SILVER TRIANGLE BUILDING
25505 WEST TWELVE MILE ROAD - SUITE 3000
SOUTHFIELD, MI 48034-8339
(248) 353-2700
WWW.CREDITACCEPTANCE.COM
NEWS RELEASE
FOR IMMEDIATE RELEASE DATE: JANUARY 27, 2006
INVESTOR RELATIONS: DOUGLAS W. BUSK
TREASURER
(248) 353-2700 EXT. 4432
IR@CREDITACCEPTANCE.COM
PINK SHEETS SYMBOL: CACC
CREDIT ACCEPTANCE ANNOUNCES:
THIRD QUARTER 2005 AND RESTATED PRIOR YEAR EARNINGS
SOUTHFIELD, MICHIGAN - JANUARY 27, 2006 - CREDIT ACCEPTANCE CORPORATION (PINK
SHEETS: CACC) (the "Company") announced financial results for the three and nine
month periods ended September 30, 2005, and restated financial results for 2000
through 2004.
IMPACT OF RESTATEMENT
(Dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
2004 2003 2002 2001 2000
------- ---------- ------- -------- -------
Net income (As Previously Reported) $37,014 $25,832(a) $28,365 $28,415 $22,379
Net income (As Restated) 57,325 24,669 29,774 24,671 22,463
------- ------- ------- ------- -------
Increase (Decrease) $20,311 $(1,163) $ 1,409 $(3,744) $ 84
(a) As previously reported in the Company's March 24, 2005 press release. Net
income of $25,832 reflects the impact of the restatement related to
accounting for income taxes.
The cumulative impact of the restatement reduced retained earnings at December
31, 1999, by 7.7 million.
FINANCIAL RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
(Dollars in thousands, except per share data)
FOR THE NINE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 % CHANGE
------------------ ------------------ --------
Net income $ 47,361 $ 43,393 9.1
Net income per common share:
Basic 1.28 1.11 15.3
Diluted 1.21 1.05 15.2
Net operating profit after-tax 54,518 48,760 11.8
Average capital 521,668 472,684 10.4
Return on capital 13.9% 13.8% 0.7
Economic profit 23,004 19,706 16.7
Total revenue $151,200 $129,801 16.5
1
- The Company's effective tax rate increased to 37.8% for the 2005
period from 32.7% for the same period of 2004 due primarily to a
change in the Company's international tax structure during 2004 which
included a one-time benefit of $2.7 million.
- The provision for credit losses for the 2005 period includes a $2.9
million pre-tax charge related to a reduction in forecasted collection
rates resulting from Hurricanes Katrina and Rita.
FINANCIAL RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005
(Dollars in thousands, except per share data)
FOR THE THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 % CHANGE
------------------ ------------------ --------
Net income $ 14,594 $ 14,268 2.3
Net income per common share:
Basic 0.39 0.37 5.4
Diluted 0.38 0.35 8.6
Net operating profit after-tax 16,970 16,183 4.9
Average capital 536,588 498,423 7.7
Return on capital 12.7% 13.0% (2.3)
Economic profit 6,044 6,313 (4.3)
Total revenue $ 52,368 $ 45,474 15.2
- The provision for credit losses for the 2005 period includes a $2.9
million pre-tax charge related to a reduction in forecasted collection
rates resulting from Hurricanes Katrina and Rita.
RESTATEMENT OF PRIOR PERIODS
As previously reported, on April 1, 2005, the Company's former independent
registered public accounting firm, Deloitte & Touche LLP ("Deloitte"), informed
the Company that Deloitte's National Office was reviewing the Company's
accounting for loans. On April 8, 2005, Deloitte informed the Company that it
believed the Company should not account for loans as an originator of loans to
consumers but should instead account for its loans as a lender to its
dealer-partners. The Company had accounted for its loans as a consumer loan
originator since 1992, and believed such accounting was in accordance with
generally accepted accounting principles ("GAAP"). On April 26, 2005, the
Company submitted a letter to the staff of the Office of the Chief Accountant of
the Securities and Exchange Commission ("the SEC") requesting guidance.
On June 24, 2005, the SEC informed the Company that its method for recording
loans should be changed from that of an originator of consumer loans to that of
a servicer of loans generated by dealer-partners and a lender to those
dealer-partners. As a result of this determination, the Company was required to
restate its previously reported financial results. The Annual Report on form
10-K for the year ended December 31, 2004, which the Company filed today,
reflects this restatement of prior periods. The Company also filed today its
Quarterly Report on Form 10-Q for the quarters ended March 31, 2005, June 30,
2005, and September 30, 2005. The Company intends to apply to list its shares on
the NASDAQ National Market as soon as practicable.
