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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________ 
FORM 10-Q
(Mark One)
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ________________ to ________________
Commission file number 1-10667
______________________________________________ 
General Motors Financial Company, Inc.
(Exact name of registrant as specified in its charter)
Texas
 
75-2291093
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
801 Cherry Street, Suite 3500, Fort Worth, Texas 76102
(Address of principal executive offices, including Zip Code)
(817) 302-7000
(Registrant’s telephone number, including area code) 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  Q    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  Q    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer"; "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
ý
Smaller Reporting Company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o    No  Q 

As of October 23, 2014, there were 503 shares of the registrant’s common stock, par value $1.00 per share, outstanding. All of the registrant’s common stock is owned by General Motors Holdings, LLC.





GENERAL MOTORS FINANCIAL COMPANY, INC.
INDEX TO FORM 10-Q
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Part I.
FINANCIAL INFORMATION
Item 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts) 
(Unaudited)
 
 
September 30, 2014
 
December 31, 2013
Assets
 
 
 
 
Cash and cash equivalents
 
$
1,517

 
$
1,074

Finance receivables, net
 
31,722

 
29,282

Restricted cash
 
2,060

 
1,958

Property and equipment, net
 
165

 
132

Leased vehicles, net
 
5,796

 
3,383

Deferred income taxes
 
357

 
359

Goodwill
 
1,245

 
1,240

Related party receivables
 
195

 
129

Other assets
 
516

 
433

Total assets
 
$
43,573

 
$
37,990

Liabilities and Shareholder's Equity
 
 
 
 
Liabilities:
 
 
 
 
Secured debt
 
$
22,932

 
$
22,073

Unsecured debt
 
10,842

 
6,973

Accounts payable and accrued expenses
 
990

 
946

Deferred income
 
317

 
168

Deferred income taxes
 
21

 
87

Taxes payable
 
239

 
287

Related party taxes payable
 
877

 
643

Related party payables
 
603

 
368

Other liabilities
 
194

 
160

Total liabilities
 
37,015

 
31,705

Commitments and contingencies (Note 9)
 
 
 
 
Shareholder's equity:
 
 
 
 
Common stock, $1.00 par value per share, 1,000 shares authorized and 502 shares issued
 

 

Additional paid-in capital
 
4,798

 
4,785

Accumulated other comprehensive (loss) income
 
(207
)
 
11

Retained earnings
 
1,967

 
1,489

Total shareholder's equity
 
6,558

 
6,285

Total liabilities and shareholder's equity
 
$
43,573

 
$
37,990

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In millions) 
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Revenue
 
 
 
 
 
 
 
 
Finance charge income
 
$
883

 
$
647

 
$
2,595

 
$
1,709

Leased vehicle income
 
297

 
172

 
735

 
415

Other income
 
81

 
48

 
219

 
119

Total revenue
 
1,261

 
867

 
3,549

 
2,243

Costs and expenses
 
 
 
 
 
 
 
 
Salaries and benefits
 
158

 
123

 
448

 
313

Other operating expenses
 
139

 
80

 
398

 
189

Total operating expenses
 
297

 
203

 
846

 
502

Leased vehicle expenses
 
228

 
133

 
563

 
314

Provision for loan losses
 
160

 
117

 
408

 
311

Interest expense
 
368

 
168

 
1,037

 
414

Acquisition and integration expenses
 

 
7

 

 
29

Total costs and expenses
 
1,053

 
628

 
2,854

 
1,570

Income before income taxes
 
208

 
239

 
695

 
673

Income tax provision
 
50

 
78

 
217

 
228

Net income
 
158

 
161

 
478

 
445

Other comprehensive (loss) income
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 
(272
)
 
95

 
(218
)
 
30

Other comprehensive (loss) income, net
 
(272
)
 
95

 
(218
)
 
30

Comprehensive (loss) income
 
$
(114
)
 
$
256

 
$
260

 
$
475

The accompanying notes are an integral part of these condensed consolidated financial statements.


2


GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
Net cash provided by operating activities
 
$
1,400

 
$
1,254

Cash flows from investing activities:
 
 
 
 
Purchases of consumer finance receivables, net
 
(10,850
)
 
(6,310
)
Principal collections and recoveries on consumer finance receivables
 
8,124

 
5,099

Net funding of commercial finance receivables
 
(408
)
 
(619
)
Purchases of leased vehicles, net
 
(3,227
)
 
(1,746
)
Proceeds from termination of leased vehicles
 
395

 
142

Acquisition of international operations, net of cash acquired
 
(46
)
 
(2,107
)
Purchases of property and equipment
 
(37
)
 
(10
)
Change in restricted cash
 
(187
)
 
(74
)
Change in other assets
 
(2
)
 
(22
)
Net cash used in investing activities
 
(6,238
)
 
(5,647
)
Cash flows from financing activities:
 
 
 
 
Net decrease in debt (original maturities less than three months)
 
(913
)
 

Borrowings and issuance of secured debt
 
15,847

 
11,676

Payments on secured debt
 
(13,568
)
 
(9,009
)
Borrowings and issuance of unsecured debt
 
5,403

 
4,198

Payments on unsecured debt
 
(1,339
)
 
(1,817
)
Borrowings on related party line of credit
 

 
1,100

Payments on related party line of credit
 

 
(1,100
)
Repayment of debt to Ally Financial
 

 
(1,416
)
Capital contribution from parent
 

 
1,300

Debt issuance costs
 
(107
)
 
(69
)
Net cash provided by financing activities
 
5,323

 
4,863

Net increase in cash and cash equivalents
 
485

 
470

Effect of foreign exchange rate changes on cash and cash equivalents
 
(42
)
 
(3
)
Cash and cash equivalents at beginning of period
 
1,074

 
1,289

Cash and cash equivalents at end of period
 
$
1,517

 
$
1,756

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


GENERAL MOTORS FINANCIAL COMPANY, INC.
Notes to Condensed Consolidated Financial Statements
Note 1.
Summary of Significant Accounting Policies
Acquisition of Ally Financial International Operations
We acquired Ally Financial Inc.'s ("Ally Financial") auto finance and financial services operations in Germany, the United Kingdom (the "U.K."), Italy, Sweden, Switzerland, Austria, Belgium, the Netherlands, Greece, Spain, Chile, Colombia and Mexico on April 1, 2013. We acquired Ally Financial's auto finance and financial services operations in France and Portugal on June 1, 2013, and we acquired Ally Financial's auto finance and financial services operations in Brazil on October 1, 2013. Additionally, we have agreed to acquire Ally Financial's non-controlling 40% equity interest in GMAC-SAIC Automotive Finance Company Limited ("GMAC-SAIC"), a joint venture, which conducts auto finance operations in China. This agreement is subject to certain regulatory and other approvals. We consider it probable that our acquisition of Ally Financial's interest in GMAC-SAIC will occur in late 2014 or as soon as practicable thereafter. The results of operations of the acquired entities since the applicable acquisition dates are included in our financial statements for the three and nine months ended September 30, 2014 and 2013.
Segment Information
We evaluate our business in two operating segments: North America ("the North America Segment") and international ("the International Segment"). The North America Segment includes our operations in the U.S. and Canada. The International Segment includes our operations in all other countries. For additional financial information regarding our business segments, see Note 12 - "Segment Reporting."
Basis of Presentation
The condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries, including certain special-purpose financing entities utilized in secured financing transactions, which are considered variable interest entities ("VIEs"). All intercompany transactions and balances have been eliminated in consolidation.
The interim period consolidated financial statements, including the notes thereto, are condensed and do not include all disclosures required by generally accepted accounting principles ("GAAP") in the United States of America. These interim period condensed consolidated financial statements should be read in conjunction with the consolidated financial statements that are included in our Annual Report on Form 10-K filed on February 6, 2014 ("Form 10-K"). Certain prior periods amounts were reclassified to conform to our current year presentation.
The condensed consolidated financial statements at September 30, 2014, and for the three and nine months ended September 30, 2014 and 2013, are unaudited and, in management’s opinion, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. The results for interim periods are not necessarily indicative of results for a full year.
The preparation of financial statements in conformity with GAAP in the United States of America 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. These estimates include, among other things, the determination of the allowance for loan losses on finance receivables, estimated recovery value on leased vehicles, goodwill, income taxes and the expected cash flows on the pre-acquisition consumer finance receivables.
Subsequent to the issuance of our 2013 consolidated financial statements, we identified items not properly classified in the condensed consolidated statements of cash flows for the nine months ended September 30, 2013.  The adjustments to previously reported amounts within the various sections of the condensed consolidated statement of cash flows had a net effect of increasing Net cash provided by operating activities by $100 million and decreasing Net cash used in investing activities by $100 million, and were principally related to net funding of commercial finance receivables. 
Net Presentation of Cash Flows Related to Commercial Finance Receivables
Our commercial finance receivables are primarily comprised of floorplan financing to dealers.  The floorplan financing loans are repayable by the dealer within two to ten days after the dealer sells the vehicle subject to the financing. In our experience, these loans are typically repaid in less than 90 days of when the credit is extended. Furthermore, we have the unilateral ability to call the loans and receive payment within 30 days of when the credit is extended. Therefore, the presentation of the cash flows related to commercial finance receivables are reflected on the condensed consolidated statements of cash flows as "Net funding of commercial finance receivables."

