UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 2001
------------------
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.
-----------------
(Exact name of registrant as specified in its charter)
Texas 75-2291093
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
801 Cherry Street, Suite 3900, Fort Worth, Texas 76102
-------------------------------------------------------
(Address of principal executive offices, including Zip Code)
(817) 302-7000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
There were 84,343,602 shares of common stock, $0.01 par value outstanding as of
October 31, 2001.
AMERICREDIT CORP.
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
Page
-------
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - September 30, 2001
and June 30, 2001....................................................... 3
Consolidated Statements of Income and Comprehensive
Income - Three Months Ended September 30, 2001
and 2000................................................................ 4
Consolidated Statements of Cash Flows - Three Months
Ended September 30, 2001 and 2000....................................... 5
Notes to Consolidated Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................................. 31
Part II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 32
Item 2. Changes in Securities................................................... 33
Item 3. Defaults upon Senior Securities......................................... 33
Item 4. Submission of Matters to a Vote of Security Holders..................... 33
Item 5. Other Information....................................................... 33
Item 6. Exhibits and Reports on Form 8-K........................................ 33
SIGNATURE...................................................................................... 35
2
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMERICREDIT CORP.
Consolidated Balance Sheets
(Unaudited, Dollars in Thousands)
September 30, 2001 June 30, 2001
------------------- --------------
ASSETS
Cash and cash equivalents $ 92,110 $ 77,053
Receivables held for sale, net 2,207,270 1,921,465
Interest-only receivables from Trusts 376,291 387,895
Investments in Trust receivables 514,852 493,022
Restricted cash 353,674 270,358
Property and equipment, net 84,114 67,828
Other assets 235,556 167,286
------------- -------------
Total assets $3,863,867 $3,384,907
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Warehouse credit facilities $1,755,121 $1,502,879
Credit enhancement facility 66,742 36,319
Senior notes 375,000 375,000
Other notes payable 37,459 23,077
Funding payable 116,451 60,460
Accrued taxes and expenses 129,926 114,041
Interest rate swap and cap agreements 113,070 82,796
Deferred income taxes 137,250 130,139
------------- -------------
Total liabilities 2,731,019 2,324,711
------------- -------------
Shareholders' equity:
Preferred stock, $0.01 par value per share;
20,000,000 shares authorized, none issued
Common stock, $0.01 par value per share;
120,000,000 shares authorized; 90,777,919
and 89,853,792 shares issued 908 899
Additional paid-in capital 544,564 520,077
Accumulated other comprehensive income 43,108 73,689
Retained earnings 563,700 484,963
------------- -------------
1,152,280 1,079,628
Treasury stock, at cost (6,439,739 and
6,439,739 shares) (19,432) (19,432)
------------- -------------
Total shareholders' equity 1,132,848 1,060,196
------------- -------------
Total liabilities and shareholders' equity $3,863,867 $3,384,907
============= =============
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,
-------------------------------------------
2001 2000
------------------- --------------------
Revenue
Finance charge income $ 96,797 $ 45,400
Gain on sale of receivables 92,930 61,586
Servicing fee income 85,235 59,270
Other income 2,873 3,085
------------------- --------------------
277,835 169,341
------------------- --------------------
Costs and expenses
Operating expenses 99,376 67,294
Provision for loan losses 14,842 6,054
Interest expense 35,590 27,256
------------------- --------------------
149,808 100,604
------------------- --------------------
Income before income taxes 128,027 68,737
Income tax provision 49,290 26,464
------------------- --------------------
Net income 78,737 42,273
------------------- --------------------
Other comprehensive income
Unrealized (losses) gains on
credit enhancement assets (18,168) 30,314
Unrealized losses on cash flow hedges (31,557) (15,961)
Income tax benefit (provision) 19,144 (5,525)
------------------- --------------------
Comprehensive income $ 48,156 $ 51,101
=================== ====================
Earnings per share
Basic $0.94 $0.55
=================== ====================
Diluted $0.88 $0.51
=================== ====================
Weighted average shares outstanding 83,888,338 77,253,522
=================== ====================
Weighted average shares and
assumed incremental shares 89,836,898 83,358,230
=================== ====================
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,
---------------------------------------
2001 2000
------------------ -----------------
Cash flows from operating activities
Net income $ 78,737 $ 42,273
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,895 4,410
Provision for loan losses 14,842 6,054
Deferred income taxes 41,687 5,296
Accretion of present value discount (27,842) (19,790)
Non-cash gain on sale of auto receivables (89,678) (49,436)
Distributions from Trusts 70,733 49,060
Changes in assets and liabilities:
Other assets (26,799) (2,356)
Accrued taxes and expenses 15,885 24,964
------------------ -----------------
Net cash provided by operating activities 83,460 60,475
------------------ -----------------
Cash flows from investing activities
Purchases of auto receivables (2,011,026) (1,402,469)
Principal collections and recoveries on receivables 60,941 17,458
Net proceeds from sale of auto receivables 1,705,429 1,184,239
Initial deposits to credit enhancement assets (80,750) (63,000)
Borrowings under credit enhancement facility 46,250 27,000
Purchases of property and equipment (10,394) 157
Change in other assets (42,754) (26,701)
------------------ -----------------
Net cash used by investing activities (332,304) (263,316)
------------------ -----------------
Cash flows from financing activities
Net change in warehouse credit facilities 252,242 278,495
Net change in notes payable 2,595 (2,564)
Proceeds from issuance of common stock 9,064 12,891
------------------ -----------------
Net cash provided by financing activities 263,901 288,822
------------------ -----------------
Net increase in cash and cash equivalents 15,057 85,981
Cash and cash equivalents at beginning of period 77,053 42,916
------------------ -----------------
Cash and cash equivalents at end of period $ 92,110 $ 128,897
================== =================
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 consolidated financial statements include the accounts of AmeriCredit Corp.
and its wholly-owned subsidiaries (the "Company"). All significant intercompany
transactions and accounts have been eliminated in consolidation.
The consolidated financial statements as of September 30, 2001, and for the
three months ended September 30, 2001 and 2000, 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. Certain prior year amounts have been reclassified to conform
to the current period presentation. 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,
2001.
