UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission file number 1-10667
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AmeriCredit Corp.
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(Exact name of registrant as specified in its charter)
Texas 75-2291093
------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 Bailey Avenue, Fort Worth, Texas 76107
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(Address of principal executive offices)
(Zip Code)
(817) 332-7000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
There were 29,107,032 shares of common stock, $.01 par value outstanding as of
January 31, 1997.
AMERICREDIT CORP.
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Consolidated Balance Sheets -
December 31, 1996 and June 30, 1996 ...................... 3
Consolidated Income Statements -
Three Months and Six Months Ended
December 31, 1996 and 1995 ............................... 4
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1996 and 1995 .............. 5
Notes to Consolidated Financial
Statements ............................................... 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations ............................. 12
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders ................................... 26
Item 6. Exhibits and Reports on Form 8-K ...................... 26
SIGNATURE .......................................................... 29
2
PART I - FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
AMERICREDIT CORP.
Consolidated Balance Sheets
(Unaudited, Dollars in Thousands)
December 31, June 30,
ASSETS 1996 1996
------------ --------
Cash and cash equivalents $ 5,091 $ 2,145
Investment securities 6,503 6,558
Finance receivables, net 227,800 250,484
Excess servicing receivable 59,780 33,093
Restricted cash 46,327 15,304
Property and equipment, net 9,818 7,670
Deferred income taxes 287 9,995
Goodwill 7,305
Other assets 6,971 4,910
-------- --------
Total assets $369,882 $330,159
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank line of credit $114,900 $ 86,000
Mortgage warehouse facility 3,573
Automobile receivables-backed notes 40,543 67,847
Notes payable 1,520 418
Accrued taxes and expenses 22,064 12,669
-------- --------
Total liabilities 182,600 166,934
-------- --------
Shareholders' equity:
Common stock, $.01 par value
per share; 120,000,000 shares
authorized; 33,372,236 and
32,640,963 shares issued 336 326
Additional paid-in capital 201,169 190,005
Retained earnings (deficit) 12,037 (5,233)
-------- --------
213,542 185,098
Treasury stock, at cost
(4,435,683 and 4,120,483 shares) (26,260) (21,873)
-------- --------
Total shareholders' equity 187,282 163,225
-------- --------
Total liabilities and shareholders'
equity $369,882 $330,159
-------- --------
-------- --------
The accompanying notes are an integral part
of these consolidated financial statements
3
AMERICREDIT CORP.
Consolidated Income Statements
(Unaudited, Dollars in Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Revenue:
Finance charge income $10,739 $13,852 $21,503 $27,229
Gain on sale of receivables 15,561 5,621 28,151 5,621
Servicing fee income 4,599 215 8,242 215
Investment income 684 275 1,152 556
Other income 292 298 622 563
---------- ---------- ---------- ----------
31,875 20,261 59,670 34,184
---------- ---------- ---------- ----------
Costs and expenses:
Operating expenses 11,920 5,538 21,747 10,442
Provision for losses 1,614 2,145 3,231 4,112
Interest expense 3,386 3,748 6,612 6,862
---------- ---------- ---------- ----------
16,920 11,431 31,590 21,416
---------- ---------- ---------- ----------
Income before income taxes 14,955 8,830 28,080 12,768
Provision for income taxes 5,757 3,244 10,810 4,662
---------- ---------- ---------- ----------
Net income $ 9,198 $ 5,586 $17,270 $ 8,106
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share $ .30 $ .18 $ .57 $ .26
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares
and share equivalents 30,678,189 31,120,461 30,420,676 31,130,423
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part
of these consolidated financial statements
4
AMERICREDIT CORP.
