UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): NOVEMBER 14, 2003 CREDIT ACCEPTANCE CORPORATION (Exact Name of Registrant as Specified in its Charter) Commission File Number 000-20202 MICHIGAN 38-1999511 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 25505 W. TWELVE MILE ROAD, SUITE 3000 48034-8339 SOUTHFIELD, MICHIGAN (Zip Code) (Address of Principal Executive Offices) Registrant's telephone number, including area code: (248) 353-2700
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. 99.1 Press Release dated November 14, 2003 ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On November 14, 2003, Credit Acceptance Corporation (the "Company"), issued a press release announcing its financial results for the three and nine months ended September 30, 2003. The press release, dated November 14, 2003, is attached as Exhibit 99.1 to this Form 8-K. The financial information included in the press release includes a presentation of net income excluding certain expenses, in addition to the presentation of the Company's reported net income. The Company believes this information is helpful to investors in measuring the performance of the business, in that excluding the impact of items that are deemed unlikely to recur and foreign exchange losses on forward contracts more accurately reflects the financial performance of the business.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CREDIT ACCEPTANCE CORPORATION (Registrant) By: /s/ Douglas W. Busk ------------------- Douglas W. Busk Chief Financial Officer and Treasurer November 17, 2003
INDEX OF EXHIBITS EXHIBIT NO. DESCRIPTION 99.1 Press Release dated November 14, 2003.
EXHIBIT 99.1 [CREDIT ACCEPTANCE LOGO] 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: NOVEMBER 14, 2003 INVESTOR RELATIONS: DOUGLAS W. BUSK CHIEF FINANCIAL OFFICER (248) 353-2700 EXT. 432 IR@CREDITACCEPTANCE.COM NASDAQ SYMBOL: CACC CREDIT ACCEPTANCE ANNOUNCES: - 3RD QUARTER EARNINGS SOUTHFIELD, MICHIGAN -- NOVEMBER 14, 2003 -- CREDIT ACCEPTANCE CORPORATION (NASDAQ:CACC) Credit Acceptance Corporation (the "Company") announced consolidated net income for the three months ended September 30, 2003 of $8,818,000 or $0.20 per diluted share compared to $8,612,000 or $0.20 per diluted share for the same period in 2002. For the nine months ended September 30, 2003, consolidated net income was $18,419,000 or $0.43 per diluted share compared to $23,275,000 or $0.53 per diluted share for the same period in 2002. Excluding the impact of one-time items and foreign exchange losses on forward contracts, consolidated net income for the three and nine months ended September 30, 2003 was $9,520,000 or $0.22 per diluted share and $25,959,000 or $0.60 per diluted share, respectively, compared to $4,738,000 or $0.11 per diluted share and $22,002,000 or $0.51 per diluted share for the same periods in 2002. As announced on October 30, 2003, the Company's third quarter earnings announcement was delayed due to a review of its periodic reports by the Securities and Exchange Commission. The financial reporting changes made as a result of this review, which are described below, did not impact the Company's previously reported earnings or shareholders' equity. As a result of the decision in the second quarter of 2003 to stop loan originations in the United Kingdom and Canada and the decision to stop lease originations in early 2002, the Company's sole active business unit consists of providing "guaranteed credit approval" through a network of automobile dealer-partners located in the United States.
