-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PuJ6u7jTzLqh0Uq+AdK2vgkh1SeqFn9+ZD6nToptpIkvm5GadN2SxJhZcpb3Xpxa tCK16skBfkOWNZxy4Wg5Uw== 0000950124-07-004034.txt : 20070807 0000950124-07-004034.hdr.sgml : 20070807 20070807165433 ACCESSION NUMBER: 0000950124-07-004034 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070802 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070807 DATE AS OF CHANGE: 20070807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREDIT ACCEPTANCE CORPORATION CENTRAL INDEX KEY: 0000885550 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 381999511 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20202 FILM NUMBER: 071032268 BUSINESS ADDRESS: STREET 1: 25505 W TWELVE MILE RD STREET 2: STE 3000 CITY: SOUTHFIELD STATE: MI ZIP: 48034-8334 BUSINESS PHONE: 8103532700 MAIL ADDRESS: STREET 1: 25505 WEST TWELVE MILE ROAD STREET 2: SUITE 3000 CITY: SOUTHFIELD STATE: MI ZIP: 48034-8334 8-K 1 k17490e8vk.txt CURRENT REPORT DATED AUGUST 2, 2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported): August 2, 2007 CREDIT ACCEPTANCE CORPORATION ----------------------------- (Exact name of registrant as specified in its charter) Michigan 000-20202 38-1999511 - -------------------------------- ----------------- ---------------- (State or other jurisdiction (Commission (I.R.S.Employer of incorporation) File Number) Identification No.) 25505 West Twelve Mile Road, Suite 3000, 48034-8339 Southfield, Michigan - ----------------------------------------- -------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 248-353-2700 Not Applicable ----------------------------------------------------------- Former name or former address, if changed since last report Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On August 2, 2007, Credit Acceptance Corporation (the "Company"), issued a press release announcing its financial results for the three and six month period ended June 30, 2007. The press release is attached as Exhibit 99.1 to this Form 8-K and incorporated herein by reference. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (d) Exhibits. 99.1 Press Release dated August 2, 2007. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CREDIT ACCEPTANCE CORPORATION By: /s/ Kenneth S. Booth ------------------------------------------ Kenneth S. Booth Chief Financial Officer August 7, 2007 EX-99.1 2 k17490exv99w1.txt PRESS RELEASE DATED AUGUST 2, 2007 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: AUGUST 2, 2007 INVESTOR RELATIONS: DOUGLAS W. BUSK TREASURER (248) 353-2700 EXT. 4432 IR@CREDITACCEPTANCE.COM NASDAQ SYMBOL: CACC CREDIT ACCEPTANCE ANNOUNCES SECOND QUARTER 2007 EARNINGS SOUTHFIELD, MICHIGAN - AUGUST 2, 2007 - CREDIT ACCEPTANCE CORPORATION (NASDAQ: CACC) (referred to as the "Company", "we", "our", or "us") announced consolidated net income of $12.3 million, or $0.39 per diluted share, for the three months ended June 30, 2007 compared to consolidated net income of $17.6 million, or $0.50 per diluted share for the same period in 2006. For the six months ended June 30, 2007 consolidated net income was $27.7 million, or $0.88 per diluted share, compared to consolidated net income of $34.8 million, or $0.94 per diluted share for the same period in 2006. Refer to our Form 10-Q, filed today with the Securities and Exchange Commission, and 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 six months ended June 30, 2007. OPERATING RESULTS Results for the three and six months ended June 30, 2007 compared to the same periods in 2006 include the following:
% CHANGE ------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2007 JUNE 30, 2007 ------------------ ---------------- Consumer loan unit volume 24.2% 25.4% Consumer loan dollar volume 40.5% 41.2% Number of active dealer-partners 29.5% 29.5% Total cash collections on loans 10.7% 10.8% Dealer holdback payments 1.9% 9.3% Average consumer loan size 13.1% 12.6% Total average loan portfolio size 23.3% 19.3%