NOTE 2 - RECEIVABLES HELD FOR SALE
Receivables held for sale consist of the following (in thousands):
September 30, 2001 June 30, 2001
----------------------- -----------------------
Auto receivables $2,268,495 $1,973,828
Less allowance for loan losses (61,225) (52,363)
----------------------- -----------------------
$2,207,270 $1,921,465
======================= =======================
A summary of the allowance for loan losses is as follows (in thousands):
Three Months Ended
September 30,
--------------------------------------------
2001 2000
-------------------- --------------------
Balance at beginning of period $ 52,363 $ 24,374
Provision for loan losses 14,842 6,054
Acquisition fees 41,174 32,032
Allowance related to receivables sold to Trusts (38,891) (28,631)
Net charge-offs (8,263) (2,835)
-------------------- --------------------
Balance at end of period $ 61,225 $ 30,994
==================== ====================
6
NOTE 3 - CREDIT ENHANCEMENT ASSETS
During the three months ended September 30, 2001 and 2000, the Company sold
$1,725.0 million and $1,200.0 million, respectively, of auto receivables in
securitization transactions and recognized pre-tax gains of $92.9 million and
$61.6 million, respectively. The Company retained servicing responsibilities
and interests in the receivables in the form of credit enhancement assets. As
of September 30, 2001 and June 30, 2001, the Company was servicing $9,057.0
million and $8,229.9 million, respectively, of auto receivables which have been
sold to certain special purpose financing trusts (the "Trusts"). The Trusts and
the investors in the asset-backed securities sold by the Trusts have no recourse
to the Company's assets other than the credit enhancement assets. The credit
enhancement assets are subordinate to the interests of the investors in the
Trusts and the value of such assets is subject to the credit risks related to
the receivables sold to the Trusts.
Credit enhancement assets consist of the following (in thousands):
September 30, 2001 June 30, 2001
----------------------- -----------------------
Interest-only receivables from Trusts $ 376,291 $ 387,895
Investments in Trust receivables 514,852 493,022
Restricted cash 353,674 270,358
----------------------- -----------------------
$1,244,817 $1,151,275
======================= =======================
A summary of activity in the credit enhancement assets is as follows (in
thousands):
Three Months Ended
September 30,
-----------------------------------------------
2001 2000
--------------------- ---------------------
Balance at beginning of period $1,151,275 $824,618
Non-cash gain on sale of auto receivables 89,678 49,436
Accretion of present value discount 27,842 19,790
Initial deposits to credit enhancement assets 80,750 63,000
Payments on credit enhancement facility (15,827) (15,625)
Change in unrealized gain (18,168) 30,314
Distributions from Trusts (70,733) (49,060)
--------------------- ---------------------
Balance at end of period $1,244,817 $922,473
===================== =====================
7
A summary of the allowance for loan losses included as a component of the
interest-only receivables is as follows (in thousands):
Three Months Ended
September 30,
-----------------------------------------------
2001 2000
--------------------- ---------------------
Balance at beginning of period $868,184 $563,102
Assumptions for cumulative credit losses 211,727 123,353
Net charge-offs (95,950) (62,712)
--------------------- ---------------------
Balance at end of period $983,961 $623,743
===================== =====================
NOTE 4 - WAREHOUSE CREDIT FACILITIES
Warehouse credit facilities consist of the following (in thousands):
September 30, 2001 June 30, 2001
--------------------- ---------------------
Commercial paper facilities $ 465,228 $ 228,794
Medium term notes 1,250,000 1,250,000
Canadian credit agreement 39,893 24,085
--------------------- ---------------------
$1,755,121 $1,502,879
===================== =====================
The Company has six separate funding agreements with administrative agents on
behalf of institutionally managed commercial paper conduits and bank groups with
aggregate structured warehouse financing availability of approximately $2,350.0
million. Two of the commercial paper facilities provide for available
structured warehouse financing of $600.0 million and $250.0 million,
respectively, through September 2002. An additional facility provides for
available structured warehouse financing of $500.0 million through March 2002.
Other facilities provide for available structured warehouse financing of $200.0
million through May 2002 and $500.0 million through June 2002. The remaining
facility provides for multi-year structured warehouse financing with
availability of $300.0 million through June 2004.
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, LIBOR
or prime rates plus specified fees depending upon the source of funds provided
by the agents. The funding agreements contain various covenants requiring
8
certain minimum financial ratios and results. The funding agreements also
require certain funds to be held in restricted cash accounts to provide
additional collateral for borrowings under the facilities. As of September 30
and June 30, 2001, these restricted cash accounts totaled $9.8 million and $6.0
million, respectively, and are included in other assets in the consolidated
balance sheets. As of September 30 and June 30, 2001, $509.4 million and $254.7
million, respectively, of auto receivables held for sale were pledged under
these funding agreements.
The Company also has two funding agreements with administrative agents on behalf
of institutionally managed medium term note conduits under which $500.0 million
and $750.0 million, respectively, of proceeds are available through the terms of
the agreements. Under these arrangements, the conduits sold medium term notes
and delivered the proceeds to special purpose finance subsidiaries of the
Company. These subsidiaries in turn issued notes, collateralized by auto
receivables and cash, to the agents. The funding agreements allow for the
substitution of auto receivables (subject to an overcollateralization formula)
for cash, and vice versa, during the term of the agreements, thus allowing the
Company to use the medium term note proceeds to finance auto receivables on a
revolving basis. The first agreement matures in December 2003 and the second
agreement matures in June 2004. While the special purpose finance subsidiaries
are included in the Company's consolidated financial statements, the
subsidiaries are separate legal entities and the auto receivables and other
assets held by the subsidiaries are legally owned by the subsidiaries and are
not available to creditors of AmeriCredit Corp. or its other subsidiaries. The
notes issued by the subsidiaries under the funding agreements bear interest at
LIBOR plus specified fees. The funding agreements contain various covenants
requiring certain minimum financial ratios and results. The funding agreements
also require certain funds to be held in restricted cash accounts to provide
additional collateral under the notes. As of September 30 and June 30, 2001,
these restricted cash accounts totaled $30.9 million and $28.3 million,
respectively, and are included in other assets in the consolidated balance
sheets. As of September 30 and June 30, 2001, $1,293.2 million and $1,293.8
million, respectively, of auto receivables held for sale were pledged under
these funding agreements.
