UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| | x | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| | | | SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2011
OR
| | ¨ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| | | | SECURITIES EXCHANGE ACT OF 1934 |
For the transition period to
Commission file number 1-10667
General Motors Financial Company, Inc.
(Exact name of registrant as specified in its charter)
| | |
| Texas | | 75-2291093 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
801 Cherry Street, Suite 3500, Fort Worth, Texas 76102
(Address of principal executive offices, including Zip Code)
(817) 302-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of each class)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of each class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
| | | | | | |
| Large accelerated filer ¨ | | Accelerated filer ¨ | | Non-accelerated filer x | | Smaller Reporting Company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
As of February 27, 2012, there were 500 shares of the registrant’s common stock, par value $0.01 per share, outstanding. All of the registrant’s common stock is owned by General Motors Holdings, LLC.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
The registrant meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this form on the reduced disclosure format.
GENERAL MOTORS FINANCIAL COMPANY, INC.
INDEX TO FORM 10-K
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FORWARD-LOOKING STATEMENTS
This Form 10-K contains 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 our current views with respect to future events and financial performance. These forward-looking statements are subject to many assumptions, risks and uncertainties that could cause actual results to differ significantly from historical results or from those anticipated by us. The most significant risks are detailed from time to time in our filings and reports with the Securities and Exchange Commission, including this Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2011. It is advisable not to place undue reliance on our forward-looking statements. We undertake no obligation to, and do not, publicly update or revise any forward-looking statements, except as required by federal securities laws, whether as a result of new information, future events or otherwise.
The following factors are among those that may cause actual results to differ materially from historical results or from the forward-looking statements:
| | • | | changes in general economic and business conditions; |
| | • | | General Motors Company’s (“GM”) ability to sell new vehicles in the United States and Canada that we finance; |
| | • | | interest rate fluctuations; |
| | • | | our financial condition and liquidity, as well as future cash flows and earnings; |
| | • | | the effect, interpretation or application of new or existing laws, regulations, court decisions and accounting pronouncements; |
| | • | | the availability of sources of financing; |
| | • | | the level of net charge-offs, delinquencies and prepayments on the automobile contracts and leases we originate; |
| | • | | the prices at which used cars are sold in the wholesale auction markets; |
| | • | | changes in business strategy, including expansion of product lines and credit risk appetite; and |
| | • | | significant litigation. |
If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.
INDUSTRY DATA
In this Form 10-K, we rely on and refer to information regarding the automobile finance industry from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we have not independently verified any of it.
AVAILABLE INFORMATION
We make available free of charge through our website, www.gmfinancial.com, our AmeriCredit Automobile Receivables Trust and AmeriCredit Prime Automobile Receivables Trust securitization portfolio performance measures and all materials that we file electronically with the SEC, including our reports on Form 10-K, Form 10-Q, Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practical after filing or furnishing such material with or to the SEC.
The public may read and copy any materials we file with or furnish to the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website, www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
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PART I
General Motors Merger
On October 1, 2010, pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of July 21, 2010, with General Motors Holdings LLC (“GM Holdings”), a Delaware limited liability company and a wholly owned subsidiary of General Motors Company (“GM”), and Goalie Texas Holdco Inc., a Texas corporation and a direct wholly owned subsidiary of GM Holdings (“Merger Sub”), GM Holdings completed its acquisition of AmeriCredit Corp. via the merger of Merger Sub with and into AmeriCredit Corp. (the “Merger” or “acquisition”), with AmeriCredit Corp. continuing as the surviving company in the Merger and becoming a wholly owned subsidiary of GM Holdings. Following the Merger, our name was changed to General Motors Financial Company, Inc. (“GM Financial” or the “Company”).
Purchase Accounting
The Merger has been accounted for under the purchase method of accounting, whereby the purchase price of the transaction was allocated to our identifiable assets acquired and liabilities assumed based upon their fair values. The estimates of the fair values recorded were determined based on the fair value measurement principles (see Note 13 – “Fair Values of Assets and Liabilities” to the consolidated financial statements included in this Form 10-K for additional information) and reflect significant assumptions and judgments. Material valuation inputs for our finance receivables included adjustments to monthly principal and finance charge cash flows for prepayments and credit loss expectations; servicing expenses; and discount rates developed based on the relative risk of the cash flows which considered loan type, market rates as of our valuation date, credit loss expectations and capital structure. Certain assumptions and judgments that were considered to be appropriate at the acquisition date may prove to be incorrect if market conditions change.
The results of the purchase price allocation included an increase in the total carrying value of net finance receivables, medium term note facility payable, Wachovia funding facility payable, securitization notes payable, deferred tax assets and uncertain tax positions as well as intangible assets. Management believes all material intangible assets have been identified.
The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill. The goodwill amount was $1.1 billion.
General
GM Financial, the captive finance subsidiary of GM, is a provider of automobile financing solutions with a portfolio of approximately $11 billion in auto receivables and leases as of December 31, 2011. We have been operating in the automobile finance business since September 1992. Our strategic relationship with GM began in September 2009 with a subvention program pursuant to which GM provides its customers access to discounted financing on select new GM models by paying us cash in order to offer lower interest rates on the loans we purchase from GM dealerships. GM acquired us for $3.5 billion on October 1, 2010.
We purchase auto finance contracts for new and used vehicles from GM and non-GM franchised and select independent automobile dealerships. We primarily offer auto financing to consumers who typically are unable to obtain financing from traditional sources such as banks and credit unions. We utilize a proprietary credit scoring system to differentiate credit applications and to statistically rank-order credit risk in terms of expected default rates, which enables us to evaluate credit applications for approval and tailor loan pricing and structure. We service our loan portfolio at regional centers using automated loan servicing and collection systems. Funding for our auto finance activities is primarily obtained through the utilization of our credit facilities and through
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securitization transactions. Since 1994, we have securitized approximately $67.5 billion of automobile loans in 78 transactions through December 31, 2011 through our securitization program.
We have historically maintained a significant share of the sub-prime auto finance market and have, in the past, participated in the prime sectors of the auto finance industry to a more limited extent. We source our business primarily through our relationships with automobile dealerships, which we maintain through our regional credit centers, marketing representatives (dealer relationship managers) and alliance relationships. We believe our growth and origination efforts are complemented by disciplined credit underwriting standards, risk-based pricing decisions and expense management.
As GM’s captive finance subsidiary, our business strategy includes increasing the amount of GM new automobile origination volume, while at the same time continuing to remain a valuable financing source for loans for non-GM dealers. In addition to our GM-related loan origination efforts, we offer a full credit spectrum lease financing product for new GM vehicles exclusively to GM-franchised dealerships in the United States. Through the acquisition of FinanciaLinx, an independent auto lease provider in Canada (“FinanciaLinx”), in April 2011, we now also offer lease financing for new GM vehicles in Canada. Through FinanciaLinx, we intend to increase lease origination levels for new GM vehicles sold by GM franchised dealerships in Canada. We expect to expand our business to include dealer wholesale and commercial lending for GM dealerships in the U.S. and Canada. Evidence of our increasing linkage with GM can be seen in our results for the twelve months ended December 31, 2011, during which our percentage of loans and leases for new GM vehicles increased to 40% of our total originations volume, up from 15% for the year ended December 31, 2010.
We were incorporated in Texas on May 18, 1988, and succeeded to the business, assets and liabilities of a predecessor corporation formed under the laws of Texas on August 1, 1986. Our predecessor began operations in March 1987, and the business has been operated continuously since that time. Our principal executive offices are located at 801 Cherry Street, Suite 3500, Fort Worth, Texas, 76102 and our telephone number is (817) 302-7000.
Loan and Lease Originations
Target Market. Most of our automobile finance programs are designed to serve customers who have limited access to automobile financing through banks and credit unions. The bulk of our typical borrowers have experienced prior credit difficulties or have limited credit histories and generally have credit bureau scores ranging from 500 to 700. Because we generally serve customers who are unable to meet the credit standards imposed by most banks and credit unions we generally charge higher interest rates than those charged by such sources. Since we provide financing in a relatively high-risk market, we also expect to sustain a higher level of credit losses than these other automobile financing sources.
Marketing. As an indirect auto finance provider, we focus our marketing activities on automobile dealerships. We are selective in choosing the dealers with whom we conduct business and primarily pursue GM and non-GM manufacturer franchised dealerships with new and used car operations and a limited number of independent dealerships. We generally finance later model, low mileage used vehicles, new GM vehicles and moderately priced new vehicles from other manufacturers. Of the contracts purchased by us during the year ended December 31, 2011, approximately 94% were originated by manufacturer franchised dealers, and 6% by select independent dealers; further, approximately 53% were used vehicles, 28% were new GM vehicles (not including new GM vehicles that we leased during the year) and 19% were new non-GM vehicles. We purchased contracts from 12,349 dealers during the year ended December 31, 2011. No dealer location accounted for more than 1% of the total volume of contracts purchased by us for that same period.
We maintain non-exclusive relationships with the dealers. We actively monitor our dealer relationships with the objective of maximizing the volume of applications received from dealers with whom we do business that meet our underwriting standards and profitability objectives. Due to the non-exclusive nature of our relationships with dealerships, the dealerships retain discretion to determine whether to obtain financing from us or from
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another source for a contract made by the dealership to a customer seeking to make a vehicle purchase. Our representatives regularly contact and visit dealers to solicit new business and to answer any questions dealers may have regarding our financing programs and capabilities and to explain our underwriting philosophy. To increase the effectiveness of these contacts, marketing personnel have access to our management information systems which detail current information regarding the number of applications submitted by a dealership, our response and the reasons why a particular application was rejected.
We generally purchase finance contracts without recourse to the dealer. Accordingly, the dealer has no liability to us if the consumer defaults on the contract unless a recourse agreement has been executed. Although finance contracts are generally purchased without recourse to the dealer, the dealer typically makes certain representations as to the validity of the contract and compliance with certain laws, and indemnifies us against any claims, defenses and set-offs that may be asserted against us because of assignment of the contract or the condition of the underlying collateral. Recourse based upon those representations and indemnities would be limited in circumstances in which the dealer has insufficient financial resources to perform upon such representations and indemnities. We do not view recourse against the dealer on these representations and indemnities to be of material significance in our decision to purchase finance contracts from a dealer. Depending upon the contract structure and consumer credit attributes, we may charge dealers a non-refundable acquisition fee or pay dealers a participation fee when purchasing finance contracts. These fees are assessed on a contract-by-contract basis.
Origination Network. Our origination platform provides specialized focus on marketing our financing programs and underwriting loans and leases. Responsibilities are segregated so that the sales group markets our programs and products to our dealer customers, while the underwriting group focuses on underwriting, negotiating and closing loans and leases. The underwriters are based in credit centers while the dealer relationship managers are based in credit centers or work remotely in their service area. We believe that the personal relationships our credit underwriters and dealer relationship managers establish with the dealership staff are an important factor in creating and maintaining productive relationships with our dealer customer base.
We select markets for credit center locations based upon numerous factors, most notably proximity to the geographic markets and dealers we seek to serve and availability of qualified personnel. Credit centers are typically situated in suburban office buildings.
A credit center vice president, regional credit managers, credit managers and credit underwriting specialists staff credit center locations. The credit center vice president reports to a senior vice president in our corporate office. Credit center personnel are compensated with base salaries and incentives based on overall credit center performance, including factors such as loan credit quality, loan pricing adequacy and loan volume objectives.
The credit center vice presidents, regional credit managers and senior vice presidents monitor credit center compliance with our underwriting guidelines. Our management information systems provide these managers with access to credit center information enabling them to consult with credit center teams on credit decisions and assess adherence to our credit and pricing policies. The senior vice presidents also make periodic visits to the credit centers to conduct operational reviews.
Dealer relationship managers typically work from a home office but are aligned with a credit center. Dealer relationship managers solicit dealers for applications and maintain our relationships with the dealers in their geographic vicinity, but do not have credit authority to underwrite contracts. We believe the local presence provided by our dealer relationship managers enables us to be more responsive to dealer concerns and local market conditions. Applications solicited by the dealer relationship managers are underwritten at our regional credit centers. The dealer relationship managers are compensated with base salaries and incentives based on contract volume objectives and dealer penetration rates. The dealer relationship managers report to regional sales managers who report to sales vice presidents.
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Manufacturer Relationships. We have programs with GM and other new vehicle manufacturers, typically known as subvention programs, under which the manufacturers provide us cash payments in order for us to offer lower interest rates on finance contracts we purchase from the manufacturers’ dealership network. The programs serve our goal of increasing new loan originations and the manufacturers’ goal of making credit more available and more affordable to consumers purchasing vehicles sold by the manufacturer.
Leasing. During December 2010, we began offering a lease product through GM-franchised dealerships that targets consumers with prime credit bureau scores purchasing new GM vehicles. By July 2011, the program expanded to a full spectrum credit program offering financing to customers with both prime and sub-prime credit bureau scores. We had previously provided a limited new vehicle leasing product through certain franchised dealerships that we discontinued in 2008.
Origination Data. The following table sets forth information with respect to the number of credit centers, number of dealer relationship managers, dollar volume of contracts purchased and number of producing dealerships for the periods set forth below (dollars in thousands):
| | | | | | | | | | | | | | | | |
| | | Year Ended
December 31,
2011 | | | Period From
July 1, 2010
Through
December 31,
2010 | | | Years Ended June 30, | |
| | | | | 2010 | | | 2009 | |
Number of credit centers | | | 16 | | | | 15 | | | | 14 | | | | 13 | |
Number of dealer relationship managers | | | 172 | | | | 110 | | | | 99 | | | | 55 | |
Origination volume(a) | | $ | 6,071,560 | | | $ | 1,904,471 | | | $ | 2,137,620 | | | $ | 1,285,091 | |
Number of producing dealerships(b) | | | 12,349 | | | | 11,831 | | | | 10,756 | | | | 9,401 | |
| (a) | Year ended December 31, 2011 and the period from October 1, 2010 through December 31, 2010 amounts include $986.8 million and $10.7 million of contracts purchased through our leasing programs in the U.S. and Canada, respectively. |
| (b) | A producing dealership refers to a dealership from which we purchased a contract in the respective period. |
Credit Underwriting
We utilize a proprietary credit scoring system to support the credit approval process. The credit scoring system was developed through statistical analysis of our consumer demographic and portfolio databases consisting of data which we have collected over almost 20 years of operating history. Credit scoring is used to differentiate credit applications and to statistically rank-order credit risk in terms of expected default rates, which enables us to evaluate credit applications for approval and tailor contract pricing and structure. For example, a consumer with a lower score would indicate a higher probability of default and, therefore, we would either decline the application, or, if approved, compensate for this higher default risk through the structuring and pricing of the contract. While we employ a credit scoring system in the credit approval process, credit scoring does not eliminate credit risk. Adverse determinations in evaluating contracts for purchase or changes in certain macroeconomic factors after purchase could negatively affect the credit performance of our portfolio.
The proprietary credit scoring system incorporates data contained in the customer’s credit application, credit bureau report, and other third-party data sources as well as the structure of the proposed financing and produces a statistical assessment of these attributes. This assessment is used to rank-order applicant risk profiles and recommend a price we should charge for different risk profiles. Our credit scorecards are monitored through comparison of actual versus projected performance by score. Periodically, we endeavor to refine our proprietary scorecards based on new information, including identified correlations between portfolio performance and data obtained in the underwriting process.
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GM sponsors special-rate financing programs available through us to consumers purchasing new GM vehicles. Under these programs, after we determine the appropriate price to charge for an applicant’s risk profile, GM may provide us with an interest supplement or other support payment in return for reducing the rate of interest actually charged to the consumer on the financing contract, thereby making the credit terms more attractive and affordable to the consumer and supporting the new vehicle sales transaction. Generally, the amount of the interest supplement or support payment from GM offsets the lower interest charges to be received by us over the life of the loan.
In addition to our proprietary credit scoring system, we utilize other underwriting guidelines. These underwriting guidelines are comprised of numerous evaluation criteria, including (a) identification and assessment of the applicant’s willingness and capacity to repay the loan or lease, including consideration of credit history and performance on past and existing obligations; (b) credit bureau data; (c) collateral identification and valuation; (d) payment structure and debt ratios; (e) insurance information; (f) employment, income and residency verifications, as considered appropriate; and (g) in certain cases, the creditworthiness of a co-obligor. These underwriting guidelines, and the minimum credit risk profiles of applicants we will approve as rank-ordered by our credit scorecards, are subject to change from time to time based on economic, competitive and capital market conditions as well as our overall origination strategies.
We purchase individual contracts through our underwriting specialists in regional credit centers using a credit approval process tailored to local market conditions. Underwriting personnel have a specific credit authority based upon their experience and historical portfolio results as well as established credit scoring parameters. More experienced specialists are assigned higher approval levels. If the suggested application attributes and characteristics exceed an underwriting specialist’s credit authority, each specialist has the ability to escalate the application to a more senior underwriter with a higher level of approval authority. Authorized senior underwriting officers may approve any contract application notwithstanding the underwriting guidelines as part of the overall underwriting process. Although the credit approval process is decentralized, our application processing system includes controls designed to ensure that credit decisions comply with the credit scoring strategies and underwriting policies and procedures we have in place at the time.
Finance contract application packages completed by prospective obligors are received electronically through web-based platforms that automate and accelerate the financing process. Upon receipt or entry of application data into our application processing system, a credit bureau report and other third-party data sources are automatically accessed and a proprietary credit score is computed. A substantial percentage of the contract applications received by us fail to meet our minimum credit score requirement and are automatically declined. For applications that are not automatically declined, our underwriting personnel continue to review the application package and judgmentally determine whether to approve the application, approve the application subject to conditions that must be met, or deny the application. We estimate that approximately 35-40% of loan applicants and 70-80% of lease applicants will be approved for credit by us. Dealers are contacted regarding credit decisions electronically or by facsimile. Declined applicants are also provided with appropriate notification of the decision.
Completed contract packages are sent to us by dealers. Contract documentation is scanned to create electronic images and electronically forwarded to one of our centralized processing departments. A processing representative verifies certain applicant employment, income and residency information. Contract terms, insurance coverage and other information may be verified or confirmed with the customer. The original documents are subsequently sent to our centralized account services department and critical documents are stored in a fire resistant vault.
Once cleared for funding, the funds are electronically transferred to the dealer or a check is issued. Upon funding of the contract, we acquire a perfected security interest in the automobile that was financed. Daily reports are generated for review by senior operations management. All of our loan contracts are fully amortizing with substantially equal monthly installments.
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Credit performance reports track portfolio performance at various levels of detail, including total company, credit center and dealer. Various daily reports and analytical data are also generated to monitor credit quality as well as to refine the structure and mix of new originations. We review profitability metrics on a consolidated basis, as well as at the credit center, origination channel, dealer and contract levels. Key application data, including credit bureau and credit score information, contract structures and terms and payment histories are maintained. Our credit risk management department also regularly reviews the performance of our credit scoring system and is responsible for the development and enhancement of our credit scorecards.
Servicing
Our servicing activities include collecting and processing customer payments, responding to customer inquiries, initiating contact with customers who are delinquent in payment of an installment, maintaining the security interest in the financed vehicle, monitoring physical damage insurance coverage of the financed vehicle, and arranging for the repossession of financed vehicles, liquidation of collateral and pursuit of deficiencies when appropriate. Our payment processing and customer service activities are operated centrally in Arlington, Texas. Our loan collection activities are operated through four regional standardized collection centers in North America (Arlington, Texas; Peterborough, Ontario; Chandler, Arizona; and Charlotte, North Carolina). We currently use a third party provider to service our U.S. lease portfolio and service our Canadian lease portfolio at our principal Canadian business location in Toronto, Ontario.
We use monthly billing statements to serve as a reminder to customers as well as an early warning mechanism in the event a customer has failed to notify us of an address change. Approximately 15 days before a customer’s first payment due date and each month thereafter, we mail the customer a billing statement directing the customer to mail payments to a lockbox bank for deposit in a lockbox account. Payment receipt data is electronically transferred from our lockbox bank to us for posting to the accounting system. A significant percentage of payments are also received via third party payment processors, such as Western Union, or via electronic transmission of funds. Payment processing and customer account maintenance is performed centrally at our operations center in Arlington, Texas.
A predictive dialing system is utilized to make phone calls to customers whose payments are past due. The predictive dialer is a computer-controlled telephone dialing system that simultaneously dials phone numbers of multiple customers from a file of records extracted from our database. Once a connection is made to the automated dialer’s call, the system automatically transfers the call to a collector and the relevant account information to the collector’s computer screen. Accounts that the system has been unable to reach within a specified number of days are flagged, thereby promptly identifying for management all customers who cannot be reached by telephone. By eliminating the time spent on attempting to reach customers, the system gives a single collector the ability to contact a larger number of customers daily.
Once an account reaches a certain level of delinquency, the account moves to one of our advanced collection units. The objective of these collectors is to resolve the delinquent account. We may repossess a financed vehicle if an account is deemed uncollectible, the financed vehicle is deemed by collection personnel to be in danger of being damaged, destroyed or hidden, the customer deals in bad faith or the customer voluntarily surrenders the financed vehicle.
Statistically-based behavioral assessment models are used in our servicing activities to project the relative probability that an individual account will default. The behavioral assessment models are used to help develop servicing strategies for the portfolio or for targeted account groups within the portfolio. At times, we offer payment deferrals to customers who have encountered financial difficulty, hindering their ability to pay as contracted. A deferral allows the customer to move delinquent payments to the end of the contract, usually by paying a fee that is calculated in a manner specified by applicable law. The collector reviews the customer’s past payment history and behavioral score and assesses the customer’s desire and capacity to make future payments. Before agreeing to a deferral, the collector also considers whether the deferment transaction complies with our
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policies and guidelines. Exceptions to our policies and guidelines for deferrals must be approved in accordance with these policies and guidelines. While payment deferrals are initiated and approved in the collections department, a separate department processes authorized deferment transactions. Exceptions are also monitored by our centralized credit risk management function.
Repossessions are subject to prescribed legal procedures, which include peaceful repossession, one or more customer notifications, a prescribed waiting period prior to disposition of the repossessed automobile and return of personal items to the customer. Some jurisdictions provide the customer with reinstatement or redemption rights. Legal requirements, particularly in the event of bankruptcy, may restrict our ability to dispose of the repossessed vehicle. Independent repossession firms engaged by us handle repossessions. All repossessions, other than bankruptcy or previously charged off accounts, must be approved by a collections officer. Upon repossession and after any prescribed waiting period, the repossessed automobile is sold at auction. We do not sell any vehicles on a retail basis. The proceeds from the sale of the automobile at auction, and any other recoveries, are credited against the balance of the contract. Auction proceeds from sale of the repossessed vehicle and other recoveries are usually not sufficient to cover the outstanding balance of the contract, and the resulting deficiency is charged off. We pursue collection of deficiencies when we deem such action to be appropriate.
Our policy is to charge off an account in the month in which the account becomes 120 days contractually delinquent if we have not repossessed the related vehicle. We charge off accounts in repossession when the automobile is repossessed and legally available for disposition. A charge-off represents the difference between the estimated net sales proceeds and the amount of the delinquent contract, including accrued interest. Accounts in repossession that have been charged off are removed from finance receivables and the related repossessed automobiles are included in other assets at net realizable value on the consolidated balance sheet pending disposal. The value of the collateral underlying our portfolio is updated periodically with a loan-by-loan link to national wholesale auction values. This data, along with our own experience relative to mileage and vehicle condition, are used for evaluating collateral disposition activities.
Financing
We primarily finance our loan and lease origination volume through the use of our credit facilities and, in the case of our loan originations, through securitization transactions.
Credit Facilities. Loans and leases are typically funded initially using credit facilities that are generally administered by agents on behalf of institutionally managed commercial paper conduits. Under these funding agreements, we transfer finance contracts to special purpose finance subsidiaries. These subsidiaries, in turn, issue notes to the agents, collateralized by such finance contracts and cash. The agents provide funding under the notes to the subsidiaries pursuant to an advance formula, and the subsidiaries forward the funds to us in consideration for the transfer of finance contracts. While these subsidiaries are included in our consolidated financial statements, these subsidiaries are separate legal entities and the finance contracts and other assets held by these subsidiaries are legally owned by them and are not available to our creditors or creditors of our other subsidiaries. Advances under our funding agreements bear interest at commercial paper, London Interbank Offered Rates (“LIBOR”), Canadian Dollar Offered Rate (“CDOR”) or prime rates plus a credit spread and specified fees depending upon the source of funds provided by the agents.
Securitizations. We pursue a financing strategy of securitizing our receivables to diversify our funding sources and free up capacity on our credit facilities for the purchase of additional automobile loans. The asset-backed securities market has traditionally allowed us to finance our auto loan portfolio at fixed interest rates over the life of a securitization transaction, thereby locking in the excess spread on our loan portfolio.
Proceeds from securitizations are primarily used to fund initial cash credit enhancement requirements in the securitization and to pay down borrowings under our credit facilities, thereby increasing availability thereunder
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for further contract purchases. Since 1994, we had securitized approximately $67.5 billion of auto loans through December 31, 2011.
In our securitizations, we, through wholly owned subsidiaries, transfer automobile receivables to newly-formed securitization trusts (“Trusts”), which issue one or more classes of asset-backed securities. The asset-backed securities are in turn sold to investors. When we transfer loans to a Trust, we make certain representations and warranties regarding the loans. These representations and warranties pertain to specific aspects of the loans, including the origination of the loans, the obligors of the loans, the accuracy and legality of the records, computer tapes and schedules containing information regarding the loans, the financed vehicles securing the loans, the security interests in the loans, specific characteristics of the loans, and certain matters regarding our servicing of the loans, but do not pertain to the underlying performance of the loans. Upon the breach of one of these representations or warranties (subject to any applicable cure period) that materially and adversely affects the noteholders’ interest in any loan, we will be obligated to repurchase the loan from the Trust. Historically, repurchases of loans due to a breach of a representation or warranty have been immaterial.
Since the second half of 2008, we have primarily utilized senior subordinated securitization structures which involve the public and private sale of subordinated asset-backed securities to provide credit enhancement for the senior, or highest rated, asset-backed securities. In January 2012, we closed a $1.0 billion public senior subordinated securitization transaction, AmeriCredit Automobile Receivables Trust (“AMCAR”) 2012-1, that has initial cash deposit and overcollateralization requirements of 7.75% in order to provide credit enhancement for the asset-backed securities sold, including the double-B rated securities which were the lowest rated securities sold. The level of credit enhancement in future senior subordinated securitizations will depend, in part, on the net interest margin, collateral characteristics and credit performance trends of the receivables transferred, as well as credit trends of our entire portfolio and overall auto finance industry credit trends. Credit enhancement levels may also be impacted by our financial condition, the economic environment and our ability to sell lower rated subordinated bonds at rates we consider acceptable.
The second type of securitization structure, that was last utilized in August 2010, involves the purchase of a financial guaranty insurance policy issued by an insurer. The financial guaranty insurance policies insure the timely payment of interest and the ultimate payment of principal due on the asset-backed securities. We have limited reimbursement obligations to the insurers; however, credit enhancement requirements, including the insurers’ encumbrance of certain restricted cash accounts and subordinated interests in Trusts, provide a source of funds to cover shortfalls in collections and to reimburse the insurers for any claims which may be made under the policies issued with respect to our securitizations. Since our securitization program’s inception, there have been no claims under any insurance policies. We do not anticipate utilizing this second type of structure in the foreseeable future.
The credit enhancement requirements in our securitization transactions include restricted cash accounts that are generally established with an initial deposit and may subsequently be funded through excess cash flows from securitized receivables. An additional form of credit enhancement is provided in the form of overcollateralization whereby more receivables are transferred to the Trusts than the amount of asset-backed securities issued by the Trusts. In securitizations involving a financial guaranty insurance policy, agreements with the insurers provide that if portfolio performance ratios (delinquency, cumulative default or cumulative net loss triggers) in a Trust’s pool of receivables exceed certain targets, the restricted cash account would be increased. Cash would be retained in the restricted cash account and not released to us until the increased target levels have been reached and maintained. We are entitled to receive amounts from the restricted cash accounts to the extent the amounts deposited exceed the required target enhancement levels. The credit enhancement requirements related to our senior subordinated transactions do not contain portfolio performance ratios which could increase the minimum required credit enhancement levels.
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The following chart provides a simplified overview of the relationship between us and other key parties to a credit facility or securitization transaction:
Trade Names
We have obtained federal trademark protection for the “AmeriCredit” and “GM Financial” names and the logos that incorporates the “AmeriCredit” and “GM Financial” names. Certain other names, logos and phrases used by us in our business operations have also been trademarked.
Regulation
Our operations are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations.
In most states in which we operate, a consumer credit regulatory agency regulates and enforces laws relating to consumer lenders and sales finance companies such as us. These rules and regulations generally provide for licensing as a sales finance company or consumer lender or lessor, limitations on the amount, duration and charges, including interest rates, for various categories of loans, requirements as to the form and content of finance contracts and other documentation, and restrictions on collection practices and creditors’ rights. In certain states, we are subject to periodic examination by state regulatory authorities. Some states in which we operate do not require special licensing or provide extensive regulation of our business.
We are also subject to extensive federal regulation, including the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act. These laws require us to provide certain disclosures to
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prospective borrowers and lessees and protect against discriminatory lending and leasing practices and unfair credit practices. The principal disclosures required under the Truth in Lending Act include the terms of repayment, the total finance charge and the annual percentage rate charged on each contract or loan and the lease terms to lessees of personal property. The Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, age or marital status. According to Regulation B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. In addition, the credit scoring system used by us must comply with the requirements for such a system as set forth in the Equal Credit Opportunity Act and Regulation B. The Fair Credit Reporting Act requires us to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency and to respond to consumers who inquire regarding any adverse reporting submitted by us to the consumer reporting agencies. Additionally, we are subject to the Gramm-Leach-Bliley Act, which requires us to maintain the privacy of certain consumer data in our possession and to periodically communicate with consumers on privacy matters. We are also subject to the Servicemembers Civil Relief Act, which requires us, in most circumstances, to reduce the interest rate charged to customers who have subsequently joined, enlisted, been inducted or called to active military duty. The dealers who originate auto finance contracts and leases purchased by us also must comply with both state and federal credit and trade practice statutes and regulations. Failure of the dealers to comply with these statutes and regulations could result in consumers having rights of rescission and other remedies that could have an adverse effect on us.
We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable local, state and federal regulations. There can be no assurance, however, that we will be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on our operations. Further, the adoption of additional, or the revision of existing, rules and regulations could have a material adverse effect on our business.
Compliance with applicable law is costly and can affect operating results. Compliance also requires forms, processes, procedures, controls and the infrastructure to support these requirements, and may create operational constraints. Laws in the financial services industry are designed primarily for the protection of consumers. The failure to comply could result in significant statutory civil and criminal penalties, monetary damages, attorneys’ fees and costs, possible revocation of licenses and damage to reputation, brand and valued customer relationships.
In the near future, the financial services industry is likely to see increased disclosure obligations, restrictions on pricing and fees and enforcement proceedings.
In July 2010 the Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law. The Dodd-Frank Act is extensive and significant legislation that, among other things:
| | • | | creates a liquidation framework under which the Federal Deposit Insurance Corporation, (“FDIC”), may be appointed as receiver following a “systemic risk determination” by the Secretary of Treasury (in consultation with the President) for the resolution of certain nonbank financial companies and other entities, defined as “covered financial companies”, and commonly referred to as “systemically important entities”, in the event such a company is in default or in danger of default and the resolution of such a company under other applicable law would have serious adverse effects on financial stability in the United States, and also for the resolution of certain of their subsidiaries; |
| | • | | creates a new framework for the regulation of over-the-counter derivatives activities; |
| | • | | strengthens the regulatory oversight of securities and capital markets activities by the SEC; |
| | • | | creates the Bureau of Consumer Financial Protection, a new agency responsible for administering and enforcing the laws and regulations for consumer financial products and services; and |
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| | • | | increases the regulation of the securitization markets through, among other things, a mandated risk retention requirement for securitizers and a direction to the SEC to regulate credit rating agencies and adopt regulations governing these organizations and their activities. |
The various requirements of the Dodd-Frank Act, including the many implementing regulations which have yet to be released, may substantially impact our origination, servicing and securitization activities. With respect to the new liquidation framework for systemically important entities, no assurances can be given that such framework would not apply to us, although the expectation embedded in the Dodd-Frank Act is that the framework will rarely be invoked. Recent guidance from the FDIC indicates that such new framework will largely be exercised in a manner consistent with the existing bankruptcy laws, which is the insolvency regime which would otherwise apply to us.
The SEC has proposed significant changes to the rules applicable to issuers and sponsors of asset-backed securities under the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). With the proposed changes we could potentially see an adverse impact in our access to the asset-backed securities capital markets and reduced effectiveness of our financing programs.
Competition
The automobile finance market is highly fragmented and is served by a variety of financial entities including the captive finance affiliates of other major automotive manufacturers, banks, thrifts, credit unions and independent finance companies. Many of these competitors have substantially greater financial resources and lower costs of funds than ours. In addition, our competitors often provide financing on terms more favorable to automobile purchasers or dealers than we may offer. Many of these competitors also have long standing relationships with automobile dealerships and may offer the dealerships or their customers other forms of financing, including dealer floor plan financing, commercial loans or revolving credit products, which are not currently provided by us. Providers of automobile financing have traditionally competed on the basis of rates charged, the quality of credit accepted, the flexibility of terms offered and the quality of service provided to dealers and customers. In seeking to establish ourselves as one of the principal financing sources at the dealers we serve, we compete predominantly on the basis of our high level of dealer service, strong dealer relationships and by offering flexible contract terms. There can be no assurance that we will be able to compete successfully in this market or against these competitors.
Employees
At December 31, 2011, we employed 3,460 persons in the United States and Canada. None of our employees are a part of a collective bargaining agreement, and our relationships with employees are satisfactory.
Executive Officers
The following sets forth certain data concerning our executive officers.
| | | | | | |
Name | | Age | | | Position |
Daniel E. Berce | | | 58 | | | President and Chief Executive Officer |
Kyle R. Birch | | | 51 | | | Executive Vice President, Dealer Services |
Steven P. Bowman | | | 44 | | | Executive Vice President, Chief Credit and Risk Officer |
Chris A. Choate | | | 49 | | | Executive Vice President, Chief Financial Officer and Treasurer |
James M. Fehleison | | | 53 | | | Executive Vice President, Corporate Controller |
Jonas B. Hollandsworth | | | 40 | | | Executive Vice President, U.S. Sales and Credit Operations |
J. Michael May | | | 67 | | | Executive Vice President, Chief Legal Officer and Secretary |
Brian S. Mock | | | 46 | | | Executive Vice President, Consumer Services |
Susan B. Sheffield | | | 45 | | | Executive Vice President, Corporate Finance |
James R. Vance | | | 40 | | | Executive Vice President, Pricing Analytics and Product Development |
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DANIEL E. BERCE has been President since April 2003 and Chief Executive Officer since August 2005. Mr. Berce was Vice Chairman and Chief Financial Officer from November 1996 until April 2003. Mr. Berce joined us in 1990.
KYLE R. BIRCH has been Executive Vice President, Dealer Services since May 2003. Prior to that, he was Senior Vice President of Dealer Services from July 1999 to April 2003. Mr. Birch joined us in 1997.
STEVEN P. BOWMAN has been Executive Vice President, Chief Credit and Risk Officer since January 2005. Prior to that, he was Executive Vice President, Chief Credit Officer from March 2000 to January 2005. Mr. Bowman joined us in 1996.
CHRIS A. CHOATE has been Executive Vice President, Chief Financial Officer and Treasurer since January 2005. Prior to that, he was Executive Vice President, Chief Legal Officer and Secretary from November 1999 to January 2005. Mr. Choate joined us in 1991.
JAMES M. FEHLEISON has been Executive Vice President, Corporate Controller, since October 2004. Prior to that, he was Senior Vice President, Corporate Controller, from November 2000 to October 2004. Mr. Fehleison joined us in 2000.
JONAS B. HOLLANDSWORTH has been Executive Vice President, U.S. Sales and Credit Operations since April 2011. Prior to that, he was Senior Vice President, Dealer Services from June 2008 to April 2011. Prior to that he was Vice President, Branch Originations from October 2005 until June 2008. Mr. Hollandsworth joined us in 1999.
J. MICHAEL MAY has been Executive Vice President, Chief Legal Officer and Secretary since July 2006. Prior to that, he was Senior Vice President, Associate Counsel, from June 2001 to July 2006. Mr. May joined us in 1999.
BRIAN S. MOCK has been Executive Vice President, Consumer Services since September 2002. Prior to that, he was Senior Vice President of Operational Services from April 2001 to August 2002. Mr. Mock joined us in 2001.
SUSAN B. SHEFFIELD has been Executive Vice President, Corporate Finance since July 2008. Prior to that, she was Senior Vice President, Structured Finance, from February 2004 to July 2008 and Vice President, Structured Finance, from February 2003 to February 2004. Ms. Sheffield joined us in 2001.
JAMES R. VANCE has been Executive Vice President, Pricing Analytics and Product Development since April 2011. Prior to that, he was Senior Vice President, Pricing Analytics and Product Development from August 2010 to April 2011 and Senior Vice President, Operations Controller – Financial Planning and Analysis from September 2006 to August 2010. Mr. Vance joined us in 1998.
ITEM 1A. RISK FACTORS
The profitability and financial condition of our operations are dependent upon the operations of our parent, General Motors.
A material portion of our business consists of financing the sale of new GM vehicles. If there were significant changes in GM’s liquidity and capital position and access to the capital markets, the production or sales of GM vehicles to retail customers, the quality or resale value of GM vehicles, or other factors impacting GM or its employees, such changes could significantly affect our profitability and financial condition. In addition, GM sponsors special-rate financing programs available through us. Under these programs, GM makes interest supplements or other support payments to us. These programs increase our financing volume and share
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of financing the sales of GM vehicles. If GM were to adopt marketing strategies in the future that de-emphasized such programs in favor of other incentives, our financing volume could be reduced.
We currently have a $300 million unsecured revolving credit facility with GM. If this facility was no longer available, and we were unable to obtain similar funding elsewhere, our liquidity would be negatively impacted.
Our ability to continue to purchase contracts and to fund our business is dependent on a number of financing sources.
Dependence on Credit Facilities. We depend on various credit facilities to finance our purchase of contracts pending securitization.
At December 31, 2011, we had a warehouse credit facility to support new originations. This facility, which we refer to as our syndicated warehouse facility provides borrowing capacity of up to $2.0 billion through May 2012. In May 2012 when the revolving period ends and if the facility is not renewed, the outstanding balance will be repaid over time based on the amortization of the receivables pledged until May 2013 when the remaining balance will be due and payable.
We also have two leasing credit facilities: (a) $600 million lease warehouse facility for lease originations in the U.S. that requires renewal in January 2013 and (b) C$600 million lease warehouse facility for lease originations in Canada that requires renewal in July 2012. Under both of these lease facilities, when the revolving periods end, and if the facilities are not renewed, the outstanding balance will be repaid over a period of approximately six years based on the amortization of the leasing related assets pledged, at which point in time any remaining amounts outstanding will be due and payable.
Additionally, we have a medium term note facility that reached the end of its revolving period in October 2009 and had $293.5 million outstanding at December 31, 2011. The outstanding balance of this facility will be repaid over time based on the amortization of the receivables pledged until October 2016 when any remaining amount outstanding will be due and payable.
We cannot guarantee that any of these financing sources will continue to be available beyond the current maturity dates on reasonable terms or at all. Additionally, as our volume of loan and lease originations increase, including an expansion of leasing volume in Canada, we will require the expansion of our borrowing capacity on our existing credit facilities or the addition of new credit facilities. The availability of these financing sources depend, in part, on factors outside of our control, including regulatory capital treatment for unfunded bank lines of credit, the financial strength and strategic objectives of the banks that participate in our credit facilities and the availability of bank liquidity in general. If we are unable to extend or replace these facilities or arrange new credit facilities or other types of interim financing, we will have to curtail or suspend origination activities, which would have a material adverse effect on our financial position, liquidity, and results of operations.
Our credit facilities, other than the GM revolving credit facility, contain a borrowing base or advance formula which requires us to pledge finance contracts in excess of the amounts which we can borrow under the facilities. We are also required to hold certain funds in restricted cash accounts to provide additional collateral for borrowings under the credit facilities. In addition, the finance contracts pledged as collateral must be less than 31 days delinquent at periodic measurement dates. Accordingly, increases in delinquencies or defaults on pledged collateral resulting from weakened economic conditions, or due to our inability to execute securitization transactions or any other factor, would require us to pledge additional finance contracts to support the same borrowing levels and to replace delinquent or defaulted collateral. The pledge of additional finance contracts to support our credit facilities would adversely impact our financial position, liquidity, and results of operations.
Additionally, the credit facilities, other than the GM revolving credit facility, generally contain various covenants requiring certain minimum financial ratios, asset quality, and portfolio performance ratios (portfolio
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net loss and delinquency ratios, and pool level cumulative net loss ratios) as well as limits on deferment levels. Failure to meet any of these covenants could result in an event of default under these agreements. If an event of default occurs under these agreements, the lenders could elect to declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interests against collateral pledged under these agreements or restrict our ability to obtain additional borrowings under these facilities. If the lenders elect to accelerate outstanding indebtedness under these agreements following the violation of any covenant, such actions may result in an event of default under our senior note indenture.
Dependence on Securitization Program.
General. Since December 1994, we have relied upon our ability to transfer receivables to Trusts and sell securities in the asset-backed securities market to generate cash proceeds for repayment of credit facilities and to purchase additional receivables. Accordingly, adverse changes in our asset-backed securities program or in the asset-backed securities market for automobile receivables in general have in the past, and could in the future, materially adversely affect our ability to purchase and securitize loans on a timely basis and upon terms acceptable to us. Any adverse change or delay would have a material adverse effect on our financial position, liquidity, and results of operations.
We will continue to require the execution of securitization transactions in order to fund our future liquidity needs. Additionally, we will require the expansion of our securitization program, or the development of other long-term funding solutions, to fund our U.S. and Canadian lease originations. There can be no assurance that funding will be available to us through these sources or, if available, that it will be on terms acceptable to us. If these sources of funding are not available to us on a regular basis for any reason, including the occurrence of events of default, deterioration in loss experience on the collateral, breach of financial covenants or portfolio and pool performance measures, disruption of the asset-backed market or otherwise, we will be required to revise the scale of our business, including the possible discontinuation of origination activities, which would have a material adverse effect on our financial position, liquidity, and results of operations.
