UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________
FORM 10-Q
(Mark One)
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Qý | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20132014
OR
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o | | 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
______________________________________________
General Motors Financial Company, Inc.
(Exact name of registrant as specified in its charter)
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Texas | | 75-2291093 |
(State or other jurisdiction of Incorporationincorporation or organization)
| | (I.R.S. Employer Identification No.) |
801 Cherry Street, Suite 3500, 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 sectionSection 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 Q No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes Q No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer"; "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | o | Accelerated filer | o | Non-accelerated filer | ý | Smaller Reporting Company | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No Q
As of July 30, 2013,24, 2014, there were 502 shares of the registrant’s common stock, par value $0.01$1.00 per share, outstanding. All of the registrant’s common stock is owned by General Motors Holdings, LLC.
GENERAL MOTORS FINANCIAL COMPANY, INC.
INDEX TO FORM 10-Q
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Part I. FINANCIAL INFORMATION
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Part I. | FINANCIAL INFORMATION |
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Item 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, dollarsDollars in millions)millions, except per share amounts)
(Unaudited)
| | | June 30, 2013 | | December 31, 2012 | | June 30, 2014 | | December 31, 2013 |
Assets | | | | | | | |
Cash and cash equivalents | $ | 1,757 |
| | $ | 1,289 |
| | $ | 1,412 |
| | $ | 1,074 |
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Finance receivables, net | 22,945 |
| | 10,998 |
| | 31,545 |
| | 29,282 |
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Restricted cash | 1,426 |
| | 744 |
| | 2,205 |
| | 1,958 |
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Property and equipment, net | 121 |
| | 52 |
| | 150 |
| | 132 |
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Leased vehicles, net | 2,655 |
| | 1,703 |
| | 4,748 |
| | 3,383 |
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Deferred income taxes | 120 |
| | 107 |
| | 433 |
| | 359 |
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Goodwill | 1,158 |
| | 1,108 |
| | 1,245 |
| | 1,240 |
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Related party receivables | 105 |
| | 66 |
| | 185 |
| | 129 |
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Other assets | 298 |
| | 130 |
| | 436 |
| | 433 |
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Total assets | $ | 30,585 |
| | $ | 16,197 |
| | $ | 42,359 |
| | $ | 37,990 |
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Liabilities and Shareholder's Equity | | | | | | | |
Liabilities: | | | | | | | |
Secured debt | $ | 17,548 |
| | $ | 9,378 |
| | $ | 25,006 |
| | $ | 22,073 |
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Unsecured debt | 5,238 |
| | 1,500 |
| | 7,596 |
| | 6,973 |
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Accounts payable and accrued expenses | 492 |
| | 217 |
| | 984 |
| | 946 |
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Deferred income | 123 |
| | 70 |
| | 249 |
| | 168 |
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Deferred income taxes | | | 12 |
| | 87 |
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Taxes payable | 124 |
| | 93 |
| | 293 |
| | 287 |
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Related party taxes payable | 644 |
| | 559 |
| | 891 |
| | 643 |
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Related party payables | | | 432 |
| | 368 |
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Other liabilities | 135 |
| | 1 |
| | 229 |
| | 160 |
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Related party payable | 379 |
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Total liabilities | 24,683 |
| | 11,818 |
| | 35,692 |
| | 31,705 |
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Commitments and contingencies (Note 10) | | | | |
Commitments and contingencies (Note 9) | | | | | |
Shareholder's equity: | | | | | | | |
Common stock, $0.01 par value per share, 1,000 shares authorized and 502 issued | | | | |
Common stock, $1.00 par value per share, 1,000 shares authorized and 502 shares issued | | | — |
| | — |
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Additional paid-in capital | 4,763 |
| | 3,459 |
| | 4,793 |
| | 4,785 |
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Accumulated other comprehensive loss | (68 | ) | | (3 | ) | |
Accumulated other comprehensive income | | | 65 |
| | 11 |
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Retained earnings | 1,207 |
| | 923 |
| | 1,809 |
| | 1,489 |
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Total shareholder's equity | 5,902 |
| | 4,379 |
| | 6,667 |
| | 6,285 |
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Total liabilities and shareholder's equity | $ | 30,585 |
| | $ | 16,197 |
| | $ | 42,359 |
| | $ | 37,990 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited, inIn millions)
(Unaudited)
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| | Three Months Ended | | Six Months Ended | | | | | | | | | | | | | | | | |
| | June 30, | | June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 | | 2014 | | 2013 |
Revenue | | | | | | | | | | | | | | | | |
Finance charge income | | $ | 647 |
| | $ | 404 |
| | $ | 1,062 |
| | $ | 762 |
| | $ | 882 |
| | $ | 647 |
| | $ | 1,712 |
| | $ | 1,062 |
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Leased vehicle income | | 136 |
| | 66 |
| | 243 |
| | 119 |
| | 238 |
| | 136 |
| | 438 |
| | 243 |
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Other income | | 53 |
| | 17 |
| | 71 |
| | 37 |
| | 71 |
| | 53 |
| | 138 |
| | 71 |
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| | 836 |
| | 487 |
| | 1,376 |
| | 918 |
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Total revenue | | | 1,191 |
| | 836 |
| | 2,288 |
| | 1,376 |
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Costs and expenses | | | | | | | | | | | | | | | | |
Salaries and benefits | | 116 |
| | 71 |
| | 190 |
| | 144 |
| | 154 |
| | 116 |
| | 290 |
| | 190 |
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Other operating expenses | | 75 |
| | 22 |
| | 109 |
| | 47 |
| | 126 |
| | 75 |
| | 259 |
| | 109 |
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Total operating expenses | | 191 |
| | 93 |
| | 299 |
| | 191 |
| | 280 |
| | 191 |
| | 549 |
| | 299 |
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Leased vehicle expenses | | 101 |
| | 51 |
| | 181 |
| | 92 |
| | 179 |
| | 101 |
| | 335 |
| | 181 |
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Provision for loan losses | | 100 |
| | 62 |
| | 194 |
| | 110 |
| | 113 |
| | 100 |
| | 248 |
| | 194 |
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Interest expense | | 164 |
| | 64 |
| | 246 |
| | 127 |
| | 354 |
| | 164 |
| | 669 |
| | 246 |
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Acquisition and integration expenses | | 16 |
| | | | 22 |
| | | | — |
| | 16 |
| | — |
| | 22 |
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| | 572 |
| | 270 |
| | 942 |
| | 520 |
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Total costs and expenses | | | 926 |
| | 572 |
| | 1,801 |
| | 942 |
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Income before income taxes | | 264 |
| | 217 |
| | 434 |
| | 398 |
| | 265 |
| | 264 |
| | 487 |
| | 434 |
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Income tax provision | | 86 |
| | 80 |
| | 150 |
| | 149 |
| | 90 |
| | 86 |
| | 167 |
| | 150 |
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Net income | | 178 |
| | 137 |
| | 284 |
| | 249 |
| | 175 |
| | 178 |
| | 320 |
| | 284 |
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Other comprehensive loss | | | | | | | | | |
Unrealized losses on cash flow hedges | | | | (2 | ) | | | | (3 | ) | |
Other comprehensive income (loss) | | | | | | | | | |
Foreign currency translation adjustment | | (59 | ) | | (5 | ) | | (65 | ) | | (1 | ) | | 49 |
| | (59 | ) | | 54 |
| | (65 | ) |
Income tax benefit | | | | | | | | 1 |
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Other comprehensive loss, net | | (59 | ) | | (7 | ) | | (65 | ) | | (3 | ) | |
Other comprehensive income (loss), net | | | 49 |
| | (59 | ) | | 54 |
| | (65 | ) |
Comprehensive income | | $ | 119 |
| | $ | 130 |
| | $ | 219 |
| | $ | 246 |
| | $ | 224 |
| | $ | 119 |
| | $ | 374 |
| | $ | 219 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, inIn millions)
(Unaudited)
| | | Six Months Ended | | | | | | | | |
| June 30, | | Six Months Ended June 30, |
| 2013 | | 2012 | | 2014 | | 2013 |
Net cash provided by operating activities | $ | 701 |
| | $ | 582 |
| | $ | 904 |
| | $ | 701 |
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Cash flows from investing activities: | | | | | | | |
Purchases of consumer finance receivables, net | (3,812 | ) | | (2,870 | ) | | (6,827 | ) | | (3,812 | ) |
Principal collections and recoveries on consumer finance receivables | 3,054 |
| | 2,040 |
| | 5,300 |
| | 3,054 |
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Funding of commercial finance receivables, net | (8,405 | ) | | (173 | ) | |
Collections of commercial finance receivables | 8,023 |
| | 46 |
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Net funding of commercial finance receivables | | | (297 | ) | | (382 | ) |
Purchases of leased vehicles, net | (1,176 | ) | | (621 | ) | | (1,856 | ) | | (1,176 | ) |
Proceeds from termination of leased vehicles | 84 |
| | 18 |
| | 264 |
| | 84 |
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Acquisition of international operations, net of cash on hand | (2,107 | ) | | | | (46 | ) | | (2,107 | ) |
Purchases of property and equipment | (4 | ) | | (6 | ) | | (15 | ) | | (4 | ) |
Change in restricted cash | (158 | ) | | 235 |
| | (236 | ) | | (158 | ) |
Change in other assets | (2 | ) | | 18 |
| | (2 | ) | | (2 | ) |
Net cash used in investing activities | (4,503 | ) | | (1,313 | ) | | (3,715 | ) | | (4,503 | ) |
Cash flows from financing activities: | | | | | | | |
Net increase in debt (original maturities less than three months) | | | 278 |
| | — |
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Borrowings and issuance of secured debt | 9,085 |
| | 5,063 |
| | 10,722 |
| | 9,085 |
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Payments on secured debt | (7,007 | ) | | (3,929 | ) | | (8,445 | ) | | (7,007 | ) |
Borrowings and issuance of unsecured debt | 3,022 |
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| | 1,472 |
| | 3,022 |
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Payments on unsecured debt | (633 | ) | |
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| | (838 | ) | | (633 | ) |
Repayment of debt to Ally Financial | (1,416 | ) | |
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| | — |
| | (1,416 | ) |
Capital contribution from parent | 1,300 |
| | | | — |
| | 1,300 |
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Debt issuance costs | (63 | ) | | (23 | ) | | (49 | ) | | (63 | ) |
Net cash provided by financing activities | 4,288 |
| | 1,111 |
| | 3,140 |
| | 4,288 |
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Net increase in cash and cash equivalents | 486 |
| | 380 |
| | 329 |
| | 486 |
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Effect of foreign exchange rate changes on cash and cash equivalents | (18 | ) | | | | 9 |
| | (18 | ) |
Cash and cash equivalents at beginning of period | 1,289 |
| | 572 |
| | 1,074 |
| | 1,289 |
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Cash and cash equivalents at end of period | $ | 1,757 |
| | $ | 952 |
| | $ | 1,412 |
| | $ | 1,757 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
GENERAL MOTORS FINANCIAL COMPANY, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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Note 1. | Summary of Significant Accounting Policies |
Acquisition of Ally Financial International Operations
We acquired Ally Financial Inc.'s ("Ally Financial") International Operations
As further described in Note 2 - "Acquisition of Ally Financial Inc. International Operations," we acquired Ally Financial's auto finance and financial services operations in Germany, the United Kingdom (the "U.K."), Italy, Sweden, Switzerland, Austria, Belgium, the Netherlands, Greece, Spain, Chile, Colombia and Mexico on April 1, 2013 and we2013. We acquired Ally Financial's auto finance and financial services operations in France and Portugal on June 1, 2013. The aggregate amount paid to date with respect to these acquisitions was approximately $2.5 billion (not including $65 million of contingent consideration remaining to be paid upon the closing of the acquisition of Brazil). In addition to the purchase price,2013, and we also funded a $1.5 billion intercompany loan to certain of the entities we acquired in Europe, of which $1.4 billion was used to repay loans from Ally Financial to such European entities. Additionally, we have agreed to acquire Ally Financial's auto finance and financial services operations in Brazil andon October 1, 2013. Additionally, we have agreed to acquire Ally Financial's non-controlling 40% equity interest in GMAC-SAIC Automotive Finance Company Limited ("GMAC SAIC"GMAC-SAIC"), a joint venture, which conducts auto finance operations in China. The operationsThis agreement is subject to certain regulatory and other approvals and has become subject to a right of termination by either party in its sole discretion; however, we do not expect the agreement to be terminated. We consider it probable that we have acquired thus far fromour acquisition of Ally Financial are referred toFinancial's interest in GMAC-SAIC will occur in late 2014 or as the "international operations."
soon as practicable thereafter. The results of operations of the acquired entities since the applicable acquisition dates are included in our financial statements for the three and six months ended June 30, 2014 and 2013.
Segment Information
We evaluate our business in two operating segments: North America ("the North America Segment") and international ("the International Segment"). The North America Segment includes our operations in the U.S. and Canada. The International Segment includes our operations in all other countries. For additional financial information regarding our business segments, see Note 12 - "Segment Reporting."
Basis of Presentation
The condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, including certain special-purpose financing entities utilized in secured financing transactions, which are considered variable interest entities ("VIEs"). All intercompany transactions and accountsbalances have been eliminated in consolidation.
The interim period consolidated financial statements, including the notes thereto, are condensed and do not include all disclosures required by generally accepted accounting principles ("GAAP") in the United States of America. These interim period condensed consolidated financial statements should be read in conjunction with ourthe consolidated financial statements that are included in theour Annual Report on Form 10-K filed on February 15, 2013.6, 2014 ("Form 10-K"). Certain prior year amounts were reclassified to conform to our current year presentation.
The condensed consolidated financial statements as of June 30, 2013,2014, and for the three and six months ended June 30, 20132014 and 2012,2013, are unaudited and, in management’s opinion, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. The results for interim periods are not necessarily indicative of results for a full year.
The preparation of financial statements in conformity with GAAP in the United States of America requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the amount of revenue and costs and expenses during the reporting periods. Actual results could differ from those estimates and those differences may be material. These estimates include, among other things, the determination of the allowance for loan losses on finance receivables, estimated recovery value on leased vehicles, goodwill, income taxes and the expected cash flows on the pre-acquisition consumer finance receivables.
Net Presentation of Cash Flows Related to Commercial Finance Receivables
Our commercial finance receivables are primarily comprised of floorplan financing to dealers. The floorplan financing loans are repayable by the dealer within two to ten days after the dealer sells the vehicle subject to the financing. In addition, certain assumptionsour experience, these loans are typically repaid in less than 90 days of when the credit is extended. Furthermore, we have the unilateral ability to call the loans and judgments were used inreceive payment within 30 days of when the estimated fair value recorded forcredit is extended. Therefore, the international operations acquisition. See Note 2 - "Acquisition of Ally Financial Inc. International Operations" for further discussion.
Generally, the financial statements of entities that operate outsidepresentation of the United States are measured using the local currency as the functional currency. All assets and liabilities of the foreign subsidiaries are translated into U.S. dollars at period end exchange rates and the results of operations and cash flows are determined using approximate weighted average exchange rates for the period. Translation adjustments are related to the foreign subsidiaries using local currency as their functional currency andcommercial finance receivables are reported as a separate component of accumulated other comprehensive loss. Foreign currency transaction gains or losses are recorded directly to the Consolidated Statements of Income and Comprehensive Income, regardless of whether such amounts are realized or unrealized. We may elect to enter into foreign currency derivatives to mitigate our exposure to changes in foreign exchange rates. See Note 8 - "Derivative Financial Instruments" for further discussion.
Prior year amounts for leased vehicle income have been reclassified to conform to the current year presentation. Leased vehicle income is now presented separatelyreflected on the condensed consolidated statements of income and comprehensive income. It was previously incorrectly includedcash flows as "Net funding (collections) of commercial finance receivables."
We have revolving debt agreements to finance our commercial lending activities. The revolving period of these agreements ranges from 12 to 18 months; however, the terms of these financing agreements require that a borrowing base of eligible floorplan receivables, within certain concentration limits, must be maintained in other income.sufficient amounts to support advances. When a dealer repays a floorplan receivable to us, the amount advanced against such receivables must be repaid by us or else the equivalent amount in new receivables must be added to the borrowing base. Despite the revolving term exceeding 90 days, the actual term
Duefor repayment of advances under these agreements is when we receive repayment from the dealers, which is typically within 90 days of when the credit is extended. Therefore, for 2014, the cash flows related to the financial statement impact of the international operations acquisition, the presentation convention has been changed from "thousands" to "millions" to simplify the review and analysis of our financial information. Some prior period amounts may not round under the new convention in a manner consistent with our previous presentation. In addition, we changed the presentation ofthese revolving debt agreements are reflected on the condensed consolidated balance sheets to better classify the debt facilities acquired with the international operations. Debt was previously presented in the following captions: credit facilities, securitization notes payable and senior notes, which were the only types of debt we held. The characteristics of the debt acquired with the international operations are more varied; therefore we simplified the presentation of our debt as secured and unsecured.
Finance Receivables
Our finance receivables are reported in two portfolios: pre-acquisition and post-acquisition. The pre-acquisition finance receivables are composed of (i) finance receivables originated in North America prior to the October 1, 2010 merger with General Motors Company (“GM”), all of which were considered to have had deterioration in credit quality, and (ii) finance receivables that were considered to have had deterioration in credit quality that were acquired with the international operations. The pre-acquisition portfolio will decrease over time with the amortization of the acquired receivables.
The post-acquisition finance receivables are composed of (i) finance receivables originated in North America since the merger with GM, (ii) finance receivables originated in the international operations since the applicable acquisition dates and (iii) finance receivables that were considered to have had no deterioration in credit quality that were acquired with the international operations. The post-acquisition portfolio is expected to grow over time as we originate new receivables.
Pre-Acquisition Finance Receivables
Following the merger with GM and the acquisition of the international operations, we further divided the pre-acquisition finance receivables into multiple pools based on common risk characteristics. Through acquisition accounting adjustments, the allowance for loan losses that existed at the merger and the acquisition dates was eliminated and the receivables were adjusted to fair value. The pre-acquisition finance receivables were acquired at a discount, which contains two components: a non-accretable difference and an accretable yield. A non-accretable difference is the excess of contractually required payments (undiscounted amount of all uncollected contractual principal and interest payments, both past due and scheduled for the future) over the amountstatements of cash flows considering the impact of defaults and prepayments, expected to be collected. An accretable yield is the excess of the cash flows, considering the impact of defaults and prepayments, expected to be collected over the initial investment in the loans, which at the acquisition date was fair value. The accretable yield is recorded as finance charge income over the life of the acquired receivables.
Any deterioration in the performance of the pre-acquisition finance receivables from their expected performance will result in an incremental provision for loan losses. Improvements in the performance of the pre-acquisition finance receivables which results in a significant“Net increase in actual or expected cash flows will result first in the reversal of any incremental related allowance for loan losses and then in a transfer of the excess from the non-accretable difference to accretable yield, which will be recorded as finance charge income over the remaining life of the receivables.
Once a pool of loans is assembled, the integrity of the pool is maintained. A loan is removed from a pool only if it is sold (otherdebt (original maturities less than to a consolidated VIE), paid in full, or written off. Our policy is to remove a loan individually from a pool based on comparing any amount received upon disposition of the loan or underlying collateral with the contractual amount remaining due. The excess of the contractual amount remaining due over the amount received upon its disposition is absorbed by the non-accretable difference. This removal method assumes that the amount received approximates pool performance expectations. The remaining accretable yield balance is unaffected and any material change in remaining effective yield caused by this removal method is addressed by our quarterly cash flow evaluation process for each pool. For loans that are resolved by payment in full, there is no reduction in the amount of non-accretable difference for the pool because there is no difference between the amount received and the contractual amount of the loan.
Post-Acquisition Finance Receivables and Allowance for Loan Losses
Finance receivables originated in North America since our October 1, 2010 merger with GM and in the international operations since the applicable acquisition dates are carried at amortized cost, net of allowance for loan losses. Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at levels considered adequate to cover probable credit losses inherent in our finance receivables.
The allowance for loan losses on consumer finance receivables is established systematically based on the determination of the amount of probable credit losses inherent in the finance receivables as of the balance sheet date. We review charge-off experience factors, delinquency reports, historical collection rates, estimates of the value of the underlying collateral, economic trends, such as unemployment rates, and other information in order to make the necessary judgments as to the probable credit losses. We also
use historical charge-off experience to determine the loss confirmation period, which is defined as the time between when an event, such as delinquency status, giving rise to a probable credit loss occurs with respect to a specific account and when such account is charged off. This loss confirmation period is applied to the forecasted probable credit losses to determine the amount of losses inherent in finance receivables at the balance sheet date. Assumptions regarding credit losses and loss confirmation periods are reviewed periodically and may be impacted by actual performance of finance receivables and changes in any of the factors discussed above. Should the credit loss assumption or loss confirmation period increase, there would be an increase in the amount of allowance for loan losses required, which would decrease the net carrying value of finance receivables and increase the amount of provision for loan losses.
For the finance receivables acquired with the international operations that were considered to have no deterioration in credit quality, the existing allowance for loan losses was eliminated and the receivables were adjusted to fair value. The purchase discount will accrete to income over the life of the receivables, based on the interest method. Provisions for loan losses are charged to operations in amounts equal to net credit losses for the period. Any deterioration in the performance of the acquired receivables will result in an incremental provision for loan losses.
Geographic Scope of Operations and Segment Information
We conduct our financing operations directly and indirectly through our subsidiaries and affiliates. We offer substantially similar products and services throughout many different regions, subject to local regulations and market conditions. We report our business segments based on geographic regions: North America ("North America Segment") and International ("International Segment")three months). The North America Segment includes our operations in the United States and Canada. The International Segment includes our operations in all other countries. For additional financial information regarding our operations by business segments and operations by geographic regions, see Note 13 - "Segment Reporting".”
Related Party Transactions
We are the wholly-owned captive finance subsidiary of our parent, General Motors Company ("GM"). We offer loan and lease finance products through GM-franchised dealers to consumers purchasing new and certain used vehicles manufactured by GM and make commercial loans directly to GM-franchised dealers. Under subvention programs, GM makes cash payments to us for offering incentivized rates and structures on consumer loan and lease finance products andproducts. In addition, GM makes payments to us to cover certain interest payments on commercial loans under subvention programs.loans. At June 30, 20132014 and December 31, 20122013, we had intercompanyrelated party receivables from GM in the amount of $105185 million and $21129 million under variousthese programs.
In addition, we had $5790 million and $4662 million due at June 30, 20132014 and December 31, 20122013, in loans outstanding loans to dealers that are consolidated by GM, in connection with our commercial lending program. Our international operations also provide financing to certain GM subsidiaries through factoring and other wholesale financing arrangements. As of At June 30, 2014 and December 31, 2013, $570228 million wasand $588 million were outstanding under such arrangements, and isare included in commercial finance receivables. At June 30, 2014 and December 31, 2013, we also havehad $379432 million and $368 million of related party payables due to GM, primarily for commercial finance receivables originated but not yet funded. These payables typically settle within 30 days.
We have a tax sharing agreement with GM for our US operations, and we are obligated to pay GM for our share of the consolidated U.S. federal and certain state tax liabilities for taxable income recognized by us in any period beginning on or after October 1, 2010. Payments for the tax years 2010 through 2014 are deferred for four years from their original due date, and the total deferral amount is to not exceed $1.0 billion. The tax sharing agreement may be modified at any time by GM in its sole discretion. As of June 30, 2014 and December 31, 2013, we have recorded related party taxes payable to GM in the amount of $891 million and $643 million.
We have a $600 million line of credit facility with GM ("GM Related Party Credit Facility"). There were no advances outstanding under the GM Related Party Credit Facility at June 30, 2013 and2014 or December 31, 2012.2013.
RecentRecently Adopted Accounting PronouncementsPrinciples
In February 2013,On January 1, 2014 we adopted Accounting Standards Update (ASU) ASU ("2013-02"), Reporting2013-11, “Presentation of Amounts Reclassified Out of Accumulated Other Comprehensive Income,an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” which was issued effective for annual and interim reporting periods beginning after December 15, 2012.to eliminate diversity in practice. This ASU requires that companies net their unrecognized tax benefits against all same-jurisdiction net operating losses or tax credit carryforwards that would be used to settle the position with a tax authority. The adoption of 2013-02 improves the reporting of reclassifications out of accumulated other comprehensive income. We adopted this ASU effective January 1, 2013, and the adoption did not have an impacta material effect on our consolidated financial position, results of operations and cash flows.statements.
Note 2. Acquisition of Ally Financial Inc. International OperationsAccounting Standards Not Yet Adopted
In November 2012, we entered intoMay 2014 the Financial Accounting Standards Board issued ASU 2014-09, “Revenue Recognition - Revenue from Contracts with Customers” (ASU 2014-09) that requires companies to recognize revenue when a definitive agreement with Ally Financial to acquire 100% of the outstanding equity interests in the top level holdingcustomer obtains control rather than when companies of its automotive finance and financial services operations in Europe and Latin America and a separate agreement to acquire its non-controlling equity interest in GMAC-SAIC, which conducts automotive finance and financial services in China.
On April 1, 2013, we completed the acquisition ofhave transferred substantially all risks and rewards of Ally Financial's Europeana good or service. This update is effective for annual reporting periods beginning on or after December 15, 2016 and Latin American automotive finance operations except for France, Portugalinterim periods therein and Brazil; andrequires expanded disclosures. We are currently assessing the impact the adoption of ASU 2014-09 will have on June 1, 2013 completed the acquisition of Ally Financial's automotive finance operations in France and Portugal. The aggregate consideration for these acquisitions was $2.6 billion, subject to certain closing adjustments, of which $65 million is contingent upon closing the acquisition of the Brazilian automotive finance andour condensed consolidated financial services operations described below. In addition, we repaid loans of $1.4 billion that were assumed as part of the acquisition. We recorded the fair value of the assets acquired and liabilities assumed on the acquisition dates.statements.
Our acquisition of Ally Financial's Brazilian automotive finance operations and the equity interest in GMAC-SAIC are subject to certain regulatory and other approvals, and are expected to close in 2013, early 2014 or as soon as practicable thereafter. We expect to pay approximately $1.5 billion to close these acquisitions, subject to certain closing adjustments.
The international operations were formerly a part of General Motors Acceptance Corporation, the former captive finance subsidiary of GM, and due to this longstanding relationship, the majority of the international operations business is related to GM and its dealer network. With the acquisition of the international operations, we have expanded to become a global captive finance company, and expect to realize numerous strategic benefits, including increased finance penetration resulting from a broadened relationship with GM, geographic diversification of our customer base and transition of our business into a full-spectrum credit platform.
The acquisition of the international operations has been accounted for under acquisition accounting, whereby the purchase price of the transaction was allocated to the identifiable assets and liabilities assumed based upon their fair values. The estimates of the fair values recorded were determined based on fair value measurement principles (see Note 9 - "Fair Values of Assets and Liabilities" for additional information) and reflect significant assumptions and judgments. Material valuation inputs for finance receivables included adjustments to monthly principal and interest cash flows for prepayments and credit loss expectations; servicing expenses; and discount rates developed based on the relative risk of the cash flows which considered loan type, market rates as of our valuation date, credit loss expectations and capital structure. Material valuation inputs for debt included discount rates developed based on the relative risk of the contractual cash flows, taking into consideration market rates and liquidity expectations for each country. Certain assumptions and judgments that were considered to be appropriate at the applicable acquisition date may prove to be incorrect if market conditions change.
The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill, which is primarily attributed to the value of the incremental GM business expected. The preliminary goodwill amount is $50 million, but is subject to further adjustment pending the closing of our acquisition of the remaining international operations as well as any potential adjustments resulting from the finalization of closing balance sheet audits. Valuations and assumptions pertaining to income taxes are subject to change as additional information is obtained during the measurement period. We will assign the goodwill to reporting units, which will be determined pending completion of the remaining acquisitions. The goodwill will not be deductible for tax purposes.
The following table summarizes the aggregate consideration and the assets acquired and liabilities assumed at the acquisition dates (in millions):
|
| | | |
| Acquired International Operations |
Cash | $ | 440 |
|
Restricted cash | 525 |
|
Finance receivables | 10,981 |
|
Other assets, including identifiable intangible assets | 254 |
|
Secured and unsecured debt | (8,910 | ) |
Other liabilities | (722 | ) |
Identifiable net assets acquired | 2,568 |
|
Goodwill resulting from the acquisition | 50 |
|
Aggregate consideration | $ | 2,618 |
|
The following table provides information related to finance receivables acquired which had no deterioration in credit quality as of the applicable acquisition dates (in millions):
|
| | | | | | | |
| Consumer | | Commercial |
Contractually required payments receivable: | $ | 6,026 |
| | $ | 4,067 |
|
Cash flows not expected to be collected: | 98 |
| | 18 |
|
Fair value: | 5,422 |
| | 3,990 |
|
The results of operations of the international operations are included in our results beginning April 1, 2013, except for the results of the operations in Portugal and France, which are included in our results beginning June 1, 2013. The following table summarizes the actual amounts of revenue and earnings of the international operations included in our consolidated financial statements for the three and six months ended June 30, 2013 and the supplemental pro forma revenue and earnings of the combined entity for the three and six months ended June 30, 2013 and 2012, as if the acquisitions had occurred on January 1, 2012 (in millions).
|
| | | | | | | | | | | | | | | | | | | |
| International Operations Amounts Included in Results for Three and Six Months Ended | | Supplemental Pro Forma - Combined |
| | Three Months Ended | | Six Months Ended |
| June 30, 2013 | | June 30, 2013 | | June 30, 2012 | | June 30, 2013 | | June 30, 2012 |
Total revenue | $ | 248 |
| | $ | 854 |
| | $ | 746 |
| | $ | 1,634 |
| | $ | 1,456 |
|
Net income | 54 |
| | 184 |
| | 223 |
| | 324 |
| | 374 |
|
The following table summarizes the changes in the carrying amounts of Goodwill (in millions):
|
| | | | | | | | | | | | | | | |
| Six Months Ended | | Year Ended |
| June 30, 2013 | | December 31, 2012 |
| North America | | International | | Total | | North America |
Balance at beginning of period | $ | 1,108 |
| | | | $ | 1,108 |
| | $ | 1,108 |
|
International operations acquisition(a) | | | $ | 50 |
| | 50 |
| | |
Balance at end of period | $ | 1,108 |
| | $ | 50 |
| | $ | 1,158 |
| | $ | 1,108 |
|
_________________ | |
(a) | See Note 2 - "Acquisition of Ally Financial Inc. International Operations" for additional information. |
| |
Note 4.2. | Finance Receivables |
Below is information about finance receivables that have been divided into two portfolios: pre-acquisition and post-acquisition. see Note 1 - "Summary of Significant Accounting Policies."
