Press Releases
Credit Acceptance Announces 4th Quarter Earnings and 2003 Earnings
SOUTHFIELD, Mich., Jan 28, 2004 (BUSINESS WIRE) -- Credit Acceptance Corporation (Nasdaq:CACC) Credit Acceptance Corporation (the "Company") announced consolidated net income for the three months ended December 31, 2003 of $9,762,000 or $0.22 per diluted share compared to $5,090,000 or $0.12 per diluted share for the same period in 2002. For the year ended December 31, 2003, consolidated net income was $28,181,000 or $0.65 per diluted share compared to $28,365,000 or $0.65 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 months and year ended December 31, 2003 was $10,584,000 or $0.24 per diluted share and $36,543,000 or $0.84 per diluted share, respectively, compared to $4,798,000 or $0.11 per diluted share and $26,800,000 or $0.62 per diluted share for the same periods in 2002.
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
-------------------
(Dollars in thousands, except per Three Months Ended December 31,
share data) ----------------------------------
2003 2002 % Change
----------- ----------- ----------
Net Income (Loss)
-----------------
United States (1), (2) $8,689 $4,835 79.7 %
United Kingdom (3), (4) 781 800 (2.4)
Automobile Leasing 216 (531) 140.7
Other 76 (14) 642.9
----------- -----------
Consolidated $9,762 $5,090 91.8 %
=========== ===========
Net Income (Loss) Per Diluted Share
-----------------------------------
United States (1), (2) $0.20 $0.11 81.8 %
United Kingdom (3), (4) 0.02 0.02 0.0
Automobile Leasing 0.00 (0.01) 100.0
Other 0.00 0.00 0.0
----------- -----------
Consolidated $0.22 $0.12 83.3 %
=========== ===========
(Dollars in thousands, except per Years Ended December 31,
share data) ----------------------------------
2003 2002 % Change
----------- ----------- ----------
Net Income (Loss)
-----------------
United States (1), (2) $33,014 $23,790 38.8 %
United Kingdom (3), (4) (4,646) 6,277 (174.0)
Automobile Leasing (323) (1,824) 82.3
Other 136 122 11.5
----------- -----------
Consolidated $28,181 $28,365 (0.6)%
=========== ===========
Net Income (Loss) Per Diluted Share
-----------------------------------
United States (1), (2) $0.77 $0.55 40.0 %
United Kingdom (3), (4) (0.11) 0.14 (178.6)
Automobile Leasing (0.01) (0.04) 75.0
Other 0.00 0.00 0.0
----------- -----------
Consolidated $0.65 $0.65 0.0 %
=========== ===========
(1) For the three months and year ended December 31, 2003, net
income includes: a 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 $1,129,000 after-tax, or $0.03 per diluted share, for the
three month period and $1,831,000 after-tax, or $0.04 per diluted
share, for the year; and a reduction in Michigan single business tax
expense resulting from a reduction in the amount of income apportioned
to the state of Michigan, which increased net income by $307,000
after-tax, or $0.01 per diluted share. For the year ended December 31,
2003, net income also 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 months and year ended December 31, 2002, net
income includes: a reduction in state tax related expense resulting
from the re-characterization of income, which increased net income by
$462,000 after-tax, or $0.01 per diluted share, for the three month
period and $1,425,000 after-tax, or $0.03 per diluted share, for the
year; an adjustment to federal tax related expense related to
repatriation of earnings in the United Kingdom, which increased net
income by $570,000 after-tax, or $0.02 per diluted share, for the
three month period and decreased net income by $2,994,000 after-tax,
or $0.07 per diluted share, for the year; and a loss on the disposal
of computer hardware, which decreased net income by $740,000
after-tax, or $0.02 per diluted share. Net income for the year ended
December 31, 2002 also includes interest income from the Internal
Revenue Service, which increased net income by $3,127,000 after-tax,
or $0.07 per diluted share.
(3) For the year ended December 31, 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 year ended December 31, 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.
