Press Releases
Credit Acceptance Announces First Quarter 2011 Earnings
Adjusted net income, a non-GAAP financial measure, for the three months ended
Refer to our Form 10-Q, filed today with the
Webcast Details
We will host a webcast on
Consumer Loan Performance
At the time a consumer loan is submitted to us for assignment, we forecast future expected cash flows from the consumer loan. Based on these forecasts, an advance or one-time purchase 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
| Forecasted Collection Percentage as of | Variance in Forecasted Collection Percentage from | ||||
|
Consumer Loan Assignment Year |
March 31, 2011 |
December 31, 2010 |
Initial Forecast |
December 31, 2010 |
Initial Forecast |
| 2002 | 70.5% | 70.5% | 67.9% | 0.0% | 2.6% |
| 2003 | 73.7% | 73.7% | 72.0% | 0.0% | 1.7% |
| 2004 | 73.0% | 73.0% | 73.0% | 0.0% | 0.0% |
| 2005 | 73.7% | 73.7% | 74.0% | 0.0% | -0.3% |
| 2006 | 70.2% | 70.2% | 71.4% | 0.0% | -1.2% |
| 2007 | 68.0% | 67.9% | 70.7% | 0.1% | -2.7% |
| 2008 | 70.0% | 69.9% | 69.7% | 0.1% | 0.3% |
| 2009 | 78.6% | 78.5% | 71.9% | 0.1% | 6.7% |
| 2010 | 75.4% | 75.8% | 73.6% | -0.4% | 1.8% |
Consumer loans assigned in 2002, 2003, 2009 and 2010 have yielded forecasted collection results materially better than our initial estimates, while consumer loans assigned in 2006 and 2007 have yielded forecasted collection results materially worse than our initial estimates. For 2004, 2005 and 2008, actual results have been very close to our initial estimates. During the first quarter of 2011, forecasted collection rates decreased for consumer loans assigned in 2010, and were generally consistent with expectations at the start of the period for the other assignment years.
Forecasting collection rates precisely at loan inception is difficult. With this in mind, we establish advance rates that are intended to allow us to achieve acceptable levels of profitability, even if collection rates are less than we currently forecast.
The following table presents forecasted consumer loan collection rates, advance rates, the spread (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of
| As of March 31, 2011 | ||||
|
Consumer Loan Assignment Year |
Forecasted Collection % |
Advance % (1) |
Spread % |
% of Forecast Realized (2) |
| 2002 | 70.5% | 42.2% | 28.3% | 99.4% |
| 2003 | 73.7% | 43.4% | 30.3% | 99.3% |
| 2004 | 73.0% | 44.0% | 29.0% | 99.0% |
| 2005 | 73.7% | 46.9% | 26.8% | 98.7% |
| 2006 | 70.2% | 46.6% | 23.6% | 97.6% |
| 2007 | 68.0% | 46.5% | 21.5% | 93.5% |
| 2008 | 70.0% | 44.6% | 25.4% | 82.6% |
| 2009 | 78.6% | 43.9% | 34.7% | 65.4% |
| 2010 | 75.4% | 44.7% | 30.7% | 28.8% |
| 2011 | 73.0% | 44.9% | 28.1% | 3.3% |
| (1) Represents advances paid to dealer-partners on consumer loans assigned under our portfolio program and one-time payments made to dealer-partners to purchase consumer loans assigned under our purchase program as a percentage of the contractual amounts of the consumer loans. Payments of dealer holdback and accelerated dealer holdback are not included. | ||||
| (2) Presented as a percentage of total forecasted collections. | ||||
The risk of a material change in our forecasted collection rate declines as the consumer loans age. For 2007 and prior consumer loan assignments, the risk of a material forecast variance is modest, as we have currently realized in excess of 90% of the expected collections. Conversely, the forecasted collection rates for more recent consumer loan assignments are less certain as a significant portion of our forecast has not been realized.
