Press Releases
Credit Acceptance Announces 2nd Quarter Earnings
SOUTHFIELD, Mich., Aug 4, 2004 (BUSINESS WIRE) -- Credit Acceptance Corporation (Nasdaq:CACC) Credit Acceptance Corporation (the "Company") announced consolidated net income for the three months ended June 30, 2004 of $12,606,000 or $0.30 per diluted share compared to $1,008,000 or $0.02 per diluted share for the same period in 2003. For the six months ended June 30, 2004, consolidated net income was $14,136,000 or $0.34 per diluted share compared to $9,601,000 or $0.23 per diluted share for the same period in 2003.
The increase in consolidated net income for the three months ended June 30, 2004 compared to the same period in 2003 was primarily due to: (i) the United Kingdom impairment expenses recognized during the second quarter of 2003, (ii) an increase in the size of the loan portfolio due to an increase in loan originations, (iii) an increase in the average annualized yield on the loan portfolio due to a decrease in the percentage of non-accrual loans to total loans, and (iv) a decrease in operating expenses as a percentage of revenue due to increased operational efficiencies. Partially offsetting these items was a decrease in ancillary product income due to the Company's change in policy during the first quarter of 2004 for recognizing income on third-party vehicle service contracts sold.
The increase in consolidated net income for the six months ended June 30, 2004 compared to the same period in 2003 was primarily due to: (i) the United Kingdom impairment expenses recognized during the second quarter of 2003, (ii) an increase in the size of the loan portfolio due an increase in loan originations, and (iii) a decrease in operating expenses as a percentage of revenue due to increased operational efficiencies. Partially offsetting these items were: (i) an increase in the provision for credit losses due to the Company's change in estimate during the first quarter of 2004 for recording losses on its loan portfolio and the Company's revised methodology during the first quarter of 2004 for calculating finance charge income and the related provision for earned but unpaid servicing fees and (ii) a decrease in ancillary product income due to the Company's change in policy during the first quarter of 2004 for recognizing income on third-party vehicle service contracts sold.
Excluding the impact of certain items, consolidated adjusted net income for the three and six months ended June 30, 2004 was $13,047,000 or $0.32 per diluted share and $24,048,000 or $0.58 per diluted share, respectively, compared to $7,933,000 or $0.19 per diluted share and $15,441,000 or $0.36 per diluted share for the same periods in 2003.
The increase in consolidated adjusted net income for the three months ended June 30, 2004 compared to the same period in 2003 was primarily due to: (i) an increase in the size of the loan portfolio due an increase in loan originations, (ii) an increase in the average annualized yield on the loan portfolio due to a decrease in the percentage of non-accrual loans to total loans, and (iii) a decrease in operating expenses as a percentage of revenue due to increased operational efficiencies. The increase in consolidated adjusted net income for the six months ended June 30, 2004 compared to the same period in 2003 is primarily due to: (i) an increase in the size of the loan portfolio due to an increase in loan originations, (ii) a decrease in operating expenses as a percentage of revenue due to increased operational efficiencies, and (iii) a decrease in the provision for credit losses inherent in the loan portfolio due to a favorable trend in loss estimates during 2004.
Reconciliation of Reported Net Income to Adjusted Net Income
The Company's reported net income includes certain items set forth in the table below that the Company believes should be excluded or adjusted in measuring the performance of the business when comparing current period results with the same period in the prior year. Management believes this information is important because it allows shareholders to better compare results between periods and make more informed assumptions about future results. In addition, the Company uses adjusted net income for performance purposes in determining bonus compensation paid under the Company's incentive compensation plans. The following table reconciles reported net income to adjusted net income for the three and six months ended June 30, 2004 and 2003:
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands, ----------------------- -----------------------
except per share data) 2004 2003 2004 2003
----------- ----------- ----------- -----------
Reported net income $12,606 $1,008 $14,136 $9,601
Inclusion of dealer
holdback in estimate
of losses on the loan
portfolio (1) - - 6,110 -
Revised methodology for
recognizing finance
charges (1) - - 2,282 -
Foreign exchange gain
due to forward
contracts (2) (590) - (688) -
United Kingdom impairment
expenses (3) - 7,238 - 7,238
Interest income from
Internal Revenue
Service (3) - - - (400)
----------- ----------- ----------- -----------
Net income excluding
certain items $12,016 $8,246 $21,840 $16,439
Change in vehicle
service contract
revenue if new policy
had been retroactively
applied (4) 1,031 (313) 2,208 (998)
----------- ----------- ----------- -----------
Adjusted net income $13,047 $7,933 $24,048 $15,441
=========== =========== =========== ===========
Diluted weighted
average shares
outstanding 41,413,308 42,868,265 41,790,255 42,629,844
Adjusted net income per
diluted share $0.32 $0.19 $0.58 $0.36
=========== =========== =========== ===========
(1) These items represent changes in estimates or changes in
methodology that impact the current year. While these changes impacted
the accounting for finance charges and the allowance for credit losses
during the first quarter of 2004, the timing of cash flows generated
from loan collections has not changed. Refer to Note 2 of the
Consolidated Financial Statements included in the Company's Form 10-Q
for further information.
