-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BydNL5A39ymuslTpNJBKssvOkdC4GlYNoG4avqXOJr3KVuNPyH9x28UwyE2CuT/P z5azL3jA8SIMta7SjL5ZRQ== 0001047469-99-006254.txt : 19990217 0001047469-99-006254.hdr.sgml : 19990217 ACCESSION NUMBER: 0001047469-99-006254 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICREDIT CORP CENTRAL INDEX KEY: 0000804269 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 752291093 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10667 FILM NUMBER: 99542983 BUSINESS ADDRESS: STREET 1: 200 BAILEY AVENUE CITY: FORT WORTH STATE: TX ZIP: 76107 BUSINESS PHONE: 8173327000 MAIL ADDRESS: STREET 1: 200 BAILEY AVENUE CITY: FORT WORTH STATE: TX ZIP: 76107 FORMER COMPANY: FORMER CONFORMED NAME: URCARCO INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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, 1998 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 (IRS Employer incorporation or organization) Identification No.) 200 Bailey Avenue, Fort Worth, Texas 76107 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (817) 332-7000 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 63,063,107 shares of common stock, $.01 par value outstanding as of January 31, 1999. AMERICREDIT CORP. INDEX TO FORM 10-Q Part I. FINANCIAL INFORMATION Item 1. Financial Statements Page Consolidated Balance Sheets - December 31, 1998 and June 30, 1998...................... 3 Consolidated Statements of Income and Comprehensive Income - Three Months and Six Months Ended December 31, 1998 and 1997............................... 4 Consolidated Statements of Cash Flows - Six Months Ended December 31, 1998 and 1997.............. 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....................................... 32 Part II. OTHER INFORMATION SIGNATURE..................................................................35
2 PART I - FINANCIAL INFORMATION Item I. FINANCIAL STATEMENTS AMERICREDIT CORP. Consolidated Balance Sheets (Unaudited, Dollars in Thousands)
December 31, June 30, 1998 1998 ---- ---- ASSETS Cash and cash equivalents $ 68,709 $ 33,087 Receivables held for sale, net 345,654 342,853 Interest-only receivables from Trusts 170,162 131,694 Investments in Trust receivables 123,627 98,857 Restricted cash 87,912 55,758 Property and equipment, net 31,599 23,385 Other assets 37,742 28,037 ------- -------- Total assets $865,405 $713,671 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Warehouse credit facilities $236,922 $165,608 Senior notes 175,000 175,000 Other notes payable 11,022 6,410 Accrued taxes and expenses 56,266 47,132 Deferred income taxes 48,886 31,673 -------- --------- Total liabilities 528,096 425,823 -------- -------- Shareholders' equity: Preferred Stock, $.01 par value per share; 20,000,000 shares authorized, none issued Common stock, $.01 par value per share; 120,000,000 shares authorized; 70,564,880 and 69,272,948 shares issued 706 693 Additional paid-in capital 242,138 230,269 Accumulated other comprehensive income 11,611 7,234 Retained earnings 105,628 72,770 -------- -------- 360,083 310,966 Treasury stock, at cost (7,546,433 and 7,667,318 shares) (22,774) (23,118) -------- -------- Total shareholders' equity 337,309 287,848 -------- -------- Total liabilities and shareholders' equity $865,405 $713,671 ======== ========
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, ------------------ ----------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenue: Finance charge income $16,260 $13,129 $33,177 $26,190 Gain on sale of receivables 38,900 23,655 74,020 44,335 Servicing fee income 21,146 11,882 38,011 22,171 Other income 2,013 582 2,877 1,022 ------- ------ ------- ------- 78,319 49,248 148,085 93,718 ------- ------- ------- ------- Costs and expenses: Operating expenses 39,676 21,825 73,735 41,916 Provision for losses 2,115 1,849 4,303 3,755 Interest expense 8,274 6,206 16,619 12,045 ------- ------- ------- ------- 50,065 29,880 94,657 57,716 ------- ------- ------- ------- Income before income taxes 28,254 19,368 53,428 36,002 Income tax provision 10,878 7,456 20,570 13,860 ------- ------- ------- ------- Net income 17,376 11,912 32,858 22,142 ------- ------ ------- ------- Other comprehensive income: Unrealized gain on credit enhancement assets 12,663 7,264 7,117 1,000 Less related income tax provision (4,875) (2,797) (2,740) (385) ------ ------- ------- ------- Comprehensive income $25,164 $16,379 $37,235 $22,757 ======= ======= ======= ======= Earnings per share: Basic $ .28 $ .20 $ .52 $ .37 ======= ======= ======= ======= Diluted $ .26 $ .18 $ .49 $ .34 ======= ======= ======= ======= Weighted average shares 62,857,131 59,780,710 62,657,929 59,369,920 ========== ========== ========== ========== Weighted average shares and assumed incremental shares 66,750,045 64,813,118 66,918,992 64,398,534 ========== ========== ========== ==========
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, ----------------------- 1998 1997 ---- ---- Cash flows from operating activities: Net income $32,858 $22,142 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,134 1,914 Provision for losses 4,303 3,755 Deferred income taxes 20,841 288 Non-cash servicing fee income (6,543) (7,176) Non-cash gain on sale of auto receivables (70,403) (36,234) Distributions from Trusts 24,921 16,864 Changes in assets and liabilities: Other assets (3,797) (4,581) Accrued taxes and expenses 9,134 1,882 ------- ------- Net cash provided (used) by operating activities 15,448 (1,146) ------- ------- Cash flows from investing activities: Purchases of auto receivables (1,219,493) (687,269) Originations of mortgage receivables (124,446) (51,572) Principal collections and recoveries on receivables 9,469 22,406 Net proceeds from sale of auto receivables 1,205,877 673,417 Net proceeds from sale of mortgage receivables 121,489 48,129 Initial deposits to restricted cash (36,250) (31,851) Purchases of property and equipment (6,162) (3,571) Increase in other assets (6,057) (2,541) ------- ------- Net cash used by investing activities (55,573) (32,852) ------- ------- Cash flows from financing activities: Net change in warehouse credit facilities 71,314 33,325 Payments on other notes payable (1,425) (10,153) Proceeds from issuance of common stock 5,858 7,066 ------- ------- Net cash provided by financing activities 75,747 30,238 ------- ------- Net increase (decrease) in cash and cash equivalents 35,622 (3,760) Cash and cash equivalents at beginning of period 33,087 6,027 ------- ------- Cash and cash equivalents at end of period $68,709 $ 2,267 ======= =======
