UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________________ 

FORM 10-Q

(Mark One)

______________________________________________ 

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code) 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  Q 

As of July 23,October 21, 2015, there were 505 shares of the registrant’s common stock, par value $1.00 per share, outstanding. All of the registrant’s common stock is owned by General Motors Holdings, LLC.

GENERAL MOTORS FINANCIAL COMPANY, INC.

INDEX TO FORM 10-Q

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts) 

(Unaudited)

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In millions) 

(Unaudited)

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

GENERAL MOTORS FINANCIAL COMPANY, INC.

Notes to Condensed Consolidated Financial Statements

Basis of Presentation

The condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, including certain special-purpose financing entities utilized in secured financing transactions, which are considered variable interest entities ("VIEs"). All intercompany transactions and balances have been eliminated in consolidation.

The interim period consolidated financial statements, including the notes thereto, are condensed and do not include all disclosures required by generally accepted accounting principles ("GAAP") in the United States of America. These interim period condensed consolidated financial statements should be read in conjunction with the consolidated financial statements that are included in our Annual Report on Form 10-K filed on February 4, 2015 ("Form 10-K"). Certain prior periodsperiod amounts were reclassified to conform to our current year presentation.

The condensed consolidated financial statements at JuneSeptember 30, 2015, and for the three and sixnine months ended JuneSeptember 30, 2015 and 2014, are unaudited and, in management’s opinion, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. The results for interim periods are not necessarily indicative of results for a full year.

Segment Information

Related Party Transactions

We are the wholly-owned captive finance subsidiary of General Motors Company ("GM"). We offer loan and lease finance products through GM-franchised dealers to consumers purchasing new and certain used vehicles manufactured by GM and make commercial loans directly to GM-franchised dealers and their affiliates. Under subvention programs, GM makes cash payments to us for offering incentivized rates and structures on consumer loan and lease finance products. In addition, GM makes payments to us to cover certain interest payments on commercial loans. In our International Segment, we provide limited funding to GM for new and used vehicles awaiting delivery to dealers. At JuneSeptember 30, 2015 and December 31, 2014, we had related party receivables from GM in the amount of $588$589 million and $384 million, primarily related to subvention.

At JuneSeptember 30, 2015 and December 31, 2014, we had $186 million and $176 million in commercial loans outstanding to dealers that are consolidated by GM. Prior to January 1, 2015, we provided financing to certain GM subsidiaries through factoring and other wholesale financing arrangements. At December 31, 2014, $289 million was outstanding under such arrangements, and was included in commercial finance receivables. No amounts were outstanding at JuneSeptember 30, 2015. At JuneSeptember 30, 2015 and December 31, 2014, we had $429$527 million and $433 million of related party payables due to GM, primarily for commercial finance receivables originated but not yet funded. These payables typically settle within 30 days.

We have a tax sharing agreement with GM for our U.S. operations. Under our tax sharing arrangement with GM, payments related to our U.S. operations for the tax years 2012 through 2014 were deferred for four years from their original due date. At JuneSeptember 30, 2015 and December 31, 2014, $649 million and $636 million was due to GM under the related party tax sharing agreement.

We have a Support Agreement with GM (the “Support Agreement”"Support Agreement"), which provides that, if our earning assets leverage at the end of any calendar quarter is higher than thresholds set in the Support Agreement, we may require GM to provide funding sufficient to bring our earning assets leverage to within the appropriate threshold. In determining our earning assets leverage (net earning assets divided by adjusted equity) under the Support Agreement, net earning assets means our finance receivables, net, plus leased

Additionally, the Support Agreement provides that GM will own all of our outstanding voting shares as long as we have any unsecured debt securities outstanding and that GM will use its commercially reasonable efforts to ensure that we will continue to be designated as a subsidiary borrower on $4.0 billion under GM’s corporate revolving credit facilities. GM also agreed to certain provisions intended to ensure that we maintain adequate access to liquidity. Pursuant to these provisions, GM provided us with a $1.0 billion unsecured intercompany revolving credit facility (the “Junior Subordinated Revolving Credit Facility”). There were no advances outstanding under the Junior Subordinated Revolving Credit Facility at JuneSeptember 30, 2015 or December 31, 2014.

