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 December 31, 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 84,867,794 shares of common stock, $0.01 par value outstanding as of January 31, 2002. AMERICREDIT CORP. INDEX TO FORM 10-Q Part I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements (unaudited) Consolidated Balance Sheets - December 31, 2001 and June 30, 2001 ............................................ 3 Consolidated Statements of Income and Comprehensive Income - Three Months and Six Months Ended December 31, 2001 and 2000 ............................................ 4 Consolidated Statements of Cash Flows - Six Months Ended December 31, 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 .............................................. 34 Part II. OTHER INFORMATION Item 1. Legal Proceedings ........................................ 35 Item 2. Changes in Securities .................................... 35 Item 3. Defaults upon Senior Securities .......................... 35 Item 4. Submission of Matters to a Vote of Security Holders ...... 35 Item 5. Other Information ........................................ 36 Item 6. Exhibits and Reports on Form 8-K ......................... 36 SIGNATURE ................................................................... 37 2 Part I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS AMERICREDIT CORP. Consolidated Balance Sheets (Unaudited, Dollars in Thousands)
December 31, 2001 June 30, 2001 ----------------- ------------- ASSETS Cash and cash equivalents $ 95,509 $ 77,053 Receivables held for sale, net 2,300,486 1,921,465 Interest-only receivables from Trusts 412,352 387,895 Investments in Trust receivables 549,319 493,022 Restricted cash 539,003 270,358 Property and equipment, net 99,100 67,828 Other assets 274,543 167,286 --------------- ------------- Total assets $4,270,312 $3,384,907 =============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Warehouse credit facilities $1,929,552 $1,502,879 Credit enhancement facility 193,800 36,319 Senior notes 375,000 375,000 Other notes payable 52,571 23,077 Funding payable 99,162 60,460 Accrued taxes and expenses 153,283 114,041 Interest rate swap and cap agreements 110,886 82,796 Deferred income taxes 120,770 130,139 --------------- ------------- Total liabilities 3,035,024 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; 230,000,000 and 120,000,000 shares authorized; 91,057,552 and 89,853,792 shares issued 911 899 Additional paid-in capital 549,107 520,077 Accumulated other comprehensive income 59,812 73,689 Retained earnings 644,296 484,963 --------------- ------------- 1,254,126 1,079,628 Treasury stock, at cost (6,242,970 and 6,439,737 shares) (18,838) (19,432) --------------- ------------- Total shareholders' equity 1,235,288 1,060,196 --------------- ------------- Total liabilities and shareholders' equity $4,270,312 $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 Six Months Ended December 31, December 31, ------------ ------------ 2001 2000 2001 2000 -------------------------------------------------------- Revenue Finance charge income $ 80,027 $ 52,095 $176,824 $ 97,495 Gain on sale of receivables 108,690 71,173 201,620 132,759 Servicing fee income 94,571 63,435 179,806 122,705 Other income 3,377 1,906 6,250 4,991 -------------------------------------------------------- 286,665 188,609 564,500 357,950 -------------------------------------------------------- Costs and expenses Operating expenses 108,390 73,201 207,766 140,495 Provision for loan losses 16,667 7,271 31,509 13,325 Interest expense 30,557 29,370 66,147 56,626 -------------------------------------------------------- 155,614 109,842 305,422 210,446 -------------------------------------------------------- Income before income taxes 131,051 78,767 259,078 147,504 Income tax provision 50,455 30,325 99,745 56,789 -------------------------------------------------------- Net income 80,596 48,442 159,333 90,715 -------------------------------------------------------- Other comprehensive income Unrealized gains on credit enhancement assets 19,146 53,203 978 83,517 Unrealized gains (losses) on cash flow hedges 8,014 (30,323) (23,543) (46,284) Income tax (provision) benefit (10,456) (8,809) 8,688 (14,334) -------------------------------------------------------- Comprehensive income $ 97,300 $ 62,513 $145,456 $113,614 ======================================================== Earnings per share Basic $ 0.95 $ 0.62 $ 1.89 $ 1.17 ======================================================== Diluted $ 0.91 $ 0.57 $ 1.79 $ 1.08 ======================================================== Weighted average shares outstanding 84,546,353 78,261,907 84,217,345 77,757,716 ======================================================== Weighted average shares and assumed incremental shares 88,669,914 84,418,806 89,253,406 83,888,520 ========================================================
The accompanying notes are an integral part of these consolidated financial statements 4 AMERICREDIT CORP. Consolidated Statements of Cash Flows (Unaudited, Dollars in Thousands)
Six Months Ended December 31, ----------------------------- 2001 2000 ------------ ----------- Cash flows from operating activities Net income $ 159,333 $ 90,715 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,923 9,997 Provision for loan losses 31,509 13,325 Deferred income taxes 15,299 9,617 Accretion of present value discount (56,266) (39,532) Non-cash gain on sale of receivables (189,537) (103,546) Distributions from Trusts 127,863 107,069 Changes in assets and liabilities: Other assets (28,295) (14,634) Accrued taxes and expenses 39,242 29,563 ------------ ------------ Net cash provided by operating activities 111,071 102,574 ------------ ------------ Cash flows from investing activities Purchases of receivables (4,068,120) (2,807,219) Principal collections and recoveries on receivables 117,698 36,797 Net proceeds from sale of receivables 3,578,594 2,466,523 Initial deposits to credit enhancement assets (255,500) (106,000) Purchases of property and equipment (24,652) (7,056) Change in other assets (74,415) (8,935) ------------ ------------ Net cash used by investing activities (726,395) (425,890) ------------ ------------ Cash flows from financing activities Net change in warehouse credit facilities 426,673 268,950 Borrowings under credit enhancement facility 182,500 39,000 Net change in notes payable 10,951 (5,373) Proceeds from issuance of common stock 13,656 18,410 ------------ ------------ Net cash provided by financing activities 633,780 320,987 ------------ ------------ Net increase (decrease) in cash and cash equivalents 18,456 (2,329) Cash and cash equivalents at beginning of period 77,053 42,916 ------------ ------------ Cash and cash equivalents at end of period $ 95,509 $ 40,587 ============ ===========
