UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 

(Mark One)

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period endedDecember March 31, 20022003

 

OR

 

¨

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period fromto

Commission file number1-10667

 

Commission file number 1-10667

 


 

AmeriCredit Corp.

(Exact name of registrant as specified in its charter)

 

Texas

 

75-2291093

(State or other jurisdiction of

(I.R.S. Employer

Incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

801 Cherry Street, Suite 3900, Fort Worth, Texas 76102

(Address of principal executive offices, including Zip Code)

 

(817) 302-7000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yesx No¨

 

There were 154,705,177156,281,125 shares of common stock, $0.01 par value outstanding as of January 31,April 30, 2003.

 



 

AMERICREDIT CORP.

INDEX TO FORM 10-Q

 

     

Page


Part I.

 

FINANCIAL INFORMATION

   
  

Item 1.

  

Financial Statements (unaudited)FINANCIAL STATEMENTS

  

3

     

Consolidated Balance Sheets — December– March 31, 20022003 and June 30, 2002

  

3

     

Consolidated Statements of OperationsIncome and Comprehensive Operations —Income – Three and SixNine Months Ended DecemberMarch 31, 20022003 and 20012002

  

4

     

Consolidated Statements of Cash Flows — Six– Nine Months Ended DecemberMarch 31, 20022003 and 20012002

  

5

     

Notes to Consolidated Financial Statements

  

6

  

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of OperationsMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  

2630

  

Item 3.

  

Quantitative and Qualitative Disclosures About Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  

5360

  

Item 4.

  

Controls and ProceduresCONTROLS AND PROCEDURES

  

5460

Part II.

 

OTHER INFORMATION

   
  

Item 1.

  

Legal ProceedingsLEGAL PROCEEDINGS

  

5561

  

Item 2.

  

Changes in SecuritiesCHANGES IN SECURITIES

  

5562

  

Item 3.

  

Defaults upon Senior SecuritiesDEFAULTS UPON SENIOR SECURITIES

  

5562

  

Item 4.

  

Submission of Matters to a Vote of Security HoldersSUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  

5562

  

Item 5.

  

Other InformationOTHER INFORMATION

  

5662

  

Item 6.

  

Exhibits and Reports on FormEXHIBITS AND REPORTS ON FORM 8-K

  

5662

SIGNATURE

  

5865

CERTIFICATIONS

  

5966

 

Part I. FINANCIAL INFORMATION

 

Item 1.    FINANCIAL1.FINANCIAL STATEMENTS

 

AMERICREDIT CORP.

AMERICREDIT CORP.

Consolidated Balance Sheets

(Unaudited, Dollars in Thousands)

 

  

December 31, 2002


   

June 30, 2002


 
  

March 31, 2003


   

June 30, 2002


 

ASSETS

            

Cash and cash equivalents

  

$

215,826

 

  

$

119,445

 

  

$

238,133

 

  

$

92,349

 

Finance receivables, net

  

 

3,779,648

 

  

 

2,198,391

 

  

 

4,742,859

 

  

 

2,198,391

 

Interest-only receivables from Trusts

  

 

356,805

 

  

 

514,497

 

  

 

375,590

 

  

 

514,497

 

Investments in Trust receivables

  

 

791,343

 

  

 

691,065

 

  

 

769,492

 

  

 

691,065

 

Restricted cash – gain on sale Trusts

  

 

356,138

 

  

 

343,570

 

Restricted cash – securitization notes payable

  

 

57,883

 

   

Restricted cash – warehouse credit facilities

  

 

267,377

 

  

 

29,383

 

Restricted cash—gain on sale Trusts

  

 

334,124

 

  

 

343,570

 

Restricted cash—securitization notes payable

  

 

54,688

 

   

Restricted cash—warehouse credit facilities

  

 

538,561

 

  

 

56,479

 

Property and equipment, net

  

 

121,320

 

  

 

120,505

 

  

 

130,147

 

  

 

120,505

 

Other assets

  

 

343,681

 

  

 

208,075

 

  

 

337,725

 

  

 

208,075

 

  


  


  


  


Total assets

  

$

6,290,021

 

  

$

4,224,931

 

  

$

7,521,319

 

  

$

4,224,931

 

  


  


  


  


LIABILITIES AND SHAREHOLDERS’ EQUITY

            

Liabilities:

            

Warehouse credit facilities

  

$

1,750,000

 

  

$

1,751,974

 

  

$

2,263,547

 

  

$

1,751,974

 

Whole loan purchase facility

  

 

875,000

 

   

Securitization notes payable

  

 

1,792,399

 

     

 

1,675,106

 

   

Senior notes

  

 

379,668

 

  

 

418,074

 

  

 

379,050

 

  

 

418,074

 

Other notes payable

  

 

69,683

 

  

 

66,811

 

  

 

65,914

 

  

 

66,811

 

Funding payable

  

 

122,278

 

  

 

126,893

 

  

 

23,082

 

  

 

126,893

 

Accrued taxes and expenses

  

 

163,210

 

  

 

194,260

 

  

 

193,534

 

  

 

194,260

 

Derivative financial instruments

  

 

88,020

 

  

 

85,922

 

  

 

82,962

 

  

 

85,922

 

Deferred income taxes

  

 

34,123

 

  

 

148,681

 

  

 

50,567

 

  

 

148,681

 

  


  


  


  


Total liabilities

  

 

4,399,381

 

  

 

2,792,615

 

  

 

5,608,762

 

  

 

2,792,615

 

  


  


Commitments and contingencies (Note 11)

      
  


  


Shareholders’ equity:

            

Preferred stock, $0.01 par value per share; 20,000,000 shares authorized, none issued

            

Common stock, $0.01 par value per share; 230,000,000 shares authorized; 160,269,486 and 91,716,416 shares issued

  

 

1,603

 

  

 

917

 

  

 

1,603

 

  

 

917

 

Additional paid-in capital

  

 

1,063,852

 

  

 

573,956

 

  

 

1,062,982

 

  

 

573,956

 

Accumulated other comprehensive (loss) income

  

 

(15,996

)

  

 

42,797

 

  

 

(12,515

)

  

 

42,797

 

Retained earnings

  

 

857,970

 

  

 

832,446

 

  

 

872,519

 

  

 

832,446

 

  


  


  


  


  

 

1,907,429

 

  

 

1,450,116

 

  

 

1,924,589

 

  

 

1,450,116

 

Treasury stock, at cost (5,564,309 and 5,899,241 shares)

  

 

(16,789

)

  

 

(17,800

)

Treasury stock, at cost (3,989,361 and 5,899,241 shares)

  

 

(12,032

)

  

 

(17,800

)

  


  


  


  


Total shareholders’ equity

  

 

1,890,640

 

  

 

1,432,316

 

  

 

1,912,557

 

  

 

1,432,316

 

  


  


  


  


Total liabilities and shareholders’ equity

  

$

6,290,021

 

  

$

4,224,931

 

  

$

7,521,319

 

  

$

4,224,931

 

  


  


  


  


 

The accompanying notes are an integral part of these consolidated financial statements

 

AMERICREDIT CORP.

Consolidated Statements of OperationsIncome and Comprehensive OperationsIncome

(Unaudited, Dollars in Thousands, Except Per Share Data)

 

  

Three Months Ended

December 31,


   

Six Months Ended

December 31,


 
  

2002


   

2001


   

2002


   

2001


   

Three Months Ended March 31,


   

Nine Months Ended March 31,


 
  

2003


   

2002


   

2003


   

2002


 

Revenue

                        

Finance charge income

  

$

133,943

 

  

$

80,027

 

  

$

224,572

 

  

$

176,824

 

  

$

185,857

 

  

$

82,188

 

  

$

410,429

 

  

$

259,012

 

Servicing fee income

  

 

23,786

 

  

 

94,571

 

  

 

131,861

 

  

 

179,806

 

  

 

96,646

 

  

 

97,362

 

  

 

228,507

 

  

 

277,168

 

Gain on sale of receivables

     

 

108,690

 

  

 

132,084

 

  

 

201,620

 

     

 

124,112

 

  

 

132,084

 

  

 

325,732

 

Other income

  

 

5,613

 

  

 

3,377

 

  

 

10,633

 

  

 

6,250

 

  

 

5,230

 

  

 

3,067

 

  

 

15,863

 

  

 

9,317

 

  


  


  


  


  


  


  


  


  

 

163,342

 

  

 

286,665

 

  

 

499,150

 

  

 

564,500

 

  


  


  


  


  

 

287,733

 

  

 

306,729

 

  

 

786,883

 

  

 

871,229

 

  


  


  


  


Costs and expenses

                        

Operating expenses

  

 

109,242

 

  

 

108,390

 

  

 

225,068

 

  

 

207,766

 

  

 

82,347

 

  

 

107,885

 

  

 

300,516

 

  

 

315,651

 

Provision for loan losses

  

 

86,892

 

  

 

16,667

 

  

 

152,676

 

  

 

31,509

 

  

 

77,109

 

  

 

16,739

 

  

 

229,785

 

  

 

48,248

 

Interest expense

  

 

39,884

 

  

 

30,557

 

  

 

79,903

 

  

 

66,147

 

  

 

51,550

 

  

 

33,123

 

  

 

131,453

 

  

 

99,270

 

Restructuring charges

  

 

53,071

 

     

 

59,970

 

   
  


  


  


  


  


  


  


  


  

 

236,018

 

  

 

155,614

 

  

 

457,647

 

  

 

305,422

 

  

 

264,077

 

  

 

157,747

 

  

 

721,724

 

  

 

463,169

 

  


  


  


  


  


  


  


  


(Loss) income before income taxes

  

 

(72,676

)

  

 

131,051

 

  

 

41,503

 

  

 

259,078

 

Income tax (benefit) provision

  

 

(27,980

)

  

 

50,455

 

  

 

15,979

 

  

 

99,745

 

  


  


  


  


Net (loss) income

  

 

(44,696

)

  

 

80,596

 

  

 

25,524

 

  

 

159,333

 

Income before income taxes

  

 

23,656

 

  

 

148,982

 

  

 

65,159

 

  

 

408,060

 

  


  


  


  


Other comprehensive (loss) income

            

Unrealized (losses) gains on credit enhancement assets

  

 

(75,984

)

  

 

19,146

 

  

 

(75,889

)

  

 

978

 

Unrealized (losses) gains on cash flow hedges

  

 

(5,173

)

  

 

8,014

 

  

 

(14,635

)

  

 

(23,543

)

Income tax provision

  

 

9,107

 

  

 

57,358

 

  

 

25,086

 

  

 

157,103

 

  


  


  


  


Net income

  

 

14,549

 

  

 

91,624

 

  

 

40,073

 

  

 

250,957

 

  


  


  


  


Other comprehensive income (loss)

            

Unrealized losses on credit enhancement assets

  

 

(9,071

)

  

 

(6,807

)

  

 

(84,960

)

  

 

(5,829

)

Unrealized gains (losses) on cash flow hedges

  

 

4,291

 

  

 

27,611

 

  

 

(10,344

)

  

 

4,068

 

Canadian currency translation adjustment

  

 

305

 

  

 

(421

)

  

 

(3,121

)

  

 

(2,061

)

  

 

6,421

 

  

 

53

 

  

 

3,300

 

  

 

(2,008

)

Income tax benefit (provision)

  

 

31,245

 

  

 

(10,456

)

  

 

34,851

 

  

 

8,688

 

  

 

1,841

 

  

 

(8,009

)

  

 

36,692

 

  

 

679

 

  


  


  


  


  


  


  


  


Other comprehensive (loss) income

  

 

(49,607

)

  

 

16,283

 

  

 

(58,794

)

  

 

(15,938

)

  


  


  


  


Comprehensive (loss) income

  

$

(94,303

)

  

$

96,879

 

  

$

(33,270

)

  

$

143,395

 

Other comprehensive income (loss)

  

 

3,482

 

  

 

12,848

 

  

 

(55,312

)

  

 

(3,090

)

  


  


  


  


  


  


  


  


(Loss) earnings per share

            

Comprehensive income (loss)

  

$

18,031

 

  

$

104,472

 

  

$

(15,239

)

  

$

247,867

 

  


  


  


  


Earnings per share

            

Basic

  

$

(0.29

)

  

$

0.95

 

  

$

0.21

 

  

$

1.89

 

  

$

0.09

 

  

$

1.08

 

  

$

0.31

 

  

$

2.97

 

  


  


  


  


  


  


  


  


Diluted

  

$

(0.29

)

  

$

0.91

 

  

$

0.21

 

  

$

1.79

 

  

$

0.09

 

  

$

1.02

 

  

$

0.30

 

  

$

2.81

 

  


  


  


  


  


  


  


  


Weighted average shares outstanding

  

 

153,001,207

 

  

 

84,546,353

 

  

 

119,420,462

 

  

 

84,217,345

 

  

 

155,492,651

 

  

 

84,988,165

 

  

 

131,268,991

 

  

 

84,470,535

 

  


  


  


  


  


  


  


  


Weighted average shares and assumed incremental shares

  

 

153,001,207

 

  

 

88,669,914

 

  

 

120,032,197

 

  

 

89,253,406

 

  

 

155,494,768

 

  

 

89,509,209

 

  

 

131,677,520

 

  

 

89,334,924

 

  


  


  


  


  


  


  


  


 

The accompanying notes are an integral part of these consolidated financial statements

 

AMERICREDIT CORP.

Consolidated Statements of Cash Flows

(Unaudited, Dollars in Thousands)

 

  

Six Months Ended

December 31,


 
  

2002


   

2001


   

Nine Months Ended

March 31,


 
  

2003


   

2002


 

Cash flows from operating activities

            

Net income

  

$

25,524

 

  

$

159,333

 

  

$

40,073

 

  

$

250,957

 

Adjustments to reconcile net income to net cash provided (used) by operating activities:

            

Depreciation and amortization

  

 

22,536

 

  

 

16,469

 

  

 

36,353

 

  

 

27,875

 

Provision for loan losses

  

 

152,676

 

  

 

31,509

 

  

 

229,785

 

  

 

48,248

 

Deferred income taxes

  

 

(79,061

)

  

 

15,178

 

  

 

(61,008

)

  

 

26,446

 

Accretion of present value discount

  

 

(62,855

)

  

 

(70,235

)

  

 

(89,271

)

  

 

(121,535

)

Impairment of credit enhancement assets

  

 

91,834

 

  

 

13,969

 

  

 

96,738

 

  

 

38,918

 

Non-cash gain on sale of receivables

  

 

(124,831

)

  

 

(189,537

)

  

 

(124,831

)

  

 

(307,752

)

Non-cash restructuring charges

  

 

38,546

 

   

Other

  

 

4,240

 

     

 

3,860

 

   

Distributions from Trusts

  

 

111,118

 

  

 

127,863

 

  

 

144,602

 

  

 

182,826

 

Initial deposits to credit enhancement assets

  

 

(58,101

)

  

 

(255,500

)

  

 

(58,101

)

  

 

(303,500

)

Changes in assets and liabilities:

            

Other assets

  

 

(16,549

)

  

 

(29,465

)

  

 

3,386

 

  

 

(38,809

)

Accrued taxes and expenses

  

 

(28,695

)

  

 

43,225

 

  

 

(7,614

)

  

 

109,415

 

Purchases of receivables held for sale

  

 

(647,647

)

  

 

(4,072,045

)

  

 

(647,647

)

  

 

(6,494,174

)

Principal collections and recoveries on receivables held for sale

  

 

74,370

 

  

 

117,895

 

  

 

74,370

 

  

 

175,365

 

Net proceeds from sale of receivables

  

 

2,495,353

 

  

 

3,578,594

 

  

 

2,495,353

 

  

 

5,919,517

 

  


  


  


  


Net cash provided (used) by operating activities

  

 

1,959,912

 

  

 

(512,747

)

  

 

2,174,594

 

  

 

(486,203

)

  


  


  


  


Cash flows from investing activities

            

Purchases of receivables

  

 

(3,804,650

)

     

 

(5,223,167

)

   

Principal collections and recoveries on receivables

  

 

143,872

 

     

 

435,976

 

   

Purchases of property and equipment

  

 

(2,333

)

  

 

(24,839

)

  

 

(38,898

)

  

 

(14,916

)

Change in restricted cash – securitization notes payable

  

 

(57,913

)

   

Change in restricted cash – warehouse credit facilities

  

 

(237,994

)

  

 

(28,081

)

Change in restricted cash—securitization notes payable

  

 

(54,469

)

   

Change in restricted cash—warehouse credit facilities

  

 

(482,090

)

  

 

(10,667

)

Change in other assets

  

 

(124,764

)

  

 

(46,334

)

  

 

(131,714

)

  

 

(15,991

)

  


  


  


  


Net cash used by investing activities

  

 

(4,083,782

)

  

 

(99,254

)

  

 

(5,494,362

)

  

 

(41,574

)

  


  


  


  


Cash flows from financing activities

            

Net change in warehouse credit facilities

  

 

(1,465

)

  

 

428,655

 

  

 

511,886

 

  

 

388,328

 

Proceeds from whole loan purchase facility

  

 

875,000

 

   

Issuance of securitization notes

  

 

1,837,591

 

     

 

1,837,591

 

   

Payments on securitization notes

  

 

(45,132

)

     

 

(171,720

)

   

Senior notes swap settlement

  

 

9,700

 

     

 

9,700

 

   

Retirement of senior notes

  

 

(39,631

)

     

 

(39,631

)

   

Borrowings under credit enhancement facility

     

 

182,500

 

     

 

182,500

 

Debt issuance costs

  

 

(13,683

)

  

 

(2,857

)

  

 

(23,267

)

  

 

(16,386

)

Net change in notes payable

  

 

(8,226

)

  

 

10,951

 

  

 

(14,006

)

  

 

(12,340

)

Net proceeds from issuance of common stock

  

 

481,317

 

  

 

11,245

 

  

 

479,748

 

  

 

15,357

 

  


  


  


  


Net cash provided by financing activities

  

 

2,220,471

 

  

 

630,494

 

  

 

3,465,301

 

  

 

557,459

 

  


  


  


  


Net increase in cash and cash equivalents

  

 

96,601

 

  

 

18,493

 

  

 

145,533

 

  

 

29,682

 

Effect of Canadian exchange rate changes on cash and cash equivalents

  

 

(220

)

  

 

(37

)

  

 

251

 

  

 

190

 

Cash and cash equivalents at beginning of period

  

 

119,445

 

  

 

77,053

 

  

 

92,349

 

  

 

45,016

 

  


  


  


  


Cash and cash equivalents at end of period

  

$

215,826

 

  

$

95,509

 

  

$

238,133

 

  

$

74,888

 

  


  


  


  


 

The accompanying notes are an integral part of these consolidated financial statements

 

AMERICREDIT CORP.

Notes to Consolidated Financial Statements

(Unaudited)

 

NOTE 1 — 1—BASIS OF PRESENTATION

 

The consolidated financial statements include the accounts of AmeriCredit Corp. and its wholly-owned subsidiaries (the “Company”). All significant intercompany accounts have been eliminated in consolidation.

 

The consolidated financial statements as of DecemberMarch 31, 2002,2003, and for the sixnine months ended DecemberMarch 31, 20022003 and 2001,2002, are unaudited, but in management’s opinion include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statementpresentation of the results for such interim periods. Certain prior year amounts have been reclassified to conform to the current period presentation, including the reclassification of: certain cash accounts on the consolidated balance sheets and initial deposits to credit enhancement assets as well as purchases, sales, and principal collections and recoveries on receivables held for sale on the consolidated statements of cash flows, have been reclassified to conform to the current period presentation.flows. The results for interim periods are not necessarily indicative of results for a full year.

 

The interim period financial statements, including the notes thereto, are condensed and do not include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). These interim period financial statements should be read in conjunction with the Company’s consolidated financial statements that are included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2002.

 

NOTE 2 — 2—LIQUIDITY

 

With respect to the Company’s securitization transactions covered by a financial guaranty insurance policy, agreements with the insurers provide that if delinquency,portfolio performance ratios (delinquency, default or net loss ratiostriggers) in a Trust’s pool of receivables exceed certain targets, the specified credit enhancement levels would be increased. If a targeted portfolio performance ratio was exceeded in any Financial Security Assurance, Inc. (“FSA”) insured securitization and a waiver was not granted by FSA, excess cash flows from all of the Company’s FSA insuredFSA-insured securitizations could be used by the insurer to increase credit enhancement for the securitization in which a ratio was exceeded to higher specified levels rather than being distributed to the Company. If a targeted portfolio performance ratio was exceeded for an extended period of time in larger or multiple securitizations requiring a greater amount of additional credit enhancement, there would be a material adverse effect on the Company’s liquidity.

 

In March 2003, the Company exceeded its targeted net loss triggers in three FSA-insured securitization transactions. A waiver was not granted by FSA. Accordingly, $19.0 million of cash generated by FSA-insured securitization transactions otherwise distributable by the Trusts in March 2003 was used to

fund increased credit enhancement levels for the securitizations that breached their net loss triggers. The Company believes that it is probable that net loss ratiostriggers on certain of its FSA insuredadditional FSA-insured securitization Trusts will exceed targeted levels during the March and June 2003 quarters.

As a result of expected seasonal increases in delinquency levels through Februarycalendar 2003 and the prospects for continued economic weakness, the Company believed it was likelypossible that the initially targeted delinquency ratios would have been exceeded in certain of its FSA insured securitizations. Therefore, in September 2002, FSA agreed to revise the targeted delinquency ratios through and including the March 2003 distribution date. As of December 31, 2002,

none of the Company’s securitizations had delinquency ratios in excess of the revised targeted levels. The Company anticipates that expected seasonal improvements in delinquency levels after February 2003 should result in the ratios being reduced below applicable initially targeted levels. However, if expected seasonal improvements do not materialize or if there is continued instability or further deterioration in the economy, initially targeted delinquency levels couldnet loss performance triggers may be exceeded in certain FSA insured2004 on additional FSA-insured securitization Trusts.

 

The Company does not expect waivers to be granted if targetedby FSA in the future with respect to securitizations that breach net loss or delinquency levels are exceededtriggers and estimates that $100.0 million to $150.0 million of cash otherwise distributable by the Trusts during the remainder of the fiscal yearon FSA-insured securitization transactions will continue to be used to increase credit enhancement for FSAFSA-insured transactions through fiscal 2004 rather than being released to the Company.

The prolonged weakness in the economy has resulted in the Company experiencing lower payment rates in late-stage delinquencies. Accordingly, the Company has implemented a more aggressive strategy for repossessing and liquidating these delinquent accounts. The Company anticipates that its new strategy should result in delinquency ratios being maintained below targeted levels. If there is continued instability or further deterioration in the economy, targeted delinquency levels could be exceeded in certain FSA-insured securitization Trusts. However, should targeted delinquency levels be exceeded, there would be further increases in required credit enhancement levels only for securitization transactions that have not yet breached their net loss triggers.

Agreements with the Company’s financial guaranty insurance providers contain additional specified targeted portfolio performance ratios which are higher than the limits referred to in the preceding paragraphs. If, at any measurement date, the targeted portfolio performance ratios with respect to any insured trust were to exceed these additional levels, provisions of the agreements permit the Company’s financial guaranty insurance providers to terminate the Company’s servicing rights to the receivables sold to that Trust. In addition, the servicing agreements on certain insured securitization Trusts are cross-defaulted so that a default under one servicing agreement would allow the guaranty insurance provider to terminate the Company’s servicing rights under all servicing agreements concerning securitization Trusts in which they issued a financial guaranty insurance policy. Although the Company has never exceeded these additional targeted portfolio performance ratios, nor does it believe that the portfolio will exceed these limits, there can be no assurance that the Company’s servicing rights with respect to the automobile receivables in such Trusts or any other Trust which exceeds the specified levels in future periods will not be terminated.

In February 2003, the Company implemented an operating plan designed to preserve and strengthen its capital and liquidity position. The plan includes a decrease in targeted loan origination volume to approximately $750.0 million per quarter by June 2003 and a reduction of operating expenses through downsizing its workforce and consolidating its branch office network. Subject to continued access to

the whole loan sale and securitization markets, the Company believes that it has sufficient liquidity to operate under its new plan through calendar 2003.

In April 2003, Fitch Ratings downgraded the Company’s credit rating to ‘B’. This downgrade did not have an impact on the Company’s financial or liquidity position.

 

The Company’s warehouse credit facilities contain various default covenants requiring certain minimum financial ratios and cumulative net loss, delinquency and repossession ratios. As of DecemberMarch 31, 2002,2003, none of the Company’s warehouse credit facilities had financial ratios or performance ratios in excess of the targeted levels. Additionally, the Company’s funding agreements that mature in August, September and November 2003 contain default covenants requiring minimum credit ratings from Standard & Poor’s Rating Services and Moody’s Investors Service. In the event of a one-notch downgrade from the Company’s current credit ratings, the Company would not have access to funds provided by these warehouse credit facilities.

 

Within the next twelve months, $1,789.1$950.0 million of the Company’s warehouse credit facilities are up for renewal. In order to realign the Company’s warehouse capacity with lower future loan origination volume, the Company anticipates that certain warehouse facilities will not be renewed.renewed or will be cancelled. In addition,accordance with this strategy, the Company may negotiate withintends to repay the facility and exercise its right to cancel its $500.0 million warehouse credit providers to modifyfacility that matures in December 2003 during the terms of other facilities that could result in release of some of its existing warehouse capacity. However, thequarter ending June 30, 2003. The Company believes the capacity available under the remaining warehouse credit facilities will be sufficient to meet the Company’s warehouse funding needs for calendar 2003.

 

The financing arrangement for oneIn March 2003, the Company entered into a whole loan purchase facility under which the Company transferred $1.0 billion of finance receivables to a special purpose finance subsidiary of the Company’s loan servicing centers is structured asCompany and received an advance of $875 million. Under the purchase facility, during a synthetic lease such that the Company is considered to lease the property for accounting purposes but is considered to own the property, subject to the indebtedness incurred to acquire and construct the property, for federal income tax and other purposes. This arrangement provides for rental payments to be made through the amended termination daterevolving period ending in FebruarySeptember 2003, at which time the Company will be requiredtransfer additional receivables to purchase the property from the lessor for a purchase price equalspecial purpose finance subsidiary to replenish the amount of principal amortized and to replace delinquent receivables. Subsequent to the outstanding debt. Asrevolving period, the noteholders will determine the ultimate disposition of December 31, 2002, the amount of net outstanding debtreceivables; under this lease financing arrangement was $29.4 million. Thecertain circumstances, the Company is currently negotiating a sale-leaseback agreement to refinancehas the right, but not the obligation, due uponto repurchase the termination of the synthetic lease. If the Company does not execute the

sale-leaseback agreement, it will be required to repay the outstanding debt to acquire the loan servicing center.receivables.

