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 September 30, 1999
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
------------------------------------------------------
AMERICREDIT CORP.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-2291093
- ------------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
801 Cherry Street, Suite 3900, Fort Worth, Texas 76102
- ----------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(817) 302-7000
- ----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ----------------------------------------------------------------------------
(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 filed such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
There were 73,569,687 shares of common stock, $.01 par value outstanding as of
October 29, 1999.
AMERICREDIT CORP.
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements PAGE
----
Consolidated Balance Sheets -
September 30, 1999 and June 30, 1999.............................. 3
Consolidated Statements of Income and Comprehensive
Income - Three Months Ended September 30, 1999 and
1998.............................................................. 4
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1999 and 1998.................... 5
Notes to Consolidated Financial
Statements........................................................ 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations.................................. 17
Item 3. Qualitative and Quantitative
Disclosures About Market Risk.............................. 32
Part II. OTHER INFORMATION
SIGNATURE................................................................. 35
2
PART I - FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
AMERICREDIT CORP.
Consolidated Balance Sheets
(Unaudited, Dollars in Thousands)
September 30, June 30,
ASSETS 1999 1999
------------ ----------
Cash and cash equivalents $ 24,013 $ 21,189
Receivables held for sale, net 606,355 456,009
Interest-only receivables from Trusts 214,233 191,865
Investments in Trust receivables 234,725 195,598
Restricted cash 128,574 107,399
Property and equipment, net 49,321 41,145
Other assets 66,284 50,282
---------- ----------
Total assets $1,323,505 $1,063,487
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Warehouse credit facilities $ 181,561 $ 114,659
Senior notes 375,000 375,000
Other notes payable 23,355 17,874
Accrued taxes and expenses 113,259 82,229
Deferred income taxes 82,992 73,995
---------- ----------
Total liabilities 776,167 663,757
---------- ----------
Shareholders' equity:
Preferred Stock, $.01 par value
per share; 20,000,000 shares
authorized, none issued
Common stock, $.01 par value
per share; 120,000,000 shares
authorized; 80,818,043 and
71,498,474 shares issued 808 715
Additional paid-in capital 364,645 252,194
Accumulated other comprehensive
income 31,150 21,410
Retained earnings 172,934 147,610
---------- ----------
569,537 421,929
Treasury stock, at cost
(7,357,030 shares) (22,199) (22,199)
---------- ----------
Total shareholders' equity 547,338 399,730
---------- ----------
Total liabilities and shareholders'
equity $1,323,505 $1,063,487
========== ==========
The accompanying notes are an integral part
of these consolidated financial statements
3
AMERICREDIT CORP.
Consolidated Statements of Income and Comprehensive Income
(Unaudited, Dollars in Thousands, Except Per Share Data)
Three Months Ended
September 30,
--------------------------
1999 1998
----------- -----------
Revenue
Finance charge income $ 27,536 $ 16,917
Gain on sale of receivables 48,928 35,120
Servicing fee income 34,787 16,865
Other income 1,368 864
----------- -----------
112,619 69,766
----------- -----------
Costs and expenses
Operating expenses 53,678 34,059
Provision for losses 3,487 2,188
Interest expense 14,276 8,345
----------- -----------
71,441 44,592
----------- -----------
Income before income taxes 41,178 25,174
Income tax provision 15,854 9,692
----------- -----------
Net income 25,324 15,482
----------- -----------
Other comprehensive income
Unrealized gain (loss) on credit
enhancement assets 15,795 (5,546)
Less related income taxes (6,055) 2,135
----------- -----------
9,740 (3,411)
----------- -----------
Comprehensive income $ 35,064 $ 12,071
=========== ===========
Earnings per share:
Basic $ .38 $ .25
=========== ===========
Diluted $ .35 $ .23
=========== ===========
Weighted average shares 67,503,547 62,339,479
=========== ===========
Weighted average shares and
assumed incremental shares 71,678,349 66,968,691
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements
4
AMERICREDIT CORP.
Consolidated Statements of Cash Flows
(Unaudited, Dollars in Thousands)
Three Months Ended
September 30,
---------------------------
1999 1998
----------- ---------
Cash flows from operating activities
Net income $ 25,324 $ 15,482
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,365 1,820
Provision for losses 3,487 2,188
Deferred income taxes 3,313 9,843
Non-cash servicing fee income (8,777) (2,345)
Non-cash gain on sale of auto receivables (45,328) (28,314)
Distributions from Trusts 14,230 12,470
Changes in assets and liabilities:
Other assets (11,773) (3,163)
Accrued taxes and expenses 31,030 13,741
----------- ---------
Net cash provided by operating activities 16,871 21,722
----------- ---------
Cash flows from investing activities
Purchases of auto receivables (1,036,680) (622,212)
Originations of mortgage receivables (93,781) (38,901)
Principal collections and recoveries on
receivables 5,384 5,464
Net proceeds from sale of auto receivables 890,985 562,296
Net proceeds from sale of mortgage receivables 80,259 47,542
Initial deposits to restricted cash (27,000) (16,750)
Purchases of property and equipment (5,636) (3,262)
Increase in other assets (4,304) (5,870)
----------- ---------
Net cash used by investing activities (190,773) (71,693)
----------- ---------
Cash flows from financing activities
Net change in warehouse credit facilities 66,902 42,577
Payments on other notes payable (2,349) (561)
Proceeds from issuance of common stock 112,173 3,086
----------- ---------
Net cash provided by financing activities 176,726 45,102
----------- ---------
Net change in cash and cash equivalents 2,824 (4,869)
Cash and cash equivalents at beginning of period 21,189 33,087
----------- ---------
Cash and cash equivalents at end of period $ 24,013 $ 28,218
=========== =========
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 September 30, 1999 and for the
periods ended September 30, 1999 and 1998 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. These interim period financial statements should be read
in conjunction with the Company's consolidated financial statements which are
included in the Company's Annual Report on Form 10-K for the year ended June 30,
1999.
NOTE 2 - RECEIVABLES HELD FOR SALE
Receivables held for sale consist of the following (in thousands):
September 30, June 30,
1999 1999
------------ ---------
Auto receivables $ 585,860 $ 444,128
Less allowance for losses (16,712) (11,841)
--------- ---------
Auto receivables, net 569,148 432,287
Mortgage receivables 37,207 23,722
--------- ---------
$ 606,355 $ 456,009
========= =========
6
A summary of the allowance for losses is as follows (in thousands):
Three Months Ended
September 30,
-----------------------
1999 1998
-------- --------
Balance at beginning of period $ 11,841 $ 12,756
Provision for losses 3,487 2,188
Acquisition fees 21,713 14,046
Allowance related to auto receivables
sold to Trusts (18,671) (16,475)
Net charge-offs (1,658) (1,858)
-------- --------
Balance at end of period $ 16,712 $ 10,657
======== ========
NOTE 3 - CREDIT ENHANCEMENT ASSETS
As of September 30, 1999 and June 30, 1999, the Company was servicing $4,163.2
million and $3,661.3 million, respectively, of auto receivables which have been
sold to certain special purpose financing trusts (the "Trusts"). The Company has
retained an interest in these receivables in the form of credit enhancement
assets.
