Credit Acceptance Announces Second Quarter 2013 Earnings

Southfield, Michigan, July 30, 2013 (GLOBE NEWSWIRE) -- Credit Acceptance Corporation (NASDAQ: CACC) (referred to as the"Company", "Credit Acceptance", "we", "our", or "us") todayannounced consolidated net income of $61.5 million, or $2.56 perdiluted share, for the three months ended June 30, 2013 compared toconsolidated net income of $56.6 million, or $2.18 per dilutedshare, for the same period in 2012.  For the six months endedJune 30, 2013, consolidated net income was $122.1 million, or $5.04per diluted share, compared to consolidated net income of $106.9million, or $4.10 per diluted share, for the same period in2012.

Adjusted net income, a non-GAAP financialmeasure, for the three months ended June 30, 2013 was $60.7million, or $2.53 per diluted share, compared to $54.3million, or $2.09 per diluted share, for the same period in2012.  For the six months ended June 30, 2013, adjusted netincome was $119.5 million, or $4.93 per diluted share, compared toadjusted net income of $103.3 million, or $3.96 per diluted share,for the same period in 2012.

Refer to our Form 10-Q, filed today with theSecurities and Exchange Commission, which will appear on ourwebsite at creditacceptance.com, for a complete discussion of theresults of operations and financial data for the three and sixmonths ended June 30, 2013.

Webcast Details

We will host a webcast on July 30, 2013 at 5:00p.m. Eastern Time to answer questions related to our second quarter2013 results.  The webcast can be accessed live by visitingthe "Investor Relations" section of our website at creditacceptance.com or bydialing 877-303-2904.  Additionally, a replay and transcriptof the webcast will be archived in the "Investor Relations" sectionof our website.

Consumer Loan Performance

Dealers assign retail installment contracts(referred to as "Consumer Loans") to Credit Acceptance.  Atthe time a Consumer Loan is submitted to us for assignment, weforecast future expected cash flows from the Consumer Loan. Based on the amount and timing of these forecasts and expectedexpense levels, an advance or one-time purchase payment is made tothe related dealer at a price designed to achieve an acceptablereturn on capital.  If Consumer Loan performance equals orexceeds our initial expectation, it is likely our target return oncapital will be achieved.

We use a statistical model to estimate the expected collectionrate for each Consumer Loan at the time of assignment.  Wecontinue to evaluate the expected collection rate of each ConsumerLoan subsequent to assignment.  Our evaluation becomes moreaccurate as the Consumer Loans age, as we use actual performancedata in our forecast.  By comparing our current expectedcollection rate for each Consumer Loan with the rate we projectedat the time of assignment, we are able to assess the accuracy ofour initial forecast.  The following table compares ourforecast of Consumer Loan collection rates as of June 30, 2013,with the forecasts as of March 31, 2013, as of December 31, 2012,and at the time of assignment, segmented by year of assignment:

    ForecastedCollection Percentage as of     Variance inForecasted Collection Percentage from  
 Consumer LoanAssignment Year   June 30, 2013     March 31,2013     December 31,2012     InitialForecast     March 31,2013     December 31,2012     InitialForecast  
2004   73.0 %   73.1 %   73.0 %   73.0 %   -0.1 %   0.0 %   0.0 %
2005   73.7 %   73.6 %   73.6 %   74.0 %   0.1 %   0.1 %   -0.3 %
2006   70.0 %   69.9 %   69.9 %   71.4 %   0.1 %   0.1 %   -1.4 %
2007   67.9 %   68.0 %   68.0 %   70.7 %   -0.1 %   -0.1 %   -2.8 %
2008   70.1 %   70.4 %   70.3 %   69.7 %   -0.3 %   -0.2 %   0.4 %
2009   79.2 %   79.5 %   79.5 %   71.9 %   -0.3 %   -0.3 %   7.3 %
2010   77.0 %   77.4 %   77.3 %   73.6 %   -0.4 %   -0.3 %   3.4 %
2011   74.2 %   74.2 %   74.1 %   72.5 %   0.0 %   0.1 %   1.7 %
2012   73.4 %   72.7 %   72.2 %   71.4 %   0.7 %   1.2 %   2.0 %
     2013 (1)   73.1 %   71.5 %   --     72.0 %   1.6 %   --     1.1 %

(1)     The forecasted collection rate for2013 Consumer Loans as of June 30, 2013 includes both ConsumerLoans that were in our portfolio as of March 31, 2013 and ConsumerLoans assigned during the most recent quarter.  The followingtable provides forecasted collection rates for each of thesesegments:
    ForecastedCollection Percentage as of        
 2013 Consumer LoanAssignment Period   June 30, 2013     March 31, 2013     Variance  
January 1, 2013 through March 31, 2013   73.9 %   71.5 %   2.4 %
April 1, 2013 through June 30, 2013   72.2 %   --     --  

Consumer Loans assigned in 2009 through 2013have yielded forecasted collection results materially better thanour initial estimates, while Consumer Loans assigned in 2006 and2007 have yielded forecasted collection results materially worsethan our initial estimates.  For all other assignment yearspresented, actual results have been very close to our initialestimates.  For the three months ended June 30, 2013,forecasted collection rates improved for Consumer Loans assigned in2012 and 2013, declined for Consumer Loans assigned in 2008 through2010 and were generally consistent with expectations at the startof the period for all other assignment years presented.  Forthe six months ended June 30, 2013, forecasted collection ratesimproved for Consumer Loans assigned in 2012 and 2013, declined forConsumer Loans assigned in 2008 through 2010 and were generallyconsistent with expectations at the start of the period for allother assignment years presented.  

