-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PF5sGvStp/F0hEraBfM9Q2YElGhhuZJSwhirNBBe94rkhpCvnfzjvbxkNZfG81Sv wDmlOuuzeqkpMy1CbU/MSQ== 0000930661-98-002006.txt : 19980928 0000930661-98-002006.hdr.sgml : 19980928 ACCESSION NUMBER: 0000930661-98-002006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980925 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICREDIT CORP CENTRAL INDEX KEY: 0000804269 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] IRS NUMBER: 752291093 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10667 FILM NUMBER: 98714954 BUSINESS ADDRESS: STREET 1: 200 BAILEY AVENUE CITY: FORT WORTH STATE: TX ZIP: 76107 BUSINESS PHONE: 817-332-70 MAIL ADDRESS: STREET 1: 200 BAILEY AVENUE CITY: FORT WORTH STATE: TX ZIP: 76107 FORMER COMPANY: FORMER CONFORMED NAME: URCARCO INC DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K 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, 1998 -------------------- [ ] 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.) 200 Bailey Avenue, Fort Worth, Texas 76107 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (817) 332-7000 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, $.01 par value New York Stock Exchange - ------------------------------------ ------------------------------------ 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 - -------------------------------------------------------------------------------- (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. [ X ] The aggregate market value of 24,587,483 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 11, 1998 was approximately $577,805,851. 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 31,098,320 shares of Common Stock, $.01 par value outstanding as of September 11, 1998. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's Annual Report to Shareholders for the year ended June 30, 1998 ("the Annual Report") furnished to the Commission pursuant to Rule 14a-3(b) and the definitive Proxy Statement pertaining to the 1998 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. AMERICREDIT CORP. INDEX TO FORM 10-K ITEM PAGE NO. NO. - -------------------------------------------------------------------------------- PART I 1. Business 4 2. Properties 26 3. Legal Proceedings 27 4. Submission of Matters to a Vote of Security Holders 27 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 28 6. Selected Financial Data 28 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 28 7A. Quantitative and Qualitative Disclosures About Market Risk 28 8. Financial Statements and Supplementary Data 28 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 39 PART III 10. Directors and Executive Officers of the Registrant 40 11. Executive Compensation 40 12. Security Ownership of Certain Beneficial Owners and Management 40 13. Certain Relationships and Related Transactions 40 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 41 SIGNATURES 43 3 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 200 Bailey Avenue, Fort Worth, Texas, 76107 and its telephone number is (817) 332-7000. The Company and its subsidiaries, including AmeriCredit Financial Services, Inc. ("AFSI"), a Delaware corporation, have been operating in the indirect 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. 4 INDIRECT AUTOMOBILE FINANCE OPERATIONS Target Market. The Company's indirect automobile lending programs are designed to serve consumers 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 consumers 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 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, 1998, approximately 90% were originated by manufacturer franchised dealers with used car operations and 10% by select independent dealers. The Company purchased contracts from 9,204 dealers during the fiscal year ended June 30, 1998. No dealer accounted for more than 1% of the total volume of contracts purchased by the Company for that same period. The Company's financing programs are marketed to dealers through branch office personnel, including branch managers, assistant managers and in some cases marketing representatives. The Company believes that the personal relationships its branch managers and other branch office personnel establish with the dealership personnel are an important factor in creating and maintaining productive relationships with its dealership customer base. Branch office personnel are responsible for the solicitation, enrollment and education of new dealers regarding the Company's financing programs. Branch office personnel visit dealerships to present information regarding the Company's financing programs and capabilities. These personnel explain the Company's underwriting philosophy, including its preference for non-prime quality contracts secured by later model, lower mileage used vehicles, and its practice of underwriting in the local branch office. 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 5 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. 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 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 and develop relationships with these dealers. Additionally, the branch office network is used for the underwriting of contracts submitted by dealerships. 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 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. Branch managers are compensated with base salaries and annual incentives based on overall branch performance including 6 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 manager reports to a regional vice president. 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. Years Ended June 30, ---------------------------------------------- 1998 1997 1996 ---- ---- ---- (dollars in thousands) Number of branch offices 129 85 51 Dollar volume of contracts purchased $1,737,813 $906,794 $432,442 Number of producing dealerships(1) 9,204 5,657 3,262 (1) A producing dealership refers to a dealership from which the Company had purchased contracts in the respective period. The Company plans to expand its indirect automobile finance business by adding additional branch offices and increasing dealer penetration at its 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 and to develop relationships with more dealers. The Company confronts intense competition in attracting key personnel and establishing relationships with 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 markets may result in a reduction in the profitability of the contracts that the Company purchases or a decrease in contract acquisition volume, which would adversely affect the Company's results of operations. 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. 7 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 contrasts the quality of credit applicant profiles resulting in a statistical assessment of the most predictive characteristics. Factors considered in any loan application include data presented on the application, the credit bureau report and the terms of the loan the applicant wishes to secure. Specifically, the credit scoring system considers the applicant's residential and employment stability, financial history, current financial capacity and integrity of meeting historical financial obligations, as well as the loan structure and credit bureau information. The scorecards take these factors into account and produce 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 strategies 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 in its databases 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 his experience and historical loan portfolio results as well as established credit scoring parameters. In certain markets where a branch office is not present and with respect to certain large dealership groups, contracts are purchased through the Company's regional purchasing offices. Although the credit approval process is decentralized, all credit decisions are guided by the Company's credit scoring 8 strategies, overall credit and underwriting policies and procedures and daily monitoring process. Loan application packages completed by prospective obligors are received via facsimile at the branch offices from dealers. Application data is 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 decline 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, character and intent to pay, 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 because their income levels are not sufficient to support the proposed level of monthly payments. Dealers are contacted regarding credit decisions by telefax and/or telephone. 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 branch office personnel having 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. Completed loan packages are sent by the dealers 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 consumer by branch office personnel and the loan packages are forwarded to the Company's centralized loan services department, where the packages are scanned to create electronic copies. Key original documents are stored in a fire-proof vault and the loan packages are further processed in an electronic environment. The loans are reviewed for proper documentation and regulatory compliance and are entered into the Company's loan accounting system. Daily loan reports are generated for final review by senior operations management. 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. All of the Company's contracts are fully amortizing with substantially equal monthly installments. Servicing and Collections Procedures. The Company's servicing activities consist of collecting and processing consumer payments, responding to consumer inquiries, initiating contact with consumers who are delinquent in payment of 9 a receivable installment, maintaining the security interest in the financed vehicle, monitoring 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 consumers as well as an early warning mechanism in the event a consumer has failed to notify the Company of an address change. Approximately 15 days before an obligor's first payment due date and each month thereafter, the Company mails the consumer a billing statement directing the consumer 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 obligors. 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 consumers whose payments are past due. The predictive dialer is a computer-controlled telephone dialing system which dials phone numbers of consumers 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 obligors who cannot be reached by telephone. By eliminating time wasted on attempting to reach consumers, the system gives a single collector the ability to speak with a larger number of accounts daily. Once an account becomes more seriously 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 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 obligor deals in bad faith or the consumer voluntarily surrenders the financed vehicle. Payment deferrals are at times offered to consumers who have encountered temporary financial difficulty, hindering their ability to pay as contracted, and when other methods of assisting the consumer in meeting the contract terms 10 and conditions have been exhausted. A deferral allows the consumer to move a delinquent payment to the end of the loan by paying a fee or an amount approximating the interest portion of the payment deferred. The collector must review the past payment history and assess the obligor's desire and capacity to make future payments and, before agreeing to a deferral, must comply with the Company's policies and guidelines for deferrals. Exceptions to the Company's policies and guidelines for deferrals must be approved by a collections officer. Deferment transactions are processed by the loan services department. As of June 30, 1998, approximately 12% of the Company's managed receivables had received a deferral. Repossessions. The Company follows prescribed legal procedures for repossessions, which include peaceful repossession, one or more consumer notifications, a prescribed waiting period prior to disposition of the repossessed automobile and return of personal items to the consumer. In some jurisdictions, the Company must provide the consumer 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 180 days contractually delinquent even if the Company has not repossessed the related vehicle. On accounts less than 180 days delinquent, the Company charges-off the account when the vehicle securing the delinquent contract is repossessed and disposed. 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. 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 11 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 are reviewed on a consolidated basis, as well as at the branch office, dealer and contract levels. 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. 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. The Company's risk management department conducts regular compliance audits of branch office operations, loan services, collections and other functional areas. The primary objective of the audits is to measure compliance with the Company's written policies and procedures as well as regulatory matters. Audits of branch office operations are conducted no less often than every six months and include a review of compliance with underwriting policies, completeness of loan documentation, assessment of collateral value 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 based 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 12 purchases. Through June 30, 1998, the Company had securitized approximately $2.9 billion of automobile receivables. 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 simultaneously sold to investors, except for certain subordinated interests which may be retained by the Company. When receivables are transferred to securitization trusts in securitization transactions, the Company recognizes a gain on sale of receivables and continues to service such receivables. The gain on sale of receivables represents the difference between the sales proceeds, net of transaction costs, and the Company's net carrying value of the receivables sold, plus the present value of estimated excess cash flows. The estimated excess cash flows are the difference between the cash collected from obligors on securitized receivables and the sum of (i) principal and interest paid to investors in the asset-backed securities; (ii) contractual servicing fees; (iii) defaults, net of recoveries; and (iv) 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 represents the present value of estimated excess cash flows as described above. The calculation of interest-only receivables 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 on a disaggregated basis by trust. If future losses and prepayment rates exceed the Company's original estimates, the asset will be adjusted through a charge to income. 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 the trusts, provide a source of funds to cover shortfalls in collections (as described below) and to reimburse FSA for any claims which may be made under the policies issued with respect to the Company's securitizations. 13 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 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. 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 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 consumers. 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. The Company also seeks to offer rates that 14 are competitive and that are consistent with its goal of balancing risk and returns. 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 credit 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. Management believes that the Company 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 15 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 the operations of the Company. Further, the adoption of additional, or the revision of existing, rules and regulations could have a material adverse effect on the Company's business. As a consumer finance company, the Company is subject to various consumer claims and litigation seeking damages and statutory penalties based upon, among other theories of liability, usury, 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. Management believes that the Company has taken prudent steps to address the litigation risks associated with its business activities. However, there can be no assurance that the Company will be able to successfully defend against all such consumer 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 indirect automobile finance business. MORTGAGE LOAN OPERATIONS In November 1996, the Company acquired all of the issued and outstanding stock of AMS in consideration for 400,000 shares of the Company's common stock. AMS originates and acquires non-prime mortgage loans through a network of mortgage brokers. AMS sells its mortgage loans and the related servicing rights in the wholesale markets. While not currently representing a material portion of the Company's assets or revenues, management intends over time to devote substantial resources to pursue growth of AMS's business of originating mortgage loans to non-prime borrowers. There can be no assurance, however, that the Company will be able to successfully expand such business or that the failure to effectively expand such business will not have a material adverse effect on the Company's financial position, liquidity or results of operations. RISK FACTORS Dependence on Credit Facilities. The Company depends on warehouse credit facilities with financial institutions to finance its purchase of auto receivables pending securitization. At June 30, 1998, the Company has two warehouse credit facilities for its auto finance activities, providing for borrowings of up to a total of $510 million. The Company's bank credit agreement (the "Credit Agreement") with various banks provides for revolving credit borrowings of up to $265 million, subject to a defined borrowing base. 16 The Credit Agreement matures in April 1999. In addition, the Company's commercial paper facility (the "Commercial Paper Facility") provides for borrowings of up to $245 million and matures in October 1998. As of September 11, 1998, the Company was negotiating to expand the Commercial Paper Facility and extend the maturity date. The Company's ability to execute its business strategy will require increases in the level of warehouse financing resources. There can be no assurance that such financing resources will continue to be available to the Company on reasonable terms or at all. To the extent that the Company is unable to extend or replace the Credit Agreement and Commercial Paper Facility or arrange new warehouse credit facilities, the Company would have to curtail its auto finance contract purchasing activities, which would have a material adverse effect on the Company's financial position, liquidity and results of operations. The Credit Agreement and Commercial Paper Facility contain certain restrictions and covenants requiring the Company to maintain specified financial ratios and satisfy certain financial tests. A breach of any of these convenants could result in an event of default under the Credit Agreement and Commercial Paper Facility. Upon the occurrence of an event of default under these agreements, the lenders thereunder could elect to declare all amounts outstanding under these facilities, including accrued interest or other obligations, to be immediately due and payable and/or restrict the Company's ability to obtain additional borrowings under the Credit Agreement and Commercial Paper Facility. The Company's ability to meet those financial ratios and tests can be affected by events beyond its control, and there can be no assurance that the Company 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 of receivables in the Company's securitizations represent a significant portion 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 result in no gain on sale in the given quarter and adversely affect the Company's reported earnings for such quarter. Any such adverse changes or delays would have a material adverse effect on the Company's financial position, liquidity and results of operations. Dependence on Financial Guarantee Insurance Policies. To date, all of the Company's securitizations have utilized financial guaranty insurance policies issued by FSA in order to achieve high grade credit ratings on the asset- 17 backed securities issued by the securitization trusts. 