4


We have revolving debt agreements to finance our commercial lending activities. The revolving period of these agreements ranges from 12 to 36 months; however, the terms of these financing agreements require that a borrowing base of eligible floorplan receivables, within certain concentration limits, must be maintained in sufficient amounts to support advances.  When a dealer repays a floorplan receivable to us, the amount advanced against such receivables must be repaid by us or else the equivalent amount in new receivables must be added to the borrowing base. Despite the revolving term exceeding 90 days, the actual term for repayment of advances under these agreements is when we receive repayment from the dealers, which is typically within 90 days of when the credit is extended. Therefore, for 2014, the cash flows related to these revolving debt agreements are reflected on the condensed consolidated statements of cash flows as “Net decrease in debt (original maturities less than three months).”
Related Party Transactions
We are the wholly-owned captive finance subsidiary of our parent, General Motors Company ("GM"). We offer loan and lease finance products through GM-franchised dealers to consumers purchasing new and certain used vehicles manufactured by GM and make commercial loans directly to GM-franchised dealers. Under subvention programs, GM makes cash payments to us for offering incentivized rates and structures on consumer loan and lease finance products. In addition, GM makes payments to us to cover certain interest payments on commercial loans. At September 30, 2014 and December 31, 2013, we had related party receivables from GM in the amount of $195 million and $129 million under these programs.
At September 30, 2014 and December 31, 2013 we had $116 million and $62 million in loans outstanding to dealers that are consolidated by GM, in connection with our commercial lending program. Our international operations also provide financing to certain GM subsidiaries through factoring and other wholesale financing arrangements. At September 30, 2014 and December 31, 2013, $342 million and $588 million were outstanding under such arrangements, and are included in commercial finance receivables. At September 30, 2014 and December 31, 2013, we had $603 million and $368 million of related party payables due to GM, primarily for commercial finance receivables originated but not yet funded. These payables typically settle within 30 days.
We have a tax sharing agreement with GM for our U.S. operations, and we are obligated to pay GM for our share of the consolidated U.S. federal and certain state tax liabilities for taxable income recognized by us in any period beginning on or after October 1, 2010. Payments for the tax years 2010 through 2014 are deferred for four years from their original due date, and the total deferral amount is to not exceed $1.0 billion. The tax sharing agreement may be modified at any time by GM in its sole discretion. At September 30, 2014 and December 31, 2013, we had related party taxes payable to GM in the amount of $877 million and $643 million.
In September 2014, we and GM entered into a Support Agreement (the “Support Agreement”). Pursuant to the Support Agreement, if our earning assets leverage at the end of any calendar quarter is higher than thresholds set in the Support Agreement, We may require GM to provide funding sufficient to bring our earning assets leverage to within the appropriate threshold. In determining our earning assets leverage (net earning assets divided by adjusted equity) under the Support Agreement, net earning assets means our finance receivables, net, plus leased vehicles, net, and adjusted equity means our equity, net of goodwill and inclusive of outstanding junior subordinated debt. At September 30, 2014, our earning assets leverage ratio was 7.0, which is below the current applicable ratio of 8.0.
Additionally, the Support Agreement provides that GM will own all of our outstanding voting shares as long as we have any unsecured debt securities outstanding and that GM will use its commercially reasonable efforts to ensure that we will continue to be designated as a subsidiary borrower on $4.0 billion under GM’s corporate revolving credit facilities. GM also agreed to certain provisions intended to ensure that we maintain adequate access to liquidity. Pursuant to these provisions, GM provided us with a $1.0 billion unsecured intercompany revolving credit facility (the “Junior Subordinated Revolving Credit Facility”), which replaced an existing $600 million intercompany credit facility with GM. There were no advances outstanding under the Junior Subordinated Revolving Credit Facility at September 30, 2014.
In October 2014, GM amended its two primary unsecured revolving credit facilities increasing GM's aggregate borrowing capacity from $11.0 billion to $12.5 billion. These facilities consist of a three-year, $5.0 billion facility and a five-year, $7.5 billion facility.
We have the ability to borrow up to $2.0 billion against each of GM's unsecured revolving credit facilities, subject to available capacity. Our borrowings under GM's facilities are limited by GM's ability to borrow the entire amount available under the facilities. Therefore, we may be able to borrow up to $4.0 billion in total or may be unable to borrow depending on GM's borrowing activity. If we do borrow under these facilities, we expect such borrowings would be short-term in nature and, except in extraordinary circumstances, would not be used to fund our operating activities in the ordinary course of business. Neither we, nor any of our subsidiaries, guarantee any obligations under these facilities and none of our or our subsidiaries' assets secure these facilities.


5


Recently Adopted Accounting Principles
On January 1, 2014 we adopted Accounting Standards Update ("ASU") 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” which was issued to eliminate diversity in practice. This ASU requires that companies net their unrecognized tax benefits against all same-jurisdiction net operating losses or tax credit carryforwards that would be used to settle the position with a tax authority. The adoption of this ASU did not have a material effect on our consolidated financial statements.

Accounting Standards Not Yet Adopted
In May 2014 the Financial Accounting Standards Board issued ASU 2014-09, “Revenue Recognition - Revenue from Contracts with Customers” ("ASU 2014-09") that requires companies to recognize revenue when a customer obtains control rather than when companies have transferred substantially all risks and rewards of a good or service. This update is effective for annual reporting periods beginning on or after December 15, 2016 and interim periods therein and requires expanded disclosures. We are currently assessing the impact the adoption of ASU 2014-09 will have on our condensed consolidated financial statements.
Note 2.
Finance Receivables
The finance receivables portfolio consists of the following (in millions): 
 
 
September 30, 2014
 
December 31, 2013
 
 
North
America
 
International
 
Total
 
North
America
 
International
 
Total
Consumer
 
 
 
 
 
 
 
 
 
 
 
 
Pre-acquisition consumer finance receivables - outstanding balance
 
$
460

 
$
200

 
$
660

 
$
931

 
$
363

 
$
1,294

Pre-acquisition consumer finance receivables - carrying value
 
$
401

 
$
197

 
$
598

 
$
826

 
$
348

 
$
1,174

Post-acquisition consumer finance receivables, collectively evaluated for impairment, net of fees(a)
 
11,091

 
12,404

 
23,495

 
9,795

 
11,394

 
21,189

Post-acquisition consumer finance receivables, individually evaluated for impairment, net of fees
 
1,123

 

 
1,123

 
767

 

 
767

 
 
12,615

 
12,601

 
25,216

 
11,388

 
11,742

 
23,130

Less: allowance for loan losses - collective
 
(396
)
 
(72
)
 
(468
)
 
(365
)
 
(29
)
 
(394
)
Less: allowance for loan losses - specific
 
(140
)
 

 
(140
)
 
(103
)
 

 
(103
)
Total consumer finance receivables, net
 
12,079

 
12,529

 
24,608

 
10,920

 
11,713

 
22,633

Commercial
 
 
 


 
 
 
 
 
 
 
 
Commercial finance receivables, collectively evaluated for impairment, net of fees
 
2,513

 
4,559

 
7,072

 
1,975

 
4,627

 
6,602

Commercial finance receivables, individually evaluated for impairment, net of fees
 

 
79

 
79

 

 
98

 
98

 
 
