Press Releases
Credit Acceptance Announces: Fourth Quarter And 2004 Earnings
SOUTHFIELD, Mich., Mar 24, 2005 (PRIMEZONE via COMTEX) -- Credit Acceptance Corporation (Nasdaq:CACC) (the "Company") announced consolidated net income for the three months ended December 31, 2004 of $7.4 million or $0.19 per diluted share compared to $9.8 million or $0.22 per diluted share for the same period in 2003. For the year ended December 31, 2004, consolidated net income was $37.0 million or $0.90 per diluted share compared to $25.8 million or $0.60 per diluted share for the same period in 2003.
The decrease in consolidated net income for the quarter ended December 31, 2004 compared to the same quarter in 2003 was primarily due to: (i) an increase in the provision for credit losses related to an enhancement to our methodology for estimating the present value of the dealer holdback payments (see discussion in "Discounted future cash flows"), (ii) a decrease in ancillary product income due to the Company's change in accounting policy during the first quarter of 2004 for recognizing income on third-party vehicle service contracts sold, (iii) increased general and administrative expenses related to increased accounting and audit fees associated with Sarbanes-Oxley compliance and (iv) increased sales and marketing expenses due to increasing our sales force and expanding our annual dealer-partner convention. Partially offsetting these items was (i) an increase in finance charges due to an increase in the size of the loan portfolio and 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 (ii) a decrease in foreign exchange loss related to the fair value of forward contracts during 2004.
Results for the fourth quarter and year ended December 31, 2004 compared to the same periods in 2003 include the following:
-- Loan origination volume grew 26.8% for the year and 20.2% for
the quarter
-- Loan origination volume increases were achieved with no material
changes in credit policy or pricing
-- Collection results were generally consistent with forecasts
-- The number of active dealer-partners grew 32.6% for the year and
34.7% for the quarter
-- Average active dealer-partner unit volumes decreased by 8.1% for
the year and 11.7% for the quarter
The accounting for our business is complex. The next three sections of this press release provide information that explains and reconciles the differences between GAAP net income and adjusted net income.
Adjusted net income
Adjusted net income is detailed in the table below. Although adjusted income is not audited and is not consistent with accounting principles generally accepted in the United States ("GAAP"), the Company utilizes adjusted net income to calculate adjusted economic profit, which management and the Board of Directors use as the primary measure of financial performance and to calculate bonuses. Adjusted net income adjusts GAAP net income for non-recurring items, consistent with prior press releases. In addition, this quarter contains an adjustment not presented in prior periods. This additional adjustment reflects the difference between the carrying value of our loan portfolio under GAAP and the estimated discounted value of future cash flows from our loan portfolio. For a complete discussion, see "Discounted future cash flows" below.
Adjusted net income for the three months ended December 31, 2004 was $13.8 million or $0.35 per diluted share compared to $12.8 million or $0.29 per diluted share for the same period in 2003. Adjusted net income for the year ended December 31, 2004 was $52.5 million or $1.28 per diluted share compared to $42.2 million or $0.97 per diluted share for the same period in 2003.
Adjusted EPS increased by 20.7% for the quarter and 32.0% for the year primarily due to the growth in loans receivable, an increase in the profitability of the loan portfolio and share repurchases, partially offset by a decrease in non-U.S. segment income due to these segments being in liquidation. The increased profitability of the loan portfolio is primarily the result of increased revenue from ancillary products and lower operating expenses, as a percentage of revenue, partially offset by higher sales and marketing expenses.