 

In January 2003, Standard & Poor’s Rating Services, Fitch Ratings and Moody’s Investors Service downgraded the Company’s credit rating to ‘B+’, ‘B+’ and ‘B1’, respectively. These downgrades resulted in additional postings of $22.5 million to a restricted cash account for the Company’s derivative collateral lines.

On February 12,April 2003, the Company announced an operating plan in an effort to preserveentered into a $1.0 billion securitization transaction involving the purchase of a financial guaranty insurance policy. Initial credit enhancement for this transaction was 10.5% of the original receivable pool balance and strengthen its capital and liquidity position. The plan includes a decrease in loan origination volume to approximately $750.0 million per quarter by June 2003 and a reductioncredit enhancement levels must reach 18% of operating expenses through downsizing its workforce and consolidating its branch office network. A restructuring charge of $40.0 million to $50.0 millionthe receivable pool balance before cash is expected to be incurred in the March 2003 quarter in connection with the plan. Subject to continued accessdistributed to the Company. Initial and targeted required credit enhancement levels are higher than the Company’s prior securitization markets, thetransactions. The Company believes that it has sufficient liquidity to operate under its new plan throughadditional securitizations completed in calendar 2003.2003 will require these higher credit enhancement levels.

 

The Company believes that it will continue to require the execution of additional securitization or whole loan purchase transactions in order to operate underfund its new plan inlending activities through calendar 2003. In addition, the Company believes that it must utilize a securitization structure involving the purchase of a financial guaranty insurance policy in order to execute a transactionsuch securitization

transactions based on current market conditions. FSA has indicated to the Company that it is unlikely to provide insurance for the Company’s securitizations for the first half of calendar 2003. Accordingly, the Company must seekwill continue to purchase financial guaranty insurance policies from other providers. The Company also anticipates that required credit enhancement levels will increase onproviders as it did for its futureApril 2003 securitization transactions, requiring the use of additional liquidity to support the Company’s securitization program.transaction. There can be no assurance that funding will be available to the Company through the execution of securitization or whole loan purchase transactions or, if available, that the funding will be on acceptable terms. If the Company is unable to execute securitization or whole loan purchase transactions on a regular basis, it would not have sufficient funds to meet its liquidity needsfinance new loan originations and, in such event, the Company would be required to further revise the scale of its business, including possible discontinuation of loan origination activities, which would have a material adverse affecteffect on the Company’s ability to achieve its business and financial objectives.

 

NOTE 3 — 3—SECURITIZATIONS

 

Prior to October 1, 2002, the Company structured its securitization transactions to meet the criteria for sales of finance receivables under GAAP and, accordingly, recorded a gain on sale of receivables when it sold auto receivables in a securitization transaction.

 

The Company has changed the structure of its securitization transactions, beginning with transactions closed subsequent to September 30, 2002, to no longer meet the criteria for sale of finance receivables. Accordingly, following a securitization, the finance receivables and the related securitization notes payable remain on the consolidated balance sheet. The Company recognizes finance charge and fee income on the receivables and

interest expense on the securities issued in the securitization transaction, and records a provision for loan losses to cover probable loan losses on the receivables. This change has significantly impacted the Company’s December 2002 results of operations compared to its historical results because there is no gain on sale ofwas recorded for receivables in the quarter ended December 31,securitized after September 30, 2002.

 

A summary of the Company’s securitization activity and cash flows from special purpose entities used for securitizations (the “Trusts”) is as follows (in thousands):

 

   

Three Months Ended

December 31,


  

Six Months Ended

December 31,


   

2002


  

2001


  

2002


  

2001


Receivables securitized:

                

Sold

      

$

1,924,998

  

$

2,507,906

  

$

3,649,997

Secured financing

  

$

2,032,287

      

 

2,032,287

    

Net proceeds from securitization:

                

Sold

      

 

1,873,165

  

 

2,495,353

  

 

3,578,594

Secured financing

  

 

1,837,591

      

 

1,837,591

    

Gain on sale of receivables

      

 

108,690

  

 

132,084

  

 

201,620

Servicing fees:

                

Sold

  

 

77,950

  

 

66,147

  

 

160,840

  

 

123,540

Secured financing

  

 

8,641

      

 

8,641

    

Distributions from Trusts:

                

Sold

  

 

47,856

  

 

57,130

  

 

111,118

  

 

127,863

Secured financing

  

 

27,096

      

 

27,096

    

   

Three Months Ended

March 31,


  

Nine Months Ended

March 31,


   

2003


  

2002


  

2003


  

2002


Receivables securitized:

                

Sold

      

$

2,400,000

  

$

2,507,906

  

$

6,049,997

Secured financing

          

 

2,032,287

    

Net proceeds from securitization:

                

Sold

      

 

2,340,923

  

 

2,495,353

  

 

5,919,517

Secured financing

          

 

1,837,591

    

Gain on sale of receivables

      

 

124,112

  

 

132,084

  

 

325,732

Servicing fees:

                

Sold

  

$

75,134

  

 

75,995

  

 

235,974

  

 

199,535

Secured financing

  

 

10,494

      

 

19,135

    

Distributions from Trusts:

                

Sold

  

 

33,484

  

 

54,963

  

 

144,602

  

 

182,826

Secured financing

  

 

48,385

      

 

75,481

    

 

The Company retains an interest in the receivables sold in the form of credit enhancement assets. The Company also retains servicing responsibilities for receivables transferred to the Trusts. The Company earns a monthly base servicing fee of 2.25% per annum on the outstanding principal balance of its domestic serviced receivables and supplemental fees (such as late charges) for servicing the receivables sold. The Company believes that servicing fees received on its domestic securitization pools would fairly compensate a substitute servicer should one be required, and, accordingly, the Company records neither a servicing asset nor a servicing liability. The Company recorded a servicing liability related to the servicing of its Canadian securitization pool because it does not receive a monthly servicing fee for its servicing obligations. The servicing liability is included in accrued taxes and expenses on the Company’s consolidated balance sheet. As of DecemberMarch 31, 2003 and June 30, 2002, the Company was servicing $14,191.3$12,662.9 million and $12,500.7 million, respectively, of finance receivables that have been transferred to the Trusts.

 

NOTE 4 — 4—FINANCE RECEIVABLES

 

Finance receivables consist of the following (in thousands):

 

  

December 31,

2002


   

June 30,

2002


 
  

March 31,

2003


   

June 30,

2002


 

Finance receivables owned

  

$

2,017,242

 

  

$

2,261,718

 

  

$

3,185,974

 

  

$

2,261,718

 

Finance receivables securitized

  

 

1,980,839

 

     

 

1,842,757

 

   

Less nonaccretable acquisition fees

  

 

(75,350

)

  

 

(40,618

)

  

 

(98,376

)

  

 

(40,618

)

Less allowance for loan losses

  

 

(143,083

)

  

 

(22,709

)

  

 

(187,496

)

  

 

(22,709

)

  


  


  


  


  

$

3,779,648

 

  

$

2,198,391

 

  

$

4,742,859

 

  

$

2,198,391

 

  


  


  


  


 

Because of the Company’s decision to change the structure of its securitization transactions to no longer meet the criteria for sales of finance receivables (see Note 3), finance receivables are carried at amortized cost at DecemberMarch 31, 2002.2003. At June 30, 2002, finance receivables were classified as held for sale and carried at the lower of cost or fair value.

Finance receivables securitized represent receivables transferred to the Company’s securitization Trusts in transactions accounted for as secured borrowings. Finance receivables owned includes $2,027.0 million pledged under the Company’s warehouse credit facilities and $999.6 million transferred to the whole loan purchase facility.

 

Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at a level considered adequate to cover probable credit losses on finance receivables. The Company reviews 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 probable credit losses on finance receivables. Receivables are charged-off to the allowance for loan losses when the Company repossesses and disposes of the collateral or the account is otherwise deemed uncollectable.

 

A summary of the nonaccretable acquisition fees and allowance for loan losses is as follows (in thousands):

 

  

Three Months Ended December 31,


   

Six Months Ended

December 31,


 
  

2002


   

2001


   

2002


   

2001


   

Three Months Ended

March 31,


   

Nine Months Ended

March 31,


 
  

2003


   

2002


   

2003


   

2002


 

Balance at beginning of period

  

$

115,155

 

  

$

61,225

 

  

$

63,327

 

  

$

52,363

 

  

$

218,433

 

  

$

65,770

 

  

$

63,327

 

  

$

52,363

 

Provision for loan losses

  

 

86,892

 

  

 

16,667

 

  

 

152,676

 

  

 

31,509

 

  

 

77,109

 

  

 

16,739

 

  

 

229,785

 

  

 

48,248

 

Acquisition fees

  

 

35,091

 

  

 

38,774

 

  

 

79,497

 

  

 

79,948

 

Nonaccretable acquisition fees

  

 

23,026

 

  

 

46,386

 

  

 

102,523

 

  

 

126,334

 

Allowance related to receivables sold to Trusts

     

 

(37,351

)

  

 

(44,766

)

  

 

(76,242

)

     

 

(46,105

)

  

 

(44,766

)

  

 

(122,347

)

Net charge-offs

  

 

(18,705

)

  

 

(13,545

)

  

 

(32,301

)

  

 

(21,808

)

  

 

(32,696

)

  

 

(16,579

)

  

 

(64,997

)

  

 

(38,387

)

  


  


  


  


  


  


  


  


Balance at end of period

  

$

218,433

 

  

$

65,770

 

  

$

218,433

 

  

$

65,770

 

  

$

285,872

 

  

$

66,211

 

  

$

285,872

 

  

$

66,211

 

  


  


  


  


  


  


  


  


 

NOTE 5 — 5—CREDIT ENHANCEMENT ASSETS

 

The investors in and insurers of the asset-backed securities sold by the Trusts have no recourse to the Company’s assets other than the credit enhancement assets. The credit enhancement assets are subordinate to the

interests of the investors in and insurers of the Trusts, and the value of such assets is subject to the credit risks related to the receivables sold to the Trusts. Credit enhancement assets would be drawn down to cover monthly principal and interest payments to the investors and administrative fees in the event that cash generated from the securitization Trusts was not sufficient to cover these payments.

 

Credit enhancement assets consist of the following (in thousands):

 

  

December 31,

2002


  

June 30,

2002


  

March 31,

2003


  

June 30,

2002


Gain on sale Trusts:

            

Interest-only receivables from Trusts

  

$

356,805

  

$

514,497

  

$

375,590

  

$

514,497

Investments in Trust receivables

  

 

791,343

  

 

691,065

  

 

769,492

  

 

691,065

Restricted cash

  

 

356,138

  

 

343,570

  

 

334,124

  

 

343,570

  

  

  

  

  

$

1,504,286

  

$

1,549,132

  

$

1,479,206

  

$

1,549,132

  

  

  

  

Secured financing Trusts:

            

Restricted cash

  

$

57,883

     

$

54,688

   
  

     

   

Finance receivables—securitized

  

$

1,842,757

   

Less: Securitization notes payable

  

 

1,675,106

   
  

   

Overcollateralization

  

$

167,651

   
  

   

 

A summary of activity in the credit enhancement assets related to the gain on sale Trusts is as follows (in thousands):

 

  

Three Months Ended

December 31,


   

Six Months Ended

December 31,


 
  

2002


   

2001


   

2002


   

2001


   

Three Months Ended

March 31,


   

Nine Months Ended

March 31,


 
  

2003


   

2002


   

2003


   

2002


 

Balance at beginning of period

  

$

1,685,248

 

  

$

1,244,817

 

  

$

1,549,132

 

  

$

1,151,275

 

  

$

1,504,286

 

  

$

1,500,674

 

  

$

1,549,132

 

  

$

1,151,275

 

Initial deposits to credit enhancement assets

     

 

174,750

 

  

 

58,101

 

  

 

255,500

 

     

 

48,000

 

  

 

58,101

 

  

 

303,500

 

Non-cash gain on sale of receivables

     

 

99,859

 

  

 

124,831

 

  

 

189,537

 

     

 

118,215

 

  

 

124,831

 

  

 

307,752

 

Payments on credit enhancement facility

     

 

(9,192

)

     

 

(25,019

)

     

 

(26,824

)

     

 

(51,843

)

Distributions from Trusts

  

 

(47,856

)

  

 

(57,130

)

  

 

(111,118

)

  

 

(127,863

)

  

 

(33,484

)

  

 

(54,963

)

  

 

(144,602

)

  

 

(182,826

)

Accretion of present value discount

  

 

14,990

 

  

 

35,997

 

  

 

53,634

 

  

 

70,235

 

  

 

30,476

 

  

 

51,300

 

  

 

84,110

 

  

 

121,535

 

Other-than-temporary impairment

  

 

(72,890

)

  

 

(7,573

)

  

 

(91,834

)

  

 

(13,969

)

  

 

(4,904

)

  

 

(24,949

)

  

 

(96,738

)

  

 

(38,918

)

(Decrease) increase in unrealized gain

  

 

(75,323

)

  

 

19,146

 

  

 

(77,555

)

  

 

978

 

Decrease in unrealized gain

  

 

(18,855

)

  

 

(6,807

)

  

 

(96,410

)

  

 

(5,829

)

Canadian currency translation adjustment

  

 

117

 

     

 

(905

)

     

 

1,687

 

     

 

782

 

   
  


  


  


  


  


  


  


  


Balance at end of period

  

$

1,504,286

 

  

$

1,500,674

 

  

$

1,504,286

 

  

$

1,500,674

 

  

$

1,479,206

 

  

$

1,604,646

 

  

$

1,479,206

 

  

$

1,604,646

 

  


  


  


  


  


  


  


  


 

At the time of securitization of finance receivables, the Company is required to pledge assets equal to a specified percentage of the securitization pool to support the securitization transaction. Typically, the assets pledged consist of cash deposited to a restricted account and additional receivables delivered to the Trust, which create overcollateralization. These assets represent initial deposits to credit enhancement assets. If the securitization is

accounted for as a sale of receivables, a non-cash gain on sale of receivables is recognized consisting of interest-only receivables from Trusts net of the present value discount related to the assets pledged as initial deposits to credit enhancement assets. The interest-only receivables from Trusts

represent the present value of the estimated excess cash flows expected to be received by the Company over the life of the securitization.

 

The securitization transactions require the percentage of assets pledged to support the transaction to increase until a specified level is attained. Excess cash flows generated by the Trusts are added to the restricted cash account or used to pay down outstanding debt in the Trusts, creating overcollateralization until the required percentage level of assets has been reached. Collections of excess cash flows reduce the interest-only receivables from Trusts, and are retained by the TrustTrusts to increase restricted cash or investments in Trust receivables.receivables (overcollateralization). Once the targeted percentage level of assets is reached, additional excess cash flows generated by the Trusts are released to the Company as distributions from Trusts. The required percentage level of assets will increase if targeted delinquency and net lossportfolio performance ratios are exceeded (see Note 2). Additionally, as the balance of the securitization pool declines, the amount of pledged assets needed to maintain the required percentage level is reduced.

 

Accretion of present value discount represents accretion of the excess of the estimated future distributions from Trusts over the book value of the credit enhancement assets using the interest method over the expected life of the securitization; the accretion of present value discount is included in servicing fee income. The Company does not accrete the present value discount in a period when such accretion would cause an other-than-temporary impairment in a securitization pool.

 

Unrealized gains generally represent changes in the fair value of credit enhancement assets as a result of favorable differences between actual securitization pool performance and the original assumptions for such performance or changes in those assumptions as to future securitization pool performance. An other-than-temporary impairment results when the present value of anticipated cash flows is below the carrying value of the credit enhancement assets. Other-than-temporary impairments are included in servicing fee income on the consolidated statements of income.

 

Significant assumptions used in determining the gain on sale of receivables were as follows:

 

    

Three Months Ended December 31,


  

Six Months Ended December 31,


    

2001


  

2002


  

2001


    

Three Months Ended March 31,


  

Nine Months Ended March 31,


    

2002


  

2003


  

2002


Cumulative credit losses (including unrealized gains at time of sale)

    

12.5%

  

12.5%

  

12.5%

    

12.5%

  

12.5%

  

12.5%

Discount rate used to estimate present value:

                      

Interest-only receivables from Trusts

    

14.0%

  

14.0%

  

14.0%

    

14.0%

  

14.0%

  

14.0%

Investments in Trust receivables

    

  9.8%

  

  9.8%

  

  9.8%

    

  9.8%

  

  9.8%

  

  9.8%

Restricted cash

    

  9.8%

  

  9.8%

  

  9.8%

    

  9.8%

  

  9.8%

  

  9.8%

 

Significant assumptions used in measuring the fair value of credit enhancement assets related to the gain on sale Trusts at the balance sheet dates are as follows:

 

  

December 31,

2002


  

June 30,

2002


  

March 31,

2003


  

June 30,

2002


Cumulative credit losses (including remaining unrealized gains at time of sale)

  

10.7%—13.6%

  

10.4%—12.7%

  

10.9%–13.9%

  

10.4%–12.7%

Discount rate used to estimate present value:

            

Interest-only receivables from Trusts

  

14.0%

  

14.0%

  

14.0%

  

14.0%

Investments in Trust receivables

  

  9.8%

  

  9.8%

  

9.8%

  

9.8%

Restricted cash

  

  9.8%

  

  9.8%

  

9.8%

  

9.8%

 

The Company has not presented the expected weighted average life and prepayment assumptions used in determining the gain on sale and in measuring the fair value of credit enhancement assets due to the stability of these two attributes over time. A significant portion of the Company’s prepayment experience relates to defaults that are considered in the cumulative credit loss assumption. The Company’s voluntary prepayment experience on its receivables portfolio typically has not fluctuated with changes in market interest rates or other economic or market factors.

 

Subsequent to September 30, 2002, the Company’s securitization transactions were structured as secured financings. Accordingly, credit enhancement assets are not characterized as interest-only receivables from Trusts, investments in Trust receivables and restricted cash—gain on sale Trusts. Cash pledged to support the securitization transaction is deposited to a restricted account and recorded on the Company’s consolidated balance sheet as restricted cash – securitization notes payable. Additionally, investments in Trust receivables, or overcollateralization, is calculated as the difference between finance

receivables securitized and securitization notes payable. Under the secured financing securitization structure, interest-only receivables from Trusts are

not reflected as an asset but will be recognized through earnings in future periods.

 

NOTE 6 — 6—WAREHOUSE CREDIT FACILITIES

 

As of DecemberMarch 31, 2002,2003, warehouse credit facilities consist of the following (in millions):

 

Maturity


  

Facility

Amount


  

Advances Outstanding


  

Finance Receivables Pledged


U.S.:

            

September 2003 (a)

  

$

250.0

        

November 2003 (a)

  

 

500.0

        

December 2003 (a)(b)

  

 

500.0

  

$

500.0

  

$

519.4

June 2004 (a)(b)

  

 

750.0

  

 

750.0

  

 

756.5

February 2005 (a)(b)

  

 

500.0

  

 

500.0

  

 

338.3

March 2005 (a)(c)

  

 

2,545.0

        
   

  

  

   

$

5,045.0

  

$

1,750.0

  

$

1,614.2

   

  

  

Canada:

            

May 2003 (a)

  

CDN $

100.0

        

August 2003 (a)

  

 

150.0

        
   

  

  

   

CDN $

250.0

        
   

  

  

Maturity


  

Facility

Amount


  

Advances Outstanding


  

Finance Receivables Pledged


  

Restricted

Cash

Pledged (e)


September 2003 (a)

  

$

250.0

          

$

0.5

December 2003 (a)(b)(d)

  

 

500.0

  

$

500.0

  

$

521.8

  

 

31.3

June 2004 (a)(b)

  

 

750.0

  

 

750.0

  

 

789.2

  

 

47.0

February 2005 (a)(b)

  

 

500.0

  

 

500.0

  

 

143.0

  

 

373.6

March 2005 (a)(c)

  

 

1,950.0

  

 

513.5

  

 

573.0

  

 

17.5

   

  

  

  

   

$

3,950.0

  

$

2,263.5

  

$

2,027.0

  

$

469.9

   

  

  

  

 

(a) At the maturity date, the outstanding debt balance can either be repaid in full or over time based on the amortization of receivables pledged.
(b) These facilities are revolving facilities through the date stated above. During the revolving period, the Company has the ability to substitute receivables for cash, or vice versa.
(c) $380.0200.0 million of this facility matures in March 2003,2004, and the remaining $2,165.0$1,750.0 million matures in March 2005.
(d)The Company intends to repay this facility and exercise its right to cancel this facility during the quarter ending June 30, 2003.
(e)These amounts do not include cash collected on finance receivables pledged of $68.7 million which is also included in restricted cash—warehouse credit facilities on the consolidated balance sheet.

 

The Company’s warehouse credit facilities are administered by agents on behalf of institutionally managed commercial paper or medium term note conduits. Under these funding agreements, the Company transfers finance receivables to special purpose finance subsidiaries of the Company. These subsidiaries, in turn, issue notes to the agents, collateralized by such finance receivables and cash. The agents provide funding under the notes to the subsidiaries pursuant to an advance formula, and the subsidiaries forward the funds to the Company in consideration for the transfer of auto receivables. While these subsidiaries are included in the Company’s consolidated financial statements, these subsidiaries are separate legal entities and the finance receivables and other assets held by these subsidiaries are legally owned by these subsidiaries and are not available to creditors of AmeriCredit Corp. or its other subsidiaries. Advances under the funding agreements bear interest at commercial paper, London Interbank Offered Rates (“LIBOR”) or prime rates plus specified fees depending upon the source of funds provided by the agents. The funding agreements contain various covenants requiring certain minimum financial ratios and cumulative net

loss, delinquency and repossession ratios. As of DecemberMarch 31, 2002,2003, none of the

Company’s warehouse credit facilities had financial ratios or performance ratios in excess of the targeted levels. In addition, the Company’s funding agreements that mature in August, September and November 2003 contain default covenants requiring minimum credit ratings from Standard & Poor’s Rating Services and Moody’s Investors Service. In the event of a one-notch downgrade from the Company’s current credit ratings, the Company would not have access to funds provided by these warehouse credit facilities. The Company is also required to hold certain funds in restricted cash accounts to provide additional collateral for borrowings under the facilities. As of December 31 and June 30, 2002, these restricted cash accounts totaled $267.4 million and $29.4 million, respectively.

 

NOTE 7—WHOLE LOAN PURCHASE FACILITY

In March 2003, the Company entered into a whole loan purchase facility under which the Company transferred $1.0 billion of finance receivables to a special purpose finance subsidiary of the Company and received an advance of $875.0 million. Under the purchase facility, during a revolving period ending in September 2003, the Company will transfer additional receivables to the special purpose finance subsidiary to replenish the amount of principal amortized and to replace delinquent receivables. Subsequent to the revolving period, the noteholders will determine the ultimate disposition of the receivables. Amounts outstanding on the whole loan purchase facility bear interest at the prime rate plus specified fees. Prior to the ultimate disposition of the receivables, the Company retains certain rights to the receivables which causes the transaction to be accounted for as a secured financing.

NOTE 7 — 8—SECURITIZATION NOTES PAYABLE

 

The Company has changed the structure of its securitization transactions to no longer meet the criteria for sale of finance receivables. Accordingly, following a securitization, the finance receivables, transferred to special purpose finance subsidiaries of the Company, and related securitization notes payable remain on the consolidated balance sheet. While these subsidiaries are included in the Company’s consolidated financial statements, these subsidiaries are separate legal entities and the finance receivables and other assets held by them are legally owned by these subsidiaries and not available to creditors of AmeriCredit Corp. or its other subsidiaries.

 

Securitization transactions structured as secured financings are as follows (dollars in millions):

 

Transaction


  

Date


  

Original

Amount


    

Original Weighted

Average Interest Rate


   

Balance at December 31, 2002


  

Date


  

Original

Note

Amount


    

Original Weighted

Average Interest Rate


   

Receivables

Pledged at

March 31,

2003


  

Note

Balance at March 31, 2003


2002-EM

  

October 2002

  

$

1,700.0

    

3.2

%

  

$

1,654.8

  

October 2002

  

$

1,700.0

    

3.2

%

  

$

1,669.7

  

$

1,545.1

C2002-1 Canada (a)

  

November 2002

  

 

137.0

    

5.5

%

  

 

137.6

  

November 2002

  

 

137.0

    

5.5

%

  

 

173.1

  

 

130.0

     

       

     

       

  

     

$

1,837.0

       

$

1,792.4

     

$

1,837.0

       

$

1,842.8

  

$

1,675.1

     

       

     

       

  

 

(a) AmountsNote balances do not include the $19.0$20.4 million of asset-backed securities issued that wereand retained by the Company.

 

NOTE 8 — 9—SENIOR NOTES

 

In July 2002, the Company used a portion of the proceeds from the issuance of $175.0 million 9.25% senior notes due in May 2009 to redeem the remaining $39.6 million 9.25% senior notes due in May 2004.

 

NOTE 9 — COMMON STOCK10—RESTRUCTURING CHARGES

 

On October 1, 2002,In February 2003, the Company completedannounced a secondary offeringrevised operating plan designed to preserve and strengthen its capital and liquidity position. The plan included a decrease in targeted loan origination volume to approximately $750.0 million per quarter by June 2003 and a reduction of 67,000,000 sharesoperating expenses through downsizing its workforce and consolidating its branch office network. The workforce reduction eliminated approximately 850 positions and resulted in the closing/consolidation of common stock at a price of $7.50 per share. On November 13, 2002, an additional 1,500,000 shares were issued to cover over-allotments.141 branch offices. The net proceedsCompany also vacated certain floor space in its corporate headquarters as part of the secondary offering were approximately $481.0 million.revised operating plan.

A restructuring charge of $53.1 million representing the total incurred costs associated with the plan was recorded during the three months ended March 31, 2003. Personnel-related costs consisted primarily of severance costs of identified workforce reductions related to the consolidation/closing of branch offices including the closing of the Company’s Canadian lending operations. Contract termination costs included expenses incurred to terminate facility and equipment leases prior to their termination date. Contract termination costs also included estimated costs that will continue to be incurred under facility and equipment contracts for their remaining terms without economic benefit to the Company. The Company intendsestimated this cost by discounting the future cash to usebe paid under the contracts, net of any assumed proceeds fromon sublease rentals. As part of the secondary offering for initial credit enhancement depositsrevised operating plan, the Company discontinued the development of its customer relationship management system, which was designed to provide operational scalability and marketing benefits in securitization transactionsa high-growth environment. The discontinuation of this project resulted in a charge of $20.8 million, which was included in other associated costs. As of March 31, 2003, total costs incurred to date in connection with the restructuring includes $16.4 million in personnel-related costs, $12.5 million in contract termination costs and $24.2 million in other associated costs.