In August 2001, the Company's Canadian subsidiary replaced its $40.0 million
Cdn. convertible revolving term credit agreement with a revolving credit
agreement, under which the subsidiary may borrow up to $150.0 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 Bankers Acceptance Rate plus specified fees. The credit agreement,
which expires in August 2002, contains various covenants requiring certain
minimum financial ratios and results.
NOTE 5 - CREDIT ENHANCEMENT FACILITY
The Company has a credit enhancement facility with a financial institution under
which the Company may borrow up to $225 million to fund a portion of the
9
initial restricted cash deposit required in its securitization transactions.
Borrowings under the credit enhancement facility were available on a revolving
basis through October 2001 after which time outstanding borrowings are payable
over time based on future excess cash flows from certain of the Trusts. The
facility contains covenants requiring certain asset performance ratios. The
Company has alternatively utilized reinsurance arrangements to reduce the
initial restricted cash deposit. These reinsurance arrangements do not represent
funded debt, and therefore are not recorded as such on the Company's
consolidated balance sheets.
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest costs and income taxes consist of the following (in
thousands):
Three Months Ended
September 30,
-----------------------------------------
2001 2000
------------------- -------------------
Interest costs (none capitalized) $36,052 $25,955
Income taxes 157 14
During the three months ended September 30, 2001 and 2000, the Company entered
into capital lease agreements for property and equipment of $11.8 million and
$0.6 million, respectively.
NOTE 7 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As of September 30 and June 30, 2001, the Company had interest rate swap
agreements with underlying notional amounts of $1,653.9 million and $1,719.2
million, respectively. These agreements had unrealized losses of approximately
$95.7 million and $64.2 million as of September 30 and June 30, 2001,
respectively. As of September 30, 2001, the ineffectiveness related to the
interest rate swap agreements was not material. The Company estimates that
unrealized losses included in other comprehensive income that will be
reclassified into earnings within the next twelve months will not be
significant. Under the terms of the interest rate swap agreements, the Company
is required to pledge certain funds to be held in restricted cash accounts if
the market value of the interest rate swap agreements exceed an agreed upon
amount. As of September 30 and June 30, 2001, these restricted cash accounts
totaled $71.0 million and $41.9 million, respectively, and are included in other
assets in the consolidated balance sheets.
NOTE 8 - 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
10
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.
The following consolidating financial statement schedules present consolidating
financial data for (i) AmeriCredit Corp. (on a parent only basis), (ii) the
combined Subsidiary Guarantors, (iii) the combined Non-Guarantor Subsidiaries,
(iv) an elimination column for adjustments to arrive at the information for the
Company and its subsidiaries on a consolidated basis and (v) the Company and its
subsidiaries on a consolidated basis.
Investments in subsidiaries are accounted for by the parent company using the
equity method for purposes of this presentation. Earnings of subsidiaries are
therefore reflected in the parent company's investment accounts and earnings.
The principal elimination entries set forth below eliminate investments in
subsidiaries and intercompany balances and transactions.
11
AmeriCredit Corp.
Consolidating Balance Sheet
September 30, 2001
(Unaudited, Dollars in Thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
--------------- ------------ ----------- ------------ ------------
ASSETS
Cash and cash equivalents $ 76,246 $ 15,864 $ 92,110
Receivables held for sale, net 373,579 1,833,691 2,207,270
Interest-only receivables
from Trusts 376,291 376,291
Investments in Trust
receivables 514,852 514,852
Restricted cash 353,674 353,674
Property and equipment, net $ 349 83,765 84,114
Other assets 8,225 168,241 59,090 235,556
Due (to) from affiliates 882,542 (2,476,427) 1,593,885
Investment in affiliates 660,604 2,664,947 20,153 $(3,345,704)
--------------- ------------ ----------- ------------ ------------
Total assets $1,551,720 $ 890,351 $4,767,500 $(3,345,704) $3,863,867
=============== ============ =========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Warehouse credit facilities $ 39,893 $1,715,228 $1,755,121
Credit enhancement facility 66,742 66,742
Senior notes $ 375,000 375,000
Other notes payable 37,459 37,459
Funding payable 115,810 641 116,451
Accrued taxes and expenses 20,856 102,420 6,650 129,926
Interest rate swap and
cap agreements 113,070 113,070
Deferred income taxes (14,443) (14,774) 166,467 137,250
--------------- ------------ ----------- ------------ ------------
Total liabilities 418,872 356,419 1,955,728 2,731,019
--------------- ------------ ----------- ------------ ------------
Shareholders' equity:
Common stock 908 908
Additional paid-in capital 544,564 39,728 2,015,410 $(2,055,138) 544,564
Accumulated other
comprehensive income 43,108 (83,564) 126,672 (43,108) 43,108
Retained earnings 563,700 577,768 669,690 (1,247,458) 563,700
--------------- ------------ ----------- ------------ ------------
1,152,280 533,932 2,811,772 (3,345,704) 1,152,280
Treasury stock (19,432) (19,432)
--------------- ------------ ----------- ------------ ------------
Total shareholders' equity 1,132,848 533,932 2,811,772 (3,345,704) 1,132,848
--------------- ------------ ----------- ------------ ------------
Total liabilities and
shareholders' equity $1,551,720 $ 890,351 $4,767,500 $(3,345,704) $3,863,867
=============== ============ =========== ============ ============
12
AmeriCredit Corp.
