WARREN, Mich.--(BUSINESS WIRE)--Asset Acceptance Capital Corp. (NASDAQ: AACC), a leading purchaser and collector of charged-off consumer debt, today reported results for the quarter and fiscal year ended December 31, 2011.
Fourth Quarter 2011 Financial Highlights
Cash collections for the fourth quarter of 2011 increased 7.3% compared to the prior year period, to $82.1 million.
Fourth quarter revenues were $56.4 million, an increase of 18.8% from the same period of the prior year. The Company reported net impairment reversals, which increased revenues for the quarter, of $2.6 million on purchased receivables versus net impairment reversals of $0.7 million in the prior year period. The Company reported a $0.4 million gain on sale of its healthcare portfolios in the fourth quarter of 2010. There were no gains on sale of receivables in the fourth quarter of 2011.
Rion Needs, President and CEO of Asset Acceptance Capital Corp, commented: “Our fourth quarter results marked a year of significant progress and a turning point for our business. During the year, we executed on a number of key initiatives aimed at positioning our company for long-term growth, including enhancing our cost structure, refinancing our credit facilities, eliminating underperforming assets, improving our analytics and streamlining our overall business model. Mr. Needs continued, “Although industry dynamics remained challenging, we saw positive momentum each quarter of 2011 in nearly every aspect of our business, but none more evident than in collection growth, cost to collect improvement and earnings growth. We believe the strategic initiatives implemented in 2011, along with the significant increase in purchases during the year, position us well for improved performance in 2012 and beyond.”
Operating expenses were $45.2 million, or 55.1% of cash collections, for the fourth quarter of 2011, a decrease of $9.0 million compared to the year earlier period when operating expenses were 70.8% of cash collections. Operating expenses for the fourth quarter of both years included several items that impact comparability. During the fourth quarter 2010, the Company incurred a charge of $5.3 million resulting from the termination for performance of a relationship with a third party provider. The charge related to a cash payment to reimburse the third party for court costs incurred on the Company’s behalf that the third party would otherwise have recovered through commissions in future periods and was recorded as a component of “Collections expense”. In addition, the Company incurred restructuring charges in the fourth quarter of 2011 and 2010 of $0.1 million and $3.0 million, respectively. The restructuring charges were related to actions taken to close the San Antonio, TX collection office in early 2012 and the closing of the Chicago, IL and Cleveland, OH offices in 2010. The Company also recorded $0.1 million for charges related to the FTC matter in the fourth quarter of 2011 compared to $1.7 million in the fourth quarter of 2010. FTC charges were included as a component of “Administrative expense.”
The Company reported net income of $4.2 million or $0.14 per fully diluted share during the fourth quarter of 2011, compared to a loss of $7.0 million or $0.23 per fully diluted share in the fourth quarter of 2010. Results for the fourth quarter of 2011 included a charge of $1.1 million for the extinguishment of debt related to the refinancing the Company completed in November. Excluding the items impacting comparability mentioned above and the related tax effects, earnings per fully diluted share were $0.16 and ($0.01) in the fourth quarter of 2011 and 2010, respectively.
Adjusted Earnings Before Interest Taxes Depreciation and Amortization (“Adjusted EBITDA”) was $38.4 million, a 14.9% increase from $33.4 million in the fourth quarter of 2010. Our definition of Adjusted EBITDA was updated during 2011 in order to align with the definition in our amended and restated credit agreement. Adjusted EBITDA as reported for 2010 has been restated to be consistent with the current presentation. The restatement increased the amounts previously disclosed for the fourth quarter of 2010 by $7.2 million, primarily as a result of adding adjustments for the $5.3 million third party charge and $1.9 million of cash restructuring charges. Please see a reconciliation of net income according to U.S. Generally Accepted Accounting Principles (“GAAP”) to Adjusted EBITDA on page 13.
The Company acquired $26.8 million in charged-off consumer receivables with a face value of $1,181.2 million for a blended rate of 2.27% of face value. This compares to the prior year period when the Company purchased $16.8 million in charged-off consumer receivables with a face value of $297.2 million for a blended rate of 5.65% of face value. All purchase data is adjusted for buybacks.
Full Year 2011 Financial Highlights:
Cash collections for 2011 were $350.0 million compared to $328.8 million for 2010, an increase of 6.4%. Cash collections for the year, excluding healthcare portfolios, which were sold in the third quarter of 2010, increased 7.6%.
