EXHIBIT 99.1
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: MAY 14, 2004
INVESTOR RELATIONS: DOUGLAS W. BUSK
CHIEF FINANCIAL OFFICER
(248) 353-2700 EXT. 432
IR@CREDITACCEPTANCE.COM
NASDAQ SYMBOL: CACC
CREDIT ACCEPTANCE ANNOUNCES:
- 1ST QUARTER EARNINGS
SOUTHFIELD, MICHIGAN -- MAY 14, 2004 -- CREDIT ACCEPTANCE CORPORATION (NASDAQ:
CACC) Credit Acceptance Corporation (the "Company") announced consolidated net
income for the three months ended March 31, 2004 of $1,530,000 or $0.04 per
diluted share compared to $8,593,000 or $0.20 per diluted share for the same
period in 2003.
Results for the quarter include:
- An increase in loan originations of 40% to $307.7 million
- Loan performance consistent with the Company's expectations
- New vehicle service contract agreements resulting in higher per unit
profitability
- A change in estimate for establishing the allowance for loan losses
- A change in estimate for recognizing finance charges and the provision for
earned but unpaid revenue
- A new policy for recording revenue on vehicle service contracts
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 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. For the month of April 2004, loan
origination growth slowed to 16% when compared to April 2003. 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.
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 consistent with
the Company's expectations.
NEW VEHICLE SERVICE CONTRACT AGREEMENTS
Net income was impacted by the Company's new policy for recording revenue on
third party service contracts. During the quarter, the Company entered into
agreements with two new third party vehicle service contract providers. The two
new agreements differ from the existing agreement 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. Under the old agreement,
the Company received a commission only on vehicle service contracts financed by
the Company. Through December 31, 2003, the Company recognized income for
commissions received on third party vehicle service contracts at the time the
service contract was sold since: (i) delivery of the vehicle service contract
occurs at this time, (ii) the Company bears no further obligation under the
service contract, and (iii) the Company's commission is not subject to
cancellation. These three criteria continue to be true under the two new
agreements, however, since the commission paid on financed vehicle service
contracts is higher than the commission paid on non-financed vehicle service
contracts, the Company concluded the difference in commissions rates was
evidence of a multiple element revenue arrangement as defined under the
provisions of SEC Staff Accounting Bulletin No. 104, "Revenue Recognition". As a
result, the Company considers the amount received for financed vehicle service
contracts to be comprised of two components, a component
relating to the fair value of the commission (a "broker fee") and a larger
component relating to providing the financing on the related loan (a "financing
premium"). Beginning January 1, 2004, broker fees generated under the two new
agreements will be recognized over the life of the related vehicle service
contract. Broker fees generated under the old agreement will be recognized upon
the sale of the service contract. Under all three agreements, the financing
premium will be deferred and amortized over the life of the underlying loan as
an adjustment to the yield consistent with the Company's accounting for finance
charges under the interest method. While the new policy for accounting for
vehicle service contracts will result in a change in the timing of GAAP reported
revenue, the timing of cash flows related to vehicle service contract revenue
has not changed, and the amount of cash flow generated will be greater under the
new agreements than under the prior agreement.
Under the new policy, the Company recognized $2.1 million in commission income
during the current quarter, and deferred $5.8 million. The Company estimates the
deferred portion will be recognized into income as follows (in thousands):
2004 $ 2,311
2005 2,254
2006 1,135
2007 94
----------
$ 5,794
==========
Had the Company historically deferred vehicle service contract revenue using the
same policy applied in the current quarter, current period earnings would have
been $1,177,000 higher than reported earnings and prior year earnings of the
same period would have been $685,000 lower than reported earnings. Had the
Company continued to fully recognize vehicle service contract income at the time
of sale, current period earnings would have been $3,767,000 higher than reported
earnings.
CHANGE IN ESTIMATE FOR ESTABLISHING THE ALLOWANCE FOR LOAN LOSSES
Net income was also impacted by the Company's change in estimate for
establishing its allowance for credit losses. 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 compares 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 developed a model
for estimating the amount and timing of future dealer holdback payments and
began to include the present value of expected future dealer holdback payments
in its loss estimate. Considering estimated future dealer holdback payments
increases the Company's loss estimate as cash flows used to evaluate impairment
are reduced. This change resulted in a $9.4 million increase in the allowance
for credit losses and reduced after-tax earnings by approximately $6.1 million.
Deducting dealer holdback payments from the cash flows used to evaluate
impairment will not increase the cash amount of losses or future charge-offs
against the allowance.
CHANGE IN ESTIMATE FOR RECOGNIZING FINANCE CHARGES
Additionally, net income was impacted by a revised methodology 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) This revised
methodology resulted in a change in the timing of revenue recognition as the
actual term of contracts on a Loan by Loan basis was longer than the average
Loan term as calculated under the pooling methodology, resulting in an
approximately $3.5 million reduction in finance charges during the three months
ended March 31, 2004, of which approximately $3.3 million relates to periods
prior to December 31, 2003. In addition, the revised methodology resulted in a
change in the amount of revenue recognized on a Loan prior to the Loan
transferring to non-accrual status, resulting in an increase in finance charges
and a corresponding increase in the provision for earned but unpaid revenue of
approximately $3.5 million for the three months
ended March 31, 2004. The Company does not believe the revised methodology 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 revised 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
revised 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.