Reconciliation of Reported Net Income to Adjusted Net Income
------------------------------------------------------------
(Dollars in thousands, except per share data)
Three Months Ended Years Ended
December 31, December 31,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Reported net
income (a) $ 7,423 $ 9,762 $ 37,014 $ 25,832
Foreign exchange
(gain) loss due to
forward
contracts (b) 48 1,129 (1,080) 1,831
Reduction in
Michigan single
business tax (c) -- (307) -- (307)
United Kingdom
impairment
expenses (c) -- -- -- 7,238
Interest income from
Internal Revenue
Service (c) -- -- -- (400)
---------- ---------- ---------- ----------
Net income excluding
certain items $ 7,471 $ 10,584 $ 35,934 $ 34,194
Adjustment to record
the GAAP net invest-
ment in loans
receivable at the
discounted value
of future cash
flows (d) 6,799 2,047 18,678 5,920
Adjustment resulting
in comparable tax
rate for both
periods (e) (493) 200 (2,079) 2,079
---------- ---------- ---------- ----------
Adjusted net income $ 13,777 $ 12,831 $ 52,533 $ 42,193
========== ========== ========== ==========
Diluted weighted
average shares
outstanding 39,473,105 43,958,520 41,017,205 43,409,007
Adjusted net income
per diluted share $ 0.35 $ 0.29 $ 1.28 $ 0.97
========== ========== ========== ==========
(a) Reported net income for the year ended December 31, 2003 has
been restated to reflect the correction of an accounting error
related to income taxes discovered by the Company during the 2004
year-end closing process. Refer to Restatement of Prior Periods
included in Summary Financial Data for further information.
(b) This item represents gains and losses resulting from changes
in foreign currency exchange rates that are offset by changes in
the currency translation adjustment included in shareholders'
equity due to the changes in the value of
foreign-currency-denominated net assets held.
(c) The Company expects items of this nature to be non-recurring.
(d) See discussion below ("Discounted future cash flows"). This
adjustment is the after-tax change in the "excess" during the
period presented.
(e) This adjustment allows the reader to compare the current
period to the prior period assuming a consistent tax rate.
Discounted future cash flows
As previously discussed, management and the Board of Directors use adjusted net income to calculate adjusted economic profit, which is the primary measure of financial performance since it more closely reflects how the business is managed than GAAP results. The biggest difference between GAAP net income and adjusted net income is the difference between the present value of future loan cash flows and the GAAP reported value of those loans. This segment of our release reports the amounts, reasons and significance of this difference.
We started disclosing the estimated present value of future loan cash flows (less the related dealer holdback liability) in the second quarter of 2004. The initial disclosure was intended to inform shareholders that, based on our estimates, we believed the discounted future cash flows from our loan portfolio, less dealer holdbacks, exceeded the comparable amount recorded on our GAAP basis balance sheet (the "excess"). We provided two reasons for this result. First, under GAAP, while the Company records an allowance for credit losses for any dealer-partner loan pool that exceeds the estimated 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 when received while the estimated present value of future cash flows includes estimated future recoveries. Recoveries consist of collections on previously charged off receivables.
During the third quarter of 2004, we again provided an estimate of the excess. Since there were excess numbers for both June 30, 2004 and September 30, 2004, shareholders could calculate the income statement impact of this new disclosure, as explained in the investor relations section of our website at www.creditacceptance.com in our December 20 and October 19 answers to investor questions. We suggested shareholders pay attention to the change in the excess over a long time period and cautioned against drawing any short term conclusions about our quarterly profitability as we believed by their nature these quarterly excess estimates would likely be subject to volatility.
This quarter we decided to include the impact of the excess in our adjusted income calculation for two reasons. First, we calculated, and report in this press release, comparable quarterly numbers back to December 31, 2002, thus providing a longer-term basis for comparison. Second, we believe our 2004 GAAP earnings are very difficult to understand. For example, the GAAP provision for credit losses continues to grow, even though collection rates have continued to be consistent with our expectations. The GAAP allowance for credit losses as of December 31, 2004 is far in excess of the estimated cash losses that will eventually be charged against it.
The following summarizes future loan payment inflows and dealer holdback outflows estimated by the Company as well as the estimated present values of these net cash flows:
(In thousands) Estimate as of
--------------------------
December 31, December 31,
2004 2003
-------- --------
Loan payments $882,118 $713,330
Dealer holdback payments 228,044 179,499
-------- --------
Net cash flow $654,074 $533,831
======== ========
Present value of net cash flow (a) $501,343 $407,231
======== ========
(a) Calculated utilizing a discount rate comparable with the rate
used to calculate the Company's allowance for credit losses under
GAAP (approximately 29% as of December 31, 2004 and 2003).
