10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-10667 ------- AmeriCredit Corp. ----------------- (Exact name of registrant as specified in its charter) Texas 75-2291093 ---------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 801 Cherry Street, Suite 3900, Fort Worth, Texas 76102 ------------------------------------------------------- (Address of principal executive offices, including Zip Code) (817) 302-7000 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] There were 84,343,602 shares of common stock, $0.01 par value outstanding as of October 31, 2001. AMERICREDIT CORP. INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION Page ------- Item 1. Financial Statements (unaudited) Consolidated Balance Sheets - September 30, 2001 and June 30, 2001....................................................... 3 Consolidated Statements of Income and Comprehensive Income - Three Months Ended September 30, 2001 and 2000................................................................ 4 Consolidated Statements of Cash Flows - Three Months Ended September 30, 2001 and 2000....................................... 5 Notes to Consolidated Financial Statements.............................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................................. 31 Part II. OTHER INFORMATION Item 1. Legal Proceedings....................................................... 32 Item 2. Changes in Securities................................................... 33 Item 3. Defaults upon Senior Securities......................................... 33 Item 4. Submission of Matters to a Vote of Security Holders..................... 33 Item 5. Other Information....................................................... 33 Item 6. Exhibits and Reports on Form 8-K........................................ 33 SIGNATURE...................................................................................... 35
2 Part I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS AMERICREDIT CORP. Consolidated Balance Sheets (Unaudited, Dollars in Thousands)
September 30, 2001 June 30, 2001 ------------------- -------------- ASSETS Cash and cash equivalents $ 92,110 $ 77,053 Receivables held for sale, net 2,207,270 1,921,465 Interest-only receivables from Trusts 376,291 387,895 Investments in Trust receivables 514,852 493,022 Restricted cash 353,674 270,358 Property and equipment, net 84,114 67,828 Other assets 235,556 167,286 ------------- ------------- Total assets $3,863,867 $3,384,907 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Warehouse credit facilities $1,755,121 $1,502,879 Credit enhancement facility 66,742 36,319 Senior notes 375,000 375,000 Other notes payable 37,459 23,077 Funding payable 116,451 60,460 Accrued taxes and expenses 129,926 114,041 Interest rate swap and cap agreements 113,070 82,796 Deferred income taxes 137,250 130,139 ------------- ------------- Total liabilities 2,731,019 2,324,711 ------------- ------------- Shareholders' equity: Preferred stock, $0.01 par value per share; 20,000,000 shares authorized, none issued Common stock, $0.01 par value per share; 120,000,000 shares authorized; 90,777,919 and 89,853,792 shares issued 908 899 Additional paid-in capital 544,564 520,077 Accumulated other comprehensive income 43,108 73,689 Retained earnings 563,700 484,963 ------------- ------------- 1,152,280 1,079,628 Treasury stock, at cost (6,439,739 and 6,439,739 shares) (19,432) (19,432) ------------- ------------- Total shareholders' equity 1,132,848 1,060,196 ------------- ------------- Total liabilities and shareholders' equity $3,863,867 $3,384,907 ============= =============
The accompanying notes are an integral part of these consolidated financial statements 3 AMERICREDIT CORP. Consolidated Statements of Income and Comprehensive Income (Unaudited, Dollars in Thousands, Except Per Share Data)
Three Months Ended September 30, ------------------------------------------- 2001 2000 ------------------- -------------------- Revenue Finance charge income $ 96,797 $ 45,400 Gain on sale of receivables 92,930 61,586 Servicing fee income 85,235 59,270 Other income 2,873 3,085 ------------------- -------------------- 277,835 169,341 ------------------- -------------------- Costs and expenses Operating expenses 99,376 67,294 Provision for loan losses 14,842 6,054 Interest expense 35,590 27,256 ------------------- -------------------- 149,808 100,604 ------------------- -------------------- Income before income taxes 128,027 68,737 Income tax provision 49,290 26,464 ------------------- -------------------- Net income 78,737 42,273 ------------------- -------------------- Other comprehensive income Unrealized (losses) gains on credit enhancement assets (18,168) 30,314 Unrealized losses on cash flow hedges (31,557) (15,961) Income tax benefit (provision) 19,144 (5,525) ------------------- -------------------- Comprehensive income $ 48,156 $ 51,101 =================== ==================== Earnings per share Basic $0.94 $0.55 =================== ==================== Diluted $0.88 $0.51 =================== ==================== Weighted average shares outstanding 83,888,338 77,253,522 =================== ==================== Weighted average shares and assumed incremental shares 89,836,898 83,358,230 =================== ====================
The accompanying notes are an integral part of these consolidated financial statements 4 AMERICREDIT CORP. Consolidated Statements of Cash Flows (Unaudited, Dollars in Thousands)
Three Months Ended September 30, --------------------------------------- 2001 2000 ------------------ ----------------- Cash flows from operating activities Net income $ 78,737 $ 42,273 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,895 4,410 Provision for loan losses 14,842 6,054 Deferred income taxes 41,687 5,296 Accretion of present value discount (27,842) (19,790) Non-cash gain on sale of auto receivables (89,678) (49,436) Distributions from Trusts 70,733 49,060 Changes in assets and liabilities: Other assets (26,799) (2,356) Accrued taxes and expenses 15,885 24,964 ------------------ ----------------- Net cash provided by operating activities 83,460 60,475 ------------------ ----------------- Cash flows from investing activities Purchases of auto receivables (2,011,026) (1,402,469) Principal collections and recoveries on receivables 60,941 17,458 Net proceeds from sale of auto receivables 1,705,429 1,184,239 Initial deposits to credit enhancement assets (80,750) (63,000) Borrowings under credit enhancement facility 46,250 27,000 Purchases of property and equipment (10,394) 157 Change in other assets (42,754) (26,701) ------------------ ----------------- Net cash used by investing activities (332,304) (263,316) ------------------ ----------------- Cash flows from financing activities Net change in warehouse credit facilities 252,242 278,495 Net change in notes payable 2,595 (2,564) Proceeds from issuance of common stock 9,064 12,891 ------------------ ----------------- Net cash provided by financing activities 263,901 288,822 ------------------ ----------------- Net increase in cash and cash equivalents 15,057 85,981 Cash and cash equivalents at beginning of period 77,053 42,916 ------------------ ----------------- Cash and cash equivalents at end of period $ 92,110 $ 128,897 ================== =================
The accompanying notes are an integral part of these consolidated financial statements 5 AMERICREDIT CORP. Notes to Consolidated Financial Statements (Unaudited) NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements include the accounts of AmeriCredit Corp. and its wholly-owned subsidiaries (the "Company"). All significant intercompany transactions and accounts have been eliminated in consolidation. The consolidated financial statements as of September 30, 2001, and for the three months ended September 30, 2001 and 2000, are unaudited, but in management's opinion include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. Certain prior year amounts have been reclassified to conform to the current period presentation. The results for interim periods are not necessarily indicative of results for a full year. The interim period financial statements, including the notes thereto, are condensed and do not include all disclosures required by generally accepted accounting principles. These interim period financial statements should be read in conjunction with the Company's consolidated financial statements which are included in the Company's Annual Report on Form 10-K for the year ended June 30, 2001. NOTE 2 - RECEIVABLES HELD FOR SALE Receivables held for sale consist of the following (in thousands):
September 30, 2001 June 30, 2001 ----------------------- ----------------------- Auto receivables $2,268,495 $1,973,828 Less allowance for loan losses (61,225) (52,363) ----------------------- ----------------------- $2,207,270 $1,921,465 ======================= =======================
A summary of the allowance for loan losses is as follows (in thousands):
