SOUTHFIELD, Mich., Oct. 30, 2007 (PRIME NEWSWIRE) -- Credit Acceptance Corporation (Nasdaq:CACC) (referred to as the "Company", "we", "our", or "us") announced consolidated net income of $14.7 million, or $0.47 per diluted share, for the three months ended September 30, 2007 compared to consolidated net income of $15.3 million, or $0.44 per diluted share for the same period in 2006. For the nine months ended September 30, 2007 consolidated net income was $42.4 million, or $1.36 per diluted share, compared to consolidated net income of $50.1 million, or $1.38 per diluted share for the same period in 2006.
Income from continuing operations for the three months ended September 30, 2007 was $13.5 million, or $0.43 per diluted share compared to $15.4 million, or $0.44 per diluted share for the same period in 2006. For the nine months ended September 30, 2007, income from continuing operations was $41.3 million, or $1.32 per diluted share, compared to $50.3 million, or $1.38 per diluted share for the same period in 2006.
Refer to our Form 10-Q, filed today with the Securities and Exchange Commission, which will appear on our website at creditacceptance.com, for a complete discussion of the results of operations and financial data for the three and nine months ended September 30, 2007.
Operating Results -----------------
Results for the three and nine months ended September 30, 2007 compared to the same periods in 2006 include the following:
% Change
-------------------------------
Three Months Nine Months
Ended Ended
September 30, September 30,
2007 2007
-------------------------------
Consumer loan unit volume -1.3% 17.0%
Consumer loan dollar volume -0.3% 27.2%
Number of active dealer-partners 22.3% 27.2%
Total cash collections on loans 7.1% 8.8%
Average consumer loan amount 1.1% 8.7%
Average loan receivable balance 27.2% 21.7%
Originations ------------
The following table summarizes consumer loan origination dollar growth in each of the last seven quarters compared with the same period in the previous year:
Year over Year
Growth in Consumer Loan Dollar Volume
-----------------------------------------------
Three Months Ended % Change
-------------------- ------------
March 31, 2006 10.3%
June 30, 2006 5.0%
September 30, 2006 27.8%
December 31, 2006 39.2%
March 31, 2007 41.6%
June 30, 2007 40.5%
September 30, 2007 -0.3%
Loan origination dollar volume declined 0.3% during the third quarter of 2007 as compared to the prior year same period. This decline follows four consecutive quarters of very rapid loan growth. As detailed in the table below, the decline in loan origination volume was the result of lower volumes per dealer-partner, partially offset by an increase in the number of active dealer-partners. Average volume per dealer-partner declined as a result of reduced advance rates as compared to the prior year period. Advance rates were reduced during the first six months of 2007 in order to increase the spread between the advance rate and the collection rate and reduce the risk of future advance losses.
The following table summarizes the changes in active dealer-partners and corresponding consumer loan unit volume for the three months ended September 30, 2007 and 2006:
Three Months Ended
September 30,
---------------------------
2007 2006 % change
------ ------ --------
Consumer loan unit volume 22,351 22,648 -1.3%
Active dealer-partners (1) 1,945 1,590 22.3%
------ ------
Average volume per active
dealer-partner 11.5 14.2 -19.0%
Consumer loan unit volume from
dealer-partners active both periods 14,942 18,067 -17.3%
Dealer-partners active both periods 1,025 1,025 0.0%
------ ------
Average volume per dealer-partner
active both periods 14.6 17.6 -17.3%
Consumer loan unit volume from new
dealer-partners 5,504 1,322 316.3%
New active dealer-partners (2) 702 218 222.0%
------ ------
Average volume per new active
dealer-partner 7.8 6.1 27.9%
Attrition (3) -20.2% -20.3%
1) Active dealer-partners are dealer-partners who submit at
least one consumer loan during the period.
2) New active dealer-partners are dealer-partners who enrolled
in our program and submitted their first consumer loan to us
during the periods presented.
3) Attrition is measured according to the following formula:
decrease in consumer loan unit volume from dealer-partners
who submitted at least one consumer loan during the
comparable period of the prior year but who submitted no
consumer loans during the current period divided by prior
year comparable period consumer loan unit volume.
