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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
    FORM 10-Q    x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004ORo
    
    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: 28050 ONYX ACCEPTANCE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
    
    33-0577635
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
 ONYX ACCEPTANCE CORPORATION 27051 TOWNE CENTRE DRIVE
FOOTHILL RANCH, CA 92610
(949) 465-3900
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES x     NO o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES o      NO x As
of May 14, 2004 there were 5,306,079 shares of registrants Common Stock,
par value $.01 per share outstanding.




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TABLE OF CONTENTS ONYX ACCEPTANCE CORPORATION INDEX TO QUARTERLY REPORT ON FORM 10-Q PAGEPART I
    
    Financial
Information.
    
    
    3Item 1
    
    Financial
Statements.
    
    
    3Condensed Consolidated Statements of Financial Condition at March 31, 2004 and December 31, 2003
    
    
    3Condensed Consolidated Statements of Income for the three months ended March 31, 2004 and March
31, 2003.
    
    
    4Consolidated Statement of Stockholders Equity at March 31, 2004.
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and
March 31, 2003.
    
    
    6Notes to Condensed Consolidated Financial Statements.
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    11Item 3
    
    Quantitative
and Qualitative Disclosures about Market Risk.
    
    
    22Item 4
    
    Controls and
Procedures.
    
    
    22PART II
    
    Other Information.
    
    
    23Item 1
    
    Legal
Proceedings.
    
    
    23Item 4
    
    Submission of
Matters to a Vote of Security Holders.
    
    
    23Item 5
    
    Other Information.
    
    
    23Item 6
    
    Exhibits and Reports on Form 8-K.
    
    
    30SIGNATURES.
    31EXHIBIT INDEX.
    32EXHIBIT 10.147EXHIBIT 10.148EXHIBIT 10.149EXHIBIT 10.150EXHIBIT 21.1EXHIBIT 31EXHIBIT 32
 2




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PART I. FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) MARCH 31,
    
    DECEMBER 31,2004
    
    2003(DOLLARS IN THOUSANDS)ASSETSCash and cash equivalents
    
    $
    19,960
    
    
    $
    15,434Restricted cash
    
    
    1,563
    
    
    
    500Credit enhancement assets, at fair value
    
    
    185,185
    
    
    
    182,344Contracts held for sale
    
    
    172,615
    
    
    
    195,347Contracts held for investment (net of allowance)
    
    
    7,875
    
    
    
    8,812Other assets
    
    
    8,636
    
    
    
    11,378Total assets
    
    $
    395,834
    
    
    $
    413,815LIABILITIESAccounts payable
    
    $
    31,281
    
    
    $
    21,064Debt:Warehouse lines
    
    
    149,006
    
    
    
    183,008Residual lines
    
    
    29,726
    
    
    
    30,697Subordinated financing
    
    
    50,497
    
    
    
    51,077Total debt
    
    
    229,229
    
    
    
    264,782Other liabilities
    
    
    51,276
    
    
    
    48,050Total liabilities
    
    
    311,786
    
    
    
    333,896EQUITYCommon stockPar value $.01 per share; authorized 15,000,000
shares; issued and outstanding 5,296,154 as of
March 31, 2004 and 5,141,566 as of December 31,
2003
    
    
    53
    
    
    
    51Paid in capital
    
    
    33,171
    
    
    
    32,880Retained earnings
    
    
    35,849
    
    
    
    33,561Accumulated other comprehensive income, net of tax
    
    
    14,975
    
    
    
    13,427Total equity
    
    
    84,048
    
    
    
    79,919Total liabilities and equity
    
    $
    395,834
    
    
    $
    413,815
 See the accompanying notes to the condensed consolidated financial statements. 3




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ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME  THREE MONTHS ENDEDMARCH 31,2004
    
    2003(DOLLARS IN THOUSANDS, EXCEPTPER SHARE AMOUNTS)REVENUES:Interest income
    
    $
    9,944
    
    
    $
    10,639Interest expense-warehouse and residual lines
    
    
    1,835
    
    
    
    2,237Interest expense-other
    
    
    2,361
    
    
    
    1,262Net interest income
    
    
    5,748
    
    
    
    7,140Gain on sale of contracts (net)
    
    
    9,075
    
    
    
    4,127Service fee income
    
    
    13,093
    
    
    
    13,238Total Revenues
    
    
    27,916
    
    
    
    24,505EXPENSES:Provision for credit losses
    
    
    313
    
    
    
    858OPERATING EXPENSES:Salaries and benefits
    
    
    14,429
    
    
    
    13,778Systems and servicing
    
    
    1,211
    
    
    
    948Telephone and data lines
    
    
    807
    
    
    
    813Depreciation
    
    
    455
    
    
    
    684General and administrative expenses
    
    
    6,888
    
    
    
    6,172Total Operating Expenses
    
    
    23,790
    
    
    
    22,395Total Expenses
    
    
    24,103
    
    
    
    23,253Income before income taxes
    
    
    3,813
    
    
    
    1,252Income Taxes
    
    
    1,525
    
    
    
    520Net Income
    
    $
    2,288
    
    
    $
    732Net Income per share  Basic
    
    $
    0.44
    
    
    $
    0.14Net Income per share  Diluted
    
    $
    0.37
    
    
    $
    0.14Basic Shares Outstanding
    
    
    5,256,341
    
    
    
    5,086,793Diluted Shares Outstanding
    
    
    6,181,135
    
    
    
    5,157,277
 See the accompanying notes to the condensed consolidated financial statements. 4




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ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY 
 ACCUMULATED OTHERADDITIONAL
    
    
    
    
    
    COMPREHENSIVECOMMON
    
    PAID-IN
    
    RETAINED
    
    INCOMESHARES
    
    STOCK
    
    CAPITAL
    
    EARNINGS
    
    NET OF TAX
    
    TOTALBALANCE, DECEMBER 31, 2003
    
    
    5,142
    
    
    $
    51
    
    
    $
    32,880
    
    
    $
    33,561
    
    
    $
    13,427
    
    
    $
    79,919Issuance of Common Stock
    
    
    154
    
    
    
    2
    
    
    
    291
    
    
    
    
    
    
    
    
    
    
    
    293Comprehensive income:Unrealized gain in credit
enhancement assets, net
of tax of $1.1 million
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,578
    
    
    
    1,578Deferred loss on
derivatives, net of tax
of $20 thousand
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    (30
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,288
    
    
    
    
    
    
    
    2,288Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,836BALANCE, MARCH 31, 2004
    
    
    5,296
    
    
    $
    53
    
    
    $
    33,171
    
    
    $
    35,849
    
    
    $
    14,975
    
    
    $
    84,048
 See the accompanying notes to the condensed consolidated financial statements. 5




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ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) THREE MONTHS ENDEDMARCH 31,2004
    
    2003
(Restated)(Dollars in Thousands)OPERATING ACTIVITIES:Net cash provided by (used in) operating activities
    
    $
    41,167
    
    
    $
    (31,905
    )INVESTING ACTIVITIES:Cash used for purchases of property and equipment
    
    
    (139
    )
    
    
    (551
    )FINANCING ACTIVITIES:Proceeds from exercise of employee options
    
    
    293
    
    
    
    Payments on capital lease obligations
    
    
    (179
    )
    
    
    (124
    )Payments on residual lines of credit
    
    
    (20,970
    )
    
    
    (12,138
    )Proceeds from drawdown on residual lines of credit
    
    
    20,000
    
    
    
    5,500Paydown of warehouse lines related to securitizations
    
    
    (435,897
    )
    
    
    (391,576
    )Proceeds from warehouse lines
    
    
    401,894
    
    
    
    436,570Proceeds from issuance of subordinated debt
    
    
    5,357
    
    
    
    8,243Principal payments on subordinated debt
    
    
    (5,937
    )
    
    
    (2,131
    )Net cash provided by financing activities
    
    
    (35,439
    )
    
    
    44,344Increase (decrease) in cash and cash equivalents
    
    
    5,589
    
    
    
    11,888Decrease in restricted cash
    
    
    (1,063
    )
    
    
    (3,220
    )Cash and cash equivalents at beginning of period
    
    
    15,434
    
    
    
    8,231Cash and cash equivalents at end of period
    
    $
    19,960
    
    
    $
    16,899
 See the accompanying notes to the condensed consolidated financial statements. 6




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ONYX ACCEPTANCE CORPORATION AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1  NATURE OF OPERATIONS Onyx Acceptance Corporation, a Delaware Corporation, (Onyx), and its
wholly owned special purpose finance subsidiaries Onyx Acceptance Financial
Corporation (OAFC), Onyx Acceptance Funding Corporation (OFC), and Onyx
Acceptance Receivables Corporation (OARC), its wholly owned subsidiary, ABNI
Inc. (ABNI), and its majority owned subsidiary, Credit Union Acceptance
Corporation (CUAC), (collectively, the Company), is a specialized consumer
finance company engaged in the purchase, securitization and servicing of motor
vehicle retail installment contracts originated by franchised and select
independent automobile dealerships (collectively the Contracts). Onyx was
incorporated on August 17, 1993, and commenced operations in February 1994.
Onyx provides an independent source to automobile dealers to finance their
customers purchases of new and used vehicles throughout the United States. The
Company attempts to meet the needs of dealers through consistent buying
practices, competitive rates, a dedicated customer service staff, fast
turnaround time and systems designed to expedite the processing of credit
applications. RECLASSIFICATION Certain amounts in the 2003 periods condensed consolidated
statements have been reclassified to conform to the corresponding 2004
presentation. The
table below presents the reclassifications made: As of
    
    As ofMarch 31,
    
    March 31,2003
    
    2003As reported
    
    Reclassified(Dollars in thousands)Cash and cash equivalents
    
    
    2,758
    
    
    
    16,899Contracts held for sale
    
    
    210,284
    
    
    
    216,942Credit enhancement assets
    
    
    170,327
    
    
    
    178,089Total Assets
    
    
    407,858
    
    
    
    436,419Accounts payable
    
    
    27,115
    
    
    
    45,695Residual lines
    
    
    39,141
    
    
    
    42,464Other Liabilities
    
    
    30,524
    
    
    
    37,182Total Liabilities
    
    
    341,342
    
    
    
    369,903Provision
for credit losses
    
    
    2,227
    
    
    
    858General and
administrative expenses
    
    
    4,803
    
    
    
    6,172
 NOTE 2  BASIS OF PRESENTATION The condensed consolidated financial statements included herein are
unaudited and have been prepared by Onyx Acceptance Corporation (Onyx or the
Company) in accordance with generally accepted accounting principles for
interim financial reporting and Securities and Exchange Commission regulations.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the regulations. In the opinion of
management, the financial statements reflect all adjustments (all of a normal
and recurring nature) which are necessary for a fair statement of the financial
position, results of operations and cash flows for the interim period.
Operating results for the three months ended March 31, 2004 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2004. The condensed consolidated financial statements should be read in
conjunction with the audited financial statements and footnotes thereto for the
year ended December 31, 2003 included in the Companys 2003 Annual Report on
Form 10-K. USE OF ESTIMATES In conformity with generally accepted accounting principles, management
utilizes assumptions and estimates that affect the reported values of assets
and liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses for each reporting period. The more significant estimates made in the
preparation of the Companys condensed consolidated financial statements relate
to the credit enhancement assets and the gain on sale of motor vehicle retail
installment sales and loan Contracts. Such assumptions include, but are not
limited to, estimates of loan prepayments, defaults, recovery rates and present
value discount rates. The Company uses a combination of its own historical
experience and expectation of future performance to determine such estimates.
Actual results may differ from the Companys estimates due to numerous factors
both within and beyond the control of Company management. Changes in these
factors could require the Company to revise its assumptions concerning the
amount of voluntary prepayments, the frequency and/or severity of defaults and
the recovery rates associated with the disposition of repossessed vehicles. NOTE 3  RESTRICTED CASH The Companys restricted cash balance may, from time to time, consist of
one or more of the following components: funds held in reserve accounts
supporting an on balance sheet residual securitization transaction or backup
servicing arrangement; cash collateral to 7