Three Months Ended September 30, -------------------------------------------- 2001 2000 -------------------- -------------------- Balance at beginning of period $ 52,363 $ 24,374 Provision for loan losses 14,842 6,054 Acquisition fees 41,174 32,032 Allowance related to receivables sold to Trusts (38,891) (28,631) Net charge-offs (8,263) (2,835) -------------------- -------------------- Balance at end of period $ 61,225 $ 30,994 ==================== ====================
6 NOTE 3 - CREDIT ENHANCEMENT ASSETS During the three months ended September 30, 2001 and 2000, the Company sold $1,725.0 million and $1,200.0 million, respectively, of auto receivables in securitization transactions and recognized pre-tax gains of $92.9 million and $61.6 million, respectively. The Company retained servicing responsibilities and interests in the receivables in the form of credit enhancement assets. As of September 30, 2001 and June 30, 2001, the Company was servicing $9,057.0 million and $8,229.9 million, respectively, of auto receivables which have been sold to certain special purpose financing trusts (the "Trusts"). The Trusts and the investors in the asset-backed securities sold by the Trusts have no recourse to the Company's assets other than the credit enhancement assets. The credit enhancement assets are subordinate to the interests of the investors in the Trusts and the value of such assets is subject to the credit risks related to the receivables sold to the Trusts. Credit enhancement assets consist of the following (in thousands):
September 30, 2001 June 30, 2001 ----------------------- ----------------------- Interest-only receivables from Trusts $ 376,291 $ 387,895 Investments in Trust receivables 514,852 493,022 Restricted cash 353,674 270,358 ----------------------- ----------------------- $1,244,817 $1,151,275 ======================= =======================
A summary of activity in the credit enhancement assets is as follows (in thousands):
Three Months Ended September 30, ----------------------------------------------- 2001 2000 --------------------- --------------------- Balance at beginning of period $1,151,275 $824,618 Non-cash gain on sale of auto receivables 89,678 49,436 Accretion of present value discount 27,842 19,790 Initial deposits to credit enhancement assets 80,750 63,000 Payments on credit enhancement facility (15,827) (15,625) Change in unrealized gain (18,168) 30,314 Distributions from Trusts (70,733) (49,060) --------------------- --------------------- Balance at end of period $1,244,817 $922,473 ===================== =====================
7 A summary of the allowance for loan losses included as a component of the interest-only receivables is as follows (in thousands):
Three Months Ended September 30, ----------------------------------------------- 2001 2000 --------------------- --------------------- Balance at beginning of period $868,184 $563,102 Assumptions for cumulative credit losses 211,727 123,353 Net charge-offs (95,950) (62,712) --------------------- --------------------- Balance at end of period $983,961 $623,743 ===================== =====================
NOTE 4 - WAREHOUSE CREDIT FACILITIES Warehouse credit facilities consist of the following (in thousands):
September 30, 2001 June 30, 2001 --------------------- --------------------- Commercial paper facilities $ 465,228 $ 228,794 Medium term notes 1,250,000 1,250,000 Canadian credit agreement 39,893 24,085 --------------------- --------------------- $1,755,121 $1,502,879 ===================== =====================
The Company has six separate funding agreements with administrative agents on behalf of institutionally managed commercial paper conduits and bank groups with aggregate structured warehouse financing availability of approximately $2,350.0 million. Two of the commercial paper facilities provide for available structured warehouse financing of $600.0 million and $250.0 million, respectively, through September 2002. An additional facility provides for available structured warehouse financing of $500.0 million through March 2002. Other facilities provide for available structured warehouse financing of $200.0 million through May 2002 and $500.0 million through June 2002. The remaining facility provides for multi-year structured warehouse financing with availability of $300.0 million through June 2004. Under these funding agreements, the Company transfers auto receivables to special purpose finance subsidiaries of the Company, and these subsidiaries in turn issue notes, collateralized by such auto receivables, to the agents. The agents provide funding under the notes to the subsidiaries pursuant to an advance formula and the subsidiaries forward the funds to the Company in consideration for the transfer of auto receivables. While these subsidiaries are included in the Company's consolidated financial statements, these subsidiaries are separate legal entities and the auto receivables and other assets held by the subsidiaries are legally owned by these subsidiaries and are not available to creditors of AmeriCredit Corp. or its other subsidiaries. Advances under the funding agreements bear interest at commercial paper, LIBOR or prime rates plus specified fees depending upon the source of funds provided by the agents. The funding agreements contain various covenants requiring 8 certain minimum financial ratios and results. The funding agreements also require certain funds to be held in restricted cash accounts to provide additional collateral for borrowings under the facilities. As of September 30 and June 30, 2001, these restricted cash accounts totaled $9.8 million and $6.0 million, respectively, and are included in other assets in the consolidated balance sheets. As of September 30 and June 30, 2001, $509.4 million and $254.7 million, respectively, of auto receivables held for sale were pledged under these funding agreements. The Company also has two funding agreements with administrative agents on behalf of institutionally managed medium term note conduits under which $500.0 million and $750.0 million, respectively, of proceeds are available through the terms of the agreements. Under these arrangements, the conduits sold medium term notes and delivered the proceeds to special purpose finance subsidiaries of the Company. These subsidiaries in turn issued notes, collateralized by auto receivables and cash, to the agents. The funding agreements allow for the substitution of auto receivables (subject to an overcollateralization formula) for cash, and vice versa, during the term of the agreements, thus allowing the Company to use the medium term note proceeds to finance auto receivables on a revolving basis. The first agreement matures in December 2003 and the second agreement matures in June 2004. While the special purpose finance subsidiaries are included in the Company's consolidated financial statements, the subsidiaries are separate legal entities and the auto receivables and other assets held by the subsidiaries are legally owned by the subsidiaries and are not available to creditors of AmeriCredit Corp. or its other subsidiaries. The notes issued by the subsidiaries under the funding agreements bear interest at LIBOR plus specified fees. The funding agreements contain various covenants requiring certain minimum financial ratios and results. The funding agreements also require certain funds to be held in restricted cash accounts to provide additional collateral under the notes. As of September 30 and June 30, 2001, these restricted cash accounts totaled $30.9 million and $28.3 million, respectively, and are included in other assets in the consolidated balance sheets. As of September 30 and June 30, 2001, $1,293.2 million and $1,293.8 million, respectively, of auto receivables held for sale were pledged under these funding agreements. In August 2001, the Company's Canadian subsidiary replaced its $40.0 million Cdn. convertible revolving term credit agreement with a revolving credit agreement, under which the subsidiary may borrow up to $150.0 million Cdn., subject to a defined borrowing base. Borrowings under the credit agreement are collateralized by certain Canadian auto receivables and bear interest at the Canadian Bankers Acceptance Rate plus specified fees. The credit agreement, which expires in August 2002, contains various covenants requiring certain minimum financial ratios and results. NOTE 5 - CREDIT ENHANCEMENT FACILITY The Company has a credit enhancement facility with a financial institution under which the Company may borrow up to $225 million to fund a portion of the 9 initial restricted cash deposit required in its securitization transactions. Borrowings under the credit enhancement facility were available on a revolving basis through October 2001 after which time outstanding borrowings are payable over time based on future excess cash flows from certain of the Trusts. The facility contains covenants requiring certain asset performance ratios. The Company has alternatively utilized reinsurance arrangements to reduce the initial restricted cash deposit. These reinsurance arrangements do not represent funded debt, and therefore are not recorded as such on the Company's consolidated balance sheets. NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest costs and income taxes consist of the following (in thousands):