There can be no assurance that we will continue to be successful in selling securities in the asset-backed securities market. Since we are highly dependent on the availability of the asset-backed securities market to finance our operations, disruptions in this market or adverse changes or delays in our ability to access this market would have a material adverse effect on our financial position, liquidity, and results of operations. Reduced investor demand for asset-backed securities could result in our having to hold assets until investor demand improves, but our capacity to hold assets is not unlimited. A reduced demand for our asset-backed securities could require us to reduce our origination levels. A return to adverse market conditions, such as we experienced in 2008 and early 2009, could also result in increased costs and reduced margins in connection with our securitization transactions.
Securitization Structures. Since the second half of 2008, we have primarily utilized senior subordinated securitization structures which involve the public and private sale of subordinated asset-backed securities to provide credit enhancement for the senior, or highest rated, asset-backed securities. In a senior subordinated securitization, we expect that the highest rated, or triple-A, securities to be sold by us will comprise approximately 70% of the total securities issued. The balance of securities we expect to issue, the subordinated notes, will comprise the remaining 30%. Sizes of the classes depend upon rating agency loss assumptions and loss coverage requirements in addition to the sizing of subordinate bond classes. The market environment for subordinated securities is traditionally smaller than for senior securities and, therefore, can be more challenging than the market for triple-A securities. There can be no assurance that we will be able to sell the subordinated securities in a senior subordinated securitization, or that the pricing and terms demanded by investors for such securities will be acceptable to us. If we were unable for any reason to sell the subordinated securities in a senior subordinated securitization, we would be required to hold such securities, or find other sources of debt financing which could have a material adverse effect on our financial position, liquidity, and results of operations and could force us to curtail or suspend origination activities.
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The amount of the initial credit enhancement on future senior-subordinated securitizations will be dependent upon the amount of subordinated securities sold and the desired ratings on the securities being sold. In the AMCAR 2012-1 securitization, the initial cash deposit and overcollateralization requirement was 7.75% in order to provide credit enhancement for the asset-backed securities sold, including the double-B rated securities which were the lowest rated securities sold. The required initial and targeted credit enhancement levels depend, in part, on the net interest margin expected over the life of a securitization, the collateral characteristics of the pool of receivables securitized, credit performance trends of our entire portfolio and the structure of the securitization transaction. Credit enhancement levels may also be impacted by our financial condition and the economic environment. In periods of economic weakness and associated deterioration of credit performance trends, required credit enhancement levels generally increase, particularly for securitizations of higher risk finance receivables such as our loan portfolio. Higher levels of credit enhancement require significantly greater use of liquidity to execute a securitization transaction. The level of credit enhancement requirements in the future could adversely impact our ability to execute securitization transactions and may affect the timing of such securitizations given the increased amount of liquidity necessary to fund credit enhancement requirements. This, in turn, may adversely impact our ability to opportunistically access the capital markets when conditions are favorable.
The second type of securitization structure, that we last utilized in August 2010, involves the purchase of a financial guaranty insurance policy provided by various monoline insurance providers in order to achieve triple-A ratings on the securities issued in our securitization transactions. Most of the monoline insurers we have used in the past are still facing financial stress and have received rating agency downgrades due to risk exposures on insurance policies that guarantee mortgage debt and related structured products. As a result, there is limited demand for securities guaranteed by insurance policies.
To service our debt, we will require a significant amount of cash. Our ability to generate cash depends on many factors.
Our ability to make payments on or to refinance our indebtedness and to fund our operations depends on our ability to generate cash and our access to the capital markets in the future. These, to a certain extent, are subject to general economic, financial, competitive, legislative, regulatory, capital market conditions and other factors that are beyond our control.
We expect to continue to require substantial amounts of cash. Our primary cash requirements include the funding of:
| | • | | loan purchases pending their securitization; |
| | • | | credit enhancement requirements in connection with securitization and credit facilities; |
| | • | | interest and principal payments under our credit facilities and other indebtedness; |
| | • | | fees and expenses incurred in connection with the securitization and servicing of loans and leases and credit facilities; |
| | • | | ongoing operating expenses; and |
We require substantial amounts of cash to fund our origination and securitization activities. Although we must fund certain credit enhancement requirements upon the closing of a securitization, we typically receive the cash representing excess cash flows and return of credit enhancement deposits over the actual life of the receivables securitized. We also incur transaction costs in connection with a securitization transaction. Accordingly, our strategy of securitizing our newly purchased receivables will require significant amounts of cash. Additionally, we expect to expand our business in 2012 to include dealer wholesale and commercial
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lending for GM dealers, activities that will require substantial amounts of cash to support, particularly until we are able to obtain credit facilities and create a securitization platform to help fund such receivables.
Our primary sources of future liquidity are expected to be:
| | • | | payments on loans and leases not yet securitized; |
| | • | | distributions received from Trusts; |
| | • | | borrowings under our credit facilities or proceeds from securitization transactions; |
| | • | | further issuances of other debt securities; and |
| | • | | borrowings on our unsecured line of credit with GM. |
Because we expect to continue to require substantial amounts of cash for the foreseeable future, we anticipate that we will require the execution of additional securitization transactions and may choose to enter into other additional debt financings. The type, timing and terms of financing selected by us will be dependent upon our cash needs, the availability of other financing sources and the prevailing conditions in the capital markets. There can be no assurance that funding will be available to us through these sources or, if available, that the funding will be on acceptable terms. If we are unable to execute securitization transactions on a regular basis, we would not have sufficient funds to finance new originations and, in such event, we would be required to revise the scale of our business, which would have a material adverse effect on our ability to achieve our business and financial objectives.
Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our existing indebtedness.
We currently have a substantial amount of outstanding indebtedness. Our ability to make payments of principal or interest on, or to refinance, our indebtedness will depend on our future operating performance, including the performance of receivables transferred to Trusts, and our ability to enter into additional securitization transactions as well as other debt financings, which, to a certain extent, are subject to economic, financial, competitive, regulatory, capital markets and other factors beyond our control.
If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt or to obtain additional financing. There can be no assurance that any refinancings will be possible or that any additional financing could be obtained on acceptable terms. The inability to service or refinance our existing debt or to obtain additional financing would have a material adverse effect on our financial position, liquidity, and results of operations.
The degree to which we are leveraged creates risks, including:
| | • | | we may be unable to satisfy our obligations under our outstanding indebtedness; |
| | • | | we may find it more difficult to fund future credit enhancement requirements, operating costs, tax payments, capital expenditures, or general corporate expenditures; |
| | • | | we may have to dedicate a substantial portion of our cash resources to payments on our outstanding indebtedness, thereby reducing the funds available for operations and future business opportunities; and |
| | • | | we may be vulnerable to adverse general economic, capital markets and industry conditions. |
Our credit facilities, other than the GM revolving credit facility, typically require us to comply with certain financial ratios and covenants, including minimum asset quality maintenance requirements. These restrictions may interfere with our ability to obtain financing or to engage in other necessary or desirable business activities.
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If we cannot comply with the requirements in our credit facilities, then the lenders may increase our borrowing costs, remove us as servicer or declare the outstanding debt immediately due and payable. If our debt payments were accelerated, the assets pledged on these facilities might not be sufficient to fully repay the debt. These lenders may foreclose upon their collateral, including the restricted cash in these credit facilities. These events may also result in a default under our senior note and convertible senior note indentures. We may not be able to obtain a waiver of these provisions or refinance our debt, if needed. In such case, our financial condition, liquidity, and results of operations would materially suffer.
Defaults and prepayments on contracts purchased or originated by us could adversely affect our operations.
Our financial condition, liquidity, and results of operations depend, to a material extent, on the performance of loans and leases in our portfolio. Obligors under contracts acquired or originated by us may default during the term of their loan or lease. Generally, we bear the full risk of losses resulting from defaults. In the event of a default, the collateral value of the financed vehicle usually does not cover the outstanding contract balance and costs of recovery.
We maintain an allowance for loan losses for finance receivables originated since October 1, 2010 (our “post-acquisition finance receivables” portfolio) which reflects management’s estimates of inherent losses for these loans. If the allowance is inadequate, we would recognize the losses in excess of that allowance as an expense and results of operations would be adversely affected. A material adjustment to our allowance for loan losses and the corresponding decrease in earnings could limit our ability to enter into future securitizations and other financings, thus impairing our ability to finance our business.
We also maintain a carrying value adjustment for finance receivables originated prior to October 1, 2010 (our “pre-acquisition finance receivables” portfolio), which includes future credit losses for these loans. Any incremental deterioration on loans in this group beyond the carrying value adjustment will result in an incremental allowance for loan losses being recorded. Improvements or resolutions will not be a direct offset to provisions or charge-offs, but will result in a transfer of the excess non-accretable discount to accretable yield, which will be recorded as finance charge income over the remaining life from the finance receivables.
We are required to deposit substantial amounts of the cash generated by our interests in securitizations sponsored by us to satisfy targeted credit enhancement requirements. An increase in defaults would reduce the cash flows generated by our interests in securitization transactions lengthening the period required to build targeted credit enhancement levels in the Trusts. Distributions of cash from the securitizations to us would be delayed and the ultimate amount of cash distributable to us would be less, which would have an adverse effect on our liquidity. The targeted credit enhancement levels in future securitizations may also be increased, due to an increase in defaults and losses, further impacting our liquidity.
Consumer prepayments affect the amount of finance charge income we receive over the life of the loans. If prepayment levels increase for any reason and we are not able to replace the prepaid receivables with newly originated loans, we will receive less finance charge income and our results of operations may be adversely affected.
The negative performance of auto contracts in our portfolio could adversely affect our cash flow and servicing rights.
Portfolio Performance – Negative Impact on Cash Flows. Generally, the form of agreements we have entered into with our financial guaranty insurance providers in connection with securitization transactions insured by them contain specified limits on portfolio performance ratios (delinquency, cumulative default and cumulative net loss) on the receivables included in each Trust. If, at any measurement date, a portfolio performance ratio with respect to any Trust were to exceed the specified limits, provisions of the credit enhancement agreement would automatically increase the level of credit enhancement requirements for that Trust
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if a waiver was not obtained. During the period in which the specified portfolio performance ratio was exceeded, excess cash flows, if any, from the Trust would be used to fund additional credit enhancement up to the increased levels instead of being distributed to us, which would have an adverse effect on our cash flows and liquidity.
Our securitization transactions insured by some of our financial guaranty insurance providers are cross-collateralized to a limited extent. In the event of a shortfall in the original targeted credit enhancement requirement for any of these Trusts after a certain period of time, excess cash flows from other transactions insured by the same insurance provider would be used to satisfy the shortfall amount rather than be distributed to us.
Right to Terminate Servicing. The agreements that we have entered into with our financial guaranty insurance providers in connection with securitization transactions insured by them contain additional specified targeted portfolio performance ratios (delinquency, cumulative default and cumulative net loss) that are higher than the limits referred to above. 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 financial guaranty insurance providers to declare the occurrence of an event of default and take steps to terminate our servicing rights to the receivables sold to that Trust. In addition, the servicing agreements on certain insured Trusts are cross-defaulted so that a default declared under one servicing agreement would allow the financial guaranty insurance provider to terminate our servicing rights under all servicing agreements for Trusts in which they issued a financial guaranty insurance policy. Additionally, if these higher targeted portfolio performance levels were exceeded and the financial guaranty insurance providers elected to declare an event of default, the insurance providers may retain all excess cash generated by other securitization transactions insured by them as additional credit enhancement. This, in turn, could result in defaults under our other securitizations and other material indebtedness, including under our senior note indenture. Although we have never exceeded these additional targeted portfolio performance ratios, there can be no assurance that we will not exceed these additional targeted portfolio performance ratios in the future. If such targeted portfolio performance ratios are exceeded, or if we have breached our obligations under the servicing agreements, or if the financial guaranty insurance providers are required to make payments under a policy, or if certain bankruptcy or insolvency events were to occur then there can be no assurance that an event of default will not be declared and our servicing rights will not be terminated. The termination of any or all of our servicing rights would have a material adverse effect on our financial position, liquidity, and results of operations.
Failure to implement our business strategy could adversely affect our operations.
Our financial position, liquidity, and results of operations depend on management’s ability to execute our business strategy. Key factors involved in the execution of the business strategy include achieving the desired origination volume, continued and successful use of proprietary scoring models for credit risk assessment and risk-based pricing, the use of effective credit risk management techniques and servicing strategies, implementation of effective servicing and collection practices, continued investment in technology to support operating efficiency, implementation of floorplan and commercial lending programs for GM dealers and continued access to funding and liquidity sources. Our failure or inability to execute any element of our business strategy could materially adversely affect our financial position, liquidity, and results of operations.
There is a high degree of risk associated with sub-prime borrowers.
The majority of our origination and servicing activities involve sub-prime automobile receivables. Sub-prime borrowers are associated with higher-than-average delinquency and default rates. While we believe that we effectively manage these risks with our proprietary credit scoring system, risk-based pricing and other underwriting policies, and our servicing and collection methods, no assurance can be given that these criteria or methods will be effective in the future. In the event that we underestimate the default risk or under-price contracts that we purchase, our financial position, liquidity, and results of operations would be adversely affected, possibly to a material degree.
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Our profitability is dependent upon consumer demand for automobiles and automobile financing and the ability of consumers to repay loans and leases, and our business may be negatively affected during times of low automobile sales, fluctuating wholesale prices and lease residual values, rising interest rates, weakening of the Canadian dollar and high unemployment.
General. We are subject to changes in general economic conditions that are beyond our control. During periods of economic slowdown or recession, delinquencies, defaults, repossessions and losses generally increase. These periods also may be accompanied by increased unemployment rates, decreased consumer demand for automobiles and declining values of automobiles securing outstanding loans, which weakens collateral coverage and increases the amount of a loss in the event of default. Additionally, higher gasoline prices, declining stock market values, unstable real estate values, increasing unemployment levels, general availability of consumer credit or other factors that impact consumer confidence or disposable income could increase loss frequency and decrease consumer demand for automobiles as well as weaken collateral values on certain types of automobiles. Because we focus predominantly on sub-prime borrowers, the actual rates of delinquencies, defaults, repossessions and losses are higher than those experienced in the general automobile finance industry and could be more dramatically affected by a general economic downturn. In addition, during an economic slowdown or recession, our servicing costs may increase without a corresponding increase in our finance charge income. While we seek to manage the higher risk inherent in financing sub-prime borrowers through the underwriting criteria and collection methods we employ, no assurance can be given that these criteria or methods will afford adequate protection against these risks. Any sustained period of increased delinquencies, defaults, repossessions or losses or increased servicing costs could adversely affect our financial position, liquidity, results of operations and our ability to enter into future securitizations and future credit facilities.
Wholesale Auction Values. We sell repossessed automobiles at wholesale auction markets located throughout the United States and Canada. Auction proceeds from the sale of repossessed vehicles and other recoveries are usually not sufficient to cover the outstanding balance of the contract, and the resulting deficiency is charged off. We also sell automobiles returned to us at the end of a lease term. Decreased auction proceeds resulting from the depressed prices at which used automobiles may be sold during periods of economic slowdown or slack consumer demand will result in higher credit losses for us. Furthermore, depressed wholesale prices for used automobiles may result from significant liquidations of rental or fleet inventories, financial difficulties of the new vehicle manufacturers, discontinuance of vehicle brands and models and from increased volume of trade-ins due to promotional programs offered by new vehicle manufacturers. Additionally, higher gasoline prices may decrease the wholesale auction values of certain types of vehicles.
Leased Vehicle Residual Values and Return Rates. We project expected residual values and return volumes of the vehicles we lease. Actual proceeds realized by us upon the sale of returned leased vehicles at lease termination may be lower than the amount projected, which reduces the profitability of the lease transaction to us. Among the factors that can affect the value of returned lease vehicles are the volume of vehicles returned, economic conditions and the quality or perceived quality, safety or reliability of the vehicles. Actual return volumes may be higher than expected and can be influenced by contractual lease end values relative to auction values, marketing programs for new vehicles, and general economic conditions. All of these, alone or in combination, have the potential to adversely affect the profitability of our lease program and financial results.
Interest Rates. Our profitability may be directly affected by the level of and fluctuations in interest rates, which affects the gross interest rate spread we earn on our portfolio. As the level of interest rates change, our gross interest rate spread on new originations either increases or decreases since the rates charged on the contracts purchased from dealers are fixed rate and are limited by market and competitive conditions, restricting our opportunity to pass on increased interest costs to the consumer. We believe that our financial position, liquidity, and results of operations could be adversely affected during any period of higher interest rates, possibly to a material degree. We monitor the interest rate environment and may employ hedging strategies designed to mitigate the impact of increases in interest rates. We can provide no assurance however, that hedging strategies will mitigate the impact of increases in interest rates.
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Foreign Currency Exchange Rates. We are exposed to the effects of changes in foreign currency exchange rates. Changes in currency exchange rates cannot always be predicted or hedged. As a result, unfavorable changes in the Canadian dollar could have an effect on our financial condition, liquidity, and results of operations.
Labor Market Conditions. Competition to hire and retain personnel possessing the skills and experience required by us could contribute to an increase in our employee turnover rate. High turnover or an inability to attract and retain qualified personnel could have an adverse effect on our delinquency, default and net loss rates, our ability to grow and, ultimately, our financial condition, liquidity, and results of operations.
A security breach or a cyber attack could adversely affect our business.
A security breach or cyber attack of our computer systems could interrupt or damage our operations or harm our reputation. If third parties or our employees are able to penetrate our network security or otherwise misappropriate our customers’ personal information or contract information, or if we give third parties or our employees improper access to our customers’ personal information or contract information, we could be subject to liability. This liability could include identity theft or other similar fraud-related claims. This liability could also include claims for other misuses or losses of personal information, including for unauthorized marketing purposes. Other liabilities could include claims alleging misrepresentation of our privacy and data security practices.
We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure online transmission of confidential consumer information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive customer transaction data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend capital and other resources to protect against such security breaches or cyber attacks or to alleviate problems caused by such breaches or attacks. Our security measures are designed to protect against security breaches and cyber attacks, but our failure to prevent such security breaches and cyber attacks could subject us to liability, decrease our profitability, and damage our reputation.
We are involved in and will likely continue to be party to litigation.
As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud, breach of contract and discriminatory treatment of credit applicants. Some litigation against us could take the form of class action complaints by consumers and/or shareholders. As the assignee of finance contracts originated by dealers, we 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 can include requests for compensatory, statutory and punitive damages. We believe that we have taken prudent steps to address and mitigate the litigation risks associated with our business activities. However, any adverse resolution of litigation pending or threatened against us could have a material affect on our financial condition, liquidity, and results of operations.
We could be jointly and severally liable for certain pension obligations of our affiliate, GM Holdings.
Although we do not sponsor defined benefit pension plans for our employees, an affiliate of ours, GM Holdings sponsors U.S. defined benefit plans covering a portion of its U.S. employees and retirees. The GM Holdings plans are subject to the Employee Retirement Income Security Act of 1974 (“ERISA”), and they are underfunded. ERISA, along with certain provisions of the Internal Revenue Code of 1986, as amended (the “Code”), requires minimum funding contributions to these pension plans, and the Pension Benefit Guaranty
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Corporation (“PBGC”) has the authority under certain circumstances to petition a court to terminate an underfunded pension plan. Under ERISA and the Code, we would be jointly and severally liable, together with GM Holdings, for the amount of the unfunded benefit liabilities resulting from a termination of one of these pension plans by the PBGC. In addition, a failure to make required minimum contributions or such a termination of a pension plan by the PBGC could result in liens imposed on our assets.
Regulation. Reference should be made to Item 1. “Business – Regulation” for a discussion of regulatory risk factors.
Competition. Reference should be made to Item 1. “Business – Competition” for a discussion of competitive risk factors.
Our executive offices are located at 801 Cherry Street, Suite 3500, Fort Worth, Texas, in an 86,000 square foot office space under a lease that expires in May 2019.
We also lease 46,000 square feet of office space in Charlotte, North Carolina under a lease expiring in June 2021, 89,000 square feet of office space in Peterborough, Ontario under a lease expiring in July 2019, 62,000 square feet of office space in Chandler, Arizona, under a lease expiring in August 2018 and 250,000 square feet of office space in Arlington, Texas, under a lease expiring in August 2017. We also own a 250,000 square foot servicing facility in Arlington, Texas. Our Canadian auto leasing operations are housed in a 37,000 square foot facility in Toronto, Ontario under a lease expiring in August 2014. Our regional credit centers are generally leased under agreements with original terms of three to seven years. Such facilities are typically located in a suburban office building and consist of between 3,000 and 15,000 square feet of space.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
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PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
Market Information
Our common stock previously traded on the New York Stock Exchange under the symbol ACF. Effective October 1, 2010 with the consummation of the Merger all of our issued and outstanding equity securities are owned by a single holder and there is no longer an established public trading market for our common stock. The information provided below represents the information for AmeriCredit Corp. for periods before the effective date of the Merger.
Dividend Policy
We have never paid cash dividends on our common stock. We presently intend to retain future earnings, if any, for use in the operation of the business and do not anticipate paying any cash dividends in the foreseeable future; provided, however, that we may reexamine this policy with our sole shareholder at any time.
The following table sets forth the range of the high, low and closing sale prices for our common stock as reported on the Composite Tape of the New York Stock Exchange Listed Issues.
| | | | | | | | | | | | |
Predecessor | | High | | | Low | | | Close | |
Three months ended September 30, 2010 | | $ | 24.53 | | | $ | 17.98 | | | $ | 24.46 | |
| | | |
Fiscal year ended June 30, 2010 | | | | | | | | | | | | |
First Quarter | | $ | 18.00 | | | $ | 11.51 | | | $ | 15.79 | |
Second Quarter | | | 20.10 | | | | 14.71 | | | | 19.04 | |
Third Quarter | | | 24.55 | | | | 18.69 | | | | 23.76 | |
Fourth Quarter | | | 26.49 | | | | 18.14 | | | | 18.22 | |
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| ITEM 6. | SELECTED FINANCIAL DATA |
The table below summarizes selected financial information (dollars in thousands, except per share data). For additional information, refer to the audited consolidated financial statements and notes thereto in Item 8. Financial Statements and Supplementary Data. After the Merger, AmeriCredit Corp. (“Predecessor”) was renamed General Motors Financial Company, Inc. (‘Successor”) and the “Selected Financial Data” for periods preceding and succeeding the Merger have been derived from the consolidated financial statements of the Predecessor and the Successor, respectively. The consolidated financial statements of the Predecessor have been prepared on the same basis as the audited financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2010. The consolidated financial statements of the Successor reflect the application of “purchase accounting”.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | 2010 | | | 2009 | | | 2008 | | | 2007 | |
Operating Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Finance charge income | | $ | 1,246,687 | | | $ | 264,347 | | | | | $ | 342,349 | | | $ | 1,431,319 | | | $ | 1,902,684 | | | $ | 2,382,484 | | | $ | 2,142,470 | |
Other revenue | | | 163,301 | | | | 16,824 | | | | | | 30,275 | | | | 91,498 | | | | 164,640 | | | | 160,598 | | | | 197,453 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenue | | | 1,409,988 | | | | 281,171 | | | | | | 372,624 | | | | 1,522,817 | | | | 2,067,324 | | | | 2,543,082 | | | | 2,339,923 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Impairment of goodwill | | | | | | | | | | | | | | | | | | | | | | | | | 212,595 | | | | | |
Net income (loss) | | | 385,527 | | | | 74,633 | | | | | | 51,300 | | | | 220,546 | | | | (10,889 | ) | | | (82,369 | ) | | | 349,963 | |
Basic earnings (loss) per share | | | (a | ) | | | (a | ) | | | | | 0.38 | | | | 1.65 | | | | (0.09 | ) | | | (0.72 | ) | | | 2.94 | |
Diluted earnings (loss) per share | | | (a | ) | | | (a | ) | | | | | 0.37 | | | | 1.60 | | | | (0.09 | ) | | | (0.72 | ) | | | 2.65 | |
Diluted weighted average shares | | | (a | ) | | | (a | ) | | | | | 140,302,755 | | | | 138,179,945 | | | | 125,239,241 | | | | 114,962,241 | | | | 133,224,945 | |
Other Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Origination volume(b) | | $ | 6,071,560 | | | $ | 945,467 | | | | | $ | 959,004 | | | $ | 2,137,620 | | | $ | 1,285,091 | | | $ | 6,293,494 | | | $ | 8,454,600 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | December 31,
2011 | | | December 31,
2010 | | | | | June 30,
2010 | | | June 30,
2009 | | | June 30,
2008 | | | June 30
2007 | |
Balance Sheet Data | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 572,297 | | | $ | 194,554 | | | | | $ | 282,273 | | | $ | 193,287 | | | $ | 433,493 | | | $ | 910,304 | |
Finance receivables, net | | | 9,162,492 | | | | 8,197,324 | | | | | | 8,160,208 | | | | 10,037,329 | | | | 14,030,299 | | | | 15,102,370 | |
Leased vehicles, net | | | 809,491 | | | | 46,780 | | | | | | 94,677 | | | | 156,387 | | | | 210,857 | | | | 33,968 | |
Total assets | | | 13,042,920 | | | | 10,918,738 | | | | | | 9,881,033 | | | | 11,958,327 | | | | 16,508,201 | | | | 17,762,999 | |
Credit facilities | | | 1,099,391 | | | | 831,802 | | | | | | 598,946 | | | | 1,630,133 | | | | 2,928,161 | | | | 2,541,702 | |
Securitization notes payable | | | 6,937,841 | | | | 6,128,217 | | | | | | 6,108,976 | | | | 7,426,687 | | | | 10,420,327 | | | | 11,939,447 | |
Senior notes | | | 500,000 | | | | 70,054 | | | | | | 70,620 | | | | 91,620 | | | | 200,000 | | | | 200,000 | |
Convertible senior notes | | | 500 | | | | 1,446 | | | | | | 414,068 | | | | 392,514 | | | | 642,599 | | | | 620,537 | |
Total liabilities | | | 9,119,882 | | | | 7,388,630 | | | | | | 7,480,609 | | | | 9,851,019 | | | | 14,542,939 | | | | 15,606,407 | |
Shareholder’s equity | | | 3,923,038 | | | | 3,530,108 | | | | | | 2,400,424 | | | | 2,107,308 | | | | 1,965,262 | | | | 2,156,592 | |
| (a) | As a result of the Merger, our common stock is owned by a single holder and is no longer publicly traded and earnings per share is no longer required. |
| (b) | The fiscal year ended December 31, 2011, three month period ended December 31, 2010 and fiscal years ended June 30, 2008 and 2007 include $986.8 million, $10.7 million, $218.1 million and $34.9 million of contracts purchased through our leasing programs in U.S. and Canada, respectively. |
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| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
GENERAL
We are an auto finance company specializing in purchasing retail automobile installment sales contracts originated by franchised and select independent dealers in connection with the sale of used and new automobiles. Additionally, in December 2010, we began offering a lease product through General Motors Company (“GM”) franchised dealerships. We generate revenue and cash flows primarily through the purchase, retention, subsequent securitization and servicing of finance contracts. As used herein, “loans” include auto finance receivables originated by dealers and purchased by us. To fund the acquisition of contracts prior to securitization, we use available cash and borrowings under our credit facilities. We earn finance charge and other income on the finance contracts and pay interest expense on borrowings under our credit facilities.
Through wholly owned subsidiaries, we periodically transfer receivables to securitization trusts (“Trusts”) that issue asset-backed securities to investors. We retain an interest in these securitization transactions in the form of restricted cash accounts and overcollateralization, whereby more receivables are transferred to the Trusts than the amount of asset-backed securities issued by the Trusts, as well as the estimated future excess cash flows expected to be received by us 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 targeted credit enhancement requirements are reached and maintained, excess cash flows are distributed to us or, in a securitization utilizing a senior subordinated structure, may be used to accelerate the repayment of certain subordinated securities. In addition to excess cash flows, we receive monthly base servicing fees and we collect other fees, such as late charges, as servicer for Trusts. For securitization transactions that involve the purchase of a financial guaranty insurance policy, credit enhancement requirements will increase if specified portfolio performance ratios are exceeded. Excess cash flows otherwise distributable to us from Trusts in which the portfolio performance ratios were exceeded and from other Trusts which may be subject to limited cross-collateralization provisions are accumulated in the Trusts until such higher levels of credit enhancement are reached and maintained. Senior subordinated securitizations typically do not utilize portfolio performance ratios.
Our securitization transactions utilize special purpose entities which are also variable interest entities (“VIE’s”) that meet the requirements to be consolidated in our financial statements. Following a securitization, the finance receivables and the related securitization notes payable remain on the consolidated balance sheets. We recognize finance charge and fee income on the receivables and interest expense on the securities issued in the securitization transaction and record a provision for loan losses to cover probable loan losses on the receivables.
General Motors Merger
On October 1, 2010, pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of July 21, 2010, with General Motors Holdings LLC (“GM Holdings”), a Delaware limited liability company and a wholly owned subsidiary of GM, and Goalie Texas Holdco Inc., a Texas corporation and a direct wholly owned subsidiary of GM Holdings (“Merger Sub”), GM Holdings completed its acquisition of AmeriCredit Corp. via the merger of Merger Sub with and into AmeriCredit Corp. (the “Merger” or “acquisition”), with AmeriCredit Corp. continuing as the surviving company in the Merger and becoming a wholly owned subsidiary of GM Holdings. Following the Merger, our name was changed to General Motors Financial Company, Inc. (“GM Financial”).
On December 9, 2010, we changed our fiscal year end to December 31 from June 30. We made this change to align our financial reporting period, as well as our annual planning and budgeting process, with the GM
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business cycle. As a result of this change, this Form 10-K reports our financial results for the three month transition period of July 1, 2010 through September 30, 2010, labeled “Predecessor” and the three month transition period of October 1, 2010 through December 31, 2010, labeled “Successor”. Due to the change in basis resulting from the application of purchase accounting, the results of operations of the Predecessor and Successor are not comparable. The years ended December 31, 2011, June 30, 2010 and 2009 reflect the twelve-month results of the respective fiscal year and are referred to herein as fiscal 2011, 2010 and 2009.
All references to “years”, “fiscal” and “fiscal year”, unless otherwise noted refer to the twelve month fiscal year, which prior to July 1, 2010, ended on June 30, and beginning January 1, 2011, ends on December 31 of each year.
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 we believe are the most critical to understanding and evaluating our reported financial results include the following:
Purchase Accounting
The Merger has been accounted for under the purchase method of accounting, whereby the purchase price of the transaction was allocated to our identifiable assets acquired and liabilities assumed based upon their fair values. The estimates of the fair values recorded were determined based on the fair value measurement principles (see Note 13 – “Fair Values of Assets and Liabilities” to the consolidated financial statements for additional information) and reflect significant assumptions and judgments. Material valuation inputs for our finance receivables included adjustments to monthly principal and finance charge cash flows for prepayments and credit loss expectations; servicing expenses; and discount rates developed based on the relative risk of the cash flows which considered loan type, market rates as of our valuation date, credit loss expectations and capital structure. Certain assumptions and judgments that were considered to be appropriate at the acquisition date may prove to be incorrect if market conditions change.
The results of the purchase price allocation included an increase in the total carrying value of net finance receivables, medium term note facility payable, Wachovia funding facility payable, securitization notes payable, deferred tax assets and uncertain tax positions as well as intangible assets. Management believes all material intangible assets have been identified.
The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill. The goodwill amount was $1.1 billion.
In accordance with the accounting for goodwill, goodwill is not amortized to net income, but is required to be tested for impairment at least annually. See Note 1 – “Summary of Significant Accounting Policies – Goodwill” to the consolidated financial statements for additional information regarding goodwill. See Note 2 – “Financial Statement Effects of the Merger” to the consolidated financial statements for additional information of the purchase price allocation.
Finance Receivables and the Allowance for Loan Losses
Pre-Acquisition Finance Receivables
Finance receivables originated prior to the acquisition were adjusted to fair value at October 1, 2010. As a result of purchase accounting for the Merger, the allowance for loan losses at October 1, 2010 was eliminated
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and a net discount was recorded on the receivables. The fair value of the receivables was less than the principal amount of those receivables, thus resulting in a discount to par. This discount was attributable, in part, to estimate future credit losses that did not exist at the origination of the loans.
A non-accretable difference is the excess between contractually required payments (undiscounted amount of all uncollected contractual principal and interest payments, both past due and scheduled for the future) and the amount of cash flows, considering the impact of prepayments, expected to be collected. An accretable yield is the excess of the cash flows, considering the impact of prepayments, expected to be collected over the initial investment in the loans, which at October 1, 2010, was fair value.
As a result of purchase accounting for the Merger, we evaluated the common risk characteristics of the loan portfolio and split it into several pools. Once a pool of loans is assembled, the integrity of the pool is maintained. A loan is removed from a pool only if it is sold or paid in full, or the loan is written off. Our policy is to remove a written off loan individually from a pool based on comparing any amount received with its contractual amount. Any difference between these amounts is absorbed by the non-accretable difference. This removal method assumes that the amount received approximates pool performance expectations. The remaining accretable yield balance is unaffected and any material change in remaining effective yield caused by this removal method is addressed by our quarterly cash flow evaluation process for each pool. For loans that are resolved by payment in full there is no release of the non-accretable difference for the pool because there is no difference between the amount received and the contractual amount of the loan.
Any deterioration in the performance of the pre-acquisition receivables will result in an incremental provision for loan losses being recorded. Improvements in the performance of the pre-acquisition receivables which results in a significant increase in actual or expected cash flows will result first in the reversal of any incremental related allowance for loan losses and then in a transfer of the excess from the non-accretable difference to accretable yield, which will be recorded as finance charge income over the remaining life of the receivables.
Post-Acquisition Finance Receivables and Allowance for Loan Losses
Finance receivables originated since the acquisition are carried at amortized cost, net of allowance for loan losses. Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at levels considered adequate to cover probable credit losses inherent in our post-acquisition finance receivables.
The allowance for loan losses is established systematically based on the determination of the amount of probable credit losses inherent in the post-acquisition finance receivables as of the balance sheet date. We review charge-off experience factors, delinquency reports, historical collection rates, estimates of the value of the underlying collateral, economic trends, such as unemployment rates, and other information in order to make the necessary judgments as to the probable credit losses. We also use historical charge-off experience to determine the loss confirmation period, which is defined as the time between when an event, such as delinquency status, giving rise to a probable credit loss occurs with respect to a specific account and when such account is charged off. This loss confirmation period is applied to the forecasted probable credit losses to determine the amount of losses inherent in finance receivables at the balance sheet date. Assumptions regarding credit losses and loss confirmation periods are reviewed periodically and may be impacted by actual performance of finance receivables and changes in any of the factors discussed above. Should the credit loss assumption or loss confirmation period increase, there would be an increase in the amount of allowance for loan losses required, which would decrease the net carrying value of finance receivables and increase the amount of provision for loan losses recorded on the consolidated statements of operations.
A 10% and 20% increase in cumulative charge-offs on the post-acquisition portfolio over the loss confirmation period would increase the allowance for loan losses as of December 31, 2011, as follows (in thousands):
| | | | | | | | |
| | | 10% increase | | | 20% increase | |
Impact on allowance for loan losses | | $ | 17,876 | | | $ | 35,752 | |
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We believe that the allowance for loan losses is adequate to cover probable losses inherent in our post-acquisition 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 or that our credit loss assumptions will not increase.
Net credit losses, which is the sum of the write-offs of contractual amounts on the pre-acquisition portfolio and the charge-offs on the post-acquisition portfolio, is a non-Generally Accepted Accounting Principle (“GAAP”) measure. See “Credit Quality – Credit Losses – non-GAAP measure” for a reconciliation of charge-offs to total credit losses on the combined portfolio.
Valuation of Automobile Lease Assets and Residuals
We have investments in leased vehicles recorded as operating leases. In accounting for operating leases, we must make a determination at the beginning of the lease contract of the estimated realizable value (i.e., residual value) of the vehicle at the end of the lease. Residual value represents an estimate of the market value of the vehicle at the end of the lease term, which typically ranges from two to four years. We establish residual values by using independently published residual values. The customer is obligated to make payments during the term of the lease for the difference between the purchase price and the contract residual value plus a money factor. However, since the customer is not obligated to purchase the vehicle at the end of the contract, we are exposed to a risk of loss to the extent the value of the vehicle is below the residual value estimated at contract inception. We periodically perform a detailed review of the estimated realizable value of leased vehicles to assess the appropriateness of the carrying value of lease assets.
To account for residual risk, we depreciate automobile operating lease assets to estimated realizable value on a straight-line basis over the lease term. The estimated realizable value is initially based on the residual value established at contract inception. Over the life of the lease, we evaluate the adequacy of the estimate of the realizable value and may make adjustments to the extent the expected value of the vehicle at lease termination changes. Any adjustments would result in a change in the depreciation rate of the lease asset.
In addition to estimating the residual value at lease termination, we must also evaluate the carrying value of the operating lease assets and test for impairment to the extent necessary in accordance with applicable accounting standards. Impairment is determined to exist if the undiscounted expected future cash flows (including the expected residual value) are lower than the carrying value of the asset. There have been no such impairment charges since we reentered the lease market in late 2010.
Our depreciation methodology on operating lease assets considers our expectation of the value of the vehicles upon lease termination, which is based on numerous assumptions and factors influencing used vehicle values. The critical assumptions underlying the estimated carrying value of automobile lease assets include: (a) estimated market value information obtained and used by management in estimating residual values, (b) proper identification and estimation of business conditions, (c) our remarketing abilities, and (d) vehicle and marketing programs of our parent company. Changes in these assumptions could have a significant impact on the value of the lease residuals.
Income Taxes
We are subject to income tax in the United States and Canada. We file unitary, combined or consolidated state and local tax returns with GM in certain jurisdictions. In some state, local, and federal taxing jurisdictions where filing a separate income tax return is mandated, we continue to file separately. In the ordinary course of our business, there may be transactions, calculations, structures and filing positions where the ultimate tax outcome is uncertain. At any point in time, multiple tax years are subject to audit by various taxing jurisdictions and we record liabilities for estimated tax results based on the requirements of the accounting for uncertainty in income taxes. Management believes that the estimates it uses are reasonable. However, due to expiring statutes
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of limitations, audits, settlements, changes in tax law or new authoritative rulings, no assurance can be given that the final outcome of these matters will be comparable to what was reflected in the historical income tax provisions and accruals. We may need to adjust our accrued tax assets or liabilities if actual results differ from estimated results or if we adjust these assumptions in the future, which could materially impact the effective tax rate, earnings, accrued tax balances and cash.
As a part of our financial reporting process, we must assess the likelihood that our deferred tax assets can be recovered. Unless recovery is more likely than not, the provision for income taxes must be increased by recording a reserve in the form of a valuation allowance for all or a portion of the deferred tax assets. In this process, certain criteria are evaluated including the existence of deferred tax liabilities that can be used to absorb deferred tax assets, taxable income in prior carryback years that can be used to absorb net operating losses, credit carrybacks, estimated taxable income in future years and the duration of the carryforward periods. We incurred a significant taxable loss for fiscal 2009. On November 6, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 was signed into law which provides an election to carryback a loss to the third, fourth or fifth year that precedes the year of loss. Because of this change in tax law, we elected to extend our U.S. federal fiscal 2009 net operating loss (“NOL”) carryback period. We have fully utilized our federal NOL. In contrast to U.S. federal tax rules, there is generally no carryback potential for the majority of U.S. state tax jurisdictions and the various state carryforward periods range from 5 to 20 years. We have established a valuation allowance against a portion of our state tax net operating loss. Our judgment regarding future taxable income may change due to evolving corporate and operational strategies, market conditions, changes in U.S., state or international tax laws and other factors which may later alter our judgment of the utilization of these assets.
As a result of the Merger, our results of operations for tax purposes became a part of GM’s consolidated federal tax return as of and subsequent to October 1, 2010. However, we continue to account for income taxes on a separate return basis. Accordingly, we account for income taxes using an asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. Under our tax sharing arrangement with GM, payments for the tax years 2010 through 2013 are deferred for three years from their original due date. The total amount of deferral is not to exceed $650 million. Amounts owed to or from GM for income tax are accrued and recorded as an intercompany payable or receivable. As of December 31, 2011, a difference of $0.5 million between the amounts to be paid under our tax sharing arrangement with GM and our separate return basis used for financial reporting purposes was reported in our consolidated financial statements through additional paid-in capital. As of December 31, 2011, we have an intercompany payable of $300.3 million to GM.
PRESENTATION AND ANALYSIS OF RESULTS
This Management’s Discussion and Analysis should be read in conjunction with the consolidated financial statements and the and accompanying notes included elsewhere in this report. The results of operations are presented for five periods: fiscal 2011 and the three months ended December 31, 2010 (“Successor”), and the three months ended September 30, 2010 and fiscals 2010 and 2009 (“Predecessor”).
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RESULTS OF OPERATIONS
Year Ended December 31, 2011 – Successor
Finance Receivables
A summary of our finance receivables is as follows (in thousands):
| | | | |
| | | Successor | |
Year Ended December 31, | | 2011 | |
Pre-acquisition finance receivables, carrying value, beginning of period | | $ | 7,299,963 | |
Post-acquisition finance receivables, beginning of period | | | 923,713 | |
| | | | |
| | | 8,223,676 | |
| | | | |
Loans purchased | | | 5,084,800 | |
Charge-offs | | | (66,080 | ) |
Principal collections and other | | | (3,418,088 | ) |
Change in carrying value adjustment on the pre-acquisition finance receivables | | | (483,048 | ) |
| | | | |
Balance at end of period | | $ | 9,341,260 | |
| | | | |
The average new loan size was $20,697 for fiscal 2011. The average annual percentage rate for finance receivables purchased during fiscal 2011 was 14.6%.
Leased Vehicles
A summary of our leased vehicles is as follows (in thousands):
| | | | |
| | | Successor | |
Year Ended December 31, | | 2011 | |
Balance at beginning of period | | $ | 51,515 | |
Leased vehicles purchased | | | 1,000,200 | |
Leased vehicles returned – end of term | | | (28,723 | ) |
Leased vehicles returned – default | | | (1,139 | ) |
Manufacturer incentives | | | (126,520 | ) |
Foreign currency translation | | | (8,377 | ) |
| | | | |
Balance at end of period | | $ | 886,956 | |
| | | | |
Average Earning Assets
Average earning assets are as follows (in thousands):
| | | | |
| | | Successor | |
Year Ended December 31, | | 2011 | |
Average finance receivables(a) | | $ | 9,112,464 | |
Average leased vehicles, net | | | 428,136 | |
| | | | |
Average earning assets | | $ | 9,540,600 | |
| | | | |
| (a) | Average finance receivables are defined as the average daily receivable balance excluding the carrying value adjustment. |
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Net Margin
Net margin is the difference between finance charge and other income earned on our receivables and leased vehicles and the cost to fund the assets as well as the cost of debt incurred for general corporate purposes.