Consolidating Balance Sheet
June 30, 2001
(Dollars in Thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
------------- ----------- ---------- ------------ ------------
ASSETS
Cash and cash equivalents $ 58,954 $ 18,099 $ 77,053
Receivables held for sale, net 390,264 1,531,201 1,921,465
Interest-only receivables
from Trusts 13,686 374,209 387,895
Investments in Trust receivables 493,022 493,022
Restricted cash 270,358 270,358
Property and equipment, net $ 349 67,479 67,828
Other assets 9,606 117,058 40,622 167,286
Due (to) from affiliates 867,418 (2,171,157) 1,303,739
Investment in affiliates 605,397 2,286,788 16,995 $(2,909,180)
------------- ----------- ---------- ----------- -----------
Total assets $1,482,770 $ 763,072 $4,048,245 $(2,909,180) $3,384,907
============= =========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Warehouse credit facilities $ 24,085 $1,478,794 $1,502,879
Credit enhancement facility 36,319 36,319
Senior notes $ 375,000 375,000
Other notes payable 23,077 23,077
Funding payable 60,018 442 60,460
Accrued taxes and expenses 15,316 90,271 8,454 114,041
Interest rate swap and
cap agreements 82,796 82,796
Deferred income taxes 9,181 (8,209) 129,167 130,139
------------- ----------- ---------- ----------- -----------
Total liabilities 422,574 248,961 1,653,176 2,324,711
------------- ----------- ---------- ----------- -----------
Shareholders' equity:
Common stock 899 899
Additional paid-in capital 520,077 51,768 1,699,642 $(1,751,410) 520,077
Accumulated other comprehensive
income 73,689 (39,456) 113,145 (73,689) 73,689
Retained earnings 484,963 501,799 582,282 (1,084,081) 484,963
------------- ----------- ---------- ----------- -----------
1,079,628 514,111 2,395,069 (2,909,180) 1,079,628
Treasury stock (19,432) (19,432)
------------- ----------- ---------- ----------- -----------
Total shareholders' equity 1,060,196 514,111 2,395,069 (2,909,180) 1,060,196
------------- ----------- ---------- ----------- -----------
Total liabilities and
shareholders' equity $1,482,770 $ 763,072 $4,048,245 $(2,909,180) $3,384,907
============= =========== ========== =========== ===========
13
AmeriCredit Corp.
Consolidating Income Statement
Three Months Ended September 30, 2001
(Unaudited, Dollars in Thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
----------------- ---------- ---------- ------------ ------------
Revenue
Finance charge income $ 23,208 $ 73,589 $ 96,797
Gain on sale of receivables 3,855 89,075 92,930
Servicing fee income 63,000 22,235 85,235
Other income $11,263 133,122 79,316 $(220,828) 2,873
Equity in income of
affiliates 79,523 87,408 (166,931)
--------------- ---------- ---------- ----------- ------------
90,786 310,593 264,215 (387,759) 277,835
--------------- ---------- ---------- ----------- ------------
Costs and expenses
Operating expenses 2,508 91,003 5,865 99,376
Provision for loan losses 2,172 12,670 14,842
Interest expense 10,034 142,831 103,553 (220,828) 35,590
--------------- ---------- ---------- ----------- ------------
12,542 236,006 122,088 (220,828) 149,808
--------------- ---------- ---------- ----------- ------------
Income before income taxes 78,244 74,587 142,127 (166,931) 128,027
Income tax (benefit) provision (493) (4,936) 54,719 49,290
--------------- ---------- ---------- ----------- ------------
Net income $78,737 $ 79,523 $ 87,408 $(166,931) $ 78,737
=============== ========== ========== =========== ============
14
AmeriCredit Corp.
Consolidating Income Statement
Three Months Ended September 30, 2000
(Unaudited, Dollars in Thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
--------------- ------------ ----------- ------------ ------------
Revenue
Finance charge income $ 20,069 $ 25,331 $ 45,400
Gain on sale of receivables $ (97) 2,639 59,044 61,586
Servicing fee income 56,991 18,605 $ (16,326) 59,270
Other income 11,263 2,625 460 (11,263) 3,085
Equity in income of
affiliates 43,038 45,211 (88,249)
--------------- -------- --------- --------- ----------
54,204 127,535 103,440 (115,838) 169,341
--------------- -------- --------- --------- ----------
Costs and expenses
Operating expenses 29 83,564 27 (16,326) 67,294
Provision for loan losses 1,949 4,105 6,054
Interest expense 12,381 344 25,794 (11,263) 27,256
--------------- -------- --------- --------- ----------
12,410 85,857 29,926 (27,589) 100,604
--------------- -------- --------- --------- ----------
Income before income taxes 41,794 41,678 73,514 (88,249) 68,737
Income tax (benefit) provision (479) (1,360) 28,303 26,464
--------------- -------- --------- --------- ----------
Net income $42,273 $ 43,038 $ 45,211 $ (88,249) $ 42,273
=============== ======== ========= ========= ==========
15
AmeriCredit Corp.
Consolidating Statement of Cash Flow
Three Months Ended September 30, 2001
(Unaudited, Dollars in Thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
---------------- ------------ ------------- -------------- -------------
Cash flow from operating activities:
Net income $ 78,737 $ 79,523 $ 87,408 $ (166,931) $ 78,737
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,895 5,895
Provision for loan losses 2,172 12,670 14,842
Deferred income taxes (8,192) 5,584 44,295 41,687
Accretion of present value
discount (27,842) (27,842)
Non-cash gain on sale of
auto receivables (89,678) (89,678)
Distributions from Trusts (12,620) 83,353 70,733
Equity in income of affiliates (79,523) (87,408) 166,931
Changes in assets and liabilities:
Other assets 1,381 (23,766) (4,414) (26,799)
Accrued taxes and expenses 5,540 12,149 (1,804) 15,885
--------------- ------------ ----------- ----------- -----------
Net cash (used) provided by
operating activities (2,057) (18,471) 103,988 83,460
--------------- ------------ ----------- ----------- -----------
Cash flows from investing activities:
Purchase of auto receivables (2,011,026) (2,086,733) 2,086,733 (2,011,026)
Principal collections and
recoveries on receivables (5,402) 66,343 60,941
Net proceeds from sale of
auto receivables 2,086,733 1,705,429 (2,086,733) 1,705,429
Initial deposits to credit
enhancement assets (80,750) (80,750)
Borrowings under credit
enhancement facility 46,250 46,250
Purchases of property and
equipment (10,394) (10,394)
Change in other assets (28,700) (14,054) (42,754)
Net change in investment in
affiliates (6,265) (319,005) 21,542 303,728
--------------- ------------ ----------- ----------- -----------
Net cash used by investing
activities (6,265) (287,794) (341,973) 303,728 (332,304)
--------------- ------------ ----------- ----------- -----------
Cash flows from financing activities:
Net change in warehouse
credit facilities 15,808 236,434 252,242
Net change in notes payable 2,595 2,595
Proceeds from issuance of
common stock 9,064 (12,040) 315,768 (303,728) 9,064
Net change in due (to) from
affiliates (3,337) 319,789 (316,452)
--------------- ------------ ----------- ----------- -----------
Net cash provided by
financing activities 8,322 323,557 235,750 (303,728) 263,901
--------------- ------------ ----------- ----------- -----------
Net increase in cash and
cash equivalents 17,292 (2,235) 15,057
Cash and cash equivalents at
beginning of period 58,954 18,099 77,053
--------------- ------------ ----------- ----------- -----------
Cash and cash equivalents at
end of period $ $ 76,246 $ 15,864 $ $ 92,110
=============== =========== =========== =========== ===========
16
AmeriCredit Corp.