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 accompanying consolidated financial statements include the accounts of AmeriCredit Corp. and its wholly-owned subsidiaries ("the Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements as of December 31, 1998 and for the periods ended December 31, 1998 and 1997 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/A for the year ended June 30, 1998. The Company's Board of Directors approved a two for one stock split on August 6, 1998 which was effected in the form of a 100% stock dividend for shareholders of record on September 11, 1998 and paid on September 30, 1998. In connection with the stock split, $347,000 was transferred from retained earnings to common stock representing the par value of the additional shares issued. All share data for the periods presented, except shares authorized, have been adjusted to reflect the stock split on a retroactive basis. The Company adopted the requirements of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), effective July 1, 1998. SFAS 130 establishes standards for reporting comprehensive income and its components in a full set of financial statements. The new standard requires that all items that are required to be recognized under accounting standards as components of comprehensive income, including an amount representing total comprehensive income, be reported in a financial statement that is displayed with the same prominence as other financial statements. Pursuant to SFAS 130, the Company has reported comprehensive income in the accompanying Consolidated Statements of Income and Comprehensive Income. All prior periods presented have been restated to conform to the requirements of SFAS 130. 6 NOTE 2 - RESTATEMENT On January 14, 1999, the Company issued a press release reporting a restatement of its financial statements for the fiscal years ended June 30, 1998, 1997, and 1996 as well as for the first quarter of fiscal 1999. Interim periods in the fiscal years ended June 30, 1998, 1997 and 1996 were also restated. As required by the Financial Accounting Standards Board's ("FASB") Special Report, "A Guide to Implementation of Statement 125 on Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, Second Edition", dated December 1998, and related guidance set forth in statements made by the staff of the Securities and Exchange Commission ("SEC") on December 8, 1998, the Company retroactively changed its method of measuring and accounting for credit enhancement assets to the cash-out method from the cash-in method. Initial deposits to restricted cash accounts and subsequent cash flows received by securitization trusts sponsored by the Company accumulate as credit enhancement assets until certain targeted levels are achieved, after which cash is distributed to the Company on an unrestricted basis. Under the cash-in method previously used by the Company, (i) the assumed discount period for measuring the present value of credit enhancement assets ended when cash flows were received by the securitization trusts and (ii) initial deposits to restricted cash accounts were recorded at face value. Under the cash-out method required by the FASB and SEC, the assumed discount period for measuring the present value of credit enhancement assets ends when cash, including return of the initial deposits, is distributed to the Company on an unrestricted basis. The change to the cash-out method results only in a difference in the timing of revenue recognition from a securitization and has no effect on the total cash flows of such transactions. While the total amount of revenue recognized over the term of a securitization transaction is the same under either method, the cash-out method results in (i) lower initial gains on the sale of receivables due to the longer discount period and (ii) higher subsequent servicing fee income from accretion of the additional cash-out discount. 7 NOTE 3 - RECEIVABLES HELD FOR SALE Receivables held for sale consist of the following (in thousands):
December 31, June 30, 1998 1998 ----------- ---------- Auto receivables $330,036 $334,110 Less allowance for losses (8,377) (12,756) -------- -------- Auto receivables, net 321,659 321,354 Mortgage receivables 23,995 21,499 -------- -------- $345,654 $342,853 ========= ========
A summary of the allowance for losses is as follows (in thousands):
Three Months Ended Six Months Ended December 31, December 31, ----------------- ---------------- 1998 1997 1998 1997 ---- ---- ---- ---- Balance at beginning of period $10,657 $13,549 $12,756 $12,946 Provision for losses 2,115 1,849 4,303 3,755 Acquisition fees 13,383 10,681 27,429 22,046 Allowance related to auto receivables sold to Trusts (16,213) (12,007) (32,688) (21,773) Net charge-offs (1,565) (2,722) (3,423) (5,624) ------ ------ ------- ------- Balance at end of period $ 8,377 $11,350 $ 8,377 $11,350 ====== ====== ====== ======
NOTE 4 - CREDIT ENHANCEMENT ASSETS As of December 31, 1998 and June 30, 1998, the Company was servicing $2,752.4 million and $1,968.4 million, respectively, of auto receivables which have been sold to certain special purpose financing trusts (the "Trusts"). The Company has retained an interest in these receivables in the form of credit enhancement assets. Credit enhancement assets consist of the following (in thousands):
December 31, June 30, 1998 1998 ---- ---- Interest-only receivables from Trusts $170,162 $131,694 Investments in Trust receivables 123,627 98,857 Restricted cash 87,912 55,758 ------- ------- $381,701 $286,309 ======= =======
8 A summary of credit enhancement assets is as follows (in thousands):
Three Months Ended Six Months Ended December 31, December 31, ----------------- -------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Balance at beginning of period $315,702 $197,010 $286,309 $161,395 Non-cash gain on sale of auto receivables 42,089 15,672 70,403 36,234 Accretion of present value discount 7,798 4,650 14,943 8,176 Initial deposits to restricted cash 19,500 5,250 36,250 31,851 Change in unrealized gain 12,663 7,264 7,117 1,000 Distributions from Trusts (12,451) (8,054) (24,921) (16,864) Permanent impairment write-down (3,600) (1,000) (8,400) (1,000) -------- ------- ------- ------ Balance at end of period $381,701 $220,792 $381,701 $220,792 ======== ======== ======== ========
A summary of the allowance for 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, ----------------- -------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Balance at beginning of period $ 217,891 $ 94,549 $179,359 $74,925 Assumptions for cumulative credit losses 68,597 35,152 131,190 69,318 Permanent impairment write-down 3,600 1,000 8,400 1,000 Net charge-offs (33,489) (17,907) (62,350) (32,449) --------- -------- ------- -------- Balance at end of period $ 256,599 $ 112,794 $256,599 $112,794 ========= ========= ======== ========
NOTE 5 - WAREHOUSE CREDIT FACILITIES Warehouse credit facilities consist of the following (in thousands):
December 31, June 30, 1998 1998 ----------- -------- Commercial paper facility $214,585 $140,708 Mortgage facility 22,337 24,900 ------ ------- $236,922 $165,608 ======== ========