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meet margin requirements related to hedging activities; and cash
collateral to cure potential borrowing base deficiencies associated with the
Companys warehouse lines. NOTE 4  CONTRACTS HELD FOR SALE Contracts held for sale are carried at the lower of cost or market value
on an aggregate basis. Contracts held for sale include Contracts reacquired
upon the exercise of clean up calls and available for sale as part of future
securitizations. At the time of such calls, any unamortized Retained Interest
in Securitized Assets (RISA) balance, net of associated other comprehensive
income remaining in stockholders equity is reclassified from credit
enhancement assets and accounted for as loan premium on the reacquired
Contracts. Loan premiums are amortized in a manner that results in a constant
effective yield over the remaining life of the Contracts. In amortizing loan
premium, the Company anticipates prepayments will occur at a rate consistent
with that utilized in valuing its residual interests (1.75 ABS) over the
estimated remaining contractual life of the Contracts at the date such
Contracts are reacquired. If the Companys actual prepayment experience differs
materially from anticipated prepayment experience, the Company will recalculate
the effective yield to reflect actual payments to date and anticipated future
payments. The unamortized loan premium is adjusted, through a charge or credit
to interest income, to the amount that would have existed had the new effective
yield been applied since the acquisition of the Contracts. Contracts held for sale consist of the following: March 31,
    
    December 31,2004
    
    2003(In thousands)Gross Contracts held for sale
    
    $
    166,285
    
    
    $
    189,561Less unearned interest
    
    
    (926
    )
    
    
    (844
    )Net Contract balance
    
    
    165,359
    
    
    
    188,717Loan Premium
    
    
    5,475
    
    
    
    4,853Contracts held for sale
    
    
    170,834
    
    
    
    193,570Dealer participation
    
    
    1,781
    
    
    
    1,777Total
    
    $
    172,615
    
    
    $
    195,347
 As of March 31, 2004 and December 31, 2003, 25% and 26% of Contracts held
for sale were originated in California, respectively. Contracts serviced by the Company for the benefit of others totaled
approximately $3.2 billion and $3.0 billion at March 31, 2004 and December 31,
2003, respectively. These amounts are not reflected in the accompanying
consolidated financial statements. NOTE 5  CONTRACTS HELD FOR INVESTMENT Contracts held for investment are net of a $2.2 million allowance for
probable losses at March 31, 2004 and a $2.5 million allowance at December 31,
2003. Amounts held for investment include Contracts that do not qualify for
securitizations as a result of delinquency status, minimum balance or minimum
remaining term. Contracts held for investment are carried at amortized cost
reduced by a valuation allowance for credit losses inherent in the portfolio as
of the balance sheet date. Contracts held for investment consist of the following: March 31,
    
    December 31,2004
    
    2003(In thousands)Gross Contracts held for investment
    
    $
    10,109
    
    
    $
    11,312Less unearned interest
    
    
    (12
    )
    
    
    (14
    )Contracts held for investment
    
    
    10,097
    
    
    
    11,298Allowance for credit losses
    
    
    (2,222
    )
    
    
    (2,486
    )Total
    
    $
    7,875
    
    
    $
    8,812
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Changes in the allowance for credit losses were as follows: March 31,
    
    December 31,2004
    
    2003(In thousands)Balance at beginning of period
    
    $
    2,486
    
    
    $
    1,851Provision for credit losses
    
    
    313
    
    
    
    3,216Charged-off loans
    
    
    (2,228
    )
    
    
    (7,424
    )Recoveries-general
    
    
    1,651
    
    
    
    4,843Balance at end of period
    
    $
    2,222
    
    
    $
    2,486
 NOTE 6  CREDIT ENHANCEMENT ASSETS SFAS 140 requires that following a transfer of financial assets, an entity
is to recognize the assets it controls and the liabilities it has incurred, and
derecognize assets for which control has been surrendered and liabilities that
have been extinguished. RISA, capitalized upon securitization of Contracts, represents the present
value of the estimated future cash flows to be received by the Company from the
excess spread created in securitization transactions. Excess spread is
calculated by taking the difference between the weighted average coupon rate of
the Contracts sold and the weighted average security rate paid to the investors
less contractually specified servicing and guarantor fees and projected credit
losses, after giving effect to estimated prepayments. Prepayment and credit loss assumptions are utilized to project future cash
flows and are based on historical experience. All assumptions are evaluated
each quarter and adjusted, if appropriate, to reflect the actual performance of
the underlying Contracts. Subsequent changes in loss, prepayment and discount
rate assumptions applied upon the execution of the securitization could have a
material effect on gains on future securitizations. Key economic assumptions used in determining the fair value of RISA at the
time of securitization are as follows: March 31,
    
    December 31,2004
    
    2003Prepayment rate (ABS Speed)
    
    
    1.75
    
    
    
    1.75Cumulative credit losses
    3.5% to 4.4%
    
    3.5% to 4.4%Average Contract life
    
    
    1.67 to 1.76
    
    
    
    1.67 to 1.76Discount rate
    10.8% to 11.0%
    
    10.8% to 11.0%
 Key economic assumptions used in determining the fair value of the RISA at
March 31, 2004, and December 31, 2003 are as follows: March 31,
    
    December 31,2004
    
    2003Prepayment rate (ABS Speed)
    
    
    1.60 to 2.10
    
    
    
    1.65 to 2.14Cumulative credit losses
    2.6% to 6.3%
    
    2.8% to 6.6%Discount rate
    8.3% to 11.0%
    
    8.5% to 11.0%
 The owner trusts incurred net credit losses of $12.0 million and $16.9
million related to the securitized Contracts above during the quarters ended
March 31, 2004 and 2003, respectively. During the quarter ended March 31, 2003, the Company recorded an
impairment loss of $5.1 million. There was no impairment during the first
quarter of 2004. Impairment charges are netted against gain on sale as
reported in the statement of income. In initially valuing the RISA and determining estimated cash flows, the
Company establishes an off balance sheet allowance for probable credit losses.
The allowance is based upon historical experience, the credit statistics of the
underlying portfolio and managements estimate of future performance regarding
credit losses. The amount is reviewed periodically and adjustments are made if
actual experience or other factors indicate that future performance may differ
from managements prior estimates. The following table presents the estimated future cash flows to be
received from securitizations. Estimated future cash flows are calculated by
taking the difference between the weighted average coupon rate of the Contracts
sold and the weighted average security rate paid to the investors, less the
contractually specified servicing fee of 1.0%, financial guaranty insurance
premiums and other costs and fees, after giving effect to estimated prepayments
and assuming no losses. To arrive at the RISA, this amount is reduced by the
off balance sheet allowance established for probable future losses and by
discounting to present value. 9




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March 31,
    
    December 31,2004
    
    2003(In thousands)Cash held in spread accounts
    
    $
    102,651
    
    
    $
    108,667Estimated undiscounted RISA cash flows
    
    
    222,719
    
    
    
    220,906Off balance sheet allowance for losses
    
    
    (97,231
    )
    
    
    (101,894
    )Discount to present value
    
    
    (42,954
    )
    
    
    (45,335
    )Credit Enhancement Assets
    
    $
    185,185
    
    
    $
    182,344Outstanding balance of Contracts sold through
securitizations
    
    $
    2,671,583
    
    
    $
    2,643,431
 NOTE 7  NET INCOME PER SHARE In accordance with Statement of Financial Accounting Standards No. 128,
the following is the dilutive effect of the Companys potential common stock on
net income per share. Quarter Ended March 31,2004
    
    2003(In thousands, except netincome per share)Net income
    
    $
    2,288
    
    
    $
    732Weighted average shares outstanding
    
    
    5,256,341
    
    
    
    5,086,793Net effect of dilutive stock options/warrants
    
    
    924,794
    
    
    
    70,484Fully diluted weighted average shares outstanding
    
    
    6,181,135
    
    
    
    5,157,277Net income per share
    
    $
    0.44
    
    
    $
    0.14Net income per share assuming full dilution
    
    $
    0.37
    
    
    $
    0.14
 As of March 31, 2004 and 2003, 0.1 million and 2.0 million of combined
options and warrants, respectively, were not included in the calculation of
full dilution, as they were anti-dilutive. NOTE 8  STOCK OPTIONS Statement of Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation (SFAS No. 123), and Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure, an amendment of FASB Statement No. 123 encourages, but does not
require, companies to recognize compensation expense associated with stock
based compensation plans over the anticipated service period based on the fair
value of the award on the date of grant. As allowed by SFAS 123 and 148, the
Company has continued to account for stock-based compensation plans under APB
25. The fair value of the options was estimated at date of grant using a
Black-Scholes single-option pricing model using the following assumptions: March 31,2004
    
    2003Risk free interest rate
    
    3.0%
    
    2.9%Expected stock price volatility
    
    82.0%
    
    79.7%Expected life of options
    
    six years
    
    four yearsExpected dividends
    
    none
    
    none
 The following table presents the pro forma disclosures required for SFAS
123 and SFAS 148 for the three-month periods ended March 31: For the Quarters Ended,March 31,2004
    
    2003(Dollars in Thousands,Except Per Share Data)Net income, as reported (in thousands)
    
    $
    2,288
    
    
    $
    732Stock-based employee compensation expense
determined under fair value based method for
all awards, net of related tax effects (in
thousands)
    
    $
    161
    
    
    $
    111Pro forma net income (in thousands)
    
    $
    2,127
    
    
    $
    621Earnings per share: Basic  as reported
    
    $
    0.44
    
    
    $
    0.14Basic  pro forma
    
    $
    0.41
    
    
    $
    0.12Diluted  as reported
    
    $
    0.37
    
    
    $
    0.14Diluted  pro forma
    
    $
    0.34
    
    
    $
    0.12
 10




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NOTE 9  CONTINGENCIES Management believes that the Company has taken prudent steps to address
the litigation risks associated with the Companys business. However, there can
be no assurance that the Company will be able to successfully defend against
all such claims or that the determination of any such claim in a manner adverse
to the Company would not have a material adverse effect on the Companys
automobile finance business. Based upon information presently available, the
Company believes that all current proceedings should not have a material
adverse effect upon the Companys results of operations, cash flows or
financial condition. NOTE 10  SUBSEQUENT EVENTS In April, the Company announced that its Board of Directors authorized a
stock repurchase program to purchase up to $5.0 million of its common stock.
The shares will be purchased from time to time at prevailing market prices,
through open market or unsolicited negotiated transactions, depending upon
market conditions. The Company may discontinue purchases at any time that
management determines additional purchases are not warranted. In
January 2004, a $20.0 million residual line with Credit
Suisse First Boston (Europe) Limited, was
extended through April 2004, at which time the Company renewed the
line at the $20 million level for another year. 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Onyx is a specialized consumer finance company engaged in the purchase,
origination, securitization and servicing of Contracts originated by franchised
and select independent automobile dealerships in the United States. The Company
focuses its efforts on acquiring Contracts that are collateralized by late
model used and, to a lesser extent, new automobiles, that are entered into with
purchasers whom the Company believes have a favorable credit profile. Since
commencing the purchase of Contracts in February 1994, the Company has acquired
more than $10.7 billion in Contracts and currently has relationships with over
12,000 dealerships. The Company has expanded its operations from a single
office in California to 19 Auto Finance Centers serving many regions of the
United States. The Company generates revenues primarily through the purchase,
origination, warehousing, subsequent securitization and ongoing servicing of
Contracts. The Company earns net interest income on Contracts held during the
warehousing period. Net interest income is the difference between the income
earned on interest earning assets and the interest paid on interest bearing
liabilities. Upon the securitization and sale of Contracts, the Company
recognizes a gain on sale of Contracts, receives excess cash flows generated by
owner trusts, and earns fees from servicing the securitized Contracts. CRITICAL ACCOUNTING POLICIES Critical accounting policies are an integral part of the compilation of
the Companys financial condition and results of operations. Critical
accounting policies require complicated and often intricate calculations and
judgments because they often rely on estimates based on continually changing
market conditions. The following is a summary of accounting policies we
consider critical. RETAINED INTEREST IN SECURITIZED ASSETS (RISA) RISA represents the present value of the estimated future earnings to be
received by the Company from the excess spread created in securitization
transactions. Excess spread is calculated by taking the difference between the
weighted average coupon rate of the Contracts sold and the weighted average
security rate paid to the investors less contractually specified servicing and
guarantor fees and projected credit losses, after giving effect to estimated
prepayments. The estimates that Management makes during the execution of the
securitization relate to the expected prepayment rate of the Contracts in the
transaction, the discount rate to be applied to the cash flows and the amount
of cumulative net losses that will be experienced by the Contracts that are
sold in the transaction. As these 11