The total finance receivables portfolio consists of the following (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2014 | | December 31, 2013 |
| | North America | | International | | Total | | North America | | International | | Total |
Consumer | | | | | | | | | | | | |
Pre-acquisition consumer finance receivables - outstanding balance | | $ | 584 |
| | $ | 255 |
| | $ | 839 |
| | $ | 931 |
| | $ | 363 |
| | $ | 1,294 |
|
Pre-acquisition consumer finance receivables - carrying value | | $ | 510 |
| | $ | 245 |
| | $ | 755 |
| | $ | 826 |
| | $ | 348 |
| | $ | 1,174 |
|
Post-acquisition consumer finance receivables, collectively evaluated for impairment, net of fees(a) | | 10,402 |
| | 12,897 |
| | 23,299 |
| | 9,795 |
| | 11,394 |
| | 21,189 |
|
Post-acquisition consumer finance receivables, individually evaluated for impairment, net of fees | | 992 |
| | — |
| | 992 |
| | 767 |
| | — |
| | 767 |
|
| | 11,904 |
| | 13,142 |
| | 25,046 |
| | 11,388 |
| | 11,742 |
| | 23,130 |
|
Less: allowance for loan losses - collective | | (392 | ) | | (60 | ) | | (452 | ) | | (365 | ) | | (29 | ) | | (394 | ) |
Less: allowance for loan losses - specific | | (123 | ) | | — |
| | (123 | ) | | (103 | ) | | — |
| | (103 | ) |
Total consumer finance receivables, net | | 11,389 |
| | 13,082 |
| | 24,471 |
| | 10,920 |
| | 11,713 |
| | 22,633 |
|
Commercial | | | |
|
| | | | | | | | |
Commercial finance receivables, collectively evaluated for impairment, net of fees | | 2,373 |
| | 4,653 |
| | 7,026 |
| | 1,975 |
| | 4,627 |
| | 6,602 |
|
Commercial finance receivables, individually evaluated for impairment, net of fees | | — |
| | 88 |
| | 88 |
| | — |
| | 98 |
| | 98 |
|
| | 2,373 |
| | 4,741 |
| | 7,114 |
| | 1,975 |
| | 4,725 |
| | 6,700 |
|
Less: allowance for loan losses - collective | | (17 | ) | | (18 | ) | | (35 | ) | | (17 | ) | | (27 | ) | | (44 | ) |
Less: allowance for loan losses - specific | | — |
| | (5 | ) | | (5 | ) | | — |
| | (7 | ) | | (7 | ) |
Total commercial finance receivables, net | | 2,356 |
| | 4,718 |
| | 7,074 |
| | 1,958 |
| | 4,691 |
| | 6,649 |
|
Total finance receivables, net | | $ | 13,745 |
| | $ | 17,800 |
| | $ | 31,545 |
| | $ | 12,878 |
| | $ | 16,404 |
| | $ | 29,282 |
|
________________ |
| | | | | | | | | | | | | | | |
| June 30, 2013 | | December 31, 2012 |
| North America | | International | | Total | | North America |
Consumer | | | | | | | |
Pre-acquisition consumer finance receivables - outstanding balance | $ | 1,432 |
| | $ | 1,305 |
| | $ | 2,737 |
| | $ | 2,162 |
|
Pre-acquisition consumer finance receivables - carrying value | $ | 1,279 |
| | $ | 1,272 |
| | $ | 2,551 |
| | $ | 1,958 |
|
Post-acquisition consumer finance receivables, net of fees | 9,947 |
| | 5,933 |
| | 15,880 |
| | 8,831 |
|
| 11,226 |
| | 7,205 |
| | 18,431 |
| | 10,789 |
|
Less: allowance for loan losses | (415 | ) | | (8 | ) | | (423 | ) | | (345 | ) |
Total consumer finance receivables, net | 10,811 |
| | 7,197 |
| | 18,008 |
| | 10,444 |
|
Commercial | | | | | | | |
Post-acquisition commercial finance receivables, collectively evaluated for impairment, net of fees | 1,165 |
| | 3,792 |
| | 4,957 |
| | 560 |
|
Post-acquisition commercial finance receivables, individually evaluated for impairment, net of fees | 4 |
| |
|
| | 4 |
| |
|
|
Less: allowance for loan losses - collective | (10 | ) | | (12 | ) | | (22 | ) | | (6 | ) |
Less: allowance for loan losses - specific | (2 | ) | |
|
| | (2 | ) | |
|
|
Total commercial finance receivables, net | 1,157 |
| | 3,780 |
| | 4,937 |
| | 554 |
|
Total finance receivables, net | $ | 11,968 |
| | $ | 10,977 |
| | $ | 22,945 |
| | $ | 10,998 |
|
(a) Amounts reported for International include $1.1 billion and $1.0 billion of direct-financing leases at June 30, 2014 and December 31, 2013.
Consumer Finance Receivables
Our consumer finance receivables are reported in two portfolios: pre-acquisition and post-acquisition. The pre-acquisition consumer finance receivables portfolio consists of (i) finance receivables originated in North America prior to our merger with GM, all of which were considered to have had deterioration in credit quality, and (ii) finance receivables that were considered to have had deterioration in credit quality that were acquired with the international operations. The pre-acquisition consumer portfolio will decrease over time with the amortization of the acquired receivables.
The post-acquisition consumer finance receivables portfolio consists of (i) finance receivables originated in North America since our merger with GM, (ii) finance receivables originated in the international operations since the applicable acquisition dates and (iii) finance receivables that were considered to have had no deterioration in credit quality that were acquired with the international operations. The post-acquisition consumer portfolio will grow over time as we originate new receivables.
Pre-acquisition Consumer Finance Receivables
Following is a summary of activity in our pre-acquisition consumer finance receivables portfolio (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, |
| 2013 | | 2012 |
| North America | | International | | Total | | North America |
Pre-acquisition consumer finance receivables - outstanding balance, beginning of period | $ | 1,759 |
| | | | $ | 1,759 |
| | $ | 3,675 |
|
Pre-acquisition consumer finance receivables - carrying value, beginning of period | $ | 1,580 |
| | | | $ | 1,580 |
| | $ | 3,358 |
|
International operations acquisition |
| | $ | 1,569 |
| | 1,569 |
| | |
Principal collections and other | (292 | ) | | (264 | ) | | (556 | ) | | (509 | ) |
Change in carrying value adjustment | (9 | ) | | 8 |
| | (1 | ) | | (37 | ) |
Foreign currency translation |
|
| | (41 | ) | | (41 | ) | |
|
|
Balance at end of period | $ | 1,279 |
| | $ | 1,272 |
| | $ | 2,551 |
| | $ | 2,812 |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2013 | | 2012 |
| North America | | International | | Total | | North America |
Pre-acquisition consumer finance receivables - outstanding balance, beginning of period | $ | 2,162 |
| | | | $ | 2,162 |
| | $ | 4,366 |
|
Pre-acquisition consumer finance receivables - carrying value, beginning of period | $ | 1,958 |
| | | | $ | 1,958 |
| | $ | 4,027 |
|
International operations acquisition |
|
| | $ | 1,569 |
| | 1,569 |
| |
|
|
Principal collections and other | (641 | ) | | (264 | ) | | (905 | ) | | (1,096 | ) |
Change in carrying value adjustment | (38 | ) | | 8 |
| | (30 | ) | | (119 | ) |
Foreign currency translation |
|
| | (41 | ) | | (41 | ) | |
|
|
Balance at end of period | $ | 1,279 |
| | $ | 1,272 |
| | $ | 2,551 |
| | $ | 2,812 |
|
The following table provides information related to the credit-impaired consumer finance receivables acquired with the international operations on the applicable acquisition dates (in millions):
|
| | | | |
Contractually required payments receivable: | | $ | 1,956 |
|
Cash flows expected to be collected: | | $ | 1,818 |
|
Fair value: | | $ | 1,569 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2014 | | 2013 |
| | North America | | International | | Total | | North America | | International | | Total |
Pre-acquisition consumer finance receivables - outstanding balance, beginning of period | | $ | 931 |
| | $ | 363 |
| | $ | 1,294 |
| | $ | 2,162 |
| | $ | — |
| | $ | 2,162 |
|
Pre-acquisition consumer finance receivables - carrying value, beginning of period | | $ | 826 |
| | $ | 348 |
| | $ | 1,174 |
| | $ | 1,958 |
| | $ | — |
| | $ | 1,958 |
|
International operations acquisition | | — |
| | — |
| | — |
| | — |
| | 1,569 |
| | 1,569 |
|
Principal collections and other | | (308 | ) | | (126 | ) | | (434 | ) | | (641 | ) | | (264 | ) | | (905 | ) |
Change in carrying value adjustment | | (8 | ) | | 27 |
| | 19 |
| | (38 | ) | | 8 |
| | (30 | ) |
Foreign currency translation | | — |
| | (4 | ) | | (4 | ) | | — |
| | (41 | ) | | (41 | ) |
Balance at end of period | | $ | 510 |
| | $ | 245 |
| | $ | 755 |
| | $ | 1,279 |
| | $ | 1,272 |
| | $ | 2,551 |
|
We review our pre-acquisition portfolio for differences between contractual cash flows and the cash flows expected to be collected to determine if the difference is attributable, at least in part, to credit quality. During the six months ended June 30, 20132014 and 2012,2013, as a result of improvements in the credit performance of the North America pre-acquisition portfolio, in North America, expected cash flows increased by $33 million and $54 million and $170 million, respectively.. We transferred the amount of excess cash flows from the non-accretable difference to accretable yield. This excess will be amortized through finance charge income over the remaining life of the portfolio. There was no transferAs a result of the decrease in the pre-acquisition portfolio through amortization, the amount of excess cash flows from the non-accretable difference relatedtransferred to the international operations pre-acquisition portfolio during the threeaccretable yield and six months ended June 30, 2013.subsequently amortized through finance charge income has decreased.
A summary of the activity in the accretable yield on the pre-acquisition consumer finance receivables portfolios is as follows (in millions):
| | | Three Months Ended | | | | | | | | | | | | | |
| June 30, | | Three Months Ended June 30, |
| 2013 | | 2012 | | 2014 | | 2013 |
| North America | | International | | Total | | North America | | North America | | International | | Total | | North America | | International | | Total |
Balance at beginning of period | $ | 371 |
| |
|
| | $ | 371 |
| | $ | 768 |
| | $ | 174 |
| | $ | 55 |
| | $ | 229 |
| | $ | 371 |
| | $ | — |
| | $ | 371 |
|
International operations acquisition |
|
| | $ | 249 |
| | 249 |
| |
|
| | — |
| | — |
| | — |
| | — |
| | 249 |
| | 249 |
|
Accretion of accretable yield | (79 | ) | | (53 | ) | | (132 | ) | | (143 | ) | | (41 | ) | | (13 | ) | | (54 | ) | | (79 | ) | | (53 | ) | | (132 | ) |
Transfer from non-accretable difference | 6 |
| |
|
| | 6 |
| | 3 |
| | — |
| | — |
| | — |
| | 6 |
| | — |
| | 6 |
|
Foreign currency translation |
|
| | (12 | ) | | (12 | ) | |
|
| | — |
| | 2 |
| | 2 |
| | — |
| | (12 | ) | | (12 | ) |
Balance at end of period | $ | 298 |
| | $ | 184 |
| | $ | 482 |
| | $ | 628 |
| | $ | 133 |
| | $ | 44 |
| | $ | 177 |
| | $ | 298 |
| | $ | 184 |
| | $ | 482 |
|
| | | Six Months Ended | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, | | Six Months Ended June 30, |
| 2013 | | 2012 | | 2014 | | 2013 |
| North America | | International | | Total | | North America | | North America | | International | | Total | | North America | | International | | Total |
Balance at beginning of period | $ | 404 |
| |
|
| | $ | 404 |
| | $ | 737 |
| | $ | 181 |
| | $ | 74 |
| | $ | 255 |
| | $ | 404 |
| | $ | — |
| | $ | 404 |
|
International operations acquisition |
|
| | $ | 249 |
| | 249 |
| |
|
| | — |
| | — |
| | — |
| | — |
| | 249 |
| | 249 |
|
Accretion of accretable yield | (160 | ) | | (53 | ) | | (213 | ) | | (279 | ) | | (81 | ) | | (30 | ) | | (111 | ) | | (160 | ) | | (53 | ) | | (213 | ) |
Transfer from non-accretable difference | 54 |
| |
|
| | 54 |
| | 170 |
| | 33 |
| | — |
| | 33 |
| | 54 |
| | — |
| | 54 |
|
Foreign currency translation |
|
| | (12 | ) | | (12 | ) | |
|
| | — |
| | — |
| | — |
| | — |
| | (12 | ) | | (12 | ) |
Balance at end of period | $ | 298 |
| | $ | 184 |
| | $ | 482 |
| | $ | 628 |
| | $ | 133 |
| | $ | 44 |
| | $ | 177 |
| | $ | 298 |
| | $ | 184 |
| | $ | 482 |
|
Post-acquisition Consumer Finance Receivables
We generally purchase consumer finance contracts are purchased by us from auto dealers without recourse, and accordingly, the dealer has no liability to us if the consumer defaults on the contract. Depending upon the contract structure and consumer credit attributes, we may pay dealers a participation fee or we may charge dealers a non-refundable acquisition fee when purchasing individual finance contracts. We also have subvention programs with GM and other new vehicle manufacturers, under which the manufacturers provide us cash payments in order for us to offer lower interest rates on consumer finance contracts we purchase. We record the amortization of participation fees and subvention and accretion of acquisition fees to finance charge income using the effective interest method.
Following is a summary of activity in our post-acquisition consumer finance receivables portfolio (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, |
| 2013 | | 2012 |
| North America | | International | | Total | | North America |
Post-acquisition consumer finance receivables, net of fees - beginning of period | $ | 9,432 |
| |
|
| | $ | 9,432 |
| | $ | 6,326 |
|
International operations acquisition |
|
| | $ | 5,422 |
| | 5,422 |
| |
|
|
Loans purchased | 1,351 |
| | 1,117 |
| | 2,468 |
| | 1,489 |
|
Charge-offs | (116 | ) | |
|
| | (116 | ) | | (53 | ) |
Principal collections and other | (720 | ) | | (594 | ) | | (1,314 | ) | | (422 | ) |
Foreign currency translation |
|
| | (12 | ) | | (12 | ) | |
|
|
Balance at end of period | $ | 9,947 |
| | $ | 5,933 |
| | $ | 15,880 |
| | $ | 7,340 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2014 | | 2013 |
| | North America | | International | | Total | | North America | | International | | Total |
Post-acquisition consumer finance receivables, net of fees - beginning of period | | $ | 10,562 |
| | $ | 11,394 |
| | $ | 21,956 |
| | $ | 8,831 |
| | $ | — |
| | $ | 8,831 |
|
International operations acquisition | | — |
| | — |
| | — |
| | — |
| | 5,422 |
| | 5,422 |
|
Loans purchased | | 2,917 |
| | 4,128 |
| | 7,045 |
| | 2,710 |
| | 1,117 |
| | 3,827 |
|
Charge-offs | | (349 | ) | | (66 | ) | | (415 | ) | | (248 | ) | | — |
| | (248 | ) |
Principal collections and other | | (1,736 | ) | | (2,888 | ) | | (4,624 | ) | | (1,346 | ) | | (594 | ) | | (1,940 | ) |
Foreign currency translation | | — |
| | 329 |
| | 329 |
| | — |
| | (12 | ) | | (12 | ) |
Balance at end of period | | $ | 11,394 |
| | $ | 12,897 |
| | $ | 24,291 |
| | $ | 9,947 |
| | $ | 5,933 |
| | $ | 15,880 |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2013 | | 2012 |
| North America | | International | | Total | | North America |
Post-acquisition consumer finance receivables, net of fees - beginning of period | $ | 8,831 |
| | | | $ | 8,831 |
| | $ | 5,314 |
|
International operations acquisition |
|
| | $ | 5,422 |
| | 5,422 |
| |
|
|
Loans purchased | 2,710 |
| | 1,117 |
| | 3,827 |
| | 2,885 |
|
Charge-offs | (248 | ) | |
|
| | (248 | ) | | (104 | ) |
Principal collections and other | (1,346 | ) | | (594 | ) | | (1,940 | ) | | (755 | ) |
Foreign currency translation |
|
| | (12 | ) | | (12 | ) | |
|
|
Balance at end of period | $ | 9,947 |
| | $ | 5,933 |
| | $ | 15,880 |
| | $ | 7,340 |
|
A summary of the activity in the allowance for consumer loan losses is as follows (in millions): |
| | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, |
| 2013 | | 2012 |
| North America | | International | | Total | | North America |
Balance at beginning of period | $ | 382 |
| |
|
| | $ | 382 |
| | $ | 208 |
|
Provision for loan losses | 80 |
| | $ | 8 |
| | 88 |
| | 62 |
|
Charge-offs | (116 | ) | |
|
| | (116 | ) | | (53 | ) |
Recoveries | 69 |
| |
|
| | 69 |
| | 32 |
|
Balance at end of period | $ | 415 |
| | $ | 8 |
| | $ | 423 |
| | $ | 249 |
|
| | | Six Months Ended | | | | | | | | | | | | | |
| June 30, | | Three Months Ended June 30, |
| 2013 | | 2012 | | 2014 | | 2013 |
| North America | | International | | Total | | North America | | North America | | International | | Total | | North America | | International | | Total |
Balance at beginning of period | $ | 345 |
| |
|
| | $ | 345 |
| | $ | 179 |
| | $ | 491 |
| | $ | 46 |
| | $ | 537 |
| | $ | 382 |
| | $ | — |
| | $ | 382 |
|
Provision for loan losses | 169 |
| | $ | 8 |
| | 177 |
| | 110 |
| | 89 |
| | 33 |
| | 122 |
| | 80 |
| | 8 |
| | 88 |
|
Charge-offs | (248 | ) | |
|
| | (248 | ) | | (104 | ) | | (157 | ) | | (34 | ) | | (191 | ) | | (116 | ) | | — |
| | (116 | ) |
Recoveries | 149 |
| |
|
| | 149 |
| | 64 |
| | 92 |
| | 15 |
| | 107 |
| | 69 |
| | — |
| | 69 |
|
Balance at end of period | $ | 415 |
| | $ | 8 |
| | $ | 423 |
| | $ | 249 |
| | $ | 515 |
| | $ | 60 |
| | $ | 575 |
| | $ | 415 |
| | $ | 8 |
| | $ | 423 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2014 | | 2013 |
| | North America | | International | | Total | | North America | | International | | Total |
Balance at beginning of period | | $ | 468 |
| | $ | 29 |
| | $ | 497 |
| | $ | 345 |
| | $ | — |
| | $ | 345 |
|
Provision for loan losses | | 193 |
| | 66 |
| | 259 |
| | 169 |
| | 8 |
| | 177 |
|
Charge-offs | | (349 | ) | | (66 | ) | | (415 | ) | | (248 | ) | | — |
| | (248 | ) |
Recoveries | | 203 |
| | 31 |
| | 234 |
| | 149 |
| | — |
| | 149 |
|
Balance at end of period | | $ | 515 |
| | $ | 60 |
| | $ | 575 |
| | $ | 415 |
| | $ | 8 |
| | $ | 423 |
|
Consumer Credit Quality
We use proprietary scoring systems in the underwriting process that measure the credit quality of the receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g. FICO score), and contract characteristics. In addition to our proprietary scoring system, we consider other individual consumer factors, such as employment history, financial stability, and capacity to pay. At the time of loan origination, substantially all of our international consumers have the equivalent of prime credit ratings.scores. In the North America Segment, however, our consumer finance receivables are predominantly sub-prime. A summary of the credit risk profile by FICO score band, determined at origination, of the consumer finance receivables in the North America Segment is as follows (dollars in millions):
| | | | | | | | | | | | | | | | | June 30, 2014 | | December 31, 2013 |
| June 30, 2013 | | Percent | | December 31, 2012 | | Percent | | Amount | | Percent | | Amount | | Percent |
FICO Score less than 540 | $ | 3,338 |
| | 29.3 | % | | $ | 3,011 |
| | 27.4 | % | | $ | 3,723 |
| | 31.1 | % | | $ | 3,511 |
| | 30.6 | % |
FICO Score 540 to 599 | 5,301 |
| | 46.6 |
| | 5,014 |
| | 45.6 |
| | 5,707 |
| | 47.6 |
| | 5,435 |
| | 47.3 |
|
FICO Score 600 to 659 | 2,397 |
| | 21.1 |
| | 2,513 |
| | 22.9 |
| | 2,293 |
| | 19.1 |
| | 2,277 |
| | 19.8 |
|
FICO Score 660 and greater | 343 |
| | 3.0 |
| | 455 |
| | 4.1 |
| | 255 |
| | 2.2 |
| | 270 |
| | 2.3 |
|
Balance at end of period(a) | $ | 11,379 |
| | 100.0 | % | | $ | 10,993 |
| | 100.0 | % | | $ | 11,978 |
| | 100.0 | % | | $ | 11,493 |
| | 100.0 | % |
_________________
| |
(a) | Balance at the end of the period is the sum of pre-acquisition consumer finance receivables-outstanding balance and post-acquisition consumer finance receivables, net of fees for the North American segment.America Segment. |
WeIn addition we review the credit quality of all of our consumer finance receivables based on consumer payment activity. A consumer account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Consumer finance receivables are collateralized by vehicle titles and, subject to local laws, we generally have the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. The following is a summary of the contractual amounts of consumer finance receivables, which is not materiallysignificantly different than recorded investment, that are (i) more than 30 days delinquent, not yet in repossession, and (ii) in repossession, but not yet charged off (dollars in millions):
| | | June 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | June 30, |
| North America | | International | | Total | | Percent of Contractual Amount Due | | North America | | Percent of Contractual Amount Due | | 2014 | | 2013 |
| | | | |
| | | | | | | | North America | | International | | Total | | Percent of Contractual Amount Due | | North America | | International | | Total | | Percent of Contractual Amount Due |
31 - 60 days | $ | 601 |
| | $ | 44 |
| | $ | 645 |
| | 3.4 | % | | $ | 428 |
| | 4.1 | % | | $ | 756 |
| | $ | 130 |
| | $ | 886 |
| | 3.5 | % | | $ | 601 |
| | $ | 44 |
| | $ | 645 |
| | 3.4 | % |
Greater - than 60 days | 208 |
| | 45 |
| | 253 |
| | 1.4 |
| | 158 |
| | 1.5 |
| |
Greater than 60 days | | | 255 |
| | 133 |
| | 388 |
| | 1.6 |
| | 208 |
| | 45 |
| | 253 |
| | 1.4 |
|
| 809 |
| | 89 |
| | 898 |
| | 4.8 |
| | 586 |
| | 5.6 |
| | 1,011 |
| | 263 |
| | 1,274 |
| | 5.1 |
| | 809 |
| | 89 |
| | 898 |
| | 4.8 |
|
In repossession | 31 |
| | 4 |
| | 35 |
| | 0.2 |
| | 25 |
| | 0.3 |
| | 35 |
| | 5 |
| | 40 |
| | 0.1 |
| | 31 |
| | 4 |
| | 35 |
| | 0.2 |
|
| $ | 840 |
| | $ | 93 |
| | $ | 933 |
| | 5.0 | % | | $ | 611 |
| | 5.9 | % | | $ | 1,046 |
| | $ | 268 |
| | $ | 1,314 |
| | 5.2 | % | | $ | 840 |
| | $ | 93 |
| | $ | 933 |
| | 5.0 | % |
The accrual of finance charge income has been suspended on $472626 million and $503642 million of consumer finance receivables (based on contractual amount due) as of June 30, 20132014 and December 31, 2012, respectively.2013.
Impaired Consumer Finance Receivables - Troubled Debt Restructurings ("TDRs")TDRs
Consumer finance receivables in the post-acquisition portfolio that become classified as TDRstroubled debt restructurings ("TDRs") are separately assessed for impairment. A specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. The financial effects of the accounts that become classified as TDRs result in an impairment charge recorded as part of the provision for loan losses. Accounts that become classified as TDRs because of a payment deferral still accrue interest at the contractual rate and an additional fee is collected (where permitted) at each time of deferral and recorded as a reduction of accrued interest. No interest or fees are forgiven on a payment deferral to a customer and therefore, there are no additional financial effects of deferred loans becoming classified as TDRs. Accounts in Chapter 13 bankruptcy would have already been placed on non-accrual; therefore, there are no additional financial effects from these loans becoming classified as TDRs. As of June 30, 2013,2014, the outstanding balance of international operations consumer finance receivables in the International Segment determined to be TDRs was insignificant; therefore, the following information is presented with regard to the TDRs in the North America Segment only.
The outstanding recorded investment for consumer finance receivables that are considered to be TDRs and the related allowance is presented below (in millions):
| | | June 30, 2013 | | December 31, 2012 | | June 30, 2014 | | December 31, 2013 |
Outstanding recorded investment | $ | 471 |
| | $ | 228 |
| | $ | 992 |
| | $ | 767 |
|
Less: allowance for loan losses | (71 | ) | | (32 | ) | | (123 | ) | | (103 | ) |
Outstanding recorded investment, net of allowance | $ | 400 |
| | $ | 196 |
| | $ | 869 |
| | $ | 664 |
|
Unpaid principal balance | $ | 479 |
| | $ | 232 |
| | $ | 1,009 |
| | $ | 779 |
|
Finance charge income from loans classified as TDRs is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not classified as TDRs. Additional information about loans classified as TDRs is presented below (in millions):
| | | Three Months Ended | | Six Months Ended | | | | | | | | | | | | | | | | |
| June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 | | 2014 | | 2013 |
Average recorded investment | $ | 403 |
| | $ | 53 |
| | $ | 345 |
| | $ | 51 |
| | $ | 928 |
| | $ | 403 |
| | $ | 875 |
| | $ | 345 |
|
Interest income recognized | 15 |
| | 1 |
| | 25 |
| | 1 |
| |
Finance charge income recognized | | | $ | 30 |
| | $ | 15 |
| | $ | 59 |
| | $ | 25 |
|
The following table provides information on the recorded investment of consumer loans at the time they became classified as TDRs (dollars in millions):
|
| | | | | | | | | | | | | |
| June 30, |
| 2013 | | 2012 |
| Number of Accounts | | Amount | | Number of Accounts | | Amount |
Three months ended June 30 | 8,966 |
| | $ | 164 |
| | 2,060 |
| | $ | 39 |
|
Six months ended June 30 | 15,948 |
| | 290 |
| | 2,709 |
| | 52 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2014 | | 2013 | | 2014 | | 2013 |
| Number of Accounts | | Amount | | Number of Accounts | | Amount | | Number of Accounts | | Amount | | Number of Accounts | | Amount |
Recorded investment | 12,135 |
| | $ | 213 |
| | 8,966 |
| | $ | 164 |
| | 22,247 |
| | $ | 388 |
| | 15,948 |
| | $ | 290 |
|
A redefault is when an account meets the requirements for evaluation under our charge-off policy (See Note 1 - "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K for additional information).
The unpaid principal balance, net of recoveries, of loans that redefaulted during the reporting period and were within 12 months or less of being modified as a TDR were $511 million and $10$5 million for the three months ended June 30, 2014 and 2013, and $20 million and $10 million for the six months ended June 30, 2014 and 2013.