For the full year, revenues increased 9.9% to $218.1 million from $198.4 million in 2010. Net impairment reversals for the full year of 2011 were $6.2 million compared to net impairment reversals of $2.3 million for 2010. The Company also reported $0.9 million in gain on sale of its healthcare portfolios and total gain on sale of receivables of $1.2 million in 2010. There were no gains on sale of purchased receivables in 2011.
Operating expenses were $185.2 million, or 52.9% of cash collections for 2011, a decrease of $12.1 million from 2010 when operating expenses were 60.0% of cash collections. Operating expenses for both years included several items that impact comparability. In 2010, the Company incurred a charge of $5.3 million resulting from the termination for performance of a relationship with a third party provider. The charge related to a cash settlement payment to reimburse the third party for court costs incurred on the Company’s behalf that the third party would otherwise have recovered through commissions in future periods and was recorded as a component of “Collections expense”. In addition, the Company incurred restructuring charges in 2011 and 2010 of $0.1 million and $4.2 million, respectively. The restructuring charges related to actions to close the San Antonio, TX collection office in early 2012 and the closing of the Deerfield Beach, FL, Chicago, IL and Cleveland, OH offices in 2010. The Company also recorded $1.7 million of charges related to the FTC matter in 2011, compared to $2.0 million in 2010. FTC charges were included as a component of “Administrative expense.”
The Company reported net income of $12.0 million, or $0.39 per fully diluted share, for 2011 compared to a loss of $1.6 million, or $0.05 per fully diluted share in 2010. During 2011, the Company recorded a charge of $1.1 million for the extinguishment of debt related to the refinancing the Company completed in November. During 2010, the Company recorded a tax benefit related to the dissolution of its Premium Asset Recovery Corporation subsidiary of $5.2 million. Excluding the items impacting comparability mentioned above and the related tax effects, earnings per fully diluted share were $0.46 and $0.01 in 2011 and 2010, respectively.
Adjusted EBITDA for 2011 was $172.9 million, a 15.5% increase from $149.7 million in 2010. Our definition of Adjusted EBITDA was updated during 2011 in order to align with the definition in our amended and restated credit agreement. Adjusted EBITDA as reported for 2010 has been restated to be consistent with the current presentation. The restatement increased the amounts previously reported for 2010 by $7.6 million, primarily as a result of adding adjustments for the $5.3 million third party charge and for $2.3 million of the $3.0 million total cash restructuring charges.
The Company acquired $160.9 million of charged-off consumer receivables with a face value of $5,329.4 million for a blended rate of 3.02% of face value in 2011. This compares to the prior year when the Company purchased $136.0 million in charged-off consumer receivables with a face value of $3,782.6 million for a blended rate of 3.59% of face value. All purchase data is adjusted for buybacks.
Fourth Quarter 2011 Earnings Conference Call
Asset Acceptance Capital Corp. will host a conference call at 4:30 p.m. Eastern today to discuss these results and current business trends. To listen to a live webcast of the call and access the presentation, please go to the investor section of the Company’s web site at www.AssetAcceptance.com. A replay of the webcast will be available until March 5, 2013.
About Asset Acceptance Capital Corp.
For 50 years, Asset Acceptance has provided credit originators, such as credit card issuers, consumer finance companies, retail merchants, utilities and others an efficient alternative in recovering defaulted consumer debt. For more information, please visit www.AssetAcceptance.com.
Asset Acceptance Capital Corp. Safe Harbor Statement
This press release contains certain statements, including the Company's plans and expectations regarding its operating strategies, charged-off receivables, collections and costs, which are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include reference to the Company’s presentations and webcasts. These forward-looking statements reflect the Company's views, expectations and beliefs at the time such statements were made with respect to such matters, as well as the Company's future plans, objectives, events, portfolio purchases and pricing, collections and financial results such as revenues, expenses, income, earnings per share, capital expenditures, operating margins, financial position, expected results of operations and other financial items. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Risk Factors”) that make the timing, extent, likelihood and degree of occurrence of these matters difficult to predict. Words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “should,” “could,” “will,” variations of such words and similar expressions are intended to identify forward-looking statements.
