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: AUGUST 4, 2004
INVESTOR RELATIONS: DOUGLAS W. BUSK
TREASURER
(248) 353-2700 EXT. 432
IR@CREDITACCEPTANCE.COM
NASDAQ SYMBOL: CACC
CREDIT ACCEPTANCE ANNOUNCES:
- 2ND QUARTER EARNINGS
Southfield, Michigan -- August 4, 2004 -- Credit Acceptance Corporation (NASDAQ:
CACC) Credit Acceptance Corporation (the "Company") announced consolidated net
income for the three months ended June 30, 2004 of $12,606,000 or $0.30 per
diluted share compared to $1,008,000 or $0.02 per diluted share for the same
period in 2003. For the six months ended June 30, 2004, consolidated net income
was $14,136,000 or $0.34 per diluted share compared to $9,601,000 or $0.23 per
diluted share for the same period in 2003.
The increase in consolidated net income for the three months ended June 30, 2004
compared to the same period in 2003 was primarily due to: (i) the United Kingdom
impairment expenses recognized during the second quarter of 2003, (ii) an
increase in the size of the loan portfolio due to an increase in loan
originations, (iii) an increase in the average annualized yield on the loan
portfolio due to a decrease in the percentage of non-accrual loans to total
loans, and (iv) a decrease in operating expenses as a percentage of revenue due
to increased operational efficiencies. Partially offsetting these items was a
decrease in ancillary product income due to the Company's change in 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 six months ended June 30, 2004
compared to the same period in 2003 was primarily due to: (i) the United Kingdom
impairment expenses recognized during the second quarter of 2003, (ii) an
increase in the size of the loan portfolio due an increase in loan originations,
and (iii) a decrease in operating expenses as a percentage of revenue due to
increased operational efficiencies. Partially offsetting these items were: (i)
an increase in the provision for credit losses 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 and (ii) a decrease in ancillary product income due to the
Company's change in policy during the first quarter of 2004 for recognizing
income on third-party vehicle service contracts sold.
Excluding the impact of certain items, consolidated adjusted net income for the
three and six months ended June 30, 2004 was $13,047,000 or $0.32 per diluted
share and $24,048,000 or $0.58 per diluted share, respectively, compared to
$7,933,000 or $0.19 per diluted share and $15,441,000 or $0.36 per diluted share
for the same periods in 2003.
The increase in consolidated adjusted net income for the three months ended June
30, 2004 compared to the same period in 2003 was primarily due to: (i) an
increase in the size of the loan portfolio due an increase in loan originations,
(ii) an increase in the average annualized yield on the loan portfolio due to a
decrease in the percentage of non-accrual loans to total loans, and (iii) a
decrease in operating expenses as a percentage of revenue due to increased
operational efficiencies. The increase in consolidated adjusted net income for
the six months ended June 30, 2004 compared to the same period in 2003 is
primarily due to: (i) an increase in the size of the loan portfolio due to an
increase in loan originations, (ii) a decrease in operating expenses as a
percentage of revenue due to increased operational efficiencies, and (iii) a
decrease in the provision for credit losses inherent in the loan portfolio due
to a favorable trend in loss estimates 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 excluded or adjusted 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 six months ended June 30, 2004 and 2003:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ -----------------------------
(Dollars in thousands, except per share data) 2004 2003 2004 2003
-------------- -------------- -------------- --------------
Reported net income $ 12,606 $ 1,008 $ 14,136 $ 9,601
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) (590) - (688) -
United Kingdom impairment expenses (3) - 7,238 - 7,238
Interest income from Internal Revenue Service (3) - - - (400)
-------------- -------------- -------------- --------------
Net income excluding certain items $ 12,016 $ 8,246 $ 21,840 $ 16,439
Change in vehicle service contract revenue if new policy had been