During the second quarter of 2013, we enhancedour forecasting methodology.  Implementation of this enhancedforecast contributed to the collection rate variances noted aboveand reduced our net income for the three and six months ended June30, 2013.  Consolidated net income was reduced by $2.1 millionand adjusted net income was reduced by $0.4 million, for the threeand six months ended June 30, 2013. 

Forecasting collection rates accurately at loaninception is difficult.  With this in mind, we establishadvance rates that are intended to allow us to achieve acceptablelevels of profitability, even if collection rates are less than wecurrently forecast. 

The following table presents forecasted Consumer Loan collectionrates, advance rates, the spread (the forecasted collection rateless the advance rate), and the percentage of the forecastedcollections that had been realized as of June 30, 2013.  Allamounts, unless otherwise noted, are presented as a percentage ofthe initial balance of the Consumer Loan (principal +interest).  The table includes both dealer loans and purchasedloans.
    As of June 30,2013  
 Consumer LoanAssignment Year   ForecastedCollection %     Advance %(1)     Spread%     % of ForecastRealized (2)  
2004     73.0 %     44.0 %     29.0 %     99.7 %
2005     73.7 %     46.9 %     26.8 %     99.5 %
2006     70.0 %     46.6 %     23.4 %     99.2 %
2007     67.9 %     46.5 %     21.4 %     98.6 %
2008     70.1 %     44.6 %     25.5 %     98.0 %
2009     79.2 %     43.9 %     35.3 %     97.5 %
2010     77.0 %     44.7 %     32.3 %     87.7 %
2011     74.2 %     45.5 %     28.7 %     65.2 %
2012     73.4 %     46.3 %     27.1 %     35.7 %
2013     73.1 %     47.4 %     25.7 %     8.1 %

(1)     Represents advancespaid to dealers on Consumer Loans assigned under our portfolioprogram and one-time payments made to dealers to purchase ConsumerLoans assigned under our purchase program as a percentage of theinitial balance of the Consumer Loans.  Payments of dealerholdback and accelerated dealer holdback are not included.

(2)     Presented as apercentage of total forecasted collections.

The risk of a material change in our forecastedcollection rate declines as the Consumer Loans age.  For 2009and prior Consumer Loan assignments, the risk of a materialforecast variance is modest, as we have currently realized inexcess of 90% of the expected collections.  Conversely, theforecasted collection rates for more recent Consumer Loanassignments are less certain as a significant portion of ourforecast has not been realized.

The spread between the forecasted collectionrate and the advance rate declined during the 2005 through 2007period as we increased advance rates during this period in responseto a more difficult competitive environment.  During 2008 and2009, the spread increased as the competitive environment improvedand we reduced advance rates.  In addition, during 2009, thespread was positively impacted by better than expected ConsumerLoan performance.  During the 2010 through 2013 period, thespread decreased as we again increased advance rates in response tothe competitive environment.

The following table presents forecasted ConsumerLoan collection rates, advance rates, and the spread (theforecasted collection rate less the advance rate) as of June 30,2013 for dealer loans and purchased loans separately.  Allamounts are presented as a percentage of the initial balance of theConsumer Loan (principal + interest).
  Consumer Loan AssignmentYear   Forecasted Collection%     Advance % (1)     Spread %  
Dealer loans 2007   67.9 %   45.8 %   22.1 %
  2008   70.6 %   43.3 %   27.3 %
  2009   79.2 %   43.5 %   35.7 %
  2010   77.0 %   44.4 %   32.6 %
  2011   74.2 %   45.2 %   29.0 %
  2012   73.3 %   46.1 %   27.2 %
  2013   73.1 %   47.1 %   26.0 %
                     
Purchased loans   2007   68.2 %   49.1 %   19.1 %
  2008   69.3 %   46.7 %   22.6 %
  2009   79.2 %   45.3 %   33.9 %
  2010   76.9 %   46.4 %   30.5 %
  2011   74.6 %   48.0 %   26.6 %
  2012   74.2 %   49.1 %   25.1 %
  2013   73.9 %   51.2 %   22.7 %

(1)     Represents advancespaid to dealers on Consumer Loans assigned under our portfolioprogram and one-time payments made to dealers to purchase ConsumerLoans assigned under our purchase program as a percentage of theinitial balance of the Consumer Loans.  Payments of dealerholdback and accelerated dealer holdback are not included.

The advance rates presented for each ConsumerLoan assignment year change over time due to the impact oftransfers between dealer and purchased loans.  Under ourportfolio program, certain events may result in dealers forfeitingtheir rights to dealer holdback.  We transfer the dealer'sConsumer Loans from the dealer loan portfolio to the purchased loanportfolio in the period this forfeiture occurs. 

Although the advance rate on purchased loans is higher ascompared to the advance rate on dealer loans, purchased loans donot require us to pay dealer holdback. 

Consumer Loan Volume

The following table summarizes changes inConsumer Loan assignment volume in each of the last six quarters ascompared to the same period in the previous year:
    Year over YearPercent Change  
 Three MonthsEnded   Unit Volume     Dollar Volume(1)  
March 31, 2012   10.6 %   10.7 %
June 30, 2012   7.3 %   7.9 %
September 30, 2012   5.4 %   3.1 %
December 31, 2012   2.4 %   6.0 %
March 31, 2013   -2.9 %   -0.4 %
June 30, 2013   8.4 %   10.5 %

(1)     Represents advances paid to dealerson Consumer Loans assigned under our portfolio program and one-timepayments made to dealers to purchase Consumer Loans assigned underour purchase program.  Payments of dealer holdback andaccelerated dealer holdback are not included.