Three Months Ended September 30, ----------------------------------------- 2001 2000 ------------------- ------------------- Interest costs (none capitalized) $36,052 $25,955 Income taxes 157 14
During the three months ended September 30, 2001 and 2000, the Company entered into capital lease agreements for property and equipment of $11.8 million and $0.6 million, respectively. NOTE 7 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES As of September 30 and June 30, 2001, the Company had interest rate swap agreements with underlying notional amounts of $1,653.9 million and $1,719.2 million, respectively. These agreements had unrealized losses of approximately $95.7 million and $64.2 million as of September 30 and June 30, 2001, respectively. As of September 30, 2001, the ineffectiveness related to the interest rate swap agreements was not material. The Company estimates that unrealized losses included in other comprehensive income that will be reclassified into earnings within the next twelve months will not be significant. Under the terms of the interest rate swap agreements, the Company is required to pledge certain funds to be held in restricted cash accounts if the market value of the interest rate swap agreements exceed an agreed upon amount. As of September 30 and June 30, 2001, these restricted cash accounts totaled $71.0 million and $41.9 million, respectively, and are included in other assets in the consolidated balance sheets. NOTE 8 - GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS The payment of principal, premium, if any, and interest on the Company's senior notes is guaranteed by certain of the Company's subsidiaries (the "Subsidiary Guarantors"). The separate financial statements of the Subsidiary Guarantors are not included herein because the Subsidiary Guarantors are wholly-owned 10 consolidated subsidiaries of the Company and are jointly, severally and unconditionally liable for the obligations represented by the senior notes. The Company believes that the condensed consolidating financial information for the Company, the combined Subsidiary Guarantors and the combined Non-Guarantor Subsidiaries provide information that is more meaningful in understanding the financial position of the Subsidiary Guarantors than separate financial statements of the Subsidiary Guarantors. The following consolidating financial statement schedules present consolidating financial data for (i) AmeriCredit Corp. (on a parent only basis), (ii) the combined Subsidiary Guarantors, (iii) the combined Non-Guarantor Subsidiaries, (iv) an elimination column for adjustments to arrive at the information for the Company and its subsidiaries on a consolidated basis and (v) the Company and its subsidiaries on a consolidated basis. Investments in subsidiaries are accounted for by the parent company using the equity method for purposes of this presentation. Earnings of subsidiaries are therefore reflected in the parent company's investment accounts and earnings. The principal elimination entries set forth below eliminate investments in subsidiaries and intercompany balances and transactions. 11 AmeriCredit Corp. Consolidating Balance Sheet September 30, 2001 (Unaudited, Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated --------------- ------------ ----------- ------------ ------------ ASSETS Cash and cash equivalents $ 76,246 $ 15,864 $ 92,110 Receivables held for sale, net 373,579 1,833,691 2,207,270 Interest-only receivables from Trusts 376,291 376,291 Investments in Trust receivables 514,852 514,852 Restricted cash 353,674 353,674 Property and equipment, net $ 349 83,765 84,114 Other assets 8,225 168,241 59,090 235,556 Due (to) from affiliates 882,542 (2,476,427) 1,593,885 Investment in affiliates 660,604 2,664,947 20,153 $(3,345,704) --------------- ------------ ----------- ------------ ------------ Total assets $1,551,720 $ 890,351 $4,767,500 $(3,345,704) $3,863,867 =============== ============ =========== ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Warehouse credit facilities $ 39,893 $1,715,228 $1,755,121 Credit enhancement facility 66,742 66,742 Senior notes $ 375,000 375,000 Other notes payable 37,459 37,459 Funding payable 115,810 641 116,451 Accrued taxes and expenses 20,856 102,420 6,650 129,926 Interest rate swap and cap agreements 113,070 113,070 Deferred income taxes (14,443) (14,774) 166,467 137,250 --------------- ------------ ----------- ------------ ------------ Total liabilities 418,872 356,419 1,955,728 2,731,019 --------------- ------------ ----------- ------------ ------------ Shareholders' equity: Common stock 908 908 Additional paid-in capital 544,564 39,728 2,015,410 $(2,055,138) 544,564 Accumulated other comprehensive income 43,108 (83,564) 126,672 (43,108) 43,108 Retained earnings 563,700 577,768 669,690 (1,247,458) 563,700 --------------- ------------ ----------- ------------ ------------ 1,152,280 533,932 2,811,772 (3,345,704) 1,152,280 Treasury stock (19,432) (19,432) --------------- ------------ ----------- ------------ ------------ Total shareholders' equity 1,132,848 533,932 2,811,772 (3,345,704) 1,132,848 --------------- ------------ ----------- ------------ ------------ Total liabilities and shareholders' equity $1,551,720 $ 890,351 $4,767,500 $(3,345,704) $3,863,867 =============== ============ =========== ============ ============
12 AmeriCredit Corp. Consolidating Balance Sheet June 30, 2001 (Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated ------------- ----------- ---------- ------------ ------------ ASSETS Cash and cash equivalents $ 58,954 $ 18,099 $ 77,053 Receivables held for sale, net 390,264 1,531,201 1,921,465 Interest-only receivables from Trusts 13,686 374,209 387,895 Investments in Trust receivables 493,022 493,022 Restricted cash 270,358 270,358 Property and equipment, net $ 349 67,479 67,828 Other assets 9,606 117,058 40,622 167,286 Due (to) from affiliates 867,418 (2,171,157) 1,303,739 Investment in affiliates 605,397 2,286,788 16,995 $(2,909,180) ------------- ----------- ---------- ----------- ----------- Total assets $1,482,770 $ 763,072 $4,048,245 $(2,909,180) $3,384,907 ============= =========== ========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Warehouse credit facilities $ 24,085 $1,478,794 $1,502,879 Credit enhancement facility 36,319 36,319 Senior notes $ 375,000 375,000 Other notes payable 23,077 23,077 Funding payable 60,018 442 60,460 Accrued taxes and expenses 15,316 90,271 8,454 114,041 Interest rate swap and cap agreements 82,796 82,796 Deferred income taxes 9,181 (8,209) 129,167 130,139 ------------- ----------- ---------- ----------- ----------- Total liabilities 422,574 248,961 1,653,176 2,324,711 ------------- ----------- ---------- ----------- ----------- Shareholders' equity: Common stock 899 899 Additional paid-in capital 520,077 51,768 1,699,642 $(1,751,410) 520,077 Accumulated other comprehensive income 73,689 (39,456) 113,145 (73,689) 73,689 Retained earnings 484,963 501,799 582,282 (1,084,081) 484,963 ------------- ----------- ---------- ----------- ----------- 1,079,628 514,111 2,395,069 (2,909,180) 1,079,628 Treasury stock (19,432) (19,432) ------------- ----------- ---------- ----------- ----------- Total shareholders' equity 1,060,196 514,111 2,395,069 (2,909,180) 1,060,196 ------------- ----------- ---------- ----------- ----------- Total liabilities and shareholders' equity $1,482,770 $ 763,072 $4,048,245 $(2,909,180) $3,384,907 ============= =========== ========== =========== ===========
13 AmeriCredit Corp. Consolidating Income Statement Three Months Ended September 30, 2001 (Unaudited, Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated ----------------- ---------- ---------- ------------ ------------ Revenue Finance charge income $ 23,208 $ 73,589 $ 96,797 Gain on sale of receivables 3,855 89,075 92,930 Servicing fee income 63,000 22,235 85,235 Other income $11,263 133,122 79,316 $(220,828) 2,873 Equity in income of affiliates 79,523 87,408 (166,931) --------------- ---------- ---------- ----------- ------------ 90,786 310,593 264,215 (387,759) 277,835 --------------- ---------- ---------- ----------- ------------ Costs and expenses Operating expenses 2,508 91,003 5,865 99,376 Provision for loan losses 2,172 12,670 14,842 Interest expense 10,034 142,831 103,553 (220,828) 35,590 --------------- ---------- ---------- ----------- ------------ 12,542 236,006 122,088 (220,828) 149,808 --------------- ---------- ---------- ----------- ------------ Income before income taxes 78,244 74,587 142,127 (166,931) 128,027 Income tax (benefit) provision (493) (4,936) 54,719 49,290 --------------- ---------- ---------- ----------- ------------ Net income $78,737 $ 79,523 $ 87,408 $(166,931) $ 78,737 =============== ========== ========== =========== ============
