Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended June 30, 2004

OR

For the transition period from                      to                     

Commission file number 1-10667

AmeriCredit Corp.

(Exact name of registrant as specified in its charter)

801 Cherry Street, Suite 3900, Fort Worth, Texas 76102

(Address of principal executive offices, including Zip Code)

(817) 302-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

9 ¹/4% Senior Notes due 2009/Guarantee of 9 ¹/4% Senior Notes due 2009

(Title of each 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.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).   Yes    x    No    ¨

The aggregate market value of 105,519,612 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 December 31, 2003, was approximately $1,680,927,419. 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 155,350,631 shares of Common Stock, $0.01 par value, outstanding as of September 7, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant’s definitive Proxy Statement pertaining to the 2004 Annual Meeting of Shareholders (“Proxy Statement”) filed pursuant to Regulation 14A is incorporated herein by reference into Part III.

Table of Contents

AMERICREDIT CORP.

INDEX TO FORM 10-K

Table of Contents

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 operations in March 1987, and the business has been operated continuously since that time. As used herein, the term “Company” refers to AmeriCredit Corp., its wholly-owned subsidiaries and its predecessor corporation. The Company’s principal executive offices are located at 801 Cherry Street, Suite 3900, Fort Worth, Texas, 76102 and its telephone number is (817) 302-7000.

The Company and its subsidiaries have been operating in the automobile finance business since September 1992. The Company purchases auto finance contracts without recourse from franchised and select independent automobile dealerships. As used herein, “loans” includes auto finance contracts originated by dealers and purchased by the Company. 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 transfer of loans in securitization transactions. The Company services its automobile lending portfolio at regional centers using automated loan servicing and collection systems.

Prior to February 2003, the Company’s business strategy was designed to achieve a high rate of growth in loan origination volume. The increasing levels of loan originations were financed largely through the completion of securitization transactions. Excess cash flows from the Company’s securitizations are initially utilized to fund credit enhancement requirements and once such requirements are reached and maintained, excess cash is distributed to the Company. In addition, agreements with Financial Security Assurance, Inc. (“FSA”) required that if certain portfolio performance levels on securitization transactions insured by FSA prior to October 2002, referred to herein as the “FSA Program”, were breached, the credit enhancement requirements for those securitizations would be increased and funded through cash otherwise distributable to the Company from all of its other FSA Program securitizations. As the U.S. economy declined throughout 2001 and 2002, and unemployment rates rose, the default rate on the Company’s loan portfolio increased. In addition, the Company began to experience lower recovery rates on the sale of repossessed vehicles due to a decline in used car prices at auction, which was exacerbated by aggressive new car incentives offered by auto manufacturers. This increase in credit losses resulted in lower excess cash flows from the Company’s securitizations and by March 2003 resulted in a breach of cumulative net loss performance triggers on certain FSA Program securitizations. This caused a postponement of substantially all of the cash otherwise distributable to the Company from its FSA Program securitizations as this cash was used to fund increased credit enhancement requirements on FSA Program securitizations. Additionally, the increase in credit losses resulted in increases in credit enhancement requirements on new securitizations. Faced with constrained cash flows, the Company implemented a revised operating plan in February 2003 targeted at preserving and strengthening its capital and liquidity position in light of the changed economic environment.

The revised operating plan included a decrease in the Company’s targeted loan origination volume and a reduction of operating expenses through downsizing its workforce, consolidating its branch office network and closing its Canadian lending activities. Loan origination targets were reduced to approximately $750.0 million per quarter, as compared to actual origination volume of $1,887.0 million in the three months ended December 31, 2002 (the quarter prior to implementation of the plan), representing a targeted decrease of approximately 60% in origination volume per quarter. As a means of achieving reduced origination volume, the Company closed 141 of its branch offices, or approximately 60% of its branch office network. The branch office closings effectively decreased overall loan originations to the new targeted level and reduced operating expenses to a level more commensurate with the new loan origination target. The revised operating plan did not affect the importance of branch offices to the Company’s origination model. That is, the Company did not change the branch office origination model; the structure was downsized in order to achieve volume decreases and expense reductions.

1

Table of Contents

On April 23, 2003, the Board of Directors of the Company announced the reorganization of the Company’s executive management team in order to align management with the revised operating plan. Michael R. Barrington stepped down as President and Chief Executive Officer and Michael T. Miller stepped down as Chief Operating Officer. Clifton H. Morris, Jr., Chairman of the Board, assumed the Chief Executive Officer position. Daniel E. Berce was promoted from Chief Financial Officer to President. Preston A. Miller was promoted to Chief Financial Officer and Mark Floyd was promoted to Chief Operating Officer.

The stated objectives of the plan were substantially met by the end of calendar 2003 and the impact of the revised operating plan has been reflected in the Company’s reported financial condition and results of operations. In the first half of calendar 2004, the Company raised its loan origination targets and has added staff to its branch office network in order to support new loan growth. As a result, loan origination volume reached $1,075.5 million for the three months ended June 30, 2004. The Company intends to continue to expand loan origination volume at a moderate pace in fiscal 2005.

Automobile Finance Operations

Target Market.    The Company’s automobile lending programs are designed to serve customers who have limited access to traditional automobile financing. The Company’s typical borrowers have modest income or have experienced prior credit difficulties and generally have credit bureau scores ranging from 500 to 700. Because the Company serves customers who are unable to meet the credit standards imposed by most traditional automobile financing sources, the Company generally charges higher interest rates than those charged by traditional financing sources. As the Company provides financing in a relatively high risk market, the Company also expects to sustain a higher level of credit losses than traditional automobile financing sources.

Marketing.    As 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 prefers to finance later model, low mileage used vehicles and moderately priced new vehicles. Of the contracts purchased by the Company during the fiscal year ended June 30, 2004, approximately 98% were originated by manufacturer franchised dealers and 2% by select independent dealers. The Company purchased contracts from 12,326 dealers during the fiscal year ended June 30, 2004. No dealer location accounted for more than 1% of the total volume of contracts purchased by the Company for that same period.

Prior to entering into a relationship with a dealer, the Company considers the dealer’s operating history and reputation in the marketplace. The Company then maintains a non-exclusive relationship with the dealer. This relationship is actively monitored with the objective of maximizing the volume of applications received from the dealer that meet the Company’s underwriting standards and profitability objectives. Due to the non-exclusive nature of the Company’s relationships with dealerships, the dealerships retain discretion to determine whether to obtain financing from the Company or from another source for a loan made by the dealership to a customer seeking to make a vehicle purchase. Company representatives regularly telephone and visit dealers to solicit new business and to answer any questions dealers may have regarding the Company’s financing programs and capabilities. These personnel explain the Company’s underwriting philosophy, including the preference for sub-prime quality contracts secured by later model, low mileage vehicles. To increase the effectiveness of these contacts, marketing personnel have access to the Company’s management information systems which detail current information regarding the number of applications submitted by a dealership, the Company’s response and the reasons why a particular application was rejected.

Finance contracts are generally purchased by the Company without recourse to the dealer, and accordingly, the dealer usually has no liability to the Company if the consumer defaults on the contract. To mitigate the risk from credit losses, the Company may charge dealers a non-refundable acquisition fee when purchasing finance contracts. These acquisition fees are assessed on a contract-by-contract basis. Although finance contracts are purchased without recourse to the dealer, the dealer typically makes certain representations as to the validity of

2

Table of Contents

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 those 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 primarily uses a branch office network to market its indirect financing programs to selected dealers, develop relationships with these dealers and underwrite contracts submitted by the dealerships. Branch office and marketing personnel are responsible for the solicitation, enrollment and education of dealers regarding the Company’s financing programs. The Company believes a local presence enables it to 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, regulatory environment and availability of qualified personnel. Branch offices are typically situated in suburban office buildings that 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 several dealer and customer service representatives. Larger branch offices may also have additional assistant managers or dealer marketing representatives. The Company believes that the personal relationships its branch managers and other branch personnel establish with the dealership staff are an important factor in creating and maintaining productive relationships with the Company’s dealer customer base. Branch managers are compensated with base salaries and incentives based on overall branch performance, including factors such as branch loan credit quality, loan pricing adequacy and loan volume objectives. The incentives are typically paid in cash. The branch managers report to regional vice presidents.

The Company’s regional vice presidents monitor branch office compliance with the Company’s underwriting guidelines and assist in local branch marketing activities. 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 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.

Remote Marketing Representatives.    In addition to the branch office network, the Company uses remote marketing representatives to market its indirect financing programs to dealers in geographic areas that do not support a branch office. These remote marketing representatives maintain the Company’s relationship with these dealers, but generally do not have responsibility for credit approvals. Finance contracts solicited by the remote marketing representatives are underwritten at a branch office or at the Company’s central loan purchasing office, the National Servicing Center.

3

Table of Contents

Underwriting and Purchasing of Contracts

Proprietary Credit Scoring System and Risk-based Pricing.    The Company utilizes a proprietary credit scoring system to support the credit approval process. The credit scoring system was developed through statistical analysis of 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 evaluate credit applications for approval and 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 would either decline the application, or, if approved, 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 negatively affect the credit quality of the Company’s receivables portfolio.

The credit scoring system considers data contained in the customer’s credit application and credit bureau report as well as the structure of the proposed loan and produces a statistical assessment of these attributes. This assessment is used to segregate applicant risk profiles and determine whether the risk is acceptable and the price the Company should charge for that risk. The Company’s credit scorecards are monitored through comparison of actual versus projected performance by score. The Company endeavors to refine its proprietary scorecards based on new information and identified correlations relating to receivables performance.

Loan Approval Process.    The Company purchases individual contracts through its branch offices using a credit approval process tailored to local market conditions. Branch personnel have a specific credit authority based upon their experience and historical loan portfolio results as well as established credit scoring parameters. Contracts may also be purchased through the Company’s National Service Center for specific dealers requiring centralized service, in certain markets where a branch office is not present or, in some cases, outside of normal branch office working hours. Although the credit approval process is decentralized, the Company’s application processing system includes controls designed to ensure that credit decisions comply with the Company’s credit scoring strategies and underwriting policies and procedures.

Finance contract application packages completed by prospective obligors are received from dealers via facsimile, electronically or by telephone. Since the Company is a participating lender in DealerTrack Holdings, Inc. (“DealerTrack”), a service that facilitates electronic submission of consumer credit applications via the internet by dealers, automobile dealers can send application data to the Company electronically. Such data automatically interfaces with the Company’s application processing systems providing for faster processing. The Company received 83% of credit applications from dealers via DealerTrack for the fiscal year ended June 30, 2004. Application data received by facsimile or telephone is entered into the Company’s application processing system. A credit bureau report is automatically accessed and a credit score is computed. Company personnel with credit authority review the application package and determine whether to approve the application, approve the application subject to conditions that must be met or deny the application. The credit decision is based primarily on the applicant’s credit score. The Company estimates that approximately 60-70% of applicants are denied credit by the Company typically because of their credit histories. Dealers are contacted regarding credit decisions electronically, by facsimile or by telephone. Declined and conditioned applicants are also provided with appropriate notification of the decision.

The Company’s underwriting and collateral guidelines, including credit scoring parameters, form the basis for the credit decision. Exceptions to credit policies and authorities must be approved by designated individuals with appropriate credit authority. Exceptions are also monitored by the Company’s centralized credit risk management and corporate governance departments.

Completed contract packages are sent by the automobile dealers to the Company. Once the contract package is received, a customer service representative verifies certain applicant employment, income and residency information when required by the Company’s credit policies. Loan terms, insurance coverages and other

4

Table of Contents

information may be reverified or confirmed with the customer. Key loan documentation is scanned to create electronic images and electronically forwarded to the Company’s centralized loan processing department. The original documents are subsequently sent to the loan processing department and certain documents are stored in a fire resistant vault.

Upon electronic receipt of loan documentation, the loan processing department reviews the loan packages for proper documentation and regulatory compliance and completes the entry of information into the Company’s loan accounting system. Once cleared for funding, the loan processing department electronically transfers funds to the dealer or issues a check. Upon funding of the contract, the Company acquires a perfected security interest in the automobile that was financed. Daily loan reports are generated for review by senior operations management. All of the Company’s contracts are fully amortizing with substantially equal monthly installments.

Servicing and Collections Procedures

General.    The Company’s servicing activities consist of collecting and processing customer payments, responding to customer inquiries, initiating contact with customers who are delinquent in payment of an installment, maintaining the security interest in the financed vehicle, monitoring physical damage insurance coverage of the financed vehicle, arranging for the repossession of, and liquidating collateral when necessary.