Consumer Loan assignment volumes depend on a number of factorsincluding (1) the overall demand for our product, (2) the amount ofcapital available to fund new loans, and (3) our assessment of thevolume that our infrastructure can support.  Our pricingstrategy is intended to maximize the amount of economic profit wegenerate, within the confines of capital and infrastructureconstraints. 

Unit and dollar volumes increased 8.4% and 10.5%, respectively,during the second quarter of 2013 as the number of active dealersgrew 21.6% while average volume per active dealer declined10.7%.  We believe the decline in volume per dealer is theresult of increased competition.  In addition, we believe adelay in federal income tax refunds in the current year contributedto both the decline in unit and dollar volumes during the firstquarter of 2013 and the increase in unit and dollar volumes duringthe second quarter of 2013.  For the six months ended June 30,2013, unit and dollar volumes increased 2.0% and 4.5%,respectively. 

The following table summarizes the changes in Consumer Loan unitvolume and active dealers:
    For the ThreeMonths Ended June 30,  
    2013     2012     %Change  
Consumer Loan unit volume     48,706       44,939       8.4 %
Active dealers (1)     4,484       3,687       21.6 %
Average volume per active dealer     10.9       12.2       -10.7 %

(1)     Active dealers are dealers who havereceived funding for at least one dealer loan or purchased loanduring the period.

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

    For the ThreeMonths Ended June 30,  
    2013     2012     %Change  
Consumer Loan unit volume from dealers activeboth periods     35,662       38,682       -7.8 %
Dealers active both periods     2,562       2,562       --  
Average volume per dealers active bothperiods     13.9       15.1       -7.8 %
                         
Consumer Loan unit volume from newdealers     2,649       2,085       27.1 %
New active dealers (1)     615       474       29.7 %
Average volume per new active dealers     4.3       4.4       -2.3 %
                         
Attrition (2)     -13.9 %     -12.1 %        

(1)     New active dealers are dealers whoenrolled in our program and have received funding for their firstdealer loan or purchased loan from us during the period.

(2)     Attrition is measured according tothe following formula:  decrease in Consumer Loan unit volumefrom dealers who have received funding for at least one dealer loanor purchased loan during the comparable period of the prior yearbut did not receive funding for any dealer loans or purchased loansduring the current period divided by prior year comparable periodConsumer Loan unit volume.

Consumer Loans are assigned to us as either dealer loans throughour portfolio program or purchased loans through our purchaseprogram.  The following table summarizes the portion of ourConsumer Loan volume that was assigned to us as dealer loans:
    For the ThreeMonths Ended June 30,     For the SixMonths Ended June 30,  
    2013     2012     2013     2012  
Dealer loan unit volume as a percentage oftotal unit volume   93.9 %   93.6 %   94.2 %   93.4 %
Dealer loan dollar volume as a percentage oftotal dollar volume (1)   92.2 %   92.1 %   92.7 %   91.7 %
                             

(1)     Represents advances paid to dealerson Consumer Loans assigned under our portfolio program and one-timepayments made to dealers to purchase Consumer Loans assigned underour purchase program.  Payments of dealer holdback andaccelerated dealer holdback are not included.

For the three and six months ended June 30,2013, dealer loan unit and dollar volume as a percentage of totalunit and dollar volume were generally consistent with the sameperiods in 2012.

As of June 30, 2013 and December 31, 2012, thenet dealer loans receivable balance was 89.2% and 88.0%,respectively, of the total net loans receivable balance.

Adjusted Financial Results

Adjusted financial results are provided to help shareholdersunderstand our financial performance.  The financial databelow is non-GAAP, unless labeled otherwise.  We use adjustedfinancial information internally to measure financial performanceand to determine incentive compensation.  The table belowshows our results following adjustments to reflect non-GAAPaccounting methods.  Material adjustments are explained in thetable footnotes and the subsequent "Floating Yield Adjustment"section.  Measures such as adjusted average capital, adjustednet income, adjusted net income per diluted share, adjusted netincome plus interest expense after-tax, adjusted return on capital,adjusted revenue, operating expenses, and economic profit are allnon-GAAP financial measures.  These non-GAAP financialmeasures should be viewed in addition to, and not as an alternativefor, our reported results prepared in accordance with GAAP.

Adjusted financial results for the three and six months endedJune 30, 2013, compared to the same periods in 2012, include thefollowing:
    For the ThreeMonths Ended June 30,     For the SixMonths Ended June 30,  
 (In millions, except share and pershare data)   2013     2012     % Change     2013     2012     % Change  
Adjusted average capital   $ 2,039.1     $ 1,720.9     18.5 %   $ 1,975.7     $ 1,661.8     18.9 %
Adjusted net income   $ 60.7     $ 54.3     11.8 %   $ 119.5     $ 103.3     15.7 %
Adjusted interest expense after-tax   $ 10.2     $ 9.8     4.1 %   $ 20.3     $ 19.4     4.6 %
Adjusted net income plus interest expenseafter-tax   $ 70.9     $ 64.1     10.6 %   $ 139.8     $ 122.7     13.9 %
Adjusted return on capital     13.9 %     14.9 %   -6.7 %     14.1 %     14.8 %   -4.7 %
Cost of capital     5.4 %     5.6 %   -3.6 %     5.5 %     5.7 %   -3.5 %
Economic profit   $ 43.1     $ 40.0     7.8 %   $ 85.4     $ 75.4     13.3 %
GAAP diluted weighted average sharesoutstanding     24,017,273       25,979,872     -7.6 %     24,220,403       26,083,112     -7.1 %
Adjusted net income per diluted share   $ 2.53     $ 2.09     21.1 %   $ 4.93     $ 3.96     24.5 %

