EXHIBIT 99.1
SILVER TRIANGLE BUILDING
25505 WEST TWELVE MILE ROAD O SUITE 3000
SOUTHFIELD, MI 48034-8339
(248) 353-2700
WWW.CREDITACCEPTANCE.COM
NEWS RELEASE
FOR IMMEDIATE RELEASE DATE: MAY 10, 2004
INVESTOR RELATIONS: DOUGLAS W. BUSK
CHIEF FINANCIAL OFFICER
(248) 353-2700 EXT. 432
IR@CREDITACCEPTANCE.COM
NASDAQ SYMBOL: CACC
CREDIT ACCEPTANCE POSTPONES FILING OF FIRST QUARTER FORM 10-Q
SOUTHFIELD, MICHIGAN -- MAY 10, 2004 -- CREDIT ACCEPTANCE CORPORATION (NASDAQ:
CACC) Credit Acceptance Corporation (the "Company") announced today that it is
filing a Form 12b-25 with the Securities and Exchange Commission to extend the
filing date of its quarterly report on Form 10-Q for the period ended March 31,
2004. The Company expects to announce financial results and file its quarterly
report on Form 10-Q by May 14, 2004. The additional time will allow the Company,
and its independent auditors, to complete a review of two accounting issues.
One issue relates to the Company's methodology for establishing loan loss
reserves. The Company records loan loss reserves in accordance with the
provisions of Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" ("SFAS No. 114"). Under SFAS No. 114, the
Company has historically compared the present value of estimated future
collections for each dealer-partner's loan portfolio to the Company's net
investment in that portfolio. During the quarter, the Company concluded that
this calculation should consider estimated future dealer holdback payments.
Considering estimated future dealer holdback payments increases the Company's
loss estimate as cash flows used to evaluate impairment are reduced. The Company
developed a model for estimating the amount and timing of estimated dealer
holdback payments during the quarter that provides a reasonable basis for
including these cash outflows in its loan loss estimate. The change in
methodology is expected to result in an approximately $10 million increase in
the allowance for credit losses and reduce after-tax earnings by approximately
$6.5 million. Had the Company historically utilized this methodology, the
Company estimates that its provision for credit losses would have been higher in
2001, 2002, and 2003 and the current period provision for credit losses would
have been unaffected. While the Company has recently concluded on its position
with respect to this issue, additional time
is required for the independent auditors to review the estimates and for the
Company to reflect this change in the Company's quarterly report on Form 10-Q.
The second issue relates to revenue recognition for commissions on the sale of
third-party vehicle service contracts as a result of the Company's
interpretation of facts contained in agreements entered into during the quarter
with two new third-party vehicle service contract providers. The agreements
differ from the agreement that was previously in place in three material
respects: (i) the new agreements provide a commission to the Company on all
vehicle service contracts sold by its dealer-partners, regardless of whether the
vehicle service contract is financed by the Company; (ii) the new agreements pay
a higher commission on vehicle service contracts financed by the Company and;
(iii) the new agreements allow the Company to participate in underwriting
profits depending on the level of future claims paid. As a result, cash flows
generated from these new agreements will be higher, and the timing of commission
cash flows unchanged. However, the Company believes facts contained in these new
agreements will require the Company to defer, and recognize over time, a
significant portion of its vehicle service contract revenue. The Company may
also be required to consolidate the trusts formed under the two new agreements
in accordance with the provisions of Financial Accounting Standards Board
Interpretation No. 46, "Consolidation of Variable Interest Entities".
In addition to the two outstanding issues, the Company's first quarter earnings
will be impacted by a change in the Company's policy for recognizing finance
charges and the related provision for earned but unpaid income as a result of an
enhancement to the Company's accounting system (1). The enhancement provided the
Company with information which caused the Company to record an unfavorable
adjustment to the provision for earned but unpaid income of $3.5 million of
which approximately $3.3 million relates to periods prior to December 31, 2003.
The Company does not believe the new policy will materially impact reported
earnings in future periods.
(1)The Company recognizes finance charge income in accordance with the
provisions of Statement of Financial Accounting Standards No. 91, "Accounting
for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases (an Amendment of FASB Statements No. 13, 60,
and 65 and a Rescission of FASB Statement No. 17)" ("SFAS No. 91"). SFAS No. 91
requires the Company to recognize income under the interest method such that
income is recognized on a level yield basis during the life of the underlying
asset. Earned but unpaid servicing fees are fully reserved at the time the loan
is transferred to non-accrual status in accordance with the Company's policy.
