Press Releases
Credit Acceptance Announces First Quarter 2009 Earnings
SOUTHFIELD, Mich., Apr 29, 2009 (GlobeNewswire via COMTEX News Network) -- Credit Acceptance Corporation (Nasdaq:CACC) (referred to as the "Company," "we," "our," or "us") announced consolidated net income of $29.0 million, or $0.93 per diluted share, for the three months ended March 31, 2009 compared to consolidated net income of $17.6 million, or $0.57 per diluted share, for the same period in 2008.
Adjusted net income, a non-US GAAP financial measure, for the three months ended March 31, 2009 was $24.7 million, or $0.79 per diluted share, compared to $16.8 million, or $0.54 per diluted share, for the same period in 2008.
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 months ended March 31, 2009.
Loan Performance ----------------
At loan inception, we use a statistical model to estimate the expected collection rate for each loan. Subsequent to loan inception, we continue to evaluate the expected collection rate of each loan. Our evaluation for each loan becomes more accurate as the loans age, as we use actual performance data in our forecast. By comparing our current expected collection rate for each loan with the rate we projected at the time of assignment, we are able to assess the accuracy of our initial forecast. The following table compares our forecast of consumer loan collection rates as of March 31, 2009, with the forecasts as of December 31, 2008 and at the time of assignment, segmented by year of assignment:
Variance in
Forecasted
Forecasted Collection Collection
Percentage as of Percentage from
------------------------------- -------------------
Loan
Assignment March 31, Dec. 31, Initial Dec. 31, Initial
Year 2009 2008 Forecast 2008 Forecast
---------- --------- -------- -------- -------- --------
2000 72.5% 72.5% 72.8% 0.0% -0.3%
2001 67.4% 67.4% 70.4% 0.0% -3.0%
2002 70.4% 70.4% 67.9% 0.0% 2.5%
2003 73.8% 73.8% 72.0% 0.0% 1.8%
2004 73.3% 73.4% 73.0% -0.1% 0.3%
2005 74.1% 74.1% 74.0% 0.0% 0.1%
2006 70.5% 70.3% 71.4% 0.2% -0.9%
2007 68.2% 67.9% 70.7% 0.3% -2.5%
2008 67.9% 67.9% 69.7% 0.0% -1.8%
During the first quarter of 2009, actual loan performance was consistent with our forecast at December 31, 2008. As a result of current economic conditions and uncertainty about future conditions, we continue to be cautious about our forecasts of future collection rates. However, we believe our current estimates are reasonable for the following reasons:
* Our forecasts start with the assumption that loans in our current
portfolio will perform like historical loans with similar
attributes.
* During 2008, we reduced our forecasts on loans originated in 2006
through 2008 as these loans began to perform worse than expected.
Additionally, we adjusted our estimated timing of future net cash
flows to reflect recent trends relating to loan prepayments and
reduced the forecasted collection rate used at loan inception to
price new loan originations.
* During 2008, and during the first quarter of 2009, we reduced the
expected collection rate on new loan originations. The reductions
reflect both the experience to date on 2006 through 2008 loans as
well as an expectation that the external environment will
continue to negatively impact loan performance.
* Our current forecasting methodology, when applied against
historical data, produces a consistent forecasted collection rate
as the loans age.
* During the first quarter of 2009, realized net loan cash flows
were consistent with our current forecast.
Although current economic uncertainty increases the risk of poor loan performance, we set prices at loan inception to increase the likelihood of achieving an acceptable return on capital, even if collection results are worse 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 March 31, 2009. Payments of dealer holdback and accelerated payments of 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). The table includes both dealer loans and purchased loans.