Credit enhancement assets consist of the following (in thousands):
September 30, June 30,
1999 1999
------------- --------
Interest-only receivables from Trusts $214,233 $191,865
Investments in Trust receivables 234,725 195,598
Restricted cash 128,574 107,399
-------- --------
$577,532 $494,862
======== ========
A summary of activity in the credit enhancement assets is as follows(in
thousands):
Three Months Ended
September 30,
-----------------------
1999 1998
--------- ---------
Balance at beginning of period $ 494,862 $ 286,309
Non-cash gain on sale of auto receivables 45,328 28,314
Accretion of present value discount 8,777 7,145
Initial deposits to restricted cash 27,000 16,750
Change in unrealized gain 15,795 (5,546)
Distributions from Trusts (14,230) (12,470)
Permanent impairment write-down (4,800)
--------- ---------
Balance at end of period $ 577,532 $ 315,702
========= =========
7
A summary of the allowance for losses included as a component of the
interest-only receivables is as follows (in thousands):
Three Months Ended
September 30,
------------------------
1999 1998
--------- ---------
Balance at beginning of period $ 354,338 $ 179,359
Assumptions for cumulative credit losses 92,952 62,593
Permanent impairment write-down 4,800
Net charge-offs (46,552) (28,861)
--------- ---------
Balance at end of period $ 400,738 $ 217,891
========= =========
NOTE 4 - WAREHOUSE CREDIT FACILITIES
Warehouse credit facilities consist of the following (in thousands):
September 30, June 30,
1999 1999
------------ --------
Commercial paper facilities $169,259 $ 94,369
Credit agreements 1,867 1,306
Mortgage facility 10,435 18,984
-------- --------
$181,561 $114,659
======== ========
The Company has three separate funding agreements with administrative agents on
behalf of institutionally managed commercial paper conduits and bank groups with
aggregate structured warehouse financing availability of $1.3 billion. The first
facility was renewed in September 1999, increasing the amount of available
structured warehouse financing to $675 million from $505 million, and matures in
September 2000. The second facility was established in September 1999 and
provides for available structured warehouse financing of $250 million through
September 2000. The third facility provides for available structured warehouse
financing of $375 million through March 2000.
Under these funding agreements, the Company transfers auto receivables to
special purpose finance subsidiaries of the Company, and these subsidiaries in
turn issue notes, collateralized by such auto receivables, to the agents. The
agents provide funding under the notes to the subsidiaries pursuant to an
advance formula and the subsidiaries forward the funds to the Company in
consideration for the transfer of auto receivables. While these subsidiaries are
included in the Company's consolidated financial statements, these subsidiaries
are separate legal entities and the auto receivables and other assets held by
the subsidiaries are legally owned by these subsidiaries and are not available
to creditors of AmeriCredit Corp. or its other subsidiaries. Advances under the
funding agreements bear interest at commercial paper, London
8
Interbank Offered Rates ("LIBOR") or prime rates plus specified fees
depending upon the source of funds provided by the agents. The funding
agreements contain various covenants requiring certain minimum financial
ratios and results.
The Company has a revolving credit agreement with a group of banks under which
the Company may borrow up to $90 million, subject to a defined borrowing base.
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 or LIBOR plus 1.25%. The Company is also required to pay an annual
commitment fee equal to 0.25% of the unused portion of the credit agreement. The
credit agreement, which expires in March 2000, contains various restrictive
covenants requiring certain minimum financial ratios and results and placing
certain limitations on the prepayment of senior notes, cash dividends and
repurchase of common stock.
The Company's Canadian subsidiary has a convertible revolving term credit
agreement with a bank under which the subsidiary may borrow up to $20 million
Cdn., subject to a defined borrowing base. Borrowings under the credit agreement
are collateralized by certain Canadian auto receivables and bear interest at the
Canadian prime rate. The credit agreement, which expires in November 1999,
contains various restrictive covenants requiring certain minimum financial
ratios and results and placing certain limitations on the prepayment of senior
notes, cash dividends and repurchase of common stock.
The Company has a mortgage warehouse facility with a bank under which the
Company may borrow up to $25 million, subject to a defined borrowing base.
Borrowings under the facility are collateralized by certain mortgage receivables
and bear interest, based upon the Company's option, at either the prime rate
plus 0.50% or LIBOR plus 1.5%. The Company is also required to pay an annual
commitment fee equal to 0.125% of the unused portion of the facility. The
facility expires in July 2000.
NOTE 5 - SUPPLEMENTAL INFORMATION
Cash payments (receipts) for interest costs and income taxes consist of the
following (in thousands):
Three Months Ended
September 30,
---------------------
1999 1998
------- --------
Interest costs (none capitalized) $14,059 $ 12,552
Income taxes 2,795 (14,000)
During the three months ended September 30, 1999 and 1998, the Company entered
into lease agreements for property and equipment of $7,830,000 and $2,436,000,
respectively.
9
NOTE 6 - GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS
The payment of principal, premium, if any, and interest on the Company's senior
notes is guaranteed by certain of the Company's subsidiaries (the "Subsidiary
Guarantors"). The separate financial statements of the Subsidiary Guarantors are
not included herein because the Subsidiary Guarantors are wholly-owned
consolidated subsidiaries of the Company and are jointly, severally and
unconditionally liable for the obligations represented by the senior notes. The
Company believes that the condensed consolidating financial information for the
Company, the combined Subsidiary Guarantors and the combined Non-Guarantor
Subsidiaries provide information that is more meaningful in understanding the
financial position of the Subsidiary Guarantors than separate financial
statements of the Subsidiary Guarantors. Therefore, the separate financial
statements of the Subsidiary Guarantors are not deemed material.
The following supplementary information presents consolidating financial data
for (i) AmeriCredit Corp. (on a parent only basis), (ii) the combined Subsidiary
Guarantors, (iii) the combined Non-Guarantor Subsidiaries, (iv) an elimination
column for adjustments to arrive at the information for the Company and its
subsidiaries on a consolidated basis and (v) the Company and its subsidiaries on
a consolidated basis.
Investments in subsidiaries are accounted for by the parent company using the
equity method for purposes of this presentation. Earnings of subsidiaries are
therefore reflected in the parent company's investment accounts and earnings.
The principal elimination entries eliminate investments in subsidiaries and
intercompany balances and transactions.
10
AmeriCredit Corp.