Consolidating Statement of Cash Flow
Three Months Ended September 30, 2000
(Unaudited, Dollars in Thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
---------------- ------------ ------------- -------------- -------------
Cash flow from operating activities:
Net income $ 42,273 $ 43,038 $ 45,211 $ (88,249) $ 42,273
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,410 4,410
Provision for loan losses 1,949 4,105 6,054
Deferred income taxes (21,663) (1,345) 28,304 5,296
Accretion of present value
discount (19,790) (19,790)
Non-cash gain on sale of
auto receivables (49,436) (49,436)
Distributions from Trusts 49,060 49,060
Equity in income of affiliates (43,038) (45,211) 88,249
Changes in assets and liabilities:
Other assets (3,532) 181 995 (2,356)
Accrued taxes and expenses 21,989 3,979 (1,004) 24,964
--------------- ------------ ------------ ------------- ------------
Net cash provided by
operating activities (3,971) 7,001 57,445 60,475
--------------- ------------ ------------ ------------- ------------
Cash flows from investing activities:
Purchase of auto receivables (1,402,469) (1,449,291) 1,449,291 (1,402,469)
Principal collections and
recoveries on receivables (4,126) 21,584 17,458
Net proceeds from sale of
auto receivables 1,449,291 1,184,239 (1,449,291) 1,184,239
Initial deposits to credit
enhancement assets (63,000) (63,000)
Borrowings under credit
enhancement facility 27,000 27,000
Proceeds from sale of property
and equipment 157 157
Change in other assets (5,038) (21,663) (26,701)
Net change in investment in
affiliates (1,938) (616,285) (6,139) 624,362
--------------- ------------ ------------ ------------- ------------
Net cash used by investing
activities (1,938) (578,470) (307,270) 624,362 (263,316)
--------------- ------------ ------------ ------------- ------------
Cash flows from financing activities:
Net change in warehouse
credit facilities 350 278,145 278,495
Net change in notes payable (2,564) (2,564)
Proceeds from issuance of
common stock 12,891 (6) 624,368 (624,362) 12,891
Net change in due (to) from
affiliates (4,418) 662,961 (658,543)
--------------- ------------ ------------ ------------- ------------
Net cash provided by
financing activities 5,909 663,305 243,970 (624,362) 288,822
--------------- ------------ ------------ ------------- ------------
Net increase in cash and
cash equivalents 91,836 (5,855) 85,981
Cash and cash equivalents at
beginning of period 30,705 12,211 42,916
--------------- ------------ ------------ ------------- ------------
Cash and cash equivalents at
end of period $ $ 122,541 $ 6,356 $ $ 128,897
=============== ============ ============ ============= ============
17
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
and, to a lesser extent, makes auto loans directly to consumers. To fund the
acquisition of receivables prior to securitization, the Company utilizes
borrowings under its warehouse credit facilities. The Company earns 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 periodically 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 in order to attain specific credit ratings for the
asset-backed securities issued by the Trusts. Once predetermined credit
enhancement requirements are reached and maintained, excess cash flows are
distributed to the Company. 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").
18
RESULTS OF OPERATIONS
Three Months Ended September 30, 2001 as compared to
- ----------------------------------------------------
Three Months Ended September 30, 2000
-------------------------------------
Revenue:
The Company's average managed receivables outstanding consisted of the following
(in thousands):
Three Months Ended
September 30,
---------------------------------
2001 2000
--------------- ---------------
Auto:
Held for sale $ 1,962,955 $ 800,684
Serviced 8,794,923 6,238,610
--------------- ---------------
10,757,878 7,039,294
Other 4,011
--------------- ---------------
$10,757,878 $7,043,305
=============== ===============
Average managed receivables outstanding increased by 53% as a result of higher
loan purchase volume. The Company purchased $2,035.2 million of auto loans
during the three months ended September 30, 2001, compared to purchases of
$1,406.8 million during the three months ended September 30, 2000. This growth
resulted from increased loan production at branches open during both periods as
well as expansion of the Company's branch network. Loan purchases at branch
offices opened prior to September 30, 1999, were 16% higher for the twelve
months ended September 30, 2001, versus the twelve months ended September 30,
2000. The Company operated 248 auto lending branch offices as of September 30,
2001, compared to 198 as of September 30, 2000.
The average new loan size was $16,294 for the three months ended September 30,
2001, compared to $15,098 for the three months ended September 30, 2000. The
average percentage rate for loans purchased during the three months ended
September 30, 2001 was 18.2%, compared to 19.2% during the three months ended
September 30, 2000. Decreasing short-term market interest rates have lowered
the Company's cost of funds, allowing the Company to pass along some of this
benefit to consumers in the form of lower loan pricing.
Finance charge income increased by 113% to $96.8 million for the three months
ended September 30, 2001, from $45.4 million for the three months ended
September 30, 2000. Finance charge income was higher due primarily to an
increase of 145% in average auto receivables held for sale in the three months
ended September 30, 2001, versus the three months ended September 30, 2000. The
Company's effective yield on its auto receivables held for sale decreased to
19.6% for the three months ended September 30, 2001, from 22.5% for the three
months ended September 30, 2000. The effective yield is higher than the
19
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 effective yield decreased for the three months ended September
30, 2001, due to lower levels of finance charges earned between the origination
date and funding date and lower loan pricing.