Segment information follows: (Dollars in thousands, except THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, per share data) --------------------------------------- ------------------------------------- 2003 2002 % Change 2003 2002 % Change ------- ------- -------- -------- -------- -------- NET INCOME (LOSS) United States (1), (2) $ 8,142 $ 6,473 25.8% $ 24,325 $ 18,955 28.3% United Kingdom (3), (4) 861 2,994 (71.2) (5,427) 5,477 (199.1) Automobile Leasing (69) (437) 84.2 (539) (1,293) 58.3 Other (116) (418) 72.2 60 136 (55.9) ------- ------- -------- -------- Consolidated $ 8,818 $ 8,612 2.4% $ 18,419 $ 23,275 (20.9)% ======= ======= ======== ======== NET INCOME (LOSS) PER SHARE United States (1), (2) $ 0.19 $ 0.15 23.4% $ 0.56 $ 0.44 29.1% United Kingdom (3), (4) 0.02 0.07 (71.8) (0.13) 0.13 (199.7) Automobile Leasing (0.00) (0.01) 84.5 (0.01) (0.03) 58.1 Other (0.00) (0.01) 72.8 0.00 0.00 (55.6) ------ ------ -------- ------- Consolidated $ 0.20 $ 0.20 0.4% $ 0.43 $ 0.53 (20.4)% ====== ====== ======== ======== (1) For the three and nine months ended September 30, 2003, net income includes the foreign currency exchange loss due to the fair value recognition of forward contracts associated with the anticipated cash flows from the United Kingdom operation, which decreased net income by $702,000 after-tax, or $0.02 per diluted share. For the nine months ended September 30, 2003, net income includes interest income from the Internal Revenue Service, which increased net income by $400,000 after-tax, or $0.01 per diluted share. (2) For the three and nine months ended September 30, 2002, net income includes interest income from the Internal Revenue Service, which increased net income by $3,127,000 after-tax, or $0.07 per diluted share. For the nine months ended September 30, 2002, net income includes a reduction in state tax related expense, which increased net income by $963,000 after-tax, or $0.02 per diluted share, and an increase in federal tax related expense, which decreased net income by $3,564,000 after-tax, or $0.08 per diluted share. (3) For the nine months ended September 30, 2003, net income includes impairment and other expenses associated with the decision to liquidate the United Kingdom operation, which decreased net income by $7,238,000 after-tax, or $0.17 per diluted share. (4) For the three and nine months ended September 30, 2002, net income includes a change in ancillary product revenue recognition policy, which increased net income by $747,000 after-tax, or $0.02 per diluted share. The following table reconciles the reported net income and adjusted net income (reported net income excluding certain adjustments) for the three and nine months ended September 30, 2003 and 2002: THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- ------------------------------ (Dollars in thousands, except per share data) 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Reported net income $ 8,818 $ 8,612 $ 18,419 $ 23,275 Foreign exchange loss due to forward contracts 702 -- 702 -- State tax expense resulting from re-characterization of income -- -- -- (963) United Kingdom repatriation tax expense -- -- -- 3,564 United Kingdom impairment expenses -- -- 7,238 -- Ancillary product revenue recognition policy change -- (747) -- (747) Interest income from Internal Revenue Service -- (3,127) (400) (3,127) ------------ ------------ ------------ ------------ Adjusted net income $ 9,520 $ 4,738 $ 25,959 $ 22,002 Diluted weighted average shares outstanding 43,959,924 43,122,046 43,247,518 43,517,380 Adjusted net income per share $ 0.22 $ 0.11 $ 0.60 $ 0.51 ============ ============ ============ ============ Results for the three and nine months ended September 30, 2003 include an expense of $702,000 after-tax, or $0.02 per diluted share related to foreign currency exchange loss. During the quarter, the Company entered into forward contracts to ensure that currency fluctuations would not reduce the amount of United States dollars received from the liquidation of the United Kingdom operation. From the date the contracts were entered into, the weakening of the United States dollar versus the British pound sterling caused a reduction in the fair value of the forward contracts and an approximately equal increase in the amount of expected future cash flows. Under generally accepted accounting principles, the Company is required to record an expense to reduce the carrying value of the forward contracts to fair value, and separately to record the change in the amount of cash flows expected from the United Kingdom due to exchange rate fluctuations in shareholders' equity. These amounts were not equal for the three months ended September 30, 2003 because the change in shareholders'