In September 1998, the Company renewed its funding agreement with an administrative agent on behalf of an institutionally managed commercial paper conduit and a group of banks and increased the amount of structured warehouse financing available under the agreement from $245 million to $505 million. 9 Under the funding agreement, the Company transfers auto receivables to CP Funding Corp. ("CPFC"), a special purpose finance subsidiary of the Company, and CPFC in turn issues a note, collateralized by such auto receivables, to the agent. The agent provides funding under the note to CPFC pursuant to an advance formula and CPFC forwards the funds to the Company in consideration for the transfer of auto receivables. While CPFC is a consolidated subsidiary of the Company, CPFC is a separate legal entity and the auto receivables transferred to CPFC and the other assets of CPFC are legally owned by CPFC and not available to creditors of AmeriCredit Corp. or its other subsidiaries. Advances under the note bear interest at commercial paper, London Interbank Offered Rates ("LIBOR") or prime rates plus specified fees depending upon the source of funds provided by the agent to CPFC. The funding agreement, which expires in September 1999, contains various covenants requiring certain minimum financial ratios and results. The Company has a revolving credit agreement with a group of banks under which the Company may borrow up to $235 million, subject to a defined borrowing base. Borrowings under the credit agreement are collateralized by certain auto receivables and bear interest, based upon the Company's option, at either the prime rate or LIBOR plus 1.25%. The Company is also required to pay an annual commitment fee equal to 1/4% of the unused portion of the credit agreement. The credit agreement, which expires in April 1999, contains various restrictive covenants requiring certain minimum financial ratios and results and placing certain limitations on the incurrence of additional debt, capital expenditures, cash dividends and repurchase of common stock. There were no outstanding balances under the credit agreement as of December 31, 1998. In February 1999, the Company renewed its mortgage warehouse facility with a bank under which the Company may borrow up to $75 million, subject to a defined borrowing base. Borrowings under the facility are collateralized by certain mortgage receivables and bear interest, based upon the Company's option, at either the prime rate or LIBOR plus 1.50%. The Company is also required to pay an annual commitment fee equal to 1/4% of the unused portion of the facility. The facility expires in July 1999. NOTE 6 - SUPPLEMENTAL INFORMATION Cash payments for interest costs and income taxes consist of the following (in thousands):
Six Months Ended December 31, --------------------- 1998 1997 ---- ---- Interest costs (none capitalized) $15,728 $12,661 Income taxes (14,000) 6,915
During the six months ended December 31, 1998 and 1997, the Company entered into lease agreements for property and equipment of $6,037,000 and $1,543,000, respectively. 10 NOTE 7 - 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 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. Therefore, the separate financial statements of the Subsidiary Guarantors are not deemed material. The following supplemental schedules present consolidating financial information 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 on the equity method for purposes of the presentation set forth below. 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, 1998 (Unaudited, Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ------------ ----------- -------------- ------------ ------------ ASSETS Cash and cash equivalents $ $ 70,660 $ (1,951) $ $ 68,709 Receivables held for sale, net 97,728 247,926 345,654 Interest-only receivables from Trusts (1,833) 1,551 170,444 170,162 Investments in Trust receivables 895 122,732 123,627 Restricted cash 2,402 3,300 82,210 87,912 Property and equipment, net 357 31,192 50 31,599 Other assets 8,441 14,681 14,620 37,742 Due (to) from affiliates 354,415 (231,872) (122,543) Investment in affiliates 148,681 13,921 (162,602) ------- -------- -------- --------- -------- Total assets $512,463 $ 2,056 $513,488 $(162,602) $865,405 ======== ======== ======== ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Warehouse credit facilities $ $ 22,337 $214,585 $ $236,922 Senior notes 175,000 175,000 Other notes payable 10,999 23 11,022 Accrued taxes and expenses 11,792 43,202 1,272 56,266 Deferred income taxes (22,637) (22,497) 94,020 48,886 -------- -------- -------- --------- -------- Total liabilities 175,154 43,065 309,877 528,096 -------- -------- -------- --------- -------- Shareholders' equity: Common stock 706 203 3 (206) 706 Additional paid-in capital 242,138 108,242 13,920 (122,162) 242,138 Accumulated other comprehensive income 11,611 8,350 (8,350) 11,611 Retained earnings 105,628 (149,454) 181,338 (31,884) 105,628 -------- --------- -------- --------- -------- 360,083 (41,009) 203,611 (162,602) 360,083 Treasury stock (22,774) (22,774) -------- --------- -------- --------- -------- Total shareholders' equity 337,309 (41,009) 203,611 (162,602) 337,309 -------- --------- -------- --------- -------- Total liabilities and shareholders' equity $512,463 $ 2,056 $513,488 $(162,602) $865,405 ======== ========= ======== ========= ========
12 AmeriCredit Corp. Consolidating Balance Sheet June 30, 1998 (Unaudited, Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ------------ ----------- -------------- ------------ ------------ ASSETS Cash and cash equivalents $ $ 30,157 $ 2,930 $ $ 33,087 Receivables held for sale, net 178,219 164,634 342,853 Interest-only receivables (2,151) 3,623 130,222 131,694 from Trusts Investments in Trust receivables 2,109 96,748 98,857 Restricted cash 55,758 55,758 Property and equipment, net 175 23,210 23,385 Other assets 8,911 13,003 6,123 28,037 Due (to) from affiliates 330,924 (226,892) (104,032) Investment in affiliates 110,623 13,921 2 (124,546) -------- -------- -------- --------- -------- Total assets $448,482 $ 37,350 $352,385 $(124,546) $713,671 ======== ========= ======== ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Warehouse credit facilities $ $ 24,900 $140,708 $ $165,608 Senior notes 175,000 175,000 Other notes payable 6,384 26 6,410 Accrued taxes and expenses (2,280) 53,950 (4,538) 47,132 Deferred income taxes (18,470) (16,637) 66,780 31,673 -------- -------- -------- --------- -------- Total liabilities 160,634 62,239 202,950 425,823 -------- -------- -------- --------- -------- Shareholders' equity: Common stock 693 203 3 (206) 693 Additional paid-in capital 230,269 108,336 13,921 (122,257) 230,269 Accumulated other comprehensive income 7,234 7,234 (7,234) 7,234 Retained earnings 72,770 (133,428) 128,277 5,151 72,770 -------- -------- -------- --------- -------- 310,966 (24,889) 149,435 (124,546) 310,966 Treasury stock (23,118) (23,118) -------- -------- -------- --------- -------- Total shareholders'equity 287,848 (24,889) 149,435 (124,546) 287,848 -------- -------- -------- --------- -------- Total liabilities and shareholders' equity $448,482 $ 37,350 $352,385 $(124,546) $713,671 ======== ======== ======== ========= ========
13 AmeriCredit Corp. Consolidating Income Statement Six Months Ended December 31, 1998 (Unaudited, Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ------------ ----------- -------------- ------------ ------------ Revenue: Finance charge income $ $ 18,890 $ 14,287 $ $ 33,177 Gain on sale of receivables (6,394) 4,762 75,652 74,020 Servicing fee income 59,497 5,190 (26,676) 38,011 Other income 14,736 2,124 693 (14,676) 2,877 Equity in income of affiliates 37,035 (37,035) -------- -------- -------- --------- -------- 45,377 85,273 95,822 (78,387) 148,085 -------- -------- -------- --------- -------- Costs and expenses: Operating expenses 7,687 92,599 125 (26,676) 73,735 Provision for losses 1,850 2,453 4,303 Interest expense 8,999 11,320 10,976 (14,676) 16,619 -------- -------- -------- --------- -------- 16,686 105,769 13,554 (41,352) 94,657 -------- -------- -------- --------- -------- Income before income taxes 28,691 (20,496) 82,268 (37,035) 53,428 Income tax provision (4,167) (4,470) 29,207 20,570 -------- -------- -------- --------- -------- Net income $32,858 $(16,026) $ 53,061 $ (37,035) $32,858 ======== ======== ======== ========= ========