Commercial Finance Receivables
Following is a summary of activity in our post-acquisition commercial finance receivables portfolio (in millions):
| | | Three Months Ended | | Six Months Ended June 30, |
| June 30, | | 2014 | | 2013 |
| 2013 | | 2012 | | North America | | International | | Total | | North America | | International | | Total |
| North America | | International | | Total | | North America | |
Post-acquisition commercial finance receivables, net of fees - beginning of period | $ | 883 |
| | | | $ | 883 |
| | | |
Commercial finance receivables, net of fees - beginning of period | | | $ | 1,975 |
| | $ | 4,725 |
| | $ | 6,700 |
| | $ | 560 |
| | $ | — |
| | $ | 560 |
|
International operations acquisition |
|
| | $ | 3,990 |
| | 3,990 |
| |
|
| | — |
| | — |
| | — |
| | — |
| | 3,990 |
| | 3,990 |
|
Loans funded | 1,334 |
| | 6,024 |
| | 7,358 |
| | $ | 174 |
| |
Principal collections and other | (1,048 | ) | | (6,199 | ) | | (7,247 | ) | | (46 | ) | |
Net funding (collections) of commercial finance receivables | | | 397 |
| | (56 | ) | | 341 |
| | 609 |
| | (175 | ) | | 434 |
|
Charge-offs | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Foreign currency translation |
|
| | (23 | ) | | (23 | ) | |
|
| | 1 |
| | 72 |
| | 73 |
| | — |
| | (23 | ) | | (23 | ) |
Balance at end of period | $ | 1,169 |
| | $ | 3,792 |
| | $ | 4,961 |
| | $ | 128 |
| | $ | 2,373 |
| | $ | 4,741 |
| | $ | 7,114 |
| | $ | 1,169 |
| | $ | 3,792 |
| | $ | 4,961 |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2013 | | 2012 |
| North America | | International | | Total | | North America |
Post-acquisition commercial finance receivables, net of fees - beginning of period | $ | 560 |
| |
|
| | $ | 560 |
| | |
International operations acquisition |
|
| | $ | 3,990 |
| | 3,990 |
| |
|
|
Loans funded | 2,374 |
| | 6,024 |
| | 8,398 |
| | $ | 174 |
|
Principal collections and other | (1,765 | ) | | (6,199 | ) | | (7,964 | ) | | (46 | ) |
Foreign currency translation |
|
| | (23 | ) | | (23 | ) | |
|
|
Balance at end of period | $ | 1,169 |
| | $ | 3,792 |
| | $ | 4,961 |
| | $ | 128 |
|
A summary of the activity in the allowance for commercial loan losses is as follows (in millions): |
| | | | | | | | | | | |
| Three Months Ended |
| June 30, 2013 |
| North America | | International | | Total |
Balance at beginning of period | $ | 11 |
| |
|
| | $ | 11 |
|
Provision for loan losses | 1 |
| | $ | 11 |
| | 12 |
|
Recoveries |
|
| | 1 |
| | 1 |
|
Balance at end of period | $ | 12 |
| | $ | 12 |
| | $ | 24 |
|
| | | Six Months Ended | | Three Months Ended June 30, |
| June 30, 2013 | | 2014 | | 2013 |
| North America | | International | | Total | | North America | | International | | Total | | North America | | International | | Total |
Balance at beginning of period | $ | 6 |
| | | | $ | 6 |
| | $ | 16 |
| | $ | 33 |
| | $ | 49 |
| | $ | 11 |
| | $ | — |
| | $ | 11 |
|
Provision for loan losses | 6 |
| | $ | 11 |
| | 17 |
| | 1 |
| | (10 | ) | | (9 | ) | | 1 |
| | 11 |
| | 12 |
|
Charge-offs | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Recoveries |
|
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
Balance at end of period | $ | 12 |
| | $ | 12 |
| | $ | 24 |
| | $ | 17 |
| | $ | 23 |
| | $ | 40 |
| | $ | 12 |
| | $ | 12 |
| | $ | 24 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2014 | | 2013 |
| | North America | | International | | Total | | North America | | International | | Total |
Balance at beginning of period | | $ | 17 |
| | $ | 34 |
| | $ | 51 |
| | $ | 6 |
| | $ | — |
| | $ | 6 |
|
Provision for loan losses | | — |
| | (11 | ) | | (11 | ) | | 6 |
| | 11 |
| | 17 |
|
Charge-offs | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Recoveries | | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
Balance at end of period | | $ | 17 |
| | $ | 23 |
| | $ | 40 |
| | $ | 12 |
| | $ | 12 |
| | $ | 24 |
|
Commercial Credit Quality
We extend wholesale credit to dealers primarily in the form of approved lines of credit to purchase new GM vehicles as well as used vehicles. Each commercial lending request is evaluated, taking into consideration the borrower's financial condition and the underlying collateral for the loan.
We use a proprietary modelmodels to assign each dealer a risk rating. This model usesThese models use historical performance data to identify key factors about a dealer that we consider significant in predicting a dealer's ability to meet its financial obligations. We also consider numerous other financial and qualitative factors including capitalization and leverage, liquidity and cash flow, profitability and credit history.
We regularly review our modelmodels to confirm the continued business significance and statistical predictability of the factors and update the modelmodels to incorporate new factors or other information that improves its statistical predictability. In addition, we verify the existence of the assets collateralizing the receivables by physical audits of vehicle inventories, which are performed with increased frequency for higher risk (i.e., GroupGroups III, IV, V and Group IV)VI) dealers. We perform a credit review of each dealer at least annually and adjust the dealer's risk rating, if necessary.
Dealers are assigned to six groups according to their risk rating as follows:
•Group I - Dealers with strong to superior financial metrics
•Group II - Dealers with fair to favorable financial metrics
•Group III - Dealers with marginal to weak financial metrics
•Group IV - Dealers with poor financial metrics
•Group V - Dealers warranting special mention due to potential weaknesses
•Group VI - Dealers with loans classified as impaired
The credit lines for Group VI dealers are suspended, and no further funding is extended to these dealers.
Performance of our commercial finance receivables is evaluated based on our internal dealer risk rating analysis, as payment for wholesale receivables is generally not required until the dealer has sold the vehicle inventory. Wholesale and dealer loan receivables with the same dealer customer share the same risk rating.
A summary of the credit risk profile by dealer grouping of the commercial finance receivables is as follows (in millions):
| | | June 30, 2013 | | December 31, 2012 | | June 30, 2014 | | December 31, 2013 |
Group I | $ | 287 |
| | $ | 99 |
| - | Dealers with superior financial metrics | | $ | 754 |
| | $ | 598 |
|
Group II | 972 |
| | 278 |
| - | Dealers with strong financial metrics | | 1,633 |
| | 1,588 |
|
Group III | 2,257 |
| | 171 |
| |
Group IV | 928 |
| | 12 |
| |
Group III - | | - | Dealers with fair financial metrics | | 2,365 |
| | 2,174 |
|
Group IV - | | - | Dealers with weak financial metrics | | 1,539 |
| | 1,622 |
|
Group V | 513 |
| |
|
| - | Dealers warranting special mention due to potential weaknesses | | 615 |
| | 488 |
|
Group VI | 4 |
| |
|
| |
| $ | 4,961 |
| | $ | 560 |
| |
Group VI - | | - | Dealers with loans classified as substandard, doubtful or impaired | | 208 |
| | 230 |
|
Balance at end of period | | Balance at end of period | | $ | 7,114 |
| | $ | 6,700 |
|
The credit lines for Group VI dealers are suspended and no further funding is extended to these dealers.
At June 30, 2014 and December 31, 2013, 99.6%99.8% of our commercial finance receivables were current with respect to payment status.
Impaired Commercial Finance Receivables
We consider a loan impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The amount of impairment is based on expected proceeds, including the estimated amount of future cash flows and/or the fair value of underlying collateral, compared to the recorded investment of the loan. A specific allowance for losses is established in the amount of any measured impairment.
Commercial finance receivables classified as TDRs are assessed for impairment and included in our allowance for credit losses based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. For receivables where foreclosure is probable, the fair value of the collateral is used to estimate the specific impairment. At June 30, 20132014 and December 31, 2012,2013, there were no outstanding commercial finance receivables classified as TDRs.
Note 3. Restricted Cash
The following table summarizes the components of restricted cash (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2014 | | December 31, 2013 |
| North America | | International | | Total | | North America | | International | | Total |
Securitization notes payable | $ | 1,014 |
| | $ | 390 |
| | $ | 1,404 |
| | $ | 890 |
| | $ | 208 |
| | $ | 1,098 |
|
Revolving credit facilities | 79 |
| | 258 |
| | 337 |
| | 62 |
| | 415 |
| | 477 |
|
Other | 50 |
| | 414 |
| | 464 |
| | 26 |
| | 357 |
| | 383 |
|
Total restricted cash | $ | 1,143 |
| | $ | 1,062 |
| | $ | 2,205 |
| | $ | 978 |
| | $ | 980 |
| | $ | 1,958 |
|
Restricted cash securitization notes payable and revolving credit facilities is comprised of funds deposited as collateral required in restricted cash accounts to support securitization transactions or funds deposited in restricted cash accounts to provide additional collateral for borrowings under revolving credit facilities. Additionally, these funds include monthly collections from borrowers that have not yet been used for repayment of debt.
In the North America Segment, restricted cash other is comprised of cash deposited to support derivative transactions. In the International Segment, restricted cash other is primarily comprised of deposits in Brazil held in escrow pending resolution of tax and civil litigation.
Our operating lease program is offered primarily in the North America.America Segment. As of June 30, 2014 and December 31, 2013, the amount of leased vehicles accounted for as operating leases in our international operationsthe International Segment is insignificant; therefore, the following information regarding our leased vehicles is presented on a consolidated basis.
Following is a summary of our leased vehicles (in millions):
| | | June 30, 2013 | | December 31, 2012 | | June 30, 2014 | | December 31, 2013 |
Leased vehicles | $ | 3,579 |
| | $ | 2,283 |
| | $ | 6,528 |
| | $ | 4,684 |
|
Manufacturer incentives | (498 | ) | | (307 | ) | | (936 | ) | | (659 | ) |
| 3,081 |
| | 1,976 |
| | 5,592 |
| | 4,025 |
|
Less: accumulated depreciation | (426 | ) | | (273 | ) | | (844 | ) | | (642 | ) |
Leased vehicles, net | $ | 2,655 |
| | $ | 1,703 |
| | $ | 4,748 |
| | $ | 3,383 |
|
A summary of the changes in our leased vehicles is as follows (in millions):
| | | Three Months Ended | | Six Months Ended | | | | | | | | |
| June 30, | | Six Months Ended June 30, |
| 2013 | | 2012 | | 2013 | | 2012 | | 2014 | | 2013 |
Balance at beginning of period | $ | 2,444 |
| | $ | 1,210 |
| | $ | 1,976 |
| | $ | 887 |
| | $ | 4,025 |
| | $ | 1,976 |
|
International operations acquisition | 9 |
| | | | 9 |
| | | | — |
| | 9 |
|
Leased vehicles purchased | 834 |
| | 394 |
| | 1,454 |
| | 778 |
| | 2,322 |
| | 1,454 |
|
Leased vehicles returned - end of term | (54 | ) | | (12 | ) | | (106 | ) | | (26 | ) | | (469 | ) | | (106 | ) |
Leased vehicles returned - default | (5 | ) | | (1 | ) | | (9 | ) | | (2 | ) | | (24 | ) | | (9 | ) |
Manufacturer incentives | (115 | ) | | (55 | ) | | (197 | ) | | (107 | ) | | (274 | ) | | (197 | ) |
Foreign currency translation | (32 | ) | | (9 | ) | | (46 | ) | | (3 | ) | | 12 |
| | (46 | ) |
Balance at end of period | $ | 3,081 |
| | $ | 1,527 |
| | $ | 3,081 |
| | $ | 1,527 |
| | $ | 5,592 |
| | $ | 3,081 |
|
As of June 30, 20132014 and December 31, 2012,2013, our CanadianCanada subsidiary was servicing $429192 million and $625303 million of leased vehicles for a third party.
The following table summarizes minimum rental payments due to us as lessor under operating leases (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal 2013 | | Fiscal 2014 | | Fiscal 2015 | | Fiscal 2016 | | Fiscal 2017 | | Fiscal 2018 |
Minimum rental payments under operating leases | $ | 303 |
| | $ | 461 |
| | $ | 342 |
| | $ | 118 |
| | $ | 11 |
| | $ | 1 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ending December 31, | | |
| | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
Minimum rental payments under operating leases | | $ | 702 |
| | $ | 898 |
| | $ | 662 |
| | $ | 262 |
| | $ | 43 |
| | $ | 2 |
|
Debt consists of the following (in millions):
| | | June 30, 2013 | | December 31, 2012 | | June 30, 2014 | | December 31, 2013 |
| North America | | International | | Total | | North America | | North America | | International | | Total | | North America | | International | | Total |
Secured | | | | |
|
| | | | | | | | | | | | | |
|
|
Revolving credit facilities | $ | 1,095 |
| | $ | 4,357 |
| | $ | 5,452 |
| | $ | 354 |
| | $ | 2,703 |
| | $ | 5,888 |
| | $ | 8,591 |
| | $ | 1,678 |
| | $ | 7,322 |
| | $ | 9,000 |
|
Securitization notes payable | 10,047 |
| | 2,049 |
| | 12,096 |
| | 9,024 |
| | 11,847 |
| | 4,568 |
| | 16,415 |
| | 10,801 |
| | 2,272 |
| | 13,073 |
|
Total secured | 11,142 |
| | 6,406 |
| | 17,548 |
| | 9,378 |
| | $ | 14,550 |
| | $ | 10,456 |
| | $ | 25,006 |
| | $ | 12,479 |
| | $ | 9,594 |
| | $ | 22,073 |
|
| | | | | | | | | | | | | | | | | | | |
Unsecured | | | | |
| | | | | | | | | | | | | |
|
Bank lines and credit facilities | | | 1,238 |
| | 1,238 |
| | | |
Senior notes | 4,000 |
| | | | 4,000 |
| | 1,500 |
| | $ | 4,376 |
| | $ | — |
| | $ | 4,376 |
| | $ | 4,000 |
| | $ | — |
| | $ | 4,000 |
|
Credit facilities | | | — |
| | 2,430 |
| | 2,430 |
| | — |
| | 2,370 |
| | 2,370 |
|
Other unsecured debt | | | — |
| | 790 |
| | 790 |
| | — |
| | 603 |
| | 603 |
|
Total unsecured | $ | 4,000 |
| | $ | 1,238 |
| | $ | 5,238 |
| | $ | 1,500 |
| | $ | 4,376 |
| | $ | 3,220 |
| | $ | 7,596 |
| | $ | 4,000 |
| | $ | 2,973 |
| | $ | 6,973 |
|
Secured Debt
Secured debt consists of revolving credit facilities and securitization notes payable and other asset-secured credit facilities. The revolving secured debt facilities have revolving periods ranging from one to three years. At the end of the revolving period, if the facilities are not renewed, the debt will amortize over periods ranging from one to five years.payable. Most of the secured debt was issued by variable interest entities, as further discussed in Note 76 - "Variable Interest Entities." These notes areThis debt is repayable only from proceeds related to the underlying pledged finance receivables and leases.lease related assets.
In connection with our merger with GM, we recorded an acquisition accounting premium that is being amortized to interest expense over the expected term of the securitization notes payable outstanding at the merger date. Amortization forDuring the six months ended June 30, 20132014, we entered into $445 million in new revolving credit facilities and 2012 was issued $5.0 billion in securitization notes payable.$8 million and $19 million. At June 30, 2013, unamortized acquisition accounting premium
We are required to hold funds in restricted cash accounts to provide additional collateral for borrowings under certain of $2 million is included inour secured debt. In connection withcredit facilities. Additionally, certain of our acquisition of the international operations, we recorded an acquisition accounting discount that will accrete against interest expense over the expected term of the secured credit facilities contain various covenants requiring minimum financial ratios, asset quality and portfolio performance ratios (portfolio net loss and delinquency ratios and pool level cumulative net loss ratios) as well as limits on deferment levels. Failure to meet any of these covenants could result in an event of default under these agreements. If an event of default occurs under these agreements, the lenders could elect to declare all amounts outstanding at the applicable acquisition date. Accretion for the threeunder these agreements to be immediately due and six months ended June 30, 2013 was $5 million. At June 30, 2013, remaining acquisition accounting discount of $48 million is included in secured debt.payable, enforce their interests against collateral pledged under these agreements,
Interest rates on the secured debt in North America are primarily fixed, ranging from 0.9%restrict our ability to 5.7% at June 30, 2013 and 0.9% to 13.4% at June 30, 2012. Interest rates on the secured debt in the international operations are primarily floating, ranging from 0.9% to 6.3% at June 30, 2013. Issuance costs on the secured debt of $46 millionobtain additional borrowings under these agreements and/or remove us as servicer. As of June 30, 2013 and $31 million as of December 31, 2012 are included2014, we were in other assets on the consolidated balance sheets, and are amortizedcompliance with all covenants related to interest expense over the expected term of the secured debt.our credit facilities.
Unsecured Debt
Unsecured debt consists primarily of bank lines, which were assumedsenior notes we have issued in the acquisition ofNorth America Segment, as well as credit facilities and other unsecured debt in the international operations, and senior unsecured notes. The tenor of our unsecured bank lines ranges up to three years. If not renewed, any balance outstanding under these bank lines is either immediately due in full or else will amortize over a defined period. Interest rates on unsecured bank lines ranged fromInternational Segment.
At 0.0% to 9.0% at June 30, 2013.2014
In May 2013,, we issued $2.5had $4.0 billion in aggregate principal amount of senior notes at rates ranging from 2.75% to 4.25%, and due between November 2016 and November 2023. Proceeds from the senior notes were used for the acquisition and funding support of the international operations, and are also used to supportissued by our overall growth. At June 30, 2013 we had $4.0 billion of senior notestop-tier holding company that mature from 2016 through 2023 and have interest rates that range from 2.75% to 6.75%. All of ourthese senior notes may be redeemed, at our option, in whole or in part, at any time before maturity at the redemption prices as set forth in the indentures that govern the senior notes, plus accrued and unpaid interest, and liquidated damages, if any, to the redemption date. In addition, if a change of control occurs, as that term is defined in the indentures that govern the senior notes, prior to the Companyus being rated “investment grade”"investment grade" by at least two of three listed rating agencies, the holders of these senior notes will have the right, subject to certain conditions, to require the Companyus to repurchase their senior notes at a purchase price equal to 101% of the aggregate principal amount of senior notes repurchased plus accrued and unpaid interest, and liquidated damages, if any, as of the date of repurchase. TheThese senior notes are guaranteed solely by AmeriCredit Financial Services, Inc. ("AFSI"); none of our other subsidiaries are guarantors of thethese senior notes. See Note 15 - "Guarantor Consolidating Financial Statements" for further discussion.
On July 10, 2014, our top-tier holding company issued an additional $1.5 billion in senior notes, of which $700 million are due July 2017 and $800 million are due July 2019. Interest rates on the respective tranches are 2.63% and 3.50%, payable semiannually. Terms are substantially the same as those of senior notes previously issued. We intend to use the net proceeds from this offering for general corporate purposes.
The indentures that govern the senior notes issued by our top-tier holding company provide for customary events of default, including nonpayment, failure to comply with covenants or other agreements in the indentures, if any subsidiary guarantee shall cease to be in full force and effect or any guarantor shall deny or disaffirm its obligations under its subsidiary guarantee, and certain events of bankruptcy or insolvency. If any event of default occurs and is continuing with respect to a series of senior notes, the trustee or the holders of at least 25% in principal amount of the then outstanding senior notes of such series may declare all of the senior notes of such series to be due and payable immediately.
The following table presents the expected scheduled principal and interest payments under our contractual debt obligations (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Years Ending December 31, | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Thereafter | | Total |
Secured debt | | $ | 5,808 |
| | $ | 4,933 |
| | $ | 3,518 |
| | $ | 2,173 |
| | $ | 1,016 |
| | $ | 146 |
| | $ | 17,594 |
|
Unsecured debt | | 819 |
| | 253 |
| | 139 |
| | 1,027 |
| | 1,000 |
| | 2,000 |
| | 5,238 |
|
Interest | | 277 |
| | 387 |
| | 277 |
| | 198 |
| | 134 |
| | 195 |
| | 1,468 |
|
| | $ | 6,904 |
| | $ | 5,573 |
| | $ | 3,934 |
| | $ | 3,398 |
| | $ | 2,150 |
| | $ | 2,341 |
| | $ | 24,300 |
|
As of June 30, 2013,2014, we were in compliance with all covenants related to our senior notes.
In May 2014 our Canadian subsidiary issued C$400 million of 3.25% senior notes through a private placement in Canada. The notes are due in May 2017 with interest payable semiannually. Similar to the senior notes issued by our securedtop-tier holding company, these notes are guaranteed by AFSI. We intend to use the net proceeds from this offering for general corporate purposes.
The International Segment issues unsecured debt through credit facilities with banks and other non-bank funding instruments. During the six months ended June 30, 2014, we entered into $171 million of new unsecured debt.committed credit facilities.
| |
Note 7. | Variable Interest Entities |
We use special-purpose entities that are considered VIEs to issue variable funding notes to third party bank-sponsored warehouse facilitiesNote 6. Variable Interest Entities
Securitizations and that issue asset-backed securities to investors in securitization transactions. The securities issued by these VIEs are backed by the cash flows related to finance receivables and leasing related assets transferred by us to the VIEs (securitized assets). We hold variable interests in the VIEs that could potentially be significant to the VIEs. We determined that we are the primary beneficiary of the special-purpose entities because (i) our servicing responsibilities for the securitized assets give us the power to direct the activities that most significantly impact the performance of the VIEs and (ii) our variable interests in the VIEs give us the obligation to absorb losses and the right to receive residual returns that could potentially be significant. Therefore, the assets and liabilities of the VIEs are included in our consolidated balance sheets.credit facilities
The following table summarizes the assets and liabilities related toof our consolidated VIEs related to securitization and credit facilities (in millions):
|
| | | | | | | |
| June 30, 2013 | | December 31, 2012 |
Restricted cash | $ | 1,397 |
| | $ | 744 |
|
VIE securitized assets | 20,227 |
| | 10,442 |
|
VIE liabilities | 17,071 |
| | 9,378 |
|
Restricted cash represents collections from the underlying securitized assets and certain reserve accounts held as credit enhancement for securitizations held by us for the benefit of the noteholders. Except for the acquisition accounting adjustments, we recognize finance charge income, leased vehicles income and other income on the securitized assets and interest expense on the secured debt issued by the special-purpose entities. We also maintain an allowance for estimated probable credit losses on securitized assets. Cash pledged to support the secured borrowings is deposited to a restricted cash account and recorded as restricted cash, which is invested in highly liquid securities with original maturities of 90 days or less. |
| | | | | | | | |
| | June 30, 2014 | | December 31, 2013 |
Restricted cash | | $ | 1,741 |
| | $ | 1,523 |
|
VIE assets | | $ | 27,173 |
| | $ | 23,584 |
|
VIE liabilities | | $ | 22,371 |
| | $ | 19,448 |
|
The assets of the VIEs and the restricted cash held by uswe hold serve as the sole source of repayment for the asset-backed securitiesdebt issued by these entities. Investors in the notes issued by the VIEs do not have recourse to us or our other assets, with the exception of customary representation and warranty repurchase provisions and indemnities we provide as the servicer. We are not required and do not currently intend to provide additional financial support to these VIEs. While these subsidiaries are included in our condensed consolidated financial statements, these subsidiaries are separate legal entities and their assets are legally owned by them and not available to our creditors.
In addition, we entered into interest rate swaps and caps with certain special-purpose entities ("SPEs") that issue variable rate debt against fixed rate securitized assets. Under the terms of these swaps, the special purpose entitiesSPEs are obligated to pay us a fixed rate of interest on certain payment dates in exchange for receiving a floating rate of interest on notional amounts equal to the outstanding balance
of the secured debt. This arrangement enables the special-purpose entitiesSPEs to mitigate the interest rate risk inherent in issuing variable rate debt that is secured by fixed rate securitized assets, as required to maintain ratings on such securitizations. See Note 87 - "Derivative Financial Instruments"Instruments and Hedging Activities" for further discussion.
The transfers of the securitized assetsOther VIEs
We consolidate certain operating entities that provide auto finance and financial services, which we do not control through a majority voting interest. We manage these entities and maintain a controlling financial interest in them and are exposed to the special-purposerisks of ownership through contractual arrangements. The majority voting interests in these entities are indirectly wholly-owned by our parent, GM. Prior to December 2013, the voting interests in these entities were indirectly wholly-owned by us. At June 30, 2014 and December 31, 2013, total assets of these entities were $4.0 billion and $3.9 billion, which were comprised primarily of cash and cash equivalents and finance receivables; and total liabilities were $3.2 billion and $3.0 billion, which were comprised primarily of debt, accounts payable (primarily trade) and accrued liabilities. In the six months ended June 30, 2014 total revenue recorded by these entities was $118 million and net income was $21 million. In the three months ended June 30, 2014 total revenue recorded by these entities was $60 million and net income was $11 million. These amounts are stated prior to intercompany eliminations and include amounts related to securitization and credit facilities held by consolidated VIEs. Liabilities recognized as a result of consolidating these entities generally do not represent claims against us or our other subsidiaries and assets recognized generally are for the benefit of these entities operations and cannot be used to satisfy our or our subsidiaries obligations.
Transfers of finance receivables to non-VIEs
Under certain debt agreements, we transfer finance receivables to third-party banks, which are not considered VIEs. These transfers do not meet the criteria to be sales for legal purposes. However,considered sales; therefore, the securitized assetsfinance receivables and the related debt accounted for as secured borrowings, remain onare included in our condensed consolidated balance sheet. We recognize financing revenuefinancial statements. Any collections received on the securitized assetstransferred receivables are available only for the repayment of the related debt. As of June 30, 2014 and interest expense on theDecember 31, 2013, $2.9 billion and $2.8 billion in finance receivables had been transferred in secured funding arrangements to third-party banks, to which $2.7 billion and $2.7 billion in secured debt issued by the special-purpose entities. We also maintain an allowance for credit losses on the securitized assets to cover estimated incurred credit losses using a methodology consistent with that used for our non-securitized asset portfolio.was outstanding.
| |
Note 8.7. | Derivative Financial Instruments and Hedging Activities |
Derivative swap and cap agreements consist of the following (in millions):
| | | June 30, 2013 | | June 30, 2014 | | December 31, 2013 |
| Notional | | Fair Value(a) | | Notional | | Fair Value(a) | | Notional | | Fair Value(a) |
Assets | | | | | | | | | | | |
Interest rate swaps | $ | 2,313 |
| | $ | 7 |
| | $ | 3,800 |
| | $ | 17 |
| | $ | 2,422 |
| | $ | 11 |
|
Interest rate caps | 2,419 |
| | 7 |
| | 2,606 |
| | 7 |
| | 1,398 |
| | 7 |
|
Foreign exchange swaps(b) | 2,002 |
| | 17 |
| |
Foreign currency swaps(b) | | | 1,678 |
| | 1 |
| | 1,678 |
| | 3 |
|
Total assets(c) | $ | 6,734 |
| | $ | 31 |
| | $ | 8,084 |
| | $ | 25 |
| | $ | 5,498 |
| | $ | 21 |
|
Liabilities | | | | | | | | | | | |
Interest rate swaps | $ | 2,502 |
| | $ | 20 |
| | $ | 4,858 |
| | $ | 34 |
| | $ | 4,266 |
| | $ | 17 |
|
Interest rate caps | 2,266 |
| | 7 |
| | 2,312 |
| | 8 |
| | 1,206 |
| | 7 |
|
Foreign exchange swaps(b) | 1,500 |
| | 3 |
| |
Foreign currency swaps(b) | | | 2,227 |
| | 53 |
| | 2,133 |
| | 29 |
|
Total liabilities(d) | $ | 6,268 |
| | $ | 30 |
| | $ | 9,397 |
| | $ | 95 |
| | $ | 7,605 |
| | $ | 53 |
|
_________________
| |
(a) | See Note 98 - "Fair" Fair Values of Assets and Liabilities"Liabilities " for further discussion of fair value disclosure related to the derivatives. |
| |
(b) | The foreign exchangecurrency swaps relate to (i) an intercompany loanloans denominated in foreign currencies (notional balances on the intercompany loanloans of 748€674 million Euro (€), 331£423 million Pound (£) and 190208kr million Swedish krona (SEK) have been translated to USD) and (ii) a cross currency£350 million cross-currency swap for an international operations securitization.a securitization in the International Segment. |
| |
(c) | Included in Other Assetsother assets on the Consolidated Balance Sheets.condensed consolidated balance sheets. |
| |
(d) | Included in Other Liabilitiesother liabilities on the Consolidated Balance Sheets.condensed consolidated balance sheets. |
At December 31, 2012, we had derivative assets and liabilities with notional amounts of $775.1 million, which had an insignificant fair value.
Generally,As appropriate, we purchase interest rate cap agreements to limit floating rate exposures on securities issued incertain of our revolving secured debt. We also utilize interest rate swap agreements to convert floating rate exposures on certain of our revolving debt or on securities issued in securitization transactions to fixed rates, thereby hedging the variability in interest expense paid.
In connection with the closing of the acquisition of the international operations from Ally Financial , weWe provided a loanloans denominated in foreign currencies (Euro,(euro, British Poundpound and Swedish Krona)krona) to an acquired entitycertain of our international entities for the equivalent of $1.51.7 billion. We purchase foreign exchangecurrency swaps to hedge against any valuation change in the loanloans due to changes in foreign exchange rates.
The following table summarizespresents information on the location and amounteffect of gains and losses on derivative instruments reported in ouron the condensed consolidated statementstatements of income and comprehensive income (in millions).:
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
Non-designated hedges: | | | | | | | | |
Interest rate contracts(a) | | $ | 1 |
| | $ | (3 | ) | | $ | (9 | ) | | $ | (3 | ) |
Foreign currency derivatives(b) | | (26 | ) | | (12 | ) | | (42 | ) | | (12 | ) |
| | $ | (25 | ) | | $ | (15 | ) | | $ | (51 | ) | | $ | (15 | ) |
_________________ | |
(a) | Gains (losses) recognized in earnings are included in interest expense. |
| |
(b) | The losses for the three and six months ended June 30, 2014 are substantially offset by translation gains (included in operating expenses) related to the foreign currency-denominated loans described above. |
|
| | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2013 |
Gain (loss) recognized in interest expense | | | |
Interest rate contracts | $ | (3 | ) | | $ | (3 | ) |
Gain (loss) recognized in operating expenses | | | |
Foreign exchange swaps | (12 | ) | | (12 | ) |
The gain/loss amounts recognized in interest expense for the three and six months ended June 30, 2012 was insignificant.
| |
Note 9.8. | Fair Values of Assets and Liabilities |
SeeRefer to Note 1210 - "Fair Values of Assets and Liabilities" to the consolidated financial statements in our Form 10-K for further discussion of valuation techniques and fair value measurement levels. The fair value of our foreign exchange swaps use observable quoted prices for inputs and are considered Level 2 financial instruments.
