Press Releases
Credit Acceptance Announces Second Quarter 2010 Earnings
SOUTHFIELD, Mich., Aug 3, 2010 (GlobeNewswire via COMTEX News Network) -- Credit Acceptance Corporation (Nasdaq:CACC) (referred to as the "Company", "we", "our", or "us") announced consolidated net income of $49.0 million, or $1.55 per diluted share, for the three months ended June 30, 2010 compared to consolidated net income of $36.2 million, or $1.15 per diluted share, for the same period in 2009. For the six months ended June 30, 2010, consolidated net income was $81.1 million, or $2.56 per diluted share, compared to consolidated net income of $65.2 million, or $2.08 per diluted share, for the same period in 2009.
Adjusted net income, a non-GAAP financial measure, for the three months ended June 30, 2010 was $41.7 million, or $1.32 per diluted share, compared to $30.1 million, or $0.96 per diluted share, for the same period in 2009. For the six months ended June 30, 2010, adjusted net income was $77.2 million, or $2.44 per diluted share, compared to adjusted net income of $54.8 million, or $1.75 per diluted share, for the same period in 2009.
Refer to our Form 10-Q, filed today with the Securities and Exchange Commission, which will appear on our website at creditacceptance.com, for a complete discussion of the results of operations and financial data for the three and six months ended June 30, 2010.
Webcast Details
We will host a webcast on August 3, 2010 at 5:00 p.m. Eastern Time to discuss second quarter 2010 results. The webcast can be accessed live by visiting the "Investor Relations" section of our website at creditacceptance.com or by dialing 877-303-2904. Additionally, a replay and transcript of the webcast will be archived in the "Investor Relations" section of our website.
Consumer Loan Performance
At the time the consumer loan is submitted to us for assignment, we forecast future expected cash flows from the consumer loan. Based on these forecasts, an advance or one-time payment is made to the related dealer-partner at a price designed to achieve an acceptable return on capital. If consumer loan performance equals or exceeds our original expectation, it is likely our target return on capital will be achieved.
We use a statistical model to estimate the expected collection rate for each consumer loan at the time of assignment. We continue to evaluate the expected collection rate of each consumer loan subsequent to assignment. Our evaluation becomes more accurate as the consumer loans age, as we use actual performance data in our forecast. By comparing our current expected collection rate for each consumer loan with the rate we projected at the time of assignment, we are able to assess the accuracy of our initial forecast. The following table compares our forecast of consumer loan collection rates as of June 30, 2010, with the forecasts as of March 31, 2010, as of December 31, 2009, and at the time of assignment, segmented by year of assignment:
Forecasted Collection Percentage Variance in Forecasted
as of Collection Percentage from
------------------------------------- ------------------------------
Consumer
Loan March December December
Assignment June 30, 31, 31, Initial March 31, 31, Initial
Year 2010 2010 2009 Forecast 2010 2009 Forecast
---------- ---------- ----- -------- -------- ---------- -------- --------
2001 67.5% 67.5% 67.5% 70.4% 0.0% 0.0% -2.9%
2002 70.5% 70.5% 70.4% 67.9% 0.0% 0.1% 2.6%
2003 73.7% 73.7% 73.7% 72.0% 0.0% 0.0% 1.7%
2004 73.1% 73.1% 73.1% 73.0% 0.0% 0.0% 0.1%
2005 73.8% 73.8% 73.7% 74.0% 0.0% 0.1% -0.2%
2006 70.2% 70.3% 70.3% 71.4% -0.1% -0.1% -1.2%
2007 68.0% 68.1% 68.3% 70.7% -0.1% -0.3% -2.7%
2008 69.8% 69.8% 70.0% 69.7% 0.0% -0.2% 0.1%
2009 77.2% 76.4% 75.6% 71.9% 0.8% 1.6% 5.3%
2010 (1) 75.3% 73.4% -- 73.6% 1.9% -- 1.7%
(1) The forecasted collection rate for 2010 consumer loans as of June 30, 2010
includes both consumer loans that were in our portfolio as of March 31, 2010 and
consumer loans assigned during the most recent quarter. The following table
provides forecasted collection rates for each of these segments:
Forecasted
Collection
Percentage as of
-----------------
March
June 30, 31,
2010 Consumer Loan Assignment Period 2010 2010 Variance
------------------------------------------- ---------- ----- --------
January 1, 2010 through March 31, 2010 76.9% 73.4% 3.5%
April 1, 2010 through June 30, 2010 73.6% -- --
Consumer loans assigned in 2002 through 2004 and 2008 through 2010 have performed better than our initial expectations while consumer loans assigned in 2001 and 2005 through 2007 have performed worse. During the second quarter of 2010, forecasted collection rates increased for consumer loans assigned during 2009 and 2010 and were consistent with expectations at the start of the period for other assignment years. During the first six months of 2010, forecasted collection rates increased for consumer loans assigned in 2009 and 2010, and decreased modestly for 2007 and 2008 consumer loan assignments.