Consolidated Statements of Cash Flows
(Unaudited, Dollars in Thousands)
Six Months Ended
December 31,
-----------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net income $ 17,270 $ 8,106
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 904 778
Provision for losses 3,231 4,112
Deferred income taxes 10,682 4,126
Gain on sale of receivables (27,851) (5,621)
Amortization of excess servicing receivable 12,117
Changes in assets and liabilities:
Other assets (2,134) (1,068)
Accrued taxes and expenses 9,195 713
--------- ---------
Net cash provided by operating
activities 23,414 11,146
--------- ---------
Cash flows from investing activities:
Purchases and originations of auto
receivables (354,448) (155,427)
Purchases and originations of
mortgage receivables (7,748)
Principal collections and recoveries on
auto receivables 36,147 51,748
Net proceeds from sale of auto receivables 332,982 64,556
Net proceeds from sale of mortgage receivables 4,839
Purchases of property and equipment (1,641) (1,266)
Proceeds from disposition of property and
equipment 17 4
Proceeds from maturities of investment
securities 55 2,987
Increase in restricted cash (31,023) (2,373)
--------- ---------
Net cash used by investing activities (20,820) (39,771)
--------- ---------
Cash flows from financing activities:
Borrowings on bank line of credit 304,400 116,500
Payments on bank line of credit (275,500) (61,900)
Net increase in mortgage warehouse facility 264
Payments on automobile
receivables-backed notes (27,304) (35,159)
Payments on notes payable (221) (146)
Purchase of treasury stock (4,387) (8,059)
Proceeds from issuance of common stock 3,100 1,539
--------- ---------
Net cash provided by financing activities 352 12,775
--------- ---------
Net increase (decrease) in cash and cash
equivalents 2,946 (15,850)
Cash and cash equivalents at beginning of period 2,145 18,314
--------- ---------
Cash and cash equivalents at end of period $ 5,091 $ 2,464
--------- ---------
--------- ---------
The accompanying notes are an integral part
of these consolidated financial statements
5
AMERICREDIT CORP.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
AmeriCredit Corp. and its wholly-owned subsidiaries ("the Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The consolidated financial statements as of December 31, 1996 and for the
periods ended December 31, 1996 and 1995 are unaudited, but in management's
opinion, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for such interim
periods. The results for interim periods are not necessarily indicative of
results for a full year.
The interim period financial statements, including the notes thereto, are
condensed and do not include all disclosures required by generally accepted
accounting principles. Such interim period financial statements should be read
in conjunction with the Company's consolidated financial statements which were
included in the Company's 1996 Annual Report to Shareholders.
NOTE 2 - FINANCE RECEIVABLES
Finance receivables consist of the following (in thousands):
December 31, June 30,
1996 1996
---- ----
Auto receivables $233,792 $264,086
Less allowance for losses (12,173) (13,602)
-------- --------
221,619 250,484
Mortgage receivables 6,181
-------- --------
Finance receivables, net $227,800 $250,484
-------- --------
-------- --------
6
A summary of the allowance for losses is as follows (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Balance at beginning of period $12,598 $22,174 $13,602 $19,951
Provision for losses 1,614 2,145 3,231 4,112
Acquisition fees 6,237 3,670 12,809 7,555
Allowance related to receivables
sold (3,962) (4,225) (8,404) (4,225)
Net charge-offs-auto receivables (4,314) (4,588) (9,065) (8,181)
Net charge-offs-other (204) (240)
------- ------- ------- -------
Balance at end of period $12,173 $18,972 $12,173 $18,972
------- ------- ------- -------
------- ------- ------- -------
NOTE 3 - EXCESS SERVICING RECEIVABLE
As of December 31, 1996 and June 30, 1996, the Company was servicing
$527,924,000 and $259,895,000, respectively, of automobile sales finance
contracts which have been sold to certain special purpose financing trusts (the
"Trusts").
Excess servicing receivable consists of the following (in thousands):
December 31, June 30,
1996 1996
------------ --------
Estimated future net cash flows before
allowance for credit losses $116,037 $ 63,457
Allowance for credit losses (49,313) (25,616)
-------- --------
Estimated future net cash flows 66,724 37,841
Unamortized discount at 12% (6,944) (4,748)
-------- --------
$ 59,780 $ 33,093
-------- --------
-------- --------
7
A summary of excess servicing receivable is as follows (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Balance at beginning of period $42,656 $ 0 $ 33,093 $ 0
Excess servicing related to
receivables sold 23,748 9,243 38,804 9,243
Amortization (6,624) 0 (12,117) 0
------- ------ -------- -------
Balance at end of period $59,780 $9,243 $ 59,780 $ 9,243
------- ------ -------- -------
------- ------ -------- -------
NOTE 4 - ACQUISITION
In November 1996, the Company acquired Rancho Vista Mortgage Corporation
("RVMC"), a California corporation, which originates and sells home equity
mortgage loans in 17 states. The purchase price of $7,100,000 consisted of
400,000 shares of common stock. The acquisition has been accounted for as a
purchase and the excess of the purchase price over net assets acquired was
assigned to goodwill. The results of operations of RVMC have been included in
the consolidated financial statements since the acquisition date. In January
1997, RVMC changed its name to Americredit Corporation of California and now
operates under the name AmeriCredit Mortgage Services.