There are a number of factors, many of which are beyond the Company's control, which could cause actual results and outcomes to differ materially from those described in the forward-looking statements. These Risk Factors include the Risk Factors discussed under “Item 1A Risk Factors” in the Company’s most recently filed Annual Report on Form 10-K and in other SEC filings, in each case under a section titled “Risk Factors” or similar headings and those discussions regarding risk factors as well as the discussion of forward-looking statements in such sections are incorporated herein by reference. Other Risk Factors exist, and new Risk Factors emerge from time to time that may cause actual results to differ materially from those contained in any forward-looking statements. Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include the following:
- failure to comply with government regulation;
- a decrease in collections if changes in or enforcement of debt collection laws impair our ability to collect, including any unknown ramifications from new laws;
- our ability to purchase charged-off receivable portfolios on acceptable terms and in sufficient amounts;
- instability in the financial markets and continued economic weakness or recession impacting our ability to acquire and collect on charged-off receivable portfolios and our operating results;
- our ability to maintain existing, and to secure additional financing on acceptable terms;
- changes in relationships with third parties collecting on our behalf;
- ongoing risks of litigation, including individual and class actions under consumer credit, collections and other laws;
- concentration of a significant portion of our portfolio purchases during any period with a small number of sellers;
- our ability to substantiate our application of tax rules against examinations and challenges made by tax authorities;
- our ability to collect sufficient amounts from our purchases of charged-off receivable portfolios;
- our ability to diversify beyond collecting on our purchased receivables portfolios into ancillary lines of business; and
- a decrease in collections as a result of negative attention or news regarding the debt collection industry and debtors’ willingness to pay the debt we acquire.
Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Furthermore, the Company expressly disclaims any obligation to update, amend or clarify forward-looking statements.
Supplemental Financial Data
Quarterly trends for certain financial metrics are shown in the table below.
| (Unaudited, $ in Millions, except collections per account representative) | Q4 ‘11 | Q3 ‘11 | Q2 ‘11 | Q1 ‘11 | Q4 ‘10 | |||||
| Total revenues | $56.4 | $56.6 | $54.7 | $ 50.4 | $ 47.5 | |||||
| Cash collections | $82.1 | $87.4 | $89.2 | $ 91.3 | $ 76.5 | |||||
| Operating expenses to cash collections | 55.1% | 55.5% | 51.1% | 50.3% | 70.8% | |||||
| Call center collections | $44.7 | $48.2 | $48.4 | $ 51.7 | $ 41.7 | |||||
| Legal collections | $37.4 | $39.2 | $40.8 | $ 39.6 | $ 34.8 | |||||
| Amortization rate | 31.6% | 35.6% | 39.0% | 45.2% | 38.9% | |||||
| Core amortization (1) | 36.9% | 41.6% | 45.7% | 52.8% | 44.8% | |||||
| Collections on fully amortized portfolios | $11.8 | $12.6 | $13.1 | $ 13.2 | $ 10.1 | |||||
| Investment in purchased receivables (2) | $26.8 | $38.4 | $49.4 | $ 46.4 | $ 16.8 | |||||
| Face value of purchased receivables (2) | $1,181.2 | $1,320.3 | $1,600.3 | $1,227.7 | $ 297.2 | |||||
| Average cost of purchased receivables (2) | 2.27% | 2.91% | 3.09% | 3.78% | 5.65% | |||||
| Number of purchased receivable portfolios | 26 | 31 | 39 | 37 | 19 | |||||
| Collections per account representative FTE (3) | $42,282 | $42,135 | $41,419 | $50,607 | $ 40,762 | |||||
| Average account representative FTE’s (3) | 546 | 601 | 655 | 639 | 679 | |||||
| (1) | The core amortization rate is calculated as total amortization divided by collections on amortizing portfolios. | |
| (2) | All purchase data is adjusted for buybacks. | |
| (3) | Historical information has not been adjusted for the collection center closings. | |
The Company provided the following details of purchased receivable revenues by year of purchase:
| Three months ended December 31, 2011 | |||||||||||||||||||
| Net | |||||||||||||||||||
