Michigan | 000-20202 | 38-1999511 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
25505 West Twelve Mile Road | ||||
Southfield, Michigan | 48034-8339 | |||
(Address of principal executive offices) | (Zip Code) |
Not Applicable | ||
Former name or former address, if changed since last report |
CREDIT ACCEPTANCE CORPORATION | |||
Date: July 29, 2016 | By: | /s/ Kenneth S. Booth | |
Kenneth S. Booth | |||
Chief Financial Officer | |||
Exhibit No. | Description | |||
99.1 | Press Release dated July 29, 2016. |
Forecasted Collection Percentage as of (1) | Current Forecast Variance From | ||||||||||||||||||||
Consumer Loan Assignment Year | June 30, 2016 | March 31, 2016 | December 31, 2015 | Initial Forecast | March 31, 2016 | December 31, 2015 | Initial Forecast | ||||||||||||||
2007 | 68.1 | % | 68.1 | % | 68.1 | % | 70.7 | % | 0.0 | % | 0.0 | % | -2.6 | % | |||||||
2008 | 70.4 | % | 70.3 | % | 70.3 | % | 69.7 | % | 0.1 | % | 0.1 | % | 0.7 | % | |||||||
2009 | 79.5 | % | 79.5 | % | 79.4 | % | 71.9 | % | 0.0 | % | 0.1 | % | 7.6 | % | |||||||
2010 | 77.5 | % | 77.5 | % | 77.4 | % | 73.6 | % | 0.0 | % | 0.1 | % | 3.9 | % | |||||||
2011 | 74.3 | % | 74.3 | % | 74.2 | % | 72.5 | % | 0.0 | % | 0.1 | % | 1.8 | % | |||||||
2012 | 73.3 | % | 73.3 | % | 73.2 | % | 71.4 | % | 0.0 | % | 0.1 | % | 1.9 | % | |||||||
2013 | 73.1 | % | 73.2 | % | 73.4 | % | 72.0 | % | -0.1 | % | -0.3 | % | 1.1 | % | |||||||
2014 | 72.0 | % | 72.2 | % | 72.6 | % | 71.8 | % | -0.2 | % | -0.6 | % | 0.2 | % | |||||||
2015 | 67.0 | % | 67.4 | % | 67.8 | % | 67.7 | % | -0.4 | % | -0.8 | % | -0.7 | % | |||||||
2016 (2) | 66.5 | % | 66.1 | % | — | 66.3 | % | 0.4 | % | — | 0.2 | % |
(1) | Represents the total forecasted collections we expect to collect on the Consumer Loans as a percentage of the repayments that we were contractually owed on the Consumer Loans at the time of assignment. Contractual repayments include both principal and interest. Forecasted collection rates are negatively impacted by canceled Consumer Loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates in the table. |
Forecasted Collection Percentage as of | Current Forecast Variance from | ||||||||||||||
2016 Consumer Loan Assignment Period | June 30, 2016 | March 31, 2016 | Initial Forecast | March 31, 2016 | Initial Forecast | ||||||||||
January 1, 2016 through March 31, 2016 | 67.1 | % | 66.1 | % | 66.5 | % | 1.0 | % | 0.6 | % | |||||
April 1, 2016 through June 30, 2016 | 65.7 | % | — | 66.1 | % | — | -0.4 | % |
(In millions) | For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||
Increase (decrease) in forecasted net cash flows | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Dealer loans | $ | (3.9 | ) | $ | 2.6 | $ | (13.5 | ) | $ | 7.4 | ||||||
Purchased loans | 10.4 | 5.9 | 13.3 | 10.5 | ||||||||||||
Total loans | $ | 6.5 | $ | 8.5 | $ | (0.2 | ) | $ | 17.9 |
As of June 30, 2016 | ||||||||||||
Consumer Loan Assignment Year | Forecasted Collection % | Advance % (1) | Spread % | % of Forecast Realized (2) | ||||||||
2007 | 68.1 | % | 46.5 | % | 21.6 | % | 99.7 | % | ||||
2008 | 70.4 | % | 44.6 | % | 25.8 | % | 99.4 | % | ||||
2009 | 79.5 | % | 43.9 | % | 35.6 | % | 99.4 | % | ||||
2010 | 77.5 | % | 44.7 | % | 32.8 | % | 99.0 | % | ||||
2011 | 74.3 | % | 45.5 | % | 28.8 | % | 98.4 | % | ||||
2012 | 73.3 | % | 46.3 | % | 27.0 | % | 95.0 | % | ||||
2013 | 73.1 | % | 47.6 | % | 25.5 | % | 83.9 | % | ||||
2014 | 72.0 | % | 47.7 | % | 24.3 | % | 64.6 | % | ||||
2015 | 67.0 | % | 44.5 | % | 22.5 | % | 34.7 | % | ||||
2016 (3) | 66.5 | % | 44.0 | % | 22.5 | % | 7.6 | % |
(1) | Represents advances paid to dealers on Consumer Loans assigned under our portfolio program and one-time payments made to dealers to purchase Consumer Loans assigned under our purchase program as a percentage of the initial balance of the Consumer Loans. Payments of dealer holdback and accelerated dealer holdback are not included. |
(2) | Presented as a percentage of total forecasted collections. |
(3) | The forecasted collection rate, advance rate and spread for 2016 Consumer Loans as of June 30, 2016 include both Consumer Loans that were in our portfolio as of March 31, 2016 and Consumer Loans assigned during the most recent quarter. The following table provides forecasted collection rates, advance rates and spreads for each of these segments: |