retroactively applied (4) 1,031 (313) 2,208 (998)
-------------- -------------- -------------- --------------
Adjusted net income $ 13,047 $ 7,933 $ 24,048 $ 15,441
============== ============== ============== ==============
Diluted weighted average shares outstanding 41,413,308 42,868,265 41,790,255 42,629,844
Adjusted net income per diluted share $ 0.32 $ 0.19 $ 0.58 $ 0.36
============== ============== ============== ==============
(1) These items represent changes in estimates or changes in methodology
that impact the current year. While these changes impacted the
accounting for finance charges and the allowance for credit losses
during the first quarter of 2004, the timing of cash flows generated
from loan collections has not changed. 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 which is offset by a reduction
in shareholders' equity due to the decline 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, THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------- ---------------------------------------------
except per share data) 2004 2003 % Change 2004 2003 % Change
----------------- --------------- --------------- ----------------- --------------- ----------
REPORTED NET INCOME (LOSS)
United States $ 12,341 $ 8,703 41.8 % $ 13,444 $ 16,181 (16.9)%
United Kingdom 186 (7,594) 102.4 412 (6,288) 106.6
Automobile Leasing 233 (153) 252.3 537 (468) 214.7
Other (154) 52 (396.2) (257) 176 (246.0)
----------------- --------------- ------------ ----------------- --------------- ---------
Consolidated $ 12,606 $ 1,008 1,150.6 % $ 14,136 $ 9,601 47.2 %
================= =============== ============ ================= =============== =========
REPORTED NET INCOME (LOSS)
PER DILUTED SHARE
United States $ 0.29 $ 0.20 45.0 % $ 0.33 $ 0.39 (15.4)%
United Kingdom - (0.18) 100.0 0.01 (0.15) 106.7
Automobile Leasing 0.01 - 0.0 0.01 (0.01) 200.0
Other - - 0.0 (0.01) - 0.0
----------------- --------------- ------------ ----------------- --------------- ---------
Consolidated $ 0.30 $ 0.02 1,400.0 % $ 0.34 $ 0.23 47.8 %
================= =============== ============ ================= =============== =========
LOAN ORIGINATIONS IN THE UNITED STATES
(Dollars in thousands) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- -------------------------------------------
2004 2003 % CHANGE 2004 2003 % CHANGE
-------------- -------------- -------------- ------------- ------------- -------------
Loan originations $ 215,103 $ 184,079 16.9 % $ 514,399 $ 398,359 29.1 %
Number of loans originated 17,268 14,736 17.2 41,109 32,942 24.8
Number of active dealer-partners (1) 899 677 32.8 958 721 32.9
Loans per active dealer-partner 19.2 21.8 (11.8) 42.9 45.7 (6.1)
Average loan size $ 12.5 $ 12.5 - $ 12.5 $ 12.1 3.5
(1) Active dealer-partners are dealer-partners who submitted at least one loan
during the period.
LOAN PORTFOLIO PERFORMANCE IN THE UNITED STATES
The following table compares the Company's forecast of collection rates for
loans originated by year as of June 30, 2004 with the forecast as of December
31, 2003:
Loan
Origination June 30, 2004 December 31, 2003
Year Forecasted Collection % Forecasted Collection % Variance
- --------------- --------------------------- --------------------------- -----------
1992 81.6% 81.5% 0.1%
1993 75.8% 75.7% 0.1%
1994 61.9% 61.8% 0.1%
1995 55.1% 55.2% -0.1%
1996 55.2% 55.3% -0.1%
1997 58.1% 58.1% 0.0%
1998 67.2% 67.2% 0.0%
1999 71.5% 71.5% 0.0%
2000 71.7% 71.7% 0.0%
2001 66.7% 67.0% -0.3%
2002 68.9% 69.4% -0.5%
2003 73.2% 72.8% 0.4%
The Company made no material changes in credit policy or pricing in the second
quarter of 2004, other than routine changes designed to maintain current
profitability levels.
The following summarizes the amount of estimated future loan payment inflows and
dealer holdback outflows:
(IN THOUSANDS) ESTIMATE AS OF
JUNE 30, 2004
-----------------
Loan payments $ 827,532
Dealer holdback payments 213,453
-----------------
Net cash flow $ 614,079
=================
These estimated cash flows will occur over time. The estimated present value of
these net cash flows is $494.3 million utilizing a discount rate of 30%,
comparable with the rate used to calculate the Company's allowance for credit
losses under accounting principles generally accepted in the United States
(GAAP).