NOTE 5 - DEBT
The Company has a revolving credit agreement with a group of banks under which
the Company may borrow up to $240 million, subject to a defined borrowing base.
Aggregate borrowings of $114,900,000 and $86,000,000 were outstanding as of
December 31, 1996 and June 30, 1996, respectively. Borrowings under the credit
agreement are collateralized by certain auto receivables and bear interest,
based upon the Company's option, at either the prime rate (8.25% as of December
31, 1996) or various market London Interbank Offered Rates ("LIBOR") plus
1.25%. The Company is also required to pay an annual commitment fee equal to
1/4% of the unused portion of the credit agreement. The credit agreement,
which expires in October 1997, contains various restrictive covenants requiring
certain minimum financial ratios and results and placing certain limitations on
the incurrence of additional debt, capital expenditures, cash dividends and
repurchase of common stock.
8
On February 4, 1997, the Company completed a private placement of $125 million
of 9 1/4% Senior Notes due 2004. Interest on the notes is payable semi-
annually, commencing in August 1997. The notes, which are unsecured, may be
redeemed at the option of the Company after February 2001 at a premium
declining to par in February 2003. The Indenture pursuant to which the notes
were issued contains restrictions including limitations on the Company's
ability to incur additional indebtedness other than certain secured
indebtedness, pay cash dividends and repurchase common stock.
On February 6, 1997, the Company entered into a mortgage warehouse facility
with a bank under which the Company may borrow up to $75 million, subject to a
defined borrowing base. Borrowings under the facility will be collateralized
by certain mortgage receivables and will bear interest, based upon the
Company's option, at either the prime rate or various market London Interbank
Offered Rates ("LIBOR") plus 1.25%. The Company is also required to pay an
annual commitment fee equal to 1/8% of the unused portion of the facility. The
facility expires in February 1998.
9
Automobile receivables-backed notes consist of the following (in thousands):
December 31, June 30,
1996 1996
------------ --------
Series 1994-A notes, interest at 8.19%,
collateralized by certain auto
receivables in the principal amount
of $7,605, final maturity in
December 1999. $ 6,833 $13,671
Series 1995-A notes, interest at 6.55%,
collateralized by certain auto
receivables in the principal
amount of $36,642, final maturity
in September 2000. 33,710 54,176
------- -------
$40,543 $67,847
------- -------
------- -------
NOTE 6 - INCOME TAXES
The Company's effective income tax rate on income before income taxes differs
from the U.S. statutory tax rate as follows:
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ----------------
1996 1995 1996 1995
----- ----- ----- -----
U.S. statutory tax rate 35.0% 35.0% 35.0% 35.0%
Other 3.5 1.7 3.5 1.5
---- ---- ---- ----
38.5% 36.7% 38.5% 36.5%
---- ---- ---- ----
---- ---- ---- ----
10
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest costs and income taxes consist of the following (in
thousands):
Six Months Ended
December 31,
--------------------
1996 1995
------ ------
Interest costs (none capitalized) $6,456 $6,369
Income taxes 228 898
During the six months ended December 31, 1996, the Company entered into capital
lease obligations of $1,258,000 for the purchase of certain equipment.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company generates earnings and cash flow primarily through the purchase,
retention, securitization and servicing of automobile receivables. The Company
purchases contracts from franchised and select independent dealerships. To
fund the acquisition of receivables prior to securitization, the Company
utilizes borrowings under its bank line of credit. The Company generates
finance charge income on its owned receivables pending securitization and pays
interest expense on borrowings under its bank line of credit.
The Company sells receivables to securitization trusts ("Trusts") or special
purpose finance subsidiaries that, in turn sell asset-backed securities to
investors. By securitizing these receivables, the Company is able to lock in
the gross interest rate spread between the yield on such receivables and the
interest rate paid on the asset-backed securities. The Company recognizes a
gain on the sale of the receivables to the Trusts which represents the
difference between the sale proceeds to the Company, net of transaction costs,
and the Company's net carrying value of the receivables, plus the present
value of the estimated future excess cash flows to be received by the Company
over the life of the securitization. Monthly excess cash flow distributions
are received from the Trusts resulting from the difference between the interest
received from the obligors on the receivables and the interest paid to
investors in the asset-backed securities, net of losses and expenses.