Consumer Loan Performance -------------------------
Although the majority of loan originations are recorded in our financial statements as dealer loans, each transaction starts with a loan from the dealer-partner to the individual purchasing the vehicle. Since the cash flows available to repay the dealer loans are generated, in most cases, from the underlying consumer loan, the performance of the consumer loans is critical to our financial results. The following table presents forecasted consumer loan collection rates, advance rates (includes amounts paid to acquire purchased loans), the spread (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of September 30, 2007. Payments of dealer holdback and accelerated payments of dealer holdback are not included in the advance percentage paid to the dealer-partner. All amounts are presented as a percentage of the initial balance of the consumer loan (principal + interest). The table includes both dealer loans and purchased loans (refer to our Form 10-Q for definitions of each).
Loan % of
Origination Forecasted Forecast
Year Collection % Advance % Spread % Realized
------------ ------------ ------------ ------------ ------------
1998 67.4% 46.1% 21.3% 99.7%
1999 72.3% 48.7% 23.6% 99.0%
2000 72.9% 47.9% 25.0% 98.2%
2001 67.8% 46.0% 21.8% 97.6%
2002 71.0% 42.2% 28.8% 97.2%
2003 74.5% 43.4% 31.1% 96.9%
2004 73.9% 44.0% 29.9% 92.0%
2005 74.3% 46.9% 27.4% 81.3%
2006 70.4% 46.6% 23.8% 52.1%
2007 70.1% 46.4% 23.7% 16.0%
The following tables compare our forecast of consumer loan collection rates as of September 30, 2007, with the forecast as of June 30, 2007 and as of December 31, 2006:
September 30, June 30,
Loan 2007 2007
Origination Forecasted Forecasted
Year Collection % Collection % Variance
------------ ------------ ------------ ------------
1998 67.4% 67.5% -0.1%
1999 72.3% 72.4% -0.1%
2000 72.9% 72.9% 0.0%
2001 67.8% 67.8% 0.0%
2002 71.0% 71.0% 0.0%
2003 74.5% 74.4% 0.1%
2004 73.9% 74.0% -0.1%
2005 74.3% 74.1% 0.2%
2006 70.4% 70.7% -0.3%
September 30, December 31,
Loan 2007 2006
Origination Forecasted Forecasted
Year Collection % Collection % Variance
------------ ------------ ------------ ------------
1998 67.4% 67.5% -0.1%
1999 72.3% 72.4% -0.1%
2000 72.9% 73.0% -0.1%
2001 67.8% 67.7% 0.1%
2002 71.0% 70.7% 0.3%
2003 74.5% 74.2% 0.3%
2004 73.9% 73.9% 0.0%
2005 74.3% 74.2%* 0.1%
2006 70.4% 71.1%* -0.7%
2007 70.1% 69.9%** 0.2%
* These forecasted collection percentages differ from those previously reported in our Annual Report on Form 10-K for the year ended December 31, 2006 and our 2006 earnings release as they have been revised for a seasonality factor. This seasonality factor was first applied during the first quarter of 2007. The following table compares our forecast of consumer loan collection rates as of September 30, 2007, with the forecast as of December 31, 2006, without the seasonality factors:
September 30, December 31,
Loan 2007 2006
Origination Forecasted Forecasted
Year Collection % Collection % Variance
------------ ------------ ------------ ------------
2005 74.3% 73.8% 0.5%
2006 70.4% 70.5% -0.1%
Forecasted collection percentages prior to 2005 are not materially impacted by the seasonality factors.
