Press Releases
Credit Acceptance Announces Third Quarter 2009 Earnings
SOUTHFIELD, Mich., Oct 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 $40.7 million, or $1.29 per diluted share, for the three months ended September 30, 2009 compared to consolidated net income of $20.7 million, or $0.67 per diluted share, for the same period in 2008. For the nine months ended September 30, 2009, consolidated net income was $105.9 million, or $3.38 per diluted share, compared to consolidated net income of $48.6 million, or $1.57 per diluted share, for the same period in 2008.
Adjusted net income, a non-GAAP financial measure, for the three months ended September 30, 2009 was $34.7 million, or $1.10 per diluted share, compared to $22.3 million, or $0.72 per diluted share, for the same period in 2008. For the nine months ended September 30, 2009, adjusted net income was $89.5 million, or $2.85 per diluted share, compared to adjusted net income of $59.2 million, or $1.91 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 and nine months ended September 30, 2009.
Consumer Loan Performance -------------------------
At the time of consumer loan acceptance or purchase, 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 level 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 inception. We continue to evaluate the expected collection rate of each consumer loan subsequent to inception. 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 September 30, 2009, with the forecasts as of June 30, 2009, as of December 31, 2008 and at the time of assignment, segmented by year of assignment:
Forecasted Collection Percentage as of
---------------------------------------------------
Consumer
Loan
Assignment September 30, June 30, December 31, Initial
Year 2009 2009 2008 Forecast
---------- ------------- -------- ------------ --------
2000 72.6% 72.6% 72.5% 72.8%
2001 67.4% 67.4% 67.4% 70.4%
2002 70.4% 70.5% 70.4% 67.9%
2003 73.7% 73.8% 73.8% 72.0%
2004 73.1% 73.3% 73.4% 73.0%
2005 73.9% 74.0% 74.1% 74.0%
2006 70.5% 70.5% 70.3% 71.4%
2007 68.4% 68.3% 67.9% 70.7%
2008 69.0% 68.4% 67.9% 69.7%
2009 (1) 73.9% 72.3% -- 71.1%
Variance in Forecasted Collection Percentage from
---------------------------------------------------
Consumer
Loan
Assignment June 30, December 31, Initial
Year 2009 2008 Forecast
---------- -------- ------------ --------
2000 0.0% 0.1% -0.2%
2001 0.0% 0.0% -3.0%
2002 -0.1% 0.0% 2.5%
2003 -0.1% -0.1% 1.7%
2004 -0.2% -0.3% 0.1%
2005 -0.1% -0.2% -0.1%
2006 0.0% 0.2% -0.9%
2007 0.1% 0.5% -2.3%
2008 0.6% 1.1% -0.7%
2009 (1) 1.6% -- 2.8%
1) The forecasted collection rate for 2009 consumer loans as of
September 30, 2009 includes both consumer loans that were in our
portfolio as of June 30, 2009 and consumer loans received during
the most recent quarter. The following table provides forecasted
collection rates for each of these segments:
Forecasted Collection
Percentage as of
---------------------
Sept. 30, June 30,
2009 Consumer Loan Assignment Period 2009 2009 Variance
------------------------------------ --------- --------- ---------
January 1, 2009 through
June 30, 2009 74.6% 72.3% 2.3%
July 1, 2009 through
September 30, 2009 72.2% -- --
Consumer loan performance for the three and nine months ended September 30, 2009 exceeded our forecasts at June 30, 2009 and December 31, 2008. As a general rule, for GAAP results, improvements in forecasted collection rates are recorded over time as yield adjustments. However, when forecasted collection rates improve on previously impaired loan pools, the improvement is recorded as a reversal of previously recorded loan loss provisions. During the three and nine months ended September 30, 2009, forecasted collection rates increased and a portion of this increase was recorded as a reversal of previously recorded loan provisions. This reversal positively impacted 2009 GAAP results and is primarily what caused GAAP net income to exceed adjusted net income for the first nine months of 2009.
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 consumer loans in our current portfolio will perform like historical consumer loans with similar attributes. * During 2008, we reduced our forecasts on consumer loans assigned in 2006 through 2008 as these consumer loans began to perform worse than expected. Additionally, we adjusted our estimated timing of future net cash flows to reflect recent trends relating to consumer loan prepayments. * During 2008, and during the first quarter of 2009, we reduced the expected collection rate on new consumer loan assignments. The reductions reflected both the experience to date on 2006 through 2008 consumer loans as well as an expectation that the external environment was likely to negatively impact consumer loan performance. * Our current forecasting methodology, when applied against historical data, produces a consistent forecasted collection rate as the consumer loans age.