Assets and liabilities itemized below were measured at fair value on a recurring basis, using either the market approach (i), the cost approach (ii) or the income approach (iii) (in millions):
|
| | | | | | | | | | | | | | | |
| June 30, 2013 | | |
| Fair Value Measurements Using | | |
| Level 1 | | Level 2 | | Level 3 | | |
Quoted Prices In Active Markets For Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Assets/ Liabilities At Fair Value |
Assets | | | | | | | |
Money market funds(i)(a) | $ | 1,831 |
| | | | | | $ | 1,831 |
|
Derivatives not designated as hedging instruments: | | | | | | | |
Interest rate swaps(iii) | | | | | $ | 7 |
| | 7 |
|
Interest rate caps(i) | | | $ | 7 |
| | | | 7 |
|
Foreign exchange swaps(i) | | | 17 |
| | | | 17 |
|
Total assets | $ | 1,831 |
| | $ | 24 |
| | $ | 7 |
| | $ | 1,862 |
|
Liabilities | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | |
Interest rate swaps(iii) | | | | | $ | 20 |
| | $ | 20 |
|
Interest rate caps(i) | | | $ | 7 |
| | | | 7 |
|
Foreign exchange swaps(i) | | | 3 |
| | | | 3 |
|
Total liabilities | $ | | $ | 10 |
| | $ | 20 |
| | $ | 30 |
|
|
| | | | | | | | | | | | | | | | |
| | June 30, 2014 |
| | Fair Value Measurements Using | | |
| | Level 1 | | Level 2 | | Level 3 | | |
| Quoted Prices In Active Markets For Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Assets/ Liabilities At Fair Value |
Assets | | | | | | | | |
Money market funds(i)(a) | | $ | 2,284 |
| | $ | — |
| | $ | — |
| | $ | 2,284 |
|
Derivatives not designated as hedging instruments: | | | | | | | | |
Interest rate swaps(iii) | | — |
| | — |
| | 17 |
| | 17 |
|
Interest rate caps(i) | | — |
| | 7 |
| | — |
| | 7 |
|
Foreign currency swaps(i) | | — |
| | 1 |
| | — |
| | 1 |
|
Total assets | | $ | 2,284 |
| | $ | 8 |
| | $ | 17 |
| | $ | 2,309 |
|
Liabilities | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Interest rate swaps(iii) | | $ | — |
| | $ | — |
| | $ | 34 |
| | $ | 34 |
|
Interest rate caps(i) | | — |
| | 8 |
| | — |
| | 8 |
|
Foreign currency swaps(i) | | — |
| | 53 |
| | — |
| | 53 |
|
Total liabilities | | $ | — |
| | $ | 61 |
| | $ | 34 |
| | $ | 95 |
|
_________________
| |
(a) | Excludes cash in banks of $1.3 billion. |
|
| | | | | | | | | | | | | | | | |
| | December 31, 2013 |
| | Fair Value Measurements Using | | |
| | Level 1 | | Level 2 | | Level 3 | | |
| Quoted Prices In Active Markets For Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Assets/ Liabilities At Fair Value |
Assets | | | | | | | | |
Money market funds(i)(a) | | $ | 1,452 |
| | $ | — |
| | $ | — |
| | $ | 1,452 |
|
Derivatives not designated as hedging instruments: | | | | | | | | |
Interest rate swaps(iii) | | — |
| | — |
| | 11 |
| | 11 |
|
Interest rate caps(i) | | — |
| | 7 |
| | — |
| | 7 |
|
Foreign currency swaps(i) | | — |
| | 3 |
| | — |
| | 3 |
|
Total assets | | $ | 1,452 |
| | $ | 10 |
| | $ | 11 |
| | $ | 1,473 |
|
Liabilities | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | |
Interest rate swaps(iii) | | $ | — |
| | $ | — |
| | $ | 17 |
| | $ | 17 |
|
Interest rate caps(i) | | — |
| | 7 |
| | — |
| | 7 |
|
Foreign currency swaps(i) | | — |
| | 29 |
| | — |
| | 29 |
|
Total liabilities | | $ | — |
| | $ | 36 |
| | $ | 17 |
| | $ | 53 |
|
_________________ | |
(a) | Excludes cash in banks of $1.41.6 billion. |
|
| | | | | | | |
| December 31, 2012 | | |
| Fair Value Measurements Using | | |
| Level 1 | | |
Quoted Prices In Active Markets For Identical Assets | | Assets / Liabilities At Fair Value |
Assets | | | |
Money market funds(i)(a) | $ | 1,830 |
| | $ | 1,830 |
|
_________________ | |
(a) | Excludes cash in banks of $228 million.
|
The fair value of interest rate caps and swap asset and liabilities at December 31, 2012 was insignificant.
The tables below present a reconciliation for interest rate swap agreements measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in millions):
| | | Three Months Ended | | Six Months Ended | | Three Months Ended June 30, |
| June 30, 2013 | | 2014 | | 2013 |
| Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities |
Balance at beginning of period | | | | | | | | | $ | 8 |
| | $ | (20 | ) | | $ | — |
| | $ | — |
|
Total realized and unrealized gains | | | | | | | | |
Included in earnings | $ | 2 |
| | $ | (4 | ) | | $ | 2 |
| | $ | (4 | ) | |
Total realized and unrealized gains included in earnings | | | 9 |
| | (19 | ) | | 2 |
| | (4 | ) |
Purchases | 7 |
| | (18 | ) | | 7 |
| | (18 | ) | | — |
| | — |
| | 7 |
| | (18 | ) |
Settlements | (2 | ) | | 2 |
| | (2 | ) | | 2 |
| | — |
| | 5 |
| | (2 | ) | | 2 |
|
Balance at end of period | $ | 7 |
| | $ | (20 | ) | | $ | 7 |
| | $ | (20 | ) | | $ | 17 |
| | $ | (34 | ) | | $ | 7 |
| | $ | (20 | ) |
| | | Three Months Ended | | Six Months Ended | | Six Months Ended June 30, |
| June 30, 2012 | | 2014 | | 2013 |
| Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities | | Assets | | Liabilities |
Balance at beginning of period | $ | 2 |
| | $ | (2 | ) | | $ | 2 |
| | $ | (6 | ) | | $ | 11 |
| | $ | (17 | ) | | $ | — |
| | $ | — |
|
Total realized and unrealized gains included in earnings | | | 6 |
| | (26 | ) | | 2 |
| | (4 | ) |
Purchases | | | — |
| | — |
| | 7 |
| | (18 | ) |
Settlements | (2 | ) | | 2 |
| | (2 | ) | | 6 |
| | — |
| | 9 |
| | (2 | ) | | 2 |
|
Balance at end of period | $ | | $ | | $ | | $ | | $ | 17 |
| | $ | (34 | ) | | $ | 7 |
| | $ | (20 | ) |
| |
Note 10.9. | Commitments and Contingencies |
Guarantees of Indebtedness
The payments of principal and interest on our senior notes issued by our top-tier holding company are guaranteed by AFSI. As of June 30, 20132014 and December 31, 20122013, the par value of ourthese senior notes was $4.0$4.0 billion and $1.5 billion. See Note 15 - "Guarantor Consolidating Financial Statements" for further discussion.
Legal Proceedings
As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud, breach of contract and discriminatory treatment of credit applicants. Some litigation against us could take the form of class action complaints by consumers and certain legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We establish reserves for legal claims when payments associated with the claims become probable and the payments can be reasonably estimated. Given the inherent difficulty of predicting the outcome of litigation and regulatory matters, it is generally very difficult to predict what the eventual outcome will be, and when the matter will be resolved. The actual costs of resolving legal claims may be higher or lower than any amounts reserved for the claims.
Other Administrative Tax Matters
We accrue non income-taxnon-income tax liabilities for contingencies when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they will be charged against income at that time.
In evaluating indirect tax matters, we take into consideration factors such as our historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. We reevaluate and update our accruals as matters progress over time. It is reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably to us and could require us to make expenditures for which we estimate the aggregate risk to be a range of up to $3198 million.
Note 10. Income Taxes
For interim income tax reporting we estimate our annual effective tax rate and apply it to our year to dateyear-to-date ordinary income. Tax jurisdictions with a projected or year to dateyear-to-date loss for which a tax benefit cannot be realized are excluded.excluded from the annualized effective tax rate. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur.
We had gross unrecognizedOur effective income tax benefits ofrate was $80 million34.0% and $53 million34.3% at June 30, 2013for the three andDecember 31, 2012. The amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate is $52 million and $28 million at June 30, 2013 and December 31, 2012. The increase in the gross unrecognized tax benefits is primarily due to the acquisition of the international operations. See Note 2 - "Acquisition of Ally Financial Inc. International Operations" for further discussion on the acquisition.
At June 30, 2013, we believe that it is reasonably possible that the gross unrecognized tax benefits could decrease by up to $4 million to $20 million in the next twelve months due to settlements or the expiration of statutes of limitations. We continually evaluate expiring statutes of limitations, audits, proposed settlements, changes in tax laws and new authoritative rulings.
We recognize accrued interest and penalties associated with uncertain tax positions as a component of the income tax provision. As of June 30, 2013, accrued interest and penalties associated with uncertain tax positions were $14 million and $16 million.
During the six months ended June 30, 2013, we released $11 million in interest associated with uncertain tax positions. The interest release is primarily a result of the completion of an IRS audit as discussed below.
We have open tax years ranging from 2005 to 2012 with various U.S. federal, state and non-U.S. tax jurisdictions. Certain of our tax returns are currently under examination in these various tax jurisdictions. Since October 1, 2010, we have been included in GM's consolidated U.S. federal income tax returns. Similarly, we also file unitary, combined or consolidated state and local tax returns with GM in certain jurisdictions. We continue to file separate returns in those state, local and foreign taxing jurisdictions where filing a separate return is required. Prior to October 1, 2010, we filed income tax returns with the U.S. federal government and with various state, local and foreign jurisdictions. Our federal income tax returns for fiscal 2006 through 2010 were audited by the IRS and previously submitted to the Congressional Joint Committee on Taxation (“JCT”) for review. Pursuant to a notice dated April 10, 2013, the JCT completed its review and took no exception to the conclusions reached by the IRS. The completion of the JCT review is reflected in the June 30, 2013 financial statements and does not have a significant impact.
For taxable income recognized by us in any period beginning on or after October 1, 2010, we are obligated to pay GM for our share of the consolidated federal and state tax liabilities. Likewise, GM is obligated to reimburse us for the tax effects of net operating losses to the extent such losses could be carried back as if we had filed separate income tax returns. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. Under our tax sharing arrangement with GM, amended effective April 1, 2013, payments for the tax years 2010 through 2014 are deferred for four years from their original due date, with the first payment due December 15, 2014. The total amount of deferral cannot exceed $1.0 billion. Any difference between the amounts paid under our tax sharing arrangement with GM and our separate return basis used for financial reporting purposes is reported in our consolidated financial statements as additional paid-in capital. As of June 30, 2013, a cumulative difference of $1 million between the amounts to be paid under our tax sharing arrangement with GM and our separate return basis used for financial reporting purposes was reported in our consolidated financial statements through additional paid-in capital. As of June 30, 2013, we have recorded related party taxes payable to GM in the amount of $644 million, representing the tax effects of income earned subsequent to the merger with GM.
Our effective income tax rate was 32.7% and 34.6% for the three and six months ended June 30, 2013. Our effective income tax rate was 37.1% and 37.5% for the three and six months ended June 30, 2012. The decrease in the effective income tax rate is
primarily related to the settlement of the IRS audit as well as the acquisition of the international operations, which resulted in income in jurisdictions with lower tax rates and other permanent differences; these decreases were offset by the tax effects of certain non-deductible transaction costs.
| |
Note 12.11. | Fair ValueValues of Financial Instruments |
Fair values are based on estimates using present value or other valuation techniques in cases where quoted market prices are not available. Those techniques are significantly affected by the assumptions used, including the discount rate and the estimated timing and amount of future cash flows. Therefore, the estimates of fair value may differ substantially from amounts that ultimately may be realized or paid at settlement or maturity of the financial instruments and those differences may be material. Disclosures about fair value of financial instruments exclude certain financial instruments and all non-financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of our company.
Estimated fair values, carrying values and various methods and assumptions used in valuing our financial instruments are set forth below (dollars in(in millions):
| | | | | June 30, 2013 | | December 31, 2012 | | | June 30, 2014 | | December 31, 2013 |
| | Level | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Level | | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
Financial assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | (a) | 1 | | $ | 1,757 |
| | $ | 1,757 |
| | $ | 1,289 |
| | $ | 1,289 |
| (a) | 1 | | $ | 1,412 |
| | $ | 1,412 |
| | $ | 1,074 |
| | $ | 1,074 |
|
Finance receivables, net | (b) | 3 | | 22,945 |
| | 23,085 |
| | 10,998 |
| | 11,313 |
| (b) | 3 | | $ | 31,545 |
| | $ | 31,922 |
| | $ | 29,282 |
| | $ | 29,301 |
|
Restricted cash - secured debt | (a) | 1 | | 1,398 |
| | 1,398 |
| | 729 |
| | 729 |
| |
Restricted cash - unsecured debt | (a) | 1 | | 28 |
| | 28 |
| | 15 |
| | 15 |
| |
Restricted cash - other | (a) | 1 | | 32 |
| | 32 |
| | 24 |
| | 24 |
| |
Restricted cash | | (a) | 1 | | $ | 2,205 |
| | $ | 2,205 |
| | $ | 1,958 |
| | $ | 1,958 |
|
Interest rate swap agreements | (c) | 3 | | 7 |
| | 7 |
| | | | | (c) | 3 | | $ | 17 |
| | $ | 17 |
| | $ | 11 |
| | $ | 11 |
|
Interest rate cap agreements purchased | (c) | 2 | | 7 |
| | 7 |
| | | | | (d) | 2 | | $ | 7 |
| | $ | 7 |
| | $ | 7 |
| | $ | 7 |
|
Foreign exchange swap agreements | (c) | 2 | | 17 |
| | 17 |
| | | | | |
Foreign currency swap agreements | | (d) | 2 | | $ | 1 |
| | $ | 1 |
| | $ | 3 |
| | $ | 3 |
|
Financial liabilities: | | | | | | | | | | | | | | | | |
Secured debt | (d) | 2 | | 17,548 |
| | 17,605 |
| — |
| 9,378 |
| — |
| 9,526 |
| | | | | | | | |
North America | | (e) | 2 | | $ | 14,550 |
| | $ | 14,660 |
| | $ | 12,479 |
| | $ | 12,565 |
|
International | | (f) | 2 | | $ | 7,067 |
| | $ | 7,083 |
| | $ | 5,113 |
| | $ | 5,113 |
|
International | | (g) | 3 | | $ | 3,389 |
| | $ | 3,403 |
| | $ | 4,481 |
| | $ | 4,492 |
|
Unsecured debt | (e) | 2 | | 5,238 |
| | 5,232 |
| | 1,500 |
| | 1,620 |
| | | | | | | | |
North America | | (h) | 2 | | $ | 4,376 |
| | $ | 4,524 |
| | $ | 4,000 |
| | $ | 4,106 |
|
International | | (i) | 2 | | $ | 2,946 |
| | $ | 2,946 |
| | $ | 1,282 |
| | $ | 1,282 |
|
International | | (g) | 3 | | $ | 274 |
| | $ | 281 |
| | $ | 1,691 |
| | $ | 1,690 |
|
Interest rate swap agreements | (c) | 3 | | 20 |
| | 20 |
| | | | | (c) | 3 | | $ | 34 |
| | $ | 34 |
| | $ | 17 |
| | $ | 17 |
|
Interest rate cap agreements sold | (c) | 2 | | 7 |
| | 7 |
| | | | | (d) | 2 | | $ | 8 |
| | $ | 8 |
| | $ | 7 |
| | $ | 7 |
|
Foreign exchange swap agreements | (c) | 2 | | 3 |
| | 3 |
| | | | | |
Foreign currency swap agreements | | (d) | 2 | | $ | 53 |
| | $ | 53 |
| | $ | 29 |
| | $ | 29 |
|
_________________ | |
(a) | The carrying value of cashCash and cash equivalents and restricted cash bear interest at market rates; therefore, carrying value is considered to be a reasonable estimate of fair value since these investments bear interest at market rates and have maturities of less than 90 days.value. |
| |
(b) | The fair value of the consumer finance receivables in the North America Segment is estimated based upon forecasted cash flows on the receivables discounted using a pre-tax weighted average cost of capital. The fair value of the consumer finance receivables in the international operationsInternational Segment is estimated based on forecasted cash flows on the receivables discounted using current origination rates for similar type loans. Substantially all commercialCommercial finance receivables eithergenerally have variable interest rates and maturities of one year or less, or were acquired or funded within the last six months.less. Therefore, the carrying value is considered to be a reasonable estimate of fair value. |
| |
(c) | The fair values of the interest rate cap and swap agreements and foreign exchange swap agreements are based on quoted market prices, when available. If quoted market prices are not available, the market value is estimated by discounting future net cash flows expected to be settled using current risk-adjusted rates. |
| |
(d) | The fair values of the interest rate cap agreements and foreign currency swap agreements are based on quoted market prices. |
| |
(e) | Secured debt in the North America Segment is comprised of revolving credit facilities, publicly issuedpublicly-issued secured debt, and privately issuedprivately-issued secured debt. For revolving credit facilities with variable rates of interest and maturitiesterms of one year or less, carrying value is considered to be a reasonable estimate of fair value. The fair value of the publicly and privately issued secured term debt is based on quoted market prices, when available. If quoted market prices are not available, the market value is estimated by discounting future net cash flows expected to be paid using current risk-adjusted rates.quoted market prices of similar securities. |
| |
(e)(f) | The level 2 secured debt in the International Segment has terms of one year or less, or has been priced within the last six months; therefore, par value is considered to be a reasonable estimate of fair value. |
| |
(g) | The fair value of level 3 secured debt and unsecured debt is based on quoted market prices, when available. If quoted market prices are not available,in the market valueInternational Segment is estimated by discounting future net cash flows expected to be paidsettled using current risk-adjusted rates. |
There were no transfers of recurring fair values between levels.
| |
(h) | The fair value of unsecured debt in the North America Segment is based on quoted market prices in thinly-traded markets. |
| |
(i) | The level 2 unsecured debt in the International Segment has terms of one year or less; therefore, par value is considered to be a reasonable estimate of fair value. |
The fair value of our consumer finance receivables is based on observable and unobservable inputs within a discounted cash flow model. Those unobservable inputs reflect assumptions regarding expected prepayments, deferrals, delinquencies, recoveries and charge-offs of the loans within the portfolio. The cash flow model produces an estimated amortization schedule of the finance
receivables which is the basis for the calculation of the series of cash flows that derive the fair value of the portfolio. TheFor the North America Segment, the series of cash flows is calculated and discounted using a weighted average cost of capital using unobservable debt and equity percentages, an unobservable cost of equity and an observable cost of debt based on companies with a similar credit rating and maturity profile as our portfolio.profile. For the International Segment, the series of cash flows is calculated and discounted using current interest rates. Macroeconomic factors could affect the credit performance of our portfolio and therefore could potentially impact the assumptions used in our cash flow model.
| |
Note 13.12. | Segment Reporting |
We conduct our financing operations directly and indirectly through our subsidiaries and affiliates. We offer substantially similar products and services throughout many different regions, subject to local regulations and market conditions. We evaluate our business in reporting segments based on geographic regions:two operating segments: the North America Segment (consisting of operations in the United StatesU.S. and Canada) and the International Segment (consisting of operations in all other countries). Our chief operating decision maker evaluates the operating results and performance of our business based on these reportingoperating segments. The management of each segment is responsible for executing our strategies.
For segment reporting purposes only, interest expense related to the senior notes has been allocated based on targeted leverage for each segment. Interest expense in excess of the targeted overall leverage is reflected in the "Corporate" column below. In addition, the interest income on $1.7 billion in intercompany loans provided to the international operations is presented in the "Corporate" column below.
All inter-segment balances and transactions have been eliminated in consolidation.
eliminated. Key operating data for our reportingoperating segments were as follows (in millions):
| | | Three Months Ended June 30, 2013 | | Three Months Ended June 30, 2014 |
| North America Segment | | International Segment | | Corporate | | Total | | North America | | International | | Corporate | | Eliminations | | Total |
Total revenue | $ | 588 |
| | $ | 248 |
| | | | $ | 836 |
| | $ | 691 |
| | $ | 500 |
| | $ | 15 |
| | $ | (15 | ) | | $ | 1,191 |
|
Operating expenses, including leased vehicle expenses | 203 |
| | 89 |
| | | | 292 |
| | 310 |
| | 149 |
| | — |
| | — |
| | 459 |
|
Provision for credit losses | 81 |
| | 19 |
| | | | 100 |
| |
Provision for loan losses | | | 90 |
| | 23 |
| | — |
| | — |
| | 113 |
|
Interest expense | 91 |
| | 81 |
| | $ | (8 | ) | | 164 |
| | 104 |
| | 248 |
| | 17 |
| | (15 | ) | | 354 |
|
Acquisition and integration expenses | | | 16 |
| | | | 16 |
| |
Income before income taxes | $ | 213 |
| | $ | 43 |
| | $ | 8 |
| | $ | 264 |
| | $ | 187 |
| | $ | 80 |
| | $ | (2 | ) | | $ | — |
| | $ | 265 |
|
| | | Six Months Ended June 30, 2013 | | Three Months Ended June 30, 2013 |
| North America Segment | | International Segment | | Corporate | | Total | | North America | | International | | Corporate | | Eliminations | | Total |
Total revenue | $ | 1,128 |
| | $ | 248 |
| | | | $ | 1,376 |
| | $ | 588 |
| | $ | 248 |
| | $ | 14 |
| | $ | (14 | ) | | 836 |
|
Operating expenses, including leased vehicle expenses | 391 |
| | 89 |
| | | | 480 |
| | 203 |
| | 89 |
| | — |
| | — |
| | 292 |
|
Provision for credit losses | 175 |
| | 19 |
| | | | 194 |
| |
Provision for loan losses | | | 81 |
| | 19 |
| | — |
| | — |
| | 100 |
|
Interest expense | 173 |
| | 81 |
| | $ | (8 | ) | | 246 |
| | 91 |
| | 81 |
| | 6 |
| | (14 | ) | | 164 |
|
Acquisition and integration expenses | | | 22 |
| | | | 22 |
| | — |
| | 16 |
| | — |
| | — |
| | 16 |
|
Income before income taxes | $ | 389 |
| | $ | 37 |
| | $ | 8 |
| | $ | 434 |
| | $ | 213 |
| | $ | 43 |
| | $ | 8 |
| | $ | — |
| | $ | 264 |
|
|
| | | | | | | | | | | | | |
| June 30, 2013 |
| North America Segment | | International Segment | | Corporate | | Total |
Finance receivables, net | $ | 11,968 |
| | $ | 10,977 |
| | | | $ | 22,945 |
|
Total assets | $ | 18,096 |
| | $ | 12,489 |
| | | | $ | 30,585 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2014 |
| | North America | | International | | Corporate | | Eliminations | | Total |
Total revenue | | $ | 1,327 |
| | $ | 961 |
| | $ | 31 |
| | $ | (31 | ) | | 2,288 |
|
Operating expenses, including leased vehicle expenses | | 584 |
| | 300 |
| | — |
| | — |
| | 884 |
|
Provision for loan losses | | 193 |
| | 55 |
| | — |
| | — |
| | 248 |
|
Interest expense | | 196 |
| | 462 |
| | 42 |
| | (31 | ) | | 669 |
|
Income before income taxes | | $ | 354 |
| | $ | 144 |
| | $ | (11 | ) | | $ | — |
| | $ | 487 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2013 |
| | North America | | International | | Corporate | | Eliminations | | Total |
Total revenue | | $ | 1,128 |
| | $ | 248 |
| | $ | 14 |
| | $ | (14 | ) | | 1,376 |
|
Operating expenses, including leased vehicle expenses | | 391 |
| | 89 |
| | — |
| | — |
| | 480 |
|
Provision for loan losses | | 175 |
| | 19 |
| | — |
| | — |
| | 194 |
|
Interest expense | | 173 |
| | 81 |
| | 6 |
| | (14 | ) | | 246 |
|
Acquisition and integration expenses | | — |
| | 22 |
| | — |
| | — |
| | 22 |
|
Income before income taxes | | $ | 389 |
| | $ | 37 |
| | $ | 8 |
| | $ | — |
| | $ | 434 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2014 | | December 31, 2013 |
| | North America | | International | | Total | | North America | | International | | Total |
Finance receivables, net | | $ | 13,745 |
| | $ | 17,800 |
| | $ | 31,545 |
| | $ | 12,878 |
| | $ | 16,404 |
| | $ | 29,282 |
|
Total assets | | $ | 21,977 |
| | $ | 20,382 |
| | $ | 42,359 |
| | $ | 19,094 |
| | $ | 18,896 |
| | $ | 37,990 |
|
| |
Note 13. | Accumulated Other Comprehensive Income (Loss) |
A summary of changes in accumulated other comprehensive income (loss) is as follows (in millions): |
| | | | | | | | |
| | Three Months Ended June 30, |
| | 2014 | | 2013 |
Defined benefit plans, net: | | | | |
Balance at beginning of period | | $ | 3 |
| | $ | — |
|
Unrealized gain on subsidiary pension | | — |
| | — |
|
Balance at end of period | | 3 |
| | — |
|
Foreign currency translation adjustment: | | | | |
Balance at beginning of period | | 13 |
| | (9 | ) |
Translation gain (loss) | | 49 |
| | (59 | ) |
Balance at end of period | | 62 |
| | (68 | ) |
Total accumulated other comprehensive income (loss) | | $ | 65 |
| | $ | (68 | ) |
|
| | | | | | | | |
| | Six Months Ended June 30, |
| | 2014 | | 2013 |
Defined benefit plans, net: | | | | |
Balance at beginning of period | | $ | 3 |
| | $ | — |
|
Unrealized gain on subsidiary pension | | — |
| | — |
|
Balance at end of period | | 3 |
| | — |
|
Foreign currency translation adjustment: | | | | |
Balance at beginning of period | | 8 |
| | (3 | ) |
Translation gain (loss) | | 54 |
| | (65 | ) |
Balance at end of period | | 62 |
| | (68 | ) |
Total accumulated other comprehensive income (loss) | | $ | 65 |
| | $ | (68 | ) |
| |
Note 14. | Accumulated Other Comprehensive LossRegulatory Capital |
A summaryThe International Segment includes the operations of changescertain stand-alone entities that operate in accumulatedlocal markets as either banks or regulated finance companies that are subject to regulatory restrictions. These regulatory restrictions, among other comprehensive loss is as follows (in millions): |
| | | | | | | |
| Six Months Ended |
| June 30, |
| 2013 | | 2012 |
Unrealized gains on cash flow hedges: | | | |
Balance at beginning of period | $ | | $ | 2 |
|
Reclassification into earnings, in interest expense, net of taxes | | | (2 | ) |
Balance at end of period |
| |
|
Foreign currency translation adjustment: | | | |
Balance at beginning of period | (3 | ) | | (9 | ) |
Translation loss | (65 | ) | | (1 | ) |
Balance at end of period | (68 | ) | | (10 | ) |
Total accumulated other comprehensive loss | $ | (68 | ) | | $ | (10 | ) |
things, require that these entities meet certain minimum capital requirements and may restrict dividend distributions and ownership of certain assets. We were in compliance with all regulatory requirements at June 30, 2014. Total assets of our regulated international banks and finance companies were approximately $12.5 billion and $12.1 billion at June 30, 2014 and December 31, 2013. | |
Note 15. | Guarantor Consolidating Financial Statements |
The payment of principal and interest on senior notes issued by our top-tier holding company is currently guaranteed solely by AFSI (the "Guarantor") and none of our other subsidiaries (the "Non-Guarantor Subsidiaries"). The separate financial statements of the Guarantor are not included herein because the Guarantor is a 100% owned consolidated subsidiary and is unconditionally liable for the obligations represented by the senior notes. A subsidiary guarantee can be released under customary circumstances, including (i) the subsidiary is sold or sells all of its assets; (ii) the subsidiary is declared "unrestricted" for covenant purposes; (iii) the subsidiary's guarantee of other indebtedness is terminated or released; (iv) the requirements for legal defeasance or covenant defeasance or to discharge the indenture have been satisfied; (v) the rating on the parent's debt securities is changed to investment grade; or (vi) the parent's debt securities are converted or exchanged into equity securities.
The consolidating financial statements present consolidating financial data for (i) General Motors Financial Company, Inc. (on a parent only basis), (ii) the Guarantor, (iii) the combined Non-Guarantor Subsidiaries, (iv) an elimination column for adjustments to arrive at the information for the parent company and our subsidiaries on a consolidated basis and (v) the parent company and our subsidiaries on a consolidated basis as of June 30, 20132014 and December 31, 2012,2013, and for the three and six months ended June 31, 201330, 2014 and 2012.2013.
Investments in subsidiaries are accounted for by the parent company using the equity method for purposes of this presentation. Results of operations 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.