2,513

 
4,638

 
7,151

 
1,975

 
4,725

 
6,700

Less: allowance for loan losses - collective
 
(17
)
 
(15
)
 
(32
)
 
(17
)
 
(27
)
 
(44
)
Less: allowance for loan losses - specific
 

 
(5
)
 
(5
)
 

 
(7
)
 
(7
)
Total commercial finance receivables, net
 
2,496

 
4,618

 
7,114

 
1,958

 
4,691

 
6,649

Total finance receivables, net
 
$
14,575

 
$
17,147

 
$
31,722

 
$
12,878

 
$
16,404

 
$
29,282

________________
(a) Amounts reported for International include $1.0 billion of direct-financing leases at September 30, 2014 and December 31, 2013.
Consumer Finance Receivables
Our consumer finance receivables are reported in two portfolios: pre-acquisition and post-acquisition. The pre-acquisition consumer finance receivables portfolio consists of (i) finance receivables originated in North America prior to our merger with

6


GM, all of which were considered to have had deterioration in credit quality, and (ii) finance receivables that were considered to have had deterioration in credit quality that were acquired with the international operations. The pre-acquisition consumer portfolio will decrease over time with the amortization of the acquired receivables.
The post-acquisition consumer finance receivables portfolio consists of (i) finance receivables originated in North America since our merger with GM, (ii) finance receivables originated in the international operations since the applicable acquisition dates and (iii) finance receivables that were considered to have had no deterioration in credit quality that were acquired with the international operations. The post-acquisition consumer portfolio will grow over time as we originate new receivables.
Pre-acquisition Consumer Finance Receivables
Following is a summary of activity in our pre-acquisition consumer finance receivables portfolio (in millions): 
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Pre-acquisition consumer finance receivables - outstanding balance, beginning of period
 
$
931

 
$
363

 
$
1,294

 
$
2,162

 
$

 
$
2,162

Pre-acquisition consumer finance receivables - carrying value, beginning of period
 
$
826

 
$
348

 
$
1,174

 
$
1,958

 
$

 
$
1,958

International operations acquisition
 

 

 

 

 
601

 
601

Principal collections and other
 
(418
)
 
(171
)
 
(589
)
 
(885
)
 
(192
)
 
(1,077
)
Change in carrying value adjustment
 
(7
)
 
36

 
29

 
(45
)
 
8

 
(37
)
Foreign currency translation
 

 
(16
)
 
(16
)
 

 
7

 
7

Balance at end of period
 
$
401

 
$
197

 
$
598

 
$
1,028

 
$
424

 
$
1,452

We review our pre-acquisition portfolio for differences between contractual cash flows and the cash flows expected to be collected to determine if the difference is attributable, at least in part, to credit quality. During the nine months ended September 30, 2014 and 2013, as a result of improvements in the credit performance of the pre-acquisition portfolio, expected cash flows increased by $40 million and $73 million. We transferred the amount of excess cash flows from the non-accretable difference to accretable yield. This excess will be amortized through finance charge income over the remaining life of the portfolio. As a result of the decrease in the pre-acquisition portfolio through amortization, the amount of excess cash flows transferred to accretable yield and subsequently amortized through finance charge income has decreased.
A summary of the activity in the accretable yield on the pre-acquisition consumer finance receivables portfolios is as follows (in millions): 
 
 
Three Months Ended September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Balance at beginning of period
 
$
133

 
$
44

 
$
177

 
$
298

 
$
96

 
$
394

International operations acquisition
 

 

 

 

 

 

Accretion of accretable yield
 
(32
)
 
(11
)
 
(43
)
 
(65
)
 
(20
)
 
(85
)
Transfer from non-accretable difference
 

 
7

 
7

 

 
19

 
19

Foreign currency translation
 

 
(3
)
 
(3
)
 

 
1

 
1

Balance at end of period
 
$
101

 
$
37

 
$
138

 
$
233

 
$
96

 
$
329



7


 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Balance at beginning of period
 
$
181

 
$
74

 
$
255

 
$
404

 
$

 
$
404

International operations acquisition
 

 

 

 

 
127

 
127

Accretion of accretable yield
 
(113
)
 
(41
)
 
(154
)
 
(225
)
 
(44
)
 
(269
)
Transfer from non-accretable difference
 
33

 
7

 
40

 
54

 
19

 
73

Foreign currency translation
 

 
(3
)
 
(3
)
 

 
(6
)
 
(6
)
Balance at end of period
 
$
101

 
$
37

 
$
138

 
$
233

 
$
96

 
$
329


Post-acquisition Consumer Finance Receivables
We generally purchase consumer finance contracts from auto dealers without recourse, and accordingly, the dealer has no liability to us if the consumer defaults on the contract. Depending upon the contract structure and consumer credit attributes, we may pay dealers a participation fee or we may charge dealers a non-refundable acquisition fee when purchasing individual finance contracts. We also have subvention programs with GM and other new vehicle manufacturers, under which the manufacturers provide us cash payments in order for us to offer lower interest rates on consumer finance contracts we purchase. We record the amortization of participation fees and subvention and accretion of acquisition fees to finance charge income using the effective interest method.
Following is a summary of activity in our post-acquisition consumer finance receivables portfolio (in millions): 
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Post-acquisition consumer finance receivables, net of fees - beginning of period
 
$
10,562

 
$
11,394

 
$
21,956

 
$
8,831

 
$

 
$
8,831

International operations acquisition
 

 

 

 

 
6,378

 
6,378

Loans purchased
 
4,874

 
6,255

 
11,129

 
3,980

 
2,350

 
6,330

Charge-offs
 
(543
)
 
(102
)
 
(645
)
 
(401
)
 
(18
)
 
(419
)
Principal collections and other
 
(2,677
)
 
(4,487
)
 
(7,164
)
 
(2,097
)
 
(1,579
)
 
(3,676
)
Foreign currency translation
 
(2
)
 
(656
)
 
(658
)
 

 
221

 
221

Balance at end of period
 
$
12,214

 
$
12,404

 
$
24,618

 
$
10,313

 
$
7,352

 
$
17,665

A summary of the activity in the allowance for consumer loan losses is as follows (in millions):
 
 
Three Months Ended September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Balance at beginning of period
 
$
515

 
$
60

 
$
575

 
$
415

 
$
8

 
$
423

Provision for loan losses
 
119

 
43

 
162

 
107

 
9

 
116

Charge-offs
 
(194
)
 
(36
)
 
(230
)
 
(153
)
 
(18
)
 
(171
)
Recoveries
 
96

 
10

 
106

 
84

 
15

 
99

Foreign currency translation
 

 
(5
)
 
(5
)
 

 

 

Balance at end of period
 
$
536

 
$
72

 
$
608

 
$
453

 
$
14

 
$
467




8


 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Balance at beginning of period
 
$
468

 
$
29

 
$
497

 
$
345

 
$

 
$
345

Provision for loan losses
 
312

 
109

 
421

 
276

 
17

 
293

Charge-offs
 
(543
)
 
(102
)
 
(645
)
 
(401
)
 
(18
)
 
(419
)
Recoveries
 
299

 
41

 
340

 
233

 
15

 
248

Foreign currency translation
 

 
(5
)
 
(5
)
 

 

 

Balance at end of period
 
$
536

 
$
72

 
$
608

 
$
453

 
$
14

 
$
467

Consumer Credit Quality
We use proprietary scoring systems in the underwriting process that measure the credit quality of the receivables using several factors, such as credit bureau information, consumer credit risk scores (e.g. FICO score), and contract characteristics. In addition to our proprietary scoring system, we consider other individual consumer factors, such as employment history, financial stability, and capacity to pay. At the time of loan origination, substantially all of our international consumers have the equivalent of prime credit scores. In the North America Segment, however, our consumer finance receivables are predominantly sub-prime. A summary of the credit risk profile by FICO score band, determined at origination, of the consumer finance receivables in the North America Segment is as follows (dollars in millions):
 
 
September 30, 2014
 
December 31, 2013
 
 
Amount
 
Percent
 
Amount
 
Percent
FICO Score less than 540
 
$
3,802

 
30.0
%
 
$
3,511

 
30.6
%
FICO Score 540 to 599
 
5,934

 
46.8

 
5,435

 
47.3

FICO Score 600 to 659
 
2,511

 
19.8

 
2,277

 
19.8

FICO Score 660 and greater
 
427

 
3.4

 
270

 
2.3

Balance at end of period(a)
 
