SOUTHFIELD, Mich., Nov. 1, 2004 (PRIMEZONE) -- Credit Acceptance Corporation (Nasdaq:CACC) (the "Company") announced consolidated net income for the three months ended September 30, 2004 of $12,742,000 or $0.31 per diluted share compared to $8,818,000 or $0.20 per diluted share for the same period in 2003. For the nine months ended September 30, 2004, consolidated net income was $26,878,000 or $0.65 per diluted share compared to $18,419,000 or $0.43 per diluted share for the same period in 2003.
The increase in consolidated net income for the three months ended September 30, 2004 compared to the same period in 2003 was primarily due to: (i) an increase in finance charge income due to increases in the average annualized yield on the loan portfolio and the average size of the loan portfolio during 2004 and (ii) an increase in foreign exchange gain due to an increase in the fair value of forward contracts during 2004. Partially offsetting these items was 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.
The increase in consolidated net income for the nine months ended September 30, 2004 compared to the same period in 2003 was primarily due to: (i) an increase in finance charge income due to increases in the average size of the loan portfolio and the average annualized yield on the loan portfolio during 2004 and (ii) the United Kingdom impairment expenses recognized during the second quarter of 2003. Partially offsetting these items were: (i) 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 and (ii) an increase in the provision for credit losses primarily 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.
Excluding the impact of certain items detailed in the table below, consolidated adjusted net income for the three months ended September 30, 2004 was $13,193,000 or $0.32 per diluted share compared to $9,197,000 or $0.21 per diluted share for the same period in 2003. The increase was primarily due to: (i) an increase in finance charge income due to increases in the average annualized yield on the loan portfolio and the average size of the loan portfolio during 2004 and (ii) an increase in ancillary product income due to increases in revenue per vehicle service contract sold and the number of third party vehicle service contract products sold during 2004.
Excluding the impact of certain items detailed in the table below, consolidated adjusted net income for the nine months ended September 30, 2004 was $37,239,000 or $0.90 per diluted share compared to $24,638,000 or $0.57 per diluted share for the same period in 2003. The increase was primarily due to: (i) an increase in finance charge income due to increases in the average size of the loan portfolio and the average annualized yield on the loan portfolio during 2004 and (ii) a decrease in the provision for credit losses inherent in the loan portfolio due to recoveries on previously charged-off loans exceeding credit losses 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 considered 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 nine months ended September 30, 2004 and 2003:
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Reported net income $ 12,742 $ 8,818 $ 26,878 $ 18,419
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) loss due to
forward contracts (2) (439) 702 (1,128) 702
United Kingdom
impairment
expenses (3) -- -- -- 7,238
Interest income from
Internal Revenue
Service (3) -- -- -- (400)
----------- ----------- ----------- -----------
Net income excluding
certain items $ 12,303 $ 9,520 $ 34,142 $ 25,959
Change in vehicle
service contract
revenue if new policy
had been retro-
actively applied (4) 890 (323) 3,097 (1,321)
----------- ----------- ----------- -----------
Adjusted net income $ 13,193 $ 9,197 $ 37,239 $ 24,638
=========== =========== =========== ===========
Diluted weighted
average shares
outstanding 40,943,604 43,959,924 41,506,320 43,247,518
Adjusted net income
per diluted share $ 0.32 $ 0.21 $ 0.90 $ 0.57
=========== =========== =========== ===========
(1) These items represent changes in estimates or changes in
methodology that impacted the accounting for finance charges and
the allowance for credit losses during the first quarter of 2004.
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 and a prior year loss,
which are offset by changes in shareholders' equity due to the
changes 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
-------------------
(Dollars in thousands, except per share data)
Three Months Ended September 30,
--------------------------------------
2004 2003 % Change
------------ ------------ --------
Reported Net Income (Loss)
--------------------------
United States $ 12,574 $ 8,142 54.4%
United Kingdom 156 861 (81.9)
Automobile Leasing 206 (69) 398.6
Other (194) (116) (67.2)
------------ ------------ -----
Consolidated $ 12,742 $ 8,818 44.5%
============ ============ =====
Reported Net Income (Loss)
Per Diluted Share
--------------------------
United States $ 0.31 $ 0.19 63.2%
United Kingdom -- 0.01 (100.0)
Automobile Leasing -- -- --
Other -- -- --
------------ ------------ -----
Consolidated $ 0.31 $ 0.20 55.0%
============ ============ =====
Diluted shares outstanding 40,943,604 43,959,924
Nine Months Ended September 30,
--------------------------------------
2004 2003 % Change
------------ ------------ --------
Reported Net Income (Loss)
--------------------------
United States $ 26,017 $ 24,325 7.0%
United Kingdom 568 (5,427) 110.5
Automobile Leasing 742 (539) 237.7
Other (449) 60 (848.3)
------------ ------------ -----
Consolidated $ 26,878 $ 18,419 45.9%
============ ============ =====
Reported Net Income (Loss)
Per Diluted Share
--------------------------
United States $ 0.63 $ 0.56 12.5%
United Kingdom 0.01 (0.12) 108.3
Automobile Leasing 0.02 (0.01) 300.0
Other (0.01) -- --
------------ ------------ -----
Consolidated $ 0.65 $ 0.43 51.2%
============ ============ =====
Diluted shares outstanding 41,506,320 43,247,518
Loan Originations (1)
---------------------
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
% %
2004 2003 Change 2004 2003 Change
-------- -------- ------ -------- -------- ------
Loan
originations $240,236 $188,053 27.7% $754,635 $586,412 28.7%
Number of loans
originated 18,375 15,545 18.2 59,484 48,487 22.7
Number of
active dealer-
partners (2) 957 724 32.2 1,074 824 30.3
Loans per
active dealer-
partner 19.2 21.5 (10.6) 55.4 58.8 (5.9)
Average loan
size $ 13.1 $ 12.1 8.1 $ 12.7 $ 12.1 4.9
(1) Loan origination information relates to the United States, the
Company's only business segment that continues to originate new
loans.
