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: FEBRUARY 27, 2006
INVESTOR RELATIONS: DOUGLAS W. BUSK
TREASURER
(248) 353-2700 EXT. 4432
IR@CREDITACCEPTANCE.COM
PINK SHEETS SYMBOL: CACC
CREDIT ACCEPTANCE ANNOUNCES:
FOURTH QUARTER AND 2005 EARNINGS
SOUTHFIELD, MICHIGAN - FEBRUARY 27, 2006 - CREDIT ACCEPTANCE CORPORATION (PINK
SHEETS: CACC) (the "Company") announced consolidated net income for the three
months ended December 31, 2005 of $25.2 million or $0.65 per diluted share
compared to $13.9 million or $0.35 per diluted share for the same period in
2004. For the year ended December 31, 2005, consolidated net income was $72.6
million or $1.85 per diluted share compared to $57.3 million or $1.40 per
diluted share for the same period in 2004.
Results for the three months and year ended December 31, 2005 compared to the
same periods in 2004 include the following:
- Consumer Loan unit volume increased 13.3% for the three months and
10.0% for the year.
- The number of active dealer-partners increased 32.2% for the three
months and 45.3% for the year.
- Consumer Loan unit volume per active dealer-partner decreased 14.4%
for the three months and 24.3% for the year.
FINANCIAL RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2005
(Dollars in thousands, except per share data)
FOR THE THREE MONTHS ENDED DECEMBER 31,
2005 2004 % CHANGE
-------- -------- --------
Net income $ 25,240 $ 13,932 81.2
Net income per common share:
Basic 0.68 0.38 78.9
Diluted 0.65 0.35 85.7
Net operating profit after-tax 27,109 16,144 67.9
Average capital 522,856 497,150 5.2
Return on capital 20.7% 13.0% 59.2
Economic profit 16,261 6,585 146.9
Total revenue $ 51,573 $ 46,064 12.0
The increase in consolidated net income for the three months ended December 31,
2005 compared to the same period in 2004 was primarily due to: (i) an 11.2%
increase in finance charge revenue primarily due to an increase in the size of
the Dealer Loan portfolio, (ii) an after-tax gain of $2.1 million on the sale of
the United Kingdom Consumer Loan portfolio recognized during the fourth quarter
of 2005, (iii) a $2.0 million after-tax foreign currency exchange gain
recognized during the fourth quarter of 2005 following the
1
determination that the liquidation of businesses in the United Kingdom and
Canada were substantially complete, (iv) a $3.1 million decrease in the
provision for credit losses primarily due to a reduction in the provision for
credit losses required to maintain the initial yield established at the
inception of the Dealer Loan, (v) a decrease in general and administrative
expenses, as a percentage of revenue, primarily related to the resolution of a
dispute over previously paid audit fees, and (vi) a decrease in the Company's
effective tax rate from 40.7% to 33.7% primarily due to the impact of the
foreign exchange gain related to the liquidation of the United Kingdom and
Canadian businesses not being taxable.
FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2005
(Dollars in thousands, except per share data)
FOR THE YEARS ENDED DECEMBER 31,
2005 2004 % CHANGE
--------- --------- --------
Net income $ 72,601 $ 57,325 26.6
Net income per common share:
Basic 1.96 1.48 32.4
Diluted 1.85 1.40 32.1
Net operating profit after-tax 81,627 64,904 25.8
Average capital 520,376 478,345 8.8
Return on capital 15.7% 13.6% 15.4
Economic profit 39,253 26,204 49.8
Total revenue $ 201,268 $ 172,071 17.0
The increase in consolidated net income for the year ended December 31, 2005
compared to the same period in 2004 was primarily due to: (i) a 17.1% increase
in finance charge revenue primarily due to an increase in the size of the Dealer
Loan portfolio, (ii) a $3.9 million increase in license fees primarily due to an
increase in the number of active dealer-partners. License fees represent monthly
fees charged to dealer-partners for access to CAPS, the Company's patented
Internet-based Credit Approval Processing System, (iii) an after-tax gain of
$2.1 million on the sale of the United Kingdom Consumer Loan portfolio
recognized during the fourth quarter of 2005, (iv) a decrease in general and
administrative expenses, as a percentage of revenue, primarily related to the
resolution of a dispute over previously paid audit fees, and (v) a $0.8 million
decrease in the provision for credit losses primarily due to a reduction in the
provision for credit losses required to maintain the initial yield established
at the inception of a Dealer Loan.
