EX-99.1 2 k02002exv99w1.txt PRESS RELEASE DATED JANUARY 27, 2006 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