1 The following table summarizes consumer loan origination dollar growth in each of the last six 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%
The following table summarizes the changes in active dealer-partners and corresponding Consumer Loan unit volume for the three months ended June 30, 2007 and 2006:
THREE MONTHS ENDED JUNE 30, ---------------------------------- 2007 2006 % CHANGE ------------ --------- --------- Consumer Loan unit volume 25,053 20,176 24.2% Active dealer-partners (1) 1,955 1,510 29.5% ------------ --------- Average volume per dealer-partner 12.8 13.4 -4.5% Consumer Loan unit volume from dealer-partners active both periods 15,967 15,898 0.4% Dealer-partners active both periods 1,022 1,022 0.0% ------------ ---------- Average volume per dealer-partner active both periods 15.6 15.6 0.0% Consumer Loan unit volume from new dealer-partners 4,331 1,085 299.2% New active dealer-partners (2) 536 188 185.1% ------------ --------- Average volume per new active dealer-partner 8.1 5.8 39.7% Attrition (3) -21.2% -19.9%
(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 that have enrolled in our program and have submitted their first Consumer Loan to us during the period. (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. 2 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, the spread (the forecasted collection rate less the advance rate), and the percentage of the forecasted collections that had been realized as of June 30, 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).
FORECASTED % OF FORECAST LOAN ORIGINATION YEAR COLLECTION % ADVANCE % SPREAD % REALIZED --------------------- ------------ --------- -------- ------------- 1997 58.4% 47.9% 10.5% 99.9% 1998 67.5% 46.1% 21.4% 99.5% 1999 72.4% 48.7% 23.7% 98.7% 2000 72.9% 47.9% 25.0% 98.0% 2001 67.8% 46.0% 21.8% 97.3% 2002 71.0% 42.2% 28.8% 97.0% 2003 74.4% 43.4% 31.0% 96.3% 2004 74.0% 44.0% 30.0% 88.9% 2005 74.1% 46.9% 27.2% 74.5% 2006 70.7% 46.6% 24.1% 39.9% 2007 70.4% 46.4% 24.0% 7.2%
The following tables compare our forecast of consumer loan collection rates as of June 30, 2007, with the forecast as of March 31, 2007 and as of December 31, 2006:
JUNE 30, 2007 MARCH 31, 2007 LOAN ORIGINATION YEAR FORECASTED COLLECTION % FORECASTED COLLECTION % VARIANCE - --------------------- ----------------------- ----------------------- -------- 1997 58.4% 58.4% 0.0 % 1998 67.5% 67.4% 0.1 % 1999 72.4% 72.4% 0.0 % 2000 72.9% 72.9% 0.0 % 2001 67.8% 67.8% 0.0 % 2002 71.0% 70.8% 0.2 % 2003 74.4% 74.3% 0.1 % 2004 74.0% 74.1% -0.1 % 2005 74.1% 74.0% 0.1 % 2006 70.7% 71.0% -0.3 %
JUNE 30, 2007 DECEMBER 31, 2006 LOAN ORIGINATION YEAR FORECASTED COLLECTION % FORECASTED COLLECTION % VARIANCE - --------------------- ----------------------- ----------------------- -------- 1997 58.4% 58.4% 0.0 % 1998 67.5% 67.5% 0.0 % 1999 72.4% 72.4% 0.0 % 2000 72.9% 73.0% -0.1 % 2001 67.8% 67.7% 0.1 % 2002 71.0% 70.7% 0.3 % 2003 74.4% 74.2% 0.2 % 2004 74.0% 73.9% 0.1 % 2005 74.1% 74.2%* -0.1 % 2006 70.7% 71.1%* -0.4 % 2007 70.4% 69.9%** 0.5 %
3 * 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 June 30, 2007, with the forecast as of December 31, 2006, without the revised seasonality factors:
JUNE 30, 2007 DECEMBER 31, 2006 LOAN ORIGINATION YEAR FORECASTED COLLECTION % FORECASTED COLLECTION % VARIANCE --------------------- ----------------------- ----------------------- ---------- 2005 74.2% 73.8% 0.4% 2006 70.8% 70.5% 0.3%