14 AmeriCredit Corp. Consolidating Income Statement Six Months Ended December 31, 1997 (Unaudited, Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ------------ ----------- -------------- ------------ ------------ Revenue: Finance charge income $ $ 20,213 $ 5,977 $ $ 26,190 Gain on sale of receivables (4,903) 3,321 45,917 44,335 Servicing fee income 42,350 6,607 (26,786) 22,171 Other income 14,920 397 393 (14,688) 1,022 Equity in income of affiliates 23,002 (23,002) -------- -------- -------- --------- -------- 33,019 66,281 58,894 (64,476) 93,718 -------- -------- -------- --------- -------- Costs and expenses: Operating expenses 4,948 63,758 (4) (26,786) 41,916 Provision for losses 3,755 3,755 Interest expense 6,318 12,462 7,953 (14,688) 12,045 -------- -------- -------- --------- -------- 11,266 79,975 7,949 (41,474) 57,716 -------- -------- -------- --------- -------- Income before income taxes 21,753 (13,694) 50,945 (23,002) 36,002 Income tax provision (389) (4,270) 18,519 13,860 -------- -------- -------- --------- -------- Net income $ 22,142 $ (9,424) $ 32,426 $ (23,002) $ 22,142 ======== ======== ======== ========= ========
15 AmeriCredit Corp. Consolidating Statement of Cash Flow Six Months Ended December 31, 1998 (Unaudited, Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ------------ ----------- -------------- ------------ ------------ Cash flow from operating activities: Net income $32,858 $ (16,026) $ 53,061 $ (37,035) $32,858 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 42 4,091 1 4,134 Provision for losses 1,850 2,453 4,303 Deferred income taxes 2,202 (5,860) 24,499 20,841 Non-cash servicing fee income (6,543) (6,543) Non-cash gain on sale of auto receivables (70,403) (70,403) Distributions from Trusts 24,921 24,921 Equity in income of affiliates (37,035) 37,035 Changes in assets and liabilities: Other assets 470 (1,827) (2,440) (3,797) Accrued taxes and expenses 14,072 (10,748) 5,810 9,134 -------- ----------- ---------- ----------- -------- Net cash provided by operating activities 12,609 (28,520) 31,359 15,448 -------- ----------- ---------- ----------- -------- Cash flows from investing activities: Purchases of auto receivables (1,219,493) (1,305,107) 1,305,107 (1,219,493) Originations of mortgage receivables (124,446) (124,446) Principal collections and recoveries on receivables (4,385) 13,854 9,469 Net proceeds from sale of auto receivables 1,305,107 1,205,877 (1,305,107) 1,205,877 Net proceeds from sale of mortgage receivables 121,489 121,489 Initial deposits to restricted cash (2,402) (3,300) (30,548) (36,250) Purchases of property and equipment (224) (5,887) (51) (6,162) Increase in other assets (6,057) (6,057) -------- ----------- ---------- ---------- --------- Net cash used by investing activities (2,626) 69,085 (122,032) (55,573) -------- ----------- ---------- ---------- --------- Cash flows from financing activities: Net change in warehouse credit facilities (2,563) 73,877 71,314 Payments on other notes payable (1,422) (3) (1,425) Proceeds from issuance of common stock 5,514 275 69 5,858 Net change in due (to) from affiliates (14,075) 2,229 11,846 -------- ----------- ---------- ----------- --------- Net cash provided by financing activities (9,983) (62) 85,792 75,747 -------- ----------- ---------- ----------- --------- Net increase in cash and cash equivalents 40,503 (4,881) 35,622 Cash and cash equivalents at beginning of period 30,157 2,930 33,087 -------- ----------- ---------- ----------- --------- Cash and cash equivalents at end of period $ $ 70,660 $ (1,951) $ $ 68,709 ======== ========== ========== =========== =========
16 AmeriCredit Corp. Consolidating Statement of Cash Flow Six Months Ended December 31, 1997 (Unaudited, Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ------------ ----------- -------------- ------------ ------------ Cash flow from operating activities: Net income $ 22,142 $ (9,424) $ 32,426 $ (23,002) $ 22,142 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22 1,892 1,914 Provision for losses 3,755 3,755 Deferred income taxes 9,193 2,648 (11,553) 288 Non-cash servicing fee income (7,176) (7,176) Non-cash gain on sale of auto receivables (36,234) (36,234) Distributions from Trusts 16,864 16,864 Equity in income of affiliates (23,002) 23,002 Changes in assets and liabilities: Other assets (962) (1,611) (2,008) (4,581) Accrued taxes and expenses 1,253 (589) 1,218 1,882 ------------ --------- ---------- ---------- ---------- Net cash provided by operating activities 8,646 (3,329) (6,463) (1,146) ------------ --------- ---------- ---------- ---------- Cash flows from investing activities: Purchases of auto receivables (687,269) (791,332) 791,332 (687,269) Originations of mortgage receivables (51,572) (51,572) Principal collections and recoveries on receivables 11,340 11,066 22,406 Net proceeds from sale of auto receivables 791,332 673,417 (791,332) 673,417 Net proceeds from sale of mortgage receivables 48,129 48,129 Initial deposits to restricted cash (31,851) (31,851) Purchases of property and equipment (23) (3,548) (3,571) Net change in investment in affiliates (9,998) (3,921) (2) 13,921 Increase in other assets (2,541) (2,541) ------------ --------- ---------- ---------- ---------- Net cash used by investing activities (10,021) 104,491 (141,243) 13,921 (32,852) ------------ --------- ---------- ---------- ---------- Cash flows from financing activities: Net change in warehouse credit facilities (62,664) 95,989 33,325 Payments on other notes payable (598) (4) (9,551) (10,153) Proceeds from issuance of common stock 7,066 13,921 (13,921) 7,066 Net change in due (to) from affiliates (5,093) (43,507) 48,600 ------------ --------- ---------- ---------- ---------- Net cash provided by financing activities 1,375 (106,175) 148,959 (13,921) 30,238 ------------ --------- ---------- ---------- ---------- Net decrease in cash and cash equivalents (5,013) 1,253 (3,760) Cash and cash equivalents at beginning of period 3,988 2,039 6,027 ------------ --------- ---------- ---------- ---------- Cash and cash equivalents at end of period $ $ (1,025) $ 3,292 $ $ 2,267 ============ ========= ========== ========== ==========
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. To fund the acquisition of receivables prior to securitization, the Company utilizes borrowings under its warehouse credit facilities. The Company generates 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 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 to secure financial guaranty insurance policies issued by an insurance company to protect investors in the asset-backed securities from losses. Once predetermined credit enhancement requirements are reached and maintained, excess cash flows are distributed to the Company on an unrestricted basis. 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"). In November 1996, the Company acquired AmeriCredit Mortgage Services ("AMS"), which originates and sells mortgage loans. The acquisition was accounted for as a purchase and the results of operations for AMS have been included in the consolidated financial statements since the acquisition date. Receivables originated in this business are referred to as mortgage receivables. Such receivables are generally packaged and sold for cash on a servicing released whole-loan basis. The Company recognizes a gain at the time of sale. 18 RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 1998 AS COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1997 REVENUE: The Company's average managed receivables outstanding consisted of the following (in thousands):