As of March 31, 2009
-----------------------------------------------------
Loan % of
Assignment Forecasted Forecast
Year Collection % Advance % Spread % Realized
---------- ------------ ------------ ------------ ------------
2000 72.5% 47.9% 24.6% 99.3%
2001 67.4% 46.0% 21.4% 98.9%
2002 70.4% 42.2% 28.2% 98.6%
2003 73.8% 43.4% 30.4% 98.3%
2004 73.3% 44.0% 29.3% 97.4%
2005 74.1% 46.9% 27.2% 96.2%
2006 70.5% 46.6% 23.9% 86.0%
2007 68.2% 46.5% 21.7% 62.1%
2008 67.9% 44.6% 23.3% 31.3%
2009 69.3% 42.6% 26.7% 4.5%
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 March 31, 2009 for purchased loans and dealer loans separately:
Loan
Assignment Forecasted
Year Collection % Advance % Spread %
------------ ------------ ------------ ------------
Purchased loans 2007 67.9% 48.9% 19.0%
2008 66.9% 46.9% 20.0%
2009 68.2% 44.9% 23.3%
Dealer loans 2007 68.2% 45.9% 22.3%
2008 68.4% 43.4% 25.0%
2009 69.5% 42.0% 27.5%
Although the advance rate on purchased loans is higher as compared to the advance rate on dealer loans, purchased loans do not require the Company to pay dealer holdback. The increase in the spread between the forecasted collection rate and the advance rate during 2008 and 2009 occurred as a result of pricing changes implemented during the first nine months of 2008 and stable forecasted collection rates during the first quarter of 2009.
Access to Capital -----------------
Based on our available capital, we are targeting a 10% reduction in consumer loan unit volume for the first half of 2009. Our target growth rate in the second half of 2009 will depend on our success in securing additional financing and renewing our existing debt facilities.
In August of 2009, our $325.0 million warehouse facility and our $50.0 million residual credit facility (collectively referred to as the "maturing facilities") mature. If we are unsuccessful in renewing the maturing facilities, and alternative financing cannot be obtained, additional reductions in loan origination volumes will be required. As of March 31, 2009, $249.9 million was outstanding under the $325.0 million warehouse facility. In the event that this facility is not renewed, no further advances would be made under the facility, and the amount outstanding would be repaid by the proceeds from the loans securing the facility. We currently expect such amounts to be repaid over time as collections on such loans are received, even if the lender under such facility has the right to cause the loans securing the facility to be sold to repay the outstanding indebtedness. Although the facility is non-recourse to the Company, the sale of the loans by the lender at less than their book value could result in significant losses to the Company. As of March 31, 2009, the book value of the loans was $342.8 million. No amounts were outstanding under the $50.0 million residual credit facility as of March 31, 2009. In the event that this facility is not renewed, any amounts then outstanding under this facility are required to be repaid in full at maturity. Given current conditions in the credit markets, there can be no assurance that the maturing facilities will be renewed or that alternative financing will be obtained. In addition, we may be required to incur significant fees or other costs in connection with extending or replacing these facilities.
The following table summarizes maximum loan origination volumes under two scenarios: (1) the maturing facilities are renewed (or replaced) but no other additional capital is obtained during 2009; and (2) no additional capital is obtained during 2009 and the maturing facilities are not renewed.
Maximum for the Year Ended
December 31, 2009
----------------------------
Assuming
Assuming Maturing
Maturing Facilities
(Dollars in millions) Facilities are Not
Year Ended are Renewed Renewed
Dec. 31, 2008 (or Replaced) (or Replaced)
------------- ------------- -------------
Loan dollar volume $805 $660 $580
Average loans
receivable balance, net $967 $1,080 $1,050
For the three months ended March 31, 2009, loan dollar volume was $195.0 million.
Loan Volume -----------
The following table summarizes the changes in consumer loan unit volume and active dealer-partners:
Three Months Ended
March 31,
----------------------
%
2009 2008 change
------ ------ ------
Consumer loan unit volume 34,991 40,217 -13.0%
Active dealer-partners (1) 2,305 2,292 0.6%
------ ------
Average volume per active dealer-partner 15.2 17.5 -13.1%
Consumer loan unit volume from
dealer-partners active both periods 23,490 29,982 -21.7%
Dealer-partners active both periods 1,297 1,297 0.0%
------ ------
Average volume per dealer-partners
active both periods 18.1 23.1 -21.7%
Consumer loan unit volume from
new dealer-partners 2,228 3,011 -26.0%
New active dealer-partners (2) 338 347 -2.6%
------ ------
Average volume per new active
dealer-partners 6.6 8.7 -24.1%
Attrition (3) -25.4% -18.1%
(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 periods presented.
(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.
The following table summarizes changes in consumer loan dollar and unit volume in each of the last 5 quarters as compared to the same period in the previous year:
Consumer Loans
Year over Year Percent Change
--------------------------------------
Three Months Ended Dollar Volume Unit Volume
------------------ ------------------ ------------------
March 31, 2008 28.5% 16.0%
June 30, 2008 40.6% 26.1%
September 30, 2008 27.5% 26.9%
December 31, 2008 -21.0% -13.4%
March 31, 2009 -26.3% -13.0%
Unit and dollar volume declined during the first quarter of 2009 as compared to the same period in 2008 due to pricing changes implemented during 2008.