The Company uses monthly billing statements to serve as a reminder to customers as well as an early warning mechanism in the event a customer has failed to notify the Company of an address change. Approximately 15 days before a customer’s first payment due date and each month thereafter, the Company mails the customer a billing statement directing the customer to mail payments to a lockbox bank for deposit in a lockbox account. Payment receipt data is electronically transferred from the Company’s lockbox bank to the Company for posting to the loan accounting system. Payments may also be received directly by the Company from customers or via electronic transmission of funds. All payment processing and customer account maintenance is performed centrally at the Company’s operations center in Arlington, Texas.

The Company’s collections activities are performed at regional centers located in Arlington, Texas; Chandler, Arizona; Charlotte, North Carolina and Peterborough, Ontario. A predictive dialing system is utilized to make phone calls to customers whose payments are past due. The predictive dialer is a computer-controlled telephone dialing system that simultaneously dials phone numbers of multiple customers from a file of records extracted from the Company’s database. Once a live voice responds to the automated dialer’s call, the system automatically transfers the call to a collector and the relevant account information to the collector’s computer screen. Accounts that the system has been unable to reach within a specified number of days are flagged, thereby promptly identifying for management all customers who cannot be reached by telephone. By eliminating the time spent on attempting to reach customers, the system gives a single collector the ability to speak with a larger number of borrowers daily.

Once an account reaches a certain level of delinquency, the account moves to one of the Company’s advanced collection units. The objective of these collectors is to resolve the delinquent account. The Company may repossess a financed vehicle if an account is deemed uncollectible, the financed vehicle is deemed by collection personnel to be in danger of being damaged, destroyed or hidden, the customer deals in bad faith or the customer voluntarily surrenders the financed vehicle.

At times, the Company offers payment deferrals to customers who have encountered temporary financial difficulty, hindering their ability to pay as contracted. A deferral allows the customer to move delinquent payments to the end of the loan, usually by paying a fee that is calculated in a manner specified by applicable law. The collector reviews the customer’s past payment history and statistically based behavioral score and assesses the customer’s desire and capacity to make future payments. Before agreeing to a deferral, the collector also considers whether the deferment transaction complies with the Company’s policies and guidelines. Certain exceptions to the Company’s policies and guidelines for deferrals must be approved by a collections officer.

5

Table of Contents

While payment deferrals are initiated and approved in the collections department, a separate department processes authorized deferment transactions. Exceptions are also monitored by the Company’s centralized credit risk management and corporate governance departments.

Repossessions.    Repossessions are subject to prescribed legal procedures, which include peaceful repossession, one or more customer notifications, a prescribed waiting period prior to disposition of the repossessed automobile and return of personal items to the customer. Some jurisdictions provide the customer with reinstatement or redemption rights. Legal requirements, particularly in the event of bankruptcy, may restrict the Company’s ability to dispose of the repossessed vehicle. Repossessions are handled by independent repossession firms engaged by the Company. All repossessions, other than bankruptcy or previously charged off accounts, 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. For the fiscal year ended June 30, 2004, the recovery rate upon the sale of repossessed assets was approximately 41%. The Company pursues collection of deficiencies when it deems such action to be appropriate.

Charge-Off Policy.    The Company’s policy is to charge-off an account in the month in which the account becomes 120 days contractually delinquent if the Company has not repossessed the related vehicle. Historically, the Company charged off accounts in repossession at the time the repossessed automobile was disposed of at auction. During the three months ended December 31, 2003, the Company changed its repossession charge-off policy to charge off accounts in repossession when the automobile is repossessed and legally available for disposition. A charge-off represents the difference between the estimated net sales proceeds and the amount of the delinquent contract, including accrued interest. Accounts in repossession that have been charged off are removed from finance receivables and the related repossessed automobiles are included in other assets on the consolidated balance sheet pending disposal.

Risk Management

Overview.    The Company’s credit risk management department is responsible for monitoring the contract approval process and supporting the supervisory role of senior operations management. This department tracks key variables, such as loan applicant data, credit bureau and credit score information, loan structures and terms and payment histories. The credit risk management department also regularly reviews the performance of the Company’s credit scoring system and is responsible for the development and enhancement of the Company’s credit scorecards.

The credit risk management department 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 to monitor credit quality as well as to refine the structure and mix of new loan originations. The Company reviews portfolio returns on a consolidated basis, as well as at the branch office, dealer and contract levels.

Behavioral Scoring.    Statistically-based behavioral assessment models are used to project the relative probability that an individual account will default and to validate the credit scoring system after the receivable has aged for a sufficient period of time, generally six months. Default probabilities are calculated for each account independent of the credit score. Projected default rates from the behavioral assessment models and credit scoring systems are compared and analyzed to monitor the effectiveness of the Company’s credit strategies.

Collateral Value Management.    The value of the collateral underlying the Company’s receivables portfolio is updated monthly with a loan-by-loan link to national wholesale auction values. This data, along with the Company’s own experience relative to mileage and vehicle condition, are used for evaluating collateral disposition activities as well as for reserve analysis models.

6

Table of Contents

Compliance Audits.    The Company’s internal audit and corporate governance departments conduct regular reviews of branch office operations, loan operations, processing and servicing, collections and other functional areas. The primary objective of the reviews is to identify risks and associated controls and measure compliance with the Company’s written policies and procedures as well as regulatory matters. Branch office reviews performed by the Company’s corporate governance department include a review of compliance with underwriting policies, completeness of loan documentation, collateral value assessment and applicant data investigation. In addition, the corporate governance department also performs reviews of the repossession, charge-off, deferment and bankruptcy processes. Written reports are distributed to departmental managers and officers for response and follow-up.  Results and responses are also reviewed by senior 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. Proceeds from securitizations approximate the Company’s investment in the automobile finance receivables securitized. The proceeds are primarily used to fund initial cash credit enhancement requirements in the securitization and to pay down borrowings under its warehouse credit facilities, thereby increasing availability thereunder for further contract purchases. Through June 30, 2004, the Company had securitized approximately $34.9 billion of automobile receivables since 1994.

In its securitizations, the Company, through wholly-owned subsidiaries, transfers automobile receivables to newly-formed securitization trusts (“Trusts”), which issue one or more classes of asset-backed securities. The asset-backed securities are in turn sold to investors.

The Company typically arranges for a financial guaranty insurance policy from one of several monoline insurers to achieve a AAA/Aaa credit rating on the asset-backed securities issued by the securitization Trusts. The financial guaranty insurance policies insure the timely payment of interest and the ultimate payment of principal due on the asset-backed securities. The Company has limited reimbursement obligations to the insurers; however, credit enhancement requirements, including the insurers’ encumbrance of certain restricted cash accounts and subordinated interests in Trusts, provide a source of funds to cover shortfalls in collections and to reimburse the insurers for any claims which may be made under the policies issued with respect to the Company’s securitizations.

The credit enhancement requirements represent retained interests in the securitization Trusts and include restricted cash accounts that are generally established with an initial deposit and subsequently funded through excess cash flows from securitized receivables. Funds may be withdrawn from the restricted cash accounts to cover any shortfalls in amounts payable on the asset-backed securities. Funds generated from insured securitization transactions are also available to be withdrawn to reimburse the insurers for draws on financial guaranty insurance policies in an event of default. Additionally, agreements with the insurers provide that if portfolio performance ratios (delinquency, cumulative default or cumulative net loss triggers) in a Trust’s pool of receivables exceed certain targets, the specified enhancement levels would be increased. Cash would be retained in the restricted cash account and not released to the Company until the increased target levels of credit enhancement requirements have been reached and maintained. The Company is entitled to receive amounts from the restricted cash accounts to the extent the amounts deposited exceed the required target levels.

Prior to October 2002, the financial guaranty insurance policies for all of the Company’s insured securitization transactions were provided by FSA. The restricted cash account for each securitization Trust insured as part of the FSA Program is cross-collateralized to the restricted cash accounts established in connection with the Company’s other securitization Trusts in the FSA Program, such that excess cash flows from an FSA Program securitization that has already met its own credit enhancement requirement may be used to fund increased target credit enhancement requirements with respect to FSA Program securitizations in which specified portfolio performance ratios have been exceeded.

7

Table of Contents

FSA has a security interest in the restricted cash accounts, interest-only receivables from Trusts and investments in Trust receivables related to Trusts that are part of the FSA Program, such that, if the security interest is foreclosed upon in the event of a payment by FSA under one of its insurance policies or the occurrence of other events of default in an FSA Program securitization, FSA would control all of the restricted cash accounts, interest-only receivables from Trusts and investments in Trust receivables with respect to securitization transactions it has insured.

The Company’s securitization transactions insured by financial guaranty insurance providers, including FSA, since October 2002 are cross-collateralized to a more limited extent. In the event of a shortfall in the original target credit enhancement requirement for any of these securitizations after a certain period of time, excess cash flows from other transactions insured by the same insurance provider would be used to satisfy the shortfall amount. In one of the Company’s securitization transactions, if a secured party receives a notice of a rating agency review for downgrade or if there is a downgrade of any class of notes (without taking into consideration the presence of the financial guaranty insurance policy) excess cash flows from other securitization transactions insured by the same insurance provider would be utilized to satisfy any increased target credit enhancement requirements.

Since November 2000 and most recently in June 2004, the Company has completed four securitization transactions in the United States and two in Canada involving the sale of subordinate asset-backed securities in order to provide credit enhancement for the senior asset-backed securities and protect investors from potential losses. The Company provided credit enhancement in these transactions in the form of a restricted cash account and overcollateralization, whereby more receivables are transferred to the Trusts than the amount of asset-backed securities issued by the Trusts. Excess cash flows are used to increase the credit enhancement assets to required minimum levels, after which time excess cash flows are distributed to the Company. Since these transactions did not involve the issuance of a financial guaranty insurance policy, the credit enhancement assets related to these Trusts are not cross-collateralized to the credit enhancement assets established in connection with any of the Company’s other securitization Trusts and do not contain limitations on portfolio performance ratios which could increase the minimum required credit enhancement levels.

Trade Names

The Company has obtained federal trademark protection for the “AmeriCredit” name and the logo that incorporates the “AmeriCredit” name. Certain other names, logos and phrases used by the Company in its business operations have also been trademarked.

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. These 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 is 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

8

Table of Contents

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. According to Regulation B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. In addition, the credit scoring system used by the Company must comply with the requirements for such a system as set forth in the Equal Credit Opportunity Act and Regulation B. The Fair Credit Reporting Act requires the Company to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency. Additionally, the Company is subject to the Gramm-Leach-Bliley Act, which requires the Company to maintain privacy with respect to certain consumer data in its possession and to periodically communicate with consumers on privacy matters. The Company is also subject to the Servicemembers Civil Relief Act, which requires it, in most circumstances, to reduce the interest rate charged on each loan to customers who have subsequently joined, enlisted, been inducted or called to active military duty.

The dealers who originate automobile finance contracts 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 these statutes and regulations could result in consumers having rights of rescission and other remedies that could have an adverse effect on the Company.

The Company believes that it maintains all material licenses and permits required for its current operations and is in substantial compliance with all applicable local, state and federal regulations. There can be no assurance, however, that the Company will be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on its operations. Further, the adoption of additional, or the revision of existing, rules and regulations could have a material adverse effect on the Company’s business.

Competition

Competition in the field of sub-prime automobile finance is intense. The automobile finance market is highly fragmented and is served by a variety of financial entities including the captive finance affiliates of major automotive manufacturers, banks, thrifts, credit unions and independent finance companies. Many of these competitors have substantially greater financial resources and lower costs of funds than the Company. In addition, the Company’s competitors often provide financing on terms more favorable to automobile purchasers or dealers than the Company offers. Many of these competitors also have long standing relationships with automobile dealerships and may offer dealerships or their customers other forms of financing, including dealer floor plan financing and leasing, which are not provided by the Company. Providers of automobile financing have traditionally competed on the basis of interest rates charged, the quality of credit accepted, the flexibility of loan terms offered and the quality of service provided to dealers and customers. In seeking to establish itself as one of the principal financing sources at the dealers it serves, the Company competes predominately on the basis of its high level of dealer service and strong dealer relationships and by offering flexible loan terms. There can be no assurance that the Company will be able to compete successfully in this market or against these competitors.

