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: MARCH 24, 2005
INVESTOR RELATIONS: DOUGLAS W. BUSK
TREASURER
(248) 353-2700 EXT. 4432
IR@CREDITACCEPTANCE.COM
NASDAQ SYMBOL: CACC
CREDIT ACCEPTANCE ANNOUNCES:
FOURTH QUARTER AND 2004 EARNINGS
SOUTHFIELD, MICHIGAN - MARCH 24, 2005 - CREDIT ACCEPTANCE CORPORATION (NASDAQ:
CACC) Credit Acceptance Corporation (the "Company") announced consolidated net
income for the three months ended December 31, 2004 of $7.4 million or $0.19 per
diluted share compared to $9.8 million or $0.22 per diluted share for the same
period in 2003. For the year ended December 31, 2004, consolidated net income
was $37.0 million or $0.90 per diluted share compared to $25.8 million or $0.60
per diluted share for the same period in 2003.
The decrease in consolidated net income for the quarter ended December 31, 2004
compared to the same quarter in 2003 was primarily due to: (i) an increase in
the provision for credit losses related to an enhancement to our methodology for
estimating the present value of the dealer holdback payments (see discussion in
"Discounted future cash flows"), (ii) 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, (iii)
increased general and administrative expenses related to increased accounting
and audit fees associated with Sarbanes-Oxley compliance and (iv) increased
sales and marketing expenses due to increasing our sales force and expanding our
annual dealer-partner convention. Partially offsetting these items was (i) an
increase in finance charges due to an increase in the size of the loan portfolio
and 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 (ii) a
decrease in foreign exchange loss related to the fair value of forward contracts
during 2004.
RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2004 COMPARED TO THE
SAME PERIODS IN 2003 INCLUDE THE FOLLOWING:
- Loan origination volume grew 26.8% for the year and 20.2% for the
quarter
- Loan origination volume increases were achieved with no material
changes in credit policy or pricing
- Collection results were generally consistent with forecasts
- The number of active dealer-partners grew 32.6% for the year and
34.7% for the quarter
- Average active dealer-partner unit volumes decreased by 8.1% for the
year and 11.7% for the quarter
1
The accounting for our business is complex. The next three sections of this
press release provide information that explains and reconciles the differences
between GAAP net income and adjusted net income.
ADJUSTED NET INCOME
Adjusted net income is detailed in the table below. Although adjusted income is
not audited and is not consistent with accounting principles generally accepted
in the United States ("GAAP"), the Company utilizes adjusted net income to
calculate adjusted economic profit, which management and the Board of Directors
use as the primary measure of financial performance and to calculate bonuses.
Adjusted net income adjusts GAAP net income for non-recurring items, consistent
with prior press releases. In addition, this quarter contains an adjustment not
presented in prior periods. This additional adjustment reflects the difference
between the carrying value of our loan portfolio under GAAP and the estimated
discounted value of future cash flows from our loan portfolio. For a complete
discussion, see "Discounted future cash flows" below.
Adjusted net income for the three months ended December 31, 2004 was $13.8
million or $0.35 per diluted share compared to $12.8 million or $0.29 per
diluted share for the same period in 2003. Adjusted net income for the year
ended December 31, 2004 was $52.5 million or $1.28 per diluted share compared to
$42.2 million or $0.97 per diluted share for the same period in 2003.
Adjusted EPS increased by 20.7% for the quarter and 32.0% for the year primarily
due to the growth in loans receivable, an increase in the profitability of the
loan portfolio and share repurchases, partially offset by a decrease in non-U.S.
segment income due to these segments being in liquidation. The increased
profitability of the loan portfolio is primarily the result of increased revenue
from ancillary products and lower operating expenses, as a percentage of
revenue, partially offset by higher sales and marketing expenses.
RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- ------------------------
(Dollars in thousands, except per share data) 2004 2003 2004 2003
----------- ----------- ---------- -----------
Reported net income (1) $ 7,423 $ 9,762 $ 37,014 $ 25,832
Foreign exchange (gain) loss due to forward contracts(2) 48 1,129 (1,080) 1,831
Reduction in Michigan single business tax (3) - (307) - (307)
United Kingdom impairment expenses (3) - - - 7,238
Interest income from Internal Revenue Service (3) - - - (400)
----------- ----------- ---------- -----------
Net income excluding certain items $ 7,471 $ 10,584 $ 35,934 $ 34,194
Adjustment to record the GAAP net investment in loans
receivable at the discounted value of
future cash flows (4) 6,799 2,047 18,678 5,920
Adjustment resulting in comparable tax
rate for both periods(5) (493) 200 (2,079) 2,079
----------- ----------- ---------- -----------
Adjusted net income $ 13,777 $ 12,831 $ 52,533 $ 42,193
=========== =========== ========== ===========
Diluted weighted average shares outstanding 39,473,105 43,958,520 41,017,205 43,409,007
Adjusted net income per diluted share $ 0.35 $ 0.29 $ 1.28 $ 0.97
=========== =========== ========== ===========
(1) Reported net income for the year ended December 31, 2003 has been restated
to reflect the correction of an accounting error related to income taxes
discovered by the Company during the 2004 year-end closing process. Refer
to Restatement of Prior Periods included in Summary Financial Data for
further information.
(2) This item represents gains and losses resulting from changes in foreign
currency exchange rates that are offset by changes in the currency
translation adjustment included in shareholders' equity due to the changes
in the value of foreign-currency-denominated net assets held.
(3) The Company expects items of this nature to be non-recurring.
(4) See discussion below ("Discounted future cash flows"). This adjustment is
the after-tax change in the "excess" during the period presented.
(5) This adjustment allows the reader to compare the current period to the
prior period assuming a consistent tax rate.
2
DISCOUNTED FUTURE CASH FLOWS
As previously discussed, management and the Board of Directors use adjusted net
income to calculate adjusted economic profit, which is the primary measure of
financial performance since it more closely reflects how the business is managed
than GAAP results. The biggest difference between GAAP net income and adjusted
net income is the difference between the present value of future loan cash flows
and the GAAP reported value of those loans. This segment of our release reports
the amounts, reasons and significance of this difference.
We started disclosing the estimated present value of future loan cash flows
(less the related dealer holdback liability) in the second quarter of 2004. The
initial disclosure was intended to inform shareholders that, based on our
estimates, we believed the discounted future cash flows from our loan portfolio,
less dealer holdbacks, exceeded the comparable amount recorded on our GAAP basis
balance sheet (the "excess"). We provided two reasons for this result. 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 when received while the estimated present value of future cash flows
includes estimated future recoveries. Recoveries consist of collections on
previously charged off receivables.
During the third quarter of 2004, we again provided an estimate of the excess.
Since there were excess numbers for both June 30, 2004 and September 30, 2004,
shareholders could calculate the income statement impact of this new disclosure,
as explained in the investor relations section of our website at
www.creditacceptance.com in our December 20 and October 19 answers to investor
questions. We suggested shareholders pay attention to the change in the excess
over a long time period and cautioned against drawing any short term conclusions
about our quarterly profitability as we believed by their nature these quarterly
excess estimates would likely be subject to volatility.
This quarter we decided to include the impact of the excess in our adjusted
income calculation for two reasons. First, we calculated, and report in this
press release, comparable quarterly numbers back to December 31, 2002, thus
providing a longer-term basis for comparison. Second, we believe our 2004 GAAP
earnings are very difficult to understand. For example, the GAAP provision for
credit losses continues to grow, even though collection rates have continued to
be consistent with our expectations. The GAAP allowance for credit losses as of
December 31, 2004 is far in excess of the estimated cash losses that will
eventually be charged against it.
