Exhibit 99.1
SILVER TRIANGLE BUILDING
25505 WEST TWELVE MILE ROAD, SUITE 3000
SOUTHFIELD, MI 48034-8339
(248) 353-2700
CREDITACCEPTANCE.COM
NEWS RELEASE
FOR IMMEDIATE RELEASE
DATE: APRIL 30, 2007
INVESTOR RELATIONS: DOUGLAS W. BUSK
TREASURER
(248) 353-2700 EXT. 4432
IR@CREDITACCEPTANCE.COM
NASDAQ SYMBOL: CACC
CREDIT ACCEPTANCE ANNOUNCES
FIRST QUARTER 2007 EARNINGS
SOUTHFIELD, MICHIGAN - APRIL 30, 2007 - CREDIT ACCEPTANCE CORPORATION (NASDAQ:
CACC) (referred to as the "Company", "we", "our", or "us") announced
consolidated net income of $15.4 million, or $0.49 per diluted share, for the
three months ended March 31, 2007 compared to consolidated net income of $17.2
million, or $0.45 per diluted share for the same period in 2006. Refer to the
Company's Form 10-Q, filed today with the Securities and Exchange Commission,
and which will appear on the Company's website at creditacceptance.com, for a
complete discussion of the results of operations and financial data for the
three months ended March 31, 2007.
The remainder of this press release will focus primarily on operating and
adjusted financial results. We use adjusted financial results to measure
financial performance and to determine incentive compensation. We believe
adjusted financial results offer shareholders the best reflection of the
economics of our business. Also included in this press release is a
reconciliation between adjusted financial results and GAAP financial results.
OPERATING RESULTS
Results for the 2007 first quarter compared to the 2006 first quarter include
the following:
- Consumer loan unit volume increased 26.3%.
- Consumer loan dollar volume increased 41.6%.
- The number of active dealer-partners increased 28.1%.
- Consumer loan unit volume per active dealer-partner decreased 1.0%.
- Net cash collections on loans increased 8.8%.
- Dealer holdback payments increased 16.9%.
The following table summarizes loan origination growth in each of the last five
quarters compared with the same quarter 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
1
CONSUMER LOAN PERFORMANCE
Although the majority of loan originations are recorded in the Company's
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
the Company's financial results. The following table presents forecasted
consumer loan collection rates, advance rates, the spread (the forecasted
collection rate less the advance rate), and the percentage of the forecasted
collections that had been realized as of March 31, 2007 for the United States
business segment. Payments of dealer holdback and accelerated payments of dealer
holdback are not included in the analysis of the initial advance paid to the
dealer-partner. All amounts are presented as a percentage of the initial balance
of the consumer loan (principal + interest).
AS OF MARCH 31, 2007
-----------------------------------------------------------------------
YEAR OF ORIGINATION FORECASTED COLLECTION % ADVANCE % SPREAD % % OF FORECAST REALIZED
------------------- ----------------------- --------- -------- ----------------------
1997 58.4% 47.9% 10.5% 99.9%
1998 67.4% 46.0% 21.4% 99.4%
1999 72.4% 48.7% 23.7% 98.6%
2000 72.9% 47.9% 25.0% 97.8%
2001 67.8% 46.0% 21.8% 97.2%
2002 70.8% 42.2% 28.6% 97.0%
2003 74.3% 43.4% 30.9% 95.8%
2004 74.1% 44.0% 30.1% 87.0%
2005 74.0% 46.9% 27.1% 70.6%
2006 71.0% 46.6% 24.4% 33.3%
2007 69.1% 46.1% 23.0% 4.4%
The following table compares the Company's forecast of consumer loan collection
rates as of March 31, 2007, with the forecast as of December 31, 2006:
MARCH 31, 2007 DECEMBER 31, 2006
YEAR OF ORIGINATION FORECASTED COLLECTION % FORECASTED COLLECTION % VARIANCE
------------------- ----------------------- ----------------------- --------
1997 58.4% 58.4% 0.0%
1998 67.4% 67.5% (0.1%)
1999 72.4% 72.4% 0.0%
2000 72.9% 73.0% (0.1%)
2001 67.8% 67.7% 0.1%
2002 70.8% 70.7% 0.1%
2003 74.3% 74.2% 0.1%
2004 74.1% 73.9% 0.2%
2005 74.0% 74.2%* (0.2%)
2006 71.0% 71.1%* (0.1%)
* These forecasted collection percentage amounts differ from those
previously reported as they have been revised for a seasonality
factor. The following table compares the Company's forecast of
consumer loan collection rates as of March 31, 2007, with the forecast
as of December 31, 2006, without the revised seasonality factors:
YEAR OF ORIGINATION MARCH 31, 2007 DECEMBER 31, 2006 VARIANCE
------------------- -------------- ----------------- --------
2005 74.2% 73.8% 0.4%
2006 71.9% 70.5% 1.4%
Forecasted collection percentage amounts prior to 2005 are not
impacted by the seasonality factors.