The following table summarizes key information regarding purchased loans:
Three Months Ended March 31,
----------------------------
2009 2008
----------- -----------
New purchased loan unit volume as
a percentage of total unit volume 17.7% 29.8%
New purchased loan dollar volume as
a percentage of total dollar volume 21.3% 36.8%
As of March 31, 2009 and 2008, the net purchased loan receivable balance was 29.9% and 23.1%, respectively, of the total net 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. These 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, adjusted 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 months ended March 31, 2009, compared to the same period in 2008, include the following:
Three Months Ended
March 31,
(Dollars in thousands, -------------------------------------
except per share data) 2009 2008 % Change
----------- ----------- -----------
Adjusted average capital $ 997,396 $ 865,631 15.2%
Adjusted net income $ 24,714 $ 16,769 47.4%
Adjusted interest expense
after-tax $ 5,205 $ 6,313 -17.6%
Adjusted net income plus
interest expense after-tax $ 29,919 $ 23,082 29.6%
Adjusted return on capital 12.0% 10.7% 12.1%
Cost of capital 6.0% 6.6% -9.1%
Economic profit $ 14,886 $ 8,881 67.6%
GAAP diluted weighted average
shares outstanding
31,180,146 30,891,227 0.9%
Adjusted net income per
diluted share $ 0.79 $ 0.54 46.3%
Economic profit increased 67.6% for the three months ended March 31, 2009, as compared to the same period in 2008. 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.
For the three months ended March 31, 2009, adjusted average capital grew by 15.2% and the adjusted return on capital increased from 10.7% to 12.0%, as compared to the same period in 2008. The return on capital was positively impacted by the following:
* Operating expenses, as a percentage of adjusted average capital,
declined as adjusted average capital grew by 15.2% and operating
expenses declined 1.7%. The decline in operating expenses
reflects a decline in origination expenses, which were reduced in
proportion to the reduction in origination volumes and reduced
expenses related to information technology;
* The cost of capital declined due to a reduction in market
interest rates on our outstanding debt partially offset by a
reduction in the proportion of average debt to average adjusted
capital; and
* Finance charges, as a percentage of adjusted average capital,
increased due to pricing changes implemented during the first
nine months of 2008 and an increase in the proportion of average
loans receivable to average adjusted capital, partially offset by
a decline in loan performance during 2008.
The following table shows adjusted revenue and adjusted 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
-----------------------------------------------------
Mar. Dec. Sept. Jun. Mar. Dec. Sept. Jun.
31, 31, 30, 30, 31, 31, 30, 30,
2009 2008 2008 2008 2008 2007 2007 2007
---- ---- ---- ---- ---- ---- ---- ----
Adjusted
revenue as
a percentage
of adjusted
average
capital 30.7% 30.2% 28.9% 28.5% 30.7% 31.7% 32.5% 32.2%
==== ==== ==== ==== ==== ==== ==== ====
Adjusted
operating
expenses
as a
percentage
of adjusted
average
capital 11.6% 11.1% 10.8% 11.3% 13.6% 14.7% 13.6% 13.6%
==== ==== ==== ==== ==== ==== ==== ====
Adjusted
return on
capital 12.0% 12.1% 11.4% 10.8% 10.7% 10.7% 11.8% 11.8%
==== ==== ==== ==== ==== ==== ==== ====
Percentage
change in
adjusted
average
capital
compared to
the same
period in
the prior
year 15.2% 30.4% 42.3% 39.6% 37.5% 35.5% 34.2% 29.4%
==== ==== ==== ==== ==== ==== ==== ====
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
March 31,
(Dollars in thousands, except ------------------------
per share data) 2009 2008 %Change
----------- ----------- -------
Adjusted net income
-------------------
GAAP net income $ 29,001 $ 17,620 64.6%
Floating yield adjustment (after-tax) (4,345) (1,765)
Program fee yield adjustment
(after-tax) 320 544
Loss (gain) from discontinued
United Kingdom segment (after-tax) 11 (39)
Interest expense related to
interest rate swap agreement (213) 532