Three Months Ended December 31, ----------------------- 1998 1997 ---- ---- Auto: Held for sale $ 279,693 $ 244,597 Serviced 2,625,065 1,248,876 --------- --------- 2,904,758 1,493,473 Mortgage 27,560 14,565 --------- --------- $2,932,318 $1,508,038 ========== ==========
Average managed receivables outstanding increased by 94% as a result of higher loan purchase volume. The Company purchased $599.1 million of auto loans during the three months ended December 31, 1998, compared to purchases of $341.2 million during the three months ended December 31, 1997. This growth resulted from loan production at branches open during both periods as well as expansion of the Company's loan production capacity. The Company operated 165 auto lending branch offices as of December 31, 1998, compared to 108 as of December 31, 1997. The Company originated $85.5 million of mortgage loans during the three months ended December 31, 1998, compared to $24.2 million during the three months ended December 31, 1997. Finance charge income consisted of the following (in thousands): Three Months Ended December 31, --------------------- 1998 1997 ---- ---- Auto $ 15,652 $ 12,786 Mortgage 608 343 ------ ------- $ 16,260 $ 13,129 ====== ====== The increase in finance charge income is due primarily to an increase of 14% in average auto receivables held for sale in the three months ended December 31, 1998 versus the three months ended December 31, 1997. In addition, the Company's effective yield on its auto receivables held for sale increased to 22.2% for the three months ended December 31, 1998 from 20.7% for the three months ended December 31, 1997. 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 gain on sale of receivables consisted of the following (in thousands):
Three Months Ended December 31, ---------------------- 1998 1997 ---- ---- Auto $37,168 $22,601 Mortgage 1,732 1,054 ------ ------- $38,900 $23,655 ======= =======
The increase in gain on sale of auto receivables resulted from the sale of $650.0 million of receivables in the three months ended December 31, 1998 as compared to $350.0 million of receivables sold in the three months ended December 31, 1997. The gains amounted to 5.7% and 6.5% of the sales proceeds for the three months ended December 31, 1998 and 1997, respectively. The gain on sale for the three months ended December 31, 1998 includes a cash hedging loss of $5.8 million. Significant assumptions used in determining the gain on sale of auto receivables were as follows:
Three Months Ended December 31, ---------------------- 1998 1997 ---- ---- Cumulative credit losses 10.6% 10.0% Discount rate used to estimate present value: Interest-only receivables from Trusts 12.0% 12.0% Investments in Trust receivables 7.8% 7.8% Restricted cash 7.8% 7.8%
The discount rates used to estimate the present value of credit enhancement assets are based on the relative risk 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 interest-only receivables for credit enhancement purposes. The increase in the gain on sale of mortgage receivables resulted from the sale of $73.9 million of receivables in the three months ended December 31, 1998, compared to $23.2 million of receivables sold in the three months ended December 31, 1997. The average premium received on sales decreased to 2.3% for the three months ended December 31, 1998 from 4.6% for the three months ended December 31, 1997. 20 Servicing fee income increased to $21.1 million, or 3.2% of average serviced auto receivables, for the three months ended December 31, 1998, as compared to $11.9 million, or 3.8% of average serviced auto receivables, for the three months ended December 31, 1997. 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. Servicing fee income for the three months ended December 31, 1998 and 1997 includes charges of $3.6 million and $1.0 million, respectively, to increase credit loss reserves related to certain of the Company's fiscal 1997 and 1996 securitization transactions since the Company's current estimates of cumulative credit losses for these transactions exceed the original estimates. The Company has raised the assumptions for cumulative credit losses for securitization transactions completed subsequent to fiscal 1997 compared to assumptions used for transactions completed in fiscal 1997 and 1996. The growth in servicing fee income exclusive of the aforementioned charge is attributable to the increase in average serviced auto receivables outstanding for the three months ended December 31, 1998 compared to the three months ended December 31, 1997. COSTS AND EXPENSES: Operating expenses as an annualized percentage of average managed receivables outstanding decreased to 5.4% (5.1% excluding operating expenses of $2.5 million related to the mortgage business) for the three months ended December 31, 1998, compared to 5.8% (5.5% excluding operating expenses of $1.3 million related to the mortgage business) for the three months ended December 31, 1997. 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 $17.9 million, or 82%, primarily due to the addition of auto lending branch offices and management and auto loan processing and servicing staff. The provision for losses increased to $2.1 million for the three months ended December 31, 1998 from $1.8 million for the three months ended December 31, 1997 due to higher average amounts of auto receivables held for sale. As a percentage of average receivables held for sale, the provision for losses was 3.0% for the three months ended December 31, 1998 and 1997, respectively. Interest expense increased to $8.3 million for the three months ended December 31, 1998 from $6.2 million for the three months ended December 31, 1997 due to higher debt levels. Average debt outstanding was $374.7 million and $271.7 million for the three months ended December 31, 1998 and 1997, respectively. The Company's effective rate of interest paid on its debt decreased to 8.8% from 9.1% as a result of larger amounts of debt outstanding under the Company's warehouse credit facilities for the three months ended December 31, 1998. Interest rates on the warehouse credit facilities are lower than rates on the Senior Notes. 21 The Company's effective income tax rate was 38.5% for the three months ended December 31, 1998 and 1997, respectively. SIX MONTHS ENDED DECEMBER 31, 1998 AS COMPARED TO SIX MONTHS ENDED DECEMBER 31, 1997 REVENUE: The Company's average managed receivables outstanding consisted of the following (in thousands):
Six Months Ended December 31, ------------------------ 1998 1997 ----- ---- Auto: Held for sale $ 284,969 $ 245,296 Serviced 2,419,905 1,130,318 --------- --------- 2,704,874 1,375,614 Mortgage 22,757 11,534 --------- --------- $2,727,631 $1,387,148 ========== ==========