The estimated present value of future cash flows from loans, less the related dealer holdback liability, is higher than the adjusted net investment in loans on the Company's balance sheet as of December 31, 2004 and 2003, respectively, as follows:
(In thousands) Estimate as of
--------------------------
December 31, December 31,
2004 2003
--------- ---------
Consolidated loans receivable, net $ 974,476 $ 857,802
Consolidated dealer holdbacks, net 504,722 423,861
--------- ---------
Net investment in loans
before adjustments 469,754 433,941
Less: portion related to United
Kingdom and Canada (8,161) (34,970)
Plus: repossessed assets and other 8,975 6,587
--------- ---------
Adjusted net investment in loans 470,568 405,558
Estimated present value of future
cash flows from loans receivable,
less estimated dealer holdback payments 501,343 407,231
--------- ---------
Excess of estimated present value of
future cash flows over recorded net
investment (pre-tax) (a) $ 30,775 $ 1,673
========= =========
(a) While the table above presents the difference between the
recorded net investment and the estimated present value of future
cash flows, a wide range of actual results is possible. Given the
large dollar amount of the estimated present value of future cash
flows, even a modest percentage change in the Company's forecast
would likely result in a large change in the reported variance
between the Company's recorded net investment and the present
value of estimated future cash flows.
The excess increased substantially during 2004, primarily due to growth in our portfolio and to changes in accounting policies during 2004 that reduced the recorded net investment in loans receivable. These changes include changes in revenue recognition for vehicle service contracts and changes in the calculation of the required allowance for credit losses.
The following table compares the estimated present value of future cash flows from loans receivable, less dealer holdback payments, to the net investment in loans receivable at the end of each period back through December 31, 2002. In order to produce the most meaningful income statement adjustment, we have used the benefit of hindsight and improved forecasting methods to calculate prior periods. As a result, the excess shown for June 30, 2004 and September 30, 2004 is lower than reported previously and amounts for periods prior to June 30, 2004 are different than what would have been calculated at that time. The most significant difference between the excess reported below, and the excess reported in prior periods, relates to assumptions regarding the timing of dealer holdback payments.
Estimate as of
--------------------------------------
(In thousands) 12/31/04 9/30/04 6/30/04 3/31/04
-------- -------- -------- --------
Adjusted net investment
in loans $470,568 $475,001 $454,355 $436,946
Estimated present value
of future cash flows
from loans receivable,
less estimated dealer
holdback payments 501,343 495,182 473,601 454,813
-------- -------- -------- --------
Excess of estimated
present value of future
cash flows over recorded
net investment (pre-tax) $ 30,775 $ 20,181 $ 19,246 $ 17,867
======== ======== ======== ========
Pre-tax change of the
excess of estimated present
value of future cash flows
over recorded net investment $ 10,594 $ 935 $ 1,379 $ 16,194
======== ======== ======== ========
Adjustment to record the net
investment in loans
receivable to the discounted
value of future cash flows
(after-tax) $ 6,799 $ 600 $ 885 $ 10,394
======== ======== ======== ========
Estimate as of
-----------------------------------------------
(In thousands) 12/31/03 9/30/03 6/30/03 3/31/03 12/31/02
-------- -------- -------- -------- --------
Adjusted net
investment
in loans $405,558 $399,029 $382,186 $359,692 $336,821
Estimated present
value of future
cash flows from
loans receivable,
less estimated
dealer holdback
payments 407,231 397,512 378,284 355,749 329,270
-------- -------- -------- -------- --------
Excess of
estimated present
value of future
cash flows over
recorded net
investment
(pre-tax) $ 1,673 $ (1,517) $ (3,902) $ (3,943) $ (7,551)
======== ======== ======== ======== ========
Pre-tax change of
the excess of
estimated present
value of future
cash flows over
recorded net
investment $ 3,190 $ 2,385 $ 41 $ 3,608
======== ======== ======== ========
Adjustment to record
the net investment
in loans receivable
to the discounted
value of future
cash flows
(after-tax) $ 2,047 $ 1,531 $ 26 $ 2,316
======== ======== ======== ========
The Company's forecasts are not adjusted for seasonality although seasonal patterns to the Company's business exist. As such, the quarterly changes in the present value will vary throughout the year but will be comparable to the prior year quarter.