Although current economic uncertainty increases the risk of poor consumer loan performance, we set prices at consumer 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 September 30, 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 September 30, 2009
-------------------------------------------------
Loan Assignment Forecasted % of Forecast
Year Collection Advance % Spread % Realized
--------------- ---------- --------- -------- -------------
2000 72.6% 47.9% 24.7% 99.5%
2001 67.4% 46.0% 21.4% 99.2%
2002 70.4% 42.2% 28.2% 98.8%
2003 73.7% 43.4% 30.3% 98.6%
2004 73.1% 44.0% 29.1% 98.1%
2005 73.9% 46.9% 27.0% 97.3%
2006 70.5% 46.6% 23.9% 91.1%
2007 68.4% 46.5% 21.9% 72.7%
2008 69.0% 44.6% 24.4% 47.2%
2009 73.9% 43.7% 30.2% 16.3%
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 September 30, 2009 for purchased loans and dealer loans separately:
Loan Assignment Forecasted
Year Collection % Advance % Spread %
--------------- ------------ --------- --------
Purchased loans 2007 68.5% 48.8% 19.7%
2008 68.0% 46.6% 21.4%
2009 73.8% 45.8% 28.0%
Dealer loans 2007 68.4% 45.9% 22.5%
2008 69.7% 43.5% 26.2%
2009 73.9% 43.2% 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 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 improving forecasted collection rates during the first nine months of 2009.
Access to Capital -----------------
During the third quarter of 2009, the maturity of the $325.0 million revolving secured warehouse facility was extended. The agreement was modified to provide that in the event that the facility is not renewed after the revolving period ends on August 23, 2010, and the borrower is in compliance with the terms and conditions of the agreement, the facility will amortize for a twelve month period ending August 23, 2011. During this time, the outstanding debt will be paid down through the collections on the contributed assets. At the end of the twelve month period, the balance of the facility will be due and payable. Additionally, the interest rate on borrowings under the facility was increased from the commercial paper rate plus 100 basis points to the commercial paper rate plus 500 basis points.
During the third quarter of 2009, the amount of the $50.0 million revolving secured warehouse facility was increased to $75.0 million. In addition, the expiration of the revolving period on the facility was extended from May 23, 2010 to August 31, 2011 and the maturity of the facility was extended from May 23, 2011 to August 31, 2012. Finally, the interest rate on the facility was increased from a floating rate equal to LIBOR plus 177.5 basis points to LIBOR plus 375.0 basis points. There were no other material changes to the terms of the facility.
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 dollar and unit volume in each of the last seven 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%
June 30, 2009 -30.2% -16.2%
September 30, 2009 -13.6% -5.7%
Dollar and unit volume declined during the first three quarters of 2009 as compared to the same periods in 2008 due to pricing changes implemented during the first nine months of 2008.
As a result of our success in renewing our debt facilities, we are now in position to begin growing year over year unit volumes. In September 2009, we implemented a pricing change that was intended to have a positive impact on unit volume, in exchange for modestly lower returns on capital. As a result of this change, unit volume increased by 9.0% in September 2009 as compared to September of 2008 with dollar volume increasing by 3.0%. 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 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
September 30,
-----------------------
%
2009 2008 change
------- ------- -------
Consumer loan unit volume 26,069 27,636 -5.7%
Active dealer-partners (1) 2,240 2,270 -1.3%
------- -------
Average volume per active dealer-partner 11.6 12.2 -4.9%
Consumer loan unit volume from
dealer-partners active both periods 17,818 19,529 -8.8%
Dealer-partners active both periods 1,293 1,293 0.0%
------- -------
Average volume per dealer-partners active
both periods 13.8 15.1 -8.8%
Consumer loan unit volume from new
dealer-partners 1,301 1,792 -27.4%
New active dealer-partners (2) 230 300 -23.3%
------- -------
Average volume per new active dealer-partners 5.7 6.0 -5.0%
Attrition (3) -29.3% -20.6%
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.