14 AmeriCredit Corp. Consolidating Income Statement Three Months Ended September 30, 2000 (Unaudited, Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated --------------- ------------ ----------- ------------ ------------ Revenue Finance charge income $ 20,069 $ 25,331 $ 45,400 Gain on sale of receivables $ (97) 2,639 59,044 61,586 Servicing fee income 56,991 18,605 $ (16,326) 59,270 Other income 11,263 2,625 460 (11,263) 3,085 Equity in income of affiliates 43,038 45,211 (88,249) --------------- -------- --------- --------- ---------- 54,204 127,535 103,440 (115,838) 169,341 --------------- -------- --------- --------- ---------- Costs and expenses Operating expenses 29 83,564 27 (16,326) 67,294 Provision for loan losses 1,949 4,105 6,054 Interest expense 12,381 344 25,794 (11,263) 27,256 --------------- -------- --------- --------- ---------- 12,410 85,857 29,926 (27,589) 100,604 --------------- -------- --------- --------- ---------- Income before income taxes 41,794 41,678 73,514 (88,249) 68,737 Income tax (benefit) provision (479) (1,360) 28,303 26,464 --------------- -------- --------- --------- ---------- Net income $42,273 $ 43,038 $ 45,211 $ (88,249) $ 42,273 =============== ======== ========= ========= ==========
15 AmeriCredit Corp. Consolidating Statement of Cash Flow Three Months Ended September 30, 2001 (Unaudited, Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated ---------------- ------------ ------------- -------------- ------------- Cash flow from operating activities: Net income $ 78,737 $ 79,523 $ 87,408 $ (166,931) $ 78,737 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,895 5,895 Provision for loan losses 2,172 12,670 14,842 Deferred income taxes (8,192) 5,584 44,295 41,687 Accretion of present value discount (27,842) (27,842) Non-cash gain on sale of auto receivables (89,678) (89,678) Distributions from Trusts (12,620) 83,353 70,733 Equity in income of affiliates (79,523) (87,408) 166,931 Changes in assets and liabilities: Other assets 1,381 (23,766) (4,414) (26,799) Accrued taxes and expenses 5,540 12,149 (1,804) 15,885 --------------- ------------ ----------- ----------- ----------- Net cash (used) provided by operating activities (2,057) (18,471) 103,988 83,460 --------------- ------------ ----------- ----------- ----------- Cash flows from investing activities: Purchase of auto receivables (2,011,026) (2,086,733) 2,086,733 (2,011,026) Principal collections and recoveries on receivables (5,402) 66,343 60,941 Net proceeds from sale of auto receivables 2,086,733 1,705,429 (2,086,733) 1,705,429 Initial deposits to credit enhancement assets (80,750) (80,750) Borrowings under credit enhancement facility 46,250 46,250 Purchases of property and equipment (10,394) (10,394) Change in other assets (28,700) (14,054) (42,754) Net change in investment in affiliates (6,265) (319,005) 21,542 303,728 --------------- ------------ ----------- ----------- ----------- Net cash used by investing activities (6,265) (287,794) (341,973) 303,728 (332,304) --------------- ------------ ----------- ----------- ----------- Cash flows from financing activities: Net change in warehouse credit facilities 15,808 236,434 252,242 Net change in notes payable 2,595 2,595 Proceeds from issuance of common stock 9,064 (12,040) 315,768 (303,728) 9,064 Net change in due (to) from affiliates (3,337) 319,789 (316,452) --------------- ------------ ----------- ----------- ----------- Net cash provided by financing activities 8,322 323,557 235,750 (303,728) 263,901 --------------- ------------ ----------- ----------- ----------- Net increase in cash and cash equivalents 17,292 (2,235) 15,057 Cash and cash equivalents at beginning of period 58,954 18,099 77,053 --------------- ------------ ----------- ----------- ----------- Cash and cash equivalents at end of period $ $ 76,246 $ 15,864 $ $ 92,110 =============== =========== =========== =========== ===========
16 AmeriCredit Corp. Consolidating Statement of Cash Flow Three Months Ended September 30, 2000 (Unaudited, Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated ---------------- ------------ ------------- -------------- ------------- Cash flow from operating activities: Net income $ 42,273 $ 43,038 $ 45,211 $ (88,249) $ 42,273 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,410 4,410 Provision for loan losses 1,949 4,105 6,054 Deferred income taxes (21,663) (1,345) 28,304 5,296 Accretion of present value discount (19,790) (19,790) Non-cash gain on sale of auto receivables (49,436) (49,436) Distributions from Trusts 49,060 49,060 Equity in income of affiliates (43,038) (45,211) 88,249 Changes in assets and liabilities: Other assets (3,532) 181 995 (2,356) Accrued taxes and expenses 21,989 3,979 (1,004) 24,964 --------------- ------------ ------------ ------------- ------------ Net cash provided by operating activities (3,971) 7,001 57,445 60,475 --------------- ------------ ------------ ------------- ------------ Cash flows from investing activities: Purchase of auto receivables (1,402,469) (1,449,291) 1,449,291 (1,402,469) Principal collections and recoveries on receivables (4,126) 21,584 17,458 Net proceeds from sale of auto receivables 1,449,291 1,184,239 (1,449,291) 1,184,239 Initial deposits to credit enhancement assets (63,000) (63,000) Borrowings under credit enhancement facility 27,000 27,000 Proceeds from sale of property and equipment 157 157 Change in other assets (5,038) (21,663) (26,701) Net change in investment in affiliates (1,938) (616,285) (6,139) 624,362 --------------- ------------ ------------ ------------- ------------ Net cash used by investing activities (1,938) (578,470) (307,270) 624,362 (263,316) --------------- ------------ ------------ ------------- ------------ Cash flows from financing activities: Net change in warehouse credit facilities 350 278,145 278,495 Net change in notes payable (2,564) (2,564) Proceeds from issuance of common stock 12,891 (6) 624,368 (624,362) 12,891 Net change in due (to) from affiliates (4,418) 662,961 (658,543) --------------- ------------ ------------ ------------- ------------ Net cash provided by financing activities 5,909 663,305 243,970 (624,362) 288,822 --------------- ------------ ------------ ------------- ------------ Net increase in cash and cash equivalents 91,836 (5,855) 85,981 Cash and cash equivalents at beginning of period 30,705 12,211 42,916 --------------- ------------ ------------ ------------- ------------ Cash and cash equivalents at end of period $ $ 122,541 $ 6,356 $ $ 128,897 =============== ============ ============ ============= ============
17 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company generates earnings and cash flow primarily from the purchase, securitization and servicing of auto receivables. The Company purchases auto finance contracts from franchised and select independent automobile dealerships and, to a lesser extent, makes auto loans directly to consumers. To fund the acquisition of receivables prior to securitization, the Company utilizes borrowings under its warehouse credit facilities. The Company earns finance charge income on its receivables pending securitization ("receivables held for sale") and pays interest expense on borrowings under its warehouse credit facilities. The Company periodically sells receivables to securitization trusts ("Trusts") that, in turn, sell asset-backed securities to investors. By securitizing its receivables, the Company is able to lock in the gross interest rate spread between the yield on such receivables and the interest rate payable on the asset-backed securities. The Company recognizes a gain on the sale of receivables to the Trusts, which represents the difference between the sale proceeds to the Company, net of transaction costs, and the Company's net carrying value of the receivables, plus the present value of the estimated future excess cash flows to be received by the Company over the life of the securitization. Excess cash flows result from the difference between the interest received from the obligors on the receivables and the interest paid to investors in the asset-backed securities, net of credit losses and expenses. Excess cash flows from the Trusts are initially utilized to fund credit enhancement requirements in order to attain specific credit ratings for the asset-backed securities issued by the Trusts. Once predetermined credit enhancement requirements are reached and maintained, excess cash flows are distributed to the Company. In addition to excess cash flows, the Company earns monthly base servicing fee income of 2.25% per annum on the outstanding principal balance of receivables securitized ("serviced receivables"). 