As of March 31, 2003, all affected employees have been notified of their termination. Certain contractual payments associated with the revised operating plan will extend through the remaining terms of leases that have not been terminated. A liability of $12.8 million related to the restructuring charge is recorded in accrued taxes and expenses on the Company’s consolidated balance sheet as well as for other working capital needs and general corporate purposes.of March 31, 2003.

 

NOTE 10 — WARRANTS

Agreements with FSA, an insurer of certainA summary of the Company’s securitization transactions, provideliability for an increase in credit enhancement requirements when specified delinquency ratios or other portfolio performance measures are exceeded. In September 2002, the Company entered into an agreement with FSA to raiserestructure charge for the specified delinquency levels through and including thethree months ended March 31, 2003, distribution date. In consideration for this agreement, the Company issued to FSA five-year warrants to purchase 1,287,691 shares of the Company’s common stock at $9.00 per share. The Company recorded interest expense of $6.6 million related to this agreement.

NOTE 11 — SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest costs and income taxes consist of the followingis as follows (in thousands):

 

   

Six Months Ended December 31,


   

2002


  

2001


Interest costs (none capitalized)

  

$

79,275

  

$

65,335

Income taxes

  

 

110,286

  

 

40,097

   

Personnel- Related Costs


   

Contract Termination Costs


   

Other Associated Costs


   

Total


 

Restructuring charges

  

$

16,451

 

  

$

12,467

 

  

$

24,153

 

  

$

53,071

 

Cash settlements

  

 

(15,619

)

  

 

(686

)

  

 

(88

)

  

 

(16,393

)

Non cash settlements

       

 

(214

)

  

 

(23,688

)

  

 

(23,902

)

   


  


  


  


Balance at end of period

  

$

832

 

  

$

11,567

 

  

$

377

 

  

$

12,776

 

   


  


  


  


 

During the six months ended December 31, 2002 and 2001, the Company entered into capital lease agreements for property and equipment of $11.2 million and $18.5 million, respectively.

NOTE 11—COMMITMENTS AND CONTINGENCIES

 

NOTE 12 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As of December 31 and June 30, 2002, the Company had interest rate swap agreements with underlying notional amounts of $2,173.0 million and $1,595.7 million, respectively. These agreements had unrealized losses of approximately $81.5 million and $66.9 million as of December 31 and June 30, 2002, respectively. The ineffectiveness related to the interest rate swap agreements was not material for the three and six month periods ended December 31, 2002. The Company estimates approximately $42.0 million of unrealized losses included in other comprehensive income will be reclassified into earnings within the next twelve months. Under the terms of its derivative financial instruments, the Company is required to pledge certain funds to be held in restricted cash accounts if the market value of the derivative financial instruments exceeds an agreed upon amount. As of December 31 and June 30, 2002, these restricted cash accounts totaled $56.5 million and are included in other assets on the consolidated balance sheets.

NOTE 13 — EARNINGS PER SHARE

A reconciliation of weighted average shares used to compute basic and diluted earnings per share is as follows (dollars in thousands, except per share amounts):

   

Three Months Ended

December 31,


  

Six Months Ended

December 31,


   

2002


   

2001


  

2002


  

2001


Weighted average shares outstanding

  

 

153,001,207

 

  

 

84,546,353

  

 

119,420,462

  

 

84,217,345

Incremental shares resulting from assumed conversions:

                 

Stock options

       

 

4,123,561

  

 

604,337

  

 

5,036,061

Warrants

           

 

7,398

    
   


  

  

  

        

 

4,123,561

  

 

611,735

  

 

5,036,061

   


  

  

  

Weighted average shares and assumed incremental shares

  

 

153,001,207

 

  

 

88,669,914

  

 

120,032,197

  

 

89,253,406

   


  

  

  

Net (loss) income

  

$

(44,696

)

  

$

80,596

  

$

25,524

  

$

159,333

   


  

  

  

(Loss) earnings per share:

                 

Basic

  

$

(0.29

)

  

$

0.95

  

$

0.21

  

$

1.89

   


  

  

  

Diluted

  

$

(0.29

)

  

$

0.91

  

$

0.21

  

$

1.79

   


  

  

  

Basic (loss) earnings per share have been computed by dividing net (loss) income by weighted average shares outstanding.

Diluted (loss) earnings per share have been computed by dividing net (loss) income by the weighted average shares and assumed incremental shares. Assumed incremental shares were computed using the treasury stock method. The average common stock market price for the period was used to determine the number of incremental shares.

Options to purchase approximately 15.6 million and 1.6 million shares of common stock were outstanding at December 31, 2002 and 2001, respectively, but were not included in the computation of diluted (loss) earnings per share because the option exercise price was greater than the average market price of the common shares or a net loss was incurred during the period and, therefore, the effect of including these options would be antidilutive.

NOTE 14 — COMMITMENTS AND CONTINGENCIES

Guarantees of Indebtedness

 

The Company has guaranteed the timely payment of principal and interest on the Class E tranches of the asset-backed securities issued in its 2000-1, 2001-1 and 2002-1 securitization transactions. The total outstanding balance of the subordinated asset-backed securities guaranteed by the Company was $51.2

$39.6 million and $78.3 million at DecemberMarch 31, 2003 and June 30, 2002, respectively. Subordinated asset-backed securities guaranteed by the Company are expected to mature by the end of calendar 2004. Because the Company does not expect the guarantees to be funded prior to expiration, no liability is recorded on the consolidated balance sheet to reflect estimates of future cash flows for settlement of the guarantees.

 

The Company also guarantees the payment of outstanding debt under one of its Canadian warehouse facilities. As of December 31, 2002, there were no outstanding borrowings under the facility.

The payment of principal and interest on the Company’s senior notes is guaranteed by certain of the Company’s subsidiaries (see Note 15)18). As of DecemberMarch 31, 2002,2003, the carrying value of the senior notes was $379.7$379.1 million.

The Company guarantees the principal and interest payments under the synthetic lease financing agreement. As of December 31, 2002, the amount of net outstanding debt under this synthetic lease financing agreement was $29.4 million. If the Company were required to perform under this guarantee, the Company believes it would be able to recover the amount paid under the guarantee by selling the property. Neither the property, the outstanding debt incurred to acquire and construct the property nor the guarantee is recorded on the Company’s consolidated balance sheets.

 

Additionally, the Company and its primary operating subsidiary, AmeriCredit Financial Services, Inc., guarantee the payment of principal and interest under a construction loan for one of the Company’s loan servicing centers. As of DecemberMarch 31, 2002,2003, the amount of outstanding debt under this loan was $24.7 million and is reflected as a liabilityrecorded in other notes payable on the Company’s consolidated balance sheets.

The construction loan was repaid in full in April 2003.

 

Legal Proceedings

 

As a consumer finance company, the Company is subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud and breach of contract. Some litigation against the Company could take the form of class action complaints by consumers. As the assignee of finance contracts originated by dealers, the Company may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The

damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies but includes requests for compensatory, statutory and punitive damages.

 

Following the Company’s earnings announcement on January 16, 2003, severalSeveral complaints have been filed by shareholders against the Company and certain of the Company’s officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. TheseThe lawsuits, all of which seek class action status, all contendhave been consolidated into one action pending in the United States District Court located in Fort Worth, Texas. The consolidated lawsuit claims that deferments were improperly granted by the Company to avoid delinquency triggers in securitization transactions and enhance cash flow, thereby causing the Company to misrepresent its financial performance throughout the alleged class period. The Company believes that its granting of deferments, which is a common practice within the auto finance industry, complied at all times with the covenants contained in its securitization and warehouse financing documents, and that its deferment activities were properly disclosed to all constituents, including shareholders, asset-backed investors, creditors and credit enhancement providers. In the opinion of management, these lawsuits arethe consolidated lawsuit is without merit and the Company intends to vigorously defend against them.it.

Additionally, on February 27, 2003, the Company was served with a shareholder’s derivative action filed in the United States District Court for the Northern District of Texas, Fort Worth Division, entitled Mildred Rosenthal, derivatively and on behalf of nominal defendant AmeriCredit Corp. v. Clifton H. Morris, Jr., et al. This lawsuit alleges that certain officers and directors of the Company breached their respective fiduciary duties by causing the Company to make improper deferments, violated federal and state securities laws and issued misleading financial statements. The substantive allegations are essentially the same as those in the above-referenced class actions.

 

The Company believes that it has taken prudent steps to address the litigation risks associated with its business activities. In the opinion of management, the resolution of the litigation pending or threatened against the Company, including the proceedings specifically described in this section, will not

have a material affecteffect on the Company’s financial condition, results of operations or cash flows.

 

NOTE 12—STOCK OPTIONS

The Company has certain stock-based compensation plans for employees, non-employee directors and key executive officers. The Company has elected not to adopt the fair value-based method of accounting for stock-based awards and, accordingly, no compensation expense has been recognized for options granted under these plans.

The following table illustrates the effect on net income and earnings per share had compensation expense for the Company’s plans been determined using the fair value-based method (in thousands):

   

Three Months Ended

March 31,


   

Nine Months Ended

March 31,


 
   

2003


   

2002


   

2003


   

2002


 

Net income, as reported

  

$

14,549

 

  

$

91,624

 

  

$

40,073

 

  

$

250,957

 

Deduct: Stock-based compensation expense, determined under fair value-based method, net of related tax effects

  

 

(5,527

)

  

 

(6,423

)

  

 

(16,551

)

  

 

(17,442

)

   


  


  


  


Pro forma net income

  

$

9,022

 

  

$

85,201

 

  

$

23,522

 

  

$

233,515

 

   


  


  


  


Earnings per share:

                    

Basic—as reported

  

$

0.09

 

  

$

1.08

 

  

$

0.31

 

  

$

2.97

 

   


  


  


  


Basic—pro forma

  

$

0.06

 

  

$

1.00

 

  

$

0.18

 

  

$

2.76

 

   


  


  


  


Diluted—as reported

  

$

0.09

 

  

$

1.02

 

  

$

0.30

 

  

$

2.81

 

   


  


  


  


Diluted—pro forma

  

$

0.06

 

  

$

0.95

 

  

$

0.18

 

  

$

2.61

 

   


  


  


  


The fair value of each option grant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

   

Three Months Ended

March 31,


  

Nine Months Ended

March 31,


   

2003


  

2002


  

2003


  

2002


Expected dividends

  

0

  

0

  

0

  

0

Expected volatility

  

78.5%

  

101.0%

  

78.7%

  

101.0%

Risk-free interest rate

  

2.91%

  

4.28%

  

2.97%

  

4.28%

Expected life

  

5 years

  

5 years

  

5 years

  

5 years

NOTE 15 — 13—COMMON STOCK

On October 1, 2002, the Company completed a secondary offering of 67,000,000 shares of common stock at a price of $7.50 per share. On November 13, 2002, an additional 1,500,000 shares were issued to cover over-allotments. The net proceeds of the secondary offering were approximately $481.0 million.

NOTE 14—WARRANTS

Agreements with FSA, an insurer of certain of the Company’s securitization transactions, provide for an increase in credit enhancement requirements when specified delinquency ratios or other portfolio performance measures are exceeded. In September 2002, the Company entered into an agreement with FSA to raise the specified delinquency levels through and including the March 2003

distribution date. In consideration for this agreement, the Company issued to FSA five-year warrants to purchase 1,287,691 shares of the Company’s common stock at $9.00 per share. The Company recorded interest expense of $6.6 million related to this agreement during the three months ended September 30, 2002.

NOTE 15—EARNINGS PER SHARE

A reconciliation of weighted average shares used to compute basic and diluted earnings per share is as follows (dollars in thousands, except per share amounts):

   

Three Months Ended March 31,


  

Nine Months Ended March 31,


   

2003


  

2002


  

2003


  

2002


Weighted average shares outstanding

  

 

155,492,651

  

 

84,988,165

  

 

131,268,991

  

 

84,470,535

Incremental shares resulting from assumed conversions:

                

Stock options

  

 

2,117

  

 

4,521,044

  

 

403,597

  

 

4,864,389

Warrants

          

 

4,932

    
   

  

  

  

   

 

2,117

  

 

4,521,044

  

 

408,529

  

 

4,864,389

   

  

  

  

Weighted average shares and assumed incremental shares

  

 

155,494,768

  

 

89,509,209

  

 

131,677,520

  

 

89,334,924

   

  

  

  

Net income

  

$

14,549

  

$

91,624

  

$

40,073

  

$

250,957

   

  

  

  

Earnings per share:

                

Basic

  

$

0.09

  

$

1.08

  

$

0.31

  

$

2.97

   

  

  

  

Diluted

  

$

0.09

  

$

1.02

  

$

0.30

  

$

2.81

   

  

  

  

Basic earnings per share have been computed by dividing net income by weighted average shares outstanding.

Diluted earnings per share have been computed by dividing net income by the weighted average shares and assumed incremental shares. Assumed incremental shares were computed using the treasury stock method. The average common stock market price for the period was used to determine the number of incremental shares.

Options to purchase approximately 11.1 million and 8.0 million shares of common stock at March 31, 2003 and 2002, respectively, were not included in the computation of diluted earnings per share because the option exercise price was greater than the average market price of the common shares.

NOTE 16—SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest costs and income taxes consist of the following (in thousands):

   

Nine Months Ended

March 31,


   

2003


  

2002


Interest costs ($345 capitalized in 2002)

  

$

119,626

  

$

105,187

Income taxes

  

 

110,648

  

 

75,197

During the nine months ended March 31, 2003 and 2002, the Company entered into capital lease agreements for property and equipment of $13.0 million and $47.8 million, respectively.

NOTE 17—DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As of March 31, 2003 and June 30, 2002, the Company had interest rate swap agreements with underlying notional amounts of $2,011.2 million and $1,595.7 million, respectively. These agreements had unrealized losses of approximately $77.2 million and $66.9 million as of March 31, 2003 and June 30, 2002, respectively. The ineffectiveness related to the interest rate swap agreements was not material for the three and nine month periods ended March 31, 2003. The Company estimates approximately $38.4 million of unrealized losses included in other comprehensive income will be reclassified into earnings within the next twelve months. The fair market value of the Company’s interest rate cap assets of $33.8 million and $16.7 million as of March 31, 2003 and June 30, 2002, respectively, are included in other assets on the consolidated balance sheets. The fair market value of the Company’s interest rate cap liabilities of $16.8 million and $19.1 million as of March 31, 2003 and June 30, 2002, respectively, are included in derivative financial instruments on the consolidated balance sheets. Under the terms of its derivative financial instruments, the Company is required to pledge certain funds to be held in restricted cash accounts if the market value of the derivative financial instruments exceeds an agreed upon amount. As of March 31, 2003 and June 30, 2002, these restricted cash accounts totaled $77.1 million and $56.5 million, respectively, and are included in other assets on the consolidated balance sheets.

NOTE 18—GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS

 

The payment of principal and interest on the Company’s senior notes is guaranteed by certain of the Company’s subsidiaries (the “Subsidiary Guarantors”). The separate financial statements of the Subsidiary Guarantors are not included herein because the Subsidiary Guarantors are wholly-owned consolidated subsidiaries of the Company and are jointly, severally and unconditionally liable for the obligations represented by the senior notes. The Company believes that the condensed consolidating financial information for the Company, the combined Subsidiary Guarantors and the combined Non-Guarantor

Subsidiaries provides information that is more meaningful in understanding the financial position of the Subsidiary Guarantors than separate financial statements of the Subsidiary Guarantors.

 

The following consolidating financial statement schedules present consolidating financial data for (i) AmeriCredit Corp. (on a parent only basis), (ii) the combined Subsidiary Guarantors, (iii) the combined Non-Guarantor Subsidiaries, (iv) an elimination column for adjustments to arrive at the information for the Company and its subsidiaries on a consolidated basis and (v) the Company and its subsidiaries on a consolidated basis.

 

Investments in subsidiaries are accounted for by the parent company using the equity method for purposes of this presentation. 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.

 

AmeriCredit Corp.

Consolidating Balance Sheet

DecemberMarch 31, 20022003

(Unaudited, in Thousands)

 

  

AmeriCredit Corp.


   

Guarantors


   

Non-Guarantors


  

Eliminations


   

Consolidated


 
  

AmeriCredit

Corp.


   

Guarantors


   

Non-  

Guarantors


  

Eliminations


   

Consolidated


 

ASSETS

                              

Cash and cash equivalents

     

$

208,580

 

  

$

7,246

     

$

215,826

 

     

$

238,133

 

        

$

238,133

 

Finance receivables, net

     

 

529,136

 

  

 

3,250,512

     

 

3,779,648

 

     

 

103,245

 

  

$

4,639,614

     

 

4,742,859

 

Interest-only receivables from Trusts

     

 

1,054

 

  

 

355,751

     

 

356,805

 

     

 

4,062

 

  

 

371,528

     

 

375,590

 

Investments in Trust receivables

     

 

20,719

 

  

 

770,624

     

 

791,343

 

     

 

17,095

 

  

 

752,397

     

 

769,492

 

Restricted cash—gain on sale Trusts

     

 

2,805

 

  

 

353,333

     

 

356,138

 

     

 

2,843

 

  

 

331,281

     

 

334,124

 

Restricted cash—securitization notes payable

     

 

3,499

 

  

 

54,384

     

 

57,883

 

        

 

54,688

     

 

54,688

 

Restricted cash—warehouse credit facilities

        

 

267,377

     

 

267,377

 

        

 

538,561

     

 

538,561

 

Property and equipment, net

  

$

349

 

  

 

120,971

 

        

 

121,320

 

  

$

349

 

  

 

129,798

 

        

 

130,147

 

Other assets

  

 

9,324

 

  

 

260,713

 

  

 

73,644

     

 

343,681

 

  

 

8,743

 

  

 

202,188

 

  

 

126,794

     

 

337,725

 

Due (to) from affiliates

  

 

1,324,385

 

  

 

(4,844,772

)

  

 

3,520,387

        

 

1,339,506

 

  

 

(6,118,328

)

  

 

4,778,822

      

Investment in affiliates

  

 

944,772

 

  

 

4,907,226

 

  

 

37,393

  

$

(5,889,391

)

     

 

957,662

 

  

 

6,522,882

 

  

 

52,426

  

$

(7,532,970

)

   
  


  


  

  


  


  


  


  

  


  


Total assets

  

$

2,278,830

 

  

$

1,209,931

 

  

$

8,690,651

  

$

(5,889,391

)

  

$

6,290,021

 

  

$

2,306,260

 

  

$

1,101,918

 

  

$

11,646,111

  

$

(7,532,970

)

  

$

7,521,319

 

  


  


  

  


  


  


  


  

  


  


LIABILITIES AND SHAREHOLDERS’ EQUITY

                              

Liabilities:

                              

Warehouse credit facilities

        

$

1,750,000

     

$

1,750,000

 

        

$

2,263,547

     

$

2,263,547

 

Whole loan purchase facility

        

 

875,000

     

 

875,000

 

Securitization notes payable

        

 

1,811,416

  

$

(19,017

)

  

 

1,792,399

 

        

 

1,695,479

  

$

(20,373

)

  

 

1,675,106

 

Senior notes

  

$

379,668

 

           

 

379,668

 

  

$

379,050

 

           

 

379,050

 

Other notes payable

  

 

66,882

 

  

$

2,801

 

        

 

69,683

 

  

 

63,094

 

  

$

2,820

 

        

 

65,914

 

Funding payable

     

 

121,191

 

  

 

1,087

     

 

122,278

 

     

 

21,886

 

  

 

1,196

     

 

23,082

 

Accrued taxes and expenses

  

 

22,955

 

  

 

132,794

��

  

 

7,461

     

 

163,210

 

  

 

19,148

 

  

 

162,426

 

  

 

11,960

     

 

193,534

 

Derivative financial instruments

     

 

88,020

 

        

 

88,020

 

     

 

82,962

 

        

 

82,962

 

Deferred income taxes

  

 

(81,315

)

  

 

(38,507

)

  

 

153,945

     

 

34,123

 

  

 

(67,589

)

  

 

(99,882

)

  

 

218,038

     

 

50,567

 

  


  


  

  


  


  


  


  

  


  


Total liabilities

  

 

388,190

 

  

 

306,299

 

  

 

3,723,909

  

 

(19,017

)

  

 

4,399,381

 

  

 

393,703

 

  

 

170,212

 

  

 

5,065,220

  

 

(20,373

)

  

 

5,608,762

 

  


  


  

  


  


  


  


  

  


  


Shareholders’ equity:

                              

Common stock

  

 

1,603

 

  

 

37,719

 

  

 

92,166

  

 

(129,885

)

  

 

1,603

 

  

 

1,603

 

  

 

37,719

 

  

 

92,166

  

 

(129,885

)

  

 

1,603

 

Additional paid-in capital

  

 

1,063,852

 

  

 

26,237

 

  

 

3,739,421

  

 

(3,765,658

)

  

 

1,063,852

 

  

 

1,062,982

 

  

 

26,237

 

  

 

5,242,581

  

 

(5,268,818

)

  

 

1,062,982

 

Accumulated other comprehensive (loss) income

  

 

(15,996

)

  

 

(59,794

)

  

 

44,166

  

 

15,628

 

  

 

(15,996

)

  

 

(12,515

)

  

 

(45,159

)

  

 

36,684

  

 

8,475

 

  

 

(12,515

)

Retained earnings

  

 

857,970

 

  

 

899,470

 

  

 

1,090,989

  

 

(1,990,459

)

  

 

857,970

 

  

 

872,519

 

  

 

912,909

 

  

 

1,209,460

  

 

(2,122,369

)

  

 

872,519

 

  


  


  

  


  


  


  


  

  


  


  

 

1,907,429

 

  

 

903,632

 

  

 

4,966,742

  

 

(5,870,374

)

  

 

1,907,429

 

  

 

1,924,589

 

  

 

931,706

 

  

 

6,580,891

  

 

(7,512,597

)

  

 

1,924,589

 

Treasury stock

  

 

(16,789

)

           

 

(16,789

)

  

 

(12,032

)

           

 

(12,032

)

  


  


  

  


  


  


  


  

  


  


Total shareholders’ equity

  

 

1,890,640

 

  

 

903,632

 

  

 

4,966,742

  

 

(5,870,374

)

  

 

1,890,640

 

  

 

1,912,557

 

  

 

931,706

 

  

 

6,580,891

  

 

(7,512,597

)

  

 

1,912,557

 

  


  


  

  


  


  


  


  

  


  


Total liabilities and shareholders’ equity

  

$

2,278,830

 

  

$

1,209,931

 

  

$

8,690,651

  

$

(5,889,391

)

  

$

6,290,021

 

  

$

2,306,260

 

  

$

1,101,918

 

  

$

11,646,111

  

$

(7,532,970

)

  

$

7,521,319

 

  


  


  

  


  


  


  


  

  


  


 

AmeriCredit Corp.

Consolidating Balance Sheet

June 30, 2002

(Unaudited, in Thousands)

 

  

AmeriCredit Corp.


   

Guarantors


     

Non—  Guarantors


  

Eliminations


   

Consolidated


 
  

AmeriCredit

Corp.


   

Guarantors


   

Non-  

Guarantors


  

Eliminations


   

Consolidated


 

ASSETS

                                

Cash and cash equivalents

     

$

90,806

 

    

$

28,639

     

$

119,445

 

     

$

90,806

 

  

$

1,543

     

$

92,349

 

Receivables held for sale, net

     

 

430,573

 

    

 

1,767,818

     

 

2,198,391

 

     

 

430,573

 

  

 

1,767,818

     

 

2,198,391

 

Interest-only receivables from Trusts

     

 

7,828

 

    

 

506,669

     

 

514,497

 

     

 

7,828

 

  

 

506,669

     

 

514,497

 

Investments in Trust receivables

     

 

15,609

 

    

 

675,456

     

 

691,065

 

     

 

15,609

 

  

 

675,456

     

 

691,065

 

Restricted cash—gain on sale Trusts

     

 

2,906

 

    

 

340,664

     

 

343,570

 

     

 

2,906

 

  

 

340,664

     

 

343,570

 

Restricted cash—warehouse credit facilities

          

 

29,383

     

 

29,383

 

        

 

56,479

     

 

56,479

 

Property and equipment, net

  

$

349

 

  

 

120,156

 

          

 

120,505

 

  

$

349

 

  

 

120,156

 

        

 

120,505

 

Other assets

  

 

16,748

 

  

 

173,383

 

    

 

17,944

     

 

208,075

 

  

 

16,748

 

  

 

173,383

 

  

 

17,944

     

 

208,075

 

Due (to) from affiliates

  

 

985,354

 

  

 

(2,751,456

)

    

 

1,766,102

        

 

985,354

 

  

 

(2,751,456

)

  

 

1,766,102

      

Investment in affiliates

  

 

966,339

 

  

 

3,181,643

 

    

 

21,269

  

$

(4,169,251

)

     

 

966,339

 

  

 

3,181,643

 

  

 

21,269

  

$

(4,169,251

)

   
  


  


    

  


  


  


  


  

  


  


Total assets

  

$

1,968,790

 

  

$

1,271,448

 

    

$

5,153,944

  

$

(4,169,251

)

  

$

4,224,931

 

  

$

1,968,790

 

  

$

1,271,448

 

  

$

5,153,944

  

$

(4,169,251

)

  

$

4,224,931

 

  


  


    

  


  


  


  


  

  


  


LIABILITIES AND SHAREHOLDERS’ EQUITY

                                

Liabilities:

                                

Warehouse credit facilities

          

$

1,751,974

     

$

1,751,974

 

        

$

1,751,974

     

$

1,751,974

 

Senior notes

  

$

418,074

 

             

 

418,074

 

  

$

418,074

 

           

 

418,074

 

Other notes payable

  

 

63,569

 

  

$

3,242

 

          

 

66,811

 

  

 

63,569

 

  

$

3,242

 

        

 

66,811

 

Funding payable

     

 

126,091

 

    

 

802

     

 

126,893

 

     

 

126,091

 

  

 

802

     

 

126,893

 

Accrued taxes and expenses

  

 

39,925

 

  

 

151,106

 

    

 

3,229

     

 

194,260

 

  

 

39,925

 

  

 

151,106

 

  

 

3,229

     

 

194,260

 

Derivative financial instruments

     

 

85,922

 

          

 

85,922

 

Derivative financial Instruments

     

 

85,922

 

        

 

85,922

 

Deferred income taxes

  

 

14,906

 

  

 

20,062

 

    

 

113,713

     

 

148,681

 

  

 

14,906

 

  

 

20,062

 

  

 

113,713

     

 

148,681

 

  


  


  

  


  


  


  


    

  


  


Total liabilities

  

 

536,474

 

  

 

386,423

 

    

 

1,869,718

     

 

2,792,615

 

  

 

536,474

 

  

 

386,423

 

  

 

1,869,718

     

 

2,792,615

 

  


  


    

  


  


  


  


  

  


  


Shareholders’ equity:

                                

Common stock

  

 

917

 

  

 

32,779

 

    

 

83,408

  

$

(116,187

)

  

 

917

 

  

 

917

 

  

 

32,779

 

  

 

83,408

  

$

(116,187

)

  

 

917

 

Additional paid-in capital

  

 

573,956

 

  

 

26,237

 

    

 

2,126,942

  

 

(2,153,179

)

  

 

573,956

 

  

 

573,956

 

  

 

26,237

 

  

 

2,126,942

  

 

(2,153,179

)

  

 

573,956

 

Accumulated other comprehensive income (loss)

  

 

42,797

 

  

 

(40,501

)

    

 

84,864

  

 

(44,363

)

  

 

42,797

 

  

 

42,797

 

  

 

(40,501

)

  

 

84,864

  

 

(44,363

)

  

 

42,797

 

Retained earnings

  

 

832,446

 

  

 

866,510

 

    

 

989,012

  

 

(1,855,522

)

  

 

832,446

 

  

 

832,446

 

  

 

866,510

 

  

 

989,012

  

 

(1,855,522

)

  

 

832,446

 

  


  


    

  


  


  


  


  

  


  


  

 

1,450,116

 

  

 

885,025

 

    

 

3,284,226

  

 

(4,169,251

)

  

 

1,450,116

 

  

 

1,450,116

 

  

 

885,025

 

  

 

3,284,226

  

 

(4,169,251

)

  

 

1,450,116

 

Treasury stock

  

 

(17,800

)

             

 

(17,800

)

  

 

(17,800

)

           

 

(17,800

)

  


  


  

  


  


  


  


    

  


  


Total shareholders’ equity

  

 

1,432,316

 

  

 

885,025

 

    

 

3,284,226

  

 

(4,169,251

)

  

 

1,432,316

 

  

 

1,432,316

 

  

 

885,025

 

  

 

3,284,226

  

 

(4,169,251

)

  

 

1,432,316

 

  


  


    

  


  


  


  


  

  


  


Total liabilities and shareholders’ equity

  

$

1,968,790

 

  

$

1,271,448

 

    

$

5,153,944

  

$

(4,169,251

)

  

$

4,224,931

 

  

$

1,968,790

 

  

$

1,271,448

 

  

$

5,153,944

  

$

(4,169,251

)

  

$

4,224,931

 

  


  


    

  


  


  


  


  

  


  


 

AmeriCredit Corp.