** Collection percentage represents the initial forecasted collection percentage for 2007 originations.
Adjusted Financial Results --------------------------
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 tables below show our results following adjustments to reflect non-GAAP accounting methods. These adjustments are explained in the table footnotes and the subsequent "Floating Yield Adjustment" and "License Fee Yield 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 finance charge revenue, 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 nine months ended September 30, 2007 compared to the same periods in 2006 include the following:
(Dollars in thousands,
except per share data) For the Three Months Ended
September 30,
----------------------------------
2007 2006 % Change
---------- ---------- ----------
Adjusted average capital $ 724,884 $ 540,018 34.2%
Adjusted net income $ 15,740 $ 15,862 -0.8%
Interest expense after-tax $ 5,689 $ 3,677 54.7%
Adjusted net income plus
interest expense after-tax $ 21,429 $ 19,539 9.7%
Adjusted return on capital 11.8% 14.5% -18.6%
Cost of capital 7.1% 8.0% -11.3%
Economic profit $ 8,517 $ 8,775 -2.9%
GAAP Diluted weighted average
shares outstanding 31,139,612 35,074,557 -11.2%
Adjusted net income per
diluted share $ 0.51 $ 0.45 13.3%
For the Nine Months Ended
September 30,
---------------------------------
2007 2006 % Change
---------- ---------- ---------
Adjusted average capital $ 687,604 $ 536,289 28.2%
Adjusted net income $ 46,697 $ 47,702 -2.1%
Interest expense after-tax $ 16,871 $ 9,495 77.7%
Adjusted net income plus
interest expense after-tax $ 63,568 $ 57,197 11.1%
Adjusted return on capital 12.3% 14.2% -13.4%
Cost of capital 7.1% 8.3% -14.5%
Economic profit $ 26,817 $ 23,731 13.0%
GAAP Diluted weighted average
shares outstanding 31,228,893 36,348,390 -14.1%
Adjusted net income per
diluted share $ 1.50 $ 1.31 14.5%
Economic profit decreased 2.9% for the three months ended September 30, 2007 and increased 13.0% for the nine months ended September 30, 2007.
For the three months ended September 30, 2007, adjusted average capital grew at 34.2% while the adjusted return on capital declined from 14.5% to 11.8%. For the nine months, adjusted average capital grew at 28.2% while the adjusted return on capital declined from 14.2% to 12.3%. Pricing changes implemented in the third quarter of 2006 positively impacted growth in adjusted average capital and negatively impacted the return on capital for the 2007 periods.
The following table shows how non-GAAP measures reconcile to GAAP measures:
(Dollars in thousands, except per share data)
For the Three Months Ended
September 30,
----------------------------------
2007 2006 % Change
---------- ---------- --------
Adjusted net income (1)
----------------------
GAAP net income $ 14,742 $ 15,342
Floating yield
adjustment (after-tax) 1,265 1,273
License fee yield
adjustment (after-tax) 925 (663)
Reduction in tax reserves
related to discontinued
United Kingdom segment (1,282) --
Adjustment resulting in
comparable tax rate for
both periods (2) 90 (90)
---------- ----------
Adjusted net income $ 15,740 $ 15,862 -0.8%
========== ==========
Adjusted net income
per diluted share $ 0.51 $ 0.45 13.3%
-------------------
Diluted weighted average
shares outstanding: 31,139,612 35,074,557 -11.2%
Adjusted average capital
------------------------
GAAP average debt $ 477,930 $ 260,439
GAAP average shareholders'
equity 243,922 281,631
Floating yield adjustment 8,348 5,295
License fee yield adjustment (5,316) (7,347)
---------- ----------
Adjusted average capital $ 724,884 $ 540,018 34.2%
========== ==========
Adjusted return on capital
--------------------------
Adjusted net income $ 15,740 $ 15,862
Interest expense after-tax 5,689 3,677
---------- ----------
Adjusted net income plus
interest expense after-tax $ 21,429 $ 19,539 9.7%
========== ==========
Adjusted return on
capital (3) 11.8% 14.5% -18.6%
========== ==========
Economic profit
---------------
Adjusted return on capital 11.8% 14.5%
Cost of capital (4) 7.1% 8.0%
---------- ----------
Adjusted return on capital in
excess of cost of capital 4.7% 6.5%
Adjusted average capital $ 724,884 $ 540,018
---------- ----------
Economic profit $ 8,517 $ 8,775 -2.9%
========== ==========
For the Nine Months Ended
September 30,
----------------------------------
2007 2006 % Change
---------- ---------- --------
Adjusted net income (1)
-----------------------
GAAP net income $ 42,432 $ 50,145
Floating yield
adjustment (after-tax) 1,964 (558)
License fee yield
adjustment (after-tax) 3,633 (1,935)
Reduction in tax reserves
related to discontinued
United Kingdom segment (1,282) --
Adjustment resulting in
comparable tax rate for
both periods (2) (50) 50
---------- ----------
Adjusted net income $ 46,697 $ 47,702 -2.1%
========== ==========