$
12,674

 
100.0
%
 
$
11,493

 
100.0
%
_________________ 
(a)
Balance at the end of the period is the sum of pre-acquisition consumer finance receivables-outstanding balance and post-acquisition consumer finance receivables, net of fees for North America Segment.
In addition we review the credit quality of all of our consumer finance receivables based on consumer payment activity. A consumer account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Consumer finance receivables are collateralized by vehicle titles and, subject to local laws, we generally have the right to repossess the vehicle in the event the consumer defaults on the payment terms of the contract. The following is a summary of the contractual amounts of consumer finance receivables, which is not significantly different than recorded investment, that are (i) more than 30 days delinquent, but not yet in repossession, and (ii) in repossession, but not yet charged off (dollars in millions): 
 
 
September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
Percent of Contractual Amount Due
 
North America
 
International
 
Total
 
Percent of Contractual Amount Due
31 - 60 days
 
$
865

 
$
114

 
$
979

 
3.9
%
 
$
690

 
$
49

 
$
739

 
3.8
%
Greater than 60 days
 
305

 
120

 
425

 
1.7

 
247

 
44

 
291

 
1.5

 
 
1,170

 
234

 
1,404

 
5.6

 
937

 
93

 
1,030

 
5.3

In repossession
 
44

 
5

 
49

 
0.2

 
41

 
4

 
45

 
0.3

 
 
$
1,214

 
$
239

 
$
1,453

 
5.8
%
 
$
978

 
$
97

 
$
1,075

 
5.6
%
The accrual of finance charge income has been suspended on $675 million and $642 million of consumer finance receivables (based on contractual amount due) at September 30, 2014 and December 31, 2013.

9


Impaired Consumer Finance Receivables - TDRs
Consumer finance receivables in the post-acquisition portfolio that become classified as troubled debt restructurings ("TDRs") are separately assessed for impairment. A specific allowance is estimated based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. The financial effects of the accounts that become classified as TDRs result in an impairment charge recorded as part of the provision for loan losses. Accounts that become classified as TDRs because of a payment deferral still accrue interest at the contractual rate and an additional fee is collected (where permitted) at each time of deferral and recorded as a reduction of accrued interest. No interest or fees are forgiven on a payment deferral to a customer and therefore, there are no additional financial effects of deferred loans becoming classified as TDRs. Accounts in Chapter 13 bankruptcy would have already been placed on non-accrual; therefore, there are no additional financial effects from these loans becoming classified as TDRs. At September 30, 2014, the outstanding balance of consumer finance receivables in the International Segment determined to be TDRs was insignificant; therefore, the following information is presented with regard to the TDRs in the North America Segment only.
The outstanding recorded investment for consumer finance receivables that are considered to be TDRs and the related allowance is presented below (in millions):
 
 
September 30, 2014
 
December 31, 2013
Outstanding recorded investment
 
$
1,123

 
$
767

Less: allowance for loan losses
 
(140
)
 
(103
)
Outstanding recorded investment, net of allowance
 
$
983

 
$
664

Unpaid principal balance
 
$
1,142

 
$
779

Finance charge income from loans classified as TDRs is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not classified as TDRs. Additional information about loans classified as TDRs is presented below (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Average recorded investment
 
$
1,057

 
$
552

 
$
937

 
$
417

Finance charge income recognized
 
$
124

 
$
20

 
$
183

 
$
45

The following table provides information on consumer loans at the time they became classified as TDRs (dollars in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
Number of Accounts
 
Amount
 
Number of Accounts
 
Amount
 
Number of Accounts
 
Amount
 
Number of Accounts
 
Amount
Recorded investment
13,543

 
$
232

 
11,364

 
$
204

 
35,748

 
$
598

 
27,302

 
$
478

A redefault is when an account meets the requirements for evaluation under our charge-off policy (See Note 1 - "Summary of Significant Accounting Policies" in our Form 10-K for additional information). The unpaid principal balance, net of recoveries, of loans that redefaulted during the reporting period and were within 12 months or less of being modified as a TDR were $12 million and $9 million for the three months ended September 30, 2014 and 2013, and $22 million and $15 million for the nine months ended September 30, 2014 and 2013.

10


Commercial Finance Receivables
Following is a summary of activity in our commercial finance receivables portfolio (in millions): 
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Commercial finance receivables, net of fees - beginning of period
 
$
1,975

 
$
4,725

 
$
6,700

 
$
560

 
$

 
$
560

International operations acquisition
 

 

 

 

 
3,990

 
3,990

Net funding (collections) of commercial finance receivables
 
551

 
144

 
695

 
797

 
(229
)
 
568

Charge-offs
 

 

 

 

 

 

Foreign currency translation
 
(13
)
 
(231
)
 
(244
)
 

 
128

 
128

Balance at end of period
 
$
2,513

 
$
4,638

 
$
7,151

 
$
1,357

 
$
3,889

 
$
5,246

A summary of the activity in the allowance for commercial loan losses is as follows (in millions):
 
 
Three Months Ended September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Balance at beginning of period
 
$
17

 
$
23

 
$
40

 
$
12

 
$
12

 
$
24

Provision for loan losses
 

 
(2
)
 
(2
)
 
1

 

 
1

Charge-offs
 

 

 

 

 

 

Recoveries
 

 

 

 

 
4

 
4

Foreign currency translation
 

 
(1
)
 
(1
)
 

 

 

Balance at end of period
 
$
17

 
$
20

 
$
37

 
$
13

 
$
16

 
$
29



 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Balance at beginning of period
 
$
17

 
$
34

 
$
51

 
$
6

 
$

 
$
6

Provision for loan losses
 

 
(13
)
 
(13
)
 
7

 
11

 
18

Charge-offs
 

 

 

 

 

 

Recoveries
 

 

 

 

 
5

 
5

Foreign currency translation
 

 
(1
)
 
(1
)
 

 

 

Balance at end of period
 
$
17

 
$
20

 
$
37

 
$
13

 
$
16

 
$
29


Commercial Credit Quality
We extend wholesale credit to dealers primarily in the form of approved lines of credit to purchase new vehicles as well as used vehicles. Each commercial lending request is evaluated, taking into consideration the borrower's financial condition and the underlying collateral for the loan.
We use proprietary models to assign each dealer a risk rating. These models use historical performance data to identify key factors about a dealer that we consider significant in predicting a dealer's ability to meet its financial obligations. We also consider numerous other financial and qualitative factors including capitalization and leverage, liquidity and cash flow, profitability and credit history. 
We regularly review our models to confirm the continued business significance and statistical predictability of the factors and update the models to incorporate new factors or other information that improves statistical predictability. In addition, we verify

11


the existence of the assets collateralizing the receivables by physical audits of vehicle inventories, which are performed with increased frequency for higher risk (i.e., Groups III, IV, V and VI) dealers. We perform a credit review of each dealer at least annually and adjust the dealer's risk rating, if necessary.
Performance of our commercial finance receivables is evaluated based on our internal dealer risk rating analysis, as payment for wholesale receivables is generally not required until the dealer has sold the vehicle inventory. Wholesale and dealer loan receivables with the same dealer customer share the same risk rating.
A summary of the credit risk profile by dealer grouping of the commercial finance receivables is as follows (in millions): 
 
 
 
 
September 30, 2014
 
December 31, 2013
Group I
-
Dealers with superior financial metrics
 
$
711

 
$
598

Group II
-
Dealers with strong financial metrics
 
1,732

 
1,588

Group III -
-
Dealers with fair financial metrics
 
2,606

 
2,174

Group IV -
-
Dealers with weak financial metrics
 
1,315

 
1,622

Group V
-
Dealers warranting special mention due to potential weaknesses
 
604

 
488

Group VI -
-
Dealers with loans classified as substandard, doubtful or impaired
 
183

 
230

Balance at end of period
 
$
7,151

 
$
6,700

The credit lines for Group VI dealers are suspended and no further funding is extended to these dealers. 
At September 30, 2014 and December 31, 2013 substantially all of our commercial finance receivables were current with respect to payment status.
Impaired Commercial Finance Receivables
We consider a loan impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The amount of impairment is based on expected proceeds, including the estimated amount of future cash flows and/or the fair value of underlying collateral, compared to the recorded investment of the loan. A specific allowance for losses is established in the amount of any measured impairment.
Commercial finance receivables classified as TDRs are assessed for impairment and included in our allowance for credit losses based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. For receivables where foreclosure is probable, the fair value of the collateral is used to estimate the specific impairment. At September 30, 2014 and December 31, 2013, there were no outstanding commercial finance receivables classified as TDRs.
Note 3.    Restricted Cash
The following table summarizes the components of restricted cash (in millions):
 