Consolidating Income Statement

SixNine Months Ended DecemberMarch 31, 20022003

(Unaudited, in Thousands)

 

  

AmeriCredit Corp.


   

Guarantors


   

Non-Guarantors


   

Eliminations


   

Consolidated


  

AmeriCredit

Corp.


   

Guarantors


   

Non-

Guarantors


   

Eliminations


   

Consolidated


Revenue

                              

Finance charge income

     

$

45,022

 

  

$

179,550

 

     

$

224,572

     

$

56,009

 

  

$

354,420

 

     

$

410,429

Servicing fee income

     

 

187,590

 

  

 

(55,729

)

     

 

131,861

     

 

248,624

 

  

 

(20,117

)

     

 

228,507

Gain on sale of receivables

     

 

1,737

 

  

 

130,347

 

     

 

132,084

     

 

1,737

 

  

 

130,347

 

     

 

132,084

Other income

  

$

23,964

 

  

 

359,176

 

  

 

814,698

 

  

$

(1,187,205

)

  

 

10,633

  

$

40,199

 

  

 

597,898

 

  

 

1,356,443

 

  

$

(1,978,677

)

  

 

15,863

Equity in income of affiliates

  

 

30,346

 

  

 

104,591

 

     

 

(134,937

)

     

 

43,785

 

  

 

223,062

 

     

 

(266,847

)

   
  


  


  


  


  

  


  


  


  


  

  

 

54,310

 

  

 

698,116

 

  

 

1,068,866

 

  

 

(1,322,142

)

  

 

499,150

  


  


  


  


  

  

 

83,984

 

  

 

1,127,330

 

  

 

1,821,093

 

  

 

(2,245,524

)

  

 

786,883

  


  


  


  


  

Costs and expenses

                              

Operating expenses

  

 

5,000

 

  

 

207,321

 

  

 

12,747

 

     

 

225,068

  

 

7,483

 

  

 

274,165

 

  

 

18,868

 

     

 

300,516

Provision for loan losses

     

 

78,276

 

  

 

74,400

 

     

 

152,676

     

 

133,048

 

  

 

96,737

 

     

 

229,785

Interest expense

  

 

26,804

 

  

 

424,401

 

  

 

815,903

 

  

 

(1,187,205

)

  

 

79,903

  

 

38,752

 

  

 

724,342

 

  

 

1,347,036

 

  

 

(1,978,677

)

  

 

131,453

Restructuring charges

     

 

59,970

 

        

 

59,970

  


  


  


  


  

  


  


  


  


  

  

 

46,235

 

  

 

1,191,525

 

  

 

1,462,641

 

  

 

(1,978,677

)

  

 

721,724

  

 

31,804

 

  

 

709,998

 

  

 

903,050

 

  

 

(1,187,205

)

  

 

457,647

  


  


  


  


  

  


  


  


  


  

Income (loss) before income taxes

  

 

22,506

 

  

 

(11,882

)

  

 

165,816

 

  

 

(134,937

)

  

 

41,503

  

 

37,749

 

  

 

(64,195

)

  

 

358,452

 

  

 

(266,847

)

  

 

65,159

Income tax (benefit) provision

  

 

(3,018

)

  

 

(44,842

)

  

 

63,839

 

     

 

15,979

  

 

(2,324

)

  

 

(110,594

)

  

 

138,004

 

     

 

25,086

  


  


  


  


  

  


  


  


  


  

Net income

  

$

25,524

 

  

$

32,960

 

  

$

101,977

 

  

$

(134,937

)

  

$

25,524

  

$

40,073

 

  

$

46,399

 

  

$

220,448

 

  

$

(266,847

)

  

$

40,073

  


  


  


  


  

  


  


  


  


  

 

AmeriCredit Corp.

Consolidating Income Statement

SixNine Months Ended DecemberMarch 31, 20012002

(Unaudited, in Thousands)

 

  

AmeriCredit Corp.


   

Guarantors


   

Non—  

Guarantors


  

Eliminations


   

Consolidated


  

AmeriCredit Corp.


   

Guarantors


   

Non-

Guarantors


  

Eliminations


   

Consolidated


Revenue

                              

Finance charge income

     

$

45,340

 

  

$

131,484

     

$

176,824

     

$

74,858

 

  

$

184,154

     

$

259,012

Servicing fee income

     

 

134,339

 

  

 

45,467

     

 

179,806

     

 

214,622

 

  

 

62,546

     

 

277,168

Gain on sale of receivables

     

 

15,354

 

  

 

186,266

     

 

201,620

     

 

22,474

 

  

 

303,258

     

 

325,732

Other income

  

$

22,526

 

  

 

266,318

 

  

 

159,061

  

$

(441,655

)

  

 

6,250

  

$

33,789

 

  

 

399,606

 

  

 

238,404

  

$

(662,482

)

  

 

9,317

Equity in income of affiliates

  

 

160,985

 

  

 

173,731

 

     

 

(334,716

)

     

 

254,828

 

  

 

265,617

 

     

 

(520,445

)

   
  


  


  

  


  

  


  


  

  


  

  

 

183,511

 

  

 

635,082

 

  

 

522,278

  

 

(776,371

)

  

 

564,500

  


  


  

  


  

  

 

288,617

 

  

 

977,177

 

  

 

788,362

  

 

(1,182,927

)

  

 

871,229

  


  


  

  


  

Costs and expenses

                              

Operating expenses

  

 

5,026

 

  

 

190,985

 

  

 

11,755

     

 

207,766

  

 

7,530

 

  

 

290,503

 

  

 

17,618

     

 

315,651

Provision for loan losses

     

 

5,209

 

  

 

26,300

     

 

31,509

     

 

9,504

 

  

 

38,744

     

 

48,248

Interest expense

  

 

20,187

 

  

 

285,882

 

  

 

201,733

  

 

(441,655

)

  

 

66,147

  

 

32,554

 

  

 

429,094

 

  

 

300,104

  

 

(662,482

)

  

 

99,270

  


  


  

  


  

  


  


  

  


  

  

 

25,213

 

  

 

482,076

 

  

 

239,788

  

 

(441,655

)

  

 

305,422

  


  


  

  


  

  

 

40,084

 

  

 

729,101

 

  

 

356,466

  

 

(662,482

)

  

 

463,169

  


  


  

  


  

Income before income taxes

  

 

158,298

 

  

 

153,006

 

  

 

282,490

  

 

(334,716

)

  

 

259,078

  

 

248,533

 

  

 

248,076

 

  

 

431,896

  

 

(520,445

)

  

 

408,060

Income tax (benefit) provision

  

 

(1,035

)

  

 

(7,979

)

  

 

108,759

     

 

99,745

  

 

(2,424

)

  

 

(6,752

)

  

 

166,279

     

 

157,103

  


  


  

  


  

  


  


  

  


  

Net income

  

$

159,333

 

  

$

160,985

 

  

$

173,731

  

$

(334,716

)

  

$

159,333

  

$

250,957

 

  

$

254,828

 

  

$

265,617

  

$

(520,445

)

  

$

250,957

  


  


  

  


  

  


  


  

  


  

 

AmeriCredit Corp.

Consolidating Statement of Cash Flows

SixNine Months Ended DecemberMarch 31, 20022003

(Unaudited, in Thousands)

 

  

AmeriCredit Corp.


   

Guarantors


   

Non—  Guarantors


   

Eliminations


   

Consolidated


 
  

AmeriCredit Corp.


   

Guarantors


   

Non-

Guarantors


   

Eliminations


   

Consolidated


 

Cash flows from operating activities:

                              

Net income

  

$

25,524

 

  

$

32,960

 

  

$

101,977

 

  

$

(134,937

)

  

$

25,524

 

  

$

40,073

 

  

$

46,399

 

  

$

220,448

 

  

$

(266,847

)

  

$

40,073

 

Adjustments to reconcile net income to net cash (used) provided by operating activities:

                              

Depreciation and amortization

  

 

2,015

 

  

 

13,233

 

  

 

7,288

 

     

 

22,536

 

  

 

3,027

 

  

 

20,011

 

  

 

13,315

 

     

 

36,353

 

Provision for loan losses

     

 

78,276

 

  

 

74,400

 

     

 

152,676

 

     

 

133,048

 

  

 

96,737

 

     

 

229,785

 

Deferred income taxes

  

 

(95,487

)

  

 

(47,412

)

  

 

63,838

 

     

 

(79,061

)

  

 

(82,279

)

  

 

(115,483

)

  

 

136,754

 

     

 

(61,008

)

Accretion of present value discount

     

 

4,706

 

  

 

(67,561

)

     

 

(62,855

)

     

 

29,661

 

  

 

(118,932

)

     

 

(89,271

)

Impairment of credit enhancement assets

        

 

91,834

 

     

 

91,834

 

        

 

96,738

 

     

 

96,738

 

Non-cash gain on sale of receivables

     

 

160

 

  

 

(124,991

)

     

 

(124,831

)

     

 

160

 

  

 

(124,991

)

     

 

(124,831

)

Non-cash restructuring charges

     

 

38,546

 

        

 

38,546

 

Other

  

 

3,932

 

  

 

347

 

  

 

(39

)

     

 

4,240

 

  

 

3,226

 

  

 

673

 

  

 

(39

)

     

 

3,860

 

Distributions from Trusts

     

 

(27,180

)

  

 

138,298

 

     

 

111,118

 

     

 

(36,551

)

  

 

181,153

 

     

 

144,602

 

Initial deposits to credit enhancement assets

        

 

(58,101

)

     

 

(58,101

)

        

 

(58,101

)

     

 

(58,101

)

Equity in income of affiliates

  

 

(30,346

)

  

 

(104,591

)

     

 

134,937

 

     

 

(43,785

)

  

 

(223,062

)

     

 

266,847

 

   

Changes in assets and liabilities:

                              

Other assets

  

 

1,088

 

  

 

(18,719

)

  

 

1,082

 

     

 

(16,549

)

  

 

1,256

 

  

 

17,944

 

  

 

(15,814

)

     

 

3,386

 

Accrued taxes and expenses

  

 

(14,835

)

  

 

(18,102

)

  

 

4,242

 

     

 

(28,695

)

  

 

(13,067

)

  

 

(3,148

)

  

 

8,601

 

     

 

(7,614

)

Purchases of receivables held for sale

     

 

(647,647

)

  

 

(2,513,384

)

  

 

2,513,384

 

  

 

(647,647

)

     

 

(647,647

)

  

 

(2,513,384

)

  

 

2,513,384

 

  

 

(647,647

)

Principal collections and recoveries on receivables held for sale

     

 

7,928

 

  

 

66,442

 

     

 

74,370

 

     

 

7,928

 

  

 

66,442

 

     

 

74,370

 

Net proceeds from sale of receivables

     

 

2,513,384

 

  

 

2,495,353

 

  

 

(2,513,384

)

  

 

2,495,353

 

     

 

2,513,384

 

  

 

2,495,353

 

  

 

(2,513,384

)

  

 

2,495,353

 

  


  


  


  


  


  


  


  


  


  


Net cash used by operating activities

  

 

(108,109

)

  

 

1,787,343

 

  

 

280,678

 

     

 

1,959,912

 

Net cash (used) provided by operating activities

  

 

(91,549

)

  

 

1,781,863

 

  

 

484,280

 

     

 

2,174,594

 

  


  


  


  


  


  


  


  


  


  


Cash flows from investing activities:

                              

Purchases of receivables

     

 

(3,804,650

)

  

 

(1,734,691

)

  

 

1,734,691

 

  

 

(3,804,650

)

     

 

(5,223,167

)

  

 

(3,409,809

)

  

 

3,409,809

 

  

 

(5,223,167

)

Principal collections and recoveries on receivables

     

 

12,332

 

  

 

131,540

 

     

 

143,872

 

     

 

25,014

 

  

 

410,962

 

     

 

435,976

 

Net proceeds from sale of receivables

     

 

1,734,691

 

     

 

(1,734,691

)

        

 

3,409,809

 

     

 

(3,409,809

)

   

Purchases of property and equipment

     

 

(2,333

)

        

 

(2,333

)

     

 

(38,898

)

        

 

(38,898

)

Change in restricted cash—securitization notes payable

     

 

(3,529

)

  

 

(54,384

)

     

 

(57,913

)

        

 

(54,469

)

     

 

(54,469

)

Change in restricted cash—warehouse credit facilities

        

 

(237,994

)

     

 

(237,994

)

        

 

(482,090

)

     

 

(482,090

)

Change in other assets

     

 

(73,456

)

  

 

(51,308

)

     

 

(124,764

)

     

 

(42,061

)

  

 

(89,653

)

     

 

(131,714

)

Net change in investment in affiliates

  

 

(3,758

)

  

 

(1,624,129

)

  

 

(16,126

)

  

 

1,644,013

 

     

 

(6,150

)

  

 

(3,112,261

)

  

 

(31,157

)

  

 

3,149,568

 

   
  


  


  


  


  


  


  


  


  


  


Net cash (used) provided by investing activities

  

 

(3,758

)

  

 

(3,761,074

)

  

 

(1,962,963

)

  

 

1,644,013

 

  

 

(4,083,782

)

Net cash used by investing activities

  

 

(6,150

)

  

 

(4,981,564

)

  

 

(3,656,216

)

  

 

3,149,568

 

  

 

(5,494,362

)

  


  


  


  


  


  


  


  


  


  


Cash flows from financing activities:

                              

Net change in warehouse credit facilities

        

 

(1,465

)

     

 

(1,465

)

        

 

511,886

 

     

 

511,886

 

Proceeds from whole loan purchase facility

        

 

875,000

 

     

 

875,000

 

Issuance of securitization notes

        

 

1,856,612

 

  

 

(19,021

)

  

 

1,837,591

 

        

 

1,856,612

 

  

 

(19,021

)

  

 

1,837,591

 

Payments on securitization notes

        

 

(45,132

)

     

 

(45,132

)

        

 

(171,720

)

     

 

(171,720

)

Senior note swap settlement

  

 

9,700

 

           

 

9,700

 

  

 

9,700

 

           

 

9,700

 

Retirement of senior notes

  

 

(39,631

)

           

 

(39,631

)

  

 

(39,631

)

           

 

(39,631

)

Debt issuance costs

  

 

(679

)

  

 

(234

)

  

 

(12,770

)

     

 

(13,683

)

  

 

(791

)

  

 

(6,508

)

  

 

(15,968

)

     

 

(23,267

)

Net change in notes payable

  

 

(7,896

)

  

 

(330

)

        

 

(8,226

)

  

 

(13,500

)

  

 

(506

)

        

 

(14,006

)

Net proceeds from issuance of common stock

  

 

481,317

 

  

 

4,940

 

  

 

1,621,237

 

  

 

(1,626,177

)

  

 

481,317

 

  

 

479,748

 

  

 

4,940

 

  

 

3,124,397

 

  

 

(3,129,337

)

  

 

479,748

 

Net change in due (to) from affiliates

  

 

(327,822

)

  

 

2,087,376

 

  

 

(1,757,581

)

  

 

(1,973

)

     

 

(341,127

)

  

 

3,348,966

 

  

 

(3,009,778

)

  

 

1,939

 

   
  


  


  


  


  


  


  


  


  


  


Net cash provided by financing activities

  

 

114,989

 

  

 

2,091,752

 

  

 

1,660,901

 

  

 

(1,647,171

)

  

 

2,220,471

 

  

 

94,399

 

  

 

3,346,892

 

  

 

3,170,429

 

  

 

(3,146,419

)

  

 

3,465,301

 

  


  


  


  


  


  


  


  


  


  


Net increase (decrease) in cash and cash equivalents

  

 

3,122

 

  

 

118,021

 

  

 

(21,384

)

  

 

(3,158

)

  

 

96,601

 

Net (decrease) increase in cash and cash equivalents

  

 

(3,300

)

  

 

147,191

 

  

 

(1,507

)

  

 

3,149

 

  

 

145,533

 

Effect of Canadian exchange rate changes on cash and cash equivalents

  

 

(3,122

)

  

 

(247

)

  

 

(9

)

  

 

3,158

 

  

 

(220

)

  

 

3,300

 

  

 

136

 

  

 

(36

)

  

 

(3,149

)

  

 

251

 

Cash and cash equivalents at beginning of period

     

 

90,806

 

  

 

28,639

 

     

 

119,445

 

     

 

90,806

 

  

 

1,543

 

     

 

92,349

 

  


  


  


  


  


  


  


  


  


  


Cash and cash equivalents at end of period

  

$

 

 

  

$

208,580

 

  

$

7,246

 

  

$

 

 

  

$

215,826

 

  

$

 

 

  

$

238,133

 

  

$

 

 

  

$

 

 

  

$

238,133

 

  


  


  


  


  


  


  


  


  


  


 

AmeriCredit Corp.

Consolidating Statement of Cash FlowFlows

SixNine Months Ended DecemberMarch 31, 20012002

(Unaudited, in Thousands)

 

  

AmeriCredit Corp.


   

Guarantors


   

Non—  

Guarantors


   

Eliminations


   

Consolidated


   

AmeriCredit Corp.


   

Guarantors


   

Non-

Guarantors


   

Eliminations


   

Consolidated


 

Cash flow from operating activities:

               

Cash flows from operating activities:

               

Net income

  

$

159,333

 

  

$

160,985

 

  

$

173,731

 

  

$

(334,716

)

  

$

159,333

 

  

$

250,957

 

  

$

254,828

 

  

$

265,617

 

  

$

(520,445

)

  

$

250,957

 

               

Adjustments to reconcile net income to net cash (used) provided by operating activities:

               

Adjustments to reconcile net income to net cash used by operating activities:

               

Depreciation and amortization

  

 

1,606

 

  

 

11,923

 

  

 

2,940

 

     

 

16,469

 

  

 

4,727

 

  

 

17,870

 

  

 

5,278

 

     

 

27,875

 

Provision for loan losses

     

 

5,209

 

  

 

26,300

 

     

 

31,509

 

     

 

9,504

 

  

 

38,744

 

     

 

48,248

 

Deferred income taxes

  

 

(85,604

)

  

 

2,448

 

  

 

98,334

 

     

 

15,178

 

  

 

(133,082

)

  

 

3,672

 

  

 

155,856

 

     

 

26,446

 

Accretion of present value discount

        

 

(70,235

)

     

 

(70,235

)

        

 

(121,535

)

     

 

(121,535

)

Impairment of credit enhancement assets

        

 

13,969

 

     

 

13,969

 

        

 

38,918

 

     

 

38,918

 

Non-cash gain on sale of receivables

        

 

(189,537

)

     

 

(189,537

)

        

 

(307,752

)

     

 

(307,752

)

Distributions from Trusts

        

 

127,863

 

     

 

127,863

 

        

 

182,826

 

     

 

182,826

 

Initial deposits to credit enhancement assets

        

 

(255,500

)

     

 

(255,500

)

        

 

(303,500

)

     

 

(303,500

)

Equity in income of affiliates

  

 

(160,985

)

  

 

(173,731

)

     

 

334,716

 

     

 

(254,828

)

  

 

(265,617

)

     

 

520,445

 

   

Changes in assets and liabilities:

                              

Other assets

  

 

(485

)

  

 

(25,382

)

  

 

(3,598

)

     

 

(29,465

)

  

 

(1,291

)

  

 

(35,607

)

  

 

(1,911

)

     

 

(38,809

)

Accrued taxes and expenses

  

 

42,760

 

  

 

2,143

 

  

 

(1,678

)

     

 

43,225

 

  

 

54,409

 

  

 

55,928

 

  

 

(922

)

     

 

109,415

 

Purchase of receivables held for sale

     

 

(4,072,045

)

  

 

(4,161,160

)

  

 

4,161,160

 

  

 

(4,072,045

)

Purchases of receivables held for sale

     

 

(6,494,174

)

  

 

(6,412,262

)

  

 

6,412,262

 

  

 

(6,494,174

)

Principal collections and recoveries on receivables held for sale

     

 

(1,697

)

  

 

119,592

 

     

 

117,895

 

     

 

14,611

 

  

 

160,754

 

     

 

175,365

 

Net proceeds from sale of receivables

     

 

4,161,160

 

  

 

3,578,594

 

  

 

(4,161,160

)

  

 

3,578,594

 

     

 

6,412,262

 

  

 

5,919,517

 

  

 

(6,412,262

)

  

 

5,919,517

 

  


  


  


  


  


  


  


  


  


  


Net cash (used) provided by operating activities

  

 

(43,375

)

  

 

71,013

 

  

 

(540,385

)

     

 

(512,747

)

Net cash used by operating activities

  

 

(79,108

)

  

 

(26,723

)

  

 

(380,372

)

     

 

(486,203

)

  


  


  


  


  


  


  


  


  


  


Cash flows from investing activities:

                              

Purchases of property and equipment

     

 

(24,839

)

        

 

(24,839

)

Purchases of property and

               

equipment

     

 

(14,916

)

        

 

(14,916

)

Change in restricted cash—warehouse credit facilities

        

 

(28,081

)

     

 

(28,081

)

        

 

(10,667

)

     

 

(10,667

)

Change in other assets

     

 

(37,597

)

  

 

(8,737

)

     

 

(46,334

)

     

 

(15,157

)

  

 

(834

)

     

 

(15,991

)

Net change in investment in affiliates

  

 

(5,844

)

  

 

(493,688

)

  

 

(5,170

)

  

 

504,702

 

     

 

(33,702

)

  

 

(424,774

)

  

 

(4,275

)

  

 

462,751

 

   
  


  


  


  


  


  


  


  


  


  


Net cash used by investing activities

  

 

(5,844

)

  

 

(556,124

)

  

 

(41,988

)

  

 

504,702

 

  

 

(99,254

)

  

 

(33,702

)

  

 

(454,847

)

  

 

(15,776

)

  

 

462,751

 

  

 

(41,574

)

  


  


  


  


  


  


  


  


  


  


Cash flows from financing activities:

                              

Net change in warehouse credit facilities

     

 

56,878

 

  

 

371,777

 

     

 

428,655

 

     

 

62,123

 

  

 

326,205

 

     

 

388,328

 

Borrowings under credit enhancement facility

        

 

182,500

 

     

 

182,500

 

        

 

182,500

 

     

 

182,500

 

Debt issuance costs

  

 

(168

)

     

 

(2,689

)

     

 

(2,857

)

  

 

(253

)

  

 

(402

)

  

 

(15,731

)

     

 

(16,386

)

Net change in notes payable

  

 

10,951

 

           

 

10,951

 

  

 

(12,357

)

  

 

17

 

        

 

(12,340

)

Net proceeds from issuance of common stock

  

 

11,245

 

  

 

(12,460

)

  

 

517,162

 

  

 

(504,702

)

  

 

11,245

 

  

 

15,357

 

  

 

36,382

 

  

 

427,452

 

  

 

(463,834

)

  

 

15,357

 

Net change in due (to) from affiliates

  

 

25,306

 

  

 

472,756

 

  

 

(498,062

)

        

 

112,071

 

  

 

412,259

 

  

 

(524,330

)

      
  


  


  


  


  


  


  


  


  


  


Net cash provided by financing activities

  

 

47,334

 

  

 

517,174

 

  

 

570,688

 

  

 

(504,702

)

  

 

630,494

 

  

 

114,818

 

  

 

510,379

 

  

 

396,096

 

  

 

(463,834

)

  

 

557,459

 

  


  


  


  


  


  


  


  


  


  


Net increase (decrease) in cash and cash equivalents

  

 

(1,885

)

  

 

32,063

 

  

 

(11,685

)

     

 

18,493

 

  

 

2,008

 

  

 

28,809

 

  

 

(52

)

  

 

(1,083

)

  

 

29,682

 

Effect of Canadian exchange rate changes on cash and cash equivalents

  

 

1,885

 

  

 

(1,922

)

        

 

(37

)

  

 

(2,008

)

  

 

1,063

 

  

 

52

 

  

 

1,083

 

  

 

190

 

Cash and cash equivalents at beginning of period

     

 

58,954

 

  

 

18,099

 

     

 

77,053

 

     

 

45,016

 

        

 

45,016

 

  


  


  


  


  


  


  


  


  


  


Cash and cash equivalents at end of period

  

$

 

 

  

$

89,095

 

  

$

6,414

 

  

$

 

 

  

$

95,509

 

  

$

 

 

  

$

74,888

 

  

$

 

 

  

$

 

 

  

$

74,888

 

  


  


  


  


  


  


  


  


  


  


 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

GENERAL

 

The Company generates revenue and cash flows primarily from finance charge income earned on finance receivables held on its balance sheet and from servicing securitized finance receivables accounted for as a sale. The Company purchases auto finance receivables from franchised and select independent automobile dealerships and, to a lesser extent, makes auto loans directly to consumers. As used herein, “loans” include auto finance receivables originated by dealers and purchased by the Company as well as extensions of credit made directly by the Company to consumer borrowers. To fund the acquisition of finance receivables prior to securitization, the Company utilizes borrowings under its warehouse credit facilities. The Company earns finance charge income on the finance receivables and pays interest expense on borrowings under its warehouse credit facilities.