Adjustment to record taxes at 37% (60) (123)
----------- -----------
Adjusted net income $ 24,714 $ 16,769 47.4%
=========== ===========
Adjusted net income per diluted share $ 0.79 $ 0.54 46.3%
-------------------------------------
Diluted weighted average
shares outstanding 31,180,146 30,891,227 0.9%
Adjusted average capital
------------------------
GAAP average debt $ 624,279 $ 584,794 6.8%
GAAP average shareholders' equity 352,562 274,897 28.3%
Floating yield adjustment 21,829 9,076
Program fee yield adjustment (1,274) (3,136)
----------- -----------
Adjusted average capital $ 997,396 $ 865,631 15.2%
=========== ===========
Adjusted return on capital
--------------------------
Adjusted net income $ 24,714 $ 16,769
Adjusted interest expense after-tax 5,205 6,313
----------- -----------
Adjusted net income plus interest
expense after-tax $ 29,919 $ 23,082 29.6%
=========== ===========
Adjusted return on capital(1) 12.0% 10.7% 12.1%
=========== ===========
Economic profit
---------------
Adjusted return on capital 12.0% 10.7%
Cost of capital(2) 6.0% 6.6%
----------- -----------
Adjusted return on capital in
excess of cost of capital 6.0% 4.1%
Adjusted average capital $ 997,396 $ 865,631
----------- -----------
Economic profit $ 14,886 $ 8,881 67.6%
=========== ===========
(1) Adjusted return on capital is defined as annualized adjusted net
income plus adjusted interest expense after-tax divided by
adjusted average capital.
(2) 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 three
months ended March 31, 2009 and 2008, the average 30 year
treasury rate was 3.5% and 4.4%, respectively. The adjusted
pre-tax average cost of debt was 5.3% and 6.9%, respectively.
Quarter Ended
-------------------------------------------
(Dollars in thousands) Mar. 31, Dec. 31, Sept. 30, Jun. 30,
2009 2008 2008 2008
--------- ---------- ---------- --------
Adjusted net income
-------------------
GAAP net income $ 29,001 $ 18,556 $ 20,657 $ 10,344
Floating yield
adjustment (after-tax) (4,345) 4,125 1,183 9,536
Program fee yield
adjustment (after-tax) 320 372 506 653
Loss (gain) from
discontinued United 11 221 (326) 35
Kingdom segment
(after-tax)
Litigation -- -- -- --
Interest expense related
to interest rate (213) 242 (179) (375)
swap agreement
Adjustment to record
taxes at 37% (60) 56 419 (2)
--------- ---------- ---------- --------
Adjusted net income $ 24,714 $ 23,572 $ 22,260 $ 20,191
========= ========== ========== ========
Adjusted revenue
----------------
GAAP total revenue $ 87,888 $ 86,296 $ 80,107 $ 75,005
Floating yield
adjustment (6,898) 6,546 1,880 15,137
Program fee yield
adjustment 507 590 804 1,036
Provision for credit
losses (167) (14,252) (8,278) (20,782)
Provision for claims (4,809) (2,650) 13 (9)
--------- ---------- ---------- --------
Adjusted revenue $ 76,521 $ 76,530 $ 74,526 $ 70,387
========= ========== ========== ========
Adjusted average capital
------------------------
GAAP average debt $ 624,279 $ 665,635 $ 706,637 $686,148
GAAP average
shareholders' equity 352,562 331,402 308,990 295,771
Floating yield
adjustment 21,829 18,643 18,002 9,326
Program fee yield
adjustment (1,274) (1,609) (2,048) (2,626)
--------- ---------- ---------- --------
Adjusted average
capital $ 997,396 $1,014,071 $1,031,581 $988,619
========= ========== ========== ========
Adjusted revenue as a
percentage of adjusted
average capital 30.7% 30.2% 28.9% 28.5%
========= ========== ========== ========
Adjusted return on
capital
-------------------
Adjusted net income $ 24,714 $ 23,572 $ 22,260 $ 20,191
Adjusted interest
expense after-tax 5,205 6,994 7,081 6,602
--------- ---------- ---------- --------
Adjusted net income
plus interest expense
after-tax $ 29,919 $ 30,566 $ 29,341 $ 26,793
========= ========== ========== ========
Adjusted return on
capital 12.0% 12.1% 11.4% 10.8%
========= ========== ========== ========
Adjusted operating
expenses
------------------
GAAP salaries and wages $ 17,121 $ 17,788 $ 16,766 $ 16,699
GAAP general and
administrative 7,998 6,785 6,975 6,627
GAAP sales and marketing 3,921 3,446 4,103 4,556
Litigation -- -- -- --