Additional details regarding the financial restatement are included in the
Company's SEC filings.
OVERVIEW OF NEW ACCOUNTING
- The Company's business - providing auto loans to consumers - has not
changed; only the accounting has changed. The Company is an indirect
lender, meaning the loan is originated by the dealer-partner and
immediately assigned to the Company. The compensation paid to the
automobile dealer in exchange for the auto loan is paid in two parts.
The first part (the "advance") is paid at the time of origination, and
the second part (the "dealer holdback" is paid over time based on the
performance of the loan.
- For accounting purposes, the Company is now considered a lender to the
dealer-partner for its United States and Canadian business.
Previously, the Company was considered a lender to the consumer.
- Under our new accounting, the cash amount advanced to the
dealer-partner is recorded as an asset included in "Loans Receivable"
on the Company's balance sheet. The aggregate amount of all advances
to an individual dealer-partner, plus finance charge revenue
recognized, less repayments made by the consumer, comprises the dealer
loan balance.
- The Company's primary source of revenue is called finance charges.
Finance charge revenue equals the cash collections from the consumer
loan less the amount paid to the dealer-partner (initial advance plus
dealer holdback). In other words, finance charge revenue equals the
cash inflows from the consumer loan less the cash outflows required to
acquire the consumer loan.
- Finance charge revenue is recorded over the life of the dealer loan on
a level yield basis.
2
- An initial expected yield is assigned to each dealer advance. The
yield is the rate that, when applied to expected future cash flows
from the underlying consumer loan, results in a present value equal to
the initial cash amount of the advance. (The expected future cash
flows are the expected collections from the consumer loan, less the
amount of expected future dealer holdback payments.)
- A yield is maintained for each dealer loan balance. The yield is
adjusted each period based on the most recent expectation of future
cash flows from the underlying consumer loans. The yield for any
dealer loan balance cannot be reduced below the initial weighted
average yield. If a favorable change in expected future cash flows
occurs (as compared to the expectation at inception), the yield is
adjusted upwards. If an unfavorable change occurs, an allowance for
credit losses is established which reduces the net asset value (dealer
loan balance less the allowance) to the discounted value of future
cash flows at the weighted average initial yield.
- Because the Company is required to treat favorable changes in expected
cash flows differently from unfavorable changes, the Company believes
its new accounting method may produce reported results that differ
from its economic performance. To provide shareholders with a more
complete picture of its performance, the Company will report "Floating
Yield" earnings in this and in future press releases. Floating Yield
earnings will be identical to the Company's GAAP earnings except that
both favorable and unfavorable changes in expected future cash flows
will be treated as yield adjustments. Although the differences between
Floating Yield earnings and GAAP earnings are small for the periods
presented in this release, the Company is not confident this will
continue to be the case going forward.
- The Company's future financial results are likely to be more volatile
than the financial results reported in this release because the
initial yields established for prior periods as part of this
restatement benefit from the Company's knowledge of actual results.
Prospectively, without the benefit of hindsight, the actual yields
will likely vary more from the initial yields than in the restated
periods.
COMPARISON OF GAAP RETURN ON CAPITAL TO FLOATING YIELD RETURN ON CAPITAL
The following table presents selected financial data that compares the Company's
GAAP basis financial results to a non-GAAP measure. The non-GAAP measure
("Floating Yield") is identical to our GAAP basis results except that, under the
Floating Rate method, changes in expected cash flows are treated as yield
adjustments. Under GAAP, favorable changes in expected cash flows are treated as
yield adjustments, while unfavorable changes are recorded as a current period
expense. 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.
(Dollars in thousands)
FOR THE YEARS ENDED DECEMBER 31,
NINE MONTHS ENDED --------------------------------
SEPTEMBER 30, 2005 2004 2003
------------------ -------- --------
GAAP Return on Capital 13.9% 13.6% 6.9%
Floating Yield Return on Capital 13.7% 13.3% 7.1%
-------- -------- --------
Difference 0.2% 0.3% -0.2%
GAAP net operating profit after-tax $ 54,518 $ 64,904 $ 29,905
Adjustment to Floating Yield 22 (58) 1,384
-------- -------- --------
Floating Yield net operating profit
after-tax $ 54,540 $ 64,846 $ 31,289
GAAP average capital $521,668 $478,345 $431,973
Adjustment to Floating Yield 7,671 8,731 7,933
-------- -------- --------
Floating Yield average capital $529,339 $487,076 $439,906
3
CONSUMER LOAN PERFORMANCE IN THE UNITED STATES
The United States is the Company's only business segment that continues to
originate Dealer Loans. 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 have
been realized as of September 30, 2005 for the United States business segment.