Our net margin as derived from the consolidated statements of operations and comprehensive operations is as follows (in thousands):
| | | | |
| | | Successor | |
Year Ended December 31, | | 2011 | |
Finance charge income | | $ | 1,246,687 | |
Other income | | | 163,301 | |
Interest expense | | | (204,170 | ) |
| | | | |
Net margin | | $ | 1,205,818 | |
| | | | |
Net margin as a percentage of average earning assets is as follows:
| | | | |
| | | Successor | |
Year Ended December 31, | | 2011 | |
Finance charge income and other income | | | 14.8 | % |
Interest expense | | | (2.2 | ) |
| | | | |
Net margin as a percentage of average earning assets | | | 12.6 | % |
| | | | |
Revenue
Finance charge income was $1,246.7 million for fiscal 2011. The effective yield on our finance receivables was 13.7% for fiscal 2011. The effective yield represents finance charges and fees recorded in earnings during the period as a percentage of average finance receivables. The effective yield, as a percentage of average finance receivables, is lower than the contractual rates of our auto finance contracts due to finance receivables in nonaccrual status and because the accretable yield is lower than the contractual rate.
Other income consists of the following (in thousands):
| | | | |
| | | Successor | |
Year Ended December 31, | | 2011 | |
Leasing income | | $ | 97,676 | |
Investment income | | | 1,471 | |
Late fees and other income | | | 64,154 | |
| | | | |
| | $ | 163,301 | |
| | | | |
Costs and Expenses
Operating Expenses
Operating expenses were $338.5 million for fiscal 2011. Our operating expenses are predominately related to personnel costs that include base salary and wages, performance incentives and benefits as well as related employment taxes. Personnel costs represented 75.0% of total operating expenses for fiscal 2011.
Operating expenses as a percentage of average earning assets were 3.5% for fiscal 2011.
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Leased Vehicle Expenses
Leased vehicle expenses were $67.1 million for fiscal 2011. Our leased vehicle expenses are predominately related to depreciation of leased assets as well as the gain or loss on the disposition of the leased assets.
Provision for Loan Losses
Provisions for loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of post-acquisition finance receivables. The provision for loan losses recorded for fiscal 2011 reflects inherent losses on receivables originated during the period and changes in the amount of inherent losses on post-acquisition receivables originated in prior periods. The provision for loan losses was $178.4 million for fiscal 2011. As a percentage of average post-acquisition finance receivables, the provision for loan losses was 2.0% for fiscal 2011.
Interest Expense
Interest expense was $204.2 million for fiscal 2011. As a result of the Merger, items that were being amortized to interest expense such as the discount associated with the accounting for convertible debt instruments and fees associated with our securitization notes payable and credit facilities were eliminated as part of purchase accounting entries. Interest expense was also affected by $67.0 million in amortization relating to the purchase accounting premium. Average debt outstanding was $7.6 billion for fiscal 2011. Our effective rate of interest expense on our debt was 2.7% for fiscal 2011.
Taxes
Our effective income tax rate was 38.0% for fiscal 2011.
Other Comprehensive Loss
Other comprehensive loss consisted of the following (in thousands):
| | | | |
| | | Successor | |
Year Ended December 31, | | 2011 | |
Unrealized gains on cash flow hedges | | $ | 2,852 | |
Foreign currency translation adjustment | | | (10,981 | ) |
Income tax expense | | | (1,046 | ) |
| | | | |
| | $ | (9,175 | ) |
| | | | |
Cash Flow Hedges
Unrealized gains on cash flow hedges consisted of the following (in thousands):
| | | | |
| | | Successor | |
Year Ended December 31, | | 2011 | |
Unrealized losses related to changes in fair value | | $ | (50 | ) |
Reclassification of net unrealized losses into earnings | | | 2,902 | |
| | | | |
| | $ | 2,852 | |
| | | | |
Unrealized losses related to changes in fair value for fiscal 2011 were due to changes in the fair value of interest rate swap agreements that were designated as cash flow hedges for accounting purposes. The fair value of the interest rate swap agreements fluctuate based upon changes in forward interest rate expectations.
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Unrealized gains on cash flow hedges of our floating rate debt are reclassified into earnings when interest rate fluctuations on securitization notes payable or other hedged items affect earnings.
Canadian Currency Translation Adjustment
Canadian currency translation adjustment losses of $11.0 million for fiscal 2011 were included in other comprehensive income. The translation adjustment is due to the change in the value of our Canadian dollar denominated assets related to the change in the U.S. dollar to Canadian dollar exchange rates.
Three Months Ended December 31, 2010 – Successor
Finance Receivables
A summary of our finance receivables is as follows (in thousands):
| | | | |
| | | Successor | |
Three Months Ended December 31, | | 2010 | |
Pre-acquisition finance receivables, carrying value, beginning of period | | $ | 8,230,743 | |
Loans purchased | | | 934,812 | |
Principal collections and other | | | (763,883 | ) |
Change in carrying value adjustment on the pre-acquisition finance receivables | | | (177,996 | ) |
| | | | |
Balance at end of period | | $ | 8,223,676 | |
| | | | |
The average new loan size was $19,550 for the three months ended December 31, 2010. The average annual percentage rate for finance receivables purchased during the three months ended December 31, 2010 was 15.2%.
Leased Vehicles
A summary of our leased vehicles is as follows (in thousands):
| | | | |
| | | Successor | |
Three Months Ended December 31, | | 2010 | |
Balance at beginning of period | | $ | 54,730 | |
Leased vehicles purchased | | | 11,371 | |
Leased vehicles returns – end of term | | | (14,041 | ) |
Leased vehicles returns – default | | | (545 | ) |
| | | | |
Balance at end of period | | $ | 51,515 | |
| | | | |
Average Earning Assets
Average earning assets are as follows (in thousands):
| | | | |
| | | Successor | |
Three Months Ended December 31, | | 2010 | |
Average finance receivables(a) | | $ | 8,679,506 | |
Average leased vehicles, net | | | 50,144 | |
| | | | |
Average earning assets | | $ | 8,729,650 | |
| | | | |
| (a) | Average finance receivables are defined as the average daily receivable balance excluding the carrying value adjustment. |
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Net Margin
Net margin is the difference between finance charge and other income earned on our receivables and leased vehicles and the cost to fund the assets as well as the cost of debt incurred for general corporate purposes.
Our net margin as derived from the consolidated statements of operations and comprehensive operations is as follows (in thousands):
| | | | |
| | | Successor | |
Three Months Ended December 31, | | 2010 | |
Finance charge income | | $ | 264,347 | |
Other income | | | 16,824 | |
Interest expense | | | (36,684 | ) |
| | | | |
Net margin | | $ | 244,487 | |
| | | | |
Net margin as an annualized percentage of average earning assets is as follows:
| | | | |
| | | Successor | |
Three Months Ended December 31, | | 2010 | |
Finance charge income and other income | | | 12.8 | % |
Interest expense | | | (1.7 | ) |
| | | | |
Net margin as an annualized percentage of average earning assets | | | 11.1 | % |
| | | | |
Revenue
Finance charge income was $264.3 million for the three months ended December 31, 2010. The effective yield on our finance receivables was 12.1% for the three months ended December 31, 2010. The effective yield, as a percentage of average finance receivables, is lower than the contractual rates of our auto finance contracts due to finance receivables in nonaccrual status and because the accretable yield is lower than the contractual rate.
Other income consists of the following (in thousands):
| | | | |
| | | Successor | |
Three Months Ended December 31, | | 2010 | |
Leasing income | | $ | 4,418 | |
Investment income | | | 608 | |
Late fees and other income | | | 11,798 | |
| | | | |
| | $ | 16,824 | |
| | | | |
Costs and Expenses
Operating Expenses
Operating expenses were $70.4 million for the three months ended December 31, 2010. Our operating expenses are predominately related to personnel costs that include base salary and wages, performance incentives and benefits as well as related employment taxes. Personnel costs represented 71.7% of total operating expenses for the three months ended December 31, 2010.
Operating expenses as an annualized percentage of average earning assets were 3.2% for the three months ended December 31, 2010.
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Provision for Loan Losses
Provisions for loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of post-acquisition finance receivables. The provision for loan losses recorded for the three months ended December 31, 2010 reflects inherent losses on post-acquisition receivables. The provision for loan losses was $26.4 million for the three months ended December 31, 2010. As an annualized percentage of average post-acquisition finance receivables, the provision for loan losses was 1.2% for the three months ended December 31, 2010.
Interest Expense
Interest expense was $36.7 million for the three months ended December 31, 2010. As a result of the Merger, items that were being amortized to interest expense such as the discount associated with the accounting for convertible debt instruments and fees associated with our securitization notes payable and credit facilities were eliminated as part of purchase accounting entries. Interest expense was also affected by $27.1 million in amortization relating to the purchase accounting premium. Average debt outstanding was $7.3 billion for the three months ended December 31, 2010. Our effective rate of interest expense on our debt was 2.0% for the three months ended December 31, 2010.
Acquisition Expenses
Acquisition expenses for the three months ended December 31, 2010 of $16.3 million primarily represent advisory, legal and professional fees and other costs related to the Merger with GM.
Taxes
Our effective income tax rate was 42.3% for the three months ended December 31, 2010.
Other Comprehensive Income
Other comprehensive income consisted of the following (in thousands):
| | | | |
| | | Successor | |
Three Months Ended December 31, | | 2010 | |
Unrealized losses on cash flow hedges | | $ | (412 | ) |
Foreign currency translation adjustment | | | 1,819 | |
Income tax benefit | | | 151 | |
| | | | |
| | $ | 1,558 | |
| | | | |
Cash Flow Hedges
Unrealized losses on cash flow hedges consisted of the following (in thousands):
| | | | |
| | | Successor | |
Three Months Ended December 31, | | 2010 | |
Unrealized losses related to changes in fair value | | $ | (464 | ) |
Reclassification of net unrealized losses into earnings | | | 52 | |
| | | | |
| | $ | (412 | ) |
| | | | |
Unrealized losses related to changes in fair value for the three months ended December 31, 2010 were due to changes in the fair value of interest rate swap agreements that were designated as cash flow hedges for accounting purposes. The fair value of the interest rate swap agreements fluctuate based upon changes in forward interest rate expectations.
35
Unrealized losses on cash flow hedges of our floating rate debt are reclassified into earnings when interest rate fluctuations on securitization notes payable or other hedged items affect earnings.
Canadian Currency Translation Adjustment
Canadian currency translation adjustment gains of $1.8 million for the three months ended December 31, 2010 were included in other comprehensive income. The translation adjustment is due to the change in the value of our Canadian dollar denominated assets related to the change in the U.S. dollar to Canadian dollar exchange rates.
Three Months Ended September 30, 2010 as compared to Three Months Ended September 30, 2009 – Predecessor
Changes in Finance Receivables
A summary of changes in our finance receivables is as follows (in thousands):
| | | | | | | | |
| | | Predecessor | |
Three Months Ended September 30, | | 2010 | | | 2009 | |
Balance at beginning of period | | $ | 8,733,518 | | | $ | 10,927,969 | |
Loans purchased | | | 959,004 | | | | 229,073 | |
Charge-offs | | | (217,520 | ) | | | (379,562 | ) |
Principal collections and other | | | (799,427 | ) | | | (756,447 | ) |
| | | | | | | | |
Balance at end of period | | $ | 8,675,575 | | | $ | 10,021,033 | |
| | | | | | | | |
The increase in loans purchased during the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, was primarily due to our establishing higher loan origination goals as a result of improved access to the securitization markets, improving portfolio credit trends and a stabilizing economic environment. The decrease in liquidations and other resulted primarily from reduced average finance receivables.
The average new loan size increased to $19,065 for the three months ended September 30, 2010, from $16,331 for the three months ended September 30, 2009, resulting from an increase in new car loans financed under the GM subvention program initiated in September 2009. The average annual percentage rate for finance receivables purchased during the three months ended September 30, 2010, decreased to 15.8% from 19.1% during the three months ended September 30, 2009 as a result of lower costs of funds passed through in the form of lower rates as well as lower rates on loans originated under the GM subvention program.
Leased Vehicles
A summary of our leased vehicles is as follows (in thousands):
| | | | | | | | |
| | | Predecessor | |
Three Months Ended September 30, | | 2010 | | | 2009 | |
Balance at beginning of period | | $ | 190,300 | | | $ | 239,646 | |
Leased vehicles returns – end of term | | | (75,986 | ) | | | (2,466 | ) |
Leased vehicles returns – default | | | (850 | ) | | | (1,144 | ) |
| | | | | | | | |
Balance at end of period | | $ | 113,464 | | | $ | 236,036 | |
| | | | | | | | |
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Average Earning Assets
Average earning assets are as follows (in thousands):
| | | | | | | | |
| | | Predecessor | |
Three Months Ended September 30, | | 2010 | | | 2009 | |
Average finance receivables | | $ | 8,718,310 | | | $ | 10,482,453 | |
Average leased vehicles, net | | | 74,704 | | | | 150,103 | |
| | | | | | | | |
Average earning assets | | $ | 8,793,014 | | | $ | 10,632,556 | |
| | | | | | | | |
Net Margin
Net margin is the difference between finance charge and other income earned on our receivables and the cost to fund the receivables as well as the cost of debt incurred for general corporate purposes.
Our net margin as reflected on the consolidated statements of operations and comprehensive operations is as follows (in thousands):
| | | | | | | | |
| | | Predecessor | |
Three Months Ended September 30, | | 2010 | | | 2009 | |
Finance charge income | | $ | 342,349 | | | $ | 389,796 | |
Other income | | | 30,275 | | | | 23,488 | |
Interest expense | | | (89,364 | ) | | | (130,148 | ) |
| | | | | | | | |
Net margin | | $ | 283,260 | | | $ | 283,136 | |
| | | | | | | | |
Net margin as an annualized percentage of average earning assets is as follows:
| | | | | | | | |
| | | Predecessor | |
Three Months Ended September 30, | | 2010 | | | 2009 | |
Finance charge income and other income | | | 16.8 | % | | | 15.4 | % |
Interest expense | | | (4.0 | ) | | | (4.8 | ) |
| | | | | | | | |
Net margin as an annualized percentage of average earning assets | | | 12.8 | % | | | 10.6 | % |
| | | | | | | | |
The increase in net margin as an annualized percentage of average earning assets for the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, was mainly due to higher annual percentage rates for finance receivables purchased in calendar year 2008 and 2009, reduced interest costs as a result of declining leverage and lower interest rates on securitizations completed in fiscal 2010 and the three months ended September 30, 2010.
Revenue
Finance charge income decreased by 12.2% to $342.3 million for the three months ended September 30, 2010, from $389.8 million for the three months ended September 30, 2009, primarily due to the 16.8% decrease in average finance receivables. The effective yield on our finance receivables increased to 15.6% for the three months ended September 30, 2010, from 14.7% for the three months ended September 30, 2009. The effective yield represents finance charges and fees recorded in earnings during the period as a percentage of average finance receivables.
Other income consists of the following (in thousands):
| | | | | | | | |
| | | Predecessor | |
Three Months Ended September 30, | | 2010 | | | 2009 | |
Leasing income | | $ | 15,888 | | | $ | 11,458 | |
Investment income | | | 700 | | | | 984 | |
Late fees and other income | | | 13,687 | | | | 11,046 | |
| | | | | | | | |
| | $ | 30,275 | | | $ | 23,488 | |
| | | | | | | | |
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For the three months ended September 30, 2010 leasing income increased, despite a decline in outstanding leases, as a result of a gain of $8.3 million on the disposition of leased vehicles upon lease termination.
Costs and Expenses
Operating Expenses
Operating expenses were $68.9 million for the three months ended September 30, 2010 and 2009. Our operating expenses are predominately related to personnel costs that include base salary and wages, performance incentives and benefits as well as related employment taxes. Personnel costs represented 75.5% and 70.1% of total operating expenses for the three months ended September 30, 2010 and 2009, respectively.
Operating expenses as an annualized percentage of average earning assets were 3.1% for the three months ended September 30, 2010 as compared to 2.6% for the three months ended September 30, 2009. The increase in operating expenses as an annualized percentage of average earning assets primarily resulted from the impact of a decreasing portfolio on our fixed cost base and higher origination staffing to support increased origination levels.
Provision for Loan losses
Provisions for loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of finance receivables. The provision for loan losses recorded for the three months ended September 30, 2010 and 2009 reflects inherent losses on receivables originated during those quarters and changes in the amount of inherent losses on receivables originated in prior periods. The provision for loan losses decreased to $74.6 million for the three months ended September 30, 2010, from $158.0 million for the three months ended September 30, 2009, as a result of favorable credit performance of loans originated since early calendar 2008, stabilization of economic conditions and improved recovery rates on repossessed collateral. As an annualized percentage of average finance receivables, the provision for loan losses was 3.4% and 6.0% for the three months ended September 30, 2010 and 2009, respectively.
Interest Expense
Interest expense decreased to $89.4 million for the three months ended September 30, 2010, from $130.1 million for the three months ended September 30, 2009. Average debt outstanding was $7.0 billion and $9.2 billion for the three months ended September 30, 2010 and 2009, respectively. Our effective rate of interest on our debt decreased to 5.1% for the three months ended September 30, 2010, compared to 5.6% for the three months ended September 30, 2009, due to lower interest rates on securitizations completed in fiscal 2010 and the three months ended September 30, 2010.
Acquisition Expenses
Acquisition expenses for the three months ended September 30, 2010 of $42.7 million primarily represent change of control payments to our executive officers, advisory, legal and professional fees and other costs related to the Merger with GM.
Taxes
Our effective income tax rate was 43.4% and 44.3% for the three months ended September 30, 2010 and 2009, respectively. The September 30, 2010 effective tax rate was negatively impacted primarily by the nondeductibility of change of control payments to our executive officers related to the Merger with GM. The September 30, 2009 effective tax rate was negatively impacted primarily by state income tax rates and adjustments to state deferred tax assets and liabilities.
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Other Comprehensive Income
Other comprehensive income consisted of the following (in thousands):
| | | | | | | | |
| | | Predecessor | |
Three Months Ended September 30, | | 2010 | | | 2009 | |
Unrealized gains on cash flow hedges | | $ | 6,255 | | | $ | 7,411 | |
Canadian currency translation adjustment | | | 2,055 | | | | 6,924 | |
Income tax provision | | | (3,027 | ) | | | (5,176 | ) |
| | | | | | | | |
| | $ | 5,283 | | | $ | 9,159 | |
| | | | | | | | |
Cash Flow Hedges
Unrealized gains on cash flow hedges consisted of the following (in thousands):
| | | | | | | | |
| | | Predecessor | |
Three Months Ended September 30, | | 2010 | | | 2009 | |
Unrealized losses related to changes in fair value | | $ | (8,218 | ) | | $ | (15,833 | ) |
Reclassification of net unrealized losses into earnings | | | 14,473 | | | | 23,244 | |
| | | | | | | | |
| | $ | 6,255 | | | $ | 7,411 | |
| | | | | | | | |
Unrealized losses related to changes in fair value for the three months ended September 30, 2010 and 2009, were due to changes in the fair value of interest rate swap agreements that were designated as cash flow hedges for accounting purposes. The fair value of the interest rate swap agreements fluctuate based upon changes in forward interest rate expectations.
Unrealized gains on cash flow hedges of our floating rate debt are reclassified into earnings when interest rate fluctuations on securitization notes payable or other hedged items affect earnings.
Canadian Currency Translation Adjustment
Canadian currency translation adjustment gains of $2.1 million and $6.9 million for the three months ended September 30, 2010 and 2009, respectively, were included in other comprehensive income. The translation adjustment is due to the change in the value of our Canadian dollar denominated assets related to the change in the U.S. dollar to Canadian dollar exchange rates during the three months ended September 30, 2010 and 2009.
Year Ended June 30, 2010 as compared to Year Ended June 30, 2009 – Predecessor
Changes in Finance Receivables
A summary of changes in our finance receivables is as follows (in thousands):
| | | | | | | | |
| | | Predecessor | |
Years Ended June 30, | | 2010 | | | 2009 | |
Balance at beginning of period | | $ | 10,927,969 | | | $ | 14,981,412 | |
Loans purchased | | | 2,137,620 | | | | 1,285,091 | |
Charge-offs | | | (1,249,298 | ) | | | (1,659,099 | ) |
Principal collections and other | | | (3,082,773 | ) | | | (3,679,435 | ) |
| | | | | | | | |
Balance at end of period | | $ | 8,733,518 | | | $ | 10,927,969 | |
| | | | | | | | |
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The increase in loans purchased during fiscal 2010 as compared to fiscal 2009 was primarily due to our establishing higher loan origination goals as a result of improved access to the securitization markets. Loan production targets were constrained during fiscal 2009 in order to preserve capital and liquidity. The decrease in liquidations and other resulted primarily from reduced average finance receivables.
The average new loan size increased to $18,209 for fiscal 2010 from $17,507 for fiscal 2009. The average annual percentage rate for finance receivables purchased during fiscal 2010 was 17.0% for both fiscal 2010 and fiscal 2009.
Leased Vehicles
A summary of our leased vehicles is as follows (in thousands):
| | | | | | | | |
| | | Predecessor | |
Three Months Ended June 30, | | 2010 | | | 2009 | |
Balance at beginning of period | | $ | 239,646 | | | $ | 248,075 | |
Leased vehicle returns end of term | | | (45,040 | ) | | | (5,407 | ) |
Leased vehicle returns default | | | (4,306 | ) | | | (3,022 | ) |
| | | | | | | | |
Balance at end of period | | $ | 190,300 | | | $ | 239,646 | |
| | | | | | | | |
Average Earning Assets
Average earning assets are as follows (in thousands):
| | | | | | | | |
| | | Predecessor | |
Three Months Ended June 30, | | 2010 | | | 2009 | |
Average finance receivables | | $ | 9,495,125 | | | $ | 13,001,773 | |
Average leased vehicles, net | | | 125,532 | | | | 183,622 | |
| | | | | | | | |
Average earning assets | | $ | 9,620,657 | | | $ | 13,185,395 | |
| | | | | | | | |
Net Margin
Net margin is the difference between finance charge and other income earned on our receivables and the cost to fund the receivables as well as the cost of debt incurred for general corporate purposes.
Our net margin as derived from the consolidated statements of operations and comprehensive operations is as follows (in thousands):
| | | | | | | | |
| | | Predecessor | |
Years Ended June 30, | | 2010 | | | 2009 | |
Finance charge income | | $ | 1,431,319 | | | $ | 1,902,684 | |
Other income | | | 91,215 | | | | 116,488 | |
Interest expense | | | (457,222 | ) | | | (726,560 | ) |
| | | | | | | | |
Net margin | | $ | 1,065,312 | | | $ | 1,292,612 | |
| | | | | | | | |
Net margin as a percentage of average earning assets is as follows:
| | | | | | | | |
| | | Predecessor | |
Years Ended June 30, | | 2010 | | | 2009 | |
Finance charge income and other income | | | 15.8 | % | | | 15.3 | % |
Interest expense | | | (4.7 | ) | | | (5.5 | ) |
| | | | | | | | |
Net margin as a percentage of average earning assets | | | 11.1 | % | | | 9.8 | % |
| | | | | | | | |
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The increase in net margin as a percentage of average earning assets for fiscal 2010, as compared to fiscal 2009, was mainly due to higher annual percentage rates for finance receivables purchased since mid calendar year 2008, reduced interest costs as a result of declining leverage and lower interest rates on securitizations completed in fiscal 2010. Interest expense in fiscal 2009 was also adversely impacted by warrant costs and commitment fees associated with a forward purchase agreement that terminated in fiscal 2009.
Revenue
Finance charge income decreased by 24.8% to $1,431.3 million for fiscal 2010 from $1,902.7 million for fiscal 2009, primarily due to the decrease in average finance receivables. The effective yield on our finance receivables increased to 15.1% for fiscal 2010 from 14.6% for fiscal 2009. The effective yield represents finance charges and fees recorded in earnings during the period as a percentage of average finance receivables and is lower than the contractual rates of our auto finance contracts due to finance receivables in nonaccrual status.
Other income consists of the following (in thousands):
| | | | | | | | |
| | | Predecessor | |
Years Ended June 30, | | 2010 | | | 2009 | |
Leasing income | | $ | 44,316 | | | $ | 47,073 | |
Investment income | | | 2,989 | | | | 16,295 | |
Late fees and other income | | | 43,910 | | | | 53,120 | |
| | | | | | | | |
| | $ | 91,215 | | | $ | 116,488 | |
| | | | | | | | |
Investment income decreased as a result of lower invested cash balances combined with lower market interest rates. Late fees and other income decreased as a result of the reduction in average finance receivables.
During fiscal 2010, we repurchased on the open market $21.0 million of senior notes due in 2015 at an average price of 97.3% of the principal amount of the notes repurchased, which resulted in a gain on retirement of debt of $0.3 million. Gain on retirement of debt for fiscal 2009 was $48.2 million. In fiscal 2009, we repurchased on the open market $60.0 million par value of our convertible senior notes due in 2013 at an average price of 44.1% of the principal amount, $200.0 million par value of our convertible senior notes due in 2023 at an average price of 99.5% of the principal amount, and $28.0 million par value of our convertible senior notes due in 2011 at an average price of 44.2% of the principal amount. In connection with these repurchases, we recorded a gain on retirement of debt of $33.5 million. We also issued 15,122,670 shares of our common stock to Fairholme Funds Inc. (“Fairholme”), in a non-cash transaction, in exchange for $108.4 million of our senior notes due 2015, held by Fairholme, at a price of $840 per $1,000 principal amount of the notes. We recognized a gain of $14.7 million, net of transaction costs, on retirement of debt in the exchange. Fairholme and its affiliates held approximately 19.8% of our outstanding common stock prior to the issuance of the shares described above.
Costs and Expenses
Operating Expenses
Operating expenses decreased to $288.8 million for fiscal 2010 from $308.8 million for fiscal 2009. Our operating expenses are predominately related to personnel costs that include base salary and wages, performance incentives and benefits as well as related employment taxes. Personnel costs represented 74.2% and 72.8% of total operating expenses for fiscal 2010 and 2009, respectively.
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Operating expenses as a percentage of average earning assets increased to 3.0% for fiscal 2010, as compared to 2.3% for fiscal 2009. The increase in operating expenses as a percentage of average finance receivables primarily resulted from the impact of a decreasing portfolio on our fixed cost base and higher loan origination staffing to support increased origination levels.
Provision for Loan Losses
Provisions for loan losses are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of finance receivables. The provision for loan losses recorded for fiscal 2010 and 2009 reflects inherent losses on receivables originated during those periods and changes in the amount of inherent losses on receivables originated in prior periods. The provision for loan losses decreased to $388.1 million for fiscal 2010 from $972.4 million for fiscal 2009 as a result of favorable credit performance of loans originated since early calendar year 2008, stabilization of economic conditions and improved recovery values on repossessed collateral. As a percentage of average finance receivables, the provision for loan losses was 4.1% and 7.5% for fiscal 2010 and 2009, respectively.
Interest Expense
Interest expense decreased to $457.2 million for fiscal 2010 from $726.6 million for fiscal 2009. Average debt outstanding was $8.0 billion and $11.8 billion for fiscal 2010 and 2009, respectively. Our effective rate of interest paid on our debt decreased to 5.7% for fiscal 2010 compared to 6.2% for fiscal 2009, due to lower interest on securitizations completed in fiscal 2010. Interest expense in fiscal 2009 was also adversely impacted by warrant costs and commitment fees associated with a forward purchase agreement that terminated in fiscal 2009.
Taxes
Our effective income tax rate was 37.6% for fiscal 2010. The fiscal 2009 effective tax rate was not meaningful due to the low absolute level of the loss before income taxes.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consisted of the following (in thousands):
| | | | | | | | |
| | | Predecessor | |
Years Ended June 30, | | 2010 | | | 2009 | |
Unrealized gains (losses) on cash flow hedges | | $ | 43,306 | | | $ | (26,871 | ) |
Foreign currency translation adjustment | | | 8,230 | | | | 750 | |
Income tax (provision) benefit | | | (18,567 | ) | | | 11,426 | |
| | | | | | | | |
| | $ | 32,969 | | | $ | (14,695 | ) |
| | | | | | | | |
Cash Flow Hedges
Unrealized gains (losses) on cash flow hedges consisted of the following (in thousands):
| | | | | | | | |
| | | Predecessor | |
Years Ended June 30, | | 2010 | | | 2009 | |
Unrealized losses related to changes in fair value | | $ | (36,761 | ) | | $ | (109,115 | ) |
Reclassification of net unrealized losses into earnings | | | 80,067 | | | | 82,244 | |
| | | | | | | | |
| | $ | 43,306 | | | $ | (26,871 | ) |
| | | | | | | | |
Unrealized losses related to changes in fair value for fiscal 2010 and 2009, were due to changes in the fair value of interest rate swap agreements that were designated as cash flow hedges for accounting purposes. The fair value of the interest rate swap agreements changed in fiscal 2010 and 2009 because of significant declines in forward interest rates.
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Unrealized gains (losses) on cash flow hedges of our floating rate debt are reclassified into earnings when interest rate fluctuations on securitization notes payable or other hedged items affect earnings.
Canadian Currency Translation Adjustment
Canadian currency translation adjustment gains of $8.2 million and $0.7 million for fiscal 2010 and 2009, respectively, were included in other comprehensive loss. The translation adjustment is due to the change in the value of our Canadian dollar denominated assets related to the change in the U.S. dollar to Canadian dollar exchange rates.
CREDIT QUALITY
We provide financing in relatively high-risk markets, and, therefore, anticipate a corresponding high level of delinquencies and credit losses.
The following table presents certain data related to the receivables portfolio (dollars in thousands):
| | | | | | | | |
| | | Successor | |
| | | December 31,
2011 | | | December 31,
2010 | |
Pre-acquisition finance receivables – outstanding balance | | $ | 4,366,075 | | | $ | 7,724,188 | |
Pre-acquisition carrying value adjustment | | | (338,714 | ) | | | (424,225 | ) |
| | | | | | | | |
Pre-acquisition finance receivables – carrying value | | | 4,027,361 | | | | 7,299,963 | |
Post-acquisition finance receivables, net of fees | | | 5,313,899 | | | | 923,713 | |
Allowance for loan losses | | | (178,768 | ) | | | (26,352 | ) |
| | | | | | | | |
Total finance receivables, net | | $ | 9,162,492 | | | $ | 8,197,324 | |
| | | | | | | | |
Number of outstanding contracts | | | 727,684 | | | | 757,148 | |
| | | | | | | | |
Average carrying amount of outstanding contract (in dollars)(a) | | $ | 13,302 | | | $ | 11,422 | |
| | | | | | | | |
Allowance for loan losses as a percentage of post-acquisition receivables | | | 3.4 | % | | | 2.9 | % |
| | | | | | | | |
| (a) | Average carrying amount of outstanding contract consists of pre-acquisition finance receivables – outstanding balance and post-acquisition finance receivables, net of fees divided by number of outstanding contracts. |
Delinquency
The following is a summary of finance receivables (based upon contractual amount due, which is not materially different than recorded investment) that are (a) more than 30 days delinquent, but not yet in repossession, and (b) in repossession, but not yet charged off (dollars in thousands):
| | | | | | | | | | | | | | | | |
| | | Successor | |
| | | December 31, 2011 | | | December 31, 2010 | |
| | | Amount | | | Percent of
Contractual
Amount Due | | | Amount | | | Percent of
Contractual
Amount Due | |
Delinquent contracts: | | | | | | | | | | | | | | | | |
31 to 60 days | | $ | 517,083 | | | | 5.3 | % | | $ | 535,263 | | | | 6.2 | % |
Greater-than-60 days | | | 181,691 | | | | 1.9 | | | | 211,588 | | | | 2.4 | |
| | | | | | | | | | | | | | | | |
| | | 698,774 | | | | 7.2 | % | | | 746,851 | | | | 8.6 | % |
In repossession | | | 26,824 | | | | 0.3 | % | | | 28,076 | | | | 0.3 | % |
| | | | | | | | | | | | | | | | |
| | $ | 725,598 | | | | 7.5 | % | | $ | 774,927 | | | | 8.9 | % |
| | | | | | | | | | | | | | | | |
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An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Delinquencies may vary from period to period based upon the average age or seasoning of the portfolio, seasonality within the calendar year and economic factors. Due to our target customer base, a relatively high percentage of accounts become delinquent at some point in the life of a loan and there is a high rate of account movement between current and delinquent status in the portfolio.
Delinquencies in finance receivables have generally trended downward since fiscal 2009 as a result of the favorable credit performance of loans originated since early calendar year 2008 and stabilization of economic conditions.
Deferrals
In accordance with our policies and guidelines, we, at times, offer payment deferrals to consumers, whereby the consumer is allowed to move up to two delinquent payments to the end of the loan generally by paying a fee (approximately the interest portion of the payment deferred, except where state law provides for a lesser amount). Our policies and guidelines limit the number and frequency of deferments that may be granted. Additionally, we generally limit the granting of deferments on new accounts until a requisite number of payments have been received. Due to the nature of our customer base and policies and guidelines of the deferral program, which policies and guidelines have not changed materially in several years, approximately 50% to 60% of accounts historically comprising the portfolio receive a deferral at some point in the life of the account.
An account for which all delinquent payments are cleared through a deferment transaction, which may include installment payments, is classified as current at the time the deferment is granted and therefore is not included as a delinquent account. Thereafter, such account is aged based on the timely payment of future installments in the same manner as any other account.
Contracts receiving a payment deferral (based on contractual amount due) as an average quarterly percentage of average receivables outstanding were 5.3%, 6.2%, 6.1%, 7.3%, and 7.8% for fiscal 2011, the three months ended December 31, 2010, the three months ended September 30, 2010, and for fiscal 2010 and 2009, respectively. Deferment levels have generally trended down since fiscal 2009 as a result of the stabilization of economic conditions.
The following is a summary of total deferrals as a percentage of total finance receivables, net (both pre-acquisition and post-acquisition) outstanding:
| | | | | | | | |
| | | Successor | |
| | | December 31,
2011 | | | December 31,
2010 | |
Never deferred | | | 78.1 | % | | | 71.9 | % |
Deferred: | | | | | | | | |
1-2 times | | | 15.3 | | | | 18.5 | |
3-4 times | | | 6.5 | | | | 9.5 | |
Greater than 4 times | | | 0.1 | | | | 0.1 | |
| | | | | | | | |
Total deferred | | | 21.9 | | | | 28.1 | |
| | | | | | | | |
Total | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | |
We evaluate the results of our deferment strategies based upon the amount of cash installments that are collected on accounts after they have been deferred versus the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, we believe that payment deferrals granted according to our policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.
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Changes in deferment levels do not have a direct impact on the ultimate amount of finance receivables charged off by us. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent that deferrals impact the ultimate timing of when an account is charged off, historical charge-off ratios and loss confirmation periods used in the determination of the adequacy of our allowance for loan losses are also impacted. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the loan portfolio and therefore increase the allowance for loan losses and related provision for loan losses. Changes in these ratios and periods are considered in determining the appropriate level of allowance for loan losses and related provision for loan losses.
In April 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ,A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring, (“2011-02”), which became effective for us during the period ended September 30, 2011. 2011-02 provides evaluation criteria for whether a restructuring constitutes a troubled debt restructuring. 2011-02 is intended to assist creditors in determining whether a modification of the terms of a loan meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. We have concluded a loan that is deferred two or more times would be considered significantly delayed and therefore meet the definition of a concession. We have concluded a loan currently in payment default as the result of being delinquent would also represent a debtor experiencing financial difficulties. Therefore, considering these two factors, multiple deferments would be considered troubled debt restructurings and the loan impaired under the guidance of 2011-02. Accounts in Chapter 13 bankruptcy could also be considered troubled debt restructurings. As a result of adopting 2011-02, we assessed deferments granted on or after October 1, 2010, or accounts in the post-acquisition portfolio to identify any that qualified as troubled debt restructurings. The pre-acquisition portfolio is excluded from the provisions of 2011-02 since expected future credit losses were recognized in the purchase accounting for that portfolio. At December 31, 2011, the number of accounts in the post-acquisition portfolio that would be considered troubled debt restructurings is insignificant.
Credit Losses – non-GAAP measure
We analyze portfolio performance of both the pre-acquisition and post-acquisition portfolios on a combined basis. This information allows us and investors the ability to analyze credit loss trends in the combined portfolio. Additionally, credit losses, on a combined basis, facilitates comparisons of current and historical results.
The following is a reconciliation of charge-offs on the post-acquisition portfolio to credit losses on the combined portfolio (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | 2010 | | | 2009 | |
Charge-offs | | $ | 66,080 | | | | | | | | | $ | 217,520 | | | $ | 1,249,298 | | | $ | 1,659,099 | |
Adjustments to reflect write-offs of the contractual amounts on the pre-acquisition portfolio | | | 568,558 | | | $ | 221,046 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total credit losses on the combined portfolio(a) | | $ | 634,638 | | | $ | 221,046 | | | | | $ | 217,520 | | | $ | 1,249,298 | | | $ | 1,659,099 | |
| | | | | | | | | | | | | | | | | | | | | | |
| (a) | Total credit losses is comprised of the sum of repossession credit losses and mandatory credit losses. |
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The following table presents credit loss data (which includes charge-offs on the post-acquisition portfolio and write-offs of contractual amounts on the pre-acquisition portfolio) with respect to our finance receivables portfolio (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | | 2010 | | | 2009 | |
Finance receivables: | | | | | | | | | | | | | | | | | | | | | | |
Repossession credit losses | | $ | 638,462 | | | $ | 219,665 | | | | | $ | 211,426 | | | $ | 1,232,318 | | | $ | 1,573,006 | |
Less: Recoveries | | | (345,605 | ) | | | (100,904 | ) | | | | | (98,081 | ) | | | (543,910 | ) | | | (626,245 | ) |
Mandatory credit losses(a) | | | (3,824 | ) | | | 1,381 | | | | | | 6,094 | | | | 16,980 | | | | 86,093 | |
| | | | | | | | | | | | | | | | | | | | | | |
Net credit losses | | $ | 289,033 | | | $ | 120,142 | | | | | $ | 119,439 | | | $ | 705,388 | | | $ | 1,032,854 | |
| | | | | | | | | | | | | | | | | | | | | | |
Net annualized credit losses as a percentage of average finance receivables(b): | | | 3.2 | % | | | 5.5 | % | | | | | 5.4 | % | | | 7.4 | % | | | 7.9 | % |
| | | | | | | | | | | | | | | | | | | | | | |
Recoveries as a percentage of gross repossession credit losses: | | | 54.1 | % | | | 45.9 | % | | | | | 46.4 | % | | | 44.1 | % | | | 39.8 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| (a) | Mandatory credit losses represent accounts 120 days delinquent that are charged off in full with no recovery amounts realized at time of charge-off net of any subsequent recoveries and the net write-down of finance receivables in repossession to the net realizable value of the repossessed vehicle when the repossessed vehicle is legally available for sale. |
| (b) | Average finance receivables are defined as the average daily receivable balance excluding the carrying value adjustment. |
While the accounting related to charge-offs has been impacted by the application of purchase accounting, the dollar amount and percentage of net credit losses is comparable between the pre-acquisition and the post-acquisition portfolios. Net credit losses as a percentage of average finance receivables outstanding may vary from period to period based upon the average age or seasoning of the portfolio and economic conditions. Net credit losses have generally trended down since fiscal 2009 as a result of the favorable credit performance of loans originated since early calendar year 2008, stabilization of economic conditions and improved recovery rates on repossessed collateral.
Leased Vehicles
We primarily provide funding for leased vehicles to prime quality customers, and, therefore, anticipate a corresponding low level of delinquencies and charge-offs. At December 31, 2011, 99.6% of our leases were current with respect to payment status.
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of cash have been finance charge and other income, servicing fees, distributions from Trusts, borrowings under credit facilities, transfers of finance receivables to Trusts in securitization transactions, collections and recoveries on finance receivables and issuance of senior notes and other debt securities. Our primary uses of cash have been purchases of finance receivables and leased vehicles, repayment of credit facilities and securitization notes payable, funding credit enhancement requirements for securitization transactions and credit facilities and operating expenses.
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We used cash of $5,020.6 million, $947.3 million, $940.8 million, $2,090.6 million and $1,280.3 million for the purchase of finance receivables for fiscal 2011, the three months ended December 31, 2010, the three months ended September 30, 2010, and for fiscal 2010 and 2009, respectively. We used cash of $857.1 million and $10.7 million for the purchase of leased vehicles during fiscal 2011 and the three months ended December 31, 2010. Generally, these purchases were funded initially utilizing cash and borrowings on our credit facilities and our strategy is to subsequently obtain long-term financing for finance receivables and leased vehicles through securitization transactions.
Liquidity
Our available liquidity consists of the following (in thousands):
| | | | | | | | |
| | | Successor | |
| | | December 31,
2011 | | | December 31,
2010 | |
Cash and cash equivalents | | $ | 572,297 | | | $ | 194,554 | |
Borrowing capacity on unpledged eligible assets | | | 681,161 | | | | 272,257 | |
Borrowing capacity on GM revolving credit facility | | | 300,000 | | | | 300,000 | |
| | | | | | | | |
Total | | $ | 1,553,458 | | | $ | 766,811 | |
| | | | | | | | |
The increase in liquidity at December 31, 2011 is primarily a result of the proceeds from the issuance of $500 million of senior notes in June 2011. Our current level of liquidity is considered sufficient to meet our obligations.
Credit Facilities
In the normal course of business, in addition to using our available cash, we pledge receivables to and borrow under our credit facilities to fund our operations and repay these borrowings as appropriate under our cash management strategy.
