Credit Acceptance Corporation Reports Second Quarter Earnings
SOUTHFIELD, Mich.--July 18, 2001--Credit Acceptance Corporation announced today that consolidated net income for the quarter ended June 30, 2001 was $7,729,000 or $0.18 per diluted share compared to $6,153,000 or $0.14 per diluted share for the same period in 2000 representing 25.6% and 31.8% increases in net income and earnings per share, respectively.For the six-month period ended June 30, 2001, consolidated net income was $14,318,000 or $0.34 per diluted share compared to $11,879,000 or $0.26 per diluted share for the same period in 2000.
Earnings for the quarter ended June 30, 2001 include an after tax gain of $703,000 on an exercised clean up call for the July 1998 securitization, this was partially offset by a $422,000 after tax charge for an executive severance agreement. Excluding the impact of the non-recurring items discussed above, quarterly earnings per diluted share increased 27.0% from $0.14 in 2000 to $0.17 in 2001.
Analysis of Economic Profit or Loss
-----------------------------------
The Company's goal is to maximize the amount of economic profit per share generated. The table below presents the Company's financial results on an economic basis for the periods indicated. Economic profit or loss is a measurement of how efficiently the Company utilizes its capital and has been used internally by the Company since January 1, 2000 to evaluate its performance.
The Company's economic loss improved to ($1,268,000) or ($0.03) per diluted share for the quarter ended June 30, 2001 compared to ($2,524,000) or ($0.06) per diluted share for the same period in 2000. The improvement was due primarily to a reduction in the weighted average cost of capital and an improvement in the return on capital for the three months ended June 30, 2001 compared to the same period in 2000.
The Company's return on capital increased to 8.8% for the three months ended June 30, 2001 from 8.2% for the same period in 2000, due primarily to a reduction in the amount advanced to dealers as a percentage of the gross contract amount. The reduction in the weighted average cost of capital for the three months ended June 30, 2001 compared to the same period in 2000 was primarily the result of lower average interest rates on the Company's borrowings and an overall reduction in market rates during the period.
(Dollars in thousands, except Three Months Ended
per share data) June 30,
-----------------------------
2001 2000
------------ ------------
Reported income (1) $ 7,729 $ 6,153
Adjustments for non-recurring
items (2) (281) --
------------ ------------
Adjusted Income 7,448 6,153
Interest expense after tax 2,639 2,722
------------ ------------
Net operating profit after
tax ("NOPAT") 10,087 8,875
Average capital (3) $ 459,739 $ 433,595
Return on capital ("ROC")(4) 8.8% 8.2%
Weighted average cost of
capital ("WACC") (5) 9.9% 10.5%
------------ ------------
Spread (1.1%) (2.3%)
Economic loss (6) $ (1,268) $ (2,524)
Diluted weighted average shares
outstanding 42,752,287 44,863,668
Economic loss per share $ (0.03) $ (0.06)
(1) Consolidated income from financial statements included under
Summary Financial Data of this news release.
(2) After tax gain of $703,000 on an exercised clean up call for the
July 1998 securitization and a $422,000 after tax charge for an
executive severance agreement.
(3) Average amount of debt during the period plus the average amount
of equity during the period.
(4) NOPAT divided by average capital.
(5) The sum of: (i) the after tax cost of debt multiplied by the ratio
of average debt to average capital, plus (ii) the cost of equity
multiplied by the ratio of average equity to average capital. The
cost of equity equals (the 30 year Treasury bond rate plus 6% plus
two times the Company's funded debt to equity).
(6) Equals (ROC minus WACC) multiplied by average capital.
Summary of Operations
---------------------
The Company's consolidated originations totaled $213,469,000 and $442,735,000 for the three and six months ended June 30, 2001 compared with $146,926,000 and $326,204,000 for the same periods in 2000, representing an increase of 45.3% and 35.7% for the three and six month periods, respectively. The increases were primarily due to: (i) continued acceptance of the Company's internet origination system, (ii) strong production from the Company's field sales force, which was expanded in 2000 and (iii) favorable market conditions.
The Company's North American operations originated $171,523,000 and $352,771,000 in new installment contracts for the three and six months ended June 30, 2001 compared with $96,999,000 and $232,266,000 for the same periods in 2000, representing an increase of 76.8% and 51.9% for the three and six month periods, respectively. The increases reflect: (i) an increase in the average contract size to $10,310 and $9,596 for the three and six months ended June 30, 2001 compared with $8,027 and $8,006 for the same periods in 2000, (ii) an increase in the number of active dealers to 905 for the three months ended June 30, 2001 compared with 813 for the same period in 2000 and (iii) an increase in the average number of contracts originated per active dealer to 17.3 and 33.3 for the three and six months ended June 30, 2001 compared with 13.9 and 27.9 for the same periods in 2000.