The Company typically begins to receive excess cash flow distributions
approximately five to seven months after the receivables are securitized,
although these time periods may be shorter or longer depending upon the
structure of the securitization. Prior to such time as the Company begins to
receive excess cash flow, excess cash flow is utilized to fund credit
enhancement requirements to secure financial guaranty insurance policies
issued by an insurance company to protect investors in the asset-backed
securities from losses. Once predetermined credit enhancement requirements are
reached and maintained, excess cash flow is distributed to the Company. In
addition to excess cash flow, the Company earns base servicing fees of between
2.25% and 2.50% per annum of the outstanding principal balance of receivables
securitized.
In November 1996, the Company acquired Rancho Vista Mortgage Company ("RVMC"),
which originates and sells home equity mortgage loans in 17 states. The name
of RVMC has been changed to Americredit Corporation of California. The
12
acquisition has been accounted for as a purchase and the results of operations
for RVMC have been included in the consolidated financial statements since the
acquisition date. Receivables originated in this business are referred to as
mortgage receivables. Such receivables are generally packaged and sold to
investors for cash on a servicing released, whole-loan basis. The Company
recognizes a gain at the time of sale.
While the Company has been primarily involved in the above activities since
September 1992, the Company had previously operated in other businesses. For
purposes of the following discussion, receivables originated in businesses
previously operated by the Company are referred to as other receivables and
revenue earned therein is referred to as other finance charge income.
13
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 AS COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1995
REVENUE:
The Company's average managed receivables outstanding consisted of the
following (in thousands):
Three Months Ended
December 31,
--------------------
1996 1995
---- ----
Auto:
Owned $215,644 $277,222
Serviced 486,087 34,836
-------- --------
701,731 312,058
Mortgage 4,753
Other 533
-------- --------
$706,484 $312,591
-------- --------
-------- --------
Average managed receivables outstanding increased by 126% as a result of higher
loan purchase volume. The Company purchased $183.5 million of auto loans during
the three months ended December 31, 1996, compared to purchases of $86.6 million
during the three months ended December 31, 1995. This growth resulted from loan
production at branches open during both periods as well as expansion of the
Company's loan production capacity. The Company operated 66 auto lending branch
offices as of December 31, 1996, compared to 42 as of December 31, 1995.
The Company purchased $7.7 million of mortgage loans from the date of
acquisition of RVMC through December 31, 1996.
14
The Company's finance charge income consisted of the following (in thousands):
Three Months Ended
December 31,
--------------------
1996 1995
---- ----
Auto $ 10,708 $ 13,846
Mortgage 31
Other 6
-------- --------
$ 10,739 $ 13,852
-------- --------
-------- --------
The decrease in finance charge income is due to a reduction of 22% in average
auto receivables outstanding for the three months ended December 31, 1996
versus the three months ended December 31, 1995. Prior to December 1995, all
of the auto finance contracts purchased by the Company were held as owned auto
receivables on the Company's consolidated balance sheets. The Company began
selling finance receivables to the Trusts in December 1995, reducing average
owned receivables with corresponding increases in average serviced receivables.
The Company's effective yield on its owned auto receivables decreased to 19.7%
from 19.8%.
The gain on sale of receivables consists of the following (in thousands):
Three Months Ended
December 31,
--------------------
1996 1995
---- ----
Auto $15,261 $ 5,621
Mortgage 300
------- -------
$15,561 $ 5,621
------- -------
------- -------
The increase in gain on sale of auto receivables resulted from the sale of
$190.4 million of receivables in the three months ended December 31, 1996 as
compared to $65.0 million of receivables sold in the three months ended
December 31, 1995. The gains amounted to 8.0% and 8.6% of the sales proceeds
for the three months ended December 31, 1996 and 1995, respectively.
The gain on sale of mortgage receivables resulted from the sale of $4.8 million
of mortgage receivables.
15
Servicing fee income increased to $4,599,000, or 3.8% of average serviced
receivables, for the three months ended December 31, 1996 as compared to
$215,000, or 2.4% of average serviced receivables, for the three months ended
December 31, 1995. Servicing fee income represents net excess servicing fees,
base servicing fees and other fees earned by the Company as servicer of the
auto receivables sold to the Trusts. The growth in servicing fee income is
primarily due to the increase in average serviced auto receivables for the
three months ended December 31, 1996 compared to the three months ended
December 31, 1995.
COSTS AND EXPENSES:
Operating expenses as an annualized percentage of average managed receivables
outstanding decreased to 6.7% (6.5% excluding operating expenses of $350,000
related to the mortgage business) for the three months ended December 31, 1996
as compared to 7.0% for the three months ended December 31, 1995. The ratio
improved as a result of economies of scale realized from a growing receivables
portfolio and automation of loan origination, processing and servicing
functions. The dollar amount of operating expenses increased by $6.4 million,
or 115%, primarily due to the addition of auto lending branch offices and
management, auto loan processing and servicing staff and the recently acquired
mortgage business.