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. A downgrading of FSA's credit rating or FSA's withdrawal from the Company's securitization program could result in higher interest costs for future Company-sponsored securitizations. Such events could have a material adverse effect on the Company's financial position, liquidity and results of operations. Liquidity and Capital Needs. The Company requires substantial amounts of cash to fund its automobile loan purchase and securitization activities. Although the Company recognizes a gain on sale of receivables upon the closing of a securitization, it typically receives the cash representing such gain over the actual life of the receivables securitized. The Company also incurs significant transaction costs in connection with a securitization and must deposit substantial amounts of cash to fund credit enhancement requirements set by FSA for Company-sponsored securitizations. 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 and other indebtedness; (iv) fees and expenses incurred in connection with the securitization of receivables and the servicing of such receivables; (v) ongoing operating expenses; and (vi) 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, borrowings under its Credit Agreement and Commercial Paper Facility, the implementation of other warehouse credit facilities, sales of automobile receivables through securitizations, servicing fees and excess cash flow received from securitization trusts and collections on automobile receivables prior to sale in securitization transactions. The Company's primary sources of liquidity as described in the paragraph above are expected to be sufficient to fund the Company's liquidity requirements for the year ending June 30, 1999 if the Company's future operations are consistent with management's current growth expectations. However, because the Company expects to continue to require substantial amounts of cash for the foreseeable future, it anticipates that it will need to effect debt or equity 18 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 the favorableness of the terms on which such sources may be available. 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 effect 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. 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 more vulnerable to adverse general economic and industry conditions; (ii) the Company may find it more difficult to obtain additional financing for future working capital, capital expenditures, acquisitions, general corporate purposes or other purposes; and (iii) the Company will have to dedicate a substantial portion of the Company's cash resources to the payment of principal and interest on indebtedness outstanding thereby reducing the funds available for operations and future business opportunities. In addition, the Credit Agreement, the Commercial Paper Facility and the Indenture pursuant to which the Company's 9 1/4% Senior Notes were issued contain certain convenants which could limit the Company's operating and financial flexibility. Default and Prepayment Risks. The Company's results of operations, financial condition and liquidity depend, to a material extent, on the performance of automobile finance 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. A portion of the loans purchased 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 may 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 expense the losses in excess of such allowance and results of 19 operations could be adversely affected. In addition, under the terms of the Credit Agreement and Commercial Paper Facility, 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 automobile receivables that it sells pursuant to Company-sponsored securitizations. A large component of the gain recognized on such sales and the corresponding asset recorded on the Company's balance sheet represents interest-only receivables which are based on the present value of estimated future excess cash flows from the securitized receivables to be received by the Company. Accordingly, interest-only receivables 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. In addition, 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 any amounts which may be paid out by FSA 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 interest-only receivables by making a charge to income and writing down the carrying value of the asset 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 prepayments and defaults 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 interest-only receivables and the corresponding decreases in earnings and cash flow could limit the Company's ability to service debt and to affect future securitizations and other financings. Although the Company believes that it has made reasonable assumptions as to the future estimated excess 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 the occurrence of future events. Portfolio Performance; Negative Impact on Cash Flows; Right to Terminate Normal Servicing. Generally, the Company's agreements with FSA to procure financial guarantee insurance policies in connection with securitization transactions contain specified limits on the delinquency, default and loss 20 rates on the receivables included in each 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 agreements would automatically increase the level of credit enhancement requirements for that trust. During the period in which the specified delinquency, default or loss rate was 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, such 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, thereby further restricting excess cash flow available to the Company. The Company's agreements with FSA 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 such trust, provisions of the agreements permit FSA to terminate the Company's servicing rights with respect 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 such specified limits will not be exceeded in the future and that the Company's servicing rights 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, 1998, no such termination events have occurred with respect to any of the trusts formed by the Company. Implementation of Business Strategy. The Company's financial position and results of operations are a function of Company management's ability to execute its business strategy. Key factors involved in execution of such business strategy include the Company's ability to obtain substantial additional financing, expand its automobile finance branch network, attract and retain skilled employees and manage growth successfully. The failure or inability of the Company to execute 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. 21 While not currently representing a material portion of the Company's assets or revenues, management intends over time to devote substantial resources to pursue growth of AMS's business of originating mortgage loans to sub-prime borrowers. The conduct of a mortgage finance business requires a substantial amount of cash. The Company has limited prior experience in the mortgage business. There can be no assurance that the Company will be able to successfully implement its non-prime mortgage business strategy. The failure to effectively implement such strategy or to obtain adequate resources to fund AMS's growth may have material adverse effects on the Company's financial position, liquidity and results of operations. 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 such risks with its proprietary credit scoring system, risk-based loan pricing and other underwriting policies and collection methods, no assurance can be given that such 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. Such periods also may be accompanied by decreased consumer demand for automobiles and declining values of automobiles securing outstanding loans, thereby weakening collateral coverage and increasing the possibility of a loss in the event of default. In addition, during an economic slowdown 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 complete 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 between the rate charged consumers and the rate paid on its indebtedness. As interest rates rise, the Company would have to increase the rates charged on new contract purchases in order to preserve the gross interest rate spread. However, the rates charged consumers are influenced by various factors, including competitive conditions, and the Company may experience a decline in contract purchase volume if it attempted to charge consumers higher rates. In addition, state by state 22 regulations regarding maximum interest rates for consumers may limit the Company's opportunity to pass on increased interest costs. Furthermore, the Company's future gains recognized upon the securitization of automobile receivables would also be affected by increased interest rates. The Company recognizes a gain in connection with its securitizations based upon the present value of estimated 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 and other strategies designed to mitigate the impact of changes in interest rates. There can be no assurance, however, that pre-funding or other strategies will be effective in mitigating the impact of changes in interest rates. Competition. Reference should be made to Item 1. "Business Indirect Automobile Finance Operations Competition" for a discussion of competitive risk factors. Regulation. Reference should be made to Item 1. "Business Indirect Automobile Finance Operations Regulation" for a discussion of regulatory risk factors. Year 2000 Issue - --------------- The Company places significant reliance on its computer systems to conduct its automobile finance business. The Company's underwriting, servicing, collections and administrative functions are each dependent upon certain critical information technology components for daily operations. In addition, the Company relies on the data processing capabilities of certain major suppliers and business partners to support its operations. 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. The Company believes that with modifications to existing systems and/or conversion to new systems, the year 2000 issue will not pose significant operational problems for the Company. However, if such modifications and conversions are not made, or are not completed in a timely manner, the year 2000 issue could have a material impact on the operations of the Company. In addition, there can be no assurance that unforeseen problems in the Company's computer systems, or the systems of third parties on which the Company's computer systems rely, would not have an adverse effect on the Company's operations. 23 EMPLOYEES At June 30, 1998, the Company employed approximately 1,400 persons. 24 EXECUTIVE OFFICERS The following sets forth certain data concerning the executive officers of the Company. Name Age Position ---- --- -------- Clifton H. Morris, Jr. 63 Chairman of the Board and Chief Executive Officer Michael R. Barrington 39 Vice Chairman, President and Chief Operating Officer Daniel E. Berce 44 Vice Chairman and Chief Financial Officer Edward H. Esstman 57 Executive Vice President - Auto Finance Division; President and Chief Operating Officer of AFSI Chris A. Choate 35 Senior Vice President, General Counsel and Secretary Cheryl L. Miller 34 Executive Vice President, Director of Collections and Customer Service of AFSI Michael T. Miller 37 Executive Vice President and Chief Credit Officer Preston A. Miller 34 Executive Vice President and Treasurer 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, 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 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 of 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. 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 25 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 of the Company since November 1996 and Senior Vice President and Chief Credit Officer of 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. 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. PRESTON A. MILLER has been Executive Vice President and Treasurer 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. Item 2. Properties - ------------------- The Company's executive offices are located at 200 Bailey Avenue, Fort Worth, Texas, in a 43,000 square foot building purchased by the Company in February 1994. This building is utilized by the Company for branch office support and administrative activities. The Company 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 65,000 square feet of office space in Fort Worth, Texas under four year agreements. These facilities are used for loan servicing and collections activities. The Company also leases 32,000 square feet of office space in Fort Worth, Texas under a five year agreement 26 for various activities including its mortgage operations and regional automobile contract purchasing office. 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 - -------------------------- 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 requests for compensatory, statutory and punitive damages. In the opinion of management, these proceedings will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. 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, 1998. 27 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 Credit Agreement, Commercial Paper Facility and the Indenture pursuant to which the 9 1/4% Senior Notes were issued contain certain restrictions on the payment of dividends. The Company presently intends to retain future earnings, if any, for purposes of funding operations. 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 9 1/4% 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 9 1/4% 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 28 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, 1998 and 1997 and for each of the three years in the period ended June 30, 1998. 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. 29 AmeriCredit Corp. Supplementary Information Consolidating Balance Sheet June 30, 1998 (Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ---------- ---------- -------------- ------------ ------------ 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) 4,253 135,701 137,803 Investments in Trust receivables 3,181 114,809 117,990 Restricted cash 68,258 68,258 Property and equipment, net 175 23,210 23,385 Other assets 8,911 13,003 3,271 25,185 Due (to) from affiliates 330,924 (227,835) (103,089) Investment in affiliates 129,765 13,921 2 $(143,688) --------- --------- --------- --------- --------- Total assets $ 467,624 $ 38,109 $ 386,516 $(143,688) $ 748,561 ========= ========= ========= ========= ========= 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 Deferred income taxes (17,641) (19,961) 80,743 43,141 Accrued taxes and expenses (2,280) 53,950 571 52,241 --------- --------- --------- --------- --------- Total liabilities 161,463 58,915 222,022 442,400 --------- --------- --------- --------- --------- Shareholders' equity: Common stock 346 203 3 $ (206) 346 Additional paid-in capital 230,295 108,336 13,921 (122,257) 230,295 Unrealized gain on interest-only receivables 4,431 4,431 (4,431) 4,431 Retained earnings 94,207 (129,345) 146,139 (16,794) 94,207 --------- --------- --------- --------- --------- 329,279 (20,806) 164,494 (143,688) 329,279 Treasury stock (23,118) (23,118) --------- --------- --------- --------- --------- Total shareholders' equity 306,161 (20,806) 164,494 (143,688) 306,161 --------- --------- --------- --------- --------- Total liabilities and shareholders' equity $ 467,624 $ 38,109 $ 386,516 $(143,688) $ 748,561 ========= ========= ========= ========= =========
30 AmeriCredit Corp. Supplementary Information Consolidating Balance Sheet June 30, 1997 (Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ----------- ---------- -------------- ------------ ------------ ASSETS Cash and cash equivalents $ 3,988 $ 2,039 $ 6,027 Receivables held for sale, net 240,912 25,745 266,657 Interest-only receivables from Trusts $ (777) 5,883 54,827 59,933 Investments in Trust receivables 6,213 48,230 54,443 Restricted cash 67,895 67,895 Property and equipment, net 136 13,748 13,884 Other assets 10,947 12,564 1,103 24,614 Due (to) from affiliates 277,369 (197,656) (79,713) Investment in affiliates 56,764 $ (56,764) --------- --------- --------- --------- --------- Total assets $ 344,439 $ 85,652 $ 120,126 $ (56,764) $ 493,453 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Warehouse credit facilities $ 72,045 $ 72,045 Senior notes $ 125,000 125,000 Other notes payable 3,484 33 $ 23,689 27,206 Deferred income taxes (8,669) (5,547) 27,520 13,304 Accrued taxes and expenses 8,088 27,987 3,287 39,362 --------- --------- --------- --------- --------- Total liabilities 127,903 94,518 54,496 276,917 --------- --------- --------- --------- --------- Shareholders' equity: Common stock 333 203 3 $ (206) 333 Additional paid-in capital 203,544 98,336 (98,336) 203,544 Unrealized gain on interest-only receivables 2,954 2,954 (2,954) 2,954 Retained earnings 33,466 (107,405) 62,673 44,732 33,466 --------- --------- --------- --------- --------- 240,297 (8,866) 65,630 (56,764) 240,297 Treasury stock (23,761) (23,761) --------- --------- --------- --------- --------- Total shareholders' equity 216,536 (8,866) 65,630 (56,764) 216,536 --------- --------- --------- --------- --------- Total liabilities and shareholders' equity $ 344,439 $ 85,652 $ 120,126 $ (56,764) $ 493,453 ========= ========= ========= ========= =========
AmeriCredit Corp. Supplementary Information Consolidating Statement of Income Year Ended June 30, 1998 (Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ----------- ---------- -------------- ------------ ------------ Revenue: Finance charge income $ 39,114 $ 16,723 $ 55,837 Gain on sale of receivables $ (6,729) 1,350 128,624 123,245 Servicing fee income 91,473 4,805 $ (53,594) 42,684 Investment income 31,029 539 4,129 (30,643) 5,054 Other income 868 252 1,120 Equity in income of affiliates 61,526 (61,526) --------- --------- --------- --------- --------- 85,826 133,344 154,533 (145,763) 227,940 --------- --------- --------- --------- --------- 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 60,250 (35,676) 135,718 (61,526) 98,766 Income tax provision (491) (13,736) 52,252 38,025 --------- --------- --------- --------- --------- Net income $ 60,741 $ (21,940) $ 83,466 $ (61,526) $ 60,741 ========= ========= ========= ========= =========
32 AmeriCredit Corp. Supplementary Information Consolidating Statement of Income Year Ended June 30, 1997 (Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ----------- ---------- -------------- ------------ ------------ Revenue: Finance charge income $ 36,633 $ 8,277 $ 44,910 Gain on sale of receivables $ (855) 2,939 65,172 67,256 Servicing fee income 55,994 4,111 $ (39,081) 21,024 Investment income 18,262 147 2,411 (17,911) 2,909 Other income 86 1,344 218 1,648 Equity in income of affiliates 33,374 (33,374) --------- --------- --------- --------- --------- 50,867 97,057 80,189 (90,366) 137,747 --------- --------- --------- --------- --------- 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 40,469 (10,737) 66,567 (33,374) 62,925 Income tax provision 1,770 (3,217) 25,673 24,226 --------- --------- --------- --------- --------- Net income $ 38,699 $ (7,520) $ 40,894 $ (33,374) $ 38,699 ========= ========= ========= ========= =========
33 AmeriCredit Corp. Supplementary Information Consolidating Statement of Income Year Ended June 30, 1996 (Dollars in Thousands)
AmeriCredit Corp. Guarantors Non-Guarantors Eliminations Consolidated ----------- ---------- -------------- ------------ ------------ Revenue: Finance charge income $ 32,050 $ 19,656 $ 51,706 Gain on sale of receivables 12,449 10,424 22,873 Servicing fee income 26,329 50 $(22,667) 3,712 Investment income $ 11,395 337 643 (11,300) 1,075 Other income 104 1,489 19 1,612 Equity in income of affiliates 25,914 (25,914) -------- -------- -------- -------- -------- 37,413 72,654 30,792 (59,881) 80,978 -------- -------- -------- -------- -------- Costs and expenses: Operating expenses 3,700 41,359 3,289 (22,667) 25,681 Provision for losses 7,912 7,912 Interest expense 371 15,212 8,846 (11,300) 13,129 -------- -------- -------- -------- -------- 4,071 64,483 12,135 (33,967) 46,722 -------- -------- -------- -------- -------- Income before income taxes 33,342 8,171 18,657 (25,914) 34,256 Income tax provision 11,751 914 12,665 -------- -------- -------- -------- -------- Net income $ 21,591 $ 7,257 $ 18,657 $(25,914) $ 21,591 ======== ======== ======== ======== ========