As of December 31, 2011, our credit facilities consist of the following (in thousands):
| | | | | | | | |
Facility Type | | Facility
Amount | | | Advances
Outstanding | |
Syndicated warehouse facility(a) | | $ | 2,000,000 | | | $ | 621,257 | |
Lease warehouse facility – U.S.(b) | | | 600,000 | | | | | |
Lease warehouse facility – Canada(c) | | | 589,246 | | | | 181,314 | |
GM revolving credit facility(d) | | | 300,000 | | | | | |
Medium term note facility(e) | | | | | | | 293,528 | |
Wachovia funding facility(f) | | | | | | | 3,292 | |
| | | | | | | | |
| | | | | | $ | 1,099,391 | |
| | | | | | | | |
| (a) | In May 2012 when the revolving period ends, and if the facility is not renewed, the outstanding balance will be repaid over time based on the amortization of the receivables pledged until May 2013 when the remaining balance will be due and payable. |
| (b) | In January 2012, the facility was renewed for an additional one year term. In January 2013 when the revolving period ends, and if the facility is not renewed, the outstanding balance will be repaid over time based on the amortization of the leasing related assets pledged until July 2018 when any remaining amount outstanding will be due and payable. |
| (c) | In July 2012 when the revolving period ends, and if the facility is not renewed, the outstanding balance will be repaid over time based on the amortization of the leasing related assets pledged until January 2018 when |
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| | any remaining amount outstanding will be due and payable. This facility amount represents C$600.0 million and the advances outstanding amount represents C$184.6 million at December 31, 2011. |
| (d) | In September 2011, we renewed the unsecured revolving credit facility with GM Holdings, with a maturity date of September 2012. |
| (e) | The revolving period under this facility ended in October 2009, and the outstanding debt balance will be repaid over time based on the amortization of the receivables pledged until October 2016 when any remaining amount outstanding will be due and payable. |
| (f) | Advances under the Wachovia funding facility are currently secured by $3.4 million of asset-backed securities issued in the AmeriCredit Automobile Receivables Trust (“AMCAR”) 2008-1 securitization transaction. Subsequent to December 31, 2011, this facility was paid off. |
The following table presents the average amount outstanding, the weighted average interest rate and maximum amount outstanding on the syndicated warehouse and lease warehouse facilities during fiscal 2011 (dollars in thousands):
| | | | | | | | | | | | |
Facility Type | | Weighted
Average
Interest
Rate | | | Average
Amount
Outstanding | | | Maximum
Amount
Outstanding | |
Syndicated warehouse facility | | | 1.56 | % | | $ | 296,576 | | | $ | 826,859 | |
Lease warehouse facility – U.S. | | | 1.60 | % | | | 24,027 | | | | 182,749 | |
Lease warehouse facility – Canada(a) | | | 2.69 | % | | | 40,849 | | | | 181,314 | |
| (a) | Average amount outstanding and maximum amount outstanding represents C$41.6 million and C$184.6 million, respectively. |
We are required to hold certain funds in restricted cash accounts to provide additional collateral for borrowings under certain of our facilities. Additionally, our credit facilities, other than the GM revolving credit facility, generally contain various covenants requiring minimum financial ratios, asset quality and portfolio performance ratios (portfolio net loss and delinquency ratios, and pool level cumulative net loss ratios) as well as limits on deferment levels. Failure to meet any of these covenants could result in an event of default under these agreements. If an event of default occurs under these agreements, the lenders could elect to declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interests against collateral pledged under these agreements or, with respect to the syndicated warehouse facility, restrict our ability to obtain additional borrowings. As of December 31, 2011, we were in compliance with all covenants in our credit facilities.
Senior Notes
In June 2011, we issued $500 million of 6.75% senior notes which are due in June 2018 with interest payable semiannually. On July 1, 2011, proceeds of $71 million from this offering were used to redeem all of our outstanding 8.50% senior notes due in 2015. The 6.75% senior notes are guaranteed solely by AmeriCredit Financial Services, Inc., our principal operating subsidiary and none of our other subsidiaries are guarantors of the notes. See Note 25 – “Guarantor Consolidating Financial Statements” to the consolidated financial statements for further discussion.
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Contractual Obligations
The following table summarizes the expected scheduled principal and interest payments, where applicable, under our contractual obligations (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Years Ending December 31, | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | Thereafter | | | Total | |
Operating leases | | $ | 14,612 | | | $ | 14,773 | | | $ | 14,318 | | | $ | 12,511 | | | $ | 11,351 | | | $ | 20,831 | | | $ | 88,396 | |
Syndicated warehouse facility | | | 621,257 | | | | | | | | | | | | | | | | | | | | | | | | 621,257 | |
Medium term note facility | | | 293,311 | | | | | | | | | | | | | | | | | | | | | | | | 293,311 | |
Wachovia funding facility | | | 3,292 | | | | | | | | | | | | | | | | | | | | | | | | 3,292 | |
Lease warehouse facility – Canada(a) | | | 181,314 | | | | | | | | | | | | | | | | | | | | | | | | 181,314 | |
Securitization notes payable | | | 3,163,788 | | | | 1,480,781 | | | | 1,022,762 | | | | 720,184 | | | | 422,093 | | | | 86,117 | | | | 6,895,725 | |
Senior notes | | | | | | | | | | | | | | | | | | | | | | | 500,000 | | | | 500,000 | |
Convertible senior notes | | | | | | | 500 | | | | | | | | | | | | | | | | | | | | 500 | |
Total expected interest payments(b) | | | 193,114 | | | | 134,510 | | | | 101,214 | | | | 71,056 | | | | 45,827 | | | | 48,958 | | | | 594,679 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 4,470,688 | | | $ | 1,630,564 | | | $ | 1,138,294 | | | $ | 803,751 | | | $ | 479,271 | | | $ | 655,906 | | | $ | 9,178,474 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | Amount represents C$184.6 million. |
| (b) | Interest expense is calculated based on London Interbank Offered Rates (“LIBOR”) or Canadian Dollar Offered Rate (“CDOR”) plus the respective credit spreads and specified fees associated with the medium term note facility, the coupon rate for the senior notes and convertible senior notes and a fixed rate of interest for our securitization notes payable. Interest expense on the floating rate tranches of the securitization notes payable is converted to a fixed rate based on the floating rate plus any expected hedge payments. |
We adopted the provisions of accounting for uncertain tax positions on July 1, 2007. As of December 31, 2011, we had liabilities associated with uncertain tax positions of $79.4 million. The table above does not include these liabilities due to the high degree of uncertainty regarding the future cash flows associated with these amounts.
Securitizations
We have completed 78 securitization transactions through December 31, 2011, excluding Trusts entered into by Bay View Acceptance Corporation (“BVAC”) and Long Beach Acceptance Corporation (“LBAC”) prior to their acquisition by us. The proceeds from the transactions were primarily used to repay borrowings outstanding under our credit facilities.
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A summary of the active transactions is as follows (in millions):
| | | | | | | | | | | | |
Transaction | | Date | | | Original
Amount | | | Note Balance at
December 31,
2011 | |
2006-R-M | | | May 2006 | | | $ | 1,200.0 | | | $ | 63.3 | |
2007-A-X | | | January 2007 | | | | 1,200.0 | | | | 93.7 | |
2007-B-F | | | April 2007 | | | | 1,500.0 | | | | 143.9 | |
2007-1 (APART) | | | May 2007 | | | | 1,000.0 | | | | 87.1 | |
2007-C-M | | | July 2007 | | | | 1,500.0 | | | | 188.4 | |
2007-D-F | | | September 2007 | | | | 1,000.0 | | | | 142.2 | |
2007-2-M (APART) | | | October 2007 | | | | 1,000.0 | | | | 138.4 | |
2008-A-F | | | May 2008 | | | | 750.0 | | | | 145.8 | |
2008-1(a) | | | October 2008 | | | | 500.0 | | | | 8.3 | |
2008-2 | | | November 2008 | | | | 500.0 | | | | 17.1 | |
2009-1 | | | July 2009 | | | | 725.0 | | | | 223.3 | |
2009-1 (APART) | | | October 2009 | | | | 227.5 | | | | 74.2 | |
2010-1 | | | February 2010 | | | | 600.0 | | | | 266.0 | |
2010-A | | | March 2010 | | | | 200.0 | | | | 99.6 | |
2010-2 | | | May 2010 | | | | 600.0 | | | | 302.5 | |
2010-B | | | August 2010 | | | | 200.0 | | | | 118.2 | |
2010-3 | | | September 2010 | | | | 850.0 | | | | 546.0 | |
2010-4 | | | November 2010 | | | | 700.0 | | | | 424.2 | |
2011-1 | | | January 2011 | | | | 800.0 | | | | 579.5 | |
2011-2 | | | April 2011 | | | | 950.0 | | | | 705.9 | |
2011-3 | | | June 2011 | | | | 1,000.0 | | | | 814.2 | |
2011-4 | | | September 2011 | | | | 900.0 | | | | 838.2 | |
2011-5 | | | November 2011 | | | | 900.0 | | | | 875.4 | |
| | | | | | | | | | | | |
Total active securitizations | | | | | | $ | 18,802.5 | | | $ | 6,895.4 | |
| | | | | | | | | | | | |
Purchase accounting premium | | | | | | | | | | | 42.4 | |
| | | | | | | | | | | | |
| | | | | | | | | | $ | 6,937.8 | |
| | | | | | | | | | | | |
| (a) | Note balance does not include $3.4 million of asset-backed securities pledged to the Wachovia funding facility. Subsequent to December 31, 2011, this facility was paid off. |
Our securitizations utilize special purpose entities which are also VIE’s that meet the requirements to be consolidated in our financial statements. Accordingly, following a securitization, the finance receivables and the related securitization notes payable remain on the consolidated balance sheets. Finance receivables are transferred to a Trust, which is one of our special purpose finance subsidiaries, and the Trusts issue one or more series of asset-backed securities (securitization notes payable). While these Trusts are included in our consolidated financial statements, these Trusts are separate legal entities; thus the finance receivables and other assets held by these Trusts are legally owned by these Trusts, are available to satisfy the related securitization notes payable and are not available to our creditors or our other subsidiaries.
At the time of securitization of finance receivables, we are required to pledge assets equal to a specified percentage of the securitization pool to provide credit enhancement required for specific credit ratings for the asset-backed securities issued by the Trusts. Typically, the assets pledged consist of cash deposited to a restricted account and additional receivables delivered to the Trust, which create overcollateralization. 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 targeted percentage level of assets
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has been reached. Once the targeted percentage level of assets is reached and maintained, excess cash flows generated by the Trusts are released to us as distributions from Trusts. Additionally, as the balance of the securitization pool declines, the amount of pledged assets needed to maintain the required percentage level is reduced. Assets in excess of the required percentage are also released to us as distributions from Trusts.
Since the second half of 2008, we have primarily utilized senior subordinated securitization structures which involve the public and private sale of subordinated asset-backed securities to provide credit enhancement for the senior, or highest rated, asset-backed securities. In January 2012, we closed a $1.0 billion public senior subordinated securitization transaction, AMCAR 2012-1, that has initial cash deposit and overcollateralization requirements of 7.75% in order to provide credit enhancement for the asset-backed securities sold, including the double-B rated securities which were the lowest rated securities sold. The level of credit enhancement in future senior subordinated securitizations will depend, in part, on the net interest margin, collateral characteristics, and credit performance trends of the receivables transferred, as well as our financial condition, the economic environment and our ability to sell subordinated bonds at rates we consider acceptable.
The second type of securitization structure that we last utilized in August 2010, involves the purchase of a financial guaranty insurance policy issued by an insurer. The financial guaranty insurance policies insure the timely payment of interest and the ultimate payment of principal due on the asset-backed securities. We have limited reimbursement obligations to the insurers; however, credit enhancement requirements, including the insurers’ encumbrance of certain restricted cash accounts and subordinated interests in Trusts, provide a source of funds to cover shortfalls in collections and to reimburse the insurers for any claims which may be made under the policies issued with respect to our securitizations. Since our securitization program’s inception, there have been no claims under any insurance policies. We do not anticipate utilizing this structure for the foreseeable future.
Cash flows related to securitization transactions were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | | 2010 | | | 2009 | |
Initial credit enhancement deposits: | | | | | | | | | | | | | | | | | | | | | | |
Restricted cash | | $ | 96.6 | | | $ | 14.9 | | | | | $ | 23.3 | | | $ | 53.9 | | | $ | 25.8 | |
Overcollateralization | | | 277.6 | | | | 42.7 | | | | | | 114.3 | | | | 490.8 | | | | 289.1 | |
Net distributions from Trusts | | | 852.4 | | | | 216.0 | | | | | | 110.9 | | | | 424.2 | | | | 429.5 | |
The agreements with the insurers of our securitization transactions covered by a financial guaranty insurance policy provide that if portfolio performance ratios (delinquency, cumulative default or cumulative net loss) in a Trust’s pool of receivables exceed certain targets, the specified credit enhancement levels would be increased.
The agreements that we have entered into with our financial guaranty insurance providers in connection with securitization transactions insured by them contain additional specified targeted portfolio performance ratios (delinquency, cumulative default and cumulative net loss) that are higher than the limits referred to above. 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 financial guaranty insurance providers to declare the occurrence of an event of default and take steps to terminate our servicing rights to the receivables sold to that Trust. In addition, the servicing agreements on certain insured Trusts are cross-defaulted so that a default declared under one servicing agreement would allow the financial guaranty insurance provider to terminate our servicing rights under all servicing agreements for Trusts in which they issued a financial guaranty insurance policy. Additionally, if these higher targeted portfolio performance levels were exceeded and the financial
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guaranty insurance providers elect to declare an event of default, the insurance providers may retain all excess cash generated by other securitization transactions insured by them as additional credit enhancement. This, in turn, could result in defaults under our other securitizations and other material indebtedness, including under our senior note and convertible note indentures. As of December 31, 2011, no such servicing right termination events have occurred with respect to any of the Trusts formed by us.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Fluctuations in market interest rates impact our credit facilities and securitization transactions. Our gross interest rate spread, which is the difference between interest and other income earned on our finance contracts and interest paid, is affected by changes in interest rates as a result of our dependence upon the issuance of variable rate securities and the incurrence of variable rate debt to fund our purchases of contracts.
Credit Facilities
Finance contracts purchased by us and pledged to secure borrowings under our credit facilities bear fixed interest rates. Amounts borrowed under our 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 credit facility, our special purpose finance subsidiaries are contractually required to purchase interest rate cap agreements in connection with borrowings under our 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” or “strike” rate. The purchaser of the interest rate cap agreement bears no obligation or liability if interest rates fall below the “cap” or “strike” rate. As part of our interest rate risk management strategy and when economically feasible, we may simultaneously sell a corresponding interest rate cap agreement in order to offset the premium paid by our special purpose finance subsidiary to purchase the interest rate cap agreement and thus retain the interest rate risk. The fair value of the interest rate cap agreement purchased by the special purpose finance subsidiary is included in other assets and the fair value of the interest rate cap agreement sold by us is included in other liabilities on our consolidated balance sheets.
Securitizations
The interest rate demanded by investors in our securitization transactions depends on prevailing market interest rates for comparable transactions and the general interest rate environment. We utilize several strategies to minimize the impact of interest rate fluctuations on our gross interest rate margin, including the use of derivative financial instruments and the regular sale or pledging of finance contracts to Trusts.
In our securitization transactions, we transfer 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 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. We use interest rate swap agreements to convert the variable rate exposures on securities issued by our Trusts to a fixed rate (“pay rate”) and receive a floating or variable rate (“receive rate”), thereby locking in the gross interest rate spread to be earned by us over the life of a securitization. Interest rate swap agreements purchased by us do not impact the amount of cash flows to be received by holders of the asset-backed securities issued by the Trusts. The interest rate swap agreements serve to offset the impact of increased or decreased interest paid by the Trusts on floating rate asset-backed securities on the cash flows to be received by us from the Trusts. We utilize such arrangements to modify our net interest sensitivity to levels deemed appropriate based on our risk tolerance. In circumstances where the interest rate risk is deemed to be tolerable, usually if the risk is less than one year in term at inception, we may choose not to hedge potential fluctuations in cash flows due to changes in interest rates. Our special purpose finance subsidiaries are contractually required to purchase a derivative financial instrument to protect the net spread in connection with the issuance of floating rate securities even if we choose
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not to hedge our future cash flows. Although the interest rate cap agreements are purchased by the Trusts, cash outflows from the Trusts ultimately impact our retained interests in the securitization transactions as cash expended by the Trusts will decrease the ultimate amount of cash to be received by us. Therefore, when economically feasible, we may simultaneously sell a corresponding interest rate cap agreement to offset the premium paid by the Trust to purchase the interest rate cap agreement. The fair value of the interest rate cap agreements purchased by the special purpose finance subsidiaries in connection with securitization transactions are included in other assets and the fair value of the interest rate cap agreements sold by us are included in liabilities on our consolidated balance sheets. Changes in the fair value of the interest rate cap agreements are reflected in interest expense on our consolidated statements of operations and comprehensive operations.
We have entered into interest rate swap agreements to hedge the variability in interest payments on seven of our active securitization transactions. Portions of these interest rate swap agreements are designated and qualify as cash flow hedges. The fair value of interest rate swap agreements designated as hedges is included in liabilities on the consolidated balance sheets. Interest rate swap agreements that are not designated as hedges are included in other assets on the consolidated balance sheets.
The following table provides information about our interest rate-sensitive financial instruments by expected maturity date as of December 31, 2011 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Years Ending December 31, | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | Thereafter | | | Fair Value | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Finance receivables | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amounts | | $ | 3,889,053 | | | $ | 2,571,226 | | | $ | 1,531,495 | | | $ | 946,448 | | | $ | 547,500 | | | $ | 264,992 | | | $ | 9,385,851 | |
Weighted average annual percentage rate | | | 15.19 | % | | | 15.04 | % | | | 14.87 | % | | | 14.71 | % | | | 14.52 | % | | | 14.60 | % | | | | |
Interest rate swaps | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional amounts | | $ | 485,553 | | | $ | 24,008 | | | | | | | | | | | | | | | | | | | $ | 2,004 | |
Average pay rate | | | 1.44 | % | | | 1.17 | % | | | | | | | | | | | | | | | | | | | | |
Average receive rate | | | 0.43 | % | | | 0.84 | % | | | | | | | | | | | | | | | | | | | | |
Interest rate caps purchased | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional amounts | | $ | 251,628 | | | $ | 258,619 | | | $ | 382,510 | | | $ | 319,170 | | | $ | 134,657 | | | $ | 166,209 | | | $ | 4,548 | |
Average strike rate | | | 4.00 | % | | | 3.94 | % | | | 3.71 | % | | | 3.71 | % | | | 3.50 | % | | | 3.11 | % | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit facilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amounts | | $ | 1,099,174 | | | | | | | | | | | | | | | | | | | | | | | $ | 1,099,113 | |
Weighted average effective interest rate | | | 1.88 | % | | | | | | | | | | | | | | | | | | | | | | | | |
Securitization notes payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amounts | | $ | 3,163,788 | | | $ | 1,480,781 | | | $ | 1,022,762 | | | $ | 720,184 | | | $ | 422,093 | | | $ | 86,117 | | | $ | 6,945,865 | |
Weighted average effective interest rate | | | 2.94 | % | | | 3.51 | % | | | 4.05 | % | | | 4.58 | % | | | 5.18 | % | | | 3.64 | % | | | | |
Senior notes | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amounts | | | | | | | | | | | | | | | | | | | | | | $ | 500,000 | | | $ | 510,000 | |
Weighted average effective interest rate | | | | | | | | | | | | | | | | | | | | | | | 6.75 | % | | | | |
Convertible senior notes | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amounts | | | | | | $ | 500 | | | | | | | | | | | | | | | | | | | $ | 500 | |
Weighted average effective coupon interest rate | | | | | | | 2.125 | % | | | | | | | | | | | | | | | | | | | | |
Interest rate swaps | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional amounts | | $ | 485,553 | | | $ | 24,008 | | | | | | | | | | | | | | | | | | | $ | 6,440 | |
Average pay rate | | | 1.44 | % | | | 1.17 | % | | | | | | | | | | | | | | | | | | | | |
Average receive rate | | | 0.43 | % | | | 0.84 | % | | | | | | | | | | | | | | | | | | | | |
Interest rate caps sold | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional amounts | | $ | 209,691 | | | $ | 258,619 | | | $ | 382,510 | | | $ | 319,170 | | | $ | 134,657 | | | $ | 166,209 | | | $ | 4,768 | |
Average strike rate | | | 4.05 | % | | | 3.94 | % | | | 3.71 | % | | | 3.71 | % | | | 3.50 | % | | | 3.11 | % | | | | |
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The following table provides information about our interest rate-sensitive financial instruments by expected maturity date as of December 31, 2010 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Years Ending December 31, | | 2011 | | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | Thereafter | | | Fair Value | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Finance receivables | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amounts | | $ | 3,754,987 | | | $ | 2,434,183 | | | $ | 1,286,764 | | | $ | 677,919 | | | $ | 372,241 | | | $ | 161,272 | | | $ | 8,185,854 | |
Weighted average annual percentage rate | | | 15.74 | % | | | 15.66 | % | | | 15.57 | % | | | 15.36 | % | | | 15.21 | % | | | 15.37 | % | | | | |
Interest rate swaps | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional amounts | | $ | 753,848 | | | $ | 460,059 | | | $ | 13,398 | | | | | | | | | | | | | | | $ | 23,058 | |
Average pay rate | | | 5.32 | % | | | 3.53 | % | | | 0.97 | % | | | | | | | | | | | | | | | | |
Average receive rate | | | 1.03 | % | | | 1.16 | % | | | 0.43 | % | | | | | | | | | | | | | | | | |
Interest rate caps purchased | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional amounts | | $ | 176,626 | | | $ | 164,299 | | | $ | 143,892 | | | $ | 169,216 | | | $ | 79,002 | | | $ | 213,318 | | | $ | 7,899 | |
Average strike rate | | | 4.81 | % | | | 4.73 | % | | | 4.71 | % | | | 4.53 | % | | | 4.18 | % | | | 3.47 | % | | | | |
| | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Credit facilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amounts | | $ | 533,214 | | | $ | 296,233 | | | | | | | | | | | | | | | | | | | $ | 832,054 | |
Weighted average effective interest rate | | | 3.19 | % | | | 2.28 | % | | | | | | | | | | | | | | | | | | | | |
Securitization notes payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amounts | | $ | 2,961,378 | | | $ | 1,702,492 | | | $ | 659,356 | | | $ | 423,453 | | | $ | 274,505 | | | | | | | $ | 6,106,963 | |
Weighted average effective interest rate | | | 3.44 | % | | | 4.03 | % | | | 4.44 | % | | | 4.38 | % | | | 4.88 | % | | | | | | | | |
Senior notes | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amounts | | | | | | | | | | | | | | | | | | $ | 68,394 | | | | | | | $ | 71,472 | |
Weighted average effective interest rate | | | | | | | | | | | | | | | | | | | 8.50 | % | | | | | | | | |
Convertible senior notes | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Principal amounts | | $ | 947 | | | | | | | $ | 500 | | | | | | | | | | | | | | | $ | 1,447 | |
Weighted average effective coupon interest rate | | | 0.75 | % | | | | | | | 2.125 | % | | | | | | | | | | | | | | | | |
Interest rate swaps | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional amounts | | $ | 753,848 | | | $ | 460,059 | | | $ | 13,398 | | | | | | | | | | | | | | | $ | 46,797 | |
Average pay rate | | | 5.32 | % | | | 3.53 | % | | | 0.97 | % | | | | | | | | | | | | | | | | |
Average receive rate | | | 1.03 | % | | | 1.16 | % | | | 0.43 | % | | | | | | | | | | | | | | | | |
Interest rate caps sold | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Notional amounts | | $ | 104,058 | | | $ | 122,362 | | | $ | 143,892 | | | $ | 169,216 | | | $ | 79,002 | | | $ | 213,318 | | | $ | 8,094 | |
Average strike rate | | | 4.94 | % | | | 4.85 | % | | | 4.71 | % | | | 4.53 | % | | | 4.18 | % | | | 3.47 | % | | | | |
Finance receivables are estimated to be realized by us in future periods using discount rate, prepayment and credit loss assumptions similar to our historical experience. Notional amounts on interest rate swap and cap agreements are based on contractual terms. Credit facilities and securitization notes payable amounts have been classified based on expected payoff. Senior notes and convertible senior notes principal amounts have been classified based on maturity.
The notional amounts of interest rate swap and cap agreements, which are used to calculate the contractual payments to be exchanged under the contracts, represent average amounts that will be outstanding for each of the years included in the table. Notional amounts do not represent amounts exchanged by parties and, thus, are not a measure of our exposure to loss through our use of these agreements.
54
Management monitors our hedging activities to ensure that the value of derivative financial instruments, 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 our strategies will be effective in minimizing interest rate risk or that increases in interest rates will not have an adverse effect on our profitability. All transactions are entered into for purposes other than trading.
Recent Accounting Pronouncements
In April 2011, ASU 2011-03 (“2011-03”),Reconsideration of Effective Control for Repurchase Agreements,was issued effective prospectively for new transfers and existing transactions that are modified in the first interim or annual period beginning on or after December 15, 2011. This guidance amends the sale accounting requirement concerning a transferor’s ability to repurchase transferred financial assets even in the event of default by the transferee, which typically is facilitated in a repurchase agreement by the presence of a collateral maintenance provision. We are currently evaluating the impact that 2011-03 will have on our consolidated financial position, results of operations and cash flows.
In May 2011, ASU (“2011-04”),Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued effective for interim and annual periods beginning on or after December 15, 2011. The adoption of 2011-04 gives fair value the same meaning between GAAP and International Financial Reporting Standards (“IFRSs”), and improves consistency of disclosures relating to fair value. We are currently evaluating the impact that 2011-04 will have on our consolidated financial position, results of operations and cash flows.
In June 2011, ASU (“2011-05”),Comprehensive Income: Presentation of Comprehensive Income,was issued effective for interim and annual periods beginning after December 15, 2011, with early adoption permitted. 2011-05 amends current guidance on reporting comprehensive income and eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, comprehensive income must be reported in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. In December 2011, ASU (“2011-12”) was issued deferring the effective date for implementation of ASU 2011-05 related only to reclassification out of accumulated other comprehensive income until a later date to be determined after further consideration by the FASB. The adoption of 2011-05 will not have an impact on our consolidated financial position, results of operations and cash flows.
In September 2011, ASU (“2011-08”),Testing Goodwill for Impairment,was issued effective for interim and annual periods beginning after December 15, 2011, with early adoption permitted. Under the revised guidance, entities testing for goodwill impairment have an option of performing a qualitative assessment before calculating the fair value for the reporting unit, i.e., Step 1 of the goodwill impairment test. If an entity determines, on a basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. If it is not more likely than not that the fair value of the reporting unit is less than the carrying value, then goodwill is not considered to be impaired. 2011-08 does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. We adopted ASU 2011-08 effective October 1, 2011. The adoption of 2011-08 did not have an impact on our consolidated financial position, results of operations and cash flows.
In December 2011, ASU (“2011-11”),Disclosures about Offsetting Assets and Liabilities, was issued effective for interim and annual periods beginning January 1, 2013. 2011-11 amends the disclosure requirements on offsetting in ASC Topic 210 by requiring enhanced disclosures about financial instruments and derivative instruments that are either (a) offset in accordance with existing guidance or (b) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the balance sheet. We do not expect the adoption of 2011-11 to have an impact on our consolidated financial position, results of operations and cash flows.
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| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
| | | | | | | | |
| | | Successor | |
| | | December 31,
2011 | | | December 31,
2010 | |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 572,297 | | | $ | 194,554 | |
Finance receivables, net | | | 9,162,492 | | | | 8,197,324 | |
Restricted cash – securitization notes payable | | | 919,283 | | | | 926,082 | |
Restricted cash – credit facilities | | | 136,556 | | | | 131,438 | |
Property and equipment, net | | | 47,440 | | | | 47,290 | |
Leased vehicles, net | | | 809,491 | | | | 46,780 | |
Deferred income taxes | | | 108,684 | | | | 157,884 | |
Goodwill | | | 1,107,982 | | | | 1,094,923 | |
Intercompany subvention receivable | | | 37,447 | | | | 8,149 | |
Other assets | | | 141,248 | | | | 114,314 | |
| | | | | | | | |
Total assets | | $ | 13,042,920 | | | $ | 10,918,738 | |
| | | | | | | | |
Liabilities and Shareholder’s Equity | | | | | | | | |
Liabilities: | | | | | | | | |
Credit facilities | | $ | 1,099,391 | | | $ | 831,802 | |
Securitization notes payable | | | 6,937,841 | | | | 6,128,217 | |
Senior notes | | | 500,000 | | | | 70,054 | |
Convertible senior notes | | | 500 | | | | 1,446 | |
Accounts payable and accrued expenses | | | 185,159 | | | | 97,169 | |
Taxes payable | | | 85,477 | | | | 160,712 | |
Intercompany taxes payable | | | 300,306 | | | | 42,214 | |
Interest rate swap and cap agreements | | | 11,208 | | | | 57,016 | |
| | | | | | | | |
Total liabilities | | | 9,119,882 | | | | 7,388,630 | |
| | | | | | | | |
Commitments and contingencies (Note 14) | | | | | | | | |
| | |
Shareholder’s equity: | | | | | | | | |
Common stock, $.01 par value per share, 500 shares authorized and issued | | | | | | | | |
Additional paid-in capital | | | 3,470,495 | | | | 3,453,917 | |
Accumulated other comprehensive (loss) income | | | (7,617 | ) | | | 1,558 | |
Retained earnings | | | 460,160 | | | | 74,633 | |
| | | | | | | | |
Total shareholder’s equity | | | 3,923,038 | | | | 3,530,108 | |
| | | | | | | | |
Total liabilities and shareholder’s equity | | $ | 13,042,920 | | | $ | 10,918,738 | |
| | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
56
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | For the
Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | For the Year Ended June 30, | |
| | | | | | | | 2010 | | | 2009 | |
Revenue | | | | | | | | | | | | | | | | | | | | | | |
Finance charge income | | $ | 1,246,687 | | | $ | 264,347 | | | | | $ | 342,349 | | | $ | 1,431,319 | | | $ | 1,902,684 | |
Other income | | | 163,301 | | | | 16,824 | | | | | | 30,275 | | | | 91,215 | | | | 116,488 | |
Gain on retirement of debt | | | | | | | | | | | | | | | | | 283 | | | | 48,152 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 1,409,988 | | | | 281,171 | | | | | | 372,624 | | | | 1,522,817 | | | | 2,067,324 | |
| | | | | | | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | 338,540 | | | | 70,441 | | | | | | 68,855 | | | | 288,791 | | | | 308,803 | |
Leased vehicles expenses | | | 67,088 | | | | 2,106 | | | | | | 6,539 | | | | 34,639 | | | | 47,880 | |
Provision for loan losses | | | 178,372 | | | | 26,352 | | | | | | 74,618 | | | | 388,058 | | | | 972,381 | |
Interest expense | | | 204,170 | | | | 36,684 | | | | | | 89,364 | | | | 457,222 | | | | 726,560 | |
Restructuring charges, net | | | | | | | | | | | | | (39 | ) | | | 668 | | | | 11,847 | |
Acquisition expenses | | | | | | | 16,322 | | | | | | 42,651 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 788,170 | | | | 151,905 | | | | | | 281,988 | | | | 1,169,378 | | | | 2,067,471 | |
| | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | 621,818 | | | | 129,266 | | | | | | 90,636 | | | | 353,439 | | | | (147 | ) |
Income tax provision | | | 236,291 | | | | 54,633 | | | | | | 39,336 | | | | 132,893 | | | | 10,742 | |
| | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | | 385,527 | | | | 74,633 | | | | | | 51,300 | | | | 220,546 | | | | (10,889 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive (loss) income | | | | | | | | | | | | | | | | | | | | | | |
Unrealized gains (losses) on cash flow hedges | | | 2,852 | | | | (412 | ) | | | | | 6,255 | | | | 43,306 | | | | (26,871 | ) |
Foreign currency translation adjustment | | | (10,981 | ) | | | 1,819 | | | | | | 2,055 | | | | 8,230 | | | | 750 | |
Income tax (provision) benefit | | | (1,046 | ) | | | 151 | | | | | | (3,027 | ) | | | (18,567 | ) | | | 11,426 | |
| | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive (loss) income | | | (9,175 | ) | | | 1,558 | | | | | | 5,283 | | | | 32,969 | | | | (14,695 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) | | $ | 376,352 | | | $ | 76,191 | | | | | $ | 56,583 | | | $ | 253,515 | | | $ | (25,584 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Earnings (loss) per share | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | (a | ) | | | (a | ) | | | | $ | 0.38 | | | $ | 1.65 | | | $ | (0.09 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Diluted | | | (a | ) | | | (a | ) | | | | $ | 0.37 | | | $ | 1.60 | | | $ | (0.09 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Weighted average shares | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | (a | ) | | | (a | ) | | | | | 135,232,827 | | | | 133,845,238 | | | | 125,239,241 | |
| | | | | | | | | | | | | | | | | | | | | | |
Diluted | | | (a | ) | | | (a | ) | | | | | 140,302,755 | | | | 138,179,945 | | | | 125,239,241 | |
| | | | | | | | | | | | | | | | | | | | | | |
| (a) | As a result of the Merger, our common stock is no longer publicly traded and earnings per share is no longer required. |
The accompanying notes are an integral part of these consolidated financial statements.
57
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY
(dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | For the
Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | For the Year Ended June 30, | |
| | | | | | | | 2010 | | | 2009 | |
Common Stock Shares | | | | | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | | 500 | | | | 500 | | | | | | 136,856,360 | | | | 134,977,812 | | | | 118,766,250 | |
Common stock issued on exercise of options | | | | | | | | | | | | | 17,312 | | | | 837,411 | | | | 131,654 | |
Common stock issued on the retirement of debt | | | | | | | | | | | | | | | | | | | | | 15,122,670 | |
Common stock issued on exercise of warrants | | | | | | | | | | | | | 438,112 | | | | | | | | | |
Common stock cancelled – restricted stock | | | | | | | | | | | | | | | | | | | | | (47,000 | ) |
Common stock issued for employee benefit plans | | | | | | | | | | | | | 439,580 | | | | 1,041,137 | | | | 1,004,238 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | | 500 | | | | 500 | | | | | | 137,751,364 | | | | 136,856,360 | | | | 134,977,812 | |
| | | | | | | | | | | | | | | | | | | | | | |
Common Stock Amount | | | | | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | $ | | | | $ | | | | | | $ | 1,369 | | | $ | 1,350 | | | $ | 1,188 | |
Common stock issued on exercise of options | | | | | | | | | | | | | | | | | 8 | | | | 1 | |
Common stock issued on exercise of warrants | | | | | | | | | | | | | 4 | | | | | | | | | |
Common stock issued on the retirement of debt | | | | | | | | | | | | | | | | | | | | | 151 | |
Common stock issued for employee benefit plans | | | | | | | | | | | | | 5 | | | | 11 | | | | 10 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | $ | | | | $ | | | | | | $ | 1,378 | | | $ | 1,369 | | | $ | 1,350 | |
| | | | | | | | | | | | | | | | | | | | | | |
Additional Paid-in Capital | | | | | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | $ | 3,453,917 | | | $ | 3,453,917 | | | | | $ | 327,095 | | | $ | 284,961 | | | $ | 134,064 | |
Common stock issued on exercise of options | | | | | | | | | | | | | 282 | | | | 11,597 | | | | 1,053 | |
Common stock issued on the retirement of debt | | | | | | | | | | | | | | | | | | | | | 90,830 | |
Income tax benefit from exercise of options, warrants and amortization of convertible note hedges | | | | | | | | | | | | | 3,395 | | | | 9,434 | | | | 10,678 | |
Common stock issued on exercise of warrants | | | | | | | | | | | | | (4 | ) | | | | | | | | |
Common stock issued for employee benefit plans | | | | | | | | | | | | | 1,851 | | | | 4,020 | | | | (11,029 | ) |
Cash settlement of share based awards | | | | | | | | | | | | | (16,062 | ) | | | | | | | | |
Stock based compensation expense | | | 17,106 | | | | | | | | | | 5,019 | | | | 15,115 | | | | 14,264 | |
Amortization of warrant costs | | | | | | | | | | | | | | | | | 1,968 | | | | 45,101 | |
True up of payments under tax-sharing agreement and separate return basis | | | (528 | ) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | $ | 3,470,495 | | | $ | 3,453,917 | | | | | $ | 321,576 | | | $ | 327,095 | | | $ | 284,961 | |
| | | | | | | | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive (Loss) | | | | | | | | | | | | | | | | | | | | | | |
Income | | | | | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | $ | 1,558 | | | | | | | | | $ | 11,870 | | | $ | (21,099 | ) | | $ | (6,404 | ) |
Other comprehensive (loss) income net of income tax (provision) benefit of $(1,046), $151, $(3,027), $(18,567), and $11,426, respectively | | | (9,175 | ) | | $ | 1,558 | | | | | | 5,283 | | | | 32,969 | | | | (14,695 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | $ | (7,617 | ) | | $ | 1,558 | | | | | $ | 17,153 | | | $ | 11,870 | | | $ | (21,099 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Retained Earnings | | | | | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | $ | 74,633 | | | | | | | | | $ | 2,099,005 | | | $ | 1,878,459 | | | $ | 1,889,348 | |
Consolidation of Wachovia funding facility | | | | | | | | | | | | | 175 | | | | | | | | | |
Net income (loss) | | | 385,527 | | | $ | 74,633 | | | | | | 51,300 | | | | 220,546 | | | | (10,889 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | $ | 460,160 | | | $ | 74,633 | | | | | $ | 2,150,480 | | | $ | 2,099,005 | | | $ | 1,878,459 | |
| | | | | | | | | | | | | | | | | | | | | | |
Treasury Stock Shares | | | | | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | | | | | | | | | | | | 1,916,510 | | | | 1,806,446 | | | | 2,454,534 | |
Common stock issued for employee benefit plans | | | | | | | | | | | | | 39,226 | | | | 110,064 | | | | (648,088 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | | | | | | | | | | | | 1,955,736 | | | | 1,916,510 | | | | 1,806,446 | |
| | | | | | | | | | | | | | | | | | | | | | |
Treasury Stock Amount | | | | | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | $ | | | | $ | | | | | | $ | (38,915 | ) | | $ | (36,363 | ) | | $ | (52,934 | ) |
Common stock issued for employee benefit plans | | | | | | | | | | | | | (1,051 | ) | | | (2,552 | ) | | | 16,571 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | $ | | | | $ | | | | | | $ | (39,966 | ) | | $ | (38,915 | ) | | $ | (36,363 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
58
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | For the
Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30, | | | For the Year Ended
June 30, | |
| | | | | | 2010 | | | 2010 | | | 2009 | |
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 385,527 | | | $ | 74,633 | | | | | $ | 51,300 | | | $ | 220,546 | | | $ | (10,889 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 109,619 | | | | 7,809 | | | | | | 14,649 | | | | 79,044 | | | | 109,008 | |
Provision for loan losses | | | 178,372 | | | | 26,352 | | | | | | 74,618 | | | | 388,058 | | | | 972,381 | |
Deferred income taxes | | | 50,236 | | | | 21,367 | | | | | | 452 | | | | (24,567 | ) | | | 226,783 | |
Stock based compensation expense | | | 17,106 | | | | | | | | | | 5,019 | | | | 15,115 | | | | 14,264 | |
Amortization of carrying value adjustment | | | 177,566 | | | | 77,092 | | | | | | | | | | | | | | | |
Amortization of purchase accounting premium | | | (67,671 | ) | | | (27,458 | ) | | | | | | | | | | | | | | |
Amortization of warrant costs | | | | | | | | | | | | | | | | | 1,968 | | | | 45,101 | |
Non-cash interest charges on convertible debt | | | | | | | | | | | | | 5,625 | | | | 21,554 | | | | 22,506 | |
Accretion and amortization of loan and leasing fees | | | (20,702 | ) | | | 1,111 | | | | | | (942 | ) | | | 4,791 | | | | 19,094 | |
Loss (gain) on retirement of debt | | | 1,436 | | | | | | | | | | | | | | (283 | ) | | | (48,907 | ) |
Other | | | (24,654 | ) | | | (11,539 | ) | | | | | (13,800 | ) | | | (15,954 | ) | | | 2,773 | |
Changes in assets and liabilities, net of assets and liabilities acquired: | | | | | | | | | | | | | | | | | | | | | | |
Other assets | | | 34,649 | | | | (369 | ) | | | | | 16,373 | | | | 202,658 | | | | (181,386 | ) |
Accounts payable and accrued expenses | | | (21,399 | ) | | | (10,275 | ) | | | | | (9,957 | ) | | | 26,245 | | | | (29,063 | ) |
Taxes payable | | | (77,285 | ) | | | (9,448 | ) | | | | | 1,405 | | | | 9,534 | | | | (23,050 | ) |
Intercompany taxes payable | | | 258,092 | | | | 42,214 | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 1,000,892 | | | | 191,489 | | | | | | 144,742 | | | | 928,709 | | | | 1,118,615 | |
| | | | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | | | |
Purchases of receivables | | | (5,020,639 | ) | | | (947,318 | ) | | | | | (940,763 | ) | | | (2,090,602 | ) | | | (1,280,291 | ) |
Principal collections and recoveries on receivables | | | 3,719,264 | | | | 870,862 | | | | | | 883,807 | | | | 3,606,680 | | | | 4,257,637 | |
Purchases of property and equipment | | | (8,359 | ) | | | (2,429 | ) | | | | | (312 | ) | | | (1,581 | ) | | | (1,003 | ) |
Change in restricted cash – securitization notes payable | | | 6,799 | | | | 49,860 | | | | | | (45,787 | ) | | | (78,549 | ) | | | 131,064 | |
Change in restricted cash – credit facilities | | | (5,108 | ) | | | 3,030 | | | | | | 8,257 | | | | 52,354 | | | | 63,180 | |
Change in other assets | | | (12,602 | ) | | | 13,236 | | | | | | 40,193 | | | | 43,875 | | | | 12,960 | |
Proceeds from money market fund | | | | | | | | | | | | | | | | | 10,047 | | | | 104,319 | |
Investment in money market fund | | | | | | | | | | | | | | | | | | | | | (115,821 | ) |
Net purchases of leased vehicles | | | (857,138 | ) | | | (10,655 | ) | | | | | | | | | | | | | | |
Proceeds from termination of leased vehicles | | | 38,054 | | | | | | | | | | | | | | | | | | | |
Acquisition of FinanciaLinx | | | (9,601 | ) | | | | | | | | | | | | | | | | | | |
FinanciaLinx cash on hand at acquisition | | | 9,283 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net cash (used) provided by investing activities | | | (2,140,047 | ) | | | (23,414 | ) | | | | | (54,605 | ) | | | 1,542,224 | | | | 3,172,045 | |
| | | | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | | | |
Borrowings on credit facilities | | | 3,716,609 | | | | 468,394 | | | | | | 484,921 | | | | 775,665 | | | | 3,657,240 | |
Payments on credit facilities | | | (3,446,074 | ) | | | (256,362 | ) | | | | | (552,951 | ) | | | (1,806,852 | ) | | | (4,935,357 | ) |
Issuance of securitization notes payable | | | 4,550,000 | | | | 700,000 | | | | | | 1,050,000 | | | | 2,352,493 | | | | 1,000,000 | |
Payments on securitization notes payable | | | (3,675,459 | ) | | | (954,644 | ) | | | | | (795,512 | ) | | | (3,674,062 | ) | | | (3,987,424 | ) |
Issuance of senior notes | | | 500,000 | | | | | | | | | | | | | | | | | | | |
Debt issuance costs | | | (49,318 | ) | | | (4,314 | ) | | | | | (7,686 | ) | | | (24,754 | ) | | | (32,609 | ) |
Net proceeds from issuance of common stock | | | | | | | | | | | | | 2,138 | | | | 15,635 | | | | 3,741 | |
Cash settlement of share based awards | | | | | | | | | | | | | (16,062 | ) | | | | | | | | |
Retirement of debt | | | (75,164 | ) | | | (464,254 | ) | | | | | | | | | (20,425 | ) | | | (238,617 | ) |
Other net changes | | | (528 | ) | | | | | | | | | 313 | | | | 645 | | | | (603 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net cash provided (used) by financing activities | | | 1,520,066 | | | | (511,180 | ) | | | | | 165,161 | | | | (2,381,655 | ) | | | (4,533,629 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 380,911 | | | | (343,105 | ) | | | | | 255,298 | | | | 89,278 | | | | (242,969 | ) |
Effect of Canadian exchange rate changes on cash and cash equivalents | | | (3,168 | ) | | | 130 | | | | | | (42 | ) | | | (292 | ) | | | 2,763 | |
Cash and cash equivalents at beginning of period | | | 194,554 | | | | 537,529 | | | | | | 282,273 | | | | 193,287 | | | | 433,493 | |
| | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 572,297 | | | $ | 194,554 | | | | | $ | 537,529 | | | $ | 282,273 | | | $ | 193,287 | |
| | | | | | | | | | | | | | | | | | | | | | |
| See | Note 21 – “Supplemental Cash Flow Information” for further information. |
The accompanying notes are an integral part of these consolidated financial statements.