Economic profit increased 7.8% and 13.3% for the three andsix months ended June 30, 2013, as compared to the same periods in2012.  Economic profit is a function of the return on capitalin excess of the cost of capital and the amount of capital investedin the business.  The following table summarizes the impacteach of these components had on the increase in economic profit forthe three and six months ended June 30, 2013, as compared to thesame periods in 2012:
    Year over YearChange in Economic Profit  
(In millions)   For the ThreeMonths EndedJune 30, 2013     For the SixMonths EndedJune 30, 2013  
Increase in adjusted average capital   $ 7.4     $ 14.3  
Decrease in cost of capital     0.9       2.0  
Decrease in adjusted return on capital     (5.2 )     (6.3 )
Increase in economic profit   $ 3.1     $ 10.0  

The increase in economic profit for the three months ended June30, 2013, as compared to the same period in 2012, was the result ofthe following:
  • An increase in adjusted average capital of 18.5% due to growthin our loan portfolio primarily as a result of growth in newConsumer Loan assignments in recent years, which resulted in thedollar volume of new Consumer Loan assignments exceeding theprincipal collected on our loan portfolio.  The growth in newConsumer Loan assignments in recent years was the result of anincrease in active dealers, partially offset by a decline in volumeper active dealer. 
  • A decrease in our cost of capital of 20 basis points primarilydue to a decline in the average cost of debt resulting from thechange in the mix of our outstanding debt.
  • A decrease in our adjusted return on capital of 100 basispoints primarily as a result of the following:
  • A decline in the yield on our loan portfolio decreased theadjusted return on capital by 140 basis points due to higheradvance rates on new Consumer Loan assignments.
  • An increase in other income increased the adjusted return oncapital by 30 basis points primarily due to an increase in vehicleservice contract profit sharing income as a result of a new profitsharing arrangement we entered into with one of our third partyproviders during 2012 and an increase in Global Positioning Systemswith Starter Interrupt Devices ("GPS-SID") fee income resultingfrom an increase in the fee earned per unit partially offset by adecrease in the number of units purchased by dealers from thirdparty providers. 
  • Slower growth in operating expenses increased the adjustedreturn on capital by 20 basis points as operating expenses grew13.4% while adjusted average capital grew 18.5%.  The 13.4%increase ($4.7 million) in operating expenses included:
  • An increase in salaries and wages expense of $2.7 million, or13.2%, comprised of the following:
  • An increase of $3.3 million, excluding stock-basedcompensation, related to increases of $1.6 million for ourservicing function, $1.6 million for our support function and $0.1million for our originations function.
  • A decrease of $0.6 million in stock-based compensationexpense.
  • An increase in general and administrative expenses of $1.0million, or 13.7%, primarily as a result of increases related tolegal fees and data processing.
  • An increase in sales and marketing expense of $1.0 million, or13.3%, primarily as a result of an increase in dealer supportproducts and services and the increase in the size of our fieldsales force.

The increase in economic profit for the six months ended June30, 2013, as compared to the same period in 2012, was the result ofthe following:
  • An increase in adjusted average capital of 18.9% due to growthin our loan portfolio primarily as a result of growth in newConsumer Loan assignments in recent years, which resulted in thedollar volume of new Consumer Loan assignments exceeding theprincipal collected on our loan portfolio.  The growth in newConsumer Loan assignments in recent years was the result of anincrease in active dealers, partially offset by a decline in volumeper active dealer. 
  • A decrease in our cost of capital of 20 basis points primarilydue to a decline in the average cost of debt resulting from thechange in the mix of our outstanding debt.
  • A decrease in our adjusted return on capital of 70 basis pointsprimarily as a result of the following:
  • A decline in the yield on our loan portfolio decreased theadjusted return on capital by 120 basis points due to higheradvance rates on new Consumer Loan assignments.
  • An increase in other income increased the adjusted return oncapital by 30 basis points primarily due to an increase in GPS-SIDfee income resulting from an increase in the fee earned per unitpartially offset by a decrease in the number of units purchased bydealers from third party providers and an increase in vehicleservice contract profit sharing income as a result of a new profitsharing arrangement we entered into with one of our third partyproviders during 2012.
  • Slower growth in operating expenses increased the adjustedreturn on capital by 30 basis points as operating expenses grew12.8% while adjusted average capital grew 18.9%.  The 12.8%increase ($8.9 million) in operating expenses included:
  • An increase in salaries and wages expense of $5.2 million, or13.1%, comprised of the following:
  • An increase of $5.0 million, excluding stock-basedcompensation, related to increases of $2.8 million for ourservicing function and $2.2 million in our support function.
  • An increase of $0.2 million in stock-based compensationexpense.
  • An increase in sales and marketing expense of $2.2 million, or14.4%, primarily as a result of an increase in dealer supportproducts and services and the increase in the size of our fieldsales force.
  • An increase in general and administrative expenses of $1.5million, or 10.2%, primarily as a result of increases related tolegal fees, telephone, depreciation and data processing.