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 December 31, 2001, and for the six months ended December 31, 2001 and 2000, are unaudited, but in management's opinion include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods. Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications have no effect on net income or shareholders' equity as previously reported. 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): December 31, 2001 June 30, 2001 ----------------- ------------- Auto receivables $2,366,256 $1,973,828 Less allowance for loan losses (65,770) (52,363) ----------------- ------------- $2,300,486 $1,921,465 ================= ============= A summary of the allowance for loan losses is as follows (in thousands): Three Months Ended Six Months Ended December 31, December 31, ------------ ------------ 2001 2000 2001 2000 ------------------------------------------- Balance at beginning of period $ 61,225 $ 30,994 $ 52,363 $ 24,374 Provision for loan losses 16,667 7,271 31,509 13,325 Acquisition fees 38,774 32,184 79,948 64,216 Allowance related to receivables sold to Trusts (37,351) (33,711) (76,242) (62,342) Net charge-offs (13,545) (3,388) (21,808) (6,223) ------------------------------------------- Balance at end of period $ 65,770 $ 33,350 $ 65,770 $ 33,350 =========================================== 6 NOTE 3 - CREDIT ENHANCEMENT ASSETS During the six months ended December 31, 2001 and 2000, the Company sold $3,650.0 million and $2,500.0 million, respectively, of auto receivables in securitization transactions and recognized pre-tax gains of $201.6 million and $132.8 million, respectively. The Company retained servicing responsibilities and interests in the receivables in the form of credit enhancement assets. As of December 31 and June 30, 2001, the Company was servicing $10,014.9 million and $8,229.9 million, respectively, of auto receivables which have been sold to 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): December 31, 2001 June 30, 2001 ----------------- ------------- Interest-only receivables from Trusts $ 412,352 $ 387,895 Investments in Trust receivables 549,319 493,022 Restricted cash 539,003 270,358 ----------------- ------------- $1,500,674 $1,151,275 ================= ============= A summary of activity in the credit enhancement assets is as follows (in thousands):
Three Months Ended Six Months Ended December 31, December 31, ------------ ------------ 2001 2000 2001 2000 ---------------------------------------------------- Balance at beginning of period $1,244,817 $ 922,473 $1,151,275 $ 824,618 Non-cash gain on sale of auto receivables 99,859 54,110 189,537 103,546 Accretion of present value discount 28,424 19,742 56,266 39,532 Initial deposits to credit enhancement assets 174,750 43,000 255,500 106,000 Payments on credit enhancement facility (9,192) (15,141) (25,019) (30,766) Change in unrealized gain 19,146 53,203 978 83,517 Distributions from Trusts (57,130) (58,009) (127,863) (107,069) ---------------------------------------------------- Balance at end of period $1,500,674 $1,019,378 $1,500,674 $1,019,378 ====================================================
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 Six Months Ended December 31, December 31, ------------ ------------ 2001 2000 2001 2000 ----------------------------------------------- Balance at beginning of period $ 983,961 $623,743 $ 868,184 $ 563,102 Assumptions for cumulative credit losses 225,650 139,949 437,377 263,302 Net charge-offs (116,367) (67,838) (212,317) (130,550) ----------------------------------------------- Balance at end of period $1,093,244 $695,854 $1,093,244 $ 695,854 ===============================================
NOTE 4 - WAREHOUSE CREDIT FACILITIES Warehouse credit facilities consist of the following (in thousands): December 31, 2001 June 30, 2001 ----------------- ------------- Commercial paper facilities $ 600,571 $ 228,794 Medium term notes 1,250,000 1,250,000 Canadian credit agreement 78,981 24,085 ----------------- ------------- $1,929,552 $1,502,879 ================= ============= The Company has seven 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 $2,850.0 million. Certain of the commercial paper facilities provide for available structured warehouse financing of $600.0 million and $250.0 million, respectively, through September 2002, $500.0 million through March 2002 and $200.0 million through May 2002; these facilities are renewable annually. The remaining facilities provide for multi-year structured warehouse financing with availability of $500.0 million through November 2003, $300.0 million through June 2004 and $500.0 million through December 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 certain minimum financial ratios and results. The funding agreements also 8 require certain funds to be held in restricted cash accounts to provide additional collateral for borrowings under the facilities. As of December 31 and June 30, 2001, these restricted cash accounts totaled $17.6 million and $6.0 million, respectively, and are included in other assets in the consolidated balance sheets. As of December 31 and June 30, 2001, $651.4 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 December 31 and June 30, 2001, these restricted cash accounts totaled $39.8 million and $28.3 million, respectively, and are included in other assets in the consolidated balance sheets. As of December 31 and June 30, 2001, $1,280.5 million and $1,293.8 million, respectively, of auto receivables held for sale were pledged under these funding agreements. The Company's Canadian subsidiary has 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 which the Company used to fund a portion of the initial restricted cash deposit required in certain of its securitization transactions. Borrowings under the credit enhancement facility were available on a revolving basis through October 9 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 on other of its securitization transactions. 