18 RESULTS OF OPERATIONS Three Months Ended September 30, 2001 as compared to ---------------------------------------------------- Three Months Ended September 30, 2000 ------------------------------------- Revenue: The Company's average managed receivables outstanding consisted of the following (in thousands): Three Months Ended September 30, --------------------------------- 2001 2000 --------------- --------------- Auto: Held for sale $ 1,962,955 $ 800,684 Serviced 8,794,923 6,238,610 --------------- --------------- 10,757,878 7,039,294 Other 4,011 --------------- --------------- $10,757,878 $7,043,305 =============== =============== Average managed receivables outstanding increased by 53% as a result of higher loan purchase volume. The Company purchased $2,035.2 million of auto loans during the three months ended September 30, 2001, compared to purchases of $1,406.8 million during the three months ended September 30, 2000. This growth resulted from increased loan production at branches open during both periods as well as expansion of the Company's branch network. Loan purchases at branch offices opened prior to September 30, 1999, were 16% higher for the twelve months ended September 30, 2001, versus the twelve months ended September 30, 2000. The Company operated 248 auto lending branch offices as of September 30, 2001, compared to 198 as of September 30, 2000. The average new loan size was $16,294 for the three months ended September 30, 2001, compared to $15,098 for the three months ended September 30, 2000. The average percentage rate for loans purchased during the three months ended September 30, 2001 was 18.2%, compared to 19.2% during the three months ended September 30, 2000. Decreasing short-term market interest rates have lowered the Company's cost of funds, allowing the Company to pass along some of this benefit to consumers in the form of lower loan pricing. Finance charge income increased by 113% to $96.8 million for the three months ended September 30, 2001, from $45.4 million for the three months ended September 30, 2000. Finance charge income was higher due primarily to an increase of 145% in average auto receivables held for sale in the three months ended September 30, 2001, versus the three months ended September 30, 2000. The Company's effective yield on its auto receivables held for sale decreased to 19.6% for the three months ended September 30, 2001, from 22.5% for the three months ended September 30, 2000. The effective yield is higher than the 19 contractual rates of the Company's auto finance contracts as a result of finance charge income earned between the date the auto finance contract is originated by the automobile dealership and the date the auto finance contract is funded by the Company. The effective yield decreased for the three months ended September 30, 2001, due to lower levels of finance charges earned between the origination date and funding date and lower loan pricing. The gain on sale of receivables rose by 51% to $92.9 million for the three months ended September 30, 2001, from $61.6 million for the three months ended September 30, 2000. The increase in gain on sale of auto receivables resulted from the sale of $1,725.0 million of receivables in the three months ended September 30, 2001, as compared to $1,200.0 million of receivables sold in the three months ended September 30, 2000. The gain as a percentage of the sales proceeds increased to 5.4% for the three months ended September 30, 2001, from 5.1% for the three months ended September 30, 2000, as a result of a decrease in short-term market interest rates. Significant assumptions used in determining the gain on sale of auto receivables were as follows: Three Months Ended September 30, -------------------- 2001 2000 -------- -------- Cumulative credit losses (including deferred gains) 12.5% 10.8% Discount rate used to estimate present value: Interest-only receivables from Trusts 14.0% 14.0% Investment in Trust receivables 9.8% 9.8% Restricted cash 9.8% 9.8% The discount rates used to estimate the present value of credit enhancement assets are based on the relative risks of each asset type. Interest-only receivables represent estimated future excess cash flows in the Trusts, which involves a greater degree of risk than investments in Trust receivables and restricted cash. Investments in Trust receivables and restricted cash represent assets currently held by the Trustee and are senior to the interest-only receivables for credit enhancement purposes. The Company increased the cumulative credit losses used in determining the gain on sale of receivables sold during the three months ended September 30, 2001, to incorporate an increase in credit losses which may result from the general decline in the economy. Servicing fee income increased to $85.2 million, or 3.8% of average serviced auto receivables, for the three months ended September 30, 2001, compared to $59.3 million, or 3.8% of average serviced auto receivables, for the three months ended September 30, 2000. Servicing fee income represents accretion of the present value discount on estimated future excess cash flows from the 20 Trusts, base servicing fees and other fees earned by the Company as servicer of the auto receivables sold to the Trusts. The growth in servicing fee income is attributable to the increase in average serviced auto receivables outstanding for the three months ended September 30, 2001, compared to the three months ended September 30, 2000. Costs and Expenses: Operating expenses as an annualized percentage of average managed receivables outstanding decreased to 3.7% for the three months ended September 30, 2001, compared to 3.8% for the three months ended September 30, 2000. The ratio improved as a result of economies of scale realized from a growing receivables portfolio and automation of loan origination, processing and servicing functions. The dollar amount of operating expenses increased by $32.1 million, or 48%, primarily due to the addition of auto branch offices and loan processing and servicing staff. The provision for loan losses increased to $14.8 million for the three months ended September 30, 2001, from $6.1 million for the three months ended September 30, 2000, due to higher average amounts of receivables held for sale. As a percentage of average receivables held for sale, the provision for loan losses was 3.0% for the three months ended September 30, 2001 and 2000. Interest expense increased to $35.6 million for the three months ended September 30, 2001, from $27.3 million for the three months ended September 30, 2000, due to higher debt levels. Average debt outstanding was $2,253.9 million and $1,020.8 million for the three months ended September 30, 2001 and 2000, respectively. The Company's effective rate of interest paid on its debt decreased to 6.3% from 10.6% as a result of lower short-term market interest rates. The Company's effective income tax rate was 38.5% for the three months ended September 30, 2001 and 2000. PRO FORMA PORTFOLIO-BASED EARNINGS DATA In addition to reporting results of operations in accordance with generally accepted accounting principles ("GAAP"), the Company has elected to present pro forma results of operations which treat securitization transactions as financings rather than sales of receivables. The Company refers to this presentation as pro forma portfolio-based earnings data. In its consolidated financial statements prepared in accordance with GAAP, the Company records a gain on the sale of receivables in securitization transactions primarily representing the present value of estimated future excess cash flows related to the receivables sold. Future excess cash flows consist of finance charges and fees to be collected on the receivables less interest payable on the asset-backed securities, credit losses and expenses of 21 the Trusts. The Company also earns servicing fees for managing the receivables sold. The pro forma portfolio-based earnings data presents the Company's operating results under the assumption that securitization transactions are financings and no gain on sale or servicing fee income is recognized. Instead, finance charges and fees are recognized over the life of the securitized receivables as accrued and interest and other costs related to the asset-backed securities are also recognized as accrued. Credit losses are recorded when the Company repossesses and disposes of the collateral or the account is deemed uncollectable. While the pro forma portfolio-based earnings data does not purport to present the Company's operating results in accordance with GAAP, the Company believes such presentation provides another measure for assessing the Company's performance. The pro forma portfolio-based earnings data were as follows (in thousands, except per share data):
Three Months Ended September 30, -------------------------------------------- 2001 2000 ------------------ ---------------------- Finance charge, fee and other income $ 512,544 $ 355,826 Funding costs (179,492) (142,397) -------------------- --------------------- Net margin 333,052 213,429 Credit losses (104,213) (65,547) Operating expenses (99,376) (67,294) -------------------- --------------------- Pre-tax portfolio-based income 129,463 80,588 Income taxes (49,843) (31,026) -------------------- --------------------- Net portfolio-based income $ 79,620 $ 49,562 -------------------- --------------------- Diluted portfolio-based earnings per share $ 0.89 $ 0.59 ==================== =====================