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estimates are made at the inception of the transaction, they will have a
degree of uncertainty as the transaction ages. A major variable to these
estimates relates to the general state of the economy at any given time and its
effect on the performance of the Contracts in the transaction. The Company
recognizes the excess of all estimated cash flows attributable to the RISA
estimated at the acquisition date over the initial investment (accretable
yield) as interest income over the estimated life of the RISA using the
effective yield method. If estimated cash flows change, then the accretable
yield is recalculated and the periodic accretion is adjusted prospectively. If
the estimated fair value of the RISA has declined below its carrying amount, an
other-than-temporary decline is considered to exist if there has been a decline
in the estimated present value of future cash flows and the difference between
the carrying value and fair value of the RISA is recorded as an impairment loss
through the income statement. RISA is classified in a manner similar to available for sale assets and as
such is marked to market each quarter. Market value changes are calculated by
discounting the estimated cash flows using a current market discount rate. Each
quarter Management reviews its estimates of the cash flows and adjusts any that
are inconsistent with its current estimates. If the effect of the new estimates
reduces the present value of the cash flows and if the fair market value has
declined below the carrying amount of the transaction, Management will record
an impairment loss on the transaction. If the new estimated present value has
declined but the carrying amount remains below the fair value, any change in
the market value of the RISA is reported as a separate component of
shareholders equity on the consolidated statements of financial condition as
accumulated other comprehensive income (loss), net of applicable taxes. HEDGING ACTIVITIES The Contracts originated and held by the Company earn interest at a fixed
rate and, accordingly, the Company has exposure to changes in interest rates
during the warehouse period. The Company therefore employs a hedging strategy
that is intended to minimize the risk of interest rate fluctuations. Such
transactions involve the execution of forward interest rate swaps and/or the
use of a pre-funding structure for securitizations. Management monitors the hedging activities on a frequent basis to ensure
that the value of hedges, their correlation to the Contracts being hedged and
the amounts being hedged continue to provide effective protection against
interest rate risk. Our hedging strategy requires estimates of monthly Contract
acquisition volume and timing of securitizations. The amount and timing of
hedging transactions are determined by senior management, and are based upon
the amount of Contracts purchased and the interest rate environment. The Company uses forward interest rate swaps to hedge the variability in
the forecasted future net cash flows it will receive from the RISA attributable
to the risk of changing interest rates. The Companys interest rate swap
agreements involve arrangements to pay a fixed interest rate and receive a
floating interest rate, at specified intervals, calculated on agreed-upon
amortizing notional amounts. The debt and amounts that the Company hedges are
determined based on prevailing market conditions and the current shape of the
yield curve. Interest rate swap agreements are executed as an integral part of
specific securitization transactions. Interest rate swap agreements are unwound
upon securitization, whereby the gain or loss on the hedge is recorded to
income and the associated component of the gain or loss previously recorded in
other comprehensive income in reversed. As of March 31, 2004, the Company had
$150 million of forward interest rate swaps outstanding with a AA-rated
counterparty. Derivative instruments used by Onyx involve, to varying degrees, elements
of credit risk in the event a counterparty should default and market risk as
the instruments are subject to rate and price fluctuations. Credit risk is
managed through the use of credit standard guidelines, counterparty
diversification, monitoring of counterparty financial condition and
International Swap Dealers Association master netting agreements in place with
all derivative counterparties. All derivatives are recognized on the balance sheet at their fair value.
On the date that the Company enters into a derivative contract, it designates
the derivative as a hedge of a forecasted transaction of the variability of
cash flows that are to be received or paid in connection with the
securitization (a cash flow hedge). Changes in the fair value of a derivative
that are highly effective and previously designated to qualify as a cash flow
hedge to the extent that the hedge is effective, are recorded in other
comprehensive income until earnings are affected by the variability of cash
flows of the hedged transaction (e.g., until periodic settlements of a variable
asset or liability are recorded in earnings). Any hedge ineffectiveness (which
represents the amount by which the changes in the fair value of the derivative
exceed the variability in the cash flows of the forecasted transaction) is
recorded in current-period earnings. 12




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##### Table of Contents



RESULTS OF OPERATIONS The Company had net income of $2.3 million for the three-month period
ended March 31, 2004, compared to net income of $0.7 million for the same
period in 2003. The increase in net income was principally due to the increase
in net gain on sale for the quarter, partially offset by a reduction in net
interest income. The gain on the first quarter securitization increased to $9.1
million compared to a net gain of $4.1 million for the same period in 2003,
after an impairment charge of 5.1 million. There was no impairment during the
first quarter of 2004. Net Interest Income.Net interest income consists primarily of (1) the
difference between the finance revenue earned on Contracts held on balance
sheet during the warehousing period and the interest costs associated with the
Companys borrowings to purchase such Contracts; (2) the difference between
income accreted on RISA and the interest costs associated with residual line
borrowings secured by RISA and (3) interest and amortized fees charged in
connection with the Companys subordinated debt financings, capital lease
obligations and the costs associated with hedging activities under the
guidelines of FAS 133. Net interest income was $5.7 million for the quarter ended March 31, 2004,
compared to $7.1 million for the same period in 2003. The decrease in net
interest income for the period was due to a combined increase in interest
expense incurred on the Companys renewable unsecured subordinated notes and a
reduction in finance revenue earned on Contracts held for investment and sale
during the warehouse period. Interest expense in connection with the Companys
renewable unsecured subordinated notes increased $950 thousand, and was
principally due to an increase in the balance of notes outstanding between the
two periods. As of March 31, 2003, the balance of the renewable unsecured
subordinated notes was $21.6 million, compared to $38.5 million as of March 31,
2004. Finance revenue earned on Contracts held for sale and investment
decreased to $3.3 million for the three-month period ended March 31, 2004,
versus $4.7 million for the same period in 2003. The reduction in finance
revenue is principally due to a reduction in the weighted average interest rate
on Contracts held for Sale and Investment during the warehouse period. For the
three months ended March 31, 2004, the weighted average interest rate was
11.2%, versus 12.6% for three months ended March 31, 2003. The reduction in
interest income for the quarter was partially offset by a reduction in interest
expense on the Companys residual lines of credit, stemming from a clean-up
call executed on the 2002-A residual securitization in August of 2003. During
the quarter, interest expense incurred on the residual lines of credit totaled
$0.6 million, compared to $1.2 million for the same period in 2003. The Company has increased the fair value on certain of its outstanding
securitization transactions through other comprehensive income on the statement
of financial condition. The increase is principally due to the improved loss
performance of certain securitization transactions, and may result in higher
earnings on the RISA assets in future quarters. The table below depicts the
major components of net interest income. For the Three Months Ended,March 31,2004
    
    2003(Dollars in Thousands)Income:Finance Revenue (net of participation amortization)
    
    $
    3,322
    
    
    $
    4,673RISA income
    
    
    6,622
    
    
    
    5,966Total interest income
    
    
    9,944
    
    
    
    10,639Expense:Warehouse lines
    
    
    1,208
    
    
    
    1,039Residual lines
    
    
    628
    
    
    
    1,198Other Interest expense
    
    
    2,360
    
    
    
    1,262Total interest expense
    
    
    4,196
    
    
    
    3,499Net interest income
    
    $
    5,748
    
    
    $
    7,140
 Contractual servicing fee income is earned at a rate of 1.0% per annum on
the outstanding principal balance of Contracts securitized. Servicing fee
income is related to the size of the serviced portfolio and also includes
investment interest, late fees, extension fees, document fees and other fees
charged to customer accounts. Service fee income was $13.1 million and $13.2
million for the quarters ended March 31, 2004 and 2003, respectively. The
decrease reflects the relative size of the serviced portfolio for the two
periods and a decrease in late fees principally due to the improved performance
of the serviced portfolio. As of March 31, 2004, and 2003, the Companys
serviced portfolio was $2.9 billion. Gain on Sale of Contracts.The Company computes a gain on sale with
respect to Contracts securitized based on the present value of the estimated
future excess cash flows to be received from such Contracts using a market
discount rate. The present value of the estimated future excess cash flows is
recorded as a credit enhancement asset on the statement of financial condition.
The gain recorded in the statement of income is equal to the credit enhancement
asset recorded as adjusted for prepaid dealer participation, issuance 13




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costs, the gain or loss on the termination of the cash flow hedge and
impairment charges. The gain on the sale of Contracts is affected by the amount
of Contracts securitized and the net interest rate spread on those Contracts. The Company completed one securitization in the amount of $450 million
during the quarter, resulting in a gain on sale of Contracts of $9.1 million or
2.0% of the dollar amount of Contracts securitized, compared to a
securitization of $400 million during the first quarter of 2003, which resulted
in a gain on sale of Contracts totaling $9.2 million or 2.3% of the dollar
amount of the Contracts securitized. The decrease in gain recorded for 2004 was
principally due to the decrease in the weighted average net spread realized.
The net interest rate spread is the difference between the weighted average
Contract rate of the securitized assets and the weighted average investor rate
inclusive of all costs related to the transaction. Interest rate spread is
affected by product mix, general market conditions and overall market interest
rates. The risks inherent in interest rate fluctuations are partially reduced
through hedging activities. 2004-A
    
    2003-AWeighted average A.P.R
    
    
    8.97
    %
    
    
    9.79
    %Projected loss rate (Annualized)
    
    
    (2.05
    )
    
    
    (2.21
    )Service fee, dealer participation & other
    
    
    (1.96
    )
    
    
    (2.19
    )Cost of funds, including investor rate
    
    
    (2.93
    )
    
    
    (3.24
    )Net spread
    
    
    2.03
    %
    
    
    2.15
    %
 The Company recorded a $5.1 million pre-tax impairment charge on its RISA
assets during the first quarter of 2003. There was no impairment of RISA
during the first quarter of 2004. Provision for Credit Losses.The Provision for credit losses represents
net credit losses incurred on Contracts held for Investment and the future
provision based on the net change in Contracts held for Investment during the
period. The provision for credit losses decreased to $313 thousand for the
quarter ended March 31, 2004, compared to $858 thousand for the same period in
2003. The decrease is principally due to a decrease in Contracts held for
investment from December 31, 2003 to March 31, 2004 versus an increase in
Contracts held for investment between December 31, 2002 and March 31, 2003. Operating Expenses.The Company has made a significant effort to control
operating expenses though renegotiation of existing service contracts and the
further implementation of technology and automation, including the conversion
of its loan accounting and collection systems to an in-house system and the
development of an automated front-end credit application system. While these
improvements have increased operating efficiencies, the Company has experienced
an increase in charges associated with external collection agencies, insurance,
legal services and health benefit charges creating a combined increase of
approximately $1.8 million for the quarter ended March 31, 2004 versus March
31, 2003. Total operating expenses were $23.8 million for the quarter ended
March 31, 2004, compared to $23.3 million for the same period in 2003. Salaries and Benefits Expense.The Company incurred salary and benefit
expenses of $14.4 million for the quarter ended March 31, 2004, compared to
$13.8 million for the same period in 2003. The increase is principally due to
increases in health care costs and general insurance premiums along with
higher bonus payments in connection with Contract purchases during the quarter
versus 2003. Partially offsetting these increases, was a reduction in temporary
staff agency charges of approximately $250 thousand, stemming from the
renegotiation of long-term service contracts with temporary staff agencies and
the reduction in the number of temporary employees. System and Servicing Expense.System and servicing expense was $1.2
million for the quarter ended March 31, 2004, an increase of approximately $263
thousand versus the quarter ended March 31, 2003. The increase is principally
due to charges for consulting services in connection with the Companys
reorganization of its data lines and an increase in charges for billing and
correspondence services. The Company uses an outside service provider for
substantially all correspondence with its borrowers, including billing, adverse
action notices, welcome letters and insurance notifications. The charges for
these services are largely affected by the volume of Contracts purchased and
the relative size of the serviced portfolio. For the quarter ended March 31,
2004, total Contracts purchased was $422.0 million, compared to $393.1 million
for the three months ended March 31, 2003. Telephone and Data Line Expenses.Telephone and data line expenses
remained at $0.8 million for the quarters ended March 31, 2004 and 2003. With
the consolidation of many local telephone service providers, the Company was
able to shift a large portion of its local and long distance services during
2003 to a single national provider and capitalize on volume discounts provided
by the carrier. 14