Consolidating Balance Sheet
September 30, 1999
(Unaudited, Dollars in Thousands)
AmeriCredit
Corp. Guarantors Non-Guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
ASSETS
Cash and cash equivalents $ $ 24,927 $ (914) $ $ 24,013
Receivables held for
sale, net 414,702 191,653 606,355
Interest-only receivables
from Trusts 2,509 211,724 214,233
Investments in Trust
receivables 234,725 234,725
Restricted cash 128,574 128,574
Property and equipment, net 349 48,972 49,321
Other assets 11,347 36,954 17,983 66,284
Due (to) from affiliates 683,512 (743,345) 59,833
Investment in affiliates 233,186 206,944 1,949 (442,079)
-------- --------- -------- --------- ----------
Total assets $930,903 $ (10,846) $845,527 $(442,079) $1,323,505
======== ========= ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Warehouse credit facilities $ $ 12,302 $169,259 $ $ 181,561
Senior notes 375,000 375,000
Other notes payable 23,355 23,355
Accrued taxes and expenses 27,747 85,066 446 113,259
Deferred income taxes (42,537) (45,679) 171,208 82,992
-------- --------- -------- --------- ----------
Total liabilities 383,565 51,689 340,913 776,167
-------- --------- -------- --------- ----------
Shareholders' equity
Common stock 808 203 3 (206) 808
Additional paid-in capital 364,645 108,475 208,656 (317,131) 364,645
Accumulated other
comprehensive income 31,150 31,150 (31,150) 31,150
Retained earnings 172,934 (171,213) 264,805 (93,592) 172,934
-------- --------- -------- --------- ----------
569,537 (62,535) 504,614 (442,079) 569,537
Treasury stock (22,199) (22,199)
-------- --------- -------- --------- ----------
Total shareholders' equity 547,338 (62,535) 504,614 (442,079) 547,338
-------- --------- -------- --------- ----------
Total liabilities and
shareholders' equity $930,903 $ (10,846) $845,527 $(442,079) $1,323,505
======== ========= ======== ========= ==========
11
AmeriCredit Corp.
Consolidating Balance Sheet
June 30, 1999
(Unaudited, Dollars in Thousands)
AmeriCredit
Corp. Guarantors Non-Guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
ASSETS
Cash and cash equivalents $ $ 20,246 $ 943 $ $ 21,189
Receivables held for
sale, net 256,771 199,238 456,009
Interest-only receivables 1,337 190,528 191,865
from Trusts
Investments in Trust
receivables 195,598 195,598
Restricted cash 107,399 107,399
Property and equipment, net 349 40,796 41,145
Other assets 11,510 30,170 8,602 50,282
Due (to) from affiliates 567,368 (478,520) (88,848)
Investment in affiliates 198,339 118,024 1,050 (317,413)
-------- --------- -------- --------- ----------
Total assets $778,903 $ (12,513) $614,510 $(317,413) $1,063,487
======== ========== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Warehouse credit facilities $ $20,290 $94,369 $ $ 114,659
Senior notes 375,000 375,000
Other notes payable 17,874 17,874
Accrued taxes and expenses 16,062 65,902 265 82,229
Deferred income taxes (29,763) (42,016) 145,774 73,995
------- ------- -------- -------- -------
Total liabilities 379,173 44,176 240,408 663,757
------- ------- ------- -------- -------
Shareholders' equity
Common stock 715 203 3 (206) 715
Additional paid-in capital 252,194 108,475 118,840 (227,315) 252,194
Accumulated other
comprehensive income 21,410 21,410 (21,410) 21,410
Retained earnings 147,610 (165,367) 233,849 (68,482) 147,610
-------- ------- ------- ---------- --------
421,929 (56,689) 374,102 (317,413) 421,929
Treasury stock (22,199) (22,199)
------- ------- ------- ------- -------
Total shareholders'equity 399,730 (56,689) 374,102 (317,413) 399,730
------- ------- ------- ------- -------
Total liabilities and
shareholders' equity $778,903 $ (12,513) $614,510 $(317,413) $ 1,063,487
======== ========= ======== ========= ===========
12
AmeriCredit Corp.
Consolidating Income Statement
Three Months Ended September 30, 1999
(Unaudited, Dollars in Thousands)
AmeriCredit
Corp. Guarantors Non-Guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
Revenue
Finance charge income $ $ 18,877 $ 8,659 $ $ 27,536
Gain on sale of receivables 1,182 47,746 48,928
Servicing fee income 34,749 8,249 (8,211) 34,787
Other income 11,170 1,222 145 (11,169) 1,368
Equity in income of
affiliates 25,110 (25,110)
------ ------ ------ ------- -------
36,280 56,030 64,799 (44,490) 112,619
------ ------ ------ ------- -------
Costs and expenses
Operating expenses 676 61,211 2 (8,211) 53,678
Provision for losses 2,022 1,465 3,487
Interest expense 10,146 2,302 12,997 (11,169) 14,276
------ ------ ------ ------- -------
10,822 65,535 14,464 (19,380) 71,441
------ ------ ------ ------- -------
Income before income taxes 25,458 (9,505) 50,335 (25,110) 41,178
Income tax provision 134 (3,659) 19,379 15,854
------ ------ ------ ------- -------
Net income $25,324 $ (5,846) $30,956 $(25,110) $ 25,324
======= ======== ======= ======== =========
13
AmeriCredit Corp.
Consolidating Income Statement
Three Months Ended September 30, 1998
(Unaudited, Dollars in Thousands)
AmeriCredit
Corp. Guarantors Non-Guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
Revenue
Finance charge income $ $ 10,133 $ 6,784 $ $ 16,917
Gain on sale of receivables (40) 3,019 32,141 35,120
Servicing fee income 27,660 2,543 (13,338) 16,865
Other income 7,357 700 145 (7,338) 864
Equity in income of
affiliates 15,883 (15,883)
------ ------ ------ ------- ------
23,200 41,512 41,613 (36,559) 69,766
------ ------ ------ ------- ------
Costs and expenses
Operating expenses 3,434 43,943 20 (13,338) 34,059
Provision for losses 1,069 1,119 2,188
Interest expense 4,463 5,763 5,457 (7,338) 8,345
------ ------ ------ ------- ------
7,897 50,775 6,596 (20,676) 44,592
------ ------ ------ ------- ------
Income before income taxes 15,303 (9,263) 35,017 (15,883) 25,174
Income tax provision (179) (3,513) 13,384 9,692
------ ------ ------ ------- ------
Net income $15,482 $ (5,750) $21,633 $(15,883) $ 15,482
======= ======== ======= ======== ========
14
AmeriCredit Corp.