The provision for losses decreased to $1.6 million for the three months ended
December 31, 1996 as compared to $2.1 million for the three months ended
December 31, 1995. Further discussion concerning the provision for losses is
included under the caption, "Finance Receivables".
Interest expense decreased to $3.4 million for the three months ended December
31, 1996 from $3.7 million for the three months ended December 31, 1995 due to
lower debt levels and effective rates of interest. Average debt outstanding
was $169.3 million and $171.3 million for the three months ended December 31,
1996 and 1995, respectively. The Company's effective rate of interest paid on
its debt decreased to 7.9% from 8.7%.
The Company's effective income tax rate increased to 38.5% for the three months
ended December 31, 1996 from 36.7% for the three months ended December 31, 1995
due to a larger portion of the Company's income being generated in states which
have higher tax rates.
16
SIX MONTHS ENDED DECEMBER 31, 1996 AS COMPARED TO
SIX MONTHS ENDED DECEMBER 31, 1995
Revenue:
The Company's average managed receivables outstanding consisted of the
following (in thousands):
Six Months Ended
December 31,
--------------------
1996 1995
---- ----
Auto:
Owned $217,156 $268,571
Serviced 424,366 19,906
-------- --------
641,522 288,477
Mortgage 4,753
Other 774
-------- --------
$646,275 $289,251
-------- --------
-------- --------
Average managed receivables outstanding increased by 123% as a result of higher
loan purchase volume. The Company purchased $359.4 million of auto loans during
the six months ended December 31, 1996, compared to purchases of $161.3 million
during the six months ended December 31, 1995. This growth resulted from loan
production at branches open during both periods as well as expansion of the
Company's loan production capacity. The Company operated 66 auto lending
branch offices as of December 31, 1996, compared to 42 as of December 31, 1995.
The Company purchased $7.7 million of mortgage loans from the date of
acquisition of RVMC through December 31, 1996.
The Company's finance charge income consisted of the following (in thousands):
Six Months Ended
December 31,
--------------------
1996 1995
---- ----
Auto $ 21,472 $ 27,208
Mortgage 31
Other 21
-------- --------
$ 21,503 $ 27,229
-------- --------
-------- --------
17
The decrease in finance charge income is due to a reduction of 19% in average
owned auto receivables outstanding for the six months ended December 31, 1996
versus the six months ended December 31, 1995. Prior to December 1995, all of
the auto finance contracts purchased by the Company were held as owned auto
receivables on the Company's consolidated balance sheets. The Company began
selling auto receivables to the Trusts in December 1995, reducing average owned
receivables with corresponding increases in average serviced receivables.
The Company's effective yield on its owned auto finance receivables decreased
to 19.6% from 20.1%.
The gain on sale of receivables consists of the following (in thousands):
Six Months Ended
December 31,
--------------------
1996 1995
---- ----
Auto $27,851 $ 5,621
Mortgage 300
------- -------
$28,151 $ 5,621
------- -------
------- -------
The increase in gain on sale of auto receivables resulted from the sale of
$345.6 million of receivables in the six months ended December 31, 1996 as
compared to $65.0 million of receivables sold in the six months ended December
31, 1995. The gains amounted to 8.1% and 8.6% of the sales proceeds for the
six months ended December 31, 1996 and 1995, respectively.
The gain on sale of mortgage receivables resulted from the sale of $4.8 million
of mortgage receivables.
Servicing fee income increased to $8.2 million, or 3.9% of average serviced
receivables, for the six months ended December 31, 1996 as compared to
$215,000, or 2.4% of average serviced receivables, for the six months ended
December 31, 1995. Servicing fee income represents net excess servicing fees,
base servicing fees and other fees earned by the Company as servicer of the
auto receivables sold to the Trusts. The growth in servicing fee income is
primarily due to the increase in average serviced auto receivables for the six
months ended December 31, 1996 compared to the six months ended December 31,
1995.
COSTS AND EXPENSES:
18
Operating expenses as an annualized percentage of average managed receivables
outstanding decreased to 6.7% (6.6% excluding operating expenses of $350,000
related to the mortgage business) for the six months ended December 31, 1996 as
compared to 7.2% for the six months ended December 31, 1995. The ratio improved
as a result of economies of scale realized from a growing receivables portfolio
and automation of loan origination, processing and servicing functions. The
dollar amount of operating expenses increased by $11.3 million, or 108%,
primarily due to the addition of auto lending branch offices and management,
auto loan processing and servicing staff and the recently acquired mortgage
business.