We believe adjusted net income provides shareholders with a better understanding of our financial performance. We continue to believe adjusted income will be subject to volatility as our estimates of future cash flows have in the past and are likely to continue to change from time to time. This is appropriate and consistent with the nature of our business since the estimate of discounted future cash flows is a complex calculation impacted by numerous assumptions.
Loan Portfolio Performance
The following information relates to the loan portfolio performance in the United States segment, the Company's only business segment that continues to originate new loans.
The following table presents forecasted 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, 2004. The amounts presented are expressed as a percent of the original loan amount by year of loan origination.
December 31, 2004
--------------------------------------------------------
Forecasted % of Forecast
Year Collection % Advance % Spread % Realized
---- ------------ ---------- -------- -------------
1992 81.8% 35.3% 46.5% 100.0%
1993 76.0% 37.3% 38.7% 100.0%
1994 62.1% 41.8% 20.3% 100.0%
1995 55.3% 45.3% 10.0% 99.7%
1996 55.5% 48.4% 7.1% 99.0%
1997 58.6% 48.3% 10.3% 98.3%
1998 67.6% 49.4% 18.2% 98.3%
1999 72.0% 52.3% 19.7% 98.0%
2000 72.2% 50.9% 21.3% 97.2%
2001 67.3% 48.0% 19.3% 93.5%
2002 69.1% 45.7% 23.4% 84.1%
2003 71.8% 47.0% 24.8% 58.3%
2004 70.5% 48.3% 22.2% 25.3%
The following table compares the Company's forecast of collection rates for loans originated by year as of December 31, 2004 with the forecast as of December 31, 2003:
December 31, 2004 December 31, 2003
Year Forecasted Collection % Forecasted Collection % Variance
---- ----------------------- ----------------------- --------
1992 81.8% 81.5% 0.3%
1993 76.0% 75.7% 0.3%
1994 62.1% 61.8% 0.3%
1995 55.3% 55.2% 0.1%
1996 55.5% 55.3% 0.2%
1997 58.6% 58.1% 0.5%
1998 67.6% 67.2% 0.4%
1999 72.0% 71.5% 0.5%
2000 72.2% 71.7% 0.5%
2001 67.3% 67.0% 0.3%
2002 69.1% 69.4% -0.3%
2003 71.8% 72.8% -1.0%
Loan Originations (a)
(Dollars in thousands)
Three Months Ended Years Ended
December 31, December 31,
------------------------- -------------------------
% %
2004 2003 Change 2004 2003 Change
-------- -------- ------ -------- -------- ------
Loan
originations $204,982 $170,481 20.2% $959,617 $756,893 26.8%
Number of loans
originated 16,471 13,847 18.9 75,955 62,334 21.9
Number of active
dealer-
partners (b) 1,028 763 34.7 1,215 916 32.6
Loans per active
dealer-partner 16.0 18.1 (11.6) 62.5 68.1 (8.2)
Average loan
size $ 12.4 $ 12.3 0.8 $ 12.6 $ 12.1 4.0
(a) Loan origination information relates to the United States, the
Company's only business segment that continues to originate new
loans.
(b) Active dealer-partners are dealer-partners who submitted at
least one loan during the period.
Adjusted Return on Capital
(Dollars in thousands)
Three Months Ended Years Ended
December 31, December 31,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Average debt $203,261 $106,680 $167,139 $103,772
Average adjusted
shareholders' equity (a) 305,061 348,117 323,550 337,172
-------- -------- -------- --------
Average capital $508,322 $454,797 $490,689 $440,944
======== ======== ======== ========
(a) Adjusted for the impact of the Adjustment to record the GAAP
net investment in loans receivable at the discounted value of
future cash flows from the Reconciliation of Reported Net Income
to Adjusted Net Income.