 

The Company periodically transfers receivables to securitization trusts (“Trusts”) that, in turn, sell asset-backed securities to investors. Prior to October 1, 2002, the Company recognized a gain on the sale of receivables to the Trusts, which represents the difference between the sale proceeds to the Company, net of transaction costs, and the Company’s net carrying value of the receivables, plus the present value of the estimated future excess cash flows expected to be received by the Company over the life of the securitization. Excess cash flows result from the difference between the finance charges received from the obligors on the receivables and the interest paid to investors in the asset-backed securities, net of credit losses and expenses.

 

Excess cash flows from the Trusts are initially utilized to fund credit enhancement requirements in order to attain specific credit ratings for the asset-backed securities issued by the Trusts. Once predetermined credit enhancement requirements are reached and maintained, excess cash flows are distributed to the Company. Credit enhancement requirements will increase if targeted delinquency or net lossportfolio performance ratios are exceeded (see Liquidity and Capital Resources section). In addition to excess cash flows, the Company earns monthly base servicing fee income of 2.25% per annum on the outstanding principal balance of domestic receivables securitized and collects other fees, such as late charges, as servicer for those Trusts.

 

The Company has changed the structure of its securitization transactions beginning with transactions closed subsequent to September 30, 2002, to no longer meet the criteria for sales of finance receivables. Accordingly, following a securitization, the finance receivables and the related securitization notes payable remain on the consolidated balance sheet. The Company recognizes finance charge and fee income on the receivables and interest expense on the securities issued in the securitization transaction, and records a provision for loan losses to cover probable loan losses on the receivables. This change has significantly impacted the Company’s December 2002reported results of operations compared to its historical results because there is no

gain on sale of receivables in the quarter ended December 31,subsequent to September 30, 2002. Historical results may not be indicative of the Company’s future results.

 

RECENT DEVELOPMENTS

 

On February 12,April 23, 2003, the Board of Directors of the Company announced anthe reorganization of the Company’s executive management team. Michael R. Barrington stepped down as president and chief executive officer and Michael T. Miller stepped down as chief operating plan in an effortofficer. Clifton H. Morris, Jr., chairman of the Board, assumed the chief executive officer position. Daniel E. Berce was promoted from chief financial officer to preservepresident. Preston A. Miller was promoted to chief financial officer and strengthen its capital and liquidity position. The plan includes a decrease in loan origination volumeMark Floyd was promoted to approximately $750.0 million per quarter by June 2003 and a reduction ofchief operating expenses through downsizing its workforce and consolidating its branch office network. A restructuring charge of $40.0 million to $50.0 million is expected to be incurred in the March 2003 quarter in connection with the plan. Subject to continued access to the securitization markets, the Company believes that it has sufficient liquidity to operate under its new plan through calendar 2003.officer.

 

Attached to this filing on Form 10-Q, as exhibit 99.2, is a press release dated February 12, 2003, announcing the Company’s operating plan.

CRITICAL ACCOUNTING ESTIMATES

 

The preparation of financial statements in conformity with generally accepted accounting principles 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. The accounting estimates that the Company believes are the most critical to understanding and evaluating the Company’s reported financial results include the following:

 

Gain on sale of receivables

 

The Company periodically transfers receivables to Trusts that, in turn, sell asset-backed securities to investors. Prior to October 1, 2002, the Company recognized a gain on the sale of receivables to the Trusts, which represents the difference between the sale proceeds to the Company, net of transaction costs, and the Company’s net carrying value of the receivables, plus the present value of the estimated future excess cash flows to be received by the Company over the life of the securitization. The Company has made assumptions in order to determine the present value of the estimated future excess cash flows to be generated by the pool of receivables sold. The most significant assumptions made are the cumulative net credit losses to be incurred on the pool of receivables sold, the timing of those losses and the rate at which the estimated future excess cash flows are discounted. The assumptions used represent the Company’s best estimates. The use of different assumptions couldwould produce different financial results.

 

Fair value measurements

 

Certain of the Company’s assets, including the Company’s derivative financial instruments and credit enhancement assets related to gain on sale Trusts, are recorded at fair value. Fair values for derivative financial instruments are based on third-party quoted market prices, where possible. However, market prices are not readily available for the Company’s credit enhancement assets

and, accordingly, fair value is determined using discounted cash flow models. The most significant assumptions made are the cumulative net credit losses to be incurred on the pool of receivables sold, the timing of those losses and the rate at which estimated future excess cash flows are discounted. The assumptions used represent the Company’s best estimates. The use of different assumptions would result in different carrying values for the Company’s credit enhancement assets and a change in the accretion of present value discount and impairment of credit enhancement assets recognized through the consolidated statements of operations.income. Additionally, if actual cumulative net credit losses exceed the Company’s estimate, additional impairment of credit enhancement assets could result.

 

Allowance for loan losses

 

The Company reviews 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 probable credit losses on finance receivables. Receivables are charged-off to the allowance for loan losses when the Company repossesses and disposes of the collateral or the account is otherwise deemed uncollectable. As of DecemberMarch 31, 2002,2003, the Company believes that the allowance for loan losses is adequate to cover probable losses inherent in its receivables; however, because the allowance for loan losses is based on estimates, there can be no assurance that the ultimate charge-off amount will not exceed such estimates.

 

RESULTS OF OPERATIONS

 

Three Months Ended DecemberMarch 31, 20022003 as compared to Three Months Ended DecemberMarch 31, 20012002

 

Revenue:

 

The Company’s average managed receivables outstanding consisted of the following (in thousands):

 

   

Three Months Ended December 31,


   

2002


  

2001


On book

  

$

3,136,066

  

$

1,653,046

Serviced

  

 

12,930,404

  

 

10,232,783

   

  

   

$

16,066,470

  

$

11,885,829

   

  

   

Three Months Ended

March 31,


   

2003


  

2002


On-book

  

$

4,651,309

  

$

1,697,140

Gain on sale

  

 

11,551,091

  

 

11,293,534

   

  

Total managed

  

$

16,202,400

  

$

12,990,674

   

  

 

Average managed receivables outstanding increased by 35%25% as a result of the purchase of loans in excess of collections and charge-offs. The Company purchased $1,887.0$1,317.6 million of auto loans during the three months ended DecemberMarch 31, 2002,2003, compared to purchases of $2,035.7$2,432.4 million during the three months ended DecemberMarch 31, 2001.2002. This decrease resulted from a reduction in the number of

the Company’s branch networkoffices in November 2002 offset by a slight increaseconnection with the Company’s revised operating plan implemented in loan production at branches open during both periods. Loan purchases at branch offices opened prior to December 31, 2000, were 2% higher for the twelve months

ended December 31, 2002, versus the twelve months ended December 31, 2001.February 2003. The Company operated 23291 auto lending branch offices as of DecemberMarch 31, 2002,2003, compared to 254252 as of DecemberMarch 31, 2001.2002.

 

The average new loan size was $16,706$17,011 for the three months ended DecemberMarch 31, 2002,2003, compared to $16,322$16,418 for the three months ended DecemberMarch 31, 2001.2002. The increase in average new loan size was due to a change in the mix of business towards financing later model vehicles. The average annual percentage rate for finance receivables purchased during the three months ended DecemberMarch 31, 2002,2003, was 16.6%16.2%, compared to 17.7%17.6% during the three months ended DecemberMarch 31, 2001.2002. Decreasing short-term market interest rates have lowered the Company’s cost of funds, allowing the Company to pass along some of this benefit to consumers in the form of lower loan pricing.

 

Finance charge income increased by 67%126% to $133.9$185.9 million for the three months ended DecemberMarch 31, 2002,2003, from $80.0$82.2 million for the three months ended DecemberMarch 31, 2001.2002. Finance charge income was higher due to an increase in average on bookon-book receivables that resulted primarily from the Company’s decision to change the structure of securitization transactions to no longer meet the criteria for sales of finance receivables. The Company’s effective yield on its on bookon-book finance receivables decreased to 16.9%16.2% for the three months ended DecemberMarch 31, 2002,2003, from 19.2%19.6% for the three months ended DecemberMarch 31, 2001.2002. The effective yield decreased due to lower loan pricing.

 

In the three months ended December 31,Subsequent to September 30, 2002, the Company’s securitization transactions were structured as secured financings. Therefore, no gain on sale was recorded for finance receivables securitized. The gain on sale of receivables was $108.7$124.1 million, or 5.6%5.2% of receivables securitized, for the three months ended DecemberMarch 31, 2001.2002.

 

Significant assumptions used in determining the gain on sale of receivables for the three months ended DecemberMarch 31, 2001,2002, were as follows:

 

Cumulative credit losses (including unrealized gains at time of sale)

  

12.5

%

Discount rate used to estimate present value:

    

Interest-only receivables from Trusts

  

14.0

%

Investments in Trust receivables

  

9.8

%

Restricted cash

  

9.8

%

 

The cumulative credit loss assumptions utilized at the time of sale of receivables were determined using a range of possible outcomes based on historical experience, credit attributes for the specific pool of receivables and general economic factors. The unrealized gains at time of sale represent the excess of the fair value of credit enhancement assets over the Company’s carrying value related to such interests when receivables are sold.

 

Servicing fee income decreased to $23.8was $96.6 million, or 0.7%3.4% of average servicedgain on sale auto receivables, for the three months ended DecemberMarch 31, 2002,2003, compared to $94.6$97.4 million, or 3.7%3.5% of average servicedgain on sale auto receivables, for the three months

ended DecemberMarch 31, 2001.2002. Servicing fee income represents accretion of the present value discount on estimated future excess cash flows from the

Trusts, base servicing fees and other fees earned by the Company as servicer of the receivables sold to the Trusts. Servicing fee income also includes other-than-temporary impairment charges of $72.9$4.9 million and $7.6$24.9 million for the three months ended DecemberMarch 31, 20022003 and 2001,2002, respectively. Other-than-temporary impairment resulted from increased default rates caused by the continued weakness in the economy, lower than expected recovery proceeds caused by depressed used car values and the expectation that current economic conditions will continue for the foreseeable future. In addition, the Company’s credit enhancement assets are carried on its financial statements based on the present value of future cash distributions from securitization trusts. The expected delay in cash distributions from FSA insured securitizations reduces the present value of such cash distributions and results in further other-than-temporary impairments.

 

Costs and Expenses:

 

Operating expenses increaseddecreased to $109.2$82.3 million for the three months ended DecemberMarch 31, 2002,2003, from $108.4$107.9 million for the three months ended DecemberMarch 31, 2001.2002. As an annualized percentage of average managed receivables outstanding, operating expenses decreased to 2.7%2.1% for the three months ended DecemberMarch 31, 2002,2003, compared to 3.6%3.4% for the three months ended DecemberMarch 31, 2001. The ratio2002. Operating expenses improved primarily as a result of economiesa reduction in workforce in November 2002 and implementation of scale realized from a growing receivables portfolio when comparedrevised operating plan in February 2003.

The Company recognized a $53.1 million restructuring charge related to the three months ended December 31, 2001, and automationimplementation of its revised operating plan. The revised operating plan included a decrease in the Company’s targeted loan origination processingvolume to approximately $750.0 million per quarter by June 2003 and servicing functions. The slight increase ina reduction of operating expenses resultedthrough downsizing its workforce and consolidating its branch office network. The restructuring charge consisted primarily from a $6.9 million charge incurred by the Companyof severance costs of identified workforce reductions of approximately 850 positions related to its November 2002 reduction in workforce. The Company eliminated approximately 6.5%the consolidation/closing of its workforce to align141 branch offices including the closing of the Company’s cost structure with planned lower loan origination growth. The charge was offset by operating expense savings subsequentCanadian lending operations, costs incurred to terminate facility and equipment leases prior to their termination date as well as estimated costs that will continue to be incurred under the contracts for their remaining terms without economic benefit to the reductionCompany. The restructuring charge also includes $20.8 million for discontinuation of the development of the Company’s customer relationship management system, which was designed to provide operational scalability and marketing benefits in workforce.a high-growth environment.

 

The provision for loan losses increased to $86.9$77.1 million for the three months ended DecemberMarch 31, 2002,2003, from $16.7 million for the three months ended DecemberMarch 31, 2001.2002. As an annualized percentage of average on bookon-book finance receivables, the provision for loan losses was 11.0%6.7% and 4.0% for the three months ended DecemberMarch 31, 2003 and 2002, and 2001, respectively. Approximately $55.3 millionSubsequent to September 30, 2002, the Company changed the structure of its securitization transactions to no longer meet the increase in the provisioncriteria for loan losses is due to the Company’s new securitization transaction structure that results in the securitization being accounted for as a secured financing.sales of finance receivables. Under this new structure, finance receivables remain on the Company’s balance sheet throughout their term, and credit losses related to those securitized receivables are provided for as a charge to operations. The remaining increase reflects the general expectation that current economic conditions, including elevated unemployment rates, will result in a higher number of charge-offs, and that depressed

wholesale auction prices on the sale of repossessed vehicles will increase the amount charged-off per loan.

Interest expense increased to $39.9$51.6 million for the three months ended DecemberMarch 31, 2002,2003, from $30.6$33.1 million for the three months ended DecemberMarch 31, 2001,2002, due to higher debt levels. Average debt outstanding was $3,482.3$4,575.0 million and $2,260.4$2,430.9 million for the three months ended DecemberMarch 31, 20022003 and 2001,2002, respectively. The increase in average debt outstanding reflects the accounting for securitization transactions subsequent to September 30, 2002, as secured financings. The Company’s effective rate of interest paid on its debt decreased to 4.5%4.6% from 5.4%5.5% as a result of lower short-term market interest rates.

 

The Company’s effective income tax rate was 38.5% for the three months ended DecemberMarch 31, 20022003 and 2001.2002.

 

Other Comprehensive Loss:Income:

 

Other comprehensive (loss) income consisted of the following (in thousands):

 

   

Three Months Ended
December 31,


 
   

2002


   

2001


 

Unrealized (losses) gains on credit enhancement assets

  

$

(75,984

)

  

$

19,146

 

Unrealized (losses) gains on cash flow hedges

  

 

(5,173

)

  

 

8,014

 

Canadian currency translation adjustment

  

 

305

 

  

 

(421

)

Income tax benefit (expense)

  

 

31,245

 

  

 

(10,456

)

   


  


   

$

(49,607

)

  

$

16,283

 

   


  


   

Three Months Ended

March 31,


 
   

2003


   

2002


 

Unrealized losses on credit enhancement assets

  

$

(9,071

)

  

$

(6,807

)

Unrealized gains on cash flow hedges

  

 

4,291

 

  

 

27,611

 

Canadian currency translation adjustment

  

 

6,421

 

  

 

53

 

Income tax benefit (provision)

  

 

1,841

 

  

 

(8,009

)

   


  


   

$

3,482

 

  

$

12,848

 

   


  


 

Credit Enhancement Assets

 

The unrealized (losses) gainslosses on credit enhancement assets consisted of the following (in thousands):

 

  

Three Months Ended
December 31,


 
  

2002


   

2001


   

Three Months Ended

March 31,


 
  

2003


   

2002


 

Unrealized gains at time of sale

     

$

15,039

 

     

$

12,186

 

Unrealized holding (losses) gains related to changes in credit loss assumptions

  

$

(61,117

)

  

 

12,773

 

Unrealized holding losses related to changes in credit loss assumptions

  

$

(1,521

)

  

 

(11,605

)

Unrealized holding losses related to changes in interest rates

  

 

(511

)

  

 

(5,268

)

  

 

(2,843

)

  

 

(3,048

)

Net reclassification of unrealized gains into earnings

  

 

(14,356

)

  

 

(3,398

)

  

 

(4,707

)

  

 

(4,340

)

  


  


  


  


  

$

(75,984

)

  

$

19,146

 

  

$

(9,071

)

  

$

(6,807

)

  


  


  


  


 

The unrealized gains at time of sale represent the excess of the fair value of credit enhancement assets over the Company’s carrying value related to such interests when receivables are sold. No unrealized gain at time of sale was

recorded for the three months ended DecemberMarch 31, 2002, due to the change in the structure of2003, since securitization transactions entered into subsequent to September 30, 2002, to no longer meet the criteria for sales of finance receivables.were structured as secured financings.

 

Changes in the fair value of credit enhancement assets as a result of modifications to the credit loss assumptions are reported as unrealized holding gains or losses in other comprehensive (loss) income until realized, or, in the case of unrealized holding losses considered to be other-than-temporary, as a charge to operations. The cumulative credit loss assumptions used to estimate the fair value of credit enhancement assets are periodically reviewed by the Company and modified to reflect the actual credit performance for each securitization pool through the reporting date as well as estimates of future losses considering several factors including changes in the general economy. Differences between cumulative credit loss assumptions used in individual securitization pools can be attributed to the original credit attributes of a pool, actual credit performance through the reporting date and pool seasoning to the extent that changes in economic trends will have more of an impact on the expected future performance of less seasoned pools.

 

The Company increased the cumulative credit loss assumptions (including remaining unrealized gains at time of sale) used in measuring the fair value of credit enhancement assets to a range of 10.9% to 13.9% as of March 31, 2003, from a range of 10.7% to 13.6% as of December 31, 2002, from a range of 11.1% to 12.5% as of September 30, 2002, which together with the expected delay in cash distributions from FSA insured securitizations, caused an other-than-temporary impairment charge of $72.9$4.9 million and an unrealized holding losslosses of $61.1$1.5 million for the three months ended DecemberMarch 31, 2002.2003. The range of cumulative credit loss assumptions was increased to reflect adverse actual credit performance compared to previous assumptions primarily due to lower than anticipated recovery values as well as expectations for higher future losses due to continued weakness in the general economy during the three months ended December 31, 2002.economy. Unrealized holding gainslosses of $12.8$11.6 million for the three months ended DecemberMarch 31, 2001,2002, resulted from a declinean increase in cumulative credit loss assumptions for certain securitization Trusts, wherereflecting actual credit performance was better than expected.loss experience and expectations for adverse future credit loss development as a result of continued weakness in the economy, including higher unemployment rates.

 

Unrealized holding losses related to changes in interest rates of $0.5$2.8 million and $5.3$3.0 million for the three months ended DecemberMarch 31, 20022003 and 2001,2002, respectively, resulted primarily from a decrease in estimated future cash flows from the Trusts due to lower interest income earned on the investment of restricted cash and collections accounts. The lower earnings were partially offset by a decrease in interest rates payable to investors on the floating rate tranches of securitization transactions.

 

Net unrealized gains of $14.4$4.7 million and $3.4$4.3 million were reclassified into earnings during the three months ended DecemberMarch 31, 20022003 and 2001,2002, respectively, and relate primarily to recognition of actual excess cash collected over the Company’s initial estimate and recognition of unrealized gains at time of

sale. Included in the $14.4$4.7 million of net unrealized gain

recognized during the period is $13.9net unrealized gains of $8.1 million related to fluctuations in interest rates offset by cash flow hedges described below.

 

Cash flow hedges

 

Unrealized lossesgains on cash flow hedges were $5.2$4.3 million for the three months ended DecemberMarch 31, 2002,2003, compared to unrealized gains of $8.0$27.6 million for the three months ended DecemberMarch 31, 2001. Expectations that short-term market interest rates will remain lower for an extended period of time during the three months ended December 31, 2002, resulted in an increase in the liability related to the Company’s interest rate swap agreements.2002. Unrealized gains and losses on cash flow hedges are reclassified into earnings as unrealized gains or losses related to interest rate fluctuations on the Company’s credit enhancement assets are reclassified into earnings. Net unrealized losses reclassified into earnings were $13.9$8.1 million for the three months ended DecemberMarch 31, 2002.2003.

Canadian Currency Translation Adjustment

Canadian currency translation adjustment gains of $6.4 million and $0.1 million for the three months ended March 31, 2003 and 2002, respectively, were included in other comprehensive income. This unrealized gain is due to the increase in the value of the Company’s Canadian dollar denominated assets related to the decline in the U.S. dollar to Canadian dollar conversion rates during the period.

 

Net Margin:

 

Net margin is the difference between finance charge fee and other income earned on the Company’s receivables and the cost to fund the receivables as well as the cost of debt incurred for general corporate purposes.

 

The Company’s net margin as reflected on the consolidated statements of operationsincome is as follows (in thousands):

 

   

Three Months Ended December 31,


 
   

2002


   

2001


 

Finance charge, fee and other income

  

$

139,556

 

  

$

83,404

 

Funding costs

  

 

(39,884

)

  

 

(30,557

)

   


  


Net margin

  

$

99,672

 

  

$

52,847

 

   


  


   

Three Months Ended

March 31,


 
   

2003


   

2002


 

Finance charge and other income

  

$

191,087

 

  

$

85,255

 

Interest expense

  

 

(51,550

)

  

 

(33,123

)

   


  


Net margin

  

$

139,537

 

  

$

52,132

 

   


  


 

The Company evaluates the profitability of its lending activities based partly upon the net margin related to its managed auto loan portfolio, including on-book and gain on book receivables and servicedsale receivables. The Company has historically securitizeduses this information to analyze trends in the components of the profitability of its managed auto portfolio. Net margin on a managed basis facilitates comparisons of results between the Company and other finance companies (i) that do not securitize their receivables or (ii) due to the structure of their securitization transactions, are not required to account for the securitization of their receivables as a sale. The Company routinely securitizes its receivables and

prior to October 1, 2002, recorded a gain on the sale of such receivables. The net margin on a managed basis presented below assumes that all securitized receivables have not been sold and are still on the Company’s consolidated balance sheet. Accordingly, no gain on sale or servicing fee income would have been recognized. Instead, finance charges and fees would be recognized over the life of the securitized receivables as earned, and interest and other costs related to the asset-backed securities would be recognized as incurred.

 

Net margin for the Company’s managed finance receivables portfolio is as follows (in thousands):

 

   

Three Months Ended

December 31,


 
   

2002


   

2001


 

Finance charge, fee and other income

  

$

704,516

 

  

$

552,961

 

Funding costs

  

 

(195,011

)

  

 

(188,309

)

   


  


Net margin

  

$

509,505

 

  

$

364,652

 

   


  


   

Three Months Ended

March 31,


 
   

2003


   

2002


 

Finance charge and other income

  

$

688,382

 

  

$

589,677

 

Interest expense

  

 

(189,069

)

  

 

(192,634

)

   


  


Net margin

  

$

499,313

 

  

$

397,043

 

   


  


 

Net margin as a percentage of average managed finance receivables outstanding is as follows (dollars in thousands):

 

  

Three Months Ended

December 31,


   

Three Months Ended

March 31,


  

2002


   

2001


   

2003


  

2002


Finance charge, fee and other income

  

 

17.4

%

  

 

18.5

%

Funding costs

  

 

(4.8

)

  

 

(6.3

)

Finance charge and other income

  

 

17.2%

  

 

18.4%

Interest expense

  

 

(4.7)

  

 

(6.0)

  


  


  

  

Net margin as a percentage of average managed finance receivables

  

 

12.6

%

  

 

12.2

%

  

 

12.5%

  

 

12.4%

  


  


  

  

Average managed finance receivables

  

$

16,066,470

 

  

$

11,885,829

 

  

$

16,202,400

  

$

12,990,674

  


  


  

  

 

Net margin as a percentage of average managed finance receivables increased for the three months ended DecemberMarch 31, 2002,2003, compared to the three months ended DecemberMarch 31, 2001,2002, as the Company was able to retain some of the benefit of declining interest rates in its loan pricing strategies.

 

The following is a reconciliation of finance charge and other income as reflected on the Company’s consolidated statements of income to the Company’s managed basis finance charge and other income:

   

Three Months Ended

March 31,


   

2003


  

2002


Finance charge and other income per consolidated statements of income

  

$

191,087

  

$

85,255

Adjustments to reflect income earned on receivables in gain on sale Trusts

  

 

497,295

  

 

504,422

   

  

Managed basis finance charge and other income

  

$

688,382

  

$

589,677

   

  

The following is a reconciliation of interest expense as reflected on the Company’s consolidated statements of income to the Company’s managed basis interest expense:

   

Three Months Ended

March 31,


   

2003


  

2002


Interest expense per consolidated statements of income

  

$

51,550

  

$

33,123

Adjustments to reflect expenses incurred by gain on sale Trusts

  

 

137,519

  

 

159,511

   

  

Managed basis interest expense

  

$

189,069

  

$

192,634

   

  

SixNine Months Ended DecemberMarch 31, 20022003 as compared to SixNine Months Ended DecemberMarch 31, 20012002

 

Revenue:

 

The Company’s average managed receivables outstanding consisted of the following (in thousands):

 

   

Six Months Ended

December 31,


   

2002


  

2001


On book

  

$

2,547,350

  

$

1,808,214

Serviced

  

 

13,134,949

  

 

9,513,853

   

  

   

$

15,682,299

  

$

11,322,067

   

  

   

Nine Months Ended

March 31,


   

2003


  

2002


On-book

  

$

3,237,909

  

$

1,771,980

Gain on sale

  

 

12,614,872

  

 

10,098,419

   

  

Total managed

  

$

15,852,781

  

$

11,870,399

   

  

 

Average managed receivables outstanding increased by 39%34% as a result of the purchase of loans in excess of collections and charge-offs. The Company purchased $4,306.1$5,623.7 million of auto loans during the sixnine months ended DecemberMarch 31, 2002,2003, compared to purchases of $4,070.9$6,503.3 million during the sixnine months ended DecemberMarch 31, 2001.2002. This decrease resulted from a reduction in the number of the

Company’s branch offices in connection with the Company’s revised operating plan implemented in February 2003.