September 30, 2014
 
December 31, 2013
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Securitization notes payable
$
1,046

 
$
357

 
$
1,403

 
$
890

 
$
208

 
$
1,098

Revolving credit facilities
26

 
267

 
293

 
62

 
415

 
477

Other
34

 
330

 
364

 
26

 
357

 
383

Total restricted cash
$
1,106

 
$
954

 
$
2,060

 
$
978

 
$
980

 
$
1,958

Restricted cash for securitization notes payable and revolving credit facilities is comprised of funds deposited as collateral required in restricted cash accounts to support securitization transactions or funds deposited in restricted cash accounts to provide additional collateral for borrowings under revolving credit facilities. Additionally, these funds include monthly collections from borrowers that have not yet been used for repayment of debt.
Other restricted cash is primarily comprised of deposits in Brazil held in escrow pending resolution of tax and civil litigation.

12


Note 4.
Leased Vehicles
Our operating lease program is offered primarily in the North America Segment. At September 30, 2014 and December 31, 2013, the amount of leased vehicles accounted for as operating leases in the International Segment is insignificant; therefore, the following information regarding our leased vehicles is presented on a consolidated basis.
Following is a summary of our leased vehicles (in millions): 
 
 
September 30, 2014
 
December 31, 2013
Leased vehicles
 
$
7,972

 
$
4,684

Manufacturer incentives
 
(1,171
)
 
(659
)
 
 
6,801

 
4,025

Less: accumulated depreciation
 
(1,005
)
 
(642
)
Leased vehicles, net
 
$
5,796

 
$
3,383

A summary of the changes in our leased vehicles is as follows (in millions): 
 
 
Nine Months Ended September 30,
 
 
2014
 
2013
Balance at beginning of period
 
$
4,025

 
$
1,976

International operations acquisition
 

 
9

Leased vehicles purchased
 
4,077

 
2,180

Leased vehicles returned - end of term
 
(662
)
 
(192
)
Leased vehicles returned - default
 
(39
)
 
(16
)
Manufacturer incentives
 
(524
)
 
(288
)
Foreign currency translation
 
(76
)
 
(22
)
Balance at end of period
 
$
6,801

 
$
3,647

The following table summarizes minimum rental payments due to us as lessor under operating leases (in millions):
 
 
Years Ending December 31,
 
 
 
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019
Minimum rental payments under operating leases
 
$
272

 
$
1,012

 
$
780

 
$
366

 
$
51

 
$
3

At September 30, 2014 and December 31, 2013, our Canadian subsidiary was servicing $146 million and $303 million of leased vehicles for a third party.
Note 5.
Debt
Debt consists of the following (in millions): 
 
 
September 30, 2014
 
December 31, 2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Secured
 
 
 
 
 
 
 
 
 
 
 


Revolving credit facilities
 
$
697

 
$
5,736

 
$
6,433

 
$
1,678

 
$
7,322

 
$
9,000

Securitization notes payable
 
12,177

 
4,322

 
16,499

 
10,801

 
2,272

 
13,073

Total secured
 
$
12,874

 
$
10,058

 
$
22,932

 
$
12,479

 
$
9,594

 
$
22,073

 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured
 
 
 
 
 
 
 
 
 
 
 

Senior notes
 
$
7,858

 
$

 
$
7,858

 
$
4,000

 
$

 
$
4,000

Credit facilities
 

 
2,217

 
2,217

 

 
2,370

 
2,370

Other unsecured debt
 

 
767

 
767

 

 
603

 
603

Total unsecured
 
$
7,858

 
$
2,984

 
$
10,842

 
$
4,000

 
$
2,973

 
$
6,973


13


Secured Debt
Most of the secured debt was issued by variable interest entities, as further discussed in Note 6 - "Variable Interest Entities." This debt is repayable only from proceeds related to the underlying pledged finance receivables and lease related assets.
During the nine months ended September 30, 2014, we entered into $445 million in new revolving credit facilities and issued $7.1 billion in securitization notes payable.
We are required to hold funds in restricted cash accounts to provide additional collateral for borrowings under certain of our secured credit facilities. Additionally, certain of our secured credit facilities contain various covenants requiring minimum financial ratios, asset quality and portfolio performance ratios (portfolio net loss and delinquency ratios and pool level cumulative net loss ratios) as well as limits on deferment levels. Failure to meet any of these covenants 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, restrict our ability to obtain additional borrowings under these agreements and/or remove us as servicer. At September 30, 2014, we were in compliance with all covenants related to our credit facilities.
Unsecured Debt
In July 2014, our top-tier holding company issued $1.5 billion in senior notes, of which $700 million are due in July 2017 and $800 million are due in July 2019. Interest on the respective tranches is 2.625% and 3.50%, and is payable semiannually. In September 2014, our top-tier holding company issued $2.0 billion in senior notes, of which $750 million are due in September 2017 and $1.25 billion are due in September 2021. Interest on the respective tranches is 3.00% and 4.375%, and is payable semiannually. The other terms of all these senior notes are substantially the same as those of the senior notes our top-tier holding company has previously issued. We intend to use the net proceeds from these offerings for general corporate purposes.
All of the senior notes issued by our top-tier holding company may be redeemed, at our option, in whole or in part, at any time before maturity at the redemption prices set forth in the indentures that govern the senior notes, plus accrued and unpaid interest, to the redemption date. In addition, if a change of control occurs, as that term is defined in the indentures that govern the senior notes, prior to us being rated "investment grade" by at least two of three listed rating agencies, the holders of these senior notes will have the right, subject to certain conditions, to require us to repurchase their senior notes at a purchase price equal to 101% of the aggregate principal amount of senior notes repurchased plus accrued and unpaid interest, as of the date of repurchase. All of our senior notes are guaranteed solely by AmeriCredit Financial Services, Inc. ("AFSI"); none of our other subsidiaries are guarantors of our senior notes. See Note 15 - "Guarantor Consolidating Financial Statements" for further discussion.
The indentures that govern the senior notes issued by our top-tier holding company provide for customary events of default, including nonpayment, failure to comply with covenants or other agreements in the indentures, if any subsidiary guarantee shall cease to be in full force and effect or any guarantor shall deny or disaffirm its obligations under its subsidiary guarantee, and certain events of bankruptcy or insolvency. If any event of default occurs and is continuing with respect to a series of senior notes, the trustee or the holders of at least 25% in principal amount of the then outstanding senior notes of such series may declare all of the senior notes of such series to be due and payable immediately. At September 30, 2014, we were in compliance with all covenants related to our senior notes.
In May 2014 our Canadian subsidiary issued C$400 million of 3.25% senior notes through a private placement in Canada. The notes are due in May 2017 with interest payable semiannually. These notes are guaranteed by our top-tier holding company and by AFSI. We intend to use the net proceeds from this offering for general corporate purposes.
The International Segment issues unsecured debt through credit facilities with banks and other non-bank funding instruments. During the nine months ended September 30, 2014, we entered into $181 million of new unsecured committed credit facilities.
In October 2014, a European subsidiary issued €500 million of 1.875% notes under its euro medium term notes program, which are listed on the Irish Stock Exchange. These notes are due in October 2019 with interest payable annually. These notes are guaranteed by our top-tier holding company and by AFSI. We intend to use the net proceeds for general corporate purposes.