The pro-forma return on managed assets for the Company's auto business was as follows:
Three Months Ended September 30, --------------------------------------------- 2001 2000 -------------------- --------------------- Finance charge, fee and other income 18.9% 20.0% Funding costs (6.6) (8.0) -------------------- --------------------- Net margin 12.3 12.0 Credit losses (3.8) (3.7) -------------------- --------------------- Risk adjusted margin 8.5 8.3 Operating expenses (3.7) (3.8) -------------------- --------------------- Pre-tax return on managed assets 4.8 4.5 Income taxes (1.9) (1.7) -------------------- --------------------- Return on managed assets 2.9% 2.8% ==================== ====================
22 CREDIT QUALITY The Company provides financing in relatively high-risk markets, and, therefore, charge-offs are anticipated. The Company records a periodic provision for loan losses as a charge to operations and a related allowance for loan losses in the consolidated balance sheets as a reserve against estimated probable losses in the receivables held for sale portfolio prior to the sale of such receivables in securitization transactions. The Company typically purchases individual finance contracts and collects a non-refundable acquisition fee. Such acquisition fees are also recorded in the consolidated balance sheets as an allowance for loan losses. When the Company sells auto receivables to the Trusts, the calculation of the gain on sale of receivables is reduced by an estimate of cumulative credit losses expected over the life of the auto receivables sold. The Company reviews static pool origination and charge-off relationships, charge-off experience factors, collection data, delinquency reports, estimates of the value of the underlying collateral, economic conditions and trends and other information in order to make the necessary judgments as to the appropriateness of the assumptions for cumulative credit losses and the timing of such losses, provisions for loan losses and allowance for loan losses. Although the Company uses many resources to assess the adequacy of loss reserves, there is no precise method for estimating the ultimate losses in the receivables portfolio. These amounts represent management's best estimate based on currently available information. The following table presents certain data related to the receivables portfolio (dollars in thousands):
September 30, 2001 ----------------------------------------------------------------------- Held for Managed Sale Serviced Portfolio ---------------------------------------------------------------------------- ------------------- --------------------- Principal amount of receivables $2,268,495 $9,056,981 $11,325,476 =================== ===================== Allowance for loan losses (61,225) $ (983,961) (a) $(1,045,186) ------------------- =================== ===================== Receivables, net $2,207,270 =================== Number of outstanding contracts 144,634 751,968 896,602 =================== =================== ===================== Average principal amount of outstanding contract (in dollars) $ 15,684 $ 12,044 $ 12,632 =================== =================== ===================== Allowance for loan losses as a percentage of receivables 2.7% 10.9% 9.2% =================== =================== =====================
(a) The allowance for loan losses related to serviced auto receivables is factored into the valuation of interest-only receivables from Trusts in the Company's consolidated balance sheets. 23 The following is a summary of managed auto receivables which are (i) more than 30 days delinquent, but not yet in repossession, and (ii) in repossession (dollars in thousands):
September 30, 2001 September 30, 2000 ------------------------------------ ------------------------------------ Amount Percent Amount Percent ------------------- -------------- ------------------- -------------- Delinquent contracts: 31 to 60 days $ 869,137 7.7% $542,041 7.3% Greater than 60 days 351,001 3.1 178,209 2.4 ------------------- -------------- ------------------- -------------- 1,220,138 10.8 720,250 9.7 In repossession 117,924 1.0 58,666 0.8 ------------------- -------------- ------------------- -------------- $1,338,062 11.8% $778,916 10.5% =================== ============== =================== ==============
In accordance with its policies and guidelines, the Company at times offers payment deferrals to consumers, whereby the consumer is allowed to move a delinquent payment to the end of the loan by paying a fee (approximately the interest portion of the payment deferred). Contracts receiving a payment deferral as an average quarterly percentage of average managed auto receivables outstanding were 4.7% for the three months ended September 30, 2001 and 2000. The Company believes that payment deferrals granted according to its policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio. The following table presents charge-off data with respect to the Company's managed auto receivables portfolio (dollars in thousands):
Three Months Ended September 30, ---------------------------------------------- 2001 2000 --------------------- --------------------- Net charge-offs: Held for sale $ 8,263 $ 2,835 Serviced 95,950 62,712 --------------------- --------------------- $104,213 $65,547 ===================== ===================== Net charge-offs as an annualized percentage of average managed auto receivables outstanding 3.8% 3.7% ===================== ===================== Net recoveries as a percentage of gross repossession charge-offs 49.6% 52.4% ===================== =====================
Delinquency and charge-off ratios typically fluctuate over time as a portfolio matures. Accordingly, the delinquency and charge-off data above is not necessarily indicative of delinquency and charge-off experience that could be expected for a portfolio with a different level of seasoning. 24 LIQUIDITY AND CAPITAL RESOURCES The Company's cash flows are summarized as follows (in thousands):
Three Months Ended September 30, -------------------------------------------- 2001 2000 -------------------- -------------------- Operating activities $ 83,460 $ 60,475 Investing activities (332,304) (263,316) Financing activities 263,901 288,822 -------------------- -------------------- Net increase in cash and cash equivalents $ 15,057 $ 85,981 ==================== ====================
The Company's primary sources of cash have been cash flows from operating activities, including cash distributions from the Trusts, borrowings under its warehouse credit facilities and sales of auto receivables to Trusts in securitization transactions. The Company's primary uses of cash have been purchases of receivables and funding credit enhancement requirements for securitization transactions. The Company required cash of $2,011.0 million and $1,402.5 million for the purchase of auto finance contracts during the three months ended September 30, 2001 and 2000, respectively. These purchases were funded initially utilizing warehouse credit facilities and subsequently through the sale of auto receivables in securitization transactions. The Company has six separate funding agreements with administrative agents on behalf of institutionally managed commercial paper conduits and bank groups with aggregate structured warehouse financing availability of approximately $2,350.0 million. Two of the commercial paper facilities provide for available structured warehouse financing of $600.0 million and $250.0 million, respectively, through September 2002. An additional facility provides for available structured warehouse financing of $500.0 million through March 2002. Other facilities provide for available structured warehouse financing of $200.0 million through May 2002 and $500.0 million through June 2002. The remaining facility provides for multi-year structured warehouse financing with availability of $300.0 million through June 2004. A total of $465.2 million was outstanding under these facilities as of September 30, 2001. The Company also has two funding agreements with administrative agents on behalf of institutionally managed medium term note conduits under which $500.0 million and $750.0 million, respectively, of proceeds are available through the terms of the agreements. The funding agreements allow for the substitution of auto receivables (subject to an overcollateralization formula) for cash, and vice versa, thus allowing the Company to use the medium term note proceeds to finance auto receivables on a revolving basis. The first agreement matures in December 2003 and the second agreement matures in June 2004. A total of 25 $1,250.0 million was outstanding under these facilities as of September 30, 2001. In August 2001, the Company's Canadian subsidiary replaced its $40.0 million Cdn. convertible revolving term credit agreement with a revolving credit agreement, under which the subsidiary may borrow up to $150.0 million Cdn., subject to a defined borrowing base. The credit agreement expires in August 2002. A total of $39.9 million was outstanding under the Canadian facility as of September 30, 2001. As is customary in the Company's industry, certain of the Company's warehouse credit facilities need to be renewed on an annual basis. The Company has historically been successful in renewing and expanding these facilities on an annual basis. If the Company was unable to renew these facilities on acceptable terms, there could be a material adverse effect on the Company's financial position, results of operations and liquidity. The Company has completed twenty-eight auto receivable securitization transactions through September 30, 2001. The proceeds from the transactions were primarily used to repay borrowings outstanding under the Company's warehouse credit facilities. 26 A summary of these transactions is as follows (dollars in millions):
