<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1999
[_]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 (I.R.S. Employer
incorporation or organization) Identification No.)
801 Cherry Street, Suite 3900, 76102
Fort Worth, Texas (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (817) 302-7000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
9 1/4 % Senior Notes due 2004/Guarantee of 9 1/4% Senior Notes due 2004
9.875% Senior Notes due 2006/Guarantee of 9.875% Senior Notes due 2006
(Title of class)
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 [_] .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of 56,510,765 shares of the Registrant's Common
Stock held by non-affiliates based upon the closing price of the Registrant's
Common Stock on the New York Stock Exchange on September 10, 1999 was
approximately $734,639,945. For purposes of this computation, all executive
officers, directors and 5 percent beneficial owners of the Registrant are
deemed to be affiliates. Such determination should not be deemed an admission
that such executive officers, directors and beneficial owners are, in fact,
affiliates of the Registrant.
There were 72,062,181 shares of Common Stock, $.01 par value outstanding as
of September 10, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Annual Report to Shareholders for the year ended June 30,
1999 ("the Annual Report") furnished to the Commission pursuant to Rule 14a-
3(b) and the definitive Proxy Statement pertaining to the 1999 Annual Meeting
of Shareholders ("the Proxy Statement") and filed pursuant to Regulation 14A
are incorporated herein by reference into Parts II and IV, and Part III,
respectively.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
AMERICREDIT CORP.
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
Item Page
No. No.
---- ----
<C> <S> <C>
PART I
1. Business.......................................................... 3
2. Properties........................................................ 17
3. Legal Proceedings................................................. 18
4. Submission of Matters to a Vote of Security Holders............... 18
PART II
5. Market for Registrant's Common Equity and Related Stockholder 19
Matters...........................................................
6. Selected Financial Data........................................... 19
7. Management's Discussion and Analysis of Financial Condition and 19
Results of Operations.............................................
7A. Quantitative and Qualitative Disclosures About Market Risk........ 19
8. Financial Statements and Supplementary Data....................... 19
9. Changes in and Disagreements with Accountants on Accounting and 29
Financial Disclosure..............................................
PART III
10. Directors and Executive Officers of the Registrant................ 29
11. Executive Compensation............................................ 29
12. Security Ownership of Certain Beneficial Owners and Management.... 29
13. Certain Relationships and Related Transactions.................... 29
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 30
SIGNATURES 31
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
General
AmeriCredit Corp. was incorporated in Texas on May 18, 1988 and succeeded to
the business, assets and liabilities of a predecessor corporation formed under
the laws of Texas on August 1, 1986. The Company's predecessor began the
Company's business in March 1987, and the business has been operated
continuously since that time. As used herein, the term "Company" refers to the
Company, its wholly owned subsidiaries and its predecessor corporation. The
Company's principal executive offices are located at 801 Cherry Street, Suite
3900, Fort Worth, Texas, 76102 and its telephone number is (817) 302-7000.
The Company and its subsidiaries, including AmeriCredit Financial Services,
Inc. ("AFSI"), a Delaware corporation, have been operating in the automobile
finance business since September 1992. Through its AFSI branch network, the
Company purchases loans made by franchised and select independent dealers to
consumers buying late model used and, to a lesser extent, new automobiles. The
Company targets consumers who are typically unable to obtain financing from
traditional sources. Funding for the Company's auto lending activities is
obtained primarily through the sale of loans in securitization transactions.
The Company services its automobile lending portfolio at regional centers
using automated loan servicing and collection systems.
In November 1996, the Company acquired Americredit Corporation of
California, a California corporation. This subsidiary, which operates as
AmeriCredit Mortgage Services ("AMS"), originates mortgage loans and sells the
loans and related servicing rights in the wholesale markets.
Automobile Finance Operations
Target Market. The Company's automobile lending programs are designed to
serve customers who have limited access to traditional automobile financing.
The Company's typical borrowers have experienced prior credit difficulties or
have limited credit histories. Because the Company serves customers who are
unable to meet the credit standards imposed by most traditional automobile
financing sources, the Company generally charges interest at rates higher than
those charged by traditional automobile financing sources. The Company also
expects to sustain a higher level of credit losses than traditional automobile
financing sources since the Company provides financing in a relatively high
risk market.
Dealership Marketing. Since the Company is primarily an indirect lender, the
Company focuses its marketing activities on automobile dealerships. The
Company is selective in choosing the dealers with whom it conducts business
and primarily pursues manufacturer franchised dealerships with used car
operations and select independent dealerships. The Company selects these
dealers because they sell the type of used cars the Company prefers to
finance, specifically later model, low mileage used cars. Of the contracts
purchased by the Company during the fiscal year ended June 30, 1999,
approximately 95% were originated by manufacturer franchised dealers with used
car operations and 5% by select independent dealers. The Company purchased
contracts from 12,590 dealers during the fiscal year ended June 30, 1999. No
dealer accounted for more than 1% of the total volume of contracts purchased
by the Company for that same period.
Prior to entering into a relationship with a dealer, the Company considers
the dealer's operating history and reputation in the marketplace. The Company
then maintains a non-exclusive relationship with the dealer. This relationship
is actively monitored with the objective of maximizing the volume of
applications received from the dealer that meet the Company's underwriting
standards and profitability objectives. Due to the non-exclusive nature of the
Company's relationships with dealerships, the dealerships retain discretion to
determine whether to obtain financing from the Company or from another source
for a customer seeking to finance a vehicle purchase. Branch managers and
other branch office personnel regularly telephone and visit dealers to solicit
new business and to answer any questions dealers may have regarding the
Company's financing programs and capabilities. These personnel explain the
Company's underwriting philosophy, including the preference for non-prime
quality
3
<PAGE>
contracts secured by later model, lower mileage vehicles and the Company's
practice of underwriting in the local branch office. To increase the
effectiveness of these contacts, the branch managers and other branch office
personnel have access to the Company's management information systems which
detail current information regarding the number of applications submitted by a
dealership, the Company's response and the reasons why a particular
application was rejected.
Finance contracts are generally purchased by the Company without recourse to
the dealer, and accordingly, the dealer usually has no liability to the
Company if the consumer defaults on the contract. To mitigate the Company's
risk from potential credit losses, the Company typically charges dealers an
acquisition fee when purchasing finance contracts. Such acquisition fees are
negotiated with dealers on a contract-by-contract basis and are usually non-
refundable. Although finance contracts are purchased without recourse to the
dealer, the dealer typically makes certain representations as to the validity
of the contract and compliance with certain laws, and indemnifies the Company
against any claims, defenses and set-offs that may be asserted against the
Company because of assignment of the contract. Recourse based upon such
representations and indemnities would be limited in circumstances in which the
dealer has insufficient financial resources to perform upon such
representations and indemnities. The Company does not view recourse against
the dealer on these representations and indemnities to be of material
significance in its decision to purchase finance contracts from a dealer.
Branch Office Network. The Company uses a branch office network to market
its financing programs to selected dealers, develop relationships with these
dealers and underwrite contracts submitted by dealerships. Branch office
personnel are responsible for the solicitation, enrollment and education of
dealers regarding the Company's financing programs. The Company believes a
local presence enables the Company to more fully service dealers and be more
responsive to dealer concerns and local market conditions. The Company selects
markets for branch office locations based upon numerous factors, including
demographic trends and data, competitive conditions, the regulatory
environment and the availability of qualified personnel. Branch offices are
typically situated in suburban office buildings which are accessible to local
dealers.
Each branch office solicits dealers for contracts and maintains the
Company's relationship with the dealers in the geographic vicinity of that
branch office. Branch office locations are typically staffed by a branch
manager, an assistant manager and one or more dealer and customer service
representatives. Larger branch offices may also have additional assistant
managers and/or dealer marketing representatives. The Company believes that
the personal relationships its branch managers and other branch personnel
establish with the dealership staff are an important factor in creating and
maintaining productive relationships with the Company's dealer customer base.
Branch managers are compensated with base salaries and annual incentives based
on overall branch performance including factors such as branch credit quality,
loan pricing adequacy and loan volume objectives. The incentives are typically
paid in cash and stock option grants. The branch managers report to regional
vice presidents.
The Company's regional vice presidents monitor branch office compliance with
the Company's underwriting guidelines. The Company's management information
systems provide the regional vice presidents access to credit application
information enabling them to consult with the branch managers on daily credit
decisions and review exceptions to the Company's underwriting guidelines. The
regional vice presidents also make periodic visits to the branch offices to
conduct operating reviews.
The following table sets forth information with respect to the number of
branches, dollar volume of contracts purchased and number of producing
dealerships for the periods set forth below.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1999 1998 1997
---------- ---------- --------
(dollars in thousands)
<S> <C> <C> <C>
Number of branch offices........................ 176 129 85
Dollar volume of contracts purchased............ $2,879,796 $1,737,813 $906,794
Number of producing dealerships(1).............. 12,590 9,204 5,657
</TABLE>
- --------
(1) A producing dealership refers to a dealership from which the Company had
purchased contracts in the respective period.
4
<PAGE>
Underwriting and Purchasing of Contracts
Proprietary Credit Scoring System and Risk-based Pricing. The Company has
implemented a proprietary credit scoring system throughout its branch office
network to support the branch level credit approval process. The credit
scoring system was developed with the assistance of Fair, Isaac and Co., Inc.
from the Company's consumer demographic and portfolio databases. Credit
scoring is used to differentiate credit applicants and to rank order credit
risk in terms of expected default rates, which enables the Company to tailor
loan pricing and structure according to this statistical assessment of credit
risk. For example, a consumer with a lower score would indicate a higher
probability of default and, therefore, the Company could compensate for this
higher default risk through the structuring and pricing of the transaction.
While the Company employs a credit scoring system in the credit approval
process, credit scoring does not eliminate credit risk. Adverse determinations
in evaluating contracts for purchase could adversely affect the credit quality
of the Company's receivables portfolio.
The credit scoring system considers data contained in the customer's credit
application and credit bureau report as well as the structure of the proposed
loan and produces a statistical assessment of these attributes. This
assessment is used to segregate applicant risk profiles and determine whether
risk is acceptable and the price the Company should charge for that risk. The
Company's credit scorecards are validated on a monthly basis through the
comparison of actual versus projected performance by score. The Company
endeavors to refine its proprietary scorecards based on new information and
identified correlations relating to receivables performance.
Through the use of the Company's proprietary credit scoring system, branch
office personnel with credit authority are able to more efficiently review and
prioritize loan applications. Applications which receive a high score can be
processed rapidly and credit decisions can be quickly faxed back to the
dealer. Applications receiving low scores can be quickly rejected without
further processing and review by the Company. This ability to prioritize
applications allows for a more effective allocation of resources to those
applications requiring more review.
Decentralized Loan Approval Process. The Company purchases individual
contracts through its branch offices based on a decentralized credit approval
process tailored to local market conditions. Each branch manager has a
specific credit authority based upon their experience and historical loan
portfolio results as well as established credit scoring parameters. In certain
markets where a branch office is not present, contracts are purchased through
the Company's regional purchasing offices. Although the credit approval
process is decentralized, all credit decisions must comply with the Company's
credit scoring strategies and underwriting policies and procedures.
Loan application packages completed by prospective obligors are received via
facsimile or electronic interface at the branch offices from dealers.
Application data are entered into the Company's automated application
processing system. A credit bureau report is automatically generated and a
credit score is computed. Branch office personnel with credit authority review
the application package and determine whether to approve the application,
approve the application subject to conditions that must be met or deny the
application. These personnel consider many factors in arriving at a credit
decision, relying primarily on the applicant's credit score, but also taking
into account the applicant's capacity to pay, stability, credit history, the
contract terms and collateral value. The Company estimates that approximately
60% to 65% of applicants are denied credit by the Company typically because of
their credit histories or other factors. Dealers are contacted regarding
credit decisions by telefax, telephone or electronic interface. Declined and
conditioned applicants are also provided with appropriate notification of the
decision.
The Company's underwriting and collateral guidelines as well as credit
scoring parameters form the basis for the branch level credit decision;
however, the qualitative judgment of the branch office personnel with credit
authority with respect to the credit quality of an applicant is a significant
factor in the final credit decision. Exceptions to credit policies and
authorities must be approved by a regional vice president or other designated
credit officer.
5
<PAGE>
The dealers send completed loan packages to the branch office. As part of
the credit decision process, a customer service representative investigates
the residence, employment and credit history of the applicant. Loan terms and
insurance coverages are generally reverified with the customer by branch
office personnel and the loan packages are forwarded to the Company's
centralized loan services department. All loan documentation is scanned to
create electronic images and key original documents are stored in a fire
resistant vault. The loans are reviewed for proper documentation and
regulatory compliance and are entered into the Company's loan accounting
system. Once cleared for funding, the loan services department issues a check
or electronically transfers funds to the dealer. Upon funding of the contract,
the Company acquires a perfected security interest in the automobile that was
financed. Daily loan reports are generated for review by senior operations
management. All of the Company's contracts are fully amortizing with
substantially equal monthly installments.
Servicing and Collections Procedures
General. The Company's servicing activities consist of collecting and
processing customer payments, responding to customer inquiries, initiating
contact with customers who are delinquent in payment of an installment,
maintaining the security interest in the financed vehicle, maintaining
physical damage insurance coverage of the financed vehicle and repossessing
and liquidating collateral when necessary. The Company utilizes various
automated systems to support its servicing and collections activities. The
Company uses monthly billing statements to serve as a reminder to customers as
well as an early warning mechanism in the event a customer has failed to
notify the Company of an address change. Approximately 20 days before a
customer's first payment due date and each month thereafter, the Company mails
the customer a billing statement directing the customer to mail payments to a
lockbox bank for deposit in a lockbox account. Payment receipt data is
electronically transferred from the Company's lockbox bank to the Company for
posting to the loan accounting system. Payments may also be received directly
by the Company from customers. All payment processing and customer account
maintenance is performed centrally in Fort Worth, Texas by the loan services
department. The Company receives servicing fees for servicing securitized
receivables equal to 2.25% per annum of the outstanding principal balance of
such receivables.
The Company's collections activities are performed at regional centers
located in Fort Worth, Texas, Tempe, Arizona and Charlotte, North Carolina. A
predictive dialing system is utilized to make phone calls to customers whose
payments are past due. The predictive dialer is a computer-controlled
telephone dialing system which dials phone numbers of customers from a file of
records extracted from the Company's database. Once a live voice responds to
the automated dialer's call, the system automatically transfers the call to a
collector and the relevant account information to the collector's computer
screen. The system also tracks and notifies collections management of phone
numbers that the system has been unable to reach within a specified number of
days, thereby promptly identifying for management all customers who cannot be
reached by telephone. By eliminating time wasted on attempting to reach
customers, the system gives a single collector the ability to speak with a
larger number of accounts daily.
Once an account becomes more than 30 days delinquent, the account moves to
the Company's mid-range collection unit. The objective of these collectors is
to prevent the account from becoming further delinquent. After a scheduled
payment on an account becomes approximately 60 to 90 days past due, the
Company typically initiates repossession of the financed vehicle. However, the
Company may repossess a financed vehicle without regard to the length of
payment delinquency if an account is deemed uncollectible, the financed
vehicle is deemed by collection personnel to be in danger of being damaged,
destroyed or hidden, the customer deals in bad faith or the customer
voluntarily surrenders the financed vehicle.
Payment deferrals are at times offered to customers who have encountered
temporary financial difficulty, hindering their ability to pay as contracted,
and when other methods of assisting the customer in meeting the contract terms
and conditions have been exhausted. A deferral allows the customer to move a
delinquent payment to the end of the loan by paying a fee (approximately the
interest portion of the payment deferred). The collector reviews the
customer's past payment history and statistically based behavioral score and
assesses the customer's desire and capacity to make future payments. Before
agreeing to a deferral, the collector must also ensure that
6
<PAGE>
the deferment transaction complies with the Company's policies and guidelines.
Exceptions to the Company's policies and guidelines for deferrals must be
approved by a collections officer. The loan services department processes
deferment transactions. As of June 30, 1999, approximately 14% of the
Company's managed receivables had received a deferral.
Repossessions. Repossessions are subject to prescribed legal procedures,
which include peaceful repossession, one or more customer notifications, a
prescribed waiting period prior to disposition of the repossessed automobile
and return of personal items to the customer. Some jurisdictions provide the
customer with reinstatement or redemption rights. Legal requirements,
particularly in the event of bankruptcy, may restrict the Company's ability to
dispose of the repossessed vehicle. Repossessions are handled by independent
repossession firms engaged by the Company and must be approved by a
collections officer. Upon repossession and after any prescribed waiting
period, the repossessed automobile is sold at auction. The Company does not
sell any vehicles on a retail basis. The proceeds from the sale of the
automobile at auction, and any other recoveries, are credited against the
balance of the contract. Auction proceeds from sale of the repossessed vehicle
and other recoveries are usually not sufficient to cover the outstanding
balance of the contract, and the resulting deficiency is charged-off. The
Company may pursue collection of deficiencies when it deems such action to be
appropriate.
Charge-Off Policy. The Company's policy is to charge-off an account in the
month in which the account becomes 120 days contractually delinquent even if
the Company has not repossessed the related vehicle. On accounts less than 120
days delinquent, the Company charges-off the account when the vehicle securing
the delinquent contract is repossessed and disposed of. The charge-off
represents the difference between the actual net sales proceeds and the amount
of the delinquent contract, including accrued interest. Accrual of finance
charge income is suspended on accounts which are more than 60 days
contractually delinquent.
Risk Management
Overview. The Company has developed procedures to evaluate and supervise the
operations of each branch office on a centralized basis. The Company's risk
management department is responsible for monitoring the contract purchase
process and supporting the supervisory role of senior operations management.
This department tracks via databases key variables, such as loan applicant
data, credit bureau and credit score information, loan structures and terms
and payment histories. The risk management department also regularly reviews
the performance of the Company's credit scoring system and is involved with
third-party vendors in the development and enhancement of credit scorecards
for the Company.
The risk management department also prepares regular credit indicator
packages reviewing portfolio performance at various levels of detail including
total Company, branch office and dealer. Various daily reports and analytical
data are also generated by the Company's management information systems. This
information is used to monitor credit quality as well as to refine the
structure and mix of new contract purchases. Portfolio returns can be reviewed
on a consolidated basis, as well as at the branch office, dealer and contract
levels.
Behavioral Scoring. Statistically-based behavioral assessment models are
used to project the relative probability that an individual account will
default and to validate the credit scoring system after the receivable has
aged for a sufficient period of time, generally six to nine months. Default
probabilities are calculated for each account independent of the credit score.
Projected default rates from the behavioral assessment models and credit
scoring systems are compared and analyzed to monitor the effectiveness of the
Company's credit strategies.
Collateral Value Management. The value of the collateral underlying the
Company's receivables portfolio is updated monthly with a loan-by-loan link to
national wholesale auction values. This data, along with the Company's own
experience relative to mileage and vehicle condition, are used for evaluating
collateral disposition activities as well as for reserve analysis models.
Compliance Audits. The Company's internal audit department conducts regular
compliance audits of branch office operations, loan services, collections and
other functional areas. The primary objective of the audits
7
<PAGE>
is to measure compliance with the Company's written policies and procedures as
well as regulatory matters. Branch office audits include a review of
compliance with underwriting policies, completeness of loan documentation,
collateral value assessment and extent of applicant data investigation.
Written audit reports are distributed to local branch office personnel and the
regional vice presidents for response and follow-up. Senior operations
management reviews copies of these reports. Audit results and responses are
also reviewed on a quarterly basis by an audit committee comprised of senior
executive management.
Securitization of Loans
Since December 1994, the Company has pursued a strategy of securitizing its
receivables to diversify its funding, improve liquidity and obtain a cost-
effective source of funds for the purchase of additional automobile finance
contracts. The Company applies the net proceeds from securitizations to pay
down borrowings under its warehouse credit facilities, thereby increasing
availability thereunder for further contract purchases. Through June 30, 1999,
the Company had securitized approximately $5.8 billion of automobile
receivables, including a $1.0 billion securitization completed in May 1999.
In its securitizations, the Company, through a wholly-owned subsidiary,
transfers automobile receivables to newly-formed securitization trusts, which
issue one or more classes of asset-backed securities. The asset-backed
securities are in turn sold to investors, except for certain subordinated
interests, which may be retained by the Company.
When receivables are transferred to securitization trusts, the Company
recognizes a gain on sale of receivables and continues to service such
receivables. The gain on sale of receivables primarily represents the present
value of estimated excess cash flows the Company expects to receive from the
pool of receivables sold. The estimated excess cash flows are the difference
between the cash collected from obligors on securitized receivables and the
sum of principal and interest paid to investors in the asset-backed
securities, contractual servicing fees, defaults, net of recoveries and other
expenses such as trustee fees and financial guarantee insurance premiums.
Concurrently with recognizing such gain on sale of receivables, the Company
records a corresponding asset, interest only receivables from trusts, which
includes the present value of estimated excess cash flows as described above.