(2) Active dealer-partners are dealer-partners who submitted at least
one loan during the period.
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 summarizes the 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 Estimate as of
September 30, 2004 June 30, 2004
------------------ --------------
Loan payments $857,237 $827,532
Dealer holdback payments 211,827 213,453
-------- --------
Net cash flow $645,410 $614,079
======== ========
Present value of net cash flow (1) $518,432 $494,282
======== ========
(1) Calculated utilizing a discount rate comparable with the rate
used to calculate the Company's allowance for credit losses under
accounting principles generally accepted in the United States
(GAAP) (approximately 30% as of September 30, 2004 and June 30,
2004).
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 September 30,
2004 and June 30, 2004, respectively, as follows:
(In thousands) As of As of
September 30, June 30,
2004 2004
--------- ---------
Consolidated loans receivable , net $ 979,491 $ 939,748
Consolidated dealer holdbacks 501,161 475,415
--------- ---------
Net investment in loans before adjustments 478,330 464,333
Less: portion related to United Kingdom
and Canada (11,198) (17,167)
Plus: repossessed assets and other 7,869 6,795
--------- ---------
Adjusted net investment in loans 475,001 453,961
Estimated present value of future
cash flows from loans receivable, less
estimated dealer holdback payments 518,432 494,282
--------- ---------
Excess of estimated present value of
future cash flows over recorded
net investment (pretax) (1) $ 43,431 $ 40,321
========= =========
(1) 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 variances
between the Company's recorded net investment and the present
value of estimated future cash flows.
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 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 as received while the estimated present value of future cash flows includes estimated future recoveries. Recoveries consist of collections on previously charged off receivables.
The amount by which the estimated present value of future cash flows exceeds the recorded net investment ("excess") increased from $40.3 million to $43.4 million during the period. The Company does not believe the increase is significant at this time, considering the large dollar amount of the estimates involved and the normal quarterly volatility of the forecast from which the estimate is created. The longer term pattern of increase or decrease in the "excess" will provide more meaningful data and should be considered when additional data points are available.
The following table compares the Company's forecast of collection rates for loans originated by year as of September 30, 2004 with the forecast as of December 31, 2003:
September 30, 2004 December 31, 2003
Forecasted Forecasted
Year Collection % Collection % Variance
---- ------------------ ----------------- --------
1992 81.7% 81.5% 0.2%
1993 75.9% 75.7% 0.2%
1994 62.0% 61.8% 0.2%
1995 55.3% 55.2% 0.1%
1996 55.4% 55.3% 0.1%
1997 58.5% 58.1% 0.4%
1998 67.6% 67.2% 0.4%
1999 71.9% 71.5% 0.4%
2000 72.1% 71.7% 0.4%
2001 67.1% 67.0% 0.1%
2002 69.1% 69.4% -0.3%
2003 72.3% 72.8% -0.5%
The Company made no material changes in credit policy or pricing in the
third quarter of 2004, other than routine changes designed to maintain
current profitability levels.