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 Nine Months
Ended Ended
September 30, September 30,
------------------ ------------------
2009 2008 2009 2008
------- ------- ------- -------
New purchased loan unit volume
as a percentage of total unit
volume 11.0% 30.8% 14.6% 31.6%
New purchased loan dollar volume
as a percentage of total
dollar volume 13.3% 36.1% 17.6% 36.5%
For the three and nine months ended September 30, 2009, new purchased loan unit and dollar volume as a percentage of total unit and dollar volume, respectively, decreased as compared to 2008 due to pricing changes implemented during 2008.
As of September 30, 2009 and December 31, 2008, the net purchased loan receivable balance was 28.3% and 30.3%, 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, 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 nine months ended September 30, 2009, compared to the same period in 2008, include the following:
Three Months Ended
September 30,
-------------------------------------
(Dollars in thousands, except
per share data) 2009 2008 % Change
-------------------------------------
Adjusted average capital $ 1,000,340 $ 1,031,581 -3.0%
Adjusted net income $ 34,691 $ 22,260 55.8%
Adjusted interest expense
(after-tax) $ 5,225 $ 7,081 -26.2%
Adjusted net income plus
interest expense (after-tax) $ 39,916 $ 29,341 36.0%
Adjusted return on capital 16.0% 11.4% 40.4%
Cost of capital 6.9% 6.5% 6.2%
Economic profit $ 22,515 $ 12,628 78.3%
GAAP diluted weighted average
shares outstanding 31,539,119 31,024,455 1.7%
Adjusted net income per diluted
share $ 1.10 $ 0.72 52.8%
Nine Months Ended
September 30,
-------------------------------------
(Dollars in thousands, except
per share data) 2009 2008 % Change
-------------------------------------
Adjusted average capital $ 1,001,690 $ 961,944 4.1%
Adjusted net income $ 89,536 $ 59,220 51.2%
Adjusted interest expense
(after-tax) $ 15,166 $ 19,996 -24.2%
Adjusted net income plus
interest expense (after-tax) $ 104,702 $ 79,216 32.2%
Adjusted return on capital 13.9% 11.0% 26.4%
Cost of capital 6.5% 6.5% 0.0%
Economic profit $ 55,894 $ 32,466 72.2%
GAAP diluted weighted average
shares outstanding 31,370,580 30,994,466 1.2%
Adjusted net income per diluted
share $ 2.85 $ 1.91 49.2%
Economic profit increased 78.3% for the three months ended September 30, 2009, and increased 72.2% for the nine months ended September 30, 2009, as compared to the same periods 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 September 30, 2009, adjusted average capital decreased by 3.0% and the adjusted return on capital increased from 11.4% to 16.0%, as compared to the same period in 2008. For the nine months ended September 30, 2009, adjusted average capital grew by 4.1% and the adjusted return on capital increased from 11.0% to 13.9%, as compared to the same period in 2008. The increase in the return on capital for the three and nine month periods was primarily due to the following:
* 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 forecasted collection rates during the first nine months of 2009. * The formation of VSC Re during the fourth quarter of 2008. The VSC Re earnings are recognized on an accrual basis and recorded as premiums earned less premium tax and provision for claims. Previously, earnings on vehicle service contracts, excluding our commissions, were recorded as other income and realized when profit sharing payments were received from third party administrators. The following table shows the after-tax earnings from VSC Re and profit sharing payments received and recorded as other income for the three and nine months ended September 30, 2009 and 2008:
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2009 2008 2009 2008
-------- -------- -------- --------
Premiums earned less premium
tax and provision for claims
(after-tax) $ 3,843 $ -- $ 6,288 $ --
Earnings from profit sharing
payments (after-tax) -- -- 74 1,404
-------- -------- -------- --------
$ 3,843 $ -- $ 6,362 $ 1,404
======== ======== ======== ========
The financial results from VSC Re for the three and nine months ended September 30, 2009 include $2.1 million of after-tax earnings related to a revision in our timing used to recognize premiums earned. We revised our timing in order to better match the timing of our revenue recognition with our expected costs of servicing our vehicle service contracts, which is based on our historical claims experience.