Risk Factors

Dependence on Warehouse Financing.    The Company depends on warehouse credit facilities with financial institutions to finance its purchase of contracts pending securitization. At June 30, 2004, the Company had one warehouse credit facility with various financial institutions providing for available borrowings of up to a total of approximately $1,950.0 million, subject to a defined borrowing base, of which $150.0 million matures in November 2004 and the remaining $1,800.0 million matures in November 2006.

At June 30, 2004, the Company also had one medium term note facility with an administrative agent on behalf of an institutionally managed medium term note conduit that in the aggregate provides $500.0 million of receivables financing which matures in February 2005.

9

Table of Contents

The Company cannot guarantee that any of these financing resources will continue to be available beyond the current maturity dates at reasonable terms or at all. The availability of these financing sources depends on factors outside of the Company’s control, including regulatory capital treatment for unfunded bank lines of credit and the availability of bank liquidity in general. If the Company is unable to extend or replace these facilities and arrange new warehouse credit facilities, medium term note facilities or other types of interim financing, it will have to curtail contract purchasing activities, which would have a material adverse effect on the Company’s financial position and results of operations.

The Company’s warehouse credit and medium term note facilities contain restrictions and covenants that require the Company to maintain specified financial ratios and satisfy specified financial tests, including maintenance of asset quality and portfolio performance tests as well as deferment levels. Failure to meet any of these covenants, financial ratios or financial tests could result in an event of default under these agreements. If an event of default occurs under these agreements, the lenders could elect to declare all amounts outstanding under these agreements to be immediately due and payable, enforce their interests against collateral pledged under these agreements and restrict or terminate the Company’s ability to obtain additional borrowings under these agreements. The Company’s ability to meet those financial ratios and tests may be affected by events beyond its control, and the Company cannot guarantee that it will meet those financial ratios and tests.

Dependence on Securitization Program.    Since December 1994, the Company has relied upon its ability to aggregate and transfer receivables to securitization Trusts and sell securities in the asset-backed securities market to generate cash proceeds for repayment of warehouse credit and medium term note facilities and to purchase additional contracts from automobile dealers. 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 securitize loans on a timely basis and upon terms reasonably favorable to the Company. Any adverse change or delay would have a material adverse effect on the Company’s financial position, liquidity and results of operations.

The Company will continue to require the execution of securitization transactions in order to fund the Company’s future liquidity needs. 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. If these sources of funding are not available to the Company on a regular basis for any reason, including the occurrence of events of default, deterioration in loss experience on the receivables, breach of financial covenants, disruption of the asset-backed market or otherwise, the Company will be required to revise the scale of its business, including the possible discontinuation of loan origination activities, which would have a material adverse effect on the Company’s ability to achieve its business and financial objectives.

Dependence on Credit Enhancement.    To date, all but four of the Company’s securitizations in the United States have utilized credit enhancement in the form of financial guaranty insurance policies provided by various monoline insurance providers in order to achieve AAA/Aaa ratings on the insured securities issued in the securitization transactions. These ratings may reduce the costs of securitizations relative to alternative forms of financing available to the Company and enhance the marketability of these transactions to investors in asset-backed securities. The Company has committed to offering specific financial guaranty insurance providers the opportunity to provide insurance policies in connection with certain of its future insured securitizations, at competitive market terms. However, the financial guaranty insurance providers are not required to insure Company-sponsored securitizations, and there can be no assurance that they will continue to do so or that future Company-sponsored securitizations will be similarly rated. The Company’s insurance providers’ willingness to insure the Company’s future securitizations is subject to many factors beyond the Company’s control, including concentrations of risk with any given insurance provider, the insurance providers’ own rating considerations, their ability to cede this risk to reinsurers and the performance of the portion of the Company’s portfolio for which the insurer has provided insurance. Alternatively, in lieu of relying on a financial guaranty insurance policy, in four of its securitizations in the United States, the Company has sold or retained subordinate asset-backed securities in order to provide credit enhancement for the senior asset-backed securities.

10

Table of Contents

The securitization transactions the Company entered into since calendar year 2002 required higher initial and target credit enhancement levels than previous transactions. The Company anticipates that credit enhancement requirements will remain at higher levels on future securitization transactions which will require the use of additional liquidity to support its securitization program. A downgrading of any of the Company’s insurance providers’ credit ratings, their withdrawal of credit enhancement, an increase in required credit enhancement levels or the lack of availability of alternative credit enhancements, such as senior subordinated structures, for the Company’s securitization program could result in higher interest costs for future Company-sponsored securitizations and larger initial credit enhancement requirements. The absence of a financial guaranty insurance policy may also impair the marketability of the Company’s securitizations. These events could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Liquidity and Capital Needs.    The Company’s ability to make payments on or to refinance its indebtedness and to fund its operations and planned capital expenditures depends on its ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the Company’s control.

The Company expects to continue to require substantial amounts of cash. The Company’s primary cash requirements include the funding of: (i) contract purchases pending their securitization; (ii) credit enhancement requirements in connection with the securitization of the receivables; (iii) interest and principal payments under the Company’s warehouse credit facilities, its senior notes and other indebtedness; (iv) fees and expenses incurred in connection with the securitization and servicing of receivables; (v) capital expenditures for technology; (vi) ongoing operating expenses; and (vii) any income tax payments.

The Company requires substantial amounts of cash to fund its contract purchase and securitization activities. Although the Company must fund certain credit enhancement requirements upon the closing of a securitization, it typically receives the cash representing excess cash flows and return of credit enhancement deposits over the actual life of the receivables securitized. Assuming that origination volume ranges from $4.5 billion to $5.0 billion in fiscal 2005 and the initial credit enhancement requirement for the Company’s securitization transactions remains at 10.5% (the level for the most recent securitization), the Company would require $472.5 million to $525.0 million in cash or liquidity to fund initial credit enhancement in fiscal 2005. This initial credit enhancement requirement could increase in future securitizations, which would result in an increased requirement for cash on the Company’s part. The Company also incurs transaction costs in connection with a securitization transaction. Accordingly, the Company’s strategy of securitizing substantially all of its newly purchased receivables will require substantial amounts of cash.

The Company’s primary sources of future liquidity are expected to be: (i) excess cash flows received from securitization Trusts; (ii) interest and principal payments on loans not yet securitized; (iii) servicing fees; (iv) borrowings under its warehouse credit facilities or through securitization transactions; and (v) further issuances of debt or equity securities, depending on capital market conditions.

Because the Company expects to continue to require substantial amounts of cash for the foreseeable future, it anticipates that it will require the execution of additional securitization transactions and may choose to enter into debt or equity financings. The type, timing and terms of financing selected by the Company will be dependent upon its cash needs, the availability of other financing sources and the prevailing conditions in the financial markets. There can be no assurance that funding will be available to the Company through these sources or, if available, that the funding will be on acceptable terms. If the Company is unable to execute securitization transactions on a regular basis, it would not have sufficient funds to finance new loan originations and, in such event, the Company would be required to revise the scale of its business, including possible discontinuation of loan origination activities, which would have a material adverse effect on the Company’s ability to achieve its business and financial objectives.

Leverage.    The Company currently has a substantial amount of outstanding indebtedness. The Company’s ability to make payments of principal or interest on, or to refinance, its indebtedness will depend on its future

11

Table of Contents

operating performance, including the performance of receivables transferred to securitization Trusts, and its ability to enter into additional securitization transactions and debt and 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 flows 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 refinancings will be possible or that any additional financing could be obtained on acceptable terms. The inability to obtain additional financing could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

The degree to which the Company is leveraged creates risks including: (i) the Company may be unable to satisfy its obligations under its outstanding indebtedness; (ii) the Company may find it more difficult to fund future working capital, capital expenditures, acquisitions, general corporate purposes or other purposes; (iii) the Company may have to dedicate a substantial portion of its cash resources to the payments on its outstanding indebtedness, thereby reducing the funds available for operations and future business opportunities; and (iv) the Company may be more vulnerable to adverse general economic and industry conditions. The Company’s existing outstanding indebtedness restricts its ability to, among other things: (i) sell or transfer assets; (ii) incur additional debt; (iii) repay other debt; (iv) pay dividends; (v) make certain investments or acquisitions; (vi) repurchase or redeem capital stock; (vii) engage in mergers or consolidations; and (viii) engage in certain transactions with subsidiaries and affiliates.

The Company’s warehouse credit facility, medium term note facility and senior note indenture require the Company to comply with certain financial ratios and covenants. Additionally, the Company’s warehouse credit facility and medium term note facility have minimum asset quality maintenance requirements. These restrictions may interfere with the Company’s ability to obtain financing or to engage in other necessary or desirable business activities. As of June 30, 2004, the Company was in compliance with all financial and portfolio performance covenants on its warehouse credit facility, medium term note facility and senior note indenture.

If the Company cannot comply with the requirements in its warehouse credit facility, medium term note facility and/or its senior note indenture, then the lenders may increase the Company’s borrowing costs or require it to repay immediately all of the outstanding debt under them. If its debt payments were accelerated, the Company’s assets might not be sufficient to fully repay the debt. These lenders may require the Company to use all of its available cash to repay its debt, foreclose upon their collateral or prevent the Company from making payments to other creditors on certain portions of the Company’s outstanding debt. These events may also result in a default under the Company’s senior note indentures.

The Company may not be able to obtain a waiver of these provisions or refinance its debt, if needed. In such a case, the Company’s financial condition, liquidity and results of operations would suffer.

Default and Prepayment Risks.    The Company’s results of operations, financial condition and liquidity depend, to a material extent, on the performance of contracts purchased. Obligors under contracts acquired or originated by the Company may default during the term of their loan. The Company bears the full risk of losses resulting from defaults. In the event of a default, the collateral value of the financed vehicle usually does not cover the outstanding loan balance and costs of recovery.

The Company maintains an allowance for loan losses on loans held on the Company’s balance sheet, which reflects management’s estimates of inherent losses for these loans. If the allowance is inadequate, then the Company would recognize the losses in excess of that allowance as an expense, and results of operations could be adversely affected.

A large component of the gain recognized on the sale of finance receivables to securitization Trusts prior to October 1, 2002, and the corresponding retained interest recorded on the Company’s balance sheet as credit enhancement assets consisting of investments in Trust receivables, or overcollateralization, restricted cash and interest-only receivables from Trusts are based on estimated future cash flows. Interest-only receivables from

12

Table of Contents

Trusts are based on the present value of estimated future excess cash flows from the securitized receivables expected to be received by the Company. Credit enhancement assets are calculated on the basis of management’s assumptions concerning, among other things, defaults and recovery rates on repossessed vehicles. As of June 30, 2004, credit enhancement assets were valued at $1,062.3 million.

The Company regularly measures its default, recovery 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, overestimated recoveries or that any other material assumptions were inaccurate, the Company would be required to reduce the carrying value of its credit enhancement assets. If the change in assumptions and the impact of the change on the value of the credit enhancement assets were deemed other-than-temporary, the Company would record a charge to income. Although the Company believes that it has made reasonable assumptions as to the future cash flows of the various pools of receivables that have been sold in securitization transactions, actual rates of default and recovery rates on repossessed vehicles or other assumptions may differ from those assumed and may be required to be revised upon future events.

The Company is required to deposit substantial amounts of the cash flows generated by its interests in Company-sponsored securitizations to satisfy additional credit enhancement requirements. An increase in defaults or prepayments would reduce the cash flows generated by the Company’s interests in securitization transactions lengthening the period required to build targeted credit enhancement levels in the securitization trusts. Distributions of cash from the securitizations to the Company would be delayed and the ultimate amount of cash distributable to the Company would be less, which could have an adverse effect on the Company’s liquidity. The targeted credit enhancement levels in future securitizations could also be increased further impacting the Company’s liquidity.

In addition, an increase in defaults or prepayments would reduce the size of the Company’s servicing portfolio, which would reduce the Company’s servicing income, further adversely affecting results of operations and cash flows. A material write-down of credit enhancement assets or adjustment to the Company’s allowance for loan losses and the corresponding decreases in earnings and cash flow could limit the Company’s ability to service debt and to enter into future securitizations and other financings.

Portfolio Performance—Negative Impact on Cash Flows.    Generally, the form of credit enhancement agreements the Company enters into with its financial guaranty insurance providers in connection with securitization transactions contain specified limits on portfolio performance ratios (delinquency, cumulative default and cumulative net loss triggers) on the receivables included in each securitization Trust. If, at any measurement date, a portfolio performance ratio with respect to any Trust were to exceed the specified limits, provisions of the credit enhancement agreement would automatically increase the level of credit enhancement requirements for that Trust, if a waiver was not obtained. During the period in which the specified portfolio performance ratio was exceeded, excess cash flows, 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 flows. Further, the credit enhancement requirements for each securitization Trust in the FSA Program are cross-collateralized to the credit enhancement requirements established in connection with each of the Company’s FSA Program securitization Trusts, so that excess cash flows from performing securitization Trusts in the FSA Program may be used to fund increased credit enhancement requirements for non-performing securitization Trusts in the FSA Program, which would have an adverse effect on the Company’s cash flows.