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): Six Months Ended December 31, ------------ 2001 2000 --------------------- Interest costs (none capitalized) $ 65,335 $ 55,257 Income taxes 40,097 31,897 During the six months ended December 31, 2001 and 2000, the Company entered into capital lease agreements for property and equipment of $18.5 million and $1.1 million, respectively. NOTE 7 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES As of December 31 and June 30, 2001, the Company had interest rate swap agreements with underlying notional amounts of $1,697.7 million and $1,719.2 million, respectively. These agreements had unrealized losses of approximately $87.7 million and $64.2 million as of December 31 and June 30, 2001, respectively. As of December 31, 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 December 31 and June 30, 2001, these restricted cash accounts totaled $74.7 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 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. 10 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 December 31, 2001 (Unaudited, Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated --------------- --------------- --------------- --------------- --------------- ASSETS Cash and cash equivalents $ 89,095 $ 6,414 $ 95,509 Receivables held for sale, net 332,279 1,968,207 2,300,486 Interest-only receivables from Trusts 412,352 412,352 Investments in Trust receivables 549,319 549,319 Restricted cash 539,003 539,003 Property and equipment, net $ 349 98,751 99,100 Other assets 9,179 184,577 80,787 274,543 Due (to) from affiliates 860,655 (2,648,770) 1,788,115 Investment in affiliates 758,349 2,950,651 22,167 $(3,731,167) --------------- --------------- --------------- --------------- --------------- Total assets $1,628,532 $ 1,006,583 $5,366,364 $(3,731,167) $4,270,312 =============== =============== =============== =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Warehouse credit facilities $ 78,981 $1,850,571 $1,929,552 Credit enhancement facility 193,800 193,800 Senior notes $ 375,000 375,000 Other notes payable 52,571 52,571 Funding payable 98,388 774 99,162 Accrued taxes and expenses 58,076 88,431 6,776 153,283 Interest rate swap and cap agreements 110,886 110,886 Deferred income taxes (92,403) (14,705) 227,878 120,770 --------------- --------------- --------------- --------------- --------------- Total liabilities 393,244 361,981 2,279,799 3,035,024 --------------- --------------- --------------- --------------- --------------- Shareholders' equity: Common stock 911 911 Additional paid-in capital 549,107 39,308 2,216,804 $(2,256,112) 549,107 Accumulated other comprehensive income 59,812 (53,936) 113,748 (59,812) 59,812 Retained earnings 644,296 659,230 756,013 (1,415,243) 644,296 --------------- --------------- --------------- --------------- --------------- 1,254,126 644,602 3,086,565 (3,731,167) 1,254,126 Treasury stock (18,838) (18,838) --------------- --------------- --------------- --------------- --------------- Total shareholders' equity 1,235,288 644,602 3,086,565 (3,731,167) 1,235,288 --------------- --------------- --------------- --------------- --------------- Total liabilities and shareholders' equity $1,628,532 $ 1,006,583 $5,366,364 $(3,731,167) $4,270,312 =============== =============== =============== =============== ===============
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 Six Months Ended December 31, 2001 (Unaudited, Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated --------------- --------------- --------------- --------------- --------------- Revenue Finance charge income $ 45,340 $131,484 $176,824 Gain on sale of receivables 15,354 186,266 201,620 Servicing fee income 134,339 45,467 179,806 Other income $ 22,526 266,318 159,061 $(441,655) 6,250 Equity in income of affiliates 160,985 173,731 (334,716) --------------- --------------- --------------- --------------- --------------- 183,511 635,082 522,278 (776,371) 564,500 --------------- --------------- --------------- --------------- --------------- Costs and expenses Operating expenses 5,026 190,985 11,755 207,766 Provision for loan losses 5,209 26,300 31,509 Interest expense 20,187 285,882 201,733 (441,655) 66,147 --------------- --------------- --------------- --------------- --------------- 25,213 482,076 239,788 (441,655) 305,422 --------------- --------------- --------------- --------------- --------------- Income before income taxes 158,298 153,006 282,490 (334,716) 259,078 Income tax (benefit) provision (1,035) (7,979) 108,759 99,745 --------------- --------------- --------------- --------------- --------------- Net income $159,333 $160,985 $173,731 $(334,716) $159,333 =============== =============== =============== =============== ===============