The spread between the forecasted collection rate and the advance rate declined during the 2004 through 2007 period as we increased advance rates during this period in response to a more difficult competitive environment. During 2008 and 2009, the spread increased as the competitive environment improved, and we reduced advance rates. In addition, during 2009, the spread was positively impacted by better than expected consumer loan performance. During 2010 and 2011, the spread decreased as we increased advance rates during this period in an attempt to maximize the amount of economic profit we generate in response to an increase in the amount of capital available to fund new loans.
The following table presents forecasted consumer loan collection rates, advance rates, and the spread (the forecasted collection rate less the advance rate) as of
|
Consumer Loan Assignment Year |
Forecasted Collection % |
Advance % (1) |
Spread % |
|
| Dealer loans | 2007 | 68.0% | 45.8% | 22.2% |
| 2008 | 70.6% | 43.3% | 27.3% | |
| 2009 | 78.6% | 43.5% | 35.1% | |
| 2010 | 75.4% | 44.4% | 31.0% | |
| 2011 | 73.0% | 44.7% | 28.3% | |
| Purchased loans | 2007 | 68.1% | 49.1% | 19.0% |
| 2008 | 69.1% | 46.7% | 22.4% | |
| 2009 | 78.5% | 45.4% | 33.1% | |
| 2010 | 75.6% | 47.0% | 28.6% | |
| 2011 | 72.9% | 47.9% | 25.0% | |
| (1) Represents advances paid to dealer-partners on consumer loans assigned under our portfolio program and one-time payments made to dealer-partners to purchase consumer loans assigned under our purchase program as a percentage of the contractual amounts of the consumer loans. Payments of dealer holdback and accelerated dealer holdback are not included. | ||||
| The advance rates presented for each consumer loan assignment year change over time due to the impact of transfers between dealer and purchased loans. Under our portfolio program, certain events may result in dealer-partners forfeiting their rights to dealer holdback. We transfer the dealer-partner's consumer loans from the dealer loan portfolio to the purchased loan portfolio in the period this forfeiture occurs. | ||||
Although the advance rate on purchased loans is higher as compared to the advance rate on dealer loans, purchased loans do not require us to pay dealer holdback.
Consumer Loan Volume
The following table summarizes changes in consumer loan assignment volume in each of the last five quarters as compared to the same period in the previous year:
| Year over Year Percent Change | ||
| Three Months Ended | Unit Volume | Dollar Volume (1) |
| March 31, 2010 | 11.2% | 21.6% |
| June 30, 2010 | 22.7% | 42.2% |
| September 30, 2010 | 26.9% | 51.5% |
| December 31, 2010 | 37.7% | 66.9% |
| March 31, 2011 | 36.7% | 59.3% |
| (1) Represents advances paid to dealer-partners on consumer loans assigned under our portfolio program and one-time payments made to dealer-partners to purchase consumer loans assigned under our purchase program. Payments of dealer holdback and accelerated dealer holdback are not included. | ||
Consumer loan assignment volumes depend on a number of factors including (1) the overall demand for our product (2) the amount of capital available to fund new loans and (3) our assessment of the volume that our infrastructure can support. Our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of capital and infrastructure constraints. Our success in renewing our debt facilities and securing additional financing during 2009 and 2010 positioned us to grow year over year unit volumes. During the last four months of 2009, the first quarter of 2010, and the fourth quarter of 2010, we increased advance rates, which had a positive impact on unit volumes. While the advance increases also reduced the return on capital we expect to earn on new assignments, we believe it is very likely the advance increases had a positive impact on economic
profit. Unit volume for the one month ended
The following table summarizes the changes in consumer loan unit volume and active dealer-partners:
| For the Three Months Ended March 31, | |||
| 2011 | 2010 | % Change | |
| Consumer loan unit volume | 53,183 | 38,903 | 36.7% |
| Active dealer-partners (1) | 2,775 | 2,346 | 18.3% |
