OREANDA-NEWS. August 01, 2016. Credit Acceptance Corporation (NASDAQ: CACC) (referred to as the “Company”, “Credit Acceptance”, “we”, “our”, or “us”) today announced consolidated net income of \\$84.9 million, or \\$4.17 per diluted share, for the three months ended June 30, 2016 compared to consolidated net income of \\$74.2 million, or \\$3.54 per diluted share, for the same period in 2015. For the six months ended June 30, 2016, consolidated net income was \\$159.3 million, or \\$7.80 per diluted share, compared to consolidated net income of \\$145.7 million, or \\$6.95 per diluted share, for the same period in 2015.

Adjusted net income, a non-GAAP financial measure, for the three months ended June 30, 2016 was \\$89.2 million, or \\$4.38 per diluted share, compared to \\$75.5 million, or \\$3.60 per diluted share, for the same period in 2015. For the six months ended June 30, 2016, adjusted net income was \\$171.5 million, or \\$8.39 per diluted share, compared to adjusted net income of \\$147.6 million, or \\$7.05 per diluted share, for the same period in 2015.

Webcast Details

We will host a webcast on July 29, 2016 at 5:00 p.m. Eastern Time to answer questions related to our second quarter results.  The webcast can be accessed live by visiting the “Investor Relations” section of our website at creditacceptance.com or by dialing 877-303-2904.  Additionally, a replay and transcript of the webcast will be archived in the “Investor Relations” section of our website.

Consumer Loan Metrics

Dealers assign retail installment contracts (referred to as “Consumer Loans”) to Credit Acceptance.  At the time a Consumer Loan is submitted to us for assignment, we forecast future expected cash flows from the Consumer Loan.  Based on the amount and timing of these forecasts and expected expense levels, an advance or one-time purchase payment is made to the related dealer at a price designed to maximize economic profit, a non-GAAP financial measure that considers our return on capital, our cost of capital and the amount of capital invested.

We use a statistical model to estimate the expected collection rate for each Consumer Loan at the time of assignment.  We continue to evaluate the expected collection rate of each Consumer Loan subsequent to assignment.  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 June 30, 2016, with the forecasts as of March 31, 2016, December 31, 2015, and at the time of assignment, segmented by year of assignment:

  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.

(2)    The forecasted collection rate for 2016 Consumer Loans as of June 30, 2016 includes 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 for each of these segments:

  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%

Consumer Loans assigned in 2009 through 2013 have yielded forecasted collection results materially better than our initial estimates, while Consumer Loans assigned in 2007 have yielded forecasted collection results materially worse than our initial estimates. For Consumer Loans assigned in 2008 and 2014 through 2016, actual results have been very close to our initial estimates. For the three months ended June 30, 2016, forecasted collection rates improved for Consumer Loans assigned in 2016, declined for Consumer Loans assigned in 2014 and 2015 and were generally consistent with expectations at the start of the period for all other assignment years presented. For the six months ended June 30, 2016, forecasted collection rates improved for Consumer Loans assigned in 2016, declined for Consumer Loans assigned in 2013 through 2015 and were generally consistent with expectations at the start of the period for all other assignment years presented.

The dollar amount of changes in forecasted collections, net of changes in forecasted dealer holdback payments is as follows:

(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 

The initial forecast for Consumer Loans assigned in 2016 was lower than the initial forecast for Consumer Loans assigned in 2015. The lower initial forecast reflects a change in the mix of Consumer Loan assignments received in 2016, including a longer average initial loan term.  The average initial term for Consumer Loans assigned in 2016 was 52.1 months as compared to 49.8 months for Consumer Loans assigned in 2015.

The initial forecast for Consumer Loans assigned in the second quarter of 2016 was lower than the initial forecast for Consumer Loans assigned in the first quarter of 2016. The lower initial forecast reflects a change in the mix of Consumer Loan assignments received during the second quarter of 2016, including a longer average initial loan term. The average initial term for Consumer Loans assigned in the second quarter of 2016 was 53.2 months as compared to 51.3 months for Consumer Loans assigned in the first quarter of 2016.

Forecasting collection rates accurately at loan inception is difficult.  With this in mind, we establish advance rates that are intended to allow us to achieve acceptable levels of profitability, even if collection rates are less than we initially forecast.

The following table presents forecasted Consumer Loan collection rates, advance rates, the spread (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of June 30, 2016.  All amounts, unless otherwise noted, 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 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%

The risk of a material change in our forecasted collection rate declines as the Consumer Loans age.  For 2012 and prior Consumer Loan assignments, the risk of a material forecast variance is modest, as we have currently realized in excess of 90% of the expected collections.  Conversely, the forecasted collection rates for more recent Consumer Loan assignments are less certain as a significant portion of our forecast has not been realized.