SEGMENT INFORMATION
(Dollars in thousands, except per share data) THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
2004 2003 % Change
---------------- ---------------- ------------
NET INCOME (LOSS)
-----------------
United States $ 1,103 $ 7,480 (85.3)%
United Kingdom 226 1,306 (82.7)
Automobile Leasing 304 (317) 195.9
Other (103) 124 (183.1)
--------------- ---------------
Consolidated $ 1,530 $ 8,593 (82.2)%
=============== ===============
NET INCOME (LOSS) PER SHARE
---------------------------
United States $ 0.03 $ 0.18 (83.3)%
United Kingdom -- 0.03 (100.0)
Automobile Leasing 0.01 (0.01) 200.0
Other -- -- --
--------------- ---------------
Consolidated $ 0.04 $ 0.20 (80.0)%
=============== ===============
Diluted shares outstanding 42,159,338 42,407,981
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME
The following table reconciles reported net income to adjusted net income
(reported net income excluding certain items) for the three months ended March
31, 2004 and 2003:
THREE MONTHS ENDED MARCH 31,
----------------------------------
(Dollars in thousands, except per share data) 2004 2003
-------------- ----------------
Reported net income $ 1,530 $ 8,593
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 due to forward contracts (2) (98) --
Interest income from Internal Revenue Service (3) -- (400)
--------------- ---------------
Net income excluding certain items $ 9,824 $ 8,193
Change in vehicle service contract revenue if new policy had been retroactively applied (4) 1,177 (685)
--------------- ---------------
Adjusted net income 11,001 7,508
Diluted weighted average shares outstanding 42,159,338 42,407,981
Adjusted net income per share $ 0.26 $ 0.18
=============== ===============
The Company's reported net income includes certain items which 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 to shareholders because it
allows shareholders to better compare results between periods and make more
informed assumptions about future results. The reason each item should be
considered is as follows:
(1) These items represent changes in estimates or changes in methodology
that impact the current period more significantly than the prior
period.
(2) This item represents a current period gain which is offset by a
reduction in shareholders' equity due to the decline in value of
foreign currency denominated assets.
(3) The Company expects cash inflows of this type to be infrequent.
(4) This adjustment allows the reader to compare the current quarter to
the prior year same period assuming a consistent treatment of vehicle
service contract revenue. While the treatment of vehicle service
contract revenue changed as a result of facts arising in the current
period, the timing of cash flows generated from vehicle service
contract revenue has not materially changed under the new agreements.
The Company uses adjusted net income for performance purposes in determining
bonus compensation paid under the Company's incentive compensation plans.
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 months ended March 31, 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," "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.
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, except per share data) THREE MONTHS ENDED
MARCH 31,
-------------------------------------
2004 2003
--------------- ---------------
REVENUE:
Finance charges $ 29,754 $ 24,256
Ancillary product income 2,867 5,733
Lease revenue 647 2,336
Premiums earned 544 755
Other income 3,983 3,849
--------------- ---------------
Total revenue 37,795 36,929
--------------- ---------------
COSTS AND EXPENSES:
Salaries and wages 8,796 8,517
General and administrative 5,507 5,484
Provision for credit losses 15,068 4,188
Sales and marketing 2,543 2,177
Interest 2,600 1,596
Stock-based compensation expense 567 375
Other expense 457 1,647
--------------- ---------------
Total costs and expenses 35,538 23,984
--------------- ---------------
Operating income 2,257 12,945
Foreign exchange gain 151 15
--------------- ---------------
Income before provision for income taxes 2,408 12,960
Provision for income taxes 878 4,367
--------------- ---------------
Net income $ 1,530 $ 8,593
=============== ===============
Net income per common share:
Basic $ 0.04 $ 0.20
=============== ===============
Diluted $ 0.04 $ 0.20
=============== ===============
Weighted average shares outstanding:
Basic 39,791,700 42,328,841
Diluted 42,159,338 42,407,981
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) AS OF
-------------------------------------
MARCH 31, 2004 DECEMBER 31, 2003
------------------ -----------------
ASSETS:
Cash and cash equivalents $ 17,595 $ 36,044
Loans receivable 956,867 875,417
Allowance for credit losses (34,521) (17,615)
--------------- ---------------
Loans receivable, net 922,346 857,802
--------------- ---------------
Notes receivable, net (including $1,600 and $1,583 from affiliates as of March 31,
2004 and December 31, 2003, respectively) 3,776 2,090
Lines of credit and floorplan receivables, net 3,458 4,472
Investment in operating leases, net 2,840 4,447
Property and equipment, net 18,598 18,503
Income taxes receivable 251 5,795
Other assets 13,973 14,627
--------------- ---------------
Total Assets $ 982,837 $ 943,780
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Lines of credit $ 66,200 $ --
Secured financing 83,434 100,000
Mortgage note 5,216 5,418
Capital lease obligations 1,608 1,049
Accounts payable and accrued liabilities 35,284 33,117
Dealer holdbacks, net 466,779 423,861
Deferred income taxes, net 14,972 22,770
--------------- ---------------
Total Liabilities 673,493 586,215
--------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred Stock, $ .01 par value, 1,000,000 shares authorized, none issued -- --
Common stock, $ .01 par value, 80,000,000 shares authorized, 39,239,103 and
42,128,087 shares issued and outstanding as of March 31, 2004 and
December 31, 2003, respectively 392 421
Paid-in capital 75,538 125,078
Retained earnings 228,569 227,039
Accumulated other comprehensive income - cumulative translation adjustment 4,845 5,027
--------------- ---------------
Total Shareholders' Equity 309,344 357,565
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 982,837 $ 943,780
=============== ===============