Reconciliation of Reported Net Income to Adjusted Net Income
------------------------------------------------------------
The following table reconciles the reported net income and adjusted
net income (reported net income excluding certain adjustments) for the
three months and years ended December 31, 2003 and 2002:
Three Months Ended Years Ended
December 31, December 31,
(Dollars in thousands, ----------------------- -----------------------
except per share data) 2003 2002 2003 2002
----------- ----------- ----------- -----------
Reported net income $9,762 $5,090 $28,181 $28,365
Foreign exchange loss
due to forward contracts 1,129 - 1,831 -
Reduction in Michigan
single business tax (307) - (307) -
United Kingdom
impairment expenses - - 7,238 -
Interest income from
Internal Revenue Service - - (400) (3,127)
2002 tax items, net - (1,032) - 1,569
Loss on disposal of
computer hardware - 740 - 740
Ancillary product
revenue recognition
policy change - - - (747)
----------- ----------- ----------- -----------
Adjusted net income $10,584 $4,798 $36,543 $26,800
Diluted weighted
average shares
outstanding 43,958,520 42,852,646 43,409,007 43,362,741
Adjusted net income per
diluted share $0.24 $0.11 $0.84 $0.62
=========== =========== =========== ===========
Results for the three months and year ended December 31, 2003 include an expense of $1,129,000 after-tax, or $0.03 per diluted share and $1,831,000 after-tax, or $0.04 per diluted share, respectively, related to foreign currency exchange losses from forward contracts entered into during the third quarter. 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. For the quarter ended December 31, 2003, the amount of the loss recognized by the Company on these forward contracts was offset by an approximately equal increase 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 December 31, 2003, the Company received $13.6 million in liquidation proceeds and made share repurchases of $477,000. Subsequent to December 31, 2003, the Company made additional share repurchases of $37.4 million through a modified Dutch auction tender offer.
Detail of expected future net liquidation proceeds follows:
(Dollars in thousands) As of December 31, 2003
--------------------------
United Kingdom $30,100
Canada 4,200
Automobile Leasing 2,500
---------
$36,800
=========
United States Loan Originations
-------------------------------
(Dollars in Three Months Ended Years Ended
thousands) December 31, December 31,
---------------------------- ---------------------------
2003 2002 % Change 2003 2002 % Change
--------- --------- -------- --------- -------- --------
Loan
originations $177,678 $130,616 36.0% $785,667 $571,690 37.4%
Number of
loans
originated 13,847 10,759 62,334 49,650
Number of
active dealer-
partners (1) 763 555 916 789
Loans per
active dealer-
partner 18.1 19.4 68.1 62.9
Average loan
size $12.8 $12.1 $12.6 $11.5
(1) Active dealer-partners are dealer-partners who submitted at
least one loan during the period.
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 fourth 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.
Return on Capital Analysis
--------------------------
Return on capital is equal to net operating profit after-tax (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,
------------------- -------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income $9,762 $5,090 $28,181 $28,365
Interest expense $2,793 $1,932 $8,057 $9,058
(1 - tax rate) 65.0% 65.0% 65.0% 65.4%
--------- --------- --------- ---------
Interest expense after-tax $1,815 $1,256 $5,237 $5,920
--------- --------- --------- ---------
Net operating profit after-tax $11,577 $6,346 $33,418 $34,285
========= ========= ========= =========
Average capital $457,516 $448,696 $443,150 $469,423
========= ========= ========= =========
Return on capital 10.1% 5.7% 7.5% 7.3%
Adjusted return on capital (1) 10.8% 5.4% 9.4% 7.0%
(1) Adjusted return on capital is calculated the same as
unadjusted but utilizes adjusted net income as presented in the
reconciliation of reported net income to adjusted net income table.
The increase in the return on capital was the result of an
increase in the percentage of total capital allocated to the Company's
United States business segment, the business segment which generates
the highest return on capital, and an increase in the return on
capital in the United States business segment.