Collection results for the 2007 first quarter were generally consistent with the
Company's expectations.
2
ADJUSTED FINANCIAL RESULTS
Adjusted financial results are provided to help shareholders understand the
Company's 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 revenue, adjusted operating expense, adjusted other
expense and economic profit are all non-GAAP financial measures.
Adjusted financial results for the 2007 first quarter compared to the 2006 first
quarter include the following:
- Adjusted net income increased 9.9%, to $16.5 million from $15.0
million.
- Adjusted net income per diluted share increased 35.9%, to $0.53 from
$0.39.
- Interest expense increased 137.0%, to $8.5 million from $3.6 million
and weighted average diluted shares outstanding decreased 19.0% to
31,283,695 from 38,609,257 primarily due to share repurchases.
- Adjusted average capital increased 20.8%.
- Adjusted return on capital increased to 13.9% from 13.3%.
- Economic profit increased 67.7%, to $10.7 million from $6.4 million.
The improvement in the adjusted return on capital reflects the following:
- $1.2 million in revenue ($.02 per diluted share after-tax) related to
profit sharing payments received from ancillary product providers
during the first quarter of 2007. The Company's agreements with three
of its ancillary product providers allow the Company to receive profit
sharing payments depending upon the performance of the programs.
Profit sharing payments are received once a year, if eligible. No
additional payments are expected in 2007. Profit sharing payments are
not estimable and therefore revenue related to these payments is
recognized in the period the payments are received.
- Lower levels of salaries and wages, general and administrative, and
sales and marketing expenses as compared to a year ago. These
expenses, as a percentage of average adjusted capital declined from
16.7% during the first quarter of 2006 to 14.2% for the same period in
2007. This decline primarily reflects unusually high operating
expenses during the 2006 period.
These favorable items were partially offset by lower adjusted finance charge
revenue, as a percentage of capital, as a result of pricing changes made during
the third quarter of 2006 and in the first quarter of 2007 described in previous
press releases. Adjusted finance charge revenue, as a percentage of adjusted
average capital, declined from 34.0% in the first quarter of 2006 to 32.1% for
the same period in 2007. Adjusted finance charge revenue is calculated as
follows: (GAAP finance charge revenue) + (the floating yield adjustment) + (GAAP
license fee revenue) + (the license fee yield adjustment) - (the GAAP provision
for credit losses).
