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: MAY 3, 2006
INVESTOR RELATIONS: DOUGLAS W. BUSK
TREASURER
(248) 353-2700 EXT. 4432
IR@CREDITACCEPTANCE.COM
NASDAQ SYMBOL: CACC
CREDIT ACCEPTANCE ANNOUNCES:
FIRST QUARTER 2006 EARNINGS
SOUTHFIELD, MICHIGAN - MAY 3, 2006 - CREDIT ACCEPTANCE CORPORATION (NASDAQ:
CACC) (the "Company") announced consolidated net income for the three months
ended March 31, 2006 of $17.2 million or $0.45 per diluted share compared to
$15.7 million or $0.40 per diluted share for the same period in 2005.
Results for the three months ended March 31, 2006 compared to the same period in
2005 include the following:
- Consumer Loan unit volume increased 12.2%.
- Consumer Loan dollar volume increased 10.3%.
- The number of active dealer-partners increased 34.1%.
- Consumer Loan unit volume per active dealer-partner decreased 16.4%.
FINANCIAL RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2006
(Dollars in thousands, except per share data)
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
2006 2005 % CHANGE
-------- -------- --------
Net income $ 17,197 $ 15,714 9.4
Net income per common share:
Basic 0.48 0.43 11.6
Diluted 0.45 0.40 12.5
Net operating profit after-tax 19,520 18,147 7.6
Average capital 521,934 502,565 3.9
Return on capital 15.0% 14.4% 4.2
Economic profit 8,273 8,031 3.0
Total revenue $ 53,026 $ 47,736 11.1
1
The increase in consolidated net income for the three months ended March 31,
2006 compared to the same period in 2005 primarily reflects the following:
- Finance charge revenue increased $4.0 million (9.4%) primarily due to
a 6.8% increase in the average size of the loan portfolio.
- License fees increased $0.9 million primarily due to an increase in
the number of active dealer-partners and an increase in the monthly
rate for CAPS fees from $499 to $599.
- Stock-based compensation expense decreased $0.9 million due to a
decline in the number of unvested stock options outstanding and the
Company's adoption of SFAS No. 123R.
Partially offsetting these improvements:
- Salaries and wages, as a percentage of revenue, increased to 20.2%
from 19.0% primarily due to increased costs of information systems
personnel.
- General and administrative expenses, as a percentage of revenue,
increased to 12.8% from 11.6% primarily due to additional professional
fees associated with the restatement and an increase in corporate
legal expenses.
- Sales and marketing expenses, as a percentage of revenue, increased to
8.2% from 7.4% primarily due to an increase in dealer support products
and sales promotions.
DEALER-PARTNER ACTIVITY AND CONSUMER LOAN UNIT VOLUME
The following table summarizes the changes in active dealer-partners and
corresponding consumer loan unit volume for the three months ended March 31,
2006 and 2005:
THREE MONTHS ENDED MARCH 31,
----------------------------
2006 2005 % CHANGE
------ ------ --------
Consumer loan unit volume 28,994 25,847 12.2%
Active dealer-partners (1) 1,491 1,112 34.1%
------ ------
Average volume per dealer-partner 19.4 23.2 -16.3%
Consumer loan unit volume from dealer-partners active both periods 18,685 21,503 -13.1%
Dealer-partners active both periods 760 760 --
------ ------
Average volume per dealer-partners active both periods 24.6 28.3 -13.1%
Consumer loan unit volume from new dealer-partners 2,099 1,409 49.0%
New active dealer-partners (2) 220 141 56.0%
------ ------
Average volume per new active dealer-partner 9.5 10.0 -4.5%
Attrition (3) -16.8% -8.8%
(1) Active dealer-partners are dealer-partners who submit at least one loan
during the period.
(2) New dealer-partners are dealer-partners that have enrolled in the Company's
program and have submitted their first loan to the Company 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
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 Company's finance charge
revenue is based on estimates of future cash flows. Under GAAP, favorable
changes in expected cash flows are treated as yield adjustments, while
unfavorable changes are recorded as a current period expense. The non-GAAP
measure ("Floating-Yield") is identical to the Company's GAAP basis results
except that, under the Floating Yield method, all changes in expected cash flows
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.