As a result of current economic conditions and uncertainty about future conditions, our forecasts of future collection rates are subject to a greater than normal degree of risk. Our pricing strategy considers this in that we have established advance rates that are intended to allow us to achieve acceptable levels of profitability, even if collection rates are less than we currently forecast.
The following table presents forecasted consumer loan collection rates, advance rates (includes amounts paid to acquire purchased loans), the spread (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of June 30, 2010. Payments of dealer holdback and accelerated dealer holdback are not included in the advance percentage paid to the dealer-partner. All amounts, unless otherwise noted, are presented as a percentage of the initial balance of the consumer loan (principal + interest). The table includes both dealer loans and purchased loans.
As of June 30, 2010
-------------------------------------
% of
Consumer Forecasted Forecast
Loan
Assignment Collection Advance Spread Realized
Year % % % (1)
---------- ---------- ------- ------ --------
2001 67.5% 46.0% 21.5% 99.3%
2002 70.5% 42.2% 28.3% 99.2%
2003 73.7% 43.4% 30.3% 99.0%
2004 73.1% 44.0% 29.1% 98.6%
2005 73.8% 46.9% 26.9% 98.2%
2006 70.2% 46.6% 23.6% 95.9%
2007 68.0% 46.5% 21.5% 86.0%
2008 69.8% 44.6% 25.2% 67.4%
2009 77.2% 43.9% 33.3% 41.0%
2010 75.3% 44.9% 30.4% 9.3%
(1) Presented as a percentage of total forecasted
collections.
The risk of a material change in our forecasted collection rate declines as the consumer loans age. For 2006 and prior consumer loan assignments, the risk of a material forecast variance is modest, as we have currently realized in excess of 95% of the expected collections. Conversely, the forecasted collection rates for more recent consumer loan assignments are less certain as a significant portion of our forecast has not been realized.
The spread between the forecasted collection rate and the advance rate declined during the 2003 through 2007 period as we increased advance rates during this period in response to a more difficult competitive environment. During 2008 and 2009, the spread increased as the competitive environment improved, and we reduced advance rates. In addition, during 2009, the spread was positively impacted by better than expected consumer loan performance. The decline in the spread for 2010 consumer loan assignments reflects advance rate increases implemented during the last four months of 2009 and the first quarter of 2010 to increase unit volume as a result of an increase in the amount of capital available to us.
The following table presents forecasted consumer loan collection rates, advance rates (includes amounts paid to acquire purchased loans), and the spread (the forecasted collection rate less the advance rate) as of June 30, 2010 for purchased loans and dealer loans separately. Payments of dealer holdback and accelerated dealer holdback are not included in the advance percentage paid to the dealer-partner. All amounts are presented as a percentage of the initial balance of the consumer loan (principal + interest).
Consumer Forecasted
Loan
Assignment Collection Advance Spread
Year % % %
---------- ---------- ------- ------
Purchased loans 2007 68.1% 48.6% 19.5%
2008 68.9% 46.3% 22.6%
2009 77.3% 44.9% 32.4%
2010 75.2% 47.1% 28.1%
Dealer loans 2007 67.9% 45.9% 22.0%
2008 70.4% 43.6% 26.8%
2009 77.2% 43.6% 33.6%
2010 75.3% 44.6% 30.7%
Although the advance rate on purchased loans is higher as compared to the advance rate on dealer loans, purchased loans do not require us to pay dealer holdback.
Consumer Loan Volume
Our ability to maintain and grow consumer loan volume is impacted by our pricing strategy, the number of dealer-partners actively participating in our programs, and the competitive environment. The following table summarizes changes in consumer loan assignment volume in each of the last six quarters as compared to the same period in the previous year:
Year over Year
Percent Change
---------------
Dollar
Unit Volume
Three Months Ended Volume (1)
---------------------- ------- ------
March 31, 2009 -13.0% -28.9%
June 30, 2009 -16.2% -33.5%
September 30, 2009 -5.7% -13.0%
December 31, 2009 7.6% 5.9%
March 31, 2010 11.2% 21.6%
June 30, 2010 22.7% 42.2%
(1) Represents payments made to
dealer-partners for advances on dealer
loans and the acquisition of purchased
loans. Payments of dealer holdback and
accelerated dealer holdback are not
included.
Dollar and unit volume increased during the first two quarters of 2010 as compared to the same periods in 2009 due to pricing changes implemented during the last four months of 2009 and the first quarter of 2010 that reduced per unit profitability in exchange for increased unit volume.
With the amount of capital available to us, we are in position to grow year over year unit volumes. We will continue to monitor unit volumes and will make additional pricing changes with an objective to maximize economic profit given the capital we have available. Future growth rates will partially depend on how unit volumes respond to pricing changes, which will be influenced to a large degree by how quickly competition returns to our market.