The estimated present value of future cash flows from loans, less the related
dealer holdback liability, is approximately $40.3 million higher than the
adjusted net investment in loans on our balance sheet calculated as follows:
AS OF JUNE 30, 2004
-----------------------
Consolidated loans receivable, net $ 939,748
Consolidated dealer holdbacks 475,415
-----------------------
Net investment in loans before adjustments 464,333
Less: portion related to United Kingdom and Canada (17,167)
Plus: repossessed assets and other 6,795
-----------------------
Adjusted net investment in loans 453,961
Estimated present value of future cash flows from loans receivable, less
estimated dealer holdback payments 494,282
-----------------------
Excess of estimated present value of future cash flows over recorded net
investment (pretax) $ 40,321
=======================
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 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 they are received. Recoveries consist of collections on previously charged
off receivables. The present value of future recoveries is included in the
estimated cash flow numbers above, but is not yet reflected in the Company's
reported GAAP results.
The Company cautions that the above disclosure is based upon a forecast. While
the Company believes its forecast is based on reasonable assumptions, there can
be no assurance that the Company's forecast will be accurate. While the table
above presents the difference between the recorded net investment and the
estimated present value of future cash flows as a single number, a wide range of
actual results is possible. Given the large dollar amount of the estimated
present value of future cash flows, a modest percentage change in our forecast
would likely result in a large change in the reported variance between our
recorded net investment and the estimated present value of future cash flows.
ADJUSTED RETURN ON CAPITAL
(Dollars in thousands) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- --------------------------
2004 2003 2004 2003
---------------- --------------- ------------ ------------
Average debt $ 164,338 $ 101,821 $ 145,580 $ 101,147
Average shareholders' equity 314,255 336,740 321,425 332,798
---------------- --------------- ------------ ------------
Average capital $ 478,593 $ 438,561 $ 467,005 $ 433,945
================ =============== ============ ============
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- -----------------------------
2004 2003 2004 2003
---------------- ---------------- -------------- -------------
Adjusted net income $ 13,047 $ 7,933 $ 24,048 $ 15,441
Interest expense after-tax 1,542 911 3,232 1,948
---------------- ---------------- -------------- -------------
Adjusted net operating profit
after-tax 14,589 8,844 27,280 17,389
================ ================ ============== =============
Average capital $ 478,593 $ 438,561 $ 467,005 $ 433,945
================ ================ ============== =============
Adjusted return on capital 12.2% 8.1% 11.7% 8.0%
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 its total capital, both debt and
equity. 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):
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- -----------------------------------
2004 2003 2004 2003
---------------- --------------- ---------------- -----------------
ADJUSTED ECONOMIC PROFIT
Adjusted net income (1) $ 13,047 $ 7,933 $ 24,048 $ 15,441
Imputed cost of equity at 10% (2) (7,856) (8,419) (16,071) (16,640)
---------------- --------------- ---------------- -----------------
Total adjusted economic profit (loss) $ 5,191 $ (486) $ 7,977 $ (1,199)
================ =============== ================ =================
Diluted weighted average shares outstanding 41,413,308 42,868,265 41,790,255 42,629,844
Adjusted economic profit (loss) per share (3) $ 0.13 $ (0.01) 0.19 (0.03)
(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 $314,255,000 and $321,425,000 for the
three months and six months ended June 30, 2004, respectively, and
$336,740,000 and $332,798,000 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 six months ended June 30, 2004.
NEW POLICY FOR CORPORATE INFORMATION REQUESTS
The Company announced a new policy for handling requests for corporate
information, including questions by security analysts and investors. Effective
immediately, all requests must be submitted in writing. Requests can be mailed
to: Credit Acceptance, Attention: Investor Relations, 25505 West Twelve Mile
Road, Suite 3000, Southfield, MI 48034, or sent by email to
ir@creditacceptance.com.