(Dollars in thousands)
FOR THE THREE
MONTHS ENDED
MARCH 31,
-------------------
2006 2005
-------- --------
GAAP Return on Capital 15.0% 14.4%
Floating Yield Return on Capital 13.3% 13.2%
-------- --------
Difference 1.7% 1.2%
GAAP net operating profit after-tax $ 19,520 $ 18,147
Adjustment to Floating Yield (1,950) (1,309)
-------- --------
Floating Yield net operating profit after-tax $ 17,570 $ 16,838
GAAP average capital $521,934 $502,565
Adjustment to Floating Yield 5,244 7,964
-------- --------
Floating Yield average capital $527,178 $510,529
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 March 31, 2006 with the forecast as of December 31, 2005:
March 31, 2006 December 31, 2005
Loan Origination Year Forecasted Collection % Forecasted Collection % Variance
- --------------------- ----------------------- ----------------------- --------
1996 55.0% 55.0% 0.0%
1997 58.3% 58.3% 0.0%
1998 67.6% 67.7% (0.1%)
1999 72.6% 72.7% (0.1%)
2000 73.2% 73.2% 0.0%
2001 67.4% 67.2% 0.2%
2002 70.4% 70.3% 0.1%
2003 74.4% 74.0% 0.4%
2004 73.6% 72.9% 0.7%
2005 75.4% 73.6% 1.8%
Collection results during the first quarter of 2006 generally exceeded the
Company's expectations at December 31, 2005 and had a positive impact on
forecasted Consumer Loan collection rates.
3
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
The Company claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 for
all of its forward-looking statements. These forward-looking statements
represent the Company's outlook only as of the date of this report. While the
Company believes that its forward-looking statements are reasonable, actual
results could differ materially since the statements are based on our current
expectations, which are subject to risks and uncertainties. Factors that might
cause such a difference include, but are not limited to, the factors set forth
in Item 1A of the Company's Form 10-K for the year ended December 31, 2005,
other risk factors discussed herein or listed from time to time in the Company's
reports filed with the Securities and Exchange Commission and the following:
- The Company's inability to accurately forecast and estimate the amount
and timing of future collections could have a material adverse effect
on results of operations.
- Due to increased competition from traditional financing sources and
non-traditional lenders, the Company may not be able to compete
successfully.
- The Company's ability to maintain and grow the business is dependent
on the ability to continue to access funding sources and obtain
capital on favorable terms.
- The Company may not be able to generate sufficient cash flow to
service its outstanding debt and fund operations.
- The substantial regulation to which the Company is subject limits the
business, and such regulation or changes in such regulation could
result in potential liability.
- Adverse changes in economic conditions, or in the automobile or
finance industries or the non-prime consumer finance market, could
adversely affect the Company's financial position, liquidity and
results of operations and its ability to enter into future financing
transactions.
- Litigation the Company is involved in from time to time may adversely
affect its financial condition, results of operations and cash flows.
- The Company is dependent on its senior management and the loss of any
of these individuals or an inability to hire additional personnel
could adversely affect its ability to operate profitably.
- Natural disasters, acts of war, terrorist attacks and threats or the
escalation of military activity in response to such attacks or
otherwise may negatively affect the business, financial condition and
results of operations.
Other factors not currently anticipated by management may also materially and
adversely affect the Company's results of operations. The Company does not
undertake, and expressly disclaims any obligation, to update or alter its
statements whether as a result of new information, future events or otherwise,
except as required by applicable law.
DESCRIPTION OF CREDIT ACCEPTANCE CORPORATION
Since 1972, Credit Acceptance has provided auto loans to consumers, regardless
of their credit history. Our product is offered through a nationwide network of
automobile dealers who benefit from sales of vehicles to consumers who otherwise
could not obtain financing; from repeat and referral sales generated by these
same customers; and from sales to customers responding to advertisements for our
product, but who actually end up qualifying for traditional financing.