Adjusted net income
per diluted share $ 1.50 $ 1.31 14.5%
-------------------
Diluted weighted average
shares outstanding: 31,228,893 36,348,390 -14.1%
Adjusted average capital
------------------------
GAAP average debt $ 454,595 $ 223,807
GAAP average shareholders'
equity 231,788 313,996
Floating yield adjustment 7,669 5,179
License fee yield adjustment (6,448) (6,693)
---------- ----------
Adjusted average capital $ 687,604 $ 536,289 28.2%
========== ==========
Adjusted return on capital
--------------------------
Adjusted net income $ 46,697 $ 47,702
Interest expense after-tax 16,871 9,495
---------- ----------
Adjusted net income plus
interest expense after-tax $ 63,568 $ 57,197 11.1%
========== ==========
Adjusted return on
capital (3) 12.3% 14.2% -13.4%
========== ==========
Economic profit
---------------
Adjusted return on capital 12.3% 14.2%
Cost of capital (4) 7.1% 8.3%
---------- ----------
Adjusted return on capital
in excess of cost of capital 5.2% 5.9%
Adjusted average capital $ 687,604 $ 536,289
---------- ----------
Economic profit $ 26,817 $ 23,731 13.0%
========== ==========
1) All after-tax adjustments calculated using a 37% tax rate.
2) This adjustment allows the reader to compare the current
period to the prior period assuming a comparable tax rate in
both periods. We estimate a 37% long term effective tax
rate.
3) Adjusted return on capital is defined as annualized adjusted
net income plus 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 three and nine months ended
September 30, 2007, the average 30 year treasury rate was
4.9% and the pre-tax average cost of debt was 7.6% and 7.9%,
respectively.
Floating Yield Adjustment -------------------------
The purpose of this 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.
Finance charge revenue 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 always 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 floating yield earnings are a more accurate reflection of the performance of our business, since both favorable and unfavorable changes in estimated cash flows are treated consistently.
License Fee Yield Adjustment ----------------------------
The purpose of this adjustment is to make revenue from license fees comparable across time periods. In 2001, we began charging dealer-partners a monthly licensing fee for access to our internet-based Credit Approval Processing System, also known as CAPS.
Effective January 1, 2007, we implemented a change in the way these fees are charged designed to positively impact dealer-partner attrition. We continue to charge a monthly license fee of $599, but instead of collecting the fee in the current period, we collect it from future dealer holdback payments.
As a result of this change, (as of January 1, 2007) we record license fees on a GAAP basis as a yield adjustment, recognizing these fees as finance charge revenue over the term of the dealer loan because collection is dependent on the future cash flows of the loan. Previously, we had recorded the fee as license fee revenue in the month the fee was charged. The current GAAP treatment is more consistent with the cash economics of the business.
To allow for proper comparisons between periods, we make an adjustment to our financial results as though license fees had always been recorded as a yield adjustment.
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. Certain 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" 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. While we believe that our forward-looking statements are reasonable, actual results could differ materially 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, 2006, 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 the amount and timing
of future collections could have a material adverse effect
on our results of operations.
* Due to increased competition from traditional financing
sources and non-traditional lenders, we may not be able to
compete successfully.
* Our ability to maintain and grow the business is dependent
on our ability to continue to access funding sources and
obtain capital on favorable terms.
* We may not be able to generate sufficient cash flow to
service our outstanding debt and fund operations.
* The substantial regulation to which we are subject limits
the business, and such regulation or changes in such
regulation could result in potential liability.
* Adverse changes in economic conditions, or in the automobile
or finance industries or the non-prime consumer finance
market, could adversely affect our financial position,
liquidity and results of operations 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.
* We are dependent on our senior management and the loss of
any of these individuals or an inability to hire additional
personnel could adversely affect our ability to operate
profitably.