Economic Profit
---------------
Economic profit represents net operating profit after-tax less an
imputed cost of equity. Economic profit measures how efficiently the
Company utilizes its total capital, both debt and equity. The
following table presents the calculation of the Company's economic
profit (loss) for the periods indicated (dollars in thousands, except
per share data):
Three Months Ended Years Ended
December 31, December 31,
----------------------- -----------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Economic profit (loss)
Net income (1) $9,762 $5,090 $28,181 $28,365
Imputed cost of equity
at 10% (2) (8,771) (8,035) (33,938) (30,790)
----------- ----------- ----------- -----------
Total economic profit
(loss) $991 $(2,945) $(5,757) $(2,425)
Diluted weighted
average shares
outstanding 43,958,520 42,852,646 43,409,007 43,362,741
Economic profit (loss)
per diluted share (3) $0.02 $(0.07) $(0.13) $(0.06)
Adjusted economic
profit (loss) (4) $1,813 $(3,237) $2,605 $(3,990)
Adjusted economic
profit (loss) per
diluted share (4) $0.04 $(0.08) $0.06 $(0.09)
(1) Consolidated net income from the Consolidated Income
Statements.
(2) Cost of equity is equal to 10% (on an annual basis) of average
shareholders' equity, which was $350,836,000 and $339,378,000 for the
three months and year ended December 31, 2003, respectively, and
$321,391,000 and $307,895,000 for the same periods in 2002,
respectively.
(3) Economic profit (loss) per share equals the economic profit
(loss) divided by weighted average number of shares outstanding.
(4) Adjusted economic profit (loss) and adjusted economic profit
(loss) per diluted share are calculated the same as unadjusted but
utilize adjusted net income as presented in the reconciliation of
reported net income to adjusted net income table.
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, Three Months Ended Years Ended
except per share data) December 31, December 31,
----------------------- -----------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenue:
Finance charges $26,668 $23,319 $103,125 $97,744
Lease revenue 1,061 2,900 6,432 16,101
Ancillary product
income 5,062 3,518 19,397 16,437
Premiums earned 740 1,017 2,986 4,512
Other income 3,494 3,465 13,848 19,540
----------- ----------- ----------- -----------
Total revenue 37,025 34,219 145,788 154,334
----------- ----------- ----------- -----------
Costs and expenses:
General and
administrative 4,673 6,662 20,034 24,551
Salaries and wages 8,572 6,906 33,655 29,042
Sales and marketing 1,948 2,079 8,494 7,623
Stock-based
compensation expense 753 490 3,583 2,072
Provision for
insurance and service
contract claims (91) 138 546 1,861
Provision for credit
losses 1,105 7,962 10,459 23,935
Depreciation of leased
assets 642 1,911 4,210 9,669
United Kingdom asset
impairment expense - - 10,493 -
Interest 2,793 1,932 8,057 9,058
----------- ----------- ----------- -----------
Total costs and
expenses 20,395 28,080 99,531 107,811
----------- ----------- ----------- -----------
Operating income 16,630 6,139 46,257 46,523
Foreign exchange loss (1,730) (2) (2,767) -
----------- ----------- ----------- -----------
Income before provision
for income taxes 14,900 6,137 43,490 46,523
Provision for income
taxes 5,138 1,047 15,309 18,158
----------- ----------- ----------- -----------
Net income $9,762 $5,090 $28,181 $28,365
=========== =========== =========== ===========
Net income per common
share:
Basic $0.23 $0.12 $0.67 $0.67
=========== =========== =========== ===========
Diluted $0.22 $0.12 $0.65 $0.65
=========== =========== =========== ===========
Weighted average shares
outstanding:
Basic 42,040,063 42,371,316 42,195,340 42,438,292
Diluted 43,958,520 42,852,646 43,409,007 43,362,741
CREDIT ACCEPTANCE CORPORATION
Consolidated Balance Sheets
(Dollars in thousands) Years Ended
December 31,
-------------------
2003 2002
--------- ---------
ASSETS:
Cash and cash equivalents $36,044 $13,466
Investments -- held to maturity - 173
Loans receivable 872,970 770,069
Allowance for credit losses (17,615) (20,991)