Original Balance at Transaction (a) Date Amount September 30, 2001 ------------------ -------------------------------- ----------------------- ----------------------------- 1998-A February 1998 $ 425.0 $ 47.6 1998-B May 1998 525.0 75.2 1998-C August 1998 575.0 106.4 1998-D November 1998 625.0 140.2 1999-A February 1999 700.0 186.5 1999-B May 1999 1,000.0 330.2 1999-C August 1999 1,000.0 407.7 1999-D October 1999 900.0 402.0 2000-A February 2000 1,300.0 661.0 2000-B May 2000 1,200.0 709.0 2000-C August 2000 1,100.0 742.3 2000-1 November 2000 495.0 346.8 2000-D November 2000 600.0 463.1 2001-A February 2001 1,400.0 1,147.6 2001-1 April 2001 1,089.0 939.7 2001-B July 2001 1,850.0 1,804.4 2001-C September 2001 1,600.0 1,592.9 ----------------------- ----------------------------- $16,384.0 $10,102.6 ======================= =============================
(a) Transactions 1994-A, 1995-A and B, 1996-A, B, C and D, 1997-A, B, C and D originally totaling $1,995.5 million have been paid off as of September 30, 2001. In connection with securitization transactions, the Company is required to provide credit enhancement in order to attain specific credit ratings for the asset-backed securities issued by the Trusts. The Company typically makes an initial deposit to a restricted cash account and subsequently uses excess cash flows generated by the Trusts to either increase the restricted cash account or repay the outstanding asset-backed securities on an accelerated basis, thus creating additional credit enhancement through overcollateralization in the Trusts. When the credit enhancement levels reach specified percentages of the Trust's pool of receivables, excess cash flows are distributed to the Company. Although the aggregate amount of excess cash flow does not change, the timing of the Company's receipt of excess cash flow distributions is dependent on the type of structure used. Since November 1997, the Company has employed a structure that utilizes reinsurance and other alternative credit enhancements to reduce the required initial credit enhancement deposit. Under this structure, the Company expects to begin to receive excess cash flow distributions approximately 14 to 16 months after receivables are securitized. The reinsurance used to reduce the Company's initial cash deposit has typically been arranged by the insurer of the asset-backed securities. As of September 30, 2001, the Company had commitments from the insurer for an 27 additional $275.5 million of reinsurance. These commitments expire in December 2002. In addition, the Company has a credit enhancement facility with a financial institution under which the Company may borrow up to $225 million to fund a portion of the initial cash deposit in securitization transactions through October 2001, similar to the amount covered by the reinsurance described above. Borrowings under the credit enhancement facility are collateralized by the Company's credit enhancement assets. A total of $66.7 million was outstanding under this facility at September 30, 2001. During fiscal 2001, the Company completed two securitization transactions (2000- 1 and 2001-1) involving the sale of subordinate asset-backed securities in order to provide credit enhancement for the senior asset-backed securities. The Company's other securitization transactions have included the sale of senior asset-backed securities only and the purchase of a financial guaranty insurance policy for the benefit of investors. The subordinate asset-backed securities replace a portion of the Company's initial credit enhancement deposit otherwise required in a securitization transaction in a manner similar to the utilization of reinsurance or other alternative credit enhancements described in the preceding paragraph. Initial deposits for credit enhancement purposes were $80.8 million and $63.0 million for the three months ended September 30, 2001 and 2000, respectively. Borrowings under the credit enhancement facility were $46.3 million and $27.0 million for the three months ended September 30, 2001 and 2000, respectively. Excess cash flows distributed to the Company were $70.7 million and $49.1 million for the three months ended September 30, 2001 and 2000, respectively. With respect to the Company's securitization transactions covered by a financial guaranty policy, certain agreements with the insurer provide that if delinquency, default and net loss ratios in a Trust's pool of receivables exceed certain targets, the specified credit enhancement levels would be increased. As of September 30, 2001, none of the Company's securitizations had delinquency, default or net loss ratios in excess of the targeted levels. The Company operated 248 auto lending branch offices as of September 30, 2001, and plans to open an additional 5 to 9 branches through the remainder of fiscal 2002 and expand loan production capacity at existing auto lending branch offices where appropriate. While the Company has been able to establish and grow its auto finance business thus far, there can be no assurance that future expansion will be successful due to competitive, regulatory, market, economic or other factors. As of September 30, 2001, the Company had $92.1 million in cash and cash equivalents. The Company also had available borrowing capacity of $154.5 million under its warehouse credit facilities pursuant to the borrowing base requirements of such agreements. The Company believes that its existing capital resources along with expected cash flows from operating activities will be sufficient to fund the Company's liquidity needs, exclusive of the purchase of auto finance contracts, for fiscal 2002. 28 However, the Company anticipates that it will require additional external capital in the form of securitization transactions, renewal and expansion of its existing warehouse credit facilities and implementation of new warehouse credit facilities in order to fund auto loan purchases in fiscal 2002. There can be no assurance that funding will be available to the Company through these sources or, if available, that it will be on terms acceptable to the Company. INTEREST RATE RISK The Company's earnings are affected by changes in interest rates as a result of its dependence upon the issuance of interest-bearing securities and the incurrence of debt to fund its lending activities. Several factors can influence the Company's ability to manage interest rate risk. First, auto finance contracts are purchased at fixed interest rates, while the amounts borrowed under warehouse credit facilities bear interest at variable rates that are subject to frequent adjustment to reflect prevailing market interest rates. Second, the interest rate demanded by investors in securitizations is a function of prevailing market rates for comparable transactions and the general interest rate environment. Because the auto finance contracts purchased by the Company have fixed interest rates, the Company bears the risk of smaller gross interest rate spreads in the event interest rates increase during the period between the date receivables are purchased and the completion and pricing of securitization transactions. In addition, the securities issued by the Trusts in the Company's securitization transactions may bear interest at floating rates that are subject to monthly adjustment to reflect prevailing market interest rates. The Company utilizes several strategies to minimize the risk of interest rate fluctuations, including the use of derivative financial instruments, the regular sale of auto receivables to the Trusts and pre-funding of securitization transactions. Pre-funding securitizations is the practice of issuing more asset-backed securities than the amount of receivables initially sold to the Trust. The proceeds from the pre-funded portion are held in an escrow account until additional receivables are sold to the Trust in amounts up to the balance of the pre-funded escrow account. In pre-funded securitizations, borrowing costs are locked in with respect to the loans subsequently delivered to the Trust. However, the