The calculation of interest-only receivables from trusts includes estimates
of future losses and prepayment rates for the remaining term of the
receivables sold since these factors impact the amount and timing of future
cash collected on the receivables sold. The carrying value of interest-only
receivables is reviewed quarterly by the Company for each separate
securitization transaction. If future losses or prepayment rates exceed the
Company's original estimates, the asset will be adjusted through a charge to
operations. Favorable credit loss and prepayment experience compared to the
Company's original estimates would result in additional income when realized.
In connection with the Company's securitization program, the Company
arranges for a financial guaranty insurance policy to achieve a high grade
credit rating on the asset-backed securities issued. The policies for each of
the Company's securitizations have been provided by Financial Security
Assurance Inc. ("FSA"), a monoline insurer, which insures the timely payment
of principal and interest due on the asset-backed securities. The Company has
limited reimbursement obligations to FSA; however, credit enhancement
requirements, including FSA's encumbrance of certain restricted cash accounts
and subordinated interests in trusts, provide a source of funds to cover
shortfalls in collections and to reimburse FSA for any claims which may be
made under the policies issued with respect to the Company's securitizations.
The credit enhancement requirements for any securitization include
restricted cash accounts which are generally established with an initial
deposit and subsequently funded through excess cash flows from securitized
receivables. Funds would be withdrawn from the restricted cash accounts to
cover any shortfalls in amounts payable on the asset-backed securities. Funds
are also available to be withdrawn in an event of default to reimburse FSA for
draws on its financial guaranty insurance policy. In addition, the restricted
cash account for
8
<PAGE>
each securitization trust is cross-collateralized to the restricted cash
accounts established in connection with the Company's other securitization
trusts, such that excess cash flow from a performing securitization trust
insured by FSA may be used to support cash flow shortfalls from a non-
performing securitization trust insured by FSA, thereby further restricting
excess cash flow available to the Company. The Company is entitled to receive
amounts from the restricted cash accounts to the extent the amounts deposited
exceed predetermined required minimum levels.
FSA has taken a pledge of the stock of AFS Funding Corp., the wholly-owned
subsidiary of the Company that owns the restricted cash accounts, interest-
only receivables and any subordinated interests in the trusts, such that, if
the pledge is foreclosed upon in the event of a payment by FSA under one of
its insurance policies or certain material adverse changes in the business of
the Company, FSA would control all of the restricted cash accounts, interest-
only receivables and subordinated interests in the trusts. The terms of each
securitization also provide that, under certain tests relating to
delinquencies, defaults and losses, cash may be retained in the restricted
cash account and not released to the Company until increased minimum levels of
credit enhancement requirements have been reached and maintained.
Trade Names
The Company has obtained federal trademark protection for the "AmeriCredit"
name and the logo that incorporates the "AmeriCredit" name.
Regulation
The Company's operations are subject to regulation, supervision and
licensing under various federal, state and local statutes, ordinances and
regulations.
In most states in which the Company operates, a consumer credit regulatory
agency regulates and enforces laws relating to consumer lenders and sales
finance agencies such as the Company. Such rules and regulations generally
provide for licensing of sales finance agencies, limitations on the amount,
duration and charges, including interest rates, for various categories of
loans, requirements as to the form and content of finance contracts and other
documentation and restrictions on collection practices and creditors' rights.
In certain states, the Company's branch offices are subject to periodic
examination by state regulatory authorities. Some states in which the Company
operates do not require special licensing or provide extensive regulation of
the Company's business.
The Company is also subject to extensive federal regulation, including the
Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act. These laws require the Company to provide certain disclosures
to prospective borrowers and protect against discriminatory lending practices
and unfair credit practices. The principal disclosures required under the
Truth in Lending Act include the terms of repayment, the total finance charge
and the annual percentage rate charged on each loan. The Equal Credit
Opportunity Act prohibits creditors from discriminating against loan
applicants on the basis of race, color, sex, age or marital status. Pursuant
to Regulation B promulgated under the Equal Credit Opportunity Act, creditors
are required to make certain disclosures regarding consumer rights and advise
consumers whose credit applications are not approved of the reasons for the
rejection. In addition, the credit scoring system used by the Company must
comply with the requirements for such a system as set forth in the Equal
Credit Opportunity Act and Regulation B. The Fair Credit Reporting Act
requires the Company to provide certain information to consumers whose credit
applications are not approved on the basis of a report obtained from a
consumer reporting agency.
The dealers who originate automobile loans purchased by the Company also
must comply with both state and federal credit and trade practice statutes and
regulations. Failure of the dealers to comply with such statutes and
regulations could result in consumers having rights of rescission and other
remedies that could have an adverse effect on the Company.
9
<PAGE>
The Company believes that it maintains all material licenses and permits
required for its current operations and is in substantial compliance with all
applicable local, state and federal regulations. There can be no assurance,
however, that the Company will be able to maintain all requisite licenses and
permits and the failure to satisfy those and other regulatory requirements
could have a material adverse effect on its operations. Further, the adoption
of additional, or the revision of existing rules and regulations could have a
material adverse effect on the Company's business.
Competition
Competition in the field of non-prime automobile finance is intense. The
automobile finance market is highly fragmented and is served by a variety of
financial entities including the captive finance affiliates of major
automotive manufacturers, banks, thrifts, credit unions and independent
finance companies. Many of these competitors have substantially greater
financial resources and lower costs of funds than the Company. Many of these
competitors also have long standing relationships with automobile dealerships
and may offer dealerships or their customers other forms of financing,
including dealer floor plan financing and leasing, which are not provided by
the Company. Providers of automobile financing have traditionally competed on
the basis of interest rates charged, the quality of credit accepted, the
flexibility of loan terms offered and the quality of service provided to
dealers and customers. In seeking to establish itself as one of the principal
financing sources at the dealers it serves, the Company competes predominately
on the basis of its high level of dealer service and strong dealer
relationships and by offering flexible loan terms. There can be no assurance
that the Company will be able to compete successfully in this market or
against these competitors.
Mortgage Loan Operations
In November 1996, the Company acquired AMS. AMS originates and acquires
mortgage loans through a network of mortgage brokers. AMS sells its mortgage
loans and the related servicing rights in the wholesale markets. AMS does not
currently represent a material portion of the Company's assets or revenues.
Risk Factors
Dependence on Warehouse Credit Facilities. The Company depends on warehouse
credit facilities with financial institutions to finance its purchase of
contracts pending securitization. At June 30, 1999, the Company has five
warehouse credit facilities with various financial institutions providing for
revolving credit borrowings of up to a total of $1,070 million and $20 million
Cdn., subject to defined borrowing bases. The Company has a $505 million
warehouse facility which expires in September 1999 and a $375 million
warehouse facility which expires in March 2000. The Company's bank credit
agreement, which provides for up to $115 million of revolving borrowings
subject to a borrowing base, matures in March 2000 and the $20 million Cdn.
bank facility to fund Canadian auto receivables expires in November 1999. In
July 1999, the Company renewed the mortgage subsidiary credit agreement
reducing the amount the Company can borrow from $75 million to $25 million,
subject to a borrowing base, and extending the maturity date to July 2000. The
Company cannot guarantee that any of these financing resources will continue
to be available at reasonable terms or at all. The availability of these
financing sources depends on factors outside of the Company's control,
including regulatory capital treatment for unfunded bank lines of credit and
the availability of bank liquidity in general. If the Company is unable to
extend or replace any of these facilities and arrange new warehouse credit
facilities, it will have to curtail contract purchasing activities, which
would have a material adverse effect on the Company's financial position,
liquidity and results of operation.
The Company's warehouse credit facilities contain extensive restrictions and
covenants and require the Company to maintain specified financial ratios and
satisfy specified financial tests, including maintenance of asset quality and
portfolio performance tests. Failure to meet any of these convenants,
financial ratios or financial tests could result in an event of default under
these agreements. If an event of default occurs under these agreements, the
lenders could elect to declare all amounts outstanding under these agreements
to be immediately due and payable, enforce their interests against collateral
pledged under such agreements and restrict the Company's
10
<PAGE>
ability to obtain additional borrowings under these agreements. The Company's
ability to meet those financial ratios and tests can be affected by events
beyond its control and the Company cannot guarantee that it will meet those
financial ratios and tests.
Dependence on Securitization Program. Since December 1994, the Company has
relied upon its ability to aggregate and sell receivables in the asset-backed
securities market to generate cash proceeds for repayment of warehouse credit
facilities and to purchase additional contracts from automobile dealers.
Further, gains on sales generated by the Company's securitizations currently
represent the single largest component of the Company's revenues. The Company
endeavors to effect securitizations of its receivables on at least a quarterly
basis. Accordingly, adverse changes in the Company's asset-backed securities
program or in the asset-backed securities market for automobile receivables
generally could materially adversely affect the Company's ability to purchase
and resell loans on a timely basis and upon terms reasonably favorable to the
Company. Any delay in the sale of receivables beyond a quarter-end would
eliminate the gain on sale that quarter and adversely affect the Company's
reported earnings for that quarter. Any of these adverse changes or delays
would have a material adverse effect on the Company's financial position,
liquidity and results of operations.
Dependence on Credit Enhancement. To date, all of the Company's
securitizations have utilized credit enhancement in the form of financial
guaranty insurance policies issued by Financial Security Assurance, Inc.
("FSA") in order to achieve AAA/Aaa ratings which reduces the costs of
securitizations relative to alternative forms of financing available to the
Company. FSA is not required to insure Company-sponsored securitizations and
there can be no assurance that it will continue to do so or that future
Company-sponsored securitizations will be similarly rated. Likewise, the
Company is not required to utilize financial guaranty insurance policies
issued by FSA or any other form of credit enhancement in connection with its
securitizations. The Company recently began to utilize reinsurance and other
credit enhancement alternatives to reduce the initial cash deposit related to
securitization. A downgrading of FSA's credit rating or FSA's withdrawal of
credit enhancement or the lack of availability of reinsurance or other
alternative credit enhancements from the Company's securitization program
could result in higher interest costs for future Company-sponsored
securitizations and larger initial cash deposit requirements. These events
could have a material adverse effect on the Company's financial position,
liquidity and results of operations.
Liquidity and Capital Needs. The Company's ability to make payments on and
to refinance its indebtedness and to fund planned capital expenditures depends
on its ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond the Company's control.
The Company requires substantial amounts of cash to fund its contract
purchase and securitization activities. Although the Company recognizes a gain
on the sale of receivables upon the closing of a securitization, it typically
receives the cash representing that gain over the actual life of the
receivables securitized. The Company also incurs significant transaction costs
in connection with a securitization. Accordingly, the Company's strategy of
securitizing substantially all of its newly purchased receivables and
increasing the number of contracts purchased will require substantial amounts
of cash.
The Company expects to continue to require substantial amounts of cash as
the volume of the Company's contract purchases increases and its
securitization program grows. The Company's primary cash requirements include
the funding of: (i) contract purchases pending their securitization and sale;
(ii) credit enhancement requirements in connection with the securitization and
sale of the receivables; (iii) interest and principal payments under warehouse
credit facilities, the Company's senior notes and other indebtedness; (iv)
fees and expenses incurred in connection with the securitization and servicing
of receivables; (v) capital expenditures for technology; (vi) ongoing
operating expenses; and (vii) income tax payments due on receipt of excess
cash flows from securitization trusts.
The Company's primary sources of liquidity in the future are expected to be
existing cash, financings under its warehouse credit facilities, sales of
automobile receivables through securitizations, excess cash flow received from
securitization trusts and further issuances of debt or equity securities,
depending on capital market conditions.
11
<PAGE>
Because the Company's principal credit facilities are initially 364 days in
length, the Company must renew these facilities annually. In addition, because
the Company expects to continue to require substantial amounts of cash for the
foreseeable future, it anticipates that it will need to enter into debt or
equity financings regularly, in addition to quarterly securitizations. The
type, timing and terms of financing selected by the Company will be dependent
upon the Company's cash needs, the availability of various financing sources
and the prevailing conditions in the financial markets. There can be no
assurance that any such sources will be available to the Company at any given
time or as to whether the terms on which such sources may be available will be
acceptable.
Leverage. The Company currently has substantial outstanding indebtedness.
The Company's ability to make payments of principal or interest on, or to
refinance its indebtedness will depend on its future operating performance and
its ability to enter into additional securitizations and debt and/or equity
financings, which to a certain extent is subject to economic, financial,
competitive and other factors beyond its control.
If the Company is unable to generate sufficient cash flow in the future to
service its debt, it may be required to refinance all or a portion of its
existing debt, or to obtain additional financing. There can be no assurance
that any such refinancing would be possible or that any additional financing
could be obtained on acceptable terms. The inability to obtain additional
financing could have a material adverse effect on the Company.
The degree to which the Company is leveraged creates risks including: (i)
the Company may be unable to satisfy its obligations under its outstanding
senior notes; (ii) the Company may be more vulnerable to adverse general
economic and industry conditions; (iii) the Company may find it more difficult
to fund future working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes; and (iv) the Company will have to
dedicate a substantial portion of its cash resources to the payment of
principal and interest on indebtedness outstanding thereby reducing the funds
available for operations and future business opportunities. The Company's
warehouse credit facilities and its indentures restrict its ability to, among
other things: (i) sell or transfer assets; (ii) incur additional debt; (iii)
repay other debt; (iv) pay dividends; (v) make certain investments or
acquisitions; (vi) repurchase or redeem capital stock; (vii) engage in mergers
or consolidations; and (viii) engage in certain transactions with subsidiaries
and affiliates.
The warehouse credit facilities and the indentures also require the Company
to comply with certain financial ratios, covenants and asset quality
maintenance requirements. These restrictions may interfere with the Company's
ability to obtain financing or to engage in other necessary or desirable
business activities.
If the Company cannot comply with the requirements in its warehouse credit
facilities, then the lenders may require it to immediately repay all of the
outstanding debt under its facilities. If its debt payments were accelerated,
the Company's assets might not be sufficient to fully repay the debt. These
lenders may also require the Company to use all of its available cash to repay
its debt, they may foreclose upon their collateral or they may prevent the
Company from making payments to other creditors on certain portions of the
Company's outstanding debt.
The Company may not be able to obtain a waiver of these provisions or
refinance its debt, if needed. In such a case, the Company's business, results
of operations and financial condition would suffer.
Default and Prepayment Risks. The Company's results of operations, financial
condition and liquidity depend, to a material extent, on the performance of
contracts purchased and held by the Company prior to their sale in a
securitization transaction as well as the subsequent performance of
receivables sold to securitization trusts. Obligors under loans acquired by
the Company may default or prepay during the period prior to their sale in a
securitization transaction or if they remain owned by the Company. The Company
bears the full risk of losses resulting from payment defaults during such
period. In the event of a payment default, the collateral value of the
financed vehicle usually does not cover the outstanding loan balance and costs
of recovery. The Company maintains an allowance for losses on loans held for
sale by the Company, which reflects management's estimates of anticipated
losses for such loans. If the allowance is inadequate, then the Company would
recognize as an
12
<PAGE>
expense the losses in excess of that allowance and results of operations could
be adversely affected. In addition, under the terms of the warehouse credit
facilities, the Company is not able to borrow against defaulted loans and
loans greater than 30 days delinquent held by the Company.
The Company also retains a substantial portion of the default and prepayment
risk associated with the receivables that it sells pursuant to Company-
sponsored securitizations. A large component of the gain recognized on these
sales and the corresponding assets recorded on the Company's balance sheet are
credit enhancement assets which are based on the present value of estimated
future excess cash flows from the securitized receivables which will be
received by the Company. Accordingly, credit enhancement assets are calculated
on the basis of management's assumptions concerning, among other things,
defaults and prepayments. Actual defaults and prepayments may vary from
management's assumptions, possibly to a material degree. As of June 30, 1999,
credit enhancement assets totaled $494.9 million. Depending on the Company's
growth, credit enhancement assets may become a larger share of the Company's
overall assets.
The Company is required to deposit substantial amounts of the cash flows
generated by its interests in Company sponsored securitizations ("restricted
cash") into spread accounts which are pledged to FSA as security for the
Company's obligation to reimburse FSA for any amounts which may be paid out on
financial guarantee insurance policies.
The Company regularly measures its default, prepayment and other assumptions
against the actual performance of securitized receivables. If the Company were
to determine, as a result of such regular review or otherwise, that it
underestimated defaults and/or prepayments, or that any other material
assumptions were inaccurate, the Company would be required to adjust the
carrying value of its credit enhancement assets, which consist of restricted
cash, investments in trust receivables and interest-only receivables, by
recording a charge to income and writing down the carrying value of these
assets on its balance sheet. Future cash flows from securitization trusts may
also be less than expected and the Company's results of operations and
liquidity would be adversely affected, possibly to a material degree. In
addition, an increase in defaults or prepayments would reduce the size of the
Company's servicing portfolio, which would reduce the Company's servicing fee
income, further adversely affecting results of operations and cash flow. A
material write-down of credit enhancement assets and the corresponding
decreases in earnings and cash flow could limit the Company's ability to
service debt and to enter into future securitizations and other financings.
Although the Company believes that it has made reasonable assumptions as to
the future cash flows of the various pools of receivables that have been sold
in securitization transactions, actual rates of default or prepayment may
differ from those assumed and other assumptions may be required to be revised
upon future events.
Portfolio Performance; Negative Impact on Cash Flows; Right to Terminate
Normal Servicing. Generally, the form of credit enhancement agreement the
Company enters into in connection with securitization transactions contains
specified limits on the delinquency, default and loss rates on the receivables
included in each securitization trust. If, at any measurement date, the
delinquency, default or loss rate with respect to any trust were to exceed the
specified limits, provisions of the credit enhancement agreement would
automatically increase the level of credit enhancement requirements for that
trust. During the period in which the specified delinquency, default and loss
rates were exceeded, excess cash flow, if any, from the trust would be used to
fund the increased credit enhancement levels instead of being distributed to
the Company, which would have an adverse effect on the Company's cash flow.
Further, the credit enhancement requirements for each securitization trust are
cross-collateralized to the credit enhancement requirements established in
connection with each of the Company's other securitization trusts, so that
excess cash flow from a performing securitization trust insured by FSA may be
used to support increased credit enhancement requirements for a non-performing
securitization trust insured by FSA, which would further restrict excess cash
flow available to the Company. The Company has on occasion exceeded these
specified limits, however, FSA has either waived each of these occurrences or
amended the agreements. The Company can give no assurance that FSA would waive
any such future occurrence or amend the agreements. Any refusal of FSA to
waive any such future occurrence or amend the agreements could have a material
adverse effect on the Company's financial position, liquidity and results of
operations.
13
<PAGE>
The credit enhancement agreements entered into in connection with
securitization transactions contain additional specified limits on the
delinquency, default and loss rates on the receivables included in each trust
which are higher than the limits referred to in the preceding paragraph. If,
at any measurement date, the delinquency, default or loss rate with respect to
any trust were to exceed these additional specified limits applicable to that
trust, provisions of the credit enhancement agreements permit FSA to terminate
the Company's servicing rights to the receivables sold to that trust. In
addition, the servicing agreements are cross-defaulted so that a default under
one servicing agreement would allow FSA to terminate the Company's servicing
rights under all of its servicing agreements. Although the Company has never
exceeded such delinquency, default or loss rates, there can be no assurance
that the Company's servicing rights with respect to the automobile receivables
in such trusts or any other trust which exceeds the specified limits in future
periods will not be terminated. FSA has other rights to terminate the Company
as servicer if (i) the Company were to breach its obligations under the
servicing agreements, (ii) FSA was required to make payments under its
policies or (iii) certain bankruptcy or insolvency events were to occur. As of
June 30, 1999, no such termination events have occurred with respect to any of
the trusts formed by the Company.
Reliance on Revenue Generated from the Sale of Loans to Trusts. The Company
periodically sells auto receivables to certain special purpose financing
trusts and these trusts in turn issue asset-backed securities to investors.
The Company retains an interest in the receivables sold in the form of a
residual or interest-only strip and may also retain other subordinated
interests in the receivables sold to the trusts. The residual or interest-only
strips represent the present value of future excess cash flows resulting from
the difference between the finance charge income received from the obligors on
the receivables and the interest paid to the investors in the asset-backed
securities, net of credit losses, servicing fees and other expenses.
Upon the transfer of receivables to the trusts the Company removes the net
book value of the receivables sold from its consolidated balance sheets and
allocates the carrying value between the assets transferred and the interests
retained, based upon their relative fair values at the settlement date. The
difference between the sales proceeds, net of transaction costs and the
allocated basis of the assets transferred is recognized as a gain on sale of
receivables.
For the year ended June 30, 1999, the Company recognized a gain on sale of
auto receivables of $162.4 million or approximately 48% of revenue during that
period. If the Company is unable to originate new loans and sell them to the
trusts, the Company could experience a significant change in the timing of
revenue recognition and reported income. Further, there can be no assurance
that the Company will recognize gains on future sales of receivables to the
trusts consistent with the gains on previous sales.