The Company’s securitization transactions insured by financial guaranty insurance providers, including FSA, since October 2002 are cross-collateralized to a more limited extent. In the event of a shortfall in the original target credit enhancement requirement for any of these securitization Trusts after a certain period of time, excess cash flows from other transactions insured by the same insurance provider would be used to satisfy the shortfall amount. In one of the Company’s securitization transactions, if a secured party receives a notice of a rating agency review for downgrade or if there is a downgrade of any class of notes (without taking into consideration the presence of the financial guaranty insurance policy) excess cash flows from other securitization transactions insured by the same insurance provider would be utilized to satisfy any increased target credit enhancement requirements.

13

Table of Contents

As of June 30, 2004, the Company has exceeded its targeted cumulative net loss triggers in seven of the eleven remaining FSA Program securitization Trusts, and waivers were not granted by FSA. Accordingly, cash generated by FSA Program securitization Trusts otherwise distributable to the Company was used to fund increased credit enhancement levels for the securitizations that breached their cumulative net loss triggers. The higher targeted credit enhancement levels have been reached and maintained in all of the FSA Program securitizations that had breached targeted cumulative net loss triggers as of June 30, 2004. The increase in required credit enhancement levels caused by breach of cumulative net loss triggers on the FSA Program Trusts resulted in an additional $207.7 million in restricted cash being held by these Trusts as of June 30, 2004. The targeted cumulative net loss triggers are expected to be breached on the remaining FSA Program securitization Trusts during fiscal 2005. The Company does not expect waivers to be granted by FSA in the future with respect to securitizations that breach portfolio performance triggers and estimates that cash otherwise distributable to the Company on FSA Program securitization transactions will be used to fund increased credit enhancement for the remaining FSA Program transactions, delaying and reducing the amount to be released to the Company during fiscal 2005. The diversion of cash to fund increased enhancement levels rather than being released to the Company has significantly reduced a primary source of the Company’s liquidity.

Right to Terminate Normal Servicing.    The agreements that the Company enters into with its financial guaranty insurance providers in connection with securitization transactions contain additional specified targeted portfolio performance ratios (delinquency, cumulative default and cumulative net loss triggers) that are higher than the limits referred to in the preceding risk factor. If, at any measurement date, the targeted portfolio performance ratios with respect to any insured Trust were to exceed these additional levels, provisions of the agreements permit the financial guaranty insurance providers to terminate the Company’s servicing rights to the receivables sold to that Trust. In addition, the servicing agreements on certain insured securitization Trusts are cross-defaulted so that a default under one servicing agreement would allow the financial guaranty insurance provider to terminate the Company’s servicing rights under all servicing agreements for securitization Trusts in which they issued a financial guaranty insurance policy. Additionally, if these higher targeted portfolio performance levels were exceeded, the financial guaranty insurance providers may elect to retain all excess cash generated by other securitization transactions insured by them as additional credit enhancement. This, in turn, could result in defaults under the Company’s other securitizations and other material indebtedness. Although the Company has never exceeded these additional targeted portfolio performance ratios, and does not anticipate violating any event of default triggers for its securitizations, there can be no assurance that the Company’s servicing rights with respect to the automobile receivables in such Trusts or any other Trusts will not be terminated if (i) such targeted portfolio performance ratios are breached, (ii) the Company breaches its obligations under the servicing agreements, (iii) the financial guaranty insurance providers are required to make payments under a policy, or (iv) certain bankruptcy or insolvency events were to occur. As of June 30, 2004, no such termination events have occurred with respect to any of the Trusts formed by the Company. The termination of any or all of the Company’s servicing rights would have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Implementation of Business Strategy.    The Company’s financial position, liquidity and results of operations depend on management’s ability to execute its business strategy. Key factors involved in the execution of the business strategy include achieving the desired contract purchase volume, continued and successful use of proprietary scoring models for credit risk assessment and risk-based pricing, the use of effective credit risk management techniques, continued investment in technology to support operating efficiency and continued access to significant funding and liquidity sources. The failure or inability of the Company to execute any element of its business strategy could materially adversely affect its financial position, liquidity and results of operations.

Target Consumer Base.    The Company specializes in purchasing and servicing sub-prime automobile receivables. Sub-prime borrowers are associated with higher-than-average delinquency and default rates. While the Company believes that it effectively manages these risks with its proprietary credit scoring system, risk-based loan pricing and other underwriting policies and collection methods, no assurance can be given that these criteria

14

Table of Contents

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.    The Company is subject to changes in general economic conditions that are beyond its control. During periods of economic slowdown or recession, such as the United States economy has at times experienced, delinquencies, defaults, repossessions and losses generally increase. These periods also may be accompanied by decreased consumer demand for automobiles and declining values of automobiles securing outstanding loans, which weakens collateral coverage and increases the amount of a loss in the event of default. Significant increases in the inventory of used automobiles during periods of economic recession may also depress the prices at which repossessed automobiles may be sold or delay the timing of these sales. Because the Company focuses on sub-prime borrowers, the actual rates of delinquencies, defaults, repossessions and losses on these loans are higher than those experienced in the general automobile finance industry and could be more dramatically affected by a general economic downturn. In addition, during an economic slowdown or recession, the Company’s servicing costs may increase without a corresponding increase in its servicing income. While the Company seeks to manage the higher risk inherent in loans made to sub-prime borrowers through the underwriting criteria and collection methods it employs, no assurance can be given that these criteria or methods will afford adequate protection against these risks. Any sustained period of increased delinquencies, defaults, repossessions or losses or increased servicing costs could also adversely affect the Company’s financial position, liquidity and results of operations and its ability to enter into future securitizations.

Wholesale Auction Values.    The Company sells repossessed automobiles at wholesale auction markets located throughout the United States and Canada. Auction proceeds from the sale of repossessed vehicles and other recoveries are usually not sufficient to cover the outstanding balance of the contract, and the resulting deficiency is charged off. Decreased auction proceeds resulting from the depressed prices at which used automobiles may be sold during periods of economic slowdown or recession will result in higher credit losses for the Company. Furthermore, depressed wholesale prices for used automobiles may result from significant liquidations of rental or fleet inventories, and from increased volume of trade-ins due to promotional financing programs offered by new vehicle manufacturers. The Company’s recoveries as a percentage of repossession charge-offs was 41% in fiscal 2004, 42% in fiscal 2003 and 48% in fiscal 2002, and there can be no assurance that the Company’s recovery rates will stabilize or improve in the future.

Interest Rates.    The Company’s profitability may be directly affected by the level of and fluctuations in interest rates, which affects the gross interest rate spread the Company earns on its receivables. As the level of interest rates increase, the Company’s gross interest rate spread on new originations will generally decline since the rates charged on the contracts originated or purchased from dealers are limited by statutory maximums, restricting the Company’s opportunity to pass on increased interest costs. The Company believes that its profitability and liquidity could 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 hedging strategies designed to mitigate the impact of changes in interest rates. The Company can provide no assurance, however, that pre-funding or other hedging strategies will mitigate the impact of changes in interest rates.

Labor Market Conditions.    Competition to hire personnel possessing the skills and experience required by the Company could contribute to an increase in the Company’s employee turnover rate. High turnover or an inability to attract and retain qualified replacement personnel could have an adverse effect on the Company’s delinquency, default and net loss rates and, ultimately, the Company’s financial condition, results of operations and liquidity.

Competition.    Reference should be made to Item 1. “Business—Competition” for a discussion of competitive risk factors.

Regulation.    Reference should be made to Item 1. “Business—Regulation” for a discussion of regulatory risk factors.

15

Table of Contents

Litigation.    As a consumer finance company, the Company is subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud and breach of contract. Some litigation against the Company could take the form of class action complaints by consumers. As the assignee of finance contracts originated by dealers, the Company may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies but includes requests for compensatory, statutory and punitive damages.

In fiscal 2003, several complaints were filed by shareholders against the Company and certain of its officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Additionally, a complaint was filed in fiscal 2003 against the Company and certain of its officers and directors in the 48^th Judicial District Court in Tarrant County, Texas, alleging violations of Sections 11 and 15 of the Securities Act of 1933 in connection with the Company’s secondary public offering of common stock on October 1, 2002. These complaints have been consolidated into one action, styled Pierce v. AmeriCredit Corp., et al., pending in the United States District Court for the Northern District of Texas, Fort Worth Division; the plaintiff in Pierce seeks class action status. In Pierce, the plaintiff claims, among other allegations, that deferments were improperly granted by the Company to avoid delinquency triggers in securitization transactions and enhance cash flows to incorrectly report charge-offs and delinquency percentages, thereby causing the Company to misrepresent its financial performance throughout the alleged class period. The plaintiff also alleges that the Company’s registration statement and prospectus for the offering contained untrue statements of material facts and omitted to state material facts necessary to make other statements in the registration statement not misleading. The Company believes that its granting of deferments, which is a common practice within the auto finance industry, complied with the covenants contained in its securitization and warehouse financing documents, and that the Company’s deferment activities were properly disclosed to all constituents, including shareholders, asset-backed investors, creditors and credit enhancement providers.

An adverse resolution of the litigation pending or threatened against the Company, including the proceedings specifically described above, could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Employees

At June 30, 2004, the Company employed 3,535 persons in 38 states and one Canadian province. None of the Company’s employees are a part of a collective bargaining agreement, and the Company’s relationships with employees are satisfactory.

Executive Officers

The following sets forth certain data concerning the executive officers of the Company as of June 30, 2004.

16

Table of Contents

CLIFTON H. MORRIS, JR. has been Chairman of the Board since May 1988 and has served as Chief Executive Officer from April 2003 to the present and from May 1988 to July 2000. He also served as President from May 1988 until April 1991 and from April 1992 to November 1996.

DANIEL E. BERCE has been President since April 2003. Mr. Berce was Vice Chairman and Chief Financial Officer from November 1996 until April 2003. He served as Executive Vice President, Chief Financial Officer and Treasurer from November 1994 until November 1996.

STEVEN P. BOWMAN has been Executive Vice President, Chief Credit Officer since March 2000. He served as Senior Vice President, Risk Management from May 1998 until March 2000 and was Vice President, Risk Management from June 1997 until May 1998. From February 1996 until June 1997, Mr. Bowman was Assistant Vice President, Risk Management.

CHRIS A. CHOATE has been Executive Vice President, Chief Legal Officer and Secretary since November 1999. He served as Senior Vice President, General Counsel and Secretary from November 1996 to November 1999. Mr. Choate was Vice President, General Counsel and Secretary from November 1994 until November 1996.

EDWARD H. ESSTMAN has been an Executive Vice President since April 2003 and was Vice Chairman from August 2001 until April 2003. Mr. Esstman served as Executive Vice President, Dealer Services and Co-Chief Operating Officer from October 2000 to August 2001, Executive Vice President, Dealer Services from October 1999 to October 2000, Executive Vice President, Auto Finance Division from November 1996 to October 1999 and Senior Vice President and Chief Credit Officer from November 1994 to November 1996. Effective August 31, 2004, Mr. Esstman is no longer employed by the Company.

MARK FLOYD has been Executive Vice President, Chief Operating Officer since April 2003. He served as President, Dealer Services from August 2001 until April 2003. Mr. Floyd served as Executive Vice President, Dealer Services from November 1999 to August 2001 and was Senior Vice President, Director Strategic Alliance from January 1998 to November 1999. He was Senior Vice President, Strategic Alliance from September 1997 to January 1998.

PRESTON A. MILLER has been Executive Vice President, Chief Financial Officer and Treasurer since April 2003. Mr. Miller was Executive Vice President, Treasurer from July 1998 until April 2003. He served as Senior Vice President, Treasurer from November 1996 until July 1998 and Vice President, Controller from November 1994 until November 1996.

Available Information

The Company makes available free of charge through its website, www.americredit.com, securitization portfolio performance measures and all materials that it files electronically with the Securities and Exchange Commission (“SEC”), including the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practical after filing or furnishing such material with the SEC.