Consolidating Statement of Cash Flow
Three Months Ended September 30, 1999
(Unaudited, Dollars in Thousands)
AmeriCredit
Corp. Guarantors Non-guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
Cash flow from operating activities
Net income $ 25,324 $ (5,846) $ 30,956 $ (25,110) $ 25,324
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 5,365 5,365
Provision for losses 2,022 1,465 3,487
Deferred income taxes (12,403) (3,663) 19,379 3,313
Non-cash servicing fee income (8,777) (8,777)
Non-cash gain on sale of auto
receivables (45,328) (45,328)
Distributions from Trusts 14,230 14,230
Equity in income of affiliates (25,110) 25,110
Changes in assets and liabilities
Other assets 163 (8,380) (3,556) (11,773)
Accrued taxes and expenses 11,685 19,164 181 31,030
--------- ------ ------ ------ -------
Net cash provided by operating
activities (341) 8,662 8,550 16,871
--------- ------ ------ ------ ------
Cash flows from investing activities
Purchases of auto receivables (1,036,680) (894,849) 894,849 (1,036,680)
Originations of mortgage receivables (93,781) (93,781)
Principal collections and recoveries on
receivables (4,600) 9,984 5,384
Net proceeds from sale of auto receivables 894,849 890,985 (894,849) 890,985
Net proceeds from sale of mortgage receivables 80,259 80,259
Initial deposits to restricted cash (27,000) (27,000)
Purchases of property and equipment (5,636) (5,636)
Change in other assets 1,521 (5,825) (4,304)
Net change in investment in affiliates (88,920) (896) 89,816
--------- --------- ------- ------- ---------
Net cash used by investing activities (252,988) (27,601) 89,816 (190,773)
--------- --------- ------- ------- ---------
Cash flows from financing activities
Net change in warehouse credit facilities (7,988) 74,890 66,902
Payments on other notes payable (2,349) (2,349)
Proceeds from issuance of common stock 112,173 89,816 (89,816) 112,173
Net change in due (to) from affiliates (109,483) 256,995 (147,512)
--------- -------- ------- ------- -------
Net cash provided by financing
activities 341 249,007 17,194 (89,816) 176,726
--------- -------- ------- ------- -------
Net change in cash and cash equivalents 4,681 (1,857) 2,824
Cash and cash equivalents at beginning of
period 20,246 943 21,189
--------- -------- ------- ------- -------
Cash and cash equivalents at end of period $ $ 24,927 $ (914) $ $ 24,013
========= ========== ======== ========= =========
15
AmeriCredit Corp.
Consolidating Statement of Cash Flow
Three Months Ended September 30, 1998
(Unaudited, Dollars in Thousands)
AmeriCredit
CORP. GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ---------- -------------- ------------ ------------
Cash flow from operating activities
Net income $ 15,482 $ (5,750) $ 21,633 $ (15,883) $ 15,482
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 18 1,802 1,820
Provision for losses 1,069 1,119 2,188
Deferred income taxes (29) (3,509) 13,381 9,843
Non-cash servicing fee income (2,345) (2,345)
Non-cash gain on sale of auto
receivables (28,314) (28,314)
Distributions from Trusts 12,470 12,470
Equity in income of affiliates (15,883) 15,883
Changes in assets and liabilities
Other assets 253 (1,605) (1,811) (3,163)
Accrued taxes and expenses 8,193 112 5,436 13,741
------- ------ ------ ------ ------
Net cash provided by operating
activities 8,034 (7,881) 21,569 21,722
------- ------ ------ ------ ------
Cash flows from investing activities
Purchases of auto receivables (622,212) (632,171) 632,171 (622,212)
Originations of mortgage receivables (38,901) (38,901)
Principal collections and recoveries on
receivables (901) 6,365 5,464
Net proceeds from sale of auto receivables 632,171 562,296 (632,171) 562,296
Net proceeds from sale of mortgage receivables 47,542 47,542
Initial deposits to restricted cash (3,300) (13,450) (16,750)
Purchases of property and equipment (53) (3,171) (38) (3,262)
Change in other assets (5,870) (5,870)
------ ------- ------- -------- -------
Net cash used by investing activities (53) 11,228 (82,868) (71,693)
------ ------- ------- -------- -------
Cash flows from financing activities
Net change in warehouse credit facilities (13,418) 55,995 42,577
Payments on other notes payable (560) (1) (561)
Proceeds from issuance of common stock 3,086 3,086
Net change in due (to) from affiliates (10,507) 7,480 3,027
------ ------- ------ ------- -------
Net cash provided by financing
activities (7,981) (5,939) 59,022 45,102
------ ------- ------ ------- -------
Net change in cash and cash equivalents (2,592) (2,277) (4,869)
Cash and cash equivalents at beginning of
period 30,157 2,930 33,087
------ ------ ------ ------- ------
Cash and cash equivalents at end of period $ $ 27,565 $ 653 $ $ 28,218
======== ======== ========= ======== =========
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company generates earnings and cash flow primarily from the purchase,
securitization and servicing of auto receivables. The Company purchases auto
finance contracts from franchised and select independent automobile
dealerships. To fund the acquisition of receivables prior to securitization,
the Company utilizes borrowings under its warehouse credit facilities. The
Company generates finance charge income on its receivables pending
securitization ("receivables held for sale") and pays interest expense on
borrowings under its warehouse credit facilities.
The Company sells receivables to securitization trusts ("Trusts") that, in
turn, sell asset-backed securities to investors. By securitizing its
receivables, the Company is able to lock in the gross interest rate spread
between the yield on such receivables and the interest rate payable on the
asset-backed securities. The Company recognizes a gain on the sale of
receivables to the Trusts, which represents the difference between the sale
proceeds to the Company, net of transaction costs, and the Company's net
carrying value of the receivables, plus the present value of the estimated
future excess cash flows to be received by the Company over the life of the
securitization. Excess cash flows result 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 credit losses and
expenses.
Excess cash flows from the Trusts are initially 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 flows are distributed to the Company.
In addition to excess cash flows, the Company earns monthly base servicing
fee income of 2.25% per annum on the outstanding principal balance of
receivables securitized ("serviced receivables").
In November 1996, the Company acquired AmeriCredit Mortgage Services ("AMS"),
which originates and sells mortgage loans. Receivables originated in this
business are referred to as mortgage receivables. Such receivables are
generally packaged and sold for cash on a servicing released whole-loan
basis. The Company recognizes a gain at the time of sale.
The premiums received by AMS for the sale of mortgage loans in the secondary
markets have deteriorated since the Company's acquisition of AMS. The average
net premium received on sales decreased to 1.9% for the three months ended
September 30, 1999 from 5.6% for the period from the date of acquisition of
AMS through June 30, 1997. This decline in sales premiums resulted in an
operating loss for AMS for the three months ended September 30, 1999. As a
result, during October 1999, Company management assessed various options with
respect to the
17
operations of AMS and decided to cease wholesale originations of mortgage
loans. The AMS wholesale mortgage loan production and processing offices have
been closed and the assets of AMS are being liquidated. In connection with
these steps, the Company will incur a charge in its second fiscal quarter
ending December 31, 1999. The primary component of the charge will be the
write-off of goodwill related to the acquisition of AMS which amounted to
$6.6 million as of September 30, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1998
REVENUE:
The Company's average managed receivables outstanding consisted of the following
(in thousands):
Three Months Ended
September 30,
------------------
1999 1998
---- ----
Auto:
Held for sale $ 460,748 $ 290,187
Serviced 3,953,034 2,216,953
---------- ----------
4,413,782 2,507,140
Mortgage 40,326 17,953
---------- ----------
$4,454,108 $2,525,093
========== ==========
Average managed receivables outstanding increased by 76% as a result of
higher loan purchase volume. The Company purchased $1,031.8 million of auto
loans during the three months ended September 30, 1999, compared to purchases
of $625.0 million during the three months ended September 30, 1998. This
growth resulted from loan production at branches open during both periods as
well as expansion of the Company's branch network. Loan production at branch
offices opened prior to September 30, 1997, was 17% higher for the twelve
months ended September 30, 1999 versus the twelve months ended September 30,
1998. The Company operated 180 auto lending branch offices as of September
30, 1999, compared to 149 as of September 30, 1998.