14 AmeriCredit Corp. Consolidating Income Statement Six Months Ended December 31, 2000 (Unaudited, Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated --------------- --------------- --------------- --------------- --------------- Revenue Finance charge income $ 41,009 $ 56,486 $ 97,495 Gain on sale of receivables $ (263) 18,611 114,411 132,759 Servicing fee income 87,162 35,543 122,705 Other income 22,526 153,446 270,888 $(441,869) 4,991 Equity in income of affiliates 92,180 88,673 (180,853) --------------- --------------- --------------- --------------- --------------- 114,443 388,901 477,328 (622,722) 357,950 --------------- --------------- --------------- --------------- --------------- Costs and expenses Operating expenses 4,822 118,366 17,307 140,495 Provision for loan losses 4,054 9,271 13,325 Interest expense 19,823 172,106 306,566 (441,869) 56,626 --------------- --------------- --------------- --------------- --------------- 24,645 294,526 333,144 (441,869) 210,446 --------------- --------------- --------------- --------------- --------------- Income before income taxes 89,798 94,375 144,184 (180,853) 147,504 Income tax (benefit) provision (917) 2,195 55,511 56,789 --------------- --------------- --------------- --------------- --------------- Net income $ 90,715 $ 92,180 $ 88,673 $(180,853) $ 90,715 =============== =============== =============== =============== ===============
15 AmeriCredit Corp. Consolidating Statement of Cash Flow Six Months Ended December 31, 2001 (Unaudited, Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated --------------- -------------- --------------- --------------- --------------- Cash flow from operating activities: Net income $ 159,333 $ 160,985 $ 173,731 $ (334,716) $ 159,333 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,923 11,923 Provision for loan losses 5,209 26,300 31,509 Deferred income taxes (85,604) 2,569 98,334 15,299 Accretion of present value discount (56,266) (56,266) Non-cash gain on sale of receivables (189,537) (189,537) Distributions from Trusts 127,863 127,863 Equity in income of affiliates (160,985) (173,731) 334,716 Changes in assets and liabilities: Other assets 427 (25,375) (3,347) (28,295) Accrued taxes and expenses 42,760 (1,840) (1,678) 39,242 --------------- -------------- --------------- --------------- --------------- Net cash (used) provided by operating activities (44,069) (20,260) 175,400 111,071 --------------- -------------- --------------- --------------- --------------- Cash flows from investing activities: Purchase of receivables (4,068,120) (4,161,160) 4,161,160 (4,068,120) Principal collections and recoveries on receivables (1,894) 119,592 117,698 Net proceeds from sale of receivables 4,161,160 3,578,594 (4,161,160) 3,578,594 Initial deposits to credit enhancement assets (255,500) (255,500) Purchases of property and equipment (24,652) (24,652) Change in other assets (37,597) (36,818) (74,415) Net change in investment in affiliates (5,844) (493,688) (5,170) 504,702 --------------- -------------- --------------- --------------- --------------- Net cash used by investing activities (5,844) (464,791) (760,462) 504,702 (726,395) --------------- -------------- --------------- --------------- --------------- Cash flows from financing activities: Net change in warehouse credit facilities 54,896 371,777 426,673 Borrowings under credit enhancement facility 182,500 182,500 Net change in notes payable 10,951 10,951 Proceeds from issuance of common stock 13,656 (12,460) 517,162 (504,702) 13,656 Net change in due (to) from affiliates 25,306 472,756 (498,062) --------------- -------------- --------------- --------------- --------------- Net cash provided by financing activities 49,913 515,192 573,377 (504,702) 633,780 --------------- -------------- --------------- --------------- --------------- Net increase (decrease) in cash and cash equivalents 30,141 (11,685) 18,456 Cash and cash equivalents at beginning of period 58,954 18,099 77,053 --------------- -------------- --------------- --------------- --------------- Cash and cash equivalents at end of period $ $ 89,095 $ 6,414 $ $ 95,509 =============== ============== =============== =============== ===============
16 AmeriCredit Corp. Consolidating Statement of Cash Flows Six Months Ended December 31, 2000 (Unaudited, Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated ------------- ------------ ------------ ------------ ------------ Cash flow from operating activities: Net income $ 90,715 $ 92,180 $ 88,673 $(180,853) $ 90,715 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,997 9,997 Provision for loan losses 4,054 9,271 13,325 Deferred income taxes (48,101) 2,206 55,512 9,617 Accretion of present value discount (39,532) (39,532) Non-cash gain on sale of receivables (103,546) (103,546) Distributions from Trusts 107,069 107,069 Equity in income of affiliates (92,180) (88,673) 180,853 Changes in assets and liabilities: Other assets 215 (16,774) 1,925 (14,634) Accrued taxes and expenses 15,547 13,240 776 29,563 ------------- ------------ ------------ ------------ ------------ Net cash (used) provided by operating activities (33,804) 16,230 120,148 102,574 ------------- ------------ ------------ ------------ ------------ Cash flows from investing activities: Purchase of receivables (2,807,219) (2,748,778) 2,748,778 (2,807,219) Principal collections and recoveries on receivables (14,061) 50,858 36,797 Net proceeds from sale of receivables 2,749,225 2,466,076 (2,748,778) 2,466,523 Initial deposits to credit enhancement assets (106,000) (106,000) Purchases of property and equipment (7,056) (7,056) Change in other assets (11,170) 2,235 (8,935) Net change in investment in affiliates (1,936) (628,673) (6,369) 636,978 ------------- ------------ ------------ ------------ ------------ Net cash used by investing activities (1,936) (718,954) (341,978) 636,978 (425,890) ------------- ------------ ------------ ------------ ------------ Cash flows from financing activities: Net change in warehouse credit facilities 5,674 263,276 268,950 Borrowings under credit enhancement facility 39,000 39,000 Net change in notes payable (5,373) (5,373) Proceeds from issuance of common stock 18,410 (7) 636,985 (636,978) 18,410 Net change in due (to) from affiliates 22,703 706,939 (729,642) ------------- ------------ ------------ ------------ ------------ Net cash provided by financing activities 35,740 712,606 209,619 (636,978) 320,987 ------------- ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 9,882 (12,211) (2,329) Cash and cash equivalents at beginning of period 30,705 12,211 42,916 ------------- ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ $40,587 $ $ $40,587 ============= ============ ============ ============ ============