The data presented in the table has been changed from similar data previously
disclosed in the Company's filings in order to conform to the Company's new
accounting methodology. The changes are as follows: (1) Collection and advance
rates included in the table are calculated as a percentage of funded loans,
defined as Consumer Loans on which an advance has been paid to the
dealer-partner. Previously, collection and advance rates were calculated as a
percentage of Consumer Loans assigned to the Company. As a result, collection
rates are higher than previously reported. This reflects the change in
presentation rather than a change in loan performance. (2) Advance rates
included in the table below represent the cash amount paid to the dealer-partner
or paid to third parties for ancillary products. Previously, advance rates
presented in the table included non-cash commissions and fees that were retained
by the Company. As a result of this change, the advance rates presented in the
table are lower than previously reported. (3) Forecasted collection rates
included in the table are based on a new forecasting methodology. This change
had only a small impact on collection rates reported in the table.
As of September 30, 2005
---------------------------------------------------
Year of Forecasted % of Forecast
Origination Collection % Advance % Spread % Realized
- ----------- ------------ --------- -------- -------------
1992 80.2% 37.1% 43.1% 100.0%
1993 75.3% 37.1% 38.2% 100.0%
1994 61.0% 40.5% 20.5% 100.0%
1995 54.9% 44.2% 10.7% 100.0%
1996 55.0% 46.9% 8.1% 99.6%
1997 58.4% 47.9% 10.5% 98.9%
1998 67.7% 46.1% 21.6% 98.2%
1999 72.8% 48.9% 23.9% 97.3%
2000 73.2% 48.0% 25.2% 96.5%
2001 67.2% 45.8% 21.4% 96.0%
2002 70.2% 42.2% 28.0% 92.6%
2003 74.0% 43.4% 30.6% 78.3%
2004 73.4% 44.0% 29.4% 51.3%
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2004
(Dollars in thousands, except per share data)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003 % CHANGE
-------- -------- --------
Net income $ 57,325 $ 24,669 132.4
Net income per common share:
Basic 1.48 0.58 155.2
Diluted 1.40 0.57 145.6
Net operating profit after-tax 64,904 29,905 117.0
Average capital 478,345 431,973 10.7
Return on capital 13.6% 6.9% 97.1
Economic profit (loss) 26,204 (8,153) 421.4
Total revenue $176,715 $152,227 16.1
- - 2003 results were impacted by impairment expenses of $10.5 million that
were recognized following the decision to liquidate the United Kingdom
operation.
- - The Company's effective tax rate decreased to 34.8% in 2004 compared to
52.1% in 2003 due to a change in the Company's international tax structure
during 2004 and the impact of the repatriation of foreign earnings in 2003.
- - The 2004 period includes a foreign exchange gain of $1.7 million in 2004
compared to a foreign exchange loss of $2.8 million in 2003 primarily due
to changes in the fair value of forward contracts entered into during the
third quarter of 2003.
4
Although the Company was not in compliance with its debt covenants due to its
inability to timely file its Annual Report on Form 10-K for the year ended
December 31, 2004 and its Quarterly Report on Form 10-Q for the quarters ended
March 31, 2005, June 30, 2005, and September 30, 2005, the Company has received
waivers of this requirement on its debt facilities and these waivers become
permanent upon the filing of such reports.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
Certain statements in this release that are not historical facts, such as those
using terms like "believes," "expects," "anticipates," "assumes," "forecasts,"
"estimates" 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 current expectations, which are
subject to risks and uncertainties. Factors that might cause such a difference
include the following:
- - the Company's potential inability to accurately forecast and estimate the
amount and timing of future collections,
- - increased competition from traditional financing sources and from
non-traditional lenders,
- - the unavailability of funding at competitive rates of interest,
- - the Company's potential inability to continue to obtain third party
financing on favorable terms,
- - the Company's potential inability to generate sufficient cash flow to
service its debt and fund its future operations,
- - adverse changes in applicable laws and regulations,
- - adverse changes in economic conditions,
- - adverse changes in the automobile or finance industries or in the non-prime
consumer finance market,
- - the Company's potential inability to maintain or increase the volume of
automobile loans,
- - an increase in the amount or severity of litigation against the Company,
- - the loss of key management personnel or the inability to hire qualified
personnel,
- - the effect of natural disasters, terrorist attacks and other potential
disasters or attacks; and
- - various other factors discussed in the Company's reports filed with the
Securities and Exchange Commission.