The following table summarizes the changes in consumer loan unit volume and active dealer-partners:
Three Months Ended June
30,
------------------------
%
2010 2009 change
------- ------- ------
Consumer loan unit volume 32,536 26,519 22.7%
Active dealer-partners (1) 2,364 2,304
------- ------- 2.6%
Average volume per active dealer-partner 13.8 11.5 20.0%
Consumer loan unit volume from dealer-partners active
both periods 24,285 21,427 13.3%
Dealer-partners active both periods 1,530 1,530
------- ------- --
Average volume per dealer-partners active both periods 15.9 14.0 13.3%
Consumer loan unit volume from new dealer-partners 1,266 1,583 -20.0%
New active dealer-partners (2) 219 276
------- ------- -20.7%
Average volume per new active dealer-partners 5.8 5.7 1.8%
Attrition (3) -19.2% -28.9%
(1) Active dealer-partners are dealer-partners who have received funding for at
least one dealer loan or purchased loan during the period.
(2) New active dealer-partners are dealer-partners who enrolled in our program
and have received funding for their first dealer loan or purchased loan from us
during the period.
(3) Attrition is measured according to the following formula: decrease in
consumer loan unit volume from dealer-partners who have received funding for at
least one dealer loan or purchased loan during the comparable period of the
prior year but did not receive funding for any dealer loans or purchased loans
during the current period divided by prior year comparable period consumer loan
unit volume.
Consumer loans are assigned to us through either our portfolio program or our purchase program. The following table summarizes the portion of our consumer loan volume that was assigned to us through our purchase program:
Three Months Six Months
Ended Ended
June 30, June 30,
------------- -------------
2010 2009 2010 2009
------ ----- ------ -----
New purchased loan unit volume as a percentage of total unit volume 9.5% 14.0% 9.3% 16.1%
New purchased loan dollar volume as a percentage of total dollar volume 11.5% 17.0% 11.3% 19.4%
For the three and six months ended June 30, 2010, new purchased loan unit and dollar volume as a percentage of total unit and dollar volume, respectively, decreased as compared to 2009 primarily due to the continued impact of program enrollment eligibility changes we made in 2008, which restricts new dealer-partners' access to the purchase program.
As of June 30, 2010 and December 31, 2009, the net purchased loans receivable balance was 23.4% and 27.5%, respectively, of the total net loans receivable balance.
Adjusted Financial Results
Adjusted financial results are provided to help shareholders understand our financial performance. The financial data below is non-GAAP, unless labeled otherwise. We use adjusted financial information internally to measure financial performance and to determine incentive compensation. The table below shows our results following adjustments to reflect non-GAAP accounting methods. Material adjustments are explained in the table footnotes and the subsequent "Floating Yield Adjustment" and "Program Fee Yield Adjustment" sections. Measures such as adjusted average capital, adjusted net income, adjusted net income per diluted share, adjusted net income plus interest expense after-tax, adjusted return on capital, adjusted revenue, operating expenses, and economic profit are all non-GAAP financial measures. These non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP.
Adjusted financial results for the three and six months ended June 30, 2010, compared to the same periods in 2009, include the following:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
(Dollars in thousands, except per share % %
data) 2010 2009 Change 2010 2009 Change
------------ ------------ ------ ------------ ------------ ------
Adjusted average capital $ 1,068,163 $ 1,007,336 6.0% $ 1,039,816 $ 1,002,366 3.7%
Adjusted net income $ 41,729 $ 30,131 38.5% $ 77,241 $ 54,845 40.8%
Adjusted interest expense after-tax $ 7,728 $ 4,736 63.2% $ 15,102 $ 9,941 51.9%
Adjusted net income plus interest
expense after-tax $ 49,457 $ 34,867 41.8% $ 92,343 $ 64,786 42.5%
Adjusted return on capital 18.5% 13.9% 33.1% 17.8% 12.9% 38.0%
Cost of capital 7.7% 6.6% 16.7% 7.8% 6.2% 25.8%
Economic profit $ 28,799 $ 18,493 55.7% $ 51,835 $ 33,379 55.3%
GAAP diluted weighted average shares
outstanding 31,601,027 31,423,187 0.6% 31,600,586 31,285,734 1.0%
Adjusted net income per diluted share $ 1.32 $ 0.96 37.5% $ 2.44 $ 1.75 39.4%
Economic profit increased 55.7% and 55.3% for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009. Economic profit is a function of the return on capital in excess of the cost of capital and the amount of capital invested in the business. The following table summarizes the impact each of these components had on the increase in economic profit for the three and six months ended June 30, 2010, as compared to the same periods in 2009:
Year over Year
Change in Economic
Profit
--------------------
Three Six
Months Months
Ended Ended
June 30, June 30,
(Dollars in thousands) 2010 2010
--------- ---------
Increase in adjusted return on capital $ 12,591 $ 25,137
Increase in cost of capital (3,322) (7,928)
Increase in adjusted average capital 1,037 1,247
--------- ---------
Increase in economic profit $ 10,306 $ 18,456
========= =========
The increases in economic profit for the three and six months ended June 30, 2010, as compared to the same periods in 2009, were primarily the result of increases in our adjusted returns on capital, which increased 470 basis points for the three month period and 480 basis points for the six month period primarily due to the following:
-- Finance charges increased adjusted returns on capital by 300 basis
points for the three month period and 350 basis points for the six month
period, as compared to the same periods in 2009, primarily due to higher
yields on more recent consumer loan assignments.