(2) This item represents a current year gain which is offset by a
reduction in shareholders' equity due to the decline in value of
foreign currency denominated assets.
(3) The Company expects items of this type to be infrequent.
(4) This adjustment allows the reader to compare the current year to
the prior year assuming a consistent accounting treatment of vehicle
service contract revenue. While the accounting treatment of vehicle
service contract revenue changed as a result of facts arising in the
first quarter of 2004, the timing of cash flows generated from vehicle
service contract revenue has not materially changed under the
agreements entered into during the first quarter. Refer to Note 2 of
the Consolidated Financial Statements included in the Company's Form
10-Q for further information.
Segment Information
Three Months Ended June 30,
(Dollars in thousands, -----------------------------------
except per share data) 2004 2003 % Change
----------- ----------- ----------
Reported Net Income (Loss)
--------------------------
United States $12,341 $8,703 41.8 %
United Kingdom 186 (7,594) 102.4
Automobile Leasing 233 (153) 252.3
Other (154) 52 (396.2)
----------- ----------- ---------
Consolidated $12,606 $1,008 1,150.6 %
=========== =========== =========
Reported Net Income (Loss) Per
Diluted Share
-------------------------------
United States $0.29 $0.20 45.0 %
United Kingdom - (0.18) 100.0
Automobile Leasing 0.01 - 0.0
Other - - 0.0
----------- ----------- ---------
Consolidated $0.30 $0.02 1,400.0 %
=========== =========== =========
Six Months Ended June 30,
(Dollars in thousands, ---------------------------------
except per share data) 2004 2003 % Change
----------- ----------- ---------
Reported Net Income (Loss)
--------------------------
United States $13,444 $16,181 (16.9)%
United Kingdom 412 (6,288) 106.6
Automobile Leasing 537 (468) 214.7
Other (257) 176 (246.0)
----------- ----------- --------
Consolidated $14,136 $9,601 47.2 %
=========== =========== ========
Reported Net Income (Loss) Per
Diluted Share
-------------------------------
United States $0.33 $0.39 (15.4)%
United Kingdom 0.01 (0.15) 106.7
Automobile Leasing 0.01 (0.01) 200.0
Other (0.01) - 0.0
----------- ----------- --------
Consolidated $0.34 $0.23 47.8 %
=========== =========== ========
Loan Originations in the United States
(Dollars in thousands) Three Months Ended June 30,
-----------------------------
2004 2003 % Change
--------- --------- ---------
Loan originations $215,103 $184,079 16.9 %
Number of loans originated 17,268 14,736 17.2
Number of active dealer-partners (1) 899 677 32.8
Loans per active dealer-partner 19.2 21.8 (11.8)
Average loan size $12.5 $12.5 -
(Dollars in thousands) Six Months Ended June 30,
-----------------------------
2004 2003 % Change
--------- --------- ---------
Loan originations $514,399 $398,359 29.1 %
Number of loans originated 41,109 32,942 24.8
Number of active dealer-partners (1) 958 721 32.9
Loans per active dealer-partner 42.9 45.7 (6.1)
Average loan size $12.5 $12.1 3.5
(1) Active dealer-partners are dealer-partners who submitted at least
one loan during the period.
Loan Portfolio Performance in the United States
The following table compares the Company's forecast of collection rates for loans originated by year as of June 30, 2004 with the forecast as of December 31, 2003:
Loan December 31, 2003
Origination June 30, 2004 Forecasted
Year Forecasted Collection % Collection % Variance
-------------- ----------------------- ---------------------- --------
1992 81.6% 81.5% 0.1%
1993 75.8% 75.7% 0.1%
1994 61.9% 61.8% 0.1%
1995 55.1% 55.2% -0.1%
1996 55.2% 55.3% -0.1%
1997 58.1% 58.1% 0.0%
1998 67.2% 67.2% 0.0%
1999 71.5% 71.5% 0.0%
2000 71.7% 71.7% 0.0%
2001 66.7% 67.0% -0.3%
2002 68.9% 69.4% -0.5%
2003 73.2% 72.8% 0.4%
The Company made no material changes in credit policy or pricing in the second quarter of 2004, other than routine changes designed to maintain current profitability levels.