The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website, www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

17

Table of Contents

ITEM 2.    Properties

The Company’s executive offices are located at 801 Cherry Street, Suite 3900, Fort Worth, Texas, in a 227,000 square foot office space under a 12-year lease that commenced in July 1999. The Company also leases 76,000 square feet of office space in Charlotte, North Carolina, 85,000 square feet of office space in Peterborough, Ontario, 150,000 square feet of office space in Chandler, Arizona, and 85,000 square feet of office space in Jacksonville, Florida, all under ten-year agreements with renewal options. As of April 1, 2004, the Company abandoned certain office space at the Fort Worth offices and the Chandler facility and all of the Jacksonville facility. The Company is seeking to sublease the abandoned office space. The Company also owns two 250,000 square foot servicing facilities in Arlington, Texas.

The Company’s branch office facilities are generally leased under agreements with original terms of three to five years. Such facilities are typically located in a suburban office building and consist of between 1,000 and 2,000 square feet of space.

ITEM 3.    Legal Proceedings

As a consumer finance company, the Company is subject to various consumer claims and litigation seeking damages and statutory penalties, based upon, among other things, usury, disclosure inaccuracies, wrongful repossession, violations of bankruptcy stay provisions, certificate of title disputes, fraud, breach of contract and discriminatory treatment of credit applicants. Some litigation against the Company could take the form of class action complaints by consumers. As the assignee of finance contracts originated by dealers, the Company may also be named as a co-defendant in lawsuits filed by consumers principally against dealers. The damages and penalties claimed by consumers in these types of matters can be substantial. The relief requested by the plaintiffs varies but includes requests for compensatory, statutory and punitive damages. The Company believes that it has taken prudent steps to address and mitigate the litigation risks associated with its business activities.

In fiscal 2003, several complaints were filed by shareholders against the Company and certain of the Company’s officers and directors alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. These complaints have been consolidated into one action, styled Pierce v. AmeriCredit Corp., et al., pending in the United States District Court for the Northern District of Texas, Fort Worth Division; the plaintiff in Pierce seeks class action status. In Pierce, the plaintiff claims, among other allegations, that deferments were improperly granted by the Company to avoid delinquency triggers in securitization transactions and enhance cash flows and to incorrectly report charge-offs and delinquency percentages, thereby causing the Company to misrepresent its financial performance throughout the alleged class period. The Company believes that its granting of deferments, which is a common practice within the auto finance industry, complied with the covenants contained in its securitization and warehouse financing documents, and that its deferment activities were properly disclosed to all constituents, including shareholders, asset-backed investors, creditors and credit enhancement providers.

Additionally, a class action complaint, styled Lewis v. AmeriCredit Corp., was filed in fiscal 2003 against the Company and certain of its officers and directors alleging violations of Sections 11 and 15 of the Securities Act of 1933 in connection with the Company’s secondary public offering of common stock on October 1, 2002. In Lewis, also pending in the United States District Court for the Northern District of Texas, Fort Worth Division, the plaintiff alleges that the Company’s registration statement and prospectus for the offering contained untrue statements of material facts and omitted to state material facts necessary to make other statements in the registration statement not misleading.

In April 2004, two rulings were issued by the United States District Court for the Northern District of Texas, Fort Worth Division, affecting the Pierce and Lewis lawsuits. On April 1, 2004, the Court, in response to motions to dismiss filed by the Company and the other defendants, ruled that the plaintiff’s complaint in the Pierce

18

Table of Contents

lawsuit was deficient and ordered the plaintiff to cure such deficiencies or the case would be dismissed. On April 27, 2004, the Court issued an order consolidating the Lewis case into the Pierce case. In connection with the order consolidating the Lewis and Pierce cases, the Court granted the plaintiffs permission to file an amended, consolidated complaint, which they have done. The Company and the other defendants have filed motions to dismiss the amended complaint, and such motions are presently pending.

The Company believes that the claims alleged in the Pierce lawsuit, including the claims consolidated into Pierce from Lewis, are without merit and the Company intends to assert vigorous defenses to the litigation. Neither the likelihood of an unfavorable outcome nor the amount of ultimate liability, if any, with respect to this litigation can be determined at this time.

Two shareholder derivative actions have also been served on the Company. On February 27, 2003, the Company was served with a shareholder’s derivative action filed in the United States District Court for the Northern District of Texas, Fort Worth Division, entitled Mildred Rosenthal, derivatively and on behalf of nominal defendant AmeriCredit Corp. v. Clifton H. Morris, Jr., et al. A second shareholder derivative action was filed in the District Court of Tarrant County, Texas 48^th Judicial District, on August 19, 2003, entitled David Harris, derivatively and on behalf of nominal defendant AmeriCredit Corp. v. Clifton H. Morris, Jr., et al. Both of these shareholder derivative actions allege, among other complaints, that certain officers and directors of the Company breached their respective fiduciary duties by causing the Company to make improper deferments, violated federal and state securities laws and issued misleading financial statements. The substantive allegations in both of the derivative actions are essentially the same as those in the above-referenced class actions. A special litigation committee of the Board of Directors has been created to investigate the claims in the derivative actions. As a nominal defendant, the Company does not believe that it has any ultimate liability with respect to these derivative actions.

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, 2004.

19

Table of Contents

PART II

ITEM 5.    Market for Registrant’s Common Equity and Related Stockholder Matters

The Company’s common stock trades on the New York Stock Exchange under the symbol ACF. As of September 7, 2004, there were 155,350,631 shares of common stock outstanding and approximately 280 shareholders of record.

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.

The Company has never paid cash dividends on its common stock. The indentures pursuant to which the Company’s senior notes were issued contain certain restrictions on the payment of dividends. The Company presently intends to retain future earnings, if any, for use in the operation and expansion of the business and for Board approved stock repurchases and does not anticipate paying any cash dividends in the foreseeable future.

During the quarter ended June 30, 2004, the Company repurchased shares as follows (dollars in thousands, except per share data):

20

Table of Contents

ITEM 6.    Selected Financial Data

The table below summarizes selected financial information. For additional information, refer to the audited consolidated financial statements and notes thereto in Item 8. Financial Statements and Supplementary Data.

ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The Company is a consumer finance company specializing in purchasing retail automobile installment sales contracts originated by franchised and select independent dealers in connection with the sale of used and new automobiles. The Company generates revenue and cash flows primarily through the purchase, retention, subsequent securitization and servicing of finance receivables. As used herein, “loans” include auto finance receivables originated by dealers and purchased by the Company. To fund the acquisition of receivables prior to securitization, the Company uses borrowings under its warehouse credit facilities. The Company earns finance charge income on the finance receivables and pays interest expense on borrowings under its warehouse credit facilities.

21

Table of Contents

The Company periodically transfers receivables to securitization trusts (“Trusts”) that, in turn, sell asset-backed securities to investors. Prior to October 1, 2002, these securitization transactions were structured as sales of finance receivables. Receivables sold under this structure are referred to herein as “gain on sale receivables.” The Company retains an interest in the securitization transactions in the form of credit enhancement assets, representing the estimated future excess cash flows expected to be received by the Company over the life of the securitization. Excess cash flows result from the difference between the finance charges received from the obligors on the receivables and the interest paid to investors in the asset-backed securities, net of credit losses and expenses.

Excess cash flows from the Trusts are initially utilized to fund credit enhancement requirements in order to attain specific credit ratings for the asset-backed securities issued by the Trusts. Once predetermined credit enhancement requirements are reached and maintained, excess cash flows are distributed to the Company. Credit enhancement requirements will increase if targeted portfolio performance ratios are exceeded (see Liquidity and Capital Resources section). In addition to excess cash flows, the Company earns monthly base servicing income of 2.25% per annum on the outstanding principal balance of domestic receivables securitized and collects other fees, such as late charges, as servicer for securitization Trusts.

The Company changed the structure of its securitization transactions beginning with transactions closed subsequent to September 30, 2002, to no longer meet the accounting criteria for sales of finance receivables. Accordingly, following a securitization, the finance receivables and the related securitization notes payable remain on the consolidated balance sheets. The Company recognizes finance charge and fee income on the receivables and interest expense on the securities issued in the securitization transaction, and records a provision for loan losses to cover probable loan losses on the receivables. This change has significantly impacted the Company’s reported results of operations compared to its historical results because there is no gain on sale of receivables subsequent to September 30, 2002. Accordingly, historical results may not be indicative of the Company’s future results.

Prior to February 2003, the Company’s business strategy was designed to achieve a high rate of growth in loan origination volume. The increasing levels of loan originations were financed largely through the completion of securitization transactions. Excess cash flows from the Company’s securitizations are initially utilized to fund credit enhancement requirements and once such requirements are reached and maintained, excess cash is distributed to the Company. In addition, agreements with FSA required that if certain portfolio performance levels on securitization transactions insured by FSA were breached, the credit enhancement requirements for those securitizations would be increased and funded through cash otherwise distributable to the Company from all of its other FSA Program securitizations. As the U.S. economy declined throughout 2001 and 2002, and unemployment rates rose, the default rate on the Company’s loan portfolio increased. In addition, the Company began to experience lower recovery rates on the sale of repossessed vehicles due to a decline in used car prices at auction, which was exacerbated by aggressive new car incentives offered by auto manufacturers. This increase in credit losses resulted in lower excess cash flows from the Company’s securitizations and by March 2003 resulted in a breach of cumulative net loss performance triggers on certain FSA Program securitizations. This caused a postponement of substantially all of the cash otherwise distributable to the Company from its FSA Program securitizations as this cash was used to fund increased credit enhancement requirements on FSA Program securitizations. Additionally, the increase in credit losses resulted in increases in credit enhancement requirements on new securitizations. Faced with constrained cash flows, the Company implemented a revised operating plan in February 2003 targeted at preserving and strengthening its capital and liquidity position in light of the changed economic environment.

The revised operating plan included a decrease in the Company’s targeted loan origination volume and a reduction of operating expenses through downsizing its workforce, consolidating its branch office network and closing its Canadian lending activities. Loan origination targets were reduced to approximately $750.0 million per quarter, as compared to actual origination volume of $1,887.0 million in the three months ended December 31, 2002 (the quarter prior to implementation of the plan), representing a targeted decrease of approximately 60%

22

Table of Contents

in origination volume per quarter. As a means of achieving reduced origination volume, the Company closed 141 of its branch offices, or approximately 60% of its branch office network. The branch office closings effectively decreased overall loan originations to the new targeted level and reduced operating expenses to a level more commensurate with the new loan origination target. The revised operating plan did not affect the importance of branch offices to the Company’s origination model. That is, the Company did not change the branch office origination model; the structure was downsized in order to achieve volume decreases and expense reductions.

On April 23, 2003, the Board of Directors of the Company announced the reorganization of the Company’s executive management team in order to align management with the revised operating plan. Michael R. Barrington stepped down as President and Chief Executive Officer and Michael T. Miller stepped down as Chief Operating Officer. Clifton H. Morris, Jr., Chairman of the Board, assumed the Chief Executive Officer position. Daniel E. Berce was promoted from Chief Financial Officer to President. Preston A. Miller was promoted to Chief Financial Officer and Mark Floyd was promoted to Chief Operating Officer.

The stated objectives of the plan were substantially met by the end of calendar 2003 and the impact of the revised operating plan has been reflected in the Company’s reported financial condition and results of operations. In the first half of calendar 2004, the Company raised its loan origination targets and has added staff to its branch office network in order to support new loan growth. As a result, loan origination volume reached $1,075.5 million for the three months ended June 30, 2004. The Company intends to continue to expand loan origination volume at a moderate pace in fiscal 2005.

The Company restated its financial statements for the year ended June 30, 2002, as a result of a review of the accounting treatment under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) for certain interest rate swap agreements that were entered into prior to 2001 and used to hedge interest rate risk on a portion of its cash flows from credit enhancement assets. At the same time, the Company restated its financial statements relating to the implementation of the Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Secured Financial Assets” (“EITF 99-20”).