-- Operating expenses increased adjusted returns on capital by 90 basis
points for the three month period and 70 basis points for the six month
period, as compared to the same periods in 2009, primarily due to
reduced expenses related to information technology, stock compensation,
and legal costs.
-- Other income increased adjusted returns on capital by 90 basis points
for the three month period and 60 basis points for the six month period,
as compared to the same periods in 2009, as a result of $2.1 million
(after-tax) of income recognized during the second quarter of 2010
related to an arrangement with one of our third party vehicle service
contract providers. This arrangement was discontinued in 2008 and no
additional income is expected beyond the amount recognized to date.
While we continue to generate income from vehicle service contracts,
such amounts are captured through VSC Re and recorded over the life of
the contracts.
The increases in adjusted returns on capital were partially offset by a 120 basis point and 150 basis point increase in our cost of capital for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009. The increases in our cost of capital were primarily due to an increase in our average cost of debt primarily due to the issuance of our senior notes during the first quarter of 2010.
The following table shows adjusted revenue and operating expenses as a percentage of adjusted average capital and the percentage change in adjusted average capital for each of the last eight quarters, compared to the same periods in the prior year:
Three Months Ended
-------------------------------------------------------
Jun. Mar. Dec. Sept. Jun. Mar. Dec. Sept.
30, 31, 31, 30, 30, 31, 31, 30,
2010 2010 2009 2009 2009 2009 2008 2008
------ ----- ----- ----- ----- ----- ----- -----
Adjusted revenue as a percentage of adjusted
average capital 38.7% 37.8% 37.7% 36.6% 32.7% 30.7% 30.2% 28.9%
====== ===== ===== ===== ===== ===== ===== =====
Operating expenses as a percentage of adjusted
average capital 9.3% 10.9% 11.2% 11.3% 10.7% 11.6% 11.1% 10.8%
====== ===== ===== ===== ===== ===== ===== =====
Adjusted return on capital 18.5% 17.0% 16.7% 16.0% 13.9% 12.0% 12.1% 11.4%
====== ===== ===== ===== ===== ===== ===== =====
Percentage change in adjusted average capital
compared to the same period in the prior year 6.0% 1.4% -2.4% -3.0% 1.9% 15.2% 30.4% 42.3%
====== ===== ===== ===== ===== ===== ===== =====
The following tables show how non-GAAP measures reconcile to GAAP measures. All after-tax adjustments are calculated using a 37% tax rate as we estimate that to be our long term average effective tax rate. Amounts do not recalculate due to rounding.
Three Months Ended
------------------------------------------------------------------------------------------------------------
(Dollars
in
thousan Jun. 30, Mar. 31, Dec. 31, Sept. 30, Jun. 30, Mar. 31, Dec. 31, Sept. 30,
ds) 2010 2010 2009 2009 2009 2009 2008 2008
------------ ------------ ----------- ------------ ------------ ----------- ------------ ------------
Adjusted
net
income
--------
GAAP net
income $ 49,040 $ 32,010 $ 40,335 $ 40,734 $ 36,185 $ 29,001 $ 18,556 $ 20,657
Floating
yield
adjustm
ent
(after-
tax) (330) 2,349 (4,679) (4,617) (5,882) (4,345) 4,125 1,183
Program
fee
yield
adjustm
ent
(after-
tax) 79 115 121 152 203 320 372 506
Loss
(gain)
from
discont
inued
United
Kingdom
segment
(after-
tax) 25 5 (263) 78 (35) 11 221 (326)
Interest
expense
related
to
interes
t rate
swap
agreeme
nt
(after-
tax) -- -- (68) (94) (147) (213) 242 (179)
Adjustme
nt to
record
taxes
at 37%
(1) (7,085) 1,033 62 (1,562) (193) (60) 56 419
------------ ------------ ----------- ------------ ------------ ----------- ------------ ------------
Adjuste
d net
income $ 41,729 $ 35,512 $ 35,508 $ 34,691 $ 30,131 $ 24,714 $ 23,572 $ 22,260
============ ============ =========== ============ ============ =========== ============ ============
Adjusted
net
income
per
diluted
share $ 1.32 $ 1.12 $ 1.11 $ 1.10 $ 0.96 $ 0.79 $ 0.76 $ 0.72
Diluted
weighte
d
average
shares
outstan
ding 31,601,027 31,584,326 31,868,441 31,539,119 31,423,187 31,180,146 31,038,088 31,024,455
Adjusted
revenue
--------
GAAP
total
revenue $ 111,779 $ 103,262 $ 100,135 $ 100,268 $ 92,373 $ 87,888 $ 86,296 $ 80,107
Floating
yield
adjustm
ent (524) 3,729 (7,426) (7,329) (9,336) (6,898) 6,546 1,880
Program
fee
yield
adjustm
ent 125 182 191 242 322 507 590 804
Provisio
n for
credit
losses (1,782) (6,433) 4,942 3,433 3,766 (167) (14,252) (8,278)