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2014
(In millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Assets | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 699 |
| | $ | 713 |
| | $ | — |
| | $ | 1,412 |
|
Finance receivables, net | — |
| | 609 |
| | 30,936 |
| | — |
| | 31,545 |
|
Restricted cash | — |
| | 30 |
| | 2,175 |
| | — |
| | 2,205 |
|
Property and equipment, net | — |
| | 6 |
| | 144 |
| | — |
| | 150 |
|
Leased vehicles, net | — |
| | — |
| | 4,748 |
| | — |
| | 4,748 |
|
Deferred income taxes | 20 |
| | — |
| | 612 |
| | (199 | ) | | 433 |
|
Goodwill | 1,095 |
| | — |
| | 150 |
| | — |
| | 1,245 |
|
Related party receivables | — |
| | 18 |
| | 167 |
| | — |
| | 185 |
|
Other assets | 62 |
| | 2 |
| | 377 |
| | (5 | ) | | 436 |
|
Due from affiliates | 3,116 |
| | — |
| | — |
| | (3,116 | ) | | — |
|
Investment in affiliates | 7,388 |
| | 3,594 |
| | — |
| | (10,982 | ) | | — |
|
Total assets | $ | 11,681 |
| | $ | 4,958 |
| | $ | 40,022 |
| | $ | (14,302 | ) | | $ | 42,359 |
|
Liabilities and Shareholder's Equity | | | | | | | | | |
Liabilities: | | | | | | | | | |
Secured debt | $ | — |
| | $ | — |
| | $ | 25,006 |
| | $ | — |
| | $ | 25,006 |
|
Unsecured debt | 4,000 |
| | — |
| | 3,596 |
| | — |
| | 7,596 |
|
Accounts payable and accrued expenses | 49 |
| | 137 |
| | 803 |
| | (5 | ) | | 984 |
|
Deferred income | — |
| | — |
| | 249 |
| | — |
| | 249 |
|
Deferred taxes liabilities | — |
| | 199 |
| | 12 |
| | (199 | ) | | 12 |
|
Taxes payable | 74 |
| | — |
| | 219 |
| | — |
| | 293 |
|
Related party taxes payable | 891 |
| | — |
| | 1 |
| | (1 | ) | | 891 |
|
Related party payable | — |
| | — |
| | 432 |
| | — |
| | 432 |
|
Other liabilities | — |
| | 18 |
| | 211 |
| | — |
| | 229 |
|
Due to affiliates | — |
| | 677 |
| | 2,438 |
| | (3,115 | ) | | — |
|
Total liabilities | 5,014 |
| | 1,031 |
| | 32,967 |
| | (3,320 | ) | | 35,692 |
|
Shareholder's equity: | | | | | | | | | |
Common stock | — |
| | — |
| | 698 |
| | (698 | ) | | — |
|
Additional paid-in capital | 4,793 |
| | 79 |
| | 3,400 |
| | (3,479 | ) | | 4,793 |
|
Accumulated other comprehensive income | 65 |
| | (5 | ) | | 81 |
| | (76 | ) | | 65 |
|
Retained earnings | 1,809 |
| | 3,853 |
| | 2,876 |
| | (6,729 | ) | | 1,809 |
|
Total shareholder's equity | 6,667 |
| | 3,927 |
| | 7,055 |
| | (10,982 | ) | | 6,667 |
|
Total liabilities and shareholder's equity | $ | 11,681 |
| | $ | 4,958 |
| | $ | 40,022 |
| | $ | (14,302 | ) | | $ | 42,359 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2013
(In millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Assets | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 395 |
| | $ | 679 |
| | $ | — |
| | $ | 1,074 |
|
Finance receivables, net | — |
| | 612 |
| | 28,670 |
| | — |
| | 29,282 |
|
Restricted cash | — |
| | 20 |
| | 1,938 |
| | — |
| | 1,958 |
|
Property and equipment, net | — |
| | 5 |
| | 127 |
| | — |
| | 132 |
|
Leased vehicles, net | — |
| | — |
| | 3,383 |
| | — |
| | 3,383 |
|
Deferred income taxes | 1 |
| | — |
| | 358 |
| | — |
| | 359 |
|
Goodwill | 1,095 |
| | — |
| | 145 |
| | — |
| | 1,240 |
|
Related party receivables | 29 |
| | — |
| | 100 |
| | — |
| | 129 |
|
Other assets | 74 |
| | 5 |
| | 358 |
| | (4 | ) | | 433 |
|
Due from affiliates | 3,754 |
| | 863 |
| | — |
| | (4,617 | ) | | — |
|
Investment in affiliates | 6,994 |
| | 3,565 |
| | — |
| | (10,559 | ) | | — |
|
Total assets | $ | 11,947 |
| | $ | 5,465 |
| | $ | 35,758 |
| | $ | (15,180 | ) | | $ | 37,990 |
|
Liabilities and Shareholder's Equity | | | | | | | | | |
Liabilities: | | | | | | | | | |
Secured debt | $ | — |
| | $ | — |
| | $ | 22,073 |
| | $ | — |
| | $ | 22,073 |
|
Unsecured debt | 4,000 |
| | — |
| | 2,973 |
| | — |
| | 6,973 |
|
Accounts payable and accrued expenses | 101 |
| | 133 |
| | 716 |
| | (4 | ) | | 946 |
|
Deferred income | — |
| | — |
| | 168 |
| | — |
| | 168 |
|
Deferred taxes payable | (28 | ) | | 161 |
| | (46 | ) | | — |
| | 87 |
|
Taxes payable | 83 |
| | — |
| | 204 |
| | — |
| | 287 |
|
Related party taxes payable | 643 |
| | — |
| | 1 |
| | (1 | ) | | 643 |
|
Related party payable | — |
| | — |
| | 368 |
| | — |
| | 368 |
|
Other liabilities | — |
| | 14 |
| | 146 |
| | — |
| | 160 |
|
Due to affiliates | 863 |
| | 1,474 |
| | 2,280 |
| | (4,617 | ) | | — |
|
Total liabilities | 5,662 |
| | 1,782 |
| | 28,883 |
| | (4,622 | ) | | 31,705 |
|
Shareholder's equity: | | | | | | | | | |
Common stock | — |
| | — |
| | 532 |
| | (532 | ) | | — |
|
Additional paid-in capital | 4,785 |
| | 79 |
| | 3,833 |
| | (3,912 | ) | | 4,785 |
|
Accumulated other comprehensive income (loss) | 11 |
| | (8 | ) | | 24 |
| | (16 | ) | | 11 |
|
Retained earnings | 1,489 |
| | 3,612 |
| | 2,486 |
| | (6,098 | ) | | 1,489 |
|
Total shareholder's equity | 6,285 |
| | 3,683 |
| | 6,875 |
| | (10,558 | ) | | 6,285 |
|
Total liabilities and shareholder's equity | $ | 11,947 |
| | $ | 5,465 |
| | $ | 35,758 |
| | $ | (15,180 | ) | | $ | 37,990 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended June 30, 2014
(In millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Revenue | | | | | | | | | |
Finance charge income | $ | — |
| | $ | 39 |
| | $ | 843 |
| | $ | — |
| | $ | 882 |
|
Leased vehicle income | — |
| | — |
| | 238 |
| | — |
| | 238 |
|
Other income | 20 |
| | 104 |
| | 42 |
| | (95 | ) | | 71 |
|
Equity in income of affiliates | 189 |
| | 153 |
| | — |
| | (342 | ) | | — |
|
| 209 |
| | 296 |
| | 1,123 |
| | (437 | ) | | 1,191 |
|
Costs and expenses | | | | | | | | | |
Salaries and benefits | — |
| | 63 |
| | 91 |
| | — |
| | 154 |
|
Other operating expenses | (6 | ) | | 41 |
| | 153 |
| | (62 | ) | | 126 |
|
Total operating expenses | (6 | ) | | 104 |
| | 244 |
| | (62 | ) | | 280 |
|
Leased vehicle expenses | — |
| | — |
| | 179 |
| | — |
| | 179 |
|
Provision for loan losses | — |
| | 75 |
| | 38 |
| | — |
| | 113 |
|
Interest expense | 44 |
| | 8 |
| | 335 |
| | (33 | ) | | 354 |
|
| 38 |
| | 187 |
| | 796 |
| | (95 | ) | | 926 |
|
Income before income taxes | 171 |
| | 109 |
| | 327 |
| | (342 | ) | | 265 |
|
Income tax (benefit) provision | (4 | ) | | (16 | ) | | 110 |
| | — |
| | 90 |
|
Net income | $ | 175 |
| | $ | 125 |
| | $ | 217 |
| | $ | (342 | ) | | $ | 175 |
|
| | | | | | | | | |
Comprehensive income | $ | 224 |
| | $ | 148 |
| | $ | 267 |
| | $ | (415 | ) | | $ | 224 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended June 30, 2013
(In millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Revenue | | | | | | | | | |
Finance charge income | $ | — |
| | $ | 30 |
| | $ | 617 |
| | $ | — |
| | $ | 647 |
|
Leased vehicle income | — |
| | — |
| | 136 |
| | — |
| | 136 |
|
Other income | 35 |
| | 83 |
| | 81 |
| | (146 | ) | | 53 |
|
Equity in income of affiliates | 187 |
| | 158 |
| | — |
| | (345 | ) | | — |
|
| 222 |
| | 271 |
| | 834 |
| | (491 | ) | | 836 |
|
Costs and expenses | | | | | | | | | |
Salaries and benefits | — |
| | 54 |
| | 62 |
| | — |
| | 116 |
|
Other operating (income) expenses | (5 | ) | | (24 | ) | | 104 |
| | — |
| | 75 |
|
Total operating expenses | (5 | ) | | 30 |
| | 166 |
| | — |
| | 191 |
|
Leased vehicle expenses | — |
| | — |
| | 101 |
| | — |
| | 101 |
|
Provision for loan losses | — |
| | 60 |
| | 40 |
| | — |
| | 100 |
|
Interest expense | 50 |
| | 54 |
| | 206 |
| | (146 | ) | | 164 |
|
Acquisition and integration expenses | — |
| | — |
| | 16 |
| | — |
| | 16 |
|
| 45 |
| | 144 |
| | 529 |
| | (146 | ) | | 572 |
|
Income before income taxes | 177 |
| | 127 |
| | 305 |
| | (345 | ) | | 264 |
|
Income tax (benefit) provision | (1 | ) | | (13 | ) | | 100 |
| | — |
| | 86 |
|
Net income | $ | 178 |
| | $ | 140 |
| | $ | 205 |
| | $ | (345 | ) | | $ | 178 |
|
| | | | | | | | | |
Comprehensive income | $ | 119 |
| | $ | 146 |
| | $ | 150 |
| | $ | (296 | ) | | $ | 119 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Six Months Ended June 30, 2014
(In millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Revenue | | | | | | | | | |
Finance charge income | $ | — |
| | $ | 69 |
| | $ | 1,643 |
| | $ | — |
| | $ | 1,712 |
|
Leased vehicle income | — |
| | — |
| | 438 |
| | — |
| | 438 |
|
Other income | 40 |
| | 231 |
| | 80 |
| | (213 | ) | | 138 |
|
Equity in income of affiliates | 359 |
| | 269 |
| | — |
| | (628 | ) | | — |
|
| 399 |
| | 569 |
| | 2,161 |
| | (841 | ) | | 2,288 |
|
Costs and expenses | | | | | | | | | |
Salaries and benefits | — |
| | 116 |
| | 174 |
| | — |
| | 290 |
|
Other operating (income) expenses | (5 | ) | | 74 |
| | 314 |
| | (124 | ) | | 259 |
|
Total operating expenses | (5 | ) | | 190 |
| | 488 |
| | (124 | ) | | 549 |
|
Leased vehicle expenses | — |
| | — |
| | 335 |
| | — |
| | 335 |
|
Provision for loan losses | — |
| | 135 |
| | 113 |
| | — |
| | 248 |
|
Interest expense | 99 |
| | 19 |
| | 640 |
| | (89 | ) | | 669 |
|
| 94 |
| | 344 |
| | 1,576 |
| | (213 | ) | | 1,801 |
|
Income before income taxes | 305 |
| | 225 |
| | 585 |
| | (628 | ) | | 487 |
|
Income tax (benefit) provision | (15 | ) | | (16 | ) | | 198 |
| | — |
| | 167 |
|
Net income | $ | 320 |
| | $ | 241 |
| | $ | 387 |
| | $ | (628 | ) | | $ | 320 |
|
| | | | | | | | | |
Comprehensive income | $ | 374 |
| | $ | 244 |
| | $ | 442 |
| | $ | (686 | ) | | $ | 374 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING BALANCE SHEETSTATEMENT OF INCOME
Six Months Ended June 30, 2013
(unaudited, inIn millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Assets | | | | | | | | | |
Cash and cash equivalents |
| | $ | 1,053 |
| | $ | 704 |
| | | | $ | 1,757 |
|
Finance receivables, net | | | 687 |
| | 22,258 |
| | | | 22,945 |
|
Restricted cash | | | | | 1,426 |
| | | | 1,426 |
|
Property and equipment, net | | | 4 |
| | 117 |
| | | | 121 |
|
Leased vehicles, net | | | | | 2,655 |
| | | | 2,655 |
|
Deferred income taxes | $ | 29 |
| | (125 | ) | | 216 |
| | | | 120 |
|
Goodwill | 1,095 |
| | | | 63 |
| | | | 1,158 |
|
Related party receivables | 39 |
| |
|
| | 66 |
| |
|
| | 105 |
|
Other assets | 47 |
| | 32 |
| | 219 |
| | | | 298 |
|
Due from affiliates | 4,241 |
| | 863 |
| |
| | (5,104 | ) | | |
Investment in affiliates | 6,156 |
| | 2,602 |
| | | | (8,758 | ) | | |
Total assets | $ | 11,607 |
| | $ | 5,116 |
| | $ | 27,724 |
| | $ | (13,862 | ) | | $ | 30,585 |
|
Liabilities and Shareholder's Equity | | | | | | | | | |
Liabilities: | | | | | | | | | |
Secured debt | | | | | $ | 17,548 |
| | | | $ | 17,548 |
|
Unsecured debt | $ | 4,000 |
| | | | 1,238 |
| |
|
| | 5,238 |
|
Accounts payable and accrued expenses | 113 |
| | $ | 110 |
| | 269 |
| |
|
| | 492 |
|
Deferred income | | | | | 123 |
| | | | 123 |
|
Taxes payable | 78 |
| | | | 46 |
| | | | 124 |
|
Related party taxes payable | 644 |
| | | | | | | | 644 |
|
Other liabilities | | | 12 |
| | 123 |
| | | | 135 |
|
Related party payable | 7 |
| |
|
| | 372 |
| |
|
| | 379 |
|
Due to affiliates | 863 |
| | 1,498 |
| | 2,743 |
| | (5,104 | ) | | |
Total liabilities | 5,705 |
| | 1,620 |
| | 22,462 |
| | (5,104 | ) | | 24,683 |
|
Shareholder's equity: | | | | | | | | | |
Common stock | | | | | 801 |
| | (801 | ) | | |
Additional paid-in capital | 4,763 |
| | 79 |
| | 2,632 |
| | (2,711 | ) | | 4,763 |
|
Accumulated other comprehensive loss | (68 | ) | | (4 | ) | | (48 | ) | | 52 |
| | (68 | ) |
Retained earnings | 1,207 |
| | 3,421 |
| | 1,877 |
| | (5,298 | ) | | 1,207 |
|
Total shareholder's equity | 5,902 |
| | 3,496 |
| | 5,262 |
| | (8,758 | ) | | 5,902 |
|
Total liabilities and shareholder's equity | $ | 11,607 |
| | $ | 5,116 |
| | $ | 27,724 |
| | $ | (13,862 | ) | | $ | 30,585 |
|
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Revenue | | | | | | | | | |
Finance charge income | $ | — |
| | $ | 69 |
| | $ | 993 |
| | $ | — |
| | $ | 1,062 |
|
Leased vehicle income | — |
| | — |
| | 243 |
| | — |
| | 243 |
|
Other income | 49 |
| | 124 |
| | 128 |
| | (230 | ) | | 71 |
|
Equity in income of affiliates | 300 |
| | 304 |
| | — |
| | (604 | ) | | — |
|
| 349 |
| | 497 |
| | 1,364 |
| | (834 | ) | | 1,376 |
|
Costs and expenses | | | | | | | | | |
Salaries and benefits | — |
| | 102 |
| | 88 |
| | — |
| | 190 |
|
Other operating (income) expenses | (2 | ) | | (49 | ) | | 160 |
| | — |
| | 109 |
|
Total operating expenses | (2 | ) | | 53 |
| | 248 |
| | — |
| | 299 |
|
Leased vehicle expenses | — |
| | — |
| | 181 |
| | — |
| | 181 |
|
Provision for loan losses | — |
| | 127 |
| | 67 |
| | — |
| | 194 |
|
Interest expense | 71 |
| | 89 |
| | 316 |
| | (230 | ) | | 246 |
|
Acquisition and integration expenses | — |
| | — |
| | 22 |
| | — |
| | 22 |
|
| 69 |
| | 269 |
| | 834 |
| | (230 | ) | | 942 |
|
Income before income taxes | 280 |
| | 228 |
| | 530 |
| | (604 | ) | | 434 |
|
Income tax (benefit) provision | (4 | ) | | (27 | ) | | 181 |
| | — |
| | 150 |
|
Net income | $ | 284 |
| | $ | 255 |
| | $ | 349 |
| | $ | (604 | ) | | $ | 284 |
|
| | | | | | | | | |
Comprehensive income | $ | 219 |
| | $ | 262 |
| | $ | 288 |
| | $ | (550 | ) | | $ | 219 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING BALANCE SHEET
December 31, 2012
(in millions)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Assets | | | | | | | | | |
Cash and cash equivalents | | | $ | 1,252 |
| | $ | 37 |
| | | | $ | 1,289 |
|
Finance receivables, net | | | 1,558 |
| | 9,440 |
| | | | 10,998 |
|
Restricted cash | | | | | 744 |
| | | | 744 |
|
Property and equipment, net |
|
| | 4 |
| | 48 |
| | | | 52 |
|
Leased vehicles, net | | | | | 1,703 |
| | | | 1,703 |
|
Deferred income taxes | $ | 39 |
| | (28 | ) | | 96 |
| | | | 107 |
|
Goodwill | 1,095 |
| | | | 13 |
| | | | 1,108 |
|
Related party receivables | 66 |
| | | |
|
| | | | 66 |
|
Other assets | 14 |
| | 18 |
| | 98 |
| | | | 130 |
|
Due from affiliates | 2,063 |
| | | |
|
| | $ | (2,063 | ) | | |
Investment in affiliates | 3,274 |
| | 2,193 |
| | | | (5,467 | ) | | |
Total assets | $ | 6,551 |
| | $ | 4,997 |
| | $ | 12,179 |
| | $ | (7,530 | ) | | $ | 16,197 |
|
Liabilities and Shareholder's Equity | | | | | | | | | |
Liabilities: | | | | | | | | | |
Secured debt | | | | | $ | 9,378 |
| | | | $ | 9,378 |
|
Unsecured debt | $ | 1,500 |
| | | |
|
| | | | 1,500 |
|
Accounts payable and accrued expenses | 22 |
| | $ | 90 |
| | 105 |
| | | | 217 |
|
Deferred income |
|
| |
|
| | 70 |
| | | | 70 |
|
Taxes payable | 91 |
| | 4 |
| | (2 | ) | | | | 93 |
|
Related party taxes payable | 559 |
| |
|
| |
|
| | | | 559 |
|
Other liabilities | | | | | 1 |
| | | | 1 |
|
Due to affiliates | | | 1,669 |
| | 394 |
| | $ | (2,063 | ) | |
|
|
Total liabilities | 2,172 |
| | 1,763 |
| | 9,946 |
| | (2,063 | ) | | 11,818 |
|
Shareholder's equity: |
| |
| |
| |
| |
|
Common stock | | | | | 570 |
| | (570 | ) | | |
Additional paid-in capital | 3,459 |
| | 79 |
| | 123 |
| | (202 | ) | | 3,459 |
|
Accumulated other comprehensive (loss) income | (3 | ) | | (11 | ) | | 13 |
| | (2 | ) | | (3 | ) |
Retained earnings | 923 |
| | 3,166 |
| | 1,527 |
| | (4,693 | ) | | 923 |
|
Total shareholder's equity | 4,379 |
| | 3,234 |
| | 2,233 |
| | (5,467 | ) | | 4,379 |
|
Total liabilities and shareholder's equity | $ | 6,551 |
| | $ | 4,997 |
| | $ | 12,179 |
| | $ | (7,530 | ) | | $ | 16,197 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended June 30, 2013
(unaudited, in millions)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Revenue | | | | | | | | | |
Finance charge income | | | $ | 30 |
| | $ | 617 |
| | | | $ | 647 |
|
Leased vehicle income | | | | | 136 |
| | | | 136 |
|
Other income | $ | 35 |
| | 83 |
| | 81 |
| | $ | (146 | ) | | 53 |
|
Equity in income of affiliates | 187 |
| | 158 |
| | | | (345 | ) | |
|
| 222 |
| | 271 |
| | 834 |
| | (491 | ) | | 836 |
|
Costs and expenses | | | | | | | | | |
Salaries and benefits |
|
| | 54 |
| | 62 |
| | | | 116 |
|
Other operating expenses | (5 | ) | | (24 | ) | | 104 |
| | | | 75 |
|
Total operating expenses | (5 | ) | | 30 |
| | 166 |
| |
| | 191 |
|
Leased vehicle expenses | | | | | 101 |
| | | | 101 |
|
Provision for loan losses | | | 60 |
| | 40 |
| | | | 100 |
|
Interest expense | 50 |
| | 54 |
| | 206 |
| | (146 | ) | | 164 |
|
Acquisition and integration expenses | | | | | 16 |
| | | | 16 |
|
| 45 |
| | 144 |
| | 529 |
| | (146 | ) | | 572 |
|
Income before income taxes | 177 |
| | 127 |
| | 305 |
| | (345 | ) | | 264 |
|
Income tax (benefit) provision | (1 | ) | | (13 | ) | | 100 |
| | | | 86 |
|
Net income | $ | 178 |
| | $ | 140 |
| | $ | 205 |
| | $ | (345 | ) | | $ | 178 |
|
| | | | | | | | | |
Comprehensive income | $ | 119 |
| | $ | 146 |
| | $ | 150 |
| | $ | (296 | ) | | $ | 119 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF INCOME
Three Months Ended June 30, 2012
(unaudited, in millions)
|
| | | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Revenue | | | | | | | | | |
Finance charge income | | | $ | 34 |
| | $ | 370 |
| | | | $ | 404 |
|
Leased vehicle income | | | | | 66 |
| | | | 66 |
|
Other income | $ | 11 |
| | 47 |
| | 66 |
| | $ | (107 | ) | | 17 |
|
Equity in income of affiliates | 141 |
| | 170 |
| | | | (311 | ) | |
|
|
| 152 |
| | 251 |
| | 502 |
| | (418 | ) | | 487 |
|
Costs and expenses | | | | | | | | | |
Salaries and benefits |
|
| | 48 |
| | 23 |
| | | | 71 |
|
Other operating expenses | 4 |
| | (33 | ) | | 51 |
| | | | 22 |
|
Total operating expenses | 4 |
| | 15 |
| | 74 |
| |
| | 93 |
|
Leased vehicle expenses | | |
|
| | 51 |
| | | | 51 |
|
Provision for loan losses | | | 68 |
| | (6 | ) | | | | 62 |
|
Interest expense | 14 |
| | 42 |
| | 115 |
| | (107 | ) | | 64 |
|
| 18 |
| | 125 |
| | 234 |
| — |
| (107 | ) | | 270 |
|
Income before income taxes | 134 |
| | 126 |
| | 268 |
| | (311 | ) | | 217 |
|
Income tax (benefit) provision | (3 | ) | | (14 | ) | | 97 |
| | | | 80 |
|
Net income | $ | 137 |
| | $ | 140 |
| | $ | 171 |
| | $ | (311 | ) | | $ | 137 |
|
|
|
| | | |
|
| |
|
| |
|
|
Comprehensive income | $ | 130 |
| | $ | 140 |
| | $ | 155 |
| | $ | (295 | ) | | $ | 130 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF INCOMECASH FLOWS
Six Months Ended June 30, 20132014
(unaudited, inIn millions)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Revenue | | | | | | | | | |
Finance charge income | | | $ | 69 |
| | $ | 993 |
| | | | $ | 1,062 |
|
Leased vehicle income | | | | | 243 |
| | | | 243 |
|
Other income | $ | 49 |
| | 124 |
| | 128 |
| | $ | (230 | ) | | 71 |
|
Equity in income of affiliates | 300 |
| | 304 |
| | | | (604 | ) | | |
| 349 |
| | 497 |
| | 1,364 |
| | (834 | ) | | 1,376 |
|
Costs and expenses | | | | | | | | | |
Salaries and benefits |
|
| | 102 |
| | 88 |
| | | | 190 |
|
Other operating expenses | (2 | ) | | (49 | ) | | 160 |
| | | | 109 |
|
Total operating expenses | (2 | ) | | 53 |
| | 248 |
| | | | 299 |
|
Leased vehicle expenses | | | | | 181 |
| | | | 181 |
|
Provision for loan losses | | | 127 |
| | 67 |
| | | | 194 |
|
Interest expense | 71 |
| | 89 |
| | 316 |
| | (230 | ) | | 246 |
|
Acquisition and integration expenses | | | | | 22 |
| | | | 22 |
|
| 69 |
| | 269 |
| | 834 |
| | (230 | ) | | 942 |
|
Income before income taxes | 280 |
| | 228 |
| | 530 |
| | (604 | ) | | 434 |
|
Income tax (benefit) provision | (4 | ) | | (27 | ) | | 181 |
| | | | 150 |
|
Net income | $ | 284 |
| | $ | 255 |
| | $ | 349 |
| | $ | (604 | ) | | $ | 284 |
|
| | | | | | | | | |
Comprehensive income | $ | 219 |
| | $ | 262 |
| | $ | 288 |
| | $ | (550 | ) | | $ | 219 |
|
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Net cash provided by operating activities | $ | 205 |
| | $ | 141 |
| | $ | 558 |
| | $ | — |
| | $ | 904 |
|
Cash flows from investing activities: | | | | | | | | | |
Purchases of consumer finance receivables, net | — |
| | (2,924 | ) | | (6,546 | ) | | 2,643 |
| | (6,827 | ) |
Principal collections and recoveries on consumer finance receivables | — |
| | (100 | ) | | 5,400 |
| | — |
| | 5,300 |
|
Proceeds from sale of consumer finance receivables, net | — |
| | 2,643 |
| | — |
| | (2,643 | ) | | — |
|
Net collections (funding) of commercial finance receivables | — |
| | 256 |
| | (553 | ) | | — |
| | (297 | ) |
Purchases of leased vehicles, net | — |
| | — |
| | (1,856 | ) | | — |
| | (1,856 | ) |
Proceeds from termination of leased vehicles | — |
| | — |
| | 264 |
| | — |
| | 264 |
|
Acquisition of international operations, net of cash on hand | (46 | ) | | — |
| | — |
| | — |
| | (46 | ) |
Purchases of property and equipment | — |
| | (2 | ) | | (13 | ) | | — |
| | (15 | ) |
Change in restricted cash | — |
| | (9 | ) | | (227 | ) | | — |
| | (236 | ) |
Change in other assets | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Net change in investment in affiliates | (5 | ) | | 243 |
| | — |
| | (238 | ) | | — |
|
Net cash (used in) provided by investing activities | (51 | ) | | 107 |
| | (3,533 | ) | | (238 | ) | | (3,715 | ) |
Cash flows from financing activities: | | | | | | | | | |
Net increase in debt (original maturities less than three months) | — |
| | — |
| | 278 |
| | — |
| | 278 |
|
Borrowings and issuance of secured debt | — |
| | — |
| | 10,722 |
| | — |
| | 10,722 |
|
Payments on secured debt | — |
| | — |
| | (8,445 | ) | | — |
| | (8,445 | ) |
Borrowings and issuance of unsecured debt | — |
| | — |
| | 1,472 |
| | — |
| | 1,472 |
|
Payments on unsecured debt | — |
| | — |
| | (838 | ) | | — |
| | (838 | ) |
Net capital contributions | 26 |
| | — |
| | (264 | ) | | 238 |
| | — |
|
Debt issuance costs | — |
| | — |
| | (49 | ) | | — |
| | (49 | ) |
Net change in due from/due to affiliates
| (180 | ) | | 56 |
| | 124 |
| | — |
| | — |
|
Net cash (used in) provided by financing activities | (154 | ) | | 56 |
| | 3,000 |
| | 238 |
| | 3,140 |
|
Net increase in cash and cash equivalents | — |
| | 304 |
| | 25 |
| | — |
| | 329 |
|
Effect of foreign exchange rate changes on cash and cash equivalents | — |
| | — |
| | 9 |
| | — |
| | 9 |
|
Cash and cash equivalents at beginning of period | — |
| | 395 |
| | 679 |
| | — |
| | 1,074 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 699 |
| | $ | 713 |
| | $ | — |
| | $ | 1,412 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF INCOME
Six Months Ended June 30, 2012
(unaudited, in millions)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Revenue | | | | | | | | | |
Finance charge income | | | $ | 69 |
| | $ | 693 |
| | | | $ | 762 |
|
Leased vehicle income | | | | | 119 |
| | | | 119 |
|
Other income | $ | 22 |
| | 110 |
| | 155 |
| | $ | (250 | ) | | 37 |
|
Equity in income of affiliates | 259 |
| | 319 |
| | | | (578 | ) | |
|
|
| 281 |
| | 498 |
| | 967 |
| | (828 | ) | | 918 |
|
Costs and expenses | | | | | | | | | |
Salaries and benefits |
|
| | 97 |
| | 47 |
| | | | 144 |
|
Other operating expenses | 8 |
| | (57 | ) | | 96 |
| | | | 47 |
|
Total operating expenses | 8 |
| | 40 |
| | 143 |
| | | | 191 |
|
Leased vehicle expenses | | | | | 92 |
| | | | 92 |
|
Provision for loan losses | | | 128 |
| | (18 | ) | | | | 110 |
|
Interest expense | 29 |
| | 100 |
| | 248 |
| | (250 | ) | | 127 |
|
| 37 |
| | 268 |
| | 465 |
| | (250 | ) | | 520 |
|
Income before income taxes | 244 |
| | 230 |
| | 502 |
| | (578 | ) | | 398 |
|
Income tax (benefit) provision | (5 | ) | | (28 | ) | | 182 |
| | | | 149 |
|
Net income | $ | 249 |
| | $ | 258 |
| | $ | 320 |
| | $ | (578 | ) | | $ | 249 |
|
| | | | | | | | | |
Comprehensive income | $ | 246 |
| | $ | 258 |
| | $ | 317 |
| | $ | (575 | ) | | $ | 246 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2013
(unaudited, inIn millions)
|
| | | | | | | | | | | | | | | | | | | |
| General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Net cash provided by operating activities | $ | 86 |
| | $ | 184 |
| | $ | 431 |
| | | | $ | 701 |
|
Cash flows from investing activities: | | | | | | | | | |
Purchases of consumer finance receivables, net | | | (2,695 | ) | | (4,222 | ) | | $ | 3,105 |
| | (3,812 | ) |
Principal collections and recoveries on consumer finance receivables | | | 1 |
| | 3,053 |
| | | | 3,054 |
|
Proceeds from sale of consumer finance receivables, net | | | 3,105 |
| | | | (3,105 | ) | | |
Funding of commercial finance receivables, net | | | (2,065 | ) | | (7,807 | ) | | 1,467 |
| | (8,405 | ) |
Collections of commercial finance receivables | | | 985 |
| | 7,038 |
| | | | 8,023 |
|
Proceeds from sale of commercial finance receivables, net | | | 1,467 |
| | | | (1,467 | ) | | |
Purchases of leased vehicles, net | | | | | (1,176 | ) | | | | (1,176 | ) |
Proceeds from termination of leased vehicles | | | | | 84 |
| | | | 84 |
|
Acquisition of international operations, net of cash on hand | (2,547 | ) | | (863 | ) | | 440 |
| | 863 |
| | (2,107 | ) |
Purchases of property and equipment | | |
|
| | (4 | ) | | | | (4 | ) |
Change in restricted cash | | | | | (158 | ) | | | | (158 | ) |
Change in other assets |
| | (10 | ) | | 8 |
| | | | (2 | ) |
Net change in investment in affiliates | (29 | ) | | (97 | ) | | | | 126 |
| |
|
Net cash (used in) provided by investing activities | (2,576 | ) | | (172 | ) | | (2,744 | ) | | 989 |
| | (4,503 | ) |
Cash flows from financing activities: | | | | | | | | | |
Borrowings and issuance of secured debt | 1,100 |
| | | | 7,985 |
| | | | 9,085 |
|
Payments on secured debt | (1,100 | ) | | | | (5,907 | ) | | | | (7,007 | ) |
Borrowings on unsecured debt | 2,500 |
| | | | 522 |
| | | | 3,022 |
|
Payments on unsecured debt | | | | | (633 | ) | | | | (633 | ) |
Repayment of debt to Ally Financial | | | | | (1,416 | ) | | | | (1,416 | ) |
Capital contribution from parent | 1,300 |
| | | | | | | | 1,300 |
|
Debt issuance costs | (29 | ) | | | | (34 | ) | | | | (63 | ) |
Net capital contribution to subsidiaries | | | | | 130 |
| | (130 | ) | |
|
Net change in (due from) due to affiliates | (1,281 | ) | | (211 | ) | | 2,354 |
| | (862 | ) | |
|
|
Net cash (used in) provided by financing activities | 2,490 |
| | (211 | ) | | 3,001 |
| | (992 | ) | | 4,288 |
|
Net increase (decrease) in cash and cash equivalents |
|
| | (199 | ) | | 688 |
| | (3 | ) | | 486 |
|
Effect of foreign exchange rate changes on cash and cash equivalents |
| |
|
| | (21 | ) | | 3 |
| | (18 | ) |
Cash and cash equivalents at beginning of period | | | 1,252 |
| | 37 |
| | | | 1,289 |
|
Cash and cash equivalents at end of period | $ | | $ | 1,053 |
| | $ | 704 |
| | $ | | $ | 1,757 |
|
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2012
(unaudited, in millions)(Unaudited)
| | | General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated | General Motors Financial Company, Inc. | | Guarantor | | Non- Guarantors | | Eliminations | | Consolidated |
Net cash provided by operating activities | $ | 94 |
| | $ | 98 |
| | $ | 390 |
| |
| | $ | 582 |
| $ | 86 |
| | $ | 184 |
| | $ | 431 |
| | $ | — |
| | $ | 701 |
|
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | |
Purchases of consumer finance receivables, net | | | (2,870 | ) | | (2,748 | ) | | $ | 2,748 |
| | (2,870 | ) | — |