The Company entered into interest rate swap agreements to hedge the variability in future excess cash flows attributable to fluctuations in interest rates on floating rate securities issued by its securitization Trusts in connection with its securitizations accounted for as sales. The cash flows are expected to be received over the life of the securitization. Prior to calendar 2001, the Company entered into interest rate swap agreements outside of the securitization Trusts, at the corporate level. Upon implementation of SFAS 133 on July 1, 2000, the swap agreements were valued and recorded separately from the credit enhancement assets on the consolidated balance sheets, with changes in the fair value of the interest rate swap agreements recorded in other comprehensive income. Unrealized losses or gains related to the interest rate swap agreements were reclassified from accumulated other comprehensive income into earnings as accretion was recorded on the hedged cash flows of the credit enhancement assets. However, as unrealized gains related to the credit enhancement assets declined due to worse than expected credit losses and unrealized losses related to the interest rate swap agreements increased due to a declining interest rate environment, a combined net unrealized loss position developed in accumulated other comprehensive income. In these situations, the Company reclassified amounts from accumulated other comprehensive income into earnings based upon the cash flows of the credit enhancement assets utilizing a discount rate which resulted in all of the remaining unrealized loss in accumulated other comprehensive income being reclassified into earnings in the same period when the remaining accretion on the credit enhancement assets was projected to be realized. A review of this accounting treatment indicated that the Company should have reclassified additional accumulated other comprehensive losses into earnings since the combination of the derivative instrument and the hedged item resulted in net unrealized losses that were not expected to be recovered in future periods. Additionally, the Company reported payments relating to the interest rate swap agreements as a reduction of unrealized gains on credit enhancement assets within accumulated other

23

Table of Contents

comprehensive income. This treatment resulted in a misclassification of unrealized losses on cash flow hedges within other comprehensive income and an overstatement of servicing income by $62.2 million ($38.2 million net of tax) during the year ended June 30, 2002.

In addition, in determining the amount of present value discount to accrete into earnings, the Company utilized discount rates that were less than the discount rates used to value the credit enhancement assets. This treatment reduced the amount of earnings to be reclassified from accumulated other comprehensive income into earnings. The Company also compared total undiscounted cash flows to the carrying value of the asset in determining whether there was an other-than-temporary impairment of a credit enhancement asset that should be recorded as a loss in earnings which resulted in unrealized losses on credit enhancement assets remaining in other comprehensive income during the year ended June 30, 2002. A review of these two accounting treatments indicated that under EITF 99-20 the Company should have used the same discount rate used to value the credit enhancement assets to accrete the present value discount into earnings. Additionally, EITF 99-20 requires that the Company compare total discounted cash flows to the carrying value of the asset in determining whether there was an other than temporary impairment of a credit enhancement asset that should be recorded as a loss in earnings. The impact of this review was that an additional $57.6 million of accretion and $48.9 million of impairment on credit enhancement assets, or a net $8.7 million ($5.3 million net of tax), of servicing income should have been recorded for the year ended June 30, 2002.

Accordingly, as disclosed in the June 30, 2003 Form 10-K, the Company restated its financial statements for the year ended June 30, 2002, to reclassify additional unrealized gains and losses to servicing income from accumulated other comprehensive income for changes in the amount of losses on cash flow hedges, accretion and impairment on credit enhancement assets to be recognized. It was also determined through the review that periods prior to the year ended June 30, 2002, were not impacted and thus no restatement was required.

In August 2003, the Company was contacted by the staff of the enforcement division of the Securities and Exchange Commission (“SEC”) and informally requested to provide the staff with certain documents and other information related to the restatement. Subsequently, in connection with a registration statement filed by the Company with the SEC for the Company’s convertible senior notes, the staff of the Division of Corporation Finance of the SEC conducted an extensive review of the disclosures in the Company’s filings with the SEC, including the disclosures related to and the events resulting in the restatement. Following the review by the SEC’s Division of Corporation Finance, the registration statement was declared effective in July 2004. The Company cooperated fully with the staff of the SEC in these reviews. At this point, the Company does not anticipate any further communication from the SEC related to the restatement.

24

Table of Contents

The restatement resulted in the following changes to the financial statements for the year ended June 30, 2002, all of which were included in the June 30, 2003 Form 10-K (in thousands, except per share data):

Critical Accounting Estimates

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 and those differences may be material. The accounting estimates that the Company believes are the most critical to understanding and evaluating the Company’s reported financial results include the following:

Gain on sale of receivables

The Company periodically transfers receivables to Trusts that, in turn, sell asset-backed securities to investors. Prior to October 1, 2002, the Company recognized a gain on the sale of receivables to the Trusts, which represented 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. The Company has made assumptions in order to determine the present value of the estimated future excess cash flows to be generated by the pool of receivables sold. The most significant assumptions made are the cumulative credit losses to be incurred on the pool of receivables sold, the timing of those losses and the rate at which the estimated future excess cash flows are discounted.

25

Table of Contents

Significant assumptions used in determining the gain on sale of auto receivables were as follows:

The cumulative credit loss assumptions utilized at the time of sale of receivables were determined using a range of possible outcomes based on historical experience, credit attributes for the specific pool of receivables and general economic factors. The cumulative credit loss assumption reflects the approximate level that cumulative credit losses could reach (notwithstanding other assumptions) in a securitization pool before the credit enhancement assets would suffer an other-than-temporary impairment.

The discount rates used to estimate the present value of credit enhancement assets are based on the relative risks of each asset type. Interest-only receivables from Trusts represent estimated future excess cash flows in the Trusts and have a first loss position to absorb any shortfall in Trust cash flows due to adverse credit loss development or adverse changes in Trust performance relative to other assumptions. While the Company earns a higher yield on its securitized receivables, the Company utilizes a 14% discount rate for interest-only receivables from Trusts since net undiscounted estimated future excess cash flows already incorporate a default assumption and the receivables underlying the securitization represent a diverse pool of assets. Restricted cash—gain on sale Trusts and investments in Trust receivables represent cash and finance receivables held by the Trusts and are senior to interest-only receivables from Trusts for credit enhancement purposes. Accordingly, restricted cash— gain on sale Trusts and investments in Trust receivables are assigned a lower discount rate than the interest-only receivables from Trusts. The assumptions used represent the Company’s best estimates. The use of different assumptions would produce different financial results.

Credit enhancement assets

The Company’s credit enhancement assets, which represent retained interests in securitization Trusts accounted for as sales, are recorded at fair value. Because market prices are not readily available for the credit enhancement assets, fair value is determined using discounted cash flow models. The most significant assumptions made are the cumulative net credit losses to be incurred on the pool of receivables sold, the timing of those losses and the rate at which estimated future excess cash flows are discounted. The assumptions used represent the Company’s best estimates. The assumptions may change in future periods due to changes in the economy that may impact the performance of the Company’s finance receivables and the risk profiles of its credit enhancement assets. The use of different assumptions would result in different carrying values for the Company’s credit enhancement assets and may change the amount of accretion of present value discount and impairment of credit enhancement assets recognized through the consolidated statements of income. An immediate 10% and 20% adverse change in the assumptions used to measure the fair value of credit enhancement assets would decrease the credit enhancement assets as of June 30, 2004, as follows (in thousands):

The adverse changes to the key assumptions and estimates are hypothetical. The change in fair value based on the above variations in assumptions cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a

26

Table of Contents

particular assumption on fair value is calculated independently from any change in another assumption. In reality, changes in one factor may contribute to changes in another, which might magnify or counteract the sensitivities. Furthermore, due to potential changes in current economic conditions, the estimated fair values as disclosed should not be considered indicative of the future performance of these assets. The sensitivities do not reflect actions management might take to offset the impact of any adverse change.

Allowance for loan losses

The allowance for loan losses is established systematically based on the determination of the amount of probable credit losses inherent in the finance receivables as of the reporting date. The Company reviews charge-off experience factors, delinquency reports, historical collection rates, estimates of the value of the underlying collateral, economic trends, such as unemployment rates, and other information in order to make the necessary judgments as to probable credit losses inherent in the portfolio as of the reporting date. The Company also uses historical charge-off experience to determine a loss emergence period, which is defined as the time between when an event, such as delinquency status, giving rise to a probable credit loss occurs with respect to a specific account and when such account is charged off. This loss emergence period is applied to the forecasted probable credit losses to determine the amount of losses inherent in finance receivables at the reporting date. Assumptions regarding probable credit losses and loss emergence periods are reviewed quarterly and may be impacted by actual performance of finance receivables and changes in any of the factors discussed above. Should the credit loss assumption or loss emergence period increase, there could be an increase in the amount of allowance for loan losses required, which could decrease the net carrying value of finance receivables and increase the amount of provision for loan losses recorded on the consolidated statements of income. A 10% and 20% increase in cumulative credit losses over the loss emergence period would increase the allowance for loan losses as of June 30, 2004, as follows (in thousands):

The Company believes that the allowance for loan losses is adequate to cover probable losses inherent in its receivables; however, because the allowance for loan losses is based on estimates, there can be no assurance that the ultimate charge-off amount will not exceed such estimates.

Stock-based employee compensation

On July 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), prospectively for all awards granted or modified subsequent to June 30, 2003. The fair value of each option granted or modified was estimated using an option-pricing model based on the following weighted average assumptions:

These assumptions are reviewed each time there is a new grant or modification of a previous grant and may be impacted by actual fluctuation in the Company’s stock price, movements in market interest rates and option terms. The use of different assumptions would produce a different fair value for the options granted or modified and would impact the amount of compensation expense recognized on the consolidated statements of income. The impact of a 10% or 20% increase in the Company’s assumptions of volatility, risk-free interest rate and expected life on the amount of compensation expense recognized would not have been material for the year ended June 30, 2004.

27

Table of Contents

RESULTS OF OPERATIONS

Year Ended June 30, 2004 as compared to Year Ended June 30, 2003

Revenue

A summary of changes in the Company’s finance receivables is as follows (in thousands):

The decrease in loans purchased resulted from a reduction in the number of the Company’s branch offices and a tightening of credit standards in connection with the Company’s revised operating plan implemented in February 2003. As of June 30, 2004, the Company operated 89 auto lending branch offices. During fiscal 2003, the Company operated as many as 251 branch offices. As of June 30, 2003, the Company operated 90 branch offices. The increase in liquidations and other resulted primarily from increased collections and charge-offs on finance receivables due to the increase in average finance receivables and average age, or seasoning, of the portfolio.

The average new loan size was $16,647 for fiscal 2004, compared to $16,833 for fiscal 2003. The average annual percentage rate for finance receivables purchased during fiscal 2004 was 16.0%, compared to 16.7% during fiscal 2003. The Company’s tightening of credit standards in connection with its revised operating plan implemented in February 2003 resulted in a lower average annual percentage rate.

Finance charge income increased by 51% to $927.6 million for fiscal 2004 from $613.2 million for fiscal 2003, primarily due to the increase in average finance receivables. The Company’s effective yield on its finance receivables decreased to 15.4% for fiscal 2004 from 16.5% for fiscal 2003. The effective yield represents finance charges and fees taken into earnings during the period as a percentage of average finance receivables and is lower than the contractual rates of the Company’s auto finance contracts due to finance receivables in nonaccrual status. The effective yield decreased primarily due to a decrease in average annual percentage rates for finance receivables outstanding during the period.

Subsequent to September 30, 2002, the Company’s securitization transactions were structured as secured financings. Therefore, no gain on sale was recorded for finance receivables securitized during fiscal 2004. The gain on sale of receivables for fiscal 2003 was $132.1 million, or 5.3% of finance receivables securitized.

Servicing income consists of the following (in thousands):

Servicing fees are earned from servicing domestic finance receivables sold to gain on sale Trusts. Servicing fees decreased as a result of the decrease in average gain on sale receivables caused by the change in the Company’s securitization transaction structure from gain on sale to secured financing. Servicing fees were 2.6% and 2.5% of average gain on sale receivables for fiscal 2004 and 2003, respectively.

28

Table of Contents

Other-than-temporary impairment of $33.4 million for fiscal 2004 resulted from higher than forecasted default rates in certain Trusts. Other-than-temporary impairment of $189.5 million for fiscal 2003, resulted from increased default rates caused by the continued weakness in the economy and lower than expected recovery proceeds caused by depressed used car values, as well as the expected delay in cash distributions from FSA Program securitizations which reduced the present value of such cash distributions.

The present value discount related to the Company’s credit enhancement assets represents the risk-adjusted time value of money on estimated cash flows. The present value discount on credit enhancement assets is accreted into earnings over the life of credit enhancement assets using the effective interest method. Additionally, unrealized gains on credit enhancement assets reflected in accumulated other comprehensive income are also accreted into earnings over the life of the credit enhancement assets using the effective interest method. The Company recognized accretion of $100.2 million, or 1.4%, of average gain on sale receivables, during fiscal 2004. Accretion of $99.4 million, or 0.8%, of average gain on sale receivables, was recognized during fiscal 2003. The increase in accretion as a percentage of average gain on sale receivables resulted from fewer securitization transactions incurring other-than-temporary impairments during fiscal 2004, as compared to fiscal 2003, as the Company does not record accretion in a period when such accretion would cause an other-than-temporary impairment in a securitization pool.