DEALER-PARTNER ENROLLMENTS AND VOLUME
The number of active dealer-partners is a function of new dealer-partner
enrollments and attrition. Active dealer-partners are dealer-partners who submit
at least one loan during the period. The following table summarizes the changes
in active dealer-partners and corresponding unit volume for the three and twelve
months ended December 31, 2005 and 2004:
THREE MONTHS ENDED DECEMBER 31, 2005 THREE MONTHS ENDED DECEMBER 31, 2004
UNIT UNIT
DEALER-PARTNERS VOLUME AVERAGE DEALER-PARTNERS VOLUME AVERAGE
--------------- ------ ------- --------------- ------ -------
Production from quarter ended September
30 of the same year 1,318 20,037 15.2 957 18,375 19.2
Attrition (1) (184) (743) 4.0 (80) (304) 3.8
Volume change from dealer-partners
active in both periods n/a (2,094) n/a n/a (2,642) n/a
---------------------------- ---------------------------
Current period volume from
dealer-partners active both periods 1,134 17,200 15.2 877 15,429 17.6
New dealer-partners (2) 184 1,288 7.0 136 996 7.3
Restarts (3) 41 177 4.3 15 46 3.1
---------------------------- ---------------------------
Current period production 1,359 18,665 13.7 1,028 16,471 16.0
2
TWELVE MONTHS ENDED DECEMBER 31, 2005 TWELVE MONTHS ENDED DECEMBER 31, 2004
UNIT UNIT
DEALER-PARTNERS VOLUME AVERAGE DEALER-PARTNERS VOLUME AVERAGE
--------------- ------- ------- --------------- ------ -------
Production from 12 month period ending 1
year ago 1,215 75,955 62.5 916 62,334 68.1
Attrition (1) (239) (4,291) 18.0 (182) (4,459) 24.5
Volume change from dealer-partners active
in both periods n/a (5,147) n/a n/a 2,875 n/a
----------------------------- -----------------------------
Current period volume from
dealer-partners active both periods 976 66,517 68.2 734 60,750 82.8
New dealer-partners (2) 745 16,278 21.8 460 14,482 31.5
Restarts (3) 45 772 17.2 21 723 34.4
----------------------------- ------------------------------
Current period production 1,766 83,567 47.3 1,215 75,955 62.5
(1) Dealer-partner attrition is measured according to the following
formula: dealer-partners active during the prior period who become
inactive in the current period.
(2) Excludes new dealer-partners that have enrolled in the Company's
program, but have not submitted at least one loan during the period.
(3) Restarts are previously active dealer-partners that were inactive
during the prior period who became active during the current period.
Unit volume produced in the current quarter exceeded the comparable period of
2004 by 2,194 units (13.3%). Unit volume produced over the prior twelve months
exceeded the comparable period by 7,612 units (10.0%).
The increase in unit volume is primarily the result of production from new
dealer-partners, partially offset by a decline in volume from existing
dealer-partners and from volume lost due to attrition.
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 the Company's GAAP basis results except that,
under the Floating Rate method, all 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,
2005 2004
-----------------------
GAAP Return on Capital 15.7% 13.6%
Floating Yield Return on Capital 15.0% 13.3%
----------------------
Difference 0.7% 0.3%
GAAP net operating profit after-tax $ 81,627 $ 64,904
Adjustment to Floating Yield (2,202) (58)
----------------------
Floating Yield net operating profit after-tax $ 79,425 $ 64,846
GAAP average capital $ 520,376 $ 478,345
Adjustment to Floating Yield 7,574 8,731
----------------------
Floating Yield average capital $ 527,950 $ 487,076
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 compares the Company's forecast of
Consumer Loan collection rates for loans accepted by year in the United States
as of December 31, 2005 with the forecast as of December 31, 2004:
December 31, 2005 December 31, 2004
Loan Origination Year Forecasted Collection % Forecasted Collection % Variance
- --------------------- ----------------------- ----------------------- --------
1995 54.9% 54.9% 0.0%
1996 55.0% 55.0% 0.0%
1997 58.3% 58.4% (0.1%)
1998 67.7% 67.7% 0.0%
1999 72.7% 72.8% (0.1%)
2000 73.2% 73.2% 0.0%
2001 67.2% 67.2% 0.0%
2002 70.3% 70.2% 0.1%
2003 74.0% 74.0% 0.0%
2004 72.9% 73.4% (0.5%)
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
December 31, 2005 for the United States business segment.