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Additionally, during 2003, management substantially completed a cost study
of telephone usage by its branch network, and, as a result, adjusted the
capacity of several branches to better match the required service needs. Depreciation Expense.Depreciation expense decreased to $0.5 million from
$0.7 million for the quarter ended March 31, 2004. Substantially all of the
system upgrades in connection with the Companys corporate office relocation to
Foothill Ranch during 1999 have been fully depreciated. The Company uses a
three-year life and a straight-line depreciation method for most capital
purchases. The Company will continue to invest in technology and infrastructure
to support the serviced portfolio as a means to increase operating
efficiencies. Other Operating Expenses.Other operating expenses include professional
fees, marketing, supplies, facility related charges, insurance fees,
collection fees and credit
bureau fees. Other operating expenses were $4.0 million for the quarter ended
March 31, 2004 versus $3.4 million for the same period in 2003. The increase in
other operating expense is principally due to an increase in insurance and
legal fees. Income Taxes.The Company files federal and certain state tax returns as a
consolidated group. Tax liabilities from the consolidated returns are allocated
in accordance with a tax sharing agreement based on the relative income or loss
of each entity on a stand-alone basis. The effective tax rate for Onyx was
40.0% for the first quarter of 2004 and 41.5% for the first quarter of 2003. FINANCIAL CONDITION CONTRACTS HELD FOR SALE Contracts held for sale are presented at the lower of cost or market value
and totaled $172.6 million at March 31, 2004, compared to $195.3 million at
December 31, 2003. The number and principal balance of Contracts held for sale
is largely dependent upon the timing and size of the Companys securitizations. CONTRACTS HELD FOR INVESTMENT Contracts held for investment are net of a $2.2 million allowance for
probable losses as of March 31, 2004 and a $2.5 million allowance as of
December 31, 2003. Amounts held for investment include Contracts that do not
qualify for Contract securitizations as a result of delinquency status or
minimum balance or remaining term. The Company maintains an allowance for
credit losses to cover anticipated losses on the Contracts held for investment
on the statement of financial condition. The allowance for credit losses is
increased by charging the provision for credit losses and decreased by actual
losses on the Contracts held for investment. The level of the allowance is
based principally on the outstanding balance of Contracts held for investment
and historical loss trends. The following table illustrates the changes in the Companys Contract
acquisition volume, securitization activity and servicing portfolio during the
past five fiscal quarters: SELECTED QUARTERLY FINANCIAL INFORMATION For the Quarters EndedMar. 31,
    
    Dec. 31,
    
    Sept. 30,
    
    June 30,
    
    Mar. 31,2004
    
    2003
    
    2003
    
    2003
    
    2003(Dollars in Thousands)Contracts purchased during period
    
    $
    422,055
    
    
    $
    392,107
    
    
    $
    386,945
    
    
    $
    424,575
    
    
    $
    393,096Average monthly volume during period
    
    
    140,685
    
    
    
    130,702
    
    
    
    128,981
    
    
    
    141,525
    
    
    
    131,032Contracts securitized during period.
    
    
    450,000
    
    
    
    400,000
    
    
    
    400,000
    
    
    
    400,000
    
    
    
    400,000Servicing portfolio at period end
    
    
    2,847,039
    
    
    
    2,843,446
    
    
    
    2,849,201
    
    
    
    2,894,435
    
    
    
    2,894,883
 ASSET QUALITY The Company monitors and attempts to minimize delinquencies and losses
through timely collections and the use of a predictive dialing system. At March
31, 2004, delinquencies represented 0.84% of the amount of Contracts in its
serviced portfolio compared to 1.37% at December 31, 2003. Net charge-offs as a
percentage of the average serviced portfolio were 1.74% for the quarter ended
March 31, 2004, compared to 2.39% for the quarter ended March 31, 2003. In an
effort to improve borrower credit statistics, the Company modified its
incentive compensation system during the fourth quarter of 2000 to shift
purchases of Contracts to a higher 15




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##### Table of Contents



percentage of higher credit quality product. The result has been increased
credit scores and an improvement in overall borrower statistics. DELINQUENCY EXPERIENCE OF SERVICED PORTFOLIO March 31, 2004
    
    December 31, 2003Amount
    
    Amount(Dollars in Thousands)Serviced portfolio
    
    $
    2,847,039
    
    
    $
    2,843,446Delinquencies(1)(2)30 - 59 days
    
    $
    16,047
    
    
    $
    28,08460 - 89 days
    
    
    3,440
    
    
    
    5,88990+ days
    
    
    4,462
    
    
    
    4,955Total
    
    $
    23,949
    
    
    $
    38,928Total delinquencies as a percent of Serviced portfolio
    
    
    0.84
    %
    
    
    1.37
    %
   (1)
    
    Delinquencies include principal amounts only, net of repossessed
inventory and accounts in bankruptcy. Delinquent thirty-plus day
repossessed inventory as a percent of the serviced portfolio was 0.46% and
0.58% at March 31, 2004 and December 31, 2003, respectively. Delinquent
thirty-plus day Contracts in bankruptcy as a percent of the serviced
portfolio were 0.82% and 0.90% at March 31, 2004 and December 31, 2003,
respectively.(2)
    
    The period of delinquency is based on the number of days payments are
contractually past due. 16




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##### Table of Contents



LOAN LOSS EXPERIENCE OF SERVICING PORTFOLIO For the Three Months EndedMarch 31,2004
    
    2003(Dollars in Thousands)Average servicing portfolio(1)
    
    $
    2,889,788
    
    
    $
    2,901,503Number of gross charge-offs
    
    
    3,489
    
    
    
    3,534Gross charge-offs
    
    $
    16,520
    
    
    $
    20,893Net charge-offs(2)
    
    $
    12,587
    
    
    $
    17,342Annualized net charge-offs as a
percent of average Servicing
portfolio
    
    
    1.74
    
    
    
    2.39
   (1)
    
    Average is based on daily balances.(2)
    
    Net charge-offs are gross charge-offs minus recoveries on Contracts
previously charged off. 17




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##### Table of Contents



The following table illustrates the cumulative net credit loss performance
of each of the securitized pools outstanding for the period from the date of
securitization through March 31, 2004, stated as a percentage of the original
principal balance. MONTH
    
    
    99-A
    
    
    
    99-B
    
    
    
    99-C
    
    
    
    99-D
    
    
    
    00-A
    
    
    
    00-B
    
    
    
    00-C
    
    
    
    00-D
    
    
    
    01-A
    
    
    
    01-B
    
    
    
    01-C
    
    
    
    01-D
    
    
    
    02-A
    
    
    
    02-B
    
    
    
    02-C
    
    
    
    02-D
    
    
    
    03-A
    
    
    
    03-B
    
    
    
    03-C
    
    
    
    03-D
    
    
    
    04-A1
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %2
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %3
    
    
    0.02
    %
    
    
    0.03
    %
    
    
    0.03
    %
    
    
    0.01
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.01
    %4
    
    
    0.05
    %
    
    
    0.07
    %
    
    
    0.06
    %
    
    
    0.04
    %
    
    
    0.04
    %
    
    
    0.04
    %
    
    
    0.03
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.03
    %
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.02
    %
    