| Average volume per active dealer-partner | 19.2 | 16.6 | 15.7% |
| Consumer loan unit volume from dealer-partners active both periods | 41,556 | 34,659 | 19.9% |
| Dealer-partners active both periods | 1,801 | 1,801 | -- |
| Average volume per dealer-partners active both periods | 23.1 | 19.2 | 19.9% |
| Consumer loan unit volume from new dealer-partners | 2,177 | 1,741 | 25.0% |
| New active dealer-partners (2) | 321 | 216 | 48.6% |
| Average volume per new active dealer-partners | 6.8 | 8.1 | -16.0% |
| Attrition (3) | -10.9% | -20.8% | |
| (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 as either dealer loans through our portfolio program or purchased loans through our purchase program. The following table summarizes the portion of our consumer loan volume that was assigned to us as dealer loans:
| For the Three Months Ended March 31, | ||
| 2011 | 2010 | |
| New dealer loan unit volume as a percentage of total unit volume | 92.9% | 90.9% |
| New dealer loan dollar volume as a percentage of total dollar volume (1) | 91.1% | 88.6% |
| (1) Represents advances paid to dealer-partners on consumer loans assigned under our portfolio program and one-time payments made to dealer-partners to purchase consumer loans assigned under our purchase program. Payments of dealer holdback and accelerated dealer holdback are not included. | ||
For the three months ended
As of
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" section. 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 months ended
| For the Three Months Ended March 31, | |||
| (Dollars in thousands, except per share data) | 2011 | 2010 | % Change |
| Adjusted average capital | $ 1,206,039 | $ 1,011,469 | 19.2% |
| Adjusted net income | $ 46,239 | $ 35,512 | 30.2% |
| Adjusted interest expense after-tax | $ 7,952 | $ 7,374 | 7.8% |
| Adjusted net income plus interest expense after-tax | $ 54,191 | $ 42,886 | 26.4% |
| Adjusted return on capital | 18.0% | 17.0% | 5.9% |
| Cost of capital | 7.1% | 7.9% | -10.1% |
| Economic profit | $ 32,895 | $ 23,036 | 42.8% |
| GAAP diluted weighted average shares outstanding | 27,489 | 31,584 | -13.0% |
| Adjusted net income per diluted share | $ 1.68 | $ 1.12 | 50.0% |
Economic profit increased 42.8% for the three months ended
| Year over Year Change in Economic Profit | |
| (In thousands) | For the Three Months Ended March 31, 2011 |
| Increase in adjusted average capital | $ 4,431 |
| Increase in adjusted return on capital | 3,056 |
| Decrease in cost of capital | 2,372 |
| Increase in economic profit | $ 9,859 |
The increase in economic profit for the three months ended
- An increase in adjusted average capital of 19.2% primarily due to growth in our loan portfolio as a result of the advance rate increases we made during the first and fourth quarters of 2010.
- An increase in our adjusted return on capital of 100 basis points primarily due to the following:
- Operating expenses declined as a percentage of adjusted average capital primarily as a result of lower support and servicing expenses. The decline in support function expenses was primarily due to lower expenses related to information technology, finance, and corporate legal activities. The decline in servicing function expenses was primarily due to efficiencies realized through the implementation of strategic initiatives which have reduced staffing requirements in collections. The decline in operating expenses positively impacted the adjusted return on capital by 100 basis points.
- Other income increased as a percentage of adjusted average capital primarily as a result of an increase in Guaranteed Asset Protection ("GAP") profit sharing income. Under the arrangement with our third party GAP provider, we receive annual profit sharing payments based on the performance of our GAP program and these payments are recognized as income in the period received. The increase in other income positively impacted the adjusted return on capital by 30 basis points.
- A decrease in our cost of capital of 80 basis points due to a decline in the average cost of debt resulting from more favorable pricing on our revolving credit facilities and a decrease in available and unused credit capacity.