59
GENERAL MOTORS FINANCIAL COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
History and Operations
We were formed on August 1, 1986, and, since September 1992, have been in the business of purchasing and servicing automobile sales finance contracts. From January 2007 through May 2008 and starting again in December 2010, we also originated leases on automobiles.
Merger
On October 1, 2010, pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”), dated as of July 21, 2010, with General Motors Holdings LLC (“GM Holdings”), a Delaware limited liability company and a wholly owned subsidiary of General Motors Company (“GM”), and Goalie Texas Holdco Inc., a Texas corporation and a direct wholly owned subsidiary of GM Holdings (“Merger Sub”), GM Holdings completed its acquisition of AmeriCredit Corp. via the merger of Merger Sub with and into AmeriCredit Corp. (the “Merger” or “acquisition”), with AmeriCredit Corp. continuing as the surviving company in the Merger and becoming a wholly owned subsidiary of GM Holdings. After the Merger, AmeriCredit Corp. was renamed General Motors Financial Company, Inc. The accompanying consolidated financial statements labeled “Predecessor” and “Successor”, relate to the period before the Merger and the period after the Merger, respectively. The consolidated financial statements of the Predecessor have been prepared on the same basis as the audited financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2010. The consolidated financial statements of the Successor reflect a change in basis from the application of “purchase accounting”.
Change in Fiscal Year
On December 9, 2010, we changed our fiscal year end to December 31 from June 30. We made this change to align our financial reporting period, as well as our annual planning and budgeting process, with the GM business cycle. As a result of this change, the Consolidated Financial Statements include our financial results for the three month transition period of July 1, 2010 through September 30, 2010, labeled “Predecessor” and the three month transition period of October 1, 2010 through December 31, 2010, labeled “Successor”. The years ended December 31, 2011, June 30, 2010 and 2009 reflect the twelve-month results of the respective fiscal year and are referred to herein as fiscal 2011, 2010 and 2009.
Basis of Presentation
The consolidated financial statements include our accounts and the accounts of our wholly owned subsidiaries, including certain special purpose financing trusts utilized in securitization transactions (“Trusts”) which are considered variable interest entities (“VIE’s”). All intercompany transactions and accounts, except those with GM, have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the amount of revenue and costs and expenses during the reporting periods. Actual results could differ from those estimates and those differences may be material. These estimates include, among other things, the determination of the allowance for loan losses on finance receivables, residual values on leased vehicles, income taxes and the fair value of finance receivables, intangible assets and securitization notes payable.
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Purchase Accounting
The Merger has been accounted for under the purchase method of accounting, whereby the total purchase price of the transaction was allocated to our identifiable tangible and intangible assets acquired and liabilities assumed based on their fair values, and the excess of the purchase price over the fair value of net assets acquired was recorded as goodwill. The allocation resulted in a significant amount of goodwill, an increase in the carrying value of net finance receivables, medium term note facility payable, Wachovia funding facility payable, securitization notes payable, deferred tax assets and uncertain tax positions as well as new identifiable intangible assets. See Note 2 – “Financial Statement Effects of the Merger” for additional information on the purchase price allocation.
Correction of Statements of Cash Flows
We corrected the presentation of borrowings on (payments on) credit facilities for the the three months ended December 31, 2010, three months ended September 30, 2010 and fiscal 2010 and 2009, which had previously been presented on a net basis, rather than on a gross basis in accordance with Accounting Standards Codification (“ASC”) 230. The correction had no effect on net cash used in financing activities, the net increase in cash and cash equivalents or end of period cash and cash equivalents.
The following disclosure presents the corrected amounts in our consolidated statements of cash flows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | | | | | |
| | | | | | | For The Year Ended June 30, | |
| | | | | | | 2010 | | | 2009 | |
As reported: | | | | | | | | | | | | | | | | | | |
Net change in credit facilities | | $ | 212,032 | | | | | $ | (68,030 | ) | | $ | (1,031,187 | ) | | $ | (1,278,117 | ) |
As corrected: | | | | | | | | | | | | | | | | | | |
Borrowings on credit facilities | | | 468,394 | | | | | | 484,921 | | | | 775,665 | | | | 3,657,240 | |
Repayments on credit facilities | | | (256,362 | ) | | | | | (552,951 | ) | | | (1,806,852 | ) | | | (4,935,357 | ) |
Correction of Goodwill and Deferred Income Taxes
We corrected the presentation of goodwill and deferred income taxes for the December 31, 2010 consolidated balance sheet presented. Deferred income taxes were understated at the purchase date resulting in an overstatement of goodwill.
The following disclosure presents the corrected amounts reflected in our consolidated balance sheet at December 31, 2010 (in thousands):
| | | | | | | | |
| | | Successor | |
| | | December 31, 2010 | |
| | | Goodwill | | | Deferred Income
Taxes | |
As reported: | | $ | 1,112,284 | | | $ | 140,523 | |
As corrected: | | | 1,094,923 | | | | 157,884 | |
Correction of Cash Paid for Income Taxes
We corrected the presentation of cash paid for income taxes for the period from October 1, 2010 through December 31, 2010.
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The following disclosure presents the corrected amounts reflected for the period from October 1, 2010 through December 31, 2010 (in thousands):
| | | | |
| | | Successor | |
| | | Period From
October 1, 2010
Through
December 31, 2010 | |
| | | Cash Payments For
Income Taxes | |
As reported: | | $ | 45,878 | |
As corrected: | | | 16,974 | |
Cash Equivalents
Investments in highly liquid securities with original maturities of 90 days or less are included in cash and cash equivalents.
Finance Receivables and the Allowance for Loan Losses
Pre-Acquisition Finance Receivables
Finance receivables originated prior to the acquisition were adjusted to fair value at October 1, 2010. As a result of purchase accounting for the Merger, the allowance for loan losses at October 1, 2010 was eliminated and a net discount was recorded on the receivables. The fair value of the receivables was less than the principal amount of those receivables, thus resulting in a discount to par. This discount was attributable, in part, to estimate future credit losses that did not exist at the origination of the loans.
A non-accretable difference is the excess between contractually required payments (undiscounted amount of all uncollected contractual principal and interest payments, both past due and scheduled for the future) and the amount of cash flows, considering the impact of prepayments, expected to be collected. An accretable yield is the excess of the cash flows, considering the impact of prepayments, expected to be collected over the initial investment in the loans, which at October 1, 2010, was fair value.
As a result of purchase accounting for the Merger, we evaluated the common risk characteristics of the loan portfolio and split it into several pools. Once a pool of loans is assembled, the integrity of the pool is maintained. A loan is removed from a pool only if it is sold or paid in full, or the loan is written off. Our policy is to remove a written off loan individually from a pool based on comparing any amount received with its contractual amount. Any difference between these amounts is absorbed by the non-accretable difference. This removal method assumes that the amount received approximates pool performance expectations. The remaining accretable yield balance is unaffected and any material change in remaining effective yield caused by this removal method is addressed by our quarterly cash flow evaluation process for each pool. For loans that are resolved by payment in full there is no release of the non-accretable difference for the pool because there is no difference between the amount received and the contractual amount of the loan.
Any deterioration in the performance of the pre-acquisition receivables will result in an incremental provision for loan losses being recorded. Improvements in the performance of the pre-acquisition receivables which results in a significant increase in actual or expected cash flows will result first in the reversal of any incremental related allowance for loan losses and then in a transfer of the excess from the non-accretable difference to accretable yield, which will be recorded as finance charge income over the remaining life of the receivables.
Post-Acquisition Finance Receivables and Allowance for Loan Losses
Finance receivables originated since the acquisition are carried at amortized cost, net of allowance for loan losses. Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses at levels considered adequate to cover probable credit losses inherent in our post-acquisition finance receivables.
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The allowance for loan losses is established systematically based on the determination of the amount of probable credit losses inherent in the post-acquisition finance receivables as of the balance sheet date. We review charge-off experience factors, delinquency reports, historical collection rates, estimates of the value of the underlying collateral, economic trends, such as unemployment rates, and other information in order to make the necessary judgments as to the probable credit losses. We also use historical charge-off experience to determine the loss confirmation period, which is defined as the time between when an event, such as delinquency status, giving rise to a probable credit loss occurs with respect to a specific account and when such account is charged off. This loss confirmation period is applied to the forecasted probable credit losses to determine the amount of losses inherent in finance receivables at the balance sheet date. Assumptions regarding credit losses and loss confirmation periods are reviewed periodically and may be impacted by actual performance of finance receivables and changes in any of the factors discussed above. Should the credit loss assumption or loss confirmation period increase, there would be an increase in the amount of allowance for loan losses required, which would decrease the net carrying value of finance receivables and increase the amount of provision for loan losses recorded on the consolidated statements of operations.
Charge-off Policy
Our policy is to charge off an account in the month in which the account becomes 120 days contractually delinquent if we have not repossessed the related vehicle. We charge off accounts in repossession when the automobile is repossessed and legally available for disposition. A charge-off generally represents the difference between the estimated net sales proceeds and the amount of the delinquent contract, including accrued interest. Accounts in repossession that have been charged off and have been removed from finance receivables and the related repossessed automobiles, aggregating $12.8 million and $14.1 million at December 31, 2011 and 2010, respectively, are included in other assets on the consolidated balance sheets pending sale and represents a non-cash investing activity.
Troubled Debt Restructurings
For evaluating whether a restructuring constitutes a troubled debt restructuring our policy is that both of the following must exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. In accordance with our policies and guidelines, we, at times, offer payment deferrals to consumers. Each deferral allows the consumer to move up to two delinquent monthly payments to the end of the loan generally by paying a fee (approximately the interest portion of the payment deferred, except where state law provides for a lesser amount). A loan that is deferred two or more times would be considered significantly delayed and therefore meet the definition of a concession. A loan currently in payment default as the result of being delinquent would also represent a debtor experiencing financial difficulties. Therefore, considering these two factors, the second deferment granted by us on a loan would be considered a troubled debt restructuring and the loan impaired. Accounts in Chapter 13 bankruptcy could also be considered troubled debt restructurings if the account receives an interest rate or principal adjustment ordered by the court. The pre-acquisition portfolio is excluded from the troubled debt restructuring policy since expected future credit losses were recognized in the purchase accounting for that portfolio. At December 31, 2011, the number of accounts in the post-acquisition portfolio that would be considered troubled debt restructurings is insignificant.
Variable Interest Entities – Securitizations and Credit Facilities
We finance our loan origination volume through the use of our credit facilities and execution of securitization transactions, which both utilize special purpose entities (“SPE’s”). In a credit facility, we transfer finance receivables to special purpose finance subsidiaries. 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 us in consideration for the transfer of finance receivables.
In our securitizations, we, through wholly owned subsidiaries, transfer automobile receivables to newly-formed SPE’s structured as securitization Trusts (“Trusts”), which issue one or more classes of asset-backed securities. The asset-backed securities are in turn sold to investors.
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Our continuing involvement with the credit facilities and Trusts are in the form of servicing loans held by the SPE’s and through holding a residual interest in the SPE. These transactions are structured without recourse. The SPE’s are considered VIE’s under U.S. Generally Accepted Accounting Principles (“GAAP”) and are consolidated because we have: (a) power over the significant activities of the entity and (b) an obligation to absorb losses or the right to receive benefits from the VIE which are potentially significant to the VIE.
We have power over the significant activities of those VIE’s in which we act as servicer of the financial assets held in the VIE. Our servicing fees are not considered significant variable interests in the VIE’s; however, because we also retain a residual interest in the SPE, either in the form of a debt security or equity interest, we have an obligation to absorb losses or the right to receive benefits that are potentially significant to the SPE. Accordingly, we are the primary beneficiary of the VIE’s and are required to consolidate them within our consolidated financial statements. Therefore, the finance receivables, borrowings under our credit facilities and, following a securitization, the related securitization notes payable remain on the consolidated balance sheets. See Note 5 – “Finance Receivables”, Note 7 – “Securitizations” and Note 9 – “Credit Facilities” for further information.
We are not required, and do not currently intend, to provide any additional financial support to SPE’s. While these subsidiaries are included in our consolidated financial statements, these subsidiaries are separate legal entities and the finance receivables and other assets held by these subsidiaries are legally owned by them and are not available to our creditors or creditors of our other subsidiaries.
Except for purchase accounting adjustments, we recognize finance charge and fee income on the receivables and interest expense on the securities issued in a securitization transaction, and record a provision for loan losses to recognize probable loan losses inherent in the finance receivables. Cash pledged to support the securitization transaction is deposited to a restricted account and recorded on our consolidated balance sheets as restricted cash – securitization notes payable, which is invested in highly liquid securities with original maturities of 90 days or less or in highly rated guaranteed investment contracts.
Property and Equipment
As a result of the Merger, on October 1, 2010, our property and equipment was adjusted to an estimated fair market value. Subsequent to the Merger, property and equipment additions are carried at amortized cost. Depreciation is generally provided on a straight-line basis over the estimated useful lives of the assets, which ranges from three to 25 years. The basis of assets sold or retired and the related accumulated depreciation are removed from the accounts at the time of disposition and any resulting gain or loss is included in operations. Maintenance, repairs and minor replacements are charged to operations as incurred; major replacements and betterments are capitalized.
Leased Vehicles
Leased vehicles consist of automobiles leased to consumers. As a result of the Merger, on October 1, 2010, these assets were adjusted to an estimated fair value. Leased vehicles acquired since the Merger are carried at amortized cost less manufacturer incentives. Depreciation expense is recorded on a straight-line basis over the term of the lease. Leased vehicles are depreciated to the estimated residual value at the end of the lease term. Under the accounting for impairment or disposal of long-lived assets, residual values of operating leases are evaluated individually for impairment. When aggregate future cash flows from the operating lease, including the expected realizable fair value of the leased asset at the end of the lease, are less than the book value of the lease, an immediate impairment write-down is recognized if the difference is deemed not recoverable. Otherwise, reductions in the expected residual value result in additional depreciation of the leased asset over the remaining term of the lease. Upon disposition, a gain or loss is recorded for any difference between the net book value of the lease and the proceeds from the disposition of the asset, including any insurance proceeds.
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Goodwill
Under the purchase method of accounting, our net assets were recorded at their estimated fair value at the date of the Merger. The excess cost of the acquisition over the fair value was recorded as goodwill. Goodwill is subject to impairment testing using a two-step process after considering a qualitative assessment. The first step of the goodwill impairment test is to identify potential impairment by comparing the fair value of the reporting unit with its carrying amount, including goodwill. We have determined that we have only one operating segment, thus one reporting unit. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is not required. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of the impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value (i.e., the fair value of reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets) of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying value of goodwill exceeds its implied fair value, the excess is required to be recorded as an impairment charge in earnings. We perform our annual goodwill impairment analysis during the fourth quarter. See Note 4 – “Goodwill” for further information.
Derivative Financial Instruments
We recognize all of our derivative financial instruments as either assets or liabilities on our consolidated balance sheets at fair value. The accounting for changes in the fair value of each derivative financial instrument depends on whether it has been designated and qualifies as an accounting hedge, as well as the type of hedging relationship identified.
Our special purpose finance subsidiaries are contractually required to purchase derivative instruments, which could include interest rate cap agreements and/or interest rate swap agreements which are explained below, as credit enhancement in connection with securitization transactions and credit facilities.
Interest Rate Swap Agreements
We utilize interest rate swap agreements to convert floating rate exposures on securities issued in securitization transactions to fixed rates, thereby hedging the variability in interest expense paid. Our interest rate swap agreements are designated as cash flow hedges on the floating rate debt of our securitization notes payable and may qualify for hedge accounting treatment, while others do not qualify and are marked to market through interest expense in our consolidated statements of operations. Cash flows from derivatives used to manage interest rate risk are classified as operating activities.
For interest rate swap agreements designated as hedges, we formally document all relationships between the interest rate swap agreement and the underlying asset, liability or cash flows being hedged, as well as our risk management objective and strategy for undertaking the hedge transactions. At hedge inception and at least quarterly, we also formally assess whether the interest rate swap agreements that are used in hedging transactions have been highly effective in offsetting changes in the cash flows or fair value of the hedged items and whether those interest rate swap agreements may be expected to remain highly effective in future periods. In addition, we also assess the continued probability that the hedged cash flows will be realized.
We use regression analysis to assess hedge effectiveness of our cash flow hedges on a prospective and retrospective basis. A derivative financial instrument is deemed to be effective if the X-coefficient from the regression analysis is between a range of 0.80 and 1.25. At December 31, 2011, all of our interest rate swap agreements designated as cash flow hedges fall within this range and are deemed to be effective hedges for accounting purposes. We use the hypothetical derivative method to measure the amount of ineffectiveness and a net earnings impact occurs when the change in the value of a derivative instrument does not offset the change in the value of the underlying hedged item. Ineffectiveness of our hedges is not material.
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The effective portion of the changes in the fair value of the interest rate swaps qualifying as cash flow hedges are included as a component of accumulated other comprehensive income (loss) as an unrealized gain or loss on cash flow hedges. These unrealized gains or losses are recognized as adjustments to income over the same period in which cash flows from the related hedged item affect earnings. Additionally, to the extent that any of these contracts are not considered to be perfectly effective in offsetting the change in the value of the cash flows being hedged, any changes in fair value relating to the ineffective portion of these contracts are recognized in interest expense on our consolidated statements of operations and comprehensive operations. We discontinue hedge accounting prospectively when it is determined that an interest rate swap agreement has ceased to be effective as an accounting hedge or if the underlying hedged cash flow is no longer probable of occurring.
Interest Rate Cap Agreements
Generally, we purchase interest rate cap agreements to limit floating rate exposures on securities issued in our credit facilities. As part of our interest rate risk management strategy and when economically feasible, we may simultaneously sell a corresponding interest rate cap agreement in order to offset the premium paid to purchase the interest rate cap agreement and thus retain the interest rate risk. Because the interest rate cap agreements entered into by us or our special purpose finance subsidiaries do not qualify for hedge accounting, changes in the fair value of interest rate cap agreements purchased by the special purpose finance subsidiaries and interest rate cap agreements sold by us are recorded in interest expense on our consolidated statements of operations and comprehensive operations.
We do not use derivative instruments for trading or speculative purposes.
Interest rate risk management contracts are generally expressed in notional principal or contract amounts that are much larger than the amounts potentially at risk for nonpayment by counterparties. Therefore, in the event of nonperformance by the counterparties, our credit exposure is limited to the uncollected interest and the market value related to the contracts that have become favorable to us. We manage the credit risk of such contracts by using highly rated counterparties, establishing risk limits and monitoring the credit ratings of the counterparties.
We maintain a policy of requiring that all derivative contracts be governed by an International Swaps and Derivatives Association Master Agreement. We enter into arrangements with individual counterparties that we believe are creditworthy and generally settle on a net basis. In addition, we perform a quarterly assessment of our counterparty credit risk, including a review of credit ratings, credit default swap rates and potential nonperformance of the counterparty. Based on our most recent quarterly assessment of our counterparty credit risk, we consider this risk to be low.
Tax Sharing Arrangement
Under the tax sharing arrangement with GM, we are responsible for our tax liabilities as if separate returns are filed. Payments for the tax years 2010 through 2013 are deferred for three years from their original due date. The total amount of deferral is not to exceed $650 million. As of December 31, 2011, we have an accrued liability of $300.3 million to GM.
Income Taxes
Deferred income taxes are provided in accordance with the asset and liability method of accounting for income taxes to recognize the tax effects of tax credits and temporary differences between financial statement and income tax accounting. A valuation allowance is recognized if it is more likely than not that some portion or the entire deferred tax asset will not be realized.
We account for uncertainty in income taxes in the financial statements. See Note 19 – “Income Taxes” for a discussion of the accounting for uncertain tax positions.
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Revenue Recognition
Finance Charge Income
Finance charge income related to finance receivables is recognized using the interest method. Accrual of finance charge income is suspended on accounts that are more than 60 days delinquent, accounts in bankruptcy, and accounts in repossession. Payments received on non-accrual loans are first applied to any fees due, then to any interest due and, finally, any remaining amounts received are recorded to principal. Interest accrual resumes once an account has received payments bringing the delinquency status to less than 60 days past due. Fees and commissions received and direct costs of originating loans are deferred and amortized over the term of the related finance receivables using the interest method and are removed from the consolidated balance sheets when the related finance receivables are sold, charged off or paid in full.
Operating Leases – deferred origination fees or costs
Net deferred origination fees or costs are amortized on a straight-line basis over the life of the lease to other income.
Leasing Income
Operating lease rental income for leased assets is recognized in other income on a straight-line basis over the lease term.
Parent Company Stock Based Compensation
We measure and record compensation expense for the parent company stock based compensation awards based on the award’s estimated fair value. We record compensation expense over the applicable vesting period of an award.
Salary stock awards granted are fully vested and nonforfeitable upon grant, therefore, compensation cost is recorded on the date of grant.
For fiscal 2011, we recorded total stock based compensation expense of $17.1 million ($10.6 million net of tax).
Stock Based Compensation – Predecessor
Share-based payment transactions were measured at fair value and recognized in the financial statements.
For the three months ended September 30, 2010, fiscal 2010, and 2009, we recorded total stock based compensation expense of $5.0 million ($2.8 million net of tax), $15.1 million ($9.4 million net of tax), and $14.3 million ($9.2 million net of tax), respectively.
The excess tax benefit of the stock based compensation expense related to the exercise of stock options of $0.4 million, and $1.1 million for the three months ended September 30, 2010, and fiscal 2010, respectively, has been included in other net changes as a cash inflow from financing activities on the consolidated statements of cash flows.
The fair value of each option granted or modified was estimated using an option-pricing model with the following weighted average assumptions:
| | | | | | | | |
| | | Predecessor | |
| | | Years Ended June 30, | |
| | | 2010 | | | 2009 | |
Expected dividends | | | 0 | | | | 0 | |
Expected volatility | | | 65.7 | % | | | 92.1 | % |
Risk-free interest rate | | | 1.2 | % | | | 1.7 | % |
Expected life | | | 1.4 years | | | | 2.0 years | |
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For the three months ended September 30, 2010, there were not options granted or modified.
We have not paid out dividends historically, thus the dividend yields are estimated at zero percent.
Expected volatility reflects an average of the implied and historical volatility rates. Management believed that a combination of market-based measures was the best available indicator of expected volatility.
The risk-free interest rate is the implied yield available for zero-coupon U.S. government issues with a remaining term equal to the expected life of the options.
The expected lives of options were determined based on our historical option exercise experience and the term of the option.
Assumptions were reviewed each time there was a new grant or modification of a previous grant and would have been impacted by actual fluctuation in our stock price, movements in market interest rates and option terms. The use of different assumptions produces a different fair value for the options granted or modified and impacts the amount of compensation expense recognized on the consolidated statements of operations and comprehensive operations.
Related Party Transactions
We offer loan and lease finance products through GM dealers to consumers purchasing new and certain used vehicles manufactured by GM. GM makes cash payments to us for offering incentived rates and structures on these loan and lease finance products under a subvention program with GM. At December 31, 2011 and 2010, we have an intercompany subvention receivable from GM in the amount of $37.4 million and $8.1 million, respectively, representing payments due from GM under the subvention program, and represents a non-cash investing activity. As presented in Note 9 – “Credit Facilities”, we have a $300 million revolving credit facility with GM. During fiscal 2011, we had borrowings and repayments of $200 million on the facility. At December 31, 2011, there was no outstanding amount on the revolving credit facility.
Recent Accounting Pronouncements
In April 2011, ASU 2011-03 (“2011-03”),Reconsideration of Effective Control for Repurchase Agreements,was issued effective prospectively for new transfers and existing transactions that are modified in the first interim or annual period beginning on or after December 15, 2011. This guidance amends the sale accounting requirement concerning a transferor’s ability to repurchase transferred financial assets even in the event of default by the transferee, which typically is facilitated in a repurchase agreement by the presence of a collateral maintenance provision. We are currently evaluating the impact that 2011-03 will have on our consolidated financial position, results of operations and cash flows.
In May 2011, ASU (“2011-04”),Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued effective for interim and annual periods beginning on or after December 15, 2011. The adoption of 2011-04 gives fair value the same meaning between GAAP and International Financial Reporting Standards (“IFRSs”), and improves consistency of disclosures relating to fair value. We are currently evaluating the impact that 2011-04 will have on our consolidated financial position, results of operations and cash flows.
In June 2011, ASU (“2011-05”),Comprehensive Income: Presentation of Comprehensive Income,was issued effective for interim and annual periods beginning after December 15, 2011, with early adoption permitted. 2011-05 amends current guidance on reporting comprehensive income and eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, comprehensive income must be reported in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. In December 2011, ASU (“2011-12”) was issued deferring the effective date for implementation of
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ASU 2011-05 related only to reclassification out of accumulated other comprehensive income until a later date to be determined after further consideration by the FASB. The adoption of 2011-05 will not have an impact on our consolidated financial position, results of operations and cash flows.
In September 2011, ASU (“2011-08”),Testing Goodwill for Impairment,was issued effective for interim and annual periods beginning after December 15, 2011, with early adoption permitted. Under the revised guidance, entities testing for goodwill impairment have an option of performing a qualitative assessment before calculating the fair value for the reporting unit, i.e., Step 1 of the goodwill impairment test. If an entity determines, on a basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. If it is not more likely than not that the fair value of the reporting unit is less than the carrying value, then goodwill is not considered to be impaired. 2011-08 does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. We adopted ASU 2011-08 effective October 1, 2011. The adoption of 2011-08 did not have an impact on our consolidated financial position, results of operations and cash flows.
In December 2011, ASU (“2011-11”),Disclosures about Offsetting Assets and Liabilities, was issued effective for interim and annual periods beginning January 1, 2013. 2011-11 amends the disclosure requirements on offsetting in ASC Topic 210 by requiring enhanced disclosures about financial instruments and derivative instruments that are either (a) offset in accordance with existing guidance or (b) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the balance sheet. We do not expect the adoption of 2011-11 to have an impact on our consolidated financial position, results of operations and cash flows.
2. Financial Statement Effects of the Merger
Purchase Price Allocation
The Merger has been accounted for under the purchase method of accounting, whereby the purchase price of the transaction was allocated to our identifiable assets acquired and liabilities assumed based upon their fair values. The estimates of the fair values recorded were determined based on the fair value measurement principles (see Note 13 – “Fair Values of Assets and Liabilities” for additional information) and reflect significant assumptions and judgments. Material valuation inputs for our finance receivables included adjustments to monthly principal and finance charge cash flows for prepayments and credit loss expectations; servicing expenses; and discount rates developed based on the relative risk of the cash flows which considered loan type, market rates as of our valuation date, credit loss expectations and capital structure. Certain assumptions and judgments that were considered to be appropriate at the acquisition date may prove to be incorrect if market conditions change.
The results of the purchase price allocation included an increase in the total carrying value of net finance receivables, medium term note facility payable, Wachovia funding facility payable, securitization notes payable, deferred tax assets and uncertain tax positions as well as intangible assets. Management believes all material intangible assets have been identified.
The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill. The goodwill amount was $1.1 billion.
In accordance with the accounting for goodwill, goodwill is not amortized to net income, but is required to be tested for impairment at least annually. See Note 4 – “Goodwill’ for additional information.
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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on October 1, 2010 (in thousands):
| | | | | | | | | | | | |
Assets: | | September 30, 2010 | | | Adjustments | | | October 1, 2010 | |
Cash and cash equivalents | | $ | 537,529 | | | | | | | $ | 537,529 | |
Restricted cash – securitization notes payable | | | 975,942 | | | | | | | | 975,942 | |
Restricted cash – credit facilities | | | 134,468 | | | | | | | | 134,468 | |
Finance receivables | | | 8,675,575 | | | $ | (444,832 | ) | | | 8,230,743 | |
Allowance for loan losses | | | (528,489 | ) | | | 528,489 | | | | | |
| | | | | | | | | | | | |
Finance receivables, net | | | 8,147,086 | | | | 83,657 | | | | 8,230,743 | |
| | | | | | | | | | | | |
Property and equipment | | | 36,592 | | | | 10,282 | | | | 46,874 | |
Leased vehicles, net | | | 54,730 | | | | (1,223 | ) | | | 53,507 | |
Deferred income taxes | | | 77,999 | | | | 101,102 | | | | 179,101 | |
Other assets | | | 143,064 | | | | (25,917 | ) | | | 117,147 | |
Goodwill | | | | | | | 1,094,923 | | | | 1,094,923 | |
| | | | | | | | | | | | |
Total assets | | $ | 10,107,410 | | | $ | 1,262,824 | | | $ | 11,370,234 | |
| | | | | | | | | | | | |
| | | |
Liabilities: | | | | | | | | | |
Credit facilities | | $ | 617,415 | | | $ | 3,684 | | | $ | 621,099 | |
Senior notes | | | 70,620 | | | | 1,810 | | | | 72,430 | |
Convertible senior notes | | | 419,693 | | | | 42,015 | | | | 461,708 | |
Securitization notes payable | | | 6,273,224 | | | | 135,404 | | | | 6,408,628 | |
Other liabilities | | | 275,837 | | | | 76,615 | | | | 352,452 | |
| | | | | | | | | | | | |
Total liabilities | | | 7,656,789 | | | | 259,528 | | | | 7,916,317 | |
| | | | | | | | | | | | |
| | | |
Shareholder’s equity: | | | | | | | | | |
Common Stock | | | 1,378 | | | | (1,378 | ) | | | | |
Additional paid-in capital | | | 321,576 | | | | (321,576 | ) | | | | |
Accumulated other comprehensive income | | | 17,153 | | | | (17,153 | ) | | | | |
Retained earnings | | | 2,150,480 | | | | (2,150,480 | ) | | | | |
| | | | | | | | | | | | |
| | | 2,490,587 | | | | (2,490,587 | ) | | | | |
Treasury stock | | | (39,966 | ) | | | 39,966 | | | | | |
| | | | | | | | | | | | |
Total shareholder’s equity | | | 2,450,621 | | | | (2,450,621 | ) | | | | |
| | | | | | | | | | | | |
Total liabilities and shareholder’s equity | | $ | 10,107,410 | | | $ | (2,191,093 | ) | | $ | 7,916,317 | |
| | | | | | | | | | | | |
| | | |
Purchase price | | | | | | | | | | $ | 3,453,917 | |
70
3. Transition Period Financial Information (dollars in thousands, except per share data):
| | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Period From
October 1, 2009
Through
December 31,
2009 | | | Period From
July 1, 2009
Through
September 30,
2009 | |
| | | | | | | | | | | (unaudited) | |
Statements of Operations and Comprehensive Operations Data: | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 281,171 | | | | | $ | 372,624 | | | $ | 386,755 | | | $ | 413,284 | |
Costs and expenses | | | 151,905 | | | | | | 281,988 | | | | 314,540 | | | | 367,034 | |
| | | | | | | | | | | | | | | | | | |
Income before income taxes | | | 129,266 | | | | | | 90,636 | | | | 72,215 | | | | 46,250 | |
| | | | | | | | | | | | | | | | | | |
Income tax provision | | | 54,633 | | | | | | 39,336 | | | | 26,186 | | | | 20,489 | |
| | | | | | | | | | | | | | | | | | |
Net income | | | 74,633 | | | | | | 51,300 | | | | 46,029 | | | | 25,761 | |
| | | | | | | | | | | | | | | | | | |
Other comprehensive income | | | | | | | | | | | | | | | | | | |
Unrealized (losses) gains on cash flow hedges | | | (412 | ) | | | | | 6,255 | | | | 17,087 | | | | 7,411 | |
Foreign currency translation adjustment | | | 1,819 | | | | | | 2,055 | | | | 1,344 | | | | 6,924 | |
Income tax benefit (provision) | | | 151 | | | | | | (3,027 | ) | | | (6,701 | ) | | | (5,176 | ) |
| | | | | | | | | | | | | | | | | | |
Other comprehensive income | | | 1,558 | | | | | | 5,283 | | | | 11,730 | | | | 9,159 | |
| | | | | | | | | | | | | | | | | | |
Comprehensive income | | $ | 76,191 | | | | | $ | 56,583 | | | $ | 57,759 | | | $ | 34,920 | |
| | | | | | | | | | | | | | | | | | |
Per Share Data: | | | | | | | | | | | | | | | | | | |
Earnings per share | | | | | | | | | | | | | | | | | | |
Basic | | | (a | ) | | | | $ | 0.38 | | | $ | 0.34 | | | $ | 0.19 | |
Diluted | | | (a | ) | | | | $ | 0.37 | | | $ | 0.33 | | | $ | 0.19 | |
Weighted average shares | | | | | | | | | | | | | | | | | | |
Basic | | | (a | ) | | | | | 135,232,827 | | | | 133,492,069 | | | | 133,229,960 | |
Diluted | | | (a | ) | | | | | 140,302,755 | | | | 137,630,694 | | | | 136,083,460 | |
Balance Sheet Data: | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 10,918,738 | | | | | $ | 10,107,410 | | | $ | 10,289,504 | | | $ | 11,215,732 | |
Total liabilities | | | 7,388,630 | | | | | | 7,656,789 | | | | 8,071,112 | | | | 9,065,459 | |
Total shareholder’s equity | | | 3,530,108 | | | | | | 2,450,621 | | | | 2,218,392 | | | | 2,150,273 | |
| (a) | As a result of the Merger, our common stock is no longer publicly traded and earnings per share is no longer required. |
4. Goodwill
As noted above in Note 1 – “Summary of Significant Accounting Policies – Purchase Accounting”, the Merger with GM resulted in goodwill attributable to the difference between the excess of the purchase price over the fair value of the assets and liabilities acquired. See Note 2 – “Financial Statement Effects of the Merger” for details of the purchase price allocation.
On April 1, 2011, we acquired FinanciaLinx Corporation (“FinanciaLinx”), an independent auto lease provider in Canada. The total consideration we paid in the all-cash transaction was approximately $9.6 million. FinanciaLinx provides leasing programs to GM and other manufacturers through manufacturer subvention programs. Purchase accounting for the acquisition resulted in goodwill of $13.8 million.
We performed goodwill impairment testing as of October 1, 2011, in accordance with the policy described in Note 1 – “Summary of Significant Accounting Policies – Goodwill”. As of October 1, 2011, there was no indication of impairment.
71
A summary of changes to goodwill is as follows (in thousands):
| | | | | | | | |
| | | Successor | |
| | | Year Ended
December 31,
2011 | | | Three Months
Ended
December 31,
2010 | |
Balance at beginning of the period | | $ | 1,094,923 | | | $ | 1,094,923 | |
Acquisition | | | 13,773 | | | | | |
Foreign currency translation | | | (714 | ) | | | | |
| | | | | | | | |
Balance at end of the period | | $ | 1,107,982 | | | $ | 1,094,923 | |
| | | | | | | | |
5. Finance Receivables
Finance receivables consist of the following (in thousands):
| | | | | | | | | | | | |
| | | Successor | |
| | | December 31,
2011 | | | December 31,
2010 | | | October 1,
2010 | |
Pre-acquisition finance receivables – outstanding balance | | $ | 4,366,075 | | | $ | 7,724,188 | | | $ | 8,698,018 | |
Less: carrying value adjustment | | | (338,714 | ) | | | (424,225 | ) | | | (467,275 | ) |
| | | | | | | | | | | | |
Pre-acquisition finance receivables – carrying value | | | 4,027,361 | | | | 7,299,963 | | | | 8,230,743 | |
Post-acquisition finance receivables, net of fees | | | 5,313,899 | | | | 923,713 | | | | | |
| | | | | | | | | | | | |
| | | 9,341,260 | | | | 8,223,676 | | | | 8,230,743 | |
Less: allowance for loan losses on post-acquisition finance receivables | | | (178,768 | ) | | | (26,352 | ) | | | | |
| | | | | | | | | | | | |
Total finance receivables, net | | $ | 9,162,492 | | | $ | 8,197,324 | | | $ | 8,230,743 | |
| | | | | | | | | | | | |
A summary of our finance receivables is as follows (in thousands)(a):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended
June 30, | |
| | | | | | | 2010 | | | 2009 | |
Pre-acquisition finance receivables, carrying value, beginning of period | | $ | 7,299,963 | | | $ | 8,230,743 | | | | | $ | 8,733,518 | | | $ | 10,927,969 | | | $ | 14,981,412 | |
Post-acquisition finance receivables, beginning of period | | | 923,713 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 8,223,676 | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Loans purchased | | | 5,084,800 | | | | 934,812 | | | | | | 959,004 | | | | 2,137,620 | | | | 1,285,091 | |
Charge-offs | | | (66,080 | ) | | | | | | | | | (217,520 | ) | | | (1,249,298 | ) | | | (1,659,099 | ) |
Principal collections and other | | | (3,418,088 | ) | | | (763,883 | ) | | | | | (799,427 | ) | | | (3,082,773 | ) | | | (3,679,435 | ) |
Change in carrying value adjustment on the pre-acquisition finance receivables | | | (483,048 | ) | | | (177,996 | ) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at end of period | | $ | 9,341,260 | | | $ | 8,223,676 | | | | | $ | 8,675,575 | | | $ | 8,733,518 | | | $ | 10,927,969 | |
| | | | | | | | | | | | | | | | | | | | | | |
| (a) | Table has been revised from the prior year to correspond to current year presentation. |
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The following table provides information related to the finance receivables acquired on October 1, 2010 (in thousands):
| | | | |
Contractually required payments receivable: | | $ | 10,672,143 | |
Cash flows expected to be collected: | | $ | 9,666,755 | |
Fair value: | | $ | 8,230,743 | |
Finance receivables are collateralized by vehicle titles and we have the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract.
The accrual of finance charge income has been suspended on $439.4 million and $491.4 million of finance receivables (based on contractual amount due) as of December 31, 2011 and 2010, respectively.
Finance contracts are purchased by us from auto dealers without recourse, and accordingly, the dealer has no liability to us if the consumer defaults on the contract. Depending upon the contract structure and consumer credit attributes, we may pay dealers a participation fee or we may charge dealers a non-refundable acquisition fee when purchasing individual finance contracts. We also have manufacturing incentive programs with GM and other new vehicle manufacturers, typically known as subvention programs, under which the manufacturers provide us cash payments in order for us to offer lower interest rates on finance contracts we purchase. We record the amortization of participation fees and subvention and accretion of acquisition fees to finance charge income using the effective interest method.
We review our pre-acquisition portfolio for differences between contractual cash flows and the cash flows expected to be collected from our initial investment in the pre-acquisition portfolio to determine if the difference is attributable, at least in part, to credit quality. During fiscal 2011, as a result of improvements in the credit performance of the pre-acquisition portfolio, which resulted in an increase of expected cash flows of $260.9 million, we transferred this excess from the non-accretable discount to accretable yield. This excess will be amortized through finance charge income over the remaining life of the portfolio.
A summary of the accretable yield is as follows (in thousands):
| | | | | | | | |
| | | Successor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | |
Balance at beginning of period | | $ | 1,201,178 | | | $ | 1,436,012 | |
Accretion of accretable yield | | | (724,650 | ) | | | (234,834 | ) |
Transfer from non-accretable discount | | | 260,936 | | | | | |
| | | | | | | | |
Balance at end of period | | $ | 737,464 | | | $ | 1,201,178 | |
| | | | | | | | |
A summary of the allowance for loan losses is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | 2010 | | | 2009 | |
Balance at beginning of period | | $ | 26,352 | | | | | | | | | $ | 573,310 | | | $ | 890,640 | | | $ | 951,113 | |
Provision for loan losses | | | 178,372 | | | $ | 26,352 | | | | | | 74,618 | | | | 388,058 | | | | 972,381 | |
Charge-offs | | | (66,080 | ) | | | | | | | | | (217,520 | ) | | | (1,249,298 | ) | | | (1,659,099 | ) |
Recoveries | | | 40,124 | | | | | | | | | | 98,081 | | | | 543,910 | | | | 626,245 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at end of period | | $ | 178,768 | | | $ | 26,352 | | | | | $ | 528,489 | | | $ | 573,310 | | | $ | 890,640 | |
| | | | | | | | | | | | | | | | | | | | | | |
73
Credit Risk
A summary of the credit risk profile by FICO score band of the finance receivables, determined at origination, is as follows (in thousands):
| | | | | | | | |
| | | Successor | |
| | | December 31,
2011 | | | December 31,
2010 | |
FICO Score less than 540 | | $ | 2,133,361 | | | $ | 1,328,011 | |
FICO Score 540 to 599 | | | 4,166,988 | | | | 3,395,736 | |
FICO Score 600 to 659 | | | 2,623,882 | | | | 2,757,771 | |
FICO Score greater than 660 | | | 755,743 | | | | 1,166,383 | |
| | | | | | | | |
Balance at end of period(a) | | $ | 9,679,974 | | | $ | 8,647,901 | |
| | | | | | | | |
| (a) | Finance receivables consist of pre-acquisition finance receivables – outstanding balance and post-acquisition finance receivables, net of fees. |
Delinquency
An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. The following is a summary of the contractual amounts of finance receivables, which is not materially different than recorded investment, that are (a) more than 30 days delinquent, but not yet in repossession, and (b) in repossession, but not yet charged off (dollars in thousands):
| | | | | | | | | | | | | | | | |
| | | Successor | |
| | | December 31, 2011 | | | December 31, 2010 | |
| | | Amount | | | Percent of
Contractual
Amount Due | | | Amount | | | Percent of
Contractual
Amount Due | |
Delinquent contracts: | | | | | | | | | | | | | | | | |
31 to 60 days | | $ | 517,083 | | | | 5.3 | % | | $ | 535,263 | | | | 6.2 | % |
Greater-than-60 days | | | 181,691 | | | | 1.9 | % | | | 211,588 | | | | 2.4 | % |
| | | | | | | | | | | | | | | | |
| | | 698,774 | | | | 7.2 | % | | | 746,851 | | | | 8.6 | % |
In repossession | | | 26,824 | | | | 0.3 | % | | | 28,076 | | | | 0.3 | % |
| | | | | | | | | | | | | | | | |
| | $ | 725,598 | | | | 7.5 | % | | $ | 774,927 | | | | 8.9 | % |
| | | | | | | | | | | | | | | | |
6. Leasing
Leased vehicles consist of the following (in thousands):
| | | | | | | | |
| | | Successor | |
| | | December 31,
2011 | | | December 31,
2010 | |
Leased vehicles | | $ | 1,012,637 | | | $ | 51,515 | |
Manufacturer incentives | | | (125,681 | ) | | | | |
| | | | | | | | |
| | | 886,956 | | | | 51,515 | |
Less accumulated depreciation | | | (77,303 | ) | | | (3,886 | ) |
Less purchase accounting discount | | | (162 | ) | | | (849 | ) |
| | | | | | | | |
| | $ | 809,491 | | | $ | 46,780 | |
| | | | | | | | |
74
A summary of our leased vehicles is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | October 1, 2010
Through
December 31,
2010 | | | | | July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | 2010 | | | 2009 | |
Balance at beginning of period | | $ | 51,515 | | | $ | 54,730 | | | | | $ | 190,300 | | | $ | 239,646 | | | $ | 248,075 | |
Leased vehicles purchased | | | 1,000,200 | | | | 11,371 | | | | | | | | | | | | | | | |
Leased vehicles returned – end of term | | | (28,723 | ) | | | (14,041 | ) | | | | | (75,986 | ) | | | (45,040 | ) | | | (5,407 | ) |
Leased vehicles returned – default | | | (1,139 | ) | | | (545 | ) | | | | | (850 | ) | | | (4,306 | ) | | | (3,022 | ) |
Manufacturer incentives | | | (126,520 | ) | | | | | | | | | | | | | | | | | | |
Foreign currency translation | | | (8,377 | ) | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at end of period | | $ | 886,956 | | | $ | 51,515 | | | | | $ | 113,464 | | | $ | 190,300 | | | $ | 239,646 | |
| | | | | | | | | | | | | | | | | | | | | | |
Our Canadian subsidiary originates leases that are recorded as operating leases and also originates and sells leases for a third party with servicing retained. As of December 31, 2011, this subsidiary was servicing $1.0 billion of leased vehicles for this third party.