As of June 30, 2016 | |||||||||
2016 Consumer Loan Assignment Period | Forecasted Collection % | Advance % | Spread % | ||||||
January 1, 2016 through March 31, 2016 | 67.1 | % | 43.7 | % | 23.4 | % | |||
April 1, 2016 through June 30, 2016 | 65.7 | % | 44.3 | % | 21.4 | % |
Consumer Loan Assignment Year | Forecasted Collection % (1) | Advance % (1)(2) | Spread % | |||||||
Dealer loans | 2007 | 68.0 | % | 45.8 | % | 22.2 | % | |||
2008 | 70.8 | % | 43.3 | % | 27.5 | % | ||||
2009 | 79.4 | % | 43.4 | % | 36.0 | % | ||||
2010 | 77.6 | % | 44.4 | % | 33.2 | % | ||||
2011 | 74.3 | % | 45.2 | % | 29.1 | % | ||||
2012 | 73.2 | % | 46.1 | % | 27.1 | % | ||||
2013 | 73.2 | % | 47.1 | % | 26.1 | % | ||||
2014 | 71.9 | % | 47.2 | % | 24.7 | % | ||||
2015 | 66.2 | % | 43.4 | % | 22.8 | % | ||||
2016 | 65.6 | % | 42.2 | % | 23.4 | % | ||||
Purchased loans | 2007 | 68.4 | % | 49.1 | % | 19.3 | % | |||
2008 | 69.7 | % | 46.7 | % | 23.0 | % | ||||
2009 | 79.6 | % | 45.3 | % | 34.3 | % | ||||
2010 | 77.4 | % | 46.2 | % | 31.2 | % | ||||
2011 | 74.7 | % | 47.4 | % | 27.3 | % | ||||
2012 | 73.5 | % | 47.7 | % | 25.8 | % | ||||
2013 | 72.7 | % | 49.9 | % | 22.8 | % | ||||
2014 | 72.8 | % | 51.5 | % | 21.3 | % | ||||
2015 | 71.2 | % | 50.2 | % | 21.0 | % | ||||
2016 | 69.3 | % | 49.5 | % | 19.8 | % |
(1) | The forecasted collection rates and 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 dealers forfeiting their rights to dealer holdback. We transfer the dealer’s Consumer Loans from the dealer loan portfolio to the purchased loan portfolio in the period this forfeiture occurs. |
(2) | Represents advances paid to dealers on Consumer Loans assigned under our portfolio program and one-time payments made to dealers to purchase Consumer Loans assigned under our purchase program as a percentage of the initial balance of the Consumer Loans. Payments of dealer holdback and accelerated dealer holdback are not included. |
Year over Year Percent Change | ||||||
Three Months Ended | Unit Volume | Dollar Volume (1) | ||||
March 31, 2015 | 28.4 | % | 32.5 | % | ||
June 30, 2015 | 30.6 | % | 28.6 | % | ||
September 30, 2015 | 41.3 | % | 32.9 | % | ||
December 31, 2015 | 33.4 | % | 23.2 | % | ||
March 31, 2016 | 21.1 | % | 18.8 | % | ||
June 30, 2016 | 15.1 | % | 27.6 | % |
(1) | Represents advances paid to dealers on Consumer Loans assigned under our portfolio program and one-time payments made to dealers 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 June 30, | For the Six Months Ended June 30, | ||||||||||||||||
2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||
Consumer Loan unit volume | 76,520 | 66,480 | 15.1 | % | 178,071 | 150,334 | 18.5 | % | |||||||||
Active dealers (1) | 7,181 | 6,087 | 18.0 | % | 8,679 | 7,061 | 22.9 | % | |||||||||
Average volume per active dealer | 10.7 | 10.9 | -1.8 | % | 20.5 | 21.3 | -3.8 | % | |||||||||
Consumer Loan unit volume from dealers active both periods | 54,833 | 55,041 | -0.4 | % | 135,290 | 133,139 | 1.6 | % | |||||||||
Dealers active both periods | 4,192 | 4,192 | - | 5,210 | 5,210 | - | |||||||||||
Average volume per dealer active both periods | 13.1 | 13.1 | -0.4 | % | 26.0 | 25.6 | 1.6 | % | |||||||||
Consumer loan unit volume from dealers not active both periods | 21,687 | 11,439 | 89.6 | % | 42,781 | 17,195 | 148.8 | % | |||||||||
Dealers not active both periods | 2,989 | 1,895 | 57.7 | % | 3,469 | 1,851 | 87.4 | % | |||||||||
Average volume per dealer not active both periods | 7.3 | 6.0 | 21.7 | % | 12.3 | 9.3 | 32.3 | % |
(1) | Active dealers are dealers who have received funding for at least one Loan during the period. |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||
2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||
Consumer Loan unit volume from new dealers | 3,294 | 3,418 | -3.6 | % | 15,234 | 13,861 | 9.9 | % | |||||||||
New active dealers (1) | 799 | 754 | 6.0 | % | 1,842 | 1,611 | 14.3 | % | |||||||||
Average volume per new active dealer | 4.1 | 4.5 | -8.9 | % | 8.3 | 8.6 | -3.5 | % | |||||||||
Attrition (2) | -17.2 | % | -13.9 | % | -11.4 | % | -10.4 | % |