| Amortization | Monthly | Impairments | Zero Basis | ||||||||||||||||
| Year of Purchase | Collections | Revenue | Rate (1) | Yield (2) | (Reversals) | Collections | |||||||||||||
| 2006 and prior | $ | 17,357,551 | $ | 15,255,161 | N/M | N/M | $ | (2,271,500 | ) | $ | 10,456,372 | ||||||||
| 2007 | 7,538,493 | 3,812,409 | 49.4 | % | 5.32 | % | (287,000 | ) | 174,322 | ||||||||||
| 2008 | 9,796,825 | 5,862,608 | 40.2 | 5.74 | — | 1,152,640 | |||||||||||||
| 2009 | 14,391,756 | 9,314,485 | 35.3 | 6.21 | — | 24,694 | |||||||||||||
| 2010 | 16,340,975 | 8,750,466 | 46.5 | 3.21 | — | — | |||||||||||||
| 2011 | 16,678,314 | 13,168,059 | 21.0 | 3.17 | — | — | |||||||||||||
| Totals | $ | 82,103,914 | $ | 56,163,188 | 31.6 | % | 5.34 | % | $ | (2,558,500 | ) | $ | 11,808,028 | ||||||
| Three months ended December 31, 2010 | |||||||||||||||||||
| Net | |||||||||||||||||||
| Amortization | Monthly | Impairments | Zero Basis | ||||||||||||||||
| Year of Purchase | Collections | Revenue | Rate (1) | Yield (2) | (Reversals) | Collections | |||||||||||||
| 2005 and prior | $ | 12,516,811 | $ | 10,685,155 | N/M | N/M | $ | (443,367 | ) | $ | 8,417,502 | ||||||||
| 2006 | 6,654,211 | 4,238,416 | 36.3 | % | 7.21 | % | (379,054 | ) | 677,510 | ||||||||||
| 2007 | 10,003,406 | 5,253,606 | 47.5 | 4.01 | 105,467 | 319,224 | |||||||||||||
| 2008 | 12,893,739 | 6,273,102 | 51.3 | 3.61 | — | 621,624 | |||||||||||||
| 2009 | 18,170,966 | 10,921,329 | 39.9 | 4.44 | — | 63,766 | |||||||||||||
| 2010 | 16,289,028 | 9,385,296 | 42.4 | 2.68 | — | — | |||||||||||||
| Totals | $ | 76,528,161 | $ | 46,756,904 | 38.9 | % | 4.74 | % | $ | (716,954 | ) | $ | 10,099,626 | ||||||
| Twelve months ended December 31, 2011 | |||||||||||||||||||
| Net | |||||||||||||||||||
| Amortization | Monthly | Impairments | Zero Basis | ||||||||||||||||
| Year of Purchase | Collections | Revenue | Rate (1) | Yield (2) | (Reversals) | Collections | |||||||||||||
| 2006 and prior | $ | 79,506,740 | $ | 65,073,002 | N/M | N/M | $ | (8,344,400 | ) | $ | 43,649,643 | ||||||||
| 2007 | 36,610,606 | 17,261,410 | 52.9 | % | 4.65 | % | (170,000 | ) | 1,037,961 | ||||||||||
| 2008 | 47,668,069 | 25,465,249 | 46.6 | 5.02 | — | 5,965,147 | |||||||||||||
| 2009 | 69,121,427 | 38,523,502 | 44.3 | 5.28 | 2,304,000 | 36,428 | |||||||||||||
| 2010 | 76,629,430 | 38,987,433 | 49.1 | 3.09 | — | — | |||||||||||||
| 2011 | 40,462,024 | 31,609,322 | 21.9 | 3.25 | — | — | |||||||||||||
| Totals | $ | 349,998,296 | $ | 216,919,918 | 38.0 | % | 5.34 | % | $ | (6,210,400 | ) | $ | 50,689,179 | ||||||
| Twelve months ended December 31, 2010 | |||||||||||||||||||
| Net | |||||||||||||||||||
| Amortization | Monthly | Impairments | Zero Basis | ||||||||||||||||
| Year of Purchase | Collections | Revenue | Rate (1) | Yield (2) | (Reversals) | Collections | |||||||||||||
| 2005 and prior | $ | 66,351,793 | $ | 53,860,550 | N/M | N/M | $ | (1,852,856 | ) | $ | 41,245,515 | ||||||||
| 2006 | 35,935,075 | 20,699,103 | 42.4 | % | 6.88 | % | (588,054 | ) | 4,132,956 | ||||||||||
| 2007 | 49,142,614 | 25,669,601 | 47.8 | 4.08 | 105,467 | 2,375,440 | |||||||||||||
| 2008 | 62,549,786 | 29,168,202 | 53.4 | 3.42 | — | 849,701 | |||||||||||||
| 2009 | 81,170,136 | 45,049,351 | 44.5 | 3.91 | — | 825,894 | |||||||||||||
| 2010 | 33,669,086 | 21,346,794 | 36.6 | 2.73 | — | — | |||||||||||||
| Totals | $ | 328,818,490 | $ | 195,793,601 | 40.5 | 5.05 | % | $ | (2,335,443 | ) | $ | 49,429,506 | |||||||
| (1) | “N/M” indicates that the calculated percentage is not meaningful. | |||
| (2) | The monthly yield is the weighted-average yield determined by dividing purchased receivable revenues recognized in the period by the average of the beginning monthly carrying values of the purchased receivables for the period presented. | |||
Purchased Receivable Revenues
The table below shows components of revenue from purchased receivables, the amortization rate and the core amortization rate. The Company uses the core amortization rate to monitor performance of pools with remaining balances, and to determine if impairments, impairment reversals, or yield increases should be recorded. Core amortization trends may identify over or under performance compared to forecast for pools with remaining balances.