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. 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 December 31, 2001 as compared to --------------------------------------------------- Three Months Ended December 31, 2000 ------------------------------------ Revenue: The Company's average managed receivables outstanding consisted of the following (in thousands): Three Months Ended December 31, --------------------------- 2001 2000 ------------- ------------ Auto: Held for sale $ 1,653,046 $ 961,780 Serviced 10,232,783 6,894,906 ------------- ------------ 11,885,829 7,856,686 Other 3,498 ------------- ------------ $11,885,829 $7,860,184 ============= ============ Average managed receivables outstanding increased by 51% as a result of higher loan purchase volume. The Company purchased $2,035.7 million of auto loans during the three months ended December 31, 2001, compared to purchases of $1,381.0 million during the three months ended December 31, 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 December 31, 1999, were 14% higher for the twelve months ended December 31, 2001, versus the twelve months ended December 31, 2000. The Company operated 254 auto lending branch offices as of December 31, 2001, compared to 202 as of December 31, 2000. The average new loan size was $16,322 for the three months ended December 31, 2001, compared to $15,307 for the three months ended December 31, 2000. The average annual percentage rate for loans purchased during the three months ended December 31, 2001, was 17.7%, compared to 19.2% during the three months ended December 31, 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 54% to $80.0 million for the three months ended December 31, 2001, from $52.1 million for the three months ended December 31, 2000. Finance charge income was higher due primarily to an increase of 72% in average auto receivables held for sale in the three months ended December 31, 2001, versus the three months ended December 31, 2000. The Company's effective yield on its auto receivables held for sale decreased to 19.2% for the three months ended December 31, 2001, from 21.5% for the three months ended December 31, 2000. The effective yield is higher than the contractual rates of the Company's auto finance contracts as a result of finance charge income 19 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 December 31, 2001, due to lower loan pricing. The gain on sale of receivables increased by 53% to $108.7 million for the three months ended December 31, 2001, from $71.2 million for the three months ended December 31, 2000. The increase in gain on sale of auto receivables resulted from the sale of $1,925.0 million of receivables in the three months ended December 31, 2001, as compared to $1,300.0 million of receivables sold in the three months ended December 31, 2000. The gain as a percentage of the sales proceeds increased to 5.6% for the three months ended December 31, 2001, from 5.5% for the three months ended December 31, 2000, as a result of a decrease in short-term market interest rates which was partially offset by lower loan pricing. Significant assumptions used in determining the gain on sale of auto receivables were as follows: Three Months Ended December 31, -------------------------- 2001 2000 ------------ ------------ Cumulative credit losses (including deferred gains) 12.5% 11.0% 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 subsequent to June 30, 2001, to incorporate an increase in credit losses which may result from the general decline in the economy. Servicing fee income increased to $94.6 million, or 3.7% of average serviced auto receivables, for the three months ended December 31, 2001, compared to $63.4 million, or 3.7% of average serviced auto receivables, for the three months ended December 31, 2000. Servicing fee income represents accretion of the present value discount on estimated future excess cash flows from the Trusts, base servicing fees and other fees earned by the Company as servicer of 20 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 December 31, 2001, compared to the three months ended December 31, 2000. Costs and Expenses: Operating expenses as an annualized percentage of average managed receivables outstanding decreased to 3.6% for the three months ended December 31, 2001, compared to 3.7% for the three months ended December 31, 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 $35.2 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 $16.7 million for the three months ended December 31, 2001, from $7.3 million for the three months ended December 31, 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 4.0% and 3.0% for the three months ended December 31, 2001 and 2000, respectively. Interest expense increased to $30.6 million for the three months ended December 31, 2001, from $29.4 million for the three months ended December 31, 2000, due to higher debt levels. Average debt outstanding was $2,260.4 million and $1,177.9 million for the three months ended December 31, 2001 and 2000, respectively. The Company's effective rate of interest paid on its debt decreased to 5.4% for the three months ended December 31, 2001, from 9.9% for the three months ended December 31, 2000, 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 December 31, 2001 and 2000. 