The following table shows adjusted revenue and operatingexpenses as a percentage of adjusted average capital, the adjustedreturn on capital, and the percentage change in adjusted averagecapital for each of the last eight quarters, compared to the sameperiods in the prior year:
    For the ThreeMonths Ended  
    Jun. 30,2013     Mar. 31,2013     Dec. 31,2012     Sept. 30,2012     Jun. 30,2012     Mar. 31,2012     Dec. 31,2011     Sept. 30,2011  
Adjusted revenue as a percentage of adjustedaverage capital (1)     29.9 %     31.0 %     31.0 %     31.7 %     31.9 %     31.8 %     33.2 %     33.9 %
Operating expenses as a percentage ofadjusted average capital (1)     7.8 %     8.1 %     8.0 %     8.2 %     8.2 %     8.6 %     7.6 %     7.8 %
Adjusted return on capital (1)     13.9 %     14.4 %     14.5 %     14.8 %     14.9 %     14.6 %     16.1 %     16.4 %
Percentage change in adjusted average capitalcompared to the same period in the prior year     18.5 %     19.3 %     23.3 %     25.5 %     27.9 %     32.9 %     33.9 %     30.6 %

(1)     Annualized

The adjusted return on capital for the threemonths ended June 30, 2013, as compared to the three months endedMarch 31, 2013, decreased 50 basis points primarily as a result ofa decline in the yield on our loan portfolio which decreased theadjusted return on capital by 40 basis points due to higher advancerates on new Consumer Loan assignments.

The following tables provide a reconciliation ofnon-GAAP measures to GAAP measures.  All after-tax adjustmentsare calculated using a 37% tax rate as we estimate that to be ourlong term average effective tax rate.  Certain amounts do notrecalculate due to rounding.
    For the ThreeMonths Ended  
(In millions, except share and  pershare data)   Jun.30,2013     Mar.31,2013     Dec.31,2012     Sept.30,2012     Jun.30,2012     Mar.31,2012     Dec.31,2011     Sept.30,2011  
Adjusted netincome                                                
GAAP net income   $ 61.5     $ 60.6     $ 59.9     $ 52.9     $ 56.6     $ 50.3     $ 50.0     $ 50.0  
Floating yield adjustment (after-tax)     (0.6 )     (1.1 )     (0.2 )     2.8       (1.9 )     (0.7 )     0.8       (0.4 )
Program fee yield adjustment (after-tax)     --       --       --       --       --       --       0.2       --  
Adjustment to record taxes at 37%     (0.2 )     (0.7 )     (2.4 )     (0.1 )     (0.4 )     (0.6 )     0.3       (0.4 )
Adjusted net income   $ 60.7     $ 58.8     $ 57.3     $ 55.6     $ 54.3     $ 49.0     $ 51.3     $ 49.2  
                                                                 
Adjusted net income per diluted share   $ 2.53     $ 2.41     $ 2.30     $ 2.23     $ 2.09     $ 1.86     $ 1.96     $ 1.88  
Diluted weighted average sharesoutstanding     24,017,273       24,426,127       24,926,004       24,962,054       25,979,872       26,283,801       26,258,668       26,135,755  
                                                                 
Adjusted revenue                                                                
GAAP total revenue   $ 169.4     $ 164.7     $ 159.3     $ 155.7     $ 151.8     $ 142.4     $ 138.0     $ 133.7  
Floating yield adjustment     (0.9 )     (1.8 )     (0.3 )     4.4       (2.9 )     (1.1 )     1.3       (0.6 )
Program fee yield adjustment     --       --       --       --       --       --       0.4       0.1  
Provision for credit losses     (5.4 )     (5.8 )     (6.2 )     (9.8 )     (2.7 )     (5.3 )     (6.6 )     (4.6 )
Provision for claims     (10.5 )     (9.0 )     (8.1 )     (9.1 )     (9.0 )     (8.5 )     (7.7 )     (8.4 )
Adjusted revenue   $ 152.6     $ 148.1     $ 144.7     $ 141.2     $ 137.2     $ 127.5     $ 125.4     $ 120.2  
                                                                 
Adjusted averagecapital                                                                
GAAP average debt   $ 1,384.4     $ 1,273.1     $ 1,241.2     $ 1,202.8     $ 1,126.4     $ 1,031.2     $ 985.7     $ 941.5  
GAAP average shareholders' equity     646.3       627.3       612.2       568.9       585.1       558.8       516.8       467.3  
Floating yield adjustment     8.4       11.8       12.6       10.0       9.4       12.6       10.5       11.1  
Program fee yield adjustment     --       --       --       --       --       --       (0.2 )     (0.2 )
Adjusted average capital   $ 2,039.1     $ 1,912.2     $ 1,866.0     $ 1,781.7     $ 1,720.9     $ 1,602.6     $ 1,512.8     $ 1,419.7  
                                                                 
Adjusted revenue as a percentage of adjustedaverage capital (1)     29.9 %     31.0 %     31.0 %     31.7 %     31.9 %     31.8 %     33.2 %     33.9 %
                                                                 
Adjusted interestexpense                                                                
GAAP interest expense   $ 16.2     $ 16.0     $ 16.3     $ 16.3     $ 15.6     $ 15.2     $ 15.0     $ 14.6  
Adjustment to record tax effect at 37%     (6.0 )     (5.9 )     (6.1 )     (6.0 )     (5.8 )     (5.6 )     (5.5 )     (5.5 )
Adjusted interest expense (after-tax)   $ 10.2     $ 10.1     $ 10.2     $ 10.3     $ 9.8     $ 9.6     $ 9.5     $ 9.1  