 

The average new loan size was $16,724$16,791 for the sixnine months ended DecemberMarch 31, 2002,2003, compared to $16,290$16,349 for the sixnine months ended DecemberMarch 31, 2001.2002. The increase in average new loan size was due to a change in the mix of business towards financing later model vehicles. The average annual percentage rate for finance receivables purchased during the sixnine months ended DecemberMarch 31, 2002,2003, was 17.0%16.8%, compared to 17.9%17.8% during the sixnine months ended DecemberMarch 31, 2001.2002. Decreasing short-term market interest rates have lowered the Company’s cost of funds, allowing the Company to pass along some of this benefit to consumers in the form of lower loan pricing.

 

Finance charge income increased by 27%58% to $224.6$410.4 million for the sixnine months ended DecemberMarch 31, 2002,2003, from $176.8$259.0 million for the sixnine months ended DecemberMarch 31, 2001.2002. Finance charge income was higher due to an increase in average on bookon-book receivables that resulted primarily from the Company’s decision to change the structure of securitization transactions to no longer meet the criteria for sales of finance receivables. The Company’s effective yield on its on bookon-book finance receivables decreased to 17.5%16.9% for the sixnine months ended DecemberMarch 31, 2002,2003, from 19.4%19.5% for the sixnine months ended DecemberMarch 31, 2001.2002. The effective yield decreased due to lower loan pricing.

 

The gain on sale of receivables decreased by 34%59% to $132.1 million for the sixnine months ended DecemberMarch 31, 2002,2003, from $201.6$325.7 million for the sixnine months ended DecemberMarch 31, 2001.2002. The decrease in gain on sale of receivables resulted from the Company’s decision to structure securitization transactions closed subsequent to September 30, 2002, as secured financings. During the sixnine months ended DecemberMarch 31, 2002,2003, $2,507.9 million of finance receivables securitized were accounted for as sales of receivables as compared to $3,650.0$6,050.0 million during the sixnine months ended DecemberMarch 31, 2001.2002. The gain as a percentage of the receivables securitized in gain on sale Trusts remained relatively stable at 5.3% for the sixnine months ended DecemberMarch 31, 2002,2003, as compared to 5.5%5.4% for the sixnine months ended DecemberMarch 31, 2001.2002.

 

Significant assumptions used in determining the gain on sale of receivables were as follows:

 

  

Six Months Ended

December 31,


 
  

2002


   

2001


   

Nine Months Ended

March 31,


 
  

2003


   

2002


 

Cumulative credit losses (including unrealized gains at time of sale)

  

12.5

%

  

12.5

%

  

12.5

%

  

12.5

%

Discount rate used to estimate present value:

            

Interest-only receivables from Trusts

  

14.0

%

  

14.0

%

  

14.0

%

  

14.0

%

Investments in Trust receivables

  

9.8

%

  

9.8

%

  

9.8

%

  

9.8

%

Restricted cash

  

9.8

%

  

9.8

%

  

9.8

%

  

9.8

%

 

The cumulative credit loss assumptions utilized at the time of sale of receivables were determined using a range of possible outcomes based on

historical experience, credit attributes for the specific pool of receivables and general economic factors. The unrealized gains at time of sale represent the excess of the fair value of credit enhancement assets over the Company’s carrying value related to such interests when receivables are sold.

 

Servicing fee income decreasedwas to $131.9$228.5 million, or 2.0%2.4% of average servicedgain on sale auto receivables, for the sixnine months ended DecemberMarch 31, 2002,2003, compared to $179.8$277.2 million, or 3.7% of average servicedgain on sale auto receivables, for the sixnine months ended DecemberMarch 31, 2001.2002. Servicing fee income represents accretion of the present value discount on estimated future excess cash flows from the Trusts, base servicing fees and other fees earned by the Company as servicer of the receivables sold to the Trusts. Servicing fee income also includes other-than-temporary impairment charges of $91.8$96.7 million and $14.0$38.9 million for the sixnine months ended DecemberMarch 31, 20022003 and 2001,2002, respectively. Other-than-temporary impairment resulted from increased default rates caused by the continued weakness in the economy, lower than expected recovery proceeds caused by depressed used car values and the expectation that current economic conditions will continue for the foreseeable future. In addition, the Company’s credit enhancement assets are carried on its financial statements based on the present value of future cash distributions from securitization trusts.Trusts. The expected delay in cash distributions from FSA insuredFSA-insured securitizations reducesreduced the present value of such cash distributions and resultsresulted in further other-than-temporary impairment.

 

Costs and Expenses:

 

Operating expenses increaseddecreased to $225.1$300.5 million for the sixnine months ended DecemberMarch 31, 2002,2003, from $207.8$315.7 million for the sixnine months ended DecemberMarch 31, 2001.2002. As an annualized percentage of average managed receivables outstanding,

operating expenses decreased to 2.8%2.5% for the sixnine months ended DecemberMarch 31, 2002,2003, compared to 3.6%3.5% for the sixnine months ended DecemberMarch 31, 2001. The ratio2002. Operating expenses improved primarily as a result of economiesa reduction in workforce in November 2002 and implementation of scale realized from a growing receivables portfolio and automation of loan origination, processing and servicing functions. revised operating plan in February 2003.

The dollar amount of operating expenses increased by $17.3Company recognized $60.0 million or 8%, primarily due to a $6.9 million chargein restructuring charges related to a 6.5%the reduction in the Company’s workforce in November 2002 and the implementation of its revised operating plan in February 2003. The Company recognized a $6.9 million restructuring charge for its November 2002 reduction in workforce and a $53.1 million restructuring charge related to the implementation of its revised operating plan. The revised operating plan included a decrease in the Company’s targeted loan origination volume to approximately $750.0 million per quarter by June 2003 and a reduction of operating expenses through downsizing its workforce and consolidating its branch office network. The restructuring charges recognized during the monthnine months ended March 31, 2003, consisted primarily of November 2002.severance costs of identified workforce reductions of approximately 1,200 positions related to the consolidation/closing of 161 branch offices including the closing of the Company’s Canadian lending activities, costs incurred to terminate facility and equipment leases prior to their termination date as well as estimated costs that will continue to be incurred under the contracts for their remaining terms without economic benefit to the Company. The restructuring charge also includes $20.8 million for

discontinuation of the development of the Company’s customer relationship management system, which was designed to provide operational scalability and marketing benefits in a high-growth environment.

 

The provision for loan losses increased to $152.7$229.8 million for the sixnine months ended DecemberMarch 31, 2002,2003, from $31.5$48.2 million for the sixnine months ended DecemberMarch 31, 2001.2002. As an annualized percentage of average on bookon-book finance receivables, the provision for loan losses was 11.9%9.5% and 3.5%3.6% for the sixnine months ended DecemberMarch 31, 2003 and 2002, and 2001, respectively. Approximately $101.3 millionSubsequent to September 30, 2002, the Company changed the structure of its securitization transactions to no longer meet the increase in the provisioncriteria for loan losses is due to the Company’s new securitization transaction structure that results in the securitization being accounted for as a secured financing.sales of finance receivables. Under this new structure, finance receivables remain on the Company’s balance sheet throughout their term, and credit losses related to those securitized receivables are provided for as a charge to operations. The remaining increase reflects the general expectation that current economic conditions, including elevated unemployment rates, will result in a higher number of charge-offs, and that depressed wholesale auction prices on the sale of repossessed vehicles will increase the amount charged-off per loan.

 

Interest expense increased to $79.9$131.5 million for the sixnine months ended DecemberMarch 31, 2002,2003, from $66.1$99.3 million for the sixnine months ended DecemberMarch 31, 2001,2002, due to higher debt levels. Average debt outstanding was $3,141.4$3,612.3 million and $2,257.1$2,314.2 million for the sixnine months ended DecemberMarch 31, 20022003 and 2001,2002, respectively. The increase in average debt outstanding reflects the accounting for securitization transactions subsequent to September 30, 2002, as secured financings. The Company’s effective rate of interest paid on its debt decreased to 5.0%4.8% from 5.8%5.7% as a result of lower short-term market interest rates.

 

The Company’s effective income tax rate was 38.5% for the sixnine months ended DecemberMarch 31, 20022003 and 2001.2002.

 

Other Comprehensive Loss:

 

Other comprehensive loss consisted of the following (in thousands):

 

  

Six Months Ended

December 31,


   

Nine Months Ended

March 31,


 
  

2002


   

2001


   

2003


   

2002


 

Unrealized (losses) gains on credit enhancement assets

  

$

(75,889

)

  

$

978

 

Unrealized losses on cash flow hedges

  

 

(14,635

)

  

 

(23,543

)

Unrealized losses on credit enhancement assets

  

$

(84,960

)

  

$

(5,829

)

Unrealized (losses) gains on cash flow hedges

  

 

(10,344

)

  

 

4,068

 

Canadian currency translation adjustment

  

 

(3,121

)

  

 

(2,061

)

  

 

3,300

 

  

 

(2,008

)

Income tax benefit

  

 

34,851

 

  

 

8,688

 

  

 

36,692

 

  

 

679

 

  


  


  


  


  

$

(58,794

)

  

$

(15,938

)

  

$

(55,312

)

  

$

(3,090

)

  


  


  


  


 

Credit Enhancement Assets

 

The unrealized (losses) gainslosses on credit enhancement assets consisted of the following (in thousands):

 

  

Six Months Ended

December 31,


 
  

2002


   

2001


   

Nine Months Ended

March 31,


 
  

2003


   

2002


 

Unrealized gains at time of sale

  

$

11,091

 

  

$

25,105

 

  

$

11,091

 

  

$

37,291

 

Unrealized holding losses related to changes in credit loss assumptions

  

 

(60,481

)

  

 

(6,140

)

  

 

(62,002

)

  

 

(17,745

)

Unrealized holding gains (losses) related to changes in interest rates

  

 

646

 

  

 

(11,664

)

Unrealized holding losses related to changes in interest rates

  

 

(2,197

)

  

 

(14,712

)

Net reclassification of unrealized gains into earnings

  

 

(27,145

)

  

 

(6,323

)

  

 

(31,852

)

  

 

(10,663

)

  


  


  


  


  

$

(75,889

)

  

$

978

 

  

$

(84,960

)

  

$

(5,829

)

  


  


  


  


 

The unrealized gains at time of sale represent the excess of the fair value of credit enhancement assets over the Company’s carrying value related to such interests when receivables are sold. Unrealized gains at time of sale were lower for the sixnine months ended DecemberMarch 31, 2002,2003, as compared to the sixnine months ended DecemberMarch 31, 2001,2002, due to the change in the structure of securitization transactions entered into subsequent to September 30, 2002, to no longer meet the criteria for sales of finance receivables.

 

Changes in the fair value of credit enhancement assets as a result of modifications to the credit loss assumptions are reported as unrealized holding gains or losses in other comprehensive (loss) incomeloss until realized, or, in the case of unrealized holding losses considered to be other-than-temporary, as a charge to operations. The cumulative credit loss assumptions used to estimate the fair value of credit enhancement assets are periodically reviewed by the Company and modified to reflect the actual credit performance for each securitization pool through the reporting date as well as estimates of future losses considering several factors including changes in the general economy. Differences between cumulative credit loss assumptions used in individual securitization pools can be attributed to the original credit attributes of a pool, actual credit performance through the reporting date and pool seasoning to the extent that changes in economic trends will have more of an impact on the expected future performance of less seasoned pools.

 

The Company increased the cumulative credit loss assumptions (including remaining unrealized gains at time of sale) used in measuring the fair value of credit enhancement assets to a range of 10.7%10.9% to 13.6%13.9% as of DecemberMarch 31, 2002,2003, from a range of 10.4% to 12.7% as of June 30, 2002, which, together with the expected delay in cash distributions from FSA insuredFSA-insured securitizations, caused an other-than-temporary impairment charge of $91.8$96.7 million and an unrealized holding loss of $60.5$62.0 million for the sixnine months ended DecemberMarch 31, 2002.2003. The range of cumulative credit loss assumptions was increased to

reflect adverse actual credit

performance compared to previous assumptions primarily due to lower than anticipated recovery values as well as expectations for higher future losses due to continued weakness in the general economy during the six months ended December 31, 2002.economy. Unrealized holding losses of $6.1$17.7 million for the sixnine months ended DecemberMarch 31, 2001,2002, resulted from an increase in cumulative credit loss assumptions for certain securitization Trusts due to expectations of a general decline in the economy.

 

Unrealized holding gains related to changes in interest rates of $0.6 million for the six months ended December 31, 2002, resulted primarily from an increase in estimated future cash flows from the Trusts due to lower interest rates payable to investors on the floating rate tranches of securitization transactions. Unrealized holding losses related to changes in interest rates of $11.7$2.2 million and $14.7 million for the sixnine months ended DecemberMarch 31, 2001,2003 and 2002, respectively, resulted primarily from a decrease in estimated future cash flows from the Trusts due to lower interest income earned on the investment of restricted cash and collections accounts. The lower earnings were partially offset by a decrease in interest rates payable to investors on the floating rate tranches of securitization transactions.

 

Net unrealized gains of $27.1$31.9 million and $6.3$10.7 million were reclassified into earnings during the sixnine months ended DecemberMarch 31, 20022003 and 2001,2002, respectively, and relate primarily to recognition of actual excess cash collected over the Company’s initial estimate and recognition of unrealized gains at time of sale. Included in the $27.1$31.9 million of net unrealized gain recognized during the period is $20.6net unrealized gains of $28.7 million related to fluctuations in interest rates offset by cash flow hedges described below.

 

Cash flow hedges

 

Unrealized losses on cash flow hedges were $14.6$10.3 million for the sixnine months ended DecemberMarch 31, 2002,2003, compared to $23.5unrealized gains of $4.1 million for the sixnine months ended DecemberMarch 31, 2001. Expectations that short-term market interest rates will remain lower for an extended period of time during the six months ended December 31, 2002 and 2001, resulted in an increase in the liability related to the Company’s interest rate swap agreements.2002. Unrealized losses on cash flow hedges are reclassified into earnings as unrealized gains or losses related to interest rate fluctuations on the Company’s credit enhancement assets are reclassified into earnings. Net unrealized losses reclassified into earnings were $20.6$28.7 million for the sixnine months ended DecemberMarch 31, 2003.

Canadian Currency Translation Adjustment

Canadian currency translation adjustment gain of $3.3 million offset losses included in other comprehensive loss for the nine months ended March 31, 2003. This unrealized gain is due to the increase in the value of the Company’s Canadian dollar denominated assets related to the decline in the U.S. dollar to Canadian dollar conversion rates during the period. Canadian currency translation adjustment loss of $2.0 million was included in other comprehensive loss for the nine months ended March 31, 2002. This unrealized loss is due to the decline in the value of the Company’s Canadian dollar denominated assets related to the increased strength in the U.S. dollar to Canadian dollar conversion rates during the period.

 

Net Margin:

 

Net margin is the difference between finance charge fee and other income earned on the Company’s receivables and the cost to fund the receivables as well as the cost of debt incurred for general corporate purposes.

 

The Company’s net margin as reflected on the consolidated statements of operationsincome is as follows (in thousands):

 

   

Six Months Ended

December 31,


 
   

2002


   

2001


 

Finance charge, fee and other income

  

$

235,205

 

  

$

183,074

 

Funding costs

  

 

(79,903

)

  

 

(66,147

)

   


  


Net margin

  

$

155,302

 

  

$

116,927

 

   


  


   

Nine Months Ended

March 31,


 
   

2003


   

2002


 

Finance charge and other income

  

$

426,292

 

  

$

268,329

 

Interest expense

  

 

(131,453

)

  

 

(99,270

)

   


  


Net margin

  

$

294,839

 

  

$

169,059

 

   


  


 

The Company evaluates the profitability of its lending activities based partly upon the net margin related to its managed auto loan portfolio, including on-book and gain on book receivables and servicedsale receivables. The Company has historically securitizeduses this information to analyze trends in the components of the profitability of its managed auto portfolio. Net margin on a managed basis facilitates comparisons of results between the Company and other finance companies (i) that do not securitize their receivables or (ii) due to the structure of their securitization transactions, are not required to account for the securitization of their receivables as a sale. The Company routinely securitizes its receivables and prior to October 1, 2002, recorded a gain on the sale of such receivables. The net margin on a managed basis presented below assumes that all securitized receivables have not been sold and are still on the Company’s consolidated balance sheet. Accordingly, no gain on sale or servicing fee income would have been recognized. Instead, finance charges and fees would be recognized over the life of the securitized receivables as earned, and interest and other costs related to the asset-backed securities would be recognized as incurred.

 

Net margin for the Company’s managed finance receivables portfolio is as follows (in thousands):

 

   

Six Months Ended

December 31,


 
   

2002


   

2001


 

Finance charge, fee and other income

  

$

1,391,244

 

  

$

1,065,505

 

Funding costs

  

 

(397,001

)

  

 

(367,801

)

   


  


Net margin

  

$

994,243

 

  

$

697,704

 

   


  


   

Nine Months Ended

March 31,


 
   

2003


   

2002


 

Finance charge and other income

  

$

2,079,626

 

  

$

1,655,182

 

Interest expense

  

 

(586,070

)

  

 

(560,435

)

   


  


Net margin

  

$

1,493,556

 

  

$

1,094,747

 

   


  


 

Net margin as a percentage of average managed finance receivables outstanding is as follows (dollars in thousands):

 

  

Six Months Ended

December 31,


   

Nine Months Ended

March 31,


 
  

2002


   

2001


   

2003


   

2002


 

Finance charge and other income

  

 

17.5

%

  

 

18.6

%

Interest expense

  

 

(4.9

)

  

 

(6.3

)

  


  


Finance charge, fee and other income

  

 

17.6

%

  

 

18.7

%

Funding costs

  

 

(5.0

)

  

 

(6.5

)

  


  


Net margin as a percentage of average managed finance receivables

  

 

12.6

%

  

 

12.2

%

  

 

12.6

%

  

 

12.3

%

  


  


  


  


Average managed finance receivables

  

$

15,682,299

 

  

$

11,322,067

 

  

$

15,852,781

 

  

$

11,870,399

 

  


  


  


  


 

Net margin as a percentage of average managed finance receivables increased for the sixnine months ended DecemberMarch 31, 2002,2003, compared to the sixnine months ended DecemberMarch 31, 2001,2002, as the Company was able to retain some of the benefit of declining interest rates in its loan pricing strategies.

The following is a reconciliation of finance charge and other income as reflected on the Company’s consolidated statements of income to the Company’s managed basis finance charge and other income:

   

Nine Months Ended

March 31,


   

2003


  

2002


Finance charge and other income per consolidated statements of income

  

$

426,292

  

$

268,329

Adjustments to reflect income earned on receivables in gain on sale Trusts

  

 

1,653,334

  

 

1,386,853

   

  

Managed basis finance charge and other income

  

$

2,079,626

  

$

1,655,182

   

  

The following is a reconciliation of interest expense as reflected on the Company’s consolidated statements of income to the Company’s managed basis interest expense:

   

Nine Months Ended

March 31,


   

2003


  

2002


Interest expense per consolidated statements of income

  

$

131,453

  

$

99,270

Adjustments to reflect expenses incurred by gain on sale Trusts

  

 

454,617

  

 

461,165

   

  

Managed basis interest expense

  

$

586,070

  

$

560,435

   

  

 

CREDIT QUALITY

 

The Company provides financing in relatively high-risk markets, and, therefore, anticipates a corresponding high level of delinquencies and charge-offs.

 

Finance receivables on the Company’s balance sheets include receivables purchased but not yet securitized and receivables securitized by the Company after September 30, 2002. Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses on the balance sheet at a level considered adequate to cover probable credit losses on finance receivables at DecemberMarch 31, 2002.2003. Finance receivables are charged-off to the allowance for loan losses when the Company repossesses and disposes of the collateral or the account is otherwise deemed uncollectable.

 

Prior to October 1, 2002, the Company periodically sold receivables to Trusts in securitization transactions accounted for as a sale of receivables and retained an interest in the receivables sold in the form of credit enhancement assets. Credit enhancement assets are reflected on the Company’s balance sheet at fair value, calculated based upon the present value of estimated excess future cash flows from the Trusts using, among other assumptions, estimates of future credit losses on the receivables sold. Charge-offs of receivables that have been sold to Trusts decrease the amount of excess future cash flows from the Trusts. If such charge-offs are expected to exceed the Company’s original estimates of cumulative credit losses or if the actual timing of these losses differs from expected timing, the fair value of credit enhancement assets is written down through an other-than-temporary impairment charge to earnings.

 

The following table presents certain data related to the receivables portfolio (dollars in thousands):

 

  

December 31, 2002


 
  

On Book


   

Serviced


   

Total

Managed


   

March 31, 2003


 
  

On-Book


   

Gain on Sale


   

Total

Managed


 

Principal amount of receivables

  

$

3,998,081

 

  

$

12,210,492

 

  

$

16,208,573

 

  

$

5,028,731

 

  

$

10,820,142

 

  

$

15,848,873

 

     


  


     


  


Nonaccretable acquisition fees

  

 

(75,350

)

     

 

(75,350

)

  

 

(98,376

)

     

 

(98,376

)

Allowance for loan losses

  

 

(143,083

)

  

 

(1,347,496

)(a)

  

 

(1,490,579

)

  

 

(187,496

)

  

 

(1,094,660

)(a)

  

 

(1,282,156

)

  


  


  


  


  


  


Receivables, net

  

$

3,779,648

 

        

$

4,742,859

 

      
  


      
  


      

Number of outstanding contracts

  

 

267,283

 

  

 

957,653

 

  

 

1,224,936

 

  

 

330,730

 

  

 

882,792

 

  

 

1,213,522

 

  


  


  


  


  


  


Average principal amount of outstanding contract (in dollars)

  

$

14,958

 

  

$

12,750

 

  

$

13,232

 

  

$

15,205

 

  

$

12,257

 

  

$

13,060

 

  


  


  


  


  


  


Allowance for loan losses and nonaccretable acquisition fees as a percentage of receivables

  

 

5.5

%

  

 

11.0

%

  

 

9.7

%

  

 

5.7

%

  

 

10.1

%

  

 

8.7

%

  


  


  


  


  


  


 

(a) The allowance for loan losses related to servicedgain on sale finance receivables is factored into the valuation of interest-only receivables from Trusts on the Company’s consolidated balancesheets. Assumptions for cumulative credit losses are added and charge-offs of receivables that have been sold to Trusts reduce the allowance for loan losses.

 

The following is a summary of managed finance receivables which are (i) more than 30 days delinquent, but not yet in repossession, and (ii) in repossession (dollars in thousands):

 

   

December 31, 2002


 
   

On Book


   

Serviced


   

Total Managed


 
   

Amount


  

Percent


   

Amount


  

Percent


   

Amount


  

Percent


 

Delinquent contracts:

                        

31 to 60 days

  

$

147,513

  

3.7

%

  

$

1,341,599

  

11.0

%

  

$

1,489,112

  

9.2

%

Greater than 60 days

  

 

61,701

  

1.5

 

  

 

601,038

  

4.9

 

  

 

662,739

  

4.1

 

   

  

  

  

  

  

   

 

209,214

  

5.2

 

  

 

1,942,637

  

15.9

 

  

 

2,151,851

  

13.3

 

In repossession

  

 

16,793

  

0.4

 

  

 

213,687

  

1.8

 

  

 

230,480

  

1.4

 

   

  

  

  

  

  

   

$

226,007

  

5.6

%

  

$

2,156,324

  

17.7

%

  

$

2,382,331

  

14.7

%

   

  

  

  

  

  

  

March 31, 2003


 
  

On-Book


   

Gain on Sale


   

Total Managed


 
  

Amount


  

Percent


   

Amount


  

Percent


   

Amount


  

Percent


 

Delinquent contracts:

                  

31 to 60 days

  

$

190,969

  

3.8

%

  

$

957,461

  

8.9

%

  

$

1,148,430

  

7.3

%

Greater than 60 days

  

 

68,899

  

1.4

 

  

 

357,180

  

3.3

 

  

 

426,079

  

2.7

 

  

  

  

  

  

  

  

 

259,868

  

5.2

 

  

 

1,314,641

  

12.2

 

  

 

1,574,509

  

10.0

 

In repossession

  

 

31,287

  

0.6

 

  

 

196,556

  

1.8

 

  

 

227,843

  

1.4

 

  

  

  

  

  

  

  

$

291,155

  

5.8

%

  

$

1,511,197

  

14.0

%

  

$

1,802,352

  

11.4

%

  

  

  

  

  

  

  

December 31, 2001


 
  

On Book


   

Serviced


   

Total Managed


   

March 31, 2002


 
  

Amount


  

Percent


   

Amount


  

Percent


   

Amount


  

Percent


   

On-Book


   

Gain on Sale


   

Total Managed


 
  

Amount


  

Percent


   

Amount


  

Percent


   

Amount


  

Percent


 

Delinquent contracts:

                                    

31 to 60 days

  

$

76,357

  

3.2

%

  

$

975,428

  

9.7

%

  

$

1,051,785

  

8.5

%

  

$

46,967

  

2.0

%

  

$

869,307

  

7.7

%

  

$

916,274

  

6.7

%

Greater than 60 days

  

 

40,625

  

1.7

 

  

 

427,062

  

4.3

 

  

 

467,687

  

3.8

 

  

 

35,783

  

1.5

 

  

 

388,990

  

3.5

 

  

 

424,773

  

3.1

 

  

  

  

  

  

  

  

  

  

  

  

  

  

 

116,982

  

4.9

 

  

 

1,402,490

  

14.0

 

  

 

1,519,472

  

12.3

 

  

 

82,750

  

3.5

 

  

 

1,258,297

  

11.2

 

  

 

1,341,047

  

9.8

 

In repossession

  

 

17,896

  

0.8

 

  

 

116,274

  

1.2

 

  

 

134,170

  

1.1

 

  

 

15,877

  

0.6

 

  

 

137,030

  

1.2

 

  

 

152,907

  

1.1

 

  

  

  

  

  

  

  

  

  

  

  

  

  

$

134,878

  

5.7

%

  

$

1,518,764

  

15.2

%

  

$

1,653,642

  

13.4

%

  

$

98,627

  

4.1

%

  

$

1,395,327

  

12.4

%

  

$

1,493,954

  

10.9

%

  

  

  

  

  

  

  

  

  

  

  

  

 

Delinquencies in the Company’s managed receivables portfolio may vary from period to period based upon the average age or seasoning of the portfolio, seasonality within the calendar year and economic factors. Due to the Company’s target customer base, a relatively high percentage of accounts become delinquent at some point in the life of a loan and there is a fairly high rate of account movement between current and delinquent status in the portfolio. Delinquencies

Finance receivables that are 31 to 60 days delinquent on a total managed basis were higher as of DecemberMarch 31, 2002,2003, compared to DecemberMarch 31, 2001,2002, due to continued weakness in the economy, including higher unemployment rates, and to a lesser extent, an increase in the average age of the Company’s managed receivables portfolio. Finance receivables that are greater than 60 days delinquent on a total managed basis were lower as of March 31, 2003, compared to March 31, 2002, due to the Company implementing a more aggressive repossession and liquidation strategy for late-stage delinquent accounts in early calendar 2003.