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:
| For the Three Months Ended | ||||||||
|
Mar. 31, 2011 |
Dec. 31, 2010 |
Sept. 30, 2010 |
Jun. 30, 2010 |
Mar. 31, 2010 |
Dec. 31, 2009 |
Sept. 30, 2009 |
Jun. 30, 2009 |
|
| Adjusted revenue as a percentage of adjusted average capital | 37.9% | 38.1% | 38.0% | 38.7% | 37.8% | 37.7% | 36.6% | 32.7% |
| Operating expenses as a percentage of adjusted average capital | 9.3% | 9.5% | 10.4% | 9.3% | 10.9% | 11.2% | 11.3% | 10.7% |
| Adjusted return on capital | 18.0% | 18.1% | 17.4% | 18.5% | 17.0% | 16.7% | 16.0% | 13.9% |
| Percentage change in adjusted average capital compared to the same period in the prior year | 19.2% | 14.1% | 8.7% | 6.0% | 1.4% | -2.4% | -3.0% | 1.9% |
The adjusted return on capital for the three months ended
- A decrease in finance charges negatively impacted the adjusted return on capital by 100 basis points primarily due to lower yields on more recent consumer loan assignments, which was the result of the advance rate increases we made during the first and fourth quarters of 2010, and a decline in forecasted collection rates on consumer loans assigned in 2010.
- An increase in other income positively impacted the adjusted return on capital by 90 basis points primarily as a result of an increase in GAP profit sharing income. GAP profit sharing payments are generally received and recognized annually in the first quarter of each year.
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. Certain amounts do not recalculate due to rounding.
| For the Three Months Ended | ||||||||
| (Dollars in thousands, except per share data) |
Mar. 31, 2011 |
Dec. 31, 2010 |
Sept. 30, 2010 |
Jun. 30, 2010 |
Mar. 31, 2010 |
Dec. 31, 2009 |
Sept. 30, 2009 |
Jun. 30, 2009 |
| Adjusted net income | ||||||||
| GAAP net income | $ 43,191 | $ 46,980 | $ 42,047 | $ 49,040 | $ 32,010 | $ 40,335 | $ 40,734 | $ 36,185 |
| Floating yield adjustment (after-tax) | 3,822 | (10) | (1,526) | (330) | 2,349 | (4,679) | (4,617) | (5,882) |
| Program fee yield adjustment (after-tax) | 43 | 49 | 61 | 79 | 115 | 121 | 152 | 203 |
| Loss (gain) from discontinued United Kingdom segment (after-tax) | -- | -- | -- | 25 | 5 | (263) | 78 | (35) |
| Interest expense related to interest rate swap agreement (after-tax) | -- | -- | -- | -- | -- | (68) | (94) | (147) |
| Adjustment to record taxes at 37% (1) | (817) | (3,380) | (974) | (7,085) | 1,033 | 62 | (1,562) | (193) |
| Adjusted net income | $ 46,239 | $ 43,639 | $ 39,608 | $ 41,729 | $ 35,512 | $ 35,508 | $ 34,691 | $ 30,131 |
| Adjusted net income per diluted share | $ 1.68 | $ 1.57 | $ 1.39 | $ 1.32 | $ 1.12 | $ 1.11 | $ 1.10 | $ 0.96 |
| Diluted weighted average shares outstanding | 27,489 | 27,865 | 28,452 | 31,601 | 31,584 | 31,868 | 31,539 | 31,423 |
| Adjusted revenue | ||||||||
| GAAP total revenue | $ 123,512 | $ 115,433 | $ 111,661 | $ 111,779 | $ 103,262 | $ 100,135 | $ 100,268 | $ 92,373 |
| Floating yield adjustment | 6,067 | (16) | (2,423) | (524) | 3,729 | (7,426) | (7,329) | (9,336) |
| Program fee yield adjustment | 67 | 77 | 97 | 125 | 182 | 191 | 242 | 322 |
| Provision for credit losses | (8,921) | (1,978) | 24 | (1,782) | (6,433) | 4,942 | 3,433 | 3,766 |
| Provision for claims | (6,599) | (5,823) | (6,112) | (6,282) | (5,212) | (4,513) | (5,148) | (4,829) |
| Adjusted revenue | $ 114,126 | $ 107,693 | $ 103,247 | $ 103,316 | $ 95,528 | $ 93,329 | $ 91,466 | $ 82,296 |
| Adjusted average capital | ||||||||