The following table summarizes minimum rental payments due to us as lessor under operating leases (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | Fiscal 2012 | | | Fiscal 2013 | | | Fiscal 2014 | | | Fiscal 2015 | | | Fiscal 2016 | |
Minimum rental payments under operating leases | | | 152,803 | | | | 147,208 | | | | 99,723 | | | | 35,677 | | | | 5,065 | |
7. Securitizations
A summary of our securitization activity and cash flows from SPE’s used for securitizations is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | 2010 | | | 2009 | |
Receivables securitized | | $ | 4,827,620 | | | $ | 742,708 | | | | | $ | 1,164,267 | | | $ | 2,843,308 | | | $ | 1,289,082 | |
Net proceeds from securitization | | | 4,550,000 | | | | 700,000 | | | | | | 1,050,000 | | | | 2,352,493 | | | | 1,000,000 | |
Servicing fees(a) | | | 200,889 | | | | 46,229 | | | | | | 43,663 | | | | 196,304 | | | | 237,471 | |
Net distributions from Trusts | | | 852,359 | | | | 216,004 | | | | | | 110,930 | | | | 424,161 | | | | 429,457 | |
| (a) | Cash flows received for servicing securitizations consolidated as VIE’s are a component of finance charge income on the consolidated statements of operations and comprehensive operations. |
We retain servicing responsibilities for receivables transferred to the Trusts. Included in finance charge income is a monthly base servicing fee earned on the outstanding principal balance of our securitized receivables and supplemental fees (such as late charges) for servicing the receivables.
As of December 31, 2011 and 2010, we were servicing $7.9 billion and $7.2 billion, respectively, of finance receivables that have been transferred to Trusts.
In April 2008, our predecessor entered into a one year, $2 billion forward purchase commitment agreement with Deutsche Bank (“Deutsche”). Under this agreement and subject to certain terms, Deutsche committed to purchase triple-A rated asset-backed securities issued by our AmeriCredit Automobile Receivables Trust (“AMCAR”) securitization platform in registered public offerings. We paid $20.0 million of upfront commitment
75
fees and issued a warrant to purchase up to 7.5 million shares of our common stock valued at $48.9 million in connection with the agreement. We utilized $752.8 million of the commitment in conjunction with the execution of our AMCAR 2008-1 and 2008-2 transactions. Effective December 19, 2008, we entered into a letter agreement with Deutsche whereby the parties mutually agreed to terminate the forward purchase commitment agreement. The remaining unamortized warrant costs of $14.3 million and unamortized commitment fees of $5.8 million at the termination date were charged to interest expense during fiscal 2009. See Note 15 – “Common Stock and Warrants” for a discussion of warrants issued by us in connection with this transaction.
In September 2008, our predecessor entered into agreements with Wachovia Capital Markets, LLC and Wachovia Bank, National Association (together, “Wachovia”), to establish two funding facilities under which Wachovia would provide total funding of $117.7 million, secured by asset-backed securities as collateral. In conjunction with our AMCAR 2008-1 transaction, we obtained funding under these facilities of $48.9 million by pledging double-A rated asset-backed securities (the “Class B Notes”) as collateral and $68.8 million by pledging single-A rated asset-backed securities (the “Class C Notes”) as collateral. Under these funding facilities, we retained the Class B Notes and the Class C Notes issued in the transaction and then sold the retained notes to a special purpose subsidiary, which in turn pledged such retained notes as collateral to secure the funding under the two facilities. In January 2012 the remaining balance of the facilities was paid off. We paid $1.9 million of upfront commitment fees and issued a warrant to purchase up to 1.0 million shares of our common stock valued at $8.3 million in connection with these facilities, which were amortized to interest expense over the original one year term of the facilities. See Note 15 – “Common Stock and Warrants” for a discussion of warrants issued by us in connection with this transaction.
In November 2008, our predecessor entered into a purchase agreement with Fairholme Funds Inc. (“Fairholme”) under which Fairholme purchased $123.2 million of asset-backed securities, consisting of $50.6 million of Class B Notes and $72.6 million of Class C Notes in the AMCAR 2008-2 transaction. See Note 11 – “Senior Notes and Convertible Senior Notes” for discussion of other transactions with Fairholme.
8. Investment in Money Market Fund
Our predecessor had an investment in the Reserve Primary Money Market Fund (the “Reserve Fund”), a money market fund which has subsequently liquidated its portfolio of investments. Through December 31, 2011, we have received distributions from the Reserve Fund representing approximately $0.99 per share in total distributions.
9. Credit Facilities
Amounts outstanding under our credit facilities are as follows (in thousands):
| | | | | | | | |
| | | Successor | |
| | �� | December 31,
2011 | | | December 31,
2010 | |
Syndicated warehouse facility | | $ | 621,257 | | | $ | 278,006 | |
Lease warehouse facility – Canada | | | 181,314 | | | | | |
Medium term note facility | | | 293,528 | | | | 490,126 | |
Wachovia funding facility | | | 3,292 | | | | 63,670 | |
| | | | | | | | |
| | $ | 1,099,391 | | | $ | 831,802 | |
| | | | | | | | |
76
Further detail regarding terms and availability of the credit facilities as of December 31, 2011, is as follows (in thousands):
| | | | | | | | | | | | | | | | |
Facility | | Facility
Amount | | | Advances
Outstanding | | | Assets
Pledged(g) | | | Restricted
Cash
Pledged(h) | |
Syndicated warehouse facility(a) | | $ | 2,000,000 | | | $ | 621,257 | | | $ | 820,407 | | | $ | 16,548 | |
Lease warehouse facility – U.S.(b) | | | 600,000 | | | | | | | | | | | | | |
Lease warehouse facility – Canada(c) | | | 589,246 | | | | 181,314 | | | | 274,174 | | | | 1,333 | |
GM revolving credit facility(d) | | | 300,000 | | | | | | | | | | | | | |
Medium term note facility(e) | | | | | | | 293,528 | | | | 322,297 | | | | 83,683 | |
Wachovia funding facility(f) | | | | | | | 3,292 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | $ | 1,099,391 | | | $ | 1,416,878 | | | $ | 101,564 | |
| | | | | | | | | | | | | | | | |
| (a) | In May 2012 when the revolving period ends, and if the facility is not renewed, the outstanding balance will be repaid over time based on the amortization of the receivables pledged until May 2013 when the remaining balance will be due and payable. |
| (b) | In January 2012, the facility was renewed for an additional one year term. In January 2013 when the revolving period ends, and if the facility is not renewed, the outstanding balance will be repaid over time based on the amortization of the leasing related assets pledged until July 2018 when any remaining amount outstanding will be due and payable. |
| (c) | In July 2012 when the revolving period ends, and if the facility is not renewed, the outstanding balance will be repaid over time based on the amortization of the leasing related assets pledged until January 2018 when any remaining amount outstanding will be due and payable. This facility amount represents C$600.0 million, advances outstanding of C$184.6 million, assets pledged of C$279.2 million and restricted cash pledged of C$1.4 million at December 31, 2011. |
| (d) | In September 2011, we renewed the unsecured revolving credit facility with GM Holdings, with a maturity date of September 2012. |
| (e) | The revolving period under this facility ended in October 2009, and the outstanding debt balance will be repaid over time based on the amortization of the receivables pledged until October 2016 when any remaining amount outstanding will be due and payable. |
| (f) | Advances under the Wachovia funding facility are currently secured by $3.4 million of asset-backed securities issued in the AMCAR 2008-1 securitization transaction. Subsequent to December 31, 2011, this facility was paid off. |
| (g) | Borrowings on the warehouse facilities and the medium term note facility are collateralized by finance receivables, while borrowings on the lease warehouse facilities are collateralized by leasing related assets. |
| (h) | These amounts do not include cash collected on finance receivables and leasing related assets pledged of $35.0 million which is also included in restricted cash – credit facilities on the consolidated balance sheets. |
Our syndicated warehouse, lease warehouse and medium term note facilities are administered by agents on behalf of institutionally managed commercial paper or medium term note conduits. Under these funding agreements, we transfer finance contracts to our special purpose finance subsidiaries. These subsidiaries, in turn, issue notes to the agents, collateralized by such finance contracts and cash. The agents provide funding under the notes to the subsidiaries pursuant to an advance formula, and the subsidiaries forward the funds to us in consideration for the transfer of finance contracts. While these subsidiaries are included in our consolidated financial statements, these subsidiaries are separate legal entities and the finance contracts and other assets held by these subsidiaries are legally owned by these subsidiaries and are not available to our creditors or our other subsidiaries. Advances under the funding agreements generally bear interest at commercial paper, London Interbank Offered Rates (“LIBOR”), Canadian Dollar Offered Rate (“CDOR”) or prime rates plus a credit spread and specified fees depending upon the source of funds provided by the agents. In the syndicated warehouse, Canadian lease warehouse and the medium term note facilities we are required to hold certain funds in restricted cash accounts to provide additional collateral for borrowings under these credit facilities.
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Our credit facilities, other than the GM revolving credit facility, contain various covenants requiring minimum financial ratios, asset quality and portfolio performance ratios (portfolio net loss and delinquency ratios, and pool level cumulative net loss ratios) as well as limits on deferment levels. Failure to meet any of these covenants could result in an event of default under these agreements. If an event of default occurs under these agreements, the lenders could elect to declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interests against collateral pledged under these agreements or, with respect to the syndicated warehouse facility, restrict our ability to obtain additional borrowings. As of December 31, 2011, we were in compliance with all covenants in our credit facilities.
The following table presents the average amount outstanding, the weighted average interest rate and maximum amount outstanding on the syndicated warehouse and lease warehouse facilities during fiscal 2011 (dollars in thousands):
| | | | | | | | | | | | |
Facility Type | | Weighted
Average
Interest
Rate | | | Average
Amount
Outstanding | | | Maximum
Amount
Outstanding | |
Syndicated warehouse facility | | | 1.56 | % | | $ | 296,576 | | | $ | 826,859 | |
Lease warehouse facility – U.S. | | | 1.60 | % | | | 24,027 | | | | 182,749 | |
Lease warehouse facility – Canada(a) | | | 2.69 | % | | | 40,849 | | | | 181,314 | |
| (a) | Average amount outstanding and maximum amount outstanding represents C$41.6 million and C$184.6 million, respectively. |
Debt issuance costs of $6.6 million and $0.1 million as of December 31, 2011 and 2010, respectively, which are included in other assets on the consolidated balance sheets, are being amortized to interest expense over the expected term of the credit facilities.
10. Securitization Notes Payable
Securitization notes payable represents debt issued by us in securitization transactions. In connection with the Merger, we recorded a purchase accounting premium of $132.8 million that is being amortized to interest expense over the expected term of the notes. At December 31, 2011 and 2010, unamortized purchase accounting premium of $42.4 million and $107.1 million, respectively, is included in securitization notes payable on the consolidated balance sheets. For fiscal 2011 and for the three months ended December 31, 2010, amortization related to the purchase accounting premium was $64.7 million and $25.7 million, respectively. Debt issuance costs of $16.3 million and $3.8 million, as of December 31, 2011 and 2010, respectively, which are included in other assets on the consolidated balance sheets, are being amortized to interest expense over the expected term of securitization notes payable.
78
Securitization notes payable consists of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
Transaction | | Maturity
Date(c) | | | Original
Note
Amount | | | Original
Weighted
Average
Interest
Rate | | | Receivables
Pledged | | | Note
Balance at
December 31,
2011 | | | Note
Balance at
December 31,
2010 | |
2006-1 | | | May 2013 | | | $ | 945,000 | | | | 5.3 | % | | | | | | | | | | $ | 53,452 | |
2006-R-M | | | January 2014 | | | | 1,200,000 | | | | 5.4 | % | | $ | 69,394 | | | $ | 63,293 | | | | 175,803 | |
2006-A-F | | | September 2013 | | | | 1,350,000 | | | | 5.6 | % | | | | | | | | | | | 144,815 | |
2006-B-G | | | September 2013 | | | | 1,200,000 | | | | 5.2 | % | | | | | | | | | | | 163,510 | |
2007-A-X | | | October 2013 | | | | 1,200,000 | | | | 5.2 | % | | | 101,331 | | | | 93,705 | | | | 205,267 | |
2007-B-F | | | December 2013 | | | | 1,500,000 | | | | 5.2 | % | | | 155,631 | | | | 143,868 | | | | 307,137 | |
2007-1 | | | March 2016 | | | | 1,000,000 | | | | 5.4 | % | | | 86,713 | | | | 87,111 | | | | 192,991 | |
2007-C-M | | | April 2014 | | | | 1,500,000 | | | | 5.5 | % | | | 204,208 | | | | 188,425 | | | | 369,511 | |
2007-D-F | | | June 2014 | | | | 1,000,000 | | | | 5.5 | % | | | 154,048 | | | | 142,219 | | | | 268,542 | |
2007-2-M | | | March 2016 | | | | 1,000,000 | | | | 5.3 | % | | | 141,520 | | | | 138,404 | | | | 266,267 | |
2008-A-F | | | October 2014 | | | | 750,000 | | | | 6.0 | % | | | 181,922 | | | | 145,820 | | | | 268,546 | |
2008-1(a) | | | January 2015 | | | | 500,000 | | | | 8.7 | % | | | 155,393 | | | | 8,284 | | | | 79,320 | |
2008-2 | | | April 2015 | | | | 500,000 | | | | 10.5 | % | | | 165,492 | | | | 17,120 | | | | 153,326 | |
2009-1 | | | January 2016 | | | | 725,000 | | | | 7.5 | % | | | 317,121 | | | | 223,335 | | | | 364,533 | |
2009-1 (APART) | | | July 2017 | | | | 227,493 | | | | 2.7 | % | | | 98,972 | | | | 74,187 | | | | 129,828 | |
2010-1 | | | July 2017 | | | | 600,000 | | | | 3.7 | % | | | 317,234 | | | | 266,008 | | | | 413,562 | |
2010-A | | | July 2017 | | | | 200,000 | | | | 3.1 | % | | | 124,069 | | | | 99,615 | | | | 152,943 | |
2010-2 | | | June 2016 | | | | 600,000 | | | | 3.8 | % | | | 330,825 | | | | 302,520 | | | | 464,029 | |
2010-B | | | November 2017 | | | | 200,000 | | | | 2.2 | % | | | 147,020 | | | | 118,172 | | | | 175,722 | |
2010-3 | | | January 2018 | | | | 850,000 | | | | 2.5 | % | | | 632,802 | | | | 545,954 | | | | 799,002 | |
2010-4 | | | November 2016 | | | | 700,000 | | | | 2.5 | % | | | 463,238 | | | | 424,186 | | | | 677,556 | |
2011-1 | | | February 2017 | | | | 800,000 | | | | 2.5 | % | | | 635,604 | | | | 579,502 | | | | | |
2011-2 | | | May 2017 | | | | 950,000 | | | | 2.6 | % | | | 772,295 | | | | 705,898 | | | | | |
2011-3 | | | July 2017 | | | | 1,000,000 | | | | 2.4 | % | | | 886,910 | | | | 814,211 | | | | | |
2011-4 | | | January 2019 | | | | 900,000 | | | | 2.5 | % | | | 876,592 | | | | 838,220 | | | | | |
2011-5 | | | March 2019 | | | | 900,000 | | | | 2.9 | % | | | 906,798 | | | | 875,360 | | | | | |
BV2005-LJ-1(b) | | | May 2012 | | | | 232,100 | | | | 5.1 | % | | | | | | | | | | | 6,363 | |
BV2005-LJ-2(b) | | | February 2014 | | | | 185,596 | | | | 4.6 | % | | | | | | | | | | | 6,636 | |
BV2005-3(b) | | | June 2014 | | | | 220,107 | | | | 5.1 | % | | | | | | | | | | | 14,869 | |
LB2006-A(b) | | | May 2013 | | | | 450,000 | | | | 5.4 | % | | | | | | | | | | | 29,200 | |
LB2006-B(b) | | | September 2013 | | | | 500,000 | | | | 5.2 | % | | | | | | | | | | | 58,321 | |
LB2007-A | | | January 2014 | | | | 486,000 | | | | 5.0 | % | | | | | | | | | | | 80,078 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | 24,371,296 | | | | | | | $ | 7,925,132 | | | | 6,895,417 | | | | 6,021,129 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Purchase accounting premium | | | | | | | | | | | | | | | 42,424 | | | | 107,088 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | $ | 6,937,841 | | | $ | 6,128,217 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | Note balance does not include $3.4 million of asset-backed securities pledged to the Wachovia funding facility, which were consolidated effective July 1, 2010. Subsequent to December 31, 2011, this facility was paid off. |
| (b) | Transactions relate to Trusts acquired by us. |
| (c) | Maturity date represents final legal maturity of securitization notes payable. Securitization notes payable are expected to be paid based on amortization of the finance receivables pledged to Trusts. Expected principal payments are $3,163.8 million in fiscal 2012, $1,480.8 million in fiscal 2013, $1,022.8 million in fiscal 2014, $720.2 million in fiscal 2015, and $422.1 million in fiscal 2016. |
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At the time of securitization of finance receivables, we are 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. 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 targeted percentage level of assets has been reached. Once the targeted percentage level of assets is reached and maintained, excess cash flows generated by the Trusts are released to us as distributions from Trusts. Additionally, as the balance of the securitization pool declines, the amount of pledged assets needed to maintain the required percentage level is reduced. Assets in excess of the required percentage are also released to us as distributions from Trusts.
With respect to our securitization transactions covered by a financial guaranty insurance policy, agreements with the insurers provide that if portfolio performance ratios (delinquency, cumulative default or cumulative net loss) in a Trust’s pool of receivables exceed certain targets, the specified credit enhancement levels would be increased.
Agreements with our financial guaranty insurance providers contain additional specified targeted portfolio performance ratios that are higher than those described in the preceding paragraph. If, at any measurement date, the targeted portfolio performance ratios with respect to any insured Trust were to exceed these higher levels, provisions of the agreements permit our financial guaranty insurance providers to declare the occurrence of an event of default and terminate our servicing rights to the receivables transferred to that Trust. As of December 31, 2011, no such servicing right termination events have occurred with respect to any of the Trusts formed by us.
11. Senior Notes and Convertible Senior Notes
Senior notes and convertible senior notes consist of the following (in thousands):
| | | | | | | | |
| | | Successor | |
| | | December 31,
2011 | | | December 31,
2010 | |
6.75% Senior Notes (due in June 2018) | | $ | 500,000 | | | | | |
8.5% Senior Notes (due in July 2015) | | | | | | $ | 70,054 | |
| | | | | | | | |
| | $ | 500,000 | | | $ | 70,054 | |
| | | | | | | | |
0.75% Convertible Senior Notes (due in September 2011) | | | | | | $ | 946 | |
2.125% Convertible Senior Notes (due in September 2013) | | $ | 500 | | | | 500 | |
| | | | | | | | |
| | $ | 500 | | | $ | 1,446 | |
| | | | | | | | |
Interest expense related to the convertible senior notes consists of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | 2010 | | | 2009 | |
Premium/discount amortization | | | | | | | | | | | | $ | 5,625 | | | $ | 21,554 | | | $ | 22,506 | |
Contractual interest | | $ | 16 | | | $ | 1,184 | | | | | | 1,605 | | | | 6,421 | | | | 7,379 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total interest expense related to convertible senior notes | | $ | 16 | | | $ | 1,184 | | | | | $ | 7,230 | | | $ | 27,975 | | | $ | 29,885 | |
| | | | | | | | | | | | | | | | | | | | | | |
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Debt issuance costs related to the 6.75% senior notes of $7.0 million at December 31, 2011 which are included in other assets on the consolidated balance sheets are being amortized to interest expense over the expected term of the notes.
In June 2011, we issued $500 million of 6.75% senior notes which are due in June 2018 with interest payable semiannually. On July 1, 2011, a portion of the proceeds from this offering was used to redeem all of the outstanding 8.50% senior notes due in 2015. The 6.75% senior notes are guaranteed solely by AmeriCredit Financial Services, Inc., our principal operating subsidiary and none of our other subsidiaries are guarantors of the notes. The notes may be redeemed, at our option, in whole or in part, at any time before maturity at the make whole redemption price as set forth in the indenture. See Note 25 – “Guarantor Consolidating Financial Statements” for further discussion.
In November 2008, we issued 15,122,670 shares of our common stock to Fairholme, in a non-cash transaction, in exchange for $108.4 million of our previously issued and now retired senior notes due 2015, held by Fairholme, at a price of $840 per $1,000 principal amount of the notes. We recognized a gain of $14.7 million, net of transaction costs, on retirement of debt in the exchange. Fairholme and its affiliates held approximately 19.8% of our outstanding common stock prior to the issuance of those shares. In fiscal 2009, we repurchased convertible senior notes on the open market. We recognized a gain on retirement of debt of $33.5 million.
12. Derivative Financial Instruments and Hedging Activities
We are exposed to market risks arising from adverse changes in interest rates due to floating interest rate exposure on our credit facilities and on certain securitization notes payable. See Note 1 – “Summary of Significant Accounting Policies – Derivative Financial Instruments” for more information regarding our derivative financial instruments and hedging activities.
Interest rate caps, swaps and foreign currency contracts consist of the following (in thousands):
| | | | | | | | | | | | | | | | |
| | | Successor | |
| | | December 31, 2011 | | | December 31, 2010 | |
| | | Notional | | | Fair Value | | | Notional | | | Fair Value | |
Assets | | | | | | | | | | | | | | | | |
Interest rate swaps(a) | | $ | 509,561 | | | $ | 2,004 | | | $ | 1,227,305 | | | $ | 23,058 | |
Interest rate caps(a) | | | 1,512,793 | | | | 4,548 | | | | 946,353 | | | | 7,899 | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 2,022,354 | | | $ | 6,552 | | | $ | 2,173,658 | | | $ | 30,957 | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Interest rate swaps | | $ | 509,561 | | | $ | 6,440 | | | $ | 1,227,305 | | | $ | 46,797 | |
Interest rate caps | | | 1,470,856 | | | | 4,768 | | | | 831,848 | | | | 8,094 | |
Foreign currency contracts | | | | | | | | | | | 48,595 | | | | 2,125 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | $ | 1,980,417 | | | $ | 11,208 | | | $ | 2,107,748 | | | $ | 57,016 | |
| | | | | | | | | | | | | | | | |
| (a) | Included in other assets on the consolidated balance sheets. |
Interest rate swap agreements designated as hedges had unrealized gains of approximately $2.4 million and losses of approximately $0.4 million in accumulated other comprehensive income (loss) at December 31, 2011 and 2010, respectively. The ineffectiveness gain (loss) related to the interest rate swap agreements was $1.1 million for fiscal 2011, $(1.1) million for the three months ended December 31, 2010, $(0.1) million for the three months ended September 30, 2010, $0.4 million and $(0.8) million for fiscal 2010 and 2009, respectively. We estimate approximately $2.3 million of unrealized gains included in accumulated other comprehensive income (loss) will be reclassified into earnings within the next twelve months.
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Interest rate swap agreements not designated as hedges had a change in fair value which resulted in gains (losses) of $(1.7) million for fiscal 2011, $1.2 million for the three months ended December 31, 2010, $5.4 million for the three months ended September 30, 2010, $12.6 million and $22.7 million for fiscal 2010 and 2009 included in interest expense on the consolidated statements of operations and comprehensive operations, respectively.
Under the terms of our derivative financial instruments, we are required to pledge certain funds to be held in restricted cash accounts as collateral for the outstanding derivative transactions. As of December 31, 2011 and 2010, these restricted cash accounts totaled $35.5 million and $32.7 million, respectively, and are included in other assets on the consolidated balance sheets.
On September 15, 2008, Lehman Brothers Holdings Inc. (“LBHI”) and 16 additional affiliates of LBHI (together with LBHI, “Lehman”), filed petitions in bankruptcy court. Lehman was the hedge counterparty on interest rate swaps with notional amounts of $1.1 billion. In November 2008, we replaced Lehman as the counterparty on these interest rate swaps. Upon replacement we designated these new swaps as hedges. From July 1, 2008 until the hedge designation date of the replacement swaps, the change in fair value on these swap agreements resulted in a $34.1 million loss for fiscal 2009, and is included in interest expense in the consolidated statements of operations and comprehensive operations.
The following tables present information on the effect of derivative instruments on the consolidated statements of operations and comprehensive operations (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Income (Losses) Recognized In Income | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | 2010 | | | 2009 | |
Non-Designated hedges: | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts(a) | | $ | (1,701 | ) | | $ | 1,060 | | | | | $ | 5,478 | | | $ | 13,248 | | | $ | (12,463 | ) |
Foreign currency contracts(b) | | | 2,125 | | | | (535 | ) | | | | | (383 | ) | | | (1,206 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 424 | | | $ | 525 | | | | | $ | 5,095 | | | $ | 12,042 | | | $ | (12,463 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Designated hedges: | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts(a) | | $ | 1,090 | | | $ | (1,092 | ) | | | | $ | (85 | ) | | $ | 394 | | | $ | (781 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | (Losses) Recognized in Accumulated Other Comprehensive Income (Loss) | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | 2010 | | | 2009 | |
Designated hedges: | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts(a) | | $ | (50 | ) | | $ | (464 | ) | | | | $ | (8,218 | ) | | $ | (36,761 | ) | | $ | (109,115 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | |
| | | (Losses) Reclassified From Accumulated Other Comprehensive Income
(Loss) into Income(c) | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | 2010 | | | 2009 | |
Designated hedges: | | | | | | | | | | | | | | | | | | | | | | |
Interest rate contracts(a) | | $ | (2,902 | ) | | $ | (52 | ) | | | | $ | (14,473 | ) | | $ | (80,067 | ) | | $ | (82,244 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| (a) | Income (losses) recognized in income are included in interest expense. |
| (b) | Income (losses) recognized in income are included in operating expenses. |
| (c) | Losses reclassified from accumulated other comprehensive income (loss) into income for effective and ineffective portions are included in interest expense. |
13. Fair Values of Assets and Liabilities
Under Accounting Standards Codification (“ASC”) 820 fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurement requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs and also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels.
There are three general valuation techniques that may be used to measure fair value, as described below:
| | i | Market approach – Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Prices may be indicated by pricing guides, sale transactions, market trades, or other sources; |
| | ii. | Cost approach – Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost); and |
| | iii. | Income approach – Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about the future amounts (includes present value techniques and option-pricing models). Net present value is an income approach where a stream of expected cash flows is discounted at an appropriate market interest rate. |
Financial instruments are considered Level 1 when quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Financial instruments are considered Level 2 when inputs other than quoted prices are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Financial instruments are considered Level 3 when their values are determined using price models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. A brief description of the valuation techniques used for our Level 3 assets and liabilities is provided below.
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Assets and liabilities itemized below were measured at fair value on a recurring basis at December 31, 2011:
| | | | | | | | | | | | | | | | |
| | | Successor | |
| | | December 31, 2011 (in thousands) | |
| | | Fair Value Measurements Using | | | | |
| | | Level 1
Quoted
Prices In
Active
Markets for
Identical
Assets | | | Level 2
Significant
Other
Observable
Inputs | | | Level 3
Significant
Unobservable
Inputs | | | Assets/
Liabilities At
Fair Value | |
Assets | | | | | | | | | | | | | | | | |
Money market funds(a) | | $ | 1,434,592 | | | | | | | | | | | $ | 1,434,592 | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | |
Interest rate caps(i) | | | | | | $ | 4,548 | | | | | | | | 4,548 | |
Interest rate swaps(iii) | | | | | | | | | | $ | 2,004 | | | | 2,004 | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 1,434,592 | | | $ | 4,548 | | | $ | 2,004 | | | $ | 1,441,144 | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | |
Interest rate swaps(iii) | | | | | | | | | | $ | 6,440 | | | $ | 6,440 | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | |
Interest rate caps(i) | | | | | | $ | 4,768 | | | | | | | | 4,768 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | $ | | | | $ | 4,768 | | | $ | 6,440 | | | $ | 11,208 | |
| | | | | | | | | | | | | | | | |
| (a) | Excludes cash in banks and cash invested in Guaranteed Investment Contracts of $252.7 million. |
Assets and liabilities itemized below were measured at fair value on a recurring basis at December 31, 2010:
| | | | | | | | | | | | | | | | |
| | | Successor | |
| | | December 31, 2010 (in thousands) | |
| | | Fair Value Measurements Using | | | | |
| | | Level 1
Quoted
Prices In
Active
Markets for
Identical
Assets | | | Level 2
Significant
Other
Observable
Inputs | | | Level 3
Significant
Unobservable
Inputs | | | Assets/
Liabilities At
Fair Value | |
Assets | | | | | | | | | | | | | | | | |
Money market funds(a) | | $ | 1,118,489 | | | | | | | | | | | $ | 1,118,489 | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | |
Interest rate caps(i) | | | | | | $ | 7,899 | | | | | | | | 7,899 | |
Interest rate swaps(iii) | | | | | | | | | | $ | 23,058 | | | | 23,058 | |
| | | | | | | | | | | | | | | | |
Total assets | | $ | 1,118,489 | | | $ | 7,899 | | | $ | 23,058 | | | $ | 1,149,446 | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | | |
Interest rate swaps(iii) | | | | | | | | | | $ | 46,797 | | | $ | 46,797 | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | |
Interest rate caps(i) | | | | | | $ | 8,094 | | | | | | | | 8,094 | |
Foreign currency contracts(i) | | | | | | | 2,125 | | | | | | | | 2,125 | |
| | | | | | | | | | | | | | | | |
Total liabilities | | $ | | | | $ | 10,219 | | | $ | 46,797 | | | $ | 57,016 | |
| | | | | | | | | | | | | | | | |
| (a) | Excludes cash in banks and cash invested in Guaranteed Investment Contracts of $166.5 million. |
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The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for fiscal 2011, the three months ended December 31, 2010, the three months ended September 30, 2010 and fiscal 2010 and 2009 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | June 30, | |
| | | | | | | 2010 | | | 2009 | |
Assets | | | | | | | | | | | | | | | | | | |
Interest rate swap agreements | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | $ | 23,058 | | | $ | 27,364 | | | | | $ | 26,194 | | | $ | 24,267 | | | $ | 3,572 | |
Total realized and unrealized gains (losses) | | | | | | | | | | | | | | | | | | |
Included in earnings | | | (1,676 | ) | | | 1,194 | | | | | | 5,417 | | | | 12,595 | | | | 22,700 | |
Settlements | | | (19,378 | ) | | | (5,500 | ) | | | | | (4,247 | ) | | | (10,668 | ) | | | (2,005 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | $ | 2,004 | | | $ | 23,058 | | | | | $ | 27,364 | | | $ | 26,194 | | | $ | 24,267 | |
| | | | | | | | | | | | | | | | | | | | | | |
Investment in money market fund | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | | | | | | | | | | | | | | | $ | 8,027 | | | | | |
Transfers to Level 3 | | | | | | | | | | | | | | | | | | | | | 115,821 | |
Total realized and unrealized gains (losses) | | | | | | | | | | | | | | | | | | |
Included in earnings | | | | | | | | | | | | | | | | | 2,020 | | | | (3,475 | ) |
Settlements | | | | | | | | | | | | | | | | | (10,047 | ) | | | (104,319 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | $ | | | | $ | | | | | | $ | | | | $ | | | | $ | 8,027 | |
| | | | | | | | | | | | | | | | | | | | | | |
Liabilities – Interest rate swap agreements | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | $ | (46,797 | ) | | $ | (60,895 | ) | | | | $ | (70,421 | ) | | $ | (131,885 | ) | | $ | (76,269 | ) |
Total realized and unrealized gains (losses) | | | | | | | | | | | | | | | | | | |
Included in earnings | | | 1,090 | | | | (1,092 | ) | | | | | (85 | ) | | | 394 | | | | (34,926 | ) |
Included in other comprehensive income | | | (50 | ) | | | (464 | ) | | | | | (8,218 | ) | | | (36,761 | ) | | | (109,115 | ) |
Settlements | | | 39,317 | | | | 15,654 | | | | | | 17,829 | | | | 97,831 | | | | 88,425 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | $ | (6,440 | ) | | $ | (46,797 | ) | | | | $ | (60,895 | ) | | $ | (70,421 | ) | | $ | (131,885 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Derivatives
The fair values of our interest rate caps are valued based on quoted market prices received from bank counterparties and are classified as Level 2.
Our interest rate swaps are not exchange traded but instead trade in over-the-counter markets where quoted market prices are not readily available. The fair value is derived using models that use primarily market observable inputs, such as interest rate yield curves and credit curves. Any fair value measurements using significant assumptions that are unobservable are classified as Level 3, which include interest rate swaps whose
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remaining terms extend beyond market observable interest rate yield curves. The impacts of our and the counterparties’ non-performance risk to the derivative trades is considered when measuring the fair value of assets and liabilities.
14. Commitments and Contingencies
Leases
Our credit centers are generally leased for terms of up to five years with certain rights to extend for additional periods. We also lease space for our administrative offices, Canadian operations and portfolio servicing activities under leases with terms up to twelve years with renewal options. Certain leases contain lease escalation clauses for real estate taxes and other operating expenses and renewal option clauses calling for increased rents.
A summary of lease expense is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | 2010 | | | 2009 | |
Lease expense | | $ | 11,943 | | | $ | 2,710 | | | | | $ | 2,788 | | | $ | 12,948 | | | $ | 15,625 | |
Operating lease commitments for years ending December 31 are as follows (in thousands):
| | | | |
2012 | | $ | 14,612 | |
2013 | | | 14,773 | |
2014 | | | 14,318 | |
2015 | | | 12,511 | |
2016 | | | 11,351 | |
Thereafter | | | 20,831 | |
| | | | |
| | $ | 88,396 | |
| | | | |
Concentrations of Credit Risk
Financial instruments which potentially subject us to concentrations of credit risk are primarily cash equivalents, restricted cash, derivative financial instruments and finance receivables. Our cash equivalents and restricted cash represent investments in highly rated securities placed through various major financial institutions and highly rated investments in guaranteed investment contracts. The counterparties to our derivative financial instruments are various major financial institutions. Finance receivables represent contracts with consumers residing throughout the United States and, to a limited extent, in Canada, with borrowers located in Texas accounting for 15% of the finance receivables portfolio as of December 31, 2011. No other state accounted for more than 10% of finance receivables.
Guarantees of Indebtedness
The payments of principal and interest on our senior notes and convertible senior notes are guaranteed by certain of our subsidiaries. As of December 31, 2011 and 2010, the par value of the senior notes and convertible senior notes was $500.5 million and $69.8 million, respectively. See Note 25 – “Guarantor Consolidating Financial Statements”.
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Legal Proceedings
As a consumer finance company, we are subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud, breach of contract and discriminatory treatment of credit applicants. Some litigation against us could take the form of class action complaints by consumers and/or shareholders. As the assignee of finance contracts originated by dealers, we 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 can include requests for compensatory, statutory and punitive damages. We believe that we have taken prudent steps to address and mitigate the litigation risks associated with our business activities. However, any adverse resolution of litigation pending or threatened against us could have a material affect on our financial condition, liquidity and results of operations.
15. Common Stock and Warrants – Predecessor
In connection with the forward purchase commitment agreement with Deutsche (See Note 7 – “Securitizations”), we issued a warrant to an affiliate of Deutsche under which it may purchase up to 7.5 million shares of our common stock. The warrant was exercisable on or before April 15, 2015 at an exercise price of $12.01 per share. In connection with the Merger, the warrant was settled in cash.
In connection with the closing of the Wachovia funding facility (See Note 7 – “Securitizations”), we issued a warrant to Wachovia under which they may purchase up to 1.0 million shares of common stock. The warrant was exercisable on or before September 24, 2015 at an exercise price of $13.55 per share. On August 10, 2010, Wachovia exercised the warrant at a price of $24.12 per share in a cashless exercise and received a net settlement of 438,112 shares of our common stock.
16. Parent Company Stock Based Compensation
Our parent company has certain stock based compensation plans for employees and key executive officers. Restricted Stock Units (“RSUs”) awards granted under these plans are valued at the grant date fair value of GM common stock.
Long-Term Incentive Plan
The RSUs granted vest ratably over a three-year service period, as defined in the terms for each award. We have elected to record compensation expense for these RSUs on a straight-line basis over the entire vesting period.
Salary Stock
We participate in the parent company’s salary stock program under which of a portion of each participant’s total annual compensation is accrued and converted to RSUs on a quarterly basis. The RSUs are fully vested and nonforfeitable upon grant therefore compensation expense is fully recognized on the date of grant. The RSUs are settled quarterly over a three-year period commencing on the first anniversary of the date of grant.
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The following table summarizes information about RSUs granted to our employees and key executive officers under in the parent company stock based compensation programs (RSUs in thousands):
| | | | | | | | | | | | |
| | | Successor | |
| | | Year Ended December 31, 2011 | |
| | | Shares | | | Weighted-
Average Grant
Date Fair Value | | | Weighted-Average
Remaining
Contractual Term | |
Outstanding at beginning of period | | | | | | | | | | | | |
Granted | | | 923 | | | $ | 25.26 | | | | | |
Forfeited or expired | | | (4 | ) | | $ | 30.93 | | | | | |
| | | | | | | | | | | | |
Outstanding at end of period | | | 919 | | | $ | 25.24 | | | | 0.8 | |
| | | | | | | | | | | | |
RSUs unvested and expected to vest at December 31, 2011 | | | 238 | | | $ | 30.23 | | | | 2.4 | |
| | | | | | | | | | | | |
RSUs vested and payable at December 31, 2011 | | | 677 | | | $ | 23.21 | | | | | |
| | | | | | | | | | | | |
Compensation expense recognized for the RSUs was $17.1 million for the year ended December 31, 2011. As of December 31, 2011 unamortized compensation expense related to the RSUs was $5.8 million.
17. Stock Based Compensation – Predecessor
General
We had certain stock based compensation plans for employees, non-employee directors and key executive officers. As a result of the Merger, our outstanding options and restricted stock were fully vested and settled accordingly to the terms of the award agreements and the Merger. As of October 1, 2010, we no longer have publicly traded stock and therefore no stock based compensation plans other than those provided by the parent company.
Stock Options
Compensation expense recognized for stock options was $0.3 million, $1.3 million, and $2.1 million for the three months ended September 30, 2010, and for fiscal 2010, and 2009, respectively. As of June 30, 2010 and 2009, unamortized compensation expense related to stock options was $1.2 million, and $2.2 million, respectively.
Employee Plans
A summary of stock option activity under our employee plans was as follows (shares in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Predecessor | |
| | | Period From
July 1, 2010
Through
September 30, 2010 | | | Years Ended June 30, | |
| | | | 2010 | | | 2009 | |
| | | Shares | | | Weighted
Average
Exercise
Price | | | Shares | | | Weighted
Average
Exercise
Price | | | Shares | | | Weighted
Average
Exercise
Price | |
Outstanding at beginning of period | | | 1,324 | | | $ | 20.75 | | | | 2,106 | | | $ | 18.02 | | | | 2,127 | | | $ | 23.48 | |
Granted | | | | | | | 42 | | | | 20.96 | | | | 942 | | | | 8.03 | |
Exercised | | | (17 | ) | | | 13.59 | | | | (757 | ) | | | 13.44 | | | | (132 | ) | | | 8.01 | |
Canceled/forfeited | | | (30 | ) | | | 23.47 | | | | (67 | ) | | | 17.56 | | | | (831 | ) | | | 22.26 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding at end of period | | | 1,277 | | | $ | 20.75 | | | | 1,324 | | | $ | 20.75 | | | | 2,106 | | | $ | 18.02 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Options exercisable at end of period | | | | | | | 1,033 | | | $ | 23.81 | | | | 1,563 | | | $ | 21.33 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average fair value of options granted during period | | | | | | | | | | | | | | $ | 10.79 | | | | | | | $ | 4.50 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
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Cash received from exercise of options for the three months ended September 30, 2010, and for fiscal 2010, and 2009 was $0.3 million, $10.2 million, and $1.1 million, respectively. The total intrinsic value of options exercised during the three months ended September 30, 2010, and during fiscal 2010 and 2009, was $0.1 million, $5.9 million, and $0.4 million, respectively.