The Company originated $93.8 million of mortgage loans during the three
months ended September 30, 1999, compared to $38.9 million during the three
months ended September 30, 1998.
18
Finance charge income consisted of the following (in thousands):
Three Months Ended
September 30,
---------------------
1999 1998
---- ----
Auto $ 26,479 $ 16,494
Mortgage 1,057 423
-------- --------
$ 27,536 $ 16,917
======== ========
The increase in finance charge income is due primarily to an increase of 59%
in average auto receivables held for sale in the three months ended September
30, 1999 versus the three months ended September 30, 1998. In addition, the
Company's effective yield on its auto receivables held for sale increased to
22.8% for the three months ended September 30, 1999 from 22.6% for the three
months ended September 30, 1998. The effective yield is higher than the
contractual rates of the Company's auto finance contracts as a result of
finance charge income earned between the date the auto finance contract is
originated by the automobile dealership and the date the auto finance
contract is funded by the Company.
The gain on sale of receivables consisted of the following (in thousands):
Three Months Ended
September 30,
------------------
1999 1998
---- ----
Auto $47,417 $33,770
Mortgage 1,511 1,350
------- -------
$48,928 $35,120
======= =======
The increase in gain on sale of auto receivables resulted from the sale of
$900.0 million of receivables in the three months ended September 30, 1999 as
compared to $570.0 million of receivables sold in the three months ended
September 30, 1998. The gain as a percentage of the sales proceeds decreased
to 5.3% for the three months ended September 30, 1999 from 5.9% for the three
months ended September 30, 1998 as a result of an increase in U.S. Treasury
and other short term interest rates and wider spreads over benchmark rates in
the overall asset-backed securities market.
19
Significant assumptions used in determining the gain on sale of auto
receivables were as follows:
Three Months Ended
September 30,
------------------
1999 1998
---- ----
Cumulative credit losses
(including deferred gains) 10.9% 11.5%
Discount rate used to estimate
present value:
Interest-only receivables from Trusts 12.0% 12.0%
Investments in Trust receivables 7.8% 7.8%
Restricted cash 7.8% 7.8%
The discount rates used to estimate the present value of credit enhancement
assets are based on the relative risks of each asset type. Interest-only
receivables represent estimated future excess cash flows in the Trusts, which
involves a greater degree of risk than investments in Trust receivables and
restricted cash. Investments in Trust receivables and restricted cash
represent assets currently held by the Trustee and are senior to the
interest-only receivables for credit enhancement purposes.
The increase in the gain on sale of mortgage receivables resulted from the
sale of $80.3 million of receivables in the three months ended September 30,
1999, compared to $47.5 million of receivables sold in the three months ended
September 30, 1998. The average premium received on sales decreased to 1.9%
for the three months ended September 30, 1999 from 2.8% for the three months
ended September 30, 1998 because of lower prices for non-conforming mortgage
loans in the secondary markets.
Servicing fee income increased to $34.8 million for the three months ended
September 30, 1999 compared to $16.9 million for the three months ended
September 30, 1998. Servicing fee income increased as a percentage of average
serviced auto receivables to 3.5% for the three months ended September 30,
1999 from 3.0% for the three months ended September 30, 1998, as a result of
charges in the three months ended September 30, 1998 to increase credit loss
reserves. Servicing fee income represents accretion of the present value
discount on estimated future excess cash flows from the Trusts, base
servicing fees and other fees earned by the Company as servicer of the auto
receivables sold to the Trusts. Servicing fee income for the three months
ended September 30, 1998 also includes a charge of $4.8 million to increase
credit loss reserves related to certain of the Company's fiscal 1996 and 1997
securitization transactions since the Company's reassessment of estimated
cumulative credit losses for these transactions exceeded the original
estimates. The growth in servicing fee income exclusive of the aforementioned
charge is attributable to the increase in average serviced auto receivables
outstanding for the three months ended September 30, 1999 compared to the
three months ended September 30, 1998.
20
COSTS AND EXPENSES:
Operating expenses as an annualized percentage of average managed receivables
outstanding decreased to 4.8% (4.6% excluding operating expenses of $2.1
million related to AMS) for the three months ended September 30, 1999,
compared to 5.4% (5.1% excluding operating expenses of $1.9 million related
to AMS) for the three months ended September 30, 1998. 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 $19.6 million, or 58%,
primarily due to the addition of auto lending branch offices and management
and auto loan processing and servicing staff.
The provision for losses increased to $3.5 million for the three months ended
September 30, 1999 from $2.2 million for the three months ended September 30,
1998 due to higher average amounts of auto receivables held for sale. As a
percentage of average receivables held for sale, the provision for losses was
3.0% for the three months ended September 30, 1999 and 1998.
Interest expense increased to $14.3 million for the three months ended
September 30, 1999 from $8.3 million for the three months ended September 30,
1998 due to higher debt levels and higher interest rates. Average debt
outstanding was $595.5 million and $366.7 million for the three months ended
September 30, 1999 and 1998, respectively. The Company's effective rate of
interest paid on its debt increased to 9.5% from 9.0% as a result of increased
average amounts of senior notes outstanding which have a higher cost than the
Company's other forms of balance sheet debt.
The Company's effective income tax rate was 38.5% for the three months ended
September 30, 1999 and 1998.
PRO FORMA "PORTFOLIO-BASED" EARNINGS DATA
In addition to reporting results of operations in accordance with generally
accepted accounting principles ("GAAP"), the Company has elected to present
pro forma results of operations which treat securitization transactions as
financings rather than sales of receivables. The Company refers to this
presentation as pro forma "portfolio-based" earnings data.
In its consolidated financial statements prepared in accordance with GAAP,
the Company records a gain on the sale of receivables in securitization
transactions primarily representing the present value of estimated future
excess cash flows related to the receivables sold. Future excess cash flows
consist of finance charges and fees to be collected on the receivables less
interest payable on the asset-backed securities, credit losses and expenses
of the Trusts. The Company also earns servicing fees for managing the
receivables sold.
The pro forma "portfolio-based" earnings data presents the Company's
operating results under the assumption that securitization transactions are
financings
21
and no gain on sale or servicing fee income is recognized. Instead, finance
charges and fees are recognized over the life of the securitized receivables
as accrued and interest and other costs related to the asset-backed
securities are also recognized as accrued. Credit losses are recorded as
incurred.
While the pro forma "portfolio-based" earnings data does not purport to
present the Company's operating results in accordance with GAAP, the Company
believes such presentation provides another measure for assessing the
Company's performance.