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 Pink Sheets under the symbol CACC. For more
information, visit www.creditacceptance.com.
5
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
REVENUE:
Finance charges $ 45,360 $ 39,718 $ 132,453 $ 113,552
License fees 2,658 1,519 6,870 4,147
Other income 4,350 4,237 11,877 12,102
----------- ----------- ----------- -----------
Total revenue 52,368 45,474 151,200 129,801
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Salaries and wages 9,595 9,243 27,779 26,523
General and administrative 5,617 5,268 17,462 15,729
Sales and marketing 4,160 3,042 10,956 8,606
Provision for credit losses 4,231 1,466 6,127 4,726
Interest 3,655 2,946 11,011 8,257
Stock-based compensation expense 511 747 1,817 2,178
Other expense 489 270 890 1,013
----------- ----------- ----------- -----------
Total costs and expenses 28,258 22,982 76,042 67,032
----------- ----------- ----------- -----------
Operating income 24,110 22,492 75,158 62,769
Foreign currency (loss) gain (8) 674 1,019 1,731
----------- ----------- ----------- -----------
Income before provision for income taxes 24,102 23,166 76,177 64,500
Provision for income taxes 9,508 8,898 28,816 21,107
----------- ----------- ----------- -----------
Net income $ 14,594 $ 14,268 $ 47,361 $ 43,393
=========== =========== =========== ===========
Net income per common share:
Basic $ 0.39 $ 0.37 $ 1.28 $ 1.11
=========== =========== =========== ===========
Diluted $ 0.38 $ 0.35 $ 1.21 $ 1.05
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 37,020,020 38,679,011 36,962,724 39,234,974
Diluted 38,912,822 40,943,604 39,249,304 41,506,320
6
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
AS OF
----------------------------
SEPTEMBER 30, DECEMBER 31,
2005 2004
------------- ------------
(UNAUDITED)
ASSETS:
Cash and cash equivalents $ 14,336 $ 614
Restricted cash and cash equivalents 26,805 23,927
Restricted securities available for sale 3,483 928
Loans receivable 704,976 667,394
Allowance for credit losses (138,582) (141,383)
--------- ---------
Loans receivable, net 566,394 526,011
--------- ---------
Property and equipment, net 18,950 19,706
Income taxes receivable 1,490 9,444
Other assets 7,896 10,683
--------- ---------
Total Assets $ 639,354 $ 591,313
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities $ 55,313 $ 49,384
Dealer reserve payable, net 6,007 15,675
Line of credit 46,000 7,700
Secured financing 138,747 176,000
Mortgage note and capital lease obligations 9,322 9,847
Deferred income taxes, net 34,815 31,817
--------- ---------
Total Liabilities 290,204 290,423
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 80,000,000 shares
authorized, 37,023,080 and 36,897,242 shares
issued and outstanding as of September 30, 2005
and December 31, 2004, respectively 370 369
Paid-in capital 29,298 25,640
Unearned stock-based compensation (1,697) --
Retained earnings 319,273 271,912
Accumulated other comprehensive income 1,906 2,969
--------- ---------
Total Shareholders' Equity 349,150 300,890
--------- ---------
Total Liabilities and Shareholders' Equity $ 639,354 $ 591,313
========= =========
7
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, except per share data)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003
----------- -----------
REVENUE:
Finance charges $ 154,859 $ 127,853
Lease revenue 1,507 6,432
License fees 5,835 3,836
Other income 14,514 14,106
----------- -----------
Total revenue 176,715 152,227
----------- -----------
COSTS AND EXPENSES:
Salaries and wages 34,961 31,970
General and administrative 22,195 20,705
Sales and marketing 11,915 8,949
Provision for credit losses 5,757 9,639
Interest 11,660 8,057
Stock-based compensation 2,725 3,583
United Kingdom asset impairment expense -- 10,493
Other expense 1,270 4,517
----------- -----------
Total costs and expenses 90,483 97,913
----------- -----------
Operating income 86,232 54,314
Foreign exchange gain (loss) 1,650 (2,767)
----------- -----------
Income before provision for income taxes 87,882 51,547