During the first quarter of 2004, the Company enhanced its methodology for
applying SFAS No. 91 such that finance charge income and the amount of the
provision for earned but unpaid income at the time a loan is transferred to
non-accrual status can be calculated for each individual loan. Prior to the
first quarter of 2004, the Company calculated finance charge income and the
provision for earned but unpaid revenue using a pooling methodology. The pooling
methodology required the Company to make various assumptions and estimates which
impacted the timing of income recognition and the classification of finance
charge revenue and the provision for earned but unpaid revenue. Because the
enhanced methodology reduces the Company's need to make estimates, the Company
believes that these enhancements improve the precision of the Company's
calculation of finance charge revenue and the provision for earned but unpaid
revenue.
LOAN ORIGINATIONS IN THE UNITED STATES
(Dollars in thousands) THREE MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
------------------------------ ----------------------------------------------
2004 2003 2003 2002 2001
--------------- -------------- ---------------- ------------- -------------
Loan originations $307,660 $220,282 $785,667 $571,690 $646,572
Number of loans originated 23,841 18,206 62,334 49,650 61,277
Number of active dealer-partners (1) 843 632 916 789 1,120
Loans per active dealer-partner 28.3 28.8 68.1 62.9 54.7
Average loan size $ 12.9 $ 12.1 $ 12.6 $ 11.5 $ 10.6
(1) Active dealer-partners are dealer-partners who submitted at least one loan
during the period.
The Company reported record loan originations for the three months ended March
31, 2004 of $307.7 million compared to $220.3 million in the same period in
2003, representing an increase of 40%. The increase in loan originations in the
first quarter of 2004 is due to: (i) an increase in the number of active
dealer-partners due to increased dealer-partner enrollments, and (ii) an
increase in the average loan size.
The origination growth rate experienced in the first quarter was higher than the
Company's expected long-term growth rate. The Company made no material changes
in credit policy or pricing in the first quarter of 2004, other than routine
changes designed to maintain current profitability levels.
The growth rate experienced in the first quarter of 2004 has not continued
during the second quarter of 2004. April of 2004 originations grew at 16%
compared to the same period of 2003.
LOAN PORTFOLIO PERFORMANCE
The following table compares the Company's forecast of collection rates for
loans originated by year as of March 31, 2004 with the forecast as of December
31, 2003.
Loan
Origination March 31, 2004 December 31, 2003
Year Forecasted Collection % Forecasted Collection % Variance
- --------------- --------------------------- --------------------------- -----------
1992 81.5% 81.5% 0.0%
1993 75.8% 75.7% 0.1%
1994 61.9% 61.8% 0.1%
1995 56.2% 56.2% 0.0%
1996 56.6% 56.5% 0.1%
1997 59.5% 59.3% 0.2%
1998 67.9% 67.7% 0.2%
1999 72.1% 71.9% 0.2%
2000 71.2% 71.0% 0.2%
2001 67.0% 66.9% 0.1%
2002 68.8% 69.1% -0.3%
2003 72.1% 72.0% 0.1%
During the quarter ended March 31, 2004, collection rates were generally in line
with the Company's expectations.
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," "estimates" and those
regarding the Company's future plans and objectives, are "forward-looking
statements" within the meaning of the federal securities laws. These
forward-looking statements represent the Company's outlook only as of the date
of this release. While the Company believes that its forward-looking statements
are reasonable, actual results could differ materially since the statements are
based on current expectations, which are subject to risks and uncertainties.
Factors that might cause such a difference include the following:
o the Company's potential inability to accurately forecast and estimate
future collections and historical collection rates,
o increased competition from traditional financing sources and from
non-traditional lenders,
o unavailability of funding at competitive rates of interest,
o the Company's potential inability to continue to obtain third party
financing on favorable terms,
o the Company's potential inability to generate sufficient cash flow to
service its debt and fund its future operations,
o adverse changes in applicable laws and regulations,
o adverse changes in economic conditions,
o adverse changes in the automobile or finance industries or in the
non-prime consumer finance market,
o the Company's potential inability to maintain or increase the volume
of automobile loans,
o an increase in the amount or severity of litigation against the
Company,
o the loss of key management personnel,
o the effect of terrorist attacks and potential attacks, and
o 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
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.