The pro forma "portfolio-based" earnings data were as follows (in thousands):
Three Months Ended
September 30,
-------------------------------
1999 1998
--------- ---------
Finance charge, fee and
other income $ 218,325 $ 125,735
Funding costs (78,172) (44,394)
--------- ---------
Net margin 140,153 81,341
Operating expenses (53,678) (34,059)
Credit losses (48,210) (30,719)
--------- ---------
Pre-tax "portfolio-based" income 38,265 16,563
Income taxes (14,732) (6,376)
--------- ---------
Net "portfolio-based" income $ 23,533 $ 10,187
========= =========
Diluted "portfolio-based" earnings
per share $ 0.33 $ 0.15
========= =========
The pro-forma return on managed assets for the Company's auto business was as
follows:
Three Months Ended
September 30,
-------------------
1999 1998
---- ----
Finance charge, fee and other income
19.4% 19.6%
Funding costs (7.0) (7.0)
---- ----
Net margin 12.4 12.6
Operating expenses (4.6) (5.1)
Credit losses (4.3) (4.9)
---- ----
Pre-tax return on managed assets 3.5 2.6
Income taxes (1.4) (0.9)
---- ----
Return on managed assets 2.1% 1.7%
==== ====
22
CREDIT QUALITY
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 losses which may occur in the
receivables held for sale portfolio prior to the sale of such receivables in
securitization transactions. The Company typically purchases individual 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. When the Company sells auto receivables to the Trusts, the
calculation of the gain on sale of receivables is reduced by an estimate of
cumulative credit losses expected over the life of the auto receivables sold.
The Company sells 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 mortgage receivables.
The Company reviews static pool origination and charge-off relationships,
charge-off experience factors, collection data, 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 assumptions for cumulative credit losses, provisions for
losses and allowance for losses. Although the Company uses many resources to
assess the adequacy of loss reserves, there is no precise method for estimating
the ultimate losses in the receivables portfolio.
The following table presents certain data related to the receivables portfolio
(dollars in thousands):
September 30,
1999
--------------------------------------------------------------
Held for Sale
------------------------------ Auto Managed Auto
Auto Mortgage Total Serviced Portfolio
-------- -------- -------- ---------- ----------
Principal amount of receivables $585,860 $37,207 $623,067 $4,163,225 $4,749,085
========== ==========
Allowance for losses (16,712) (16,712) $ (400,738) (a) $ (417,450)
-------- ------- -------- ========== ==========
Receivables, net $569,148 $37,207 $606,355
======== ======= ========
Number of outstanding contracts 41,351 454 375,053 416,404
======== ======= ========== ==========
Average principal amount of
outstanding contract (in dollars) $ 14,168 $81,954 $ 11,100 $ 11,405
======== ======= ========== ==========
Allowance for losses as a percentage
of receivables 2.9% 9.6% 8.8%
=== === ===
(a) The allowance for losses related to serviced auto receivables is
factored into the valuation of interest-only receivables from Trusts in
the Company's consolidated balance sheets.
23
The following is a summary of managed auto receivables which are (i) more than
30 days delinquent, but not in repossession, and (ii) in repossession (dollars
in thousands):
September 30, September 30,
1999 1998
---------------- ---------------
Amount Percent Amount Percent
------ ------- ------ -------
Delinquent contracts:
31 to 60 days $368,075 7.8% $169,609 6.3%
Greater than 60 days 109,837 2.3 75,882 2.8
-------- ---- -------- ---
477,912 10.1 245,491 9.1
In repossession 38,404 0.8 17,368 0.6
-------- ---- -------- ---
$516,316 10.9% $262,859 9.7%
======== ==== ======== ===
In accordance with its policies and guidelines, the Company at times offers
payment deferrals to consumers, whereby the consumer is allowed to move a
delinquent payment to the end of the loan by paying a fee (approximately the
interest portion of the payment deferred). Contracts receiving a payment
deferral as a quarterly percentage of average managed auto receivables
outstanding were 4.6% for the three months ended September 30, 1999 and 1998.
The Company believes that payment deferrals granted according to its policies
and guidelines are an effective portfolio management technique and result in
higher ultimate cash collections from the portfolio.
The following table presents charge-off data with respect to the Company's
managed auto receivables portfolio (dollars in thousands):
Three Months Ended
September 30,
----------------------
1999 1998
------- -------
Net charge-offs:
Held for sale $ 1,658 $ 1,858
Serviced 46,552 28,861
------- -------
$48,210 $30,719
======= =======
Net charge-offs as an
annualized percentage of
average managed auto
receivables outstanding 4.3% 4.9%
======= =======
Net recoveries as a percentage
of gross repossession charge-offs 54.4% 50.4%
======= =======
Delinquency and charge-off ratios typically fluctuate over time as a portfolio
matures. Accordingly, the delinquency and charge-off data above is not
necessarily indicative of delinquency and charge-off experience that could be
expected for a portfolio with a different level of seasoning.
24
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows are summarized as follows (in thousands):
Three Months Ended
September 30,
----------------------
1999 1998
--------- ---------
Operating activities $ 16,871 $ 21,722
Investing activities (190,773) (71,693)
Financing activities 176,726 45,102
--------- ---------
Net change in
cash and cash equivalents $ 2,824 $ (4,869)
========= =========
The Company's primary sources of cash have been cash flows from operating
activities, including excess cash flow distributions from the Trusts, borrowings
under its warehouse credit facilities, sales of auto receivables to Trusts in
securitization transactions and proceeds from issuance of senior notes and
common stock. The Company's primary uses of cash have been purchases and
originations of receivables and funding credit enhancement requirements for
securitization transactions.
The Company purchased $1,031.8 million and $625.0 million of auto finance
contracts during the three months ended September 30, 1999 and 1998,
respectively, requiring cash of $1,036.7 million and $622.2 million,
respectively, net of acquisition fees and other items. These purchases were
funded initially utilizing warehouse credit facilities and subsequently through
the sale of auto receivables in securitization transactions.
In September 1999, the Company renewed its funding agreement with an
administrative agent on behalf of an institutionally managed commercial paper
conduit and a group of banks and increased the amount of structured warehouse
financing available under the agreement to $675 million from $505 million. The
Company utilizes this facility to fund auto receivables pending securitization.
The facility matures in September 2000. There were no outstanding balances under
this facility as of September 30, 1999.
Also, in September 1999, the Company entered into a funding agreement with an
administrative agent on behalf of an institutionally managed commercial paper
conduit and a bank under which up to $250 million of structured warehouse
financing is available. The Company utilizes this facility to fund auto
receivables pending securitization. The facility matures in September 2000.
There were no outstanding balances under this facility as of September 30, 1999.
The Company has a funding agreement with an administrative agent on behalf of an
institutionally managed commercial paper conduit and a bank under which up to
$375 million of structured warehouse financing is available. The Company
utilizes this facility to fund auto receivables pending securitization. The
25
facility matures in March 2000. A total of $169.3 million was outstanding
under this facility as of September 30, 1999.
The Company has a credit agreement with a group of banks that provides for
borrowings of up to $90 million, subject to a defined borrowing base. The
Company utilizes the facility to fund its auto lending activities and daily
operations. The facility matures in March 2000. There were no outstanding
balances under the credit agreement as of September 30, 1999.