Forecasted collection percentages prior to 2005 are not materially impacted by the seasonality factors. ** Collection percentage represents the initial forecasted collection percentage determined at origination for 2007 originations. Collection results were generally consistent with our expectations. 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. Adjusted financial results for the three and six months ended June 30, 2007 compared to the same periods in 2006 include the following:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------------- ---------------------------------- (Dollars in thousands, except per share data) 2007 2006 % CHANGE 2007 2006 % CHANGE ----------- ----------- -------- ----------- ----------- -------- Adjusted average capital $ 708,334 $ 547,473 29.4% $ 668,965 $ 535,303 25.0% Adjusted net income $ 14,254 $ 16,952 -15.9% $ 30,762 $ 32,035 -4.0% Interest expense after-tax $ 5,962 $ 3,566 67.2% $ 11,183 $ 5,817 92.2% Adjusted net income plus interest expense after-tax $ 20,216 $ 20,518 -1.5% $ 41,945 $ 37,852 10.8% Adjusted return on capital 11.4% 15.0% -24.0% 12.5% 14.1% -11.3% Cost of capital 7.1% 8.2% -13.4% 7.1% 8.4% -15.5% Economic profit $ 7,615 $ 9,307 -18.2% $ 18,062 $ 15,256 18.4% Diluted weighted average shares outstanding 31,312,139 35,433,944 -11.6% 31,297,484 37,029,956 -15.5% Adjusted net income per diluted share $ 0.46 $ 0.48 -4.2% $ 0.98 $ 0.87 12.6%
Economic profit decreased 18.2% for the three months ended June 30, 2007 and increased 18.4% for the six months ended June 30, 2007. For the three months ended June 30, 2007, adjusted average capital grew at 29.4% while the adjusted return on capital declined from 15.0% to 11.4%. For the six month period, adjusted average capital grew at 25.0% while the adjusted return on capital declined from 14.1% to 12.5%. The adjusted return on capital for the 2007 period was negatively impacted by pricing changes implemented in the third quarter of 2006 and in the first quarter of 2007. In addition, the second quarter 2007 results were impacted by restricted stock awards granted during the first quarter of 2007 and higher than expected legal expenses (approximately $500,000 pre-tax). Restricted stock compensation expense pre-tax was $1.4 million and $1.8 million for the three and six months ended June 30, 2007 compared to $0.2 million and $0.3 million for the same periods in 2006. 4 Restricted stock awards granted during the first quarter of 2007 totaled $9.4 million. Awards granted included $7.9 million related to a restricted stock unit award and $1.5 million related to shares of restricted stock. The restricted stock unit award is not expected to be repeated annually and vests based on attaining certain performance criteria over a five-year period. The shares of restricted stock are part of the annual incentive compensation program and are granted annually based on attaining certain individual and company performance criteria. GAAP accounting requires the awards to be expensed so that more expense is recorded during the early years of the vesting period. The following table details how the expense will be recorded assuming performance targets are achieved (Dollars in thousands):
FOR THE TWELVE MONTHS RESTRICTED STOCK RESTRICTED STOCK TOTAL PROJECTED ENDED DECEMBER 31, UNIT AWARD AWARDS EXPENSE (PRE-TAX) --------------------- ---------------- ---------------- ----------------- 2007 $ 3,407 $ 725 $ 4,132 2008 2,139 444 2,583 2009 1,285 178 1,463 2010 734 21 755 2011 325 - 325 ---------------- ---------------- ----------------- $ 7,890 $ 1,368 $ 9,258 ================ ================ =================
As previously reported, we made pricing changes in the third quarter of 2006 and in the first quarter of 2007. The pricing changes resulted in an increase in loan volume and a reduction in the return on capital of new originations. The Company's internal profitability models indicate that the yield on loans originated during the second quarter of 2007 is comparable to the loan yield realized on the loan portfolio during the second quarter of 2007. Unit volume in July of 2007 increased 7.4% compared to the same period in 2006 and dollar volume increased 9.8% for the same periods. It is expected that origination growth will slow during the third quarter of 2007 for two reasons: 1) third quarter comparisons will reflect the impact of price reductions made in the third quarter of 2006 in both periods for the first time and, 2) we have raised prices modestly since the first quarter of 2007. 