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 Years Ended
December 31, December 31,
-------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Adjusted net
income (a) $ 13,777 $ 12,831 $ 52,533 $ 42,193
Interest expense
after-tax 2,306 1,815 7,389 5,237
-------- -------- -------- --------
Adjusted net
operating profit
after-tax $ 16,083 $ 14,646 $ 59,922 $ 47,430
======== ======== ======== ========
Average capital $508,322 $454,797 $490,689 $440,944
======== ======== ======== ========
Adjusted return
on capital 12.7% 12.9% 12.2% 10.8%
(a) Adjusted net income from the Reconciliation of Reported Net
Income to Adjusted Net Income.
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 capital. 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 for the periods indicated:
(In thousands, except per share data)
Three Months Ended Years Ended
December 31, December 31,
------------------------ ------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Adjusted net
income (a) $ 13,777 $ 12,831 $ 52,533 $ 42,193
Imputed cost
of equity
at 10% (b) (7,627) (8,703) (32,355) (33,717)
----------- ----------- ----------- -----------
Total adjusted
economic profit $ 6,150 $ 4,128 $ 20,178 $ 8,476
=========== =========== =========== ===========
Diluted weighted
average shares
outstanding 39,473,105 43,958,520 41,017,205 43,409,007
Adjusted economic
profit per
diluted
share (c) $ 0.16 $ 0.09 $ 0.49 $ 0.20
(a) Adjusted net income from the Reconciliation of Reported Net
Income to Adjusted Net Income.
(b) Cost of equity is equal to 10% (on an annual basis) of average
shareholders' equity, which is reflected in the Adjusted Return
on Capital calculation above.
(c) Adjusted economic profit per diluted share equals the adjusted
economic profit divided by the diluted weighted average number of
shares outstanding.
Refer to the Company's Form 10-K, which will be filed 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 2004.
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 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 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, except per share data)
Three Months Ended Years Ended
December 31, December 31,
---------------------- ----------------------
Restated (a)
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenue:
Finance charges $ 38,121 $ 26,668 $ 133,913 $ 103,125
Ancillary product
income 2,667 5,062 11,040 19,397
Lease revenue 184 1,061 1,507 6,432
Other income 5,428 4,421 19,951 17,288
---------- ---------- ---------- ----------
Total revenue 46,400 37,212 166,411 146,242
---------- ---------- ---------- ----------
Costs and expenses:
Salaries and wages 8,924 8,572 36,490 33,655
Provision for
credit losses 11,318 1,105 28,151 10,459
General and
administrative 6,080 4,673 21,667 20,034
Sales and
marketing 3,309 2,135 11,914 8,948
Interest 3,548 2,793 11,368 8,057
Stock-based
compensation
expense 548 753 2,725 3,583
United Kingdom
asset impairment -- -- -- 10,493
Other expense 258 551 1,310 4,756
---------- ---------- ---------- ----------
Total costs and
expenses 33,985 20,582 113,625 99,985
---------- ---------- ---------- ----------
Operating income 12,415 16,630 52,786 46,257
Foreign exchange
gain (loss) (81) (1,730) 1,650 (2,767)
---------- ---------- ---------- ----------
Income before
provision for
income taxes 12,334 14,900 54,436 43,490
Provision for
income taxes 4,911 5,138 17,422 17,658
---------- ---------- ---------- ----------
Net income $ 7,423 $ 9,762 $ 37,014 $ 25,832
========== ========== ========== ==========
Net income per
common share:
Basic $ 0.20 $ 0.23 $ 0.96 $ 0.61
========== ========== ========== ==========
Diluted $ 0.19 $ 0.22 $ 0.90 $ 0.60
========== ========== ========== ==========
Weighted average
shares outstanding:
Basic 36,819,410 42,040,063 38,617,787 42,195,340
Diluted 39,473,105 43,958,520 41,017,205 43,409,007
(a) Provision for income taxes and net income for the year ended
December 31, 2003 have been restated to reflect the correction of
an accounting error related to income taxes discovered by the
Company during the 2004 year-end closing process. Refer to
Restatement of Prior Periods included in Summary Financial Data
for further information.