The provision for losses decreased to $3.2 million for the six months ended
December 31, 1996 as compared to $4.1 million for the six months ended December
31, 1995. Further discussion concerning the provision for losses is included
under the caption, "Finance Receivables".
Interest expense decreased to $6.6 million for the six months ended December
31, 1996 from $6.9 million for the six months ended December 31, 1995 due to
lower effective rates of interest. Average debt outstanding was $165.7 million
and $158.2 million for the six months ended December 31, 1996 and 1995,
respectively. The Company's effective rate of interest paid on its debt
decreased to 7.9% from 8.6%.
The Company's effective income tax rate increased to 38.5% for the six months
ended December 31, 1996 from 36.5% for the six months ended December 31, 1995
due to a larger portion of the Company's income being generated in states which
have higher tax rates.
FINANCE RECEIVABLES
The Company provides financing in relatively high-risk markets, and therefore,
charge-offs are anticipated. The Company records a periodic provision for
losses as a charge to operations and a related allowance for losses in the
consolidated balance sheets as a reserve against estimated future losses in the
owned auto receivables portfolio. The Company typically purchases individual
automobile finance contracts for a non-refundable acquisition fee on a non-
recourse basis. Such acquisition fees are also recorded in the consolidated
balance sheets as an allowance for losses. The calculation of excess servicing
receivable includes an allowance for estimated future losses over the remaining
term of the auto receivables sold to the Trusts and serviced by the Company.
19
The Company sells the mortgage receivables for cash on a servicing released,
whole-loan basis. Such receivables are generally held by the Company for less
than 90 days. Accordingly, no allowance for losses is provided by the Company
for the mortgage receivables.
The Company reviews static pool origination and charge-off relationships,
charge-off experience factors, collections information, delinquency reports,
estimates of the value of the underlying collateral, economic conditions and
trends and other information in order to make the necessary judgments as to the
appropriateness of the periodic provision for losses and the allowance for
losses. Although the Company uses many resources to assess the adequacy of the
allowance for losses, there is no precise method for accurately estimating the
ultimate losses in the receivables portfolio.
The following table presents certain data related to the receivables portfolio
(dollars in thousands):
December 31,
1996
-------------------------------------------
Balance
Auto Sheet Auto Total
Owned Mortgage Total Serviced Portfolio
-------- -------- -------- -------- ---------
Principal amount of receivables $233,792 $ 6,181 $239,973 $527,924 $767,897
-------- --------
-------- --------
Allowance for losses (12,173) (12,173) $(49,313)(1) $(61,486)
-------- ------- -------- -------- --------
-------- --------
Finance receivables, net $221,619 $ 6,181 $227,800
-------- ------- --------
-------- ------- --------
Number of outstanding contracts 25,015 65 55,324 80,339 (2)
-------- ------- -------- --------
-------- ------- -------- --------
Average amount of outstanding
contract (principal amount)
(in dollars) $ 9,346 $95,092 $ 9,542 $ 9,481 (2)
-------- ------- -------- --------
-------- ------- -------- --------
Allowance for losses as a percentage
of receivables 5.2% 9.3% 8.1%(2)
-------- -------- --------
-------- -------- --------
(1) The allowance for losses related to serviced auto receivables is netted
against excess servicing receivable in the Company's consolidated balance
sheets.
(2) Includes auto receivables only.
20
The following is a summary of managed auto receivables which are more than 60
days delinquent (dollars in thousands):
December 31,
--------------------
1996 1995
------- -------
Delinquent contracts $28,251 $12,625
Delinquent contracts as a percentage
of managed auto receivables 3.7% 3.7%
The following table presents charge-off data with respect to the Company's
managed auto receivables portfolio (dollars in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
------------------ ------------------
1996 1995 1996 1995
------ ------ ------ ------
Net charge-offs:
Owned $4,314 $4,588 $ 9,065 $8,181
Serviced 5,397 34 8,684 34
------ ------ ------- ------
$9,711 $4,622 $17,749 $8,215
------ ------ ------- ------
------ ------ ------- ------
Net charge-offs as an
annualized percentage of
average managed auto
receivables outstanding 5.5% 5.9% 5.5% 5.7%
------ ------ ------- ------
------ ------ ------- ------
The Company recorded periodic provisions for losses as charges to operations of
$1.6 million and $2.1 million for the three months ended December 31, 1996 and
1995, respectively, and $3.2 million and $4.1 million for the six months ended
December 31, 1996 and 1995, respectively. The decreased loss provisions are a
result of lower average owned auto receivables outstanding for the periods
ended December 31, 1996 versus the periods ended December 31, 1995.