21 Six Months Ended December 31, 2001 as compared to ------------------------------------------------- Six Months Ended December 31, 2000 ---------------------------------- Revenue: The Company's average managed receivables outstanding consisted of the following (in thousands): Six Months Ended December 31, --------------------------- 2001 2000 ------------- ------------ Auto: Held for sale $ 1,808,214 $ 881,232 Serviced 9,513,853 6,566,758 ------------- ------------ 11,322,067 7,447,990 Other 3,755 ------------- ------------ $11,322,067 $7,451,745 ============= ============ Average managed receivables outstanding increased by 52% as a result of higher loan purchase volume. The Company purchased $4,070.9 million of auto loans during the six months ended December 31, 2001, compared to purchases of $2,787.7 million during the six months ended December 31, 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 December 31, 1999, were 14% higher for the twelve months ended December 31, 2001, versus the twelve months ended December 31, 2000. The Company operated 254 auto lending branch offices as of December 31, 2001, compared to 202 as of December 31, 2000. The average new loan size was $16,290 for the six months ended December 31, 2001, compared to $15,195 for the six months ended December 31, 2000. The average annual percentage rate for loans purchased during the six months ended December 31, 2001, was 17.9%, compared to 19.2% during the six months ended December 31, 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 81% to $176.8 million for the six months ended December 31, 2001, from $97.5 million for the six months ended December 31, 2000. Finance charge income was higher due primarily to an increase of 105% in average auto receivables held for sale in the six months ended December 31, 2001, versus the six months ended December 31, 2000. The Company's effective yield on its auto receivables held for sale decreased to 19.4% for the six months ended December 31, 2001, from 22.0% for the six months ended December 31, 2000. The effective yield is higher than the 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 22 automobile dealership and the date the auto finance contract is funded by the Company. The effective yield decreased for the six months ended December 31, 2001, due to lower loan pricing. The gain on sale of receivables increased by 52% to $201.6 million for the six months ended December 31, 2001, from $132.8 million for the six months ended December 31, 2000. The increase in gain on sale of auto receivables resulted from the sale of $3,650.0 million of receivables in the six months ended December 31, 2001, as compared to $2,500.0 million of receivables sold in the six months ended December 31, 2000. The gain as a percentage of the sales proceeds increased to 5.5% for the six months ended December 31, 2001, from 5.3% for the six months ended December 31, 2000, as a result of a decrease in short-term market interest rates which was partially offset by lower loan pricing. Significant assumptions used in determining the gain on sale of auto receivables were as follows: Six Months Ended December 31, --------------------------- 2001 2000 ------------ ------------- Cumulative credit losses (including deferred gains) 12.5% 10.9% 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 subsequent to June 30, 2001, to incorporate an increase in credit losses which may result from the general decline in the economy. Servicing fee income increased to $179.8 million, or 3.7% of average serviced auto receivables, for the six months ended December 31, 2001, as compared to $122.7 million, or 3.7% of average serviced auto receivables, for the six months ended December 31, 2000. Servicing fee income represents accretion of the present value discount on estimated future excess cash flows from the 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 23 attributable to the increase in average serviced auto receivables outstanding for the six months ended December 31, 2001, compared to the six months ended December 31, 2000. Costs and Expenses: Operating expenses as an annualized percentage of average managed receivables outstanding decreased to 3.6% for the six months ended December 31, 2001, compared to 3.7% for the six months ended December 31, 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 $67.3 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 $31.5 million for the six months ended December 31, 2001, from $13.3 million for the six months ended December 31, 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 3.5% and 3.0% for the six months ended December 31, 2001 and 2000, respectively. Interest expense increased to $66.1 million for the six months ended December 31, 2001, from $56.6 million for the six months ended December 31, 2000, due to higher debt levels. Average debt outstanding was $2,257.1 million and $1,099.4 million for the six months ended December 31, 2001 and 2000, respectively. The Company's effective rate of interest paid on its debt decreased to 5.8% for the six months ended December 31, 2001, from 10.2% for the six months ended December 31, 2000, as a result of lower short-term market interest rates. The Company's effective income tax rate was 38.5% for the six months ended December 31, 2001 and 2000. 24 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 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 earned and interest and other costs related to the asset-backed securities are also recognized as incurred. 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 Six Months Ended December 31, December 31, ------------------------------------------------------- 2001 2000 2001 2000 ------------------------------------------------------- Finance charge, fee and other income $ 552,961 $ 386,749 $1,065,505 $ 742,575 Funding costs (188,309) (153,701) (367,801) (296,098) ------------------------------------------------------- Net margin 364,652 233,048 697,704 446,477 Credit losses (129,912) (71,226) (234,125) (136,773) Operating expenses (108,390) (73,201) (207,766) (140,495) ------------------------------------------------------- Pre-tax portfolio-based income 126,350 88,621 255,813 169,209 Income taxes (48,645) (34,119) (98,488) (65,145) ------------------------------------------------------- Net portfolio-based income $ 77,705 $ 54,502 $ 157,325 $104,064 ======================================================= Diluted portfolio-based earnings per share $0.88 $0.65 $1.76 $1.24 =======================================================