14


Note 6.    Variable Interest Entities
Securitizations and credit facilities
The following table summarizes the assets and liabilities of our consolidated VIEs related to securitization and credit facilities (in millions):
 
 
September 30, 2014
 
December 31, 2013
Restricted cash
 
$
1,696

 
$
1,523

VIE assets
 
$
25,512

 
$
23,584

VIE liabilities
 
$
20,321

 
$
19,448

The assets of the VIEs and the restricted cash we hold serve as the sole source of repayment for the debt issued by these entities. Investors in the notes issued by the VIEs do not have recourse to us or our other assets, with the exception of customary representation and warranty repurchase provisions and indemnities we provide as the servicer. We are not required and do not currently intend to provide additional financial support to these VIEs. While these subsidiaries are included in our consolidated financial statements, these subsidiaries are separate legal entities and their assets are legally owned by them and not available to our creditors.
In addition, we entered into interest rate swaps and caps with certain special-purpose entities ("SPEs") that issue variable rate debt against fixed rate securitized assets. Under the terms of these swaps, the SPEs are obligated to pay us a fixed rate of interest on certain payment dates in exchange for receiving a floating rate of interest on notional amounts equal to the outstanding balance of the secured debt. This arrangement enables the SPEs to mitigate the interest rate risk inherent in issuing variable rate debt that is secured by fixed rate securitized assets, as required to maintain ratings on such securitizations. See Note 7 - "Derivative Financial Instruments and Hedging Activities" for further discussion.
Other VIEs
We consolidate certain operating entities that provide auto finance and financial services, which we do not control through a majority voting interest. We manage these entities and maintain a controlling financial interest in them and are exposed to the risks of ownership through contractual arrangements. The majority voting interests in these entities are indirectly wholly-owned by our parent, GM. Prior to December 2013, the voting interests in these entities were indirectly wholly-owned by us. At September 30, 2014 and December 31, 2013, total assets of these entities were $4.7 billion and $3.9 billion, which were comprised primarily of cash and cash equivalents and finance receivables; and total liabilities were $3.9 billion and $3.0 billion, which were comprised primarily of debt, accounts payable (primarily trade) and accrued liabilities. In the nine months ended September 30, 2014 total revenue recorded by these entities was $148 million and net income was $29 million. In the three months ended September 30, 2014 total revenue recorded by these entities was $30 million and net income was $8 million. These amounts are stated prior to intercompany eliminations and include amounts related to securitization and credit facilities held by consolidated VIEs. Liabilities recognized as a result of consolidating these entities generally do not represent claims against us or our other subsidiaries and assets recognized generally are for the benefit of these entities operations and cannot be used to satisfy our or our subsidiaries obligations.
Transfers of finance receivables to non-VIEs
Under certain debt agreements, we transfer finance receivables to third-party banks, which are not considered VIEs.  These transfers do not meet the criteria to be considered sales; therefore, the finance receivables and the related debt are included in our condensed consolidated financial statements.  Any collections received on the transferred receivables are available only for the repayment of the related debt.  At September 30, 2014 and December 31, 2013, $2.7 billion and $2.8 billion in finance receivables had been transferred in secured funding arrangements to third-party banks, to which $2.6 billion and $2.7 billion in secured debt was outstanding.

15


Note 7.
Derivative Financial Instruments and Hedging Activities
Derivative swap and cap agreements consist of the following (in millions): 
 
 
September 30, 2014
 
December 31, 2013
 
 
Notional
 
Fair Value(a)
 
Notional
 
Fair Value(a)
Assets
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
3,370

 
$
15

 
$
2,422

 
$
11

Interest rate caps
 
2,583

 
11

 
1,398

 
7

Foreign currency swaps(b)
 
1,678

 

 
1,678

 
3

Total assets(c)
 
$
7,631

 
$
26

 
$
5,498

 
$
21

Liabilities
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
4,618

 
$
38

 
$
4,266

 
$
17

Interest rate caps
 
2,252

 
11

 
1,206

 
7

Foreign currency swaps(b)
 
2,227

 
20

 
2,133

 
29

Total liabilities(d)
 
$
9,097

 
$
69

 
$
7,605

 
$
53

 _________________
(a)
See Note 8 - " Fair Values of Assets and Liabilities " for further discussion of fair value disclosure related to the derivatives.
(b)
The foreign currency swaps relate to (i) intercompany loans denominated in foreign currencies (notional balances on the intercompany loans of €670 million, £500 million and 148kr million have been translated to USD) and (ii) a $550 million cross-currency swap for a securitization in the International Segment.
(c)
Included in other assets on the condensed consolidated balance sheets.
(d)
Included in other liabilities on the condensed consolidated balance sheets.
As appropriate, we purchase interest rate cap agreements to limit floating rate exposures on certain of our revolving secured debt. We also utilize interest rate swap agreements to convert floating rate exposures on certain of our revolving debt or on securities issued in securitization transactions to fixed rates, thereby hedging the variability in interest expense paid.
We provided loans denominated in foreign currencies (euro, British pound and Swedish krona) to certain of our international entities for the equivalent of $1.7 billion. We purchase foreign currency swaps to hedge against any valuation change in the loans due to changes in foreign exchange rates. In addition, our operations in the U.K. issued debt denominated in U.S. dollars in an amount equivalent to £350 million and put a cross-currency swap in place to hedge against any valuation change in the debt due to changes in exchange rates.
The following table presents information on the effect of derivative instruments on the condensed consolidated statements of income and comprehensive income (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Non-designated hedges:
 
 
 
 
 
 
 
 
Interest rate contracts(a)
 
$
(9
)
 
$
5

 
$
(18
)
 
$
2

Foreign currency derivatives(b)
 
141

 
(99
)
 
99

 
(111
)
 
 
$
132

 
$
(94
)
 
$
81

 
$
(109
)
 _________________
(a)
(Losses) gains recognized in earnings are included in interest expense.
(b)
Gains for the three and nine months ended September 30, 2014 are substantially offset by translation losses (included in operating expenses) related to the foreign currency-denominated loans described above.
Note 8.
Fair Values of Assets and Liabilities
Refer to Note 10 - "Fair Values of Assets and Liabilities" to the consolidated financial statements in our Form 10-K for further discussion of valuation techniques and fair value measurement levels.

16


Assets and liabilities itemized below were measured at fair value on a recurring basis, using either the market approach (i), the cost approach (ii) or the income approach (iii) (in millions): 
 
 
 
Fair Value
 
Level
 
September 30, 2014
 
December 31, 2013
Assets
 
 
 
 
 
Money market funds(i)(a)
1
 
$
2,318

 
$
1,452

Derivatives not designated as hedging instruments:
 
 
 
 
 
Interest rate swaps(iii)
3
 
15

 
11

Interest rate caps(i)
2
 
11

 
7

Foreign currency swaps(i)
2
 

 
3

Total assets
 
 
$
2,344

 
$
1,473

Liabilities
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
Interest rate swaps(iii)
3
 
$
38

 
$
17

Interest rate caps(i)
2
 
11

 
7

Foreign currency swaps(i)
2
 
20

 
29

Total liabilities
 
 
$
69

 
$
53

_________________    
(a)
Excludes cash in banks of $1.3 billion and $1.6 billion at September 30, 2014 and December 31, 2013.

The tables below present a reconciliation for interest rate swap agreements measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in millions):
 
 
Three Months Ended September 30,
 
 
2014
 
2013
 
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Balance at beginning of period
 
$
17

 
$
(34
)
 
$
7

 
$
(20
)
Total realized and unrealized gains included in earnings
 
(1
)
 
(11
)
 
2

 
1

Purchases
 

 

 

 

Settlements
 
(1
)
 
5

 
(3
)
 
7

Foreign currency translation
 

 
2

 
2

 
(4
)
Balance at end of period
 
$
15

 
$
(38
)
 
$
8

 
$
(16
)

 
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Balance at beginning of period
 
$
11

 
$
(17
)
 
$

 
$

Total realized and unrealized gains included in earnings
 
5

 
(37
)
 
4

 
(4
)
Purchases
 

 

 
7

 
(19
)
Settlements
 
(1
)
 
14

 
(5
)
 
10

Foreign currency translation
 

 
2

 
2

 
(3
)
Balance at end of period
 
$
15

 
$
(38
)
 
$
8

 
$
(16
)