(1) | New active dealers are dealers who enrolled in our program and have received funding for their first dealer loan or purchased loan from us during the period. |
(2) | Attrition is measured according to the following formula: decrease in Consumer Loan unit volume from dealers 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. |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||
Dealer loan unit volume as a percentage of total unit volume | 77.8 | % | 87.7 | % | 80.4 | % | 88.2 | % | ||||
Dealer loan dollar volume as a percentage of total dollar volume (1) | 69.8 | % | 83.4 | % | 73.0 | % | 84.4 | % |
(1) | Represents advances paid to dealers on Consumer Loans assigned under our portfolio program and one-time payments made to dealers 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 June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||
(Dollars in millions, except per share data) | 2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||||||
GAAP average debt | $ | 2,445.4 | $ | 1,928.1 | 26.8 | % | $ | 2,320.0 | $ | 1,879.1 | 23.5 | % | ||||||||||
GAAP average shareholders' equity | $ | 1,036.1 | $ | 815.9 | 27.0 | % | $ | 993.5 | $ | 777.8 | 27.7 | % | ||||||||||
Average capital | $ | 3,481.5 | $ | 2,744.0 | 26.9 | % | $ | 3,313.5 | $ | 2,656.9 | 24.7 | % | ||||||||||
GAAP net income | $ | 84.9 | $ | 74.2 | 14.4 | % | $ | 159.3 | $ | 145.7 | 9.3 | % | ||||||||||
GAAP diluted weighted average shares outstanding | 20,382,804 | 20,951,832 | -2.7 | % | 20,433,524 | 20,949,048 | -2.5 | % | ||||||||||||||
GAAP net income per diluted share | $ | 4.17 | $ | 3.54 | 17.8 | % | $ | 7.80 | $ | 6.95 | 12.2 | % |
• | An increase in finance charges of 19.4% ($35.0 million) primarily due to growth in our loan portfolio. |
• | An increase in the provision for credit losses of 113.1% ($9.5 million) primarily due to a decline in Consumer Loan performance. |
• | An increase in operating expenses of 12.6% ($6.1 million) as discussed further below. |
• | An increase in interest expense of 24.0% ($4.7 million) primarily due to debt proceeds used to fund the growth in Consumer Loan assignment volume and stock repurchases. |
• | An increase in finance charges of 19.4% ($67.9 million) primarily due to growth in our loan portfolio. |
• | An increase in the provision for credit losses of 174.0% ($25.4 million) primarily due to a decline in Consumer Loan performance. |
• | An increase in operating expenses of 13.4% ($13.4 million) as discussed further below. |
• | An increase in interest expense of 34.5% ($11.9 million) primarily due to debt proceeds used to fund the growth in Consumer Loan assignment volume and stock repurchases. |
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||||||||
(Dollars in millions, except per share data) | 2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||||||
Adjusted average capital | $ | 3,535.7 | $ | 2,781.2 | 27.1 | % | $ | 3,365.6 | $ | 2,692.7 | 25.0 | % | ||||||||||
Adjusted net income | $ | 89.2 | $ | 75.5 | 18.1 | % | $ | 171.5 | $ | 147.6 | 16.2 | % | ||||||||||
Adjusted interest expense (after-tax) | $ | 15.7 | $ | 12.9 | 21.7 | % | $ | 30.2 | $ | 22.8 | 32.5 | % | ||||||||||
Adjusted net income plus interest expense (after-tax) | $ | 104.9 | $ | 88.4 | 18.7 | % | $ | 201.7 | $ | 170.4 | 18.4 | % | ||||||||||
Adjusted return on capital | 11.9 | % | 12.7 | % | -6.3 | % | 12.0 | % | 12.7 | % | -5.5 | % | ||||||||||
Cost of capital | 4.9 | % | 5.0 | % | -2.0 | % | 5.0 | % | 4.9 | % | 2.0 | % | ||||||||||
Economic profit | $ | 61.4 | $ | 53.4 | 15.0 | % | $ | 118.0 | $ | 105.0 | 12.4 | % | ||||||||||
GAAP diluted weighted average shares outstanding | 20,382,804 | 20,951,832 | -2.7 | % | 20,433,524 | 20,949,048 | -2.5 | % | ||||||||||||||
Adjusted net income per diluted share | $ | 4.38 | $ | 3.60 | 21.7 | % | $ | 8.39 | $ | 7.05 | 19.0 | % |
Year over Year Change in Economic Profit | |||||||
(In millions) | For the Three Months Ended June 30, 2016 | For the Six Months Ended June 30, 2016 | |||||
Increase in adjusted average capital | $ | 14.5 | $ | 26.2 | |||
Decrease (increase) in cost of capital | 1.0 | (1.9 | ) | ||||
Decrease in adjusted return on capital | (7.5 | ) | (11.3 | ) | |||