As of December 31, 2005
---------------------------------------------------
Year of Forecasted % of Forecast
Origination Collection % Advance % Spread % Realized
- ----------- ------------ --------- -------- -------------
1995 54.9% 44.2% 10.7% 100.0%
1996 55.0% 46.9% 8.1% 99.8%
1997 58.3% 47.9% 10.4% 99.2%
1998 67.7% 46.1% 21.6% 98.5%
1999 72.7% 48.9% 23.8% 97.6%
2000 73.2% 48.0% 25.2% 96.7%
2001 67.2% 45.8% 21.4% 96.4%
2002 70.3% 42.2% 28.1% 94.1%
2003 74.0% 43.4% 30.6% 82.8%
2004 72.9% 44.0% 28.9% 59.7%
2005 73.6% 47.1% 26.5% 22.7%
4
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 BALANCE SHEETS
(Dollars in thousands, except per share data)
DECEMBER 31,
-----------------------
2005 2004
(UNAUDITED)
----------- ---------
ASSETS:
Cash and cash equivalents $ 7,090 $ 614
Restricted cash 13,473 23,927
Restricted securities available for sale 3,345 928
Loans receivable (including $14,622 and $18,353 from affiliates in 2005 and 2004, respectively) 694,939 667,394
Allowance for credit losses (131,411) (141,383)
--------- ---------
Loans receivable, net 563,528 526,011
--------- ---------
Property and equipment, net 17,992 19,706
Income taxes receivable 4,022 9,444
Other assets 9,944 10,683
--------- ---------
Total Assets $ 619,394 $ 591,313
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities $ 55,705 $ 49,384
Dealer reserve payable, net - 15,675
Line of credit 36,300 7,700
Secured financing 101,500 176,000
Mortgage note and capital lease obligations 9,105 9,847
Deferred income taxes, net 43,758 31,817
--------- ---------
Total Liabilities 246,368 290,423
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued - -
Common stock, $.01 par value, 80,000,000 shares authorized, 37,027,286 and
36,897,242 shares issued and outstanding at year-end 2005 and 2004, respectively 370 369
Paid-in capital 29,746 25,640
Unearned stock-based compensation (1,566) -
Retained earnings 344,513 271,912
Accumulated other comprehensive (loss) income, net of tax of
$22 and $2 at year-end 2005 and 2004, respectively (37) 2,969
--------- ---------
Total Shareholders' Equity 373,026 300,890
--------- ---------
Total Liabilities and Shareholders' Equity $ 619,394 $ 591,313
========= =========
6
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, except per share data)
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ---------------------------
(UNAUDITED) (UNAUDITED)
2005 2004 2005 2004
------------ ------------ ----------- ------------
REVENUE:
Finance charges $ 44,989 $ 40,454 $ 176,369 $ 150,651
License fees 2,905 1,688 9,775 5,835
Other income 3,679 3,922 15,124 15,585
------------ ------------ ----------- ------------
Total revenue 51,573 46,064 201,268 172,071
------------ ------------ ----------- ------------
COSTS AND EXPENSES:
Salaries and wages 9,350 8,256 36,853 32,720
General and administrative 3,979 6,149 20,834 20,724
Sales and marketing 3,319 3,309 14,275 11,915
Provision for credit losses (1,668) 1,457 5,705 6,526
Interest 2,875 3,403 13,886 11,660
Stock-based compensation 484 523 2,240 2,580
Other expense 41 257 931 1,270
------------ ------------ ----------- ------------
Total costs and expenses 18,380 23,354 94,724 87,395
------------ ------------ ----------- ------------
Operating income 33,193 22,710 106,544 84,676
Foreign exchange gain (loss) 1,998 (81) 3,017 1,650
------------ ------------ ----------- ------------
Income from continuing operations before provision for
income taxes 35,191 22,629 109,561 86,326
Provision for income taxes 11,871 9,202 40,159 30,073
------------ ------------ ----------- ------------
Income from continuing operations 23,320 13,427 69,402 56,253
------------ ------------ ----------- ------------
Discontinued operations
Gain from operations of discontinued United Kingdom
segment (including gain on sale of United Kingdom loan
portfolio of $3,033 during the fourth quarter of 2005)
before provision for income taxes 3,182 753 4,989 1,556
Provison for income taxes 1,262 248 1,790 484
------------ ------------ ----------- ------------
Gain on discontinued operations 1,920 505 3,199 1,072
------------ ------------ ----------- ------------
Net income $ 25,240 $ 13,932 $ 72,601 $ 57,325
============ ============ =========== ============
Net income per common share:
Basic $ 0.68 $ 0.38 $ 1.96 $ 1.48
============ ============ =========== ============
Diluted $ 0.65 $ 0.35 $ 1.85 $ 1.40
============ ============ =========== ============
Income from continuing operations per common share:
Basic $ 0.63 $ 0.36 $ 1.88 $ 1.46
============ ============ =========== ============
Diluted $ 0.60 $ 0.34 $ 1.77 $ 1.37
============ ============ =========== ============
Weighted average shares outstanding:
Basic 37,025,517 36,819,410 36,991,136 38,617,787
Diluted 39,088,720 39,473,105 39,207,680 41,017,205
7
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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:
FOR THE THREE MONTHS ENDED DECEMBER 31, FOR THE YEARS ENDED DECEMBER 31,
2005 2004 2005 2004
--------- --------- --------- ---------
Net income $ 25,240 $ 13,932 $ 72,601 $ 57,325
Interest expense after-tax (1) 1,869 2,212 9,026 7,579
--------- --------- --------- ---------
Net operating profit after-tax $ 27,109 $ 16,144 $ 81,627 $ 64,904
========= ========= ========= =========
Average debt $ 163,687 $ 203,261 $ 186,901 $ 167,137
Average shareholders' equity 359,169 293,889 333,475 311,208
--------- --------- --------- ---------
Average capital $ 522,856 $ 497,150 $ 520,376 $ 478,345
========= ========= ========= =========
Return on capital 20.7% 13.0% 15.7% 13.6%
(1) Interest expense after-tax calculated using a 35% tax rate.
ECONOMIC PROFIT
The Company defines economic profit as net income less an imputed cost of
equity. Economic profit measures how efficiently the Company utilizes its
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.
FOR THE THREE MONTHS ENDED DECEMBER 31, FOR THE YEARS ENDED DECEMBER 31,
2005 2004 2005 2004
-------------- ---------- --------------- -----------
Net income $ 25,240 $ 13,932 $ 72,601 $ 57,325
Imputed cost of equity at 10% (1) (8,979) (7,347) (33,348) (31,121)
------------ ------------ ------------ ------------
Total economic profit $ 16,261 $ 6,585 $ 39,253 $ 26,204
============ ============ ============ ============
Diluted weighted average shares
outstanding 39,088,720 39,473,105 39,207,680 41,017,205
Economic profit per diluted share (2) $ 0.42 $ 0.17 $ 1.00 $ 0.64
(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.
8
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA CONTINUED
(DOLLARS IN THOUSANDS)
A summary of changes in loans receivable is as follows:
YEAR ENDED DECEMBER 31, 2005
------------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- ----------
Balance, beginning of period $ 626,284 $ 36,760 $ 4,350 $ 667,394
New loans 461,877 13,354 - 475,231
Dealer holdback payments 52,512 - - 52,512
Net cash collections on loans (454,636) (16,871) - (471,507)
Write-offs (10,215) (10,760) - (20,975)
Recoveries - 2,367 - 2,367
Sale of United Kingdom loan portfolio - (8,579) - (8,579)
Net change in floorplan receivables, notes
receivable and lines of credit - - (573) (573)
Other - 954 - 954
Currency translation (130) (1,755) - (1,885)
--------- -------- ------- ---------
Balance, end of period $ 675,692 $ 15,470 $ 3,777 $ 694,939
========= ======== ======= =========
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
========= ======== ======= =========
9
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, 2005
----------------------------------------------------------
DEALER LOANS CONSUMER LOANS OTHER LOANS TOTAL
------------ -------------- ----------- ---------
Balance, beginning of period $ 134,599 $ 6,774 $ 10 $ 141,383
Provision for credit losses (1) 6,290 (2,344) (37) 3,909
Write-offs (10,215) (1,985) - (12,200)
Recoveries - 2,312 - 2,312
Sale of United Kingdom loan portfolio - (3,439) - (3,439)
Other change in floorplan receivables,
notes receivable, and lines of credit - - 27 27
Currency translation 48 (629) - (581)
--------- ------- ---- ---------
Balance, end of period $ 130,722 $ 689 $ - $ 131,411
========= ======= ==== =========
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 (2) 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
========= ======= ======= =========
(1) Does not include a provision of $70 primarily related to earned but
unpaid revenue related to license fees.
(2) Does not include a provision of $467 for earned but unpaid revenue
related to license fees.
10