--------- ---------- ---------- --------
Adjusted operating
expenses $ 29,040 $ 28,019 $ 27,844 $ 27,882
========= ========== ========== ========
Adjusted operating
expenses as a percentage
of adjusted average
capital 11.6% 11.1% 10.8% 11.3%
========= ========== ========== ========
Percentage change in
adjusted average capital
compared to the same
period in the prior year 15.2% 30.4% 42.3% 39.6%
========= ========== ========== ========
Quarter Ended
-------------------------------------------
(Dollars in thousands) Mar. 31, Dec. 31, Sept. 30, Jun. 30,
2008 2007 2007 2007
--------- --------- --------- ---------
Adjusted net income
-------------------
GAAP net income $ 17,620 $ 12,484 $ 14,742 $ 12,330
Floating yield
adjustment (after-tax) (1,765) 1,591 1,265 617
Program fee yield
adjustment (after-tax) 544 1,353 925 1,143
Loss (gain) from
discontinued United
Kingdom segment
(after-tax) (39) (219) (1,273) 163
Litigation -- -- 91 315
Interest expense
related to
interest rate
swap agreement 532 302 -- --
Adjustment to record
taxes at 37% (123) (639) 4 379
--------- --------- --------- ---------
Adjusted net income $ 16,769 $ 14,872 $ 15,754 $ 14,947
========= ========= ========= =========
Adjusted revenue
----------------
GAAP total revenue $ 70,778 $ 63,232 $ 61,058 $ 58,286
Floating yield
adjustment (2,800) 2,525 2,008 979
Program fee yield
adjustment 863 2,150 1,470 1,814
Provision for
credit losses (2,479) (6,345) (5,629) (3,968)
Provision for claims (5) (4) 4 (14)
--------- --------- --------- ---------
Adjusted revenue $ 66,357 $ 61,558 $ 58,911 $ 57,097
========= ========= ========= =========
Adjusted average
capital
----------------
GAAP average debt $ 584,794 $ 515,031 $ 477,930 $ 473,141
GAAP average
shareholders' equity 274,897 256,838 243,922 233,465
Floating yield
adjustment 9,076 9,784 8,348 8,073
Program fee yield
adjustment (3,136) (4,011) (5,316) (6,345)
--------- --------- --------- ---------
Adjusted average
capital $ 865,631 $ 777,642 $ 724,884 $ 708,334
========= ========= ========= =========
Adjusted revenue as a
percentage of adjusted
average capital 30.7% 31.7% 32.5% 32.2%
========= ========= ========= =========
Adjusted return
on capital
---------------
Adjusted net income $ 16,769 $ 14,872 $ 15,754 $ 14,947
Adjusted interest
expense after-tax 6,313 5,928 5,689 5,960
--------- --------- --------- ---------
Adjusted net income
plus interest
expense after-tax $ 23,082 $ 20,800 $ 21,443 $ 20,907
========= ========= ========= =========
Adjusted return on
capital 10.7% 10.7% 11.8% 11.8%
========= ========= ========= =========
Adjusted operating
expenses
------------------
GAAP salaries and wages $ 17,740 $ 16,823 $ 13,620 $ 13,092
GAAP general and
administrative 7,124 6,729 7,266 7,359
GAAP sales and
marketing 4,671 5,003 3,855 4,163
Litigation -- -- (145) (500)
--------- --------- --------- ---------
Adjusted operating
expenses $ 29,535 $ 28,555 $ 24,596 $ 24,114
========= ========= ========= =========
Adjusted operating
expenses as a
percentage of adjusted
average capital 13.6% 14.7% 13.6% 13.6%
========= ========= ========= =========
Percentage change in
adjusted average
capital compared to
the same period in
the prior year 37.5% 35.5% 34.2% 29.4%
========= ========= ========= =========
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 floating yield earnings 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 for access to our internet-based Credit Approval Processing System, also known as CAPS.
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 of $599, 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 adjustment will become less significant in future periods. The program fee adjustment is projected to be $0.8 million and $0.3 million in 2009 and 2010, respectively. The adjustment will be immaterial starting in 2011.
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 of our Form 10-K for the year ended December 31, 2008, 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 continue to access or renew funding sources
and obtain capital on favorable terms needed to maintain and grow
the business.