| | (2,695 | ) | | (4,222 | ) | | 3,105 |
| | (3,812 | ) |
Principal collections and recoveries on consumer finance receivables | | |
|
| | 2,040 |
| | | | 2,040 |
| — |
| | 1 |
| | 3,053 |
| | — |
| | 3,054 |
|
Proceeds from sale of consumer finance receivables, net | | | 2,748 |
| | | | (2,748 | ) | |
| — |
| | 3,105 |
| | — |
| | (3,105 | ) | | — |
|
Funding of commercial finance receivables, net | | | (173 | ) | | | | | | (173 | ) | |
Collections of commercial finance receivables | | | 46 |
| | | | | | 46 |
| |
Net funding of commercial finance receivables | | — |
| | (1,080 | ) | | (769 | ) | | 1,467 |
| | (382 | ) |
Proceeds from sale of commercial finance receivables, net | | — |
| | 1,467 |
| | — |
| | (1,467 | ) | | — |
|
Purchases of leased vehicles, net | | | | | (621 | ) | | | | (621 | ) | — |
| | — |
| | (1,176 | ) | | — |
| | (1,176 | ) |
Proceeds from termination of leased vehicles | | | | | 18 |
| | | | 18 |
| — |
| | — |
| | 84 |
| | — |
| | 84 |
|
Acquisition of international operations, net of cash on hand | | (2,547 | ) | | (863 | ) | | 440 |
| | 863 |
| | (2,107 | ) |
Purchases of property and equipment |
|
| | (1 | ) | | (5 | ) | | | | (6 | ) | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
Change in restricted cash | | | | | 235 |
| | | | 235 |
| — |
| | — |
| | (158 | ) | | — |
| | (158 | ) |
Change in other assets | (7 | ) | | 29 |
| | (4 | ) | | | | 18 |
| — |
| | (10 | ) | | 8 |
| | — |
| | (2 | ) |
Net change in investment in affiliates |
|
| | 2,210 |
| | | | (2,210 | ) | |
| (29 | ) | | (97 | ) | | — |
| | 126 |
| | — |
|
Net cash (used in) provided by investing activities | (7 | ) | | 1,989 |
| | (1,085 | ) | | (2,210 | ) | | (1,313 | ) | |
Net cash used in by investing activities | | (2,576 | ) | | (172 | ) | | (2,744 | ) | | 989 |
| | (4,503 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | |
Borrowings and issuance of secured debt | | | | | 5,063 |
| | | | 5,063 |
| 1,100 |
| | — |
| | 7,985 |
| | — |
| | 9,085 |
|
Payments on secured debt | | | | | (3,929 | ) | | | | (3,929 | ) | (1,100 | ) | | — |
| | (5,907 | ) | | — |
| | (7,007 | ) |
Borrowings and issuance of unsecured debt | | 2,500 |
| | — |
| | 522 |
| | — |
| | 3,022 |
|
Payments on unsecured debt | | — |
| | — |
| | (633 | ) | | — |
| | (633 | ) |
Repayment of debt to Ally Financial | | — |
| | — |
| | (1,416 | ) | | — |
| | (1,416 | ) |
Capital contribution from parent | | 1,300 |
| | — |
| | — |
| | — |
| | 1,300 |
|
Debt issuance costs |
|
| | | | (23 | ) | | | | (23 | ) | (29 | ) | | — |
| | (34 | ) | | — |
| | (63 | ) |
Net capital contribution to subsidiaries | | | | | (2,210 | ) | | 2,210 |
| |
|
| — |
| | — |
| | 130 |
| | (130 | ) | | — |
|
Net change in (due from) due to affiliates | (87 | ) | | (1,694 | ) | | 1,781 |
| |
| |
|
| |
Net cash (used in) provided by financing activities | (87 | ) | | (1,694 | ) | | 682 |
| | 2,210 |
| | 1,111 |
| |
Net change in due from/due to affiliates | | (1,281 | ) | | (211 | ) | | 2,354 |
| | (862 | ) | | — |
|
Net cash provided (used in) by financing activities | | 2,490 |
| | (211 | ) | | 3,001 |
| | (992 | ) | | 4,288 |
|
Net increase (decrease) in cash and cash equivalents |
| | 393 |
| | (13 | ) | |
|
| | 380 |
| — |
| | (199 | ) | | 688 |
| | (3 | ) | | 486 |
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
| | | |
|
| |
|
| |
|
| — |
| | — |
| | (21 | ) | | 3 |
| | (18 | ) |
Cash and cash equivalents at beginning of period | | | 500 |
| | 72 |
| | | | 572 |
| — |
| | 1,252 |
| | 37 |
| | — |
| | 1,289 |
|
Cash and cash equivalents at end of period | $ | | $ | 893 |
| | $ | 59 |
| | $ | | $ | 952 |
| $ | — |
| | $ | 1,053 |
| | $ | 704 |
| | $ | — |
| | $ | 1,757 |
|
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of OperationsMANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
GENERAL
GM Financial isWe are a global provider of automobile finance solutions, and we operate in the market as the wholly-owned captive finance subsidiary of our parent, GM. As a result of the acquisition of the international operations, weWe conduct our business generally in two segments, in North America and internationally in Europe and Latin America. The North American segmentAmerica Segment includes operations in the United StatesU.S. and Canada. The international segmentInternational Segment includes operations in Austria, Belgium, Brazil, Chile, Colombia, France, Germany, Greece, Italy, Mexico, the United Kingdom, Italy,Netherlands, Portugal, Spain, Sweden, Switzerland Austria, Belgium,and the Netherlands, Greece, Spain, France, Portugal, Chile, Colombia, and Mexico. Upon the closing of the acquisition of the remaining portions of the international operationsU.K. Additionally, we will conduct business in Brazil and in China (through anhave agreed to acquire Ally Financial's non-controlling 40% equity interest in GMAC-SAIC)GMAC-SAIC Automotive Finance Company Limited ("GMAC-SAIC"), a joint venture, which conducts auto finance operations in China. This agreement is subject to certain regulatory and theseother approvals and has become subject to a right of termination by either party in its sole discretion; however, we do not expect the agreement to be terminated. We consider it probable that our acquisition of Ally Financial's interest in GMAC-SAIC will be includedoccur in our international segment.late 2014 or as soon as practicable thereafter.
North America Operations
Consumer
Our automobile finance programs in the North America Segment include sub-prime lending and full credit spectrum leasing.leasing and to a more limited extent, prime lending. Our sub-prime lending program is designed to serve customers who have limited access to automobile financing through banks and credit unions. Our typical borrowers have experienced prior credit difficulties or have limited credit histories and generally have credit bureau scores ranging from 500 to 700. We generally charge higher rates than those charged by banks and credit unions and we also expect to sustain a higher level of defaults than these other automobile financing sources.
Our full spectrum leasing product is offered through GM franchised dealersWe are currently seeking to expand our prime lending programs in North America and targetsanticipate that prime lending will become an increasing percentage of our originations and sub-prime consumers leasing new GM vehicles. We seek to provide competitive alternatives to existing marketplace lease offerings in GM franchised dealers.consumer portfolio balance over time.
As a primarily indirect auto finance provider, weWe focus our marketing activities on automobile dealerships. We are selective in choosing the dealers with whom we conduct business and primarily pursue GM and non-GM manufacturer franchisedmanufacturer-franchised dealerships with new and used car operations andoperations; however, we also conduct business with a limited number of independent dealerships. We generally finance new GM vehicles, moderately-priced new vehicles from other manufacturers, and later-model, low-mileage used vehicles.
Our leasing product is offered through GM-franchised dealers and primarily targets prime consumers leasing new GM vehicles. We seek to provide competitive alternatives to existing marketplace lease offerings in GM-franchised dealers.
Our origination platform provides specialized focus on marketing our financing programs and underwriting loans and leases. Responsibilities are segregated so that the sales group markets our programs and products to our dealer customers, while the underwriting group focuses on underwriting, negotiating and closing loans and leases. OurIn the U.S. our sales and underwriting groups are further segregated with separate teams servicing GM dealers and non-GM dealers, allowing us to continue efficient service for our non-GM dealers under the “AmeriCredit”"AmeriCredit" brand while providing GM-franchised dealers the broader loan, lease and commercial lending products we offer under the “GM Financial”"GM Financial" brand.
We utilize a proprietary credit scoring system to support the credit approval process. The credit scoring system was developed through statistical analysis of our consumer demographic and portfolio databases consisting of data which we have collected overin more than 20 years of operating history. Credit scoring is used to differentiate credit applications and to statistically rank-order credit risk in terms of expected default rates, which enables us to evaluate credit applications for approval and tailor contract pricing and structure. In addition to our proprietary credit scoring system, we utilize other underwriting guidelines in our underwriting process to help us further evaluate the credit risk of our consumer financing activities.
Our servicing activities include collecting and processing customer payments, responding to customer inquiries, initiating contact with customers who are delinquent, maintaining the security interestinterests in the financed vehicle,vehicles, monitoring physical damage insurance coverage of the financed vehicle,vehicles, and arranging for the repossession of financed vehicles, liquidation of collateral and pursuit of deficiencies when appropriate. Our activities also include managing an end-of-term process for consumers purchasing or returning leased vehicles.
Commercial
In April 2012 and March 2013, we launched our U.S. and Canadian commercial lending platforms to further support our GM-franchised dealerships and their affiliates. Our commercial lending offerings consist of loans to finance the purchase of vehicle inventory, also known as wholesale or floorplan financing, as well as dealer loans, which are loans to finance improvements to dealership facilities, to provide working capital and to purchase and/or finance dealership real estate.
Each dealer is assigned a risk rating based on various factors, including, but not limited to, collateral analysis, capital sufficiency, operating performance, financial outlook and credit and payment history, if available. The risk rating indicates the pricing for and guides the management of the account. We monitor the level of borrowing under each dealer's account daily. Our commercial loan
servicing activities include dealership customer service, account maintenance, exception processing, credit line monitoring and adjustment and insurance monitoring.
International
We utilize a “dealer-centric” approach offering a broad portfolio of products and services to promote one-stop shopping and help dealers more easily grow their business. Operations
Consumer
We primarily employ an indirect-to-consumer model similar to the one we use in the North America.America Segment. Our consumer lending programs focus on financing prime quality consumers purchasing new GM new vehicles. In many of the countries in which we operate, we also offer financial leases and a lease/retail hybrid product that includes a balloon payment at expiration, whereat which time the consumer may elect to pay,make the payment, refinance or return the vehicle. We also offer finance-related insurance products through third parties, such as credit life, gap and extended warranty coverage. We finance primarily new automobiles, although we also finance used automobiles. In most of the countries in which we operate, similar to our underwriting process in the North America Segment, we utilize a proprietary credit scoring system to differentiate consumer credit applications and to statistically rank-order credit risk in terms of expected default rates, which enables us to evaluate credit applications for approval and tailor loan and lease pricing and structure.
Our servicing activities include collecting and processing customer payments, responding to customer inquiries, initiating contact with customers who are delinquent, maintaining the security interest in the financed vehicle, monitoring physical damage insurance coverage of the financed vehicle, and arranging for the repossession of financed vehicles, liquidation of collateral and pursuit of deficiencies when appropriate.
Commercial
Commercial products offered to dealer customers include new and used vehicle inventory financing, inventory insurance, working capital and capital improvement loans. Other commercial products include fleet financing and storage center financing. In addition, we provide training to dealer employees to help them maximize the value of these finance and insurance products. We utilize a proprietary underwriting system for commercial lending that has been refined through decades of experience in managing economic cycles. This process involves assigning a risk rating to each dealer based on our due diligence of various factors, including, but not limited to, collateral analysis, capital sufficiency, operating performance, financial outlook and credit and payment history, if available. The underwriting processes are performed in commercial lending centers located in Mexico, Brazil and Germany, the management of which operates independently of in-country sales and servicing operations. Our commercial loan servicing activities include dealership customer service, account maintenance and monitoring, exception processing, credit line monitoring and adjustment and insurance monitoring.
Financing
We primarily finance our loan, lease and commercial origination volume through the use of our secured and unsecured bank lines, through public and private securitization transactions where such markets are developed, through the issuance of senior notes and, to a lesser extent in Latin America, through public financing programsmarkets including the issuance of commercial paper and other financing programs. Additionally, in Europe, a portion of our operations are funded through an intercompany loan to our European entities.
We seek to fund our international operations through local sources of funding to minimize currency and country risk. As such, the mix of funding sources varies from country to country, based on the characteristics of our receivables and the relative development of debt capital and securitization markets in each country. Our Latin American operations are entirely funded locally. Our European operations obtain most of their funding from local sources, but also borrow funds from affiliated companies, including us.companies.
In addition to our bank lines and securitization programs, GM provides us with financial resources through a tax sharing agreement, which effectively defers up to $1.0 billion in taxes that we would otherwise be required to pay to GM over time, and through the $600 million GM Related Party Credit Facility.
Additionally, we have a sub-limit of $4.0 billion available to borrow under ourGM's three-year $5.5 billion secured GM Revolving Credit Facility.revolving credit facility. Our borrowings under this facility are limited by GM's ability to also borrow under the facility. If we borrow under this facility, we expect such borrowings would be short-term in nature and, except in extraordinary circumstances, would not be used to fund our operating activities in the ordinary course of business.
RESULTS OF OPERATIONS
As a result of our acquisition of the international operations, the results of our operations for the periods presented are not comparable and, therefore, there is no narrative discussion with respect to the international operations included below. We have presented the quantitative information regarding the results of our operations in a tabular format in order to clearly show the impact of the international operations acquisition during the periods presented for 2013. Narrative discussion is included below to address the results of our operations attributable only to our North America segment for the comparable periods presented. This narrative discussion is not, however, reflective of our entire business. The remainder of the difference between our total results in each category of our results of operations and the corresponding period in 2012 is solely attributable to our acquisition of the international operations.
Three Months Ended June 30, 20132014as compared to
Three Months Ended June 30, 20122013
Average Earning Assets:
Average earning assets were as follows (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | |
| June 30, | | 2013 vs. 2012 Change |
| 2013 | | 2012 | | Amount | % |
| North America | | International | | Total | | North America | | North America |
Average consumer finance receivables | $ | 11,323 |
| | $ | 6,957 |
| | $ | 18,280 |
| | $ | 10,238 |
| | $ | 1,085 |
| 10.6 | % |
Average commercial finance receivables | 1,059 |
| | 3,515 |
| | 4,574 |
| | 56 |
| | 1,003 |
| n.m. |
|
Average finance receivables | 12,382 |
| | 10,472 |
| | 22,854 |
| | 10,294 |
| | 2,088 |
| 20.3 | % |
Average leased vehicles, net | 2,410 |
| | 7 |
| | 2,417 |
| | 1,231 |
| | 1,179 |
| 95.8 |
|
Average earning assets | $ | 14,792 |
| | $ | 10,479 |
| | $ | 25,271 |
| | $ | 11,525 |
| | $ | 3,267 |
| 28.3 | % |
____________________n.m.= not meaningful |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | |
| 2014 | | 2013 | | 2014 vs. 2013 Change |
| North America | | International | | Total | | North America | | International | | Total | | Amount | | % |
Average consumer finance receivables | $ | 11,847 |
| | $ | 12,827 |
| | $ | 24,674 |
| | $ | 11,323 |
| | $ | 6,957 |
| | $ | 18,280 |
| | $ | 6,394 |
| | 35.0 | % |
Average commercial finance receivables | 2,287 |
| | 4,755 |
| | 7,042 |
| | 1,059 |
| | 3,515 |
| | 4,574 |
| | 2,468 |
| | 54.0 | % |
Average finance receivables | 14,134 |
| | 17,582 |
| | 31,716 |
| | 12,382 |
| | 10,472 |
| | 22,854 |
| | 8,862 |
| | 38.8 | % |
Average leased vehicles, net | 4,169 |
| | 1 |
| | 4,170 |
| | 2,410 |
| | 7 |
| | 2,417 |
| | 1,753 |
| | 72.5 | % |
Average earning assets | $ | 18,303 |
| | $ | 17,583 |
| | $ | 35,886 |
| | $ | 14,792 |
| | $ | 10,479 |
| | $ | 25,271 |
| | $ | 10,615 |
| | 42.0 | % |
AverageIn the North America Segment, average consumer finance receivables increased $1.1 billion$524 million from June 30, 20122013 to June 30, 2013,2014, primarily as a result ofbecause loan originations for the past twelve months in excess ofexceeded portfolio liquidationliquidations through payments and defaults. We purchased $1.5 billion and $1.4 billion of North American consumer finance receivables for the three months ended June 30, 20132014 and 2012.2013. The average new consumer loan size increased to $21,79622,929 for the three months ended June 30, 20132014 from $21,583$21,796 for the three months ended June 30, 2012.2013. The average annual percentage rate for consumer finance receivables purchased during the three months ended June 30, 2014 decreased to 12.3% from 13.1% for the three months ended June 30, 2013, decreased primarily due to 13.1% from 14.0% duringpricing adjustments driven by the impact of subvention programs.three months ended June 30, 2012. The increase in average new loan size and
In the decrease inNorth America Segment, average annual percentage rate is primarily the result of an increase in loans to finance new cars under the GM subvention program. Such loans are typically made for higher amounts, and with lower annual percentage rates.
Average commercial finance receivables increased $1.0$1.2 billion from June 30, 20122013 to June 30, 20132014, primarily due to the continued ramp-up in business since the introduction of our commercial lending platform in April 2012 and thedealer conquests and related origination growth in the portfoliobusiness since that time. We funded $1.3 billion and $0.2 billion of North American commercial finance receivables for the three months ended June 30, 2013 and 2012, respectively.
Average leased vehicles, net, increased $1.2$1.8 billion from June 30, 20122013 to June 30, 2013.2014. We purchased $834 million$1.5 billion and $394$834 million of leased vehicles for the three months ended June 30, 20132014 and 2012, respectively.2013. The increase in leased vehicles purchased was in supporta result of GM's overall increase inincreased market penetration in leases.leases and a 38% increase in our share of GM's lease business.
The increase in average finance receivables in the International Segment is primarily due to the addition of the consumer and commercial receivables portfolios in Brazil, which were acquired October 1, 2013, as well as growth in U.K. consumer finance receivables.
Revenue:
Revenues were as follows (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | |
| 2014 | | 2013 | | 2014 vs. 2013 Change |
| North America | | International | | Total | | North America | | International | | Total | | Amount | | % |
Finance charge income: | | | | | | | | | | | | | | |
|
Consumer finance receivables | $ | 420 |
| | $ | 356 |
| | $ | 776 |
| | $ | 426 |
| | $ | 143 |
| | $ | 569 |
| | $ | 207 |
| | 36.4 | % |
Commercial finance receivables | $ | 19 |
| | $ | 87 |
| | $ | 106 |
| | $ | 9 |
| | $ | 69 |
| | $ | 78 |
| | $ | 28 |
| | 35.9 | % |
Leased vehicle income | $ | 237 |
| | $ | 1 |
| | $ | 238 |
| | $ | 134 |
| | $ | 2 |
| | $ | 136 |
| | $ | 102 |
| | 75.0 | % |
Other income | $ | 15 |
| | $ | 56 |
| | $ | 71 |
| | $ | 19 |
| | $ | 34 |
| | $ | 53 |
| | $ | 18 |
| | 34.0 | % |
In the North America Segment, finance charge income on consumer finance receivables was flat for the three months ended June 30, 2014, compared to the three months ended June 30, 2013. Increased finance charge income resulting from the increase
Revenue:
Revenues were as follows (dollars in millions:)
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | |
| June 30, | | 2013 vs. 2012 Change |
| 2013 | | 2012 | | Amount | % |
| North America | | International | | Total | | North America | | North America |
Finance charge income: | | | | | | | | | |
|
Consumer finance receivables | $ | 426 |
| | $ | 143 |
| | $ | 569 |
| | $ | 403 |
| | $ | 23 |
| 5.7 | % |
Commercial finance receivables | 9 |
| | 69 |
| | 78 |
| | 1 |
| | 8 |
| n.m. |
|
Leased vehicle income | 134 |
| | 2 |
| | 136 |
| | 66 |
| | 68 |
| 103.0 |
|
Other income | 18 |
| | 35 |
| | 53 |
| | 17 |
| | 1 |
| 5.9 | % |
____________________
n.m.= not meaningful
Finance charge income on consumer finance receivables increased by 5.7% to $426 million for the three months ended June 30, 2013, from $403 million for the three months ended June 30, 2012, primarily due to the 10.6% increase in average consumer finance receivables was offset by a decrease in effective yield. The effective yield on our consumer finance receivables decreased to 14.2% for the three months ended June 30, 2014, from 15.1% for the three months ended June 30, 2013,, primarily due to a decrease in the average annual percentage rate on new originations as well as a reduced yield impact from 15.8% for the three months ended June 30, 2012.accretion on the pre-acquisition portfolio. The effective yield represents finance charges and fees recorded in earnings during the period as a percentage of average consumer finance receivables. The effective yield, as a percentage of average consumer finance receivables, is higher than the contractual rates of our auto finance contracts because the effective yield includes, in addition to the contractual rates and fees, the impact of excess cash flows transferred from non-accretable difference to accretable yield.yield, which impact has decreased over time with the amortization of the pre-acquisition portfolio. The difference between the effective yield and the contractual rates will continue to decrease as the pre-acquisition portfolio amortizes.
The increase in commercial finance charge income reflects the increase in the average commercial finance receivables portfolio.
Leased vehicle income increased by 103.0%75.0% to $134$238 million for the three months ended June 30, 2014 from $136 million for the three months ended June 30, 2013, from $66 million for the three months ended June 30, 2012, due to the increased size of the leased asset portfolio.
The increase in revenue for the International Segment is primarily due to the addition of the consumer and commercial receivables portfolios in Brazil, which were acquired October 1, 2013.
Costs and Expenses:
Costs and expenses were as follows (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | |
| June 30, | | 2013 vs. 2012 Change |
| 2013 | | 2012 | | Amount | % |
| North America | | International | | Total | | North America | | North America |
Operating expenses(a) | $ | 109 |
| | $ | 82 |
| | $ | 191 |
| | $ | 93 |
| | $ | 16 |
| 17.2 | % |
Leased vehicle expenses | 99 |
| | 2 |
| | 101 |
| | 51 |
| | 48 |
| 94.1 |
|
Provision for loan losses | 81 |
| | 19 |
| | 100 |
| | 62 |
| | 19 |
| 30.6 |
|
Interest expense(a) | 104 |
| | 60 |
| | 164 |
| | 64 |
| | 40 |
| 62.5 |
|
Acquisition and integration expenses | | | 16 |
| | 16 |
| |
| |
|
|
____________________(a) 2013 amounts do not reflect segment allocation adjustments, and therefore do not agree to amounts presented in Note 13 - "Segment Reporting." |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | |
| 2014 | | 2013 | | 2014 vs. 2013 Change |
| North America | | International | | Total | | North America | | International | | Total | | Amount | % |
Operating expenses | $ | 133 |
| | $ | 147 |
| | $ | 280 |
| | $ | 104 |
| | $ | 87 |
| | $ | 191 |
| | $ | 89 |
| 46.6 | % |
Leased vehicle expenses | $ | 177 |
| | $ | 2 |
| | $ | 179 |
| | $ | 99 |
| | $ | 2 |
| | $ | 101 |
| | $ | 78 |
| 77.2 | % |
Provision for loan losses | $ | 90 |
| | $ | 23 |
| | $ | 113 |
| | $ | 81 |
| | $ | 19 |
| | $ | 100 |
| | $ | 13 |
| 13.0 | % |
Interest expense(a) | $ | 128 |
| | $ | 226 |
| | $ | 354 |
| | $ | 104 |
| | $ | 60 |
| | $ | 164 |
| | $ | 190 |
| 115.9 | % |
Acquisition and integration expenses | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 16 |
| | $ | 16 |
| | $ | (16 | ) | (100.0 | )% |
_________________
| |
(a) | Amounts do not reflect allocation of senior note interest expense, and therefore do not agree with amounts presented in Note 12 - "Segment Reporting" in our consolidated financial statements in this Form 10-Q. |
Operating Expenses
OperatingIn the North America Segment, operating expenses were $109increased by $29 million for the three months ended June 30, 2014, compared to the three months ended June 30, 2013,, compared primarily due to $93 million for the three months ended June 30, 2012.growth in earning assets. Our operating expenses are predominantly related to personnel costs that include base salary and wages, performance incentives and benefits as well as related employment taxes. These expenses represented 76.8%76.4% and 76.7%76.8% of total operating expenses for the three months ended June 30, 20132014 and 20122013..