| GAAP average debt | $ 723,781 | $ 676,978 | $ 645,383 | $ 509,867 | $ 492,069 | $ 510,123 | $ 562,663 | $ 604,863 |
| GAAP average shareholders' equity | 476,281 | 448,825 | 437,288 | 553,297 | 514,364 | 474,984 | 428,377 | 388,242 |
| Floating yield adjustment | 6,294 | 4,280 | 5,230 | 5,485 | 5,619 | 5,394 | 10,134 | 15,243 |
| Program fee yield adjustment | (317) | (362) | (417) | (486) | (583) | (697) | (834) | (1,012) |
| Adjusted average capital | $ 1,206,039 | $ 1,129,721 | $ 1,087,484 | $ 1,068,163 | $ 1,011,469 | $ 989,804 | $ 1,000,340 | $ 1,007,336 |
| Adjusted revenue as a percentage of adjusted average capital | 37.9% | 38.1% | 38.0% | 38.7% | 37.8% | 37.7% | 36.6% | 32.7% |
| Adjusted interest expense | ||||||||
| GAAP interest expense | $ 12,623 | $ 11,742 | $ 12,038 | $ 12,267 | $ 11,705 | $ 9,047 | $ 8,144 | $ 7,285 |
| Interest expense related to interest rate swap agreement | -- | -- | -- | -- | -- | 108 | 149 | 233 |
| Adjustment to record taxes at 37% | (4,671) | (4,344) | (4,454) | (4,539) | (4,331) | (3,388) | (3,068) | (2,782) |
| Adjusted interest expense (after-tax) | $ 7,952 | $ 7,398 | $ 7,584 | $ 7,728 | $ 7,374 | $ 5,767 | $ 5,225 | $ 4,736 |
| For the Three Months Ended | ||||||||
| (Dollars in thousands, except per share data) |
Mar. 31, 2011 |
Dec. 31, 2010 |
Sept. 30, 2010 |
Jun. 30, 2010 |
Mar. 31, 2010 |
Dec. 31, 2009 |
Sept. 30, 2009 |
Jun. 30, 2009 |
| Adjusted return on capital | ||||||||
| Adjusted net income | $ 46,239 | $ 43,639 | $ 39,608 | $ 41,729 | $ 35,512 | $ 35,508 | $ 34,691 | $ 30,131 |
| Adjusted interest expense (after-tax) | 7,952 | 7,398 | 7,584 | 7,728 | 7,374 | 5,767 | 5,225 | 4,736 |
| Adjusted net income plus interest expense (after-tax) | $ 54,191 | $ 51,037 | $ 47,192 | $ 49,457 | $ 42,886 | $ 41,275 | $ 39,916 | $ 34,867 |
| Adjusted return on capital (2) | 18.0% | 18.1% | 17.4% | 18.5% | 17.0% | 16.7% | 16.0% | 13.9% |
| Economic profit | ||||||||
| Adjusted return on capital | 18.0% | 18.1% | 17.4% | 18.5% | 17.0% | 16.7% | 16.0% | 13.9% |
| Cost of capital (3) | 7.1% | 6.8% | 6.7% | 7.7% | 7.9% | 7.3% | 6.9% | 6.6% |
| Adjusted return on capital in excess of cost of capital | 10.9% | 11.3% | 10.7% | 10.8% | 9.1% | 9.4% | 9.1% | 7.3% |
| Adjusted average capital | $ 1,206,039 | $ 1,129,721 | $ 1,087,484 | $ 1,068,163 | $ 1,011,469 | $ 989,804 | $ 1,000,340 | $ 1,007,336 |
| Economic profit | $ 32,895 | $ 31,765 | $ 29,085 | $ 28,799 | $ 23,036 | $ 23,205 | $ 22,515 | $ 18,493 |
| Operating expenses | ||||||||
| GAAP salaries and wages | $ 16,071 | $ 15,034 | $ 16,133 | $ 14,050 | $ 16,110 | $ 16,395 | $ 16,862 | $ 16,515 |
| GAAP general and administrative | 5,633 | 6,762 | 7,208 | 5,920 | 6,542 | 7,633 | 7,869 | 6,894 |
| GAAP sales and marketing | 6,409 | 5,045 | 4,972 | 4,834 | 4,810 | 3,788 | 3,533 | 3,566 |
| Operating expenses | $ 28,113 | $ 26,841 | $ 28,313 | $ 24,804 | $ 27,462 | $ 27,816 | $ 28,264 | $ 26,975 |
| Operating expenses as a percentage of adjusted average capital | 9.3% | 9.5% | 10.4% | 9.3% | 10.9% | 11.2% | 11.3% | 10.7% |
| Percentage change in adjusted average capital compared to the same period in the prior year | 19.2% | 14.1% | 8.7% | 6.0% | 1.4% | -2.4% | -3.0% | 1.9% |
|
(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: | ||||||||
| For the Three Months Ended | ||||||||
|
Mar. 31, 2011 |
Dec. 31, 2010 |
Sept. 30, 2010 |
Jun. 30, 2010 |
Mar. 31, 2010 |
Dec. 31, 2009 |
Sept. 30, 2009 |
Jun. 30, 2009 |
|