* Natural disasters, acts of war, terrorist attacks and
threats or the escalation of military activity in response
to such 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 provided auto loans to consumers, regardless of their credit history. Our product is 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 product, consumers are often unable to purchase a vehicle or they purchase an unreliable one and are not provided the opportunity to improve their credit standing. As we report to the three national credit reporting agencies, a significant number of our consumers 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 INCOME STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
Revenue:
Finance charges $ 56,743 $ 47,474 $ 162,240 $ 141,400
License fees 60 3,599 226 9,700
Other income 4,255 4,329 14,229 12,409
---------- ---------- ---------- ----------
Total revenue 61,058 55,402 176,695 163,509
---------- ---------- ---------- ----------
Costs and expenses:
Salaries and wages 13,620 10,908 38,573 31,467
General and
administrative 7,266 6,063 20,542 19,125
Sales and marketing 3,835 3,942 12,451 11,707
Provision for credit
losses 5,931 4,404 13,602 7,569
Interest 9,030 5,837 26,781 15,071
Other expense 16 40 74 177
---------- ---------- ---------- ----------
Total costs and
expenses 39,698 31,194 112,023 85,116
---------- ---------- ---------- ----------
Operating income 21,360 24,208 64,672 78,393
Foreign currency gain 26 1 64 12
---------- ---------- ---------- ----------
Income from continuing
operations before
provision for income
taxes 21,386 24,209 64,736 78,405
Provision for income
taxes 7,917 8,775 23,387 28,067
---------- ---------- ---------- ----------
Income from continuing
operations 13,469 15,434 41,349 50,338
---------- ---------- ---------- ----------
Discontinued operations
Loss from discontinued
United Kingdom
operations (9) (132) (280) (277)
Credit for income
taxes (1,282) (40) (1,363) (84)
---------- ---------- ---------- ----------
Gain (loss) on dis-
continued operations 1,273 (92) 1,083 (193)
---------- ---------- ---------- ----------
Net income $ 14,742 $ 15,342 $ 42,432 $ 50,145
========== ========== ========== ==========
Net income per common
share:
Basic $ 0.49 $ 0.46 $ 1.41 $ 1.47
========== ========== ========== ==========
Diluted $ 0.47 $ 0.44 $ 1.36 $ 1.38
========== ========== ========== ==========
Income from continuing
operations per common
share:
Basic $ 0.45 $ 0.47 $ 1.38 $ 1.48
========== ========== ========== ==========
Diluted $ 0.43 $ 0.44 $ 1.32 $ 1.38
========== ========== ========== ==========
Gain (loss) from dis-
continued operations
per common share:
Basic $ 0.04 $ (0.00) $ 0.04 $ (0.01)
========== ========== ========== ==========
Diluted $ 0.04 $ (0.00) $ 0.03 $ (0.01)
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 30,015,048 33,093,592 30,069,639 34,062,249
Diluted 31,139,612 35,074,557 31,228,893 36,348,390
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
As of
-----------------------
Sept. 30, Dec. 31,
2007 2006
(Unaudited)
--------- ---------
ASSETS:
Cash and cash equivalents $ 5,407 $ 8,528
Restricted cash and cash equivalents 64,518 45,609
Restricted securities available for sale 3,504 3,564
Loans receivable (including $16,559 and
$23,038 from affiliates as of September 30,
2007 and December 31, 2006, respectively) 886,033 754,571
Allowance for credit losses (130,037) (128,791)
--------- ---------
Loans receivable, net 755,996 625,780
--------- ---------
Property and equipment, net 18,760 16,203
Income taxes receivable 11,884 11,734
Other assets 11,125 13,795
--------- ---------
Total Assets $ 871,194 $ 725,213
========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Liabilities:
Accounts payable and accrued liabilities $ 80,719 $ 78,294
Line of credit 37,300 38,400
Secured financing 445,600 345,144
Mortgage note and capital lease obligations 7,610 8,631
Deferred income taxes, net 50,139 44,397
--------- ---------
Total Liabilities 621,368 514,866
--------- ---------
Shareholders' Equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value,
80,000,000 shares authorized,
30,173,342 and 30,179,959 shares
issued and outstanding as of
September 30, 2007 and
December 31, 2006, respectively 302 302
Paid-in capital 1,014 828
Retained earnings 248,518 209,253
Accumulated other comprehensive
loss, net of tax of $4 and
$19 at September 30, 2007 and
December 31, 2006, respectively (8) (36)
--------- ---------
Total Shareholders' Equity 249,826 210,347
--------- ---------
Total Liabilities and Shareholders' Equity $ 871,194 $ 725,213
========= =========