34 AmeriCredit Corp. Supplementary Information Consolidating Statement of Cash Flows Year Ended June 30, 1998 (Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated ----------- ---------- ---------- ------------ ------------ Cash flows from operating activities Net income $ 60,741 $ (21,940) $ 83,466 $ (61,526) $ 60,741 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 297 (14,414) 52,256 38,139 Non-cash gain on sale of auto receivables (113,428) (113,428) Equity in income of affiliates (61,526) 61,526 Changes in assets and liabilities Interest-only receivables from Trusts (166) 38,168 38,002 Other assets (420) (739) (2,165) (3,324) Accrued taxes and expenses (10,368) 25,963 (2,716) 12,879 ----------- ----------- ----------- ---------- ----------- Net cash provided by operating activities (11,226) 707 55,581 45,062 ----------- ----------- ----------- ---------- ----------- Cash flows from investing activities Purchases of auto receivables (1,717,006) (1,777,748) 1,777,748 (1,717,006) Originations of mortgage receivables (137,169) (137,169) Principal collections and recoveries on receivables 11,984 6,400 18,384 Net proceeds from sale of auto receivables 1,777,748 1,632,357 (1,777,748) 1,632,357 Net proceeds from sale of mortgage receivables 119,683 119,683 Increase in investments in Trust receivables 3,032 (66,579) (63,547) Increase in restricted cash (363) (363) Purchases of property and equipment 11 (9,467) (9,456) Decrease in other assets 5,000 5,000 Net change in investment in affiliates (9,998) (3,921) (2) 13,921 ----------- ----------- ----------- ---------- ----------- Net cash used by investment activities (4,987) 44,884 (205,935) 13,921 (152,117) ----------- ----------- ----------- ---------- ----------- Cash flows from financing activities Net change in warehouse credtit 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) 27,730 20,305 ----------- ----------- ----------- ---------- ----------- Net cash provided by financing activities 16,213 (19,422) 151,245 (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 =========== =========== =========== ========== ===========
35 AmeriCredit Corp. Supplementary Information Consolidating Statement of Cash Flows Year Ended June 30, 1997
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated ----------- ----------- ----------- ------------- ------------ Cash flows from operating activities Net income $ 38,699 $ (7,520) $ 40,894 $ (33,374) $ 38,699 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 (1,180) (1,912) 27,520 24,428 Non-cash gain on sale of auto receivables (66,203) (66,203) Equity in income of affiliates (33,374) 33,374 Changes in assets and liabilities Interest-only receivables from Trusts 1,236 21,655 22,891 Other assets 917 (3,083) (175) (2,341) Accrued taxes and expenses 4,835 18,278 3,380 26,493 --------- ---------- ---------- --------- --------- Net cash provided by operating activities 9,925 15,769 27,071 52,765 --------- ---------- ---------- --------- --------- Cash flows from investing activities Purchases of auto receivables (896,711) (814,107) 814,107 (896,711) Originations of mortgage receivables (53,770) (53,770) Principal collections and recoveries on receivables 22,672 41,717 64,389 Net proceeds from sale of auto receivables 814,107 814,107 (814,107) 814,107 Net proceeds from sale of mortgage receivables 52,489 52,489 Increase in investments in Trust receivables (5,169) (28,000) (33,169) Increase in restricted cash (52,591) (52,591) Decrease in other assets 58 58 Purchases of property and equipment (81) (4,430) (4,511) Net change in investment in affiliates 25,605 (22,981) (2,624) --------- ---------- ---------- --------- --------- Net cash used by investment activities 25,582 (93,793) (41,498) (109,709) --------- ---------- ---------- --------- --------- 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) Purchase of treasury stock (4,387) (4,387) Proceeds from issuance of common stock 6,293 6,293 Net change in due (to) from affiliates (152,842) 99,363 53,479 --------- ---------- ---------- --------- --------- Net cash provided by financing activities (30,594) 82,099 9,321 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 ========= ========== ========== ========= =========
36 AmeriCredit Corp. Supplementary Information Consolidating Statement of Cash Flows Year Ended June 30, 1996 (Dollars in Thousands)
AmeriCredit Non- Corp. Guarantors Guarantors Eliminations Consolidated ----------- ---------- ---------- ------------ ------------ Cash flows from operating activities Net income $ 21,591 $ 7,257 $ 18,657 $ (25,914) $ 21,591 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49 1,479 1,528 Provision for losses 7,912 7,912 Deferred income taxes 14,113 (2,432) 11,681 Non-cash gain on sale of auto receivables (9,538) (6,809) (16,347) Equity in income of affiliates (25,914) 25,914 Changes in assets and liabilities Interest-only receivables from Trusts 3,773 755 4,528 Other assets 362 (1,857) 511 (984) Accrued taxes and expenses 1,273 8,606 (473) 9,406 --------- --------- --------- --------- --------- Net cash provided by operating activities 11,474 15,200 12,641 39,315 --------- --------- --------- --------- --------- Cash flows from investing activities Purchases of auto receivables (417,235) (115,646) 115,646 (417,235) Principal collections and recoveries on receivables 37,894 57,054 94,948 Net proceeds from sale of auto receivables 285,779 115,646 (115,646) 285,779 Increase in investments in Trust receivables (11,382) (9,892) (21,274) Increase in restricted cash (10,297) (10,297) Purchases of property and equipment 2,536 (5,698) (3,162) Decrease in other assets 3,707 3,707 Net change in investment in affiliates (2,746) 2,743 3 --------- --------- --------- --------- --------- Net cash used by investment activities 3,497 (107,899) 36,868 (67,534) --------- --------- --------- --------- --------- Cash flows from financing activities Net change in warehouse credit facilities 86,000 86,000 Payments on other notes payable (298) (66,673) (66,971) Proceeds from issuance of common stock 3,731 3,731 Purchase of treasury stock (10,710) (10,710) Net change in due (to) from affiliates (29,794) 13,006 16,788 --------- --------- --------- --------- --------- Net cash provided by financing activities (37,071) 99,006 (49,885) 12,050 --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents (22,100) 6,307 (376) (16,169) Cash and cash equivalents at beginning of year 17,187 (6,394) 7,521 18,314 --------- --------- --------- --------- --------- Cash and cash equivalents at end of year $ (4,913) $ (87) $ 7,145 $ 2,145 ========= ========= ========= ========= =========
37 REPORT ON 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, 1998 and 1997 and for the three years ended June 30, 1998, 1997 and 1996 have been incorporated by reference in this Form 10-K from page 31 of the 1998 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 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, 1998 38 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. 39 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. 40 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, 1998 and 1997. Consolidated Statements of Income for the years ended June 30, 1998, 1997 and 1996. Consolidated Statements of Shareholders' Equity for the years ended June 30, 1998, 1997 and 1996. Consolidated Statements of Cash Flows for the years ended June 30, 1998, 1997 and 1996. 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. 41 (5) The Company did not file any reports on Form 8-K during the quarterly period ended June 30, 1998. Certain subsidiaries and affiliates of the Company filed reports on Form 8-K during the quarterly period ended June 30, 1998 reporting monthly information related to securitization trusts. 42 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 24, 1998 AMERICREDIT CORP. BY: /s/Clifton H. Morris, Jr. ------------------------- 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. SIGNATURE TITLE DATE --------- ----- ---- /s/Clifton H. Morris, Jr. Chairman of the Board and September 24, 1998 - --------------------------- Chief Executive Officer CLIFTON H. MORRIS, JR. /s/Daniel E. Berce Vice Chairman and September 24, 1998 - --------------------------- Chief Financial Officer DANIEL E. BERCE /s/Michael R. Barrington Vice Chairman, President September 24, 1998 - --------------------------- and Chief Operating Officer MICHAEL R. BARRINGTON /s/Edward H. Esstman Executive Vice President, September 24, 1998 - --------------------------- Auto Finance Division and EDWARD H. ESSTMAN Director /s/James H. Greer Director September 24, 1998 - --------------------------- JAMES H. GREER Director - --------------------------- ------------------- GERALD W. HADDOCK /s/Douglas K. Higgins Director September 24, 1998 - --------------------------- DOUGLAS K. HIGGINS Director - --------------------------- ------------------- KENNETH H. JONES, JR. 43 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 letters in parenthesis under the Exhibit Number column. Documents filed with this report are identified by the symbol "@" under the Exhibit Number column. Exhibit Number Description - ------- ----------- 3.1(a) -- 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(a) -- Amendment to Articles of Incorporation, filed October 18, 1989 (Exhibit 3.2) 3.3(e) -- Articles of Amendment to Articles of Incorporation of the Company, filed November 12, 1992 (Exhibit 3.3) 3.4(o) -- Bylaws of the Company, as amended (Exhibit 3.4) 4.1(d) -- Specimen stock certificate evidencing the Common Stock (Exhibit 4.1) 4.2(n) -- Rights Agreement, dated August 28, 1997, between the Company and ChaseMellon Shareholder Services, L.L.C. (Exhibit 1) 10.1(a) -- 1989 Stock Option Plan (with Stock Appreciation Rights) for the Company (Exhibit 10.5) 10.2(b) -- Amendment No. 1 to the 1989 Stock Option Plan (with Stock Appreciation Rights) for the Company (Exhibit 4.6) 10.3(c) -- 1990 Stock Option Plan for Non-Employee Directors of the Company (Exhibit 10.14) 10.4(d) -- 1991 Key Employee Stock Option Plan of the Company (Exhibit 10.10) 10.5(d) -- 1991 Non-employee Director Stock Option Plan of the Company (Exhibit 10.11) 10.6(d) -- Executive Employment Agreement, dated January 30, 1991, between the Company and Clifton H. Morris, Jr. (Exhibit 10.18) 10.6.1(o) -- 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(d) -- Executive Employment Agreement, dated January 30, 1991, between the Company and Michael R. Barrington (Exhibit 10.19) 10.7.1(o) -- Amendment No. 1 to Executive Employment Agreement, dated May 1, 1997, between the Company and Michael R. Barrington (Exhibit 10.8.1) 10.8(d) -- Executive Employment Agreement, dated January 30, 1991 between the Company and Daniel E. Berce (Exhibit 10.20) INDEX TO EXHIBITS (Continued) 10.8.1(o) -- Amendment No. 1 to Executive Employment Agreement, dated May 1, 1997, between the Company and Daniel E. Berce (Exhibit 10.9.1) 10.9(o) -- Amended and Restated Employment Agreement, dated October 15, 1996, between the Company and Edward H. Esstman (Exhibit 10.10) 10.9.1(o) -- 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(o) -- Amended and Restated Employment Agreement, dated July 1, 1997, between the Company and Michael T. Miller (Exhibit 10.11) 10.10.1@ -- Amendment No. 1 to Amended and Restated Employment Agreement, dated as of August 1, 1998, between the Company and Michael T. Miller 10.11 (p) -- 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) 10.12(p) -- 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) 10.13 (p) -- 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@ -- 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 10.13.2@ -- 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 10.13.3@ -- 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 INDEX TO EXHIBITS (Continued) 10.14(l) -- 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(l) -- 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(l) -- 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(g) -- 1995 Omnibus Stock and Incentive Plan for AmeriCredit Corp. 10.18(m) -- Amendment No. 1 to 1995 Omnibus Stock and Incentive Plan for AmeriCredit Corp 10.19(h) -- Pooling and Servicing Agreement relating to AmeriCredit Automobile Receivables Trust 1995-B, dated November 20, 1995, among AmeriCredit Financial Services, Inc., AmeriCredit Receivables Corp. and LaSalle National Bank (Exhibit 10.1) 10.20(i) -- Pooling and Servicing Agreement relating to AmeriCredit Automobile Receivables Trust 1996-A, dated February 12, 1996, among AmeriCredit Financial Services, Inc., AmeriCredit Receivables Corp. and LaSalle National Bank (Exhibit 10.1) 10.21(j) -- Pooling and Servicing Agreement relating to AmeriCredit Automobile Receivables Trust 1996-B, dated April 30, 1996, among AmeriCredit Financial Services, Inc., AFS Funding Corp. and LaSalle National Bank (Exhibit 4.1) 10.22(k) -- 1996 Limited Stock Option Plan for AmeriCredit Corp. 10.23(q) -- 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) 10.24(q) -- Purchase Agreement, dated January 26, 1998, between AmeriCredit Corp. and subsidiaries and Salomon Brothers, Inc. and Credit Suisse First Boston Corporation (Exhibit 10.25) 10.25(q) -- 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) 10.26(f) -- 1998 Limited Stock Option Plan for AmeriCredit 11.1@ -- Statement Re Computation of Per Share Earnings 12.1@ -- Statement Re Computation of Ratios INDEX TO EXHIBITS (Continued) 13.1@ -- 1998 Annual Report to Shareholders of the Company 21.1@ -- Subsidiaries of the Registrant 23.1@ -- Consent of PricewaterhouseCoopers LLP 27.1@ -- Financial Data Schedule _____________________________________________________________________ (a) 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. (b) 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. (c) 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. (d) 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. (e) 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. (f) 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. (g) 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. (h) 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, 1995 filed by the Company with the Securities and Exchange Commission. (i) 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, 1996 filed by Company with the Securities and Exchange Commission. (j) Incorporated by reference to the exhibit shown in parenthesis included in a Report on Form 8-K, dated May 16, 1996, filed by the AmeriCredit Automobile Receivables Trust 1996-B with the Securities and Exchange Commission. INDEX TO EXHIBITS (Continued) (k) 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. (l) 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, 1996 filed by the Company with the Securities and Exchange Commission. (m) 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. (n) 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. (o) 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. (p) 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. (q) Incorporated by reference to the exhibit shown in parenthesis included in Registration Statement No. 333-46993 on Form S-4 filed by the Company with the Securities and Exchange Commission. @ Filed herewith EX-10.10.1 2 AM. #1 TO AM. + RESTATED EMPLOY. AGREE. EXHIBIT 10.10.1 AMENDMENT NO. 1 TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDMENT NO. 1, dated as of August 1, 1998, is made and entered into by and between AmeriCredit Corp., a Texas corporation having an office at 200 Bailey Avenue, Fort Worth, Texas 76107 (hereinafter referred to as "Employer"), and Michael T. Miller, an executive employee of Employer (hereinafter referred to as "Executive"). WHEREAS, Employer and Executive have previously entered into that certain Amended and Restated Employment Agreement dated as of July 1, 1997 (the "Employment Agreement"). WHEREAS, Employer and Executive desire to amend the Employment Agreement to make certain provisions thereof consistent with the terms of employment agreements existing between Employer and certain other executives employed by Employer. NOW, THEREFORE, in consideration of Executive's continued employment by Employer and the mutual promises and covenants contained herein, the receipt and sufficiency of which is hereby acknowledged, Employer and Executive intend by this Amendment No. 1 to modify and amend the Employment Agreement as herein provided. 1. Amendment to Section 1.1 "General Duties of Employer and Employee." ------------------------------------------------------------------ The capacities in which Employee agrees to serve Employer and Subsidiary shall, as of the date of this Amendment No. 1, be as follows: Executive Vice President and Chief Credit Officer AmeriCredit Corp. Executive Vice President, Chief Credit Officer and Chief of Staff AmeriCredit Financial Services, Inc. and Americredit Corporation of California 2. Amendment to Section 2.1 "Compensation and Benefits." The first ---------------------------------------------------- sentence of Section 2.1 is hereby amended by deleting the number "$165,000" and replacing it with the number "$255,000." 3. Amendment to Section 7.3 - "Effect of Termination." The second and ------------------------------------------------- third sentences of Section 7.3 are hereby amended in their entirety as follows: In the event of a Constructive Termination, Employee shall be entitled to receive, in a lump sum within 30 days after the date of the Constructive Termination, an amount equal to the remainder of Employee's current year's salary (undiscounted) plus the present value (employing a discount rate of 8%) of two additional years' salary in effect immediately prior to the event giving rise to the Constructive Termination. For purposes of this Section 7.3, the term "salary" shall mean the sum of (i) the annual rate of compensation provided to Employee under Section 2.1 hereof immediately prior to the event giving rise to the Constructive Termination, plus (ii) the average annual cash bonuses or other cash incentive compensation paid to Employee by Employer for the three years in the three year period immediately preceding the year in which there shall occur a Constructive Termination. 4. Amendment to Section 8.1 - "Employee's Non-Competition Obligation." ------------------------------------------------------------------ The second sentence of Section 8.1 is hereby amended to read in its entirety as follows: During the existence of Employee's employment by Employer and Subsidiary hereunder and, if the employment of Employee is terminated by Employer for any reason pursuant to Section 6.2 or Employee voluntarily terminates his employment (unless such voluntary termination occurs within twelve months after a "change in control," as defined in Section 8A.1 hereof), for a period of three years from the date on which he shall cease to be employed by Employer or Subsidiary, Employee shall not, acting alone or in conjunction with others, directly or indirectly, and whether as principal, agent, officer, director, partner, employee, consultant, broker, dealer or otherwise, in any of the Business Territories (as defined below), engage in any business in competition with the business conducted by Employer, Subsidiary or any subsidiary of Employer or Subsidiary, whether for his own account or otherwise, or solicit, canvass or accept any business or transaction for or from any other company or business in competition with such business of Employer or Subsidiary in any of the Business Territories. 5. Effect of Amendments; Enforceability of Employment Agreement. This ------------------------------------------------------------ Amendment No. 1 replaces all previous agreements and discussions relating to the same or similar subject matters between Executive and Employer with respect to the subject matter of this Amendment No. 1. Except as otherwise expressly and specifically amended or modified by this Amendment No. 1, the terms and provisions of the Employment Agreement shall continue in full force and effect on and after the date hereof. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first written above. AMERICREDIT CORP. By: ------------------------------------- Michael R. Barrington, Vice Chairman, President and Chief Operating Officer EXECUTIVE: --------------------------------------- Michael T. Miller EX-10.13.1 3 1ST AM. TO REST. REVOLV. CRED. AGREE. EXHIBIT 10.13.1 FIRST AMENDMENT TO ------------------ RESTATED REVOLVING CREDIT AGREEMENT ----------------------------------- This First Amendment to Restated Revolving Credit Agreement (this "First Amendment") is made by and among AMERICREDIT CORP., a Texas corporation ("Company"), AMERICREDIT FINANCIAL SERVICES, INC., a Delaware corporation, AMERICREDIT OPERATING CO., INC., a Delaware corporation (individually, a "Borrower" and collectively, the "Borrowers"), AMERICREDIT PREMIUM FINANCE, INC., a Delaware corporation, and ACF INVESTMENT CORP., a Delaware corporation, and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, BANK ONE, TEXAS, N.A., LASALLE NATIONAL BANK, THE SUMITOMO BANK, LIMITED, HARRIS TRUST AND SAVINGS BANK, COMERICA BANK-TEXAS, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (FORMERLY TEXAS COMMERCE BANK NATIONAL ASSOCIATION), BANKAMERICA BUSINESS CREDIT, INC., THE BANK OF NOVA SCOTIA, CIBC INC, CREDIT LYONNAISE NEW YORK BANK, INC., BANK BOSTON, N.A. and THE LONG TERM CREDIT BANK OF JAPAN, LIMITED (collectively, the "Banks"), WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as agent for the Banks ("Agent") and BANK ONE, TEXAS, N.A. ("Co-Agent"). WHEREAS, on October 3, 1997, the parties entered into that one certain Restated Revolving Credit Agreement (the "Credit Agreement") providing for a revolving credit facility to Borrowers in the maximum amount of $310,000,000 at any one time outstanding; and WHEREAS, Borrowers and Guarantors propose to issue an additional $75,000,000 in Senior Notes and Subsidiary guarantees thereof pursuant to a Preliminary Offering Memorandum dated January 21, 1998, and Banks consent to such issuances of additional Senior Notes and Subsidiary guarantees as they are described in the Preliminary Offering Memorandum; and WHEREAS, Borrowers and Guarantors have requested Banks to amend the Credit Agreement so that its terms will not conflict with the issuance of the Senior Notes and Subsidiary guarantees thereof; and NOW THEREFORE, for good and valuable consideration, the receipt and total sufficiency of which is hereby acknowledged, it is agreed by and among the parties as follows: 1. The definition of Senior Notes in Article I of the Credit Agreement is amended to read in its entirety as follows: "Senior Notes" shall mean (i) the $125,000,000 of senior unsecured ------------ notes of the Company due 2004 and all Guarantees thereof by the other Borrowers, Guarantors and the Mortgage Subsidiary issued pursuant to an Indenture dated as of February 4, 1997 between the Company and the trustee named therein, (ii) those senior unsecured notes of Company due 2004 and all Guarantees thereof by the other Borrowers, Guarantors and the Mortgage Subsidiary to be sold pursuant to a Preliminary Offering Memorandum dated January 21, 1998 and issued or to be issued pursuant to an Indenture between the Company and the trustee named therein, and (iii) any new issue of debt securities of the Company and all Guarantees thereof by the other Borrowers, Guarantors and the Mortgage Subsidiary with the same terms issued in exchange for any of such senior unsecured notes; or 2. Except as amended above and by this First Amendment, the Credit Agreement is ratified and confirmed and shall remain in full force and effect. 3. Borrowers agree to pay all costs and expenses incurred by Banks in connection with this First Amendment. 4. This First Amendment may be executed in multiple counterparts, each of which shall constitute an original. 5. This First Amendment shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 2 6. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Executed to be effective as of January 21, 1998. AMERICREDIT CORP., a Texas corporation By: --------------------------------------- Preston Miller, Vice President AMERICREDIT FINANCIAL SERVICES, INC., a Delaware corporation By: --------------------------------------- Preston Miller, Senior Vice President AMERICREDIT OPERATING CO., INC., a Delaware corporation By: --------------------------------------- Preston Miller, Senior Vice President BORROWERS AMERICREDIT PREMIUM FINANCE, INC., a Delaware corporation By: --------------------------------------- Preston Miller, Senior Vice President ACF INVESTMENT CORP., a Delaware corporation By: --------------------------------------- Preston Miller, Senior Vice President 3 GUARANTORS WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: -------------------------------------------- Susan B. Sheffield, Vice President BANK ONE, TEXAS, N.A. By: -------------------------------------------- J. Michael Wilson, Vice President LASALLE NATIONAL BANK By: -------------------------------------------- Terry M. Keating, First Vice President THE SUMITOMO BANK LIMITED By: -------------------------------------------- John J. O'Neill, Vice President and Manager By: -------------------------------------------- Julie A. Schell, Vice President HARRIS TRUST AND SAVINGS BANK By: -------------------------------------------- Michael A. Houlihan, Vice President COMERICA BANK-TEXAS By: -------------------------------------------- Stephen Graham, Senior Vice President 4 CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly Texas Commerce Bank National Association) By: --------------------------------------- B. B. Wuthrich, Vice President BANKAMERICA BUSINESS CREDIT, INC. By: --------------------------------------- Bruce E. Jenks, Vice President THE BANK OF NOVA SCOTIA By: --------------------------------------- F. C. H. Ashby, Senior Manager- Loan Operations CIBC INC. By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ CREDIT LYONNAIS NEW YORK BRANCH By: --------------------------------------- Name: ------------------------------------- Title: ------------------------------------ 5 BANK BOSTON, N.A. By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- BANKS WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: ------------------------------------------- Susan B. Sheffield, Vice President AGENT BANK ONE, TEXAS, N.A. By: ------------------------------------------- J. Michael Wilson, Vice President CO-AGENT 6 EX-10.13.2 4 2ND AM. REVOLV. AGREE. EXHIBIT 10.13.2 SECOND AMENDMENT TO ------------------- RESTATED REVOLVING CREDIT AGREEMENT ----------------------------------- This Second Amendment to Restated Revolving Credit Agreement (this "Second Amendment") is made by and among AMERICREDIT CORP., a Texas corporation ("Company"), AMERICREDIT FINANCIAL SERVICES, INC., a Delaware corporation, AMERICREDIT OPERATING CO., INC., a Delaware corporation (individually, a "Borrower" and collectively, the "Borrowers"), AMERICREDIT PREMIUM FINANCE, INC., a Delaware corporation, and ACF INVESTMENT CORP., a Delaware corporation, and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, BANK ONE, TEXAS, N.A., LASALLE NATIONAL BANK, COMERICA BANK-TEXAS, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (FORMERLY TEXAS COMMERCE BANK NATIONAL ASSOCIATION), BANKAMERICA BUSINESS CREDIT, INC., THE BANK OF NOVA SCOTIA, CIBC INC, CREDIT LYONNAIS NEW YORK BRANCH, BANK BOSTON, N.A. and THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED (collectively, the "Banks"), WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as agent for the Banks ("Agent") and BANK ONE, TEXAS, N.A. ("Co-Agent"). WHEREAS, on October 3, 1997, the parties entered into that one certain Restated Revolving Credit Agreement (the "Credit Agreement") providing for a revolving credit facility to Borrowers in the maximum amount of $310,000,000 at any one time outstanding; and WHEREAS, the parties entered into a First Amendment to Restated Revolving Credit Agreement dated January 21, 1998 (the "First Amendment"); and WHEREAS, the parties have agreed to amend the Credit Agreement in certain respects. NOW THEREFORE, for good and valuable consideration, the receipt and total sufficiency of which is hereby acknowledged, it is agreed by and among the parties as follows: 1. The definition of Termination Date in Article I of the Credit Agreement is amended to read in its entirety as follows: "Termination Date" shall mean April 1, 1999. ---------------- 2. Section 2.01(a) of the Credit Agreement is amended to read in its entirety as follows: 2.01. Revolving Credit Commitment. --------------------------- (a) Revolving Loan Commitments. Subject to the terms and conditions -------------------------- of this Loan Agreement and the Revolving Credit Borrowing Base limitation in Section 2.01(b), each Bank severally agrees to extend to Borrowers, from the date hereof through the Termination Date (the "Revolving Credit Period"), a revolving line of credit which shall not exceed at any one time outstanding the amount set forth opposite its name below (for each Bank, such amount is hereinafter referred to as its "Commitment"): Commitment Percentage Bank Commitment (Rounded) ---- ----------- -------------- Wells Fargo Bank (Texas), $45,000,000 16.9811320755% National Association Bank One, Texas, N.A. $40,000,000 15.0943396226% LaSalle National Bank $30,000,000 11.3207547170% Chase Bank of Texas, National $25,000,000 9.4339622642% Association Comerica Bank-Texas $25,000,000 9.4339622642% BankAmerica Business Credit, Inc. $25,000,000 9.4339622642% The Bank of Nova Scotia $15,000,000 5.6603773585% CIBC Inc. $15,000,000 5.6603773585% Credit Lyonnais New York Branch $15,000,000 5.6603773585% BankBoston, N.A. $15,000,000 5.6603773585% The Long-Term Credit Bank of Japan, $15,000,000 5.6603773585% ------------ -------------- Limited $265,000,000 100.0000000000% ============ ============== No Bank shall be obligated to make any Advance under this Section 2.01 and Section 2.02 if, immediately after giving effect thereto, the aggregate amount of all indebtedness and obligations of Borrowers to such Bank under Section 2.01, Section 2.02 and Section 2.03 exceeds the lesser of (a) such Bank's Commitment or (b) an amount equal to such Bank's Percentage times the Revolving Credit Borrowing Base in effect at such time. 2 Within the limits of this Section 2.01, during the Revolving Credit Period, Borrowers may borrow, prepay pursuant to Section 3.03 hereof and reborrow under this Section 2.01; provided, however, the total number of unpaid Eurodollar Borrowings shall not exceed five (5) at any time. Each Borrowing pursuant to this Section 2.01 and Section 2.02 shall be funded ratably by Banks in proportion to their respective Percentages. Each advance made by a Bank under Section 2.01 and Section 2.02 is herein called an "Advance"; all Advances made by a Bank hereunder are herein collectively called a "Revolving Credit Loan"; the aggregate unpaid principal balance of all Advances made by Banks hereunder are herein collectively called the "Revolving Credit Loans"; and the combined Advances made by Banks on any given day are herein collectively called a "Borrowing". The "Total Commitment" shall be two hundred sixty-five million dollars ($265,000,000). 3. Section 9.02 of the Loan Agreement is amended to read in its entirety as follows: 9.02 Minimum Interest Coverage Ratio. Permit the Interest ------------------------------- Coverage Ratio computed on a trailing twelve (12) month basis to be less than 1.85 to 1.0 at any time; or 4. A new section 8.34 is added to the Loan Agreement which shall read in its entirety as follows: 8.34 Year 2000 Compliant. Borrower shall perform all acts ------------------- reasonably necessary to ensure that Borrower and any business in which Borrower holds a substantial interest become Year 2000 Compliant in a timely manner. Such acts shall include, without limitation, performing a comprehensive review and assessment of all of Borrower's systems and adopting a detailed plan, with itemized budget, for the remediation, monitoring and testing of such systems. As used in this paragraph, "Year 2000 Compliant" shall mean, in regard to any entity, that all software, hardware, firmware, equipment, goods or systems utilized by or material to the business operations or financial condition of such entity, will properly perform date sensitive functions before, during and after the year 2000. Borrower shall, immediately upon request, provide to Bank such certifications or other evidence of Borrower's compliance with the terms of this Section 8.34 as Bank may from time to time require. 5. At the time of execution of this Second Amendment, Borrowers shall pay to Agent, for the pro rata benefit of Banks, a fee in the amount of sixty-five thousand seven hundred and five dollars ($65,705). 3 6. Except as amended above and by this First Amendment, the Credit Agreement is ratified and confirmed and shall remain in full force and effect. 7. Borrowers agree to pay all costs and expenses incurred by Banks in connection with this Second Amendment (including all attorney's fees). 8. This Second Amendment may be executed in multiple counterparts, each of which shall constitute an original. 9. This Second Amendment shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 10. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Executed to be effective as of April 30, 1998. AMERICREDIT CORP., a Texas corporation By: --------------------------------------- Preston Miller, Vice President AMERICREDIT FINANCIAL SERVICES, INC., a Delaware corporation By: --------------------------------------- Preston Miller, Senior Vice President AMERICREDIT OPERATING CO., INC., a Delaware corporation 4 By: --------------------------------------- Preston Miller, Senior Vice President BORROWERS AMERICREDIT PREMIUM FINANCE, INC., a Delaware corporation By: --------------------------------------- Preston Miller, Senior Vice President ACF INVESTMENT CORP., a Delaware corporation By: --------------------------------------- Preston Miller, Senior Vice President GUARANTORS WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: --------------------------------------- Susan B. Sheffield, Vice President BANK ONE, TEXAS, N.A. By: --------------------------------------- J. Michael Wilson, Vice President 5 LASALLE NATIONAL BANK By: --------------------------------------- Terry M. Keating, Senior Vice President COMERICA BANK-TEXAS By: --------------------------------------- Stephen Graham, Senior Vice President CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly Texas Commerce Bank National Association) By: --------------------------------------- B. B. Wuthrich, Vice President BANKAMERICA BUSINESS CREDIT, INC. By: --------------------------------------- Bruce E. Jenks, Vice President THE BANK OF NOVA SCOTIA By: --------------------------------------- F. C. H. Ashby, Senior Manager- Loan Operations CIBC INC. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- CREDIT LYONNAIS NEW YORK BRANCH 6 By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- BANK BOSTON, N.A. By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- BANKS WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: --------------------------------------- Susan B. Sheffield, Vice President AGENT BANK ONE, TEXAS, N.A. By: --------------------------------------- J. Michael Wilson, Vice President CO-AGENT 7 EX-10.13.3 5 3RD AM. REST. REVOLV. AGREE. EXHIBIT 10.13.3 THIRD AMENDMENT TO ------------------ RESTATED REVOLVING CREDIT AGREEMENT ----------------------------------- This Third Amendment To Restated Revolving Credit Agreement (this "Third Amendment") is made by and among AMERICREDIT CORP., a Texas corporation ("Company"), AMERICREDIT FINANCIAL SERVICES, INC., a Delaware corporation, AMERICREDIT OPERATING CO., INC., a Delaware corporation (individually, a "Borrower" and collectively, the "Borrowers"), AMERICREDIT PREMIUM FINANCE, INC., a Delaware corporation, and ACF INVESTMENT CORP., a Delaware corporation, and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, LASALLE NATIONAL BANK, COMERICA BANK-TEXAS, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (FORMERLY TEXAS COMMERCE BANK NATIONAL ASSOCIATION), BANKAMERICA BUSINESS CREDIT, INC., THE BANK OF NOVA SCOTIA, CIBC INC, CREDIT LYONNAIS NEW YORK BRANCH, BANK BOSTON, N.A., THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED and NATIONAL CITY BANK (collectively, the "Banks"), and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, as agent for the Banks ("Agent"). WHEREAS, on October 3, 1997, the parties entered into that one certain Restated Revolving Credit Agreement (the "Credit Agreement") providing for a revolving credit facility to Borrowers in the maximum amount of $310,000,000 at any one time outstanding; and WHEREAS, the parties entered into a First Amendment To Restated Revolving Credit Agreement dated January 21, 1998 (the "First Amendment"); and WHEREAS, the parties entered into a Second Amendment To Restated Revolving Credit Agreement dated April 30, 1998 (the "Second Amendment"); and WHEREAS, the parties have agreed to amend the Credit Agreement in certain respects. NOW THEREFORE, for good and valuable consideration, the receipt and total sufficiency of which is hereby acknowledged, it is agreed by and among the parties as follows: 1. The definitions of "Domestic Finance Contract" and "Permitted Liens" in Article I of the Credit Agreement are amended to read in their entirety as follows: "Domestic Finance Contract" shall mean a Finance Contract that (i) is ------------------------- denominated and payable only in Dollars and (ii) is not owned by a Non- Domestic Subsidiary. "Permitted Liens" shall mean: (i) Liens on equipment and fixed --------------- assets, including purchase money Liens, relating to or securing obligations in an aggregate amount not to exceed the positive difference between (a) twenty million dollars ($20,000,000) and (b) the aggregate amount of Liens described in (viii) below at any time; (ii) pledges or deposits made to secure payment of Worker's Compensation (or to participate in any fund in connection with Worker's Compensation), unemployment insurance, pensions or social security programs; (iii) Liens imposed by mandatory provisions of law such as for materialmen's, mechanics, warehousemen's and other like Liens arising in the ordinary course of business, securing Indebtedness whose payment is not yet due unless the same are being contested in good faith and for which adequate reserves have been provided; (iv) Liens for taxes, assessments and governmental charges or levies imposed upon a Person or upon such Person's income or profits or property, if the same are not yet due and payable or if the same are being contested in good faith and as to which adequate reserves have been provided; (v) Liens with respect to good faith deposits in connection with tenders, leases, real estate bids or contracts (other than contracts involving the borrowing of money unless such Liens are otherwise Permitted Liens), pledges or deposits to secure public or statutory obligations, deposits to secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to secure the payment of taxes, assessments, customs duties or other similar charges; (vi) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real property, provided that such do not impair the use of such property for the uses intended, and none of which is violated by Company or any of its Subsidiaries in connection with existing or proposed structures or land use; (vii) Liens and encumbrances created and existing in connection with Securitizations and any Additional Warehouse Facility; (viii) Liens on short term investments pledged to Texas Commerce Bank in an aggregate amount not to exceed two million dollars ($2,000,000) with respect to the Mortgage Subsidiary; (ix) Liens on Credit Enhancement Assets in Securitizations, and (x) Liens on property or assets of a Non-Domestic Subsidiary. 2. A new definition of "Non-Domestic Subsidiary" is added to Article I of the Credit Agreement which shall read as follows: "Non-Domestic Subsidiary" shall mean an entity organized, created or ----------------------- formed under the laws of a jurisdiction located outside the United States of America. 3. Section 2.01(a) of the Credit Agreement is amended to read in its entirety as follows: 2.01. Revolving Credit Commitment. --------------------------- (a) Revolving Loan Commitments. Subject to the terms and conditions -------------------------- of this Loan Agreement and the Revolving Credit Borrowing Base limitation in Section 2.01(b), each Bank severally agrees to extend to Borrowers, from the date hereof through the Termination Date (the "Revolving Credit 2 Period"), a revolving line of credit which shall not exceed at any one time outstanding the amount set forth opposite its name below (for each Bank, such amount is hereinafter referred to as its "Commitment"):
Commitment Percentage Banks Commitment (Rounded) ----- ---------- ---------- Wells Fargo Bank (Texas), $45,000,000 19.1489361700% National Association LaSalle National Bank $30,000,000 12.7659574470% Chase Bank of Texas, National $25,000,000 10.6382978730% Association Comerica Bank-Texas $25,000,000 10.6382978730% BankAmerica Business Credit, Inc. $25,000,000 10.6382978730% The Bank of Nova Scotia $15,000,000 6.3829878230% CIBC Inc. $15,000,000 6.3829787230% Credit Lyonnais New York Branch $15,000,000 6.3829787230% BankBoston, N.A. $15,000,000 6.3829787230% The Long-Term Credit Bank of Japan, $15,000,000 6.3829787230% Limited National City Bank $10,000,000 4.2553191490% ----------- $235,000,000 100.00000000000% ============ ===============