The increase in the return on capital for the nine months ended September 30, 2009 was also impacted by decreased operating expenses, as a percentage of adjusted average capital, due to:
* An increased percentage of loan origination costs being deferred due to an increase in the dealer loan unit volume as a percentage of total unit volume. * Lower sales commissions due to a reduction in unit volume. * Reduced expenses related to information technology.
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
------------------------------------------
Sept. 30, Jun. 30, Mar. 31, Dec. 31,
2009 2009 2009 2008
--------- --------- --------- ---------
Adjusted revenue as a
percentage of adjusted
average capital 36.6% 32.7% 30.7% 30.2%
========= ========= ========= =========
Operating expenses as a
percentage of adjusted
average capital 11.3% 10.7% 11.6% 11.1%
========= ========= ========= =========
Adjusted return on capital 16.0% 13.9% 12.0% 12.1%
========= ========= ========= =========
Percentage change in
adjusted average capital
compared to the same
period in the prior year -3.0% 1.9% 15.2% 30.4%
========= ========= ========= =========
Three Months Ended
------------------------------------------
Sept. 30, Jun. 30, Mar. 31, Dec. 31,
2008 2008 2008 2007
--------- --------- --------- ---------
Adjusted revenue as a
percentage of adjusted
average capital 28.9% 28.5% 30.7% 31.7%
========= ========= ========= =========
Operating expenses as a
percentage of adjusted
average capital 10.8% 11.3% 13.6% 14.7%
========= ========= ========= =========
Adjusted return on capital 11.4% 10.8% 10.7% 10.7%
========= ========= ========= =========
Percentage change in
adjusted average capital
compared to the same
period in the prior year 42.3% 39.6% 37.5% 35.5%
========= ========= ========= =========
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
September 30,
--------------------------
(Dollars in thousands, %
except per share data) 2009 2008 Change
------------ ------------ ------
Adjusted net income
-------------------
GAAP net income $ 40,734 $ 20,657 97.2%
Floating yield adjustment
(after-tax) (4,617) 1,183
Program fee yield adjustment
(after-tax) 152 506
Loss (gain) from discontinued
United Kingdom segment
(after-tax) 78 (326)
Interest expense related to
interest rate swap agreement
(after-tax) (94) (179)
Adjustment to record taxes at 37% (1,562) 419
------------ ------------
Adjusted net income $ 34,691 $ 22,260 55.8%
============ ============
Adjusted net income per
diluted share $ 1.10 $ 0.72 52.8%
-------------
Diluted weighted average
shares outstanding 31,539,119 31,024,455 1.7%
Adjusted average capital
------------------------
GAAP average debt $ 562,663 $ 706,637 -20.4%
GAAP average shareholders' equity 428,377 308,990 38.6%
Floating yield adjustment 10,134 18,002
Program fee yield adjustment (834) (2,048)
------------ ------------
Adjusted average capital $ 1,000,340 $ 1,031,581 -3.0%
============ ============
Adjusted return on capital
--------------------------
Adjusted net income $ 34,691 $ 22,260
Adjusted interest expense
(after-tax) 5,225 7,081
------------ ------------
Adjusted net income plus
interest expense (after-tax) $ 39,916 $ 29,341 36.0%
============ ============
Adjusted return on capital (1) 16.0% 11.4% 40.4%
============ ============
Economic profit
--------------
Adjusted return on capital 16.0% 11.4%
Cost of capital (2) 6.9% 6.5%
------------ ------------
Adjusted return on capital in
excess of cost of capital 9.1% 4.9%
Adjusted average capital $ 1,000,340 $ 1,031,581
------------ ------------
Economic profit $ 22,515 $ 12,628 78.3%
============ ============
Nine Months Ended
September 30,
------------------------
(Dollars in thousands, %
except per share data) 2009 2008 Change
----------- ----------- -------
Adjusted net income
-------------------
GAAP net income $ 105,920 $ 48,621 117.8%
Floating yield adjustment
(after-tax) (14,844) 8,954
Program fee yield adjustment
(after-tax) 675 1,703
Loss (gain) from discontinued
United Kingdom segment
(after-tax) 54 (330)
Interest expense related to
interest rate swap agreement