Increase in economic profit | $ | 8.0 | $ | 13.0 |
• | An increase in adjusted average capital of 27.1% due to growth in our loan portfolio primarily as a result of year-over-year growth in Consumer Loan assignment volume in recent years. |
• | A decrease in our adjusted return on capital of 80 basis points as a result of the following: |
• | A decline in the yield on our loan portfolio decreased the adjusted return on capital by 130 basis points primarily due to lower yields on more recent Consumer Loan assignments. |
• | Slower growth in operating expenses increased the adjusted return on capital by 50 basis points as operating expenses grew 12.6% while adjusted average capital grew 27.1%. The 12.6% increase ($6.1 million) in operating expenses included: |
• | An increase in general and administrative expense of $3.5 million, or 38.5%, primarily as a result of increases in legal fees and, to a lesser extent, information technology expenses. |
• | An increase in salaries and wages expense of $1.6 million, or 5.6%, was primarily the result of the following: |
• | An increase of $2.5 million in salaries and wages expense, excluding stock-based compensation expense, primarily related to an increase in the number of team members, including increases of $1.6 million for our support function, $0.6 million for our servicing function and $0.3 million for our originations function. |
• | A decrease of $0.9 million in stock-based compensation expense primarily due to declining expense recognition related to long-term stock awards granted in prior years. |
• | An increase in sales and marketing expense of $1.0 million, or 9.2%, primarily as a result of an increase in sales commissions related to growth in Consumer Loan assignment volume and an increase in the size of our sales force. |
• | An increase in adjusted average capital of 25.0% due to growth in our loan portfolio primarily as a result of year-over-year growth in Consumer Loan assignment volume in recent years. |
• | A decrease in our adjusted return on capital of 70 basis points as a result of the following: |
• | A decline in the yield on our loan portfolio decreased the adjusted return on capital by 100 basis points primarily due to lower yields on more recent Consumer Loan assignments. |
• | Slower growth in operating expenses increased the adjusted return on capital by 40 basis points as operating expenses grew 13.4% while adjusted average capital grew 25.0%. The 13.4% increase ($13.4 million) in operating expenses included: |
• | An increase in general and administrative expense of $6.5 million, or 35.7%, primarily as a result of increases in legal fees and information technology expenses. |
• | An increase in salaries and wages expense of $3.9 million, or 6.6%, was primarily the result of the following: |
• | An increase of $6.7 million in salaries and wages expense, excluding stock-based compensation expense, primarily related to an increase in the number of team members, including increases of $4.1 million for our support function, $1.8 million for our servicing function and $0.8 million for our originations function. |
• | A decrease of $2.8 million in stock-based compensation expense primarily due to amounts recorded in the prior year related to a change in the expected vesting period of performance-based stock awards and declining expense recognition related to long-term stock awards granted in prior years. |
• | An increase in sales and marketing expense of $3.0 million, or 13.3%, primarily as a result of an increase in sales commissions related to growth in Consumer Loan assignment volume and an increase in the size of our sales force. |
For the Three Months Ended | |||||||||||||||||||||||||
Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sept. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sept. 30, 2014 | ||||||||||||||||||
Adjusted revenue as a percentage of adjusted average capital (1) | 25.0 | % | 26.6 | % | 27.0 | % | 26.9 | % | 27.2 | % | 27.8 | % | 28.3 | % | 28.3 | % | |||||||||
Operating expenses as a percentage of adjusted average capital (1) | 6.2 | % | 7.3 | % | 6.6 | % | 6.9 | % | 7.0 | % | 7.9 | % | 7.7 | % | 6.7 | % | |||||||||