(1)     Annualized
    For the ThreeMonths Ended  
(In millions)   Jun.30,2013     Mar.31,2013     Dec.31,2012     Sept.30,2012     Jun.30,2012     Mar.31,2012     Dec.31,2011     Sept.30,2011  
Adjusted return oncapital                                                
Adjusted net income   $ 60.7     $ 58.8     $ 57.3     $ 55.6     $ 54.3     $ 49.0     $ 51.3     $ 49.2  
Adjusted interest expense (after-tax)     10.2       10.1       10.2       10.3       9.8       9.6       9.5       9.1  
Adjusted net income plus interestexpense(after-tax)   $ 70.9     $ 68.9     $ 67.5     $ 65.9     $ 64.1     $ 58.6     $ 60.8     $ 58.3  
                                                                 
Adjusted return oncapital (1) (3)     13.9 %     14.4 %     14.5 %     14.8 %     14.9 %     14.6 %     16.1 %     16.4 %
                                                                 
Economic profit                                                                
Adjusted return on capital     13.9 %     14.4 %     14.5 %     14.8 %     14.9 %     14.6 %     16.1 %     16.4 %
Cost of capital (2) (3)     5.4 %     5.6 %     5.5 %     5.3 %     5.6 %     5.8 %     5.8 %     6.2 %
Adjusted return on capital in excess of costof capital     8.5 %     8.8 %     9.0 %     9.5 %     9.3 %     8.8 %     10.3 %     10.2 %
Adjusted average capital   $ 2,039.1     $ 1,912.2     $ 1,866.0     $ 1,781.7     $ 1,720.9     $ 1,602.6     $ 1,512.8     $ 1,419.7  
    Economic profit   $ 43.1     $ 42.3     $ 42.1     $ 42.1     $ 40.0     $ 35.4     $ 38.8     $ 36.4  
                                                                 
Operatingexpenses                                                                
GAAP salaries and wages   $ 23.1     $ 21.9     $ 20.7     $ 21.7     $ 20.4     $ 19.4     $ 15.7     $ 15.8  
GAAP general and administrative     8.3       7.9       9.0       6.8       7.3       7.4       7.4       6.0  
GAAP sales and marketing     8.5       9.0       7.7       8.2       7.5       7.8       5.8       5.6  
Operating expenses   $ 39.9     $ 38.8     $ 37.4     $ 36.7     $ 35.2     $ 34.6     $ 28.9     $ 27.4  
                                                                 
Operating expenses as a percentage ofadjusted average capital (3)     7.8 %     8.1 %     8.0 %     8.2 %     8.2 %     8.6 %     7.6 %     7.8 %
                                                                 
Percentage change in adjusted average capitalcompared to the same period in the prior year     18.5 %     19.3 %     23.3 %     25.5 %     27.9 %     32.9 %     33.9 %     30.6 %

(1)       Adjusted return on capital is defined as adjusted net income plusadjusted interest expense after-tax divided by adjusted averagecapital.

(2)       The cost of capital includes both a cost of equity and a cost ofdebt.  The cost of equity capital is determined based on aformula that considers the risk of the business and the riskassociated with our use of debt.  The formula utilized fordetermining the cost of equity capital is as follows: (the average30 year treasury rate + 5%) + [(1 - tax rate) x (the average 30year treasury rate + 5% - pre-tax average cost of debt rate) xaverage debt/(average equity + average debt x tax rate)].  Forthe periods presented, the average 30 year treasury rate and theadjusted pre-tax average cost of debt were as follows:

    For the ThreeMonths Ended  
    Jun.30,2013     Mar.31,2013     Dec.31,2012     Sept.30,2012     Jun.30,2012     Mar.31,2012     Dec.31,2011     Sept.30,2011  
Average 30 year treasury rate     3.2 %     3.1 %     2.8 %     2.7 %     3.0 %     3.1 %     3.0 %     3.8 %
Adjusted pre-tax average cost of debt(3)     4.7 %     5.0 %     5.2 %     5.4 %     5.6 %     5.9 %     6.1 %     6.2 %

(3)       Annualized
    For the SixMonths Ended June 30,  
(In millions, except share and per sharedata)   2013     2012  
             
Adjusted netincome            
GAAP net income   $ 122.1     $ 106.9  
Floating yield adjustment (after-tax)     (1.7 )     (2.6
Adjustment to record taxes at 37%     (0.9 )     (1.0 )
Adjusted net income   $ 119.5     $ 103.3  
                 
Adjusted net income per dilutedshare   $ 4.93     $ 3.96  
Diluted weighted average sharesoutstanding     24,220,403       26,083,112  
                 
Adjusted averagecapital                
GAAP average debt   $ 1,328.8     $ 1,078.8  
GAAP average shareholders' equity     636.8       572.0  
Floating yield adjustment     10.1       11.0  
    Adjusted averagecapital   $ 1,975.7     $ 1,661.8  
                 
Adjusted interestexpense                
GAAP interest expense   $ 32.2     $ 30.8  
Adjustment to record tax effect at 37%     (11.9 )     (11.4 )
Adjusted interest expense (after-tax)   $ 20.3     $ 19.4  
                 
Adjusted return oncapital                
Adjusted net income   $ 119.5     $ 103.3  
Adjusted interest expense (after-tax)     20.3       19.4  
    Adjusted net incomeplus interest expense (after-tax)   $ 139.8     $ 122.7  
                 
    Adjusted return oncapital (1) (3)     14.1 %     14.8 %
                 
Economic profit                
Adjusted return on capital     14.1 %     14.8 %
Cost of capital (2) (3)     5.5 %     5.7 %
Adjusted return on capital in excess of costof capital     8.6 %     9.1 %
Adjusted average capital   $ 1,975.7     $ 1,661.8  
    Economic profit   $ 85.4     $ 75.4  

(1)       Adjusted return on capital is defined as adjusted net income plusadjusted interest expense after-tax divided by adjusted averagecapital.