The Company's Canadian subsidiary has a convertible revolving term credit
agreement with a bank that provides for borrowings of up to $20.0 million Cdn.,
subject to a defined borrowing base. The Company utilizes this facility to fund
Canadian auto lending activities. The facility matures in November 1999. A total
of $1.9 million was outstanding under the Canadian facility at September 30,
1999.
The Company has a mortgage warehouse facility with a bank under which the
Company may borrow up to $25 million, subject to a defined borrowing base, to
fund mortgage loan originations. The facility matures in July 2000. A total of
$10.4 million was outstanding under the mortgage facility as of September 30,
1999.
As is customary in the Company's industry, the above warehouse credit facilities
need to be renewed on an annual basis. The Company has historically been
successful in renewing and expanding these facilities on an annual basis. If the
Company was unable to renew these facilities on acceptable terms, there could be
a material adverse effect on the Company's financial position, results of
operations and liquidity.
The Company has completed eighteen auto receivables securitization transactions
through September 30, 1999. The proceeds from the transactions were primarily
used to repay borrowings outstanding under the Company's warehouse credit
facilities.
26
A summary of these transactions is as follows:
Original Balance at
Amount September 30,1999
Transaction Date (in millions) (in millions)
- ----------- ---- ------------- -----------------
1994-A December 1994 $ 51.0 Paid in full
1995-A June 1995 99.2 Paid in full
1995-B December 1995 65.0 Paid in full
1996-A March 1996 89.4 Paid in full
1996-B May 1996 115.9 Paid in full
1996-C August 1996 175.0 $ 11.7
1996-D November 1996 200.0 36.6
1997-A March 1997 225.0 53.7
1997-B May 1997 250.0 71.0
1997-C August 1997 325.0 113.9
1997-D November 1997 400.0 165.3
1998-A February 1998 425.0 202.2
1998-B May 1998 525.0 285.8
1998-C August 1998 575.0 363.9
1998-D November 1998 625.0 445.9
1999-A February 1999 700.0 562.9
1999-B May 1999 1,000.0 895.9
1999-C August 1999 1,000.0 980.3
-------- --------
$6,845.5 $4,189.1
======== ========
In connection with securitization transactions, the Company is required to fund
certain credit enhancement levels set by the insurer of the asset-backed
securities issued by the Trusts. The Company typically makes an initial deposit
to a restricted cash account and subsequently uses excess cash flows generated
by the Trusts to either increase the restricted cash account or repay the
outstanding asset-backed securities on an accelerated basis, thus creating
additional credit enhancement through overcolleratization in the Trusts. When
the credit enhancement levels reach specified percentages of the Trust's pool of
receivables, excess cash flows are distributed to the Company.
Although the aggregate amount of excess cash flow does not change, the timing of
the Company's receipt of excess cash flow distributions is dependent on the type
of structure used. Historically, the Company has used a structure that involved
a higher initial cash deposit that resulted in receipt of excess cash flow
distributions approximately seven to nine months after the receivables were
securitized. Beginning in November 1997, the Company began to employ a structure
that involved a lower initial cash deposit and the use of reinsurance and other
alternative credit enhancements. Under this structure the Company expects to
begin to receive excess cash flow distributions approximately 16 to 22 months
after receivables are securitized.
The reinsurance used to reduce the Company's initial cash deposit in the
structure described above has typically been arranged by the insurer of the
27
asset-backed securities. As of September 30, 1999, the Company had commitments
from the insurer for an additional $100 million of reinsurance to reduce initial
cash deposits in future securitization transactions. In addition, in October
1999, the Company entered into a credit agreement with a financial institution
under which the Company may borrow up to $225 million to fund a portion of the
initial cash deposit, similar to the amount covered by the reinsurance described
above, in future securitization transactions. Borrowing under the credit
agreement, which matures in October 2001, will be collateralized by the
Company's credit enhancement assets.
Initial deposits to restricted cash accounts were $27.0 million and $16.8
million for the three months ended September 30, 1999 and 1998, respectively.
Excess cash flows distributed to the Company were $14.2 million and $12.5
million for the three months ended September 30, 1999 and 1998, respectively.
Certain agreements with the insurer provide that if delinquency, default and net
loss ratios in a Trust's pool of receivables exceed certain targets, the
specified credit enhancement levels would be increased. As of September 30,
1999, none of the Company's securitizations had delinquency, default and net
loss ratios in excess of the targeted levels.
The Company issued 9,200,000 shares of its common stock in a public offering in
August and September 1999 for net proceeds of approximately $111.5 million.
The Company operated 180 auto lending branch offices as of September 30, 1999
and plans to open an additional 15 branches through the remainder of fiscal 2000
and expand loan production capacity at existing auto lending branch offices
where appropriate. While the Company has been able to establish and grow its
finance business thus far, there can be no assurance that future expansion will
be successful due to competitive, regulatory, market, economic or other factors.
As of September 30, 1999, the Company had $24.0 million in cash and cash
equivalents. The Company also had available borrowing capacity of $313.0 million
under its warehouse credit facilities pursuant to the borrowing base
requirements of such agreements. The Company anticipates that it will require
additional external capital for fiscal 2000 in order to fund expansion of its
auto lending activities.
The Company anticipates that such funding will be in the form of additional
securitization transactions and renewal and expansion of its existing warehouse
credit 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.
28
INTEREST RATE RISK
The Company's earnings are affected by changes in interest rates as a result of
its dependence upon the issuance of interest-bearing securities and the
incurrence of debt to fund its lending activities. Several factors can influence
the Company's ability to manage interest rate risk. First, auto finance
contracts are purchased at fixed interest rates, while the amounts borrowed
under warehouse credit facilities bear interest at variable rates that are
subject to frequent adjustment to reflect prevailing market interest rates.
Second, the interest rate demanded by investors in securitizations is a function
of prevailing market rates for comparable transactions and the general interest
rate environment. Because the auto finance contracts originated by the Company
have fixed interest rates, the Company bears the risk of smaller gross interest
rate spreads in the event interest rates increase during the period between the
date receivables are purchased and the completion and pricing of securitization
transactions.
The Company utilizes several strategies to minimize the risk of interest rate
fluctuations, including the use of derivative financial instruments, the regular
sale of auto receivables to the Trusts and pre-funding of securitization
transactions. Pre-funding securitizations is the practice of issuing more
asset-backed securities than the amount of receivables initially sold to the
Trust. The proceeds from the pre-funded portion are held in an escrow account
until additional receivables are sold to the Trust in amounts up to the balance
of the pre-funded escrow account. In pre-funded securitizations, borrowing costs
are locked in with respect to the loans subsequently delivered 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 receivables and the interest rate paid on
the asset-backed securities outstanding.
Derivative financial instruments are utilized to manage the gross interest rate
spread on the Company's securitization transactions. The Company sells fixed
rate auto 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 rates on U.S. Treasury Notes with similar average
maturities or various London Interbank Offered Rates ("LIBOR"). The Company has
periodically used Forward U.S. Treasury rate lock agreements to lock in the
indexed rate for specific anticipated securitization transactions. The floating
rates on securities issued by the Trusts are indexed to LIBOR. The Company uses
Interest Rate Swap agreements to convert the floating rate exposures on these
securities to a fixed rate. The Company utilizes these derivative financial
instruments to modify its net interest sensitivity to levels deemed appropriate
based on the Company's risk tolerance. Management monitors the Company's hedging
activities to ensure that the value of hedges, their correlation to the
contracts being hedged and the amounts being hedged continue to provide
effective protection against interest rate risk. All transactions are entered
into for purposes other than trading.