Provision for income taxes 30,557 26,878
----------- -----------
Net income $ 57,325 $ 24,669
=========== ===========
Net income per common share:
Basic $ 1.48 $ 0.58
=========== ===========
Diluted $ 1.40 $ 0.57
=========== ===========
Weighted average shares outstanding:
Basic 38,617,787 42,195,340
Diluted 41,017,205 43,409,007
8
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(DOLLARS IN THOUSANDS)
DECEMBER 31,
----------------------
2004 2003
--------- ---------
ASSETS:
Cash and cash equivalents $ 614 $ 1,136
Restricted cash and cash equivalents 23,927 37,275
Restricted securities available for sale 928 --
Loans receivable (including $1,653 and $1,583
from affiliates in 2004 and 2003, respectively) 667,394 619,437
Allowance for credit losses (141,383) (143,309)
--------- ---------
Loans receivable, net 526,011 476,128
--------- ---------
Property and equipment, net 19,706 18,541
Income taxes receivable 9,444 --
Other assets 10,683 11,768
--------- ---------
Total Assets $ 591,313 $ 544,848
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities $ 49,384 $ 38,862
Dealer reserve payable, net 15,675 35,198
Line of credit 7,700 --
Secured financing 176,000 100,000
Mortgage note and capital lease obligations 9,847 6,447
Income taxes payable -- 2,086
Deferred income taxes, net 31,817 18,960
--------- ---------
Total Liabilities 290,423 201,553
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 80,000,000 shares authorized,
36,897,242 and 42,128,087 shares issued and outstanding
at year-end 2004 and 2003, respectively 369 421
Paid-in capital 25,640 125,077
Retained earnings 271,912 214,587
Accumulated other comprehensive income, net of tax of
$0 and $1,760 at year-end 2004 and 2003, respectively 2,969 3,210
--------- ---------
Total Shareholders' Equity 300,890 343,295
--------- ---------
Total Liabilities and Shareholders' Equity $ 591,313 $ 544,848
========= =========
9
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTERLY FINANCIAL HIGHLIGHTS
FOR THE THREE MONTHS ENDED
-----------------------------
JUNE 30, 2005 JUNE 30, 2004 % CHANGE
------------- ------------- --------
Net income $ 17,053 $ 17,173 (0.7)%
Net income per common share:
Basic 0.46 0.44 4.5
Diluted 0.44 0.41 7.3
Net operating profit after-tax 19,401 18,788 3.3
Average capital 529,159 477,654 10.8
Return on capital 14.7% 15.7% (6.4)
Economic profit 8,919 9,340 (4.5)
Total revenue $ 50,678 $ 43,647 16.1
FOR THE THREE MONTHS ENDED
-------------------------------
MARCH 31, 2005 MARCH 31, 2004 % CHANGE
-------------- -------------- --------
Net income $ 15,714 $ 11,952 31.5%
Net income per common share:
Basic 0.43 0.29 48.3
Diluted 0.40 0.28 42.9
Net operating profit after-tax 18,147 13,789 31.6
Average capital 502,565 444,672 13.0
Return on capital 14.4% 12.4% 16.5
Economic profit 8,031 4,074 97.1
Total revenue $ 48,154 $ 40,680 18.4
RETURN ON CAPITAL
The return on capital is equal to net operating profit after-tax (net income
plus interest expense after-tax) divided by average capital as follows:
THREE MONTHS ENDED
---------------------------------
9/30/2005 6/30/2005 3/31/2005
--------- --------- ---------
Net income $ 14,594 $ 17,053 $ 15,714
Interest expense after-tax 2,376 2,348 2,433
-------- -------- --------
Net operating profit after-tax $ 16,970 $ 19,401 $ 18,147
======== ======== ========
Average debt $194,571 $203,800 $195,238
Average shareholders' equity 342,017 325,359 307,327
-------- -------- --------
Average capital $536,588 $529,159 $502,565
======== ======== ========
Return on capital 12.7% 14.7% 14.4%
10
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
----------------------------------------------
12/31/2004 9/30/2004 6/30/2004 3/31/2004
---------- --------- --------- ---------
Net income $ 13,932 $ 14,268 $ 17,173 $ 11,952
Interest expense after-tax 2,212 1,915 1,615 1,837
-------- -------- -------- --------
Net operating profit after-tax $ 16,144 $ 16,183 $ 18,788 $ 13,789
======== ======== ======== ========
Average debt $203,261 $180,208 $164,338 $129,537