Adjusted return on capital (1) | 11.9 | % | 12.1 | % | 12.8 | % | 12.6 | % | 12.7 | % | 12.6 | % | 13.0 | % | 13.6 | % | |||||||||
Percentage change in adjusted average capital compared to the same period in the prior year | 27.1 | % | 22.7 | % | 24.5 | % | 23.6 | % | 18.4 | % | 17.7 | % | 12.8 | % | 12.9 | % |
(1) | Annualized |
• | A decline in the yield on our loan portfolio decreased adjusted revenue as a percentage of adjusted average capital by 110 basis points due to lower yields on more recent Consumer Loan assignments. |
• | A decrease in other income decreased adjusted revenue as a percentage of adjusted average capital by 40 basis points. The decrease was primarily due to a decrease in Global Positioning Systems with Starter Interrupt Devices ("GPS-SID") fee income resulting from a decrease in the number of units purchased by dealers from third party providers due to lower Consumer Loan assignment volume related to seasonality and a lower percentage of Consumer Loan assignments with GPS-SID units. |
• | A decrease in salaries and wages expense of $2.6 million, or 8.0%, which decreased operating expenses as a percentage of adjusted average capital by 70 basis points, primarily as a result of the following: |
• | A decrease of $1.4 million in cash-based incentive compensation expense primarily due to a decline in Company performance measures. |
• | A decrease of $1.2 million in payroll taxes as a result of the seasonal impact of both taxes that are subject to income limitations and the taxes on the annual vesting of stock awards during the first quarter of the year. |
• | A decrease in sales and marketing expense of $1.8 million, or 13.1%, which decreased operating expenses as a percentage of adjusted average capital by 40 basis points, primarily as a result of a decrease in sales commissions driven by lower Consumer Loan assignment volume related to seasonality. |
For the Three Months Ended | ||||||||||||||||||||||||||||||||
(Dollars in millions, except per share data) | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sept. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sept. 30, 2014 | ||||||||||||||||||||||||
Adjusted net income | ||||||||||||||||||||||||||||||||
GAAP net income | $ | 84.9 | $ | 74.4 | $ | 80.0 | $ | 74.0 | $ | 74.2 | $ | 71.5 | $ | 73.0 | $ | 74.0 | ||||||||||||||||
Floating yield adjustment (after-tax) | 4.8 | 8.3 | 4.5 | 5.1 | 2.1 | 1.2 | (3.4 | ) | (0.9 | ) | ||||||||||||||||||||||
Senior notes adjustment (after-tax) | (0.5 | ) | (0.5 | ) | (0.5 | ) | (0.5 | ) | (0.5 | ) | (0.5 | ) | (0.5 | ) | (0.5 | ) | ||||||||||||||||
Adjustment to record taxes at 37% | 0.0 | 0.1 | (0.7 | ) | 0.3 | (0.3 | ) | (0.1 | ) | 0.3 | (1.3 | ) | ||||||||||||||||||||
Adjusted net income | $ | 89.2 | $ | 82.3 | $ | 83.3 | $ | 78.9 | $ | 75.5 | $ | 72.1 | $ | 69.4 | $ | 71.3 | ||||||||||||||||
Adjusted net income per diluted share (1) | $ | 4.38 | $ | 4.02 | $ | 4.00 | $ | 3.77 | $ | 3.60 | $ | 3.44 | $ | 3.28 | $ | 3.26 | ||||||||||||||||
Diluted weighted average shares outstanding | 20,382,804 | 20,485,832 | 20,842,876 | 20,952,711 | 20,951,832 | 20,948,676 | 21,171,235 | 21,895,222 | ||||||||||||||||||||||||
Adjusted revenue | ||||||||||||||||||||||||||||||||
GAAP total revenue | $ | 238.5 | $ | 227.9 | $ | 217.8 | $ | 210.2 | $ | 203.1 | $ | 194.2 | $ | 185.1 | $ | 181.7 | ||||||||||||||||
Floating yield adjustment | 7.5 | 13.2 | 7.1 | 8.0 | 3.5 | 1.8 | (5.4 | ) | (1.3 | ) | ||||||||||||||||||||||
Provision for credit losses | (17.9 | ) | (22.1 | ) | (13.6 | ) | (13.3 | ) | (8.0 | ) | (6.2 | ) | 0.7 | (4.1 | ) | |||||||||||||||||
Provision for claims | (7.0 | ) | (6.8 | ) | (7.0 | ) | (8.4 | ) | (9.2 | ) | (8.6 | ) | (8.6 | ) | (9.4 | ) | ||||||||||||||||
Adjusted revenue | $ | 221.1 | $ | 212.2 | $ | 204.3 | $ | 196.5 | $ | 189.4 | $ | 181.2 | $ | 171.8 | $ | 166.9 | ||||||||||||||||
Adjusted average capital | ||||||||||||||||||||||||||||||||
GAAP average debt (2) | $ | 2,445.4 | $ | 2,194.6 | $ | 2,046.4 | $ | 1,983.6 | $ | 1,928.1 | $ | 1,830.1 | $ | 1,712.3 | $ | 1,613.2 | ||||||||||||||||
GAAP average shareholders' equity | 1,036.1 | 950.9 | 934.7 | 893.0 | 815.9 | 739.6 | 683.3 | 710.7 | ||||||||||||||||||||||||