25 The pro forma return on managed assets was as follows:
Three Months Ended Six Months Ended December 31, December 31, ----------------------------------------------------- 2001 2000 2001 2000 ----------------------------------------------------- Finance charge, fee and other income 18.5% 19.5% 18.7% 19.8% Funding costs (6.3) (7.7) (6.5) (7.9) ----------------------------------------------------- Net margin 12.2 11.8 12.2 11.9 Credit losses (4.3) (3.6) (4.1) (3.6) ----------------------------------------------------- Risk adjusted margin 7.9 8.2 8.1 8.3 Operating expenses (3.6) (3.7) (3.6) (3.7) ----------------------------------------------------- Pre-tax return on managed assets 4.3 4.5 4.5 4.6 Income taxes (1.7) (1.7) (1.7) (1.8) ----------------------------------------------------- Return on managed assets 2.6% 2.8% 2.8% 2.8% =====================================================
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 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 determining the ultimate losses in the receivables portfolio. These amounts represent management's best estimate based on currently available information. 26 The following table presents certain data related to the receivables portfolio (dollars in thousands):
December 31, 2001 ------------------------------------------------------ Managed Held for Sale Serviced Portfolio ---------------- ---------------- -------------- Principal amount of receivables $2,366,256 $ 10,014,943 $ 12,381,199 ================ ============== Allowance for loan losses (65,770) $ (1,093,244)(a) $ (1,159,014) ================ ================ ============== Receivables, net $2,300,486 ================ Number of outstanding contracts 162,631 804,510 967,141 ================ ================ ============== Average principal amount of outstanding contract (in dollars) $ 14,550 $ 12,449 $ 12,802 ================ ================ ============== Allowance for loan losses as a percentage of receivables 2.8% 10.9% 9.4% ================ ================ ==============
(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. 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):
December 31, 2001 December 31, 2000 ------------------------ ---------------------- Amount Percent Amount Percent ------------- --------- ----------- --------- Delinquent contracts: 31 to 60 days $1,051,785 8.5% $642,655 7.8% Greater than 60 days 467,687 3.8 224,634 2.7 ------------- --------- ----------- --------- 1,519,472 12.3 867,289 10.5 In repossession 134,170 1.1 85,422 1.0 ------------- --------- ----------- --------- $1,653,642 13.4% $952,711 11.5% ============= ========= =========== =========
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 5.0% and 4.9% for the three and six months ended December 31, 2001, respectively, and 4.9% and 4.8% for the three and six months ended December 31, 2000, respectively. 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. 27 The following table presents charge-off data with respect to the Company's managed auto receivables portfolio (dollars in thousands):
Three Months Ended Six Months Ended December 31, December 31, -------------------------------------------------------- 2001 2000 2001 2000 -------------------------------------------------------- Net charge-offs: Held for sale $ 13,545 $ 3,388 $ 21,808 $ 6,223 Serviced 116,367 67,838 212,317 130,550 -------------------------------------------------------- $129,912 $71,226 $234,125 $136,773 ======================================================== Net charge-offs as an annualized percentage of average managed auto receivables outstanding 4.3% 3.6% 4.1% 3.6% ======================================================== Net recoveries as a percentage of gross repossession charge-offs 44.8% 50.8% 47.0% 51.6% ========================================================
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. LIQUIDITY AND CAPITAL RESOURCES The Company's cash flows are summarized as follows (in thousands):
Six Months Ended December 31, ----------------------- 2001 2000 ----------- ---------- Operating activities $ 111,071 $ 102,574 Investing activities (726,395) (425,890) Financing activities 633,780 320,987 ----------- ---------- Net increase (decrease) in cash and cash equivalents $ 18,456 $ (2,329) =========== ==========
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 $4,068.1 million and $2,807.2 million for the purchase of auto finance contracts during the six months ended December 31, 2001 and 2000, respectively. These purchases were funded initially utilizing warehouse credit facilities and subsequently through the sale of auto receivables in securitization transactions. 28 The Company has seven 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 $2,850.0 million. Certain of the commercial paper facilities provide for available structured warehouse financing of $600.0 million and $250.0 million, respectively, through September 2002, $500.0 million through March 2002 and $200.0 million through May 2002; these facilities are renewable annually. The remaining facilities provide for multi-year structured warehouse financing with availability of $500.0 million through November 2003, $300.0 million through June 2004 and $500.0 million through December 2004. A total of $600.6 million was outstanding under these facilities as of December 31, 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 $1,250.0 million was outstanding under these facilities as of December 31, 2001. The Company's Canadian subsidiary has 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 $79.0 million was outstanding under the Canadian facility as of December 31, 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-nine auto receivable securitization transactions through December 31, 2001. The proceeds from the transactions were primarily used to repay borrowings outstanding under the Company's warehouse credit facilities. 29 A summary of these transactions is as follows (dollars in millions):