The following factors contributed to the change in amortization rates from the prior year for both the three and twelve month periods:
- For the year, total amortization was higher while the amortization rate declined compared to 2010. The decline in the amortization rate was the result of higher net impairment reversals and higher zero basis collections. The increase in total amortization was primarily a result of higher average portfolio balances and collections. For the fourth quarter, total amortization and the amortization rate were lower than in the same period of 2010. The decline in the amortization rate was the result of higher net impairment reversals and higher zero basis collections. The decrease in total amortization was primarily a result of higher weighted average yields on amortizing pools in 2011. Portfolio balances that amortize too slowly in relation to current or expected collections may lead to impairments. If portfolio balances amortize too quickly and we expect collections to continue to exceed expectations, previously recognized impairments may be reversed, or if there are no impairments to reverse, we may increase assigned yields;
- Amortization of receivables balances for 2011 increased as compared to 2010 as a result of higher average balances of purchased receivables and higher collections on amortizing pools. Amortization of receivables balances for the fourth quarter of 2011 decreased as compared to 2010 as a result of higher weighted average yields on amortizing pools in 2011;
- Net impairments are recorded as additional amortization, and increase the amortization rate, while net reversals have the opposite effect. Higher net impairment reversals during 2011 reduced total amortization compared to the prior year; and
- Higher zero basis collections in 2011 compared to 2010 reduced the amortization rate because 100% of these collections are recorded as revenue and do not contribute towards portfolio amortization.
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| ($ in millions) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
| Cash collections: | ||||||||||||||||
| Collections on amortizing pools | $ | 70.3 | $ | 66.4 | $ | 299.3 | $ | 279.4 | ||||||||
| Zero basis collections | 11.8 | 10.1 | 50.7 | 49.4 | ||||||||||||
| Total collections | $ | 82.1 | $ | 76.5 | $ | 350.0 | $ | 328.8 | ||||||||
| Amortization: | ||||||||||||||||
| Amortization of receivables balances | $ | 28.3 | $ | 30.1 | $ | 137.3 | $ | 133.5 | ||||||||
| Impairments | — | 0.5 | 2.8 | 1.1 | ||||||||||||
| Reversals of impairments | (2.6 | ) | (1.2 | ) | (9.0 | ) | (3.5 | ) | ||||||||
| Cost recovery amortization | 0.2 | 0.3 | 2.0 | 1.9 | ||||||||||||
| Total amortization | $ | 25.9 | $ | 29.7 | $ | 133.1 | $ | 133.0 | ||||||||
| Purchased receivable revenues, net | $ | 56.2 | $ | 46.8 | $ | 216.9 | $ | 195.8 | ||||||||
| Amortization rate | 31.6 | % | 38.9 | % | 38.0 | % | 40.5 | % | ||||||||
| Core amortization rate (1) | 36.9 | % | 44.8 | % | 44.5 | % | 47.6 | % | ||||||||
|
________________ |
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| (1) | The core amortization rate is calculated as total amortization divided by collections on amortizing portfolios. | |
| Asset Acceptance Capital Corp. | ||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three months ended December 31 , | Twelve months ended December 31, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Revenues | ||||||||||||||||
| Purchased receivable revenues, net | $ | 56,163,188 | $ | 46,756,904 | $ | 216,919,918 | $ | 195,793,601 | ||||||||
| Gain on sale of purchased receivables | — | 354,500 | — | 1,212,042 | ||||||||||||
| Other revenues, net | 212,940 | 351,083 | 1,156,150 | 1,394,177 | ||||||||||||
| Total revenues | 56,376,128 | 47,462,487 | 218,076,068 | 198,399,820 | ||||||||||||
| Expenses | ||||||||||||||||
| Salaries and benefits | 15,772,454 | 15,770,837 | 67,475,414 | 72,388,974 | ||||||||||||