CREDIT ACCEPTANCE CORPORATION
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
As of December 31,
-----------------------
Restated (a)
2004 2003
---------- ----------
ASSETS:
Cash and cash equivalents $ 22,481 $ 36,044
Loans receivable 1,021,879 875,417
Allowance for credit losses (47,403) (17,615)
---------- ----------
Loans receivable, net 974,476 857,802
---------- ----------
Notes, lines of credit and floorplan
receivables, net (including $1,653 and
$1,583 from affiliates as of December 31,
2004 and 2003, respectively) 4,340 6,562
Investment in operating leases, net 1,074 4,447
Property and equipment, net 19,651 18,503
Income taxes receivable 4,280 5,795
Other assets 17,018 14,627
---------- ----------
Total Assets $1,043,320 $ 943,780
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Accounts payable and accrued liabilities $ 40,150 $ 33,117
Dealer holdbacks, net 504,722 423,861
Line of credit 7,700 --
Secured financing 176,000 100,000
Mortgage note and capital lease obligations 9,847 6,467
Deferred income taxes, net 14,149 25,823
---------- ----------
Total Liabilities 752,568 589,268
---------- ----------
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
as of December 31, 2004 and 2003,
respectively 369 421
Paid-in capital 25,640 125,078
Retained earnings 262,759 225,745
Accumulated other comprehensive income,
net of tax of $1,068 and $1,759 at
year-end 2004 and 2003, respectively 1,984 3,268
---------- ----------
Total Shareholders' Equity 290,752 354,512
---------- ----------
Total Liabilities and
Shareholders' Equity $1,043,320 $ 943,780
========== ==========
(a) The balance sheet as of December 31, 2003 has been restated to
reflect the correction of accounting errors related to income
taxes discovered by the Company during the 2004 year-end closing
process. Refer to Restatement of Prior Periods included in
Summary Financial Data for further information.
CREDIT ACCEPTANCE CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars In Thousands)
For the Years Ended
December 31,
---------------------
Restated (a)
2004 2003
--------- ---------
Cash Flows From Operating Activities:
Net Income $ 37,014 $ 25,832
Adjustments to reconcile cash provided by
operating activities:
Provision for credit losses 28,151 10,459
Depreciation 5,723 8,679
Loss on retirement of property and equipment 248 73
Foreign currency (gain) loss on forward
contracts (1,660) 2,817
(Credit) provision for deferred income taxes (11,674) 16,750
Stock-based compensation 2,725 3,583
United Kingdom asset impairment -- 10,493
Change in operating assets and liabilities:
Accounts payable and accrued liabilities 8,225 1,959
Income taxes receivable/payable 1,515 (11,889)
Lease payment receivable 47 619
Unearned commissions, insurance premiums
and reserves 238 (837)
Other assets (2,391) (3,232)
--------- ---------
Net cash provided by operating activities 68,161 65,306
--------- ---------
Cash Flows From Investing Activities:
Principal collected on loans receivable 434,707 348,932
Advances to dealers (445,603) (354,057)
Payments of dealer holdbacks (33,012) (28,954)
Accelerated payments of dealer holdbacks (18,653) (12,690)
Operating lease liquidations 2,360 6,900
Decrease in notes, lines of credit and
floorplan receivables 1,049 4,343
Purchases of property and equipment (4,067) (3,062)
Proceeds from maturities of investments
- held to maturity -- 173
--------- ---------
Net cash used in investing activities (63,219) (38,415)
--------- ---------
Cash Flows From Financing Activities:
Net proceeds (repayments) under lines
of credit 7,700 (43,555)
Proceeds from secured financings 180,000 100,000
Repayments of secured financings (104,000) (58,153)
Principal payments under capital
lease obligations (1,504) (921)
Proceeds from mortgage note refinancing 3,540 --
Repayment of mortgage note (742) (777)
Repurchase of common stock (107,236) (5,316)
Proceeds from stock options exercised 5,021 2,037
--------- ---------
Net cash used in financing activities (17,221) (6,685)
--------- ---------
Effect of exchange rate changes on cash (1,284) 2,372
--------- ---------
Net (decrease) increase in cash and
cash equivalents (13,563) 22,578
Cash and cash equivalents,
beginning of period 36,044 13,466
--------- ---------
Cash and cash equivalents, end of period $ 22,481 $ 36,044
========= =========
(a) The statement of cash flows for the year ended December 31, 2003
has been restated to reflect the correction of accounting errors
related to income taxes discovered by the Company during the 2004
year-end closing process. Refer to Restatement of Prior Periods
included in Summary Financial Data for further information.