Average managed receivables outstanding increased by 97% as a result of higher loan purchase volume. The Company purchased $1,224.1 million of auto loans during the six months ended December 31, 1998, compared to purchases of $696.3 million during the six months ended December 31, 1997. This growth resulted from loan production at branches open during both periods as well as expansion of the Company's loan production capacity. The Company operated 165 auto lending branch offices as of December 31, 1998, compared to 108 as of December 31, 1997. The Company originated $124.4 million of mortgage loans during the six months ended December 31, 1998, compared to $51.6 million during the six months ended December 31, 1997. Finance charge income consisted of the following (in thousands):
Six Months Ended December 31, -------------------------- 1998 1997 ----- ---- Auto $ 32,146 $ 25,645 Mortgage 1,031 545 -------- -------- $ 33,177 $ 26,190 ======== ========
The increase in finance charge income is due primarily to an increase of 16% in average auto receivables held for sale in the six months ended December 31, 1998 versus the six months ended December 31, 1997. In addition, the Company's effective yield on its auto receivables held for sale increased to 22.4% for 22 the six months ended December 31, 1998 from 20.7% for the six months ended December 31, 1997. 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 automobile dealership and the date the auto finance contract is funded by the Company. The gain on sale of receivables consisted of the following (in thousands):
Six Months Ended December 31, ---------------------- 1998 1997 ---- ---- Auto $70,938 $42,091 Mortgage 3,082 2,244 ------- ------- $74,020 $44,335 ======= =======
The increase in gain on sale of auto receivables resulted from the sale of $1,220.0 million of receivables in the six months ended December 31, 1998 as compared to $682.5 million of receivables sold in the six months ended December 31, 1997. The gains amounted to 5.8% and 6.2% of the sales proceeds for the six months ended December 31, 1998 and 1997, respectively. The gain on sale for the six months ended December 31, 1998 includes a cash hedging loss of $5.8 million. Significant assumptions used in determining the gain on sale of auto receivables were as follows:
Six Months Ended December 31, ---------------------- 1998 1997 ---- ---- Cumulative credit losses 10.8% 10.2% Discount rate used to estimate present value: Interest-only receivables from Trusts 12.0% 12.0% Investments in Trust receivables 7.8% 7.8% Restricted cash 7.8% 7.8%
The increase in the gain on sale of mortgage receivables resulted from the sale of $121.5 million of receivables in the six months ended December 31, 1998, compared to $48.1 million of receivables sold in the six months ended December 31, 1997. The average premium received on sales decreased to 2.5% for the six months ended December 31, 1998 from 4.7% for the six months ended December 31, 1997. Servicing fee income increased to $38.0 million, or 3.1% of average serviced auto receivables, for the six months ended December 31, 1998, as compared to $22.2 million, or 3.9% of average serviced auto receivables, for the six months ended December 31, 1997. 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 23 auto receivables sold to the Trusts. Servicing fee income for the six months ended December 31, 1998 and 1997 also includes charges of $8.4 million and $1.0 million, respectively, to increase credit loss reserves related to certain of the Company's fiscal 1997 and 1996 securitization transactions since the Company's current estimates of cumulative credit losses for these transactions exceed the original estimates. The Company has raised the assumptions for cumulative credit losses for securitization transactions completed subsequent to fiscal 1997 compared to assumptions used for transactions completed in fiscal 1997 and 1996. The growth in servicing fee income exclusive of the aforementioned charge is attributable to the increase in average serviced auto receivables outstanding for the six months ended December 31, 1998 compared to the six months ended December 31, 1997. COSTS AND EXPENSES: Operating expenses as an annualized percentage of average managed receivables outstanding decreased to 5.4% (5.1% excluding operating expenses of $4.4 million related to the mortgage business) for the six months ended December 31, 1998, compared to 6.0% (5.7% excluding operating expenses of $2.6 million related to the mortgage business) for the six months ended December 31, 1997. 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 $31.8 million, or 76%, primarily due to the addition of auto lending branch offices and management and auto loan processing and servicing staff. The provision for losses increased to $4.3 million for the six months ended December 31, 1998 from $3.8 million for the six months ended December 31, 1997 due to higher average amounts of auto receivables held for sale. As a percentage of average receivables held for sale, the provision for losses was 3.0% for the six months ended December 31, 1998 and 1997, respectively. Interest expense increased to $16.6 million for the six months ended December 31, 1998 from $12.0 million for the six months ended December 31, 1997 due to higher debt levels. Average debt outstanding was $370.7 million and $257.6 million for the six months ended December 31, 1998 and 1997, respectively. The Company's effective rate of interest paid on its debt decreased to 8.9% from 9.3% as a result of larger amounts of debt outstanding under the Company's warehouse credit facilities for the six months ended December 31, 1998. Interest rates on the warehouse credit facilities are lower than rates on the Senior Notes. The Company's effective income tax rate was 38.5% for the six months ended December 31, 1998 and 1997, respectively. CREDIT QUALITY The Company provides financing in relatively high-risk markets, and therefore, charge-offs are anticipated. The Company records a periodic provision for losses as a charge to operations and a related allowance for losses in the 24 consolidated balance sheets as a reserve against estimated losses in the receivables held for sale portfolio. The Company typically purchases individual finance contracts for a non-refundable acquisition fee on a non-recourse basis. Such acquisition fees are also recorded in the consolidated balance sheets as an allowance for 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 sells mortgage receivables for cash on a servicing released, whole-loan basis. Such receivables are generally held by the Company for less than 90 days. Accordingly, no allowance for losses is provided by the Company for the mortgage receivables. 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, provisions for losses and allowance for 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. 25 The following table presents certain data related to the receivables portfolio (dollars in thousands):
December 31, 1998 --------------------------------------------------------- Held for Sale ------------- Auto Managed Auto Auto Mortgage Total Serviced Portfolio (2) ---- --------- ----- -------- ------------- Principal amount of receivables $330,036 $ 23,995 $354,031 $2,752,384 $3,082,420 ========== ========== Allowance for losses (8,377) (8,377) $ (256,599)(1) $ (264,976) -------- -------- -------- ========== ========== Receivables, net $321,659 $ 23,995 $345,654 ======== ======== ======== Number of outstanding contracts 25,059 268 255,258 280,317 ======== ======== ========== ========== Average amount of outstanding contract (principal amount) (in dollars) $ 13,170 $ 89,534 $ 10,783 $ 10,996 ======== ======== ========== ========== Allowance for losses as a percentage of receivables 2.5% 9.3% 8.6% ======== ========== ==========