The following summarizes 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
----------------------------
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
Loan payments $882,118 $713,330
Dealer holdback payments 228,044 179,499
-------- --------
Net cash flow $654,074 $533,831
======== ========
Present value of net cash flow (1) $501,343 $407,231
======== ========
(1) Calculated utilizing a discount rate comparable with the rate used to
calculate the Company's allowance for credit losses under GAAP
(approximately 29% as of December 31, 2004 and 2003).
3
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 December 31, 2004 and 2003, respectively,
as follows:
ESTIMATE AS OF
----------------------------------
DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 2004 2003
------------ ------------
Consolidated loans receivable , net $ 974,476 $ 857,802
Consolidated dealer holdbacks, net 504,722 423,861
------------ ------------
Net investment in loans before adjustments 469,754 433,941
Less: portion related to United Kingdom and Canada (8,161) (34,970)
Plus: repossessed assets and other 8,975 6,587
------------ ------------
Adjusted net investment in loans 470,568 405,558
Estimated present value of future cash flows from loans
receivable, less estimated dealer holdback payments 501,343 407,231
------------ ------------
Excess of estimated present value of future cash flows over
recorded net investment (pre-tax) (1) $ 30,775 $ 1,673
============ ============
(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 variance between the Company's recorded net investment and
the present value of estimated future cash flows.
The excess increased substantially during 2004, primarily due to growth in our
portfolio and to changes in accounting policies during 2004 that reduced the
recorded net investment in loans receivable. These changes include changes in
revenue recognition for vehicle service contracts and changes in the calculation
of the required allowance for credit losses.
The following table compares the estimated present value of future cash flows
from loans receivable, less dealer holdback payments, to the net investment in
loans receivable at the end of each period back through December 31, 2002. In
order to produce the most meaningful income statement adjustment, we have used
the benefit of hindsight and improved forecasting methods to calculate prior
periods. As a result, the excess shown for June 30, 2004 and September 30, 2004
is lower than reported previously and amounts for periods prior to June 30, 2004
are different than what would have been calculated at that time. The most
significant difference between the excess reported below, and the excess
reported in prior periods, relates to assumptions regarding the timing of dealer
holdback payments.
Estimate as of
----------------------------------------------------------
(In thousands) 12/31/2004 9/30/2004 6/30/2004 3/31/2004
------------ -------------- ------------ -------------
Adjusted net investment in loans $ 470,568 $ 475,001 $ 454,355 $ 436,946
Estimated present value of future cash flows from
loans receivable, less esitmated dealer holdback payments 501,343 495,182 473,601 454,813
------------ -------------- ------------ -------------
Excess of estimated present value of future cash flows
over recorded net investment (pre-tax) $ 30,775 $ 20,181 $ 19,246 $ 17,867
============ ============== ============ =============
Pre-tax change of the excess of estimated present value
of future cash flows over recorded net investment $ 10,594 $ 935 $ 1,379 $ 16,194
============ ============== ============ =============
Adjustment to record the net investment in loans receivable
to the discounted value of future cash flows (after-tax) $ 6,799 $ 600 $ 885 $ 10,394
============ ============== ============ =============
Estimate as of
-------------------------------------------------------
(In thousands) 12/31/2003 9/30/2003 6/30/2003 3/31/2003 12/31/2002
---------- --------- --------- --------- ----------
Adjusted net investment in loans $ 405,558 $ 399,029 $ 382,186 $ 359,692 $ 336,821
Estimated present value of future cash flows from
loans receivable, less esitmated dealer holdback payments 407,231 397,512 378,284 355,749 329,270
---------- --------- --------- --------- ----------
Excess of estimated present value of future cash flows
over recorded net investment (pre-tax) $ 1,673 $ (1,517) $ (3,902) $ (3,943) $ (7,551)
========== ========= ========= ========= ==========
Pre-tax change of the excess of estimated present value
of future cash flows over recorded net investment $ 3,190 $ 2,385 $ 41 $ 3,608
========== ========= ========= =========
Adjustment to record the net investment in loans receivable
to the discounted value of future cash flows (after-tax) $ 2,047 $ 1,531 $ 26 $ 2,316
========== ========= ========= =========
4
The Company's forecasts are not adjusted for seasonality although seasonal
patterns to the Company's business exist. As such, the quarterly changes in the
present value will vary throughout the year but will be comparable to the prior
year quarter.