Average shareholders' equity 293,889 318,215 313,316 315,135
-------- -------- -------- --------
Average capital $497,150 $498,423 $477,654 $444,672
======== ======== ======== ========
Return on capital 13.0% 13.0% 15.7% 12.4%
NINE MONTHS ENDED
---------------------
9/30/2005 9/30/2004
--------- ---------
Net income $ 47,361 $ 43,393
Interest expense after-tax 7,157 5,367
-------- --------
Net operating profit after-tax $ 54,518 $ 48,760
======== ========
Average debt $196,904 $156,859
Average shareholders' equity 324,764 315,825
-------- --------
Average capital $521,668 $472,684
======== ========
Return on capital 13.9% 13.8%
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003
--------- ---------
Net income $ 57,325 $ 24,669
Interest expense after-tax 7,579 5,236
-------- --------
Net operating profit after-tax $ 64,904 $ 29,905
======== ========
Average debt $167,137 $103,757
Average shareholders' equity 311,208 328,216
-------- --------
Average capital $478,345 $431,973
======== ========
Return on capital 13.6% 6.9%
ECONOMIC PROFIT
The Company defines economic profit as net operating profit after-tax less an
imputed cost of equity. Economic profit measures how efficiently the Company
utilizes capital. To consider the cost of both debt and equity, the Company's
calculation of economic profit deducts from net income a cost of equity equal to
10% of average equity, which approximates the S&P 500's rate of return since
1965. Management uses economic profit to assess the Company's performance as
well as to make capital allocation decisions. Management believes this
information is important to shareholders because it allows shareholders to
compare the returns earned by the Company with the return they could expect if
the Company returned capital to shareholders and they invested in other
securities.
11
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents the calculation of the Company's economic profit
for the periods indicated:
THREE MONTHS ENDED
---------------------------------------
9/30/2005 6/30/2005 3/31/2005
----------- ----------- -----------
Net income $ 14,594 $ 17,053 $ 15,714
Imputed cost of equity at 10% (1) (8,550) (8,134) (7,683)
----------- ----------- -----------
Total economic profit $ 6,044 $ 8,919 $ 8,031
=========== =========== ===========
Diluted weighted average shares outstanding 38,912,822 39,064,886 39,457,287
Economic profit per diluted share (2) $ 0.16 $ 0.23 $ 0.20
THREE MONTHS ENDED
-----------------------------------------------------
12/31/2004 9/30/2004 6/30/2004 3/31/2004
----------- ----------- ----------- -----------
Net income $ 13,932 $ 14,268 $ 17,173 $ 11,952
Imputed cost of equity at 10% (1) (7,347) (7,955) (7,833) (7,878)
----------- ----------- ----------- -----------
Total economic profit $ 6,585 $ 6,313 $ 9,340 $ 4,074
=========== =========== =========== ===========
Diluted weighted average shares outstanding 39,473,105 40,943,604 41,413,308 42,159,338
Economic profit per diluted share (2) $ 0.17 $ 0.15 $ 0.23 $ 0.10
NINE MONTHS ENDED
-------------------------
9/30/2005 9/30/2004
----------- -----------
Net income $ 47,361 $ 43,393
Imputed cost of equity at 10% (1) (24,357) (23,687)
----------- -----------
Total economic profit $ 23,004 $ 19,706
=========== ===========
Diluted weighted average shares outstanding 39,249,304 41,506,320
Economic profit per diluted share (2) $ 0.59 $ 0.47
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003
----------- -----------
Net income $ 57,325 $ 24,669
Imputed cost of equity at 10% (1) (31,121) (32,822)
----------- -----------
Total economic profit $ 26,204 $ (8,153)
=========== ===========
Diluted weighted average shares outstanding 41,017,205 43,409,007
Economic profit per diluted share (2) $ 0.64 $ (0.19)
(1) Cost of equity is equal to 10% (on an annual basis) of average
shareholders' equity, as disclosed in the Return on Capital calculation.
(2) Economic profit per diluted share equals the economic profit divided by the
diluted weighted average number of shares outstanding.