The spread between the forecasted collection rate and the advance rate has ranged from 21.4% to 35.6% over the last 10 years. The spread was at the high end of this range in 2009 and 2010, when the competitive environment was unusually favorable and much lower during other years (2007 and 2014 through 2016) when competition was more intense. The decline in the advance rate from 2015 to 2016 reflects the lower initial forecast on Consumer Loan assignments received in 2016, partially offset by an increase in purchased loans as a percentage of total unit volume.

The increase in the advance rate from the first quarter of 2016 to the second quarter of 2016 reflects a change in the mix of Consumer Loan assignments received during the second quarter of 2016, including an increase in purchased loans as a percentage of total unit volume. The decline in the spread from the first quarter of 2016 to the second quarter of 2016 was the result of the performance of Consumer Loans assigned during the first quarter of 2016 exceeding the performance of Consumer Loans assigned during the second quarter of 2016 and a change in the mix of Consumer Loan assignments received during the second quarter of 2016.

The following table presents forecasted Consumer Loan collection rates, advance rates, and the spread (the forecasted collection rate less the advance rate) as of June 30, 2016 for dealer loans and purchased loans separately.  All amounts are presented as a percentage of the initial balance of the Consumer Loan (principal + interest).

 Consumer Loan Assignment Year Forecasted Collection % (1) Advance % (1)(2) Spread %
Dealer loans2007 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 loans2007 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.

Although the advance rate on purchased loans is higher as compared to the advance rate on dealer loans, purchased loans do not require us to pay dealer holdback.

The spread on dealer loans increased from 22.8% in 2015 to 23.4% in 2016 as a result of the performance of 2015 Consumer Loans in our dealer loan portfolio, which declined from our initial estimates by a greater margin than those assigned to us in 2016, partially offset by a change in the mix of Consumer Loan assignments. The spread on purchased loans decreased from 21.0% in 2015 to 19.8% in 2016 as a result of the performance of 2015 Consumer Loans in our purchased loan portfolio, which exceeded our initial estimates by a greater margin than those assigned to us in 2016, and a change in the mix of Consumer Loan assignments.

Consumer Loan Volume

The following table summarizes changes in Consumer Loan assignment volume in each of the last six quarters as compared to the same period in the previous year:

  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.

Consumer Loan assignment volumes depend on a number of factors including (1) the overall demand for our product, (2) the amount of capital available to fund new loans, and (3) our assessment of the volume that our infrastructure can support.  Our pricing strategy is intended to maximize the amount of economic profit we generate, within the confines of capital and infrastructure constraints.

Unit and dollar volumes grew 15.1% and 27.6%, respectively, during the second quarter of 2016 as the number of active dealers grew 18.0% while average volume per active dealer declined 1.8%. Dollar volume grew faster than unit volume during the second quarter of 2016 due to an increase in the average advance paid per unit.  This increase was the result of an increase in the average size of the Consumer Loans assigned primarily due to an increase in the average initial loan term and an increase in purchased loans as a percentage of total unit volume, partially offset by a decrease in the average advance rate due to a decrease in the average initial forecast of the Consumer Loans assigned.

The following table summarizes the changes in Consumer Loan unit volume and active dealers:

 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2016 2015 % Change 2016 2015 % Change
Consumer Loan unit volume76,520  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 dealer10.7  10.9  -1.8% 20.5  21.3  -3.8%
            
Consumer Loan unit volume from dealers active both periods54,833  55,041  -0.4% 135,290  133,139  1.6%
Dealers active both periods4,192  4,192  - 5,210  5,210  -
Average volume per dealer active both periods13.1  13.1  -0.4% 26.0  25.6  1.6%
            
Consumer loan unit volume from dealers not active both periods21,687  11,439  89.6% 42,781  17,195  148.8%
Dealers not active both periods2,989  1,895  57.7% 3,469  1,851  87.4%
Average volume per dealer not active both periods7.3  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.

The following table provides additional information on the changes in Consumer Loan unit volume and active dealers:

 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 dealers3,294  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 dealer4.1  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.

Consumer Loans are assigned to us as either dealer loans through our portfolio program or purchased loans through our purchase program.  The following table summarizes the portion of our Consumer Loan volume that was assigned to us as dealer loans:

  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.

As of June 30, 2016 and December 31, 2015, the net dealer loans receivable balance was 78.7% and 83.5%, respectively, of the total net loans receivable balance.

Financial Results

 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 outstanding20,382,804 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% 

The increase in GAAP net income for the three months ended June 30, 2016, as compared to the same period in 2015, was primarily the result of the following:

  • 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.

 

The increase in GAAP net income for the six months ended June 30, 2016, as compared to the same period in 2015, was primarily the result of the following:

  • 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.