| Collections expense | 24,875,873 | 28,754,981 | 98,704,750 | 99,298,403 | ||||||||||||
| Occupancy | 1,420,091 | 1,557,735 | 5,722,350 | 6,729,589 | ||||||||||||
| Administrative | 1,834,531 | 3,761,512 | 9,025,145 | 9,818,058 | ||||||||||||
| Depreciation and amortization | 1,171,646 | 1,188,379 | 4,166,279 | 4,665,775 | ||||||||||||
| Restructuring charges | 74,664 | 2,969,140 | 74,664 | 4,224,899 | ||||||||||||
| Loss (gain) on disposal of equipment and other assets | 82,116 | 209,272 | (4,066 | ) | 213,794 | |||||||||||
| Total operating expenses | 45,231,375 | 54,211,856 | 185,164,536 | 197,339,492 | ||||||||||||
| Income (loss) from operations | 11,144,753 | (6,749,369 | ) | 32,911,532 | 1,060,328 | |||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (3,828,286 | ) | (2,689,237 | ) | (11,760,564 | ) | (11,203,730 | ) | ||||||||
| Interest income | 39 | 6,125 | 322 | 7,598 | ||||||||||||
| Loss on extinguishment of debt | (1,110,850 | ) | — | (1,110,850 | ) | — | ||||||||||
| Other | (30,412 | ) | (2,421 | ) | (32,052 | ) | 68,004 | |||||||||
| Income (loss) before income taxes | 6,175,244 | (9,434,902 | ) | 20,008,388 | (10,067,800 | ) | ||||||||||
| Income tax expense (benefit) | 1,965,691 | (2,441,534 | ) | 7,983,828 | (8,451,668 | ) | ||||||||||
| Net income (loss) | $ | 4,209,553 | $ | (6,993,368 | ) | $ | 12,024,560 | $ | (1,616,132 | ) | ||||||
| Weighted-average number of shares: | ||||||||||||||||
| Basic | 30,794,320 | 30,716,034 | 30,763,388 | 30,693,315 | ||||||||||||
| Diluted | 30,828,366 | 30,716,034 | 30,833,245 | 30,693,315 | ||||||||||||
| Earnings (loss) per common share outstanding: | ||||||||||||||||
| Basic | $ | 0.14 | $ | (0.23 | ) | $ | 0.39 | $ | (0.05 | ) | ||||||
| Diluted | $ | 0.14 | $ | (0.23 | ) | $ | 0.39 | $ | (0.05 | ) | ||||||
| Asset Acceptance Capital Corp. | ||||||||
| Consolidated Statements of Financial Position | ||||||||
| December 31, | December 31, | |||||||
| 2011 | 2010 | |||||||
| ASSETS | ||||||||
|
Cash |
$ | 6,990,757 | $ | 5,635,503 | ||||
| Purchased receivables, net | 348,710,787 | 321,318,255 | ||||||
| Income taxes receivable | 354,241 | 3,760,731 | ||||||
| Property and equipment, net | 14,488,659 | 13,055,723 | ||||||
| Goodwill | 14,323,071 | 14,323,071 | ||||||
| Other assets | 11,172,804 | 5,680,237 | ||||||
| Total assets | $ | 396,040,319 | $ | 363,773,520 | ||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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|
Liabilities: |
||||||||
| Accounts payable | $ | 3,296,905 | $ | 2,958,214 | ||||
| Accrued liabilities | 20,018,561 | 25,178,707 | ||||||
| Income taxes payable | 1,925,761 | 1,407,794 | ||||||
| Notes payable | 172,122,870 | 157,259,956 | ||||||
| Capital lease obligations | 221,420 | 202,479 | ||||||
| Deferred tax liability, net | 60,474,041 | 52,863,654 | ||||||
| Total liabilities | 258,059,558 | 239,870,804 | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding | — | — | ||||||
| Common stock, $0.01 par value, 100,000,000 shares authorized; issued shares — 33,334,281 and 33,248,915 at December 31, 2011 and 2010, respectively | 333,343 | 332,489 | ||||||
| Additional paid in capital | 150,449,620 | 149,438,202 | ||||||
| Retained earnings | 29,162,645 | 17,138,085 | ||||||
| Accumulated other comprehensive loss, net of tax | (532,592 | ) | (1,680,370 | ) | ||||
| Common stock in treasury; at cost, 2,649,729 and 2,627,339 shares at December 31, 2011 and 2010, respectively | (41,432,255 | ) | (41,325,690 | ) | ||||
| Total stockholders’ equity | 137,980,761 | 123,902,716 | ||||||
| Total liabilities and stockholders’ equity | $ | 396,040,319 | $ | 363,773,520 | ||||
| ASSET ACCEPTANCE CAPITAL CORP. | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| For the Years Ended December 31, | ||||||||
| 2011 | 2010 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | 12,024,560 | $ | (1,616,132 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 4,166,279 | 4,665,775 | ||||||