The increase in operating expenses for the International Segment is primarily due to the acquisition of the operations in Brazil, which were acquired October 1, 2013.
Operating expenses as an annualized percentage of average earning assets decreased towere 3.0% from 3.2%3.1% for the three months ended June 30, 20132014 and 20122013., due to efficiency gains resulting from the increase in average earning assets.
Leased Vehicle Expenses
Leased vehicle expenses increased by 94.1%77.2% to $99$179 million for the three months ended June 30, 2014, from $101 million for the three months ended June 30, 2013,, from $51 million for the three months ended June 30, 2012 due to the increased size of the leased asset portfolio.portfolio in the North America Segment. Our leased vehicle expenses are predominantly related to depreciation of leased assets.
Provision for Loan losses
Provisions for consumer finance receivable loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the consumer finance receivables portfolio. The provision for loan losses recorded for the three months ended June 30, 20132014 and 20122013 reflects inherent losses on receivables originated during these periods and changes in the amount of inherent losses on post-acquisition finance receivables originated in prior periods. TheIn the North America Segment, the provision for consumer loan losses increased to $89 million for the three months ended June 30, 2014 from $80 million for the three months ended June 30, 2013, from $62 million for the three months ended June 30, 2012, as a result of the increase in the size of the consumer finance receivables portfolio and as a result of normalizing credit trends.portfolio. As an annualized percentage of average post-acquisition consumer finance receivables, the provision for loan losses was 3.3%3.2% and 3.6%3.3% for the three months ended June 30, 20132014 and 2012.2013.
The provision for loan losses on commercial finance receivables in the North America Segment was $1$1 million for the three months ended June 30, 2014 and 2013.
The increase in the provision for loan losses for the International Segment is primarily due to the acquisition of the operations in Brazil, which were acquired October 1, 2013,. partially offset by improved credit performance in Europe.
Interest Expense
InterestIn the North America Segment, interest expense increased to$128 million for the three months ended June 30, 2014, from $104 million for the three months ended June 30, 2013, from $64 million for the three months ended June 30, 2012.2013. The increase was primarily as a result of an increase in average debt outstanding to $17.9 billion for the three months ended June 30, 2014, from $14.3 billion for the three months ended June 30, 2013, from $8.9 billion2013. The increase in debt was due to funding requirements for three months ended June 30, 2012. Ourgrowth in the loan and lease portfolio, as well as for the acquisition of the international operations. The effective rate of interest on our debt was 2.9% for the three months ended June 30, 2014 and 2013.
The increase in interest expense for the International Segment is primarily due to the acquisition of the operations in Brazil, which were acquired October 1, 2013.
Acquisition and Integration Expenses
The acquisition and integration expenses for the three months ended June 30, 2013 and 2012.
Acquisition and Integration Expenses
Acquisition and integration expenses for the three months ended June 30, 2013 of $16 million primarily represent advisory, legal and professional fees and other costs related to the acquisition of the international operations and the pending acquisition of Ally Financial's auto finance and financial services operations in Brazil and China.operations.
Taxes
Our consolidated effective income tax rate was 32.7%34.0% and 37.1% for the three months ended June 30, 2013 and 2012. The decrease in the effective income tax rate is primarily related to the settlement of the IRS audit as well as the acquisition of the international operations, which resulted in income in jurisdictions with lower tax rates and other permanent differences; these decreases were offset by the tax effects of certain non-deductible transaction costs.
Foreign Currency Translation Adjustment
Consolidated Foreign currency translation adjustment of $59 million and $5 million32.7% for the three months ended June 30, 20132014 and 2012,2013.
Other Comprehensive Income
Foreign Currency Translation Adjustment
Consolidated foreign currency translation adjustments of $49 million and $(59) million for three months ended June 30, 2014 and 2013, were included in other comprehensive loss.income. Most of the entities acquired with the international operations acquisition use functional currencies other than the U.S. dollar. The translation adjustment is due to the change in the valuevalues of our international currency denominatedcurrency-denominated assets related toand liabilities resulting from changes in the change invalue of the U.S. dollar in relation to international currencies for the related international currency conversion rates during the three months ended June 30, 20132014 and 2012.2013.
Six Months Ended June 30, 20132014as compared to
Six Months Ended June 30, 20122013
Average Earning Assets:
Average earning assets were as follows (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended | | | |
| June 30, | | 2013 vs. 2012 Change |
| 2013 | | 2012 | | Amount | % |
| North America | | International | | Total | | North America | | North America |
Average consumer finance receivables | $ | 11,200 |
| | $ | 3,615 |
| | $ | 14,815 |
| | $ | 10,030 |
| | $ | 1,170 |
| 11.7 | % |
Average commercial finance receivables | 882 |
| | 1,725 |
| | 2,607 |
| | 32 |
| | 850 |
| n.m. |
|
Average finance receivables | 12,082 |
| | 5,340 |
| | 17,422 |
| | 10,062 |
| | 2,020 |
| 20.1 | % |
Average leased vehicles, net | 2,150 |
| | 4 |
| | 2,154 |
| | 1,100 |
| | 1,050 |
| 95.5 | % |
Average earning assets | $ | 14,232 |
| | $ | 5,344 |
| | $ | 19,576 |
| | $ | 11,162 |
| | $ | 3,070 |
| 27.5 | % |
____________________n.m.= not meaningful |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2014 | | 2013 | | 2014 vs. 2013 Change |
| North America | | International | | Total | | North America | | International | | Total | | Amount | | % |
Average consumer finance receivables | $ | 11,691 |
| | $ | 12,406 |
| | $ | 24,097 |
| | $ | 11,200 |
| | $ | 3,615 |
| | $ | 14,815 |
| | $ | 9,282 |
| | 62.7 | % |
Average commercial finance receivables | 2,158 |
| | 4,715 |
| | 6,873 |
| | 882 |
| | 1,725 |
| | 2,607 |
| | 4,266 |
| | 163.6 | % |
Average finance receivables | 13,849 |
| | 17,121 |
| | 30,970 |
| | 12,082 |
| | 5,340 |
| | 17,422 |
| | 13,548 |
| | 77.8 | % |
Average leased vehicles, net | 3,867 |
| | 2 |
| | 3,869 |
| | 2,150 |
| | 4 |
| | 2,154 |
| | 1,715 |
| | 79.6 | % |
Average earning assets | $ | 17,716 |
| | $ | 17,123 |
| | $ | 34,839 |
| | $ | 14,232 |
| | $ | 5,344 |
| | $ | 19,576 |
| | $ | 15,263 |
| | 78.0 | % |
AverageIn the North America Segment, average consumer finance receivables increased $1.2 billion$491 million from June 30, 20122013 to June 30, 2013,2014, primarily as a result ofbecause loan originations for the past twelve months in excess ofexceeded portfolio liquidation through payments and defaults. We purchased $ 2.7$2.9 billion and $2.9$2.7 billion of North American consumer finance receivables in the North America Segment for the six months ended June 30, 20132014 and 2012, respectively.2013. The average new consumer loan size increased to $21,429$22,200 for the six months ended June 30, 20132014 from $21,147$21,429 for the six months ended June 30, 2012.2013. The average annual percentage rate for consumer finance receivables purchased during the six months ended June 30, 2014 decreased to 12.7% from 13.4% for the six months ended June 30, 2013, decreased primarily due to 13.4% from 14.3% duringpricing adjustments driven by the six months ended June 30, 2012. The increase inimpact of subvention programs.
In the North America Segment, average new loan size and the decrease in average annual percentage rate is primarily the result of an increase in loans to finance new cars under the GM subvention program. Such loans are typically made for higher amounts, and with lower annual percentage rates.
Average commercial finance receivables increased $0.9$1.3 billion from June 201230, 2013 to June 2013,30, 2014, primarily due to the continued ramp-up in business since the introduction of our commercial lending platform in April 2012 and thedealer conquests and related origination growth in the portfoliobusiness since that time. We funded $2.4 billion and $0.2 billion of North American commercial finance receivables for the six months ended June 30, 2013 and 2012, respectively.
Average leased vehicles, net, increased $1.1$1.7 billion from June 30, 20122013 to June 30, 2013.2014. We purchased $1.5$2.3 billion and $778 million$1.5 billion of leased vehicles for the six months ended June 30, 20132014 and 2012, respectively.2013. The increase in leased vehicles purchased was in supporta result of GM's overall increase inincreased market penetration in leases.leases and an increase of 8% in our share of GM's business.
The increase in the average earning assets for the International Segment is primarily due to the acquisition of the majority of the international operations on April 1, 2013, and the operations in Brazil, which were acquired October 1, 2013.
Revenue:
Revenues were as follows (dollars in millions:)millions):
|
| | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended | | | |
| June 30, | | 2013 vs. 2012 Change |
| 2013 | | 2012 | | Amount | % |
| North America | | International | | Total | | North America | | North America |
Finance charge income | | | | | | | | | | |
Consumer finance receivables | $ | 835 |
| | $ | 143 |
| | $ | 978 |
| | $ | 761 |
| | $ | 74 |
| 9.7 | % |
Commercial finance receivables | 15 |
| | 69 |
| | 84 |
| | 1 |
| | 14 |
| n.m. |
|
Lease vehicle income | 241 |
| | 2 |
| | 243 |
| | 119 |
| | 122 |
| 102.5 |
|
Other income | 36 |
| | 35 |
| | 71 |
| | 37 |
| | (1 | ) | (2.7 | ) |
____________________n.m.= not meaningful |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2014 | | 2013 | | 2014 vs. 2013 Change |
| North America | | International | | Total | | North America | | International | | Total | | Amount | | % |
Finance charge income: | | | | | | | | | | | | | | | |
Consumer finance receivables | $ | 825 |
| | $ | 684 |
| | $ | 1,509 |
| | $ | 835 |
| | $ | 143 |
| | $ | 978 |
| | $ | 531 |
| | 54.3 | % |
Commercial finance receivables | $ | 34 |
| | $ | 169 |
| | $ | 203 |
| | 15 |
| | 69 |
| | $ | 84 |
| | $ | 119 |
| | 141.7 | % |
Leased vehicle income | $ | 436 |
| | $ | 2 |
| | $ | 438 |
| | 241 |
| | 2 |
| | $ | 243 |
| | $ | 195 |
| | 80.2 | % |
Other income | $ | 32 |
| | $ | 106 |
| | $ | 138 |
| | 37 |
| | 34 |
| | $ | 71 |
| | $ | 67 |
| | 94.4 | % |
FinanceIn the North America Segment, finance charge income on consumer finance receivables increased by 9.7% to $835 millionwas flat for the six months ended June 30, 2013, from $761 million for2014, compared to the six months ended June 30, 2012, primarily due to2013. Increased finance charge income resulting from the11.7% increase in average consumer finance
receivables was offset by a decrease in effective yield. The effective yield on our consumer finance receivables decreased to 15.0%14.2% for the six months ended June 30, 2014, from 15.0% for the six months ended June 30, 2013,, primarily due to a decrease in the average annual percentage rate on new originations as well as a reduced yield impact from 15.2% forthe
accretion on the six months ended June 30, 2012.pre-acquisition portfolio. The effective yield represents finance charges and fees recorded in earnings during the period as a percentage of average consumer finance receivables. The effective yield, as a percentage of average consumer finance receivables, is higher than the contractual rates of our auto finance contracts because the effective yield includes, in addition to the contractual rates and fees, the impact of excess cash flows transferred from non-accretable difference to accretable yield.yield, which impact has decreased over time with the amortization of the pre-acquisition portfolio. The difference between the effective yield and the contractual rates will continue to decrease as the pre-acquisition portfolio amortizes.
The increase in commercial finance charge income reflects the increase in the average commercial finance receivables portfolio.
Leased vehicle income increased by 102.5%80.2% to $241$438 million for the six months ended June 30, 2014 from $243 million for the six months ended June 30, 2013, from $119 million for the six months ended June 30, 2012, due to the increased size of the leased asset portfolio.
The increase in revenue for the International Segment is primarily due to the acquisition of the majority of the international operations on April 1, 2013, and the operations in Brazil, which were acquired October 1, 2013.
Costs and Expenses:
Costs and expenses were as follows (dollars in millions):
|
| | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended | | | |
| June 30, | | 2013 vs. 2012 Change |
| 2013 | | 2012 | | Amount | % |
| North America | | International | | Total | | North America | | North America |
Operating expenses(a) | $ | 217 |
| | $ | 82 |
| | $ | 299 |
| | $ | 191 |
| | $ | 26 |
| 13.6 | % |
Leased vehicle expenses | 179 |
| | 2 |
| | 181 |
| | 92 |
| | 87 |
| 94.6 |
|
Provision for loan losses | 175 |
| | 19 |
| | 194 |
| | 110 |
| | 65 |
| 59.1 |
|
Interest expense(a) | 186 |
| | 60 |
| | 246 |
| | 127 |
| | 59 |
| 46.5 |
|
Acquisition and integration expense |
| | 22 |
| | 22 |
| |
| |
|
|
____________________(a) 2013 amounts do not reflect segment allocation adjustments, and therefore do not agree to amounts presented in Note 13 - "Segment Reporting." |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2014 | | 2013 | | 2014 vs. 2013 Change |
| North America | | International | | Total | | North America | | International | | Total | | Amount | % |
Operating expenses | $ | 251 |
| | $ | 298 |
| | $ | 549 |
| | $ | 212 |
| | $ | 87 |
| | $ | 299 |
| | $ | 250 |
| 83.6 | % |
Leased vehicle expenses | $ | 333 |
| | $ | 2 |
| | $ | 335 |
| | 179 |
| | 2 |
| | $ | 181 |
| | $ | 154 |
| 85.1 | % |
Provision for loan losses | $ | 193 |
| | $ | 55 |
| | $ | 248 |
| | 175 |
| | 19 |
| | $ | 194 |
| | $ | 54 |
| 27.8 | % |
Interest expense(a) | $ | 248 |
| | $ | 421 |
| | $ | 669 |
| | 186 |
| | 60 |
| | $ | 246 |
| | $ | 423 |
| 172.0 | % |
Acquisition and integration expenses | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | 22 |
| | $ | 22 |
| | $ | (22 | ) | (100.0 | )% |
_________________
| |
(a) | Amounts do not reflect allocation of senior note interest expense, and therefore do not agree with amounts presented in Note 12 - "Segment Reporting" in our consolidated financial statements in this Form 10-Q. |
Operating Expenses
OperatingIn the North America Segment, operating expenses were $217increased by $39 million for the six months ended June 30, 2014, compared to the six months ended June 30, 2013,, compared primarily due to $191 million for the six months ended June 30, 2012.growth in earning assets. Our operating expenses are predominantly related to personnel costs that include base salary and wages, performance incentives and benefits as well as related employment taxestaxes. These expenses represented 75.8% and represented 72.8% and 75.6% of total operating expenses for the six months ended June 30, 2014 and 2013.
The increase in operating expenses for the International Segment is primarily due to the acquisition of the majority of the international operations on April 1, 2013, and 2012.the operations in Brazil, which were acquired October 1, 2013.
Operating expenses as an annualized percentage of average earning assets decreased to 3.1% from 3.4%were 3.2% for the six months ended June 30, 2014 compared to 3.1% for the six months ended June 30, 2013.
Leased Vehicle Expenses
Leased vehicle expenses increased by 85.1% to $335 million for the six months ended June 30, 2014, from $181 million for the six months ended June 30, 2013, and 2012 due to efficiency gains resulting from the increase in average earning assets.
Leased Vehicle Expenses
Leased vehicle expenses increased by 94.6% to $179 million for the six months ended June 30, 2013, from $92 million for the six months ended June 30, 2012 due to the increased size of the leased asset portfolio. Our leased vehicle expenses are predominantly related to depreciation of leased assets.
Provision for Loan losses
Provisions for consumer finance receivable loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of consumer finance receivables.receivables portfolio. The provision for loan losses recorded for the six months ended June 30, 20132014 and 20122013 reflects inherent losses on post-acquisition receivables originated during these periods and changes in the amount of inherent losses on consumerpost-acquisition finance receivables originated in prior periods. TheIn the North America Segment, the provision for consumer loan losses increased to $169$193 million for the six months ended June 30, 2014 from $169 million for the six months ended June 30, 2013, from $110 million for the six months ended June 30, 2012, as a result of the increase in the size of the consumer finance receivables portfolio and as a result of normalizing credit trends.portfolio. As an annualized percentage of average post-acquisition consumer finance receivables, the provision for loan losses was 3.6%3.5% and 3.5%3.6% for the six months ended June 30, 20132014 and 2012.2013.
The provision for loan losses on commercial finance receivables was $6 millioninsignificant for the six months ended June 30, 2013.
Interest Expense
Interest expense increased to $1862014 and $6 million for the six months ended June 30, 2013, from $127 million2013.
The increase in the provision for loan losses for the International Segment is primarily due to the acquisition of the majority of the international operations on April 1, 2013, and the operations in Brazil, which were acquired October 1, 2013.
Interest Expense
In the North America Segment, interest expense increased to $248 million for the six months ended June 30, 2012.2014, from $186 million for the six months ended June 30, 2013. The increase was primarily as a result of an increase in average debt outstanding to $12.8$17.3 billion for the six months ended June 30, 2013,2014, from $8.8$12.8 billion for the six months ended June 30, 2012. Our2013. The increase in debt was due to funding requirements for growth in the loan and lease portfolio, as well as for the acquisition of the international operations. The effective rate of interest on our debt was 2.9% for both the six months ended June 30, 2014 and 2013.
The increase in interest expense for the International Segment is primarily due to the acquisition of the majority of the international operations on April 1, 2013, and the operations in Brazil, which were acquired October 1, 2013.
Acquisition and Integration Expenses
The acquisition and integration expenses for the six months ended June 30, 2013 and 2012.
Acquisition and Integration Expenses
Acquisition and integration expenses for the six months ended June 30, 2013 of $22 million primarily represent advisory, legal and professional fees and other costs related to the acquisition of the international operations and the pending acquisition of Ally Financial's auto finance and financial services operations in Brazil and China.operations.
Taxes
Our consolidated effective income tax rate was 34.6%34.3% and 37.5%34.6% for the six months ended June 30, 20132014 and 2012. The decrease in the effective income tax rate is primarily related to the settlement of the IRS audit as well as the acquisition of the international operations, which resulted in income in jurisdictions with lower tax rates and other permanent differences; these decreases were offset by the tax effects of certain non-deductible transaction costs.2013.
Other Comprehensive Income
Foreign Currency Translation Adjustment
Consolidated foreign currency translation adjustment lossesadjustments of $65$54 million and $1$(65) million for the six months ended June 30, 20132014 and 2012,2013, were included in other comprehensive loss.income. Most of the entities acquired with the international operations acquisition use functional currencies other than the U.S. dollar. The translation adjustment is due to the change in the valuevalues of our international currency denominatedcurrency-denominated assets related toand liabilities resulting from changes in the change invalue of the U.S. dollar in relation to international currencies for the related international currency conversion rates during the six months ended June 30, 20132014 and 2012.2013.
CREDIT QUALITY
Consumer Finance Receivables
In the North America Segment, we primarily provide financing in relatively high-risk markets, and therefore anticipate a corresponding high level of delinquencies and charge-offs. In the international operations,International Segment, the consumer financing we provide is generally to borrowers with prime lendingcredit and considered lower-risk; therefore, we expect correspondingly lower levels of delinquencies and charge-offs.charge-offs than in our North America Segment.
The following tables present certain data related to the consumer finance receivables portfolio (dollars in millions)millions, except where noted):
| | | June 30, 2013 | | December 31, 2012 | June 30, 2014 | | December 31, 2013 |
| North America | | International | | Total | | North America | North America | | International | | Total | | North America | | International | | Total |
Pre-acquisition consumer finance receivables - outstanding balance | $ | 1,432 |
| | $ | 1,305 |
| | $ | 2,737 |
| | $ | 2,162 |
| $ | 584 |
| | $ | 255 |
| | $ | 839 |
| | $ | 931 |
| | $ | 363 |
| | $ | 1,294 |
|
Pre-acquisition consumer finance receivables - carrying value | $ | 1,279 |
| | $ | 1,272 |
| | $ | 2,551 |
| | $ | 1,958 |
| $ | 510 |
| | $ | 245 |
| | $ | 755 |
| | $ | 826 |
| | $ | 348 |
| | $ | 1,174 |
|
Post-acquisition consumer finance receivables, net of fees | 9,947 |
| | 5,933 |
| | 15,880 |
| | 8,831 |
| 11,394 |
| | 12,897 |
| | 24,291 |
| | 10,562 |
| | 11,394 |
| | 21,956 |
|
| 11,226 |
| | 7,205 |
| | 18,431 |
| | 10,789 |
| 11,904 |
| | 13,142 |
| | 25,046 |
| | 11,388 |
| | 11,742 |
| | 23,130 |
|
Less: allowance for loan losses | (415 | ) | | (8 | ) | | (423 | ) | | (345 | ) | (515 | ) | | (60 | ) | | (575 | ) | | (468 | ) | | (29 | ) | | (497 | ) |
Total consumer finance receivables, net | $ | 10,811 |
| | $ | 7,197 |
| | $ | 18,008 |
| | $ | 10,444 |
| $ | 11,389 |
| | $ | 13,082 |
| | $ | 24,471 |
| | $ | 10,920 |
| | $ | 11,713 |
| | $ | 22,633 |
|
Number of outstanding contracts | 736,422 |
| | 694,158 |
| | 1,430,580 |
| | 740,814 |
| 737,660 |
| | 1,345,869 |
| | 2,083,529 |
| | 725,797 |
| | 1,224,845 |
| | 1,950,642 |
|
Average amount of outstanding contract (in dollars)(a) | $ | 15,452 |
| | $ | 10,427 |
| | $ | 13,014 |
| | $ | 14,839 |
| |
Average amount of outstanding contracts (in dollars)(a) | | $ | 16,238 |
|
| $ | 9,772 |
|
| $ | 12,061 |
|
| $ | 15,835 |
| | $ | 9,599 |
| | $ | 11,919 |
|
Allowance for loan losses as a percentage of post-acquisition consumer finance receivables, net of fees | 4.2 | % | | 0.1 | % | | 2.7 | % | | 3.9 | % | 4.5 | % |
| 0.5 | % |
| 2.4 | % |
| 4.4 | % | | 0.3 | % | | 2.3 | % |
_________________ | |
(a) | Average amount of outstanding contract consists of pre-acquisition consumer finance receivables - outstanding balance and post-acquisition consumer finance receivables, net of fees, divided by number of outstanding contracts. |
The North America allowance for loan losses for the North America Segment as a percentage of post-acquisition consumer finance receivables, net of fees, has increased due to lower averagenormalizing credit scores on originations during 2013 when compared to 2012trends with moderately higher defaults and prior years.delinquencies. The International Operations allowance for the acquired international receivables was eliminated in purchaseacquisition accounting at the acquisition dates. As a result, the allowance at June 30, 20132014 for the International Segment represents an estimate of losses inherent in only the receivables originated since the acquisition date.dates. The allowance for losses for the International segmentSegment will grow over time as the post-acquisition loan balance grows. However, the allowance for losses
for the International segmentSegment is expected to be much less than that for the North America segmentSegment due to the higher credit quality of theirits originations.
Delinquency
The following is a summary of the contractual amounts of consumer finance receivables, which is not materially different than recorded investment, that are (i) more than 30 days delinquent, not yet in repossession, and (ii) in repossession, but not yet charged off (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, |
| June 30, | | 2014 | | 2013 |
| 2013 | | 2012 | | North America | | International | | Total | | North America | | International | | Total |
| North America | | Percent of Contractual Amount Due | | International | | Total | | Percent of Contractual Amount Due | | North America | | Percent of Contractual Amount Due | | Amount | | Amount | | Amount | | Percent of Contractual Amount Due | | Amount | | Amount | | Amount | | Percent of Contractual Amount Due |
31 - 60 days | $ | 601 |
| | 5.3 | % | | $ | 44 |
| | $ | 645 |
| | 3.4 | % | | $ | 428 |
| | 4.1 | % | | $ | 756 |
| | $ | 130 |
| | $ | 886 |
| | 3.5 | % | | $ | 601 |
| | $ | 44 |
| | $ | 645 |
| | 3.4 | % |
Greater - than 60 days | 208 |
| | 1.8 |
| | 45 |
| | 253 |
| | 1.4 |
| | 158 |
| | 1.5 |
| |
Greater than 60 days | | | 255 |
| | 133 |
| | 388 |
| | 1.6 |
| | 208 |
| | 45 |
| | 253 |
| | 1.4 |
|
| 809 |
| | 7.1 |
| | 89 |
| | 898 |
| | 4.8 |
| | 586 |
| | 5.6 |
| | 1,011 |
| | 263 |
| | 1,274 |
| | 5.1 |
| | 809 |
| | 89 |
| | 898 |
| | 4.8 |
|
In repossession | 31 |
| | 0.3 |
| | 4 |
| | 35 |
| | 0.2 |
| | 25 |
| | 0.3 |
| | 35 |
| | 5 |
| | 40 |
| | 0.1 |
| | 31 |
| | 4 |
| | 35 |
| | 0.2 |
|
| $ | 840 |
| | 7.4 | % | | $ | 93 |
| | $ | 933 |
| | 5.0 | % | | $ | 611 |
| | 5.9 | % | | $ | 1,046 |
| | $ | 268 |
| | $ | 1,314 |
| | 5.2 | % | | $ | 840 |
| | $ | 93 |
| | $ | 933 |
| | 5.0 | % |
An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Delinquencies may vary from period to period based upon the average credit scores in the portfolio which reflects our underwriting strategies and risk tolerance, the average age or seasoning of the portfolio, seasonality within the
calendar year and economic factors. Our target customer base in the North America Segment is predominantly sub-prime; therefore, a relatively high percentage of accounts become delinquent at some point in the life of a loan and there is a high rate of account movement between current and delinquent status in the portfolio.
Delinquencies inthe North America Segment increased fromto 8.4% at 4.1% at June 30, 2012 to 5.3%2014 from 7.1% at June 30, 2013, consistent with a greater concentration of loans with lower average credit scores at June 30, 20132014 and due to normalizing credit trends. Our customer base in our international operationsthe International Segment is primarily prime; therefore, delinquency levels are much lower.lower, with 2.0% and 1.2% in delinquencies at June 30, 2014 and 2013. The increase in delinquencies from June 30, 2013 is due to the acquisition of Brazil.
Deferrals
Due to the lower-risk nature of the consumer base in the international operations portfolio,International Segment, it is unnecessary to offer deferrals as frequently as in the North American portfolio,America Segment, which leads to thean immaterial overall level of deferrals in the international operations portfolio to be immaterial.International Segment. Therefore, the following information regarding deferrals is presented with regard tofor consumer finance receivables in the North America Segment only.
In accordance with our policies and guidelines, we, at times, offer payment deferrals to consumers, whereby the consumer is allowed to move up to two delinquent payments to the end of the loan generally by paying a fee (approximately the interest portion of the payment deferred, except where state law provides for a lesser amount). Our policies and guidelines limit the number and frequency of deferments that may be granted. Additionally, we generally limit the granting of deferments on new accounts until a requisite number of payments have been received.
Due to the nature of our consumer base in the North America Segment and policies and guidelines of the deferral program, which policies and guidelines have not changed materially in several years, approximately 50% to 60% of accounts historically comprising the consumer finance receivables in the North America consumer finance portfolioSegment receive a deferral at some point in the life of the account.
An account for which all delinquent payments are deferred or paid in a deferment transaction is classified as current at the time the deferment is granted and therefore is not included as a delinquent account. Thereafter, such account is aged based on the timely payment of future installments in the same manner as any other account.
Contracts receiving a payment deferral as an average quarterly percentage of average consumer finance receivables outstanding were 6.3% and 5.3%for the three months ended June 30, 2014 and 2013 and 2012 and 6.1% and 5.3% for the six months ended June 30, 20132014 and 2012.2013.
The following is a summary of deferrals in the North America Segment as a percentage of consumer finance receivables outstanding:
| | | June 30, 2013 |
| December 31, 2012 | June 30, 2014 |
| December 31, 2013 |
Never deferred | 76.6 | % | | 77.8 | % | 75.1 | % | | 74.7 | % |
Deferred: | | | | | | |
1-2 times | 19.7 |
| | 18.1 |
| 21.0 |
| | 21.6 |
|
3-4 times | 3.7 |
| | 4.1 |
| 3.9 |
| | 3.7 |
|
Total deferred | 23.4 |
| | 22.2 |
| 24.9 |
| | 25.3 |
|
Total | 100.0 | % | | 100.0 | % | 100.0 | % | | 100.0 | % |
We evaluate the results of our deferment strategies based upon the amount of cash installments that are collected on accounts after they have been deferred versus the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, we believe that payment deferrals granted according to our policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.
Changes in deferment levels do not have a direct impact on the ultimate amount of consumer finance receivables charged off by us. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent that deferrals impact the ultimate timing of when an account is charged off, historical charge-off ratios, loss confirmation periods and cash flow forecasts for loans classified as troubled debt restructurings ("TDRs")TDRs used in the determination of the adequacy of our allowance for loan losses are also impacted. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the allowance for loan losses and related provision for loan losses. Changes in these ratios and periods are considered in determining the appropriate level of allowance for loan losses and related provision for loan losses.
Troubled Debt Restructurings
See Note 42 - "Finance Receivables" to our condensed consolidated financial statements in this Form 10-Q for further discussion of TDRs.
Credit Losses - non-GAAPnon-U.S. GAAP measure
We analyze portfolio performance of both the pre- and post-acquisition finance receivables portfolios on a combined basis. This information allows us and investors the ability to analyze credit loss trends in the combined portfolio. Additionally, information on credit losses, on a combined basis, facilitates comparisons of current and historical results.