(2)       The cost of capital includes both a cost of equity and a cost ofdebt.  The cost of equity capital is determined based on aformula that considers the risk of the business and the riskassociated with our use of debt.  The formula utilized fordetermining the cost of equity capital is as follows: (the average30 year treasury rate + 5%) + [(1 - tax rate) x (the average 30year treasury rate + 5% - pre-tax average cost of debt rate) xaverage debt/(average equity + average debt x tax rate)].  Forthe periods presented, the average 30 year treasury rate and theadjusted pre-tax average cost of debt were as follows:

    For the SixMonths Ended June 30,  
    2013     2012  
Average 30 year treasury rate     3.1 %     3.0 %
Adjusted pre-tax average cost of debt(3)     4.8 %     5.7 %

(3)       Annualized

Floating Yield Adjustment

The purpose of this adjustment is to modify thecalculation of our GAAP-based finance charge revenue so thatfavorable and unfavorable changes in expected cash flows from loansreceivable are treated consistently.  To make the adjustmentunderstandable, we must first explain how GAAP requires us toaccount for finance charge revenue, our primary revenue source.

The finance charge revenue we will recognizeover the life of the loan equals the cash inflows from our loanportfolio less cash outflows to acquire the loans.  Our GAAPfinance charge revenue is based on estimates of future cash flowsand is recognized on a level-yield basis over the estimated life ofthe loan.  With the level-yield approach, the amount offinance charge revenue recognized from a loan in a given period,divided by the loan asset, is a constant percentage.  UnderGAAP, favorable changes in expected cash flows are treated asincreases to the yield and are recognized over time, whileunfavorable 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 "floatingyield" method, all changes in expected cash flows (both positiveand negative) are treated as yield adjustments and therefore impactearnings over time.  The GAAP treatment always results in alower carrying value of the loan receivable asset, but may resultin either higher or lower earnings for any given period dependingon the timing and amount of expected cash flow changes. 

We believe adjusted earnings, which include thefloating yield adjustment, are a more accurate reflection of theperformance of our business, since both favorable and unfavorablechanges in estimated cash flows are treated consistently.

Cautionary Statement Regarding Forward-LookingInformation

We claim the protection of the safe harbor for forward-lookingstatements contained in the Private Securities Litigation ReformAct of 1995 for all of our forward-looking statements. Statements in this release that are not historical facts, such asthose using terms like "may," "will," "should," "believe,""expect," "anticipate," "assume," "forecast," "estimate," "intend,""plan," "target" and those regarding our future results, plans andobjectives, are "forward-looking statements" within the meaning ofthe federal securities laws.  These forward-looking statementsrepresent our outlook only as of the date of this release. Actual results could differ materially from these forward-lookingstatements since the statements are based on our currentexpectations, which are subject to risks and uncertainties. Factors that might cause such a difference include, but are notlimited to, the factors set forth in Item 1A to our Form 10-K forthe year ended December 31, 2012, filed with the Securities andExchange Commission on February 20, 2013, other risk factorsdiscussed herein or listed from time to time in our reports filedwith the Securities and Exchange Commission and the following:
  • Our inability to accurately forecast and estimate the amountand timing of future collections could have a material adverseeffect on results of operations.
  • We may be unable to execute our business strategy due tocurrent economic conditions.
  • We may be unable to continue to access or renew funding sourcesand obtain capital needed to maintain and grow our business.
  •  The terms of our debt limit how we conduct ourbusiness.
  • A violation of the terms of our asset-backed secured financingfacilities or revolving secured warehouse facilities could have amaterially adverse impact on our operations.
  • The conditions of the U.S. and international capital marketsmay adversely affect lenders with which we have relationships,causing us to incur additional costs and reducing our sources ofliquidity, 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 adverselyaffect our financial condition.
  • Due to competition from traditional financing sources andnon-traditional lenders, we may not be able to competesuccessfully.
  • We may not be able to generate sufficient cash flows to serviceour outstanding debt and fund operations and may be forced to takeother actions to satisfy our obligations under such debt.
  • Interest rate fluctuations may adversely affect our borrowingcosts, profitability and liquidity.
  • Reduction in our credit rating could increase the cost of ourfunding from, and restrict our access to, the capital markets andadversely affect our liquidity, financial condition and results ofoperations.
  • We may incur substantially more debt and otherliabilities.  This could exacerbate further the risksassociated with our current debt levels.
  • The regulation to which we are or may become subject couldresult in a material adverse effect on our business.
  • Adverse changes in economic conditions, the automobile orfinance industries, or the non-prime consumer market couldadversely affect our financial position, liquidity and results ofoperations, the ability of key vendors that we depend on to supplyus with services, and our ability to enter into future financingtransactions.
  • Litigation we are involved in from time to time may adverselyaffect our financial condition, results of operations and cashflows.
  • Changes in tax laws and the resolution of uncertain income taxmatters could have a material adverse effect on our results ofoperations and cash flows from operations.
  • Our dependence on technology could have a material adverseeffect on our business.
  • Reliance on third parties to administer our ancillary productofferings could adversely affect our business and financialresults.
  • We are dependent on our senior management and the loss of anyof these individuals or an inability to hire additional teammembers could adversely affect our ability to operateprofitably.
  • Our reputation is a key asset to our business, and our businessmay be affected by how we are perceived in the marketplace.
  • The concentration of our dealers in several states couldadversely affect us.
  • Failure to properly safeguard confidential consumer informationcould subject us to liability, decrease our profitability anddamage our reputation.
  • Our Chairman and founder controls a significant percentage ofour common stock, has the ability to significantly influencematters requiring shareholder approval and has interests which mayconflict with the interests of our other security holders.
  • Reliance on our outsourced business functions could adverselyaffect our business.
  • Natural disasters, acts of war, terrorist attacks and threatsor the escalation of military activity in response to these attacksor otherwise may negatively affect our business, financialcondition and results of operations.