12
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA CONTINUED
(DOLLARS IN THOUSANDS)
LOANS RECEIVABLE
A summary of changes in loan receivable is as follows:
THREE MONTHS ENDED SEPTEMBER 30, 2005
------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- --------
Balance, beginning of period $ 665,279 $ 27,396 $3,766 $ 696,441
New loans 111,656 3,716 -- 115,372
Dealer holdback payments 13,367 -- -- 13,367
Net cash collections on loans (113,181) (3,879) -- (117,060)
Write-offs (1,786) (2,188) -- (3,974)
Recoveries -- 562 -- 562
Net change in floorplan receivables,
notes receivable and lines of credit -- -- 79 79
Other -- 337 -- 337
Currency translation 52 (200) -- (148)
---------- ------- ------ ---------
Balance, end of period $ 675,387 $25,744 $3,845 $ 704,976
========== ======= ====== =========
THREE MONTHS ENDED SEPTEMBER 30, 2004
------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- --------
Balance, beginning of period $ 601,935 $49,910 $ 6,552 $658,397
New loans 105,983 2,153 -- 108,136
Dealer holdback payments 7,918 -- -- 7,918
Net cash collections on loans (91,047) (5,562) -- (96,609)
Write-offs (2,008) (5,065) -- (7,073)
Recoveries -- 397 -- 397
Net change in floorplan receivables,
notes receivable and lines of credit -- -- (1,360) (1,360)
Other -- 115 -- 115
Currency translation 80 (72) -- 8
--------- ------- ------- --------
Balance, end of period $ 622,861 $41,876 $ 5,192 $669,929
========= ======= ======= ========
NINE MONTHS ENDED SEPTEMBER 30, 2005
------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- --------
Balance, beginning of period $ 626,284 $ 36,760 $4,350 $ 667,394
New loans 358,005 10,392 -- 368,397
Dealer holdback payments 37,880 -- -- 37,880
Net cash collections on loans (338,542) (13,097) -- (351,639)
Write-offs (8,100) (9,222) -- (17,322)
Recoveries -- 1,734 -- 1,734
Net change in floorplan receivables,
notes receivable, and lines of credit -- -- (505) (505)
Other -- 707 -- 707
Currency translation (140) (1,530) -- (1,670)
--------- -------- ------ ---------
Balance, end of period $ 675,387 $ 25,744 $3,845 $ 704,976
========= ======== ====== =========
NINE MONTHS ENDED SEPTEMBER 30, 2004
-------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- ---------
Balance, beginning of period $ 537,671 $ 75,098 $ 6,668 $ 619,437
New loans 335,521 5,400 -- 340,921
Dealer holdback payments 23,165 -- -- 23,165
Net cash collections on loans (268,015) (22,450) -- (290,465)
Write-offs (5,069) (18,587) -- (23,656)
Recoveries -- 1,435 -- 1,435
Net change in floorplan receivables,
notes receivable, and lines of credit -- -- (1,476) (1,476)
Other -- 458 -- 458
Currency translation (412) 522 -- 110
--------- --------- ------- ---------
Balance, end of period $ 622,861 $ 41,876 $ 5,192 $ 669,929
========= ========= ======= =========
13
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA CONTINUED
(DOLLARS IN THOUSANDS)
A summary of Allowance for credit losses is as follows:
THREE MONTHS ENDED SEPTEMBER 30, 2005
------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- --------
Balance, beginning of period $130,744 $5,693 $ -- $136,437
Provision for credit losses (1) 4,360 (504) (43) 3,813
Write-offs (1,785) (363) -- (2,148)
Recoveries -- 444 -- 444
Other changes in floorplan receivables,
notes receivable, and lines of credit -- -- 43 43
Currency translation 69 (76) -- (7)
-------- ------ ---- --------
Balance, end of period $133,388 $5,194 $ -- $138,582
======== ====== ==== ========
THREE MONTHS ENDED SEPTEMBER 30, 2004
------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- --------
Balance, beginning of period $136,343 $6,575 $ 479 $143,397
Provision for credit losses (1) 1,356 (130) (20) 1,206
Write-offs (2,009) (192) -- (2,201)
Recoveries -- 364 -- 364
Other changes in floorplan receivables,
notes receivable, and lines of credit -- -- (135) (135)
Currency translation 72 (9) -- 63
-------- ------ ----- --------
Balance, end of period $135,762 $6,608 $ 324 $142,694
======== ====== ===== ========
NINE MONTHS ENDED SEPTEMBER 30, 2005
------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- --------
Balance, beginning of period $134,599 $ 6,774 $ 10,000 $151,373
Provision for credit losses (2) 6,847 (1,327) (63) 5,457
Write-offs (8,100) (1,572) (157) (9,829)
Recoveries -- 1,860 437 2,297
Other changes in floorplan receivables,
notes receivable, and lines of credit -- -- (10,139) (10,139)
Currency translation 42 (541) (78) (577)
-------- ------- -------- --------
Balance, end of period $133,388 $ 5,194 $ -- $138,582
======== ======= ======== ========
NINE MONTHS ENDED SEPTEMBER 30, 2004
------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- --------
Balance, beginning of period $136,514 $6,689 $106 $143,309
Provision for credit losses (2) 4,292 (436) 162 4,018
Write-offs (5,069) (999) -- (6,068)
Recoveries -- 1,312 -- 1,312
Other changes in floorplan receivables,
notes receivable, and lines of credit -- -- 56 56
Currency translation 25 42 -- 67
-------- ------ ---- --------
Balance, end of period $135,762 $6,608 $324 $142,694
======== ====== ==== ========
(1) Does not include a provision for earned but unpaid revenue related to
license fees $418 and $260 for the three months ended September 30, 2005
and 2004, respectively.