Implementation of Business Strategy. The Company's financial position and
results of operations depend on Company management's ability to execute its
business strategy. Key factors involved in execution of such business strategy
include continued expansion of automobile contract purchase volume, continued
and successful use of proprietary scoring models for risk-based pricing, the
use of sophisticated risk management techniques, continued investment in
technology to support operating efficiency and growth and funding and
liquidity through securitizations. The failure or inability of the Company to
execute any element of its business strategy could materially adversely affect
its financial position, liquidity and results of operations.
The Company's business strategy also includes leveraging its expertise to
broaden its lending to non-prime borrowers through the operations of AMS.
The Company plans to expand its indirect automobile finance business by
adding additional branch offices and by increasing the dealer penetration of
the Company's existing branch offices. The success of this strategy is
dependent upon, among other factors, the Company's ability to hire and retain
qualified branch managers and other personnel, to develop relationships with
more dealers and to expand the Company's current relationships with existing
dealer customers. The Company is faced with intense competition in attracting
key personnel and establishing relationships with new dealers. Dealers often
already have favorable non-prime financing sources, which may restrict the
Company's ability to develop dealer relationships and delay the Company's
growth. In addition, the competitive conditions in the Company's market may
result in a reduction in the profitability of the
14
<PAGE>
contracts that the Company purchases or a decrease in contract acquisition
volume, which would adversely affect the Company's results of operations.
The growth of the Company's servicing portfolio has resulted in increased
need for additional personnel and expansion of systems capacity. The Company's
ability to support, manage and control growth is dependent upon, among other
things, the Company's ability to hire, train, supervise and manage its growing
workforce. There can be no assurance that the Company will have trained
personnel and systems adequate to support the Company's growth strategy.
Credit-Impaired Borrowers. The Company specializes in purchasing,
securitizing and servicing non-prime automobile receivables. Non-prime
borrowers are associated with higher-than-average delinquency and default
rates. While the Company believes that it effectively manages these risks with
its proprietary credit scoring system, risk-based loan pricing and other
underwriting policies and collection methods, no assurance can be given that
these criteria or methods will be effective in the future. In the event that
the Company underestimates the default risk or under-prices contracts that it
purchases, the Company's financial position, liquidity and results of
operations would be adversely affected, possibly to a material degree.
Economic Conditions. Delinquencies, defaults, repossessions and losses
generally increase during periods of economic recession. These periods also
may be accompanied by decreased consumer demand for automobiles and declining
values of automobiles securing outstanding loans, which weakens collateral
coverage and increases the amount of a loss in the event of default.
Significant increases in the inventory of used automobiles during periods of
economic recession may also depress the prices at which repossessed
automobiles may be sold or delay the timing of these sales. Because the
Company focuses on non-prime borrowers, the actual rates of delinquencies,
defaults, repossessions and losses on these loans could be higher than those
experienced in the general automobile finance industry and could be more
dramatically affected by a general economic downturn. In addition, during an
economic slow down or recession, the Company's servicing costs may increase
without a corresponding increase in its servicing fee income. While the
Company believes that the underwriting criteria and collection methods it
employs enable it to manage the higher risk inherent in loans made to non-
prime borrowers, no assurance can be given that such criteria or methods will
afford adequate protection against such risks. Any sustained period of
increased delinquencies, defaults, repossessions or losses or increased
servicing costs could also adversely affect the Company's ability to enter
into future securitizations and correspondingly, its financial position,
liquidity and results of operations.
Interest Rates. The Company's profitability may be directly affected by the
level of and fluctuations in interest rates, which affect the Company's
ability to earn a gross interest rate spread. As the level of interest rates
increase, the Company's gross interest rate spread will generally decline
since the rates charged on the contracts purchased from dealers are limited by
statutory maximums, affording the Company little opportunity to pass on
increased interest costs. Furthermore, the Company's future gains recognized
upon the securitization of automobile receivables will also be affected by
interest rates. The Company recognizes a gain in connection with its
securitizations based upon the estimated present value of projected future
excess cash flows from the securitization Trusts, which is largely dependent
upon the gross interest rate spread. The Company believes that its
profitability and liquidity would be adversely affected during any period of
higher interest rates, possibly to a material degree. The Company monitors the
interest rate environment and employs pre-funding or other hedging strategies
designed to mitigate the impact of changes in interest rates. There can be no
assurance, however, that pre-funding or other hedging strategies will mitigate
the impact of changes in interest rates.
Labor Market Conditions. Low unemployment rates driven by economic growth
and the continued expansion of consumer credit markets could contribute to an
increase in the Company's employee turnover rate. High turnover or an
inability to attract and retain qualified replacement personnel could have an
adverse effect on the Company's delinquency, default and net loss rates and,
ultimately, the Company's financial condition, results of operations and
liquidity.
Competition. Reference should be made to Item 1. "Business--Automobile
Finance Operations--Competition" for a discussion of competitive risk factors.
15
<PAGE>
Regulation. Reference should be made to Item 1. "Business--Automobile
Finance Operations--Regulation" for a discussion of regulatory risk factors.
Year 2000 Issue
The year 2000 issue is the result of computer programs and embedded hardware
systems having been developed using two digits rather than four to define the
applicable year. These computer programs or hardware that have date-sensitive
software or embedded chips may use a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions or failure to the Company's operations including, among
other things, a temporary inability to transact new business or communicate
with its customers. The Company has substantially completed its year 2000
compliance review, which included obtaining certifications from third party
software vendors regarding the year 2000 compliance of their software
applications, testing the Company's core operating systems and identifying and
repairing any problems. The Company believes that it is year 2000 compliant.
However, the Company may experience degradation in the performance of its
systems or complete system failure if its assessment is erroneous or if the
Company encounters unforeseen difficulties. Any of these events, whether
occurring in the Company's systems or the systems of others, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Employees
At June 30, 1999, the Company employed 2,241 persons in 41 states and two
Canadian provinces. None of the Company's employees are a part of a collective
bargaining agreement and the Company's relationships with employees are
satisfactory.
Executive Officers
The following sets forth certain data concerning the executive officers of
the Company as of June 30, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Clifton H. Morris, Jr... 63 Chairman of the Board and Chief Executive Officer
Michael R. Barrington... 40 Vice Chairman of the Board, President and Chief
Operating Officer
Daniel E. Berce......... 45 Vice Chairman of the Board and Chief Financial
Officer
Edward H. Esstman....... 58 Executive Vice President--Auto Finance Division;
President and Chief Operating Officer of
AmeriCredit Financial Services, Inc. and Director
Chris A. Choate......... 36 Senior Vice President, General Counsel and Secretary
Joseph E. McClure....... 51 Executive Vice President and Chief Information
Officer
Cheryl L. Miller........ 35 Executive Vice President, Director of Collections
and Customer Service of AmeriCredit Financial
Services, Inc.
Michael T. Miller....... 37 Executive Vice President and Chief Credit Officer
Preston A. Miller....... 35 Executive Vice President and Treasurer
Cinde C. Perales........ 38 Executive Vice President and Director of Loan
Services of AmeriCredit Financial Services, Inc.
</TABLE>
CLIFTON H. MORRIS, JR. has been Chairman of the Board and Chief Executive
Officer of the Company since May 1988, and was also President of the Company
from such date until April 1991 and from April 1992 to November 1996. Mr.
Morris is also a director of Service Corporation International, a publicly
held company which owns and operates funeral homes and related businesses, and
Cash America International Inc., a publicly held pawn brokerage company.
MICHAEL R. BARRINGTON has been Vice Chairman, President and Chief Operating
Officer of the Company since November 1996 and was Executive Vice President
and Chief Operating Officer of the Company from November 1994 until November
1996. Mr. Barrington was a Vice President of the Company from May
16
<PAGE>
1991 until November 1994. From its formation in July 1992 until November 1996,
Mr. Barrington was also the President and Chief Operating Officer of AFSI.
DANIEL E. BERCE has been Vice Chairman and Chief Financial Officer of the
Company since November 1996 and was Executive Vice President, Chief Financial
Officer and Treasurer for the Company from November 1994 until November 1996.
Mr. Berce was Vice President, Chief Financial Officer and Treasurer of the
Company from May 1991 until November 1994. Mr. Berce is also a director of
INSpire Insurance Solutions Inc., a publicly held company, which provides
policy and claims administration services to the property and casualty
insurance industry.
EDWARD H. ESSTMAN has been President and Chief Operating Officer of AFSI
since November 1996. Mr. Esstman was Executive Vice President, Director of
Consumer Finance Operations of AFSI from November 1994 until November 1996 and
was Senior Vice President, Director of Consumer Finance of AFSI from AFSI's
formation in July 1992 until November 1994. Mr. Esstman has also been
Executive Vice President--Auto Finance Division for the Company since November
1996 and Senior Vice President and Chief Credit Officer for the Company from
November 1994 until November 1996.
CHRIS A. CHOATE has been Senior Vice President, General Counsel and
Secretary of the Company since November 1996 and was Vice President, General
Counsel and Secretary of the Company from November 1994 until November 1996
and General Counsel and Secretary of the Company from January 1993 until
November 1994. From July 1991 until January 1993, Mr. Choate was Assistant
General Counsel.
JOSEPH E. McCLURE has been Executive Vice President, Chief Information
Officer of the Company since April 1999 and was Senior Vice President, Chief
Information Officer from October 1998 until April 1999. Prior to that, Mr.
McClure was Executive Vice President, Division Information Officer of
Associates First Capital Corp. and was in that position for more than five
years.
CHERYL L. MILLER has been Executive Vice President, Director of Collections
and Customer Service of AFSI since July 1998 and was Senior Vice President,
Director of Collections and Customer Service of AFSI from March 1996 until
July 1998 and Vice President, Director of Collections and Customer Service of
AFSI from October 1994 until March 1996. From May 1994 until October 1994, Ms.
Miller acted in other management capacities for AFSI. Prior to that, Ms.
Miller was with Ford Motor Credit Company, most recently as customer service
supervisor of the Dallas branch.
MICHAEL T. MILLER has been Executive Vice President and Chief Credit Officer
since July 1998 and was Senior Vice President and Chief Credit Officer of the
Company from November 1996 until July 1998. Mr. Miller was Senior Vice
President, Risk Management, Credit Policy and Planning and Chief of Staff of
AFSI from November 1994 until November 1996 and Vice President, Risk
Management, Credit Policy and Planning of AFSI from AFSI's formation in July
1992 until November 1994. Michael T. Miller is the brother of
Cheryl L. Miller.
PRESTON A. MILLER has been Executive Vice President and Treasurer of the
Company since July 1998 and was Senior Vice President and Treasurer of the
Company from November 1996 until July 1998. Mr. Miller was Vice President and
Controller of the Company from November 1994 until November 1996 and was
Controller of the Company from September 1989 until November 1994.
CINDE C. PERALES has been Executive Vice President, Director of Loan
Services of AFSI since July 1998 and was Senior Vice President, Director of
Loan Services of AFSI from March 1996 until July 1998 and Vice President,
Director of Loan Services of AFSI from October 1992 until March 1996.
ITEM 2. PROPERTIES
The Company's executive offices are located at 801 Cherry Street, Suite
3900, Fort Worth, Texas, in a 113,000 square foot leased office space under a
12 year lease that commenced in July 1999. This building is
17
<PAGE>
utilized by the Company for branch office support and administrative
activities. The Company also leases 67,000 square feet of office space in
Tempe, Arizona under a ten year agreement with renewal options, 56,000 square
feet of office space in Charlotte, North Carolina under a ten year agreement
with renewal options and 250,000 square feet of office space in Arlington,
Texas under a five year agreement. These facilities are used primarily for
loan servicing and collections activities.
The Company's executive offices were formerly located in a 43,000 square
foot building purchased in 1994. The Company intends to sell this building.
The Company's branch office facilities are generally leased under agreements
with original terms of three to five years. Such facilities are typically
located in a suburban office building and consist of between 1,000 and 2,000
square feet of space.
ITEM 3. 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. In the opinion of management, this
litigation is without merit and the Company intends to vigorously defend
against the complaint.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter ended June 30, 1999.
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company has never paid cash dividends on its common stock. The Company's
warehouse credit facilities and the Indentures pursuant to which the senior
notes were issued contain certain restrictions on the payment of dividends.
The Company presently intends to retain future earnings, if any, for use in
the operation and expansion of the business and does not anticipate paying any
cash dividends in the foreseeable future.
Information contained under the caption "Common Stock Data" in the Annual
Report is incorporated herein by reference in further response to this Item 5.
ITEM 6. SELECTED FINANCIAL DATA
Information contained under the caption "Summary Financial and Operating
Information" in the Annual Report is incorporated herein by reference in
response to this Item 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information contained under the caption "Financial Review" in the Annual
Report is incorporated herein by reference in response to this Item 7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information contained under the caption "Financial Review--Interest Rate
Risk" in the Annual Report is incorporated herein by reference in response to
this Item 7A.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company included in the Annual
Report and information contained under the caption "Quarterly Data" in the
Annual Report are incorporated herein by reference in response to this Item 8.
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) the Company (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 as of June 30, 1999 and 1998 and for
each of the three years in the period ended June 30, 1999.
Investments in subsidiaries are accounted for by the parent company on the
equity method for purposes of the presentation set forth below. 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.
19
<PAGE>
AMERICREDIT CORP.
SUPPLEMENTARY INFORMATION
CONSOLIDATING BALANCE SHEET
June 30, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
AmeriCredit
Corp. Guarantors Non-Guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 20,246 $ 943 $ 21,189
Receivables held for
sale, net.............. 256,771 199,238 456,009
Interest-only
receivables from
Trusts................. $ 1,337 190,528 191,865
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
======== ========= ======== ========= ==========
</TABLE>
20
<PAGE>
AMERICREDIT CORP.
SUPPLEMENTARY INFORMATION
CONSOLIDATING BALANCE SHEET
June 30, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
AmeriCredit
Corp. Guarantors Non-Guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 30,157 $ 2,930 $ 33,087
Receivables held for
sale, net.............. 178,219 164,634 342,853
Interest-only
receivables from
Trusts................. $ (2,151) 3,623 130,222 131,694
Investments in Trust
receivables............ 2,109 96,748 98,857
Restricted cash......... 55,758 55,758
Property and equipment,
net.................... 175 23,210 23,385
Other assets............ 8,911 13,003 6,123 28,037
Due (to) from
affiliates............. 330,924 (226,892) (104,032)
Investment in
affiliates............. 110,623 13,921 2 $(124,546)
-------- --------- -------- --------- --------
Total assets........ $448,482 $ 37,350 $352,385 $(124,546) $713,671
======== ========= ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Warehouse credit
facilities........... $ 24,900 $140,708 $165,608
Senior notes.......... $175,000 175,000
Other notes payable... 6,384 26 6,410
Accrued taxes and
expenses............. (2,280) 53,950 (4,538) 47,132
Deferred income
taxes................ (18,470) (16,637) 66,780 31,673
-------- --------- -------- --------- --------
Total liabilities... 160,634 62,239 202,950 425,823
-------- --------- -------- --------- --------
Shareholders' equity:
Common stock.......... 693 203 3 $ (206) 693
Additional paid-in
capital.............. 230,269 108,336 13,921 (122,257) 230,269
Accumulated other
comprehensive
income............... 7,234 7,234 (7,234) 7,234
Retained earnings..... 72,770 (133,428) 128,277 5,151 72,770
-------- --------- -------- --------- --------
310,966 (24,889) 149,435 (124,546) 310,966
Treasury stock.......... (23,118) (23,118)
-------- --------- -------- --------- --------
Total shareholders'
equity............. 287,848 (24,889) 149,435 (124,546) 287,848
-------- --------- -------- --------- --------
Total liabilities
and shareholders'
equity............. $448,482 $ 37,350 $352,385 $(124,546) $713,671
======== ========= ======== ========= ========
</TABLE>
21
<PAGE>
AMERICREDIT CORP.
SUPPLEMENTARY INFORMATION
CONSOLIDATING STATEMENT OF INCOME
Year Ended June 30, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
AmeriCredit
Corp. Guarantors Non-Guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue
Finance charge
income............... $ 42,302 $ 32,986 $ 75,288
Gain on sale of
receivables.......... $ (6,394) 2,400 173,886 169,892
Servicing fee income.. 120,044 8,539 $ (42,617) 85,966
Other income.......... 39,585 3,428 744 (39,447) 4,310
Equity in income of
affiliates........... 73,633 (73,633)
-------- -------- -------- --------- --------
106,824 168,174 216,155 (155,697) 335,456
-------- -------- -------- --------- --------
Costs and expenses
Operating expenses.... 6,900 201,004 58 (42,617) 165,345
Provision for losses.. 3,979 5,650 9,629
Interest expense...... 22,983 20,097 35,159 (39,447) 38,792
-------- -------- -------- --------- --------
29,883 225,080 40,867 (82,064) 213,766
-------- -------- -------- --------- --------
Income before income
taxes.................. 76,941 (56,906) 175,288 (73,633) 121,690
Income tax provision.... 2,101 (24,967) 69,716 46,850
-------- -------- -------- --------- --------
Net income.............. $ 74,840 $(31,939) $105,572 $ (73,633) $ 74,840
======== ======== ======== ========= ========
</TABLE>
22
<PAGE>
AMERICREDIT CORP.
SUPPLEMENTARY INFORMATION
CONSOLIDATING STATEMENT OF INCOME
Year Ended June 30, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
AmeriCredit
Corp. Guarantors Non-Guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue
Finance charge
income............... $ 39,114 $ 16,723 $ 55,837
Gain on sale of
receivables.......... $(6,729) 1,350 108,573 103,194
Servicing fee income.. 91,682 9,822 $ (53,594) 47,910
Other income.......... 31,029 1,268 741 (30,643) 2,395
Equity in income of
affiliates........... 50,179 (50,179)
------- -------- -------- --------- --------
74,479 133,414 135,859 (134,416) 209,336
------- -------- -------- --------- --------
Costs and expenses
Operating expenses.... 10,800 137,273 5 (53,594) 94,484
Provision for losses.. 7,555 7,555
Interest expense...... 14,776 24,192 18,810 (30,643) 27,135
------- -------- -------- --------- --------
25,576 169,020 18,815 (84,237) 129,174
------- -------- -------- --------- --------
Income before income
taxes.................. 48,903 (35,606) 117,044 (50,179) 80,162
Income tax provision.... (398) (11,148) 42,407 30,861
------- -------- -------- --------- --------
Net income.............. $49,301 $(24,458) $ 74,637 $ (50,179) $ 49,301
======= ======== ======== ========= ========
</TABLE>
23
<PAGE>
AMERICREDIT CORP.
SUPPLEMENTARY INFORMATION
CONSOLIDATING STATEMENT OF INCOME
Year Ended June 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
AmeriCredit
Corp. Guarantors Non-Guarantors Eliminations Consolidated
----------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue
Finance charge
income............... $ 36,633 $ 8,277 $ 44,910
Gain on sale of
receivables.......... $ (855) 2,939 50,239 52,323
Servicing fee income.. 56,343 6,230 $(39,081) 23,492
Other income.......... 18,348 1,280 914 (17,911) 2,631
Equity in income of
affiliates........... 24,119 (24,119)
------- -------- ------- -------- --------
41,612 97,195 65,660 (81,111) 123,356
------- -------- ------- -------- --------
Costs and expenses
Operating expenses.... 5,282 83,997 1,717 (39,081) 51,915
Provision for losses.. 6,595 6,595
Interest expense...... 5,116 17,202 11,905 (17,911) 16,312
------- -------- ------- -------- --------
10,398 107,794 13,622 (56,992) 74,822
------- -------- ------- -------- --------
Income before income
taxes.................. 31,214 (10,599) 52,038 (24,119) 48,534
Income tax provision.... 1,365 (2,481) 19,801 18,685
------- -------- ------- -------- --------
Net income.............. $29,849 $ (8,118) $32,237 $(24,119) $ 29,849
======= ======== ======= ======== ========
</TABLE>
24
<PAGE>
AMERICREDIT CORP.