 

In accordance with its policies and guidelines, the Company, at times, offers payment deferrals to consumers, whereby the consumer is allowed to move a delinquent payment to the end of the loan generally by paying a fee (approximately the interest portion of the payment deferred). The Company’s policies and guidelines, as well as certain contractual restrictions in the Company’s securitization transactions, limit the number and frequency of

deferments that may be granted. An account for which all delinquent payments are deferred is classified as current at the time the deferment is granted. 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 managed auto

receivables outstanding were 6.0%7.3% and 5.7%6.3% for the three and sixnine months ended DecemberMarch 31, 2002,2003, respectively, and 5.0% and 4.9% for each of the three and sixnine months ended DecemberMarch 31, 2001, respectively.2002. Of the total amount deferred, on bookon-book finance receivables receiving a payment deferral were 1.4%5.2% and 1.2%2.8% for the three and sixnine months ended DecemberMarch 31, 2002,2003, respectively, and 2.7%2.5% and 2.3%2.4% for the three and sixnine months ended DecemberMarch 31, 2001,2002, respectively. The percentage of contracts receiving a payment deferral increased during the periods ended March 31, 2003, due to higher delinquency levels in the portfolio. The Company believes that payment deferrals granted according to its policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.

 

The following table presents charge-off data with respect to the Company’s managed finance receivables portfolio (dollars in thousands):

 

  

Three Months Ended December 31,


   

Six Months Ended

December 31,


   

Three Months Ended

March 31,


   

Nine Months Ended

March 31,


 
  

2002


   

2001


   

2002


   

2001


   

2003


   

2002


   

2003


   

2002


 

On Book:

            

On-Book:

            

Repossession charge-offs

  

$

21,578

 

  

$

16,755

 

  

$

41,139

 

  

$

29,068

 

  

$

41,519

 

  

$

25,546

 

  

$

82,658

 

  

$

54,615

 

Less: Recoveries

  

 

(8,492

)

  

 

(8,373

)

  

 

(18,610

)

  

 

(14,770

)

  

 

(17,991

)

  

 

(12,877

)

  

 

(36,601

)

  

 

(27,648

)

Mandatory charge-offs (1)

  

 

5,619

 

  

 

5,163

 

  

 

9,772

 

  

 

7,510

 

  

 

9,168

 

  

 

3,910

 

  

 

18,940

 

  

 

11,420

 

  


  


  


  


  


  


  


  


Net charge-offs

  

$

18,705

 

  

$

13,545

 

  

$

32,301

 

  

$

21,808

 

  

$

32,696

 

  

$

16,579

 

  

$

64,997

 

  

$

38,387

 

  


  


  


  


  


  


  


  


Serviced:

            

Gain on Sale:

            

Repossession charge-offs

  

$

256,761

 

  

$

157,700

 

  

$

513,235

 

  

$

293,334

 

  

$

363,437

 

  

$

200,149

 

  

$

876,672

 

  

$

493,482

 

Less: Recoveries

  

 

(103,867

)

  

 

(69,769

)

  

 

(222,232

)

  

 

(136,766

)

  

 

(144,279

)

  

 

(98,720

)

  

 

(366,511

)

  

 

(235,485

)

Mandatory charge-offs (1)

  

 

65,003

 

  

 

28,436

 

  

 

118,579

 

  

 

55,749

 

  

 

50,310

 

  

 

36,927

 

  

 

168,889

 

  

 

92,676

 

  


  


  


  


  


  


  


  


Net charge-offs

  

$

217,897

 

  

$

116,367

 

  

$

409,582

 

  

$

212,317

 

  

$

269,468

 

  

$

138,356

 

  

$

679,050

 

  

$

350,673

 

  


  


  


  


  


  


  


  


Total managed:

                        

Repossession charge-offs

  

$

278,339

 

  

$

174,455

 

  

$

554,374

 

  

$

322,402

 

  

$

404,956

 

  

$

225,695

 

  

$

959,330

 

  

$

548,097

 

Less: Recoveries

  

 

(112,359

)

  

 

(78,142

)

  

 

(240,842

)

  

 

(151,536

)

  

 

(162,270

)

  

 

(111,597

)

  

 

(403,112

)

  

 

(263,133

)

Mandatory charge-offs (1)

  

 

70,622

 

  

 

33,599

 

  

 

128,351

 

  

 

63,259

 

  

 

59,478

 

  

 

40,837

 

  

 

187,829

 

  

 

104,096

 

  


  


  


  


  


  


  


  


Net charge-offs

  

$

236,602

 

  

$

129,912

 

  

$

441,883

 

  

$

234,125

 

  

$

302,164

 

  

$

154,935

 

  

$

744,047

 

  

$

389,060

 

  


  


  


  


  


  


  


  


Net charge-offs as an annualized percentage of average managed receivables outstanding

  

 

5.8

%

  

 

4.3

%

  

 

5.6

%

  

 

4.1

%

  

 

7.6

%

  

 

4.8

%

  

 

6.3

%

  

 

4.4

%

  


  


  


  


  


  


  


  


Net recoveries as a percentage of gross repossession charge-offs

  

 

40.4

%

  

 

44.8

%

  

 

43.4

%

  

 

47.0

%

  

 

40.1

%

  

 

49.4

%

  

 

42.0

%

  

 

48.0

%

  


  


  


  


  


  


  


  


 

(1) Mandatory charge-offs represent accounts 120 days delinquent that are charged-off in full with no recovery amounts realized at time of charge-off.

 

Net charge-offs as an annualized percentage of average managed receivables outstanding may vary from period to period based upon the average age or seasoning of the portfolio and economic factors. Net charge-offs increased for the periods ended DecemberMarch 31, 2002,2003, compared to the periods ended

December March 31, 2001,2002, due to continued weakness in the economy, including higher unemployment rates, and due to lower net recoveries on repossessed vehicles. Recoveries as a percentage of repossession charge-offs decreased due to general declines in used car auction values. In addition, the Company implemented a more aggressive strategy for repossessing and liquidating late-stage delinquent accounts in early calendar 2003 resulting in a higher level of charge-offs in the periods ended March 31, 2003.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s primary sources of cash have been borrowings under its warehouse credit facilities and transfers of finance receivables to its whole loan purchase facility and to Trusts in securitization transactions. The Company’s primary uses of cash have been purchases of finance receivables and funding credit enhancement requirements for securitization transactions.

 

The Company used cash of $4,452.3$5,870.8 million and $4,072.0$6,494.2 million for the purchase of finance receivables during the sixnine months ended DecemberMarch 31, 20022003 and 2001,2002, respectively. These purchases were funded initially utilizing warehouse credit facilities and subsequently through either the sale of finance receivables or the long-term financing of finance receivables in securitization or whole loan purchase transactions.

 

As of DecemberMarch 31, 2002,2003, warehouse credit facilities consisted of the following (in millions):

 

Maturity


  

Facility

Amount


  

Advances Outstanding


U.S.:

        

September 2003 (a)

  

$

250.0

    

November 2003 (a)

  

 

500.0

    

December 2003 (a)(b)

  

 

500.0

  

$

500.0

June 2004 (a)(b)

  

 

750.0

  

 

750.0

February 2005 (a)(b)

  

 

500.0

  

 

500.0

March 2005 (a)(c)

  

 

2,545.0

    
   

  

   

$

5,045.0

  

$

1,750.0

   

  

Canada:

        

May 2003 (a)

  

CDN $

100.0

    

August 2003 (a)

  

 

150.0

    
   

  

   

CDN $

250.0

    
   

  

Maturity


  

Facility

Amount


  

Advances Outstanding


September 2003 (a)

  

$

250.0

    

December 2003 (a)(b)(d)

  

 

500.0

  

$

500.0

June 2004 (a)(b)

  

 

750.0

  

 

750.0

February 2005 (a)(b)

  

 

500.0

  

 

500.0

March 2005 (a)(c)

  

 

1,950.0

  

 

513.5

   

  

   

$

3,950.0

  

$

2,263.5

   

  

 

(a) At the maturity date, the outstanding debt balance can either be repaid in full or over time based on the amortization of receivables pledged.
(b) These facilities are revolving facilities through the date stated above. During the revolving period, the Company has the ability to substitute receivables for cash, or vice versa.
(c) $380.0200.0 million of this facility matures in March 2003,2004, and the remaining $2,165.0$1,750.0 million matures in March 2005.
(d)The Company intends to repay this facility and exercise its right to cancel this facility during the quarter ending June 30, 2003.

The Company terminated its $500.0 million warehouse credit facility that was scheduled to mature in November 2003 and both of its Canadian warehouse credit facilities to realign the Company’s warehouse capacity with lower future loan origination volume.

 

The Company’s warehouse credit facilities contain various default covenants requiring certain minimum financial ratios and cumulative net loss, delinquency and repossession ratios. As of DecemberMarch 31, 2002,2003, none of the Company’s warehouse credit facilities had financial ratios or performance ratios in excess of the targeted levels. Additionally, the Company’s funding agreements that mature in August, September and November 2003 contain default covenants requiring minimum credit ratings from Standard & Poor’s Rating Services and Moody’s Investors Service. In the event of a one-notch downgrade from the Company’s current credit ratings, the Company would not have access to funds provided by these warehouse credit facilities.

 

Within the next twelve months, $1,789.1$950.0 million of the Company’s warehouse credit facilities are up for renewal. In order to realign the Company’s warehouse capacity with lower future loan origination volume, the Company anticipates that certain warehouse facilities will not be renewed.renewed or will be cancelled. In addition,accordance with this strategy, the Company may negotiate withintends to repay the facility and exercise its right to cancel its $500.0 million warehouse credit providers to modifyfacility that matures in December 2003 during the terms of other facilities that could result in release of some of its existing warehouse capacity. However, thequarter ending June 30, 2003. The Company believes the capacity available under the remaining warehouse credit facilities will be sufficient to meet the Company’s warehouse funding needs for calendar 2003.

 

In March 2003, the Company entered into a whole loan purchase facility under which the Company transferred $1.0 billion of finance receivables to a special purpose finance subsidiary of the Company and received an advance of $875.0 million. Under the purchase facility, during a revolving period ending in September 2003, the Company will transfer additional receivables to the special purpose finance subsidiary to replenish the amount of principal amortized and to replace delinquent receivables. Subsequent to the revolving period, the noteholders will determine the ultimate disposition of the receivables; under certain circumstances, the Company has the right, but not the obligation, to repurchase the receivables.

The Company has completed thirty-seven auto receivable securitization transactions through DecemberMarch 31, 2002.2003. The proceeds from the transactions were primarily used to repay borrowings outstanding under the Company’s warehouse credit facilities.

 

A summary of these transactions is as follows (in millions):

 

Transaction (a)


  

Date


       

Original

Amount


         

Balance at December 31, 2002


  

Date


  

Original Amount


    

Balance at

March 31, 2003


1999-B

  

May 1999

       

$

1,000.0

         

$130.3

  

May 1999

  

$

1,000.0

    

$

100.7

1999-C

  

August 1999

       

 

1,000.0

         

179.4

  

August 1999

  

 

1,000.0

    

 

145.0

1999-D

  

October 1999

       

 

900.0

         

185.6

  

October 1999

  

 

900.0

    

 

151.8

2000-A

  

February 2000

       

 

1,300.0

         

320.2

  

February 2000

  

 

1,300.0

    

 

266.7

2000-B

  

May 2000

       

 

1,200.0

         

367.3

  

May 2000

  

 

1,200.0

    

 

311.9

2000-C

  

August 2000

       

 

1,100.0

         

387.0

  

August 2000

  

 

1,100.0

    

 

333.7

2000-1

  

November 2000

       

 

495.0

         

175.5

  

November 2000

  

 

495.0

    

 

149.4

2000-D

  

November 2000

       

 

600.0

         

248.5

  

November 2000

  

 

600.0

    

 

216.9

2001-A

  

February 2001

       

 

1,400.0

         

621.1

  

February 2001

  

 

1,400.0

    

 

542.2

2001-1

  

April 2001

       

 

1,089.0

         

504.7

  

April 2001

  

 

1,089.0

    

 

432.7

2001-B

  

July 2001

       

 

1,850.0

         

1,044.5

  

July 2001

  

 

1,850.0

    

 

918.8

2001-C

  

September 2001

       

 

1,600.0

         

999.8

  

September 2001

  

 

1,600.0

    

 

876.3

2001-D

  

October 2001

       

 

1,800.0

         

1,156.1

  

October 2001

  

 

1,800.0

    

 

1,024.5

2002-A

  

February 2002

       

 

1,600.0

         

1,185.6

  

February 2002

  

 

1,600.0

    

 

1,043.1

2002-1

  

April 2002

       

 

990.0

         

755.4

  

April 2002

  

 

990.0

    

 

668.8

2002-A Canada(b)

  

May 2002

       

 

145.0

         

113.8

2002-A Canada (b)

  

May 2002

  

 

145.0

    

 

121.9

2002-B

  

June 2002

       

 

1,200.0

         

1,003.7

  

June 2002

  

 

1,200.0

    

 

894.8

2002-C

  

August 2002

       

 

1,300.0

         

1,148.6

  

August 2002

  

 

1,300.0

    

 

1,026.1

2002-D

  

September 2002

       

 

600.0

         

545.9

  

September 2002

  

 

600.0

    

 

490.7

2002-EM

  

October 2002

       

 

1,700.0

         

1,654.8

  

October 2002

  

 

1,700.0

    

 

1,545.1

C2002-1 Canada(b)(c)

  

November 2002

       

 

137.0

         

137.6

C2002-1 Canada (b)(c)

  

November 2002

  

 

137.0

    

 

130.0

          

         
     

    

          

$

23,006.0

         

$12,865.4

     

$

23,006.0

    

$

11,391.1

          

         
     

    

 

(a) Transactions originally totaling $4,845.5 million have been paid off as of DecemberMarch 31, 2002.2003.
(b) The balance at DecemberMarch 31, 2002,2003, reflects fluctuations in foreign currency translation rates and principal pay downs.
(c) Amounts do not include the $19.0$20.4 million of asset-backed securities issued that wereand retained by the Company.

 

Prior to October 1, 2002, the Company structured its securitization transactions to meet the criteria for sales of finance receivables under generally accepted accounting principles in the United States of America. The Company changed the structure of securitization transactions completed subsequent to September 30, 2002, to no longer meet the criteria for sale of finance receivables. This change in securitization structure does not change the Company’s requirement to provide credit enhancement in order to attain specific credit ratings for the asset-backed securities issued by the Trusts. The Company typically makes an initial deposit to a restricted cash account and transfers finance receivables in excess of the amount of asset-backed securities issued to create initial overcollateralization. The Company subsequently uses excess cash flows generated by the Trusts to either increase the restricted cash account or repay the outstanding asset-backed securities on an accelerated basis, thereby creating additional credit enhancement through overcollateralization in the Trusts. When the credit enhancement levels reach specified percentages of the Trust’s pool of receivables, excess cash flows are distributed to the Company.

 

The Company’s initial cash deposit and overcollateralization transfer for its 2002-EM securitization transaction equaled the full credit enhancement amount required by the financial guaranty insurance policy provider. Therefore, excess cash flows from 2002-EM were distributed to the Company beginning the first month after the receivables were securitized. The Company intends to fund only the initial deposit requirement in future securitization transactions rather than funding the full credit enhancement amount as was the case in the 2002-EM transaction.

 

The Company employs two types of securitization structures to meet its credit enhancement requirements. The structure the Company has utilized most frequently involves the purchase of a financial guaranty policy issued by an insurer to cover the asset-backed securities as well as the use of reinsurance and other alternative credit enhancement products to reduce the required initial deposit to the restricted cash account and initial overcollateralization. The reinsurance used to reduce the Company’s initial cash deposit has typically been arranged by an insurer of the asset-backed securities. However, outstanding reinsurance commitments of $200.0 million from Financial Security Assurance, Inc. (“FSA”) were cancelled by the Company in January 2003. Accordingly, the Company must provide the required initial credit enhancement deposit in future securitization transactions from its existing capital resources.

 

The Company had a credit enhancement facility with a financial institution which the Company used to fund a portion of the initial cash deposit for securitization transactions through October 2001, similar to the amount covered by the reinsurance as described above. In June 2002, the Company replaced the credit enhancement facility with a $130.0 million letter of credit from a financial institution. This letter of credit does not represent funded debt and, therefore, is not recorded as debt on the Company’s consolidatedThere was no balance sheet. A total of $2.5 million was outstanding under this letter of credit as of DecemberMarch 31, 2002.2003, and the letter of credit has been retired.

 

The Company’s second securitization structure involves the sale of subordinated asset-backed securities in order to provide credit enhancement for the senior asset-backed securities. The subordinated asset-backed securities replace a portion of the Company’s initial credit enhancement deposit otherwise required in a securitization transaction in a manner similar to the utilization of reinsurance or other alternative credit enhancements described in the preceding paragraphs. In August 2002, theThe Company entered intohas a revolving credit enhancement facility that provides for borrowingborrowings up to $290.0$145.0 million for the financing of bonds rated BBB- and BB- by the rating agencies in connection with subordinated securitization transactions. The Company has not utilized this facility and believes that it is unlikely this facility will be utilized prior to its expiration in August 2003 since current market conditions for execution of a senior subordinated securitization transaction by the Company are unfavorable.

 

Cash flows related to securitization transactions were as follows (in millions):

 

  

Six Months Ended December 31,


  

2002


  

2001


  

Nine Months Ended

March 31,


  

2003


  

2002


Initial credit enhancement deposits:

            

Gain on sale Trusts:

            

Restricted cash

  

$

50.2

  

$

255.5

  

$

50.2

  

$

303.5

Overcollateralization

  

 

7.9

     

 

7.9

   

Borrowings under credit enhancement facility

     

 

182.5

     

 

182.5

Secured financing Trusts:

            

Restricted cash

  

 

59.2

     

 

59.2

   

Overcollateralization

  

 

176.4

     

 

176.4

   

Distributions from Trusts:

            

Gain on sale Trusts

  

 

111.1

  

 

127.9

  

 

144.6

  

 

182.8

Secured financing Trusts

  

 

27.1

     

 

75.5

   

 

With respect to the Company’s securitization transactions covered by a financial guaranty insurance policy, agreements with the insurers provide that if delinquency,portfolio performance ratios (delinquency, default or net loss ratiostriggers) in a Trust’s pool of receivables exceed certain targets, the specified credit enhancement levels would be increased. If a targeted portfolio performance ratio was exceeded in any FSA insuredFSA-insured securitization and a waiver was not granted by FSA, excess cash flows from all of the Company’s FSA insuredFSA-insured securitizations could be used by the insurer to increase credit enhancement for the securitization in which a ratio was exceeded to higher specified levels rather than being distributed to the Company. If a targeted portfolio performance ratio was exceeded for an extended period of time in larger or multiple securitizations requiring a greater amount of additional credit enhancement, there would be a material adverse effect on the Company’s liquidity.

 

In March 2003, the Company exceeded its targeted net loss triggers in three FSA-insured securitization transactions. A waiver was not granted by FSA. Accordingly, $19.0 million of cash generated by FSA-insured securitization transactions otherwise distributable by the Trusts in March 2003 was used to fund increased credit enhancement levels for the securitizations that breached their net loss triggers. The Company believes that it is probable that net loss ratiostriggers on certain of its FSA insuredadditional FSA-insured securitization Trusts will exceed targeted levels during the Marchcalendar 2003 and June 2003 quarters.possible that net loss performance triggers may be exceeded in 2004 on additional FSA-insured securitization Trusts.

 

As a result of expected seasonal increasesThe prolonged weakness in delinquency levels through February 2003 and the prospects for continued economic weakness,economy has resulted in the Company believed it was likely thatexperiencing lower payment rates in late-stage delinquencies. Accordingly, the initially targeted delinquency ratios would have been exceeded in certain of its FSA insured securitizations. Therefore, in September 2002, FSA agreed to revise the targeted delinquency ratios throughCompany has implemented a more aggressive strategy for repossessing and including the March 2003 distribution date. As of December 31, 2002, none of the Company’s securitizations had delinquency ratios in excess of the revised targeted levels.liquidating these delinquent accounts. The Company anticipates that expected seasonal improvements in delinquency levels after February 2003its new strategy should result in thedelinquency ratios being reducedmaintained below applicable initially targeted levels. However, if expected seasonal improvements do not materialize or ifIf there

is continued instability or further deterioration in the economy, initially targeted delinquency levels could be exceeded in certain FSA insuredFSA-insured securitization Trusts.

However, should targeted delinquency levels be exceeded, there would be further increases in required credit enhancement levels only for securitization transactions that have not yet breached their net loss triggers.

The Company does not expect waivers to be granted if targetedby FSA in the future with respect to securitizations that breach net loss or delinquency levels are exceededtriggers and estimates that $100.0 million to $150.0 million of cash otherwise distributable by the Trusts during the remainder of the fiscal yearon FSA-insured securitization transactions will be used to increase credit enhancement for FSAFSA-insured transactions through fiscal 2004 rather than being released to the Company.

 

The financing arrangement for oneAgreements with the Company’s financial guaranty insurance providers contain additional specified targeted portfolio performance ratios which are higher than the limits referred to in the preceding paragraphs. If, at any measurement date, the targeted portfolio performance ratios with respect to any insured trust were to exceed these additional levels, provisions of the agreements permit the Company’s loanfinancial guaranty insurance providers to terminate the Company’s servicing centers is structured asrights to the receivables sold to that Trust. In addition, the servicing agreements on certain insured securitization Trusts are cross-defaulted so that a synthetic lease suchdefault under one servicing agreement would allow the guaranty insurance provider to terminate the Company’s servicing rights under all servicing agreements concerning securitization Trusts in which they issued a financial guaranty insurance policy. Although the Company has never exceeded these additional targeted portfolio performance ratios, nor does it believe that the Company is considered to leaseportfolio will exceed these limits, there can be no assurance that the property for accounting purposes but is considered to own the property, subjectCompany’s servicing rights with respect to the indebtedness incurred to acquire and constructautomobile receivables in such Trusts or any other Trust which exceeds the property, for federal income tax and other purposes. This arrangement provides for rental payments tospecified levels in future periods will not be made through the amended termination date in February 2003, at which time the Company will be required to purchase the property from the lessor for a purchase price equal to the amount of the outstanding debt. As of December 31, 2002, the amount of net outstanding debt under this lease financing arrangement was $29.4 million. The Company is currently negotiating a sale-leaseback agreement to refinance the obligation due upon the termination of the synthetic lease. If the Company does not execute the sale-leaseback agreement, it will be required to repay the outstanding debt to acquire the loan servicing center.terminated.

 

In JanuaryApril 2003, Standard & Poor’s Rating Services, Fitch Ratings and Moody’s Investors Service downgraded the Company’s credit rating to ‘B+’, ‘B+’ and ‘B1’, respectively. These downgrades resulted in additional postings of $22.5 million to a restricted cash account for‘B’. This downgrade did not have an impact on the Company’s derivative collateral lines.financial or liquidity position.

 

On February 12,In April 2003, the Company announcedentered into a $1.0 billion securitization transaction involving the purchase of a financial guaranty insurance policy. Initial credit enhancement for this transaction was 10.5% of the original receivable pool balance and credit enhancement levels must reach 18% of the receivable pool balance before cash is distributed to the Company. Initial and targeted required credit enhancement levels are higher than the Company’s prior securitization transactions. The Company believes that additional securitizations completed in calendar 2003 will require these higher credit enhancement levels.

In February 2003, the Company implemented an operating plan in an effort to preserve and strengthen its capital and liquidity position. The plan includes a decrease in targeted loan origination volume to approximately $750.0 million per quarter by June 2003 and a reduction of operating expenses through downsizing

its workforce and consolidating its branch office network. A restructuring charge of $40.0 million to $50.0 million is expected to be incurred in the March 2003 quarter in connection with the plan. Subject to continued access to the whole loan sale and securitization markets, the Company believes that it has sufficient liquidity to operate under its new plan through calendar 2003.

 

The Company believes that it will continue to require the execution of additional securitization or whole loan purchase transactions in order to operate underfund its new plan inlending activities through calendar 2003. In addition, the Company believes that it must utilize a securitization structure involving the purchase of a financial guaranty insurance policy in order to execute a transactionsuch securitization or whole loan purchase transactions based on current market conditions. FSA has indicated to the Company that it is unlikely to provide insurance for the Company’s securitizations for the first half of calendar 2003. Accordingly, the Company must seekwill continue to purchase financial guaranty insurance policies from other providers. The Company also anticipates that required credit enhancement levels will increase onproviders as it did for its futureApril 2003 securitization transactions, requiring the use of additional liquidity to support the Company’s securitization program.transaction. There can be no assurance that funding will be available to the Company through the execution of securitization transactions or, if available, that itthe funding will be

on acceptable terms. If the Company is unable to execute securitization or whole loan purchase transactions on a regular basis, it would not have sufficient funds to meet its liquidity needsfinance new loan originations and, in such event, the Company would be required to further revise the scale of its business, including possible discontinuation of loan origination activities, which would have a material adverse affecteffect on the Company’s ability to achieve its business and financial objectives.

 

INTEREST RATE RISK

 

Fluctuations in market interest rates impact the Company’s warehouse credit facilities and securitization transactions. The Company’s gross interest rate spread, which is the difference between interest earned on its finance receivables and interest paid, is affected by changes in interest rates as a result of its dependence upon the issuance of variable rate securities and the incurrence of variable rate debt to fund its purchases of finance receivables.

