Press Releases
Credit Acceptance Announces: Fourth Quarter and 2005 Earnings
SOUTHFIELD, Mich., Feb 27, 2006 (PRIMEZONE via COMTEX News Network) -- 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 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 Three Months Ended
December 31, 2005 December 31, 2004
Dealer- Unit Aver- Dealer- Unit Aver-
Partners Volume age Partners Volume age
------- ------ ---- -------- ------ -----
Production
from quarter
ended September 30
of the
same year 1,318 20,037 15.2 957 18,375 19.2
Attrition(a) (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(b) 184 1,288 7.0 136 996 7.3
Restarts(c) 41 177 4.3 15 46 3.1
----------------------- ---------------------
Current period
production 1,359 18,665 13.7 1,028 16,471 16.0
Twelve Months Ended Twelve Months Ended
December 31, 2005 December 31, 2004
Dealer- Unit Aver- Dealer- Unit Aver-
Partners Volume age Partners Volume age
------- ------ ---- -------- ------ -----
Production from
12 month period
ending 1 year
ago 1,215 75,955 62.5 916 62,334 68.1
Attrition(a) (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(b) 745 16,278 21.8 460 14,482 31.5
Restarts(c) 45 772 17.2 21 723 34.4
----------------------- ---------------------
Current period
production 1,766 83,567 47.3 1,215 75,955 62.5
(a) Dealer-partner attrition is measured according to the
following formula: dealer-partners active during the prior
period who become inactive in the current period.
(b) Excludes new dealer-partners that have enrolled in the
Company's program, but have not submitted at least one loan
during the period.
(c) 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
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:
Loan Dec. 31, 2005 Dec. 31, 2004
Origination Forecasted Forecasted
Year Collection % 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%
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.
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
========= =========
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
Provision 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
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 For the
Three Months Ended Years Ended
December 31, December 31,
2005 2004 2005 2004
-------- -------- -------- --------
Net income $ 25,240 $ 13,932 $ 72,601 $ 57,325
Interest expense
after-tax(a) 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%
(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 For the
Three Months Ended Years Ended
December 31, December 31,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net income $ 25,240 $ 13,932 $ 72,601 $ 57,325
Imputed cost of equity
at 10%(a) (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(b) $ 0.42 $ 0.17 $ 1.00 $ 0.64
(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
(Dollars in thousands)
A summary of changes in loans receivable is as follows:
Year Ended December 31, 2005
-----------------------------------------
Dealer Consumer Other Total
Loans Loans Loans
-------- -------- -------- --------
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 Consumer Other Total
Loans Loans Loans
-------- -------- -------- --------
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
======== ======== ======== ========
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 Consumer Other Total
Loans Loans Loans
-------- -------- -------- --------
Balance, beginning of
period $134,599 $ 6,774 $ 10 $141,383
Provision for credit
losses(a) 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 Consumer Other Total
Loans Loans Loans
-------- -------- -------- --------
Balance, beginning of
period $136,514 $ 6,689 $ 106 $143,309
Provision for credit
losses(b) 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
======== ======== ======== ========
(a) Does not include a provision of $70 primarily related to
earned but unpaid revenue related to license fees.
(b) Does not include a provision of $467 for earned but unpaid
revenue related to license fees.
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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