Press Releases
Credit Acceptance Announces: First Quarter 2006 Earnings
SOUTHFIELD, Mich., May 3, 2006 (PRIMEZONE via COMTEX News Network) -- 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
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 (a) 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 (b) 220 141 56.0%
-------- --------
Average volume per new active
dealer-partner 9.5 10.0 -4.5%
Attrition (c) -16.8% -8.8%
(a) Active dealer-partners are dealer-partners who submit at least
one loan during the period.
(b) 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.
(c) 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.
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:
Loan March 31, 2006 December 31, 2005
Origination Forecasted Forecasted
Year Collection % 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.
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.
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) As of
--------------------
March 31, December 31,
2006 2005
(Unaudited)
--------- ---------
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
========= =========
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
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 (a) 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%
(a) 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% (a) (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 (b) $ 0.21 $ 0.20
(a) Cost of equity is equal to 10% (on an annual basis) of average
shareholders' equity, as disclosed in the Return on Capital
calculation.
(b) Economic profit per diluted share equals the economic
profit divided by the diluted weighted average number of shares
outstanding.
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 (a) 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 (b) 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
========= ========= ========= =========
(a) Does not include a provision for credit losses of $38 on license
fees receivable and other items.
(b) Does not include a provision for credit losses of $205 on license
fees receivable and other items.
This news release was distributed by PrimeZone, www.primezone.com
SOURCE: Credit Acceptance Corporation
Credit Acceptance Corporation
Investor Relations:
Douglas W. Busk, Treasurer
(248) 353-2700 Ext. 4432
IR@creditacceptance.com
(C) 2006 PRIMEZONE, All rights reserved.
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