(1) The allowance for losses related to serviced auto receivables is netted against interest-only receivables from Trusts in the Company's consolidated balance sheets. (2) Includes auto receivables only. The following is a summary of managed auto receivables which are (i) more than 30 days delinquent, but not in repossession, and (ii) in repossession(dollars in thousands):
December 31, December 31, 1998 1997 ----------------- ---------------- Amount Percent Amount Percent Delinquent contracts: 31 to 60 days $236,083 7.7% $122,035 7.6% Greater than 60 days 87,443 2.8 57,186 3.6 ------- --- ------- ---- 323,526 10.5 179,221 11.2 In repossession 30,204 1.0 22,012 1.4 ------- ---- ------- ---- $353,730 11.5% $201,233 12.6% ======= ===== ======= =====
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 a quarterly percentage of average managed auto receivables outstanding were 4.5% and 4.7% for the three months ended December 31, 1998 and 1997, 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. 26 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, ------------------ ---------------- 1998 1997 1998 1997 ---- ---- ---- ---- Net charge-offs: Held for sale $1,565 $2,722 $3,423 $5,624 Serviced 33,489 17,907 62,350 32,449 ------ ------ ------ ------ $35,054 $20,629 $65,773 $38,073 ====== ====== ====== ====== Net charge-offs as an annualized percentage of average managed auto receivables outstanding 4.8% 5.5% 4.8% 5.5% === === === === Net recoveries as a percentage of gross repossession charge-offs 49.7% 50.1% 50.0% 50.0% ==== ==== ==== ====
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. 27 LIQUIDITY AND CAPITAL RESOURCES The Company's cash flows are summarized as follows (in thousands):
Six Months Ended December 31, ---------------------- 1998 1997 ---- ---- Operating activities $15,448 $ (1,146) Investing activities (55,573) (32,852) Financing activities 75,747 30,238 ------- -------- Net increase (decrease) in cash and cash equivalents $35,622 $ (3,760) ======= ========
The Company's primary sources of liquidity have been cash flows from operating activities, including excess cash flow 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 and originations of receivables and funding credit enhancement requirements for securitization transactions. The Company purchased $1,224.1 million and $696.3 million of auto finance contracts during the six months ended December 31, 1998 and 1997, respectively, requiring cash of $1,219.5 million and $687.3 million, respectively, net of acquisition fees and other items. These purchases were funded initially utilizing warehouse credit facilities and subsequently through the sale of auto receivables in securitization transactions. In September 1998, the Company renewed its funding agreement with an administrative agent on behalf of an institutionally managed commercial paper conduit and a group of banks and increased the amount of structured warehouse financing available under the agreement from $245 million to $505 million. The Company utilizes this facility to fund auto receivables pending securitization. A total of $214.6 million was outstanding under this facility as of December 31, 1998. The facility matures in September 1999. In addition, the Company has a credit agreement with a group of banks that provides for borrowings up to $235 million, subject to a defined borrowing base. The Company utilizes the facility to fund its auto lending activities and daily operations. The facility matures in April 1999. There were no outstanding balances under the credit agreement as of December 31, 1998. In February 1999, the Company renewed its mortgage warehouse facility with a bank under which the Company may borrow up to $75 million, subject to a defined borrowing base, to fund mortgage loan originations. The facility expires in July 1999. A total of $22.3 million was outstanding under the mortgage facility as of December 31, 1998. 28 The Company has completed fifteen auto receivables securitization transactions through December 31, 1998. The proceeds from the transactions were primarily used to repay borrowings outstanding under the Company's warehouse credit facilities. A summary of these transactions is as follows:
Original Balance at Amount December 31,1998 Transaction Date (in millions) (in millions) - ----------- ---- ------------- ---------------- 1994-A December 1994 $ 51.0 Paid in full 1995-A June 1995 99.2 Paid in full 1995-B December 1995 65.0 Paid in full 1996-A March 1996 89.4 11.6 1996-B May 1996 115.9 23.7 1996-C August 1996 175.0 35.6 1996-D November 1996 200.0 64.8 1997-A March 1997 225.0 89.8 1997-B May 1997 250.0 114.4 1997-C August 1997 325.0 175.9 1997-D November 1997 400.0 258.1 1998-A February 1998 425.0 310.6 1998-B May 1998 525.0 423.7 1998-C August 1998 575.0 513.8 1998-D November 1998 625.0 602.7 -------- -------- $4,145.5 $2,624.7 ======== ========
In connection with securitization transactions, the Company is required to fund certain credit enhancement levels set by the insurer of 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 overcolleratization 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 on an unrestricted basis. Initial deposits to restricted cash accounts were $36.3 million and $31.9 million for the six months ended December 31, 1998 and 1997, respectively. Excess cash flows distributed to the Company were $24.9 million and $16.9 million for the six months ended December 31, 1998 and 1997, respectively. 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, 29 1998, none of the Company's securitizations had delinquency, default and net loss ratios in excess of the targeted levels. The Company's Board of Directors has authorized the repurchase of up to 12,000,000 shares of the Company's common stock. A total of 9,189,400 shares at an aggregate purchase price of $27.4 million had been purchased pursuant to this program through December 31, 1998, although no common stock has been repurchased since September 1996. The Indenture pursuant to which the Senior Notes were issued contains restrictions as to the amount of common stock which may be repurchased by the Company. The Company operated 165 auto lending branch offices as of December 31, 1998 and plans to open a minimum of 9 additional branches through the remainder of fiscal 1999. The Company may also expand loan production capacity at existing auto lending branch offices where appropriate and may expand its mortgage lending activities. While the Company has been able to establish and grow its finance businesses 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, 1998, the Company had $68.7 million in cash and cash equivalents. The Company also had available borrowing capacity of $33.7 million under its bank credit agreement pursuant to the borrowing base requirement of such facility. The Company estimates that it will require additional external capital for fiscal 1999 in addition to existing capital resources in order to fund expansion of its lending activities. The Company anticipates that such funding will be in the form of additional securitization transactions and implementation of new warehouse credit facilities. 