No Bank shall be obligated to make any Advance under this Section 2.01 and Section 2.02 if, immediately after giving effect thereto, the aggregate amount of all indebtedness and obligations of Borrowers to such Bank under Section 2.01, Section 2.02 and Section 2.03 exceeds the lesser of (a) such Bank's Commitment or (b) an amount equal to such Bank's Percentage times the Revolving ----- Credit Borrowing Base in effect at such time. Within the limits of this Section 2.01, during the Revolving Credit Period, Borrowers may borrow, prepay pursuant to Section 3.03 hereof and reborrow under this Section 2.01; provided, however, the total number of unpaid Eurodollar Borrowings shall not exceed five (5) at any time. Each Borrowing pursuant to this Section 2.01 and Section 2.02 shall be funded 3 ratably by Banks in proportion to their respective Percentages. Each advance made by a Bank under Section 2.01 and Section 2.02 is herein called an "Advance"; all Advances made by a Bank hereunder are herein collectively called a "Revolving Credit Loan"; the aggregate unpaid principal balance of all Advances made by Banks hereunder are herein collectively called the "Revolving Credit Loans"; and the combined Advances made by Banks on any given day are herein collectively called a "Borrowing". The "Total Commitment" shall be two hundred thirty-five million dollars ($235,000,000). 4. Section 8.23 and Section 8.24 of the Credit Agreement are amended to read as follows: 8.23. Principal Depository. Borrowers shall use Agent as their -------------------- principal depository; Borrowers shall use the lockbox services of Agent. 8.24. Guaranty of Subsidiary Corporations. Borrowers shall cause ----------------------------------- each Subsidiary formed or acquired after the date of this Agreement to execute a Guaranty of the Notes within ten (10) days after the date of formation or acquisition of such Subsidiary except (i) any special purpose Subsidiary formed solely for the purpose of consummating a Securitization or an Additional Warehouse Facility and (ii) the Mortgage Subsidiary, or (iii) a Non-Domestic Subsidiary. 5. Section 9.11 of the Credit Agreement is amended to read as follows: 9.11. No Grant of Negative Pledge. Agree with any Person not to --------------------------- create or suffer to exist any mortgage, pledge, security interest or encumbrance or Lien upon any of its property or assets now owned or hereafter acquired except (a) with respect to the property or assets of the Mortgage Subsidiary, (b) in connection with the Senior Notes or (c) with respect to property or assets of a Non-Domestic Subsidiary; or 6. Section 12.13 of the Credit Agreement is hereby deleted. 7. Except as amended above and by the First Amendment and the Second Amendment, the Credit Agreement is ratified and confirmed and shall remain in full force and effect. 8. Borrowers agree to pay all costs and expenses incurred by Banks in connection with this Third Amendment (including all attorney's fees). 4 9. This Third Amendment may be executed in multiple counterparts, each of which shall constitute an original. 10. This Third Amendment shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. 11. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Executed to be effective as of August 31, 1998. AMERICREDIT CORP., a Texas corporation By: ----------------------------------------- Preston Miller, Executive Vice President AMERICREDIT FINANCIAL SERVICES, INC., a Delaware corporation By: ----------------------------------------- Preston Miller, Executive Vice President AMERICREDIT OPERATING CO., INC., a Delaware corporation By: ----------------------------------------- Preston Miller, Executive Vice President BORROWERS 5 AMERICREDIT PREMIUM FINANCE, INC., a Delaware corporation By: ----------------------------------------- Preston Miller, Executive Vice President ACF INVESTMENT CORP., a Delaware corporation By: ----------------------------------------- Preston Miller, Executive Vice President GUARANTORS WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: ----------------------------------------- Susan B. Sheffield, Vice President LASALLE NATIONAL BANK By: ----------------------------------------- Terry M. Keating, Senior Vice President COMERICA BANK-TEXAS By: ----------------------------------------- Ty Maxfield, Assistant Vice President CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (formerly Texas Commerce Bank National Association) By: ----------------------------------------- B. B. Wuthrich, Vice President 6 BANKAMERICA BUSINESS CREDIT, INC. By: ----------------------------------------- Kevin Corcoran, Vice President THE BANK OF NOVA SCOTIA By: ----------------------------------------- F. C. H. Ashby, Senior Manager- Loan Operations CIBC INC. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- CREDIT LYONNAIS NEW YORK BRANCH By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- BANK BOSTON, N.A. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED By: ----------------------------------------- 7 Name: --------------------------------------- Title: -------------------------------------- NATIONAL CITY BANK By: ----------------------------------------- Michael Durbin, Vice President BANKS WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION By: ----------------------------------------- Susan B. Sheffield, Vice President AGENT 8 EX-11.1 6 STATE. RE COMP. OF PER SHARE EARNS. EXHIBIT 11.1 AMERICREDIT CORP. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (dollars in thousands, except per share amounts)
Years Ended June 30, ---------------------------------------- 1998 1997 1996 ---- ---- ---- Weighted average shares outstanding 30,094,394 28,887,362 28,524,571 Incremental shares resulting from assumed exercise of stock options 2,507,336 1,899,912 1,678,727 ----------- ----------- ----------- Weighted average shares and assumed incremental shares 32,601,730 30,787,274 30,203,298 =========== =========== =========== NET INCOME $ 60,741 $ 38,699 $ 21,591 =========== =========== =========== EARNINGS PER SHARE: Basic $ 2.02 $ 1.34 $ 0.76 =========== =========== =========== Diluted $ 1.86 $ 1.26 $ 0.71 =========== =========== ===========
Basic earnings per share has been computed by dividing net income by the weighted average shares outstanding. Diluted earnings per share has been computed by dividing net income by the 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. EX-12.1 7 STATE RE. COMP. OF RATIOS EXHIBIT 12.1 AMERICREDIT CORP. STATEMENT RE COMPUTATION OF RATIOS (dollars in thousands)
Years Ended June 30, ------------------------------ 1998 1997 1996 ---- ---- ---- COMPUTATION OF EARNINGS: Income before income taxes $ 98,766 $ 62,925 $ 34,256 Interest expense (none capitalized) 27,135 16,312 13,129 -------- -------- -------- $125,901 $ 79,237 $ 47,385 ======== ======== ======== COMPUTATION OF FIXED CHARGES: Interest expense $ 27,135 $ 16,312 $ 13,129 -------- -------- -------- $ 27,135 $ 16,312 $ 13,129 ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES 4.6x 4.9x 3.6x ======== ======== ========
EX-13.1 8 1998 ANNUAL REPORT EXHIBIT 13.1 CORPORATE PROFILE AmeriCredit Corp. is a national consumer finance company specializing in purchasing, securitizing and servicing automobile loans, and originating and selling mortgage loans. The Company is headquartered in Fort Worth, Texas, and its common shares are traded on the New York Stock Exchange. Through its AmeriCredit Financial Services 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 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 loan portfolio at regional centers using automated servicing and collection systems. The Company's AmeriCredit Mortgage Services operation originates mortgage loans and sells the loans and related servicing rights in the wholesale markets. WITH INSIGHT - THE CHOICE IS CLEAR AmeriCredit's decision support processes and technologies enable our people to make informed choices in a business where separating the diamonds from the rough is critical. Our proprietary credit scoring models allow our underwriters to quickly assess the quality of thousands of applications for credit every day. Risk based pricing tools help us price each loan to achieve profitability objectives. Statistically-based behavorial assessment models used in the collection process focus the efforts of our collectors on the highest risk accounts out of the more than 200,000 loans that we service. Finally, our extensive database and data mining capabilities assist us in designing strategies that mitigate risk, but also recognize opportunity. It has taken us six years to build these processes and technologies. With further insight, our ability to identify clear choices will only get better. 1 LETTER TO SHAREHOLDERS This 1998 Annual Report highlights the processes and technologies we utilize in our business. Along with the strength of our people and their loyalty to execution, these systems have differentiated AmeriCredit as the leader in non- prime auto finance. AmeriCredit has created clear competitive advantage in our markets through deployment of our unique strategies for managing risk, and we intend to sustain our position through further investments in fiscal 1999 and beyond. FISCAL 1998 RESULTS AmeriCredit set new milestones for operating results in fiscal 1998. Net income reached a record $60.7 million in fiscal 1998, an increase of 57% over earnings of $38.7 million in fiscal 1997. On a per share basis, the Company earned $1.86 for fiscal 1998, up 48% over earnings per share of $1.26 last year. We have now increased earnings (exclusive of income taxes) for seventeen consecutive quarters. Our record financial performance was again driven by strong receivables growth and good risk management results. RECEIVABLES GROWTH Managed auto receivables grew by $1.2 billion, or 102%, in fiscal 1998, increasing AmeriCredit's portfolio to $2.3 billion at June 30, 1998 from $1.1 billion at the end of fiscal 1997. We purchased $1.7 billion of loans from dealers in fiscal 1998, up 92% compared to loan originations of $0.9 billion the prior year. Loan volume benefited from our continued pace of new office openings as well as market share gains in existing branch territories. Branches open for at least one year as of the beginning of this fiscal year produced 22% higher loan volume in fiscal 1998 than in fiscal 1997. We are optimistic about the prospects for further advances in our market share. In our annual dealer marketing survey, conducted by an independent marketing research firm, AmeriCredit received its highest marks ever in key areas such as reputation, product offerings and service. More dealers are citing factors where AmeriCredit stands out, such as financial stability and industry leadership, as being important in choosing a non-prime lender. As evidence of dealers' growing endorsement of AmeriCredit, we purchased loans from 9,204 auto 2 dealers in fiscal 1998, up 63% from 5,657 dealers last year. Most important, more than half of the dealers included in the survey expect to increase the volume of business they do with AmeriCredit over the next two years. EXPANSION AmeriCredit opened 44 branches in fiscal 1998 and at June 30, 1998, had a total of 129 auto lending offices located in 36 states. We are now licensed to purchase auto loans in all 50 states. We also formed our Strategic Alliance Group last year to function as an additional origination channel to complement our branch network. This unit seeks to create alliances with prime lenders and large dealer groups in order to tap new and potentially high volume sources of application flow. We are encouraged by the early success of this effort. In fiscal 1999, we plan to open 45 additional auto lending offices. As was the case this year, we will continue to look mostly to promotions from within our existing employee base for branch managers to lead these new offices. Another expansion goal is to increase the penetration of our preferred program within our established dealer base. This product, which is designed to offer competitive rates for lower risk credits, represented 19% of our volume in fiscal 1998. In anticipation of further growth, we recently expanded our Fort Worth and Tempe servicing centers and opened a third facility in Charlotte in August 1997. These three centers provide us with capacity to service in excess of 500,000 consumer accounts, roughly 150% more than the number of loans we now service. CREDIT QUALITY The most prominent highlight of our fiscal 1998 performance was that we accomplished our growth objectives while producing improving credit quality trends. Net charge-offs represented 5.3% of average managed auto receivables for fiscal 1998, down from net charge-offs of 5.5% the prior year. Our annualized charge- off rate for the fourth quarter was 5.1%, the lowest level of the fiscal year. 3 Accounts more than 60 days past due were 2.6% of the portfolio at June 30, 1998, compared to 3.2% at June 30, 1997. The key to our credit underwriting process is the use of multiple proprietary credit scorecards designed to assess risk across a wide spectrum of non-prime applicants, including accounts with limited credit bureau history and high bankruptcy potential. The scoring models we use today are the product of statistical modeling and data mining techniques applied to the warehouse of information we have accumulated since we made our first loan in 1992. We are currently developing a family of new scorecards designed to further segment our application base into groups of accounts with similar profiles, thus increasing predictive capabilities. TECHNOLOGY AND EFFICIENCY Our emphasis on applying technology to all aspects of our business, along with our increasing scale of operations, again led to improvements in operating efficiency in fiscal 1998. AmeriCredit's ratio of operating expenses to average managed auto receivables decreased to 5.4% for fiscal 1998 from 6.2% the previous year. We expect to see further improvements in this ratio in fiscal 1999 as we benefit from continued portfolio growth and technology initiatives. We recently installed and are currently testing new adaptive control software designed to increase collector efficiency and improve customer service in the collection process. This system uses behavioral scoring models based on consumer credit history and payment activity to focus the frequency and timing of collection efforts on higher risk accounts. The Company is now working on implementation of a new application processing system which will provide faster response times and greater control over the credit origination process. In response to feedback from dealers in our dealer marketing survey, we are also taking steps to further automate loan processing which will result in faster funding for dealers. MORTGAGE BUSINESS The systematic process of building our mortgage business moved forward in fiscal 1998. We originated $137.2 million of mortgage loans this fiscal year, again selling these loans in the wholesale markets. During the latter half of 4 the year we hired several key experienced executives and recently opened loan production offices in Cincinnati and Fort Worth to supplement our existing Orange, California branch. We will continue to make appropriate investments in people, processes and systems consistent with our strategy to build the right platform for future expansion. FINANCE ACTIVITY AmeriCredit improved its capital and liquidity position in fiscal 1998. We again accessed the public asset-backed securities market on a quarterly basis, raising $1.6 billion in four transactions. Through various enhancements to the structure of our transactions, we reduced our relative funding costs and lowered the amount of cash we are required to set aside in reserve accounts to support securitized loan pools. Early in the year, we implemented an asset-backed commercial paper warehouse facility totaling $245 million to complement our bank credit agreement. We plan to increase our warehouse credit capacity in fiscal 1999 through further participation in the asset-backed commercial paper market. Finally, we issued an additional $50 million of senior notes in January 1998 with terms very similar to our $125 million note issuance last year. Our senior notes are rated by three of the major credit rating agencies, one of which recently upgraded our debt rating to the level just below investment grade. OUTLOOK Six years ago, we entered a competitive industry with an innovative business model designed to better serve dealer needs, comprehensively address credit quality and sustain a low cost of operation. Many participants in our industry were unprepared for the changing competitive landscape and evolving consumer dynamics that have characterized non-prime auto finance the last few years. We are now distancing ourselves from the competition by leveraging our core competencies through expansion of our branch network, market niche, distribution channels and technology platform. Fiscal 1999 and the years ahead provide a window of opportunity to solidify our position as the market leader in non-prime auto finance, and we are well prepared to maximize this opportunity. 5 Sincerely, Clifton H. Morris, Jr. Chairman of the Board and Chief Executive Officer September 4, 1998 6 MAKING CLEAR CHOICES In AmeriCredit's technologically advanced lending world, there is no reliance on guesswork. Even though two applications may appear similar, our underwriters know in a matter of minutes the relative risk of each. And that in itself gives us an advantage. AmeriCredit's ability to evaluate risk by degrees is revolutionizing the industry and the way dealers do business. AmeriCredit's success lies in proprietary credit scoring models. When a loan application is entered into our processing system, credit bureau information is accessed immediately. Multiple credit scores are produced, all designed to predict default probability. The higher the scores, the lower the risk of default. High-scoring loans are rapidly approved; low-scoring ones are quickly declined. From there, the efficiencies keep building. AmeriCredit uses risk-based pricing models to balance risk and return. Once loan documentation is approved, it's optically scanned to create a paperless work environment. Loan proceeds are then forwarded to dealers via check or Electronic Funds Transfer. An internally developed software system monitors lien perfection. ADAPTING OUR COLLECTION SYSTEM Even our collection process eliminates guesswork. It's adaptive. AmeriCredit uses behavioral assessment strategies to measure the risk of delinquency on individual accounts. Once an account has been on our books for a short time, a score is generated based on the payment history of the account. Frequency and timing of collection efforts can then be tailored to the account level. MONITORING THE CYCLE Finally, AmeriCredit brings our risk management techniques full circle by constantly monitoring overall loan performance, residual values and even loan profitability. The whole process has been built over a six- year period, but the result has been an extensive, unmatched database that is continually being mined to refine our strategies in support of planned growth. 7 IMPROVING EFFICIENCY Of course, AmeriCredit remains a low-cost provider, thanks to our technology and scale of operations, as well as our financing sources. We fund our loan portfolio through a traditional bank line of credit and a commercial paper conduit facility. We also tap the asset-backed securities market each quarter. Detailed reporting on pool performance is disseminated to the asset-backed market each month. These sophisticated funding structures are tailored to meet the investors' needs and allow AmeriCredit to gain access to low-cost capital. LOOKING AHEAD Advanced technology has enabled AmeriCredit to provide superior service, speed and consistency to dealers. It also has enhanced management control through detailed data analysis. Where others have seen risk, we have seen opportunity. Looking ahead, we will continue our commitment to information technology, which will broaden even further our ability to make clear choices and solid business decisions. 8 AMERICREDIT CORP. SUMMARY FINANCIAL AND OPERATING INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended ---------------------------------------------------------------- June 30, June 30, June 30, June 30, June 30, 1998 1997 1996 1995 (a) 1994 ----------- ----------- ----------- ------------ ----------- OPERATING DATA: Auto loan originations $ 1,737,813 $ 906,794 $ 432,442 $ 230,176 $ 65,929 Finance charge income 55,837 44,910 51,706 30,249 12,788 Gain on sale of receivables 123,245 67,256 22,873 Servicing fee income 42,684 21,024 3,712 Income before income taxes 98,766 62,925 34,256 10,018 5,065 Net income 60,741 38,699 21,591 28,893 5,065 Diluted earnings per share 1.86 1.26 0.71 0.95 0.16 Weighted average shares and assumed incremental shares 32,601,730 30,787,274 30,203,298 30,380,749 31,818,083