We believe adjusted net income provides shareholders with a better understanding
of our financial performance. We continue to believe adjusted income will be
subject to volatility as our estimates of future cash flows have in the past and
are likely to continue to change from time to time. This is appropriate and
consistent with the nature of our business since the estimate of discounted
future cash flows is a complex calculation impacted by numerous assumptions.
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 table presents forecasted collection rates, advance rates, the
spread (the forecasted collection rate less the advance rate), and the
percentage of the forecasted collections that have been realized as of
December 31, 2004. The amounts presented are expressed as a percent of the
original loan amount by year of loan origination.
DECEMBER 31, 2004
-----------------------------------------------------------------------------------------
YEAR FORECASTED COLLECTION % ADVANCE % SPREAD % % OF FORECAST REALIZED
- ---- ----------------------- --------- -------- ----------------------
1992 81.8% 35.3% 46.5% 100.0%
1993 76.0% 37.3% 38.7% 100.0%
1994 62.1% 41.8% 20.3% 100.0%
1995 55.3% 45.3% 10.0% 99.7%
1996 55.5% 48.4% 7.1% 99.0%
1997 58.6% 48.3% 10.3% 98.3%
1998 67.6% 49.4% 18.2% 98.3%
1999 72.0% 52.3% 19.7% 98.0%
2000 72.2% 50.9% 21.3% 97.2%
2001 67.3% 48.0% 19.3% 93.5%
2002 69.1% 45.7% 23.4% 84.1%
2003 71.8% 47.0% 24.8% 58.3%
2004 70.5% 48.3% 22.2% 25.3%
5
The following table compares the Company's forecast of collection rates for
loans originated by year as of December 31, 2004 with the forecast as of
December 31, 2003:
DECEMBER 31, 2004 DECEMBER 31, 2003
YEAR FORECASTED COLLECTION % FORECASTED COLLECTION % VARIANCE
- ---- ----------------------- ----------------------- --------
1992 81.8% 81.5% 0.3%
1993 76.0% 75.7% 0.3%
1994 62.1% 61.8% 0.3%
1995 55.3% 55.2% 0.1%
1996 55.5% 55.3% 0.2%
1997 58.6% 58.1% 0.5%
1998 67.6% 67.2% 0.4%
1999 72.0% 71.5% 0.5%
2000 72.2% 71.7% 0.5%
2001 67.3% 67.0% 0.3%
2002 69.1% 69.4% -0.3%
2003 71.8% 72.8% -1.0%
LOAN ORIGINATIONS (1)
(Dollars in thousands) THREE MONTHS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
--------------------------------------- --------------------------------------
2004 2003 % CHANGE 2004 2003 % CHANGE
--------- ---------- --------- ---------- --------- --------
Loan originations $ 204,982 $ 170,481 20.2% $ 959,617 $ 756,893 26.8%
Number of loans originated 16,471 13,847 18.9 75,955 62,334 21.9
Number of active dealer-partners (2) 1,028 763 34.7 1,215 916 32.6
Loans per active dealer-partner 16.0 18.1 (11.6) 62.5 68.1 (8.2)
Average loan size $ 12.4 $ 12.3 0.8 $ 12.6 $ 12.1 4.0
(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.
ADJUSTED RETURN ON CAPITAL
(Dollars in thousands) THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- -------------------------
2004 2003 2004 2003
--------- ---------- --------- ---------
Average debt $ 203,261 $ 106,680 $ 167,139 $ 103,772
Average adjusted shareholders' equity (1) 305,061 348,117 323,550 337,172
--------- ---------- --------- ---------
Average capital $ 508,322 $ 454,797 $ 490,689 $ 440,944
========= ========== ========= =========
(1) Adjusted for the impact of the Adjustment to record the GAAP net investment
in loans receivable at the discounted value of future cash flows from the
Reconciliation of Reported Net Income to Adjusted Net Income.