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 Since 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. 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 securitizations, whereby the amount of asset-backed securities issued in a securitization exceeds the amount of receivables initially sold to the Trust. The proceeds from the pre-funded portion are held in an escrow account until the Company sells additional receivables to the Trust in amounts up to the balance of the pre-funded escrow account. In pre-funded securitizations, the Company locks in the borrowing costs with respect to the loans it subsequently delivers 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 30 held in escrow prior to subsequent delivery of receivables and the interest rate paid on the asset-backed securities outstanding. 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. YEAR 2000 ISSUE The year 2000 issue is whether the Company's or its vendors' computer systems will properly recognize date sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or fail. The Company has developed a comprehensive project plan for achieving year 2000 readiness. An inventory of critical hardware and software has been completed and information technology components have been assessed. This assessment included major suppliers and business partners and the Company is monitoring their continued progress toward year 2000 compliance; however, the Company does not rely on any single supplier or partner to conduct business. The Company has completed the process of renovating or replacing critical systems. Integrated testing and installation of all renovated systems is in process with an estimated completion date of March 31, 1999. In addition, the Company is currently developing contingency plans for critical systems. Year 2000 project costs incurred through December 31, 1998 have been approximately $400,000. The Company expects to incur an additional $700,000 of costs to fund year 2000 project efforts through the end of calendar year 1999. The Company presently believes that with modifications to existing systems and/or conversion to new systems, the year 2000 issue will not pose significant operational problems for the Company. However, if such modifications and conversions are not made, or are not completed in a timely manner, the year 2000 issue could have a material impact on the operations of the Company. In addition, there can be no assurance that unforeseen problems in the Company's computer systems, or the systems of third parties on which the Company's computers rely, would not have an adverse effect on the Company's systems or operations. FORWARD LOOKING STATEMENTS Except for the historical information contained herein, the matters discussed above are forward looking statements that involve risks and uncertainties including competitive factors, the management of growth, portfolio credit quality, the availability of capital resources and other risks 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, 1998. Such statements are only predictions and actual events or results may differ materially. 31 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 rates on U.S. Treasury Notes with similar average maturities. The Company periodically uses Forward U.S. Treasury Rate Lock agreements to lock in the indexed rate for specific anticipated securitization transactions. The floating rates on securities issued by the Trusts are indexed to London Interbank Offered Rates (LIBOR). The Company uses Interest Rate Swap agreements to convert the floating rate exposures on these securities to a fixed rate. All of the Company's derivative financial instrument positions are associated with securitization transactions completed prior to December 31, 1998 and the net market risk to the Company is not material. 32 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Not Applicable 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 4, 1998, the Company held its Annual Meeting of Shareholders. The Shareholders voted upon the election of eight directors, an amendment to increase the number of shares reserved under the AmeriCredit Corp. Employee Stock Purchase Plan (the "Purchase Plan"), the adoption of the 1998 Limited Stock Option Plan for AmeriCredit Corp. (the "1998 Plan") and the ratification of the appointment of the Company's independent auditors. Each of the eight 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 until the next Annual Meeting or until their successors are duly elected and qualified. The shareholders approved the amendment to the Purchase Plan, with 20,887,856 shares voting in favor, 1,270,780 shares voting against and 88,805 shares withheld. The shareholders adopted the 1998 Plan, with 14,628,889 shares voting in favor, 7,512,513 shares voting against and 106,039 shares withheld. The Company's selection of independent auditors was also ratified. References to numbers of shares in this item 4 do not reflect the two-for-one stock split paid in the form of a 100% stock dividend by the Company on September 30, 1998 Item 5. OTHER INFORMATION Not Applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 11.1 Statement Re Computation of Per Share Earnings
33 27.1 Financial Data Schedule (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarterly period ended December 31, 1998. Certain subsidiaries and affiliates of the Company filed reports on Form 8-K during the quarterly period ended December 31, 1998 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: February 16, 1999 By: /s/ Daniel E. Berce ------------------------------------- (Signature) Daniel E. Berce Chief Financial Officer 35 EX-11.1 2 EXHIBIT 11.1 EXHIBIT 11.1 AMERICREDIT CORP. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended December 31, December 31, ------------------------- -------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Weighted average shares outstanding 62,857,131 59,780,710 62,657,929 59,369,920 Incremental shares resulting from assumed exercise of stock options 3,892,914 5,032,408 4,261,063 5,028,614 ---------- ---------- ---------- ----------- Weighted average shares and assumed incremental shares 66,750,045 64,813,118 66,918,992 64,398,534 ---------- ---------- ---------- ----------- NET INCOME $17,376 $11,912 $32,858 $ 22,142 ---------- ---------- ---------- ----------- EARNINGS PER SHARE: Basic $ .28 $ .20 $ 0.52 $ 0.37 ========== ========== ========== =========== Diluted $ .26 $ .18 $ 0.49 $ 0.34 ========== ========== ========== ===========
Basic earnings per share have been computed by dividing net income by the weighted average shares outstanding. Diluted earnings per share have been computed by dividing net income by the weighted average shares and assumed incremental shares. 36 EX-27.1 3 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF AMERICREDIT CORP. INCLUDED IN ITS QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 156,621 0 354,031 8,377 0 0 43,501 11,902 865,405 0 422,944 0 0 706 336,603 865,405 0 148,085 0 73,735 0 4,303 16,619 53,428 20,570 32,858 0 0 0 32,858 0.52 0.49
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