Deferred debt issuance adjustment (3) | 16.2 | 16.2 | 17.7 | 17.9 | 17.8 | 15.8 | 14.6 | 13.4 | ||||||||||||||||||||||||
Senior notes adjustment | 12.9 | 13.4 | 14.0 | 14.4 | 15.0 | 15.5 | 16.0 | 16.5 | ||||||||||||||||||||||||
Floating yield adjustment | 25.1 | 20.3 | 12.4 | 8.1 | 4.4 | 3.2 | 4.2 | 6.7 | ||||||||||||||||||||||||
Adjusted average capital | $ | 3,535.7 | $ | 3,195.4 | $ | 3,025.2 | $ | 2,917.0 | $ | 2,781.2 | $ | 2,604.2 | $ | 2,430.4 | $ | 2,360.5 | ||||||||||||||||
Adjusted revenue as a percentage of adjusted average capital (4) | 25.0 | % | 26.6 | % | 27.0 | % | 26.9 | % | 27.2 | % | 27.8 | % | 28.3 | % | 28.3 | % | ||||||||||||||||
Adjusted interest expense (after-tax) | ||||||||||||||||||||||||||||||||
GAAP interest expense | $ | 24.3 | $ | 22.1 | $ | 21.1 | $ | 20.4 | $ | 19.6 | $ | 14.9 | $ | 13.9 | $ | 13.5 | ||||||||||||||||
Senior notes adjustment | 0.8 | 0.8 | 0.9 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | ||||||||||||||||||||||||
Adjusted interest expense (pre-tax) | 25.1 | 22.9 | 22.0 | 21.2 | 20.4 | 15.7 | 14.7 | 14.3 | ||||||||||||||||||||||||
Adjustment to record tax effect at 37% | (9.4 | ) | (8.4 | ) | (8.2 | ) | (7.9 | ) | (7.5 | ) | (5.8 | ) | (5.4 | ) | (5.3 | ) | ||||||||||||||||
Adjusted interest expense (after-tax) | $ | 15.7 | $ | 14.5 | $ | 13.8 | $ | 13.3 | $ | 12.9 | $ | 9.9 | $ | 9.3 | $ | 9.0 |
(1) | Net income per share is computed independently for each of the quarters presented. Therefore, the sum of quarterly net income per share information may not equal year-to-date net income per share. |
(2) | Amounts in prior year periods have been reclassified to reflect the adoption of Accounting Standards Update ("ASU") No. 2015-03, as amended by ASU No. 2015-15, which resulted in a reclassification of certain deferred debt issuance costs from other assets to GAAP average debt. |
(3) | The deferred debt issuance adjustment reverses the impact of the reclassification of deferred debt issuance costs from other assets to GAAP average debt as a result of the adoption of ASU No. 2015-03, as amended by ASU No. 2015-05. The net effect of this adjustment is to report adjusted average capital on the same basis as reported in our historical press releases. |
(4) | Annualized |
For the Three Months Ended | ||||||||||||||||||||||||||||||||
(Dollars in millions) | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sept. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sept. 30, 2014 | ||||||||||||||||||||||||
Adjusted return on capital | ||||||||||||||||||||||||||||||||
Adjusted net income | $ | 89.2 | $ | 82.3 | $ | 83.3 | $ | 78.9 | $ | 75.5 | $ | 72.1 | $ | 69.4 | $ | 71.3 | ||||||||||||||||
Adjusted interest expense (after-tax) | 15.7 | 14.5 | 13.8 | 13.3 | 12.9 | 9.9 | 9.3 | 9.0 | ||||||||||||||||||||||||
Adjusted net income plus interest expense (after-tax) | $ | 104.9 | $ | 96.8 | $ | 97.1 | $ | 92.2 | $ | 88.4 | $ | 82.0 | $ | 78.7 | $ | 80.3 | ||||||||||||||||
Adjusted return on capital (1) (3) | 11.9 | % | 12.1 | % | 12.8 | % | 12.6 | % | 12.7 | % | 12.6 | % | 13.0 | % | 13.6 | % | ||||||||||||||||
Economic profit | ||||||||||||||||||||||||||||||||
Adjusted return on capital | 11.9 | % | 12.1 | % | 12.8 | % | 12.6 | % | 12.7 | % | 12.6 | % | 13.0 | % | 13.6 | % | ||||||||||||||||
Cost of capital (2) (3) | 4.9 | % | 5.0 | % | 5.2 | % | 5.2 | % | 5.0 | % | 4.7 | % | 4.9 | % | 5.2 | % | ||||||||||||||||
Adjusted return on capital in excess of cost of capital | 7.0 | % | 7.1 | % | 7.6 | % | 7.4 | % | 7.7 | % | 7.9 | % | 8.1 | % | 8.4 | % | ||||||||||||||||
Adjusted average capital | $ | 3,535.7 | $ | 3,195.4 | $ | 3,025.2 | $ | 2,917.0 | $ | 2,781.2 | $ | 2,604.2 | $ | 2,430.4 | $ | 2,360.5 | ||||||||||||||||
Economic profit | $ | 61.4 | $ | 56.6 | $ | 57.4 | $ | 54.2 | $ | 53.4 | $ | 51.6 | $ | 48.9 | $ | 49.7 | ||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
GAAP salaries and wages | $ | 30.1 | $ | 32.7 | $ | 28.9 | $ | 28.6 | $ | 28.5 | $ | 30.4 | $ | 28.2 | $ | 22.0 | ||||||||||||||||
GAAP general and administrative | 12.6 | 12.1 | 9.8 | 9.8 | 9.1 | 9.1 | 8.9 | 8.7 | ||||||||||||||||||||||||
GAAP sales and marketing | 11.9 | 13.7 | 11.4 | 11.9 | 10.9 | 11.7 | 9.7 | 8.7 | ||||||||||||||||||||||||