5 The following table shows how non-GAAP measures reconcile to GAAP measures:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------------- ------------------------------------- (Dollars in thousands, except per share data) 2007 2006 % Change 2007 2006 % Change ---------- ---------- --------- ----------- ----------- --------- ADJUSTED NET INCOME GAAP net income $ 12,330 $ 17,606 $ 27,690 $ 34,803 Floating yield adjustment (after-tax) 617 119 699 (1,831) License fee yield adjustment (after-tax) 1,144 (610) 2,708 (1,272) Adjustment resulting in comparable tax rate for both periods (1) 163 (163) (335) 335 ---------- ---------- ----------- ----------- Adjusted net income $ 14,254 $ 16,952 -15.9% $ 30,762 $ 32,035 -4.0% ========== ========== =========== =========== ADJUSTED NET INCOME PER DILUTED SHARE $ 0.46 $ 0.48 -4.2% $ 0.98 $ 0.87 12.6% Diluted weighted average shares outstanding: 31,312,139 35,433,944 -11.6% 31,297,484 37,029,956 -15.5% ADJUSTED AVERAGE CAPITAL GAAP average debt $ 473,141 $ 256,162 $ 442,928 $ 205,900 GAAP average shareholders' equity 233,465 293,401 225,721 330,752 Floating yield adjustment 8,073 4,633 7,330 5,016 License fee yield adjustment (6,345) (6,723) (7,014) (6,365) ---------- ---------- ----------- ----------- Adjusted average capital $ 708,334 $ 547,473 29.4% $ 668,965 $ 535,303 25.0% ========== ========== =========== =========== ADJUSTED RETURN ON CAPITAL Adjusted net income $ 14,254 $ 16,952 $ 30,762 $ 32,035 Interest expense after-tax (2) 5,962 3,566 11,183 5,817 ---------- ---------- ----------- ----------- Adjusted net income plus interest expense after-tax $ 20,216 $ 20,518 -1.5% $ 41,945 $ 37,852 10.8% ========== ========== =========== =========== Adjusted return on capital (3) 11.4% 15.0% -24.0% 12.5% 14.1% -11.3% ========== ========== =========== =========== ECONOMIC PROFIT Adjusted return on capital 11.4% 15.0% 12.5% 14.1% Cost of capital (4) 7.1% 8.2% 7.1% 8.4% ---------- ---------- ----------- ----------- Adjusted return on capital in excess of cost of capital 4.3% 6.8% 5.4% 5.7% Adjusted average capital $ 708,334 $ 547,473 $ 668,965 $ 535,303 ---------- ---------- ----------- ----------- Economic profit $ 7,615 $ 9,307 -18.2% $ 18,062 $ 15,256 18.4% ========== ========== =========== ===========
(1) 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. (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) 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 six months ended June 30, 2007, the average 30 year treasury rate was 4.9% and the pre-tax average cost of debt was 8.0%. 6 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 the 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 will collect it from future dealer holdback payments. As a result of this change, we now 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 new GAAP treatment is more consistent with the cash economics of the business. To allow for proper comparisons between periods, we now make an adjustment to our 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. 7 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 its 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 disclaims 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 8 CREDIT ACCEPTANCE CORPORATION CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