    
    0.01
    %
    
    
    0.02
    %5
    
    
    0.11
    %
    
    
    0.14
    %
    
    
    0.16
    %
    
    
    0.09
    %
    
    
    0.11
    %
    
    
    0.10
    %
    
    
    0.06
    %
    
    
    0.07
    %
    
    
    0.07
    %
    
    
    0.10
    %
    
    
    0.05
    %
    
    
    0.04
    %
    
    
    0.02
    %
    
    
    0.04
    %
    
    
    0.06
    %
    
    
    0.03
    %
    
    
    0.02
    %
    
    
    0.04
    %
    
    
    0.03
    %
    
    
    0.05
    %6
    
    
    0.21
    %
    
    
    0.27
    %
    
    
    0.28
    %
    
    
    0.15
    %
    
    
    0.18
    %
    
    
    0.17
    %
    
    
    0.11
    %
    
    
    0.15
    %
    
    
    0.12
    %
    
    
    0.18
    %
    
    
    0.11
    %
    
    
    0.08
    %
    
    
    0.07
    %
    
    
    0.10
    %
    
    
    0.11
    %
    
    
    0.07
    %
    
    
    0.07
    %
    
    
    0.06
    %
    
    
    0.08
    %
    
    
    0.08
    %7
    
    
    0.35
    %
    
    
    0.43
    %
    
    
    0.47
    %
    
    
    0.24
    %
    
    
    0.37
    %
    
    
    0.30
    %
    
    
    0.26
    %
    
    
    0.26
    %
    
    
    0.20
    %
    
    
    0.30
    %
    
    
    0.18
    %
    
    
    0.14
    %
    
    
    0.12
    %
    
    
    0.17
    %
    
    
    0.17
    %
    
    
    0.15
    %
    
    
    0.11
    %
    
    
    0.12
    %
    
    
    0.11
    %8
    
    
    0.49
    %
    
    
    0.60
    %
    
    
    0.64
    %
    
    
    0.43
    %
    
    
    0.63
    %
    
    
    0.44
    %
    
    
    0.41
    %
    
    
    0.39
    %
    
    
    0.31
    %
    
    
    0.39
    %
    
    
    0.29
    %
    
    
    0.22
    %
    
    
    0.19
    %
    
    
    0.23
    %
    
    
    0.26
    %
    
    
    0.30
    %
    
    
    0.17
    %
    
    
    0.21
    %
    
    
    0.18
    %9
    
    
    0.63
    %
    
    
    0.85
    %
    
    
    0.83
    %
    
    
    0.59
    %
    
    
    0.87
    %
    
    
    0.67
    %
    
    
    0.65
    %
    
    
    0.50
    %
    
    
    0.47
    %
    
    
    0.50
    %
    
    
    0.38
    %
    
    
    0.32
    %
    
    
    0.26
    %
    
    
    0.33
    %
    
    
    0.34
    %
    
    
    0.37
    %
    
    
    0.24
    %
    
    
    0.27
    %
    
    
    0.23
    %10
    
    
    0.81
    %
    
    
    1.07
    %
    
    
    1.09
    %
    
    
    0.76
    %
    
    
    1.05
    %
    
    
    0.90
    %
    
    
    0.85
    %
    
    
    0.65
    %
    
    
    0.60
    %
    
    
    0.65
    %
    
    
    0.48
    %
    
    
    0.44
    %
    
    
    0.34
    %
    
    
    0.41
    %
    
    
    0.42
    %
    
    
    0.44
    %
    
    
    0.31
    %
    
    
    0.35
    %11
    
    
    1.04
    %
    
    
    1.34
    %
    
    
    1.31
    %
    
    
    0.99
    %
    
    
    1.27
    %
    
    
    1.11
    %
    
    
    1.08
    %
    
    
    0.85
    %
    
    
    0.77
    %
    
    
    0.77
    %
    
    
    0.59
    %
    
    
    0.51
    %
    
    
    0.39
    %
    
    
    0.49
    %
    
    
    0.51
    %
    
    
    0.51
    %
    
    
    0.39
    %
    
    
    0.42
    %12
    
    
    1.29
    %
    
    
    1.56
    %
    
    
    1.47
    %
    
    
    1.20
    %
    
    
    1.59
    %
    
    
    1.38
    %
    
    
    1.29
    %
    
    
    1.03
    %
    
    
    0.95
    %
    
    
    0.89
    %
    
    
    0.70
    %
    
    
    0.59
    %
    
    
    0.48
    %
    
    
    0.58
    %
    
    
    0.60
    %
    
    
    0.59
    %
    
    
    0.44
    %13
    
    
    1.49
    %
    
    
    1.79
    %
    
    
    1.62
    %
    
    
    1.41
    %
    
    
    1.82
    %
    
    
    1.57
    %
    
    
    1.42
    %
    
    
    1.25
    %
    
    
    1.14
    %
    
    
    1.04
    %
    
    
    0.78
    %
    
    
    0.69
    %
    
    
    0.56
    %
    
    
    0.68
    %
    
    
    0.70
    %
    
    
    0.67
    %
    
    
    0.50
    %14
    
    
    1.72
    %
    
    
    1.90
    %
    
    
    1.77
    %
    
    
    1.52
    %
    
    
    2.03
    %
    
    
    1.84
    %
    
    
    1.65
    %
    
    
    1.41
    %
    
    
    1.31
    %
    
    
    1.19
    %
    
    
    0.89
    %
    
    
    0.77
    %
    
    
    0.64
    %
    
    
    0.75
    %
    
    
    0.79
    %
    
    
    0.75
    %
    
    
    0.59
    %15
    
    
    1.90
    %
    
    
    2.08
    %
    
    
    2.00
    %
    
    
    1.70
    %
    
    
    2.25
    %
    
    
    2.08
    %
    
    
    1.93
    %
    
    
    1.62
    %
    
    
    1.47
    %
    
    
    1.33
    %
    
    
    1.00
    %
    
    
    0.85
    %
    
    
    0.74
    %
    
    
    0.84
    %
    
    
    0.89
    %
    
    
    0.79
    %
    
    
    0.67
    %16
    
    
    2.10
    %
    
    
    2.23
    %
    
    
    2.08
    %
    
    
    2.00
    %
    
    
    2.48
    %
    
    
    2.26
    %
    
    
    2.16
    %
    
    
    1.86
    %
    
    
    1.64
    %
    
    
    1.43
    %
    
    
    1.11
    %
    
    
    0.94
    %
    
    
    0.83
    %
    
    
    0.93
    %
    
    
    0.98
    %
    
    
    0.88
    %17
    
    
    2.26
    %
    
    
    2.42
    %
    
    
    2.29
    %
    
    
    2.17
    %
    
    
    2.64
    %
    
    
    2.42
    %
    
    
    2.42
    %
    
    
    2.04
    %
    
    
    1.78
    %
    
    
    1.55
    %
    
    
    1.23
    %
    
    
    1.03
    %
    
    
    0.91
    %
    
    
    1.02
    %
    
    
    1.07
    %
    
    
    0.99
    %18
    
    
    2.46
    %
    
    
    2.63
    %
    
    
    2.48
    %
    
    
    2.40
    %
    
    
    2.80
    %
    
    
    2.69
    %
    
    
    2.65
    %
    
    
    2.20
    %
    
    
    1.96
    %
    
    
    1.67
    %
    
    
    1.34
    %
    
    
    1.10
    %
    
    
    1.00
    %
    
    
    1.10
    %
    
    
    1.16
    %
    
    
    1.07
    %19
    
    
    2.59
    %
    
    
    2.71
    %
    
    
    2.61
    %
    
    
    2.61
    %
    
    
    2.98
    %
    
    
    2.96
    %
    
    
    2.97
    %
    
    
    2.41
    %
    
    
    2.10
    %
    
    
    1.80
    %
    
    
    1.45
    %
    
    
    1.19
    %
    
    
    1.12
    %
    
    
    1.16
    %
    
    
    1.29
    %20
    
    
    2.71
    %
    
    
    2.89
    %
    
    
    2.73
    %
    
    
    2.87
    %
    
    
    3.25
    %
    
    
    3.20
    %
    
    
    3.25
    %
    
    
    2.60
    %
    
    
    2.25
    %
    
    
    1.94
    %
    
    
    1.58
    %
    
    
    1.30
    %
    
    
    1.20
    %
    
    
    1.26
    %
    
    
    1.38
    %21
    
    
    2.83
    %
    
    
    3.08
    %
    
    
    2.92
    %
    
    
    3.05
    %
    
    
    3.52
    %
    
    
    3.44
    %
    
    
    3.48
    %
    
    
    2.75
    %
    
    
    2.36
    %
    
    
    2.09
    %
    
    
    1.71
    %
    
    
    1.39
    %
    
    
    1.27
    %
    
    
    1.34
    %
    
    
    1.48
    %22
    
    
    2.88
    %
    
    
    3.21
    %
    
    
    3.07
    %
    
    
    3.20
    %
    
    
    3.69
    %
    
    
    3.69
    %
    
    
    3.70
    %
    
    
    2.92
    %
    
    
    2.49
    %
    
    
    2.23
    %
    
    
    1.84
    %
    
    
    1.51
    %
    
    
    1.39
    %
    
    
    1.44
    %23
    
    
    3.03
    %
    
    
    3.31
    %
    
    
    3.22
    %
    
    
    3.33
    %
    
    
    3.91
    %
    
    
    3.94
    %
    
    
    3.95
    %
    
    
    3.03
    %
    
    
    2.61
    %
    
    
    2.35
    %
    
    
    1.92
    %
    
    
    1.59
    %
    
    
    1.49
    %
    
    
    1.52
    %24
    
    
    3.21
    %
    
    
    3.43
    %
    
    
    3.32
    %
    
    
    3.53
    %
    
    
    4.12
    %
    
    
    4.18
    %
    
    
    4.18
    %
    
    
    3.16
    %
    
    
    2.75
    %
    
    
    2.47
    %
    
    
    2.02
    %
    
    
    1.67
    %
    
    
    1.60
    %
    
    
    1.60
    %25
    
    
    3.28
    %
    
    
    3.55
    %
    
    
    3.43
    %
    
    
    3.70
    %
    
    
    4.32
    %
    
    
    4.39
    %
    
    
    4.37
    %
    
    
    3.32
    %
    
    
    2.86
    %
    
    
    2.57
    %
    
    
    2.13
    %
    
    
    1.73
    %
    
    
    1.69
    %26
    
    
    3.34
    %
    
    
    3.67
    %
    
    
    3.65
    %
    
    
    3.88
    %
    
    
    4.52
    %
    
    
    4.57
    %
    
    
    4.54
    %
    
    
    3.45
    %
    
    
    3.01
    %
    
    
    2.67
    %
    
    
    2.25
    %
    
    
    1.80
    %
    
    
    1.76
    %27
    
    
    3.47
    %
    
    
    3.77
    %
    
    
    3.79
    %
    
    
    4.03
    %
    
    
    4.71
    %
    
    
    4.74
    %
    
    
    4.74
    %
    
    
    3.59
    %
    
    
    3.12
    %
    
    
    2.77
    %
    
    
    2.33
    %
    
    
    1.89
    %
    
    
    1.82
    %28
    
    
    3.61
    %
    
    
    3.88
    %
    
    
    3.90
    %
    
    
    4.22
    %
    
    
    4.87
    %
    
    
    4.91
    %
    
    
    4.88
    %
    
    
    3.71
    %
    
    
    3.27
    %
    
    
    2.87
    %
    
    
    2.43
    %
    
    
    1.96
    %29
    
    
    3.67
    %
    
    
    4.01
    %
    
    
    4.03
    %
    
    
    4.42
    %
    
    
    5.04
    %
    
    
    5.07
    %
    
    
    5.03
    %
    
    
    3.86
    %
    
    
    3.41
    %
    
    
    2.96
    %
    
    
    2.52
    %
    
    
    2.01
    %30
    
    
    3.78
    %
    
    
    4.14
    %
    
    
    4.19
    %
    
    
    4.58
    %
    
    
    5.23
    %
    
    
    5.22
    %
    
    
    5.18
    %
    
    
    4.00
    %
    
    
    3.52
    %
    
    
    3.04
    %
    
    
    2.62
    %
    
    
    2.06
    %31
    
    
    3.85
    %
    
    
    4.25
    %
    
    
    4.28
    %
    
    
    4.71
    %
    
    
    5.35
    %
    
    
    5.36
    %
    
    
    5.33
    %
    
    
    4.09
    %
    
    
    3.60
    %
    
    
    3.11
    %
    
    
    2.72
    %32
    
    
    3.96
    %
    
    
    4.37
    %
    
    
    4.43
    %
    
    
    4.84
    %
    
    
    5.48
    %
    
    
    5.53
    %
    
    
    5.43
    %
    
    
    4.20
    %
    
    
    3.69
    %
    
    
    3.19
    %
    
    
    2.81
    %33
    
    
    4.07
    %
    
    
    4.49
    %
    
    
    4.60
    %
    
    
    4.98
    %
    
    
    5.61
    %
    
    
    5.67
    %
    
    
    5.57
    %
    
    
    4.28
    %
    
    
    3.78
    %
    
    
    3.28
    %
    
    
    2.89
    %34
    
    
    4.18
    %
    
    
    4.55
    %
    
    
    4.71
    %
    
    
    5.11
    %
    
    
    5.74
    %
    
    
    5.80
    %
    
    
    5.67
    %
    
    
    4.39
    %
    
    
    3.87
    %
    
    
    3.35
    %35
    
    
    4.25
    %
    
    
    4.66
    %
    
    
    4.83
    %
    
    
    5.21
    %
    
    
    5.85
    %
    
    
    5.91
    %
    
    
    5.77
    %
    
    
    4.47
    %
    
    
    3.93
    %
    
    
    3.41
    %36
    
    
    4.32
    %
    
    
    4.79
    %
    
    
    4.95
    %
    
    
    5.32
    %
    
    
    5.96
    %
    
    
    6.04
    %
    
    
    5.90
    %
    
    
    4.55
    %
    
    
    4.03
    %37
    
    
    4.37
    %
    
    
    4.86
    %
    
    
    5.00
    %
    
    
    5.46
    %
    
    
    6.06
    %
    
    
    6.15
    %
    
    
    5.99
    %
    
    
    4.64
    %
    
    
    4.10
    %38
    
    
    4.44
    %
    
    
    4.94
    %
    
    
    5.07
    %
    
    
    5.55
    %
    
    
    6.16
    %
    
    
    6.24
    %
    
    
    6.09
    %
    
    
    4.73
    %
    
    
    4.16
    %39
    
    
    4.51
    %
    
    
    5.00
    %
    
    
    5.15
    %
    
    
    5.63
    %
    
    
    6.25
    %
    
    
    6.35
    %
    
    
    6.17
    %
    
    
    4.81
    %40
    
    
    4.56
    %
    
    
    5.05
    %
    
    
    5.22
    %
    
    
    5.71
    %
    
    
    6.33
    %
    
    
    6.43
    %
    
    
    6.24
    %
    
    
    4.85
    %41
    
    
    4.66
    %
    
    
    5.12
    %
    
    
    5.30
    %
    
    
    5.78
    %
    
    
    6.41
    %
    
    
    6.53
    %
    
    
    6.31
    %
    
    
    4.91
    %42
    
    
    4.69
    %
    
    
    5.17
    %
    
    
    5.36
    %
    
    
    5.84
    %
    
    
    6.48
    %
    
    
    6.60
    %
    
    
    6.39
    %43
    
    
    4.72
    %
    
    
    5.21
    %
    
    
    5.42
    %
    
    
    5.89
    %
    
    
    6.54
    %
    
    
    6.67
    %
    
    
    6.47
    %44
    
    
    4.77
    %
    
    
    5.23
    %
    
    
    
    
    
    
    5.95
    %
    
    
    6.59
    %
    
    
    6.76
    %
    
    
    6.53
    %45
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.99
    %
    
    
    6.62
    %
    
    
    6.82
    %
    
    
    6.60
    %46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.02
    %
    
    
    
    
    