| Average 30 year treasury rate | 4.5% | 4.1% | 3.8% | 4.4% | 4.6% | 4.3% | 4.2% | 4.1% |
| Adjusted pre-tax average cost of debt | 7.0% | 6.9% | 7.5% | 9.6% | 9.5% | 7.2% | 5.9% | 5.0% |
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.
The finance charge revenue we will recognize over the life of the loan 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.
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
- Our inability to accurately forecast and estimate the amount and timing of future collections could have a material adverse effect on results of operations.
- We may be unable to execute our business strategy due to current economic conditions.
- We may be unable to continue to access or renew funding sources and obtain capital needed to maintain and grow our business.
- The terms of our debt limit how we conduct our business.
- A violation of the terms of our asset-backed secured financing facilities or revolving secured warehouse facilities could have a materially adverse impact on our operations.
- The conditions of the U.S. and international capital markets may adversely affect lenders with which we have relationships, causing us to incur additional costs and reducing our sources of liquidity, which may adversely affect our financial position, liquidity and results of operations.
- Our substantial debt could negatively impact our business, prevent us from satisfying our debt obligations and adversely affect our financial condition.
- Due to competition from traditional financing sources and non-traditional lenders, we may not be able to compete successfully.
- We may not be able to generate sufficient cash flows to service our outstanding debt and fund operations and may be forced to take other actions to satisfy our obligations under such debt.
- Interest rate fluctuations may adversely affect our borrowing costs, profitability and liquidity.
- Reduction in our credit rating could increase the cost of our funding from, and restrict our access to, the capital markets and adversely affect our liquidity, financial condition and results of operations.
- We may incur substantially more debt and other liabilities. This could exacerbate further the risks associated with our current debt levels.
- The regulation to which we are or may become subject could result in a material adverse effect on our business.
- Adverse changes in economic conditions, the automobile or finance industries, or the non-prime consumer market could adversely affect our financial position, liquidity and results of operations, the ability of key vendors that we depend on to supply us with services, and our ability to enter into future financing transactions.
- Litigation we are involved in from time to time may adversely affect our financial condition, results of operations and cash flows.
- Changes in tax laws and the resolution of uncertain income tax matters could have a material adverse effect on our results of operations and cash flows from operations.
- Our operations are dependent on technology.
- Reliance on third parties to administer our ancillary product offerings could adversely affect our business and financial results.
- We are dependent on our senior management and the loss of any of these individuals or an inability to hire additional team members could adversely affect our ability to operate profitably.
- Our reputation is a key asset to our business, and our business may be affected by how we are perceived in the marketplace.