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.  Material adjustments are explained in the table footnotes and the subsequent “Floating Yield Adjustment” and “Senior Notes 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 six months ended June 30, 2016, compared to the same periods in 2015, include the following:

 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 capital11.9% 12.7% -6.3% 12.0% 12.7% -5.5% 
Cost of capital4.9% 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 outstanding20,382,804 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% 

Economic profit increased 15.0% and 12.4% for the three and six months ended June 30, 2016, as compared to the same periods in 2015.  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.  The following table summarizes the impact each of these components had on the increase in economic profit for the three and six months ended June 30, 2016, as compared to the same periods in 2015:

 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 capital1.0  (1.9)
Decrease in adjusted return on capital(7.5) (11.3)
Increase in economic profit\\$8.0  \\$13.0 

The increase in economic profit for the three months ended June 30, 2016, as compared to the same period in 2015, was primarily the result of the following:

  • 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.

The increase in economic profit for the six months ended June 30, 2016, as compared to the same period in 2015, was primarily the result of the following:

  • 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.


The following table shows adjusted revenue and operating expenses as a percentage of adjusted average capital, the adjusted return on capital, and the percentage change in adjusted average capital for each of the last eight quarters, compared to the same period in the prior year:

  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

The decrease in adjusted revenue as a percentage of adjusted average capital for the three months ended June 30, 2016, as compared to the three months ended March 31, 2016, was primarily due to the following:

  • 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.

The decrease in operating expenses as a percentage of adjusted average capital for the three months ended June 30, 2016, as compared to the three months ended March 31, 2016, was due to a decrease in operating expenses of \\$3.9 million, or 6.7%, related to the following:

  • 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.

The following tables provide a reconciliation of non-GAAP measures 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.  Certain amounts do not recalculate due to rounding.

  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

Floating Yield Adjustment

The purpose of this non-GAAP 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.

The finance charge revenue we will recognize over the life of the loan 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 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 the floating yield adjustment provides a more accurate reflection of the performance of our business, since both favorable and unfavorable changes in estimated cash flows are treated consistently.

Senior Notes Adjustment

On January 22, 2014, we issued \\$300.0 million of 6.125% senior notes due 2021 (the “2021 notes”) in a private offering exempt from registration under the Securities Act of 1933.  On February 21, 2014, we used the net proceeds from the 2021 notes, together with borrowings under our revolving credit facilities, to redeem in full the \\$350.0 million outstanding principal amount of our 9.125% senior notes due 2017 (the “2017 notes”).  The purpose of this non-GAAP adjustment is to modify our GAAP financial results to treat the issuance of the 2021 notes as a refinancing of the 2017 notes.

Under GAAP, the redemption of the 2017 notes in the first quarter of 2014 required us to recognize a pre-tax loss on extinguishment of debt of \\$21.8 million. Under our non-GAAP approach, the loss on extinguishment of debt and additional interest expense that was recognized for GAAP purposes for the quarter ended March 31, 2014 was deferred as a debt issuance cost and is being recognized ratably as interest expense over the term of the 2021 notes.  In addition, for adjusted average capital purposes, the impact of additional outstanding debt related to the one month lag from the issuance of the 2021 notes to the redemptions of the 2017 notes was deferred and is being recognized ratably over the term of the 2021 notes.

We believe the senior notes adjustment provides a more accurate reflection of the performance of our business, since we are recognizing the costs incurred with this transaction in a manner consistent with how we recognize the costs incurred when we periodically refinance our other debt facilities.

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, 2015, filed with the Securities and Exchange Commission on February 12, 2016, 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 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.

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 offered automobile dealers financing programs that enable them to sell vehicles to consumers, regardless of their credit history.  Our financing programs are 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 financing programs, 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 programs is that we provide 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 STATEMENTS OF INCOME
(UNAUDITED)
                                                                                                                                                                                                                             

(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 earned10.9  12.6  21.7  24.7 
Other income12.4  10.3  26.7  22.5 
Total revenue238.5  203.1  466.4  397.3 
Costs and expenses:       
Salaries and wages30.1  28.5  62.8  58.9 
General and administrative12.6  9.1  24.7  18.2 
Sales and marketing11.9  10.9  25.6  22.6 
Provision for credit losses17.9  8.4  40.0  14.6 
Interest24.3  19.6  46.4  34.5 
Provision for claims7.0  9.2  13.8  17.8 
Total costs and expenses103.8  85.7  213.3  166.6 
Income before provision for income taxes134.7  117.4  253.1  230.7 
Provision for income taxes49.8  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:       
Basic20,379,557  20,946,827  20,407,379  20,934,790 
Diluted20,382,804  20,951,832  20,433,524  20,949,048 

CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(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 equivalents233.7  167.4 
Restricted securities available for sale46.6  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, net3,535.1  3,101.5 
    
Property and equipment, net18.6  18.9 
Income taxes receivable10.0  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, net265.7  248.9 
Total Liabilities2,946.3  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, respectively0.2  0.2 
Paid-in capital128.0  100.8 
Retained earnings949.5  827.2 
Accumulated other comprehensive income (loss)0.4  (0.1)
Total Shareholders' Equity1,078.1  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.