The following summarizes the amount of estimated future loan payment inflows and dealer holdback outflows:
(In thousands) Estimate as of
June 30, 2004
----------------
Loan payments $827,532
Dealer holdback payments 213,453
----------------
Net cash flow $614,079
================
These estimated cash flows will occur over time. The estimated present value of these net cash flows is $494.3 million utilizing a discount rate of 30%, comparable with the rate used to calculate the Company's allowance for credit losses under accounting principles generally accepted in the United States (GAAP).
The estimated present value of future cash flows from loans, less the related dealer holdback liability, is approximately $40.3 million higher than the adjusted net investment in loans on our balance sheet calculated as follows:
As of June 30, 2004
-------------------
Consolidated loans receivable, net $939,748
Consolidated dealer holdbacks 475,415
--------------
Net investment in loans before adjustments 464,333
Less: portion related to United Kingdom and Canada (17,167)
Plus: repossessed assets and other 6,795
--------------
Adjusted net investment in loans 453,961
Estimated present value of future cash flows from loans
receivable, less estimated dealer holdback payments 494,282
--------------
Excess of estimated present value of future cash flows
over recorded net investment (pretax) $40,321
==============
There are two primary reasons why the Company's recorded net investment in loans receivable is less than the present value of future cash flows. First, under GAAP, while the Company records an allowance for credit losses for any dealer-partner loan pool that exceeds the present value of future cash flows, the Company does not "write-up" loan pools carried at less than the present value of future cash flows. Second, under GAAP, the Company records recoveries as they are received. Recoveries consist of collections on previously charged off receivables. The present value of future recoveries is included in the estimated cash flow numbers above, but is not yet reflected in the Company's reported GAAP results.
The Company cautions that the above disclosure is based upon a forecast. While the Company believes its forecast is based on reasonable assumptions, there can be no assurance that the Company's forecast will be accurate. While the table above presents the difference between the recorded net investment and the estimated present value of future cash flows as a single number, a wide range of actual results is possible. Given the large dollar amount of the estimated present value of future cash flows, a modest percentage change in our forecast would likely result in a large change in the reported variance between our recorded net investment and the estimated present value of future cash flows.
Adjusted Return on Capital
(Dollars in thousands) Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Average debt $164,338 $101,821 $145,580 $101,147
Average shareholders' equity 314,255 336,740 321,425 332,798
--------- --------- --------- ---------
Average capital $478,593 $438,561 $467,005 $433,945
========= ========= ========= =========
Adjusted return on capital is equal to adjusted net operating profit after-tax (adjusted net income plus interest expense after-tax) divided by average capital as follows:
(Dollars in thousands) Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Adjusted net income $13,047 $7,933 $24,048 $15,441
Interest expense after-tax 1,542 911 3,232 1,948
--------- --------- --------- ---------
Adjusted net operating profit
after-tax 14,589 8,844 27,280 17,389
========= ========= ========= =========
Average capital $478,593 $438,561 $467,005 $433,945
========= ========= ========= =========
Adjusted return on capital 12.2% 8.1% 11.7% 8.0%
Adjusted Economic Profit
The Company defines adjusted economic profit as adjusted net operating profit after-tax less an imputed cost of equity. Adjusted economic profit measures how efficiently the Company utilizes its total capital, both debt and equity. To consider the cost of both debt and equity, the Company's calculation of adjusted economic profit deducts from adjusted 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 investing capital in its core business with the return they could expect if the Company returned capital to shareholders and they invested in other securities.
The following table presents the calculation of the Company's adjusted economic profit (loss) for the periods indicated (dollars in thousands, except per share data):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Adjusted economic profit
Adjusted net income (1) $13,047 $7,933 $24,048 $15,441
Imputed cost of equity
at 10% (2) (7,856) (8,419) (16,071) (16,640)
----------- ----------- ----------- -----------
Total adjusted economic
profit (loss) $5,191 $(486) $7,977 $(1,199)
=========== =========== =========== ===========
Diluted weighted
average shares
outstanding 41,413,308 42,868,265 41,790,255 42,629,844
Adjusted economic
profit (loss) per
share (3) $0.13 $(0.01) 0.19 (0.03)
(1) Adjusted net income from the Reconciliation of Reported Net Income
to Adjusted Net Income.
(2) Cost of equity is equal to 10% (on an annual basis) of average
shareholders' equity, which was $314,255,000 and $321,425,000 for the
three months and six months ended June 30, 2004, respectively, and
$336,740,000 and $332,798,000 for the same periods in 2003.
(3) Adjusted economic profit (loss) per share equals the adjusted
economic profit (loss) divided by the diluted weighted average number
of shares outstanding.
Refer to the Company's Form 10-Q, which will be filed today with the Securities and Exchange Commission, and will appear on the Company's website at www.creditacceptance.com for a complete discussion of the results of operations and financial data for the three and six months ended June 30, 2004.