    
    6.86
    %
 18




---



##### Table of Contents



CREDIT ENHANCEMENT ASSETS Retained interest in securitized assets (RISA) capitalized upon
securitization of Contracts represent the present value of the estimated future
earnings to be received by the Company from the excess spread created in
securitization transactions. Excess spread is calculated by taking the
difference between the weighted average coupon rate of the Contracts sold and
the weighted average security rate paid to the investors less contractually
specified servicing and guarantor fees and projected credit losses, after
giving effect to estimated prepayments. Prepayment and credit loss assumptions are utilized to project future
earnings and are based on historical experience. Credit losses are estimated
using cumulative loss frequency and severity estimates by management. All
assumptions are evaluated each quarter and adjusted, if appropriate, to reflect
the actual performance of the underlying Contracts. Future earnings are
discounted at a rate management believes to be representative of market at the
time of securitization. LIQUIDITY AND CAPITAL RESOURCES The Company requires substantial cash and capital resources to operate its
business. Its primary uses of cash include: (i) acquisition of Contracts; (ii)
payments of dealer participation; (iii) securitization costs; (iv) settlements
of hedging transactions; (v) operating expenses; and (vi) interest expense. The
capital resources available to the Company include: (i) interest income during
the warehousing period; (ii) servicing fees; (iii) releases from spread
accounts; (iv) settlements of hedging transactions; (v) sales of Contracts in
securitizations; and (vi) borrowings under its credit facilities. Management
believes that the resources available to the Company will provide the needed
capital to fund Contract purchases, investments in origination and servicing
capabilities, and ongoing operations. The Companys primary source of funds from continuing operations is
securitization proceeds. The Company uses the cash generated from
securitizations to pay down outstanding warehouse facilities. These facilities
are then used to fund the purchase of Contracts. Although the Company has
historically operated on a negative cash flow basis, excluding the effects of
securitization transactions, from operating activities, the Company generated
positive cash flow beginning in the fourth quarter of 2003 and expects to
continue to generate positive cash flow on a quarterly basis provided the
volume of Contract purchases remains steady on an annual basis. The Company
finances dealer participation payments and daily operations principally through
credit facilities collateralized by its retained interest in securitized
assets, proceeds from subordinated debt offerings, and cash from operating
activities. Cash provided by operating activities was $41.2 million for the
three months ended March 31, 2004, compared to $31.9 million used during the
same period in 2003. During the first quarter of 2003, the Company executed two
clean-up calls on outstanding securitizations in the amount of $74.2 million,
compared to one clean-up call during the first quarter of 2004 in the amount of
$40.8 million. The change in cash provided by operating activities is also
largely dependent upon the amount of cash released from spread accounts, the
timing and size of securitization transactions including whether they include
pre-funding agreements and the size of securitizations executed relative to the
volume of Contracts originated during the warehouse period. 19




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The Company continued to focus its efforts on building and maintaining its
dealer relations through its existing branch locations and commenced operations
in its newest dealer center located in New York as of April 1, 2004. Capital
expenditures of $139 thousand and $551 thousand during the three-month periods
ended March 31, 2004 and 2003, respectively, were due to the ongoing
maintenance and upgrade of the Companys servicing infrastructure. CP Facilities:As of March 31, 2004, the Company was party to two
warehouse facilities. The Company has a warehouse facility of $300 million (the
Triple-A CP Facility), with Triple-A One Funding Corporation (Triple-A).
Onyx Acceptance Financial Corporation (Finco), a special purpose subsidiary
of the Company, is the borrower under the Triple-A CP Facility. The Triple-A CP
Facility is used to fund the purchase or origination of Contracts. Triple-A is
a rated commercial paper asset-backed conduit sponsored by MBIA Insurance
Corporation (MBIA). MBIA provides credit enhancement for the facility by
issuing a financial guarantee insurance policy covering all principal and
interest obligations owed for the borrowings under the facility. The Company
pledges certain of its Contracts held for sale to borrow from Triple-A. The
Triple-A CP Facility was renewed in November 2001 for a three-year term,
subject to annual renewals by liquidity providers. A subsidiary of the Company, Onyx Acceptance Receivables Corporation
(OARC), has a $300 million warehouse facility with CDC Financial Products
Inc. (CDC) and Wachovia Bank, N.A., which provides warehouse funding for the
purchase or origination of Contracts and is used in concert with the
Triple-A CP Facility. XL Capital Assurance Inc. provides credit enhancement for
the facility by issuing a financial guarantee insurance policy covering all
principal and interest obligations owed for borrowings under the facility. The
Company pledges certain of its Contracts held for sale to borrow under the OARC
CP Facility. The OARC CP Facility was renewed and expanded to $300 million in
January 2004. The facility is now set to expire in January 2005. The Residual Lines:As of March 31, 2004, the Company, through a special
purpose subsidiary of the Company, Onyx Acceptance Funding Corporation
(Fundco), had three residual financing facilities:  
    
    A $35 million line with Merrill Lynch International, as buyer
(MLI), and Merrill Lynch, Pierce, Fenner & Smith Inc., as agent
(Merrill). The MLI facility was executed in April 2003. Each loan
under the MLI line has a nine-month revolver period followed by a
twelve-month amortization period.  
    
    A $20.0 million facility with Credit Suisse First Boston (Europe)
Limited, as buyer (CSFB-Europe), and Credit Suisse First Boston
Corporation, as agent (CSFB). In January 2004, the line was
extended through April 2004, at which time the Company renewed the
line at the $20 million level for another year.  
    
    A $30.0 million facility with Galleon Capital, LLC (Galleon)
executed in January of 2004. The Galleon facility provides for a
twelve-month revolving period followed by an accelerated amortization
period. The facilities described above are sometimes referred to herein as the
Residual Lines. Residual Securitizations:As an additional source of funds, the Company
has in the past utilized residual securitizations to pay down its residual
financing facilities to increase the Companys liquidity. During the first
quarter of 2000, the Company securitized the residual cash flows from 15 of its
then outstanding securitizations. The proceeds of this transaction were used by
the Company to pay down two residual financing facilities and pay off another
residual financing facility. The Company refinanced this residual
securitization in the amount of $21.0 million during the second quarter of 2002
and in the amount of $9.2 million during the fourth quarter of 2002. During the
first quarter of 2002, the Company completed its second residual interest
securitization for the purpose of providing additional borrowing capacity under
its Residual Lines. This transaction generated approximately $75.0 million in
proceeds. The Company retired both of these residual securitizations in 2003. Subordinated Debt:As of March 31, 2004, the Company had outstanding
approximately $50.5 million of subordinated debt, $12.0 million of which has a
stated interest rate of 12.5% and a maturity of June 2006. The remaining
balance of $38.5 million was raised through the Companys renewable unsecured
subordinated note program launched during the first quarter of 2002. The
weighted average interest rate on the balance of the renewable notes
outstanding as of March 31, 2004 was approximately 8.3%. The renewable notes
have varying maturities ranging from three months to ten years. The facilities and lines above contain affirmative, negative and financial
covenants typical of such credit facilities. The Company was in compliance with
these covenants as of March 31, 2004. 20




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SECURITIZATIONS Off balance sheet arrangements are used in the ordinary course of
business. Generally, these transactions are structured as off balance sheet
sales of Contracts. One of the most common forms of off balance sheet
arrangements is Contract securitizations. Regular Contract securitizations are
an integral part of the Companys business plan because they allow the Company
to increase its liquidity, provide for redeployment of its capital and reduce
risks associated with interest rate fluctuations. The Company has developed a
securitization program that involves selling interests in pools of its
Contracts to investors through the public issuance of AAA/Aaa rated
asset-backed securities. Automobile securitizations are used by many financial
institutions and are part of a multi-billion dollar annual market for
asset-backed securities. As part of this process, management considers the
relative risks and returns prior to initiating each securitization. These risks
include, but are not limited to, interest rate fluctuations during the
warehouse period, increased prepayments speeds and losses, loss of credit
enhancement for the underlying securitization, loss of servicing rights and
adverse economic conditions. These factors are explained in further detail in
the section Risk Factors. The table below provides information about the
trusts assets and liabilities as of March 31, 2004 and December 31, 2003. March 31,
    
    December 31,2004
    
    2003(In millions)Total assets
    
    $
    2,732
    
    
    $
    2,750Total liabilities
    
    $
    2,628
    
    
    $
    2,642
 The Company completed one AAA/Aaa rated publicly underwritten asset-backed
securitization in the amount of $450 million during the first quarter of 2004.
Since 1994, the Company has securitized $10.5 billion of its Contracts in 35
separate transactions. In each of its securitizations, the Company has sold its
Contracts to a newly formed grantor or owner trust, which issued certificates
or notes in an amount equal to the aggregate principal balance of the
Contracts. The net proceeds of these securitizations were used to pay down
outstanding indebtedness incurred under the Companys warehouse financing
facilities to purchase Contracts, thereby creating availability for the
purchase of additional Contracts. To improve the level of profitability from the sale of securitized
Contracts, the Company arranges for credit enhancement to achieve an improved
credit rating on the asset-backed securities issued. This credit enhancement
has taken the form of a financial guaranty insurance policy or bond (the
Financial Guarantee Insurance Policy) insuring the payment of principal and
interest due on the asset-backed securities. The policies or bonds have been
issued by MBIA Insurance Corporation or a predecessor and XL Capital Assurance
Inc. The Company receives servicing fees for its duties relating to the
accounting for and collection of the Contracts. In addition, the Company is
entitled to the future excess cash flows arising from the trusts. Generally,
the Company sells the Contracts at face value and without recourse, except that
certain representations and warranties with respect to the Contracts are
provided by the Company as the servicer and Finco as the seller to the trusts. Gains on sale of Contracts arising from securitizations provide a
significant portion of the Companys revenues. Several factors affect the
Companys ability to complete securitizations of its Contracts, including
conditions in the securities markets generally, conditions in the asset-backed
securities market specifically, the credit quality of the Companys portfolio
of Contracts and the Companys ability to obtain credit enhancement. INTEREST RATE EXPOSURE AND HEDGING The Company is able, through the use of varying maturities on advances
from the CP Facilities, to lock in rates during the warehousing period, when in
managements judgment it is appropriate to limit interest rate exposure during
such warehousing period (See Risk Factors  Interest Rate Risk). The Company has the ability to move rates upward in response to rising
borrowing costs because the Company currently does not originate loans near the
maximum rates permitted by law. Further, the Company employs a hedging strategy
which primarily consists of the execution of forward interest rate swaps. These
hedges are entered into by the Company in numbers and amounts which generally
correspond to the anticipated principal amount of the related securitization.
Gains and losses relative to these hedges are recognized in full at the time of
securitization as an adjustment to the gain on sale of the Contracts. The
Company has only used counterparties with investment grade debt ratings from
national rating agencies for its hedging transactions. 21




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Management monitors the Companys hedging activities on a frequent basis
to ensure that the value of hedges, their correlation to the Contracts being
hedged and the amounts being hedged continue to provide effective protection
against interest rate risk. The Companys hedging strategy requires estimates
by management of monthly Contract acquisition volume and timing of its
securitizations. If such estimates are materially inaccurate, then the
Companys gain on sales of Contracts and results of operations and cash flows
could be adversely affected. The amount and timing of hedging transactions are
determined by senior management based upon the amount of Contracts purchased
and the interest rate environment. Senior management currently expects to hedge
substantially all of its Contracts pending securitization. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Companys earnings are affected by changes in interest rates as a
result of its dependence upon the issuance of interest-bearing securities and
the incurrence of debt to fund its lending activities. Several factors can
influence the Companys ability to manage interest rate risk. First, Contracts
are purchased at fixed interest rates, while the amounts borrowed under the
warehouse credit facilities bear interest at variable rates that are subject to
frequent adjustment to reflect prevailing market interest rates. Second, the
interest rate demanded by investors in a securitization is a function of
prevailing market rates for comparable transactions and the general interest
rate environment. Because the Contracts purchased by the Company have fixed
interest rates, the Company bears the risk of smaller gross interest rate
spreads in the event interest rates increase during the period between the date
Contracts are purchased and the completion and pricing of securitization
transactions. The Company uses several strategies to minimize interest rate risk,
including the utilization of derivative financial instruments, the regular
securitization of Contracts and the use of pre-funding in securitization
transactions. Pre-funding securitizations is the practice of issuing more
asset-backed securities than the amount of Contracts initially sold to the
securitization trust. The proceeds from the pre-funded portion are held in an
escrow account until additional Contracts are sold to the trust in amounts up
to the balance of the pre-funded escrow account. In pre-funded securitizations,
investor interest rates are locked in with respect to the Contracts
subsequently delivered to the securitization trust. However, the Company incurs
an expense in pre-funded securitizations equal to the difference between the
money market yields earned on the proceeds held in escrow prior to the
subsequent delivery of Contracts and the interest rate paid on the portion of
the securities proceeds related to the pre-fund amount. Derivative financial instruments are utilized to manage the gross interest
rate spread on the Companys securitization transactions. The Company sells
fixed rate Contracts to the trusts that, in turn, sell fixed rate securities to
investors. The fixed rates on securities issued by the trusts are indexed to
swap rates on U.S. Treasury Notes with similar average maturities or various
London Interbank Offered Rates (LIBOR). The Company periodically executes the
sale of forward swap agreements to lock in the indexed rate for specific
anticipated securitization transactions. The Company utilizes these derivative
financial instruments to modify its net interest sensitivity to levels deemed
appropriate based on the Companys risk tolerance. All transactions are entered
into for purposes other than trading and are settled quarterly upon pricing of
the securitization. The Company remitted cash payments, net of expenses, of approximately $0.4
million during the first quarter of 2004 and $1.7 million during the first
quarter of 2003 to settle forward interest rate swap agreements. These amounts
were included in the gain on sale of Contracts in respective securitization
transactions. Cash payments are recovered over time through a higher gross
interest rate spread on the related securitization transaction, while cash
receipts are offset through a lower gross interest rate spread on the related
securitization transaction. As of March 31, 2004, the Company had $150.0
million of forward interest rate swap agreements outstanding. 
 ITEM 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Companys Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that such information is
accumulated and communicated to the Companys management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and the
Companys Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures. Based on the
foregoing, 22