Provisio
n for
claims (6,282) (5,212) (4,513) (5,148) (4,829) (4,809) (2,650) 13
------------ ------------ ----------- ------------ ------------ ----------- ------------ ------------
Adjuste
d
revenu
e $ 103,316 $ 95,528 $ 93,329 $ 91,466 $ 82,296 $ 76,521 $ 76,530 $ 74,526
============ ============ =========== ============ ============ =========== ============ ============
Adjusted
average
capital
--------
GAAP
average
debt $ 509,867 $ 492,069 $ 510,123 $ 562,663 $ 604,863 $ 624,279 $ 665,635 $ 706,637
GAAP
average
shareho
lders'
equity 553,297 514,364 474,984 428,377 388,242 352,562 331,402 308,990
Floating
yield
adjustm
ent 5,485 5,619 5,394 10,134 15,243 21,829 18,643 18,002
Program
fee
yield
adjustm
ent (486) (583) (697) (834) (1,012) (1,274) (1,609) (2,048)
------------ ------------ ----------- ------------ ------------ ----------- ------------ ------------
Adjuste
d
averag
e
capita
l $ 1,068,163 $ 1,011,469 $ 989,804 $ 1,000,340 $ 1,007,336 $ 997,396 $ 1,014,071 $ 1,031,581
============ ============ =========== ============ ============ =========== ============ ============
Adjusted
revenue
as a
percent
age of
adjuste
d
average
capital 38.7% 37.8% 37.7% 36.6% 32.7% 30.7% 30.2% 28.9%
============ ============ =========== ============ ============ =========== ============ ============
Adjusted
return
on
capital
--------
Adjusted
net
income $ 41,729 $ 35,512 $ 35,508 $ 34,691 $ 30,131 $ 24,714 $ 23,572 $ 22,260
Adjusted
interes
t
expense
(after-
tax) 7,728 7,374 5,767 5,225 4,736 5,205 6,994 7,081
------------ ------------ ----------- ------------ ------------ ----------- ------------ ------------
Adjuste
d net
income
plus
intere
st
expens
e
(after
-tax) $ 49,457 $ 42,886 $ 41,275 $ 39,916 $ 34,867 $ 29,919 $ 30,566 $ 29,341
============ ============ =========== ============ ============ =========== ============ ============
Adjuste
d
return
on
capita
l (2) 18.5% 17.0% 16.7% 16.0% 13.9% 12.0% 12.1% 11.4%
============ ============ =========== ============ ============ =========== ============ ============
Economic
profit
--------
Adjusted
return
on
capital 18.5% 17.0% 16.7% 16.0% 13.9% 12.0% 12.1% 11.4%
Cost of
capital
(3) 7.7% 7.9% 7.3% 6.9% 6.6% 6.0% 6.3% 6.5%
------------ ------------ ----------- ------------ ------------ ----------- ------------ ------------
Adjusted
return
on
capital
in
excess
of cost
of
capital 10.8% 9.1% 9.4% 9.1% 7.3% 6.0% 5.8% 4.9%
Adjusted
average
capital $ 1,068,163 $ 1,011,469 $ 989,804 $ 1,000,340 $ 1,007,336 $ 997,396 $ 1,014,071 $ 1,031,581
------------ ------------ ----------- ------------ ------------ ----------- ------------ ------------
Economi
c
profit $ 28,799 $ 23,036 $ 23,205 $ 22,515 $ 18,493 $ 14,886 $ 14,559 $ 12,628
============ ============ =========== ============ ============ =========== ============ ============
Operatin
g
expense
s
--------
GAAP
salarie
s and
wages $ 14,050 $ 16,110 $ 16,395 $ 16,862 $ 16,515 $ 17,121 $ 17,788 $ 16,766
GAAP
general
and
adminis
trative 5,920 6,542 7,633 7,869 6,894 7,995 6,795 6,977
GAAP
sales
and
marketi
ng 4,834 4,810 3,788 3,533 3,566 3,921 3,446 4,103
------------ ------------ ----------- ------------ ------------ ----------- ------------ ------------
Operati
ng
expens
es $ 24,804 $ 27,462 $ 27,816 $ 28,264 $ 26,975 $ 29,037 $ 28,029 $ 27,846
============ ============ =========== ============ ============ =========== ============ ============
Operatin
g
expense
s as a
percent
age of
adjuste
d
average
capital 9.3% 10.9% 11.2% 11.3% 10.7% 11.6% 11.1% 10.8%
============ ============ =========== ============ ============ =========== ============ ============
Percenta
ge
change
in
adjuste
d
average
capital
compare
d to the
same
period
in the
prior
year 6.0% 1.4% -2.4% -3.0% 1.9% 15.2% 30.4% 42.3%
============ ============ =========== ============ ============ =========== ============ ============
Six Months Ended June 30,
--------------------------
(Dollars in thousands, except per
share data) 2010 2009
------------ ------------
Adjusted net income
--------------------------------------
GAAP net income $ 81,050 $ 65,186
Floating yield adjustment (after-tax) 2,019 (10,227)
Program fee yield adjustment
(after-tax) 194 523
Loss (gain) from discontinued United
Kingdom segment (after-tax) 30 (24)
Interest expense related to interest
rate swap agreement -- (360)
Adjustment to record taxes at 37% (6,052) (253)
------------ ------------
Adjusted net income $ 77,241 $ 54,845
============ ============
Adjusted net income per diluted share