| Amortization of deferred financing costs and debt discount | 1,688,493 | 1,285,437 | ||||||
| Loss on extinguishment of debt | 1,110,850 | — | ||||||
| Hedge ineffectiveness | 175,077 | — | ||||||
| Deferred income taxes | 6,919,657 | (5,278,029 | ) | |||||
| Share-based compensation expense | 1,012,272 | 1,194,802 | ||||||
| Net impairment reversal of purchased receivables | (6,210,400 | ) | (2,335,443 | ) | ||||
| Non-cash revenue | (2,276 | ) | (12,752 | ) | ||||
| (Gain) loss on disposal of equipment and other assets | (4,066 | ) | 213,794 | |||||
| Gain on sale of purchased receivables | — | (1,212,042 | ) | |||||
| Non-cash restructuring charges and impairment of assets | 11,982 | 1,189,900 | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in other assets | (2,478,970 | ) | 164,376 | |||||
|
(Decrease) increase in accounts payable and other accrued liabilities |
(2,950,657 | ) | 7,621,184 | |||||
| Decrease in net income taxes receivable | 3,924,457 | 2,004,173 | ||||||
| Net cash provided by operating activities | 19,387,258 | 7,885,043 | ||||||
|
Cash flows from investing activities |
||||||||
| Investment in purchased receivables, net of buybacks | (160,470,910 | ) | (137,489,164 | ) | ||||
| Principal collected on purchased receivables | 139,291,054 | 135,373,084 | ||||||
| Proceeds from sale of purchased receivables | — | 1,730,236 | ||||||
| Purchases of property and equipment | (5,781,414 | ) | (2,347,584 | ) | ||||
| Payments made for asset acquisition | — | (793,750 | ) | |||||
| Proceeds from sale of property and equipment | 99,000 | 5,255 | ||||||
| Net cash used in investing activities | (26,862,270 | ) | (3,521,923 | ) | ||||
|
Cash flows from financing activities |
||||||||
| Repayments of term loan facility | (133,359,956 | ) | (10,462,558 | ) | ||||
| Borrowings under term loan facility, net of discount | 163,625,000 | — | ||||||
| Net (repayments) borrowings on revolving credit facility | (15,700,000 | ) | 7,700,000 | |||||
| Payments of deferred financing costs | (5,515,070 | ) | (775,808 | ) | ||||
| Repayments of capital lease obligations | (113,143 | ) | (75,980 | ) | ||||
| Purchase of treasury shares | (106,565 | ) | (48,519 | ) | ||||
| Net cash provided by (used in) financing activities | 8,830,266 | (3,662,865 | ) | |||||
| Net increase in cash | 1,355,254 | 700,255 | ||||||
| Cash at beginning of year | 5,635,503 | 4,935,248 | ||||||
| Cash at end of year | $ | 6,990,757 | $ | 5,635,503 | ||||
|
Supplemental disclosure of cash flow information |
||||||||
| Cash paid for interest, net of capitalized interest | $ | 9,541,748 | $ | 10,184,277 | ||||
| Net cash received for income taxes | $ | (2,860,286 | ) | $ | (5,177,813 | ) | ||
| Non-cash investing and financing activities: | ||||||||
| Change in fair value of swap liability | $ | (1,955,204 | ) | $ | (1,892,010 | ) | ||
| Change in unrealized loss on cash flow hedge | $ | 1,147,778 | $ | 1,275,081 | ||||
| Change in purchased receivable obligations | $ | — | $ | (2,399,832 | ) | |||
| Capital lease obligations incurred | $ | 132,084 | $ | — | ||||
Reconciliation of GAAP Net Income or Loss to Adjusted EBITDA (Unaudited)
This press release includes a discussion of "Adjusted EBITDA," which is a non-GAAP financial measure. The Company defines Adjusted EBITDA as net income or loss plus (a) the provision for income taxes, (b) interest expense, (c) depreciation and amortization, (d) share-based compensation, (e) gain or loss on sale of assets, net, (f) non-cash restructuring charges and impairment of assets, (g) purchased receivables amortization, (h) loss on extinguishment of debt, and (i) in accordance with the Company’s credit facilities, certain FTC related charges, cash restructuring charges (not to exceed $2.25 million for any period of four consecutive fiscal quarters) and the Third Party Charge of $5.3 million incurred during 2010.