Accounting Standards Not Yet Adopted

In May 2014 the Financial Accounting Standards Board ("FASB") issued ASUAccounting Standards Update 2014-09, “Revenue"Revenue Recognition - Revenue from Contracts with Customers”Customers" ("ASU 2014-09") thatwhich requires companies to recognize revenue when a customer obtains control rather than when companies have transferred substantially all risks and rewards of a good or service. This updateservice and requires expanded disclosures. ASU 2014-09 was originally effective for annual reporting periods beginning on or after December 15, 2016 and interim periods therein and requires expanded disclosures.therein. In July 2015 the FASB issued a deferral of ASU 2014-09 of one year, making it effective for annual reporting periods beginning on or after December 15, 2017 while also providing for early adoption, but not before the original effective date. We are currently assessing the impact the adoption of ASU 2014-09 will have on our consolidated financial statements.

In April 2015 the FinancialFASB issued Accounting Standards Board issued ASUUpdate 2015-03, “Interest"Interest - Imputation of Interest”Interest" ("ASU 2015-03") thatwhich requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This updateASU 2015-03 is effective for annual reporting periods beginning on or after December 15, 2015 and interim periods within fiscal years beginning after December 15, 2016. In August 2015 the FASB issued an amendment pursuant to an SEC staff announcement at the June 18, 2015 Emerging Issues Task Force ("EITF") meeting on ASU 2015-03, which addresses the presentation and subsequent measurement of debt issuance costs associated with line of credit arrangements. We are currently assessing the impact that the adoption of ASU 2015-03 will have on our consolidated financial statements.

Note 2.    Acquisition of Ally Financial International Operations

In November 2012, we entered into a definitive agreement with Ally Financial to acquire the outstanding equity interests in the top-level holding companies of its automotive finance and financial services operations in Europe and Latin America and a separate agreement to acquire Ally Financial's non-controlling equity interest in SAIC-GMAC Automotive Finance Company Limited ("SAIC-GMAC"), which conducts auto finance operations in China.

During 2013, we completed the acquisition of Ally Financial's European and Latin American auto finance and financial services operations. The aggregate consideration for these acquisitions was $3.3 billion. In addition, we repaid debt of $1.4 billion that was assumed as part of the acquisitions. We recorded the fair value of the assets acquired and liabilities assumed on the acquisition date.

On January 2, 2015, we completed the acquisition of Ally Financial's 40% equity interest in SAIC-GMAC. The aggregate purchase price was $1.0 billion. Also on January 2, 2015, we sold a 5% equity interest in SAIC-GMAC to Shanghai Automotive Group Finance Company Ltd. (“SAIC FC”), a current shareholder of SAIC-GMAC, for proceeds of $125 million. As a result of these transactions, we own a 35% equity interest in SAIC-GMAC. We account for our ownership interest in SAIC-GMAC using the equity method of accounting. The difference between the carrying amount of our investment and our share of the underlying net assets of SAIC-GMAC was $371 million at the time of acquisition was $371 million, which was primarily related to goodwill. We determined the acquisition date fair values of the identifiable assets acquired and liabilities assumed in accordance with ASC 805, Business Combinations."Business Combinations" ("ASC 805").

Income resulting from the equity investment in SAIC-GMAC is included in our results beginning January 2, 2015. Equity income from SAIC-GMAC recorded in the three and sixnine months ended JuneSeptember 30, 2015 was $28$29 million and $56$85 million. If the acquisition had occurred on January 1, 2014, our consolidated net income for the three and sixnine months ended JuneSeptember 30, 2014 would have been $204$183 million and $378$561 million.

Our pre-acquisition and post-acquisition consumer finance portfolios are now reported on a combined basis, due to the diminished size of the pre-acquisition portfolio, which was $269$189 million at JuneSeptember 30, 2015 and $459 million at December 31, 2014.

The finance receivables portfolio consists of the following (in millions): 

Following is a summary of activity in our consumer finance receivables portfolio (in millions): 

A summary of the activity in the allowance for consumer loan losses is as follows (in millions):

Consumer Credit Quality

We use proprietary scoring systems in the underwriting process that measure the credit quality of the receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g. FICO score), and contract characteristics. In addition to our proprietary scoring system, we consider other individual consumer factors, such as employment history, financial stability, and capacity to pay. At the time of loan origination, substantially all of the consumers in our international consumersInternational Segment have the equivalent of prime credit scores. In the North America Segment, while we historically focused on consumers with lower than prime credit scores, we are expanding our prime and near primenear-prime lending programs. A summary of the credit risk profile by FICO score band, determined at origination, of the consumer finance receivables in the North America Segment is as follows (dollars in millions):

In addition, we review the credit quality of all of our consumer finance receivables based on consumer payment activity. A consumer account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Consumer finance receivables are collateralized by vehicle titles and, subject to local laws, we generally have the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. The following is a summary of the contractual amounts of delinquent consumer finance receivables, which is not significantly different than recorded investment, that are (i) more than 30 days delinquent, but not yet in repossession and (ii) in repossession, but not yet charged off (dollars in millions): 

The accrual of finance charge income has been suspended on $694$726 million and $682 million of consumer finance receivables (based on contractual amount due) at JuneSeptember 30, 2015 and December 31, 2014.