Written responses will be posted on the investor relations section of our
corporate website at www.creditacceptance.com and furnished to the Securities
and Exchange Commission on Form 8-K.
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 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,
- 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- --------------------------------
2004 2003 2004 2003
--------------- ---------------- --------------- ---------------
REVENUE:
Finance charges $ 33,731 $ 26,431 $ 60,964 $ 50,687
Ancillary product income 2,459 4,233 5,326 9,966
Lease revenue 405 1,784 1,052 4,120
Other income 4,694 3,598 9,468 8,258
--------------- ---------------- --------------- ---------------
Total revenue 41,289 36,046 76,810 73,031
--------------- ---------------- --------------- ---------------
COSTS AND EXPENSES:
Salaries and wages 8,963 8,687 17,759 17,204
General and administrative 5,214 5,272 10,968 10,812
Provision for credit losses 2,187 2,863 14,734 7,051
Sales and marketing 2,474 2,483 5,017 4,660
Interest 2,373 1,401 4,973 2,997
Stock-based compensation expense 864 1,428 1,431 1,803
United Kingdom asset impairment - 10,493 - 10,493
Other expense 324 1,376 781 3,023
--------------- ---------------- --------------- ---------------
Total costs and expenses 22,399 34,003 55,663 58,043
--------------- ---------------- --------------- ---------------
Operating income 18,890 2,043 21,147 14,988
Foreign exchange gain 906 14 1,057 29
--------------- ---------------- --------------- ---------------
Income before provision for income taxes 19,796 2,057 22,204 15,017
Provision for income taxes 7,190 1,049 8,068 5,416
--------------- ---------------- --------------- ---------------
Net income $ 12,606 $ 1,008 $ 14,136 $ 9,601
=============== ================ =============== ===============
Net income per common share:
Basic $ 0.32 $ 0.02 $ 0.36 $ 0.23
=============== ================ =============== ===============
Diluted $ 0.30 $ 0.02 $ 0.34 $ 0.23
=============== ================ =============== ===============
Weighted average shares outstanding:
Basic 39,240,321 42,321,170 39,516,011 42,317,443
Diluted 41,413,308 42,868,265 41,790,255 42,629,844
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands, except per share data) AS OF
------------------------------------------------
JUNE 30, 2004 DECEMBER 31, 2003
----------------------- ----------------------
ASSETS:
Cash and cash equivalents $ 28,364 $ 36,044
Loans receivable 976,315 875,417
Allowance for credit losses (36,567) (17,615)
----------------- ----------------
Loans receivable, net 939,748 857,802
----------------- ----------------
Notes, lines of credit and floorplan receivables, net (including $1,617 and $1,583
from affiliates as of June 30, 2004 and December 31, 2003, respectively) 6,073 6,562
Investment in operating leases, net 1,888 4,447
Property and equipment, net 19,177 18,503
Income taxes receivable 7,458 5,795
Other assets 14,646 14,627
----------------- ----------------
Total Assets $ 1,017,354 $ 943,780
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Lines of credit $ 30,600 $ -
Secured financing 130,428 100,000
Mortgage note and capital lease obligations 10,254 6,467
Accounts payable and accrued liabilities 36,481 33,117
Dealer holdbacks, net 475,415 423,861
Deferred income taxes, net 13,820 24,529
----------------- ----------------
Total Liabilities 696,998 587,974
----------------- ----------------
SHAREHOLDERS' EQUITY:
Preferred stock, $ .01 par value, 1,000,000 shares authorized, none issued - -
Common stock, $ .01 par value, 80,000,000 shares authorized, 39,244,203 and
42,128,087 shares issued and outstanding as of June 30, 2004 and
December 31, 2003, respectively 392 421
Paid-in capital 76,394 125,078
Retained earnings 241,175 227,039
Accumulated other comprehensive income - cumulative translation adjustment 2,395 3,268
----------------- ----------------
Total Shareholders' Equity 320,356 355,806
----------------- ----------------
Total Liabilities and Shareholders' Equity $ 1,017,354 $ 943,780
================= ================