June 30, June 30, June 30, June 30, June 30, 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: Cash and cash equivalents and restricted cash $ 101,345 $ 73,922 $ 17,449 $ 23,321 $ 15,756 Receivables, net 342,853 266,657 250,484 221,888 72,150 Interest-only receivables from Trusts 137,803 59,933 11,819 Investments in Trust receivables 117,990 54,443 21,274 Total assets 748,561 493,453 330,159 285,725 122,215 Total liabilities 442,400 276,917 166,934 138,499 2,714 Shareholders' equity 306,161 216,536 163,225 147,226 119,501 Managed auto receivables 2,302,516 1,138,255 523,981 240,491 67,636
9 (a) The Company recognized an income tax benefit in fiscal 1995 equal to the expected future tax savings from using its net operating loss carryforward and other future tax benefits. 10 AMERICREDIT LOCATIONS (as of June 30, 1998) State City - ----- ---- AUTOMOBILE FINANCE BRANCHES: Alabama Mobile Arizona Phoenix (2), Tucson California Concord, Encino, Escondido, Fresno, Irvine, Los Angeles, Pasadena, Riverside, Sacramento, San Diego, San Francisco, San Jose, Santa Rosa, Stockton, Ventura Colorado Colorado Springs, Denver, Fort Collins Delaware Wilmington Florida Fort Lauderdale, Fort Myers, Gainesville, Jacksonville, Miami, Orlando, Pensacola, Tallahassee, Tampa, West Palm Beach Georgia Atlanta (3), Macon Illinois Chicago (4), Naperville, Springfield Indiana Evansville, Indianapolis Kansas Overland Park, Wichita Kentucky Covington, Lexington, Louisville Louisiana Metarie Maine Portland Maryland Baltimore (2), Landover Massachusetts Boston, Springfield Michigan Detroit (2), Flint, Grand Rapids, Lansing Minnesota Minneapolis, St. Paul Missouri Kansas City, St. Louis (2) Nevada Las Vegas, Reno New Hampshire Salem New Jersey Marlton, Newark, Paramus, Somerset, Tinton Falls New Mexico Albuquerque New York Albany, Buffalo, Long Island, Rochester, Syracuse, White Plains North Carolina Charlotte, Raleigh, Winston-Salem Ohio Akron, Cincinnati, Cleveland (2), Columbus, Dayton Oklahoma Oklahoma City, Tulsa Oregon Medford, Portland Pennsylvania Allentown, Altoona, Harrisburg, Philadelphia (2), Pittsburgh (2), Scranton Rhode Island Providence South Carolina Charleston, Columbia Tennessee Chattanooga, Knoxville, Memphis, Nashville Texas Austin, Dallas, Fort Worth, Houston (2), San Antonio Utah Salt Lake City Virginia Arlington, Fredericksburg, Manassas, Newport News, Norfolk, Richmond, Roanoke Washington Seattle (2), Spokane, Tacoma Wisconsin Milwaukee 11 AUTOMOBILE LOAN SERVICING CENTERS: Arizona Tempe Texas Fort Worth North Carolina Charlotte MORTGAGE LENDING: California Orange 12 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"). 13 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. 14 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, ----------------------------- 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 loan production at branches open during both periods as well as expansion of the Company's loan production capacity. 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. 15 Finance charge income consisted of the following (in thousands): Years Ended June 30, ------------------------ 1998 1997 ------- ------- Auto $54,125 $44,417 Mortgage 1,712 493 ------- ------- $55,837 $44,910 ======= ======= 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 gain on sale of receivables consisted of the following (in thousands): Years Ended June 30, ------------------------- 1998 1997 -------- -------- Auto $118,893 $ 64,338 Mortgage 4,352 2,918 -------- -------- $123,245 $ 67,256 ======== ======== 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 7.3% and 7.9% of the sales proceeds for fiscal 1998 and 1997, respectively. 16 Significant assumptions used in determining the gain on sale of auto receivables were as follows: Years Ended June 30, --------------------- 1998 1997 -------- -------- Cumulative credit losses 10.7% 9.2% Discount rate used to estimate present value of future excess cash flows in the Trusts 12.0% 12.0% 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 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. Servicing fee income increased to $42.7 million, or 3.1% of average serviced auto receivables, for fiscal 1998, compared to $21.0 million, or 3.7% of average serviced auto receivables, for fiscal 1997. 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 a $6.3 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 has raised the assumptions for cumulative credit losses for securitization transactions completed in 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. Investment income increased to $5.1 million for fiscal 1998 from $2.9 million for fiscal 1997 primarily as a result of higher average restricted cash balances. Restricted cash is used as credit enhancement for the Trusts and generally increases as greater amounts of receivables are sold to the Trusts. 17 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. 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. The Company's effective income tax rate was 38.5% for fiscal 1998 and 1997. 18 RESULTS OF OPERATIONS Year Ended June 30, 1997 as compared to Year Ended June 30, 1996 REVENUE: The Company's average managed receivables outstanding consisted of the following (in thousands): Years Ended June 30, ----------------------------- 1997 1996 -------- -------- Auto: Held for sale $223,351 $261,776 Serviced 568,804 96,190 -------- -------- 792,155 357,966 Mortgage 8,187 Other 443 -------- -------- $800,342 $358,409 ======== ======== Average managed receivables outstanding increased by 123% as a result of higher loan purchase volume. The Company purchased $906.8 million of auto loans during fiscal 1997, compared to purchases of $432.4 million during fiscal 1996. This growth resulted from loan production at branches open during both periods as well as expansion of the Company's loan production capacity. The Company operated 85 auto lending branch offices as of June 30, 1997, compared to 51 as of June 30, 1996. The Company originated $53.8 million of mortgage loans from the date of acquisition of AMS through June 30, 1997. Finance charge income consisted of the following (in thousands): Years Ended June 30, ------------------------ 1997 1996 -------- -------- Auto $ 44,417 $ 51,679 Mortgage 493 Other 27 -------- -------- $ 44,910 $ 51,706 ======== ======== 19 The decrease in finance charge income is due to a reduction of 15% in average auto receivables held for sale in fiscal 1997 versus fiscal 1996. Prior to December 1995, all of the auto finance contracts purchased by the Company were held on the Company's consolidated balance sheets. The Company began selling auto receivables to the Trusts in December 1995, reducing average receivables held for sale with corresponding increases in average serviced receivables. The Company's effective yield on its auto receivables held for sale increased to 19.9% for fiscal 1997 from 19.7% for fiscal 1996. The gain on sale of receivables consisted of the following (in thousands): Years Ended June 30, ------------------------------ 1997 1996 -------- -------- Auto $ 64,338 $ 22,873 Mortgage 2,918 -------- -------- $ 67,256 $ 22,873 ======== ======== The increase in gain on sale of auto receivables resulted from the sale of $817.5 million of receivables in fiscal 1997 compared to $270.4 million of receivables sold in fiscal 1996. The gains amounted to 7.9% and 8.5% of the sales proceeds for fiscal 1997 and 1996, respectively. Significant assumptions used in determining the gain on sale of auto receivables were as follows: Years Ended June 30, ---------------------- 1997 1996 ------ ------ Cumulative credit losses 9.2% 9.3% Discount rate used to estimate present value of future excess cash flows in the Trusts 12.0% 12.0% The gain on sale of mortgage receivables resulted from the sale of $52.5 million of receivables from the date of acquisition of AMS through June 30, 1997. 20 Servicing fee income increased to $21.0 million, or 3.7% of average serviced auto receivables, for fiscal 1997, compared to $3.7 million, or 3.9% of average serviced auto receivables, for fiscal 1996. 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. The growth in servicing fee income is attributable to the increase in average serviced auto receivables outstanding for fiscal 1997 compared to fiscal 1996. Investment income rose to $2.9 million for fiscal 1997 from $1.1 million for fiscal 1996 primarily as a result of higher average restricted cash balances. Restricted cash is used as credit enhancement for the Trusts and generally increases as greater amounts of receivables are sold to the Trusts. COSTS AND EXPENSES: Operating expenses as a percentage of average managed receivables outstanding decreased to 6.6% (6.2% excluding operating expenses of $2.6 million related to AMS) for fiscal 1997 compared to 7.2% for fiscal 1996. 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 $26.2 million, or 102%, primarily due to the addition of auto lending branch offices and management and auto loan processing and servicing staff. The provision for losses decreased to $6.6 million for fiscal 1997 from $7.9 million for fiscal 1996 due to lower 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 1997 and 1996. Interest expense increased to $16.3 million for fiscal 1997 from $13.1 million for fiscal 1996 due to higher debt levels and effective interest rates. Average debt outstanding was $187.6 million and $156.4 million for fiscal 1997 and 1996, respectively. The Company's effective rate of interest paid on its debt increased to 8.7% from 8.4% as a result of the issuance of senior notes in February 1997. The Company's effective income tax rate increased to 38.5% for fiscal 1997 from 37.0% for fiscal 1996 due to a larger portion of the Company's income being generated in states which have higher tax rates. 21 CREDIT QUALITY The Company provides financing in relatively high-risk markets and, therefore, charge-offs are anticipated. The Company records a periodic provision for losses as a charge to operations and a related allowance for losses in the consolidated balance sheets as a reserve against estimated losses in the receivables held for sale portfolio. 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. 22 The following table presents certain data related to the receivables portfolio (dollars in thousands):
June 30, 1998 ------------------------------------------------------------------------ Held For Sale ----------------------------------------- Auto Managed Auto Auto Mortgage Total Serviced Portfolio (2) =========== =========== =========== =========== =========== Principal amount of receivables $ 334,110 $ 21,499 $ 355,609 $ 1,968,406 $ 2,302,516 =========== =========== Allowance for losses (12,756) (12,756) $ (176,759)(1) $ (189,515) ----------- ----------- ----------- =========== =========== Receivables, net $ 321,354 $ 21,499 $ 342,853 =========== =========== =========== Number of outstanding contracts 26,035 187 187,514 213,549 =========== =========== =========== =========== Average amount of outstanding contract (principal amount) (in dollars) $ 12,833 $ 114,968 $ 10,497 $ 10,782 =========== =========== =========== =========== Allowance for losses as a percentage of receivables 3.8% 9.0% 8.2% === === ===
June 30, 1997 ------------------------------------------------------------------------ Held For Sale ----------------------------------------- Auto Managed Auto Auto Mortgage Total Serviced Portfolio (2) =========== =========== =========== =========== =========== Principal amount of receivables $ 275,249 $ 4,354 $ 279,603 $ 863,006 $ 1,138,255 (2) =========== =========== Allowance for losses (12,946) (12,946) $ (74,925)(1)$ (87,871) ----------- ----------- ----------- =========== =========== Receivables, net $ 262,303 $ 4,354 $ 266,657 =========== =========== =========== Number of outstanding contracts 25,757 48 87,090 112,847 =========== =========== =========== =========== Average amount of outstanding contract (principal amount) (in dollars) $ 10,686 $ 90,708 $ 9,909 $ 10,087 =========== =========== =========== =========== Allowance for losses as a percentage of receivables 4.7% 8.7% 7.7% === === ===
(1) The allowance for losses related to serviced auto receivables is netted against interest-only receivables from Trusts in the Company's consolidated balance sheets. (2) Includes auto receivables only. 23 The following is a summary of managed auto receivables which are (i) more than 30 days delinquent, but not yet in repossession, and (ii) in repossession (dollars in thousands): June 30, June 30, 1998 1997 ---------------------- ------------------- Amount Percent Amount Percent ------ ------- ------ ------- Delinquent contracts: 31-60 days $126,012 5.5% $ 73,197 6.4% Greater than 60 days 59,175 2.6 36,421 3.2 -------- --- -------- ---- 185,187 8.1 109,618 9.6 In repossession 18,818 0.8 14,471 1.3 -------- --- -------- ---- $204,005 8.9% $124,089 10.9% ======== === ======== ==== 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 4.5%, 4.3% and 1.9% for the years ended June 30, 1998, 1997 and 1996, respectively. The Company believes that payment deferrals granted according to its policies and guidelines are on effective portfolio management technique and result in higher ultimate cash collections from the portfolio. 24 The following table presents charge-off data with respect to the Company's managed auto receivables portfolio (dollars in thousands): Years Ended June 30, ------------------------------------ 1998 1997 1996 ------- ------- ------- Net charge-offs: Held for sale $ 9,140 $16,965 $18,322 Serviced 78,862 26,266 1,652 ------- ------- ------- $88,002 $43,231 $19,974 ======= ======= ======= Net charge-offs as a percentage of averaged managed auto receivables outstanding 5.3% 5.5% 5.6% === === === Net recoveries as a percentage of gross charge-offs 47.9% 47.3% 48.7% ==== ==== ==== Delinquency and charge-off ratios typically fluctuate over time as a portfolio matures. Accordingly, the delinquency and charge-off data above is not necessarily indicative of delinquency and charge-off experience that could be expected for a portfolio with a different level of seasoning. 25 LIQUIDITY AND CAPITAL RESOURCES The Company's cash flows are summarized as follows (in thousands): Years Ended June 30, ----------------------------------------- 1998 1997 1996 --------- --------- -------- Operating activities $ 45,062 $ 52,765 $ 39,315 Investing activities (152,117) (109,709) (67,534) Financing activities 134,115 60,826 12,050 --------- --------- -------- Net increase (decrease) in cash and cash equivalents $ 27,060 $ 3,882 $(16,169) ========= ========= ======== The Company's primary sources of liquidity 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 $1,737.8 million, $906.8 million and $432.4 million of auto finance contracts during the years ended June 30, 1998, 1997 and 1996 requiring cash of $1,717.0 million, $896.7 million and $417.2 million, respectively, net of acquisition fees and other items. These purchases were funded initially utilizing warehouse credit facilities and subsequently through the sale of receivables in securitization transactions 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 $245 million of structured warehouse financing is available to the Company. The Company utilizes this facility to fund auto receivables pending securitization. The facility matures in October 1998 and the Company is negotiating to renew and expand the facility. A total of $140.7 million was outstanding under this facility as of June 30, 1998. In addition, the Company has a credit agreement with a group of banks that provides for borrowings up to $265 million, subject to a defined borrowing base. The Company utilizes the facility to fund its auto lending activities 26 and daily operations. The facility matures in April 1999. There were no outstanding balances under the credit agreement as of June 30, 1998. The Company also has a mortgage warehouse facility with a bank under which the Company may borrow up to $75 million, subject to a defined borrowing base, to fund mortgage loan originations. The facility expires in February 1999. A total of $24.9 million was outstanding under the mortgage facility as of June 30, 1998. The Company has completed thirteen auto receivables securitization transactions through June 30, 1998. 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, 1998 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 $ 8.7 1996-A March 1996 89.4 18.7 1996-B May 1996 115.9 35.1 1996-C August 1996 175.0 55.0 1996-D November 1996 200.0 87.5 1997-A March 1997 225.0 117.6 1997-B May 1997 250.0 146.1 1997-C August 1997 325.0 220.0 1997-D November 1997 400.0 322.5 1998-A February 1998 425.0 380.9 1998-B May 1998 525.0 507.5 ------------- -------------- $ 2,945.5 $ 1,899.6 ============= ==============