Other income was $32.0 million for fiscal 2004, compared to $24.6 million for fiscal 2003. The increase in other income is primarily due to an increase in late fees and other fees associated with higher average finance receivables.

Costs and Expenses

Operating expenses decreased to $325.8 million for fiscal 2004 from $373.7 million for fiscal 2003. Operating expenses declined primarily as a result of a reduction in workforce in November 2002, the implementation of a revised operating plan in February 2003 and the closing of the Company’s Jacksonville collections center in April 2004.

The Company recognized $15.9 million and $63.3 million in restructuring charges for fiscal 2004 and 2003, respectively. The restructuring charges for fiscal 2004 consisted primarily of facility costs related to the closing of the Company’s Jacksonville collections center, the elimination of excess space at its Chandler collections center and corporate headquarters, as well as adjustments to the restructuring charges related to the Company’s implementation of a revised operating plan in February 2003. The restructuring charges for fiscal 2003 included $6.9 million for the Company’s November 2002 reduction in workforce and $56.4 million related to the implementation of the February 2003 revised operating plan.

Provisions for loan losses are charged to income to bring the Company’s allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of finance receivables. The provision for loan losses recorded for the fiscal year reflects inherent losses on receivables originated during that year and changes in the amount of inherent losses on receivables originated in prior years. The provision for loan losses decreased to $257.1 million for fiscal 2004 from $307.6 million for fiscal 2003. As a percentage of average finance receivables, the provision for loan losses was 4.3% and 8.3% for fiscal 2004 and 2003, respectively. The provision for loan losses as a percentage of average finance receivables was higher for fiscal 2003, as compared to fiscal 2004, due to the Company’s transition to structuring securitization transactions as secured financings.

Interest expense increased to $252.0 million for fiscal 2004 from $202.2 million for fiscal 2003 due to higher debt levels. Average debt outstanding was $5,891.2 million and $4,167.8 million for fiscal 2004 and 2003, respectively. The Company’s effective rate of interest paid on its debt decreased to 4.3% from 4.9% as a result of lower short-term interest rates. The increase in average debt outstanding resulted from the Company’s decision to structure securitization transactions subsequent to September 30, 2002, as secured financings.

29

Table of Contents

The Company’s effective income tax rate was 37.8% for fiscal 2004 and 38.5% for fiscal 2003. The decrease resulted primarily from lower Canadian tax rates combined with the impact of a change in the mix of business among states, resulting in a lower state tax rate.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) consisted of the following (in thousands):

Credit Enhancement Assets

Unrealized gains (losses) on credit enhancement assets consisted of the following (in thousands):

Changes in the fair value of credit enhancement assets as a result of modifications to the credit loss assumptions are reported as unrealized gains in other comprehensive income (loss) until realized. Unrealized losses are reported as a reduction in unrealized gains to the extent that there are unrealized gains. If there are no unrealized gains to offset the unrealized losses, the losses are considered to be other-than-temporary and are charged to operations. The cumulative credit loss assumptions used to estimate the fair value of credit enhancement assets are periodically reviewed by the Company and modified to reflect the actual credit performance for each securitization pool through the reporting date as well as estimates of future losses considering several factors including changes in the general economy. Differences between cumulative credit loss assumptions used in individual securitization pools can be attributed to the original credit attributes of a pool, actual credit performance through the reporting date and pool seasoning to the extent that changes in economic trends will have more of an impact on the expected future performance of less seasoned pools.

The Company increased the cumulative credit loss assumptions used in measuring the fair value of credit enhancement assets to a range of 12.4% to 14.9% as of June 30, 2004, from a range of 11.3% to 14.7% as of June 30, 2003. On a Trust by Trust basis, certain Trusts experienced worse than expected credit performance for fiscal 2004, and increased cumulative credit loss assumptions resulting in other-than-temporary impairment. Certain other Trusts experienced better than expected credit performance for fiscal 2004, resulting in decreased cumulative credit loss assumptions resulting in unrealized gains of $27.6 million for those securitization Trusts. Unrealized losses of $96.9 million for fiscal 2003 resulted from an increase in the cumulative credit loss assumptions used in measuring the fair value of credit enhancement assets to a range of 11.3% to 14.7% as of June 30, 2003, from a range of 10.4% to 12.7% as of June 30, 2002.

Unrealized gains related to changes in interest rates of $2.5 million for fiscal 2004 resulted primarily from an increase in estimated future cash flows to be generated from investment income earned on the restricted cash and trust collection accounts due to an increase in forward interest rate expectations. Unrealized losses related to

30

Table of Contents

changes in interest rates of $19.5 million for fiscal 2003 resulted primarily from a decline in estimated future cash flows to be generated from investment income earned on the restricted cash and Trust collections accounts due to lower interest rates. The lower earnings were partially offset by an increase in value associated with a decrease in interest rates payable to investors on the floating rate tranches of securitization transactions.

Net unrealized gains of $9.7 million and $35.6 million were reclassified into earnings through accretion during fiscal 2004 and 2003, respectively, and relate primarily to recognition of actual excess cash collected over the Company’s initial estimate and recognition of unrealized gains at time of sale. Included in the net unrealized gains reclassified into earnings during fiscal 2004 and 2003, are net unrealized gains of $0.1 million and $13.5 million, respectively, related to fluctuations in interest rates during the periods which are offset by changes in some of the cash flow hedges described below.

Cash Flow Hedges

Unrealized gains on cash flow hedges were $28.5 million and $14.0 million for fiscal 2004 and 2003, respectively. Unrealized gains of $12.3 million for fiscal 2004 were primarily due to the change in the fair value of interest rate swap agreements designated as cash flow hedges caused by an increase in forward interest rate expectations and declining notional balances. Unrealized losses of $52.6 million for fiscal 2003 were primarily due to the change in the fair value of interest rate swap agreements designated as cash flow hedges caused by a decrease in forward interest rate expectations. Unrealized gains or losses on cash flow hedges of the Company’s credit enhancement assets are reclassified into earnings when unrealized gains or losses related to interest rate fluctuations on the Company’s credit enhancement assets are reclassified. However, if the Company expects that the continued reporting of a loss in accumulated other comprehensive income would lead to recognizing a net loss on the combination of the interest rate swap agreements and the credit enhancement assets, the loss is reclassified to earnings for the amount that is not expected to be recovered. Unrealized gains or losses on cash flow hedges of the Company’s floating rate debt are reclassified into earnings when interest rate fluctuations on securitization notes payable affect earnings. Net unrealized losses reclassified into earnings were $16.2 million and $66.6 million for fiscal 2004 and 2003, respectively.

Canadian Currency Translation Adjustment

Canadian currency translation adjustment gains of $1.3 million and $12.4 million for fiscal 2004 and 2003, respectively, were included in other comprehensive income (loss). The translation adjustment gain is due to the increase in the value of the Company’s Canadian dollar denominated assets related to the decline in the U.S. dollar to Canadian dollar conversion rates during the years. The Company does not anticipate the settlement of intercompany transactions with its Canadian subsidiaries in the foreseeable future.

Net Margin

Net margin is the difference between finance charge and other income earned on the Company’s receivables and the cost to fund the receivables as well as the cost of debt incurred for general corporate purposes.

The Company’s net margin as reflected on the consolidated statements of income is as follows (in thousands):

31

Table of Contents

The Company evaluates the profitability of its lending activities based partly upon the net margin related to its managed auto loan portfolio, including finance receivables and gain on sale receivables. The Company uses this information to analyze trends in the components of the profitability of its managed auto portfolio. Analysis of net margin on a managed basis allows the Company to determine which origination channels and loan products are most profitable, guides the Company in making pricing decisions for loan products and indicates if sufficient spread exists between the Company’s revenues and cost of funds to cover operating expenses and achieve corporate profitability objectives. Additionally, net margin on a managed basis facilitates comparisons of results between the Company and other finance companies (i) that do not securitize their receivables or (ii) due to the structure of their securitization transactions, are not required to account for the securitization of their receivables as a sale.

The Company routinely securitizes its receivables and prior to October 1, 2002, recorded a gain on the sale of such receivables. The net margin on a managed basis presented below assumes that all securitized receivables have not been sold and are still on the Company’s consolidated balance sheet. Accordingly, no gain on sale or servicing income would have been recognized. Instead, finance charges would be recognized over the life of the securitized receivables as earned, and interest and other costs related to the asset-backed securities would be recognized as incurred.

Average managed receivables consists of finance receivables held by the Company and finance receivables sold to the Company’s securitization Trusts in transactions accounted for as sales. The Company’s average managed receivables outstanding are as follows (in thousands):

Average managed receivables outstanding decreased by 16% because collections and other liquidations of the Company’s finance receivables have exceeded new loan purchase volume since implementation of the revised operating plan in February 2003.

Net margin for the Company’s managed finance receivables portfolio is as follows (in thousands):

Net margin as a percentage of average managed finance receivables outstanding is as follows:

32

Table of Contents

The following is a reconciliation of finance charge income as reflected on the Company’s consolidated statements of income to the Company’s managed basis finance charge income (in thousands):

The following is a reconciliation of other income as reflected on the Company’s consolidated statements of income to the Company’s managed basis other income:

The following is a reconciliation of interest expense as reflected on the Company’s consolidated statements of income to the Company’s managed basis interest expense (in thousands):

Year Ended June 30, 2003 as compared to Year Ended June 30, 2002

Revenue

A summary of changes in the Company’s finance receivables is as follows (in thousands):

The decrease in loans purchased resulted from a reduction in the number of the Company’s branch offices in connection with the Company’s revised operating plan implemented in February 2003. The Company operated 90 auto lending branch offices as of June 30, 2003, compared to 251 auto lending branch offices as of June 30, 2002. The increase in liquidations and other resulted primarily from increased collections and charge-offs on finance receivables due to the increase in average finance receivables and average age, or seasoning, of the portfolio. Prior to October 1, 2002, the Company sold substantially all of its finance receivables to securitization Trusts shortly after the origination date.

33

Table of Contents

The average new loan size was $16,833 for fiscal 2003, compared to $16,428 for fiscal 2002. The increase in average new loan size was due to a change in the mix of business towards financing later model vehicles. The average annual percentage rate for finance receivables purchased during fiscal 2003 was 16.7%, compared to 17.7% during fiscal 2002. Decreasing short-term market interest rates have lowered the Company’s cost of funds, allowing the Company to pass along some of this benefit to consumers in the form of lower loan pricing.

Finance charge income increased by 81% to $613.2 million for fiscal 2003 from $339.4 million for fiscal 2002. Finance charge income was higher due to an increase in average finance receivables that resulted primarily from the Company’s decision to structure securitization transactions as secured financings. The Company’s effective yield on its finance receivables decreased to 16.5% for fiscal 2003 from 19.4% for fiscal 2002. The effective yield represents finance charges and fees taken into earnings during the period as a percentage of average finance receivables and differs from the contractual rates of the Company’s auto finance contracts due to finance receivables in nonaccrual status and, for fiscal 2002, finance charges earned between the origination date and funding date. The effective yield decreased for fiscal 2003 due to lower levels of finance charges earned between the origination date and funding date as well as lower loan pricing.

The gain on sale of receivables decreased by 71% to $132.1 million for fiscal 2003 from $448.5 million for fiscal 2002. The decrease in gain on sale of receivables resulted from the Company’s decision to structure securitization transactions subsequent to September 30, 2002, to no longer meet the criteria for sales of finance receivables. During fiscal 2003, $2,507.9 million of finance receivables securitized were accounted for as sales of receivables as compared to $8,608.9 million during fiscal 2002. The gain as a percentage of the finance receivables securitized in gain on sale Trusts remained relatively stable at 5.3% for fiscal 2003 as compared to 5.2% for fiscal 2002.

Servicing income consists of the following (in thousands):

Servicing fees are earned from servicing domestic finance receivables sold to gain on sale Trusts. Servicing fees increased as a result of an increase in average gain on sale receivables. Servicing fees were 2.5% and 2.6%, of average gain on sale receivables for fiscal 2003 and 2002, respectively.

The Company recorded other-than-temporary impairments of $189.5 million and $53.9 million for fiscal 2003 and 2002, respectively. Other-than-temporary impairment resulted from increased default rates caused by continued weakness in the economy and lower than expected recovery proceeds caused by depressed used car values. In addition, the Company’s credit enhancement assets are carried on its financial statements based on the present value of future excess cash flows to be received by the Company from securitization Trusts. In fiscal 2003, the expected delay in cash distributions from the FSA Program securitizations due to breaches of certain portfolio performance ratios and, to a lesser extent, additional insurance fees payable to FSA in connection with an amendment to the event of default net loss ratios reduced the present value of such cash distributions and resulted in other-than-temporary impairment.