 

Warehouse Credit Facilities

 

Finance receivables purchased by the Company and pledged to secure borrowings under its warehouse credit facilities bear fixed interest rates. Amounts borrowed under the Company’s warehouse credit facilities bear interest at variable rates that are subject to frequent adjustments to reflect prevailing market interest rates. To protect the interest rate spread within each warehouse credit facility, the Company’s special purpose finance subsidiaries are contractually required to purchase interest rate cap agreements in connection with borrowings under the Company’s warehouse credit facilities. The purchaser of the interest rate cap agreement pays a premium in return for the right to receive the difference in the interest cost at any time a specified index of market interest rates rises above the stipulated “cap” rate. The purchaser of the interest rate cap agreement bears no obligation or liability if interest rates fall below the “cap” rate. As part of the Company’s hedging strategy and when economically feasible, the Company may

simultaneously sellssell a corresponding interest rate cap agreement in order to offset the premium paid to purchase the interest rate cap agreement. The fair value of the interest rate cap agreements purchased and sold is included in other assets and derivative financial instruments on the Company’s consolidated balance sheets.

 

Securitizations

 

The interest rate demanded by investors in the Company’s securitization transactions depends on prevailing market interest rates for comparable transactions and the general interest rate environment. Therefore, securities issued under the Company’s securitization transactions may bear fixed or variable interest rates. The Company utilizes several strategies to minimize the impact of interest rate fluctuations in its gross interest rate margin, including the use of derivative financial instruments, the sale or pledging of auto receivables to securitization trustsTrusts and pre-funding of securitization transactions.

 

The securitization of finance receivables allows the Company to lock in an interest rate on the funding for specific pools of receivables, thereby ensuring a gross interest rate spread throughout the term of the finance

receivables. Pre-funding securitizations is the practice of issuing more asset-backed securities than needed to cover finance receivables initially sold or pledged to the Trust. The proceeds from the pre-funded portion are held in an escrow account until additional receivables are delivered to the Trust in amounts up to the pre-funded balance held in the escrow account. The use of pre-funded securitizations allows the Company to lock in borrowing costs with respect to the finance receivables subsequently delivered to the Trust. However, the Company incurs an expense in pre-funded securitizations during the period between the initial securitization and the subsequent delivery of finance receivables equal to the difference between the interest earned on the proceeds held in the escrow account and the interest rate paid on the asset-backed securities outstanding.

 

In its securitization transactions, the Company transfers fixed rate finance receivables to Trusts that, in turn, sell either fixed rate or floating rate securities to investors. The fixed rates on securities issued by the Trusts are indexed to market interest rate swap spreads for transactions of similar duration or various LIBORLondon Interbank Offered Rates (“LIBOR”) and do not fluctuate during the term of the securitization. The floating rates on securities issued by the Trusts are indexed to LIBOR and fluctuate periodically based on movements in LIBOR. Derivative financial instruments, such as interest rate swap and cap agreements, are used to manage the gross interest rate spread on these transactions. The Company uses interest rate swap agreements to convert the variable rate exposures on these securities to a fixed rate, thereby (i) locking in the gross interest rate spread to be earned by the Company over the life of a securitization accounted for as a secured financing that would have been affected by changes in interest rates or (ii) hedging the variability in future excess cash flows to be received by the Company over the life of a securitization accounted for as a sale that would have been attributable to

interest rate risk. The Company utilizes such arrangements to modify its net interest sensitivity to levels deemed appropriate based on the Company’s risk tolerance. In circumstances where the interest rate risk is deemed to be tolerable, usually if the risk if less than one year in term at inception, the Company may choose not to hedge potential fluctuations in cash flows due to changes in interest rates. The Company’s special purpose finance subsidiaries are contractually required to provide additional credit enhancements on itstheir floating rate securities even if the Company chooses not to hedge its future cash flows. To comply with this requirement, the special purpose finance subsidiary purchases an interest rate cap agreement. TheWhen economically feasible, the Company may simultaneously sellssell a corresponding interest rate cap agreement to offset the premium paid to purchase the interest rate cap agreement. The fair value of the interest rate cap agreements purchased by the non-consolidated special purpose finance subsidiaries is considered in the valuation of the credit enhancement assets. The fair value of the interest rate cap agreements sold by the Company is included in derivative financial instruments on the Company’s consolidated balance sheets. Changes in the fair value of the interest rate cap agreements are reflected in interest expense.

 

The Company also used an interest rate swap agreement to hedge the fair value of certain of its fixed rate senior notes. In August 2002, the Company

terminated this interest rate swap agreement. The fair value of the agreement at termination date of $9.7 million is reflected as a premium in the carrying value of the senior notes and is being amortized into interest expense over the expected term of the senior notes.

 

Management monitors the Company’s hedging activities to ensure that the value of hedges, their correlation to the contracts being hedged and the amounts being hedged continue to provide effective protection against interest rate risk. However, there can be no assurance that the Company’s strategies will be effective in minimizing interest rate risk or that increases in interest rates will not have an adverse effect on the Company’s profitability. All transactions are entered into for purposes other than trading. There have been no material changes in the Company’s interest rate risk exposure since June 30, 2002.

 

CURRENT ACCOUNTING PROUNCEMENTSPRONOUNCEMENTS

 

In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 addresses the accounting and reporting for costs associated with exit or disposal activities and certain costs associated with those activities. SFAS 146 guidance will bewas applied to costs related torestructuring charges associated with the Company’s revised operating plan.plan implemented in February 2003.

 

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). This interpretation clarifies the disclosures required in quarterly and annual financial

statements about obligations under certain guarantees issues. FIN 45 also provides guidance on when a guarantor is required to recognize a liability for the obligation taken in issuing the guarantee. The Company does not anticipate that the adoption of this interpretation willdid not have a significant impact on the Company’s financial position or results of operations. This interpretation is effective for guarantees issued or modified after December 15, 2002. The required disclosures are effective for and are included in the Company’s DecemberMarch 31, 2002,2003, quarterly financial statements.

 

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”). SFAS 148 amends Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends disclosure requirements of SFAS 123 to require disclosures in both annual and quarterly financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company does not anticipate that the adoption of this statement will have any impact on the Company’s financial position or results of operations. This

statement is effective for the Company’s March 31, 2003, quarterly financial statements and the required disclosures are included in such financial statements.

 

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities with certain characteristics. FIN 46 is effective immediately for all enterprises with variable interests in variable interest entities created after January 31, 2003 and is effective beginning with the September 30, 2003, quarterly financial statements for all variable interests in a variable interest entity created before February 1, 2003. The Company does not anticipate that the adoption of this interpretation will have any impact on the Company’s financial position or results of operations as the Company’s securitization transactions which were accounted for as sales of finance receivables were structured using qualified special purpose entities, which are excluded from the scope of this interpretation.

 

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) for certain decisions made as part of the Derivatives Implementation Group process. SFAS 149 also amends SFAS 133 to incorporate clarifications of the definition of a derivative. This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company does not anticipate that the adoption of this statement will have a significant impact on the Company’s financial position or results of operations.

FORWARD LOOKING STATEMENTS

 

The preceding Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations section containssections contain several “forward-looking statements”. Forward-looking statements are those that use words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “may”, “will”, “likely”, “should”, “estimate”, “continue”, “future” or other comparable expressions. These words indicate future events and trends. Forward-looking statements are the Company’s current views with respect to future events and financial performance. These forward-looking statements are subject to many assumptions, risks and uncertainties that could cause actual results to differ significantly from historical results or from those anticipated by the Company. The most significant risks are detailed from time to time in the Company’s filings and reports with the Securities and Exchange Commission including the Company’s Annual Report on Form 10-K for the year ended June 30, 2002. It is advisable not to place undue reliance on the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Item 3.    QUANTITATIVE3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Because the Company’s funding strategy is dependent upon the issuance of interest-bearing securities and the incurrence of debt, fluctuations in interest rates impact the Company’s profitability. Therefore, the Company employs various hedging strategies to minimize the risk of interest rate fluctuations. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Operations—Interest Rate Risk” for additional information regarding such market risks.

 

Item 4.    CONTROLS4.CONTROLS AND PROCEDURES

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports it files under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Such controls include those designed to ensure that information for disclosure is communicated to management, including the Executive Chairman of the Board (the “Chairman”),and the Chief Executive Officer (the “CEO”), the President (the “President”) and the Chief Financial Officer (the “CFO”), as appropriate to allow timely decisions regarding required disclosure.

 

The Chairman, CEO, President and CFO, with the participation of management, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within ninety days before the filing date of this quarterly report on Form 10-Q. Based on their evaluation, they have concluded, to the best of their knowledge and belief, that the disclosure controls and procedures are effective. No significant changes were made in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

 

Part II. OTHER INFORMATION

 

Item 1.    LEGAL1.LEGAL PROCEEDINGS

 

As a consumer finance company, the Company is subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud and breach of contract. Some litigation against the Company could take the form of class action complaints by consumers. As the assignee of finance contracts originated by dealers, the Company may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies but includes requests for compensatory, statutory and punitive damages.

 

Following the Company’s earnings announcement on January 16, 2003, severalSeveral complaints have been filed by shareholders against the Company and certain of the Company’s officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. TheseThe lawsuits, all of which seek class action status, all contendhave been consolidated into one action pending in the United States District Court located in Fort Worth, Texas. The consolidated lawsuit claims that deferments were improperly granted by the Company to avoid delinquency triggers in securitization transactions and enhance cash flow, thereby causing the Company to misrepresent its financial performance throughout the alleged class period. The Company believes that its granting of deferments, which is a common practice within the auto finance industry, complied at all times with the covenants contained in its securitization and warehouse financing documents, and that its deferment activities were properly disclosed to all constituents, including shareholders, asset-backed investors, creditors and credit enhancement providers. In the opinion of management, these lawsuits arethe consolidated lawsuit is without merit and the Company intends to vigorously defend against them.it.

Additionally, on February 27, 2003, the Company was served with a shareholder’s derivative action filed in the United States District Court for the Northern District of Texas, Fort Worth Division, entitled Mildred Rosenthal, derivatively and on behalf of nominal defendant AmeriCredit Corp. v. Clifton H. Morris, Jr., et al. This lawsuit alleges that certain officers and directors of the Company breached their respective fiduciary duties by causing the Company to make improper deferments, violated federal and state securities laws and issued misleading financial statements. The substantive allegations are essentially the same as those in the above-referenced class actions.

 

The Company believes that it has taken prudent steps to address the litigation risks associated with its business activities. In the opinion of management, the resolution of the litigation pending or threatened against the Company, including the proceedings specifically described in this section, will not have a material affecteffect on the Company’s financial condition, results of operations or cash flows.

 

Item 2.    CHANGES2.CHANGES IN SECURITIES

 

Not Applicable

 

Item 3.    DEFAULTS3.DEFAULTS UPON SENIOR SECURITIES

 

Not Applicable

 

Item 4.    SUBMISSION4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable

Item 5.     OTHER INFORMATION

 

Not Applicable

 

Item 6.     EXHIBITS5.OTHER INFORMATION

Not Applicable

Item 6.EXHIBITS AND REPORTS ON FORM 8-K

 

 (a) Exhibits:

 

10.1

  Indenture,

Eighth Letter Modification Agreement, dated September 30, 2002January 27, 2003, between ACF Investment Corp. and Wells Fargo Bank Texas

10.2

Amendment No. 4, dated as of February 18, 2003, to the Credit Agreement dated as of August 23, 2001, among CIBC Mellon Trust Company, as trustee of AmeriCredit Canada Automobile Receivables Trust and BNY Trust CompanyFinancial Services of Canada as indenture trusteeLtd., AmeriCredit Financial Services, Inc. and Merrill Lynch Capital Canada Ltd.

10.2

10.3

  Series C2002-1 Supplemental Indenture,

Amendment No. 1, dated as of February 18, 2003, to the Credit Agreement dated as of November 22, 2002 between CIBC Mellon1, 2001, among AmeriCredit ML Trust, Company,as trustee of AmeriCredit Canada Automobile Receivables Trust,Financial Services, Inc., Merrill Lynch Mortgage Capital Inc., AmeriCredit Funding Corp. VIII, Bank One, NA and BNY Trust Company of Canada, as indenture trusteeAmeriCredit Corp.

10.3

10.4

  Sale and Servicing

Amendment No. 1, dated as of February 27, 2003, to the Loan Agreement dated November 15,as of April 30, 2002, among AmeriCredit Financial Services of Canada Ltd., Bank One, NA, andAmeriCredit Canada Funding Trust, CIBC Mellon Trust Company and Congress Financial Corporation (Canada)

10.4

10.5

  Limited Guarantee,

Amendment No. 2, dated November 22, 2002, by AmeriCredit Corp. in favouras of CIBC Mellon Trust Company, as Trustee of AmeriCredit Canada Automobile Receivables Trust

10.5Class VPN LoanFebruary 1, 2003, to the Security Agreement dated November 22, 2002, between CIBC Mellonas of December 18, 2000, among AmeriCredit MTN Trust, Company, as trustee of AmeriCredit Canada Automobile Receivables Trust, The Trust Company Bank of Montreal, and AmeriCredit Financial Services, of Canada Ltd.Inc., MBIA Insurance Corporation and Meridian Funding Company LLC

10.6

  Supplement

Waiver, dated February 28, 2003, concerning the Security Agreement dated as of February 25, 2002, among AmeriCredit MTN Trust, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation and Meridian Funding Company LLC

10.7

Amendment No. 3, dated as of February 28, 2003, to the Security Agreement dated as of December 18, 2000, among AmeriCredit MTN Trust, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation and Meridian Funding Company LLC

10.8

Amendment No. 2, dated Octoberas of February 1, 2003, to the Security Agreement dated as of June 12, 2001, among AmeriCredit MTN Trust II, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation and Meridian Funding Company LLC

10.9

Waiver, dated February 28, 2003, concerning the Security Agreement dated as of February 25, 2002, among AmeriCredit MTN Trust II, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation and Meridian Funding Company LLC

10.10

Amendment No. 3, dated as of February 28, 2003, to the Security Agreement dated as of June 12, 2001, among AmeriCredit MTN Trust II, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation and Meridian Funding Company LLC

10.11

Amendment No. 2, dated as of February 1, 2003, to the Security Agreement dated as of February 25, 2002, among AmeriCredit MTN Trust III, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation and Meridian Funding Company LLC

10.12

Waiver, dated February 28, 2003, concerning the Security Agreement dated as of February 25, 2002, among AmeriCredit MTN Trust III, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation and Meridian Funding Company LLC

10.13

Amendment No. 3, dated as of February 28, 2003, to the Security Agreement dated as of February 25, 2002, among AmeriCredit MTN Trust III, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation and Meridian Funding Company LLC

10.14

Amendment No. 1, dated as of March 13, 2003, to the Credit Agreement dated as of August 15, 2002, among AFS Funding Corp., AFS SenSub Corp., AmeriCredit Corp., AmeriCredit Financial Services, Inc., Lenders party thereto, Deutsche Bank AG, and Deutsche Bank Trust Company Americas

10.15

First Amendment, dated as of March 13, 2003, to the Master Collateral and Intercreditor Agreement dated as of August 15, 2002, among AFS Funding Corp., AFS SenSub Corp., AmeriCredit Financial Services, Inc and Deutsche Bank Trust Company Americas

10.16

Amendment No. 1, dated March 5, 2003, to the Amended and Restated Sale and Servicing Agreement, dated February 22, 2002, among AmeriCredit Master Trust, AmeriCredit Funding Corp. VII, AmeriCredit Financial Services, Inc. and Bank One, NA; Supplement No. 3, dated March 5, 2003, to Amended and Restated Indenture, dated February 22, 2002, among AmeriCredit Master Trust, Bank One, NA and Deutsche Bank Trust Company Americas, formerly known as Bankers Trust Company

10.7Americas; Amendment No. 2, dated March 5, 2003, to Annex A to the Amended and Restated Indenture and the Amended and Restated Sale and Servicing Agreement; and Amendment No. 1, dated DecemberMarch 5, 2003, to the Amended and Restated Custodian Agreement, dated February 22, 2002

10.17

Amendment No. 1, dated March 5, 2003, to the Amended and Restated Class A-1 Note Purchase Agreement, dated February 22, 2002, among AmeriCredit MTN ReceivablesMaster Trust, AmeriCredit Funding Corp. VII, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation,Deutsche Bank Trust Company Americas, the Class A-1 Purchasers and Meridian Funding Corporation, LLC, to the Security Agreement dated December 18, 2000Deutsche Bank, AG

10.8

10.18

  

Amendment No. 1, dated December 1,March 5, 2003, to the Amended and Restated Class A-2 Note Purchase Agreement, dated February 22, 2002, among AmeriCredit MTN II ReceivablesMaster Trust, AmeriCredit Funding Corp. VII, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation,Deutsche Bank Trust Company Americas, the Class A-2 Purchasers and Meridian Funding Corporation, LLC, to the Security Agreement dated June 12, 2001Deutsche Bank, AG

10.9

10.19

  

Amendment No. 1, dated December 1,March 5, 2003, to the Amended and Restated Class B Note Purchase Agreement, dated February 22, 2002, among AmeriCredit MTN III ReceivablesMaster Trust, AmeriCredit Funding Corp. VII, AmeriCredit Financial Services, Inc., MBIA Insurance Corporation,Deutsche Bank Trust Company Americas, the Class B Purchasers and Meridian Funding Corporation, LLC,Deutsche Bank, AG

10.20

Amendment No. 1, dated March 5, 2003, to the SecurityAmended and Restated Class C Note Purchase Agreement, dated February 25,22, 2002, among AmeriCredit Master Trust, AmeriCredit Funding Corp. VII, AmeriCredit Financial Services, Inc., Deutsche Bank Trust Company Americas, the Class C Purchasers and Deutsche Bank, AG

 

10.10

10.21

  Seventh Letter Modification

Amendment No. 1, dated March 5, 2003, to the Amended and Restated Class S Note Purchase Agreement, dated December 13,February 22, 2002, between Wells Fargoamong AmeriCredit Master Trust, AmeriCredit Funding Corp. VII, AmeriCredit Financial Services, Inc., Deutsche Bank Texas, National AssociationTrust Company Americas, the Class S Purchasers and ACF Investment Corp.,Deutsche Bank, AG

10.22

Agreement to Construction LoanExtend Commitment Termination Date, dated March 6, 2003, to the Amended and Restated Class A-1 Note Purchase Agreement, dated June 29, 2001 (“Loan Agreement”)February 22, 2002, among AmeriCredit Master Trust, AmeriCredit Funding Corp. VII, AmeriCredit Financial Services, Inc., Deutsche Bank Trust Company Americas, the Class A-1 Purchasers and Deutsche Bank, AG

10.11

10.23

  Warrant

Agreement to Extend Commitment Termination Date, dated March 6, 2003, to the Amended and Restated Class S Note Purchase Agreement, dated September 26,February 22, 2002, betweenamong AmeriCredit Master Trust, AmeriCredit Funding Corp. VII, AmeriCredit Financial Services, Inc., Deutsche Bank Trust Company Americas, the Class S Purchasers and FSA Portfolio Management Inc.Deutsche Bank, AG

99.1

  Press release dated February 12, 2003, related

Clifton H. Morris, Jr.’s Certification of Periodic Report pursuant to revised net loss for the quarter ended December 31,Section 906 of Sarbanes-Oxley Act of 2002

99.2

  Press release dated February 12, 2003, related

Daniel E. Berce’s Certification of Periodic Report pursuant to revised operating planSection 906 of Sarbanes-Oxley Act of 2002

99.3

Preston A. Miller’s Certification of Periodic Report pursuant to preserve and strengthen liquidity positionSection 906 of Sarbanes-Oxley Act of 2002

 

 (b) Reports on Form 8-K

 

A report on Form 8-K was filed with the Commission on October 15, 2002,April 3, 2003, announcing the transfer of $1.0 billion of auto receivables into a $1.7 billion asset-backed securitization. Reportswhole loan purchase facility. A report on Form 8-K werewas filed with the Commission on OctoberApril 23, 2002, and January 17, 2003, to report the Company’s press releases dated October 18, 2002, announcing first quarter earnings and January 16,April 23, 2003, announcing seconda reorganization of the Company’s executive management team and third quarter earnings, respectively.earnings.

 

Certain subsidiaries and affiliates of the Company filed reports on Form 8-K during the quarterly period ended DecemberMarch 31, 2002,2003, reporting monthly information related to securitization trusts.

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    

AmeriCredit Corp.


(Registrant)

Date: May 15, 2003

By:

/s/ Preston A. Miller


(Signature)

    
    

(Registrant)

Date: February 14, 2003

By:

/S/    DANIEL E. BERCE


(Signature)

Daniel E. BercePreston A. Miller

Executive Vice Chairman andPresident, Chief

Chief Financial Officer and Treasurer

 

CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 302

OF SARBANES-OXLEY ACT OF 2002

 

I, the undersigned Clifton H. Morris, Jr., Chairman of the Board and Chief Executive ChairmanOfficer of AmeriCredit Corp. (the “Company”), do hereby certify pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

 (1) I have reviewed the Quarterly Report on Form 10-Q of the Company for the quarter ended DecemberMarch 31, 20022003 (the “Report”);

 (2) Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading;

 (3) Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition and results of operations of the Company as of, and for, the periods presented in the Report;

 (4) The Company’s other certifying officers and I (i) amare responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 5d-14) for the Company; (ii)Company and we have (a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to me,us by others within these entities, particularly during the period in which the Report wasis being prepared; (iii) have(b) evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days ofprior to the filing date of the Report;Report (the “Evaluation Date”); and (iv) have(c) presented in the Report myour conclusions about the effectiveness of the disclosure controls and procedures based on such evaluation.our evaluation as of the Evaluation Date;

 (5) The Company’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Company’s independent accountantsauditors and to the Audit Committee of the Board of Directors: (i) any(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s independent accountantsauditors any material weaknesses in internal controls; and (ii)(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls.controls; and

 (6) The Company’s other certifying officers and I have indicated in the Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of myour most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Dated: February 14,May 15, 2003

  

/S/    CLIFTONs/ Clifton H. MORRIS, JR.Morris, Jr.


  

Clifton H. Morris, Jr.

Chairman of the Board and

Chief Executive ChairmanOfficer

 

CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 302

OF SARBANES-OXLEY ACT OF 2002

 

I, the undersigned Michael R. Barrington, Vice Chairman, Chief Executive Officer andDaniel E. Berce, President of AmeriCredit Corp. (the “Company”), do hereby certify pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

 (1) I have reviewed the Quarterly Report on Form 10-Q of the Company for the quarter ended DecemberMarch 31, 20022003 (the “Report”);

 (2) Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading;

 (3) Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition and results of operations of the Company as of, and for, the periods presented in the Report;

 (4) The Company’s other certifying officers and I (i) amare responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 5d-14) for the Company; (ii)Company and we have (a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to me,us by others within these entities, particularly during the period in which the Report wasis being prepared; (iii) have(b) evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days ofprior to the filing date of the Report;Report (the “Evaluation Date”); and (iv) have(c) presented in the Report myour conclusions about the effectiveness of the disclosure controls and procedures based on such evaluation.our evaluation as of the Evaluation Date;

 (5) The Company’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Company’s independent accountantsauditors and to the Audit Committee of the Board of Directors: (i) any(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s independent accountantsauditors any material weaknesses in internal controls; and (ii)(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls.controls; and

 (6) The Company’s other certifying officers and I have indicated in the Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of myour most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Dated: February 14,May 15, 2003

  

/S/    MICHAEL R. BARRINGTONs/ Daniel E. Berce


  

                 Michael R. BarringtonDaniel E. Berce

    Vice Chairman, Chief Executive

                Officer and President

 

CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 302

OF SARBANES-OXLEY ACT OF 2002

 

I, the undersigned, Daniel E. Berce,Preston A. Miller, Executive Vice Chairman andPresident, Chief Financial Officer and Treasurer of AmeriCredit Corp. (the “Company”), do hereby certify pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

 (1) I have reviewed the Quarterly Report on Form 10-Q of the Company for the quarter ended DecemberMarch 31, 20022003 (the “Report”);

 (2) Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading;

 (3) Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition and results of operations of the Company as of, and for, the periods presented in the Report;

 (4) The Company’s other certifying officers and I (i) amare responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 5d-14) for the Company; (ii)Company and we have (a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to me,us by others within these entities, particularly during the period in which the Report wasis being prepared; (iii) have(b) evaluated the effectiveness of the Company’s disclosure controls and procedures as of a date within 90 days ofprior to the filing date of the Report;Report (the “Evaluation Date”); and (iv) have(c) presented in the Report myour conclusions about the effectiveness of the disclosure controls and procedures based on such evaluation.our evaluation as of the Evaluation Date;

 (5) The Company’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Company’s independent accountantsauditors and to the Audit Committee of the Board of Directors: (i) any(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company’s ability to record, process, summarize and report financial data and have identified for the Company’s independent accountantsauditors any material weaknesses in internal controls; and (ii)(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls.controls; and

 (6) The Company’s other certifying officers and I have indicated in the Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of myour most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Dated: February 14,May 15, 2003

  

/S/    DANIEL E. BERCEs/ Preston A. Miller


  

              Daniel E. BercePreston A. Miller

Executive Vice Chairman andPresident, Chief

        Chief Financial Officer and Treasurer

 

CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 906

OF SARBANES-OXLEY ACT OF 2002

I, the undersigned Clifton H. Morris, Jr., Executive Chairman of AmeriCredit Corp. (the “Company”), 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 quarter ended December 31, 2002 (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:    February 14, 2003

/S/    CLIFTON H. MORRIS, JR.


                Clifton H. Morris, Jr.

                Executive Chairman

CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 906

OF SARBANES-OXLEY ACT OF 2002

I, the undersigned Michael R. Barrington, Vice Chairman, Chief Executive Officer and President of AmeriCredit Corp. (the “Company”), 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 quarter ended December 31, 2002 (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:    February 14, 2003

/S/    MICHAEL R. BARRINGTON


                Michael R. Barrington

    Vice Chairman, Chief Executive

                Officer and President

CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 906

OF SARBANES-OXLEY ACT OF 2002

I, the undersigned Daniel E. Berce, Vice Chairman and Chief Financial Officer of AmeriCredit Corp. (the “Company”), 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 quarter ended December 31, 2002 (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:    February 14, 2003

/S/    DANIEL E. BERCE


              Daniel E. Berce

          Vice Chairman and

        Chief Financial Officer

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