Without our product, consumers may be unable to purchase a vehicle or they may
purchase an unreliable one, or they may not have the opportunity to improve
their credit standing. As we report to the three national credit reporting
agencies, a significant number of our customers improve their lives by improving
their credit score and move on to more traditional sources of financing. Credit
Acceptance is publicly traded on the NASDAQ under the symbol CACC. For more
information, visit creditacceptance.com.
4
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
AS OF
--------------------------
MARCH 31,
2006 DECEMBER 31,
(UNAUDITED) 2005
----------- ------------
ASSETS:
Cash and cash equivalents $ 1,920 $ 7,090
Restricted cash and cash equivalents 15,663 13,473
Restricted securities available for sale 3,366 3,345
Loans receivable (including $19,939 and $19,722
from affiliates in 2006 and 2005, respectively) 721,381 694,939
Allowance for credit losses (130,614) (131,411)
--------- ---------
Loans receivable, net 590,767 563,528
--------- ---------
Property and equipment, net 17,075 17,992
Income taxes receivable 731 4,022
Other assets 11,338 9,944
--------- ---------
Total Assets $ 640,860 $ 619,394
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities $ 61,868 $ 55,705
Line of credit 101,930 36,300
Secured financing 132,500 101,500
Mortgage note and capital lease obligations 8,737 9,105
Deferred income taxes, net 49,569 43,758
--------- ---------
Total Liabilities 354,604 246,368
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value, 80,000,000 shares authorized,
33,005,365 and 37,027,286 shares issued and outstanding as of
March 31, 2006 and December 31, 2005, respectively 330 370
Paid-in capital -- 29,746
Unearned stock-based compensation (1,692) (1,566)
Retained earnings 287,674 344,513
Accumulated other comprehensive income, net of tax of $32 and
$22 at March 31, 2006 and December 31, 2005, respectively (56) (37)
--------- ---------
Total Shareholders' Equity 286,256 373,026
--------- ---------
Total Liabilities and Shareholders' Equity $ 640,860 $ 619,394
========= =========
5
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2006 2005
----------- -----------
REVENUE:
Finance charges $ 46,007 $ 42,038
License fees 2,897 1,960
Other income 4,122 3,738
----------- -----------
Total revenue 53,026 47,736
----------- -----------
COSTS AND EXPENSES:
Salaries and wages 10,752 9,067
General and administrative 6,765 5,530
Sales and marketing 4,359 3,527
Provision for credit losses 524 854
Interest 3,574 3,743
Stock-based compensation expense (158) 755
Other expense 82 135
----------- -----------
Total costs and expenses 25,898 23,611
----------- -----------
Operating income 27,128 24,125
Foreign currency gain 5 645
----------- -----------
Income from continuing operations before provision for income taxes 27,133 24,770
Provision for income taxes 9,928 9,240
----------- -----------
Income from continuing operations 17,205 15,530
----------- -----------
Discontinued operations
(Loss) gain from operations of discontinued United Kingdom operations (13) 255
(Credit) provision for income taxes (5) 71
----------- -----------
(Loss) gain on discontinued operations (8) 184
----------- -----------
Net income $ 17,197 $ 15,714
=========== ===========
Other comprehensive loss, net of tax (19) (731)
----------- -----------
Comprehensive income $ 17,178 $ 14,983
=========== ===========
Net income per common share:
Basic $ 0.48 $ 0.43
=========== ===========
Diluted $ 0.45 $ 0.40
=========== ===========
Income from continuing operations per common share:
Basic $ 0.48 $ 0.42
=========== ===========
Diluted $ 0.45 $ 0.39
=========== ===========
Weighted average shares outstanding:
Basic 36,146,994 36,900,449
Diluted 38,609,257 39,457,287
6
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 MARCH 31,
--------------------
2006 2005
-------- ---------
Net income $ 17,197 $ 15,714
Interest expense after-tax (1) 2,323 2,433
-------- --------
Net operating profit after-tax $ 19,520 $ 18,147
======== ========
Average debt $164,955 $195,238
Average shareholders' equity 356,979 307,327
-------- --------
Average capital $521,934 $502,565
======== ========
Return on capital 15.0% 14.4%
(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 MARCH 31,
-------------------------
2006 2005
----------- -----------
Net income $ 17,197 $ 15,714
Imputed cost of equity at 10% (1) (8,924) (7,683)
----------- -----------
Total economic profit $ 8,273 $ 8,031
=========== ===========
Diluted weighted average shares outstanding 38,609,257 39,457,287
Economic profit per diluted share (2) $ 0.21 $ 0.20
(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.