(Dollars in thousands, except per share data) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ --------------------------- 2007 2006 2007 2006 ----------- ---------- ----------- ------------ REVENUE: Finance charges $ 54,084 $ 47,919 $ 105,497 $ 93,926 License fees 84 3,204 166 6,101 Other income 4,118 3,958 9,974 8,080 ----------- ----------- ----------- ------------ Total revenue 58,286 55,081 115,637 108,107 ----------- ----------- ----------- ------------ COSTS AND EXPENSES: Salaries and wages 13,092 9,965 24,953 20,559 General and administrative 7,359 6,297 13,276 13,062 Sales and marketing 4,144 3,406 8,616 7,765 Provision for credit losses 3,798 2,641 7,671 3,165 Interest 9,463 5,660 17,751 9,234 Other expense 33 55 58 137 ----------- ----------- ----------- ------------ Total costs and expenses 37,889 28,024 72,325 53,922 ----------- ---------- ----------- ------------ Operating income 20,397 27,057 43,312 54,185 Foreign currency gain 34 6 38 11 ----------- ----------- ----------- ------------ Income from continuing operations before provision for income taxes 20,431 27,063 43,350 54,196 Provision for income taxes 7,938 9,364 15,470 19,292 ----------- ----------- ----------- ------------ Income from continuing operations 12,493 17,699 27,880 34,904 ----------- ----------- ----------- ------------ Discontinued operations Loss from discontinued United Kingdom operations (233) (132) (271) (145) Credit for income taxes (70) (39) (81) (44) ----------- ----------- ----------- ------------ Loss on discontinued operations (163) (93) (190) (101) ----------- ----------- ----------- ------------ Net income $ 12,330 $ 17,606 $ 27,690 $ 34,803 =========== =========== =========== ============ Net income per common share: Basic $ 0.41 $ 0.53 $ 0.92 $ 1.01 =========== =========== =========== ============ Diluted $ 0.39 $ 0.50 $ 0.88 $ 0.94 =========== =========== =========== ============ Income from continuing operations per common share: Basic $ 0.41 $ 0.54 $ 0.93 $ 1.01 =========== =========== =========== ============ Diluted $ 0.40 $ 0.50 $ 0.89 $ 0.94 =========== =========== =========== ============ Loss from discontinued operations per common share: Basic $ (0.01) $ (0.00) $ (0.01) $ (0.00) =========== =========== =========== ============ Diluted $ (0.01) $ (0.00) $ (0.01) $ (0.00) =========== =========== =========== ============ Weighted average shares outstanding: Basic 30,140,590 32,979,572 30,097,387 34,554,605 Diluted 31,312,139 35,433,944 31,297,484 37,029,956
9 CREDIT ACCEPTANCE CORPORATION CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data) AS OF ------------------------- JUNE 30, DECEMBER 31, 2007 2006 (UNAUDITED) ----------- ------------ ASSETS: Cash and cash equivalents $ 1,829 $ 8,528 Restricted cash and cash equivalents 72,327 45,609 Restricted securities available for sale 3,763 3,564 Loans receivable (including $17,797 and $23,038 from affiliates as of June 30, 2007 and December 31, 2006, respectively) 873,441 754,571 Allowance for credit losses (129,282) (128,791) ----------- ------------ Loans receivable, net 744,159 625,780 ----------- ------------ Property and equipment, net 17,209 16,203 Income taxes receivable 4,504 11,734 Other assets 12,806 13,795 ----------- ------------ Total Assets $ 856,597 $ 725,213 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Accounts payable and accrued liabilities $ 80,842 $ 78,294 Line of credit 44,500 38,400 Secured financing 432,631 345,144 Mortgage note and capital lease obligations 8,017 8,631 Deferred income taxes, net 50,750 44,397 ----------- ------------ Total Liabilities 616,740 514,866 ----------- ------------ SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued - - Common stock, $.01 par value, 80,000,000 shares authorized, 30,314,956 and 30,179,959 shares issued and outstanding as of June 30, 2007 and December 31, 2006, respectively 303 302 Paid-in capital 2,730 828 Retained earnings 236,856 209,253 Accumulated other comprehensive loss, net of tax of $17 and $19 at June 30, 2007 and December 31, 2006, respectively (32) (36) ----------- ------------ Total Shareholders' Equity 239,857 210,347 ----------- ------------ Total Liabilities and Shareholders' Equity $ 856,597 $ 725,213 =========== ============
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