Operating expenses | $ | 54.6 | $ | 58.5 | $ | 50.1 | $ | 50.3 | $ | 48.5 | $ | 51.2 | $ | 46.8 | $ | 39.4 | ||||||||||||||||
Operating expenses as a percentage of adjusted average capital (3) | 6.2 | % | 7.3 | % | 6.6 | % | 6.9 | % | 7.0 | % | 7.9 | % | 7.7 | % | 6.7 | % | ||||||||||||||||
Percentage change in adjusted average capital compared to the same period in the prior year | 27.1 | % | 22.7 | % | 24.5 | % | 23.6 | % | 18.4 | % | 17.7 | % | 12.8 | % | 12.9 | % |
(1) | Adjusted return on capital is defined as 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 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 | ||||||||||||||||||||||||
Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sept. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2014 | Sept. 30, 2014 | |||||||||||||||||
Average 30 year treasury rate | 2.6 | % | 2.7 | % | 3.0 | % | 3.0 | % | 2.8 | % | 2.5 | % | 3.0 | % | 3.2 | % | ||||||||
Adjusted pre-tax average cost of debt (3) | 4.1 | % | 4.0 | % | 4.3 | % | 4.2 | % | 4.2 | % | 3.4 | % | 3.4 | % | 3.5 | % |
(3) | Annualized |
For the Six Months Ended June 30, | ||||||||
(In millions, except share and per share data) | 2016 | 2015 | ||||||
Adjusted net income | ||||||||
GAAP net income | $ | 159.3 | $ | 145.7 | ||||
Floating yield adjustment (after-tax) | 13.1 | 3.3 | ||||||
Senior notes adjustment (after-tax) | (1.0 | ) | (1.0 | ) | ||||
Adjustment to record taxes at 37% | 0.1 | (0.4 | ) | |||||
Adjusted net income | $ | 171.5 | $ | 147.6 | ||||
Adjusted net income per diluted share | $ | 8.39 | $ | 7.05 | ||||
Diluted weighted average shares outstanding | 20,433,524 | 20,949,048 | ||||||
Adjusted average capital | ||||||||
GAAP average debt (1) | $ | 2,320.0 | $ | 1,879.1 | ||||
GAAP average shareholders' equity | 993.5 | 777.8 | ||||||
Deferred debt issuance adjustment (2) | 16.2 | 16.8 | ||||||
Senior notes adjustment | 13.2 | 15.2 | ||||||
Floating yield adjustment | 22.7 | 3.8 | ||||||
Adjusted average capital | $ | 3,365.6 | $ | 2,692.7 | ||||
Adjusted interest expense (after-tax) | ||||||||
GAAP interest expense | $ | 46.4 | $ | 34.5 | ||||
Senior notes adjustment | 1.6 | 1.6 | ||||||
Adjusted interest expense (pre-tax) | 48.0 | 36.1 | ||||||
Adjustment to record tax effect at 37% | (17.8 | ) | (13.3 | ) | ||||
Adjusted interest expense (after-tax) | $ | 30.2 | $ | 22.8 | ||||
Adjusted return on capital | ||||||||
Adjusted net income | $ | 171.5 | $ | 147.6 | ||||
Adjusted interest expense (after-tax) | 30.2 | 22.8 | ||||||
Adjusted net income plus interest expense (after-tax) | $ | 201.7 | $ | 170.4 | ||||
Adjusted return on capital (3) (5) | 12.0 | % | 12.7 | % | ||||
Economic profit | ||||||||
Adjusted return on capital | 12.0 | % | 12.7 | % | ||||
Cost of capital (4) (5) | 5.0 | % | 4.9 | % | ||||
Adjusted return on capital in excess of cost of capital | 7.0 | % | 7.8 | % | ||||
Adjusted average capital | $ | 3,365.6 | $ | 2,692.7 | ||||
Economic profit | $ | 118.0 | $ | 105.0 | ||||
Operating expenses | ||||||||
GAAP salaries and wages | $ | 62.8 | $ | 58.9 | ||||
GAAP general and administrative | 24.7 | 18.2 | ||||||
GAAP sales and marketing | 25.6 | 22.6 | ||||||
Operating expenses | $ | 113.1 | $ | 99.7 |
(1) | Amounts in prior year periods have been reclassified to reflect the adoption of Accounting Standards Update ("ASU") No. 2015-03, as amended by ASU No. 2015-15, which resulted in a reclassification of certain deferred debt issuance costs from other assets to GAAP average debt. |
(2) | The deferred debt issuance adjustment reverses the impact of the reclassification of deferred debt issuance costs from other assets to GAAP average debt as a result of the adoption of ASU No. 2015-03, as amended by ASU No. 2015-05. The net effect of this adjustment is to report adjusted average capital on the same basis as reported in our historical press releases. |
(3) | Adjusted return on capital is defined as adjusted net income plus adjusted interest expense after-tax divided by adjusted average capital. |
(4) | 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 Six Months Ended June 30, | ||||||
2016 | 2015 | |||||
Average 30 year treasury rate | 2.7 | % | 2.7 | % | ||