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the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective. There have been no significant changes in the Companys internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation. 
 PART II. OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS As a consumer finance company, the Company is subject to various consumer
claims and litigation seeking damages and statutory penalties based upon, among
other things, disclosure inaccuracies and wrongful repossession, which could
take the form of a plaintiffs class action complaint. The Company, as the
assignee of finance Contracts originated by dealers, may also be named as a
co-defendant in lawsuits filed by consumers principally against dealers.
Finally, the Company also is subject to other litigation common to the motor
vehicle finance industry and businesses in general. The damages and penalties
claimed by consumers and others in these types of matters can be substantial.
The relief requested by the plaintiffs varies but includes requests for
compensatory, statutory and punitive damages. Management believes that the Company has taken prudent steps to address
the litigation risks associated with the Companys business. However, there can
be no assurance that the Company will be able to successfully defend against
all such claims or that the determination of any such claim in a manner adverse
to the Company would not have a material adverse effect on the Companys
automobile finance business. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the first quarter of the fiscal year
covered by this Quarterly Report on Form 10-Q to a vote of security holders,
through the solicitation of proxies or otherwise. 
 ITEM 5. OTHER INFORMATION FORWARD LOOKING STATEMENTS The preceding Managements Discussion and Analysis of the Companys
Financial Condition and Results of Operations contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, which provides a safe harbor for these types of statements. This
Quarterly Report on Form 10-Q contains forward-looking statements which reflect
the current views of the Company with respect to future events and financial
performance. These forward looking statements are subject to certain risks and
uncertainties, including those identified below which could cause actual
results to differ materially from historical results or those anticipated.
Forward-looking terminology can be identified by the use of terms such as
may, will, expect, anticipate, estimate, should or continue or
the negative thereof or other variations thereon or comparable terminology.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. Except as required by law, the
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The following factors, among others, could cause actual
results to differ materially from historical results or those anticipated: (1)
the level of demand for auto contracts, which is affected by such external
factors as the level of interest rates, the strength of the various segments of
the economy, debt burden held by consumers and demographics of the lending
markets of the Company; (2) continued dealer relationships; (3) fluctuations
between consumer interest rates and the cost of funds; (4) federal and state
regulation of auto finance operations; (5) competition within the consumer
lending industry; (6) the availability and cost of securitization transactions
and (7) the availability and cost of warehouse and residual financing. BUSINESS RISKS You should carefully consider the following risks in your evaluation of us
and our common stock. The risks and uncertainties described below may not be
the only ones facing our Company. Additional risks and uncertainties,
including, but not limited to, credit, economic, competitive, governmental and
financial factors affecting our operations, markets, financial products, and
services and other factors discussed in our future filings with the Securities
and Exchange Commission may also adversely impact and impair our business. If
any of these risks actually occur, our business, results of operations, cash
flows or financial condition would likely suffer. 23




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In such case, the trading price of our common stock could decline, and you
may lose all or part of the money you paid to buy our common stock. We Need Substantial Liquidity. We require a substantial amount of liquidity to operate our business.
Among other things, we use such liquidity to:  
    
    acquire Contracts;  
    
    pay dealer participation;  
    
    pay securitization costs and fund related accounts;  
    
    settle hedge transactions;  
    
    satisfy working capital requirements and pay operating expenses; and  
    
    pay interest expense. 24




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A substantial portion of our revenues in any period is represented by
the gain on sale of Contracts generated by a securitization in such
period, but the cash underlying such revenues is received over the life of
the Contracts. We have historically operated on a negative cash flow basis. We
generated positive cash flow beginning in the fourth quarter of 2003, and
will likely continue to remain cash flow positive on a quarterly basis,
provided the volume of Contract purchases remains steady on an annual
basis. We have historically funded negative operating cash flows
principally through borrowings from financial institutions, sales of
equity securities and sales of subordinated debt. We cannot assure you,
however, that (1) we will remain cash flow positive, (2) we will have
access to capital markets in the future for equity, debt issuances or
securitizations, or (3) financing through borrowings or other means will
be available on acceptable terms to satisfy our cash requirements. If we
are unable to access the capital markets or obtain acceptable financing,
our results of operations, financial condition and cash flows would be
materially and adversely affected. See Managements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resources. We Depend on Warehouse Financing. We depend on warehouse facilities with financial institutions to
finance the purchase or origination of Contracts pending securitization.
Our business strategy requires that such financing continue to be
available during the warehousing period. Whether the CP Facilities continue to be available to us depends on,
among other things, whether we maintain a target net yield for the
Contracts financed under the CP Facilities and comply with certain
financial covenants contained in the sale and servicing agreements between
us, as seller, and our respective wholly-owned special purpose subsidiary,
Finco or OARC, as purchaser. These financial covenants include:  
    
    a minimum ratio of net worth plus subordinated debt to total assets;  
    
    a maximum ratio of credit enhancement assets to tangible net worth; and  
    
    an earnings before interest, depreciation and taxes coverage ratio. We cannot assure you that our CP Facilities will be available to us
or that they will be available on favorable terms. If we are unable to
arrange new warehousing credit facilities or extend our existing credit
facilities when they expire, our results of operations, financial
condition and cash flows could be materially and adversely affected. We Depend on Residual Financing. When we sell our Contracts in securitizations, we receive cash and a
residual interest in the securitized assets (RISA). The RISA represents
the future cash flows to be generated by the Contracts in excess of the
interest paid on the securities issued in the securitization and other
costs of servicing the Contracts and completing the securitization. (See
Managements Discussion and Analysis of Financial Condition and Results
of Operations  Securitizations). We typically use the RISA from each
securitization as collateral to borrow cash under our Residual Lines to
finance our operations. The amount of cash advanced by our lenders under
our Residual Lines depends on a collateral formula that is determined in
large part by how well our securitized Contracts perform. If our portfolio
of securitized Contracts experience a higher delinquency and loss ratios
than expected, then the amount of money we can borrow under the Residual
Lines would be reduced. The reduction in availability under these Residual
Lines could materially and adversely affect our operations, financial
condition and cash flows. Additionally, we are subject, under the
documentation governing the Residual Lines, to certain financial
covenants. We Depend on Securitizations to Generate Revenue. We rely significantly upon securitizations to generate cash proceeds
for repayment of our warehouse and our residual credit facilities and to
create availability to purchase additional Contracts. Further, gain on
sale of Contracts generated by our securitizations represents a
significant portion of our revenues. Our ability to complete
securitizations of our Contracts is affected by the following factors,
among other things:  
    
    conditions in the securities markets generally;  
    
    conditions in the asset-backed securities market specifically; 25




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
    
    the credit quality of our portfolio of Contracts; and  
    
    our ability to obtain credit enhancement. If we were unable to profitably securitize a sufficient number of our
Contracts in a particular financial reporting period, then our revenues
for such period could decline and could result in lower net income or a
loss for such period. In addition, unanticipated delays in closing a
securitization could also increase our interest rate risk by increasing
the warehousing period for our Contracts. See Managements Discussion and
Analysis of Results of Operations and Financial Condition  Liquidity and
Capital Resources. We Depend on Credit Enhancement. From inception through March 31, 2004, each of our securitizations
has utilized credit enhancement in the form of a financial guarantee
insurance policy or bond in order to achieve AAA/Aaa ratings. This form
of credit enhancement reduces the cost of the securitizations relative to
alternative forms of credit enhancement currently available to us. We
cannot assure you that:  
    
    we will be able to continue to obtain credit enhancement in
any form from our current providers;  
    
    we will be able to obtain credit enhancement from any other
provider of credit enhancement on acceptable terms; or  
    
    future securitizations will be similarly rated. We also rely on a financial guarantee insurance policy or bond to
reduce our borrowing cost under the CP Facilities. If our current
providers credit ratings are downgraded or if they withdraw the credit
enhancement, we could be subject to higher interest costs for our future
securitizations and financing costs during the warehousing period. Such
events could have a material adverse effect on our results of operations,
financial condition and cash flows. We Are Subject to Interest Rate Fluctuations. Our profitability is largely determined by the difference, or
spread, between the effective rate of interest received by us on the
Contracts acquired and the interest rates payable under our credit
facilities during the warehousing period and for securities issued in
securitizations. Several factors affect our ability to manage interest rate risk.
First, the Contracts are purchased or originated at fixed interest rates,
while amounts borrowed under our credit facilities bear interest at
variable rates that are subject to frequent adjustment to reflect
prevailing rates for short-term borrowings. Our policy is to increase the
buy rates we issue to dealerships in response to increases in our cost of
funds during the warehousing period. However, there is generally a time
lag before such increased borrowing costs can be offset by increases in
the buy rates for Contracts and, in certain instances, the rates charged
by our competitors may limit our ability to pass through our increased
costs of warehouse financing. Second, the spread can be adversely affected after a Contract is
purchased or originated and while it is held during the warehousing period
by increases in the prevailing rates in the commercial paper markets.
While the CP Facilities permit us to select maturities to coincide with
the projected end of the warehouse period, if we selected a shorter
maturity or have a delay in completing a securitization, we would face
this risk. Third, the interest rate demanded by investors in securitizations is
a function of prevailing market rates for comparable transactions and the
general interest rate environment. Because the Contracts purchased or
originated by us have fixed rates, we bear the risk of spreads narrowing
because of interest-rate increases during the period from the date the
Contracts are purchased until the pricing of our securitization of such
Contracts. We employ a hedging strategy that is intended to minimize this
risk and which historically has involved the execution of forward interest
rate swaps or use of a pre-funding structure for our securitizations.
However, we cannot assure you that this strategy will consistently or
completely offset adverse interest-rate movements during the warehousing
period or that we will not sustain losses on hedging transactions. Our
hedging strategy requires estimates by management of monthly Contract
acquisition volume and timing of our securitizations. If such 26