7
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA CONTINUED
A summary of changes in Loans receivable is as follows (in thousands):
THREE MONTHS ENDED MARCH 31, 2006
------------------------------------------
DEALER CONSUMER OTHER
LOANS LOANS LOANS TOTAL
--------- -------- ------- ---------
Balance, beginning of period $ 675,692 $15,470 $ 3,777 $ 694,939
New Loans 156,646 3,335 -- 159,981
Dealer holdback payments 17,644 -- -- 17,644
Net cash collections on loans (145,501) (2,848) -- (148,349)
Write-offs (1,255) (62) -- (1,317)
Recoveries -- 36 -- 36
Net change in floorplan receivables, notes receivable, and lines of credit -- -- (1,712) (1,712)
Other -- 162 -- 162
Currency translation (3) -- -- (3)
--------- ------- ------- ---------
Balance, end of period $ 703,223 $16,093 $ 2,065 $ 721,381
========= ======= ======= =========
THREE MONTHS ENDED MARCH 31, 2005
-----------------------------------------
DEALER CONSUMER OTHER
LOANS LOANS LOANS TOTAL
--------- -------- ------ --------
Balance, beginning of period $ 626,284 $36,760 $4,350 $ 667,394
New Loans 137,991 2,937 -- 140,928
Dealer holdback payments 11,742 -- -- 11,742
Net cash collections on loans (115,050) (4,781) -- (119,831)
Write-offs (3,003) (3,307) -- (6,310)
Recoveries -- 478 -- 478
Net change in floorplan receivables, notes receivable, and lines of credit -- -- (535) (535)
Other -- 203 -- 203
Currency translation (115) (409) -- (524)
--------- ------- ------ ---------
Balance, end of period $ 657,849 $31,881 $3,815 $ 693,545
========= ======= ====== =========
A summary of changes in the Allowance for credit losses is as follows (in
thousands):
THREE MONTHS ENDED MARCH 31, 2006
--------------------------------------
DEALER CONSUMER OTHER
LOANS LOANS LOANS TOTAL
-------- -------- ----- --------
Balance, beginning of period $130,722 $ 689 $-- $131,411
Provision for credit losses (1) 78 408 -- 486
Write-offs (1,255) (62) -- (1,317)
Recoveries -- 36 -- 36
Currency translation (2) -- -- (2)
-------- ------ --- --------
Balance, end of period $129,543 $1,071 $-- $130,614
======== ====== === ========
THREE MONTHS ENDED MARCH 31, 2005
---------------------------------------
DEALER CONSUMER OTHER
LOANS LOANS LOANS TOTAL
-------- -------- ----- --------
Balance, beginning of period $134,599 $6,774 $ 10 $141,383
Provision for credit losses (2) 674 (176) -- 498
Write-offs (3,003) (334) -- (3,337)
Recoveries -- 631 -- 631
Other changes in floorplan receivables, notes receivable, and lines of credit -- -- (10) (10)
Currency translation (14) (163) -- (177)
-------- ------ ---- --------
Balance, end of period $132,256 $6,732 $ -- $138,988
======== ====== ==== ========
(1) Does not include a provision for credit losses of $38 on license fees
receivable and other items.
(2) Does not include a provision for credit losses of $205 on license fees
receivable and other items.
8