29
There can be no assurance that the Company's strategies will be effective in
minimizing interest rate risk or that increases in interest rates will not have
an adverse effect on the Company's profitability.
YEAR 2000 ISSUE
The year 2000 issue is whether the Company's or its vendors' computer systems
will properly recognize date-sensitive information when the year changes to
2000. Systems that do not properly recognize such information could generate
erroneous data or fail.
The Company has developed a comprehensive project plan for achieving year 2000
readiness. This project plan is composed of several phases:
- - AWARENESS AND INVENTORY - An inventory of critical hardware and software
has been completed and information technology components have been
assessed. This assessment included major suppliers and business partners
and the Company is monitoring their continued progress toward year 2000
compliance; however, the Company does not rely on any single supplier or
partner to conduct business. Follow-up inquiries to third-party vendors who
have not provided specific compliance dates are ongoing. The awareness
phase is also ongoing.
- - ASSESSMENT - Using the results obtained from the inventory, a risk
assessment has been made on all components and priority assigned to
mission-critical systems.
- - RENOVATION AND TESTING - During this phase all systems were identified
which had a risk to year 2000 readiness. The systems identified were
corrected using a secured development environment. Testing was also
performed during this phase and has been completed.
- - IMPLEMENTATION - User-developed applications and macros were assessed and
remediated. Any non-compliant applications were replaced with a year
2000-ready version.
- - CONTINUED DUE DILIGENCE - The Company tested interfaces with financial
applications using year 2000 dates and scenarios. Testing was completed at
the end of October 1999 and the systems have been "frozen". No additional
development will be implemented until the year 2000.
- - CONTINGENCY PLANNING - Contingency planning is a key component of the
Company's year 2000 readiness project. The Company has developed and is
continuing to develop contingency plans, which document the processes
necessary to maintain critical business functions should a significant
third-party system or critical internal system fail.
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Through September 30, 1999, the Company has incurred approximately $1 million
for incremental costs. Any future incremental costs are not expected to be
material.
There are many risks associated with the year 2000 compliance issue including,
but not limited to, the possible failure of the Company's computer and
information systems. Any such failure could have a material adverse effect on
the Company including the inability to properly bill and collect payments from
consumers and errors and omissions in accounting and financial data. In
addition, the Company is exposed to the inability of third parties to perform as
a result of year 2000 compliance. Any such failure by a third-party bank,
software product or service provider, utility or other entity may have a
material adverse financial or operational effect on the Company.
FORWARD LOOKING STATEMENTS
The preceding Management's Discussion and Analysis of Financial Condition and
Results of Operations section contains several "forward-looking statements".
Forward-looking statements are those which use words such as "believe",
"expect", "anticipate", "intend", "plan", "may", "will", "should", "estimate",
"continue" or other comparable expressions. These words indicate future events
and trends. Forward-looking statements are the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to many risks and uncertainties which could cause actual
results to differ significantly from historical results or from those
anticipated by the Company. The most significant risks are detailed from time to
time in the Company's filings and reports with the Securities and Exchange
Commission including the Company's Annual Report on Form 10-K for the year ended
June 30, 1999. It is advisable not to place undue reliance on the Company's
forward-looking statements. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise.
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Item 3 QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Because the Company's funding strategy is dependent upon the issuance of
interest-bearing securities and the incurrence of debt, fluctuations in interest
rates impact the Company's profitability. Therefore, the Company employs various
hedging strategies to minimize the risk of interest rate fluctuations. See
"Management's Discussion and Analysis - Interest Rate Risk" for additional
information regarding such market risks.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
As a consumer finance company, the Company is subject to various consumer
claims and litigation seeking damages and statutory penalties based upon,
among other things, usury, disclosure inaccuracies, wrongful repossession,
fraud and discriminatory treatment of credit applicants, which could take the
form of a plaintiffs' class action complaint. The Company, as the assignee of
finance contracts originated by dealers, may also be named as a co-defendant
in lawsuits filed by consumers principally against dealers. The damages and
penalties claimed by consumers in these types of matters can be substantial.
The relief requested by the plaintiffs varies but includes requests for
compensatory, statutory and punitive damages. One proceeding in which the
Company is a defendant has been brought as a putative class action and is
pending in the State of California. A class has yet to be certified in this
case, in which the plaintiffs allege certain defects in post-repossession
notice forms in the State of California and no court date has been set, nor
are any hearings presently scheduled.
Management believes that the Company has taken prudent steps to address the
litigation risks associated with the Company's business activities. However,
there can be no assurance that the Company will be able to successfully
defend against all such claims or that the determination of any such claim in
a manner adverse to the Company would not have a material adverse effect on
the Company's automobile finance business.
On April 8, 1999, a putative class action complaint was filed against the
Company and certain of the Company's officers and directors alleging
violations of Section 10(b) of the Securities Exchange Act of 1934 arising
from the Company's use of the cash-in method of measuring and accounting for
credit enhancement assets in the financial statements for the second, third
and fourth quarters of fiscal year 1997, fiscal year 1998 and the first
quarter of fiscal year 1999. The Company believes that its previous use of
the cash-in method of measuring and accounting for credit enhancement assets
was consistent with then current generally accepted accounting principles and
accounting practices of other finance companies. As required by the Financial
Accounting Standards Board's Special Report, "A Guide to Implementation of
Statement 125 on Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities, Second Edition," dated December 1998 and
related statements made by the staff of the Commission, the Company
retroactively changed the method of measuring and accounting for credit
enhancement assets to the cash-out method and restated the Company's
financial statements for the three months ended September 30, 1998 and the
fiscal years ended June 30, 1998, 1997 and 1996. A motion to dismiss this
litigation has been filed by the Company and is presently pending. In the
opinion of management, this litigation is without merit and the Company
intends to vigorously defend against the complaint.
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In the opinion of management, the resolution of the proceedings described in
this section will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
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
Not Applicable
Item 5. OTHER INFORMATION
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Statement Re Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed August 4, 1999 with the
Commission to report under Item 5, the Company's annual
earnings for its fiscal year ended June 30, 1999.
A report on Form 8-K was filed September 7, 1999 with
the Commission to report under Item 5, an amendment of
the Rights Agreement, dated as of August 28, 1997,
between the Company and ChaseMellon Shareholder
Services L.L.C., as Rights Agent. Also reported under
this Item 5, were Bylaw Amendments.
Certain subsidiaries and affiliates of the Company
filed reports on Form 8-K during the quarterly period
ended September 30, 1999 reporting monthly information
related to securitization trusts.
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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: November 5, 1999 By: /s/ Daniel E. Berce
---------------------------------------
(Signature)
Daniel E. Berce
Chief Financial Officer
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