Credit Acceptance Corporation Reports Second Quarter Results
21 July 1999
Credit Acceptance Corporation Reports Second Quarter Results
SOUTHFIELD, Mich.--July 21, 1999--Credit Acceptance Corporation announced today that consolidated net income for the quarter ended June 30, 1999, was $13,771,000 or $.30 per diluted share, including a one-time, after-tax gain of $8,960,000 from the sale of the Company's credit reporting subsidiary.Excluding the one-time gain would result in consolidated net income of $4,811,000, or $.10 per diluted share, compared to $7,443,000 or $.16 per diluted share for the same period in 1998.
The Company's second quarter results include a $337,000 after tax write-down of the retained interest in securitization generated from the Company's first securitization completed in the third quarter of last year. The retained interest in securitization represents an accounting estimate based on several key variables including the amount and timing of collections on the underlying installment contracts receivable, the amount and timing of projected dealer holdback payments and interest costs. The Company regularly reviews the actual performance of these key variables against the assumptions used to record the retained interest. This evaluation has resulted in a reassessment of the timing and amount of collections on the installment contracts underlying the securitized advances.
During the quarter, the Company continued to improve the performance of its installment contracts receivable portfolio. Cash collections on installment contracts receivable, as a percent of average gross installment contracts receivable, were 29.3% for the six months ended June 30, 1999 compared with 24.1% for the same period in 1998. The Company's average annualized yield on its installment contract portfolio improved to 12.6% for the six months ended June 30, 1999 from 11.6% for the same period in 1998. The improvement in the average yield resulted from a decrease in the percentage of installment contracts which were in non-accrual status to 25.9% as of June 30, 1999 from 32.3% for the same period in 1998.
The Company originated $135,996,000 and $263,976,000 in new installment contracts for the three and six months ended June 30, 1999 compared with $153,515,000 and $356,480,000 for the same periods in 1998. The Company's originations during the second quarter of 1999 included an increase in originations generated by the Company's United Kingdom operations. These originations totaled $29,322,000 and $42,857,000 for the three and six month periods ended June 30, 1999 compared to $14,409,000 and $27,701,000 for the same periods in 1998.
The improved collection levels and reduced origination volume allowed the Company to reduce its overall debt levels. Total balance sheet debt decreased from $314,486,000 to $168,527,000 as of June 30, 1998 and 1999, respectively. The ratio of the Company's total debt to shareholders' equity decreased from 1.19 to 0.58 as of June 30, 1998 and 1999, respectively.
In addition to the second quarter earnings release, the Company made a number of additional announcements.
Effective today, an additional commercial bank has joined the syndicate which provides the Company's line of credit facility, thereby increasing the size of this facility from $110,000,000 to $125,000,000.
Also as of today, the Company completed its second securitization. Pursuant to this transaction, the Company contributed dealer advances having a net book value of approximately $62.4 million to a wholly-owned special purpose corporation (the "SPC") and received approximately $49.5 million in financing from an institutional investor. The financing bears interest at a floating rate equal to the thirty day commercial paper rate plus 70 basis points with a maximum rate of 7.5%, is anticipated to fully amortize within thirty months, and is secured by the dealer advances and the rights to collections on the related installment contracts receivable contributed to the SPC up to the sum of the related dealer advance and the Company's servicing fee. The transaction was structured on a very similar basis to the Company's first securitization. The Company will receive a monthly servicing fee equal to 4% of the collections of the contributed installment contracts receivable. Except for a servicing fee and payments due to dealers, the Company will not receive any portion of collections on the installment contracts receivable until the underlying indebtedness has been repaid in full. Using a unique securitization structure, the Company was able to fully preserve the rights of its dealers to future payments of dealer holdbacks. The securitization was structured by Bank of America Securities, LLC. The proceeds of the transaction were used to reduce indebtedness under the Company's line of credit facility leaving approximately $3.1 million outstanding under this facility.
During the quarter, the Company formed a new division of Credit Acceptance Corporation called AutoNet Finance.com which will market a sub-prime used vehicle leasing program. The Company has been evaluating leasing as an alternative for the sub-prime consumer for several years through a pilot program. The Company recently hired Keith P. McCluskey as President of this new division. Mr. McCluskey has over 22 years experience in the automotive retailing business through his ownership of McCluskey Chevrolet including ten years of experience in leasing vehicles to sub-prime consumers.
Also during the quarter, the Company completed a reorganization of its management team including the promotion of Michael W. Knoblauch to Chief Operating Officer. Mr. Knoblauch has been with the Company for seven years, most recently as Vice President - Collections. Mr. Knoblauch will continue to oversee the Company's collection operation and in addition will assume responsibility for sales and marketing.
Finally, the Company is pleased to announce the election of Thomas N. Tryforos to its Board of Directors. Mr. Tryforos is a General Partner of Prescott Investors, Inc., a private investment partnership located in Greenwich, Connecticut.
Credit Acceptance Corporation is a specialized financial services company which provides funding, receivables management, collection, sales training and related products and services to automobile dealers selling vehicles to consumers with limited access to traditional sources of consumer credit.