In connection with securitization transactions, the Company is required to fund certain credit enhancement levels set by the insurer of the asset-backed securities issued by the Trusts. The Company typically makes an initial deposit to a restricted cash account and subsequently uses excess cash flows generated by the Trusts to either increase the restricted cash account or repay the outstanding asset-backed securities on an accelerated basis, thus creating additional credit enhancement through overcolleratization in the Trusts. When the credit enhancement levels reach specified percentages of the Trust's pool of receivables, excess cash flows are distributed to the Company. 27 Initial deposits to restricted cash accounts were $56.7 million, $71.4 million and $2.9 million for the years ended June 30, 1998, 1997 and 1996. Excess cash flows distributed to the Company were $38.0 million, $19.4 million and $1.2 million for the years ended June 30, 1998, 1997 and 1996. 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, 1998, none of the Company's securitizations had delinquency, default and net loss ratios in excess of the targeted levels. The Company has outstanding $175 million of senior notes which are due in February 2004. Interest on the notes is payable semi-annually in August and February at a rate of 9 1/4% per annum. The notes may be redeemed at the option of the Company after February 2001 at a premium declining to par in February 2003. The Company's Board of Directors has authorized the repurchase of up to 6,000,000 shares of the Company's common stock. A total of 4,594,700 shares at an aggregate purchase price of $27.4 million had been purchased pursuant to this program through June 30, 1998, although no common stock has been repurchased since September 1996. The Indenture pursuant to which the senior notes were issued contains restrictions as to the amount of common stock which may be repurchased by the Company. The Company operated 129 auto lending branch offices as of June 30, 1998 and plans to open 45 branches in fiscal 1999. The Company may also expand loan production capacity at existing auto lending branch offices where appropriate and may expand its mortgage lending activities. While the Company has been able to establish and grow its finance businesses 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, 1998, the Company had $33.1 million in cash and cash equivalents. The Company also had available borrowing capacity of $90.4 million under its bank credit agreement pursuant to the borrowing base requirement of such facility. The Company estimates that it will require additional external capital for fiscal 1999 in addition to existing capital resources in order to fund expansion of its lending activities. 28 The Company anticipates that such funding will be in the form of additional securitization transactions, renewal and expansion of its 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. INTEREST RATE RISK Since the Company's funding strategy is dependent upon the issuance of interest- bearing securities and the incurrence of debt, fluctuations in interest rates impact the Company's profitability. The Company utilizes several strategies to minimize the risk of interest rate fluctuations, including the use of derivative financial instruments, the regular sale of auto receivables to the Trusts and pre-funding securitizations, whereby the amount of asset-backed securities issued in a securitization exceeds the amount of receivables initially sold to the Trust. The proceeds from the pre-funded portion are held in an escrow account until the Company sells additional receivables to the Trust in amounts up to the balance of the pre-funded escrow account. In pre-funded securitizations, the Company locks in the borrowing costs with respect to the loans it subsequently delivers to the Trust. However, the Company incurs an expense in pre-funded securitizations equal to the difference between the money market yields earned on the proceeds held in escrow prior to subsequent delivery of 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. The Company uses 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 London Interbank Offered Rates (LIBOR). The Company uses Interest Rate Swap agreements to convert the floating rate exposures on these securities to a fixed rate. 29 The table below provides information about the Company's derivative financial instruments by expected maturity date as of June 30, 1998 (dollars in thousands). Notional amounts, which are used to calculate the contractual payments to be exchanged under the contracts, represent average amounts which will be outstanding for each of the years included in the table. Years Ending ----------------------------------------------- June 30, June 30, June 30, 1999 2000 2001 Fair Value ---- ---- ---- ---------- Interest Rate Swaps: Notional amounts $997,200 $466,000 $52,500 $ 659 Average pay rate 5.75% 5.70% 5.78% Average receive rate 5.76% 5.75% 5.90% U.S. Treasury Rate Locks: Notional amounts $300,000 $ 473 Average strike rate 5.42% Average forward rate 5.52% 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. 30 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. 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. The Company is currently in the process of renovating or replacing critical systems and plans to complete this phase by December 31, 1998. Integrated testing and installation of all renovated systems is planned for early calendar 1999 with an estimated completion date of March 31, 1999. In addition, the Company expects to have contingency plans for critical systems complete by December 31, 1998. Year 2000 project costs incurred through June 30, 1998 have not been material. Approximately $200,000 has been budgeted in fiscal 1999 to fund year 2000 project efforts. The Company presently believes that with modifications to existing systems and/or conversion to new systems, the year 2000 issue will not pose significant operational problems for the Company. However, if such modifications and conversions are not made, or are not completed in a timely manner, the year 2000 issue could have a material impact on the operations of the Company. In addition, there can be no assurance that unforeseen problems in the Company's computer systems, or the systems of third parties on which the Company's computers rely, would not have an adverse effect on the Company's systems or operations. FORWARD LOOKING STATEMENTS Except for the historical information contained herein, the matters discussed above are forward looking statements that involve risks and uncertainties including competitive factors, the management of growth, portfolio credit quality, the availability of capital resources and other risks 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 31 year ended June 30, 1998. Such statements are only predictions and actual events or results may differ materially. 32 AMERICREDIT CORP. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
ASSETS June 30, June 30, 1998 1997 ---- ---- Cash and cash equivalents $ 33,087 $ 6,027 Receivables held for sale, net 342,853 266,657 Interest-only receivables from Trusts 137,803 59,933 Investments in Trust receivables 117,990 54,443 Restricted cash 68,258 67,895 Property and equipment,net 23,385 13,884 Other assets 25,185 24,614 -------- -------- Total assets $748,561 $493,453 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Warehouse credit facilities $165,608 $ 72,045 Senior notes 175,000 125,000 Other notes payable 6,410 27,206 Accrued taxes and expenses 52,241 39,362 Deferred income taxes 43,141 13,304 -------- -------- Total liabilities 442,400 276,917 -------- -------- Commitments and contingencies (Note 6) 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; 34,636,474 and 33,255,173 shares issued 346 333 Additional paid-in capital 230,295 203,544 Unrealized gain on interest-only receivables, net of income taxes 4,431 2,954 Retained earnings 94,207 33,466 -------- -------- 329,279 240,297 Treasury stock, at cost (3,833,659 and 3,959,071 shares) (23,118) (23,761) -------- -------- Total shareholders' equity 306,161 216,536 -------- -------- Total liabilities and shareholders' equity $748,561 $493,453 ======== ========
The accompanying notes are an integral part of these consolidated financial statements 33 AMERICREDIT CORP. CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended -------------------------------------------- June 30, June 30, June 30, 1998 1997 1996 ----------- ----------- ----------- Revenue: Finance charge income $ 55,837 $ 44,910 $ 51,706 Gain on sale of receivables 123,245 67,256 22,873 Servicing fee income 42,684 21,024 3,712 Investment income 5,054 2,909 1,075 Other income 1,120 1,648 1,612 ----------- ----------- ----------- 227,940 137,747 80,978 ----------- ----------- ----------- Costs and expenses: Operating expenses 94,484 51,915 25,681 Provision for losses 7,555 6,595 7,912 Interest expense 27,135 16,312 13,129 ----------- ----------- ----------- 129,174 74,822 46,722 ----------- ----------- ----------- Income before income taxes 98,766 62,925 34,256 Income tax provision 38,025 24,226 12,665 ----------- ----------- ----------- Net income $ 60,741 $ 38,699 $ 21,591 =========== =========== =========== Earnings per share: Basic $ 2.02 $ 1.34 $ 0.76 =========== =========== =========== Diluted $ 1.86 $ 1.26 $ 0.71 =========== =========== =========== Weighted average shares outstanding 30,094,394 28,887,362 28,524,571 =========== =========== =========== Weighted average shares and assumed incremental shares 32,601,730 30,787,274 30,203,298 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements 34 AMERICREDIT CORP. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
Common Stock Additional Retained Treasury Stock ------------ Paid-in Unrealized Earnings --------------- Shares Amount Capital Gain (Deficit) Shares Amount ------ ------ ------- ---- --------- ------ ------ Balance at July 1, 1995 32,117,201 $321 $185,573 $ $(26,824) 3,400,039 $(11,844) Common stock issued on exercise of options 523,762 5 3,045 Income tax benefit from exercise of options 1,387 Purchase of treasury stock 829,000 (10,710) Common stock issued for employee benefit plans (108,556) 681 Net income 21,591 ---------- ---- -------- ------ -------- --------- -------- Balance at June 30, 1996 32,640,963 326 190,005 (5,233) 4,120,483 (21,873) Common stock issued on exercise of options 614,210 7 5,646 Common stock issued for acquisition 4,700 (400,000) 2,400 Income tax benefit from exercise of options 2,652 Unrealized gain on interest- only receivables, net of income taxes of $1,848 2,954 Purchase of treasury stock 315,200 (4,387) Common stock issued for employee benefit plans 541 (76,612) 99 Net income 38,699 ---------- ---- -------- ------ -------- --------- -------- Balance at June 30, 1997 33,255,173 333 203,544 2,954 33,466 3,959,071 (23,761) Common stock issued on exercise of options 1,381,301 13 16,007 Income tax benefit from exercise of options 9,575 Unrealized gain on interest-only receivables, net of income taxes of $967 1,477 Common stock issued for employee benefit plans 1,169 (125,412) 643 Net income 60,741 ---------- ---- -------- ------ -------- --------- -------- Balance at June 30, 1998 34,636,474 $346 $230,295 $4,431 $ 94,207 3,833,659 $(23,118) ========== ==== ======== ====== ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements 35 AMERICREDIT CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
Years Ended ------------------------------------ June 30, June 30, June 30, 1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net income $ 60,741 $ 38,699 $ 21,591 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,498 2,203 1,528 Provision for losses 7,555 6,595 7,912 Deferred income taxes 38,139 24,428 11,681 Non-cash gain on sale of auto receivables (113,428) (66,203) (16,347) Changes in assets and liabilities: Interest-only receivables from Trusts 38,002 22,891 4,528 Other assets (3,324) (2,341) (984) Accrued taxes and expenses 12,879 26,493 9,406 ----------- --------- --------- Net cash provided by operating activities 45,062 52,765 39,315 ----------- --------- --------- Cash flows from investing activities: Purchases of auto receivables (1,717,006) (896,711) (417,235) Originations of mortgage receivables (137,169) (53,770) Principal collections and recoveries on receivables 18,384 64,389 94,948 Net proceeds from sale of auto receivables 1,632,357 814,107 285,779 Net proceeds from sale of mortgage receivables 119,683 52,489 Increase in investments in Trust receivables (63,547) (33,169) (21,274) Increase in restricted cash (363) (52,591) (10,297) Purchases of property and equipment (9,456) (4,511) (3,162) Decrease in other assets 5,000 58 3,707 ----------- --------- --------- Net cash used by investing activities (152,117) (109,709) (67,534) ----------- --------- --------- Cash flows from financing activities: Net change in warehouse credit facilities 93,563 (17,264) 86,000 Proceeds from issuance of senior notes 47,762 120,894 Payments on other notes payable (25,042) (44,710) (66,971) Proceeds from issuance of common stock 17,832 6,293 3,731 Purchase of treasury stock (4,387) (10,710) ----------- --------- --------- Net cash provided by financing activities 134,115 60,826 12,050 ----------- --------- --------- Net increase (decrease) in cash and cash equivalents 27,060 3,882 (16,169) Cash and cash equivalents at beginning of year 6,027 2,145 18,314 ----------- --------- --------- Cash and cash equivalents at end of year $ 33,087 $ 6,027 $ 2,145 =========== ========= =========
The accompanying notes are an integral part of these consolidated financial statements 36 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 129 auto lending branch offices in 36 states as of June 30, 1998. 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. Cash Equivalents Investments in highly liquid securities with original maturities of 90 days or less are included in cash and cash equivalents. 37 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 in the receivables held for sale portfolio. 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. Securitization Related 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 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 such carrying value between the assets transferred and the interests 38 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Securitization Related Assets (cont.) 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. The allocated basis of the interests retained is classified as either interest- only receivables from Trusts or investments in Trust receivables in the Company's consolidated balance sheets depending upon the form of interest retained by the Company. Since interest-only receivables can be contractually prepaid or otherwise settled in such a way that the holder would not recover all of its recorded investment, these 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 interest-only receivables from Trusts is estimated by calculating the present value of the excess cash flows in the Trusts using a discount rate 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 39 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Securitization Related Assets (cont.) 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 sheets. 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 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 Forward U.S. Treasury Rate Lock and Interest Rate Swap Agreements. The face amount and terms of the Forward U.S. Treasury Rate Lock Agreements generally correspond to the principal amount and average maturities of receivables expected to be sold to the Trusts and the related asset-backed securities to be issued by the Trusts. Gains or losses on these agreements are deferred and recognized as a component of the gain on sale of receivables at 40 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Off Balance Sheet Financial Instruments (cont.) the time that receivables are transferred to the Trusts. The Interest Rate Swap Agreements are used to convert the interest rates on floating rate securities issued by the Trusts to a fixed rate. 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. 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. Earnings Per Share The Company adopted the requirements of Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") effective for periods ended December 31, 1997 and thereafter. SFAS 128 establishes new standards for computing and presenting earnings per share, replacing existing accounting standards. The new standard requires dual presentation of basic and diluted earnings per share and a reconciliation between the two amounts. Basic earnings per share excludes dilution and diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. All prior period earnings per share and related weighted average share amounts have been restated to conform to the requirements of SFAS 128. Recent Accounting Developments Effective January 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 41 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recent Accounting Developments (cont.) established accounting and reporting standards for transfers of financial assets and applies to the Company's sales of auto receivables to the Trusts. Adoption of SFAS 125, which was applied prospectively to transactions occurring subsequent to December 1996, resulted in increases of $4,802,000 in interest- only receivables from Trusts, $1,848,000 in deferred income taxes and $2,954,000 in shareholders' equity as of June 30, 1997. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). 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 will be required to display total comprehensive income, including net income and changes in the unrealized gain on interest-only receivables, in its consolidated financial statements for the year ending June 30, 1999 and thereafter. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way companies report information about operating segments in annual financial statements and requires that enterprises report selected information about operating segments in interim financial reports. The new pronouncement also establishes standards for related disclosures about products and services, geographic areas and major customers. The statement is effective for financial statements for periods beginning after December 15, 1997. The Company's auto finance business is currently the only segment reportable under SFAS 131. In June 1998, the 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 42 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recent Accounting Developments (cont.) balance sheets 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. The statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. 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. 2. RECEIVABLES HELD FOR SALE Receivables held for sale consist of the following (in thousands): June 30, June 30, 1998 1997 ---- ---- Auto receivables $334,110 $275,249 Less allowance for losses (12,756) (12,946) -------- -------- Auto receivables, net 321,354 262,303 Mortgage receivables 21,499 4,354 -------- -------- $342,853 $266,657 ======== ======== 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. The accrual of finance charge income has been suspended on $8,729,000 and $12,704,000 of delinquent auto receivables as of June 30, 1998 and 1997, respectively. 43 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. RECEIVABLES HELD FOR SALE (CONT.) A summary of the allowance for losses is as follows (in thousands): Years Ended --------------------------------- June 30, June 30, June 30, 1998 1997 1996 ---- ---- ---- Balance at beginning of year $ 12,946 $ 13,602 $ 19,951 Provision for losses 7,555 6,595 7,912 Acquisition fees 49,859 30,688 18,097 Allowance related to receivables sold to Trusts (48,464) (20,974) (13,461) Net charge-offs-auto receivables (9,140) (16,965) (18,322) Net charge-offs-other (575) -------- -------- -------- Balance at end of year $ 12,756 $ 12,946 $ 13,602 ======== ======== ======== 3. INTEREST-ONLY RECEIVABLES FROM TRUSTS As of June 30, 1998 and 1997, the Company was servicing $1,968.4 million and $863.0 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 interest-only strips. 44 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. INTEREST-ONLY RECEIVABLES FROM TRUSTS (CONT.) A summary of interest-only receivables is as follows (in thousands): Years Ended -------------------------------- June 30, June 30, June 30, 1998 1997 1996 ---- ---- ---- Balance at beginning of year $ 59,933 $ 11,819 Non-cash gain on sale of auto receivables 113,428 66,203 $ 16,347 Accretion of present value discount 11,893 5,524 1,259 Change in unrealized gain 2,444 4,802 Excess cash flows in the Trusts (43,645) (28,415) (5,787) Permanent impairment write-down (6,250) -------- -------- -------- Balance at end of year $137,803 $ 59,933 $ 11,819 ======== ======== ======== 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, 1998 1997 1996 ---- ---- ---- Balance at beginning of year $ 74,925 $ 25,616 $ Assumptions for cumulative credit losses 174,446 75,575 27,268 Permanent impairment write-down 6,250 Net charge-offs (78,862) (26,266) (1,652) -------- -------- -------- Balance at end of year $176,759 $ 74,925 $ 25,616 ======== ======== ======== 45 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. WAREHOUSE CREDIT FACILITIES Warehouse credit facilities consist of the following (in thousands:) June 30, June 30, 1998 1997 ---- ---- Commercial paper facility $140,708 Bank credit agreement $ 345 Mortgage facility 24,900 71,700 -------- -------- $165,608 $ 72,045 ======== ======== 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 $245 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 October 1998, 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 $265 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 46 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. WAREHOUSE CREDIT FACILITIES (CONT.) prime rate (8.5% as of June 30, 1998) or LIBOR plus 1.25%. The Company is also required to pay an annual commitment fee equal to 1/4% of the unused portion of the credit agreement. The credit agreement, which expires in April 1999, contains various restrictive covenants requiring certain minimum financial ratios and results and placing certain limitations on the incurrence of additional debt, capital expenditures, cash dividends and repurchase of common stock. The Company also has a mortgage warehouse facility with a bank under which the Company may borrow up to $75 million, subject to a defined borrowing base. Borrowings under the facility are collateralized by certain mortgage receivables and bear interest, based upon the Company's option, at either the prime rate or LIBOR plus 1%. The Company is also required to pay an annual commitment fee equal to 1/8% of the unused portion of the facility. The facility expires in February 1999. 5. SENIOR NOTES The Company has outstanding $175 million of senior notes which are due in February 2004. Interest on the notes is payable semi-annually at a rate of 9 1/4% 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. The Indenture pursuant to which the notes were issued contains restrictions including limitations on the Company's ability to incur additional indebtedness other than certain 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 $5,478,000 and $3,983,000 as of June 30, 1998 and 1997, respectively, are included in other assets in the consolidated balance sheets. 47 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. 