Credit Acceptance Corp. Reports Third Quarter Results
22 October 1999
Credit Acceptance Corp. Reports Third Quarter Results
SOUTHFIELD, Mich.--Oct. 22, 1999--Credit Acceptance Corp. announced today a consolidated net loss for the quarter ended Sept. 30, 1999 of ($33,641,000) or (73 cents) per share compared to net income of $5,611,000 or 12 cents per diluted share for the same period in 1998.The loss for the quarter was generated as a direct result of a non-cash charge recorded for credit losses related to dealer advances, primarily with respect to loan pools originated in 1995, 1996, and 1997. The charge was necessary due to collections in affected loan pools falling below estimates indicating further impairment of advance balances associated with these pools. Based on these trends, the company recorded a pre-tax charge of $60.3 million. Of this amount, $47.3 million represents a provision for advance losses related to on-balance sheet advances. The remaining $13.0 million was recorded as a write down of the retained interest in securitization related to the company's July 1998 securitization.
Management's current analysis of collection results leads to a conclusion that the actual collection results will be below previous forecasts produced by its static pool model. In recent months, the static pool loss curves for business originated in 1995, 1996, and 1997 have shown a negative variance from the loss curves for the business originated in prior years. Management's analysis of the static pool data, after considering the effect of this less favorable trend, continues to indicate that the business originated in 1998 and 1999 is of higher quality than that written in the prior three years.
The company stated that it has obtained waivers from its lenders, including the holders of its senior notes and the banks under its credit agreement, of non-compliance with the fixed charge coverage ratio covenant in the agreements relating to the company's indebtedness. Such waivers are effective through Nov. 30, 1999, and the company intends to use this time to negotiate longer term amendments.
Donald A. Foss, chairman, president and chief executive officer of the company, stated that, "we remain pleased with the performance of installment contracts originated since the fourth quarter of 1997. CAC continues to be a strong company, and we believe we are well positioned to remain a leader in our industry."
During the quarter, the performance of the company's installment contracts receivable portfolio continued to improve, demonstrating the improved quality of 1998 and 1999 originations. Cash collections on installment contracts receivable, as a percent of average gross installment contracts receivable, were 43.5 percent for the nine months ended Sept. 30, 1999 compared with 36.1 percent for the same period in 1998. The company's average annualized yield on its installment contract portfolio improved to 12.7 percent for the nine months ended Sept. 30, 1999 from 11.5 percent 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 23.6 percent as of Sept. 30, 1999 from 32.1 percent for the same period in 1998.
The company originated $137,316,000 and $401,292,000 in new installment contracts for the three and nine months ended Sept. 30, 1999 compared with $121,487,000 and $477,967,000 for the same periods in 1998. The company's originations during 1999 include an increase in originations generated by the company's United Kingdom operations. These originations totaled $40,893,000 and $83,750,000 for the three and nine month periods ended Sept. 30, 1999 compared to $14,858,000 and $42,559,000 for the same periods in 1998.
Positive cash flow, which primarily resulted from collections on installment contracts receivable exceeding cash advances to dealers and payments of dealer holdbacks, allowed the company to continue to reduce its overall debt levels. Total balance sheet debt decreased from $244,599,000 to $158,361,000 as of Sept. 30, 1998 and 1999, respectively. Included in balance sheet debt as of Sept. 30, 1999 is $42.6 million related to the Company's July 1999 securitization which was structured and recorded as a secured financing. The ratio of the Company's total balance sheet debt to shareholders' equity decreased from .90 to .61 as of Sept. 30, 1998 and 1999, respectively.
Disclosure regarding forward-looking statements: Certain statements made above contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act regarding the company's future plans, objectives and expected performance. Specifically, statements above that are not historical facts, including statements accompanied by words such as "leads to", "believe" or "intends" are intended to identify forward-looking statements and convey the uncertainty of future events or outcomes. These include the potential for continued impairment of advance balances, the potential for lower than expected contract originations, the availability of financing to support the company's operations and the various other factors discussed in the company's annual and quarterly reports filed with the Securities and Exchange Commission.
Credit Acceptance Corp. 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 CORP.