6
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 YEARS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- --------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Adjusted net income (1) $ 13,777 $ 12,831 $ 52,533 $ 42,193
Interest expense after-tax 2,306 1,815 7,389 5,237
---------- ---------- ---------- ----------
Adjusted net operating profit after-tax $ 16,083 $ 14,646 $ 59,922 $ 47,430
========== ========== ========== ==========
Average capital $ 508,322 $ 454,797 $ 490,689 $ 440,944
========== ========== ========== ==========
Adjusted return on capital 12.7% 12.9% 12.2% 10.8%
(1) Adjusted net income from the Reconciliation of Reported Net Income to
Adjusted Net Income.
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 for the periods indicated:
Three Months Ended Years Ended
(In thousands, except per share data) December 31, December 31,
---------------------------- ----------------------------
2004 2003 2004 2003
----------- ----------- ----------- ----------
Adjusted net income (1) $ 13,777 $ 12,831 $ 52,533 $ 42,193
Imputed cost of equity at 10% (2) (7,627) (8,703) (32,355) (33,717)
----------- ----------- ----------- ----------
Total adjusted economic profit $ 6,150 $ 4,128 $ 20,178 $ 8,476
=========== =========== =========== ==========
Diluted weighted average shares outstanding 39,473,105 43,958,520 41,017,205 43,409,007
Adjusted economic profit per diluted share (3) $ 0.16 $ 0.09 $ 0.49 $ 0.20
(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 is reflected in the Adjusted Return on Capital
calculation above.
(3) Adjusted economic profit per diluted share equals the adjusted economic
profit divided by the diluted weighted average number of shares
outstanding.
Refer to the Company's Form 10-K, which will be filed 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 2004.
7
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.
8
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data) THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- ----------------------------
Restated (1)
2004 2003 2004 2003
----------- ----------- ----------- --------------
REVENUE:
Finance charges $ 38,121 $ 26,668 $ 133,913 $ 103,125
Ancillary product income 2,667 5,062 11,040 19,397
Lease revenue 184 1,061 1,507 6,432
Other income 5,428 4,421 19,951 17,288
----------- ----------- ----------- --------------
Total revenue 46,400 37,212 166,411 146,242
----------- ----------- ----------- --------------
COSTS AND EXPENSES:
Salaries and wages 8,924 8,572 36,490 33,655
Provision for credit losses 11,318 1,105 28,151 10,459
General and administrative 6,080 4,673 21,667 20,034
Sales and marketing 3,309 2,135 11,914 8,948
Interest 3,548 2,793 11,368 8,057
Stock-based compensation expense 548 753 2,725 3,583
United Kingdom asset impairment - - - 10,493
Other expense 258 551 1,310 4,756
----------- ----------- ----------- --------------
Total costs and expenses 33,985 20,582 113,625 99,985
----------- ----------- ----------- --------------
Operating income 12,415 16,630 52,786 46,257
Foreign exchange gain (loss) (81) (1,730) 1,650 (2,767)
----------- ----------- ----------- --------------
Income before provision for income taxes 12,334 14,900 54,436 43,490
Provision for income taxes 4,911 5,138 17,422 17,658
----------- ----------- ----------- --------------
Net income $ 7,423 $ 9,762 $ 37,014 $ 25,832
=========== =========== =========== ==============
Net income per common share:
Basic $ 0.20 $ 0.23 $ 0.96 $ 0.61
=========== =========== =========== ==============
Diluted $ 0.19 $ 0.22 $ 0.90 $ 0.60
=========== =========== =========== ==============
Weighted average shares outstanding:
Basic 36,819,410 42,040,063 38,617,787 42,195,340
Diluted 39,473,105 43,958,520 41,017,205 43,409,007
(1) Provision for income taxes and net income for the year ended December 31,
2003 have been restated to reflect the correction of an accounting error
related to income taxes discovered by the Company during the 2004 year-end
closing process. Refer to Restatement of Prior Periods included in Summary
Financial Data for further information.