The gain on sale of receivables rose by 51% to $92.9 million for the three
months ended September 30, 2001, from $61.6 million for the three months ended
September 30, 2000. The increase in gain on sale of auto receivables resulted
from the sale of $1,725.0 million of receivables in the three months ended
September 30, 2001, as compared to $1,200.0 million of receivables sold in the
three months ended September 30, 2000. The gain as a percentage of the sales
proceeds increased to 5.4% for the three months ended September 30, 2001, from
5.1% for the three months ended September 30, 2000, as a result of a decrease in
short-term market interest rates.
Significant assumptions used in determining the gain on sale of auto receivables
were as follows:
Three Months Ended
September 30,
--------------------
2001 2000
-------- --------
Cumulative credit losses (including
deferred gains) 12.5% 10.8%
Discount rate used to estimate
present value:
Interest-only receivables from Trusts 14.0% 14.0%
Investment in Trust receivables 9.8% 9.8%
Restricted cash 9.8% 9.8%
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 Company increased the cumulative credit losses used in determining the gain
on sale of receivables sold during the three months ended September 30, 2001, to
incorporate an increase in credit losses which may result from the general
decline in the economy.
Servicing fee income increased to $85.2 million, or 3.8% of average serviced
auto receivables, for the three months ended September 30, 2001, compared to
$59.3 million, or 3.8% of average serviced auto receivables, for the three
months ended September 30, 2000. Servicing fee income represents accretion of
the present value discount on estimated future excess cash flows from the
20
Trusts, 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
attributable to the increase in average serviced auto receivables outstanding
for the three months ended September 30, 2001, compared to the three months
ended September 30, 2000.
Costs and Expenses:
Operating expenses as an annualized percentage of average managed receivables
outstanding decreased to 3.7% for the three months ended September 30, 2001,
compared to 3.8% for the three months ended September 30, 2000. 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 $32.1 million,
or 48%, primarily due to the addition of auto branch offices and loan processing
and servicing staff.
The provision for loan losses increased to $14.8 million for the three months
ended September 30, 2001, from $6.1 million for the three months ended September
30, 2000, due to higher average amounts of receivables held for sale. As a
percentage of average receivables held for sale, the provision for loan losses
was 3.0% for the three months ended September 30, 2001 and 2000.
Interest expense increased to $35.6 million for the three months ended September
30, 2001, from $27.3 million for the three months ended September 30, 2000, due
to higher debt levels. Average debt outstanding was $2,253.9 million and
$1,020.8 million for the three months ended September 30, 2001 and 2000,
respectively. The Company's effective rate of interest paid on its debt
decreased to 6.3% from 10.6% as a result of lower short-term market interest
rates.
The Company's effective income tax rate was 38.5% for the three months ended
September 30, 2001 and 2000.
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
21
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 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 when the Company repossesses
and disposes of the collateral or the account is deemed uncollectable.
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,
except per share data):
Three Months Ended
September 30,
--------------------------------------------
2001 2000
------------------ ----------------------
Finance charge, fee and other income $ 512,544 $ 355,826
Funding costs (179,492) (142,397)
-------------------- ---------------------
Net margin 333,052 213,429
Credit losses (104,213) (65,547)
Operating expenses (99,376) (67,294)
-------------------- ---------------------
Pre-tax portfolio-based income 129,463 80,588
Income taxes (49,843) (31,026)
-------------------- ---------------------
Net portfolio-based income $ 79,620 $ 49,562
-------------------- ---------------------
Diluted portfolio-based earnings per share $ 0.89 $ 0.59
==================== =====================
The pro-forma return on managed assets for the Company's auto business was as
follows:
Three Months Ended
September 30,
---------------------------------------------
2001 2000
-------------------- ---------------------
Finance charge, fee and other income 18.9% 20.0%
Funding costs (6.6) (8.0)
-------------------- ---------------------
Net margin 12.3 12.0
Credit losses (3.8) (3.7)
-------------------- ---------------------
Risk adjusted margin 8.5 8.3
Operating expenses (3.7) (3.8)
-------------------- ---------------------
Pre-tax return on managed assets 4.8 4.5
Income taxes (1.9) (1.7)
-------------------- ---------------------
Return on managed assets 2.9% 2.8%
==================== ====================
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 loan
losses as a charge to operations and a related allowance for loan losses in the
consolidated balance sheets as a reserve against estimated probable losses in
the receivables held for sale portfolio prior to the sale of such receivables in
securitization transactions. The Company typically purchases individual finance
contracts and collects a non-refundable acquisition fee. Such acquisition fees
are also recorded in the consolidated balance sheets as an allowance for loan
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 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 and the timing
of such losses, provisions for loan losses and allowance for loan 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. These amounts represent management's best estimate
based on currently available information.
The following table presents certain data related to the receivables portfolio
(dollars in thousands):
September 30, 2001
-----------------------------------------------------------------------
Held for Managed
Sale Serviced Portfolio
- ---------------------------------------------------------------------------- ------------------- ---------------------
Principal amount of receivables $2,268,495 $9,056,981 $11,325,476
=================== =====================
Allowance for loan losses (61,225) $ (983,961) (a) $(1,045,186)
------------------- =================== =====================
Receivables, net $2,207,270
===================
Number of outstanding contracts 144,634 751,968 896,602
=================== =================== =====================
Average principal amount of
outstanding contract (in dollars) $ 15,684 $ 12,044 $ 12,632
=================== =================== =====================
Allowance for loan losses as a
percentage of receivables 2.7% 10.9% 9.2%
=================== =================== =====================
(a) The allowance for loan 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 yet in repossession, and (ii) in repossession
(dollars in thousands):
September 30, 2001 September 30, 2000
------------------------------------ ------------------------------------
Amount Percent Amount Percent
------------------- -------------- ------------------- --------------
Delinquent contracts:
31 to 60 days $ 869,137 7.7% $542,041 7.3%
Greater than 60 days 351,001 3.1 178,209 2.4
------------------- -------------- ------------------- --------------
1,220,138 10.8 720,250 9.7
In repossession 117,924 1.0 58,666 0.8
------------------- -------------- ------------------- --------------
$1,338,062 11.8% $778,916 10.5%
=================== ============== =================== ==============
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 an average quarterly percentage of average managed auto receivables
outstanding were 4.7% for the three months ended September 30, 2001 and 2000.
