result in substantial damages, fines, and penalties[161] - For a detailed description of significant litigation, the report refers to Note 16 of the consolidated financial statements[162] Mine Safety Disclosures This section is not applicable to the company - Not applicable[163] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock (CACC) trades on Nasdaq, and significant share repurchases were made in Q4 2021 - The company's common stock is traded on The Nasdaq Global Select Market under the symbol 'CACC'[166] - The Board authorized repurchasing up to two million shares in September 2021, with 1,625,550 shares remaining available for repurchase at year-end[174] Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2021 | 271,908 | $603.33 | | Nov 2021 | 158,359 | $634.57 | | Dec 2021 | 176,042 | $643.61 | | Total Q4 | 606,309 | $623.19 | Management's Discussion and Analysis of Financial Condition and Results of Operations Net income rose significantly in 2021 due to lower credit loss provisions, despite a decline in new loan volume - The increase in 2021 net income was primarily due to a decrease in provision for credit losses and an increase in finance charges[178] - The company's critical accounting estimates involve a high degree of judgment, particularly for Finance Charge Revenue & Allowance for Credit Losses[227] - As of December 31, 2021, the company had total debt of $4.6 billion and unused/available lines of credit of $1.5 billion[262][264] Consolidated Financial Highlights | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Income (in millions) | $958.3 | $421.0 | | Diluted EPS | $59.52 | $23.47 | | Unit Volume Change | -21.4% | -7.5% | | Dollar Volume Change | -13.0% | -3.5% | Change in Forecasted Net Cash Flows (in millions) | Year | Change in Forecasted Net Cash Flows | | :--- | :--- | | 2021 | $326.1 | | 2020 | $(46.3) | | 2019 | $14.6 | Results of Operations (in millions) | Line Item | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $1,856.0 | $1,669.3 | $186.7 | 11.2% | | Provision for credit losses | $8.4 | $556.9 | $(548.5) | -98.5% | | Total costs and expenses | $595.1 | $1,119.8 | $(524.7) | -46.9% | | Net income | $958.3 | $421.0 | $537.3 | 127.6% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on floating-rate debt, managed via interest rate caps - The company is primarily exposed to market risks from movements in interest rates on its floating-rate debt[267] - Interest rate risk is managed primarily by entering into interest rate cap agreements on certain financing facilities[268][270] Financial Statements and Supplementary Data This section presents audited financial statements with an unqualified opinion and a critical audit matter on credit loss estimation - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the consolidated financial statements[280] - A critical audit matter was identified relating to the estimation of credit losses and finance charge revenue due to high subjectivity[284][293] - The company adopted the CECL accounting standard on January 1, 2020, significantly changing credit loss recognition[352] Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $7,050.9 | $7,489.0 | | Loans receivable, net | $6,336.3 | $6,787.9 | | Total Liabilities | $5,226.7 | $5,186.5 | | Total Shareholders' Equity | $1,824.2 | $2,302.5 | Consolidated Income Statement Highlights (in millions) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total revenue | $1,856.0 | $1,669.3 | $1,489.0 | | Provision for credit losses | $8.4 | $556.9 | $76.4 | | Net income | $958.3 | $421.0 | $656.1 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section is not applicable to the company - Not applicable[559] Controls and Procedures Management and the independent auditor concluded that disclosure and internal controls were effective as of year-end 2021 - Management concluded that disclosure controls and procedures were effective as of December 31, 2021[561] - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2021[566] - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[570] Other Information The company reports no other information in this section - None[577] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable to the company - Not applicable[578] Part III Directors, Executive Officers and Corporate Governance Required information is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement - Information is incorporated by reference from the Proxy Statement[580] Executive Compensation Required information is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement - Information is incorporated by reference from the Proxy Statement[581] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated by reference, with details provided on the equity compensation plan Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Number of shares to be issued upon exercise | Weighted-average exercise price of outstanding options | Number of shares remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plan approved by shareholders | 1,082,584 | $350.74 | 258,467 | Certain Relationships and Related Transactions, and Director Independence Required information is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement - Information is incorporated by reference from the Proxy Statement[585] Principal Accounting Fees and Services Required information is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement - Information is incorporated by reference from the Proxy Statement[586] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - Lists the consolidated financial statements and notes from Item 8 as part of the filing[589] - Provides a detailed Exhibit Index listing all documents filed with the report, such as debt agreements, bylaws, and executive compensation plans[591][592] Form 10-K Summary The company did not provide a Form 10-K summary - None[603]