SUPPLEMENTARY INFORMATION
CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended June 30, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net income............. $ 74,840 $ (31,939) $ 105,572 $ (73,633) $ 74,840
Adjustments to
reconcile net income
to net cash provided
by operating
activities
Depreciation and
amortization.......... 41 12,604 12,645
Provision for losses... 3,979 5,650 9,629
Deferred income taxes.. (1,375) (25,379) 70,118 43,364
Non-cash servicing fee
income................ (12,525) (12,525)
Non-cash gain on sale
of auto receivables... (157,757) (157,757)
Distributions from
Trusts................ 44,531 44,531
Equity in income of
affiliates............ (73,633) 73,633
Changes in assets and
liabilities
Other assets........... 3,304 (11,950) 2,469 (6,177)
Accrued taxes and
expenses.............. 18,342 11,952 4,803 35,097
--------- ----------- ----------- ----------- -----------
Net cash provided by
operating activities.. 21,519 (40,733) 62,861 43,647
--------- ----------- ----------- ----------- -----------
Cash flows from
investing activities
Purchases of auto
receivables........... (2,868,633) (2,783,160) 2,783,160 (2,868,633)
Originations of
mortgage receivables.. (297,535) (297,535)
Principal collections
and recoveries on
receivables........... 6,381 15,143 21,524
Net proceeds from sale
of auto receivables... 2,783,160 2,727,763 (2,783,160) 2,727,763
Net proceeds from sale
of mortgage
receivables........... 294,096 294,096
Initial deposits to
restricted cash (82,750) (82,750)
Return of deposits from
restricted cash....... 23,000 23,000
Purchases of property
and equipment......... (215) (14,513) (14,728)
Change in other
assets................ (5,514) (4,948) (10,462)
Net change in
investment in
affiliates............ 93 (104,103) (1,048) 105,058
--------- ----------- ----------- ----------- -----------
Net cash used by
investing activities.. (122) (206,661) (106,000) 105,058 (207,725)
--------- ----------- ----------- ----------- -----------
Cash flows from
financing activities
Net change in warehouse
credit facilities..... (4,610) (46,339) (50,949)
Proceeds from issuance
of senior notes....... 194,097 194,097
Payments on other notes
payable............... (3,890) (26) (3,916)
Proceeds from issuance
of common stock....... 12,948 139 104,919 (105,058) 12,948
Net change in due (to)
from affiliates....... (224,552) 241,980 (17,428)
--------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities.. (21,397) 237,483 41,152 (105,058) 152,180
--------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (9,911) (1,987) (11,898)
Cash and cash
equivalents at
beginning of year...... 30,157 2,930 33,087
--------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
year................... $ 20,246 $ 943 $ 21,189
========= =========== =========== =========== ===========
</TABLE>
25
<PAGE>
AMERICREDIT CORP.
SUPPLEMENTARY INFORMATION
CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended June 30, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net income............. $ 49,301 $ (24,458) $ 74,637 $ (50,179) $ 49,301
Adjustments to
reconcile net income
to net cash provided
by operating
activities
Depreciation and
amortization.......... 50 4,448 4,498
Provision for losses... 7,555 7,555
Deferred income taxes.. 390 (11,826) 42,410 30,974
Non-cash servicing fee
income................ (10,867) (10,867)
Non-cash gain on sale
of auto receivables... (96,405) (96,405)
Distributions from
Trusts................ 43,807 43,807
Equity in income of
affiliates............ (50,179) 50,179
Changes in assets and
liabilities
Other assets........... (420) (739) (2,165) (3,324)
Accrued taxes and
expenses.............. (10,368) 25,963 (3,321) 12,274
-------- ----------- ----------- ----------- -----------
Net cash provided by
operating activities.. (11,226) 943 48,096 37,813
-------- ----------- ----------- ----------- -----------
Cash flows from
investing activities
Purchases of auto
receivables........... (1,713,582) (1,777,748) 1,777,748 (1,713,582)
Originations of
mortgage receivables.. (137,169) (137,169)
Principal collections
and recoveries on
receivables........... 8,560 28,787 37,347
Net proceeds from sale
of auto receivables... 1,777,748 1,609,970 (1,777,748) 1,609,970
Net proceeds from sale
of mortgage
receivables........... 119,683 119,683
Initial deposits to
restricted cash....... (56,725) (56,725)
Purchases of property
and equipment......... 11 (9,467) (9,456)
Change in other
assets................ 5,000 64 5,064
Net change in
investment in
affiliates............ (9,998) (3,921) (2) 13,921
-------- ----------- ----------- ----------- -----------
Net cash used by
investing activities.. (4,987) 41,852 (195,654) 13,921 (144,868)
-------- ----------- ----------- ----------- -----------
Cash flows from
financing activities
Net change in warehouse
credit facilities..... (47,145) 140,708 93,563
Proceeds from issuance
of senior notes....... 47,762 47,762
Payments on other notes
payable............... (1,346) (7) (23,689) (25,042)
Proceeds from issuance
of common stock....... 17,832 13,921 (13,921) 17,832
Net change in due (to)
from affiliates....... (48,035) 30,526 17,509
-------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities.. 16,213 (16,626) 148,449 (13,921) 134,115
-------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 26,169 891 27,060
Cash and cash
equivalents at
beginning of year...... 3,988 2,039 6,027
-------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
year................... $ 30,157 $ 2,930 $ 33,087
======== =========== =========== =========== ===========
</TABLE>
26
<PAGE>
AMERICREDIT CORP.
SUPPLEMENTARY INFORMATION
CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended June 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities
Net income............. $ 29,849 $ (8,118) $ 32,237 $ (24,119) $ 29,849
Adjustments to
reconcile net income
to net cash provided
by operating
activities............
Depreciation and
amortization.......... 28 2,175 2,203
Provision for losses... 6,595 6,595
Deferred income taxes.. 135 (1,048) 19,799 18,886
Non-cash servicing fee
income................ (7,991) (7,991)
Non-cash gain on sale
of auto receivables... (52,534) (52,534)
Distributions from
Trusts................ 19,347 19,347
Equity in income of
affiliates............ (24,119) 24,119
Changes in assets and
liabilities
Other assets........... 917 (3,083) (175) (2,341)
Accrued taxes and
expenses.............. 4,835 18,278 (1,124) 21,989
--------- --------- --------- --------- ---------
Net cash provided by
operating activities.. 11,645 (37,735) 62,093 36,003
--------- --------- --------- --------- ---------
Cash flows from
investing activities
Purchases of auto
receivables........... (869,975) (814,107) 814,107 (869,975)
Originations of
mortgage receivables.. (53,770) (53,770)
Principal collections
and recoveries on
receivables........... (4,064) 56,224 52,160
Net proceeds from sale
of auto receivables... 814,107 799,600 (814,107) 799,600
Net proceeds from sale
of mortgage
receivables........... 52,489 52,489
Initial deposits to
restricted cash....... (71,400) (71,400)
Purchases of property
and equipment......... (81) (4,430) (4,511)
Change in other
assets................ 58 2,402 2,460
Net change in
investment in
affiliates............ 25,605 (22,981) (2,624)
--------- --------- --------- --------- ---------
Net cash used by
investing activities.. 25,582 (88,624) (29,905) (92,947)
--------- --------- --------- --------- ---------
Cash flows from
financing activities
Net change in warehouse
credit facilities..... (17,264) (17,264)
Proceeds from issuance
of senior notes....... 120,894 120,894
Payments on other notes
payable............... (552) (44,158) (44,710)
Proceeds from issuance
of common stock....... 6,293 6,293
Purchase of treasury
stock................. (4,387) (4,387)
Net change in due (to)
from affiliates....... (154,562) 147,698 6,864
--------- --------- --------- --------- ---------
Net cash provided by
financing activities.. (32,314) 130,434 (37,294) 60,826
--------- --------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ 4,913 4,075 (5,106) 3,882
Cash and cash
equivalents at
beginning of year...... (4,913) (87) 7,145 2,145
--------- --------- --------- --------- ---------
Cash and cash
equivalents at end of
year................... $ 3,988 $ 2,039 $ 6,027
========= ========= ========= ========= =========
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTARY INFORMATION
Board of Directors and Shareholders
AmeriCredit Corp.
Our report on the audits of the consolidated financial statements of
AmeriCredit Corp. as of June 30, 1999 and 1998 and for the three years ended
June 30, 1999, 1998 and 1997 has been incorporated by reference in this Form
10-K from page 38 of the 1999 Annual Report to Shareholders of AmeriCredit
Corp. These audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The related financial statement
schedules are presented for purposes of additional analysis and are not a
required part of the basic financial statements. Such supplementary
information has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the financial statements
taken as a whole.
PricewaterhouseCoopers LLP
Fort Worth, Texas
August 4, 1999
28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no disagreements on accounting or financial disclosure
matters with its independent accountants to report under this Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "Election of Directors" in the Proxy
Statement is incorporated herein by reference in response to this Item 10. See
Item 1. "Business--Executive Officers" for information concerning executive
officers.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the captions "Executive Compensation" and
"Election of Directors" in the Proxy Statement is incorporated herein by
reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained under the caption "Principal Shareholders and Stock
Ownership of Management" in the Proxy Statement is incorporated herein by
reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "Related Party Transactions" in the
Proxy Statement is incorporated herein by reference in response to this Item
13.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(1) The following Consolidated Financial Statements of the Company and Report
of Independent Accountants are contained in the Annual Report and are
incorporated herein by reference.
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1999 and 1998.
Consolidated Statements of Income and Comprehensive Income for the years
ended June 30, 1999, 1998 and 1997.
Consolidated Statements of Shareholders' Equity for the years ended June
30, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended June 30, 1999,
1998 and 1997.
Notes to Consolidated Financial Statements
Report of Independent Accountants
(2) Consolidating financial information for AmeriCredit Corp. (on a parent
only basis), the combined Subsidiary Guarantors and the combined Non-
Guarantor Subsidiaries is included herein under Item 8.
(3) All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are either not
required under the related instructions, are inapplicable, or the required
information is included elsewhere in the Consolidated Financial Statements
and incorporated herein by reference.
(4) The exhibits filed in response to Item 601 of Regulation S-K are listed in
the Index to Exhibits.
(5) A report on Form 8-K dated April 12, 1999 was filed with the Commission to
report under Item 5, the offering of $125 million aggregate principal
amount of senior notes to certain qualified institutional buyers.
A report on Form 8-K dated April 21, 1999 was filed with the Commission to
report under Item 5, the issuance of $200 million of 9.875% Senior Notes
due 2006.
Certain subsidiaries and affiliates of the Company filed reports on Form 8-
K during the quarterly period ended June 30, 1999 reporting monthly
information related to securitization trusts.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on September 21,
1999.
AmeriCredit Corp.
/s/ Clifton H. Morris, Jr.
By: _________________________________
Clifton H. Morris, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Clifton H. Morris, Jr. Chairman of the Board and September 21, 1999
______________________________________ Chief Executive Officer
Clifton H. Morris, Jr.
/s/ Daniel E. Berce Vice Chairman and Chief September 21, 1999
______________________________________ Financial Officer
Daniel E. Berce
/s/ Michael R. Barrington Vice Chairman, President September 21, 1999
______________________________________ and Chief Operating
Michael R. Barrington Officer
/s/ Edward H. Esstman Executive Vice President, September 21, 1999
______________________________________ Auto Finance Division and
Edward H. Esstman Director
/s/ A. R. Dike Director September 21, 1999
______________________________________
A. R. Dike
/s/ James H. Greer Director September 21, 1999
______________________________________
James H. Greer
/s/ Douglas K. Higgins Director September 21, 1999
______________________________________
Douglas K. Higgins
/s/ Kenneth H. Jones, Jr. Director September 21, 1999
______________________________________
Kenneth H. Jones, Jr.
</TABLE>
31
<PAGE>
INDEX TO EXHIBITS
The following documents are filed as a part of this report. Those exhibits
previously filed and incorporated herein by reference are identified by the
numbers in parenthesis under the Exhibit Number column. Documents filed with
this report are identified by the symbol "@" under the Exhibit Number column.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
3.1 (1) - Articles of Incorporation of the Company, filed May 18, 1988, and Articles of Amendment to Articles of
Incorporation, filed August 24, 1988 (Exhibit 3.1)
3.2 (1) - Amendment to Articles of Incorporation, filed October 18, 1989 (Exhibit 3.2)
3.3 (5) - Articles of Amendment to Articles of Incorporation of the Company, filed November 12, 1992 (Exhibit 3.3)
3.4 (8) - Bylaws of the Company, as amended (Exhibit 3.4)
4.1 (4) - Specimen stock certificate evidencing the Common Stock (Exhibit 4.1)
4.2 (10) - Rights Agreement, dated August 28, 1997, between the Company and ChaseMellon Shareholder Services, L.L.C.
(Exhibit 1)
4.2.1 (17) - Amendment No. 1 to Rights Agreement, dated September 9, 1999, between the Company and ChaseMellon Shareholder
Services, L.L.C. (Exhibit 4.1)
4.3 (16) - Indenture, dated as of April 20, 1999, between AmeriCredit Corp. and subsidiaries and Bank One, Columbus, NA,
with form of 9.875% Senior Notes due 2006 (Exhibit 4.3)
10.1 (1) - 1989 Stock Option Plan (with Stock Appreciation Rights) for the Company (Exhibit 10.5)
10.2 (2) - Amendment No. 1 to the 1989 Stock Option Plan (with Stock Appreciation Rights) for the Company (Exhibit 4.6)
10.3 (3) - 1990 Stock Option Plan for Non-Employee Directors of the Company (Exhibit 10.14)
10.4 (4) - 1991 Key Employee Stock Option Plan of the Company (Exhibit 10.10)
10.5 (4) - 1991 Non-employee Director Stock Option Plan of the Company (Exhibit 10.11)
10.6 (4) - Executive Employment Agreement, dated January 30, 1991, between the Company and Clifton H. Morris, Jr. (Exhibit
10.18)
10.6.1 (8) - Amendment No. 1 to Executive Employment Agreement, dated May 1, 1997, between the Company and Clifton H. Morris,
Jr. (Exhibit 10.7.1)
10.7 (4) - Executive Employment Agreement, dated January 30, 1991, between the Company and Michael R. Barrington (Exhibit
10.19)
10.7.1 (8) - Amendment No. 1 to Executive Employment Agreement, dated May 1, 1997, between the Company and Michael R.
Barrington (Exhibit 10.8.1)
10.8 (4) - Executive Employment Agreement, dated January 30, 1991 between the Company and Daniel E. Berce (Exhibit 10.20)
10.8.1 (8) - Amendment No. 1 to Executive Employment Agreement, dated May 1, 1997, between the Company and Daniel E. Berce
(Exhibit 10.9.1)
10.9 (8) - Amended and Restated Employment Agreement, dated October 15, 1996, between the Company and Edward H. Esstman
(Exhibit 10.10)
10.9.1 (8) - Amendment No. 1 to Amended and Restated Employment Agreement, dated May 1, 1997, between the Company and Edward
H. Esstman (Exhibit 10.10.1)
10.10 (8) - Amended and Restated Employment Agreement, dated July 1, 1997, between the Company and Michael T. Miller (Exhibit
10.11)
10.10.1(14) - Amendment No. 1 to Amended and Restated Employment Agreement, dated as of August 1, 1998, between the Company and
Michael T. Miller
</TABLE>
32
<PAGE>
INDEX TO EXHIBITS
(Continued)
<TABLE>
<C> <S>
10.11 (11) - Sale and Servicing Agreement, dated as of October 8, 1997, between CP Funding Corp., AmeriCredit Financial
Services, Inc. and The Chase Manhattan Bank (Exhibit 10.2)
10.11.1(16) - Amendment No. 1 to Sale and Servicing Agreement, dated as of September 29, 1998, between CP Funding Corp.,
AmeriCredit Financial Services, Inc. and The Chase Manhattan Bank (Exhibit 10.11.1)
10.12 (11) - Funding Agreement, dated as of October 8, 1997, between CP Funding Corp., Park Avenue Receivables Corporation,
The Chase Manhattan Bank and other financial institutions named therein (Exhibit 10.3)
10.12.1(16) - Extension, Consent and Amendment Agreement, dated as of September 29, 1998, between CP Funding Corp., Park Avenue
Receivables Corporation, The Chase Manhattan Bank and other financial institutions named therein (Exhibit
10.12.1)
10.13 (11) - Restated Revolving Credit Agreement, dated October 3, 1997, between AmeriCredit Corp. and subsidiaries and Wells
Fargo Bank (Texas), National Association, Bank One, Texas, N.A. and other banks named therein (Exhibit 10.1)
10.13.1(14) - First Amendment to Restated Revolving Credit Agreement, dated January 21, 1998, between AmeriCredit Corp. and
subsidiaries and Wells Fargo Bank (Texas), National Association, Bank One, Texas, N.A. and other banks named
therein (Exhibit 10.13.1)
10.13.2(14) - Second Amendment to Restated Revolving Credit Agreement, dated April 30, 1998, between AmeriCredit Corp. and
subsidiaries and Wells Fargo Bank (Texas), National Association, Bank One, Texas, N.A. and other banks named
therein (Exhibit 10.13.2)
10.13.3(14) - Third Amendment to Restated Revolving Credit Agreement, dated August 31, 1998, between AmeriCredit Corp. and
subsidiaries and Wells Fargo Bank (Texas), National Association and other banks named therein (Exhibit 10.13.3)
10.13.4(16) - Fourth Amendment to Restated Revolving Credit Agreement, dated April 1, 1999, between AmeriCredit Corp. and
subsidiaries and Wells Fargo Bank (Texas), National Association and other banks named therein (Exhibit 10.13.4)
10.14 (12) - Indenture, dated February 4, 1997, between AmeriCredit Corp. and subsidiaries and Bank One, Columbus, NA, with
respect to Series A and Series B 9 1/4 % Senior Notes due 2004 (Exhibit 10.2)
10.15 (12) - Purchase Agreement , dated January 30, 1997, between AmeriCredit Corp. and subsidiaries and Smith Barney Inc.,
Montgomery Securities, Piper Jaffray Inc. and Wheat First Butcher Singer (Exhibit 10.3)
10.16 (12) - A/B Exchange Registration Rights Agreement, dated February 4, 1997, between AmeriCredit Corp. and subsidiaries
and Smith Barney Inc., Montgomery Securities, Piper Jaffray Inc., and Wheat First Butcher Singer (Exhibit 10.4)
10.17 (6) - 1995 Omnibus Stock and Incentive Plan for AmeriCredit Corp.
10.18 (9) - Amendment No. 1 to 1995 Omnibus Stock and Incentive Plan for AmeriCredit Corp.
10.19 (7) - 1996 Limited Stock Option Plan for AmeriCredit Corp.
10.20 (13) - Indenture, dated January 29, 1998, between AmeriCredit Corp. and subsidiaries and Bank One, N.A., with respect to
Series C and Series D 9 1/4 % Senior Notes due 2004 (Exhibit 10.24)
10.21 (13) - Purchase Agreement, dated January 26, 1998, between AmeriCredit Corp. and subsidiaries and Salomon Brothers, Inc.
and Credit Suisse First Boston Corporation (Exhibit 10.25)
10.22 (13) - C/D Exchange Registration Rights Agreement, dated as of January 29, 1998, between AmeriCredit Corp. and
subsidiaries and Salomon Brothers, Inc., and Credit Suisse First Boston Corporation (Exhibit 10.26)
10.23 (15) - 1998 Limited Stock Option Plan for AmeriCredit Corp.
</TABLE>
33
<PAGE>
INDEX TO EXHIBITS
(Continued)
<TABLE>
<C> <S>
10.24 (16) - Receivables Financing Agreement, dated as of March 31, 1999, among AmeriCredit Warehouse Trust, AmeriCredit
Financial Services, Inc., AmeriCredit Funding Corp., Americredit Corporation of California, Credit Suisse First
Boston, New York Branch, and Bank One, N.A. (Exhibit 10.24)
10.25 (16) - Master Receivables Purchase Agreement, dated as of March 31, 1999, among AmeriCredit Financial Services, Inc.,
AmeriCredit Funding Corp., Americredit Corporation of California and Bank One, N.A. (Exhibit 10.25)
10.26 (16) - Security and Collateral Agent Agreement, dated as of March 31, 1999, among Credit Suisse First Boston, New York
Branch, Bank One, N.A., AmeriCredit Financial Services, Inc. and AmeriCredit Warehouse Trust (Exhibit 10.26)
10.27 (16) - Purchase Agreement, dated as of April 15, 1999, between AmeriCredit Corp. and subsidiaries and Salomon Smith
Barney Inc., Bear, Stearns & Co. Inc. and ING Baring Furman Selz LLC (Exhibit 10.27)
10.28 (16) - A/B Exchange Registration Rights Agreement, dated as of April 20, 1999, between AmeriCredit Corp. and
subsidiaries and Salomon Smith Barney Inc., Bear, Stearns & Co. Inc., and ING Baring Furman Selz LLC (Exhibit
10.28)
11.1 (@) - Statement Re Computation of Per Share Earnings
12.1 (@) - Statement Re Computation of Ratios
13.1 (@) - 1999 Annual Report to Shareholders of the Company
21.1 (@) - Subsidiaries of the Company
23.1 (@) - Consent of PricewaterhouseCoopers LLP
27.1 (@) - Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the exhibit shown in parenthesis included in
Registration Statement No. 33-31220 on Form S-1 filed by the Company with
the Securities and Exchange Commission.
(2) Incorporated by reference to the exhibit shown in parenthesis included in
Registration Statement No. 33-41203 on Form S-8 filed by the Company with
the Securities and Exchange Commission.
(3) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30, 1990
filed by the Company with the Securities and Exchange Commission.
(4) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30, 1991,
filed by the Company with the Securities and Exchange Commission.
(5) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30, 1993,
filed by the Company with the Securities and Exchange Commission.
(6) Incorporated by reference from the Company's Proxy Statement for the year
ended June 30, 1995, filed by the Company with the Securities and Exchange
Commission.