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,
----------------------------------------------
2001 2000
--------------------- ---------------------
Net charge-offs:
Held for sale $ 8,263 $ 2,835
Serviced 95,950 62,712
--------------------- ---------------------
$104,213 $65,547
===================== =====================
Net charge-offs as an annualized
percentage of average managed
auto receivables outstanding 3.8% 3.7%
===================== =====================
Net recoveries as a percentage of
gross repossession charge-offs 49.6% 52.4%
===================== =====================
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,
--------------------------------------------
2001 2000
-------------------- --------------------
Operating activities $ 83,460 $ 60,475
Investing activities (332,304) (263,316)
Financing activities 263,901 288,822
-------------------- --------------------
Net increase in cash and cash equivalents $ 15,057 $ 85,981
==================== ====================
The Company's primary sources of cash have been cash flows from operating
activities, including cash distributions from the Trusts, borrowings under its
warehouse credit facilities and sales of auto receivables to Trusts in
securitization transactions. The Company's primary uses of cash have been
purchases of receivables and funding credit enhancement requirements for
securitization transactions.
The Company required cash of $2,011.0 million and $1,402.5 million for the
purchase of auto finance contracts during the three months ended September 30,
2001 and 2000, respectively. These purchases were funded initially utilizing
warehouse credit facilities and subsequently through the sale of auto
receivables in securitization transactions.
The Company has six separate funding agreements with administrative agents on
behalf of institutionally managed commercial paper conduits and bank groups with
aggregate structured warehouse financing availability of approximately $2,350.0
million. Two of the commercial paper facilities provide for available
structured warehouse financing of $600.0 million and $250.0 million,
respectively, through September 2002. An additional facility provides for
available structured warehouse financing of $500.0 million through March 2002.
Other facilities provide for available structured warehouse financing of $200.0
million through May 2002 and $500.0 million through June 2002. The remaining
facility provides for multi-year structured warehouse financing with
availability of $300.0 million through June 2004. A total of $465.2 million was
outstanding under these facilities as of September 30, 2001.
The Company also has two funding agreements with administrative agents on behalf
of institutionally managed medium term note conduits under which $500.0 million
and $750.0 million, respectively, of proceeds are available through the terms of
the agreements. The funding agreements allow for the substitution of auto
receivables (subject to an overcollateralization formula) for cash, and vice
versa, thus allowing the Company to use the medium term note proceeds to finance
auto receivables on a revolving basis. The first agreement matures in December
2003 and the second agreement matures in June 2004. A total of
25
$1,250.0 million was outstanding under these facilities as of September 30,
2001.
In August 2001, the Company's Canadian subsidiary replaced its $40.0 million
Cdn. convertible revolving term credit agreement with a revolving credit
agreement, under which the subsidiary may borrow up to $150.0 million Cdn.,
subject to a defined borrowing base. The credit agreement expires in August
2002. A total of $39.9 million was outstanding under the Canadian facility as
of September 30, 2001.
As is customary in the Company's industry, certain of the Company's 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 twenty-eight auto receivable securitization
transactions through September 30, 2001. 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 (dollars in millions):
Original Balance at
Transaction (a) Date Amount September 30, 2001
- ------------------ -------------------------------- ----------------------- -----------------------------
1998-A February 1998 $ 425.0 $ 47.6
1998-B May 1998 525.0 75.2
1998-C August 1998 575.0 106.4
1998-D November 1998 625.0 140.2
1999-A February 1999 700.0 186.5
1999-B May 1999 1,000.0 330.2
1999-C August 1999 1,000.0 407.7
1999-D October 1999 900.0 402.0
2000-A February 2000 1,300.0 661.0
2000-B May 2000 1,200.0 709.0
2000-C August 2000 1,100.0 742.3
2000-1 November 2000 495.0 346.8
2000-D November 2000 600.0 463.1
2001-A February 2001 1,400.0 1,147.6
2001-1 April 2001 1,089.0 939.7
2001-B July 2001 1,850.0 1,804.4
2001-C September 2001 1,600.0 1,592.9
----------------------- -----------------------------
$16,384.0 $10,102.6
======================= =============================
(a) Transactions 1994-A, 1995-A and B, 1996-A, B, C and D, 1997-A, B, C and D
originally totaling $1,995.5 million have been paid off as of September 30,
2001.
In connection with securitization transactions, the Company is required to
provide credit enhancement in order to attain specific credit ratings for the
asset-backed securities issued by the Trusts. The Company typically makes an
initial deposit to a restricted cash account and 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 overcollateralization in the
Trusts. When the credit enhancement levels reach specified percentages of the
Trust's pool of receivables, excess cash flows are distributed to the Company.
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. Since November 1997, the Company has employed a structure
that utilizes reinsurance and other alternative credit enhancements to reduce
the required initial credit enhancement deposit. Under this structure, the
Company expects to begin to receive excess cash flow distributions approximately
14 to 16 months after receivables are securitized.
The reinsurance used to reduce the Company's initial cash deposit has typically
been arranged by the insurer of the asset-backed securities. As of September
30, 2001, the Company had commitments from the insurer for an
27
additional $275.5 million of reinsurance. These commitments expire in December
2002. In addition, the Company has a credit enhancement facility with a
financial institution under which the Company may borrow up to $225 million to
fund a portion of the initial cash deposit in securitization transactions
through October 2001, similar to the amount covered by the reinsurance described
above. Borrowings under the credit enhancement facility are collateralized by
the Company's credit enhancement assets. A total of $66.7 million was
outstanding under this facility at September 30, 2001.
During fiscal 2001, the Company completed two securitization transactions (2000-
1 and 2001-1) involving the sale of subordinate asset-backed securities in order
to provide credit enhancement for the senior asset-backed securities. The
Company's other securitization transactions have included the sale of senior
asset-backed securities only and the purchase of a financial guaranty insurance
policy for the benefit of investors. The subordinate asset-backed securities
replace a portion of the Company's initial credit enhancement deposit otherwise
required in a securitization transaction in a manner similar to the utilization
of reinsurance or other alternative credit enhancements described in the
preceding paragraph.