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 office space for its loan servicing facilities and other operations under leases with terms up to ten years with renewal options. Lease expense was $4,206,000, $2,132,000 and $875,000 for the years ended June 30, 1998, 1997 and 1996, respectively. Lease commitments for years ending June 30 are as follows (in thousands): 1999 $ 5,608 2000 5,218 2001 4,557 2002 3,638 2003 2,461 Thereafter 5,744 ------- $27,226 ======= Derivative Financial Instruments As of June 30, 1998, the Company had Forward U.S. Treasury Rate Lock Agreements to sell $150 million of U.S. Treasury Notes due August 2001 and $150 million of U.S. Treasury Notes due November 2001. The agreements expire August 20, 1998 and November 20, 1998, respectively. Any gain or loss on these agreements will be recognized as a component of the gain on sale of receivables upon transfers of receivables to the Trusts subsequent to June 30, 1998. 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 48 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Concentrations of Credit Risk (cont.) 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, with borrowers located in California and Texas accounting for 14% and 11%, respectively, of the managed auto receivables portfolio as of June 30, 1998. 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 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. 7. STOCK OPTIONS General The Company has certain stock-based compensation plans for employees, non- employee directors and key executive officers. A total of 9,000,000 shares have been authorized for grants of options under the employee plans, of which 1,808,572 shares remain available for future grants as of June 30, 1998. 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. Option grants, vesting periods and the term of each option are determined by a committee of the Company's Board of Directors. A total of 1,302,500 shares have been authorized for grants of options under the non-employee director plans, of which 480,000 shares remain available for 49 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. STOCK OPTIONS (CONT.) future grants as of June 30, 1998. 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 850,000 shares have been authorized for grants of options under the key executive officer plan, none of which remain available for future grants as of June 30, 1998. The exercise price of each option under this plan is $16 per share and the term of each option is seven years. These options became fully vested when the Company's common stock traded above certain targeted price levels for a specified time period. 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 $57,038,000, $33,217,000 and $15,224,000 and pro forma diluted earnings per share would have been $1.75, $1.08 and $0.50 for the years ended June 30, 1998, 1997 and 1996, 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, 1998 1997 1996 ---- ---- ---- Expected dividends 0 0 0 Expected volatility 32% 20% 20% Risk-free interest rate 5.68% 5.87% 5.87% Expected life 5 Years 5 Years 5 Years 50 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. STOCK OPTIONS (CONT.) Employee Plans A summary of stock option activity under the Company's employee plans is as follows (shares in thousands):
Years Ended ------------------------------------------------------------- June 30, June 30, June 30, 1998 1997 1996 -------- -------- -------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------- ------------------ ------------------ Outstanding at beginning of year 4,376 $ 9.35 3,664 $ 7.22 3,410 $ 5.00 Granted 1,820 26.27 1,251 15.47 672 13.59 Exercised (1,017) 10.57 (423) 7.91 (373) 5.22 Forfeited (144) 16.61 (116) 11.68 (45) 6.96 ------ ------ ----- ------ ----- ------ Outstanding at end of year 5,035 $15.01 4,376 $ 9.35 3,664 $ 7.22 ====== ====== ===== ====== ===== ====== Options exerciseable at end of year 3,015 $10.22 3,161 $ 7.77 2,811 $ 4.51 ====== ====== ===== ====== ===== ====== Weighted average fair value of options granted during year $10.11 $ 4.21 $ 3.72 ====== ====== ======
A summary of options outstanding under employee plans as of June 30, 1998 is as follows (shares in thousands):
Options Outstanding Options Exerciseable ------------------------------------------------ ------------------------ Weighted Weighted Weighted Average Years Average Average Range of Number of Remaining Exercise Number Exercise Exercise Prices Outstanding Contractual Life Price Outstanding Price - --------------- ----------- ---------------- ----- ----------- ----- $2.50 to 4.63 877 3.14 $ 3.36 877 $ 3.36 $5.50 to 9.13 1,140 6.34 7.35 1,099 7.34 $11.00 to 15.75 994 7.32 13.96 573 13.75 $16.38 to 18.38 291 8.53 16.78 108 16.67 $20.25 to 26.13 1,057 9.46 23.26 122 22.39 $26.75 to 32.75 676 9.71 31.38 236 31.27 ----- ----- 5,035 3,015 ===== =====
51 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. STOCK OPTIONS (CONT.) Non-employee Director Plans A summary of stock option activity under the Company's non-employee director plans is as follows (shares in thousands):
Years Ended ------------------------------------------------------------ 1998 1997 1996 ---- ---- ---- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ------ ------ ------ ------ ------ Outstanding at beginning of year 854 $ 4.41 913 $ 3.60 946 $ 2.80 Granted 40 29.25 40 18.75 40 12.88 Exercised (131) 4.33 (99) 2.80 (73) 2.80 ------ ------ ------ ------ ------ ------ Outstanding at end of year 763 $ 5.73 854 $ 4.41 913 $ 3.60 ====== ====== ====== ====== ====== ====== Options exerciseable at end of year 763 $ 5.73 854 $ 4.41 873 $ 3.53 ====== ====== ====== ====== ====== ====== Weighted average fair value of options granted during year $11.31 $ 5.14 $ 3.53 ====== ====== ======
A summary of options outstanding under non-employee director plans as of June 30, 1998 is as follows (shares in thousands):
Options Outstanding -------------------------------------------------------------------- Weighted Weighted Weighted Average Years Average Average Range of Number of Remaining Exercise Number Exercise Exercise Prices Outstanding Contractual Life Price Outstanding Price --------------- ----------- ---------------- ----- ----------- ----- $2.80 to 6.50 653 3.05 $ 3.15 653 $ 3.15 $12.88 to 18.75 70 7.97 16.27 70 16.27 $29.25 40 9.35 29.25 40 29.25 --- --- 763 763 === ===
52 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. STOCK OPTIONS (CONT.) Key Executive Officer Plan A summary of stock option activity under the Company's key executive officer plan is as follows (shares in thousands):
Years Ended ----------------------------------------------------------- June 30, June 30, June 30, 1998 1997 1996 -------- -------- -------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price -------------------- ------------------ ----------------- Outstanding at beginning of year 850 $16.00 850 $16.00 Granted 850 16.00 ------ ------ ------ ------ ------ ------ Outstanding at end of year 850 $16.00 850 $16.00 850 $16.00 ====== ====== ====== ====== ====== ====== Options exercisable at end of year 850 $16.00 ====== ====== Weighted average fair value of options granted during year $ 4.38 ======
A summary of options outstanding under the key executive officer plan as of June 30, 1998 is as follows (shares in thousands): Options Outstanding --------------------------------------------------- Weighted Weighted Average Years Average Range of Number of Remaining Exercise Exercise Prices Outstanding Contractual Life Price - ------------------- ------------- ------------------ ---------- $16.00 850 4.81 $16.00 8. EMPLOYEE BENEFIT PLANS The Company has a defined contribution retirement plan covering substantially all employees. The Company's contributions to the plan were $358,000, $201,000 and $133,000 for the years ended June 30, 1998, 1997 and 1996, respectively. 53 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. EMPLOYEE BENEFIT PLANS (CONT.) 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 500,000 shares have been reserved for issuance under the plan. Shares purchased under the plan were 130,446, 104,215 and 97,143 for the years ended June 30, 1998, 1997 and 1996, respectively. 9. INCOME TAXES The income tax provision consists of the following (in thousands): Years Ended ---------------------------------------- June 30, June 30, June 30, 1998 1997 1996 ---- ---- ---- Current $ (114) $ (202) $ 984 Deferred 38,139 24,428 11,681 ------- ------- ------- $38,025 $24,226 $12,665 ======= ======= ======= 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, 1998 1997 1996 ---- ---- ---- U.S. statutory tax rate 35.0% 35.0% 35.0% Other 3.5 3.5 2.0 ----- ----- ----- 385.0% 385.0% 235.0% ===== ===== ===== 54 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAXES (CONT.) The deferred income tax provision consists of the following (in thousands): Years Ended ----------------------------------- June 30, June 30, June 30, 1998 1997 1996 ---- ---- ---- Net operating loss carryforward $(9,051) $ 5,501 $ 8,387 Allowance for losses 993 (1,046) 1,556 Gain on sale of receivables 39,770 14,824 Change in valuation allowance (320) Other 6,427 5,149 2,058 ------- ------- ------- $38,139 $24,428 $11,681 ======= ======= ======= The tax effects of temporary differences that give rise to deferred tax liabilities and assets are as follows (in thousands): June 30, June 30, 1998 1997 ---- ---- Deferred tax liabilities: Gain on sale of receivables $(54,594) $(14,824) Unrealized gain on interest-only receivables (2,815) (1,848) Other (2,342) (2,614) -------- -------- (59,751) (19,286) -------- -------- Deferred tax assets: Net operating loss carryforward 12,519 3,468 Alternative minimum tax credits 1,567 1,873 Other 2,524 641 -------- -------- 16,610 5,982 -------- -------- Net deferred tax liability $(43,141) $(13,304) ======== ======== As of June 30, 1998, the Company has a net operating loss carryforward of approximately $28,700,000 for federal income tax reporting purposes which 55 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. INCOME TAXES (CONT.) expires between June 30, 2008 and 2013 and an alternative minimum tax credit carryforward of approximately $1,600,000 with no expiration date. 10. 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, 1998 1997 1996 ---- ---- ---- Weighted average shares outstanding 30,094,394 28,887,362 28,524,571 Incremental shares resulting from assumed exercise of stock options 2,507,336 1,899,912 1,678,727 ---------- ---------- ---------- Weighted average shares and assumed incremental shares 32,601,730 30,787,274 30,203,298 ========== ========== ========== Basic earnings per share have been computed by dividing net income by the weighted average shares outstanding. Diluted earnings per share have been computed by dividing net income by the weighted average shares and assumed incremental shares. 11. SUPPLEMENTAL INFORMATION Cash payments for interest costs and income taxes consist of the following (in thousands): Years Ended ------------------------------------ June 30, June 30, June 30, 1998 1997 1996 ---- ---- ---- Interest costs (none capitalized) $26,369 $15,196 $12,179 Income taxes 14,804 599 1,447 56 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. SUPPLEMENTAL INFORMATION (CONT.) During the years ended June 30, 1998 and 1997, the Company entered into lease agreements for property and equipment of $4,246,000 and $3,651,000, respectively. 12. 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 or not recognized 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 which 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. 57 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT.) Estimated fair values, carrying values and various methods and assumptions used in valuing the Company's financial instruments are set forth below (in thousands):
June 30, 1998 June 30, 1997 ----------------------- ----------------------- Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value ----- ---------- ----- ---------- Financial assets: Cash and cash equivalents (a) $ 33,087 $ 33,087 $ 6,027 $ 6,027 Receivables held for sale, net (b) 342,853 367,613 266,657 283,386 Interest-only receivables from Trusts (c) 137,803 137,803 59,933 59,933 Investments in Trust receivables (c) 117,990 117,990 54,443 54,443 Restricted cash (a) 68,258 68,258 67,895 67,895 Financial liabilities: Warehouse credit facilities (d) 165,608 165,608 72,045 72,045 Senior notes (e) 175,000 177,625 125,000 123,825 Other notes payable (f) 6,410 6,410 27,206 28,299 Interest rate swaps (g) (269) 170 735 236 Unrecognized financial instruments: Forward U.S. Treasury Note sales (h) 473 164 Forward interest rate swaps (g) 489
(a) The carrying value of cash and cash equivalents and restricted cash 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 interest rate, prepayment and credit loss assumptions similar to the Company's historical experience. 58 AMERICREDIT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT.) (c) The fair value of interest-only receivables from Trusts 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. The carrying value of investments in Trust receivables is considered to be a reasonable estimate of fair value since these assets are senior to the interest-only receivables from Trusts. (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. (h) The fair value of the forward U.S. Treasury Note sales are estimated based upon market prices for similar financial instruments. 13. STOCK SPLIT On August 6, 1998, the Company's Board of Directors approved a two for one stock split to be effected in the form of a 100% stock dividend for shareholders of record on September 11, 1998, payable on September 30, 1998. Pro forma diluted earnings per share, giving retroactive effect to the stock split, were $0.93, $0.63 and $0.36 for the years ended June 30, 1998, 1997 and 1996, respectively. 59 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, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1998. 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, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1998, in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, in 1997, AmeriCredit Corp. changed its method of accounting for transfers and servicing of financial assets and extinguishment of liabilities. PricewaterhouseCoopers LLP Fort Worth, Texas August 4, 1998, except as to the information presented in note 13 for which the date is August 6, 1998 60 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 30,802,815 shares of common stock outstanding as of June 30, 1998. 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, 1997 First Quarter $18.63 $12.00 $18.38 Second Quarter 20.50 16.63 20.50 Third Quarter 22.75 15.13 17.38 Fourth Quarter 21.25 11.88 21.00 FISCAL YEAR ENDED JUNE 30, 1998 First Quarter $29.94 $20.06 $28.50 Second Quarter 34.44 22.63 27.69 Third Quarter 30.75 20.94 27.50 Fourth Quarter 36.50 27.50 35.69 As of June 30, 1998, there were approximately 300 shareholders of record of the Company's common stock. 61 AMERICREDIT CORP. QUARTERLY DATA (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ----------- ----------- ----------- Fiscal year ended June 30, 1998 Finance charge income $ 13,061 $ 13,129 $ 13,862 $ 15,785 Gain on sale of receivables 26,042 27,733 32,329 37,141 Servicing fee income 8,713 10,478 10,463 13,030 Income before income taxes 21,454 23,058 25,522 28,732 Net income 13,194 14,181 15,696 17,670 Diluted earnings per share 0.41 0.44 0.48 0.53 Weighted average shares and assumed incremental shares 31,991,958 32,406,559 32,484,809 33,298,838 Fiscal year ended June 30, 1997 Finance charge income $ 10,764 $ 10,739 $ 12,101 $ 11,306 Gain on sale of receivables 12,590 15,561 17,757 21,348 Servicing fee income 3,643 4,599 5,644 7,138 Income before income taxes 13,125 14,955 16,464 18,381 Net income 8,072 9,198 10,126 11,303 Diluted earnings per share 0.27 0.30 0.33 0.36 Weighted average shares and assumed incremental shares 30,118,939 30,678,189 31,033,230 31,098,326
62 AMERICREDIT CORP. SHAREHOLDER INFORMATION CORPORATE HEADQUARTERS 200 Bailey Avenue Fort Worth, Texas 76107-1220 817-332-7000 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- 882-7009. Information about the Company may also be found on the Internet at http://www.americredit.com. SHAREHOLDER SERVICES For shareholder account information and other shareholder services, write the Corporate Secretary at the above address or telephone 817-882-7139. ANNUAL MEETING The annual meeting of the Company will be held on November 4, 1998, at 10 a.m. at the Fort Worth Club, 306 West Seventh Street, Fort Worth, Texas. All shareholders are cordially invited to attend. TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services, L.L.C. 85 Challenger Rd., Overpeck Centre Ridgefield Park, NJ 07660-2104 800-635-9270 hhtp://www.chasemellon.com INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 301 Commerce Street, Suite 1900 Fort Worth, Texas 76102-4183 63 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 http://www.americredit.com. 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. Edward H. Esstman President and Chief Operating Officer AmeriCredit Financial Services, Inc. James H. Greer Chairman of the Board Shelton W. Greer Co., Inc. Gerald W. Haddock President and Chief Executive Officer Crescent Real Estate Equities Limited, L.P. Douglas K. Higgins Owner Higgins & Associates 64 DIRECTORS (CONT.) 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 Michael T. Miller Executive Vice President and Chief Credit Officer Preston A. Miller Executive Vice President and Treasurer Randall K. Benefield Senior Vice President, Director of Management Information Systems 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 65 AMERICREDIT FINANCIAL SERVICES, INC. Edward H. Esstman President and Chief Operating Officer Philip A. Alberti Executive Vice President, Consumer Finance Operations Cheryl L. Miller Executive Vice President, Collections and Customer Service Todd M. Patin Executive Vice President, Consumer Finance Operations Cinde C. Perales Executive Vice President, Loan Services Martha J. Burman-Molloy Senior Vice President, Branch Operations S. Mark Floyd Senior Vice President, Director of Strategic Alliances Scott A. France Senior Vice President, Regional Manager of Collections John R. Gentry Senior Vice President, Regional Manager of Collections Reginald V. Gilmer Senior Vice President, Regional Manager of Collections Jan G. Gisburne Senior Vice President, Branch Operations Sandra J. Mancini Senior Vice President, Branch Operations Raeford H. Moore Senior Vice President, Director of Administration and Chief of Staff 66 Matthew H. Mulkey Senior Vice President, Branch Operations Mike E. Urrutia Senior Vice President, Branch Operations Nils L. Wirstrom Senior Vice President, Branch Operations 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 William T. Cooperstein Senior Vice President, Eastern Division 67 EX-21.1 9 SUBSIDIARIES OF REGISTRANT EXHIBIT 21.1 AMERICREDIT CORP. SUBSIDIARIES OF THE REGISTRANT STATE OR PROVINCE OF SUBSIDIARY OWNERSHIP % INCORPORATION - ---------- ----------- ------------- AmeriCredit Operating Co., Inc. 100% Delaware AmeriCredit Financial Services, Inc. 100% Delaware ACF Investment Corp. 100% Delaware AmeriCredit Premium Finance, Inc. 100% Delaware AFS Funding Corp. 100% Nevada AmeriCredit Receivables Finance Corp. 100% Delaware AmeriCredit Receivables Finance Corp. 1995-A 100% Delaware Americredit Corporation of California 100% California CP Funding Corp. 100% Nevada AmeriCredit Financial Services of Canada Ltd. 100% Ontario EX-23.1 10 CONSENT OF PRICEWATERHOUSECOOPERS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of AmeriCredit Corp. on Form S-8 (File Nos. 333-39883, 333-39881, 33-56501, 33- 48162, 33-41203 and 333-01111) and Form S-3 (File Nos. 333-52283, 33-57517 and 33-52679) of our report, which includes an explanatory paragraph regarding AmeriCredit Corp. changing its method of accounting for transfers and servicing of financial assets and extinguishments of liabilities, dated August 4, 1998, except for Note 13, which the date is August 6,1998, on our audits of the consolidated financial statements of AmeriCredit Corp. as of June 30,1998 and 1997, and for the three years in the period ended June 30, 1998, which report is incorporated by reference in this Annual Report on Form 10-K. Fort Worth, Texas September 24, 1998 EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF AMERICREDIT CORP. INCLUDED IN ITS ANNUAL REPORT. 1,000 YEAR JUN-30-1998 JUL-01-1997 JUN-30-1998 101,345 0 355,609 (12,756) 0 0 31,334 (7,949) 748,561 0 347,018 0 0 346 305,815 748,561 0 227,940 0 94,484 0 7,555 27,135 98,766 38,025 0 0 0 0 60,741 2.02 1.86
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