(7) Incorporated by reference from the Company's Proxy Statement for the year
ended June 30, 1996, filed by the Company with the Securities and Exchange
Commission.
(8) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30, 1997,
filed by the Company with the Securities and Exchange Commission.
(9) Incorporated by reference from the Company's Proxy Statement for the year
ended June 30, 1997, filed by the Company with the Securities and Exchange
Commission.
(10) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Report on Form 8-K, dated August 28, 1997, filed by the
Company with the Securities and Exchange Commission.
34
<PAGE>
INDEX TO EXHIBITS
(Continued)
(11) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1997 filed by the Company with the Securities and Exchange
Commission.
(12) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997 filed by the Company with the Securities and Exchange
Commission.
(13) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-4, dated March 26, 1998,
filed by the Company with the Securities and Exchange Commission.
(14) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report as Form 10-K for the year ended June 30, 1998,
filed by the Company with the Securities and Exchange Commission.
(15) Incorporated by reference from the Company's Proxy Statement for the year
ended June 30, 1998, filed by the Company with the Securities and Exchange
Commission.
(16) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-4, dated June 15, 1999,
filed by the Company with the Securities and Exchange Commission.
(17) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Report on Form 8-K, dated September 7, 1999, filed by the
Company with the Securities and Exchange Commission.
(@) Filed herewith.
35
<PAGE>
EXHIBIT 11.1
AMERICREDIT CORP.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(dollars in thousands, except per share amounts)
Years Ended June 30,
-------------------------------------------------
1999 1998 1997
---- ---- ----
Weighted average shares
outstanding 63,005,746 60,188,788 57,774,724
Incremental shares
resulting from assumed
exercise of stock
options 4,185,489 5,014,672 3,799,824
----------- ----------- -----------
Weighted average shares
and assumed incremental
shares 67,191,235 65,203,460 61,574,548
=========== =========== ===========
NET INCOME $ 74,840 $ 49,301 $ 29,849
=========== =========== ===========
EARNINGS PER SHARE:
Basic $ 1.19 $ 0.82 $ 0.52
=========== =========== ===========
Diluted $ 1.11 $ 0.76 $ 0.48
=========== =========== ===========
Basic earnings per share have been computed by dividing net income by weighted
average shares outstanding.
Diluted earnings per share has been computed by dividing net income by weighted
average shares and assumed incremental shares. Assumed incremental shares were
computed using the treasury stock method. The average common stock market price
for the period was used to determine the number of incremental shares.
<PAGE>
EXHIBIT 12.1
AMERICREDIT CORP.
STATEMENT RE COMPUTATION OF RATIOS
(dollars in thousands)
Years Ended June 30,
--------------------------------------------
1999 1998 1997
---- ---- ----
COMPUTATION OF EARNINGS:
Income before
income taxes $121,690 $ 80,162 $48,534
Interest expense (none
capitalized) 38,792 27,135 16,312
-------- -------- -------
$160,482 $107,297 $64,846
======== ======== =======
COMPUTATION OF FIXED CHARGES:
Interest expense $ 38,792 $ 27,135 $16,312
-------- -------- -------
$ 38,792 $ 27,135 $16,312
======== ======== =======
RATIO OF EARNINGS TO
FIXED CHARGES 4.1x 4.0x 4.0x
======== ======== =======
<PAGE>
EXHIBIT 13.1
Corporate Profile
AmeriCredit is a national consumer finance company specializing in purchasing,
securitizing and servicing automobile loans, and originating and selling
mortgage loans. Through its branch network, the Company purchases loans made by
franchised and select independent dealers to consumers buying late-model used
and, to a lesser extent, new automobiles.
AmeriCredit targets borrowers who are typically unable to obtain "traditional"
financing, and uses advanced techniques to evaluate applicants' credit profiles
and predict default risk. The Company funds its auto lending activities
primarily through the sale of loans in securitization transactions. Its
automobile loan portfolio is serviced at regional centers using automated
servicing and collection systems.
Letter to Shareholders
Fiscal 1999 was a year of significant accomplishment for AmeriCredit. We
aggressively expanded our market share while achieving record profitability,
better asset quality and higher returns on managed assets. Through our
proprietary processes and systems developed over the past seven years, we have
attained the leadership position in non-prime auto finance. This success
provides AmeriCredit the momentum to advance to the next level. Our focus for
fiscal 2000 and beyond is to further capitalize on the growth opportunities in
our markets and leverage our core competencies to raise profitability and return
on assets even higher.
Fiscal 1999 Results
AmeriCredit reported record net income of $74.8 million for fiscal 1999, an
increase of 52% over net income of $49.3 million in fiscal 1998. On a per-share
basis, fiscal 1999 earnings grew 46% to $1.11 from $0.76 last year. The fourth
quarter of fiscal 1999 marked our 21st consecutive quarter of increased
earnings.
As an alternative measure of our financial performance, we are now reporting pro
forma "portfolio-based" earnings data. This data presents our operating results
as if AmeriCredit were a portfolio lender, essentially excluding the effects of
gain on sale accounting. Pro forma "portfolio-based" earnings, which are growing
faster than our traditional earnings measure, were $53.8 million, or $0.80 per
share for fiscal 1999, compared to $23.3 million, or $0.36 per share for the
prior fiscal year.
Return on managed assets, a key metric we use internally to assess our operating
results, increased to 1.7% in fiscal 1999 from 1.4% in fiscal 1998.
Strong asset growth, operating efficiency and effective risk management continue
to be the primary drivers of our favorable performance trends.
1
<PAGE>
Asset Growth
AmeriCredit's managed auto receivables grew 78% during the year to $4.1 billion
at June 30, 1999. We purchased $2.9 billion of receivables during fiscal 1999,
compared to $1.7 billion last year, an increase of 71%. Loan volume benefited
from new branch office openings as well as market share gains in existing
locations. In fact, mature offices produced 17% more loan volume during fiscal
1999 than in fiscal 1998.
We opened 47 offices during fiscal 1999, including our first two branches in
Canada, bringing the total to 176 locations. Our branch network serviced 12,590
auto dealers in fiscal 1999, up from 9,204 dealers last year.
As a result of the strong market share growth we are experiencing and the
significant volume opportunities presented by our strategic alliances, we expect
to open only 19 additional branches during fiscal 2000 in order to achieve our
growth targets.
AmeriCredit's Strategic Alliance Group added six new partners in the past 12
months, bringing the total to 10 at year end. Our alliance partners consist of
six large auto dealer groups and four banks, including Chase Manhattan Bank. The
alliance with Chase began this past March with the introduction of a pilot joint
marketing program targeted to select auto dealers in Texas. Because of its
success, Chase and AmeriCredit will soon expand the program to include pilots in
Chase's five other regions across the country. We have also recently implemented
an interface to receive credit applications electronically from Chase. As
Chase's only non-prime auto lending partner, AmeriCredit stands to benefit from
Chase's excellent reputation with auto dealers nationwide.
In fiscal 2000, we will also launch a direct lending initiative soliciting
existing AmeriCredit customers as well as other prescreened consumers to obtain
their next car loan from us. This strategy not only represents a new growth
opportunity, but will also help the auto dealers we service by directing
preapproved customers to their retail sites.
Operating Efficiency
Our strategy of using technology throughout the business, coupled with our
increased scale of operations, allowed us to once again lower our cost ratio.
AmeriCredit's ratio of operating expenses to average managed auto receivables
dropped to 5.0% for fiscal 1999 from 5.4% the previous year. We expect to see
further improvements in fiscal 2000 as we continue to benefit from economies of
scale and technology initiatives.
We made investments in fiscal 1999 to speed the credit approval process with the
installation of our new application processing system, reducing application
2
<PAGE>
turn time by 50% to less than one hour on average. This system, coupled with
additional technology installed in each branch location, also allowed us to
decrease funding time to as little as one day in most cases. We deployed
enhanced behavioral assessment models and a new state-of-the-art predictive
dialing system in the collection process to increase collector efficiency and
aid customer service efforts.
Our technology initiatives for fiscal 2000 include greater use of the Internet
to exchange information with auto dealers and consumers. We are also designing a
strategy to accept and decision loan applications via the Internet.
Risk Management
AmeriCredit's key competitive strength remains our ability to effectively manage
credit risk and price loans to achieve a consistent return. We again
demonstrated our risk management competency by significantly growing loan volume
in fiscal 1999 while at the same time lowering credit risk in the portfolio.
Net charge-offs declined to 4.7% of average managed auto receivables for fiscal
1999 from 5.3% for fiscal 1998. Our annualized charge-off rate of 4.5% for the
fourth quarter of fiscal 1999 was at its lowest level in four years. Accounts
more than 60 days past due at June 30, 1999, also decreased to 1.8% from 2.6% at
June 30, 1998.
This improvement in credit quality is the result of further enhancements to our
proprietary risk management tools as well as a greater concentration of lower-
risk consumers in our portfolio. Through our data-mining initiatives, we created
our third-generation family of scorecards and installed these new models in
February 1999. This family of scorecards segments the application base into
groups of accounts with similar profiles, thus increasing predictive
capabilities. We will seek to refine our scoring models further next year
through ongoing data collection and analysis.
Financing Activities
Fiscal 1999 was an active year for us in the capital markets. We increased our
warehouse credit lines to over $1 billion at year end from $510 million at June
30, 1998, securing commitments from additional financial institutions and
lowering our cost of funding by putting in place another commercial paper
conduit facility.
We again accessed the public asset-backed securities market on a quarterly
basis, raising $2.9 billion in four transactions, including our first $1 billion
transaction in May 1999. AmeriCredit's consistent asset performance was
3
<PAGE>
a factor in enabling us to sell asset-backed securities last fall, a time when
other independent finance companies were unable to raise new capital.
In April 1999, AmeriCredit issued an additional $200 million of senior notes in
a transaction which was expanded from the original intended size due to strong
investor demand. Finally, we sold 8,000,000 common shares through a follow-on
public offering in August 1999, raising $97 million in equity capital. The
proceeds from the senior notes and equity offering provide us with sufficient
long-term capital to fund our growth plans for the next several years.
Outlook
AmeriCredit has distanced itself from the competition over the past seven years
and has solidified its position as the preferred non-prime lender for auto
dealers across the country. Our proven ability to assess and price credit risk
and deliver superior service to our dealer customers provides us with a
sustainable competitive advantage.
We believe our track record and capacity for future growth have created greater
value than the equity capital markets have recognized heretofore. For our part,
we remain committed to growing our market share and driving our profitability
and return on managed assets higher. We will also strive to thoroughly
communicate our performance to the investment community. While confident that we
are building the foundation for long-term shareholder value, our challenge is to
translate our operating successes into a higher stock price.
I want to thank our employees, customers and shareholders for their loyalty and
support. AmeriCredit's success is a direct result of their ongoing commitment.
Sincerely,
Clifton H. Morris, Jr.
Chairman of the Board and Chief Executive Officer
September 8, 1999
4
<PAGE>
Expanding
Over $600 billion of auto loans and leases were originated in the U.S. in 1998,
including almost $200 billion to consumers with less-than-perfect credit. This
market continues to grow at a steady 6% to 7% rate, creating enormous
opportunity for lenders who have the expertise and the resources to keep up the
pace. Lenders like AmeriCredit.
AmeriCredit's strategy for capturing more of this growing market is proving
successful.
We continue adding new branches to our network across the U.S. and in Canada.
The branch network has grown from five offices in 1993 to 176 offices in 41
states and two provinces at June 30, 1999. AmeriCredit branch offices market our
loan products and deliver distinctive services to auto dealers. Our local market
presence enables our people to frequently visit dealers in order to solidify
relationships and better understand dealers' needs. We strive to provide
personalized responsive service that goes beyond the expectation of our dealer
customers.
New marketing opportunities have been created through strategic alliances with
large dealer groups and banks, diversifying our sources for loan applications.
Our Strategic Alliance group, formed in fiscal 1998, has already successfully
developed 10 major alliances with notable partners, resulting in added loan
volume for our branch network.
Our biggest success in expanding market share has been growth in loan volume at
our mature branches. Dealers have rewarded us for our innovative products and
services by giving us a greater share of their business. In recent market
research sponsored by AmeriCredit, a resounding 69% of dealers surveyed said
AmeriCredit was their first choice among non-prime lenders.
Evolving
At our heart, we are a technology company - one that just happens to be in the
finance business. Information technology is unquestionably the major element in
reshaping the way business is done. Our commitment to provide superior service
while managing credit risk is successful thanks to our use of advanced
technology throughout the company. The resulting innovations deliver greater
operational efficiencies, enabling us to be a low-cost provider.
AmeriCredit's technology platform supports our strategies and is key to our
leadership.
Our market research has shown that speed -- for loan decisions and funding -- is
a high priority for our dealer customers. With this feedback in mind, we
recently installed an application processing system scaleable to accommodate
future growth. This system allows AmeriCredit branches to receive, process,
5
<PAGE>
evaluate and return decisions on loan applications in less than an hour on
average. Optical-imaging technology deployed in the branch network and the use
of electronic funds transfer complete the picture, reducing loan funding time to
as little as one day.
The new application processing system enables us to deploy our third generation
of credit scorecards. Our credit scorecards are unique to the industry and give
us unmatched ability to understand applicants' credit profiles and predict
default risk.
Our support operations also reap the benefits of advanced technology. Our
customer service group utilizes voice-response technology and an automated
dialer for greatly improved speed and efficiency, which translates into a higher
level of customer care. Although we service loans through regional sites, our
systems allow centralized control and provide backup capability.
Refining
We employ proprietary, empirically based scoring models in the loan approval
process. The use of scoring, rather than a judgmental process, allows for
systemwide consistency in underwriting, regardless of where the underwriter sits
in the process. The credit score generated on a loan application corresponds to
the risk of the loan, allowing us to price each loan to achieve profitability
goals.
AmeriCredit's wealth of information and proprietary credit scorecards help us
predict risk -- and identify opportunity.
With more than $6 billion in loan volume since our inception seven years ago,
AmeriCredit has captured key characteristics - such as application data, credit
bureau statistics, loan structure information and repayment performance - on
every loan. Mining this proprietary data resource allows us to develop
statistical models for more effective credit underwriting and portfolio
management.
We recently implemented our third generation of proprietary credit scoring
models. These segmented scorecards enhance our ability to identify certain
consumer profiles that, when isolated, exhibit more similar behavior than the
entire population. For example, some models assess applicants who have filed
bankruptcy in the past, while other models evaluate applicants with extensive
credit history.
After the loan is in place, we continue to use data mining to generate behavior
scores, which equate to the likelihood of default at the individual loan level.
These programs factor in consumer payment patterns and changes in the consumer
credit bureau ratings. Behavior scores allow AmeriCredit to target higher-risk
6
<PAGE>
accounts for more aggressive and frequent collection efforts, making the most
efficient use of our collection resources.
Data mining also gives us insight about new marketing opportunities that we can
reach through broadened product offerings or targeted underwriting strategies.
7
<PAGE>
AMERICREDIT CORP.
SUMMARY FINANCIAL AND OPERATING INFORMATION
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------------------
June 30, June 30, June 30, June 30, June 30,
1999 1998(a) 1997(a) 1996 (a) 1995 (b)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Data
Auto loan originations $ 2,879,796 $ 1,737,813 $ 906,794 $ 432,442 $ 230,176
Finance charge income 75,288 55,837 44,910 51,706 30,249
Gain on sale of receivables 169,892 103,194 52,323 21,405
Servicing fee income 85,966 47,910 23,492 3,892
Income before
income taxes 121,690 80,162 48,534 32,913 10,018
Net income 74,840 49,301 29,849 20,765 28,893
Diluted earnings per
share 1.11 0.76 0.48 0.34 0.48
Weighted average shares
and assumed incremental
shares 67,191,235 65,203,460 61,574,548 60,406,596 60,761,498
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30, June 30, June 30, June 30,
1999 1998(a) 1997(a) 1996(a) 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents $ 21,189 $ 33,087 $ 6,027 $ 2,145 $ 18,314
Receivables held for sale, net 456,009 342,853 266,657 250,484 221,888
Credit enhancement assets 494,862 286,309 161,395 41,736
Total assets 1,063,487 713,671 475,493 329,333 285,725
Senior notes 375,000 175,000 125,000
Total liabilities 663,757 425,823 267,232 166,934 138,499
Shareholders' equity 399,730 287,848 208,261 162,399 147,226
Managed auto receivables 4,105,468 2,302,516 1,138,255 523,981 240,491
</TABLE>
(a) The Company restated its financial statements for fiscal 1998, 1997 and 1996
as a result of a retroactive change in the method of measuring and
accounting for credit enhancement assets.
(b) The Company recognized an income tax benefit in fiscal 1995 equal to the
expected future tax savings from using its net operating loss.
8
<PAGE>
FINANCIAL REVIEW
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 of 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. The acquisition was accounted for as
a purchase and the results of operations for AMS have been included in the
consolidated financial statements since the acquisition date. Receivables
originated in this business are referred to as mortgage receivables. Such
receivables are generally packaged and sold for cash on a servicing released
whole-loan basis. The Company recognizes a gain at the time of sale.
9
<PAGE>
RESULTS OF OPERATIONS
Year Ended June 30, 1999 as compared to
- ---------------------------------------
Year Ended June 30, 1998
------------------------
Revenue
The Company's average managed receivables outstanding consisted of the following
(in thousands):
Years Ended
---------------------------------
June 30, June 30,
1999 1998
---- ----
Auto:
Held for sale $ 320,962 $ 250,304
Serviced 2,808,501 1,399,112
---------- ----------
3,129,463 1,649,416
Mortgage 26,785 18,728
---------- ----------
$3,156,248 $1,668,144
========== ==========
Average managed receivables outstanding increased by 89% as a result of higher
loan purchase volume. The Company purchased $2,879.8 million of auto loans
during fiscal 1999, compared to purchases of $1,737.8 million during fiscal
1998. This growth resulted from increased 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 June 30, 1997, was 17% higher in
fiscal 1999 versus fiscal 1998. The Company operated 176 auto lending branch
offices as of June 30, 1999, compared to 129 as of June 30, 1998.
The Company originated $297.5 million of mortgage loans during fiscal 1999,
compared to $137.2 million during fiscal 1998.
Finance charge income consisted of the following (in thousands):
Years Ended
-----------------------------
June 30, June 30,
1999 1998
---- ----
Auto $ 72,749 $ 54,125
Mortgage 2,539 1,712
-------- --------
$ 75,288 $ 55,837
======== ========
10
<PAGE>
The increase in finance charge income is primarily due to an increase of 28%
in average auto receivables held for sale in fiscal 1999 versus fiscal 1998. In
addition, the Company's effective yield on its auto receivables held for sale
increased to 22.7% for fiscal 1999 from 21.6% for fiscal 1998. The effective
yield is higher than the contractual rates of the Company's auto finance
contracts primarily 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
rose for fiscal 1999 due to increased auto loan purchases and correspondingly
higher levels of finance charges earned between the origination date and funding
date.
The gain on sale of receivables consisted of the following (in thousands):
Years Ended
-------------------------------
June 30, June 30,
1999 1998
---- ----
Auto $162,353 $ 98,842
Mortgage 7,539 4,352
-------- --------
$169,892 $103,194
======== ========
The increase in gain on sale of auto receivables resulted from the sale of
$2,770.0 million of receivables in fiscal 1999, compared to $1,637.5 million of
receivables sold in fiscal 1998. The gains amounted to 5.9% and 6.0% of the
sales proceeds for fiscal 1999 and 1998, respectively.
Significant assumptions used in determining the gain on sale of auto receivables
were as follows:
Years Ended
-------------------------
June 30, June 30,
1999 1998
---- ----
Cumulative credit losses (including 11.2% 11.3%
deferred gains)
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%
11
<PAGE>
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 interest-only receivables
for credit enhancement purposes.
The increase in gain on sale of mortgage receivables resulted from the sale of
$294.1 million of receivables in fiscal 1999, compared to $119.7 million of
receivables sold in fiscal 1998. The average net premium received on sales
decreased to 2.6% for fiscal 1999 from 3.6% for fiscal 1998 because of lower
prices for non-conforming mortgage loans in the secondary markets.
Servicing fee income increased to $86.0 million for fiscal 1999, compared to
$47.9 million for fiscal 1998. Servicing fee income decreased as a percentage
of average serviced auto receivables to 3.1% in fiscal 1999 from 3.4% in fiscal
1998, as a result of charges 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 fiscal 1999 and 1998 also includes charges of $20.1 million and
$8.9 million, respectively, to increase credit loss reserves related to certain
of the Company's fiscal 1997 and 1996 securitization transactions since the
Company's current estimates of cumulative credit losses for these transactions
exceed the original estimates. The Company raised the assumptions for
cumulative credit losses for securitization transactions completed during fiscal
1999 and 1998 compared to assumptions used for transactions completed in prior
fiscal years. The growth in servicing fee income exclusive of the
aforementioned charges is attributable to the increase in average serviced auto
receivables outstanding for fiscal 1999 compared to fiscal 1998.