-------------------------------------- $ 2.44 $ 1.75
Diluted weighted average shares
outstanding 31,600,586 31,285,734
Adjusted average capital
--------------------------------------
GAAP average debt $ 500,968 $ 614,571
GAAP average shareholders' equity 533,830 370,402
Floating yield adjustment 5,553 18,536
Program fee yield adjustment (535) (1,143)
------------ ------------
Adjusted average capital $ 1,039,816 $ 1,002,366
============ ============
Adjusted return on capital
--------------------------------------
Adjusted net income $ 77,241 $ 54,845
Adjusted interest expense after-tax 15,102 9,941
------------ ------------
Adjusted net income plus interest
expense after-tax $ 92,343 $ 64,786
============ ============
Adjusted return on capital (2) 17.8% 12.9%
============ ============
Economic profit
--------------------------------------
Adjusted return on capital 17.8% 12.9%
Cost of capital (3) 7.8% 6.2%
------------ ------------
Adjusted return on capital in excess
of cost of capital 10.0% 6.7%
Adjusted average capital $ 1,039,816 $ 1,002,366
------------ ------------
Economic profit $ 51,835 $ 33,379
============ ============
(1) The adjustment for the three months ended June 30, 2010 is
primarily related to the reversal of reserves for uncertain tax
positions and associated interest as a result of the completion
of the IRS audit during the period, which reduced our effective
tax rate under GAAP.
(2) Adjusted return on capital is defined as annualized adjusted
net income plus adjusted interest expense after-tax divided by
adjusted average capital.
(3) The cost of capital includes both a cost of equity and a cost
of debt. The cost of equity capital is determined based on a
formula that considers the risk of the business and the risk
associated with our use of debt. The formula utilized for
determining the cost of equity capital is as follows: (the
average 30 year treasury rate + 5%) + [(1 -- tax rate) x (the
average 30 year treasury rate + 5% -- pre-tax average cost of
debt rate) x average debt/(average equity + average debt x tax
rate)]. For the periods presented, the average 30 year treasury
rate and the adjusted pre-tax average cost of debt were as
follows:
Three Months Ended
--------------------------------------------------
Jun. Mar. Dec. Sept. Jun. Mar. Dec. Sept.
30, 31, 31, 30, 30, 31, 31, 30,
2010 2010 2009 2009 2009 2009 2008 2008
------ ---- ---- ----- ---- ---- ---- -----
Average 30 year treasury rate 4.4% 4.6% 4.3% 4.2% 4.1% 3.5% 3.8% 4.5%
Adjusted pre-tax average cost of debt 9.6% 9.5% 7.2% 5.9% 5.0% 5.3% 6.7% 6.4%
Six Months
Ended
------------
Jun. Jun.
30, 30,
2010 2009
------ ----
Average 30 year treasury rate 4.5% 3.8%
Adjusted pre-tax average cost of debt 9.6% 5.1%
Floating Yield Adjustment
The purpose of this adjustment is to modify the calculation of our GAAP-based finance charge revenue so that favorable and unfavorable changes in expected cash flows from loans receivable are treated consistently. To make the adjustment understandable, we must first explain how GAAP requires us to account for finance charge revenue, our primary revenue source.
Finance charge revenue equals the cash inflows from our loan portfolio less cash outflows to acquire the loans. Our GAAP finance charge revenue is based on estimates of future cash flows and is recognized on a level-yield basis over the estimated life of the loan. With the level-yield approach, the amount of finance charge revenue recognized from a loan in a given period, divided by the loan asset, is a constant percentage. Under GAAP, favorable changes in expected cash flows are treated as increases to the yield and are recognized over time, while unfavorable changes are recorded as a current period expense. The non-GAAP methodology that we use (the "floating yield" method) is identical to the GAAP approach except that, under the "floating yield" method, all changes in expected cash flows (both positive and negative) are treated as yield adjustments and therefore impact earnings over time. The GAAP treatment always results in a lower carrying value of the loan receivable asset, but may result in either higher or lower earnings for any given period depending on the timing and amount of expected cash flow changes.
We believe adjusted earnings, which include the floating yield adjustment, are a more accurate reflection of the performance of our business, since both favorable and unfavorable changes in estimated cash flows are treated consistently.