17


Note 9.
Commitments and Contingencies
Guarantees of Indebtedness
The payments of principal and interest on senior notes issued by our top-tier holding company are guaranteed by AFSI. At September 30, 2014 and December 31, 2013, the par value of these senior notes was $7.5 billion and $4.0 billion. See Note 15 - "Guarantor Consolidating Financial Statements" for further discussion.
Legal Proceedings
As a consumer finance company, we are 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 us could take the form of class action complaints by consumers and certain legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. We establish reserves for legal claims when payments associated with the claims become probable and the payments can be reasonably estimated. Given the inherent difficulty of predicting the outcome of litigation and regulatory matters, it is generally very difficult to predict what the eventual outcome will be, and when the matter will be resolved. The actual costs of resolving legal claims may be higher or lower than any amounts reserved for the claims. At September 30, 2014, we estimated our reasonably possible legal exposure for unfavorable outcomes to be $125 million, and have accrued $58 million.
Other Administrative Tax Matters
We accrue non-income tax liabilities for contingencies when management believes that a loss is probable and the amounts can be reasonably estimated, while contingent gains are recognized only when realized. In the event any losses are sustained in excess of accruals, they will be charged against income at that time.
In evaluating indirect tax matters, we take into consideration factors such as our historical experience with matters of similar nature, specific facts and circumstances, and the likelihood of prevailing. We reevaluate and update our accruals as matters progress over time. It is reasonably possible that some of the matters for which accruals have not been established could be decided unfavorably to us and could require us to make expenditures for which we estimate the aggregate risk to be a range of up to $75 million.
Note 10.     Income Taxes

For interim income tax reporting we estimate our annual effective tax rate and apply it to our year-to-date ordinary income. Tax jurisdictions with a projected or year-to-date loss for which a tax benefit cannot be realized are excluded from the annualized effective tax rate. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur.

Our effective income tax rate was 24.0% and 31.2% for the three and nine months ended September 30, 2014 and 32.8% and 33.9% for the three and nine months ended September 30, 2013. The decrease in the effective income tax rate is primarily due to settlements within various jurisdictions.
Note 11.
Fair Values of Financial Instruments
Fair values are based on estimates using present value or other valuation techniques in cases where quoted market prices are not available. Those techniques are significantly affected by the assumptions used, including the discount rate and the estimated timing and amount of future cash flows. Therefore, the estimates of fair value may differ substantially from amounts that ultimately may be realized or paid at settlement or maturity of the financial instruments and those differences may be material. Disclosures about fair value of financial instruments exclude certain financial instruments and all non-financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of our company.

18


Estimated fair values, carrying values and various methods and assumptions used in valuing our financial instruments are set forth below (in millions):
 
 
 
 
September 30, 2014
 
December 31, 2013
 
 
 Level
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
(a) 
1
 
$
1,517

 
$
1,517

 
$
1,074

 
$
1,074

Finance receivables, net
(b) 
3
 
$
31,722

 
$
32,064

 
$
29,282

 
$
29,301

Restricted cash
(a) 
1
 
$
2,060

 
$
2,060

 
$
1,958

 
$
1,958

Interest rate swap agreements
(c) 
3
 
$
15

 
$
15

 
$
11

 
$
11

Interest rate cap agreements purchased
(d) 
2
 
$
11

 
$
11

 
$
7

 
$
7

Foreign currency swap agreements
(d) 
2
 
$

 
$

 
$
3

 
$
3

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
Secured debt
 
 
 
 
 
 
 
 
 
 
North America
(e) 
2
 
$
12,874

 
$
12,935

 
$
12,479

 
$
12,565

International
(f) 
2
 
$
5,394

 
$
5,409

 
$
5,113

 
$
5,113

International
(g) 
3
 
$
4,664

 
$
4,641

 
$
4,481

 
$
4,492

Unsecured debt
 
 
 
 
 
 
 
 
 
 
North America
(h) 
2
 
$
7,858

 
$
8,013

 
$
4,000

 
$
4,106

International
(i) 
2
 
$
2,862

 
$
2,862

 
$
1,282

 
$
1,282

International
(g) 
3
 
$
122

 
$
127

 
$
1,691

 
$
1,690

Interest rate swap agreements
(c) 
3
 
$
38

 
$
38

 
$
17

 
$
17

Interest rate cap agreements sold
(d) 
2
 
$
11

 
$
11

 
$
7

 
$
7

Foreign currency swap agreements
(d) 
2
 
$
20

 
$
20

 
$
29

 
$
29

_________________
(a)
Cash and cash equivalents and restricted cash bear interest at market rates; therefore, carrying value is considered to be a reasonable estimate of fair value.
(b)
The fair value of the consumer finance receivables in the North America Segment is estimated based upon forecasted cash flows on the receivables discounted using a pre-tax weighted average cost of capital. The fair value of the consumer finance receivables in the International Segment is estimated based on forecasted cash flows on the receivables discounted using current origination rates for similar type loans. Commercial finance receivables generally have variable interest rates and maturities of one year or less. Therefore, the carrying value is considered to be a reasonable estimate of fair value.
(c)
The fair values of the interest rate swap agreements are estimated by discounting future net cash flows expected to be settled using current risk-adjusted rates.
(d)
The fair values of the interest rate cap agreements and foreign currency swap agreements are based on quoted market prices.
(e)
Secured debt in the North America Segment is comprised of revolving credit facilities, publicly-issued secured debt, and privately-issued secured debt. For revolving credit facilities with variable rates of interest and terms of one year or less, carrying value is considered to be a reasonable estimate of fair value. The fair value of the publicly and privately issued secured term debt is based on quoted market prices, when available. If quoted market prices are not available, the market value is estimated using quoted market prices of similar securities.
(f)
The level 2 secured debt in the International Segment has terms of one year or less, or has been priced within the last six months; therefore, par value is considered to be a reasonable estimate of fair value.
(g)
The fair value of level 3 secured debt and unsecured debt in the International Segment is estimated by discounting future net cash flows expected to be settled using current risk-adjusted rates.
(h)
The fair value of unsecured debt in the North America Segment is based on quoted market prices in thinly-traded markets.
(i)
The level 2 unsecured debt in the International Segment has terms of one year or less; therefore, par value is considered to be a reasonable estimate of fair value.
The fair value of our consumer finance receivables is based on observable and unobservable inputs within a discounted cash flow model. Those unobservable inputs reflect assumptions regarding expected prepayments, deferrals, delinquencies, recoveries and charge-offs of the loans within the portfolio. The cash flow model produces an estimated amortization schedule of the finance

19


receivables which is the basis for the calculation of the series of cash flows that derive the fair value of the portfolio. For the North America Segment, the series of cash flows is calculated and discounted using a weighted average cost of capital using unobservable debt and equity percentages, an unobservable cost of equity and an observable cost of debt based on companies with a similar credit rating and maturity profile. For the International Segment, the series of cash flows is calculated and discounted using current interest rates. Macroeconomic factors could affect the credit performance of our portfolio and therefore could potentially impact the assumptions used in our cash flow model.
Note 12.
Segment Reporting

We offer substantially similar products and services throughout many different regions, subject to local regulations and market conditions. We evaluate our business in two operating segments: the North America Segment (consisting of operations in the U.S. and Canada) and the International Segment (consisting of operations in all other countries). Our chief operating decision maker evaluates the operating results and performance of our business based on these operating segments. The management of each segment is responsible for executing our strategies.

For segment reporting purposes only, interest expense related to the senior notes has been allocated based on targeted leverage for each segment. Interest expense in excess of the targeted overall leverage is reflected in the "Corporate" column below. In addition, the interest income on $1.7 billion in intercompany loans provided to the international operations is presented in the "Corporate" column as revenue.
All inter-segment balances and transactions have been eliminated. Key financial data for our operating segments were as follows (in millions):
 
 
Three Months Ended September 30, 2014
 
 
North
America
 
International
 
Corporate
 
Eliminations
 
Total
Total revenue
 
$
759

 
$
502

 
$
14

 
$
(14
)
 
$
1,261

Operating expenses, including leased vehicle expenses
 
366

 
159

 

 

 
525

Provision for loan losses
 
119

 
41

 

 

 
160

Interest expense
 
124

 
244

 
14

 
(14
)
 
368

Income before income taxes
 
$
150

 
$
58

 
$

 
$

 
$
208



 
 
Three Months Ended September 30, 2013
 
 
North
America
 
International
 
Corporate
 
Eliminations
 
Total
Total revenue
 
$
622

 
$
245

 
$
13

 
$
(13
)
 
$
867

Operating expenses, including leased vehicle expenses
 
246

 
90

 

 

 
336

Provision for loan losses
 
108

 
9

 

 