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
(Dollars in thousands)
Loans Receivable
The following table summarizes the composition of loans receivable:
As of December 31,
---------------------------
2004 2003
----------- -----------
Gross loans receivable $ 1,228,124 $ 1,035,681
Unearned finance charges (203,450) (157,707)
Unearned insurance premiums,
insurance reserves and fees (2,795) (2,557)
----------- -----------
Loans receivable $ 1,021,879 $ 875,417
=========== ===========
Non-accrual loans $ 224,659 $ 203,598
=========== ===========
Non-accrual loans as a percent of
total gross loans 18.3% 19.7%
=========== ===========
A summary of changes in gross loans receivable is as follows:
Three Months Ended Year Ended
December 31, December 31,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Balance, beginning
of period $1,222,733 $1,034,158 $1,035,681 $ 912,963
Gross amount of loans
accepted 204,982 170,481 959,617 785,407
Net cash collections
on loans (150,304) (121,099) (575,316) (481,579)
Charge-offs (A) (77,583) (73,919) (295,892) (261,365)
Recoveries (A) 7,766 7,047 32,035 14,168
Other fees 18,984 12,997 70,992 52,948
Net change in
repossessed
collateral (1,009) (1,306) (2,101) 57
Currency translation 2,555 7,322 3,108 13,082
---------- ---------- ---------- ----------
Balance, end of
period $1,228,124 $1,035,681 $1,228,124 $1,035,681
========== ========== ========== ==========
(A) Charge-offs presented net of recoveries for activity prior to
July 1, 2003
A summary of the allowance for credit losses is as follows:
Three Months Ended Year Ended
December 31, December 31,
----------------- ------------------
2004 2003 2004 2003
------- ------- ------- --------
Balance, beginning of period $37,557 $14,883 $17,615 $ 20,991
Provision for credit losses 10,547 1,005 26,510 7,657
Charge-offs (A) (3,762) (1,548) (8,657) (17,736)
Recoveries (A) 2,756 2,927 11,595 6,160
Currency translation 305 348 340 543
------- ------- ------- --------
Balance, end of period $47,403 $17,615 $47,403 $ 17,615
======= ======= ======= ========
(A) Charge-offs presented net of recoveries for periods prior to
July 1, 2003
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
(Dollars in thousands)
Dealer Holdbacks
The following table summarizes the composition of dealer holdbacks:
As of December 31,
---------------------------
2004 2003
--------- ---------
Dealer holdbacks $ 976,584 $ 828,720
Less: advances (471,862) (404,859)
--------- ---------
Dealer holdbacks, net $ 504,722 $ 423,861
========= =========
Restatement of Prior Periods
----------------------------
During the course of the 2004 year-end closing process, the Company
determined that it had incorrectly accounted for income taxes in
prior periods as follows:
-- During the third quarter of 2003, the Company had incorrectly
recorded a deferred income tax asset for benefits related to its
foreign subsidiaries under an intended change to its
international tax structure that had not been executed by the
Company as of December 31, 2003. As a result, the Company
overstated deferred income tax assets and understated provision
for income taxes by $2.3 million as of and for the year ended
December 31, 2003. The deferred tax asset for these benefits
should have been recognized when the Company actually executed
the change to its tax structure during the second quarter of
2004. As a result, the Company overstated provision for income
taxes by $2.7 million for the three months ended June 30, 2004.