- The concentration of our 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
Since 1972,
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) | ||
| (In thousands, except per share data) | For the Three Months Ended March 31, | |
| 2011 | 2010 | |
| Revenue: | ||
| Finance charges | $ 106,503 | $ 89,663 |
| Premiums earned | 8,543 | 7,704 |
| Other income | 8,466 | 5,895 |
| Total revenue | 123,512 | 103,262 |
| Costs and expenses: | ||
| Salaries and wages | 16,071 | 16,110 |
| General and administrative | 5,633 | 6,542 |
| Sales and marketing | 6,409 | 4,810 |
| Provision for credit losses | 8,916 | 6,426 |
| Interest | 12,623 | 11,705 |
| Provision for claims | 6,599 | 5,212 |
| Total costs and expenses | 56,251 | 50,805 |
| Income from continuing operations before provision for income taxes | 67,261 | 52,457 |
| Provision for income taxes | 24,070 | 20,442 |
| Income from continuing operations | 43,191 | 32,015 |
| Discontinued operations | ||
| Loss from discontinued United Kingdom operations | -- | (5) |
| Provision for income taxes | -- | -- |
| Loss from discontinued operations | -- | (5) |
| Net income | $ 43,191 | $ 32,010 |
| Net income per share: | ||
| Basic | $ 1.59 | $ 1.03 |
| Diluted | $ 1.57 | $ 1.01 |
| Income from continuing operations per share: | ||
| Basic | $ 1.59 | $ 1.03 |
| Diluted | $ 1.57 | $ 1.01 |
| Loss from discontinued operations per share: | ||
| Basic | $ -- | $ -- |
| Diluted | $ -- | $ -- |
| Weighted average shares outstanding: | ||
| Basic | 27,196 | 31,042 |
| Diluted | 27,489 | 31,584 |
| CREDIT ACCEPTANCE CORPORATION | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (In thousands, except per share data) | As of | |
| March 31, 2011 | December 31, 2010 | |
| (Unaudited) | ||
| ASSETS: | ||
| Cash and cash equivalents | $ 4,585 | $ 3,792 |
| Restricted cash and cash equivalents | 81,370 | 66,536 |
| Restricted securities available for sale | 806 | 805 |
| Loans receivable (including $7,506 and $9,031 from affiliates as of March 31, 2011 and December 31, 2010, respectively) | 1,488,356 | 1,344,881 |
| Allowance for credit losses | (135,868) | (126,868) |
| Loans receivable, net | 1,352,488 | 1,218,013 |
| Property and equipment, net | 16,864 | 16,311 |
| Income taxes receivable | 708 | 12,002 |
| Other assets | 35,269 | 26,056 |
| Total Assets | $ 1,492,090 | $ 1,343,515 |
| LIABILITIES AND SHAREHOLDERS' EQUITY: | ||
| Liabilities: | ||
| Accounts payable and accrued liabilities | $ 97,194 | $ 75,297 |
| Revolving secured line of credit | 132,800 | 136,700 |
| Secured financing | 398,600 | 300,100 |
| Mortgage note | 4,465 | 4,523 |
| Senior notes | 350,455 | 244,344 |
| Deferred income taxes, net | 102,724 | 108,077 |
| Income taxes payable | 10,542 | -- |
| Total Liabilities | 1,096,780 | 869,041 |
| Shareholders' Equity: | ||
| Preferred stock, $.01 par value, 1,000 shares authorized, none issued | -- | -- |
| Common stock, $.01 par value, 80,000 shares authorized, 25,584 and 27,304 shares issued and outstanding as of March 31, 2011 and December 31, 2010, respectively | 256 | 273 |
| Paid-in capital | 34,878 | 30,985 |
| Retained earnings | 360,245 | 443,326 |
| Accumulated other comprehensive loss, net of tax of $40 and $64 as of March 31, 2011 and December 31, 2010, respectively | (69) | (110) |
| Total Shareholders' Equity | 395,310 | 474,474 |
| Total Liabilities and Shareholders' Equity | $ 1,492,090 | $ 1,343,515 |
CONTACT: Investor Relations:Source:Douglas W. Busk Senior Vice President and Treasurer (248) 353-2700 Ext. 4432 IR@creditacceptance.com
News Provided by Acquire Media