(after-tax) (454) (22)
Adjustment to record taxes at 37% (1,815) 294
----------- -----------
Adjusted net income $ 89,536 $ 59,220 51.2%
=========== ===========
Adjusted net income per
diluted share $ 2.85 $ 1.91 49.2%
-------------
Diluted weighted average
shares outstanding 31,370,580 30,994,466 1.2%
Adjusted average capital
------------------------
GAAP average debt $ 597,268 $ 659,193 -9.4%
GAAP average shareholders' equity 389,727 293,219 32.9%
Floating yield adjustment 15,735 12,135
Program fee yield adjustment (1,040) (2,603)
----------- -----------
Adjusted average capital $1,001,690 $ 961,944 4.1%
=========== ===========
Adjusted return on capital
--------------------------
Adjusted net income $ 89,536 $ 59,220
Adjusted interest expense
(after-tax) 15,166 19,996
----------- -----------
Adjusted net income plus
interest expense (after-tax) $ 104,702 $ 79,216 32.2%
=========== ===========
Adjusted return on capital (1) 13.9% 11.0% 26.4%
=========== ===========
Economic profit
---------------
Adjusted return on capital 13.9% 11.0%
Cost of capital (2) 6.5% 6.5%
----------- -----------
Adjusted return on capital in
excess of cost of capital 7.4% 4.5%
Adjusted average capital $1,001,690 $ 961,944
----------- -----------
Economic profit $ 55,894 $ 32,466 72.2%
=========== ===========
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 September 30,
2009 and 2008, the average 30 year treasury rate was 4.2%
and 4.5%, respectively. The adjusted pre-tax average cost of
debt was 5.9% and 6.4%, respectively. For the nine months
ended September 30, 2009 and 2008, the average 30 year
treasury rate was 3.9% and 4.5%, respectively. The adjusted
pre-tax average cost of debt was 5.4% and 6.4%,
respectively.
Quarter Ended
----------------------------------------------------------------------
Sept. 30, Jun. 30, Mar. 31, Dec. 31,
(Dollars in thousands) 2009 2009 2009 2008
----------- ----------- --------- -----------
Adjusted net income
-------------------
GAAP net income $ 40,734 $ 36,185 $ 29,001 $ 18,556
Floating yield adjustment
(after-tax) (4,617) (5,882) (4,345) 4,125
Program fee yield
adjustment (after-tax) 152 203 320 372
Loss (gain) from
discontinued United
Kingdom segment
(after-tax) 78 (35) 11 221
Interest expense
related to interest
swap agreement
(after-tax) (94) (147) (213) 242
Adjustment to record
taxes at 37% (1,562) (193) (60) 56
----------- ----------- --------- -----------
Adjusted net income $ 34,691 $ 30,131 $ 24,714 $ 23,572
=========== =========== ========= ===========
Adjusted revenue
----------------
GAAP total revenue $ 100,268 $ 92,373 $ 87,888 $ 86,296
Floating yield
adjustment (7,329) (9,336) (6,898) 6,546
Program fee yield
adjustment 242 322 507 590
Provision for credit
losses 3,433 3,766 (167) (14,252)
Provision for claims (5,148) (4,829) (4,809) (2,650)
----------- ----------- --------- -----------
Adjusted revenue $ 91,466 $ 82,296 $ 76,521 $ 76,530
=========== =========== ========= ===========
Adjusted average capital
------------------------
GAAP average debt $ 562,663 $ 604,863 $624,279 $ 665,635
GAAP average
shareholders' equity 428,377 388,242 352,562 331,402
Floating yield
adjustment 10,134 15,243 21,829 18,643
Program fee yield
adjustment (834) (1,012) (1,274) (1,609)
----------- ----------- --------- -----------
Adjusted average
capital $1,000,340 $1,007,336 $ 997,396 $1,014,071
=========== =========== ========= ===========
Adjusted revenue as a
percentage of adjusted
average capital 36.6% 32.7% 30.7% 30.2%
=========== =========== ========= ===========
Adjusted return on
capital
-------
Adjusted net income $ 34,691 $ 30,131 $ 24,714 $ 23,572
Adjusted interest
expense (after-tax) 5,225 4,736 5,205 6,994
----------- ----------- --------- -----------
Adjusted net income
plus interest
expense (after-tax) $ 39,916 $ 34,867 29,919 $ 30,566
=========== =========== ========= ===========
Adjusted return on
capital 16.0% 13.9% 12.0% 12.1%
=========== =========== ========= ===========
Operating expenses
------------------
GAAP salaries and wages $ 16,862 $ 16,515 $ 17,121 $ 17,788
GAAP general and
administrative 7,872 6,897 7,998 6,785