9
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in thousands) AS OF DECEMBER 31,
------------------------------
RESTATED (1)
2004 2003
------------ --------------
ASSETS:
Cash and cash equivalents $ 22,481 $ 36,044
Loans receivable 1,021,879 875,417
Allowance for credit losses (47,403) (17,615)
------------ --------------
Loans receivable, net 974,476 857,802
------------ --------------
Notes, lines of credit and floorplan receivables, net (including $1,653 and $1,583
from affiliates as of December 31, 2004 and 2003, respectively) 4,340 6,562
Investment in operating leases, net 1,074 4,447
Property and equipment, net 19,651 18,503
Income taxes receivable 4,280 5,795
Other assets 17,018 14,627
------------ --------------
Total Assets $ 1,043,320 $ 943,780
============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accounts payable and accrued liabilities $ 40,150 $ 33,117
Dealer holdbacks, net 504,722 423,861
Line of credit 7,700 -
Secured financing 176,000 100,000
Mortgage note and capital lease obligations 9,847 6,467
Deferred income taxes, net 14,149 25,823
------------ --------------
Total Liabilities 752,568 589,268
------------ --------------
SHAREHOLDERS' EQUITY:
Preferred stock, $ .01 par value, 1,000,000 shares authorized, none issued - -
Common stock, $ .01 par value, 80,000,000 shares authorized, 36,897,242 and
42,128,087 shares issued and outstanding as of December 31, 2004 and
2003, respectively 369 421
Paid-in capital 25,640 125,078
Retained earnings 262,759 225,745
Accumulated other comprehensive income, net of tax of $1,068 and $1,759 at
year-end 2004 and 2003, respectively 1,984 3,268
------------ --------------
Total Shareholders' Equity 290,752 354,512
------------ --------------
Total Liabilities and Shareholders' Equity $ 1,043,320 $ 943,780
============ ==============
(1) The balance sheet as of December 31, 2003 has been restated to reflect the
correction of accounting errors related to income taxes discovered by the
Company during the 2004 year-end closing process. Refer to Restatement of
Prior Periods included in Summary Financial Data for further information.
10
CREDIT ACCEPTANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE YEARS ENDED
(Dollars In Thousands) DECEMBER 31,
--------------------------
RESTATED (1)
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 37,014 $ 25,832
Adjustments to reconcile cash provided by operating activities:
Provision for credit losses 28,151 10,459
Depreciation 5,723 8,679
Loss on retirement of property and equipment 248 73
Foreign currency (gain) loss on forward contracts (1,660) 2,817
(Credit) provision for deferred income taxes (11,674) 16,750
Stock-based compensation 2,725 3,583
United Kingdom asset impairment - 10,493
Change in operating assets and liabilities:
Accounts payable and accrued liabilities 8,225 1,959
Income taxes receivable/payable 1,515 (11,889)
Lease payment receivable 47 619
Unearned commissions, insurance premiums and reserves 238 (837)
Other assets (2,391) (3,232)
-------- --------
Net cash provided by operating activities 68,161 65,306
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on loans receivable 434,707 348,932
Advances to dealers (445,603) (354,057)
Payments of dealer holdbacks (33,012) (28,954)
Accelerated payments of dealer holdbacks (18,653) (12,690)
Operating lease liquidations 2,360 6,900
Decrease in notes, lines of credit and floorplan receivables 1,049 4,343
Purchases of property and equipment (4,067) (3,062)
Proceeds from maturities of investments - held to maturity - 173
-------- --------
Net cash used in investing activities (63,219) (38,415)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) under lines of credit 7,700 (43,555)
Proceeds from secured financings 180,000 100,000
Repayments of secured financings (104,000) (58,153)
Principal payments under capital lease obligations (1,504) (921)
Proceeds from mortgage note refinancing 3,540 -
Repayment of mortgage note (742) (777)
Repurchase of common stock (107,236) (5,316)
Proceeds from stock options exercised 5,021 2,037
-------- --------
Net cash used in financing activities (17,221) (6,685)
-------- --------
Effect of exchange rate changes on cash (1,284) 2,372
-------- --------
Net (decrease) increase in cash and cash equivalents (13,563) 22,578
Cash and cash equivalents, beginning of period 36,044 13,466
-------- --------
Cash and cash equivalents, end of period $ 22,481 $ 36,044
======== ========
(1) The statement of cash flows for the year ended December 31, 2003 has been
restated to reflect the correction of accounting errors related to income
taxes discovered by the Company during the 2004 year-end closing process.