Program Fee Yield Adjustment
The purpose of this adjustment is to make revenue from program fees comparable across time periods. In 2001, we began charging dealer-partners a monthly program fee. Effective January 1, 2007, we implemented a change in the way these fees are charged designed to positively impact dealer-partner attrition. We continue to charge a monthly program fee, but instead of collecting the fee in the current period, we collect it from future dealer holdback payments.
As a result of this change, (as of January 1, 2007) we record program fees on a GAAP basis as a yield adjustment, recognizing these fees as finance charge revenue over the term of the dealer loan because collection is dependent on the future cash flows of the loan. Previously, we had recorded the fee as program fee revenue in the month the fee was charged. The current GAAP treatment is more consistent with the cash economics of the business.
To allow for proper comparisons between periods, we make an adjustment to our financial results as though program fees had always been recorded as a yield adjustment. The program fee yield adjustment is immaterial for 2010 and future periods.
Cautionary Statement Regarding Forward-Looking Information
We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all of our forward-looking statements. Statements in this release that are not historical facts, such as those using terms like "may," "will," "should," "believe," "expect," "anticipate," "assume," "forecast," "estimate," "intend," "plan," "target" and those regarding our future results, plans and objectives, are "forward-looking statements" within the meaning of the federal securities laws. These forward-looking statements represent our outlook only as of the date of this release. Actual results could differ materially from these forward-looking statements since the statements are based on our current expectations, which are subject to risks and uncertainties. Factors that might cause such a difference include, but are not limited to, the factors set forth in Item 1A to our Form 10-K for the year ended December 31, 2009, other risk factors discussed herein or listed from time to time in our reports filed with the Securities and Exchange Commission and the following:
-- Our inability to accurately forecast and estimate the amount and timing
of future collections could have a material adverse effect on results of
operations.
-- We may be unable to execute our business strategy due to current
economic conditions.
-- We may be unable to continue to access or renew funding sources and
obtain capital needed to maintain and grow our business.
-- The terms of our debt limit how we conduct our business.
-- The conditions of the U.S. and international capital markets may
adversely affect lenders with which we have relationships, causing us to
incur additional costs and reducing our sources of liquidity, which may
adversely affect our financial position, liquidity and results of
operations.
-- Our substantial debt could negatively impact our business, prevent us
from satisfying our debt obligations and adversely affect our financial
condition.
-- Due to competition from traditional financing sources and
non-traditional lenders, we may not be able to compete successfully.
-- We may not be able to generate sufficient cash flows to service our
outstanding debt and fund operations and may be forced to take other
actions to satisfy our obligations under such debt.
-- Interest rate fluctuations may adversely affect our borrowing costs,
profitability and liquidity.
-- Reduction in our credit rating could increase the cost of our funding
from, and restrict our access to, the capital markets and adversely
affect our liquidity, financial condition and results of operations.
-- We may incur substantially more debt and other liabilities. This could
exacerbate further the risks associated with our current debt levels.
-- The regulation to which we are or may become subject could result in a
material adverse effect on our business.
-- Adverse changes in economic conditions, the automobile or finance
industries, or the non-prime consumer market could adversely affect our
financial position, liquidity and results of operations, the ability of
key vendors that we depend on to supply us with services, and our
ability to enter into future financing transactions.
-- Litigation we are involved in from time to time may adversely affect our
financial condition, results of operations and cash flows.
-- Our operations are dependent on technology.
-- We are dependent on our senior management and the loss of any of these
individuals or an inability to hire additional team members could
adversely affect our ability to operate profitably.
-- Our reputation is a key asset to our business, and our business may be
affected by how we are perceived in the marketplace.
-- The concentration of our dealer-partners in several states could
adversely affect us.
-- Failure to properly safeguard confidential consumer information could
subject us to liability, decrease our profitability and damage our
reputation.
-- Our founder controls a majority of our common stock, has the ability to
control matters requiring shareholder approval and has interests which
may conflict with the interests of our other security holders.
-- Reliance on our outsourced business functions could adversely affect our
business.
-- Natural disasters, acts of war, terrorist attacks and threats or the
escalation of military activity in response to these attacks or
otherwise may negatively affect our business, financial condition and
results of operations.
Other factors not currently anticipated by management may also materially and adversely affect our results of operations. We do not undertake, and expressly disclaim any obligation, to update or alter our statements whether as a result of new information, future events or otherwise, except as required by applicable law.
Description of Credit Acceptance Corporation
Since 1972, Credit Acceptance has provided auto loans to consumers, regardless of their credit history. Our product is offered through a nationwide network of automobile dealers who benefit from sales of vehicles to consumers who otherwise could not obtain financing; from repeat and referral sales generated by these same customers; and from sales to customers responding to advertisements for our product, but who actually end up qualifying for traditional financing.
Without our product, consumers are often unable to purchase a vehicle or they purchase an unreliable one. Further, as we report to the three national credit reporting agencies, an important ancillary benefit of our program is that we provide a significant number of our consumers with an opportunity to improve their lives by improving their credit score and move on to more traditional sources of financing. Credit Acceptance is publicly traded on the NASDAQ under the symbol CACC. For more information, visit creditacceptance.com.