GAAP sales and marketing 3,533 3,566 3,921 3,446
----------- ----------- --------- -----------
Operating expenses $ 28,267 $ 26,978 $ 29,040 $ 28,019
=========== =========== ========= ===========
Operating expenses as a
percentage of adjusted
average capital 11.3% 10.7% 11.6% 11.1%
=========== =========== ========= ===========
Percentage change in
adjusted average
capital compared to
the same period in the
prior year -3.0% 1.9% 15.2% 30.4%
=========== =========== ========= ===========
Quarter Ended
----------------------------------------------------------------------
Sept. 30, Jun. 30, Mar. 31, Dec. 31,
(Dollars in thousands) 2008 2008 2008 2007
----------- ----------- --------- -----------
Adjusted net income
-------------------
GAAP net income $ 20,657 $ 10,344 $ 17,620 $ 12,484
Floating yield adjustment
(after-tax) 1,183 9,536 (1,765) 1,591
Program fee yield
adjustment (after-tax) 506 653 544 1,353
Loss (gain) from
discontinued United
Kingdom segment
(after-tax) (326) 35 (39) (219)
Interest expense
related to interest
swap agreement
(after-tax) (179) (375) 532 302
Adjustment to record
taxes at 37% 419 (2) (123) (639)
----------- ----------- --------- -----------
Adjusted net income $ 22,260 $ 20,191 $ 16,769 $ 14,872
=========== =========== ========= ===========
Adjusted revenue
----------------
GAAP total revenue $ 80,107 $ 75,005 $ 70,778 $ 63,232
Floating yield
adjustment 1,880 15,137 (2,800) 2,525
Program fee yield
adjustment 804 1,036 863 2,150
Provision for credit
losses (8,278) (20,782) (2,479) (6,345)
Provision for claims 13 (9) (5) (4)
----------- ----------- --------- -----------
Adjusted revenue $ 74,526 $ 70,387 $ 66,357 $ 61,558
=========== =========== ========= ===========
Adjusted average capital
------------------------
GAAP average debt $ 706,637 $ 686,148 $584,794 $ 515,031
GAAP average
shareholders' equity 308,990 295,771 274,897 256,838
Floating yield
adjustment 18,002 9,326 9,076 9,784
Program fee yield
adjustment (2,048) (2,626) (3,136) (4,011)
----------- ----------- --------- -----------
Adjusted average
capital $ 1,031,581 $ 988,619 $865,631 $ 777,642
============ =========== ========= ===========
Adjusted revenue as a
percentage of adjusted
average capital 28.9% 28.5% 30.7% 31.7%
=========== =========== ========= ===========
Adjusted return on
capital
------------------
Adjusted net income $ 22,260 $ 20,191 $ 16,769 $ 14,872
Adjusted interest
expense (after-tax) 7,081 6,602 6,313 5,928
----------- ----------- --------- -----------
Adjusted net income
plus interest
expense (after-tax) $ 29,341 $ 26,793 $ 23,082 $ 20,800
=========== =========== ========= ===========
Adjusted return on
capital 11.4% 10.8% 10.7% 10.7%
=========== =========== ========= ===========
Operating expenses
------------------
GAAP salaries and wages $ 16,766 $ 16,699 $ 17,740 $ 16,823
GAAP general and
administrative 6,975 6,627 7,124 6,729
GAAP sales and marketing 4,103 4,556 4,671 5,003
----------- ----------- --------- -----------
Operating expenses $ 27,844 $ 27,882 $ 29,535 $ 28,555
=========== =========== ========= ===========
Operating expenses as a
percentage of adjusted
average capital 10.8% 11.3% 13.6% 14.7%
=========== =========== ========= ===========
Percentage change in
adjusted average
capital compared to
the same period in the
prior year 42.3% 39.6% 37.5% 35.5%
=========== =========== ========= ===========
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 of $599. 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, after tax, is projected to be $0.8 million and $0.3 million in 2009 and 2010, respectively. We believe 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 acceptable 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 or may become 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
(UNAUDITED)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2009 2008 2009 2008
------------ ------------ ------------ ------------
Revenue:
Finance charges $ 84,489 $ 75,617 $ 242,339 $ 210,119
Premiums earned 11,596 12 25,257 65
Other income 4,183 4,478 12,933 15,706
------------ ------------ ------------ ------------