Initial deposits for credit enhancement purposes were $80.8 million and $63.0
million for the three months ended September 30, 2001 and 2000, respectively.
Borrowings under the credit enhancement facility were $46.3 million and $27.0
million for the three months ended September 30, 2001 and 2000, respectively.
Excess cash flows distributed to the Company were $70.7 million and $49.1
million for the three months ended September 30, 2001 and 2000, respectively.
With respect to the Company's securitization transactions covered by a financial
guaranty policy, 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, 2001, none of the Company's securitizations had delinquency,
default or net loss ratios in excess of the targeted levels.
The Company operated 248 auto lending branch offices as of September 30, 2001,
and plans to open an additional 5 to 9 branches through the remainder of fiscal
2002 and expand loan production capacity at existing auto lending branch offices
where appropriate. While the Company has been able to establish and grow its
auto 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, 2001, the Company had $92.1 million in cash and cash
equivalents. The Company also had available borrowing capacity of $154.5
million under its warehouse credit facilities pursuant to the borrowing base
requirements of such agreements. The Company believes that its existing capital
resources along with expected cash flows from operating activities will be
sufficient to fund the Company's liquidity needs, exclusive of the purchase of
auto finance contracts, for fiscal 2002.
28
However, the Company anticipates that it will require additional external
capital in the form of securitization transactions, renewal and expansion of its
existing warehouse credit facilities and implementation of new warehouse credit
facilities in order to fund auto loan purchases in fiscal 2002. 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.
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 purchased 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. In addition, the securities issued by the Trusts in the Company's
securitization transactions may bear interest at floating rates that are subject
to monthly adjustment to reflect prevailing market interest rates.
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 market interest rate swap spreads for transactions of
similar duration or various London Interbank Offered Rates
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("LIBOR"). 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.
The Company also utilizes interest rate cap agreements as part of its interest
rate risk management strategy for securitization transactions as well as for
warehouse credit facilities. The purchaser of the interest rate cap agreement
pays a premium in return for the right to receive the difference in the interest
cost at any time a specified index of market interest rates rises above the
stipulated "cap" rate. The interest rate cap agreement purchaser bears no
obligation or liability if interest rates fall below the "cap" rate. The
Company's special purpose finance subsidiaries are contractually required to
purchase interest rate cap agreements as credit enhancement in connection with
securitization transactions and warehouse credit facilities. The Company
simultaneously sells a corresponding interest rate cap agreement in order to
offset the purchased interest rate cap agreement.
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.
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.
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, 2001. 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Because the Company's funding strategy is dependent upon the issuance of
interest-bearing securities and the incurrence of debt, fluctuations in interest
rates impact the Company's profitability. Therefore, the Company employs
various hedging strategies to minimize the risk of interest rate fluctuations.
See "Management's Discussion and Analysis - 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.
Two proceedings in which the Company is a defendant have been brought in the
form of class action complaints. One lawsuit, pending in Superior Court in the
State of California, claims that certain loan pricing structures used by the
Company violate various California laws. Several other lawsuits with identical
or similar claims are pending in the same California court against other banks
and finance companies (all such lawsuits were filed by the same plaintiffs'
counsel). In one of these companion cases, the Superior Court has recently
dismissed the plaintiffs' lawsuit for failure to state claims that are
actionable under California law; the Company anticipates that this favorable
ruling will be applied by the Superior Court to dismiss the plaintiffs' claims
in the other cases, including the case against the Company. The plaintiffs have
advised the Company that they plan to appeal the Superior Court's ruling on a
consolidated basis following final entry of dismissal in all companion cases,
including the case against the Company. Another lawsuit, pending in United
States District Court, Southern District of West Virginia, alleges that the
Company participated in a scheme with certain automobile dealerships located in
West Virginia to provide inaccurate or misleading disclosures that failed to
meet the requirements of the Truth in Lending Act and Regulation Z, and imposed
hidden or undisclosed finance charges in excess of statutory limitations in West
Virginia. Discovery has commenced in this litigation, but no rulings have been
made or are pending regarding class certification. In the opinion of
management, both of the class action lawsuits described above are without merit
and the Company intends to defend vigorously.
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.
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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, liquidity or results of operations.
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:
10.1 Amendment No. 3, dated as of September 28, 2001, to the
Sale and Servicing Agreement, dated as of September 14,
2000, by and among AmeriCredit Manhattan Trust, AmeriCredit
Financial Services, Inc., AmeriCredit Funding Corp. V, and
The Chase Manhattan Bank
10.2 Amendment No. 1, dated as of September 28, 2001, to the
Second Amended and Restated Security and Funding Agreement,
dated as of April 27, 2001, by and among AmeriCredit
Manhattan Trust, The Chase Manhattan Bank and the several
secured parties and funding agents party thereto from time
to time
10.3 Fourth Amendment to Security Agreement and Note Purchase
Agreement, dated as of September 26, 2001, to the Security
Agreement and Note Purchase Agreement, dated as of
September 30, 1999, by and among AmeriCredit BOA Trust,
AmeriCredit Financial Services, Inc., AmeriCredit Funding
Corp. II, Kitty Hawk Funding Corporation, and Bank of
America, N.A.
10.4 Credit Agreement, dated as of August 23, 2001, between
AmeriCredit Financial Services of Canada Ltd., AmeriCredit
Financial Services, Inc., and Merrill Lynch Capital Canada
Inc.
10.5 Security Agreement, dated as of August 23, 2001, between
AmeriCredit Financial Services of Canada Ltd. and Merrill
Lynch Capital Canada Inc.
10.6 Release of Security Interest, dated as of August 23, 2001,
by the Bank of Nova Scotia in favor of AmeriCredit
Financial Services of Canada Ltd. issued in connection with
the termination of a credit facility
11.1 Statement Re: Computation of Per Share Earnings
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(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarterly period ended September 30, 2001.
Certain subsidiaries and affiliates of the Company filed reports
on Form 8-K during the quarterly period ended September 30, 2001
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 14, 2001 By: /s/ Daniel E. Berce
------------------------------------
(Signature)
Daniel E. Berce
Vice Chairman and
Chief Financial Officer
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