Adjusted pre-tax average cost of debt (5) | 4.1 | % | 3.8 | % |
(5) | Annualized |
• | 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 dependence on technology could have a material adverse effect on our business. |
• | Our use of electronic contracts could impact our ability to perfect our ownership or security interest in Consumer Loans. |
• | 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 dealers in several states could adversely affect us. |
• | Failure to properly safeguard confidential consumer and team member information could subject us to liability, decrease our profitability and damage our reputation. |
• | A small number of our shareholders have the ability to significantly influence matters requiring shareholder approval and such shareholders have 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. |
(Dollars in millions, except per share data) | For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenue: | |||||||||||||||
Finance charges | $ | 215.2 | $ | 180.2 | $ | 418.0 | $ | 350.1 | |||||||
Premiums earned | 10.9 | 12.6 | 21.7 | 24.7 | |||||||||||
Other income | 12.4 | 10.3 | 26.7 | 22.5 | |||||||||||
Total revenue | 238.5 | 203.1 | 466.4 | 397.3 | |||||||||||
Costs and expenses: | |||||||||||||||
Salaries and wages | 30.1 | 28.5 | 62.8 | 58.9 | |||||||||||
General and administrative | 12.6 | 9.1 | 24.7 | 18.2 | |||||||||||
Sales and marketing | 11.9 | 10.9 | 25.6 | 22.6 | |||||||||||
Provision for credit losses | 17.9 | 8.4 | 40.0 | 14.6 | |||||||||||
Interest | 24.3 | 19.6 | 46.4 | 34.5 | |||||||||||
Provision for claims | 7.0 | 9.2 | 13.8 | 17.8 | |||||||||||
Total costs and expenses | 103.8 | 85.7 | 213.3 | 166.6 | |||||||||||
Income before provision for income taxes | 134.7 | 117.4 | 253.1 | 230.7 | |||||||||||
Provision for income taxes | 49.8 | 43.2 | 93.8 | 85.0 | |||||||||||
Net income | $ | 84.9 | $ | 74.2 | $ | 159.3 | $ | 145.7 | |||||||
Net income per share: | |||||||||||||||
Basic | $ | 4.17 | $ | 3.54 | $ | 7.81 | $ | 6.96 | |||||||
Diluted | $ | 4.17 | $ | 3.54 | $ | 7.80 | $ | 6.95 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 20,379,557 | 20,946,827 | 20,407,379 | 20,934,790 | |||||||||||
Diluted | 20,382,804 | 20,951,832 | 20,433,524 | 20,949,048 |
(Dollars in millions, except per share data) | As of | ||||||
June 30, 2016 | December 31, 2015 | ||||||
ASSETS: | |||||||
Cash and cash equivalents | $ | 158.3 | $ | 6.3 | |||
Restricted cash and cash equivalents | 233.7 | 167.4 | |||||
Restricted securities available for sale | 46.6 | 48.3 | |||||
Loans receivable (including $16.8 and $12.6 from affiliates as of June 30, 2016 and December 31, 2015, respectively) | 3,812.0 | 3,345.1 | |||||
Allowance for credit losses | (276.9 | ) | (243.6 | ) | |||
Loans receivable, net | 3,535.1 | 3,101.5 | |||||
Property and equipment, net | 18.6 | 18.9 | |||||
Income taxes receivable | 10.0 | 10.0 | |||||
Other assets (1) | 22.1 | 20.2 | |||||
Total Assets | $ | 4,024.4 | $ | 3,372.6 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY: | |||||||
Liabilities: | |||||||
Accounts payable and accrued liabilities | $ | 142.3 | $ | 127.8 | |||
Revolving secured line of credit | — | 57.7 | |||||
Secured financing (1) | 1,997.7 | 1,470.1 | |||||
Senior notes (1) | 540.6 | 540.0 | |||||
Deferred income taxes, net | 265.7 | 248.9 | |||||
Total Liabilities | 2,946.3 | 2,444.5 | |||||
Shareholders' Equity: | |||||||
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued | — | — | |||||
Common stock, $.01 par value, 80,000,000 shares authorized, 20,328,362 and 20,132,972 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively | 0.2 | 0.2 | |||||
Paid-in capital | 128.0 | 100.8 | |||||
Retained earnings | 949.5 | 827.2 | |||||
Accumulated other comprehensive income (loss) | 0.4 | (0.1 | ) | ||||
Total Shareholders' Equity | 1,078.1 | 928.1 | |||||
Total Liabilities and Shareholders' Equity | $ | 4,024.4 | $ | 3,372.6 |
(1) | Prior year amounts have been reclassified to reflect the adoption of ASU No. 2015-03, as amended by ASU No. 2015-15, which resulted in a reclassification of certain deferred debt issuance costs from other assets to secured financing and senior notes. |