Refer to Restatement of Prior Periods included in Summary Financial Data
for further information.
11
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
LOANS RECEIVABLE
The following table summarizes the composition of loans receivable:
AS OF DECEMBER 31,
-------------------------
2004 2003
----------- -----------
Gross loans receivable $ 1,228,124 $ 1,035,681
Unearned finance charges (203,450) (157,707)
Unearned insurance premiums, insurance reserves and fees (2,795) (2,557)
----------- -----------
Loans receivable $ 1,021,879 $ 875,417
=========== ===========
Non-accrual loans $ 224,659 $ 203,598
=========== ===========
Non-accrual loans as a percent of total gross loans 18.3% 19.7%
=========== ===========
A summary of changes in gross loans receivable is as follows:
THREE MONTHS ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Balance, beginning of period $ 1,222,733 $ 1,034,158 $ 1,035,681 $ 912,963
Gross amount of loans accepted 204,982 170,481 959,617 785,407
Net cash collections on loans (150,304) (121,099) (575,316) (481,579)
Charge-offs * (77,583) (73,919) (295,892) (261,365)
Recoveries * 7,766 7,047 32,035 14,168
Other fees 18,984 12,997 70,992 52,948
Net change in repossessed collateral (1,009) (1,306) (2,101) 57
Currency translation 2,555 7,322 3,108 13,082
----------- ----------- ----------- -----------
Balance, end of period $ 1,228,124 $ 1,035,681 $ 1,228,124 $ 1,035,681
=========== =========== =========== ===========
* Charge-offs presented net of recoveries for activity prior to July 1, 2003
A summary of the allowance for credit losses is as follows:
THREE MONTHS ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Balance, beginning of period $ 37,557 $ 14,883 $ 17,615 $ 20,991
Provision for credit losses 10,547 1,005 26,510 7,657
Charge-offs * (3,762) (1,548) (8,657) (17,736)
Recoveries * 2,756 2,927 11,595 6,160
Currency translation 305 348 340 543
----------- ----------- ----------- -----------
Balance, end of period $ 47,403 $ 17,615 $ 47,403 $ 17,615
=========== =========== =========== ===========
* Charge-offs presented net of recoveries for periods prior to July 1, 2003
12
CREDIT ACCEPTANCE CORPORATION
SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
DEALER HOLDBACKS
The following table summarizes the composition of dealer holdbacks:
AS OF DECEMBER 31,
----------------------
2004 2003
--------- ---------
Dealer holdbacks $ 976,584 $ 828,720
Less: advances (471,862) (404,859)
--------- ---------
Dealer holdbacks, net $ 504,722 $ 423,861
========= =========
RESTATEMENT OF PRIOR PERIODS
During the course of the 2004 year-end closing process, the Company determined
that it had incorrectly accounted for income taxes in prior periods as follows:
- - During the third quarter of 2003, the Company had incorrectly recorded a
deferred income tax asset for benefits related to its foreign subsidiaries
under an intended change to its international tax structure that had not
been executed by the Company as of December 31, 2003. As a result, the
Company overstated deferred income tax assets and understated provision
for income taxes by $2.3 million as of and for the year ended December 31,
2003. The deferred tax asset for these benefits should have been
recognized when the Company actually executed the change to its tax
structure during the second quarter of 2004. As a result, the Company
overstated provision for income taxes by $2.7 million for the three months
ended June 30, 2004.