-- Deferred income taxes are required to be recognized for foreign
currency translation adjustments when the Company's investments
in its foreign subsidiaries are considered temporary and the
differences will reverse in the foreseeable future. Prior to
2002, the Company considered all of its investments in its
foreign subsidiaries to be permanent. During the third quarter of
2002, the Company determined that its investments in its United
Kingdom and Ireland subsidiaries were no longer considered
permanent, and during the second quarter of 2003, the Company
determined that its investment in its Canadian subsidiary was no
longer considered permanent. Upon these determinations, the
Company should have recognized deferred income taxes related to
the foreign currency translation adjustments of these
subsidiaries. As a result of not recording these deferred taxes,
the Company understated its deferred income tax liabilities and
overstated its foreign currency translation adjustment, which is
presented as accumulated other comprehensive income in the
Company's balance sheet, by $1.8 million as of December 31, 2003.
Correction of this error had no impact on net income.
-- The Company had a deferred tax liability recorded at December
31, 2003 that should have been reversed through provision for
income taxes in periods prior to 2003. As a result, the Company
overstated deferred income tax liabilities and understated
retained earnings by $1.1 million at December 31, 2003.
The following table summarizes the reported and restated financial
condition and the results of operations:
(Dollars in thousands, except per share data)
As of December 31,
----------------------
2004 2003
--------- ---------
Deferred income tax liabilities,
net, as reported $ 14,149 $ 22,770
Reversal of deferred income tax
asset recognized for intended
tax structure change -- 2,349
Reversal of deferred income
tax liability -- (1,055)
Recognition of deferred income
tax liabilities related to
foreign currency translation -- 1,759
--------- ---------
Deferred income tax liabilities,
net, as restated $ 14,149 $ 25,823
========= =========
Retained earnings, as reported $ 262,759 $ 227,039
Reversal of deferred income tax
asset recognized for intended
tax structure change -- (2,349)
Reversal of deferred income
tax liability -- 1,055
--------- ---------
Retained earnings, as restated $ 262,759 $ 225,745
========= =========
Accumulated other comprehensive
income, as reported $ 1,984 $ 5,027
Recognition of deferred income
tax liabilities related to
foreign currency translation -- (1,759)
--------- ---------
Accumulated other comprehensive
income, as restated $ 1,984 $ 3,268
========= =========
Three Months Ended Years Ended
December 31, December 31,
--------------------- ---------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Provision for income
taxes, as reported $ 4,911 $ 5,138 $ 17,422 $ 15,309
Reversal of deferred
income tax asset
recognized for
intended tax
structure change -- -- -- 2,349
---------- ---------- ---------- ----------
Provision for income
taxes, as restated $ 4,911 $ 5,138 $ 17,422 $ 17,658
========== ========== ========== ==========
Net income, as reported $ 7,423 $ 9,762 $ 37,014 $ 28,181
Reversal of deferred
income tax asset
recognized for
intended tax
structure change -- -- -- (2,349)
---------- ---------- ---------- ----------
Net income, as restated $ 7,423 $ 9,762 $ 37,014 $ 25,832
========== ========== ========== ==========
Earnings per share:
Basic, as reported $ 0.20 $ 0.23 $ 0.96 $ 0.67
========== ========== ========== ==========
Basic, as restated $ 0.20 $ 0.23 $ 0.96 $ 0.61
========== ========== ========== ==========
Diluted, as reported $ 0.19 $ 0.22 $ 0.90 $ 0.65
========== ========== ========== ==========
Diluted, as restated $ 0.19 $ 0.22 $ 0.90 $ 0.60
========== ========== ========== ==========
Weighted average
shares outstanding:
Basic 36,819,410 42,040,063 38,617,787 42,195,340
Diluted 39,473,105 43,958,520 41,017,205 43,409,007
SOURCE: Credit Acceptance Corporation
Credit Acceptance Corporation, Southfield Investor Relations: Douglas W. Busk, Treasurer (248) 353-2700 Ext. 4432 IR@creditacceptance.com www.creditacceptance.com
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