Non-Employee Director Plans
A summary of stock option activity under our non-employee director plans was as follows (shares in thousands):
| | | | | | | | | | | | | | | | |
| | | Predecessor | |
| | | Years Ended June 30, | |
| | | 2010 | | | 2009 | |
| | | Shares | | | Weighted
Average
Exercise
Price | | | Shares | | | Weighted
Average
Exercise
Price | |
Outstanding at beginning of year | | | 80 | | | $ | 17.81 | | | | 160 | | | $ | 16.35 | |
Exercised | | | (80 | ) | | | 17.81 | | | | | | | | | |
Canceled/forfeited | | | | | | | (80 | ) | | | 14.88 | |
| | | | | | | | | | | | | | | | |
Outstanding and exercisable at end of year | | | | | | $ | | | | | 80 | | | $ | 17.81 | |
| | | | | | | | | | | | | | | | |
Cash received from exercise of options for fiscal 2010 was $1.4 million. The total intrinsic value of options exercised during fiscal 2010 was $0.03 million.
Restricted Stock Based Grants
Restricted stock grants totaling 5,596,600 shares with an approximate aggregate market value of $98.8 million at the time of grant had been issued under the employee plans. The market value of these restricted shares at the date of grant was amortizable into expense over a period that approximated the service period of three years.
Compensation expense recognized for restricted stock grants was $3.6 million, $10.1 million, and $9.8 million for the three months ended September 30, 2010, and for fiscal 2010 and 2009, respectively. As of June 30, 2010 and 2009, unamortized compensation expense related to the restricted stock awards was $14.4 million and $12.4 million, respectively. A summary of the status of non-vested restricted stock for the three months ended September 30, 2010, and for fiscal 2010 and 2009, is presented below (shares in thousands):
| | | | | | | | | | | | |
| | | Predecessor | |
| | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | 2010 | | | 2009 | |
Nonvested at beginning of period | | | 1,810 | | | | 2,253 | | | | 1,301 | |
Granted | | | | | | | 415 | | | | 2,143 | |
Vested | | | (1,051 | ) | | | (555 | ) | | | (545 | ) |
Forfeited | | | (165 | ) | | | (303 | ) | | | (646 | ) |
| | | | | | | | | | | | |
Nonvested at end of period | | | 594 | | | | 1,810 | | | | 2,253 | |
| | | | | | | | | | | | |
18. Employee Benefit Plans
We have a defined contribution retirement plan covering substantially all employees. We recognized $4.7 million, $0.8 million, $1.0 million, $1.4 million, and $2.7 million in compensation expense for fiscal 2011, the three months ended December 31, 2010, three months ended September 30, 2010, and for fiscal 2010 and 2009,
89
respectively. Contributions to the plan were made in cash for fiscal 2011, for the three months ended December 31, 2010, three months ended September 30, 2010, and for fiscal 2010 and in common stock in fiscal 2009.
Our predecessor also had an employee stock purchase plan that allowed participating employees to purchase, through payroll deductions, shares of our common stock at 85% of the market value at specified dates. A total of 8,000,000 shares had been reserved for issuance under the plan. We recognized $1.1 million, $3.7 million, and $2.4 million in compensation expense for the three months ended September 30, 2010, and for fiscal 2010 and 2009, respectively, related to this plan. As of June 30, 2010 and 2009, unamortized compensation expense related to the employee stock purchase plan was $1.1 million and $2.0 million, respectively. As a result of the Merger, this plan was terminated.
19. Income Taxes
The income tax provision consists of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | | 2010 | | | 2009 | |
Current | | $ | 186,055 | | | $ | 33,266 | | | | | $ | 38,884 | | | $ | 157,460 | | | $ | (216,041 | ) |
Deferred | | | 50,236 | | | | 21,367 | | | | | | 452 | | | | (24,567 | ) | | | 226,783 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | $ | 236,291 | | | $ | 54,633 | | | | | $ | 39,336 | | | $ | 132,893 | | | $ | 10,742 | |
| | | | | | | | | | | | | | | | | | | | | | |
Our effective income tax rate on income before income taxes differs from the U.S. statutory tax rate as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | | 2010 | | | 2009(a) | |
U.S. statutory tax rate | | | 35.0 | % | | | 35.0 | % | | | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
State and other income taxes | | | 1.3 | | | | 1.2 | | | | | | 0.9 | | | | 0.9 | | | | N/M | |
Deferred tax rate change | | | 0.5 | | | | 0.1 | | | | | | 0.4 | | | | 0.7 | | | | N/M | |
Uncertain tax positions | | | 1.1 | | | | 1.7 | | | | | | 1.6 | | | | 1.1 | | | | N/M | |
Valuation allowance | | | (0.1 | ) | | | (0.1 | ) | | | | | (0.2 | ) | | | 0.3 | | | | N/M | |
Non-deductible acquisition expenses | | | 0.1 | | | | 4.6 | | | | | | 4.5 | | | | | | | | | |
Other | | | 0.1 | | | | (0.2 | ) | | | | | 1.2 | | | | (0.4 | ) | | | N/M | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 38.0 | % | | | 42.3 | % | | | | | 43.4 | % | | | 37.6 | % | | | N/M | |
| | | | | | | | | | | | | | | | | | | | | | |
| (a) | N/M = Not meaningful. Because we reported a loss before income taxes of $0.1 million and we recorded an income tax provision of $10.7 million, the effective income tax rate and the effect on such rate of the listed reconciling items is not meaningful. |
The fiscal 2009 effective tax rate was negatively impacted by state and other income tax items of $4.0 million, deferred tax rate change of $3.3 million, state net operating losses limited under Section 382 of $2.1 million and other items of $0.9 million.
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The tax effects of temporary differences that give rise to deferred tax liabilities and assets are as follows (in thousands):
| | | | | | | | |
| | | Successor | |
| | | December 31,
2011 | | | December 31,
2010 | |
Deferred tax liabilities: | | | | | | | | |
Market value difference of loan portfolio | | $ | (3,045 | ) | | | | |
Capitalized direct loan origination costs | | | (9,668 | ) | | $ | (2,080 | ) |
Fee income | | | (28,883 | ) | | | (30,815 | ) |
Fixed assets | | | (10,689 | ) | | | (14,835 | ) |
Deferred gain on debt repurchase | | | (9,303 | ) | | | (9,945 | ) |
Unrealized swap valuation on other comprehensive income | | | (895 | ) | | | | |
Impairment of goodwill and other intangibles | | | (6,938 | ) | | | (1,425 | ) |
Other | | | (3,247 | ) | | | (2,356 | ) |
| | | | | | | | |
| | | (72,668 | ) | | | (61,456 | ) |
| | | | | | | | |
Deferred tax assets: | | | | | | | | |
Net operating loss carryforward – Canada | | | 4,609 | | | | 438 | |
Net operating loss carryforward – state | | | 1,676 | | | | 2,050 | |
Market value difference of loan portfolio | | | | | | | 65,421 | |
Unrealized swap valuation on other comprehensive income | | | | | | | 151 | |
Purchase accounting adjustment – fair value | | | 97,384 | | | | 31,514 | |
Purchase accounting premium – payables | | | 16,468 | | | | 45,764 | |
Organizational costs | | | 9,502 | | | | 14,252 | |
Unrecognized income tax benefits from uncertain tax positions | | | 37,882 | | | | 29,815 | |
Other | | | 15,053 | | | | 31,485 | |
| | | | | | | | |
| | | 182,574 | | | | 220,890 | |
| | | | | | | | |
Valuation allowance | | | (1,222 | ) | | | (1,550 | ) |
| | | | | | | | |
Net deferred tax asset | | $ | 108,684 | | | $ | 157,884 | |
| | | | | | | | |
Deferred Tax Assets
As a part of our financial reporting process, we must assess the likelihood that our deferred tax assets can be recovered. Unless recovery is more likely than not, the income tax provision must be increased by recording a valuation allowance.
In evaluating the need for a valuation allowance, all available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Future realization of the deferred tax assets depends in part on the existence of sufficient taxable income within the carryback and carryforward period available under the tax law. Other criteria which are considered in evaluating the need for a valuation allowance include the existence of deferred tax liabilities that can be used to realize deferred tax assets.
We have state net operating loss (“NOL”) carryforwards resulting in a deferred tax asset of approximately $1.7 million which have carryforward periods ranging from 5 years to 20 years. Accordingly, any specific NOL carryforwards that remain unused will expire between 2012 and 2031, depending on the respective state laws. Management has determined based upon the positive and negative evidence in existence at December 31, 2011 that a valuation allowance in the amount of $1.2 million is necessary for these state deferred tax assets.
We have Canadian NOL carryforwards for income tax reporting purposes of approximately $17.6 million. We have recorded a deferred tax asset of $4.6 million to reflect these benefits. The Canadian NOL carryforward expires in varying amounts between 2029 and 2031.
Based upon our review of all negative and positive evidence in existence at December 31, 2011, management believes it is more likely than not that all other deferred tax assets will be fully realized. Accordingly, no valuation allowance has been provided on deferred tax assets other than the state NOL assets.
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Uncertain Tax Positions
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | 2010 | | | 2009 | |
Gross unrecognized tax benefits at beginning of period | | $ | 127,642 | | | $ | 139,068 | | | | | $ | 42,502 | | | $ | 34,971 | | | $ | 57,728 | |
Increase in tax positions for prior years | | | 471 | | | | 131 | | | | | | | | | | 3,186 | | | | 2,761 | |
Decrease in tax positions for prior years | | | (91,195 | ) | | | (12,012 | ) | | | | | | | | | (4,901 | ) | | | (24,254 | ) |
Increase in tax positions for current year | | | 11,381 | | | | 455 | | | | | | 174 | | | | 12,907 | | | | 1,402 | |
Lapse of statute of limitations | | | (243 | ) | | | | | | | | | | | | | (218 | ) | | | (245 | ) |
Settlements | | | | | | | | | | | | | | | | | (3,443 | ) | | | (2,421 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Gross unrecognized tax benefits at end of period | | $ | 48,056 | | | $ | 127,642 | | | | | $ | 42,676 | | | $ | 42,502 | | | $ | 34,971 | |
| | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2011 and 2010, the amount of gross unrecognized tax benefits that would affect the effective income tax rate in future periods were $26.5 million and $21.4 million, respectively.
The fair value of liabilities associated with uncertain tax positions as of October 1, 2010 was based upon a change in settlement strategy as a result of the Merger.
At December 31, 2011, we believe that it is reasonably possible that the balance of the gross unrecognized tax benefits could decrease by $3.3 million to $15.8 million in the next twelve months due to ongoing activities with various taxing jurisdictions that we expect may give rise to settlements or the expiration of statute of limitations. We continually evaluate expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
We recognize potential accrued interest and penalties associated with uncertain tax positions as part of the income tax provision. The changes regarding accrued interest and accrued penalties associated with uncertain tax positions for fiscal 2011, the three months ended December 31, 2010, three month ended September 30, 2010 and fiscal 2010 and 2009 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | | 2010 | | | 2009 | |
Accrued Interest | | | | | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | $ | 18,947 | | | $ | 16,030 | | | | | $ | 12,097 | | | $ | 10,312 | | | $ | 9,508 | |
Changes | | | 2,432 | | | | 2,917 | | | | | | 966 | | | | 1,785 | | | | 804 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | $ | 21,379 | | | $ | 18,947 | | | | | $ | 13,063 | | | $ | 12,097 | | | $ | 10,312 | |
| | | | | | | | | | | | | | | | | | | | | | |
Accrued Penalties | | | | | | | | | | | | | | | | | | | | | | |
Balance at the beginning of period | | $ | 9,063 | | | $ | 9,102 | | | | | $ | 8,474 | | | $ | 7,887 | | | $ | 7,421 | |
Changes | | | 902 | | | | (39 | ) | | | | | 199 | | | | 587 | | | | 466 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at the end of period | | $ | 9,965 | | | $ | 9,063 | | | | | $ | 8,673 | | | $ | 8,474 | | | $ | 7,887 | |
| | | | | | | | | | | | | | | | | | | | | | |
92
We file income tax returns in the U.S. and various state, local, and foreign jurisdictions. For fiscal 2011 and for the three months ended December 31, 2010, we are included in GM’s consolidated U.S. federal income tax return and will continue to be included in subsequent year returns filed by GM. Similarly, we will also file unitary, combined or consolidated state and local tax returns with GM in certain jurisdictions. In some taxing jurisdictions where filing a separate income tax return is mandated, we will continue to file separately. Our predecessor consolidated federal income tax returns for fiscal 2006, 2007, 2008, 2009 and 2010 are under audit by the Internal Revenue Service (“IRS”). Our predecessor federal income tax returns prior to fiscal 2006 are closed. Foreign and state jurisdictions have statutes of limitations that generally range from three to five years. Certain of our predecessor tax returns are currently under examination in various state tax jurisdictions.
In the event we recognize taxable income in any period beginning on or after October 1, 2010, we would be obligated to pay GM for our separate federal or state tax liabilities. Likewise, GM is obligated to reimburse us for the tax effects of net operating losses to the extent such losses are carried back by us to a period beginning on or after October 1, 2010, determined as if we had filed separate income tax returns. Under our tax sharing arrangement with GM, payments for the tax years 2010 through 2013 are deferred for three years from their original due date. The total amount of deferral is not to exceed $650 million. Amounts owed to or from GM for income tax are accrued and recorded as an intercompany payable or receivable. Any difference between the amounts to be paid or received under our tax sharing arrangement with GM and our separate return basis used for financial reporting purposes is reported in the our consolidated financial statements through additional paid-in capital. As of December 31, 2011, we have recorded a liability to GM in the amount of $300.3 million, representing the tax effects of income earned subsequent to the Merger.
20. Earnings per Share – Predecessor
A reconciliation of weighted average shares used to compute basic and diluted earnings per share is as follows (dollars in thousands, except per share data):
| | | | | | | | | | | | |
| | | Predecessor | |
| | | Period From
July 1, 2010
Through
September 30,
2010 | | | | |
| | | | Years Ended June 30, | |
| | | | 2010 | | | 2009 | |
Net income (loss) | | $ | 51,300 | | | $ | 220,546 | | | $ | (10,889 | ) |
| | | | | | | | | | | | |
Basic weighted average shares | | | 135,232,827 | | | | 133,845,238 | | | | 125,239,241 | |
Incremental shares resulting from assumed conversions: | | | | | | | | | | | | |
Stock based compensation and warrants | | | 5,069,928 | | | | 4,334,707 | | | | | |
| | | | | | | | | | | | |
Diluted weighted average shares | | | 140,302,755 | | | | 138,179,945 | | | | 125,239,241 | |
| | | | | | | | | | | | |
Earnings (loss) per share: | | | | | | | | | | | | |
Basic | | $ | 0.38 | | | $ | 1.65 | | | $ | (0.09 | ) |
| | | | | | | | | | | | |
Diluted | | $ | 0.37 | | | $ | 1.60 | | | $ | (0.09 | ) |
| | | | | | | | | | | | |
As a result of the Merger, our stock is no longer publicly traded and earnings per share is no longer required.
Basic earnings (loss) per share was computed by dividing net income (loss) by weighted average shares outstanding.
Diluted earnings per share was computed by dividing net income by the diluted weighted average shares, including incremental shares. The treasury stock method was used to compute the assumed incremental shares related to our outstanding stock-based compensation and warrants. The average common stock market prices for the periods were used to determine the number of incremental shares. Options to purchase approximately 0.7 million
93
shares of common stock for fiscal 2010, 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. Warrants to purchase approximately 18.8 million shares of common stock for fiscal 2010, were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares. For fiscal 2009, diluted loss per share was computed by dividing net loss by the diluted weighted average shares, assuming no incremental shares because all potentially dilutive common stock equivalents are anti-dilutive.
21. Supplemental Cash Flow Information
Cash payments for interest costs and income taxes consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | 2010 | | | 2009 | |
Interest costs (none capitalized) | | $ | 283,616 | | | $ | 66,399 | | | | | $ | 90,490 | | | $ | 446,699 | | | $ | 645,386 | |
Income taxes | | | 4,892 | | | | 16,974 | | | | | | 28,904 | | | | 190,825 | | | | 2,501 | |
Non-cash investing and financing activities, not otherwise disclosed, during fiscal 2009, included $3.8 million of common stock issued for employee benefit plans.
Cash payments related to income taxes do not include $280.0 million and $21.9 million in income tax refunds received during fiscal 2010 and 2009, respectively.
22. Supplemental Disclosure for Accumulated Other Comprehensive (Loss) Income
A summary of changes in accumulated other comprehensive (loss) income is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1, 2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Years Ended June 30, | |
| | | | | | | 2010 | | | 2009 | |
Unrealized gains (losses) on cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of period | | $ | (261 | ) | | | | | | | | $ | (34,818 | ) | | $ | (62,509 | ) | | $ | (44,676 | ) |
Change in fair value associated with current period hedging activities, net of taxes of $646, $(170), $(3,001), $(13,333) and $(39,818), respectively | | | (696 | ) | | $ | (294 | ) | | | | | (5,217 | ) | | | (23,428 | ) | | | (69,297 | ) |
Reclassification into earnings, net of taxes of $400, $19, $5,285, $28,948, and $30,780, respectively | | | 2,502 | | | | 33 | | | | | | 9,188 | | | | 51,119 | | | | 51,464 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at end of period | | | 1,545 | | | | (261 | ) | | | | | (30,847 | ) | | | (34,818 | ) | | | (62,509 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment: | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of period | | | 1,819 | | | | | | | | | | 46,688 | | | | 41,410 | | | | 38,272 | |
Translation (loss) gain net of taxes of $0, $0, $743, $2,952, and $(2,388), respectively | | | (10,981 | ) | | | 1,819 | | | | | | 1,312 | | | | 5,278 | | | | 3,138 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance at end of period | | | (9,162 | ) | | | 1,819 | | | | | | 48,000 | | | | 46,688 | | | | 41,410 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total accumulated other comprehensive (loss) income | | $ | (7,617 | ) | | $ | 1,558 | | | | | $ | 17,153 | | | $ | 11,870 | | | $ | (21,099 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
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23. Fair Value of Financial Instruments
FASB guidance regarding disclosures about fair value of financial instruments requires disclosure of fair value information about financial instruments, whether recognized or not in our consolidated balance sheets. 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 from our disclosure requirements. 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 thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Successor | |
| | | | | | December 31, 2011 | | | December 31, 2010 | |
| | | | | | Carrying
Value | | | Estimated
Fair Value | | | Carrying
Value | | | Estimated
Fair Value | |
Financial assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | (a | ) | | $ | 572,297 | | | $ | 572,297 | | | $ | 194,554 | | | $ | 194,554 | |
Finance receivables, net | | | (b | ) | | | 9,162,492 | | | | 9,385,851 | | | | 8,197,324 | | | | 8,185,854 | |
Restricted cash – securitization notes payable | | | (a | ) | | | 919,283 | | | | 919,283 | | | | 926,082 | | | | 926,082 | |
Restricted cash – credit facilities | | | (a | ) | | | 136,556 | | | | 136,556 | | | | 131,438 | | | | 131,438 | |
Restricted cash – other | | | (a | ) | | | 59,136 | | | | 59,136 | | | | 32,920 | | | | 32,920 | |
Interest rate swap agreements | | | (d | ) | | | 2,004 | | | | 2,004 | | | | 23,058 | | | | 23,058 | |
Interest rate cap agreements purchased | | | (d | ) | | | 4,548 | | | | 4,548 | | | | 7,899 | | | | 7,899 | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Syndicated and lease warehouse facilities | | | (c | ) | | | 802,571 | | | | 802,571 | | | | 278,006 | | | | 278,006 | |
Medium term note facility and Wachovia funding facility | | | (c | ) | | | 296,820 | | | | 296,542 | | | | 553,796 | | | | 554,048 | |
Securitization notes payable | | | (d | ) | | | 6,937,841 | | | | 6,945,865 | | | | 6,128,217 | | | | 6,106,963 | |
Senior notes | | | (d | ) | | | 500,000 | | | | 510,000 | | | | 70,054 | | | | 71,472 | |
Convertible senior notes | | | (d | ) | | | 500 | | | | 500 | | | | 1,446 | | | | 1,447 | |
Interest rate swap agreements | | | (d | ) | | | 6,440 | | | | 6,440 | | | | 46,797 | | | | 46,797 | |
Interest rate cap agreements sold | | | (d | ) | | | 4,768 | | | | 4,768 | | | | 8,094 | | | | 8,094 | |
Foreign currency contracts | | | (d | ) | | | | | | | | | | | 2,125 | | | | 2,125 | |
| (a) | The carrying value of cash and cash equivalents, restricted cash – securitization notes payable, restricted cash – credit facilities and restricted cash – other is considered to be a reasonable estimate of fair value since these investments bear interest at market rates and have maturities of less than 90 days. |
| (b) | The fair value of the finance receivables is estimated based upon forecasted cash flows on the receivables discounted using a pre-tax weighted average cost of capital. The forecast includes among other things items such as prepayment, defaults, recoveries and fee income assumptions. |
| (c) | Syndicated and lease warehouse facilities have variable rates of interest and maturities of three years or less. Therefore, carrying value is considered to be a reasonable estimate of fair value. |
| (d) | The fair values of the interest rate cap and swap agreements, medium term note facility and Wachovia funding facility, securitization notes payable, senior notes, convertible senior notes and foreign currency contracts are based on quoted market prices, when available. If quoted market prices are not available, the market value is estimated by discounting future net cash flows expected to be settled using a current risk-adjusted rate. |
95
24. Quarterly Financial Data (unaudited)
The following is a summary of quarterly financial results (dollars in thousands, except per share data):
| | | | | | | | | | | | | | | | |
| | | First
Quarter | | | Second
Quarter | | | Third
Quarter | | | Fourth
Quarter | |
Year Ended December 31, 2011 – Successor | | | | | | | | | | | | | | | | |
Total revenue | | $ | 295,167 | | | $ | 329,885 | | | $ | 390,681 | | | $ | 394,255 | |
Income before income taxes | | | 130,236 | | | | 144,021 | | | | 177,446 | | | | 170,115 | |
Net income | | | 77,238 | | | | 95,818 | | | | 108,807 | | | | 103,664 | |
| | | | |
Year Ended June 30, 2010 – Predecessor | | | | | | | | | | | | | | | | |
Total revenue | | $ | 413,284 | | | $ | 386,755 | | | $ | 361,105 | | | $ | 361,673 | |
Income before income taxes | | | 46,250 | | | | 72,215 | | | | 95,815 | | | | 139,159 | |
Net income | | | 25,761 | | | | 46,029 | | | | 63,206 | | | | 85,550 | |
Basic earnings per share | | | 0.19 | | | | 0.34 | | | | 0.47 | | | | 0.64 | |
Diluted earnings per share | | | 0.19 | | | | 0.33 | | | | 0.45 | | | | 0.61 | |
Diluted weighted average shares | | | 136,083,460 | | | | 137,630,694 | | | | 139,231,152 | | | | 139,787,408 | |
25. Guarantor Consolidating Financial Statements
The payment of principal and interest on the 6.75% senior notes issued in June 2011 are currently guaranteed solely by AmeriCredit Financial Services, Inc. (the “Guarantor”), our principal operating subsidiary, and none of our other subsidiaries (the “Non-Guarantor Subsidiaries”). The separate financial statements of the Guarantor are not included herein because the Guarantor is a wholly owned consolidated subsidiary and is unconditionally liable for the obligations represented by the senior notes. Some of our “Non-Guarantor Subsidiaries” had previously guaranteed the payment of principal and interest on our senior notes and convertible senior notes that were outstanding prior to the issuance of the 6.75% senior notes. These previously outstanding senior notes have been repaid in full and the amount of convertible senior notes that currently remain outstanding under the previous guarantor structure is immaterial. As a result, the following consolidating financial statements have been recast to reflect the current guarantor structure for the 6.75% senior notes.
The consolidating financial statements present consolidating financial data for (a) General Motors Financial Company, Inc. (on a parent only basis), (b) the Guarantor, (c) the combined Non-Guarantor Subsidiaries, (d) an elimination column for adjustments to arrive at the information for the parent company and our subsidiaries on a consolidated basis and (e) the parent company and our subsidiaries on a consolidated basis as of December 31, 2011 and 2010 and for the year ended December 31, 2011, the three month period ended December 31, 2010, the three month period ended September 30, 2010 and for each of the two years in the period ended June 30, 2010.
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.
96
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING BALANCE SHEET
SUCCESSOR
December 31, 2011
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantor | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
| Assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | $ | 500,556 | | | $ | 71,741 | | | | | | | $ | 572,297 | |
Finance receivables, net | | | | | | | 201,796 | | | | 8,960,696 | | | | | | | | 9,162,492 | |
Restricted cash – securitization notes payable | | | | | | | | | | | 919,283 | | | | | | | | 919,283 | |
Restricted cash – credit facilities | | | | | | | | | | | 136,556 | | | | | | | | 136,556 | |
Property and equipment, net | | $ | 220 | | | | 3,567 | | | | 43,653 | | | | | | | | 47,440 | |
Leased vehicles, net | | | | | | | | | | | 809,491 | | | | | | | | 809,491 | |
Deferred income taxes | | | 28,572 | | | | 49,792 | | | | 30,320 | | | | | | | | 108,684 | |
Goodwill | | | 1,094,923 | | | | | | | | 13,059 | | | | | | | | 1,107,982 | |
Intercompany subvention receivable | | | 35,975 | | | | | | | | 1,472 | | | | | | | | 37,447 | |
Other assets | | | 7,880 | | | | 50,304 | | | | 83,064 | | | | | | | | 141,248 | |
Due from affiliates | | | 769,778 | | | | | | | | 2,656,353 | | | $ | (3,426,131 | ) | | | | |
Investment in affiliates | | | 2,871,356 | | | | 3,252,248 | | | | | | | | (6,123,604 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 4,808,704 | | | $ | 4,058,263 | | | $ | 13,725,688 | | | $ | (9,549,735 | ) | | $ | 13,042,920 | |
| | | | | | | | | | | | | | | | | | | | |
| Liabilities and Shareholder’s Equity | | | | | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | |
Credit facilities | | | | | | | | | | $ | 1,099,391 | | | | | | | $ | 1,099,391 | |
Securitization notes payable | | | | | | | | | | | 6,937,841 | | | | | | | | 6,937,841 | |
Senior notes | | $ | 500,000 | | | | | | | | | | | | | | | | 500,000 | |
Convertible senior notes | | | 500 | | | | | | | | | | | | | | | | 500 | |
Accounts payable and accrued expenses | | | 4,975 | | | $ | 60,070 | | | | 120,114 | | | | | | | | 185,159 | |
Taxes payable | | | 79,885 | | | | 4,882 | | | | 710 | | | | | | | | 85,477 | |
Intercompany taxes payable | | | 300,306 | | | | | | | | | | | | | | | | 300,306 | |
Interest rate swap and cap agreements | | | | | | | 4,768 | | | | 6,440 | | | | | | | | 11,208 | |
Due to affiliates | | | | | | | 3,426,131 | | | | | | | $ | (3,426,131 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 885,666 | | | | 3,495,851 | | | | 8,164,496 | | | | (3,426,131 | ) | | | 9,119,882 | |
| | | | | | | | | | | | | | | | | | | | |
Shareholder’s equity: | | | | | | | | | | | | | | | | | | | | |
Common stock | | | | | | | | | | | 517,037 | | | | (517,037 | ) | | | | |
Additional paid-in capital | | | 3,470,495 | | | | 79,187 | | | | 1,143,529 | | | | (1,222,716 | ) | | | 3,470,495 | |
Accumulated other comprehensive (loss) income | | | (7,617 | ) | | | | | | | (17,396 | ) | | | 17,396 | | | | (7,617 | ) |
Retained earnings | | | 460,160 | | | | 483,225 | | | | 3,918,022 | | | | (4,401,247 | ) | | | 460,160 | |
| | | | | | | | | | | | | | | | | | | | |
Total shareholder’s equity | | | 3,923,038 | | | | 562,412 | | | | 5,561,192 | | | | (6,123,604 | ) | | | 3,923,038 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholder’s equity | | $ | 4,808,704 | | | $ | 4,058,263 | | | $ | 13,725,688 | | | $ | (9,549,735 | ) | | $ | 13,042,920 | |
| | | | | | | | | | | | | | | | | | | | |
97
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING BALANCE SHEET
SUCCESSOR
December 31, 2010
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantors | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
| Assets | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | $ | 185,004 | | | $ | 9,550 | | | | | | | $ | 194,554 | |
Finance receivables, net | | | | | | | 494,334 | | | | 7,702,990 | | | | | | | | 8,197,324 | |
Restricted cash – securitization notes payable | | | | | | | | | | | 926,082 | | | | | | | | 926,082 | |
Restricted cash – credit facilities | | | | | | | | | | | 131,438 | | | | | | | | 131,438 | |
Property and equipment, net | | $ | 2,520 | | | | 2,603 | | | | 42,167 | | | | | | | | 47,290 | |
Leased vehicles, net | | | | | | | | | | | 46,780 | | | | | | | | 46,780 | |
Deferred income taxes | | | 126,593 | | | | 48,730 | | | | (17,439 | ) | | | | | | | 157,884 | |
Goodwill | | | 1,094,923 | | | | | | | | | | | | | | | | 1,094,923 | |
Income tax receivable | | | 8,149 | | | | | | | | | | | | | | | | 8,149 | |
Other assets | | | 7,564 | | | | 71,826 | | | | 34,924 | | | | | | | | 114,314 | |
Due from affiliates | | | 144,607 | | | | | | | | 2,485,296 | | | $ | (2,629,903 | ) | | | | |
Investment in affiliates | | | 2,457,613 | | | | 2,012,723 | | | | | | | | (4,470,336 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,841,969 | | | $ | 2,815,220 | | | $ | 11,361,788 | | | $ | (7,100,239 | ) | | $ | 10,918,738 | |
| | | | | | | | | | | | | | | | | | | | |
| Liabilities and Shareholder’s Equity | | | | | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | |
Credit facilities | | | | | | | | | | $ | 831,802 | | | | | | | $ | 831,802 | |
Securitization notes payable | | | | | | | | | | | 6,128,217 | | | | | | | | 6,128,217 | |
Senior notes | | $ | 70,054 | | | | | | | | | | | | | | | | 70,054 | |
Convertible senior notes | | | 1,446 | | | | | | | | | | | | | | | | 1,446 | |
Accounts payable and accrued expenses | | | 42,393 | | | $ | 11,795 | | | | 42,981 | | | | | | | | 97,169 | |
Taxes payable | | | 155,754 | | | | 5,006 | | | | (48 | ) | | | | | | | 160,712 | |
Intercompany taxes payable | | | 42,214 | | | | | | | | | | | | | | | | 42,214 | |
Interest rate swap and cap agreements | | | | | | | 10,219 | | | | 46,797 | | | | | | | | 57,016 | |
Due to affiliates | | | | | | | 2,629,903 | | | | | | | $ | (2,629,903 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities | | | 311,861 | | | | 2,656,923 | | | | 7,049,749 | | | | (2,629,903 | ) | | | 7,388,630 | |
| | | | | | | | | | | | | | | | | | | | |
Shareholder’s equity: | | | | | | | | | | | | | | | | | | | | |
Common stock | | | | | | | | | | | 90,474 | | | | (90,474 | ) | | | | |
Additional paid-in capital | | | 3,453,917 | | | | 63,421 | | | | 723,616 | | | | (787,037 | ) | | | 3,453,917 | |
Accumulated other comprehensive income (loss) | | | 1,558 | | | | | | | | 35,135 | | | | (35,135 | ) | | | 1,558 | |
Retained earnings | | | 74,633 | | | | 94,876 | | | | 3,462,814 | | | | (3,557,690 | ) | | | 74,633 | |
| | | | | | | | | | | | | | | | | | | | |
Total shareholder’s equity | | | 3,530,108 | | | | 158,297 | | | | 4,312,039 | | | | (4,470,336 | ) | | | 3,530,108 | |
| | | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholder’s equity | | $ | 3,841,969 | | | $ | 2,815,220 | | | $ | 11,361,788 | | | $ | (7,100,239 | ) | | $ | 10,918,738 | |
| | | | | | | | | | | | | | | | | | | | |
98
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
SUCCESSOR
Year Ended December 31, 2011
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantor | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
Revenue | | | | | | | | | | | | | | | | | | | | |
Finance charge income | | | | | | $ | 85,427 | | | $ | 1,161,260 | | | | | | | $ | 1,246,687 | |
Other income | | $ | 51,239 | | | | 295,472 | | | | 606,759 | | | $ | (790,169 | ) | | | 163,301 | |
Equity in income of affiliates | | | 404,750 | | | | 501,317 | | | | | | | | (906,067 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 455,989 | | | | 882,216 | | | | 1,768,019 | | | | (1,696,236 | ) | | | 1,409,988 | |
| | | | | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | 18,079 | | | | 88,671 | | | | 231,790 | | | | | | | | 338,540 | |
Leased vehicles expenses | | | | | | | | | | | 67,088 | | | | | | | | 67,088 | |
Provision for loan losses | | | | | | | 157,923 | | | | 20,449 | | | | | | | | 178,372 | |
Interest expense | | | 59,903 | | | | 307,329 | | | | 627,107 | | | | (790,169 | ) | | | 204,170 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 77,982 | | | | 553,923 | | | | 946,434 | | | | (790,169 | ) | | | 788,170 | |
| | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | | 378,007 | | | | 328,293 | | | | 821,585 | | | | (906,067 | ) | | | 621,818 | |
Income tax (benefit) provision | | | (7,520 | ) | | | (60,056 | ) | | | 303,867 | | | | | | | | 236,291 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 385,527 | | | $ | 388,349 | | | $ | 517,718 | | | $ | (906,067 | ) | | $ | 385,527 | |
| | | | | | | | | | | | | | | | | | | | |
99
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
SUCCESSOR
October 1, 2010 – December 31, 2010
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantors | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
Revenue | | | | | | | | | | | | | | | | | | | | |
Finance charge income | | | | | | $ | 15,402 | | | $ | 248,945 | | | | | | | $ | 264,347 | |
Other income | | $ | 10,209 | | | | 77,407 | | | | 139,267 | | | $ | (210,059 | ) | | | 16,824 | |
Equity in income of affiliates | | | 92,471 | | | | 88,171 | | | | | | | | (180,642 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 102,680 | | | | 180,980 | | | | 388,212 | | | | (390,701 | ) | | | 281,171 | |
| | | | | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | 20,474 | | | | 12,727 | | | | 37,240 | | | | | | | | 70,441 | |
Leased vehicles expenses | | | | | | | | | | | 2,106 | | | | | | | | 2,106 | |
Provision for loan losses | | | | | | | 11,797 | | | | 14,555 | | | | | | | | 26,352 | |
Interest expense | | | 7,913 | | | | 92,388 | | | | 146,442 | | | | (210,059 | ) | | | 36,684 | |
Acquisition expenses | | | | | | | | | | | 16,322 | | | | | | | | 16,322 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 28,387 | | | | 116,912 | | | | 216,665 | | | | (210,059 | ) | | | 151,905 | |
| | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | | 74,293 | | | | 64,068 | | | | 171,547 | | | | (180,642 | ) | | | 129,266 | |
Income tax (benefit) provision | | | (340 | ) | | | (30,808 | ) | | | 85,781 | | | | | | | | 54,633 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 74,633 | | | $ | 94,876 | | | $ | 85,766 | | | $ | (180,642 | ) | | $ | 74,633 | |
| | | | | | | | | | | | | | | | | | | | |
100
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
PREDECESSOR
July 1, 2010 – September 30, 2010
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantors | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
Revenue | | | | | | | | | | | | | | | | | | | | |
Finance charge income | | | | | | $ | 38,255 | | | $ | 304,094 | | | | | | | $ | 342,349 | |
Other income | | $ | 8,644 | | | | 80,242 | | | | 152,132 | | | $ | (210,743 | ) | | | 30,275 | |
Equity in income of affiliates | | | 70,729 | | | | 115,397 | | | | | | | | (186,126 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 79,373 | | | | 233,894 | | | | 456,226 | | | | (396,869 | ) | | | 372,624 | |
| | | | | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | 18,104 | | | | 4,710 | | | | 46,041 | | | | | | | | 68,855 | |
Leased vehicles expenses | | | | | | | | | | | 6,539 | | | | | | | | 6,539 | |
Provision for loan losses | | | | | | | 56,760 | | | | 17,858 | | | | | | | | 74,618 | |
Interest expense | | | 11,394 | | | | 83,266 | | | | 205,447 | | | | (210,743 | ) | | | 89,364 | |
Acquisition expenses | | | 6,199 | | | | 36,452 | | | | | | | | | | | | 42,651 | |
Restructuring charges, net | | | | | | | 15 | | | | (54 | ) | | | | | | | (39 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | 35,697 | | | | 181,203 | | | | 275,831 | | | | (210,743 | ) | | | 281,988 | |
| | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | | 43,676 | | | | 52,691 | | | | 180,395 | | | | (186,126 | ) | | | 90,636 | |
Income tax (benefit) provision | | | (7,624 | ) | | | (17,673 | ) | | | 64,633 | | | | | | | | 39,336 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 51,300 | | | $ | 70,364 | | | $ | 115,762 | | | $ | (186,126 | ) | | $ | 51,300 | |
| | | | | | | | | | | | | | | | | | | | |
101
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
PREDECESSOR
Year Ended June 30, 2010
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantors | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
Revenue | | | | | | | | | | | | | | | | | | | | |
Finance charge income | | | | | | $ | 98,707 | | | $ | 1,332,612 | | | | | | | $ | 1,431,319 | |
Other income | | $ | 29,634 | | | | 392,738 | | | | 874,362 | | | $ | (1,205,519 | ) | | | 91,215 | |
Gain on retirement of debt | | | 283 | | | | | | | | | | | | | | | | 283 | |
Equity in income of affiliates | | | 243,078 | | | | 369,120 | | | | | | | | (612,198 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 272,995 | | | | 860,565 | | | | 2,206,974 | | | | (1,817,717 | ) | | | 1,522,817 | |
| | | | | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | 17,771 | | | | 65,141 | | | | 205,879 | | | | | | | | 288,791 | |
Leased vehicles expenses | | | | | | | | | | | 34,639 | | | | | | | | 34,639 | |
Provision for loan losses | | | | | | | 166,706 | | | | 221,352 | | | | | | | | 388,058 | |
Interest expense | | | 45,950 | | | | 459,162 | | | | 1,157,629 | | | | (1,205,519 | ) | | | 457,222 | |
Restructuring charges, net | | | | | | | 859 | | | | (191 | ) | | | | | | | 668 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 63,721 | | | | 691,868 | | | | 1,619,308 | | | | (1,205,519 | ) | | | 1,169,378 | |
| | | | | | | | | | | | | | | | | | | | |
Income before income taxes | | | 209,274 | | | | 168,697 | | | | 587,666 | | | | (612,198 | ) | | | 353,439 | |
Income tax (benefit) provision | | | (11,272 | ) | | | (68,182 | ) | | | 212,347 | | | | | | | | 132,893 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 220,546 | | | $ | 236,879 | | | $ | 375,319 | | | $ | (612,198 | ) | | $ | 220,546 | |
| | | | | | | | | | | | | | | | | | | | |
102
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
PREDECESSOR
Year Ended June 30, 2009
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantors | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
Revenue | | | | | | | | | | | | | | | | | | | | |
Finance charge income | | | | | | $ | 69,525 | | | $ | 1,833,159 | | | | | | | $ | 1,902,684 | |
Other income | | $ | 38,193 | | | | 842,603 | | | | 1,812,581 | | | $ | (2,576,889 | ) | | | 116,488 | |
Gain on retirement of debt | | | 48,152 | | | | | | | | | | | | | | | | 48,152 | |
Equity in income of affiliates | | | 20,535 | | | | 142,159 | | | | | | | | (162,694 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | 106,880 | | | | 1,054,287 | | | | 3,645,740 | | | | (2,739,583 | ) | | | 2,067,324 | |
| | | | | | | | | | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | 32,701 | | | | 38,072 | | | | 238,030 | | | | | | | | 308,803 | |
Leased vehicles expenses | | | | | | | | | | | 47,880 | | | | | | | | 47,880 | |
Provision for loan losses | | | | | | | 92,382 | | | | 879,999 | | | | | | | | 972,381 | |
Interest expense | | | 100,228 | | | | 950,317 | | | | 2,252,904 | | | | (2,576,889 | ) | | | 726,560 | |
Restructuring charges, net | | | | | | | 10,085 | | | | 1,762 | | | | | | | | 11,847 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 132,929 | | | | 1,090,856 | | | | 3,420,575 | | | | (2,576,889 | ) | | | 2,067,471 | |
| | | | | | | | | | | | | | | | | | | | |
(Loss) income before income taxes | | | (26,049 | ) | | | (36,569 | ) | | | 225,165 | | | | (162,694 | ) | | | (147 | ) |
Income tax (benefit) provision | | | (15,160 | ) | | | (54,927 | ) | | | 80,829 | | | | | | | | 10,742 | |
| | | | | | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (10,889 | ) | | $ | 18,358 | | | $ | 144,336 | | | $ | (162,694 | ) | | $ | (10,889 | ) |
| | | | | | | | | | | | | | | | | | | | |
103
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
SUCCESSOR
Year Ended December 31, 2011
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantor | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 385,527 | | | $ | 388,349 | | | $ | 517,718 | | | $ | (906,067 | ) | | $ | 385,527 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 5,786 | | | | 1,653 | | | | 102,180 | | | | | | | | 109,619 | |
Provision for loan losses | | | | | | | 157,923 | | | | 20,449 | | | | | | | | 178,372 | |
Deferred income taxes | | | 98,021 | | | | (1,062 | ) | | | (46,723 | ) | | | | | | | 50,236 | |
Stock based compensation expense | | | 17,106 | | | | | | | | | | | | | | | | 17,106 | |
Amortization of carrying value adjustment | | | | | | | 31,172 | | | | 146,394 | | | | | | | | 177,566 | |
Amortization of purchase accounting premium | | | (183 | ) | | | | | | | (67,488 | ) | | | | | | | (67,671 | ) |
Accretion and amortization of loan and leasing fees | | | | | | | (1,415 | ) | | | (19,287 | ) | | | | | | | (20,702 | ) |
Loss on retirement of debt | | | 1,436 | | | | | | | | | | | | | | | | 1,436 | |
Other | | | | | | | 18,929 | | | | (43,583 | ) | | | | | | | (24,654 | ) |