* Requirements under credit facilities to meet financial and
portfolio performance covenants.
* The conditions of the U.S. and international capital markets may
adversely affect lenders the Company has relationships with,
causing us to incur additional cost and reducing our sources of
liquidity, which may adversely affect our financial position,
liquidity and results of operations.
* 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 flow to service
our outstanding debt and fund operations.
* Interest rate fluctuations may adversely affect our borrowing
costs, profitability and liquidity.
* The regulation to which we are subject could result in a material
adverse affect 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 certain 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.
* 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 inability to properly safeguard confidential consumer
information.
* Our operations could suffer from telecommunications or technology
downtime or increased costs.
* Natural disasters, acts of war, terrorist attacks and threats or
the escalation of military activity in response to such 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 INCOME STATEMENTS
(Dollars in thousands, except
per share data) Three Months Ended
March 31,
------------------------
2009 2008
----------- -----------
(Unaudited)
Revenue:
Finance charges $ 76,726 $ 63,675
Premiums earned 6,460 32
Other income 4,702 7,071
----------- -----------
Total revenue 87,888 70,778
----------- -----------
Costs and expenses:
Salaries and wages 17,121 17,740
General and administrative 7,998 7,124
Sales and marketing 3,921 4,671
Provision for credit losses 164 2,649
Interest 7,923 10,864
Provision for claims 4,809 5
----------- -----------
Total costs and expenses 41,936 43,053
----------- -----------
Operating income 45,952 27,725
Foreign currency gain (loss) 3 (13)
----------- -----------
Income from continuing operations
before provision for income taxes 45,955 27,712
Provision for income taxes 16,943 10,131
----------- -----------
Income from continuing operations 29,012 17,581
----------- -----------
Discontinued operations
(Loss) gain from discontinued United
Kingdom operations (15) 56
(Benefit) provision for income taxes (4) 17
----------- -----------
(Loss) gain from discontinued operations (11) 39
----------- -----------
Net income $ 29,001 $ 17,620
=========== ===========
Net income per common share:
Basic $ 0.95 $ 0.59
=========== ===========
Diluted $ 0.93 $ 0.57
=========== ===========
Income from continuing operations per common share:
Basic $ 0.95 $ 0.58
=========== ===========
Diluted $ 0.93 $ 0.57
=========== ===========
(Loss) gain from discontinued operations per common share:
Basic $ -- $ --
=========== ===========
Diluted $ -- $ --
=========== ===========
Weighted average shares outstanding:
Basic 30,479,665 30,106,881
Diluted 31,180,146 30,891,227
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except
per share data) As of
------------------------
March 31, Dec. 31,
2009 2008
----------- -----------
(Unaudited)
ASSETS:
Cash and cash equivalents $ 106 $ 3,154
Restricted cash and cash equivalents 86,991 80,333
Restricted securities available for sale 3,136 3,345
Loans receivable (including $14,828 and
$15,383 from affiliates as of March 31,
2009 and December 31, 2008, respectively) 1,179,484 1,148,752
Allowance for credit losses (131,384) (130,835)
----------- -----------
Loans receivable, net 1,048,100 1,017,917
----------- -----------
Property and equipment, net 20,487 21,049
Other assets 18,157 13,556
----------- -----------
Total Assets $ 1,176,977 $ 1,139,354
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Accounts payable and accrued liabilities $ 94,512 $ 83,948
Line of credit 99,300 61,300
Secured financing 521,865 574,175
Mortgage note and capital lease
obligations 5,862 6,239
Deferred income taxes, net 78,837 75,060
Income taxes payable 8,211 881
----------- -----------
Total Liabilities 808,587 801,603
----------- -----------
Shareholders' Equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 80,000,000
shares authorized, 30,843,959 and
30,666,691 shares issued and outstanding
as of March 31, 2009 and December 31,
2008, respectively 308 306
Paid-in capital 13,080 11,829
Retained earnings 357,179 328,178
Accumulated other comprehensive loss, net
of tax of $1,242 and $1,478 at March 31,
2009 and December 31, 2008, respectively (2,177) (2,562)
----------- -----------
Total Shareholders' Equity 368,390 337,751
----------- -----------
Total Liabilities and Shareholders'
Equity $ 1,176,977 $ 1,139,354
=========== ===========
This news release was distributed by GlobeNewswire, www.globenewswire.com
SOURCE: Credit Acceptance Corporation
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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