Total revenue 100,268 80,107 280,529 225,890
------------ ------------ ------------ ------------
Costs and expenses:
Salaries and wages 16,862 16,766 50,498 51,205
General and
administrative 7,872 6,975 22,767 20,726
Sales and marketing 3,533 4,103 11,020 13,330
Provision for
credit losses (3,591) 8,383 (7,217) 31,792
Interest 8,144 10,954 23,352 31,702
Provision for
claims 5,148 (13) 14,786 1
------------ ------------ ------------ ------------
Total costs
and expenses 37,968 47,168 115,206 148,756
------------ ------------ ------------ ------------
Operating income 62,300 32,939 165,323 77,134
Foreign currency
gain (loss) 3 (2) 9 (15)
------------ ------------ ------------ ------------
Income from
continuing
operations before
provision for
income taxes 62,303 32,937 165,332 77,119
Provision for
income taxes 21,491 12,606 59,358 28,828
------------ ------------ ------------ ------------
Income from
continuing
operations 40,812 20,331 105,974 48,291
------------ ------------ ------------ ------------
Discontinued
operations
(Loss) gain from
discontinued
United Kingdom
operations (13) 504 21 548
Provision for
income taxes 65 178 75 218
------------ ------------ ------------ ------------
(Loss) gain from
discontinued
operations (78) 326 (54) 330
------------ ------------ ------------ ------------
Net income $ 40,734 $ 20,657 $ 105,920 $ 48,621
============ ============ ============ ============
Net income per
common share:
Basic $ 1.33 $ 0.68 $ 3.47 $ 1.61
============ ============ ============ ============
Diluted $ 1.29 $ 0.67 $ 3.38 $ 1.57
============ ============ ============ ============
Income from
continuing
operations per
common share:
Basic $ 1.33 $ 0.67 $ 3.47 $ 1.60
============ ============ ============ ============
Diluted $ 1.29 $ 0.66 $ 3.38 $ 1.56
============ ============ ============ ============
(Loss) gain from
discontinued
operations per
common share:
Basic $ -- $ 0.01 $ -- $ 0.01
============ ============ ============ ============
Diluted $ -- $ 0.01 $ -- $ 0.01
============ ============ ============ ============
Weighted average
shares
outstanding:
Basic 30,658,969 30,310,053 30,540,274 30,223,586
Diluted 31,539,119 31,024,455 31,370,580 30,994,466
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
As of
--------------------------
Sept. 30, Dec. 31,
2009 2008
------------ ------------
ASSETS: (Unaudited)
Cash and cash equivalents $ 1,610 $ 3,154
Restricted cash and cash equivalents 76,019 80,333
Restricted securities available for sale 2,779 3,345
Loans receivable (including $13,351 and
$15,383 from affiliates as of
September 30, 2009 and December 31, 2008,
respectively) 1,180,340 1,148,752
Allowance for credit losses (123,240) (130,835)
------------ ------------
Loans receivable, net 1,057,100 1,017,917
------------ ------------
Property and equipment, net 18,801 21,049
Income taxes receivable 4,460 --
Other assets 17,132 13,556
------------ ------------
Total Assets $ 1,177,901 $ 1,139,354
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Accounts payable and accrued liabilities $ 81,106 $ 83,948
Line of credit 102,500 61,300
Secured financing 436,491 574,175
Mortgage note and capital lease
obligations 5,285 6,239
Deferred income taxes, net 100,911 75,060
Income taxes payable -- 881
------------ ------------
Total Liabilities 726,293 801,603
------------ ------------
Shareholders' Equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value, 80,000,000
shares authorized, 30,985,892 and
30,666,691 shares issued and outstanding
as of September 30, 2009 and
December 31, 2008, respectively 309 306
Paid-in capital 18,491 11,829
Retained earnings 434,098 328,178
Accumulated other comprehensive loss,
net of tax of $736 and $1,478 at
September 30, 2009 and December 31, 2008,
respectively (1,290) (2,562)
------------ ------------
Total Shareholders' Equity 451,608 337,751
------------ ------------
Total Liabilities and
Shareholders' Equity $ 1,177,901 $ 1,139,354
============ ============
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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