The Company's United Kingdom operations originated $34,716,000 and $70,805,000 in new installment contracts for the three and six months ended June 30, 2001 compared with $37,526,000 and $67,681,000 for the same periods in 2000, representing a decrease of 7.5% and an increase of 4.6% for the three and six month periods, respectively. The decrease for the three month period ended June 30, 2001 reflects: (i) a decrease in the average number of contracts originated per active dealer to 17.3 for the quarter ended June 30, 2001 from 21.2 for the same period in 2000, which is primarily due to the Company discontinuing its relationship with certain dealers in the United Kingdom and (ii) a decrease in the average contract size to $12,721 for the quarter ended June 30, 2001 from $13,567 for the same period in 2000.
Cash collections on installment contracts receivable, as a percent of average gross installment contracts receivable, were 28.6% for the six months ended June 30, 2001 compared with 29.9% for the same period in 2000. The decline in the collection percentage is due to (i) a decrease in the collection percentage in the United Kingdom to 21.6% for the six months ended June 30, 2001 compared with 23.9% for the same period in 2000 and (ii) a decrease in the collection percentage in North America to 31.1% for the six months ended June 30, 2001 compared with 31.7% for the same period in 2000. The decline in the cash collection percentage is due to an increase in the average contract term to 35.6 months for the six months ended June 30, 2001 compared with 32.3 months for the same period in 2000.
The Company's average annualized yield, finance charges as a percentage of average net installment contracts receivable, on its installment contract portfolio declined to 13.6% for the six months ended June 30, 2001 from 14.0% for the same period in 2000. The decrease in the average yield primarily resulted from an increase in the average initial contract term as of June 30, 2001 compared to the same period in 2000.
The Company recorded a net loss on its automobile leasing operations of ($676,000) for the quarter ended June 30, 2001 compared with a net income of $52,000 for the same period in 2000. The net loss for the quarter was primarily due to an increase in the provision for credit losses of $1,056,000 for the quarter ended June 30, 2001 compared to the same period in 2000.
Originations for the Company's automobile leasing operations were $7,230,000 and $19,159,000 for the three and six months ended June 30, 2001 compared with $12,401,000 and $26,257,000 for the same periods in 2000, representing an decrease of 41.7% and 27.0% for the three and six month periods, respectively. The decreases are consistent with the Company's strategy to limit the amount of capital invested in this operation until additional portfolio data is obtained.
Guidance for 2001 ----------------- The Company also updated guidance for 2001: Estimated earnings per share $0.68 Retail installment contract origination growth 40% Average net installment contract receivables growth 15% Finance charge yield % 13% Lease origination growth (10%) Average debt balance $185-$190 million Average borrowing cost 8.5%
The Company intends to focus on retail installment contract growth in North America and expects to maintain modest lease origination volumes until additional data relating to residual values and forecasted collection rates are available, that will allow the Company to more precisely measure the profitability of the leasing product. The Company implemented several changes to its leasing product in the fourth quarter 2000. The Company expects to obtain the data required to evaluate these changes, as well as its residual values, in 2002.
Cautionary Statement Regarding Forward Looking Information
----------------------------------------------------------
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
----------------------
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
Income Statements 2001 2000 2001 2000
----------------- ---------- ---------- ---------- ----------
REVENUE
Finance charges $ 22,051 $ 20,282 $ 42,230 $ 40,299
Lease revenue 5,573 3,361 10,640 4,816
Gain on clean up
call of
securitization 1,082 -- 1,082 --
Other income 8,604 7,565 18,097 15,560
---------- ---------- ---------- ----------
Total revenue 37,310 31,208 72,049 60,675
COSTS AND EXPENSES
Operating expenses 14,984 12,685 29,218 25,198
Provision for
credit losses 2,705 2,576 5,720 5,023
Provision for
claims 655 716 1,438 1,492
Depreciation of
leased assets 3,169 1,555 6,098 2,373
Interest 4,016 4,167 7,821 8,360
---------- ---------- ---------- ----------
Total costs and
expenses 25,529 21,699 50,295 42,446
---------- ---------- ---------- ----------
OPERATING INCOME 11,781 9,509 21,754 18,229
Foreign exchange
loss 39 66 32 80
Provision for
income taxes 4,013 3,290 7,404 6,270
---------- ---------- ---------- ----------
NET INCOME $ 7,729 $ 6,153 $ 14,318 $ 11,879
========== ========== ========== ==========
Net income per common
share:
Basic $ 0.18 $ 0.14 $ 0.34 $ 0.26
========== ========== ========== ==========
Diluted $ 0.18 $ 0.14 $ 0.34 $ 0.26
========== ========== ========== ==========
Weighted average
shares outstanding:
Basic 42,020,176 44,532,373 42,229,955 44,967,741
Diluted 42,752,287 44,863,668 42,713,296 45,269,194
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
----------------------
(Dollars in thousands, except per share data)
Balance Sheets As of June 30
-------------- -----------------------------
2001 2000
------------ -----------
ASSETS
Cash and investments $ 20,413 $ 20,327
Installment contracts