--------- ---------
Loans receivable, net 855,355 749,078
--------- ---------
Floorplan receivables, net 2,449 4,450
Lines of credit, net 2,023 3,655
Notes receivable, net (including $1,583 and $1,513
from affiliates as of December 31, 2003 and 2002,
respectively) 2,090 3,899
Investment in operating leases, net 4,447 17,879
Property and equipment, net 18,503 19,951
Income taxes receivable 5,795 -
Other assets 17,074 14,280
--------- ---------
Total Assets $943,780 $826,831
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Lines of credit $- $43,555
Secured financing 100,000 58,153
Mortgage note 5,418 6,195
Capital lease obligations 1,049 1,938
Accounts payable and accrued liabilities 33,117 28,341
Dealer holdbacks, net 423,861 347,040
Deferred income taxes, net 22,770 10,058
Income taxes payable - 6,094
--------- ---------
Total Liabilities 586,215 501,374
--------- ---------
Shareholders' Equity:
Common stock 421 423
Paid-in capital 125,078 124,772
Retained earnings 227,039 198,858
Accumulated other comprehensive income -
cumulative translation adjustment 5,027 1,404
--------- ---------
Total Shareholders' Equity 357,565 325,457
--------- ---------
Total Liabilities and Shareholders' Equity $943,780 $826,831
========= =========
CREDIT ACCEPTANCE CORPORATION
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Dollars in thousands) Years Ended
December 31,
-------------------
2003 2002
--------- ---------
Cash Flows From Operating Activities:
Net income $28,181 $28,365
Adjustments to reconcile net cash provided by
operating activities:
Provision for credit losses 10,459 23,935
Depreciation 4,469 4,718
Depreciation of leased assets 4,210 9,669
Loss on retirement of property and equipment 73 1,417
Foreign currency loss on forward contracts 2,817 -
Provision for deferred income taxes 12,712 1,838
Stock-based compensation 3,583 2,072
United Kingdom asset impairment 10,493 -
Change in operating assets and liabilities:
Accounts payable and accrued liabilities 1,081 (11,106)
Income taxes payable (6,094) 996
Income taxes receivable (5,795) -
Lease payments receivable 619 (1,031)
Unearned insurance premiums, insurance reserves and
fees (837) (2,850)
Deferred dealer enrollment fees, net 878 140
Other assets (2,794) 282
--------- ---------
Net cash provided by operating activities 64,055 58,445
--------- ---------
Cash Flows From Investing Activities:
Proceeds from maturities of investments - held to
maturity 173 -
Principal collected on loans receivable 348,932 339,371
Advances to dealers (366,747) (285,612)
Payments of dealer holdbacks (28,954) (32,890)
Operating lease acquisitions - (874)
Deferred costs from lease acquisitions - (201)
Operating lease liquidations 6,900 12,081
Decrease in floorplan receivables 1,596 1,940
Decrease (increase) in lines of credit 969 (273)
Increase in notes receivable -- affiliates (70) (5)
Decrease in notes receivable -- non-affiliates 1,848 706
Purchases of property and equipment (3,094) (6,440)
--------- ---------
Net cash provided by (used in) investing
activities (38,447) 27,803
--------- ---------
Cash Flows From Financing Activities:
Net repayments under lines of credit (43,555) (29,660)
Proceeds from secured financings 100,000 103,551
Repayments of secured financings (58,153) (167,794)
Proceeds under capital lease obligations 32 2,249
Principal payments under capital lease obligations (921) (311)
Repayment of mortgage note (777) (723)
Repurchase of common stock (5,316) (7,018)
Proceeds from stock options exercised 2,037 3,608
--------- ---------
Net cash used in financing activities (6,653) (96,098)
--------- ---------
Effect of exchange rate changes on cash 3,623 7,543
--------- ---------
Net increase (decrease) in cash and cash
equivalents 22,578 (2,307)
Cash and cash equivalents, beginning of period 13,466 15,773
--------- ---------
Cash and cash equivalents, end of period $36,044 $13,466
========= =========
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
(Dollars in thousands)
Loans Receivable
----------------
The following table summarizes the composition of loans receivable:
As of December 31,
-------------------------
2003 2002
------------- -----------
Gross loans receivable $1,033,234 $910,417
Unearned finance charges (157,707) (136,954)
Unearned insurance premiums, insurance
reserves and fees (2,557) (3,394)
------------- -----------
Loans receivable $872,970 $770,069
============= ===========
Non-accrual loans $201,151 $212,373
============= ===========
Non-accrual loans as a percent of gross loans
receivable 19.5% 23.3%
============= ===========
A summary of changes in gross loans receivable is as follows:
Three Months Ended Year Ended
December 31, December 31,
--------------------- ---------------------
2003 2002 2003 2002
----------- --------- ----------- ---------
Balance, beginning of
period $1,032,185 $932,713 $910,417 $900,415
Gross amount of loans
accepted 177,678 140,108 814,182 625,385
Net cash collections on
loans (115,299) (106,390) (457,406) (440,851)
Charge-offs(a) (73,920) (59,412) (261,365) (186,788)
Recoveries 7,048 - 14,168 -
Net change in repossessed
collateral (1,780) (211) 156 (2,212)
Currency translation 7,322 3,609 13,082 14,468
----------- --------- ----------- ---------
Balance, end of period $1,033,234 $910,417 $1,033,234 $910,417
=========== ========= =========== =========
(a) Charge-offs presented net of recoveries for activity prior to
July 1, 2003
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
(Dollars in thousands)
Loans Receivable - (concluded)
------------------------------
A summary of the change in the allowance for credit losses is as
follows:
Three Months Ended Years Ended
December 31, December 31,
-------------------- -----------------
2003 2002 2003 2002
---------- --------- -------- --------
Balance, beginning of period $14,883 $17,568 $20,991 $13,906
Provision for loan losses 1,005 5,864 7,657 15,443
Charge-offs(a) (1,548) (2,537) (17,736) (8,800)
Recoveries 2,927 - 6,160 -
Currency translation 348 96 543 442
---------- --------- -------- --------
Balance, end of period $17,615 $20,991 $17,615 $20,991
========== ========= ======== ========
(a) Charge-offs presented net of recoveries for periods prior to
July 1, 2003
Investment in Operating Leases
------------------------------
The following table summarizes the composition of investment in
operating leases, net:
As of December 31,
----------------------
2003 2002
----------- ----------
Gross leased assets $10,274 $26,821
Accumulated depreciation (6,664) (12,304)
Gross deferred costs 1,513 3,956
Accumulated amortization of deferred costs (1,307) (2,706)
Lease payments receivable 631 2,112
----------- ----------
Investment in operating leases $4,447 $17,879
=========== ==========
CREDIT ACCEPTANCE CORPORATION
Summary Financial Data
(Dollars in thousands)
Investment in Operating Leases - (concluded)
--------------------------------------------
A summary of changes in the investment in operating leases is as
follows:
Three Months Ended Years Ended
December 31, December 31,
------------------------------------
2003 2002 2003 2002
--------- -------- -------- --------
Balance, beginning of period $6,364 $23,222 $17,879 $42,774
Gross operating leases originated - - - 1,075
Depreciation of operating leases (642) (1,911) (4,210) (9,669)
Lease payments receivable 1,041 2,995 6,513 16,062
Collections on operating leases (1,145) (2,883) (7,132) (15,031)
Provision for lease losses - (1,231) (1,703) (5,251)
Operating lease liquidations (1,250) (2,331) (7,323) (12,100)
Currency translation 79 18 423 19
--------- -------- -------- --------
Balance, end of period $4,447 $17,879 $4,447 $17,879
========= ======== ======== ========
Dealer Holdbacks
-----------------
The following table summarizes the composition of dealer holdbacks:
As of December 31,
----------------------
2003 2002
----------------------
Dealer holdbacks $828,720 $734,625
Less: advances (404,859) (387,585)
----------- ----------
Dealer holdbacks, net $423,861 $347,040
=========== ==========
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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