The Company began its automobile finance business in September 1992 and the
Company has grown its managed auto receivables portfolio to $761.7 million as
of December 31, 1996. The Company expects that its delinquency and charge-offs
will increase over time as the portfolio matures and its receivables growth
rate moderates. Accordingly, the delinquency and charge-off data above is not
necessarily indicative of delinquency and charge-off experience that could be
expected for a more seasoned portfolio.
21
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows are summarized as follows (in thousands):
Six Months Ended
December 31,
----------------------
1996 1995
------- --------
Operating activities $ 23,414 $ 11,146
Investing activities (20,820) (39,771)
Financing activities 352 12,775
-------- --------
Net increase (decrease) in
cash and cash equivalents $ 2,946 ($15,850)
-------- --------
-------- --------
In addition to the net change in cash and cash equivalents shown above, the
Company also had net decreases in investment securities of $55,000 and
$2,987,000 for the six months ended December 31, 1996 and 1995, respectively.
Such amounts are included as investing activities in the above table.
The Company's primary sources of cash have been collections and recoveries on
its finance receivables portfolio, borrowings under its bank line of credit,
the issuance of automobile receivables-backed securities and excess cash flow
distributions from the Trusts.
The Company's bank line of credit arrangement with a group of banks provides
for borrowings up to $240 million, subject to a defined borrowing base. The
facility matures in October 1997. The Company utilizes the line of credit to
fund its daily auto lending activities and operations. A total of $114.9
million was outstanding under the line of credit as of December 31, 1996.
On February 4, 1997, the Company completed a private placement of $125 million
of 9 1/4% Senior notes due 2004. Interest on the notes is payable semi-
annually, commencing in August 1997. The notes, which are unsecured, may be
redeemed at the option of the Company after February 2001 at a premium
declining to par in February 2003. The net proceeds from the offering were
used to pay down outstanding borrowings under the bank line of credit.
On February 6, 1997, the Company entered into a mortgage warehouse facility
with a bank under which the Company may borrow up to $75 million, subject to a
defined borrowing base. Borrowings under the facility will be collateralized
by certain mortgage receivables and will bear interest, based upon the
Company's option, at either the prime rate or various market London Interbank
Offered Rates ("LIBOR") plus 1.25%. The Company is also required to pay an
22
annual commitment fee equal to 1/8% of the unused portion of the facility. The
facility expires in February 1998.
In November 1996, the Company completed its seventh securitization transaction
with the issuance of $200 million of automobile receivables-backed securities
through the AmeriCredit Automobile Receivables Trust 1996-D. The proceeds from
the transaction were used to repay a portion of the borrowings then outstanding
under the Company's bank line of credit.
The Company's primary use of cash has been purchases and originations of auto
receivables. The Company purchased $359.4 million of auto finance contracts
during the six months ended December 31, 1996 requiring cash of $354.4 million,
net of acquisition fees and other factors. The Company operated 66 auto
lending branch offices and had a number of marketing representatives as of
December 31, 1996. The Company plans to open fifteen additional branches in the
remainder of fiscal 1997. The Company may also expand loan production capacity
at existing offices where appropriate. While the Company has been able to
establish and grow its automobile finance business thus far, there can be no
assurance that future expansion will be successful due to competitive,
regulatory, market, economic or other factors.
The Company's Board of Directors has authorized the repurchase of up to
6,000,000 shares of the Company's common stock. A total of 4,594,700 shares at
an aggregate purchase price of $27.3 million had been purchased pursuant to
this program through December 31, 1996. Certain restrictions contained in the
Indenture pursuant to which the 9 1/4% Senior Notes were issued prevent the
Company from repurchasing additional common stock for the remainder of fiscal
1997 and limit the amount of common stock which may be repurchased thereafter.
As of December 31, 1996, the Company had $11.6 million in cash and cash
equivalents and investment securities. The Company also had available borrowing
capacity of $125.8 million under its bank line of credit pursuant to the
borrowing base requirement of such credit agreement, and as adjusted for the
application of the net proceeds from the 9 1/4% Senior Note offering in
February 1997. The Company estimates that it will require additional external
capital for the remainder of fiscal 1997 in addition to these existing capital
resources, collections and recoveries on its finance receivables portfolio and
excess cash flow distributions from the Trusts in order to fund expansion of
its automobile and mortgage lending businesses, capital expenditures, and other
costs and expenses.