3
The following table shows how these non-GAAP measures reconcile to GAAP
measures:
FOR THE THREE MONTHS ENDED
MARCH 31,
------------------------------------
(Dollars in thousands, except per share data) 2007 2006 % Change
----------- ----------- --------
ADJUSTED NET INCOME
GAAP net income $ 15,360 $ 17,197
Floating yield adjustment (after-tax) 82 (1,950)
License fee yield adjustment (after-tax) 1,564 (662)
Adjustment resulting in comparable tax rate for both periods (1) (464) 464
----------- -----------
Adjusted net income $ 16,542 $ 15,049 9.9%
=========== ===========
ADJUSTED NET INCOME PER DILUTED SHARE $ 0.53 $ 0.39 35.9%
Diluted weighted average shares outstanding: 31,283,695 38,609,257
ADJUSTED AVERAGE CAPITAL
GAAP average debt $ 412,715 $ 164,955
GAAP average shareholders' equity 217,977 356,979
Floating yield adjustment 6,587 5,244
License fee yield adjustment (7,684) (6,017)
----------- -----------
Adjusted average capital $ 629,595 $ 521,161 20.8%
=========== ===========
ADJUSTED RETURN ON CAPITAL
Adjusted net income $ 16,542 $ 15,049
GAAP interest expense after-tax (2) 5,337 2,252
----------- -----------
Adjusted net income plus interest expense after-tax $ 21,879 $ 17,301 26.5%
=========== ===========
Adjusted return on capital (3) 13.9% 13.3%
=========== ===========
ECONOMIC PROFIT (4)
Adjusted return on capital 13.9% 13.3%
Cost of capital (5) 7.1% 8.4%
----------- -----------
Adjusted return on capital in excess of cost of capital 6.8% 4.9%
Adjusted average capital $ 629,595 $ 521,161
----------- -----------
Economic profit $ 10,704 $ 6,384 67.7%
=========== ===========
(1) This adjustment allows the reader to compare the current period to the
prior period assuming a comparable tax rate in both periods. The Company
estimates a 37% long term effective tax rate.
(2) Interest expense after-tax calculated using a 37% 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) Economic profit is defined as adjusted net income less an imputed cost of
adjusted equity capital.
(5) 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 the Company's use of
debt. The actual 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 months ended March 31, 2007, the formula used to calculate the
cost of equity capital is as follows: (4.8% +5%) + [(1 - 37%) x (4.8% + 5%
- 8.2%) x 412,715 / (217,977 + 412,715 x 37%)] = 10.9%. For the same period
the cost of capital is calculated as follows: (10.9% x (217,977 + 6,587 -
7,684) / 629,595) + (5.2% x 412,715 / 629,595) = 7.1%.
4
FLOATING YIELD ADJUSTMENT
The purpose of this adjustment is to modify the calculation of our GAAP-based
finance charge revenue so both 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. The Company's GAAP finance charge revenue is
based on estimates of future cash flows and is recognized on a level yield
basis. 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 level 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
economics of the 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 the results for license fee revenue
comparable across time periods. In 2001, the Company had begun charging
dealer-partners a monthly licensing fee for access to the Company's internet
based Credit Approval Processing System, also known as CAPS.
Effective January 1, 2007, the Company implemented a change designed to
positively impact dealer-partner attrition. The Company will continue to charge
a monthly license fee of $599, but instead of collecting the fee in the current
period, the Company will collect it from future dealer holdback payments.
As a result of this change, the Company now records license fees on a GAAP basis
as a yield adjustment, recognizing these fees over the term of the dealer loan
because collection is dependent on the future cash flows of the loan.
Previously, the Company had recorded the fee as revenue in the month the fee was
charged. The new GAAP treatment is more consistent with the cash economics of
the business.
To allow for proper comparisons between periods, the Company now makes an
adjustment to its financial results as though they had always been recorded as a
yield adjustment. This change is shown as the license fee yield adjustment in
the adjusted financial results table above.
5
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The Company claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 for
all of its forward-looking statements. Certain statements in this release that
are not historical facts, such as those using terms like "may," "will,"
"should," "believes," "expects," "anticipates," "assumes," "forecasts,"
"estimates," "intends," "plans" and those regarding the Company's future
results, plans and objectives, are "forward-looking statements" within the
meaning of the federal securities laws. These forward-looking statements
represent the Company's outlook only as of the date of this release. While the
Company believes that its 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 the Company's Form 10-K for the year ended December 31, 2006,
other risk factors discussed herein or listed from time to time in the Company's
reports filed with the Securities and Exchange Commission and the following:
- The Company's inability to accurately forecast the amount and timing
of future collections could have a material adverse effect on results
of operations.
- Due to increased competition from traditional financing sources and
non-traditional lenders, the Company may not be able to compete
successfully.
- The Company's ability to maintain and grow the business is dependent
on the ability to continue to access funding sources and obtain
capital on favorable terms.
- The Company may not be able to generate sufficient cash flow to
service its outstanding debt and fund operations.