The Company believes this non-GAAP financial measure provides important supplemental information to management and investors. This non-GAAP financial measure reflects an additional way of viewing aspects of the Company's operations that, when viewed with the GAAP results and the accompanying reconciliation to the most directly comparable GAAP financial measure, provide a more complete understanding of factors and trends affecting the Company's business and results of operations.
Management uses Adjusted EBITDA for planning purposes, including the preparation of internal budgets and forecasts; in communications with the Board of Directors, stockholders, analysts and investors concerning its financial performance; as a key component in management’s annual incentive compensation plan; and as a measure of operating performance for the financial covenants in the Company’s amended credit agreement. The Company also believes that analysts and investors use Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in its industry.
Adjusted EBITDA, which is a non-GAAP financial measure, should not be considered an alternative to, or more meaningful than, net income or loss prepared on a GAAP basis. Management strongly encourages investors to review the Company's consolidated financial statements in their entirety and to not rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare this financial measure with other companies' non-GAAP financial measures having the same or similar names. In addition, the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above, and exclusion of these items from the Company's non-GAAP measure should not be construed as an inference that these costs are unusual, infrequent or non-recurring.
The Company provided the following table which reconciles GAAP net income or loss, as reported, to Adjusted EBITDA.
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
| 2011 | 2010 (1) | 2011 | 2010 (1) | |||||||||||||
| Net income (loss) | $ | 4,209,553 | $ | (6,993,368 | ) | $ | 12,024,560 | $ | (1,616,132 | ) | ||||||
| Adjustments: | ||||||||||||||||
| Income tax expense (benefit) | 1,965,691 | (2,441,534 | ) | 7,983,828 | (8,451,668 | ) | ||||||||||
| Interest expense | 3,828,286 | 2,689,237 | 11,760,564 | 11,203,730 | ||||||||||||
| Loss on extinguishment of debt | 1,110,850 | — | 1,110,850 | — | ||||||||||||
| Depreciation and amortization | 1,171,646 | 1,188,379 | 4,166,279 | 4,665,775 | ||||||||||||
| Share-based compensation | (60,969 | ) | 222,302 | 1,012,272 | 1,194,802 | |||||||||||
| Loss (gain) on sale of assets, net | 82,116 | (145,228 | ) | (4,066 | ) | (998,248 | ) | |||||||||
| Non-cash restructuring charges and impairment of assets | 11,982 | 324,076 | 11,982 | 1,189,900 | ||||||||||||
| Purchased receivables amortization | 25,940,726 | 29,771,257 | 133,078,378 | 133,024,889 | ||||||||||||
| 2010 Third Party Charge | — | 5,300,000 | — | 5,300,000 | ||||||||||||
| Cash restructuring charges | 62,682 | 1,860,065 | 62,682 | 2,250,000 | ||||||||||||
| FTC related charges | 103,013 | 1,662,879 | 1,700,573 | 1,966,468 | ||||||||||||
| Adjusted EBITDA | $ | 38,425,576 | $ | 33,438,065 | $ | 172,907,902 | $ | 149,729,516 | ||||||||
| (1) | Adjusted EBITDA as reported for 2010 has been restated to be consistent with the current presentation. Our definition of Adjusted EBITDA was updated during 2011 in order to be consistent with a similar definition in our amended and restated Credit Agreement. The restatement increased the amounts previously disclosed by $7,166,190 and $7,557,598 for the three months and twelve months ended December 31, 2010, respectively. We believe the revised definition of Adjusted EBITDA better matches the uses as described above. | |||