equity reflects the change in exchange rates for the quarter while the change in the value of the forward contracts reflects the change in exchange rates from the date the contracts were entered into until the end of the quarter. In future periods, the Company expects that the amount of the gain or loss recognized by the Company on the forward contracts will be approximately offset by an increase or decrease in shareholders' equity. The Company intends to utilize proceeds from businesses being liquidated to: (i) fund dealer-partner advances on loans originated in the United States and (ii) fund share repurchases. During the three months ended September 30, 2003, the Company received $15.9 million in liquidation proceeds and made share repurchases of $2.8 million. Detail of expected future net liquidation proceeds follows: (Dollars in thousands) AS OF SEPTEMBER 30, 2003 ---------------------------- United Kingdom $39,500 Canada 6,000 Automobile Leasing 4,200 ------- $49,700 ======= The Company reported loan originations in the United States for the three and nine months ended September 30, 2003 of $196.8 million and $608.0 million, respectively, compared to $134.2 million and $441.1 million in the same periods in 2002, representing increases of 46.7% and 37.8%. The increase in loan originations in the United States in 2003 is due to: (i) an increase in the number of active dealer-partners due to increased dealer-partner enrollments and reduced levels of dealer-partner attrition, (ii) a continued increase in the number of loans per active dealer-partner and (iii) an increase in the average loan size. The Company made no material changes in credit policy or pricing in the third quarter, other than routine changes designed to maintain current profitability levels. Historically, the Company has experienced an adverse change in the profitability of loan originations during periods of high growth. While the growth rates experienced in the United States in 2003 are higher than the Company's expected long-term growth rate, the Company believes that the investments in infrastructure in 2002, combined with decreases in loan origination volumes in 2002, have adequately prepared the Company for this growth. As a result of a Securities and Exchange Commission review of the Company's Form 10-K for the year ended December 31, 2002 and Form 10-Q for the period ended June 30, 2003, beginning in the third quarter of 2003 the Company made two changes to the presentation of its balance sheet. (1) Repossessed assets were reclassified from Loans receivable to Other assets, and (2) The Reserve for advance losses was eliminated and the balance was reclassified into the Allowance for credit losses. As a result of the elimination of the Reserve for advance losses, the Allowance for credit losses will now have two components: (i) an allowance for earned but unpaid revenue, which prior to the change was the sole component of the Allowance for credit losses and (ii) an allowance for losses inherent in the Company's loan portfolio which prior to the change would have been reported in the Reserve for advance losses. The current treatment is consistent with the view that, from an accounting standpoint, losses covered by this allowance are a result of uncollectible loans and that advance losses do not represent a separate event of loss. Additionally, as a result of the Reserve for advance losses being eliminated and the balance reclassified into the Allowance for credit losses, the Company implemented revised loan charge-off and recovery policies. These revised policies did not result in changes to the Company's forecasted loss rates or profitability. Other changes
resulting from the review relate primarily to additional disclosure regarding the Company's business, operations and credit loss policy. 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 nine months ended September 30, 2003. Cautionary Statement Regarding Forward Looking Information Certain statements in this release that are not historical facts, including 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 our 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 our current expectations, which are subject to risks and uncertainties. Factors that might cause such a difference include the following: increased competition from traditional financing sources and from non-traditional lenders, unavailability of funding at competitive rates of interest or 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, the Company's potential inability to accurately forecast and estimate future collections and historical