Costs and Expenses
Operating expenses as a percentage of average managed receivables outstanding
decreased to 5.3% (5.0% excluding operating expenses of $9.3 million related to
AMS) for fiscal 1999, compared to 5.7% (5.4% excluding operating expenses of
$5.1 million related to AMS) for fiscal 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 $70.9 million, or 75%, primarily due to the
addition of auto lending branch offices and management and auto loan processing
and servicing staff.
12
<PAGE>
The provision for losses increased to $9.6 million for fiscal 1999 from $7.6
million for fiscal 1998 due to higher average amounts of receivables held for
sale. As a percentage of average receivables held for sale, the provision for
losses was 3.0% for fiscal 1999 and 1998.
Interest expense increased to $38.8 million for fiscal 1999 from $27.1 million
for fiscal 1998 due to higher debt levels. Average debt outstanding was $443.3
million and $297.6 million for fiscal 1999 and 1998, respectively. The
Company's effective rate of interest paid on its debt decreased to 8.8% from
9.1% as a result of greater use of commercial paper facilities, which have a
lower cost than the Company's other forms of balance sheet debt.
The Company's effective income tax rate was 38.5% for fiscal 1999 and 1998.
13
<PAGE>
RESULTS OF OPERATIONS
Year Ended June 30, 1998 as compared to
- ---------------------------------------
Year Ended June 30, 1997
------------------------
Revenue
The Company's average managed receivables outstanding consisted of the following
(in thousands):
Years Ended
-----------------------------------------------------
June 30, June 30,
1998 1997
---- ----
Auto:
Held for sale $ 250,304 $223,351
Serviced 1,399,112 568,804
---------- --------
1,649,416 792,155
Mortgage 18,728 8,187
---------- --------
$1,668,144 $800,342
========== ========
Average managed receivables outstanding increased by 108% as a result of
higher loan purchase volume. The Company purchased $1,737.8 million of auto
loans during fiscal 1998, compared to purchases of $906.8 million during fiscal
1997. This growth resulted from increased 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 June 30, 1996, was 22% higher in
fiscal 1998 versus fiscal 1997. The Company operated 129 auto lending branch
offices as of June 30, 1998, compared to 85 as of June 30, 1997.
The Company originated $137.2 million of mortgage loans during fiscal 1998,
compared to $53.8 million from the date of acquisition of AMS through June 30,
1997.
Finance charge income consisted of the following (in thousands):
Years Ended
-------------------------------------------------
June 30, June 30,
1998 1997
---- ----
Auto $54,125 $44,417
Mortgage 1,712 493
------- -------
$55,837 $44,910
======= =======
14
<PAGE>
The increase in finance charge income is primarily due to an increase of 12%
in average auto receivables held for sale in fiscal 1998 versus fiscal 1997. In
addition, the Company's effective yield on its auto receivables held for sale
increased to 21.6% for fiscal 1998 from 19.9% for fiscal 1997. 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 effective yield rose for
fiscal 1998 due to increased auto loan purchases and correspondingly higher
levels of finance charges earned between the origination date and funding date.
The gain on sale of receivables consisted of the following (in thousands):
Years Ended
--------------------------------------------------
June 30, June 30,
1998 1997
---- ----
Auto $ 98,842 $49,405
Mortgage 4,352 2,918
-------- -------
$103,194 $52,323
======== =======
The increase in gain on sale of auto receivables resulted from the sale of
$1,637.5 million of receivables in fiscal 1998, compared to $817.5 million of
receivables sold in fiscal 1997. The gains amounted to 6.0% of the sales
proceeds for both fiscal 1998 and 1997.
Significant assumptions used in determining the gain on sale of auto receivables
were as follows:
Years Ended
-----------------------------
June 30, June 30,
1998 1997
---- ----
Cumulative credit losses (including 11.3% 9.8%
deferred gains)
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
15
<PAGE>
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 interest-only receivables
for credit enhancement purposes.
The increase in gain on sale of mortgage receivables resulted from the sale of
$119.7 million of receivables in fiscal 1998, compared to $52.5 million of
receivables sold from the date of acquisition of AMS through June 30, 1997. The
average net premium received on sales decreased to 3.6% for fiscal 1998 from
5.6% for the period from the date of acquisition of AMS through June 30, 1997,
because of lower prices for non-conforming mortgage loans in the secondary
markets.
Servicing fee income increased to $47.9 million for fiscal 1998, compared to
$23.5 million for fiscal 1997. Servicing fee income decreased as a percentage
of average serviced auto receivables to 3.4% in fiscal 1998 from 4.1% in fiscal
1997, as a result of charges 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 fiscal 1998 also includes an $8.9 million charge to increase
credit loss reserves related to certain of the Company's fiscal 1997 and 1996
securitization transactions since the Company's current estimates of cumulative
credit losses for these transactions exceed the original estimates. The Company
raised the assumptions for cumulative credit losses for securitization
transactions completed during fiscal 1998 compared to assumptions used for
transactions completed in prior fiscal years. The growth in servicing fee
income exclusive of the aforementioned charge is attributable to the increase in
average serviced auto receivables outstanding for fiscal 1998 compared to fiscal
1997.
Costs and Expenses
Operating expenses as a percentage of average managed receivables outstanding
decreased to 5.7% (5.4% excluding operating expenses of $5.1 million related to
AMS) for fiscal 1998, compared to 6.6% (6.2% excluding operating expenses of
$2.6 million related to AMS) for fiscal 1997. 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 $42.6 million, or 82%, 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 $7.6 million for fiscal 1998 from $6.6
million for fiscal 1997 due to higher average amounts of receivables held for
sale. As a percentage of average receivables held for sale, the provision for
losses was 3.0% for fiscal 1998 and 1997.
16
<PAGE>
Interest expense increased to $27.1 million for fiscal 1998 from $16.3 million
for fiscal 1997 due to higher debt levels and effective interest rates. Average
debt outstanding was $297.6 million and $187.6 million for fiscal 1998 and 1997,
respectively. The Company's effective rate of interest paid on its debt
increased to 9.1% from 8.7% as a result of the issuance of senior notes in
February 1997 and January 1998, 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 fiscal 1998 and 1997.
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 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.
17
<PAGE>
The pro forma "portfolio-based" earnings data were as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Finance charge, fee and other income $ 621,048 $ 340,951 $167,413
Funding costs (220,958) (120,546) (52,639)
--------- --------- --------
Net margin 400,090 220,405 114,774
Operating expenses (165,345) (94,484) (51,915)
Credit losses (147,344) (88,002) (43,231)
--------- --------- --------
Pre-tax "portfolio-based" income 87,401 37,919 19,628
Income taxes (33,649) (14,599) (7,557)
--------- --------- --------
Net "portfolio-based" income $ 53,752 $ 23,320 $ 12,071
========= ========= ========
Diluted "portfolio-based"
earnings per share $ 0.80 $ 0.36 $ 0.20
========= ========= ========
</TABLE>
The pro forma return on managed assets for the Company's auto business was as
follows:
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Finance charge, fee and other income 19.5% 20.3% 20.7%
Funding costs (7.0) (7.2) (6.6)
---- ---- ----
Net margin 12.5 13.1 14.1
Operating expenses (5.0) (5.4) (6.2)
Credit losses (4.7) (5.3) (5.5)
---- ---- ----
Pre-tax return on managed assets 2.8 2.4 2.4
Income taxes (1.1) (1.0) (1.0)
---- ---- ----
Return on managed assets 1.7% 1.4% 1.4%
==== ==== ====
</TABLE>
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
18
<PAGE>
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 over the expected 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 has been 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 in
securitization transactions, provision 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):
<TABLE>
<CAPTION>
June 30,
1999
-----------------------------------------------------------------------------
Held For Sale
----------------------------------------- Auto Managed Auto
Auto Mortgage Total Serviced Portfolio
---- -------- ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Principal amount of receivables $ 444,128 $ 23,722 $ 467,850 $ 3,661,340 $ 4,105,468
----------- -----------
Allowance for losses (11,841) (11,841) $ (354,338) (a) $ (366,179)
--------- -------- --------- ----------- -----------
Receivables, net $ 432,287 $ 23,722 $ 456,009
========= ======== =========
Number of outstanding contracts 33,815 310 332,447 366,262
====== === ======= =======
Average principal amount of
outstanding contract
(in dollars) $ 13,134 $ 76,523 $ 11,013 $ 11,209
======== ======== ======== =========
Allowance for losses as a
percentage of receivables 2.7% 9.7% 8.9%
==== ==== ====
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
June 30,
1998
---------------------------------------------------------------------------
Held For Sale
----------------------------------------- Auto Managed Auto
Auto Mortgage Total Serviced Portfolio
---- -------- ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Principal amount of receivables $ 334,110 $ 21,499 $ 355,609 $ 1,968,406 $ 2,302,516
=========== ===========
Allowance for losses (12,756) (12,756) $ (179,359) (a) $ (192,115)
--------- --------- --------- =========== ===========
Receivables, net $ 321,354 $ 21,499 $ 342,853
========= ========= =========
Number of outstanding contracts 26,035 187 187,514 213,549
====== === ======= =======
Average principal amount of
outstanding contract
(in dollars) $ 12,833 $ 114,968 $ 10,497 $10,782
========= ========= ======== =======
Allowance for losses as a
percentage of receivables 3.8% 9.1% 8.3%
==== ==== ====
</TABLE>
(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.
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):
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
----------------------------- ----------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Delinquent contracts:
31-60 days $ 277,592 6.8% $ 126,012 5.5%
Greater than 60 days 73,512 1.8 59,175 2.6
------ --- ------- ---
351,104 8.6 185,187 8.1
In repossession 37,773 0.9 18,818 0.8
------ --- ------- ---
$ 388,877 9.5% $ 204,005 8.9%
========= ==== ========== ====
</TABLE>
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 4.6%, 4.5% and 4.3% for the years ended June 30, 1999, 1998 and
1997, respectively. 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.
20
<PAGE>
The following table presents charge-off data with respect to the Company's
managed auto receivables portfolio (in thousands):
Years Ended
---------------------------------------
June 30, June 30, June 30,
1999 1998 1997
-------- ------- -------
Net charge-offs:
Held for sale $ 8,046 $ 9,140 $16,965
Serviced 139,298 78,862 26,266
-------- ------- -------
$147,344 $88,002 $43,231
======== ======= =======
Net charge-offs as a percentage
of average managed auto
receivables outstanding 4.7% 5.3% 5.5%
==== ==== ====
Net recoveries as a percentage
of gross repossession charge-
offs 52.2% 50.6% 50.5%
===== ===== =====
Delinquencies and charge-offs 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows are summarized as follows (in thousands):
Years Ended
--------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
Operating activities $ 43,647 $ 37,813 $ 36,003
Investing activities (207,725) (144,868) (92,947)
Financing activities 152,180 134,115 60,826
--------- -------- ------
Net increase (decrease) in
cash and cash equivalents $ (11,898) $ 27,060 $ 3,882
========== ======== ========
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 the issuance of senior notes. 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 $2,879.8 million, $1,737.8 million and $906.8 million of
auto finance contracts during the years ended June 30, 1999, 1998 and 1997,
21
<PAGE>
requiring cash of $2,868.6, $1,713.6 million and $870.0 million, respectively,
net of acquisition fees and other items. These purchases were funded initially
utilizing warehouse credit facilities and subsequently through the sale of
receivables in securitization transactions
In September 1998, the Company renewed a 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 from $245 million to $505 million. The
Company utilizes this facility to fund auto receivables pending securitization.
The facility matures in September 1999. A total of $94.4 million was outstanding
under this facility as of June 30, 1999.
In March 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 $150 million of structured warehouse
financing is available. During June 1999, this facility was increased to $375
million with the inclusion of two additional financial institutions. The Company
utilizes this facility to fund auto receivables pending securitization. The
facility matures in March 2000. There were no outstanding balances under this
facility as of June 30, 1999.
In addition, in March 1999, the Company renewed a revolving credit agreement
with a group of banks that provides for borrowings of up to $115 million,
subject to a defined borrowing base. The Company utilizes the line of credit to
fund its auto lending activities and daily operations. The facility matures in
March 2000. There were no outstanding balances under this credit agreement as of
June 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 $1.3 million was outstanding under the Canadian facility as of June 30, 1999.
In July 1999, the Company renewed a mortgage warehouse facility with a bank and
decreased the amount that the Company may borrow from $75 million to $25
million, subject to a defined borrowing base. The Company utilizes this facility
to fund mortgage loan originations. The facility expires in July 2000. A total
of $19.0 million was outstanding under the mortgage facility as of June 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
22
<PAGE>
could be a material adverse effect on the Company's financial position, results
of operations and liquidity.
The Company has completed seventeen auto receivables securitization transactions
through June 30, 1999. The proceeds from the transactions were primarily used to
repay borrowings outstanding under the Company's warehouse credit facilities.
A summary of these transactions is as follows:
Original Balance at
Amount June 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 $ 14.6
1996-C August 1996 175.0 18.5
1996-D November 1996 200.0 44.7
1997-A March 1997 225.0 64.3
1997-B May 1997 250.0 84.3
1997-C August 1997 325.0 133.2
1997-D November 1997 400.0 193.5
1998-A February 1998 425.0 235.8
1998-B May 1998 525.0 329.6
1998-C August 1998 575.0 414.3
1998-D November 1998 625.0 501.2
1999-A February 1999 700.0 623.0
1999-B May 1999 1,000.0 970.7
------- -----
$ 5,845.5 $3,627.7
========= ========
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 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. 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.
23
<PAGE>
Initial deposits to restricted cash accounts were $82.8 million, $56.7 million
and $71.4 million for the years ended June 30, 1999, 1998 and 1997,
respectively. Excess cash flows distributed to the Company were $44.5 million,
$43.8 million and $19.3 million for the years ended June 30, 1999, 1998 and
1997, respectively. In addition, the Company received $23.0 million representing
a return of deposits from restricted cash accounts during the year ended June
30, 1999.
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 June 30, 1999,
none of the Company's securitizations had delinquency, default and net loss
ratios in excess of the targeted levels.
The Company has outstanding $175.0 million of 9.25% Senior Notes that are due
in February 2004. Interest on the notes is payable semiannually in February and
August. The notes, which are unsecured, may be redeemed at the option of the
Company after February 2001 at a premium declining to par in February 2003.
During 1999, the Company issued $200.0 million of 9.875% Senior Notes that are
due in April 2006. Interest on the notes is payable semiannually in April and
October. The notes, which are unsecured, may be redeemed at the option of the
Company after April 2003 at a premium declining to par in April 2005.
The Company operated 176 auto lending branch offices as of June 30, 1999. The
Company intends to open 19 additional branch offices in 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 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 June 30, 1999, the Company had $21.2 million in cash and cash equivalents.
The Company also had available borrowing capacity of $276 million under its
warehouse credit facilities pursuant to the borrowing base requirements of such
agreements. In addition, the Company issued 8,000,000 shares of its common stock
in a public offering in August 1999 for net proceeds of approximately $96.6
million. The Company anticipates 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 securitization
transactions, renewal and expansion of its existing warehouse credit facilities
and implementation of other 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.
24
<PAGE>
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 uses several strategies to minimize interest rate risk, including
the utilization of derivative financial instruments, the regular sale of auto
receivables 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 the 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. All transactions are entered into for
purposes other than trading.
The Company made cash payments of $5.8 million, $7.0 million and $0.9 million
during the years ended June 30, 1999, 1998, and 1997, respectively, to settle
Forward U.S. Treasury rate lock agreements. These amounts were included in the
25
<PAGE>
gain on sale of receivables in securitization transactions and are recovered
over time through a higher gross interest rate spread on the related
securitization transaction. There were no outstanding Forward U.S. Treasury rate
lock agreements as of June 30, 1999.
The table below provides information about the Company's derivative financial
instruments by expected maturity date as of June 30, 1999 (dollars in
thousands). Notional amounts, which are used to calculate the contractual
payments to be exchanged under the contracts, represent average amounts that
will be outstanding for each of the years included in the table. Notional
amounts do not represent amounts exchanged by parties and, thus, are not a
measure of the Company's exposure to loss through its use of these agreements.
<TABLE>
<CAPTION>
Years Ending
-----------------------------------------------------------
June 30, June 30, June 30, June 30, June 30,
2000 2001 2002 2003 2004 Fair Value
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
Notional amounts $ 860,835 $ 395,770 $ 203,094 $ 58,743 $ 557 $ 5,729 (a)
Average pay rate 5.82% 5.80% 5.75% 5.76% 5.62%
Average receive rate 5.60% 5.68% 5.73% 5.78% 5.92%
</TABLE>
(a) The fair value of the swaps is taken into consideration in the valuation of
the interest-only receivables from Trusts.
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.
26
<PAGE>
. 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.
. 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 will continue its testing
efforts until the year 2000. The Company will test the interfaces with
financial applications using year 2000 dates and scenarios. At the
conclusion of these tests, the systems will be "frozen" and no
additional development will be implemented until the year 2000. All
testing is estimated to be completed by September 1999.
. 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.
Through June 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.
27
<PAGE>
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the matters discussed
above are forward-looking statements that involve risks and uncertainties
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. Such statements are only predictions
and actual events or results may differ materially.
28
<PAGE>
AMERICREDIT CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
June 30, June 30,
1999 1998
---- ----
Cash and cash equivalents $ 21,189 $ 33,087
Receivables held for sale, net 456,009 342,853
Interest-only receivables from Trusts 191,865 131,694
Investments in Trust receivables 195,598 98,857
Restricted cash 107,399 55,758
Property and equipment,net 41,145 23,385
Other assets 50,282 28,037
----------- ----------
Total assets $ 1,063,487 $ 713,671
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Warehouse credit facilities $ 114,659 $ 165,608
Senior notes 375,000 175,000
Other notes payable 17,874 6,410
Accrued taxes and expenses 82,229 47,132
Deferred income taxes 73,995 31,673
----------- ----------
Total liabilities 663,757 425,823
----------- ----------
Commitments and contingencies (Note 7)
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;
71,498,474 and 69,272,948 shares issued 715 693
Additional paid-in capital 252,194 230,269
Accumulated other comprehensive income 21,410 7,234
Retained earnings 147,610 72,770
----------- ----------
421,929 310,966
Treasury stock, at cost (7,357,030 and
7,667,318 shares) (22,199) (23,118)
----------- ----------
Total shareholders' equity 399,730 287,848
----------- ----------
Total liabilities and shareholders' equity $ 1,063,487 $ 713,671
=========== ==========
The accompanying notes are an integral part
of these consolidated financial statements
29
<PAGE>
AMERICREDIT CORP.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands, except per share data)
Years Ended
-------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
Revenue
Finance charge income $ 75,288 $ 55,837 $ 44,910
Gain on sale of receivables 169,892 103,194 52,323
Servicing fee income 85,966 47,910 23,492
Other income 4,310 2,395 2,631
----------- ----------- -----------
335,456 209,336 123,356
----------- ----------- -----------
Costs and expenses
Operating expenses 165,345 94,484 51,915
Provision for losses 9,629 7,555 6,595
Interest expense 38,792 27,135 16,312
----------- ----------- -----------
213,766 129,174 74,822
----------- ----------- -----------
Income before income taxes 121,690 80,162 48,534
Income tax provision 46,850 30,861 18,685
----------- ----------- -----------
Net income 74,840 49,301 29,849
----------- ----------- -----------
Other comprehensive income
Unrealized gain on credit
enhancement assets 23,052 4,724 7,081
Less related income tax
provision (8,876) (1,845) (2,726)
----------- ----------- -----------
Comprehensive income $ 89,016 $ 52,180 $ 34,204
=========== =========== ===========
Earnings per share
Basic $ 1.19 $ 0.82 $ 0.52
=========== =========== ===========
Diluted $ 1.11 $ 0.76 $ 0.48
=========== =========== ===========
Weighted average shares
outstanding 63,005,746 60,188,788 57,774,724
=========== =========== ===========
Weighted average shares and
assumed incremental shares 67,191,235 65,203,460 61,574,548
=========== =========== ===========
The accompanying notes are an integral part
of these consolidated financial statements
30
<PAGE>
AMERICREDIT CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Treasury Stock
------------ Paid-in Comprehensive Retained --------------
Shares Amount Capital Income Earnings Shares Amount
------ ------ ------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 65,281,926 $ 653 $ 189,999 $ (6,380) 8,240,966 $(21,873)
Common stock issued on
exercise of options 1,228,420 14 5,639
Common stock issued for
acquisition 4,700 (800,000) 2,400
Income tax benefit from
exercise of options 2,652
Unrealized gain on credit
enhancement assets, net
of income taxes of $2,726 $ 4,355
Purchase of treasury stock 630,400 (4,387)
Common stock issued for
employee benefit plans 541 (153,224) 99
Net income 29,849
------------ ----------- ------------ ------------ ---------- ---------- ---------
Balance at June 30, 1997 66,510,346 667 203,531 4,355 23,469 7,918,142 (23,761)
Common stock issued on
exercise of options 2,762,602 26 15,994
Income tax benefit from
exercise of options 9,575
Unrealized gain on credit
enhancement assets, net
of income taxes of $1,845 2,879
Common stock issued for
employee benefit plans 1,169 (250,824) 643
Net income 49,301
------------ ----------- ------------ ------------ ---------- ---------- ---------
Balance at June 30, 1998 69,272,948 693 230,269 7,234 72,770 7,667,318 (23,118)
Common stock issued on
exercise of options 2,225,526 22 9,919
Income tax benefit from
exercise of options 9,918
Unrealized gain on credit
enhancement assets, net
of income taxes of $8,876 14,176
Common stock issued for
employee benefit plans 2,088 (310,288) 919
Net income 74,840
------------ ----------- ------------ ------------ ---------- ---------- ---------
Balance at June 30, 1999 71,498,474 $ 715 $ 252,194 $ 21,410 $ 147,610 7,357,030 $(22,199)
============= =========== ============ ============ ========== =========== =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
31
<PAGE>
AMERICREDIT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 74,840 $ 49,301 $ 29,849
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 12,645 4,498 2,203
Provision for losses 9,629 7,555 6,595
Deferred income taxes 43,364 30,974 18,886
Non-cash servicing fee income (12,525) (10,867) (7,991)
Non-cash gain on sale of auto receivables (157,757) (96,405) (52,534)
Distributions from Trusts 44,531 43,807 19,347
Changes in assets and liabilities:
Other assets (6,177) (3,324) (2,341)
Accrued taxes and expenses 35,097 12,274 21,989
----------- ----------- -----------
Net cash provided by operating
activities 43,647 37,813 36,003
----------- ----------- -----------
Cash flows from investing activities:
Purchases of auto receivables (2,868,633) (1,713,582) (869,975)
Originations of mortgage receivables (297,535) (137,169) (53,770)
Principal collections and recoveries on receivables 21,524 37,347 52,160
Net proceeds from sale of auto receivables 2,727,763 1,609,970 799,600
Net proceeds from sale of mortgage receivables 294,096 119,683 52,489
Initial deposits to restricted cash (82,750) (56,725) (71,400)
Return of deposits from restricted cash 23,000
Purchases of property and equipment (14,728) (9,456) (4,511)
Change in other assets (10,462) 5,064 2,460
----------- ----------- -----------
Net cash used by investing activities (207,725) (144,868) (92,947)
----------- ----------- -----------
Cash flows from financing activities:
Net change in warehouse credit facilities (50,949) 93,563 (17,264)
Net proceeds from issuance of senior notes 194,097 47,762 120,894
Payments on other notes payable (3,916) (25,042) (44,710)
Proceeds from issuance of common stock 12,948 17,832 6,293
Purchase of treasury stock (4,387)
----------- ----------- -----------
Net cash provided by financing activities 152,180 134,115 60,826
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (11,898) 27,060 3,882
Cash and cash equivalents at beginning of year 33,087 6,027 2,145
----------- ----------- -----------
Cash and cash equivalents at end of year $ 21,189 $ 33,087 $ 6,027
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
32
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
- ---------------------------------------------
History and Operations
- ----------------------
AmeriCredit Corp. ("the Company") was formed on August 1, 1986, and, since
September 1992, has been in the business of purchasing, securitizing and
servicing automobile sales finance contracts. The Company operated 176 auto
lending branch offices in 41 states and Canada as of June 30, 1999. The Company
also acquired a subsidiary in November 1996 which originates and sells mortgage
loans.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation. Certain prior year amounts have
been reclassified to conform to the current year presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
which affect the reported amounts of assets and liabilities and the disclosures
of contingent assets and liabilities as of the date of the financial statements
and the amount of revenue and costs and expenses during the reporting periods.