New Policy for Corporate Information Requests
The Company announced a new policy for handling requests for corporate information, including questions by security analysts and investors. Effective immediately, all requests must be submitted in writing. Requests can be mailed to: Credit Acceptance, Attention: Investor Relations, 25505 West Twelve Mile Road, Suite 3000, Southfield, MI 48034, or sent by email to ir@creditacceptance.com.
Written responses will be posted on the investor relations section of our corporate website at www.creditacceptance.com and furnished to the Securities and Exchange Commission on Form 8-K.
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," "assumptions," "forecasts," "estimates" and those regarding the Company's future 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,
-- the effect of terrorist attacks and potential 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 by selling vehicles to consumers who otherwise could not obtain financing, by 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 are often unable to purchase a vehicle or they purchase an unreliable one and are not provided 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 National Market under the symbol CACC. For more information, visit www.creditacceptance.com.
CREDIT ACCEPTANCE CORPORATION
Consolidated Income Statements
(Unaudited)
(Dollars in thousands, Three Months Ended Six Months Ended
except per share data) June 30, June 30,
----------------------- -----------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenue:
Finance charges $33,731 $26,431 $60,964 $50,687
Ancillary product
income 2,459 4,233 5,326 9,966
Lease revenue 405 1,784 1,052 4,120
Other income 4,694 3,598 9,468 8,258
----------- ----------- ----------- -----------
Total revenue 41,289 36,046 76,810 73,031
----------- ----------- ----------- -----------
Costs and expenses:
Salaries and wages 8,963 8,687 17,759 17,204
General and
administrative 5,214 5,272 10,968 10,812
Provision for credit
losses 2,187 2,863 14,734 7,051
Sales and marketing 2,474 2,483 5,017 4,660
Interest 2,373 1,401 4,973 2,997
Stock-based
compensation expense 864 1,428 1,431 1,803
United Kingdom asset
impairment - 10,493 - 10,493
Other expense 324 1,376 781 3,023
----------- ----------- ----------- -----------
Total costs and
expenses 22,399 34,003 55,663 58,043
----------- ----------- ----------- -----------
Operating income 18,890 2,043 21,147 14,988
Foreign exchange gain 906 14 1,057 29
----------- ----------- ----------- -----------
Income before provision
for income taxes 19,796 2,057 22,204 15,017
Provision for income
taxes 7,190 1,049 8,068 5,416
----------- ----------- ----------- -----------
Net income $12,606 $1,008 $14,136 $9,601
=========== =========== =========== ===========
Net income per common
share:
Basic $0.32 $0.02 $0.36 $0.23
=========== =========== =========== ===========
Diluted $0.30 $0.02 $0.34 $0.23
=========== =========== =========== ===========
Weighted average shares
outstanding:
Basic 39,240,321 42,321,170 39,516,011 42,317,443
Diluted 41,413,308 42,868,265 41,790,255 42,629,844
CREDIT ACCEPTANCE CORPORATION
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data) As of
------------------------
June 30, December 31,
2004 2003
----------- ------------
ASSETS:
Cash and cash equivalents $28,364 $36,044
Loans receivable 976,315 875,417
Allowance for credit losses (36,567) (17,615)
----------- ------------
Loans receivable, net 939,748 857,802
----------- ------------
Notes, lines of credit and floorplan
receivables, net (including $1,617 and $1,583
from affiliates as of June 30, 2004 and
December 31, 2003, respectively) 6,073 6,562
Investment in operating leases, net 1,888 4,447
Property and equipment, net 19,177 18,503
Income taxes receivable 7,458 5,795
Other assets 14,646 14,627
----------- ------------
Total Assets $1,017,354 $943,780
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Lines of credit $30,600 $-
Secured financing 130,428 100,000
Mortgage note and capital lease obligations 10,254 6,467
Accounts payable and accrued liabilities 36,481 33,117
Dealer holdbacks, net 475,415 423,861
Deferred income taxes, net 13,820 24,529
----------- ------------
Total Liabilities 696,998 587,974
----------- ------------
Shareholders' Equity:
Preferred stock, $ .01 par value, 1,000,000
shares authorized, none issued - -
Common stock, $ .01 par value, 80,000,000
shares authorized, 39,244,203 and
42,128,087 shares issued and outstanding
as of June 30, 2004 and December 31, 2003,
respectively 392 421
Paid-in capital 76,394 125,078
Retained earnings 241,175 227,039
Accumulated other comprehensive income -
cumulative translation adjustment 2,395 3,268
----------- ------------
Total Shareholders' Equity 320,356 355,806
----------- ------------
Total Liabilities and Shareholders' Equity $1,017,354 $943,780
=========== ============
SOURCE: Credit Acceptance Corporation
Credit Acceptance Corporation, Southfield Douglas W. Busk, 248-353-2700 Ext. 432 IR@creditacceptance.com www.creditacceptance.com
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