Other factors not currently anticipated by management may alsomaterially and adversely affect our results of operations.  Wedo not undertake, and expressly disclaim any obligation, to updateor alter our statements whether as a result of new information,future events or otherwise, except as required by applicablelaw.

Description of Credit AcceptanceCorporation

Since 1972, Credit Acceptance has offeredautomobile dealers financing programs that enable them to sellvehicles to consumers, regardless of their credit history. Our financing programs are offered through a nationwide network ofautomobile dealers who benefit from sales of vehicles to consumerswho otherwise could not obtain financing; from repeat and referralsales generated by these same customers; and from sales tocustomers responding to advertisements for our product, but whoactually end up qualifying for traditional financing.

Without our financing programs, consumers areoften unable to purchase a vehicle or they purchase an unreliableone.  Further, as we report to the three national creditreporting agencies, an important ancillary benefit of our programsis that we provide a significant number of our consumers with anopportunity to improve their lives by improving their credit scoreand move on to more traditional sources of financing.  CreditAcceptance is publicly traded on the NASDAQ under the symbolCACC.  For more information, visit creditacceptance.com.

CREDIT ACCEPTANCECORPORATION

CONSOLIDATED STATEMENTS OFINCOME

(UNAUDITED)
(In millions, except share and per sharedata)   For the ThreeMonths Ended June 30,     For the SixMonths EndedJune 30,  
    2013   2012     2013   2012  
             
Revenue:            
Finance charges   $ 147.5   $ 134.0     $ 290.4   $ 260.1  
Premiums earned     12.9     12.0       24.9     22.8  
Other income     9.0     5.8       18.8     11.3  
Total revenue     169.4     151.8       334.1     294.2  
Costs and expenses:                            
Salaries and wages     23.1     20.4       45.0     39.8  
General and administrative     8.3     7.3       16.2     14.7  
Sales and marketing     8.5     7.5       17.5     15.3  
Provision for credit losses     5.4     2.8       11.2     8.0  
Interest     16.2     15.6       32.2     30.8  
Provision for claims     10.5     9.0       19.5     17.6  
Total costs and expenses     72.0     62.6       141.6     126.2  
Income before provision for income taxes     97.4     89.2       192.5     168.0  
Provision for income taxes     35.9     32.6       70.4     61.1  
Net income   $ 61.5   $ 56.6     $ 122.1   $ 106.9  
                             
Net income per share:                            
Basic   $ 2.57   $ 2.18     $ 5.06   $ 4.11  
Diluted   $ 2.56   $ 2.18     $ 5.04   $ 4.10  
                             
Weighted average shares outstanding:                            
Basic     23,974,099     25,925,627       24,151,080     25,993,389  
Diluted     24,017,273     25,979,872       24,220,403     26,083,112  

CREDIT ACCEPTANCECORPORATION

CONSOLIDATED BALANCE SHEETS
(In millions, except share and per sharedata)   Asof  
    June 30,2013     December 31,2012  
    (Unaudited)        
ASSETS:            
Cash and cash equivalents   $ 9.0     $ 9.0  
Restricted cash and cash equivalents     116.9       92.4  
Restricted securities available for sale     47.5       46.1  
                 
Loans receivable (including $7.3 and $5.9from affiliates as ofJune 30, 2013 and December 31, 2012, respectively)     2,278.5       2,109.9  
Allowance for credit losses     (185.8 )     (176.4 )
Loans receivable, net     2,092.7       1,933.5  
                 
Property and equipment, net     22.4       22.2  
Income taxes receivable     0.8       1.1  
Other assets     26.0       28.9  
Total Assets   $ 2,315.3     $ 2,133.2  
                 
LIABILITIES AND SHAREHOLDERS'EQUITY:                
Liabilities:                
Accounts payable and accrued liabilities   $ 112.3     $ 105.8  
Revolving secured line of credit     150.8       43.5  
Secured financing     902.3       853.0  
Mortgage note     3.9       4.0  
Senior notes     350.2       350.3  
Deferred income taxes, net     141.3       148.4  
Income taxes payable     0.6       6.3  
Total Liabilities     1,661.4       1,511.3  
                 
Shareholders' Equity:                
Preferred stock, $.01 par value, 1,000,000shares authorized, none issued     --       --  
Common stock, $.01 par value, 80,000,000shares authorized, 23,280,737 and 24,114,896 shares issued andoutstanding as of June 30, 2013 and December 31, 2012,respectively     0.2       0.2  
Paid-in capital     58.7       53.4  
Retained earnings     595.2       568.4  
Accumulated other comprehensive loss     (0.2)       (0.1 )
Total Shareholders' Equity     653.9       621.9  
Total Liabilities and Shareholders'Equity   $ 2,315.3     $ 2,133.2  
CONTACT: Investor Relations: Douglas W. Busk         Senior Vice President and Treasurer         (248) 353-2700 Ext. 4432         IR@creditacceptance.com

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