Actual results could differ from those estimates. These estimates include, among
other things, assumptions for cumulative credit losses, timing of cash flows,
discount rates and, to a lesser extent, anticipated prepayments on receivables
sold in securitization transactions and the determination of the allowance for
losses on receivables held for sale.
The Company's Board of Directors approved a two-for-one stock split on August 6,
1998, which was effected in the form of a 100% stock dividend for shareholders
of record on September 11, 1998, and paid on September 30, 1998. In connection
with the stock split, $347,000 was transferred from retained earnings to common
stock representing the par value of the additional shares issued. All share data
for the periods presented, except shares authorized, have been adjusted to
reflect the stock split on a retroactive basis.
Cash Equivalents
- ----------------
Investments in highly liquid securities with original maturities of 90 days or
less are included in cash and cash equivalents.
33
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Receivables Held for Sale
- -------------------------
Receivables held for sale are carried at the lower of cost or fair value.
Finance charge income related to receivables held for sale is recognized using
the interest method. Accrual of finance charge income is suspended on accounts
which are more than 60 days delinquent. Fees and commissions received and direct
costs of originating loans are deferred and amortized over the term of the
related receivables using the interest method.
Provisions for losses are charged to operations in amounts sufficient to
maintain the allowance for losses at a level considered adequate to cover
estimated losses which may occur in the receivables held for sale portfolio
prior to the sale of such receivables in securitization transactions. Automobile
sales finance contracts are typically purchased by the Company for a
non-refundable acquisition fee on a non-recourse basis, and such acquisition
fees are also added to the allowance for losses. The Company reviews historical
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 provision for
losses and the allowance for losses. Receivables are charged-off to the
allowance for losses when the Company repossesses and disposes of the collateral
or the account is otherwise deemed uncollectible.
Credit Enhancement Assets
- -------------------------
The Company periodically sells auto receivables to certain special purpose
financing trusts (the "Trusts"), and the Trusts in turn issue asset-backed
securities to investors. The Company retains an interest in the receivables sold
in the form of a residual or interest-only strip and may also retain other
subordinated interests in the receivables sold to the Trusts. The residual or
interest-only strip represents the present value of future excess cash flows
resulting from the difference between the finance charge income received from
the obligors on the receivables and the interest paid to the investors in the
asset-backed securities, net of credit losses, servicing fees and other
expenses.
Upon the transfer of receivables to the Trusts, the Company removes the net book
value of the receivables sold from its consolidated balance sheet and allocates
such carrying value between the assets transferred and the interests retained,
based upon their relative fair values at the settlement date. The difference
between the sales proceeds, net of transaction costs, and the allocated basis of
the assets transferred is recognized as a gain on sale of receivables.
34
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Enhancement Assets (cont.)
- ---------------------------------
The allocated basis of the interests retained is classified as either
interest-only receivables from Trusts, investments in Trust receivables or
restricted cash in the Company's consolidated balance sheet depending upon the
form of interest retained by the Company. These interests are collectively
referred to as credit enhancement assets.
Since the interests retained by the Company can be contractually prepaid or
otherwise settled in such a way that the holder would not recover all of its
recorded investment, these credit enhancement assets are classified as available
for sale and are measured at fair value. Unrealized holding gains or temporary
holding losses are reported net of income tax effects as a separate component of
shareholders' equity until realized. If a decline in fair value is deemed other
than temporary, the assets are written down through a charge to operations.
The fair value of credit enhancement assets is estimated by calculating the
present value of the excess cash flows from the Trusts using discount rates
commensurate with the risks involved. Such calculations include estimates of
cumulative credit losses and prepayment rates for the remaining term of the
receivables transferred to the Trusts since these factors impact the amount and
timing of future excess cash flows. If cumulative credit losses and prepayment
rates exceed the Company's original estimates, the assets are written down
through a charge to operations. Favorable credit loss and prepayment experience
compared to the Company's original estimates would result in additional earnings
when realized.
A financial guaranty insurance company (the "Insurer") has provided a financial
guaranty insurance policy for the benefit of the investors in each series of
asset-backed securities issued by the Trusts. In connection with the issuance of
the policies, the Company is required to establish a separate cash account with
a trustee for the benefit of the Insurer for each series of securities and
related receivables pools. Monthly cash collections from the pools of
receivables in excess of required principal and interest payments on the
asset-backed securities and servicing fees and other expenses are either added
to the restricted cash accounts or used to repay the outstanding asset-backed
securities on an accelerated basis, thus creating additional credit enhancement
through overcollateralization in the Trusts. This overcollateralization is
recognized as investments in Trust receivables in the Company's consolidated
balance sheet. When the credit enhancement levels reach specified percentages of
the pools of receivables, excess cash flows are distributed to the Company. In
the event that monthly cash collections from any pool of receivables are
insufficient to make required principal and interest payments to the investors
35
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Enhancement Assets (cont.)
- ---------------------------------
and pay servicing fees and other expenses, any shortfall would be drawn from the
restricted cash accounts.
Certain agreements with the Insurer provide that if delinquency, default and net
loss ratios in the pools of receivables supporting the asset-backed securities
exceed certain targets, the specified levels of credit enhancement would be
increased and, in certain cases, the Company would be removed as servicer of the
receivables.
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation is generally provided
on a straight-line basis over the estimated useful lives of the assets. The cost
of assets sold or retired and the related accumulated depreciation are removed
from the accounts at the time of disposition and any resulting gain or loss is
included in operations. Maintenance, repairs and minor replacements are charged
to operations as incurred; major replacements and betterments are capitalized.
Off Balance Sheet Financial Instruments
- ---------------------------------------
The Company periodically enters into arrangements to manage the gross interest
rate spread on its securitization transactions. These arrangements include the
use of Interest Rate Swap Agreements. The Interest Rate Swap Agreements are used
to convert the interest rates on floating rate securities issued by the Trusts
to fixed rates. The notional amounts of these agreements approximate the
outstanding balance of certain floating rate securities. The estimated
differential payments required under these agreements are recognized as a
component of the gain on sale of receivables at the time that receivables are
transferred to the Trusts. The current credit exposure under these agreements is
limited to the fair value of the agreements with a positive fair value at the
reporting date. The Company minimizes its counterparty risk by entering into
agreements only with highly rated counterparties.
36
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
- ------------
Deferred income taxes are provided in accordance with the asset and liability
method of accounting for income taxes to recognize the tax effects of temporary
differences between financial statement and income tax accounting.
Recent Accounting Developments
- ------------------------------
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), effective July 1, 1998. SFAS 130
establishes standards for reporting comprehensive income and its components in a
full set of financial statements. The new standard requires that all items that
are required to be recognized under accounting standards as components of
comprehensive income, including an amount representing total comprehensive
income, be reported in a financial statement that is displayed with the same
prominence as other financial statements. Pursuant to SFAS 130, the Company has
reported comprehensive income in the accompanying Consolidated Statements of
Income and Comprehensive Income. All prior periods have been restated to conform
to the requirements of SFAS 130.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The new standard requires that all derivatives be recognized as either assets or
liabilities in the consolidated balance sheet and that those instruments be
measured at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedging instrument. The accounting for changes in
the fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. This statement, as
amended, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. While the new standard will apply to the Company's derivative
financial instruments, the Company does not believe that adoption of SFAS 133
will have a material effect on the Company's consolidated financial position or
results of operations.
37
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Restatement
- --------------
On January 13, 1999, the Company issued a press release reporting a restatement
of its financial statements for the fiscal years ended June 30, 1998, 1997 and
1996. As required by the FASB Special Report, "A Guide to Implementation of
Statement 125 on Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, Second Edition," dated December 1998, and
related guidance set forth in statements made by the staff of the Securities and
Exchange Commission ("SEC") on December 8, 1998, the Company retroactively
changed its method of measuring and accounting for credit enhancement assets to
the cash-out method from the cash-in method.
Initial deposits to restricted cash accounts and subsequent cash flows received
by the Trusts sponsored by the Company accumulate as credit enhancement assets
until certain targeted levels are achieved, after which cash is distributed to
the Company on an unrestricted basis. Under the cash-in method previously used
by the Company, (i) the assumed discount period for measuring the present value
of credit enhancement assets ended when cash flows were received by the Trusts
and (ii) initial deposits to restricted cash accounts were recorded at face
value. Under the cash-out method required by the FASB and SEC, the assumed
discount period for measuring the present value of credit enhancement assets
ends when cash, including return of the initial deposits, is distributed to the
Company on an unrestricted basis.
The change to the cash-out method results only in a difference in the timing of
revenue recognition from a securitization and has no effect on the total cash
flows of such transactions. While the total amount of revenue recognized over
the term of a securitization transaction is the same under either method, the
cash-out method results in (i) lower initial gains on the sale of receivables
due to the longer discount period and (ii) higher subsequent servicing fee
income from accretion of the additional cash-out discount.
The restatement resulted in the following changes to prior period financial
statements (in thousands, except per share data):
Years Ended
--------------------------------
June 30, June 30, June 30,
1998 1997 1996
---- ---- ----
Revenue
Previous $227,940 $137,747 $ 80,978
As restated 209,336 123,356 79,635
38
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Restatement (cont.)
- ----------------------
Net income
Previous $ 60,741 $ 38,699 $ 21,591
As restated 49,301 29,849 20,765
Diluted earnings per share
Previous $0.93 $0.63 $0.36
As restated 0.76 0.48 0.34
Credit enhancement assets
(end of period)
Previous $321,199 $179,355 $ 43,079
As restated 286,309 161,395 41,736
Shareholders' equity (end of period)
Previous $306,161 $216,536 $163,225
As restated 287,848 208,261 162,399
3. Receivables Held for Sale
- ----------------------------
Receivables held for sale consist of the following (in thousands):
June 30, June 30,
1999 1998
---- ----
Auto receivables $444,128 $334,110
Less allowance for losses (11,841) (12,756)
-------- --------
Auto receivables, net 432,287 321,354
Mortgage receivables 23,722 21,499
-------- --------
$456,009 $342,853
========= ========
Auto receivables are collateralized by vehicle titles and the Company has the
right to repossess the vehicle in the event that the consumer defaults on the
payment terms of the contract. Mortgage receivables are collateralized by liens
on real property and the Company has the right to foreclose in the event that
the consumer defaults on the payment terms of the contract.
39
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Receivables Held for Sale (cont.)
- ------------------------------------
The accrual of finance charge income has been suspended on $7,657,000 and
$8,729,000 of delinquent auto receivables as of June 30, 1999 and 1998,
respectively.
The Company has established an allowance for losses with respect to auto
receivables held for sale to provide for potential credit losses on such
receivables prior to their sale in a securitization transaction.
A summary of the allowance for losses is as follows (in thousands):
Years Ended
---------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---------- ---------- -----------
Balance at beginning of year $12,756 $12,946 $13,602
Provision for losses 9,629 7,555 6,595
Acquisition fees 64,230 49,859 30,688
Allowance related to receivables
sold to Trusts (66,728) (48,464) (20,974)
Net charge-offs (8,046) (9,140) (16,965)
------- ------- --------
Balance at end of year $11,841 $12,756 $12,946
======= ======= =======
4. Credit Enhancement Assets
- ----------------------------
As of June 30, 1999 and 1998, the Company was servicing $3,661.3 million and
$1,968.4 million, respectively, of auto receivables which have been sold to 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):
June 30, June 30,
1999 1998
------------ ------------
Interest-only receivables
from Trusts $ 191,865 $ 131,694
Investments in Trust
receivables 195,598 98,857
Restricted cash 107,399 55,758
------------ ------------
$ 494,862 $ 286,309
========= =========
40
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Credit Enhancement Assets, (cont.)
- -------------------------------------
A summary of activity in the credit enhancement assets is as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of
year $ 286,309 $ 161,395 $ 41,736
Non-cash gain on sale of auto
receivables 157,757 96,405 52,534
Accretion of present value discount 32,625 19,717 7,991
Initial deposits to restricted cash 82,750 56,725 71,400
Change in unrealized gain 23,052 4,724 7,081
Distributions from Trusts (44,531) (43,807) (19,347)
Return of deposits from restricted cash (23,000)
Permanent impairment write-down (20,100) (8,850)
--------- --------- ---------
Balance at end of year $ 494,862 $ 286,309 $ 161,395
========= ========= =========
</TABLE>
A summary of the allowance for losses included as a component of the
interest-only receivables is as follows (in thousands):
Years Ended
-------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
Balance at beginning of year $ 179,359 $ 74,925 $ 25,616
Assumptions for cumulative credit
losses 294,177 174,446 75,575
Permanent impairment write-down 20,100 8,850
Net charge-offs (139,298) (78,862) (26,266)
--------- --------- ---------
Balance at end of year $ 354,338 $ 179,359 $ 74,925
========= ========= =========
5. Warehouse Credit Facilities
- ------------------------------
Warehouse credit facilities consist of the following (in thousands):
June 30, June 30,
1999 1998
---------- -----------
Commercial paper facilities $ 94,369 $140,708
Credit agreements 1,306
Mortgage facility 18,984 24,900
-------- --------
$114,659 $165,608
======== ========
41
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Warehouse Credit Facilities (cont.)
- --------------------------------------
The Company has a funding agreement with an administrative agent on behalf of an
institutionally managed commercial paper conduit and a group of banks under
which up to $505 million of structured warehouse financing is available. Under
the funding agreement, the Company transfers auto receivables to CP Funding
Corp. ("CPFC"), a special purpose finance subsidiary of the Company, and CPFC in
turn issues a note, collateralized by such auto receivables, to the agent. The
agent provides funding under the note to CPFC pursuant to an advance formula and
CPFC forwards the funds to the Company in consideration for the transfer of auto
receivables. While CPFC is a consolidated subsidiary of the Company, CPFC is a
separate legal entity and the auto receivables transferred to CPFC and the other
assets of CPFC are legally owned by CPFC and not available to creditors of
AmeriCredit Corp. or its other subsidiaries. Advances under the note bear
interest at commercial paper, London Interbank Offered Rates ("LIBOR") or prime
rates plus specified fees depending upon the source of funds provided by the
agent to CPFC. The funding agreement, which expires in September 1999, contains
various covenants requiring certain minimum financial ratios and results.
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. Advances under the
agreement bear interest at commercial paper, LIBOR or prime rates plus specified
fees depending upon the source of funds provided by the agent. The funding
agreement, which expires in March 2000, contains 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 $115 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 (7.75% as of June 30, 1999) 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.
42
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Warehouse Credit Facilities (cont.)
- --------------------------------------
The Company's Canadian subsidiary has a convertible revolving term credit
agreement with a bank under which the subsidiary may borrow of 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.
6. Senior Notes
- ---------------
The Company has outstanding $175 million of senior notes that are due in
February 2004. Interest on the notes is payable semiannually at a rate of 9.25%
per annum. The notes, which are uncollateralized, may be redeemed at the option
of the Company after February 2001 at a premium declining to par in February
2003.
Additionally, the Company has outstanding $200 million of senior notes that are
due in April 2006. Interest on the notes is payable semiannually at a rate of
9.875% per annum. The notes, which are uncollateralized, may be redeemed at the
option of the Company after April 2003 at a premium declining to par in April
2005.
The Indentures pursuant to which the senior notes were issued contain
restrictions including limitations on the Company's ability to incur additional
indebtedness other than certain collateralized indebtedness, pay cash dividends
and repurchase common stock. Debt issuance costs are being amortized over the
term of the notes, and unamortized costs of $10,208,000 and $5,478,000 as of
June 30, 1999 and 1998, respectively, are included in other assets in the
consolidated balance sheets.
43
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Commitments and Contingencies
- --------------------------------
Leases
Branch lending offices are generally leased for terms of up to five years with
certain rights to extend for additional periods. The Company also leases space
for its administrative offices and loan servicing activities under leases with
terms up to twelve years with renewal options. Lease expense was $8,105,000,
$4,206,000 and $2,132,000 for the years ended June 30, 1999, 1998 and 1997,
respectively. Lease commitments for years ending June 30 are as follows (in
thousands):
2000 $ 8,865
2001 8,351
2002 7,449
2003 6,224
2004 3,727
Thereafter 10,820
-------
$45,436
=======
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash equivalents, restricted cash, derivative
financial instruments and managed auto receivables, which include auto
receivables held for sale and auto receivables serviced by the Company on behalf
of the Trusts. The Company's cash equivalents and restricted cash represent
investments in highly rated securities placed through various major financial
institutions. The counterparties to the Company's derivative financial
instruments are various major financial institutions. Managed auto receivables
represent contracts with consumers residing throughout the United States and, to
a limited extent, in Canada, with borrowers located in California and Texas
accounting for 14% and 10%, respectively, of the managed auto receivables
portfolio as of June 30, 1999. No other state accounted for more than 10% of
managed auto receivables.
Legal Proceedings
In the normal course of its business, the Company is named as a defendant in
legal proceedings. These cases include claims for alleged truth-in-lending
violations, nondisclosures, misrepresentations and deceptive trade practices,
among other things. The relief requested by the plaintiffs varies but includes
44
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Commitments and Contingencies (cont.)
- ----------------------------------------
requests for compensatory, statutory and punitive damages. In the opinion of
management, the resolution of these proceedings will not have a material adverse
effect on the consolidated financial position, results of operations or
liquidity of the Company.