receivable 676,920 575,155
Allowance for credit
losses (3,784) (4,184)
------------ -----------
Installment contracts
receivable, net 673,136 570,971
Investment in operating
leases, net 47,540 32,845
Other assets, net 41,767 49,073
------------ -----------
TOTAL ASSETS $ 782,856 $ 673,216
============ ===========
LIABILITIES
Total debt $ 196,403 $ 169,966
Dealer holdbacks, net 269,585 209,238
Other liabilities 47,223 35,621
------------ -----------
TOTAL LIABILITIES $ 513,211 $ 414,825
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 269,645 258,391
------------ -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 782,856 $ 673,216
============ ===========
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
----------------------
(Dollars in thousands)
Installment Contracts Receivable
--------------------------------
The following table summarizes the composition of installment
contracts receivable:
As of June 30
-----------------------------
2001 2000
------------ -----------
Gross installment contracts
receivable $ 807,281 $ 686,551
Unearned finance charges (122,855) (102,468)
Unearned insurance premiums,
insurance reserves and fees (7,506) (8,928)
------------ -----------
Installment contracts
receivable $ 676,920 $ 575,155
============ ===========
Non-accrual installment
contracts as a percent of
total gross installment
contracts 17.8% 20.0%
------------ -----------
A summary of changes in gross installment contracts receivable is as
follows:
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Balance, beginning of
period $ 741,530 $ 693,703 $ 674,402 $ 679,247
Gross amount of
installment contracts
accepted 206,239 134,525 423,576 299,947
Gross installment
contracts acquired
pursuant to clean up
call 2,918 -- 2,918 --
Cash collections on
installment contracts
receivable (104,980) (98,912) (212,100) (204,958)
Charge offs (36,674) (34,476) (69,483) (76,502)
Currency translation (1,752) (8,289) (12,032) (11,183)
---------- ---------- ---------- ----------
Balance, end of
period $ 807,281 $ 686,551 $ 807,281 $ 686,551
========== ========== ========== ==========
Investment in Operating Leases
------------------------------
The following table summarizes the composition of investment in
operating leases, net:
As of June 30
-----------------------------
2001 2000
------------ -----------
Gross leased vehicles $ 50,270 $ 30,178
Accumulated depreciation (8,557) (2,196)
Gross deferred costs 7,126 4,488
Accumulated amortization of
deferred costs (2,160) (611)
Lease payments receivable 3,193 1,605
------------ -----------
Investment in operating leases 49,872 33,464
Less: Reserve on investment
in operating leases (2,332) (619)
------------ -----------
Investment in operating
leases, net $ 47,540 $ 32,845
============ ===========
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
----------------------
(Dollars in thousands)
Investment in Operating Leases - (continued)
--------------------------------------------
A summary of changes in the investment in operating leases is as
follows:
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Balance, beginning of
period $ 49,720 $ 22,038 $ 44,944 $ 9,188
Gross operating leases
originated 7,230 12,401 19,159 26,257
Depreciation and
amortization of
operating leases (3,169) (1,555) (6,098) (2,373)
Lease payments due 5,359 3,456 10,461 5,065
Collections on
operating leases (4,730) (2,249) (9,245) (3,637)
Charge offs (452) (36) (993) (67)
Operating lease
liquidations (4,187) (591) (8,386) (969)
Currency translation 101 -- 30 --
---------- ---------- ---------- ----------
Balance, end of
period $ 49,872 $ 33,464 $ 49,872 $ 33,464
========== ========== ========== ==========
Reserves
--------
A summary of changes in the allowance for credit losses, the reserve
on advances, and the reserve on investment in operating leases is as
follows:
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Allowance for Credit
Losses
----------------------
Balance, beginning of
period $ 3,797 $ 4,435 $ 4,640 $ 4,742
Provision for loan
losses -- 130 -- 415
Charge offs -- (342) (799) (920)
Currency translation (13) (39) (57) (53)
---------- ---------- ---------- ----------
Balance, end of
period $ 3,784 $ 4,184 $ 3,784 $ 4,184
========== ========== ========== ==========
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Reserve on Advances
-------------------
Balance, beginning of
period $ 7,252 $ 6,292 $ 6,788 $ 4,329
Provision for advance
losses 1,130 1,927 2,910 3,918
Charge offs (314) (578) (1,514) (578)
Currency translation (18) 54 (134) 26
---------- ---------- ---------- ----------
Balance, end of
period $ 8,050 $ 7,695 $ 8,050 $ 7,695
========== ========== ========== ==========
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
----------------------
(Dollars in thousands)
Reserves - (continued)
----------------------
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Reserve on Investment
in Operating Leases
---------------------
Balance, beginning of
period $ 2,115 $ 203 $ 2,023 $ 91
Provision for lease
vehicle losses 1,575 519 2,810 690
Charge offs (1,358) (103) (2,501) (162)
---------- ---------- ---------- ----------
Balance, end of
period $ 2,332 $ 619 $ 2,332 $ 619
========== ========== ========== ==========
Dealer Holdbacks
----------------
The following table summarizes the composition of dealer holdbacks:
As of June 30
-----------------------------
2001 2000
------------ -----------
Dealer holdbacks $ 641,078 $ 546,553
Less: Advances (net of reserve
of $8,050 and $7,695 at
June 30, 2001 and 2000,
respectively) (371,493) (337,315)
------------ -----------
Dealer holdbacks, net $ 269,585 $ 209,238
============ ===========