Equity in income of affiliates | | | (404,750 | ) | | | (501,317 | ) | | | | | | | 906,067 | | | | | |
Changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | | |
Income tax receivable | | | 1,886 | | | | | | | | 2,974 | | | | | | | | 4,860 | |
Other assets | | | 10 | | | | 58 | | | | 29,721 | | | | | | | | 29,789 | |
Accounts payable and accrued expenses | | | (34,507 | ) | | | 28,944 | | | | (15,836 | ) | | | | | | | (21,399 | ) |
Taxes payable | | | (75,869 | ) | | | 4,882 | | | | (6,298 | ) | | | | | | | (77,285 | ) |
Intercompany taxes payable | | | 258,092 | | | | | | | | | | | | | | | | 258,092 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 252,555 | | | | 128,116 | | | | 620,221 | | | | | | | | 1,000,892 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Purchases of receivables | | | | | | | (5,020,639 | ) | | | (5,138,407 | ) | | | 5,138,407 | | | | (5,020,639 | ) |
Principal collections and recoveries on receivables | | | | | | | 1,339 | | | | 3,717,925 | | | | | | | | 3,719,264 | |
Net proceeds from sale of receivables | | | | | | | 5,138,407 | | | | | | | | (5,138,407 | ) | | | | |
Purchases of property and equipment | | | 1,924 | | | | (2,617 | ) | | | (7,666 | ) | | | | | | | (8,359 | ) |
Change in restricted cash – securitization notes payable | | | | | | | | | | | 6,799 | | | | | | | | 6,799 | |
Change in restricted cash – credit facilities | | | | | | | | | | | (5,108 | ) | | | | | | | (5,108 | ) |
Change in other assets | | | | | | | (2,840 | ) | | | (9,762 | ) | | | | | | | (12,602 | ) |
Purchases of leased vehicles | | | | | | | | | | | (857,138 | ) | | | | | | | (857,138 | ) |
Proceeds from termination of leased vehicles | | | | | | | | | | | 38,054 | | | | | | | | 38,054 | |
Acquisition of FinanciaLinx | | | | | | | | | | | (9,601 | ) | | | | | | | (9,601 | ) |
FinanciaLinx cash on hand at acquisition | | | | | | | | | | | 9,283 | | | | | | | | 9,283 | |
Net change in investment in affiliates | | | (7,186 | ) | | | 791,737 | | | | | | | | (784,551 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used) provided by investing activities | | | (5,262 | ) | | | 905,387 | | | | (2,255,621 | ) | | | (784,551 | ) | | | (2,140,047 | ) |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Borrowings on credit facilities | | | | | | | | | | | 3,716,609 | | | | | | | | 3,716,609 | |
Payments on credit facilities | | | | | | | | | | | (3,446,074 | ) | | | | | | | (3,446,074 | ) |
Issuance of securitization notes payable | | | | | | | | | | | 4,550,000 | | | | | | | | 4,550,000 | |
Payments on securitization notes payable | | | | | | | | | | | (3,675,459 | ) | | | | | | | (3,675,459 | ) |
Issuance of senior notes | | | 500,000 | | | | | | | | | | | | | | | | 500,000 | |
Debt issuance costs | | | (7,622 | ) | | | | | | | (41,696 | ) | | | | | | | (49,318 | ) |
Retirement of debt | | | (75,164 | ) | | | | | | | | | | | | | | | (75,164 | ) |
Net capital contribution to subsidiaries | | | | | | | 15,766 | | | | 721,641 | | | | (737,407 | ) | | | | |
Other net changes | | | (528 | ) | | | | | | | | | | | | | | | (528 | ) |
Net change in due (to) from affiliates | | | (652,998 | ) | | | (733,717 | ) | | | (118,126 | ) | | | 1,504,841 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used) provided by financing activities | | | (236,312 | ) | | | (717,951 | ) | | | 1,706,895 | | | | 767,434 | | | | 1,520,066 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase in cash and cash equivalents | | | 10,981 | | | | 315,552 | | | | 71,495 | | | | (17,117 | ) | | | 380,911 | |
Effect of Canadian exchange rate changes on cash and cash equivalents | | | (10,981 | ) | | | | | | | (9,304 | ) | | | 17,117 | | | | (3,168 | ) |
Cash and cash equivalents at beginning of year | | | | | | | 185,004 | | | | 9,550 | | | | | | | | 194,554 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | | | | $ | 500,556 | | | $ | 71,741 | | | $ | | | | $ | 572,297 | |
| | | | | | | | | | | | | | | | | | | | |
104
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
SUCCESSOR
October 1, 2010 – December 31, 2010
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantors | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 74,633 | | | $ | 94,876 | | | $ | 85,766 | | | $ | (180,642 | ) | | $ | 74,633 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 1,513 | | | | 338 | | | | 5,958 | | | | | | | | 7,809 | |
Provision for loan losses | | | | | | | 11,797 | | | | 14,555 | | | | | | | | 26,352 | |
Deferred income taxes | | | 49,106 | | | | (48,730 | ) | | | 20,991 | | | | | | | | 21,367 | |
Amortization of carrying value adjustment | | | | | | | 11,305 | | | | 65,787 | | | | | | | | 77,092 | |
Amortization of purchase accounting premium | | | (42 | ) | | | | | | | (27,416 | ) | | | | | | | (27,458 | ) |
Accretion and amortization of loan fees | | | | | | | (11 | ) | | | 1,122 | | | | | | | | 1,111 | |
Other | | | 242 | | | | 4,841 | | | | (16,622 | ) | | | | | | | (11,539 | ) |
Equity in income of affiliates | | | (92,471 | ) | | | (88,171 | ) | | | | | | | 180,642 | | | | | |
Changes in assets and liabilities, net of assets and liabilities acquired: | | | | | | | | | | | | | | | | | | | | |
Income tax receivable | | | (2,067 | ) | | | | | | | (3,771 | ) | | | | | | | (5,838 | ) |
Other assets | | | (7,808 | ) | | | 19,127 | | | | (5,850 | ) | | | | | | | 5,469 | |
Accounts payable and accrued expenses | | | (25,832 | ) | | | (4,223 | ) | | | 19,780 | | | | | | | | (10,275 | ) |
Taxes payable | | | (8,555 | ) | | | 138 | | | | (1,031 | ) | | | | | | | (9,448 | ) |
Intercompany taxes payable | | | 42,214 | | | | | | | | | | | | | | | | 42,214 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 30,933 | | | | 1,287 | | | | 159,269 | | | | | | | | 191,489 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Purchases of receivables | | | | | | | (947,318 | ) | | | (1,001,126 | ) | | | 1,001,126 | | | | (947,318 | ) |
Principal collections and recoveries on receivables | | | | | | | (105 | ) | | | 870,967 | | | | | | | | 870,862 | |
Net proceeds from sale of receivables | | | | | | | 1,001,126 | | | | | | | | (1,001,126 | ) | | | | |
Sales (purchases) of property and equipment | | | 2,590 | | | | (617 | ) | | | (4,402 | ) | | | | | | | (2,429 | ) |
Change in restricted cash – securitization notes payable | | | | | | | | | | | 49,860 | | | | | | | | 49,860 | |
Change in restricted cash – credit facilities | | | | | | | | | | | 3,030 | | | | | | | | 3,030 | |
Change in other assets | | | | | | | (7,330 | ) | | | 20,566 | | | | | | | | 13,236 | |
Net purchases of leased vehicles | | | | | | | | | | | (10,655 | ) | | | | | | | (10,655 | ) |
Net change in investment in affiliates | | | (31,756 | ) | | | 1,820,204 | | | | | | | | (1,788,448 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used) provided by investing activities | | | (29,166 | ) | | | 1,865,960 | | | | (71,760 | ) | | | (1,788,448 | ) | | | (23,414 | ) |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Borrowings on credit facilities | | | | | | | | | | | 468,394 | | | | | | | | 468,394 | |
Payments on credit facilities | | | | | | | | | | | (256,362 | ) | | | | | | | (256,362 | ) |
Issuance of securitization notes payable | | | | | | | | | | | 700,000 | | | | | | | | 700,000 | |
Payments on securitization notes payable | | | | | | | | | | | (954,644 | ) | | | | | | | (954,644 | ) |
Debt issuance costs | | | | | | | | | | | (4,314 | ) | | | | | | | (4,314 | ) |
Net capital contribution to subsidiaries | | | | | | | 63,421 | | | | (1,885,434 | ) | | | 1,822,013 | | | | | |
Retirement of debt | | | (464,254 | ) | | | | | | | | | | | | | | | (464,254 | ) |
Net change in due (to) from affiliates | | | 460,668 | | | | (2,271,579 | ) | | | 1,842,610 | | | | (31,699 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash used by financing activities | | | (3,586 | ) | | | (2,208,158 | ) | | | (89,750 | ) | | | 1,790,314 | | | | (511,180 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (1,819 | ) | | | (340,911 | ) | | | (2,241 | ) | | | 1,866 | | | | (343,105 | ) |
Effect of Canadian exchange rate changes on cash and cash equivalents | | | 1,819 | | | | | | | | 177 | | | | (1,866 | ) | | | 130 | |
Cash and cash equivalents at beginning of period | | | | | | | 525,915 | | | | 11,614 | | | | | | | | 537,529 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | | | | $ | 185,004 | | | $ | 9,550 | | | $ | | | | $ | 194,554 | |
| | | | | | | | | | | | | | | | | | | | |
105
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
PREDECESSOR
July 1, 2010 – September 30, 2010
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantors | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 51,300 | | | $ | 70,364 | | | $ | 115,762 | | | $ | (186,126 | ) | | $ | 51,300 | |
Adjustments to reconcile net income to net cash provided (used) by operating activities: | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 486 | | | | 225 | | | | 13,938 | | | | | | | | 14,649 | |
Provision for loan losses | | | | | | | 56,760 | | | | 17,858 | | | | | | | | 74,618 | |
Deferred income taxes | | | (46,078 | ) | | | (17,521 | ) | | | 64,051 | | | | | | | | 452 | |
Stock-based compensation expense | | | 5,019 | | | | | | | | | | | | | | | | 5,019 | |
Non-cash interest charges on convertible debt | | | 5,625 | | | | | | | | | | | | | | | | 5,625 | |
Accretion and amortization of loan fees | | | | | | | (646 | ) | | | (296 | ) | | | | | | | (942 | ) |
Other | | | | | | | (787 | ) | | | (13,013 | ) | | | | | | | (13,800 | ) |
Equity in income of affiliates | | | (70,729 | ) | | | (115,397 | ) | | | | | | | 186,126 | | | | | |
Changes in assets and liabilities: | | | | | | | | | | | | | | | | | | | | |
Other assets | | | 4,085 | | | | 10,603 | | | | 1,685 | | | | | | | | 16,373 | |
Accrued taxes and expenses | | | 1,026 | | | | (339 | ) | | | (9,239 | ) | | | | | | | (8,552 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided (used) by operating activities | | | (49,266 | ) | | | 3,262 | | | | 190,746 | | | | | | | | 144,742 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Purchases of receivables | | | | | | | (940,763 | ) | | | (1,155,695 | ) | | | 1,155,695 | | | | (940,763 | ) |
Principal collections and recoveries on receivables | | | | | | | (38,671 | ) | | | 922,478 | | | | | | | | 883,807 | |
Net proceeds from sale of receivables | | | | | | | 1,155,695 | | | | | | | | (1,155,695 | ) | | | | |
Purchases of property and equipment | | | 1 | | | | (212 | ) | | | (101 | ) | | | | | | | (312 | ) |
Change in restricted cash – securitization notes payable | | | | | | | | | | | (45,787 | ) | | | | | | | (45,787 | ) |
Change in restricted cash – credit facilities | | | | | | | | | | | 8,257 | | | | | | | | 8,257 | |
Change in other assets | | | | | | | 1,370 | | | | 38,823 | | | | | | | | 40,193 | |
Net change in investment in affiliates | | | (2,076 | ) | | | (5,520 | ) | | | | | | | 7,596 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used) provided by investing activities | | | (2,075 | ) | | | 171,899 | | | | (232,025 | ) | | | 7,596 | | | | (54,605 | ) |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Borrowings on credit facilities | | | | | | | | | | | 484,921 | | | | | | | | 484,921 | |
Payments on credit facilities | | | | | | | | | | | (552,951 | ) | | | | | | | (552,951 | ) |
Issuance of securitization notes payable | | | | | | | | | | | 1,050,000 | | | | | | | | 1,050,000 | |
Payments on securitization notes payable | | | | | | | | | | | (795,512 | ) | | | | | | | (795,512 | ) |
Debt issuance costs | | | | | | | | | | | (7,686 | ) | | | | | | | (7,686 | ) |
Proceeds from issuance of common stock | | | 2,138 | | | | | | | | 5,367 | | | | (5,367 | ) | | | 2,138 | |
Cash settlement of share based awards | | | (16,062 | ) | | | | | | | | | | | | | | | (16,062 | ) |
Other net changes | | | 313 | | | | | | | | | | | | | | | | 313 | |
Net change in due (to) from affiliates | | | 62,897 | | | | 77,588 | | | | (140,434 | ) | | | (51 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by financing activities | | | 49,286 | | | | 77,588 | | | | 43,705 | | | | (5,418 | ) | | | 165,161 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (2,055 | ) | | | 252,749 | | | | 2,426 | | | | 2,178 | | | | 255,298 | |
Effect of Canadian exchange rate changes on cash and cash equivalents | | | 2,055 | | | | | | | | 81 | | | | (2,178 | ) | | | (42 | ) |
Cash and cash equivalents at beginning of period | | | | | | | 273,166 | | | | 9,107 | | | | | | | | 282,273 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | | | | $ | 525,915 | | | $ | 11,614 | | | $ | | | | $ | 537,529 | |
| | | | | | | | | | | | | | | | | | | | |
106
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
PREDECESSOR
Year Ended June 30, 2010
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantors | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 220,546 | | | $ | 236,879 | | | $ | 375,319 | | | $ | (612,198 | ) | | $ | 220,546 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 1,688 | | | | 1,766 | | | | 75,590 | | | | | | | | 79,044 | |
Provision for loan losses | | | | | | | 166,706 | | | | 221,352 | | | | | | | | 388,058 | |
Deferred income taxes | | | 81,395 | | | | 162,627 | | | | (268,589 | ) | | | | | | | (24,567 | ) |
Stock based compensation expense | | | 15,115 | | | | | | | | | | | | | | | | 15,115 | |
Amortization of warrant costs | | | 1,968 | | | | | | | | | | | | | | | | 1,968 | |
Non-cash interest charges on convertible debt | | | 21,554 | | | | | | | | | | | | | | | | 21,554 | |
Accretion and amortization of loan fees | | | | | | | (578 | ) | | | 5,369 | | | | | | | | 4,791 | |
Gain on retirement of debt | | | (283 | ) | | | | | | | | | | | | | | | (283 | ) |
Other | | | | | | | (3,495 | ) | | | (12,459 | ) | | | | | | | (15,954 | ) |
Equity in income of affiliates | | | (243,078 | ) | | | (369,120 | ) | | | | | | | 612,198 | | | | | |
Changes in assets and liabilities, net of assets and liabilities acquired: | | | | | | | | | | | | | | | | | | | | |
Income tax receivable | | | 162,036 | | | | | | | | 35,366 | | | | | | | | 197,402 | |
Other assets | | | 7,941 | | | | (6,478 | ) | | | 3,793 | | | | | | | | 5,256 | |
Accrued taxes and expenses | | | 70,942 | | | | 6,781 | | | | (41,944 | ) | | | | | | | 35,779 | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 339,824 | | | | 195,088 | | | | 393,797 | | | | | | | | 928,709 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Purchases of receivables | | | | | | | (2,090,602 | ) | | | (1,606,156 | ) | | | 1,606,156 | | | | (2,090,602 | ) |
Principal collections and recoveries on receivables | | | | | | | 61,906 | | | | 3,544,774 | | | | | | | | 3,606,680 | |
Net proceeds from sale of receivables | | | | | | | 1,606,156 | | | | | | | | (1,606,156 | ) | | | | |
Purchases of property and equipment | | | | | | | (580 | ) | | | (1,001 | ) | | | | | | | (1,581 | ) |
Change in restricted cash – securitization notes payable | | | | | | | | | | | (78,549 | ) | | | | | | | (78,549 | ) |
Change in restricted cash – credit facilities | | | | | | | | | | | 52,354 | | | | | | | | 52,354 | |
Change in other assets | | | | | | | 19,945 | | | | 23,930 | | | | | | | | 43,875 | |
Proceeds from money market fund | | | | | | | 10,047 | | | | | | | | | | | | 10,047 | |
Net change in investment in affiliates | | | (9,308 | ) | | | 2,155,664 | | | | | | | | (2,146,356 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used) provided by investing activities | | | (9,308 | ) | | | 1,762,536 | | | | 1,935,352 | | | | (2,146,356 | ) | | | 1,542,224 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Borrowings on credit facilities | | | | | | | | | | | 775,665 | | | | | | | | 775,665 | |
Payments on credit facilities | | | | | | | | | | | (1,806,852 | ) | | | | | | | (1,806,852 | ) |
Issuance of securitization notes payable | | | | | | | | | | | 2,352,493 | | | | | | | | 2,352,493 | |
Payments on securitization notes payable | | | | | | | | | | | (3,674,062 | ) | | | | | | | (3,674,062 | ) |
Debt issuance costs | | | 1,810 | | | | | | | | (26,564 | ) | | | | | | | (24,754 | ) |
Net proceeds from issuance of common stock | | | 15,635 | | | | | | | | (2,158,877 | ) | | | 2,158,877 | | | | 15,635 | |
Retirement of debt | | | (20,425 | ) | | | | | | | | | | | | | | | (20,425 | ) |
Other net changes | | | 645 | | | | | | | | | | | | | | | | 645 | |
Net change in due (to) from affiliates | | | (336,411 | ) | | | (1,867,467 | ) | | | 2,209,044 | | | | (5,166 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash used by financing activities | | | (338,746 | ) | | | (1,867,467 | ) | | | (2,329,153 | ) | | | 2,153,711 | | | | (2,381,655 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (8,230 | ) | | | 90,157 | | | | (4 | ) | | | 7,355 | | | | 89,278 | |
Effect of Canadian exchange rate changes on cash and cash equivalents | | | 8,230 | | | | | | | | (1,167 | ) | | | (7,355 | ) | | | (292 | ) |
Cash and cash equivalents at beginning of year | | | | | | | 183,009 | | | | 10,278 | | | | | | | | 193,287 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | | | | $ | 273,166 | | | $ | 9,107 | | | $ | | | | $ | 282,273 | |
| | | | | | | | | | | | | | | | | | | | |
107
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
PREDECESSOR
Year Ended June 30, 2009
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | General
Motors
Financial
Company,
Inc. | | | Guarantors | | | Non-
Guarantors | | | Eliminations | | | Consolidated | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (10,889 | ) | | $ | 18,358 | | | $ | 144,336 | | | $ | (162,694 | ) | | $ | (10,889 | ) |
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities: | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 2,634 | | | | 4,347 | | | | 102,027 | | | | | | | | 109,008 | |
Provision for loan losses | | | | | | | 92,382 | | | | 879,999 | | | | | | | | 972,381 | |
Deferred income taxes | | | (100,156 | ) | | | (9,188 | ) | | | 336,127 | | | | | | | | 226,783 | |
Stock based compensation expense | | | 14,264 | | | | | | | | | | | | | | | | 14,264 | |
Amortization of warrant costs | | | 45,101 | | | | | | | | | | | | | | | | 45,101 | |
Non-cash interest charges on convertible debt | | | 22,506 | | | | | | | | | | | | | | | | 22,506 | |
Accretion and amortization of loan fees | | | | | | | 2,869 | | | | 16,225 | | | | | | | | 19,094 | |
Gain on retirement of debt | | | (48,907 | ) | | | | | | | | | | | | | | | (48,907 | ) |
Other | | | | | | | (16,834 | ) | | | 19,607 | | | | | | | | 2,773 | |
Equity in income of affiliates | | | (20,535 | ) | | | (142,159 | ) | | | | | | | 162,694 | | | | | |
Changes in assets and liabilities, net of assets and liabilities acquired: | | | | | | | | | | | | | | | | | | | | |
Income tax receivable | | | (173,844 | ) | | | (1,078 | ) | | | 240 | | | | | | | | (174,682 | ) |
Other assets | | | (1,901 | ) | | | 28,407 | | | | (33,210 | ) | | | | | | | (6,704 | ) |
Accrued taxes and expenses | | | (23,386 | ) | | | (5,307 | ) | | | (23,420 | ) | | | | | | | (52,113 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used) provided by operating activities | | | (295,113 | ) | | | (28,203 | ) | | | 1,441,931 | | | | | | | | 1,118,615 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Purchases of receivables | | | | | | | (1,280,291 | ) | | | (537,349 | ) | | | 537,349 | | | | (1,280,291 | ) |
Principal collections and recoveries on receivables | | | | | | | 299,379 | | | | 3,958,258 | | | | | | | | 4,257,637 | |
Net proceeds from sale of receivables | | | | | | | 537,349 | | | | | | | | (537,349 | ) | | | | |
Purchases of property and equipment | | | | | | | (1,202 | ) | | | 199 | | | | | | | | (1,003 | ) |
Change in restricted cash – securitization notes payable | | | | | | | | | | | 131,064 | | | | | | | | 131,064 | |
Change in restricted cash – credit facilities | | | | | | | | | | | 63,180 | | | | | | | | 63,180 | |
Change in other assets | | | | | | | 7,268 | | | | 5,692 | | | | | | | | 12,960 | |
Proceeds from money market fund | | | | | | | 104,319 | | | | | | | | | | | | 104,319 | |
Investment in money market fund | | | | | | | (115,821 | ) | | | | | | | | | | | (115,821 | ) |
Net change in investment in affiliates | | | (6,317 | ) | | | (212,067 | ) | | | | | | | 218,384 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash (used) provided by investing activities | | | (6,317 | ) | | | (661,066 | ) | | | 3,621,044 | | | | 218,384 | | | | 3,172,045 | |
| | | | | | | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Borrowings on credit facilities | | | | | | | | | | | 3,657,240 | | | | | | | | 3,657,240 | |
Payments on credit facilities | | | | | | | | | | | (4,935,357 | ) | | | | | | | (4,935,357 | ) |
Issuance of securitization notes payable | | | | | | | | | | | 1,000,000 | | | | | | | | 1,000,000 | |
Payments on securitization notes payable | | | | | | | | | | | (3,987,424 | ) | | | | | | | (3,987,424 | ) |
Debt issuance costs | | | (56 | ) | | | (2,163 | ) | | | (30,390 | ) | | | | | | | (32,609 | ) |
Net proceeds from issuance of common stock | | | 3,741 | | | | | | | | 242,253 | | | | (242,253 | ) | | | 3,741 | |
Retirement of convertible debt | | | (238,617 | ) | | | | | | | | | | | | | | | (238,617 | ) |
Other net changes | | | (603 | ) | | | | | | | | | | | | | | | (603 | ) |
Net change in due (to) from affiliates | | | 536,214 | | | | 524,481 | | | | (1,081,410 | ) | | | 20,715 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash provided (used) by financing activities | | | 300,679 | | | | 522,318 | | | | (5,135,088 | ) | | | (221,538 | ) | | | (4,533,629 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease in cash and cash equivalents | | | (751 | ) | | | (166,951 | ) | | | (72,113 | ) | | | (3,154 | ) | | | (242,969 | ) |
Effect of Canadian exchange rate changes on cash and cash equivalents | | | 751 | | | | | | | | (1,142 | ) | | | 3,154 | | | | 2,763 | |
Cash and cash equivalents at beginning of year | | | | | | | 349,960 | | | | 83,533 | | | | | | | | 433,493 | |
| | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | | | | $ | 183,009 | | | $ | 10,278 | | | $ | | | | $ | $193,287 | |
| | | | | | | | | | | | | | | | | | | | |
108
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholder of
General Motors Financial Company, Inc.:
We have audited the accompanying consolidated balance sheets of General Motors Financial Company, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and 2010 (Successor), and the related consolidated statements of operations and comprehensive operations, shareholders’ equity, and cash flows for the year ended December 31, 2011(Successor), the three month periods ended December 31, 2010 (Successor), and September 30, 2010 (Predecessor), and for each of the two years in the period ended June 30, 2010 (Predecessor). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of General Motors Financial Company, Inc. and subsidiaries at December 31, 2011 and 2010 (Successor) and the results of their operations and their cash flows for the year ended December 31, 2011 (Successor), the three month periods ended December 31, 2010 (Successor) and September 30, 2010 (Predecessor), and for each of the two years in the period ended June 30, 2010 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Dallas, Texas
February 27, 2012
109
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
We had no disagreements on accounting or financial disclosure matters with our independent accountants to report under this Item 9.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Such controls include those designed to ensure that information for disclosure is accumulated and communicated to management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.
The CEO and CFO, with the participation of management, have evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2011. Based on their evaluation, they have concluded, to the best of their knowledge and belief, that the disclosure controls and procedures are effective.
Internal Control over Financial Reporting
There were no changes made in our internal control over financial reporting during the quarter ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Limitations Inherent in all Controls
Our management, including the CEO and CFO, recognize that the disclosure controls and procedures and internal controls over financial reporting (discussed above) cannot prevent all errors or all attempts at fraud. Any controls system, no matter how well crafted and operated, can only provide reasonable, and not absolute, assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in any control system, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected.
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MANAGEMENT’S REPORTS
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on theInternal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under theInternal Control-Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2011.
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PART III
| ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Omitted in accordance with General Instruction I to Form 10-K
| ITEM 11. | EXECUTIVE AND DIRECTOR COMPENSATION |
Omitted in accordance with General Instruction I to Form 10-K
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
Omitted in accordance with General Instruction I to Form 10-K
| ITEM 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
Omitted in accordance with General Instruction I to Form 10-K
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
| | | | | | | | | | | | | | | | | | |
| | | Successor | | | | | Predecessor | |
| | | Year Ended
December 31,
2011 | | | Period From
October 1,
2010
Through
December 31,
2010 | | | | | Period From
July 1, 2010
Through
September 30,
2010 | | | Year Ended
June 30,
2010 | |
Deloitte & Touche LLP | | | | | | | | | | | | | | | | | | |
Audit Fees(a) | | $ | 1,138,000 | | | $ | 975,000 | | | | | $ | 75,000 | | | $ | 1,025,000 | |
Audit Related Fees(b) | | | 662,000 | | | | 92,500 | | | | | | 141,000 | | | | 498,900 | |
Tax Fees(c) | | | 73,220 | | | | 58,073 | | | | | | 114,513 | | | | 150,977 | |
| | | | | | | | | | | | | | | | | | |
Total Fees | | $ | 1,873,220 | | | $ | 1,125,573 | | | | | $ | 330,513 | | | $ | 1,674,877 | |
| | | | | | | | | | | | | | | | | | |
| (a) | Audit Fees include the annual financial statement audit (including quarterly reviews, subsidiary audits and other procedures required to be performed by the independent registered public accounting firm to be able to form an opinion on our consolidated financial statements). Audit Fees includes fees for professional services to perform the attestation required by the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. |
| (b) | Audit-Related Fees are assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the independent registered public accounting firm. Audit-Related Fees include, among other things, agreed-upon procedures and other services pertaining to our securitization program and other warehouse credit facility reviews; the attestations required by the requirements of Regulation AB; and accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit Fees”. |
| (c) | Tax Fees include tax services related to tax compliance and related advice. |
As a wholly owned subsidiary of General Motors Company, audit and non-audit services provided by our independent auditor are subject to General Motors Company’s Audit Committee pre-approval policies and procedures. The Audit Committee pre-approved all services provided by, and all fees of, our independent auditor.
112
PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| | (1) | The following Consolidated Financial Statements as set forth in Item 8 of this report are filed herein. |
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2011 and 2010 (Successor) .
Consolidated Statements of Operations and Comprehensive Operations for the year ended December 31, 2011, three months ended December 31, 2010 (Successor), and September 30, 2010 and for the years ended June 30, 2010 and 2009 (Predecessor).
Consolidated Statements of Shareholder’s Equity for the year ended December 31, 2011, three months ended December 31, 2010 (Successor) and September 30, 2010 and for the years ended June 30, 2010 and 2009 (Predecessor).
Consolidated Statements of Cash Flows for the year ended December 31, 2011, three months ended December 31, 2010 (Successor) and September 30, 2010 and for the years ended June 30, 2010 and 2009 (Predecessor).
Notes to Consolidated Financial Statements
| | (2) | All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are either not required under the related instructions, are inapplicable, or the required information is included elsewhere in the Consolidated Financial Statements and incorporated herein by reference. |
| | (3) | The exhibits filed in response to Item 601 of Regulation S-K are listed in the Index to Exhibits. |
113
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on February 27, 2012.
| | |
GENERAL MOTORS FINANCIAL COMPANY, INC. |
| |
BY: | | /s/ DANIEL E. BERCE |
| | Daniel E. Berce |
| | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | |
Signature | | Title | | Date |
| | |
/s/ DANIEL E. BERCE Daniel E. Berce | | Director, President and Chief Executive Officer (Principal Executive Officer) | | February 27, 2012 |
| | |
/s/ CHRIS A. CHOATE Chris A. Choate | | Executive Vice President, Chief Financial Officer and Treasurer (Chief Accounting Officer) | | February 27, 2012 |
| | |
/s/ DANIEL AMMANN Daniel Ammann | | Director | | February 27, 2012 |
| | |
/s/ STEPHEN J. GIRSKY Stephen J. Girsky | | Director | | February 27, 2012 |
114
INDEX TO EXHIBITS
The following documents are filed as a part of this report. Those exhibits previously filed and incorporated herein by reference are identified by the exhibit numbers used in the report with which they were filed. Documents filed with this report are identified by the symbol “@” under the Exhibit Number column.
| | | | |
Exhibit No. | | Description | | |
| | |
| 2.1 | | Agreement and Plan of Merger, dated July 21, 2010, among General Motors Holdings LLC, Goalie Texas Holdco Inc. and AmeriCredit Corp., incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K, filed on July 26, 2010. | | Incorporated by Reference |
| | |
| 3.1 | | Articles of Incorporation of the Company, filed May 18, 1988, and Articles of Amendment to Articles of Incorporation, incorporated herein by reference to Exhibit 3.1 to Registration Statement No. 33-31220 on Form S-1 filed on August 24, 1988. | | Incorporated by Reference |
| | |
| 3.2 | | Amendment to Articles of Incorporation, filed October 18, 1989, incorporated herein by reference to Exhibit 3.2 to the Registration Statement No. 33-41203 on Form S-8 filed by the Company with the Securities and Exchange Commission. | | Incorporated by Reference |
| | |
| 3.3 | | Articles of Amendment to Articles of Incorporation, incorporated herein by reference herein to Exhibit 3.3 of the Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, filed with the Securities and Exchange Commission. | | Incorporated by Reference |
| | |
| 3.4 | | Amended & Restated Bylaws of the Company, incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed on February 3, 2010. | | Incorporated by Reference |
| | |
| 3.5 | | Amended and Restated Certificate of Formation of General Motors Financial Company, Inc. (formerly known as AmeriCredit Corp.), incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed on October 1, 2010. | | Incorporated by Reference |
| | |
| 4.1 | | Certificate of Merger merging Goalie Texas Holdco Inc. with and into AmeriCredit Corp., incorporated herein by reference to Exhibit 4.3 to the Current Report on Form 8-K, filed on October 1, 2010. | | Incorporated by Reference |
| | |
| 4.2 | | Indenture, dated as of September 18, 2006, among AmeriCredit Corp., the Guarantors party thereto, and HSBC Bank USA, National Association, entered into in connection with AmeriCredit’s $250,000,000 2.125% Convertible Senior Notes due 2013, incorporated herein by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, filed on November 8, 2006. | | Incorporated by Reference |
| | |
| 4.2.1 | | Supplemental Indenture, dated October 1, 2010, by and among AmeriCredit Corp., the guarantors and HSBC Bank USA, National Association, relating to the Company’s 2.125% Convertible Senior Notes due 2013, incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K, filed on October 1, 2010. | | Incorporated by Reference |
| | |
| 4.2.2 | | Fundamental Change Company Notice and Notice of Conversion Procedure, dated October 21, 2010, relating to the Company’s 2.125% Convertible Senior Notes due 2013, incorporated herein by reference to Exhibit 99.3 to the Current Report on Form 8-K, filed on October 21, 2010. | | Incorporated by Reference |
115
INDEX TO EXHIBITS
(Continued)
| | | | |
| | |
| 10.1 | | Employment Agreement, dated September 30, 2010, between the Company and Daniel E. Berce, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on October 1, 2010. | | Incorporated by Reference |
| | |
| 10.2 | | Employment Agreement, dated September 30, 2010, between the Company and Chris A. Choate, incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed on October 1, 2010. | | Incorporated by Reference |
| | |
| 10.3 | | Employment Agreement, dated September 30, 2010, between the Company and Steven P. Bowman, incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed on October 1, 2010. | | Incorporated by Reference |
| | |
| 10.4 | | Employment Agreement, dated September 30, 2010, between the Company and Kyle R. Birch, incorporated herein by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed on October 1, 2010. | | Incorporated by Reference |
| | |
| 10.5 | | Employment Agreement, dated September 30, 2010, between the Company and Brian S. Mock, incorporated herein by reference to Exhibit 10.5 to the Current Report on Form 8-K, filed on October 1, 2010. | | Incorporated by Reference |
| | |
| 10.6 | | Sale and Servicing Agreement, dated as of February 26, 2010, among AmeriCredit Syndicated Warehouse Trust, AmeriCredit Funding Corp. XI, AmeriCredit Financial Services, Inc., Deutsche Bank AG New York Branch and Wells Fargo Bank, NA, incorporated by reference herein to Exhibit 99.1 to the Current Report on Form 8-K, filed on March 2, 2010. | | Incorporated by Reference |
| | |
| 10.6.1 | | Indenture, dated February 26, 2010, among AmeriCredit Syndicated warehouse Trust, Deutsche Bank AG New York Branch and Wells Fargo Bank, NA, incorporated by reference herein to Exhibit 99.2 to the Current Report on Form 8-K, filed on March 2, 2010. | | Incorporated by Reference |
| | |
| 10.6.2 | | Note Purchase Agreement, dated February 26, 2010, among AmeriCredit Syndicated Warehouse Trust, AmeriCredit Funding Corp. XI, AmeriCredit Financial Services, Inc., Deutsche Bank AG New York Branch and Wells Fargo Bank, NA, incorporated by reference herein to Exhibit 99.3 to the Current Report on Form 8-K, filed on March 2, 2010 | | Incorporated by Reference |
| | |
| 10.6.3 | | First Supplemental Indenture, dated August 20, 2010, between AmeriCredit Syndicated Warehouse Trust and Wells Fargo Bank, N A, incorporated herein by reference to Exhibit 10.11.3 to the Annual Report on Form 10-K filed on August 27, 2010. | | Incorporated by Reference |
| | |
| 10.6.4 | | Amendment No. 1, dated August 20, 2010, to Sale and Servicing Agreement, dated February 26, 2010, among AmeriCredit Syndicated Warehouse Trust, AmeriCredit Funding Corp. XI, AmeriCredit Financial Services, Inc., Deutsche Bank AG New York Branch and Wells Fargo Bank, NA, incorporated herein by reference to Exhibit 10.11.4 to the Annual Report on Form 10-K filed on August 27, 2010. | | Incorporated by Reference |
| | |
| 10.6.5 | | Omnibus Amendment to the Sale and Servicing Agreement, the Indenture and Note Purchase Agreement, dated February 17, 2011, among AmeriCredit Syndicated Warehouse Trust, AmeriCredit Funding Corp. XI, AmeriCredit Financial Services, Inc., Deutsche Bank AG, New York Branch, and Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 99.1 to the Current Report on Form 8-K, filed February 22, 2011. | | Incorporated by Reference |
116
INDEX TO EXHIBITS
(Continued)
| | | | |
| | |
| 10.7 | | Security Agreement dated as of October 3, 2006, among AmeriCredit MTN Receivables Trust V, AmeriCredit Financial Services, Inc., AmeriCredit MTN Corp. V and Wells Fargo Bank , incorporated by reference herein to Exhibit 99.1 to the Current Report on Form 8-K, filed on October 6, 2006. | | Incorporated by Reference |
| | |
| 10.7.1 | | Servicing and Custodian Agreement dated as of October 3, 2006, among AmeriCredit Financial Services, Inc., AmeriCredit MTN Receivables Trust V and Wells Fargo Bank, incorporated by reference herein to Exhibit 99.2 to the Current Report on Form 8-K, filed on October 6, 2006. | | Incorporated by Reference |
| | |
| 10.7.2 | | Note Purchase Agreement dated as of October 3, 2006, among AmeriCredit MTN Receivables Trust V, AmeriCredit Financial Services, Inc., Meridian Funding Company, LLC and MBIA Insurance Corporation, incorporated by reference herein to Exhibit 99.4 to the Current Report on Form 8-K, filed on October 6, 2006. | | Incorporated by Reference |
| | |
| 10.7.3 | | Master Receivables Purchase Agreement dated as of October 3, 2006, among AmeriCredit MTN Receivables Trust V, AmeriCredit Financial Services, Inc., AmeriCredit MTN Corp. V and Wells Fargo Bank, incorporated by reference herein to Exhibit 99.5 to the Current Report on Form 8-K, filed on October 6, 2006. | | Incorporated by Reference |
| | |
| 10.7.4 | | Insurance Agreement dated as of October 3, 2006, among MBIA Insurance Corporation, AmeriCredit MTN Receivables Trust V, AmeriCredit Financial Services, Inc., AmeriCredit MTN Corp. V and Wells Fargo Bank, incorporated by reference herein to Exhibit 99.6 to the Current Report on Form 8-K, filed on October 6, 2006. | | Incorporated by Reference |
| | |
| 10.7.5 | | Omnibus Amendment No. 1, dated March 5, 2009, among AmeriCredit MTN Receivables Trust V, AmeriCredit Financial services, Inc., AmeriCredit MTN Corp. V, MBIA Insurance Corporation, Meridian Funding Company, LLC, Wilmington Trust Company and Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 99.7 to the Current Report on Form 8-K, filed on March 10, 2009. | | Incorporated by Reference |
| | |
| 10.8 | | Note Purchase Agreement, dated November 24, 2008, among AmeriCredit Corp., AmeriCredit Financial Services, Inc, AmeriCredit SenSub Corp. and Fairholme Funds, Inc., incorporated herein by reference herein to Exhibit 10.2 to the Current Report on Form 8-K, filed on November 26, 2008. | | Incorporated by Reference |
| | |
| 10.8.1 | | Limited Guaranty, dated November 24, 2008, issued by AmeriCredit Corp. to Wells Fargo Bank, National Association, incorporated herein by reference herein to Exhibit 10.3 to the Current Report on Form 8-K, filed on November 26, 2008. | | Incorporated by Reference |
| | |
| 10.8.2 | | Registration Rights Agreement, dated November 26, 2008, among AmeriCredit Corp., AmeriCredit Financial Services, Inc, AmeriCredit SenSub Corp. and Fairholme Funds, Inc., incorporated herein by reference herein to Exhibit 10.4 to the Current Report on Form 8-K, filed on November 26, 2008. | | Incorporated by Reference |
| | |
| 10.9 | | 2011-A Servicing Supplement, dated January 31, 2011, among ACAR Leasing Ltd., AmeriCredit Financial services, Inc., APGO Trust and Wells Fargo Bank, National Association, incorporated herein by reference to Exhibit 99.1 to the Current Report on Form 8-K, filed February 4, 2011. | | Incorporated by Reference |
117
INDEX TO EXHIBITS
(Continued)
| | | | |
| | |
| 10.9.1 | | Indenture, dated January 31, 2011, among GMF Leasing Warehouse Trust, Wells Fargo Bank, National Association, AmeriCredit Financial services, Inc., Deutsche Bank AG, New York Branch, and JPMorgan Chase Bank, N.A., incorporated herein by reference to Exhibit 99.2 to the Current Report on Form 8-K, filed February 4, 2011. | | Incorporated by Reference |
| | |
| 10.9.2 | | Note Purchase Agreement, dated January 31, 2011, among GMF Leasing Warehouse Trust, AmeriCredit Financial services, Inc., GMF Leasing LLC, Deutsche Bank, AG, New York Branch, and JPMorgan Chase Bank, N.A., incorporated herein by reference to Exhibit 99.3 to the Current Report on Form 8-K, filed February 4, 2011. | | Incorporated by Reference |
| | |
| 10.10 | | Indenture, dated June 1, 2011, between General Motors Financial Company, Inc. and Deutsche Bank Trust Company Americas, incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K, filed June 3, 2011. | | Incorporated by Reference |
| | |
| 10.10.1 | | Registration Rights Agreement, dated June 1, 2011, among General Motors Financial Company, Inc., Deutsche Bank Securities Inc. and JPMorgan Securities LLC, incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed June 3, 2011. | | Incorporated by Reference |
| | |
| 10.11 | | 2011-A Servicing Supplement, dated July 15, 2011, among GM Financial Canada Leasing Ltd., FinanciaLinx Corporation, GMF Canada Leasing Trust, Deutsche Bank AG, Canada Branch, and BMO Nesbitt Burns Inc., incorporated herein by reference to Exhibit 99.1 to the Current Report on Form 8-K, filed July 21, 2011. | | Incorporated by Reference |
| | |
| 10.11.1 | | Series 2011-A Indenture Supplement, dated July 15, 2011, among ComputerShare Trust Company of Canada, BNY trust Company of Canada, Deutsche Bank AG, Canada Branch and BMO Nesbitt Burns Inc., incorporated herein by reference to Exhibit 99.2 to the Current Report on Form 8-K, filed July 21, 2011. | | Incorporated by Reference |
| | |
| 10.11.2 | | Note Purchase Agreement, dated July 15, 2011, among GMF Canada Leasing Trust, FinanciaLinx Corporation, GM Financial Canada Leasing Ltd., Deutsche Bank AG, Canada Branch, BMO Nesbitt Burns Inc. and BNY Trust Company of Canada, incorporated herein by reference to Exhibit 99.3 to the Current Report on Form 8-K, filed July 21, 2011. | | Incorporated by Reference |
| | |
| 12.1 | | Statement Re Computation of Ratios | | |
| | |
| 31.1 | | Officers’ Certifications of Periodic Report pursuant to Section 302 of Sarbanes-Oxley Act of 2002 | | |
| | |
| 32.1 | | Officers’ Certifications of Periodic Report pursuant to Section 906 of Sarbanes-Oxley Act of 2002 | | |
| | |
| 101.INS** | | XBRL Instance Document | | |
| | |
| 101.SCH** | | XBRL Taxonomy Extension Schema Document | | |
| | |
| 101.CAL** | | XBRL Taxonomy Extension Calculation Linkbase Document | | |
| | |
| 101.DEF** | | XBRL Taxonomy Extension Definition Linkbase Document | | |
| | |
| 101.LAB** | | XBRL Taxonomy Extension Label Linkbase Document | | |
| | |
| 101.PRE** | | XBRL Taxonomy Presentation Linkbase Document | | |
118