Adjusted Return on Capital
--------------------------
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Average debt $180,208 $109,205 $156,861 $102,919
Average shareholders'
equity 314,486 338,935 318,756 335,020
-------- -------- -------- --------
Average capital $494,694 $448,140 $475,617 $437,939
======== ======== ======== ========
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 Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
-------- -------- -------- --------
Adjusted net income $ 13,193 $ 9,197 $ 37,239 $ 24,638
Interest expense after-tax 1,850 1,474 5,083 3,422
-------- -------- -------- --------
Adjusted net operating
profit after-tax $ 15,043 $ 10,671 $ 42,322 $ 28,060
======== ======== ======== ========
Average capital $494,694 $448,140 $475,617 $437,939
======== ======== ======== ========
Adjusted return on capital 12.2% 9.5% 11.9% 8.5%
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 (loss) for the periods indicated (dollars
in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Adjusted economic
profit
-----------------
Adjusted net
income (1) $ 13,193 $ 9,197 $ 37,239 $ 24,638
Imputed cost
of equity
at 10% (2) (7,862) (8,473) (23,907) (25,127)
---------- ---------- ---------- ----------
Total adjusted
economic profit
(loss) $ 5,331 $ 724 $ 13,332 $ (489)
========== ========== ========== ==========
Diluted weighted
average shares
outstanding 40,943,604 43,959,924 41,506,320 43,247,518
Adjusted economic
profit (loss)
per diluted
share (3) $ 0.13 $ 0.02 $ 0.32 $ (0.01)
(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 $314,486,000 and $318,756,000 for
the three months and nine months ended September 30, 2004,
respectively, and $338,935,000 and $335,020,000 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 nine months ended September 30, 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 Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenue:
Finance charges $ 34,830 $ 25,770 $ 95,790 $ 76,457
Ancillary product
income 3,047 4,369 8,373 14,336
Lease revenue 271 1,251 1,323 5,371
Other income 5,051 4,609 14,523 12,866
----------- ----------- ----------- -----------
Total revenue 43,199 35,999 120,009 109,030
----------- ----------- ----------- -----------
Costs and
expenses:
Salaries and
wages 9,807 7,879 27,566 25,083
General and
administrative 5,181 4,679 15,601 15,361
Provision for
credit losses 2,098 2,303 16,832 9,354
Sales and
marketing 3,026 2,023 8,591 6,813
Interest 2,846 2,267 7,820 5,264
Stock-based
compensation
expense 747 1,027 2,178 2,830
United Kingdom
asset impairment -- -- -- 10,493
Other expense 270 1,182 1,050 4,205
----------- ----------- ----------- -----------
Total costs and
expenses 23,975 21,360 79,638 79,403
----------- ----------- ----------- -----------
Operating income 19,224 14,639 40,371 29,627
Foreign exchange
gain (loss) 674 (1,066) 1,731 (1,037)
----------- ----------- ----------- -----------
Income before
provision for
income taxes 19,898 13,573 42,102 28,590
Provision for
income taxes 7,156 4,755 15,224 10,171
----------- ----------- ----------- -----------
Net income $ 12,742 $ 8,818 $ 26,878 $ 18,419
=========== =========== =========== ===========
Net income per
common share:
Basic $ 0.33 $ 0.21 $ 0.69 $ 0.44
=========== =========== =========== ===========
Diluted $ 0.31 $ 0.20 $ 0.65 $ 0.43
=========== =========== =========== ===========
Weighted average
shares
outstanding:
Basic 38,679,011 42,315,027 39,234,974 42,329,722
Diluted 40,943,604 43,959,924 41,506,320 43,247,518
CREDIT ACCEPTANCE CORPORATION
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)
As of
---------------------------
September 30, December 31,
2004 2003
---------- ----------
ASSETS:
Cash and cash equivalents $ 20,254 $ 36,044
Loans receivable 1,017,050 875,417
Allowance for credit losses (37,559) (17,615)
---------- ----------
Loans receivable, net 979,491 857,802
---------- ----------
Notes, lines of credit and floorplan
receivables, net (including $1,635 and
$1,583 from affiliates as of September
30, 2004 and December 31, 2003,
respectively) 4,868 6,562
Investment in operating leases, net 1,379 4,447
Property and equipment, net 19,588 18,503
Income taxes receivable 1,188 5,795
Other assets 17,387 14,627
---------- ----------
Total Assets $1,044,155 $ 943,780
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Accounts payable and accrued liabilities $ 41,388 $ 33,117
Dealer holdbacks, net 501,161 423,861
Line of credit 58,700 --
Secured financing 140,000 100,000
Mortgage note and capital lease
obligations 10,148 6,467
Deferred income taxes, net 9,765 24,529
---------- ----------
Total Liabilities 761,162 587,974
---------- ----------
Shareholders' Equity:
Preferred stock, $ .01 par value,
1,000,000 shares authorized, none issued -- --
Common stock, $ .01 par value,
80,000,000 shares authorized,
36,807,382 and 42,128,087 shares issued
and outstanding as of September 30,
2004 and December 31, 2003, respectively 368 421
Paid-in capital 26,644 125,078
Retained earnings 253,917 227,039
Accumulated other comprehensive income
- cumulative translation adjustment 2,064 3,268
---------- ----------
Total Shareholders' Equity 282,993 355,806
---------- ----------
Total Liabilities and
Shareholders' Equity $1,044,155 $ 943,780
========== ==========