The Company anticipates that such funding may be in the form of additional
automobile receivables-backed securities transactions and implemention of other
23
warehouse financing facilities. There can be no assurance that funding will be
available to the Company through these sources, or if available, that it will
be on terms acceptable to the Company.
Since the Company's funding strategy is dependent upon the issuance of interest-
bearing securities and the incurrence of other debt, fluctuations in interest
rates impact the Company's profitability. The Company uses several strategies
to minimize the risk of interest rate fluctuations including the use of hedging
instruments, the regular sale of finance receivables to the Trusts and pre-
funding securitizations, whereby the amount of asset-backed securities issued
in a securitization exceeds the amount of receivables initially sold to the
Trust. The proceeds from the pre-funded portion are held in an escrow account
until the Company sells additional receivables to the Trust in amounts up to
the balance of the pre-funded escrow account. In pre-funded securitizations,
the Company locks in the borrowing costs with respect to the loans it
subsequently purchases and delivers to the Trust. However, the Company incurs
an expense in pre-funded securitizations equal to the difference between the
money market yields earned on the proceeds held in escrow prior to subsequent
delivery of loans and the interest rate paid on the asset-backed securities
outstanding. There can be no assurance that these strategies will be effective
in minimizing interest rate risk or that increases in interest rates will not
have an adverse effect on the Company's profitability.
24
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 13, 1996, the Company held its Annual Meeting of
Shareholders. The shareholders voted upon the election of eight
directors, the approval and adoption of the 1996 Limited Stock
Option Plan for AmeriCredit Corp. and the ratification of the
appointment of the Company's independent auditors. Each of the
eight nominees identified in the Company's proxy statement, filed
pursuant to Rule 14a-6 of the Securities Exchange Act of 1934,
were elected at the meeting to hold office until the next annual
meeting or until their successors are duly elected and qualified.
The shareholders approved and adopted the 1996 Limited Stock
Option Plan for AmeriCredit Corp., with 19,967,078 shares voting
in favor, 4,735,447 shares voting against and 47,100 shares
withheld. The Company's selection of independent auditors was
also ratified.
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
25
10.1 Second Restated Revolving Credit Agreement, dated as of
October 7, 1996, between AmeriCredit Corp. and subsidiaries
and Wells Fargo Bank (Texas), National Association, Bank One,
Texas, N.A., LaSalle National Bank, The Sumitomo Bank
Limited, Harris Trust and Savings Bank, Comerica Bank -
Texas, Texas Commerce Bank National Association, BankAmerica
Business Credit, Inc. and The Bank of Nova Scotia, as amended
by that certain First Amendment to Second Restated Revolving
Credit Agreement, dated as of Janauary 22, 1997, between the
same parties.
10.2 Indenture, dated as of February 4, 1997, between AmeriCredit
Corp. and subsidiaries and Bank One, Columbus, NA, with form
of 9 1/4% Senior Notes due 2004 attached as exhibit.
10.3 Purchase Agreement, dated as of January 30, 1997, between
AmeriCredit Corp. and subsidiaries and Smith Barney Inc.,
Montgomery Securities, Piper Jaffray Inc. and Wheat First
Butcher Singer.
10.4 A/B Exchange Registration Rights Agreement, dated as of
February 4, 1997, between AmeriCredit Corp. and subsidiaries
and Smith Barney Inc., Montgomery Securities, Piper Jaffray
Inc. and Wheat First Butcher Singer.
11.1 Statement Re Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarterly period ended December 31, 1996.
26
On January 8, 1997 and again on February 5, 1997, the Company
filed reports on Form 8-K related to the private offering and
subsequent issuance of $125 million of 9 1/4% Senior Notes
due 2004. On February 6, 1997, a subsidiary of the Company
filed several reports on Form 8-K with information relating
to AmeriCredit Automobile Receivables Trust 1996-B,
AmeriCredit Automobile Receivables Trust 1996-C and
AmeriCredit Automobile Receivables Trust 1996-D, covering
periods prior to December 31, 1996.
27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AmeriCredit Corp.
-------------------------------
(Registrant)
Date: February 13, 1996 By: /s/ Daniel E. Berce
--------------------------------
(Signature)
Daniel E. Berce
Chief Financial Officer
28