The present value discount related to the Company’s credit enhancement assets represents the risk-adjusted time value of money on estimated cash flows. The present value discount on credit enhancement assets is accreted into earnings over the life of credit enhancement assets using the effective interest method. Additionally, unrealized gains on credit enhancement assets reflected in accumulated other comprehensive income are also

34

Table of Contents

accreted into earnings over the life of the credit enhancement assets using the effective interest method. The Company recognized accretion of $99.4 million, or 0.8%, of average gain on sale receivables, during fiscal 2003. Accretion of $112.3 million, or 1.0%, of average gain on sale receivables, was recognized during fiscal 2002. The decrease in accretion as a percentage of average gain on sale receivables resulted from more securitization transactions incurring other-than-temporary impairments during fiscal 2003, as compared to fiscal 2002, as the Company does not record accretion in a period when such accretion would cause an other-than-temporary impairment in a securitization pool.

Other income was $24.6 million for fiscal 2003, compared to $12.9 million for fiscal 2002. The increase in other income is primarily due to investment income earned on higher average cash and restricted cash balances and an increase in late fees and other fees associated with higher average finance receivables.

Costs and Expenses

Operating expenses decreased to $373.7 million for fiscal 2003 from $424.1 million for fiscal 2002. Operating expenses declined primarily as a result of a reduction in workforce in November 2002 and implementation of a revised operating plan in February 2003.

The Company recognized $63.3 million in restructuring charges including $6.9 million for its November 2002 reduction in workforce and $56.4 million related to the implementation of a revised operating plan in February 2003. The revised operating plan included a decrease in the Company’s targeted loan origination volume to approximately $750.0 million per quarter and a reduction of operating expenses. The restructuring charges consisted primarily of severance costs of identified workforce reductions of approximately 1,200 positions related to the consolidation/closing of 161 branch offices including the closing of the Company’s Canadian lending activities, costs incurred to terminate facility and equipment leases prior to their expiration date as well as estimated costs that will continue to be incurred under the contracts for their remaining terms without economic benefit to the Company. The restructuring charges also include $20.8 million of previously capitalized costs for discontinuation of the development of the Company’s customer relationship management system, which was designed to provide operational scalability and marketing benefits in a high-growth environment.

Provisions for loan losses are charged to income to bring the Company’s allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the portfolio of finance receivables. The provision for loan losses increased to $307.6 million for fiscal 2003 from $65.2 million for fiscal 2002. As a percentage of average finance receivables, the provision for loan losses was 8.3% and 3.7% for fiscal 2003 and 2002, respectively. Subsequent to September 30, 2002, the Company changed the structure of its securitization transactions to no longer meet the criteria for sales of finance receivables. Under this new structure, finance receivables remain on the Company’s balance sheet throughout their term, and credit losses related to those securitized receivables are provided for as a charge to operations. The remaining increase reflects the general expectation that current economic conditions, including elevated unemployment rates, will result in a higher number of charge-offs, and that depressed wholesale auction prices on the sale of repossessed vehicles will result in a higher amount charged off per loan.

Interest expense increased to $202.2 million for fiscal 2003 from $135.9 million for fiscal 2002 due to higher debt levels. Average debt outstanding was $4,167.8 million and $2,366.3 million for fiscal 2003 and 2002, respectively. The Company’s effective rate of interest paid on its debt decreased to 4.9% from 5.7% as a result of lower short-term market interest rates. The increase in average debt outstanding resulted from the Company’s decision to structure securitization transactions subsequent to September 30, 2002, as secured financings.

The Company’s effective income tax rate was 38.5% for fiscal 2003 and 2002.

35

Table of Contents

Other Comprehensive Loss

Other comprehensive loss consisted of the following (in thousands):

Credit Enhancement Assets

Unrealized losses on credit enhancement assets consisted of the following (in thousands):

The unrealized gains at time of sale represent the excess of the fair value of credit enhancement assets over the Company’s allocated carrying value related to such interests when receivables are sold. Unrealized gains at time of sale were lower for fiscal 2003 as compared to fiscal 2002 due to the change in the structure of securitization transactions entered into subsequent to September 30, 2002, to no longer meet the criteria for sales of finance receivables.

Changes in the fair value of credit enhancement assets as a result of modifications to the credit loss assumptions are reported as unrealized gains in other comprehensive loss until realized. Unrealized losses are reported as a reduction in unrealized gains to the extent that there are unrealized gains. If there are no unrealized gains to offset the unrealized losses, the losses are considered to be other-than-temporary and are charged to operations. The cumulative credit loss assumptions used to estimate the fair value of credit enhancement assets are periodically reviewed by the Company and modified to reflect the actual credit performance for each securitization pool through the reporting date as well as estimates of future losses considering several factors including changes in the general economy. Differences between cumulative credit loss assumptions used in individual securitization pools can be attributed to the original credit attributes of a pool, actual credit performance through the reporting date and pool seasoning to the extent that changes in economic trends will have more of an impact on the expected future performance of less seasoned pools.

The Company increased the cumulative credit loss assumptions used in measuring the fair value of credit enhancement assets to a range of 11.3% to 14.7% as of June 30, 2003, from a range of 10.4% to 12.7% as of June 30, 2002, which, together with the expected delay in cash distributions from the FSA Program, caused an other-than-temporary impairment charge of $189.5 million and unrealized losses of $96.9 million for fiscal 2003. The range of cumulative credit loss assumptions was increased to reflect adverse actual credit performance compared to previous assumptions as well as expectations for higher future losses due to continued weakness in the general economy. Unrealized gains of $59.5 million for fiscal 2002 resulted from the decline in the carrying value of credit enhancement assets caused by the reclassification of unrealized gains and losses between credit enhancement assets and cash flow hedges. This was partially offset by an increase in the range of cumulative credit loss assumptions for securitization Trusts to reflect adverse actual credit performance compared to previous assumptions as well as expectations for higher future losses due to economic weakness. Cumulative credit loss assumptions used in measuring the fair value of credit enhancement assets ranged from 10.4% to 12.7% as of June 30, 2002, as compared to 8.7% to 11.7% as of June 30, 2001.

36

Table of Contents

Unrealized losses related to changes in interest rates of $19.5 million and $22.3 million for fiscal 2003 and 2002, respectively, resulted primarily from a decline in estimated future cash flows to be generated from investment income earned on the restricted cash and Trust collections accounts due to lower interest rates. The lower earnings were partially offset by an increase in value associated with a decrease in interest rates payable to investors on the floating rate tranches of securitization transactions.

Net unrealized gains of $35.6 million and $115.7 million were reclassified into earnings through accretion during fiscal 2003 and 2002, respectively, and relate primarily to recognition of actual excess cash collected over the Company’s initial estimate and recognition of unrealized gains at time of sale. Included in the net unrealized gains reclassified into earnings during fiscal 2003 and 2002 are net unrealized gains of $13.5 million and $53.7 million, respectively, related to fluctuations in interest rates during the respective periods which are offset by some of the cash flow hedges described below.

Cash Flow Hedges

Unrealized gains on cash flow hedges were $14.0 million and $22.9 million for fiscal 2003 and 2002, respectively. Unrealized losses of $52.6 million and $69.3 million for fiscal 2003 and 2002, respectively, were primarily due to the change in the fair value of interest rate swap agreements designated as cash flow hedges caused by a decrease in forward interest rate expectations. Unrealized gains or losses on cash flow hedges of the Company’s credit enhancement assets are reclassified into earnings when unrealized gains or losses related to interest rate fluctuations on the Company’s credit enhancement assets are reclassified. However, if the Company expects that the continued reporting of a loss in accumulated other comprehensive income would lead to recognizing a net loss on the combination of the interest rate swap agreements and the credit enhancement assets, the loss is reclassified to earnings for the amount that is not expected to be recovered. Unrealized gains or losses on cash flow hedges of the Company’s floating rate debt are reclassified into earnings when interest rate fluctuations on securitization notes payable affect earnings. Net unrealized losses reclassified into earnings were $66.6 million and $92.2 million for fiscal 2003 and 2002, respectively.

Canadian Currency Translation Adjustment

Canadian currency translation adjustment gains of $12.4 million and $2.0 million for fiscal 2003 and 2002, respectively, were included in other comprehensive loss. The translation adjustment gain is due to the increase in the value of the Company’s Canadian dollar denominated assets related to the decline in the U.S. dollar to Canadian dollar conversion rates during the years. The Company does not anticipate the settlement of intercompany transactions with its Canadian subsidiaries in the foreseeable future.

Net Margin

Net margin is the difference between finance charge and other income earned on the Company’s receivables and the cost to fund the receivables as well as the cost of debt incurred for general corporate purposes.

The Company’s net margin as reflected on the consolidated statements of income is as follows (in thousands):

The Company evaluates the profitability of its lending activities based partly upon the net margin related to its managed auto loan portfolio, including finance receivables and gain on sale receivables. The Company uses this information to analyze trends in the components of the profitability of its managed auto portfolio. Analysis of net margin on a managed basis allows the Company to determine which origination channels and loan

37

Table of Contents

products are most profitable, guides the Company in making pricing decisions for loan products and indicates if sufficient spread exists between the Company’s revenues and cost of funds to cover operating expenses and achieve corporate profitability objectives. Additionally, net margin on a managed basis facilitates comparisons of results between the Company and other finance companies (i) that do not securitize their receivables or (ii) due to the structure of their securitization transactions, are not required to account for the securitization of their receivables as a sale.

The Company routinely securitizes its receivables and prior to October 1, 2002, recorded a gain on the sale of such receivables. The net margin on a managed basis presented below assumes that all securitized receivables have not been sold and are still on the Company’s consolidated balance sheet. Accordingly, no gain on sale or servicing income would have been recognized. Instead, finance charges would be recognized over the life of the securitized receivables as earned, and interest and other costs related to the asset-backed securities would be recognized as incurred.

Average managed receivables consists of finance receivables held by the Company and finance receivables sold to the Company’s securitization Trusts in transactions accounted for as sales. The Company’s average managed receivables outstanding consisted of the following (in thousands):

Average managed receivables outstanding increased by 26% as a result of the purchase of loans in excess of collections and charge-offs.

Net margin for the Company’s managed finance receivables portfolio is as follows (in thousands):

Net margin as a percentage of average managed finance receivables outstanding is as follows:

The following is a reconciliation of finance charge income as reflected on the Company’s consolidated statements of income to the Company’s managed basis finance charge income (in thousands):

38

Table of Contents

The following is a reconciliation of other income as reflected on the Company’s consolidated statements of income to the Company’s managed basis other income:

The following is a reconciliation of interest expense as reflected on the Company’s consolidated statements of income to the Company’s managed basis interest expense (in thousands):

Credit Quality

The Company provides financing in relatively high-risk markets, and, therefore, anticipates a corresponding high level of delinquencies and charge-offs.

Finance receivables on the Company’s balance sheets include receivables purchased but not yet securitized and receivables securitized by the Company after September 30, 2002. Provisions for loan losses are charged to operations in amounts sufficient to maintain the allowance for loan losses on the balance sheet at a level considered adequate to cover probable credit losses inherent in finance receivables. Historically, finance receivables were charged off to the allowance for loan losses when the Company repossessed and disposed of the automobile or the account was otherwise deemed uncollectable. During the three months ended December 31, 2003, the Company changed its charge-off policy to charge off repossessed accounts when the automobile has been repossessed and is legally available for disposition.

Prior to October 1, 2002, the Company periodically sold receivables to Trusts in securitization transactions accounted for as a sale of receivables and retained an interest in the receivables sold in the form of credit enhancement assets. Credit enhancement assets are reflected on the Company’s balance sheet at fair value, calculated based upon the present value of estimated excess future cash flows from the Trusts using, among other assumptions, estimates of future credit losses on the receivables sold. Charge-offs of receivables that have been sold to Trusts decrease the amount of excess future cash flows from the Trusts. If such charge-offs are expected to exceed the Company’s original estimates of cumulative credit losses or if the actual timing of these losses differs from expected timing, the fair value of credit enhancement assets is written down through an other-than-temporary impairment charge to earnings to the extent the write-down exceeds any unrealized gain.

39

Table of Contents

The following tables present certain data related to the receivables portfolio (dollars in thousands):