(2) Does not include a provision for earned but unpaid revenue related to
license fees $670 and $708 for the nine months ended September 30, 2005 and
2004, respectively.
14
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA CONTINUED
(DOLLARS IN THOUSANDS)
A summary of changes in loans receivable is as follows:
YEAR ENDED DECEMBER 31, 2004
--------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ------------ ---------
Balance, beginning of period $ 537,671 $ 75,098 $ 6,668 $ 619,437
New loans 427,866 7,938 -- 435,804
Dealer holdback payments 33,326 -- -- 33,326
Net cash collections on loans (365,119) (27,615) -- (392,734)
Write-offs (7,104) (23,783) -- (30,887)
Recoveries -- 2,157 -- 2,157
Net change in floorplan receivables,
notes receivable and lines of credit -- -- (2,318) (2,318)
Other -- 584 -- 584
Currency translation (356) 2,381 -- 2,025
--------- -------- ------- ---------
Balance, end of period $ 626,284 $ 36,760 $ 4,350 $ 667,394
========= ======== ======= =========
YEAR ENDED DECEMBER 31, 2003
--------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ------------ ---------
Balance, beginning of period $ 462,508 $122,567 $12,326 $ 597,401
New loans 334,720 27,519 -- 362,239
Dealer holdback payments 27,403 -- -- 27,403
Net cash collections on loans (285,522) (46,221) -- (331,743)
Write-offs (2,468) (39,106) -- (41,574)
Recoveries -- 1,168 -- 1,168
Net change in floorplan receivables,
notes receivable and lines of credit -- -- (5,658) (5,658)
Other -- 837 -- 837
Currency translation 1,030 8,334 -- 9,364
--------- -------- ------- ---------
Balance, end of period $ 537,671 $ 75,098 $ 6,668 $ 619,437
========= ======== ======= =========
15
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA CONCLUDED
(DOLLARS IN THOUSANDS)
A summary of the allowance for credit losses is as follows:
FOR THE YEAR ENDED DECEMBER 31, 2004
-------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- ---------
Balance, beginning of period $136,514 $ 6,689 $ 106 $143,309
Provision for credit losses (1) 5,094 (978) 1,174 5,290
Write-offs (7,104) (1,305) -- (8,409)
Recoveries -- 2,023 -- 2,023
Other change in floorplan receivables, notes
receivable, and lines of credit -- -- (1,270) (1,270)
Currency translation 95 345 -- 440
--------- ------- ------- --------
Balance, end of period $134,599 $ 6,774 $ 10 $141,383
========= ======= ======= ========
FOR THE YEAR ENDED DECEMBER 31, 2003
-------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- ---------
Balance, beginning of period $132,658 $ 6,550 $ 1,285 $140,493
Provision for credit losses (2) 6,109 744 1,100 7,953
Write-offs (2,468) (2,179) -- (4,647)
Recoveries -- 1,123 -- 1,123
Other change in floorplan receivables, notes
receivable, and lines of credit -- -- (2,279) (2,279)
Currency translation 215 451 -- 666
-------- ------- ------- --------
Balance, end of period $136,514 $ 6,689 $ 106 $143,309
======== ======= ======= ========
(1) Does not include a provision of $467 for earned but unpaid revenue related
to license fees.
(2) Does not include a provision of $1,686 primarily related to the Company's
lease portfolio.
16