On April 8, 1999, a putative class action complaint was filed against the
Company and certain of its officers and directors alleging violations of Section
10(b) of the Securities Exchange Act of 1934 arising from the use of the cash-in
method of measuring and accounting for credit enhancement assets in the
Company's financial statements through the first quarter of fiscal 1999. In the
opinion of management, the litigation is without merit and the Company intends
to vigorously defend against the complaint.
8. Stock Options
- ----------------
General
- -------
The Company has certain stock-based compensation plans for employees,
non-employee directors and key executive officers.
A total of 14,000,000 shares have been authorized for grants of options under
the employee plans, of which 1,981,920 shares remain available for future grants
as of June 30, 1999. The exercise price of each option must equal the market
price of the Company's stock on the date of grant, and the maximum term of each
option is ten years. The vesting period is typically four years. A committee of
the Company's Board of Directors determines option grants, vesting periods and
the term of each option.
A total of 2,445,000 shares have been authorized for grants of options under the
non-employee director plans, of which 900,000 shares remain available for future
grants as of June 30, 1999. The exercise price of each option must equal the
market price of the Company's stock on the date of grant and the maximum term of
each option is ten years. Option grants, vesting periods and the term of each
option are established by the terms of the plans.
A total of 6,300,000 shares have been authorized for grants of options under the
key executive officer plans, none of which remain available for future grants as
of June 30, 1999. Option grants, vesting periods and the exercise price and term
of each option are established by the terms of the plans.
45
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stock Options (cont.)
- ------------------------
The Company has elected not to adopt the fair value-based method of accounting
for stock-based awards and, accordingly, no compensation expense has been
recognized for options granted under the plans described above. Had compensation
expense for the Company's plans been determined using the fair value-based
method, pro forma net income would have been $65,544,000, $45,598,000 and
$24,367,000 and pro forma diluted earnings per share would have been $0.98,
$0.70 and $0.40 for the years ended June 30, 1999, 1998 and 1997, respectively.
The following tables present information related to the Company's stock-based
compensation plans. The fair value of each option grant was estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
Years Ended
--------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
Expected dividends 0 0 0
Expected volatility 40% 32% 20%
Risk-free interest rate 5.51% 5.68% 5.87%
Expected life 5 years 5 years 5 years
Employee Plans
- --------------
A summary of stock option activity under the Company's employee plans is as
follows (shares in thousands):
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 10,070 $ 7.51 8,752 $ 4.68 7,328 $ 3.61
Granted 2,841 15.42 3,640 13.14 2,502 7.74
Exercised (1,829) 4.13 (2,034) 5.29 (846) 3.96
Forfeited (226) 12.41 (288) 8.31 (232) 5.84
------- --------- ------- --------- ------- --------
Outstanding at
end of year 10,856 $ 9.92 10,070 $ 7.51 8,752 $ 4.68
======= ========= ======= ========= ======= ========
Options exercisable at
end of year 6,969 $ 8.18 6,030 $ 5.11 6,322 $ 3.89
======= ========= ======= ========= ======= ========
Weighted average fair value
of options granted
during year $ 6.72 $ 5.06 $ 2.11
========= ======= ========
</TABLE>
46
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stock Options (cont.)
- ------------------------
A summary of options outstanding under employee plans as of June 30, 1999 is as
follows (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- ---------------------------
Weighted Weighted Weighted
Average Years Average Average
Range of Number of Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Outstanding Price
- --------------- ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$1.25 to 2.32 930 2.24 $1.81 930 $1.81
$2.75 to 4.57 1,848 5.44 3.80 1,848 3.80
$5.50 to 7.88 1,668 6.17 6.97 1,179 6.90
$8.19 to 9.19 437 7.51 8.41 216 8.38
$10.13 to 13.07 2,808 8.80 11.68 1,631 11.82
$13.38 to 16.38 1,288 8.74 15.68 645 15.68
$17.00 to 17.44 1,877 8.51 17.26 520 17.27
--------- ---------
10,856 6,969
======== ========
</TABLE>
Non-Employee Director Plans
- ---------------------------
A summary of stock option activity under the Company's non-employee director
plans is as follows, (shares in thousands):
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,526 $ 2.87 1,708 $ 2.21 1,826 $ 1.80
Granted 80 14.88 80 14.63 80 9.38
Exercised (201) 3.00 (262) 2.17 (198) 1.40
Forfeited (20) 14.63
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at
end of year 1,385 $ 3.37 1,526 $ 2.87 1,708 $ 2.21
========== ========== ========== ========== ========== ==========
Options exercisable at
end of year 1,385 $ 3.37 1,526 $ 2.87 1,708 $ 2.21
========== ========== ========== ========== ========== ==========
Weighted average fair value
of options granted
during year $ 6.49 $ 5.66 $ 2.57
========== ========== ==========
</TABLE>
47
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stock Options (cont.)
- ------------------------
A summary of options outstanding under non-employee director plans as of June
30, 1999, is as follows (shares in thousands):
Options Outstanding and Exercisable
----------------------------------------------
Weighted Weighted
Average Years Average
Range of Number of Remaining Exercise
Exercise Prices Outstanding Contractual Life Price
--------------- ----------- ---------------- -----
$1.40 to 3.75 1,145 2.09 $ 1.60
$6.44 to 9.38 100 6.97 7.64
$14.63 to 14.88 140 8.93 14.77
---------
1,385
=========
Key Executive Officer Plans
- ---------------------------
A summary of stock option activity under the Company's key executive officer
plans is as follows (shares in thousands):
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,700 $ 8.00 1,700 $ 8.00 1,700 $ 8.00
Granted 4,600 12.00
------- --------- -------- -------- ------- --------
Outstanding at end
of year 6,300 $ 10.92 1,700 $ 8.00 1,700 $ 8.00
======= ========= ======== ======== ======= ========
Options exercisable at
end of year 1,700 $ 8.00 1,700 $ 8.00
======= ========= ======== ========
Weighted average fair value
of options granted
during year $ 5.25
=========
</TABLE>
48
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Stock Options (cont.)
- ------------------------
A summary of options outstanding under key executive officer plans as of June
30, 1999, is as follows (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- ---------------------------
Weighted Weighted Weighted
Average Years Average Average
Range of Number of Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Outstanding Price
- --------------- ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$8.00 1,700 3.82 $8.00 1,700 $ 8.00
$12.00 4,600 3.58 12.00
---------- ----------
6,300 1,700
========== ==========
</TABLE>
9. Employee Benefit Plans
- -------------------------
The Company has a defined contribution retirement plan covering substantially
all employees. The Company's contributions to the plan were $1,026,000, $358,000
and $201,000 for the years ended June 30, 1999, 1998 and 1997, respectively.
The Company also has an employee stock purchase plan that allows participating
employees to purchase, through payroll deductions, shares of the Company's
common stock at 85% of the market value at specified dates. A total of 2,000,000
shares have been reserved for issuance under the plan. Shares purchased under
the plan were 251,038, 260,892 and 208,430 for the years ended June 30, 1999,
1998 and 1997, respectively.
10. Income Taxes
- ----------------
The income tax provision consists of the following (in thousands):
Years Ended
---------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---------- ---------- ----------
Current $ 3,486 $ (113) $ (201)
Deferred 43,364 30,974 18,886
-------- -------- --------
$ 46,850 $ 30,861 $ 18,685
======== ======== ========
49
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income Taxes (cont.)
- ------------------------
The Company's effective income tax rate on income before income taxes differs
from the U.S. statutory tax rate as follows:
Years Ended
----------------------------------------
June 30, June 30, June 30,
1999 1998 1997
------------ ------------ ------------
U.S. statutory tax rate 35.0% 35.0% 35.0%
Other 3.5 3.5 3.5
------ ------ ------
38.5% 38.5% 38.5%
====== ====== ======
The deferred income tax provision consists of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended
------------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net operating loss carryforward $ 10,093 $ (9,051) $ 5,501
Allowance for losses 1,553 993 (1,046)
Gain on sale of receivables 23,784 32,606 9,282
Income tax benefit from exercise of
options 9,918 9,575 2,652
Other (1,984) (3,149) 2,497
-------- -------- --------
$ 43,364 $ 30,974 $ 18,886
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
liabilities and assets are as follows (in thousands):
June 30, June 30,
1999 1998
---- ----
Deferred tax liabilities:
Gain on sale of receivables $(65,156) $(41,372)
Unrealized gain on credit enhancement
assets (13,447) (4,571)
Other (2,650) (2,340)
-------- --------
(81,253) (48,283)
-------- --------
Deferred tax assets:
Net operating loss carryforward 2,426 12,519
Alternative minimum tax credits 561 1,567
Other 4,271 2,524
-------- --------
7,258 16,610
-------- --------
Net deferred tax liability $(73,995) $(31,673)
======== ========
As of June 30, 1999, the Company has an alternative minimum tax credit
carryforward of $561,000 with no expiration date.
50
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Earnings Per Share
- ----------------------
A reconciliation of weighted average shares used to compute basic and diluted
earnings per share is as follows:
Years Ended
--------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
---- ---- ----
Weighted average shares
outstanding 63,005,746 60,188,788 57,774,724
Incremental shares resulting
from assumed exercise of
stock options 4,185,489 5,014,672 3,799,824
---------- ---------- ----------
Weighted average shares and
assumed incremental shares 67,191,235 65,203,460 61,574,548
========== ========== ==========
Basic earnings per share have been computed by dividing net income by weighted
average shares outstanding. Diluted earnings per share have been computed by
dividing net income by weighted average shares and assumed incremental shares.
12. Supplemental Information
- ----------------------------
Cash payments (receipts) for interest costs and income taxes consist of the
following (in thousands):
Years Ended
------------------------------------------
June 30, June 30, June 30,
1999 1998 1997
------------ ------------ ------------
Interest costs (none capitalized) $ 39,930 $ 26,369 $ 15,196
Income taxes (13,947) 14,804 599
During the years ended June 30, 1999, 1998 and 1997, the Company entered into
capital lease agreements for property and equipment of $15,380,000, $4,246,000
and $3,651,000, respectively.
51
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Fair Value of Financial Instruments
- ---------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS 107"), requires disclosure of fair value
information about financial instruments, whether recognized or not in the
Company's consolidated balance sheets. Fair values are based on estimates using
present value or other valuation techniques in cases where quoted market prices
are not available. Those techniques are significantly affected by the
assumptions used, including the discount rate and the estimated timing and
amount of future cash flows. Therefore, the estimates of fair value may differ
substantially from amounts that ultimately may be realized or paid at settlement
or maturity of the financial instruments. SFAS 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
Estimated fair values, carrying values and various methods and assumptions used
in valuing the Company's financial instruments are set forth below (in
thousands):
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
-------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
<S> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents (a) $ 21,189 $ 21,189 $ 33,087 $ 33,087
Receivables held for
sale, net (b) 456,009 482,706 342,853 367,613
Interest-only receivables
from Trusts (c) 191,865 191,865 131,694 131,694
Investments in Trust
receivables (c) 195,598 195,598 98,857 98,857
Restricted cash (c) 107,399 107,399 55,758 55,758
Financial liabilities:
Warehouse credit facilities (d) 114,659 114,659 165,608 165,608
Senior notes (e) 375,000 381,750 175,000 177,625
Other notes payable (f) 17,874 17,874 6,410 6,410
Interest rate swaps (g) 5,729 5,729 (269) 170
</TABLE>
(a) The carrying value of cash and cash equivalents is considered to be a
reasonable estimate of fair value since these investments bear interest
at market rates and have maturities of less than 90 days.
(b) Since the Company periodically sells its receivables, fair value is
estimated by discounting future net cash flows expected to be realized
from the sale of the receivables using discount rate, prepayment and
credit loss assumptions similar to the Company's historical experience.
52
<PAGE>
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Fair Value of Financial Instruments (cont.)
- -----------------------------------------------
(c) The fair value of interest-only receivables from Trusts, investments in
Trust receivables and restricted cash is estimated by discounting the
associated future net cash flows using discount rate, prepayment and
credit loss assumptions similar to the Company's historical experience.
(d) The warehouse credit facilities have variable rates of interest and
maturities of less than one year. Therefore, carrying value is
considered to be a reasonable estimate of fair value.
(e) The fair value of the senior notes is based on the quoted market price.
(f) The fair value of other notes payable is estimated based on rates
currently available for debt with similar terms and remaining
maturities.
(g) The fair value of the interest rate swaps is based on the quoted
termination cost and is taken into consideration in the valuation of
the interest-only receivables from Trusts.
53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
AmeriCredit Corp.
We have audited the accompanying consolidated balance sheets of AmeriCredit
Corp. as of June 30, 1999 and 1998, and the related consolidated statements of
income and comprehensive income, shareholders' equity, and cash flows for each
of the three years in the period ended June 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AmeriCredit Corp.
as of June 30, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended June 30, 1999, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, AmeriCredit
Corp. retroactively changed its method of measuring and accounting for credit
enhancement assets.
PricewaterhouseCoopers LLP
Fort Worth, Texas
August 4, 1999
54
<PAGE>
AMERICREDIT CORP.
Common Stock Data
Common Stock Data
The Company's common stock trades on the New York Stock Exchange under the
symbol ACF. There were 64,141,444 shares of common stock outstanding as of June
30, 1999. The following table sets forth the range of the high, low and closing
sale prices for the Company's common stock as reported on the Composite Tape of
the New York Stock Exchange Listed Issues.
High Low Close
Fiscal year ended June 30, 1999
- -------------------------------
First Quarter $18.66 $10.38 $12.19
Second Quarter 16.06 6.63 13.81
Third Quarter 15.25 9.81 13.13
Fourth Quarter 17.50 12.94 16.00
Fiscal year ended June 30, 1998
- -------------------------------
First Quarter $14.97 $10.03 $14.25
Second Quarter 17.22 11.31 13.84
Third Quarter 15.38 10.47 13.75
Fourth Quarter 18.28 13.75 17.84
The table above has been adjusted to reflect the two-for-one stock split
effected in the form of a 100% stock dividend paid on September 30, 1998.
As of June 30, 1999, there were approximately 300 shareholders of record of the
Company's common stock.
55
<PAGE>
AMERICREDIT CORP.
Quarterly Data
(Unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal year ended June 30, 1999
Finance charge income $ 16,917 $ 16,260 $ 18,361 $ 23,750
Gain on sale of receivables 35,120 38,900 42,531 53,341
Servicing fee income 16,865 21,146 23,691 24,264
Income before income taxes 25,174 28,254 31,715 36,547
Net income 15,482 17,376 19,505 22,477
Diluted earnings per share 0.23 0.26 0.29 0.33
Weighted average shares and
assumed incremental shares 66,968,691 66,750,045 66,514,367 68,695,877
Fiscal year ended June 30, 1998
Finance charge income $ 13,061 $ 13,129 $ 13,862 $ 15,785
Gain on sale of receivables 20,680 23,655 27,503 31,356
Servicing fee income 10,289 11,882 12,218 13,521
Income before income taxes 16,634 19,368 21,557 22,603
Net income 10,230 11,912 13,258 13,901
Diluted earnings per share 0.16 0.18 0.20 0.21
Weighted average shares and
assumed incremental shares 63,983,916 64,813,118 64,969,618 66,597,676
</TABLE>
56
<PAGE>
AMERICREDIT CORP.
SHAREHOLDER INFORMATION
Corporate Headquarters
- ----------------------
801 Cherry Street
Suite 3900
Fort Worth, Texas 76102
817-302-7000
Annual Meeting
- --------------
The annual meeting of the Company will be held on November 3, 1999, at
10 a.m. at the Fort Worth Club, 306 West Seventh Street, Fort Worth, Texas.
All shareholders are cordially invited to attend.
Investor Relations Information
- ------------------------------
For financial/investment data and general information about AmeriCredit Corp.,
write the Investor Relations Department at the above address or telephone
817-302-7009. Information about the Company may also be found at
www.americredit.com.
Individual investors can invest in AmeriCredit for significantly reduced fees
through the NAIC Stock Service. For more information call 888-780-8400 or visit
www.naicstockservice.com.
Transfer Agent and Registrar
- ----------------------------
ChaseMellon Shareholder Services
85 Challenger Rd., Overpeck Centre
Ridgefield Park, NJ 07660-2104
800-635-9270
www.chasemellon.com
Independent Accountants
- -----------------------
PricewaterhouseCoopers LLP
301 Commerce Street, Suite 1900
Fort Worth, Texas 76102-4183
Form 10-K
- ---------
Shareholders may obtain without charge a copy of the Company's annual report on
Form 10-K, as filed with the Securities and Exchange Commission, by writing the
Investor Relations Department at the corporate headquarters address or by
accessing Investor Information on the Company's Web site at www.americredit.com.
57
<PAGE>
Directors
- ---------
Clifton H. Morris, Jr.
Chairman of the Board and Chief Executive Officer
AmeriCredit Corp.
Michael R. Barrington
Vice Chairman, President and Chief Operating Officer
AmeriCredit Corp.
Daniel E. Berce
Vice Chairman and Chief Financial Officer
AmeriCredit Corp.
A.R. Dike
President and Chief Executive Officer
The Dike Company, Inc.
Edward H. Esstman
President and Chief Operating Officer
AmeriCredit Financial Services, Inc.
James H. Greer
Chairman of the Board
Shelton W. Greer Co., Inc.
Douglas K. Higgins
Owner
Higgins & Associates
Kenneth H. Jones, Jr.
Vice Chairman
KBK Capital Corporation
Officers
- --------
AmeriCredit Corp.
Clifton H. Morris, Jr.
Chairman of the Board and Chief Executive Officer
Michael R. Barrington
Vice Chairman, President and Chief Operating Officer
Daniel E. Berce
Vice Chairman and Chief Financial Officer
58
<PAGE>
Officers (cont.)
- ----------------
Joseph E. McClure
Executive Vice President and Chief Information Officer
Michael T. Miller
Executive Vice President and Chief Credit Officer
Preston A. Miller
Executive Vice President and Treasurer
James M. Adelt
Senior Vice President, Software Solutions
Randall K. Benefield
Senior Vice President, Strategy and Architecture
Steven P. Bowman
Senior Vice President, Director of Risk Management
Chris A. Choate
Senior Vice President, General Counsel and Secretary
Gregory K. Ellis
Senior Vice President and Controller
Patricia A. Jones
Senior Vice President, Director of Human Resources
Russell L. Massey
Senior Vice President, Finance
AmeriCredit Financial Services, Inc.
Edward H. Esstman
President and Chief Operating Officer
Philip A. Alberti
Executive Vice President,
Director of Consumer Finance
S. Mark Floyd
Executive Vice President, Director of Strategic Alliances
Peter M. Kidd
Executive Vice President,
Director of Consumer Finance
59
<PAGE>
Officers (cont.)
- ----------------
Cheryl L. Miller
Executive Vice President, Director of Collections
and Customer Service
Todd M. Patin
Executive Vice President,
Director of Consumer Finance
Cinde C. Perales
Executive Vice President, Director of Loan Services
AmeriCredit Mortgage Services
Robert J. Frye
President and Chief Operating Officer
Denny P. Hanysak
Executive Vice President, Mortgage Services
Michael G. Hughes
Executive Vice President, Mortgage Services
60
<PAGE>
EXHIBIT 21.1
AMERICREDIT CORP.
SUBSIDIARIES OF THE REGISTRANT
State or
Province of
Subsidiary Ownership % Incorporation
- ---------- ----------- -------------
AmeriCredit Financial Services, Inc. 100% Delaware
ACF Investments Corp. 100% Delaware
AFS Funding Corp. 100% Nevada
AmeriCredit Corporation of California 100% California
CP Funding Corp. 100% Nevada
AmeriCredit Funding Corp. 100% Delaware
AmeriCredit Warehouse Trust 100% Delaware
AmeriCredit Management Company 100% Delaware
AmeriCredit Financial Services of
Canada, Ltd. 100% Ontario
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-39883, 33-39881, 33-56501, 33-48162, 33-41203,
333-01111, 333-73113, 333-73115, and 333-73117) and Form S-3 (Nos. 333-52283,
33-57517, 33-52679 and 333-82999) of AmeriCredit Corp. of our report dated
August 4, 1999, relating to the financial statements, which appears in the
Annual Report to Shareholders, which is incorporated in this Annual Report on
Form 10-K.
Fort Worth, Texas
September 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
consolidated financial statements of AmeriCredit Corp. included in its annual
report on Form 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000804269
<NAME> AMERICREDIT CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 141,902
<SECURITIES> 0
<RECEIVABLES> 467,850
<ALLOWANCES> (11,841)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 54,511
<DEPRECIATION> (13,366)
<TOTAL-ASSETS> 1,063,487
<CURRENT-LIABILITIES> 0
<BONDS> 507,533
0
0
<COMMON> 715
<OTHER-SE> 399,015
<TOTAL-LIABILITY-AND-EQUITY> 1,063,487
<SALES> 0
<TOTAL-REVENUES> 335,456
<CGS> 0
<TOTAL-COSTS> 165,345
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,629
<INTEREST-EXPENSE> 38,792
<INCOME-PRETAX> 121,690
<INCOME-TAX> 46,850
<INCOME-CONTINUING> 74,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,840
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.11
</TABLE>