Consumer finance receivables that become classified as troubled debt restructurings ("TDRs") are separately assessed for impairment. A specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. The financial effects of the accounts that become classified as TDRs result in an impairment charge recorded as part of the provision for loan losses. Accounts that become classified as TDRs because of a payment deferral still accrue interest at the contractual rate and an additional fee is collected (where permitted) at each time of deferral and recorded as a reduction of accrued interest. No interest or fees are forgiven on a payment deferral to a customer; therefore, there are no additional financial effects of deferred loans becoming classified as TDRs. Accounts in the U.S. in Chapter 13 bankruptcy would have already been placed on non-accrual; therefore, there are no additional financial effects from these loans becoming classified as TDRs. Finance charge income from loans classified as TDRs is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not classified as TDRs.

At JuneSeptember 30, 2015 and December 31, 2014, the outstanding balance of consumer finance receivables in the International Segment determined to be TDRs was insignificant; therefore, the following information is presented with regard to the TDRs in the North America Segment only (in millions):

Additional information about loans classified as TDRs is presented below (in millions, except for number of loans):

A redefault is when an account meets the requirements for evaluation under our charge-off policy (See Note 1 - "Summary of Significant Accounting Policies" in our Form 10-K for additional information). The unpaid principal balance, net of recoveries, of loans that redefaulted during the reporting period and were within 12 months of being modified as a TDR was insignificant for the three and sixnine months ended JuneSeptember 30, 2015 and 2014.

Commercial Finance Receivables

Following is a summary of activity in our commercial finance receivables portfolio (in millions): 

Commercial Credit Quality

We extend wholesale credit to dealers primarily in the form of approved lines of credit to purchase new vehicles as well as used vehicles. Each commercial lending request is evaluated, taking into consideration the borrower's financial condition and the underlying collateral for the loan. We use proprietary models to assign each dealer a risk rating. These models use historical performance data to identify key factors about a dealer that we consider significant in predicting a dealer's ability to meet its financial obligations. We also consider numerous other financial and qualitative factors including, but not limited to, capitalization and leverage, liquidity and cash flow, profitability and credit history. 

We regularly review our models to confirm the continued business significance and statistical predictability of the factors and update the models to incorporate new factors or other information that improves statistical predictability. In addition, we verify the existence of the assets collateralizing the receivables by physical audits of vehicle inventories, which are performed with increased frequency for higher risk (i.e., Groups III, IV, V and VI) dealers. We perform a credit review of each dealer at least annually and adjust the dealer's risk rating, if necessary. The credit lines for Group VI dealers are typically suspended and no further funding is extended to these dealers. 

Performance of our commercial finance receivables is evaluated based on our internal dealer risk rating analysis, as payment for wholesale receivables is generally not required until the dealer has sold the vehicle inventory. All receivables from the same dealer customer share the same risk rating.

A summary of the credit risk profile by dealer grouping of the commercial finance receivables is as follows (in millions): 

At JuneSeptember 30, 2015 and December 31, 2014 substantially all of our commercial finance receivables were current with respect to payment status and none were classified as TDRs. Activity in the allowance for commercial loan losses was insignificant for the three and sixnine months ended JuneSeptember 30, 2015 and 2014.

Our operating lease program is offered primarily in the North America Segment. The following information regarding our leased vehicles is presented on a consolidated basis (in millions):

At JuneSeptember 30, 2015 and December 31, 2014, our Canadian subsidiary was servicing $50$32 million and $110 million of leased vehicles for a third party.

Note 5.    Restricted Cash

Restricted cash for securitization notes payable and revolving credit facilities is comprised of funds deposited in restricted cash accounts as collateral required to support securitization transactions or to provide additional collateral for borrowings under revolving credit facilities. Additionally, these funds include monthly collections from borrowers that have not yet been used for repayment of debt.

At December 31, 2014, other restricted cash was primarily comprised of interest-bearing cash in Brazil held in escrow pending resolution of tax and civil litigation. At JuneSeptember 30, 2015, these amounts are classified as deposits and are included in other assets on the condensed consolidated balance sheet.

Non-consolidated affiliates are entities in which an equity ownership interest is maintained and for which the equity method of accounting is used due to the ability to exert significant influence over decisions relating to their operating and financial affairs.