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estimates are significantly inaccurate, then our gains on sales of
Contracts, results of operations and cash flows could be materially and
adversely affected. We also have exposure to interest rate fluctuations under the
Residual Lines. In periods of increasing interest rates, our cash flows,
results of operations and financial condition could be materially
adversely affected. In addition, we have some interest rate exposure to falling interest
rates to the extent that the interest rates charged on Contracts sold in a
securitization with a pre-funding structure decline below the rates
prevailing at the time that the securitization prices. Such a rate decline
would reduce the interest rate spread because the interest rate on the
notes and/or the certificates would remain fixed. This would negatively
impact the gain on sale of Contracts and our results of operations and
cash flows. We Will Be Adversely Affected When Contracts are Prepaid or Defaulted. Our results of operations, financial condition, cash flows and
liquidity depend, to a material extent, on the performance of Contracts
purchased, originated, warehoused, and securitized by us. A portion of the
Contracts acquired by us may default or prepay during the warehousing
period. We bear the risk of losses resulting from payment defaults during
the warehousing period. In the event of payment default, the collateral
value of the financed vehicle may not cover the outstanding Contract
balance and costs of recovery. We maintain an allowance for credit losses
on Contracts held for investment, which reflects managements estimates of
anticipated credit losses during such period. If the allowance is
inadequate, then we would recognize as an expense the losses in excess of
such allowance, and our results of operations could be adversely affected.
In addition, under the terms of the CP Facilities, we are not able to
borrow against defaulted Contracts. Our servicing income can also be adversely affected by prepayments of
or defaults under Contracts in the serviced portfolio. Our contractual
servicing revenue is based on a percentage of the outstanding principal
balance of such Contracts. Thus, if Contracts are prepaid or charged-off,
then our servicing revenue will decline to the extent of such prepaid or
charged-off Contracts. The gain on sale of Contracts recognized by us in each securitization
and the value of the RISA in each transaction reflects managements
estimate of future credit losses and prepayments for the Contracts
included in such securitization. If actual rates of credit loss or
prepayments, or both, on such Contracts exceed those estimated, the value
of the RISA would be impaired. We periodically review our credit loss and
prepayment assumptions relative to the performance of the securitized
Contracts and to market conditions. Our results of operations and
liquidity could be adversely affected if credit loss or prepayment levels
on securitized Contracts substantially exceed anticipated levels. Under
certain circumstances, we would be required to record an impairment charge
through a reduction to gain-on-sale. Further, an impairment of RISA could
reduce the amount available to us under our Residual Lines, thus possibly
requiring us to pay down amounts outstanding under these facilities or
provide additional collateral to cure any borrowing base deficiency. Effects of Terrorist Attacks and Military Response. The long-term economic impact of the events of September 11, 2001 and
the United States continuing military response, remain uncertain, but
could have a material effect on general economic conditions, consumer
confidence and market liquidity. No assurance can be given as to the
effect of these events on the performance of the Contracts. Any adverse
impact resulting from these events could materially affect our results of
operations, financial condition and cash flows. In addition, activation of a substantial number of U.S. military
reservists or members of the National Guard may significantly increase the
proportion of Contracts whose interest rates are reduced by the
application of the Servicemembers Civil Relief Act (the Relief Act,
which amends and replaces the Soldiers and Sailors Civil Relief Act of
1940). The Relief Act provides, generally, that an obligor who is covered
by the Relief Act may not be charged interest on the related Contract in
excess of 6% annually during the period of the obligors active duty. 27




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We Will Be Adversely Affected If We Lose Servicing Rights. Our results of operations, financial condition and cash flows would
be materially and adversely affected if any of the following were to
occur:  
    
    loss of the servicing rights under our sale and servicing agreements for the CP Facilities; or  
    
    loss of the servicing rights under the applicable sale and servicing agreement of an owner trust. We are entitled to receive servicing income only while we act as
servicer under the applicable sale and servicing agreement. Under the CP
Facilities, our right to act as servicer can be terminated by our lender
or financial insurer upon the occurrence of certain events. Our Quarterly Earnings May Fluctuate. Our revenues have fluctuated in the past and are expected to
fluctuate in the future principally as a result of the following factors:  
    
    the timing and size of our securitizations;  
    
    the performance of our serviced portfolio;  
    
    variations in the volume of our Contract acquisitions;  
    
    the interest rate spread between our cost of funds and the average interest rate of purchased Contracts;  
    
    the effectiveness of our hedging strategies;  
    
    the investor rate for securitizations; and  
    
    a trigger event that would block release of excess cash flows from a securitization trusts spread account. Any significant decrease in our quarterly revenues could have a
material adverse effect on our results of operations, financial condition,
cash flows and stock price. We Depend on Key Personnel. Our future operating results depend in significant part upon the
continued service of our key senior management personnel, none of whom is
bound by an employment agreement. Our future operating results also depend
in part upon our ability to attract and retain qualified management,
technical, sales and support personnel for our operations. We cannot
assure you that we will be successful in attracting or retaining such
personnel. The loss of any key employee, the failure of any key employee
to perform in his or her current position or our inability to attract and
retain skilled employees, as needed, could materially and adversely affect
our results of operations, financial condition and cash flows. Our Industry is Highly Competitive. Competition in the field of financing retail motor vehicle sales is
intense. The automobile finance market is highly fragmented and
historically has been serviced by a variety of financial entities
including the captive finance affiliates of major automotive
manufacturers, as well as banks, savings associations, independent finance
companies, credit unions and leasing companies. Several of these
competitors have greater financial resources than we do. Many of these
competitors also have long-standing relationships with automobile
dealerships and offer dealerships or their customers other forms of
financing or services not provided by us. Our ability to compete
successfully depends largely upon our relationships with dealerships and
the willingness of dealerships to offer those Contracts that meet our
underwriting criteria to us for purchase. We cannot assure you that we
will be able to continue to compete successfully in the markets we serve. We May Be Harmed by Adverse Economic Conditions. We are a motor vehicle consumer auto finance company whose activities
are dependent upon the sale of motor vehicles. Our ability to continue to
acquire Contracts in the markets in which we operate and to expand into
additional markets is dependent upon the overall level of sales of new and
used motor vehicles in those markets. A prolonged downturn in the sale 28




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of new and used motor vehicles, whether nationwide or in the
California market, could have a material adverse impact upon us, our
results of operations and our ability to implement our business strategy. The automobile industry generally is sensitive to adverse economic
conditions both nationwide and in California, where we have our largest
single-state exposure. Periods of rising interest rates, reduced economic
activity or higher rates of unemployment generally result in a reduction
in the rate of sales of motor vehicles and higher default rates on motor
vehicle contracts. We cannot assure you that such economic conditions will
not occur, or that such conditions will not result in severe reductions in
our revenues or the cash flows available to us to permit us to remain
current on our credit facilities. We Are Subject to System Risks. The Company maintains an in-house loan accounting and collections
system to service its loans. If issues with the in-house system arise in
the future, we may be unable to acquire Contracts and service the
outstanding portfolio. The failure of this system could materially and
adversely affect our results of operations, financial condition and cash
flows. We Are Subject to Many Regulations. Our business is subject to numerous federal and state consumer
protection laws and regulations, which, among other things:  
    
    require us to comply with certain requirements due to our being a publicly traded company;  
    
    require us to obtain and maintain certain licenses and qualifications;  
    
    limit the interest rates, fees and other charges we are allowed to charge;  
    
    limit or prescribe certain other terms of our Contracts;  
    
    require us to protect the privacy of consumer information;  
    
    require specific disclosures; and  
    
    define our rights to repossess and sell collateral. We believe that we are in compliance, in all material respects, with
all such laws and regulations, and that such laws and regulations have had
no material adverse effect on our ability to operate our business.
However, we will be materially and adversely affected if we fail to comply
with:  
    
    applicable laws and regulations;  
    
    changes in existing laws or regulations;  
    
    changes in the interpretation of existing laws or regulations; or  
    
    any additional laws or regulations that may be enacted in the future. We Are Subject to Litigation Risks. We are party to various legal proceedings, similar to actions brought
against other companies in the motor vehicle finance industry and other
businesses. Companies in the motor vehicle finance industry have also been
named as defendants in an increasing number of class action lawsuits
brought by purchasers of motor vehicles and others claiming violation of
various federal and state consumer credit, as well as similar and other,
laws and regulations. While we intend to vigorously defend ourselves against such
proceedings, there is a chance that our results of operations, financial
condition and cash flows could be materially and adversely affected by
unfavorable outcomes. 29




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ITEM 2. PROPERTIES The Company did not own any real property at March 31, 2004. The Companys
leases approximately 82,000 square feet of office space for its headquarters
located in Foothill Ranch, California. The Company also leases office space for
its Auto Finance Centers and its Hazelwood, Missouri service center; the
average size of an Auto Finance Center is generally four to five thousand
square feet. The Hazelwood service center is in approximately 20,000 square
feet. One Auto Finance Center is located in the corporate headquarters
building. 
 ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K (a) Exhibits EXHIBITNUMBER
    
    EXHIBIT TITLE4.2
    
    Indenture dated as of February 11, 2002 between Onyx Acceptance Corporation and U.S.
Bank National Association, as Indenture Trustee. (1)4.2.1
    
    Supplement No. 1 to Indenture dated as of January 29, 2004 between Onyx Acceptance
Corporation and U.S. Bank National Association, as Indenture Trustee. (2)10.147
    
    Residual Loan and Security Agreement dated as of January 13, 2004 between Onyx
Acceptance Funding Corporation, as Borrower, and Galleon Capital LLC, as Lender. *10.148
    
    Amended and Restated Credit Agreement, including Definitions list, dated as of January
29, 2004, among Onyx Acceptance Receivables Corporation, CDC Financial Products Inc.,
Eiffel Funding, LLC, Variable Funding Capital Corporation,Wachovia Bank, National
Association and Wachovia Capital Markets, LLC.*10.149
    
    Amended and Restated Sale and Servicing Agreement dated January 29, 2004, between Onyx
Acceptance Corporation and Onyx Acceptance Receivables Corporation.*10.150
    
    Amended and Restated Security Agreement, dated January 29, 2004, among Onyx Acceptance
Receivables Corporation, Onyx Acceptance Corporation and JP Morgan Chase Bank.*10.151
    
    Amendment No. 1 to Distribution and Management Agreement dated as of January 29, 2004
between Onyx Acceptance Corporation, Sumner Harrington Ltd. and Sumner Harrington
Agency, Inc. (2)10.152
    
    Sale and Servicing Agreement between Onyx Acceptance Owner Trust 2004-A, Onyx
Acceptance Financial Corporation, Onyx Acceptance Corporation and JPMorgan Chase Bank
in connection with the Onyx Acceptance Owner Trust 2004-A.(3)10.153
    
    Backup Servicing Agreement between the Onyx Acceptance Corporation, Onyx Acceptance
Financial Corporation, JPMorgan Chase Bank, MBIA Insurance Corporation, Onyx Acceptance
Owner Trust 2004-A and Systems & Services Technologies, Inc. dated as of February 17,
2004.(3)21.1
    
    Subsidiaries of the Registrant.*31
    
    Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.*32
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*
   *
    
    Filed herewith(1)
    
    Incorporated by reference from the Companys Current Report on Form 8-K
filed March 1, 2002 (File No. 000-28050)(2)
    
    Incorporated by reference from the Companys Current Report on Form 8-K
filed February 13, 2004 (File No. 000-28050)(3)
    
    Incorporated by reference from Onyx Acceptance Financial Corporations
Current Report on Form 8-K filed March 1, 2004  (File No. 333-28893) (b) REPORTS ON FORM 8-K None. 30




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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. ONYX ACCEPTANCE CORPORATIONDate: May 17, 2004
    By:
    /s/ JOHN W. HALLJohn W. HallPresident, CEO and Principal
Executive Officer Date: May 17, 2004
    By:
    /s/ DON P. DUFFYDon P. DuffyExecutive Vice President,
CFO and Principal Financial Officer 31




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EXHIBIT INDEX 10.147
    
    Residual Loan and Security Agreement dated as of January 13, 2004
between Onyx Acceptance Funding Corporation, as Borrower, and Galleon
Capital LLC, as Lender.10.148
    
    Amended and Restated Credit Agreement, including Definitions list,
dated as of January 29, 2004, among Onyx Acceptance Receivables
Corporation, CDC Financial Products Inc., Eiffel Funding, LLC, Variable
Funding Capital Corporation,Wachovia Bank, National Association and
Wachovia Capital Markets LLC.10.149
    
    Amended and Restated Sale and Servicing Agreement dated January 29,
2004, between Onyx Acceptance Corporation and Onyx Acceptance
Receivables Corporation.10.150
    
    Amended and Restated Security Agreement, dated January 29, 2004, among
Onyx Acceptance Receivables Corporation, Onyx Acceptance Corporation
and JP Morgan Chase Bank.21.1
    
    Subsidiaries of the Registrant.31
    
    Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 32