Summary Financial Data
--------------------------
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -----------------
Income Statements 1999 1998 1999 1998
----------------- -------- -------- -------- --------
Revenue
Finance charges $ 18,783 $ 21,708 $ 57,985 $ 77,657
Premiums earned 3,034 2,741 7,810 8,294
Gain on sale of advanced
receivables -- 685 -- 685
Other income 6,106 8,094 21,997 23,738
-------- -------- -------- --------
Total revenue 27,923 33,228 87,792 110,374
Costs and Expenses
Operating expenses 12,612 14,706 41,622 43,346
Provision for credit
losses 49,565 3,438 53,785 13,900
Provision for claims 884 896 2,609 2,868
Valuation adjustment on
retained interest in
securitization 13,000 -- 13,517 --
Interest 3,673 5,923 12,472 20,098
-------- -------- -------- --------
Total costs and expenses 79,734 24,963 124,005 80,212
-------- -------- -------- --------
Operating Income (Loss) (51,811) 8,265 (36,213) 30,162
Gain on sale of
subsidiary -- -- 14,720 --
Foreign exchange gain
(loss) 62 (77) 8 (72)
Provision (credit) for
income taxes (18,108) 2,577 (6,994) 10,149
-------- -------- -------- --------
Net Income (Loss) $ (33,641)$ 5,611 $ (14,491) $ 19,941
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per
common share:
Basic ($0.73) $0.12 ($0.31) $0.43
-------- -------- -------- --------
-------- -------- -------- --------
Diluted ($0.73) $0.12 ($0.31) $0.42
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares
outstanding:
Basic 46,214,489 46,243,115 46,272,303 46,156,448
Diluted 46,214,489 46,897,388 46,272,303 47,085,750
CREDIT ACCEPTANCE CORP.
Summary Financial Data
-------------------------
(Dollars in thousands)
As of September 30
-----------------------
Balance Sheets 1999 1998
--------------- ---------- ----------
Assets
Cash and investments $ 19,231 $ 20,280
Installment contracts
receivable 575,161 733,788
Allowance for credit losses (4,765) (7,661)
---------- ----------
Installment contracts
receivable, net 570,396 726,127
Other assets, net 57,613 63,452
---------- ----------
Total Assets $ 647,240 $ 809,859
---------- ----------
---------- ----------
Liabilities
Total debt $ 158,361 $ 244,599
Dealer holdbacks, net 205,932 253,495
Other liabilities 22,757 40,111
---------- ----------
Total Liabilities $ 387,050 $ 538,205
---------- ----------
Total Shareholders' Equity 260,190 271,654
---------- ----------
Total Liabilities and
Shareholders' Equity $ 647,240 $ 809,859
---------- ----------
---------- ----------
CREDIT ACCEPTANCE CORP.
Summary Financial Data
------------------------
(Dollars in thousands)
Installment Contracts Receivable
---------------------------------
The following table summarizes the composition of installment
contracts receivable:
As of September 30
---------------------
1999 1998
---------- ----------
Gross installment contracts
receivable $ 682,978 $ 871,704
Unearned finance charges (99,171) (129,412)
Unearned insurance premiums, insurance
reserves and fees (8,646) (8,504)
---------- ----------
Installment contracts receivable $ 575,161 $ 733,788
---------- ----------
---------- ----------
Non-accrual installment contracts as a
percent of total gross installment
contracts 23.6% 32.1%
---------- ----------
---------- ----------
A summary of changes in gross installment contracts receivable is as
follows:
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
1999 1998 1999 1999
--------- --------- --------- ---------
Balance, beginning
period 695,074 $1,040,670 $ 794,831 $1,254,858
Gross amount of
installment contracts
accepted 137,316 121,487 401,292 477,967
Gross installment
contracts securitized -- (98,591) -- (98,591)
Cash collections on
installment contracts
receivable (99,063) (113,293) (315,047) (389,536)
Charge offs (55,874) (80,959) (195,155) (377,637)
Currency translation 5,525 2,390 (2,943) 4,643
--------- --------- --------- ---------
Balance, end of period 682,978 $ 871,704 $ 682,978 $ 871,704
--------- --------- --------- ---------
--------- --------- --------- ---------
Dealer Holdbacks
----------------
The following table summarizes the composition of dealer holdbacks:
As of September 30
--------------------
1999 1998
--------- ----------
Dealer holdbacks $ 544,355 $ 695,689
Less:
Advances (net of reserve of
$3,832 and $19,655 at
Sept. 30, 1999 and 1998
respectively) (338,423) (442,194)
--------- ----------
Dealer holdbacks, net $ 205,932 $ 253,495
--------- ----------
--------- ----------
CREDIT ACCEPTANCE CORP.
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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
------- ------- ------- -------
Allowance for Credit Losses
---------------------------
Balance, beginning of period $ 5,114 $ 9,174 $ 7,075 $13,119
Provision for credit losses 398 922 780 2,827
Allowance on securitized
installment contracts -- (1,107) -- (1,107)
Charge offs (786) (1,352) (3,062) (7,221)
Currency translation 39 24 (28) 43
------- ------- ------- -------
Balance, end of period $ 4,765 $ 7,661 $ 4,765 $ 7,661
------- ------- ------- -------
------- ------- ------- -------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
------- ------- ------- -------
Reserve on Advances
-------------------
Balance, beginning of period $16,090 $25,274 $19,954 $16,369
Provision for advance losses 49,167 2,516 53,005 11,073
Advance reserve fees -- 7 8 174
Charge offs (61,481) (8,240) (68,989) (8,240)
Currency translation 56 98 (146) 279
------- ------- ------- -------
Balance, end of period $ 3,832 $19,655 $ 3,832 $19,655
------- ------- ------- -------
------- ------- ------- -------