collection rates and the associated default risk, the Company's potential inability to accurately estimate the residual values of leased vehicles, an increase in the amount or severity of litigation against the Company, the loss of key management personnel, the effects 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 forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law. Description of Credit Acceptance Corporation Credit Acceptance is a financial services company specializing in products and services for a network of automobile dealer-partners. Credit Acceptance provides its dealer-partners with financing sources for consumers with limited access to credit and delivers credit approvals instantly through the internet. Other dealer-partner services include marketing, sales training and a wholesale purchasing cooperative. Through its financing program, Credit Acceptance helps consumers change their lives by providing them an opportunity to strengthen and reestablish their credit standing by making timely monthly payments. 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 (Dollars in thousands, except per share data) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ------------------------------ 2003 2002 2003 2002 ------------ ------------ ------------ ------------ REVENUE: Finance charges $ 25,770 $ 24,018 $ 76,457 $ 74,425 Lease revenue 1,251 3,614 5,371 13,201 Ancillary product income 4,369 5,500 14,335 12,919 Premiums earned 734 1,001 2,246 3,495 Other income 3,738 8,535 10,354 16,075 ------------ ------------ ------------ ------------ Total revenue 35,862 42,668 108,763 120,115 ------------ ------------ ------------ ------------ COSTS AND EXPENSES: General and administrative 4,679 5,789 15,361 17,889 Salaries and wages 7,879 7,184 25,083 22,136 Sales and marketing 1,886 1,954 6,546 5,544 Stock-based compensation expense 1,027 535 2,830 1,582 Provision for insurance and service contract claims 329 590 637 1,723 Provision for credit losses 2,303 8,896 9,354 15,973 Depreciation of leased assets 853 2,251 3,568 7,758 United Kingdom asset impairment expense -- -- 10,493 -- Interest 2,267 2,364 5,264 7,126 ------------ ------------ ------------ ------------ Total costs and expenses 21,223 29,563 79,136 79,731 ------------ ------------ ------------ ------------ Operating income 14,639 13,105 29,627 40,384 Foreign exchange gain (loss) (1,066) (25) (1,037) 2 ------------ ------------ ------------ ------------ Income before provision for income taxes 13,573 13,080 28,590 40,386 Provision for income taxes 4,755 4,468 10,171 17,111 ------------ ------------ ------------ ------------ Net income $ 8,818 $ 8,612 $ 18,419 $ 23,275 ============ ============ ============ ============ Net income per common share: Basic $ 0.21 $ 0.20 $ 0.44 $ 0.55 ============ ============ ============ ============ Diluted $ 0.20 $ 0.20 $ 0.43 $ 0.53 ============ ============ ============ ============ Weighted average shares outstanding: Basic 42,315,027 42,363,895 42,329,722 42,457,425 Diluted 43,959,924 43,122,046 43,247,518 43,517,380
CREDIT ACCEPTANCE CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands) AS OF -------------------------------------- SEPTEMBER 30, 2003 DECEMBER 31, 2002 ------------------ ----------------- ASSETS: Cash and cash equivalents $ 15,450 $ 13,466 Investments - held to maturity 9,789 173 Loans receivable 869,927 770,069 Allowance for credit losses (14,883) (20,991) --------- --------- Loans receivable, net 855,044 749,078 --------- --------- Floorplan receivables, net 2,920 4,450 Lines of credit, net 2,290 3,655 Notes receivable, net (including $1,565 and $1,513 from affiliates as of September 30, 2003 and December 31, 2002, respectively) 2,076 3,899 Investment in operating leases 6,364 17,879 Property and equipment, net 18,294 19,951 Other assets 13,152 14,280 --------- --------- Total Assets $ 925,379 $ 826,831 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY: LIABILITIES: Lines of credit $ -- $ 43,555 Secured financing 100,000 58,153 Mortgage note 5,618 6,195 Capital lease obligations 1,258 1,938 Accounts payable and accrued liabilities 33,858 28,341 Dealer holdbacks, net 420,759 347,040 Deferred income taxes, net 17,048 10,058 Income taxes payable 2,538 6,094 --------- --------- Total Liabilities 581,079 501,374 --------- --------- SHAREHOLDERS' EQUITY: Common stock 422 423 Paid-in capital 123,477 124,772 Retained earnings 217,277 198,858 Accumulated other comprehensive income - cumulative translation adjustment 3,124 1,404 --------- --------- Total Shareholders' Equity 344,300 325,457 --------- --------- Total Liabilities and Shareholders' Equity $ 925,379 $ 826,831 ========= =========