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands, Three Months Ended Six Months Ended
except per share data) June 30, June 30,
------------------------ ------------------------
2010 2009 2010 2009
----------- ----------- ----------- -----------
Revenue:
Finance charges $ 95,549 $ 81,124 $ 185,212 $ 157,850
Premiums earned 8,245 7,201 15,949 13,661
Other income 7,985 4,048 13,880 8,750
----------- ----------- ----------- -----------
Total revenue 111,779 92,373 215,041 180,261
----------- ----------- ----------- -----------
Costs and expenses:
Salaries and wages 14,050 16,515 30,160 33,636
General and
administrative 5,920 6,894 12,462 14,889
Sales and marketing 4,834 3,566 9,644 7,487
Provision for credit
losses 1,790 (3,790) 8,216 (3,626)
Interest 12,267 7,285 23,972 15,208
Provision for claims 6,282 4,829 11,494 9,638
----------- ----------- ----------- -----------
Total costs and
expenses 45,143 35,299 95,948 77,232
----------- ----------- ----------- -----------
Income from continuing
operations before
provision for income
taxes 66,636 57,074 119,093 103,029
----------- ----------- ----------- -----------
Provision for income
taxes 17,571 20,924 38,013 37,867
----------- ----------- ----------- -----------
Income from continuing
operations 49,065 36,150 81,080 65,162
----------- ----------- ----------- -----------
Discontinued operations
(Loss) gain from
discontinued United
Kingdom operations (25) 49 (30) 34
Provision for income
taxes -- 14 -- 10
----------- ----------- ----------- -----------
(Loss) gain from
discontinued operations (25) 35 (30) 24
----------- ----------- ----------- -----------
Net income $ 49,040 $ 36,185 $ 81,050 $ 65,186
=========== =========== =========== ===========
Net income per common
share:
Basic $ 1.57 $ 1.18 $ 2.61 $ 2.14
=========== =========== =========== ===========
Diluted $ 1.55 $ 1.15 $ 2.56 $ 2.08
=========== =========== =========== ===========
Income from continuing
operations per common
share:
Basic $ 1.57 $ 1.18 $ 2.61 $ 2.14
=========== =========== =========== ===========
Diluted $ 1.55 $ 1.15 $ 2.57 $ 2.08
=========== =========== =========== ===========
(Loss) gain from
discontinued operations
per common share:
Basic $ -- $ -- $ -- $ --
=========== =========== =========== ===========
Diluted $ -- $ -- $ -- $ --
=========== =========== =========== ===========
Weighted average shares
outstanding:
Basic 31,172,229 30,600,531 31,107,721 30,510,439
Diluted 31,601,027 31,423,187 31,600,586 31,285,734
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except
per share data) As of
--------------------------
June 30, December 31,
2010 2009
------------ ------------
(Unaudited)
ASSETS:
Cash and cash equivalents $ 1,537 $ 2,170
Restricted cash and cash
equivalents 63,859 82,456
Restricted securities available
for sale 2,893 3,121
Loans receivable (including
$11,179 and $12,674 from
affiliates as of June 30, 2010
and December 31, 2009,
respectively) 1,259,647 1,167,558
Allowance for credit losses (124,871) (117,545)
------------ ------------
Loans receivable, net 1,134,776 1,050,013
------------ ------------
Property and equipment, net 18,344 18,735
Income taxes receivable 6,995 3,956
Other assets 26,414 15,785
------------ ------------
Total Assets $ 1,254,818 $ 1,176,236
============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Liabilities:
Accounts payable and accrued
liabilities $ 79,042 $ 77,295
Line of credit 4,300 97,300
Secured financing 240,500 404,597
Mortgage note and capital lease
obligations 4,665 5,082
Senior notes 244,007 --
Deferred income taxes, net 100,686 93,752
------------ ------------
Total Liabilities 673,200 678,026
------------ ------------
Shareholders' Equity:
Preferred stock, $.01 par
value, 1,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value,
80,000,000 shares authorized,
31,024,015 and 31,038,217
shares issued and outstanding
as of June 30, 2010 and
December 31, 2009,
respectively 310 311
Paid-in capital 25,952 24,370
Retained earnings 555,483 474,433
Accumulated other comprehensive
loss, net of tax of $75 and
$526 at June 30, 2010 and
December 31, 2009,
respectively (127) (904)
------------ ------------
Total Shareholders' Equity 581,618 498,210
------------ ------------
Total Liabilities and
Shareholders' Equity $ 1,254,818 $ 1,176,236
============ ============
This news release was distributed by GlobeNewswire, www.globenewswire.com
SOURCE: Credit Acceptance Corporation
CONTACT: Credit Acceptance Corporation Investor Relations: Douglas W. Busk, Senior Vice President and Treasurer (248) 353-2700 Ext. 4432 IR@creditacceptance.com
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