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
----------------------
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
Income Statements June 30 June 30
----------------- ----------------------- ---------------------
1999 1998 1999 1998
---------- ----------- ----------- -----------
REVENUE
Finance charges $ 19,797 $ 27,894 $ 39,202 $ 55,949
Premiums earned 2,331 2,630 4,776 5,553
Loss on sale of
advance receivables (517) -- (517) --
Other income 7,380 7,312 15,891 15,644
---------- ----------- ----------- -----------
Total revenue 28,991 37,836 59,352 77,146
COSTS AND EXPENSES
Operating expenses 14,461 14,019 29,010 28,640
Provision for credit
losses 2,084 4,666 4,220 10,462
Provision for claims 894 937 1,725 1,972
Interest 4,272 6,829 8,799 14,175
---------- ----------- ----------- -----------
Total costs and
expenses 21,711 26,451 43,754 55,249
---------- ----------- ----------- -----------
OPERATING INCOME 7,280 11,385 15,598 21,897
Gain on sale of
subsidiary 14,720 -- 14,720 --
Foreign exchange
gain(loss) (9) (7) (54) 5
Provision for
income taxes 8,220 3,935 11,114 7,572
---------- ----------- ----------- -----------
NET INCOME $ 13,771 $ 7,443 $ 19,150 $ 14,330
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Net income per common share:
Basic $ 0.30 $ 0.16 $ 0.41 $ 0.31
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Diluted $ 0.30 $ 0.16 $ 0.41 $ 0.30
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Weighted average
shares outstanding:
Basic 46,303,516 46,113,115 46,301,210 46,113,115
Diluted 46,545,290 47,410,190 46,625,575 47,179,931
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
----------------------
(Dollars in thousands)
As of June 30
Balance Sheets 1999 1998
-------------- --------- ---------
ASSETS
Cash and investments $ 25,382 $ 12,730
Installment contracts receivable 586,027 874,662
Allowance for credit losses (5,114) (9,174)
--------- ---------
Installment contracts receivable, net 580,913 865,488
Other assets, net 68,967 51,749
--------- ---------
TOTAL ASSETS $ 675,262 $ 929,967
--------- ---------
--------- ---------
LIABILITIES
Total debt $ 168,527 $ 314,486
Dealer holdbacks, net 171,765 306,539
Other liabilities 42,817 44,646
--------- ---------
TOTAL LIABILITIES $ 383,109 $ 665,671
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 292,153 264,296
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 675,262 $ 929,967
--------- ---------
--------- ---------
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
---------------------------
1999 1998
----------- -----------
Gross installment contracts receivable $ 695,074 $ 1,040,670
Unearned finance charges (100,232) (157,183)
Unearned insurance premiums, insurance
reserves and fees (8,815) (8,825)
----------- -----------
Installment contracts receivable $ 586,027 $ 874,662
----------- -----------
----------- -----------
Non-accrual installment
contracts as a percent
of total gross installment contracts 25.9% 32.3%
----------- -----------
----------- -----------
A summary of changes in gross installment contracts receivable is
as follows:
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Balance, beginning
of period $ 724,946 $ 1,143,469 $ 794,831 $ 1,254,858
Gross amount of
installment
contracts
accepted 135,996 153,515 263,976 356,480
Cash collections
on installment
contracts
receivable (104,481) (137,139) (215,984) (276,243)
Charge offs (56,738) (121,789) (139,281) (296,678)
Currency translation (4,649) 2,614 (8,468) 2,253
----------- ----------- ----------- -----------
Balance, end
of period $ 695,074 $ 1,040,670 $ 695,074 $ 1,040,670
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Dealer Holdbacks
----------------
The following table summarizes the composition of dealer
holdbacks:
As of June 30
----------------------
1999 1998
--------- ---------
Dealer holdbacks $ 554,183 $ 830,885
Less:
Advances (net of reserve of $16,090
and $25,274 at June 30, 1999 and 1998,
respectively (382,418) (524,346)
--------- ---------
Dealer holdbacks, net $ 171,765 $ 306,539
--------- ---------
--------- ---------
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
----------------------
(Dollars in thousands)
Reserves
--------
A summary of changes in the allowance for credit losses and the
reserve on advances is as follows:
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
Allowance for Credit Losses
---------------------------
Balance, beginning
of period $ 5,849 $ 10,473 $ 7,075 $ 13,119
Provision for
credit losses 183 875 375 1,905
Charge offs (893) (2,197) (2,276) (5,869)
Currency translation (25) 23 (60) 19
-------- -------- -------- --------
Balance, end
of period $ 5,114 $ 9,174 $ 5,114 $ 9,174
-------- -------- -------- --------
-------- -------- -------- --------
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
Reserve on Advances
-------------------
Balance, beginning
of period $ 16,884 $ 21,262 $ 19,954 $ 16,369
Provision for
advance losses 1,894 3,791 3,838 8,557
Advance reserve fees 4 15 8 167
Charge offs (2,626) -- (7,508) --
Currency translation (66) 206 (202) 181
-------- -------- -------- --------
Balance, end of period $ 16,090 $ 25,274 $ 16,090 $ 25,274
-------- -------- -------- --------
-------- -------- -------- --------