Original Balance at Transaction (a) Date Amount December 31, 2001 --------------- ---------------- ----------- ------------------- 1998-B May 1998 $ 525.0 $ 59.1 1998-C August 1998 575.0 86.6 1998-D November 1998 625.0 116.6 1999-A February 1999 700.0 157.6 1999-B May 1999 1,000.0 283.7 1999-C August 1999 1,000.0 356.6 1999-D October 1999 900.0 353.0 2000-A February 2000 1,300.0 584.4 2000-B May 2000 1,200.0 632.7 2000-C August 2000 1,100.0 650.2 2000-1 November 2000 495.0 308.2 2000-D November 2000 600.0 414.5 2001-A February 2001 1,400.0 1,028.4 2001-1 April 2001 1,089.0 850.6 2001-B July 2001 1,850.0 1,667.9 2001-C September 2001 1,600.0 1,555.6 2001-D October 2001 1,800.0 1,766.1 ----------- ------------------- $17,759.0 $10,871.8 =========== ===================
(a) Transactions 1994-A, 1995-A and B, 1996-A, B, C and D, 1997-A, B, C and D, and 1998-A originally totaling $2,420.5 million have been paid off as of December 31, 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. 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 December 31, 2001, the Company had commitments from the insurer for an additional $270.5 million of reinsurance. These commitments expire in December 2002. In addition, the Company has a credit enhancement facility with a financial institution which the Company used 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 30 under the credit enhancement facility are collateralized by the Company's credit enhancement assets. A total of $193.8 million was outstanding under this facility at December 31, 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 $255.5 million and $106.0 million for the six months ended December 31, 2001 and 2000, respectively. Borrowings under the credit enhancement facility were $182.5 million and $39.0 million for the six months ended December 31, 2001 and 2000, respectively. Excess cash flows distributed to the Company were $127.9 million and $107.1 million for the six months ended December 31, 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 December 31, 2001, none of the Company's securitizations had delinquency, default or net loss ratios in excess of the targeted levels. The Company operated 254 auto lending branch offices as of December 31, 2001, and plans to 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 December 31, 2001, the Company had $95.5 million in cash and cash equivalents. The Company also had available borrowing capacity of $111.7 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. 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 31 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 ("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 32 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. 33 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. 34 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. One proceeding in which the Company is a defendant has been brought in the form of a class action complaint. This 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, this lawsuit is 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. In the opinion of management, the resolution of the proceeding 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 On November 6, 2001, the Company held its Annual Meeting of Shareholders. The Shareholders voted upon the election of three directors, the adoption of an amendment to the Company's Articles of Incorporation to increase the authorized 35 number of shares of Common Stock, the adoption of an amendment to increase the number of shares reserved under the Company's Employee Stock Purchase Plan (the "Stock Purchase Plan") and the ratification of the appointment of the Company's independent auditors. Each of the three nominees identified in the Company's proxy statement filed pursuant to Rule 14a-b of the Securities Exchange Act of 1934, were elected at the meeting to hold office for a three-year term or until their successors are duly elected and qualified. The shareholders approved the amendment to the Company's Articles of Incorporation, with 67,647,029 shares voting in favor, 4,132,710 shares voting against and 66,644 shares withheld. The shareholders adopted the amendment to the Stock Purchase Plan, with 70,643,490 shares voting in favor, 1,101,901 shares voting against and 100,992 shares withheld. The Company's selection of independent auditors was also ratified. Item 5. OTHER INFORMATION Not Applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 3.1 Articles of Incorporation of the Company, as amended 3.2 Bylaws of the Company, as amended 10.1 Credit Agreement, dated as of November 1, 2001, between AmeriCredit ML Trust, AmeriCredit Financial Services, Inc., and Merrill Lynch Mortgage Capital Inc., AmeriCredit Funding Corp. VIII, Bank One, NA, and AmeriCredit Corp. 10.2 Security Agreement, dated as of November 1, 2001, between AmeriCredit ML Trust and Merrill Lynch Mortgage Capital Inc. 10.3 Amendment No. 1, dated as of November 12, 2001, to the Credit Agreement, dated as of August 23, 2001, by and among AmeriCredit Financial Services of Canada Ltd., AmeriCredit Financial Services, Inc., and Merrill Lynch Capital Canada Inc. 11.1 Statement Re: Computation of Per Share Earnings (b) Report on Form 8-K The Company did not file any reports on Form 8-K during the quarterly period ended December 31, 2001. Certain subsidiaries and affiliates of the Company filed reports on Form 8-K during the quarterly period ended December 31, 2001, reporting monthly information related to securitization trusts. 36 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: February 14, 2002 By: /s/ Daniel E. Berce --------------------------------------------- (Signature) Daniel E. Berce Vice Chairman and Chief Financial Officer 37