- - Deferred income taxes are required to be recognized for foreign currency
translation adjustments when the Company's investments in its foreign
subsidiaries are considered temporary and the differences will reverse in
the foreseeable future. Prior to 2002, the Company considered all of its
investments in its foreign subsidiaries to be permanent. During the third
quarter of 2002, the Company determined that its investments in its United
Kingdom and Ireland subsidiaries were no longer considered permanent, and
during the second quarter of 2003, the Company determined that its
investment in its Canadian subsidiary was no longer considered permanent.
Upon these determinations, the Company should have recognized deferred
income taxes related to the foreign currency translation adjustments of
these subsidiaries. As a result of not recording these deferred taxes, the
Company understated its deferred income tax liabilities and overstated its
foreign currency translation adjustment, which is presented as accumulated
other comprehensive income in the Company's balance sheet, by $1.8 million
as of December 31, 2003. Correction of this error had no impact on net
income.
- - The Company had a deferred tax liability recorded at December 31, 2003
that should have been reversed through provision for income taxes in
periods prior to 2003. As a result, the Company overstated deferred income
tax liabilities and understated retained earnings by $1.1 million at
December 31, 2003.
13
The following table summarizes the reported and restated financial condition and
the results of operations:
(Dollars in thousands, except per share data) AS OF DECEMBER 31,
----------------------
2004 2003
--------- ---------
Deferred income tax liabilities, net, as reported $ 14,149 $ 22,770
Reversal of deferred income tax asset recognized for intended tax structure change - 2,349
Reversal of deferred income tax liability - (1,055)
Recognition of deferred income tax liabilities related to foreign currency translation - 1,759
--------- ---------
Deferred income tax liabilities, net, as restated $ 14,149 $ 25,823
========= =========
Retained earnings, as reported $ 262,759 $ 227,039
Reversal of deferred income tax asset recognized for intended tax structure change - (2,349)
Reversal of deferred income tax liability - 1,055
--------- ---------
Retained earnings, as restated $ 262,759 $ 225,745
========= =========
Accumulated other comprehensive income, as reported $ 1,984 $ 5,027
Recognition of deferred income tax liabilities related to foreign currency translation - (1,759)
--------- ---------
Accumulated other comprehensive income, as restated $ 1,984 $ 3,268
========= =========
THREE MONTHS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- ------------------------------
2004 2003 2004 2003
------------- ----------- ------------ --------------
Provision for income taxes, as reported $ 4,911 $ 5,138 $ 17,422 $ 15,309
Reversal of deferred income tax asset
recognized for intended tax structure change - - - 2,349
------------- ----------- ------------ --------------
Provision for income taxes, as restated $ 4,911 $ 5,138 $ 17,422 $ 17,658
============= =========== ============ ==============
Net income, as reported $ 7,423 $ 9,762 $ 37,014 $ 28,181
Reversal of deferred income tax asset
recognized for intended tax structure change - - - (2,349)
------------- ----------- ------------ --------------
Net income, as restated $ 7,423 $ 9,762 $ 37,014 $ 25,832
============= =========== ============ ==============
Earnings per share:
Basic, as reported $ 0.20 $ 0.23 $ 0.96 $ 0.67
============= =========== ============ ==============
Basic, as restated $ 0.20 $ 0.23 $ 0.96 $ 0.61
============= =========== ============ ==============
Diluted, as reported $ 0.19 $ 0.22 $ 0.90 $ 0.65
============= =========== ============ ==============
Diluted, as restated $ 0.19 $ 0.22 $ 0.90 $ 0.60
============= =========== ============ ==============
Weighted average shares outstanding:
Basic 36,819,410 42,040,063 38,617,787 42,195,340
Diluted 39,473,105 43,958,520 41,017,205 43,409,007
14