Company incurs an expense in pre-funded securitizations equal to the difference between the money market yields earned on the proceeds held in escrow prior to subsequent delivery of receivables and the interest rate paid on the asset-backed securities outstanding. Derivative financial instruments are utilized to manage the gross interest rate spread on the Company's securitization transactions. The Company sells fixed rate auto receivables to Trusts that, in turn, sell either fixed rate or floating rate securities to investors. The fixed rates on securities issued by the Trusts are indexed to market interest rate swap spreads for transactions of similar duration or various London Interbank Offered Rates 29 ("LIBOR"). The floating rates on securities issued by the Trusts are indexed to LIBOR. The Company uses Interest Rate Swap agreements to convert the floating rate exposures on these securities to a fixed rate. The Company utilizes these derivative financial instruments to modify its net interest sensitivity to levels deemed appropriate based on the Company's risk tolerance. The Company also utilizes interest rate cap agreements as part of its interest rate risk management strategy for securitization transactions as well as for warehouse credit facilities. The purchaser of the interest rate cap agreement pays a premium in return for the right to receive the difference in the interest cost at any time a specified index of market interest rates rises above the stipulated "cap" rate. The interest rate cap agreement purchaser bears no obligation or liability if interest rates fall below the "cap" rate. The Company's special purpose finance subsidiaries are contractually required to purchase interest rate cap agreements as credit enhancement in connection with securitization transactions and warehouse credit facilities. The Company simultaneously sells a corresponding interest rate cap agreement in order to offset the purchased interest rate cap agreement. Management monitors the Company's hedging activities to ensure that the value of hedges, their correlation to the contracts being hedged and the amounts being hedged continue to provide effective protection against interest rate risk. All transactions are entered into for purposes other than trading. There can be no assurance that the Company's strategies will be effective in minimizing interest rate risk or that increases in interest rates will not have an adverse effect on the Company's profitability. FORWARD LOOKING STATEMENTS The preceding Management's Discussion and Analysis of Financial Condition and Results of Operations section contains several "forward-looking statements". Forward-looking statements are those which use words such as "believe", "expect", "anticipate", "intend", "plan", "may", "will", "should", "estimate", "continue" or other comparable expressions. These words indicate future events and trends. Forward-looking statements are the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to many risks and uncertainties which could cause actual results to differ significantly from historical results or from those anticipated by the Company. The most significant risks are detailed from time to time in the Company's filings and reports with the Securities and Exchange Commission including the Company's Annual Report on Form 10-K for the year ended June 30, 2001. It is advisable not to place undue reliance on the Company's forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. 30 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Because the Company's funding strategy is dependent upon the issuance of interest-bearing securities and the incurrence of debt, fluctuations in interest rates impact the Company's profitability. Therefore, the Company employs various hedging strategies to minimize the risk of interest rate fluctuations. See "Management's Discussion and Analysis - Interest Rate Risk" for additional information regarding such market risks. 31 Part II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS As a consumer finance company, the Company is subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, fraud and discriminatory treatment of credit applicants, which could take the form of a plaintiffs' class action complaint. The Company, as the assignee of finance contracts originated by dealers, may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies but includes requests for compensatory, statutory and punitive damages. Two proceedings in which the Company is a defendant have been brought in the form of class action complaints. One lawsuit, pending in Superior Court in the State of California, claims that certain loan pricing structures used by the Company violate various California laws. Several other lawsuits with identical or similar claims are pending in the same California court against other banks and finance companies (all such lawsuits were filed by the same plaintiffs' counsel). In one of these companion cases, the Superior Court has recently dismissed the plaintiffs' lawsuit for failure to state claims that are actionable under California law; the Company anticipates that this favorable ruling will be applied by the Superior Court to dismiss the plaintiffs' claims in the other cases, including the case against the Company. The plaintiffs have advised the Company that they plan to appeal the Superior Court's ruling on a consolidated basis following final entry of dismissal in all companion cases, including the case against the Company. Another lawsuit, pending in United States District Court, Southern District of West Virginia, alleges that the Company participated in a scheme with certain automobile dealerships located in West Virginia to provide inaccurate or misleading disclosures that failed to meet the requirements of the Truth in Lending Act and Regulation Z, and imposed hidden or undisclosed finance charges in excess of statutory limitations in West Virginia. Discovery has commenced in this litigation, but no rulings have been made or are pending regarding class certification. In the opinion of management, both of the class action lawsuits described above are without merit and the Company intends to defend vigorously. Management believes that the Company has taken prudent steps to address the litigation risks associated with the Company's business activities. However, there can be no assurance that the Company will be able to successfully defend against all such claims or that the determination of any such claim in a manner adverse to the Company would not have a material adverse effect on the Company's automobile finance business. 32 In the opinion of management, the resolution of the proceedings described in this section will not have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. Item 2. CHANGES IN SECURITIES Not Applicable Item 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable Item 5. OTHER INFORMATION Not Applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1 Amendment No. 3, dated as of September 28, 2001, to the Sale and Servicing Agreement, dated as of September 14, 2000, by and among AmeriCredit Manhattan Trust, AmeriCredit Financial Services, Inc., AmeriCredit Funding Corp. V, and The Chase Manhattan Bank 10.2 Amendment No. 1, dated as of September 28, 2001, to the Second Amended and Restated Security and Funding Agreement, dated as of April 27, 2001, by and among AmeriCredit Manhattan Trust, The Chase Manhattan Bank and the several secured parties and funding agents party thereto from time to time 10.3 Fourth Amendment to Security Agreement and Note Purchase Agreement, dated as of September 26, 2001, to the Security Agreement and Note Purchase Agreement, dated as of September 30, 1999, by and among AmeriCredit BOA Trust, AmeriCredit Financial Services, Inc., AmeriCredit Funding Corp. II, Kitty Hawk Funding Corporation, and Bank of America, N.A. 10.4 Credit Agreement, dated as of August 23, 2001, between AmeriCredit Financial Services of Canada Ltd., AmeriCredit Financial Services, Inc., and Merrill Lynch Capital Canada Inc. 10.5 Security Agreement, dated as of August 23, 2001, between AmeriCredit Financial Services of Canada Ltd. and Merrill Lynch Capital Canada Inc. 10.6 Release of Security Interest, dated as of August 23, 2001, by the Bank of Nova Scotia in favor of AmeriCredit Financial Services of Canada Ltd. issued in connection with the termination of a credit facility 11.1 Statement Re: Computation of Per Share Earnings 33 (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarterly period ended September 30, 2001. Certain subsidiaries and affiliates of the Company filed reports on Form 8-K during the quarterly period ended September 30, 2001 reporting monthly information related to securitization trusts. 34 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AmeriCredit Corp. ------------------------------------ (Registrant) Date: November 14, 2001 By: /s/ Daniel E. Berce ------------------------------------ (Signature) Daniel E. Berce Vice Chairman and Chief Financial Officer 35