The following is a reconciliation of charge-offs on the post-acquisition portfolio to credit losses on the combined portfolio (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, |
| 2013 | | 2012 |
| North America(a) | | International | | Total | | North America(a) |
Charge-offs | $ | 116 |
| | | | $ | 116 |
| | $ | 53 |
|
Adjustments to reflect write-offs of the contractual amounts on the pre-acquisition portfolio | 36 |
| | $ | 5 |
| | 41 |
| | 65 |
|
Total credit losses | $ | 152 |
| | $ | 5 |
| | $ | 157 |
| | $ | 118 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2014 | | 2013 |
| North America(a) | | International | | Total | | North America(a) | | International | | Total |
Charge-offs | $ | 157 |
| | $ | 34 |
| | $ | 191 |
| | $ | 116 |
| | $ | — |
| | $ | 116 |
|
Adjustments to reflect write-offs of the contractual amounts on the pre-acquisition portfolio | 15 |
| | 2 |
| | 17 |
| | 36 |
| | 5 |
| | 41 |
|
Total credit losses | $ | 172 |
| | $ | 36 |
| | $ | 208 |
| | $ | 152 |
| | $ | 5 |
| | $ | 157 |
|
_________________
| |
(a) | Total credit losses onin the North American portfolioAmerica Segment is comprised of the sum of repossession credit losses and mandatory credit losses. |
| | | Six Months Ended | | | | | | | | | | | | | |
| June 30, | Six Months Ended June 30, |
| 2013 | | 2012 | 2014 | | 2013 |
| North America(a) | | International | | Total | | North America(a) | North America(a) | | International | | Total | | North America(a) | | International | | Total |
Charge-offs | $ | 248 |
| | | | $ | 248 |
| | $ | 104 |
| $ | 349 |
| | $ | 66 |
| | $ | 415 |
| | $ | 248 |
| | $ | — |
| | $ | 248 |
|
Adjustments to reflect write-offs of the contractual amounts on the pre-acquisition portfolio | 89 |
| | $ | 5 |
| | 94 |
| | 168 |
| 39 |
| | 5 |
| | 44 |
| | 89 |
| | 5 |
| | 94 |
|
Total credit losses | $ | 337 |
| | $ | 5 |
| | $ | 342 |
| | $ | 272 |
| $ | 388 |
| | $ | 71 |
| | $ | 459 |
| | $ | 337 |
| | $ | 5 |
| | $ | 342 |
|
_________________
| |
(a) | Total credit losses onin the North American portfolioAmerica Segment is comprised of the sum of repossession credit losses and mandatory credit losses. |
The following table presents credit loss data (which includes charge-offs on the post-acquisition portfolio and write-offs of contractual amounts on the pre-acquisition portfolios) with respect to our consumer finance receivables portfolio (dollars in millions):
| | | Three Months Ended | | | | | | | | | | | | | |
| June 30, | Three Months Ended June 30, |
| 2013 | | 2012 | 2014 | | 2013 |
| North America | | International(a) | | Total | | North America | North America | | International(a) | | Total | | North America | | International(a) | | Total |
Repossession credit losses | $ | 151 |
| | $ | 5 |
| | $ | 156 |
| | $ | 119 |
| $ | 170 |
| | $ | 36 |
| | $ | 206 |
| | $ | 151 |
| | $ | 5 |
| | $ | 156 |
|
Less: recoveries | (94 | ) | | | | (94 | ) | | $ | (80 | ) | (105 | ) | | (16 | ) | | (121 | ) | | (94 | ) | | — |
| | (94 | ) |
Mandatory credit losses(b) | 1 |
| |
|
| | 1 |
| | $ | (1 | ) | 2 |
| | — |
| | 2 |
| | 1 |
| | — |
| | 1 |
|
Net credit losses | $ | 58 |
| | $ | 5 |
| | $ | 63 |
| | $ | 38 |
| $ | 67 |
| | $ | 20 |
| | $ | 87 |
| | $ | 58 |
|
| $ | 5 |
| | $ | 63 |
|
Net annualized credit losses as a percentage of average consumer finance receivables(c): | 2.1 | % | | 0.3 | % | | 1.4 | % | | 1.5 | % | |
Recoveries as a percentage of gross repossession credit losses: | 62.2 | % | | | | | | 67.7 | % | |
Net annualized credit losses as a percentage of average consumer finance receivables(c) | | 2.3 | % | | 0.6 | % | | 1.4 | % | | 2.1 | % | | 0.3 | % | | 1.4 | % |
Recoveries as a percentage of gross repossession credit losses | | 61.5 | % | | | | | | 62.2 | % | | | | |
| | | Six Months Ended | | | | | | | | | | | | | |
| June 30, | Six Months Ended June 30, |
| 2013 | | 2012 | 2014 | | 2013 |
| North America | | International(a) | | Total | | North America | North America | | International(a) | | Total | | North America | | International(a) | | Total |
Repossession credit losses | $ | 339 |
| | $ | 5 |
| | $ | 344 |
| | $ | 278 |
| $ | 387 |
| | $ | 71 |
| | $ | 458 |
| | $ | 339 |
| | $ | 5 |
| | $ | 344 |
|
Less: recoveries | (208 | ) | | | | (208 | ) | | (174 | ) | (233 | ) | | (33 | ) | | (266 | ) | | (208 | ) | | — |
| | (208 | ) |
Mandatory credit losses(b) | (2 | ) | |
|
| | (2 | ) | | (6 | ) | 1 |
| | — |
| | 1 |
| | (2 | ) | | — |
| | (2 | ) |
Net credit losses | $ | 129 |
| | $ | 5 |
| | $ | 134 |
| | $ | 98 |
| $ | 155 |
| | $ | 38 |
| | $ | 193 |
| | $ | 129 |
| | $ | 5 |
| | $ | 134 |
|
Net annualized credit losses as a percentage of average consumer finance receivables(c): | 2.3 | % | | 0.3 | % | | 1.8 | % | | 2.0 | % | |
Recoveries as a percentage of gross repossession credit losses: | 61.2 | % | | | | | | 62.6 | % | |
Net annualized credit losses as a percentage of average consumer finance receivables(c) | | 2.7 | % | | 0.6 | % | | 1.6 | % | | 2.3 | % | | 0.3 | % | | 1.8 | % |
Recoveries as a percentage of gross repossession credit losses | | 60.1 | % | | | | | | 61.2 | % | | | | |
_________________
| |
(a) | International operations netRepossession credit losses included in repossession credit lossesfor the International Segment represent the write-down of defaulted receivables to net realizable value, netvalue. As a result, a calculation of any recovery payments received.recoveries as a percentage of gross repossession credit losses is not meaningful. |
| |
(b) | Mandatory credit losses represent accounts 120 days delinquent in the post-acquisition portfolio that are charged off in full, with no recovery amounts realized at time of charge-off, net of any subsequent recoveries as well as the net write-down of consumer finance receivables in repossession to the net realizable value of the repossessed vehicle when the repossessed vehicle is legally available for sale. |
| |
(c) | Average consumer finance receivables are defined as the average daily receivable balance excluding the carrying value adjustment. |
While the accounting related to charge-offs has been impacted by the application of purchase accounting related to acquisitions, the dollar amount and percentage of net credit losses is comparable between the pre-acquisition and the post-acquisition portfolios. Net credit losses as a percentage of average consumer finance receivables outstanding may vary from period to period based upon the average credit scores in the portfolio which reflects our underwriting strategies and risk tolerance, the average age or seasoning of the portfolio and economic conditions.
Commercial Finance Receivables
The following table presents certain data related to the commercial finance receivables portfolio (dollars in millions):
| | | June 30, 2013 | | December 31, 2012 | June 30, 2014 | | December 31, 2013 |
| North America | | International | | Total | | North America | North America | | International | | Total | | North America | | International | | Total |
Commercial finance receivables, net of fees | $ | 1,169 |
| | $ | 3,792 |
| | $ | 4,961 |
| | $ | 560 |
| $ | 2,373 |
| | $ | 4,741 |
| | $ | 7,114 |
| | $ | 1,975 |
| | $ | 4,725 |
| | $ | 6,700 |
|
Less: allowance for loan losses | (12 | ) | | (12 | ) | | (24 | ) | | (6 | ) | (17 | ) | | (23 | ) | | (40 | ) | | (17 | ) | | (34 | ) | | (51 | ) |
Total commercial finance receivables, net | $ | 1,157 |
| | $ | 3,780 |
| | $ | 4,937 |
| | $ | 554 |
| $ | 2,356 |
| | $ | 4,718 |
| | $ | 7,074 |
| | $ | 1,958 |
| | $ | 4,691 |
| | $ | 6,649 |
|
Number of dealers | 208 |
| | 2,443 |
| | 2,651 |
| | 101 |
| 367 |
| | 2,241 |
| | 2,608 |
| | 309 |
| | 2,646 |
| | 2,955 |
|
Average carrying amount per dealer | $ | 6 |
| | $ | 2 |
| | $ | 2 |
| | $ | 5 |
| $ | 6 |
| | $ | 2 |
| | $ | 3 |
| | $ | 6 |
| | $ | 2 |
| | $ | 2 |
|
Allowance for loan losses as a percentage of commercial finance receivables, net of fees | | 0.7 | % | | 0.5 | % | | 0.6 | % | | 0.9 | % | | 0.7 | % | | 0.8 | % |
Commercial finance receivables are assessed for impairment and any required allowance for credit losses is recorded based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. For receivables where foreclosure is probable, the fair value of the collateral is used to estimate the specific impairment. At June 30, 20132014, and December 31, 2013, there were no outstanding commercial finance receivables classified as TDRs.
There were no charge-offs of commercial finance receivables duringfor the three or six months ended June 30, 2013. The accrual of finance charge income has been suspended on $20 million of commercial finance receivables (based on contractual amount due) as of2014 and 2013. At June 30, 20132014.
At June 30, and December 31, 2013, 99.6%99.8% of our commercial finance receivables were current with respect to payment status.
Leased Vehicles
At June 30, 2014 and 2013, and 2012, 99.2%98.3% and 99.7%99.2% of our leases were current with respect to payment status. Leased vehicles returned as a result of a default were $13 million and $5 million and $1 millionfor the three months ended June 30, 2014 and 2013 and 2012$24 million and $9$9 million and $2 million for the six months ended June 30, 20132014 and 2012.2013.
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of cash are finance charge income, leasing income, servicing fees, net distributions from secured debt borrowings underfacilities, including securitizations, secured and unsecured debt,borrowings, net proceeds from senior notes transactions and collections and recoveries on finance receivables and issuances of senior notes and other debt securities.receivables. Our primary uses of cash are purchases of consumer finance receivables and leased vehicles, the funding of commercial finance receivables, acquisitions,funding credit enhancement requirements in connection with securitizations and secured facilities, repayment of secured and unsecured debt, funding credit enhancement requirements for secured facilities, operating expenses, interest costs, capital expenditures and interest costs.business acquisitions.
We used cash of $3.8$6.8 billion and $2.9$3.8 billion for the purchase of consumer finance receivables and finance leases duringfor the six months ended June 30, 20132014 and 2012.2013. We used cash of $8.41.9 billion and $0.21.2 billion for the purchase of leased vehicles for the six months ended June 30, 2014 and 2013. We used cash of $0.3 billion and $0.4 billion for the funding of commercial finance receivables, duringnet of collections, for the six months ended June 30, 20132014 and 2012.2013. We used cash of $1.2$3.5 billion and $0.6 billion for the purchaseacquisition of leased vehicles during the international operations and repayment of debt to Ally Financial for the six months ended June 30, 20132013.
In the North America Segment, our purchase and 2012. These purchasesfunding of receivables and lease vehicles were fundedfinanced initially utilizing cash and borrowings on our secured and unsecured credit facilities.facilities and senior notes. Subsequently, our strategy is to obtain long-term financing for consumer and commercial finance receivables and leased vehicles through securitization transactions, most notably in North America, but also intransactions.
In the International Segment, our purchase and funding of receivables are typically financed with borrowings on secured and unsecured credit facilities. In certain other countries where the debt capital and securitization markets are sufficiently developed, such as in Mexico, Germany and the United Kingdom.
In the three months ended June 30, 2013, in connection with the acquisition of certain of Ally Financial's European and Latin American automotive finance operations,U.K., we received a capital contribution from GM of $1.3 billion and utilized $2.6 billion of our own liquidity.obtain permanent financing through securitization transactions.
Liquidity
Our available liquidity consists of the following (in millions):
| | | June 30, 2013 | | December 31, 2012 | June 30, 2014 | | December 31, 2013 |
Cash and cash equivalents(a) | $ | 1,757 |
| | $ | 1,289 |
| $ | 1,412 |
| | $ | 1,074 |
|
Borrowing capacity on unpledged eligible assets | 1,648 |
| | 1,349 |
| 1,803 |
| | 1,650 |
|
Borrowing capacity on committed unsecured lines of credit | 76 |
| | | 990 |
| | 615 |
|
Borrowing capacity on GM Related Party Credit Facility | 600 |
| | 300 |
| 600 |
| | 600 |
|
| $ | 4,081 |
| | $ | 2,938 |
| |
Available liquidity | | $ | 4,805 |
| | $ | 3,939 |
|
_________________
| |
(a) | Includes $681 million and $659 million in unrestricted cash outside of the U.S. at June 30, 2014 and December 31, 2013. This cash is considered to be indefinitely invested based on specific plans for reinvestment of these earnings. |
The increase in available liquidity is due primarily to the following: (i)reflects an increase in cash and cash equivalents resulting from the issuance of $2.5 billionC$400 million in senior unsecured notes (ii) a capital contribution from GM of $1.3 billion, (iii) thein May 2014. In addition, of $773 million in cash and borrowing capacity available to the international operations, (iv)on committed unsecured lines of credit increased as a result of the addition of new warehouse facilities to fund our North American commercial lending finance receivables and (v) a $300 million increase in the capacityas well as lower utilization as of our GM Related Party Credit Facility, offset by $2.5 billion in consideration paid to date in the international operations acquisition and $1.4 billion in payment of loans that were assumed as part of the international operations acquisition. Our current level of liquidity is considered sufficient to meet our obligations.June 30, 2014.
We have the ability to borrow up to $4.0 billion against GM's three-year $5.5 billion secured revolving credit facility. Our borrowings under the facility are limited by GM's ability to borrow the entire amount available under the facility. Therefore we may be able to borrow up to $4.0 billion or may be unable to borrow depending on GM's borrowing activity. If we do borrow under the facility we expect such borrowings would be short-term in nature.nature and, except in extraordinary circumstances, would not be used to fund our operating activities in the ordinary course of business. Neither we, nor any of our subsidiaries, guarantee any obligations under this facility and none of our subsidiaries' assets secure this facility.
Credit Facilities
In the normal course of business, in addition to using our available cash, we utilize borrowings under our credit facilities, which may be secured andor structured as securitizations, or may be unsecured, and we repay these borrowings as appropriate under our cash management strategy.
As of June 30, 2013,2014, credit facilities consist of the following (in millions):
| | Facility Type | | Facility Amount | | Advances Outstanding | | Facility Amount | | Advances Outstanding |
Revolving consumer asset secured facilities(a) | | $ | 8,279 |
| | $ | 2,991 |
| |
Revolving commercial asset secured facilities(b) | | 3,290 |
| | 2,483 |
| |
Revolving consumer asset-secured facilities(a) | | | $ | 14,544 |
| | $ | 6,633 |
|
Revolving commercial asset-secured facilities(b) | | | 3,043 |
| | 1,984 |
|
Total secured | | 11,569 |
| | 5,474 |
| | $ | 17,587 |
| | $ | 8,617 |
|
Unsecured committed facilities | | 205 |
| | 129 |
| | 1,386 |
| | 396 |
|
Unsecured uncommitted facilities(c) | | | | 1,109 |
| | — |
| | 2,035 |
|
Total unsecured | | 205 |
| | 1,238 |
| | $ | 1,386 |
| | $ | 2,431 |
|
GM Related Party Credit Facility | | 600 |
| | | | 600 |
| | — |
|
Total | | | $ | 19,573 |
| | $ | 11,048 |
|
Acquisition accounting discount | | | | | (27 | ) |
| | $ | 12,374 |
| | $ | 6,712 |
| | | | $ | 11,021 |
|
_________________ | |
(a) | Includes revolving credit facilities backed by consumer finance receivables and leases. |
| |
(b) | Includes revolving credit facilities backed by loans to dealers primarily for floorplan financing. |
| |
(c) | The financial institutions providing the uncommitted facilities are not contractually obligated to advance funds under them; therefore, we do not include available capacity on these facilities in our liquidity. We had $367$352 million in unused borrowing capacity on these facilities as of June 30, 2013.2014. |
See Note 65 - "Debt" to our condensed consolidated financial statements in this Form 10-Q for further discussion of the terms of our revolving credit facilities.
We are required to hold certain funds in restricted cash accounts to provide additional collateral for borrowings under certain of our secured credit facilities. Additionally, our secured credit facilities contain various covenants requiring minimum financial ratios, asset quality and portfolio performance ratios (portfolio net loss and delinquency ratios, and pool level cumulative net loss ratios) as well as limits on deferment levels. Failure to meet any of these covenants could result in an event of default under these agreements. If an event of default occurs under these agreements, the lenders could elect to declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interests against collateral pledged under these agreements,
restrict our ability to obtain additional borrowings under these agreements and/or remove us as servicer. As of June 30, 2013,2014, we were in compliance with all covenants inrelated to our credit facilities.
Term FinancingSecuritization Notes Payable
We seek to finance our consumer and commercial finance receivables and leases through public and private term securitization transactions, most notably in North America, but also in certain other countries where the debt capital and securitization markets are sufficiently developed, such as in the U.S., Germany and the United Kingdom.U.K. The proceeds from the transactions were primarily used to repay borrowings outstanding under our revolving credit facilities.
A summary of securitization notes payable is as follows (in millions):
| | Year of Transaction | | Maturity Date (a) | | Original Issuance Amounts | | Note Balance At June 30, 2013 | | Maturity Date (a) | | Original Issuance Amounts | | Note Balance At June 30, 2014 |
2007 | | June 2018 | | $ | 70 |
| | | | $ | 72 |
| | June 2018 | | $ | 76 |
| | | | $ | 65 |
|
2009 | | January 2016 | - | July 2017 | | 227 |
| - | $ | 725 |
| | 110 |
| |
2010 | | July 2017 | - | October 2018 | | 200 |
| - | 850 |
| | 901 |
| | July 2017 | - | April 2018 | | $ | 200 |
| - | $ | 850 |
| | 399 |
|
2011 | | July 2018 | - | December 2019 | | 520 |
| - | 1,000 |
| | 2,342 |
| | July 2018 | - | December 2019 | | $ | 551 |
| - | $ | 1,000 |
| | 1,348 |
|
2012 | | June 2019 | - | July 2020 | | 800 |
| - | 1,300 |
| | 5,147 |
| | June 2016 | - | July 2020 | | $ | 193 |
| - | $ | 1,300 |
| | 4,585 |
|
2013 | | July 2020 | - | December 2020 | | 690 |
| - | 1,100 |
| | 3,548 |
| | July 2015 | - | October 2021 | | $ | 227 |
| - | $ | 1,107 |
| | 5,394 |
|
2014 | | | March 2019 | - | March 2022 | | $ | 562 |
| - | $ | 1,400 |
| | 4,634 |
|
Total active securitizations | | | | | | 12,120 |
| | | | | | 16,425 |
|
Acquisition accounting premium | | | | | | (24 | ) | |
Acquisition accounting discount | | | | | | | (10 | ) |
| | | | | | $ | 12,096 |
| | | | | | $ | 16,415 |
|
_________________
| |
(a) | Maturity dates represent legal final maturity of issued notes. The notes are expected to be paid based on amortization of the finance receivables pledged. |
Our securitizations utilize special purpose entities which are also VIE'sVIEs that meet the requirements to be consolidated in our financial statements. See Note 76 - "Variable Interest Entities" to our condensed consolidated financial statements in this Form 10-Q for further discussion.
Senior Notes and Other Unsecured Debt
We also access the public capital markets through the issuance of unsecured debt. In the North America Segment, we periodically issue senior unsecured notes. At June 30, 2014 we had $4.4 billion in senior unsecured notes outstanding.
Subsequent to June 30, 2014, our top-tier holding company issued an additional $1.5 billion in senior notes, of which $700 million are due July 2017 and $800 million are due July 2019. Interest rates on the respective tranches are 2.63% and 3.50%, payable semiannually. We intend to use the net proceeds from this offering for general corporate purposes.
In the International Segment, particularly in Latin America, we issue other unsecured debt through commercial paper offerings and other non-bank funding instruments. At June 30, 2014 we had $790 million of this type of unsecured debt outstanding.
FORWARD-LOOKING STATEMENTS
This report contains several "forward-looking statements." Forward-looking statements are those that use words such as "believe," "expect," "anticipate," "intend," "plan," "may," "likely," "should," "estimate," "continue," "future" and/or other comparable expressions. These words indicate future events and trends. Forward-looking statements are our current views with respect to future events and financial performance. These forward-looking statements are subject to many assumptions, risks and uncertainties that could cause actual results to differ significantly from historical results or from those anticipated by us. The most significant risks are detailed from time to time in our filings and reports with the Securities and Exchange Commission, ("the Commission"), including our Annual Report on Form 10-K ("Form 10-K") for the year ended December 31, 2012.2013. It is advisable not to place undue reliance on our forward-looking statements. We undertake no obligation to, and do not, publicly update or revise any forward-looking statements, except as required by federal securities laws, whether as a result of new information, future events or otherwise.
The following factors are among those that may cause actual results to differ materially from historical results or from the forward-looking statements:
our ability to close the acquisition of the remaining portions of Ally Financial's internationalequity interest in auto finance and financial services operations in China and integrate the international operations into ouroperate that business successfully;
•changes in general economic and business conditions;
GM's ability to sell new vehicles that we finance in the markets we serve in North America, Europe and Latin America that we finance;America;
•interest rate and currency fluctuations;
•our financial condition and liquidity, as well as future cash flows and earnings;
•competition;
the effect, interpretation or application of new or existing laws, regulations, court decisions and accounting pronouncements;
•the availability of sources of financing;
•the level of net charge-offs, delinquencies and prepayments on the loans and leases we originate;
•the viability of GM-franchised dealers that are commercial loan customers;
•the prices at which used cars are sold in the wholesale auction markets; and
•changes in business strategy, including acquisitions and expansion of product lines and credit risk appetite; and
•significant litigation.appetite.
If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.
| |
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There have been no significant changes in our exposure to interest rate risk since December 31, 2012.2013. See Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in our Form 10-K.
| |
Item 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensureprovide reasonable assurance that information required to be disclosed in the reports we filefiled under the Securities Exchange Act of 1934, as amended ("Exchange Act"), is recorded, processed, summarized and reported within the specified time periods specified in the Commission’s rules and forms. Such controls include those designed to ensure that information for disclosure isaccumulated and communicated to our management, including the Chief Executive Officer (“CEO”)our principal executive officer and Chief Financial Officer (“CFO”),principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
The CEO and CFO,Our management, with the participation of management, haveour Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), evaluated the effectiveness of our disclosure controls and procedures as of (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) at June 30, 2013.2014. Based on theirthis evaluation they haverequired by paragraph (b) of Rules 13a-15 and 15d-15, our CEO and CFO concluded that theour disclosure controls and procedures are effective.were effective as of June 30, 2014.
Changes in Internal Control Over Financial Reporting
On April 1, 2013, we acquired all of Ally Financial's auto finance and financial services operationsThere were no changes made in Germany, the United Kingdom, Italy, Sweden, Switzerland, Austria, Belgium, the Netherlands, Greece, Spain, Chile, Colombia and Mexico. On June 1, 2013, we acquired Ally Financial's auto finance and financial services operations in France and Portugal. These operations collectively represent a change that may have materially affected our internal control over financial reporting during the quarter end June 30, 2013. We have extended our oversight and monitoring processes that support our internal control over financial reporting to include the international operations. We are currently in the process of integrating the internal controls and procedures of the international operations, including a preliminary assessment of internal controls over financial reporting, with our North American operations, which may materially affect our internal control over financial reporting. We have yet to conclude whether to exclude the international operations from our December 31, 2013 assessment of and report on internal control over financial reporting, but may elect to do so, particularly due to the fact that the acquisition of the international operations in Brazil is not expected to close until the fourth quarter of 2013 at the earliest. Other than the operations acquired, there have been no other changes made in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2013,2014, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Limitations Inherent in all Controls
Our management, including the CEO and CFO, recognize that the disclosure controls and internal controls (discussed above) cannot prevent all errors or all attempts at fraud. Any controls system, no matter how well crafted and operated, can only provide reasonable, and not absolute, assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in any control system, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected.
Part II. OTHER INFORMATION
| |
Part II. | OTHER INFORMATION |
There are no material updates to the legal proceedings described in our Annual Report on Form 10-K for the year ended December 31, 2012.None.
The risks described in our Annual Report on Form 10-K are not the only risks facing us. AdditionalWe face a number of significant risks and uncertainties not currently known to us or that we currently believe to be immaterial also may adversely affect our business, financial condition and/or operating results.
On April 1, 2013, we completed a transaction under which we acquired Ally Financial's equity interests in its top-level holding companies that comprise substantially all of Ally Financial's auto finance and financial services business in Europe other than in France and Portugal and Latin America other than Brazil, pursuant to the Purchase and Sale Agreement entered into on November 21, 2012. On June 1, 2013 we completed the acquisition of Ally Financial's auto finance and financial services business in France and Portugal. As a result of these transactions, we now have operations outside of North America and these operations are exposed to additional risks that could affect them such as the following:
multiple foreign regulatory requirements that are subject to change;
difficulty in establishing, staffing and managing foreign operations;
differing labor regulations;
consequences from changes in tax laws;
restrictions on the ability to repatriate profits or transfer cash into or out of foreign countries and the tax consequences of such repatriations and transfers; and
devaluations in currencies.
In addition, in connection with the May 2013 offeringour operations. Our business, results of senior notes, we described additional risks as set forth on Exhibit 99.3operations and financial condition could be materially adversely affected by these risk factors. There have been no material changes to the Current Report onRisk Factors disclosed in our Form 8-K dated and filed on May 6, 2013 and incorporated herein by reference.10-K.
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| | | | |
31.1 | | Officers' Certifications of Periodic Report pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | | Filed Herewith |
| | | | |
32.1 | | Officers' Certifications of Periodic Report pursuant to Section 906 of Sarbanes-Oxley Act of 2002 | | Furnished with this Report |
| | | | |
101.INS* | | XBRL Instance Document | | Furnished with this Report |
| | | | |
101.SCH* | | XBRL Taxonomy Extension Schema Document | | Furnished with this Report |
| | | | |
101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document | | Furnished with this Report |
| | | | |
101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document | | Furnished with this Report |
| | | | |
101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document | | Furnished with this Report |
| | | | |
101.PRE* | | XBRL Taxonomy Presentation Linkbase Document | | Furnished with this Report |
__________ | |
* | Submitted electronically with this Report. |
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.
|
| | | | | |
| | | | | General Motors Financial Company, Inc. |
| | | | | (Registrant) |
| | | | | |
Date: | July 30, 201324, 2014 | | By: | | /S/ CHRIS A. CHOATE |
| | | | | (Signature) |
| | | | | Chris A. Choate |
| | | | | Executive Vice President and |
| | | | | Chief Financial Officer and Treasurer |
CERTIFICATIONS
Exhibit 31.1
I, Daniel E. Berce, certify that:
| |
(1) | I have reviewed the Quarterly Report on Form 10-Q of General Motors Financial Company, Inc. (the "Company") for the six months ended June 30, 2013 (this “report”);
|
| |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report; |
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(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
| |
(4) | The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have: (i) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (ii) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (iii) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (iv) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and |
| |
(5) | The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the Company's auditors and to the Audit Committee of the Company's Board of Directors (or persons performing equivalent functions): (i) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. |
Dated: July 30, 2013
|
| | |
| | /s/ Daniel E. Berce |
| | Daniel E. Berce |
| | President and Chief Executive Officer |
I, Chris A. Choate, certify that:
| |
(1) | I have reviewed the Quarterly Report on Form 10-Q of General Motors Financial Company, Inc. (the "Company") for the six months ended June 30, 2013 (this “report”);
|
| |
(2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report; |
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(3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
| |
(4) | The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and we have: (i) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (ii) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (iii) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (iv) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and |
| |
(5) | The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the Company's auditors and to the Audit Committee of the Company's Board of Directors (or persons performing equivalent functions): (i) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. |
Dated: July 30, 2013
|
| | |
| | /s/ Chris A. Choate |
| | Chris A. Choate |
| | Executive Vice President, Chief |
| | Financial Officer and Treasurer |
Exhibit 32.1
CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 906
OF SARBANES-OXLEY ACT OF 2002
I, Daniel E. Berce, do hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
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(1) | The Quarterly Report on Form 10-Q of the Company for the six months ended June 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
|
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(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: July 30, 2013
|
| | |
| | /s/ Daniel E. Berce |
| | Daniel E. Berce |
| | President and Chief Executive Officer |
CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 906
OF SARBANES-OXLEY ACT OF 2002
I, Chris A. Choate, do hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
| |
(1) | The Quarterly Report on Form 10-Q of the Company for the six months ended June 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
|
| |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: July 30, 2013
|
| | |
| | /s/ Chris A. Choate |
| | Chris A. Choate |
| | Executive Vice President, Chief |
| | Financial Officer and Treasurer |