The income of SAIC-GMAC is not consolidated into our financial statements; rather, our proportionate share of the earnings is reflected as equity income. At JuneSeptember 30, 2015, we had undistributed earnings of $56$85 million related to SAIC-GMAC.

In January 2015, our top-tier holding company issued $2.25 billion in senior notes comprised of $1.0 billion of 3.15% notes due in January 2020, $1.0 billion of 4.0% notes due in January 2025 and $250 million in floating rate notes due in January 2020. All of these notes are guaranteed by our principal operating subsidiary, AmeriCredit Financial Services, Inc. ("AFSI").

In February 2015, a European subsidiary issued €650 million of 0.85% notes under our Euro medium term notes program. These notes are due in February 2018. All of these notes are guaranteed by our top-tier holding company and by AFSI.

In April 2015, our top-tier holding company issued $2.4 billion in senior notes comprised of $850 million of 2.4% notes due in April 2018, $1.25 billion of 3.45% notes due in April 2022 and $300 million of floating rate notes due in April 2018. All of these notes are guaranteed by AFSI.

In May 2015, our primary Canadian operating subsidiary issued CAD$500 million of 3.08% notes due in May 2020. The notes are guaranteed by our top-tier holding company and by AFSI.

In July 2015, our top-tier holding company issued an additional $2.3 billion in senior notes comprised of $1.5 billion of 3.2% notes due in July 2020 and $800 million of 4.3% notes due in July 2025. All of these notes are guaranteed by AFSI.

The International Segment utilizes unsecured credit facilities with banks as well as non-bank funding sources. During the sixnine months ended JuneSeptember 30, 2015, we increased borrowing capacity on unsecured committed credit facilities by $185$246 million. During the three months ended September 30, 2015, we began accepting deposits from retail banking customers in Germany. At September 30, 2015, the outstanding balance of these deposits was $611 million.

Note 8.    Variable Interest Entities

We recognize finance charge, lease vehicle and fee income on the securitized assets and interest expense on the secured debt issued in a securitization transaction, and record a provision for loan losses to recognize probable loan losses inherent in the securitized assets.Securitized Assets.

The following table summarizes the assets and liabilities of our consolidated VIEs related to securitization and credit facilities (in millions):

These amounts are related to securitization and credit facilities held by consolidated VIEs. Liabilities recognized as a result of consolidating these entities generally do not represent claims against us or our other subsidiaries and assets recognized generally are for the benefit of these entities operations and cannot be used to satisfy our or our subsidiaries obligations.

We consolidate certain operating entities that provide auto finance and financial services, which we do not control through a majority voting interest. We manage these entities and maintain a controlling financial interest in them and are exposed to the risks of ownership through contractual arrangements. The majority voting interests in these entities are indirectly wholly-owned by our parent, GM.

The following table summarizes the assets and liabilities of these entities (in millions):

The following table summarizes the revenue and net income of these entities (in millions):

Under certain debt agreements, we transfer finance receivables to entities which are not considered VIEs. These transfers do not meet the criteria to be considered sales; therefore, the finance receivables and the related debt are included in our condensed consolidated financial statements, similar to the treatment of finance receivables and related debt of our consolidated VIEs.  Any collections received on the transferred receivables are available only for the repayment of the related debt.  At JuneSeptember 30, 2015 and December 31, 2014, $2.1$1.3 billion and $2.5 billion in finance receivables had been transferred in secured funding arrangements to such entities, to which $2.0$1.2 billion and $2.4 billion in secured debt was outstanding.

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We purchase interest rate cap agreements to limit floating rate exposures on certain of our revolving secured debt. We also utilize interest rate swap agreements to convert floating rate exposures on certain of our revolving debt or on securities issued in securitization transactions to fixed rates, thereby hedging the variability in interest expense paid. We use foreign currency swaps to hedge against valuation changes of certain financial instruments denominated in foreign currencies.

The following table presents information on the effect of derivative instruments on the condensed consolidated statements of income and comprehensive income (in millions):

Fair values are based on estimates using present value or other valuation techniques in cases where quoted market prices are not available. Those techniques are significantly affected by the assumptions used, including the discount rate and the estimated timing and amount of future cash flows. Therefore, the estimates of fair value may differ substantially from amounts that ultimately may be realized or paid at settlement or maturity of the financial instruments and those differences may be material. Disclosures about fair value of financial instruments exclude certain financial instruments and all non-financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of our company.

Estimated fair values, carrying values and various methods and assumptions used in valuing our financial instruments are set forth below (in millions):