- The substantial regulation to which the Company is 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 the Company's financial position, liquidity and
results of operations and its ability to enter into future financing
transactions.
- Litigation the Company is involved in from time to time may adversely
affect its financial condition, results of operations and cash flows.
- The Company is dependent on its senior management and the loss of any
of these individuals or an inability to hire additional personnel
could adversely affect its 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 the business, financial condition and
results of operations.
Other factors not currently anticipated by management may also materially and
adversely affect the Company's results of operations. The Company does not
undertake, and expressly disclaims any obligation, to update or alter its
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 may be unable to purchase a vehicle or they may
purchase an unreliable one, or they may not have the opportunity to improve
their credit standing. As we report to the three national credit reporting
agencies, a significant number of our customers 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
6
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------
(Dollars in thousands, except per share data) 2007 2006
----------- -----------
REVENUE:
Finance charges $ 51,413 $ 46,007
License fees 82 2,897
Other income 5,856 4,122
----------- -----------
Total revenue 57,351 53,026
----------- -----------
COSTS AND EXPENSES:
Salaries and wages 11,861 10,594
General and administrative 5,967 6,765
Sales and marketing 4,472 4,359
Provision for credit losses 3,873 524
Interest 8,471 3,574
Other expense 25 82
----------- -----------
Total costs and expenses 34,669 25,898
----------- -----------
Operating income 22,682 27,128
Foreign currency gain 4 5
----------- -----------
Income from continuing operations before provision
for income taxes 22,686 27,133
Provision for income taxes 7,299 9,928
----------- -----------
Income from continuing operations 15,387 17,205
----------- -----------
Discontinued operations
Loss from discontinued United Kingdom operations (38) (13)
Credit for income taxes (11) (5)
----------- -----------
Loss on discontinued operations (27) (8)
----------- -----------
Net income $ 15,360 $ 17,197
=========== ===========
Net income per common share:
Basic $ 0.51 $ 0.48
=========== ===========
Diluted $ 0.49 $ 0.45
=========== ===========
Income from continuing operations per common share:
Basic $ 0.51 $ 0.48
=========== ===========
Diluted $ 0.49 $ 0.45
=========== ===========
Loss from discontinued operations per common share:
Basic $ (0.00) $ (0.00)
=========== ===========
Diluted $ (0.00) $ (0.00)
=========== ===========
Weighted average shares outstanding:
Basic 30,054,349 36,146,994
Diluted 31,283,695 38,609,257
7
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF
--------------------------
MARCH 31,
2007 DECEMBER 31,
(Dollars in thousands, except per share data) (UNAUDITED) 2006
----------- ------------
ASSETS:
Cash and cash equivalents $ 299 $ 8,528
Restricted cash and cash equivalents 54,302 45,609
Restricted securities available for sale 3,878 3,564
Loans receivable (including $18,886 and $23,038 from
affiliates as of March 31, 2007 and December 31, 2006,
respectively) 835,850 754,571
Allowance for credit losses (128,249) (128,791)
--------- ---------
Loans receivable, net 707,601 625,780
--------- ---------
Property and equipment, net 16,402 16,203
Income taxes receivable 14,925 11,734
Other assets 15,464 13,795
--------- ---------
Total Assets $ 812,871 $ 725,213
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities $ 84,075 $ 78,294
Line of credit 36,900 38,400
Secured financing 401,797 345,144
Mortgage note and capital lease obligations 8,301 8,631
Deferred income taxes, net 54,941 44,397
--------- ---------
Total Liabilities 586,014 514,866
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value, 80,000,000 shares authorized,
30,291,517 and 30,179,959 shares issued and outstanding as
of March 31, 2007 and December 31, 2006, respectively 303 302
Paid-in capital 2,055 828
Retained earnings 224,524 209,253
Accumulated other comprehensive loss, net of tax of $14 and
$19 at March 31, 2007 and December 31, 2006, respectively (25) (36)
--------- ---------
Total Shareholders' Equity 226,857 210,347
--------- ---------
Total Liabilities and Shareholders' Equity $ 812,871 $ 725,213
========= =========
8