 
117

Interest expense
 
93

 
76

 
12

 
(13
)
 
168

Acquisition and integration expenses
 

 
7

 

 

 
7

Income before income taxes
 
$
175

 
$
63

 
$
1

 
$

 
$
239


 
 
Nine Months Ended September 30, 2014
 
 
North
America
 
International
 
Corporate
 
Eliminations
 
Total
Total revenue
 
$
2,086

 
$
1,463

 
$
45

 
$
(45
)
 
$
3,549

Operating expenses, including leased vehicle expenses
 
950

 
459

 

 

 
1,409

Provision for loan losses
 
312

 
96

 

 

 
408

Interest expense
 
320

 
706

 
56

 
(45
)
 
1,037

Income before income taxes
 
$
504

 
$
202

 
$
(11
)
 
$

 
$
695



20


 
 
Nine Months Ended September 30, 2013
 
 
North
America
 
International
 
Corporate
 
Eliminations
 
Total
Total revenue
 
$
1,750

 
$
493

 
$
28

 
$
(28
)
 
$
2,243

Operating expenses, including leased vehicle expenses
 
637

 
179

 

 

 
816

Provision for loan losses
 
283

 
28

 

 

 
311

Interest expense
 
266

 
157

 
19

 
(28
)
 
414

Acquisition and integration expenses
 

 
29

 

 

 
29

Income before income taxes
 
$
564

 
$
100

 
$
9

 
$

 
$
673



 
 
September 30, 2014
 
December 31, 2013
 
 
North
America
 
International
 
Total
 
North
America
 
International
 
Total
Finance receivables, net
 
$
14,575

 
$
17,147

 
$
31,722

 
$
12,878

 
$
16,404

 
$
29,282

Total assets
 
$
24,032

 
$
19,541

 
$
43,573

 
$
19,094

 
$
18,896

 
$
37,990

Note 13.
Accumulated Other Comprehensive (Loss) Income
A summary of changes in accumulated other comprehensive income (loss) is as follows (in millions):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Defined benefit plans, net:
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
3

 
$

 
$
3

 
$

Unrealized gain on subsidiary pension
 

 

 

 

Balance at end of period
 
3

 

 
3

 

Foreign currency translation adjustment:
 
 
 
 
 
 
 
 
Balance at beginning of period
 
62

 
(68
)
 
8

 
(3
)
Translation (loss) gain
 
(272
)
 
95

 
(218
)
 
30

Balance at end of period
 
(210
)
 
27

 
(210
)
 
27

Total accumulated other comprehensive (loss) income
 
$
(207
)
 
$
27

 
$
(207
)
 
$
27

Note 14.
Regulatory Capital
The International Segment includes the operations of certain stand-alone entities that operate in local markets as either banks or regulated finance companies that are subject to regulatory restrictions. These regulatory restrictions, among other things, require that these entities meet certain minimum capital requirements and may restrict dividend distributions and ownership of certain assets. We were in compliance with all regulatory requirements at September 30, 2014. Total assets of our regulated international banks and finance companies were approximately $11.4 billion and $12.1 billion at September 30, 2014 and December 31, 2013.
Note 15.
Guarantor Consolidating Financial Statements
The payment of principal and interest on senior notes issued by our top-tier holding company is currently guaranteed solely by AFSI (the "Guarantor") and none of our other subsidiaries (the "Non-Guarantor Subsidiaries").
The consolidating financial statements present consolidating financial data for (i) General Motors Financial Company, Inc. (on a parent only basis), (ii) the Guarantor, (iii) the combined Non-Guarantor Subsidiaries, (iv) an elimination column for adjustments to arrive at the information for the parent company and our subsidiaries on a consolidated basis and (v) the parent company and our subsidiaries on a consolidated basis at September 30, 2014 and December 31, 2013, and for the three and nine months ended September 30, 2014 and 2013.
Investments in subsidiaries are accounted for by the parent company using the equity method for purposes of this presentation. Results of operations of subsidiaries are therefore reflected in the parent company's investment accounts and earnings. The principal elimination entries set forth below eliminate investments in subsidiaries and intercompany balances and transactions.

21




GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2014
(In millions) 
(Unaudited)
 
General
Motors
Financial
Company,
Inc.
 
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
809

 
$
708

 
$

 
$
1,517

Finance receivables, net

 
1,901

 
29,821

 

 
31,722

Restricted cash

 
19

 
2,041

 

 
2,060

Property and equipment, net

 
8

 
157

 

 
165

Leased vehicles, net

 

 
5,796

 

 
5,796

Deferred income taxes
22

 

 
518

 
(183
)
 
357

Goodwill
1,095

 

 
150

 

 
1,245

Related party receivables

 
18

 
177

 

 
195

Other assets
97

 
45

 
374

 

 
516

Due from affiliates
6,510

 

 

 
(6,510
)
 

Investment in affiliates
7,373

 
3,397

 

 
(10,770
)
 

Total assets
$
15,097

 
$
6,197

 
$
39,742

 
$
(17,463
)
 
$
43,573

Liabilities and Shareholder's Equity
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Secured debt
$

 
$

 
$
22,932

 
$

 
$
22,932

Unsecured debt
7,500

 

 
3,342

 

 
10,842

Accounts payable and accrued expenses
86

 
141

 
763

 

 
990

Deferred income

 

 
317

 

 
317

Deferred income taxes

 
200

 
4

 
(183
)
 
21

Taxes payable
76

 

 
163

 

 
239

Related party taxes payable
877

 

 
1

 
(1
)
 
877

Related party payables

 

 
603

 

 
603

Other liabilities

 
22

 
172

 

 
194

Due to affiliates

 
1,760

 
4,749

 
(6,509
)
 

Total liabilities
8,539

 
2,123

 
33,046

 
(6,693
)
 
37,015

Shareholder's equity:
 
 
 
 
 
 
 
 
 
Common stock

 

 
698

 
(698
)
 

Additional paid-in capital
4,798

 
79

 
3,111

 
(3,190
)
 
4,798

Accumulated other comprehensive (loss) income
(207
)
 
(38
)
 
(192
)
 
230

 
(207
)
Retained earnings
1,967

 
4,033

 
3,079

 
(7,112
)
 
1,967

Total shareholder's equity
6,558

 
4,074

 
6,696

 
(10,770
)
 
6,558

Total liabilities and shareholder's equity
$
15,097

 
$
6,197

 
$
39,742

 
$
(17,463
)
 
$
43,573




22


GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2013
(In millions) 
(Unaudited)
 
General
Motors
Financial
Company,
Inc.
 
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
395

 
$
679

 
$

 
$
1,074

Finance receivables, net

 
612

 
28,670

 

 
29,282

Restricted cash

 
20

 
1,938

 

 
1,958

Property and equipment, net

 
5

 
127

 

 
132

Leased vehicles, net

 

 
3,383

 

 
3,383

Deferred income taxes
1

 

 
358

 

 
359

Goodwill
1,095

 

 
145

 

 
1,240

Related party receivables
29

 

 
100

 

 
129

Other assets
74

 
5

 
358

 
(4
)
 
433

Due from affiliates
3,754

 
863

 

 
(4,617
)
 

Investment in affiliates
6,994

 
3,565

 

 
(10,559
)
 

Total assets
$
11,947

 
$
5,465

 
$
35,758

 
$
(15,180
)
 
$
37,990

Liabilities and Shareholder's Equity
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Secured debt
$

 
$

 
$
22,073

 
$

 
$
22,073

Unsecured debt
4,000

 

 
2,973

 

 
6,973

Accounts payable and accrued expenses
101

 
133

 
716

 
(4
)
 
946

Deferred income

 

 
168

 

 
168

Deferred income taxes
(28
)
 
161

 
(46
)
 

 
87

Taxes payable
83

 

 
204

 

 
287

Related party taxes payable
643

 

 
1

 
(1
)
 
643

Related party payables

 

 
368

 

 
368

Other liabilities

 
14

 
146

 

 
160

Due to affiliates
863

 
1,474

 
2,280

 
(4,617
)
 

Total liabilities
5,662

 
1,782

 
28,883

 
(4,622
)
 
31,705

Shareholder's equity:
 
 
 
 
 
 
 
 
 
Common stock

 

 
532

 
(532
)
 

Additional paid-in capital
4,785

 
79

 
3,833

 
(3,912
)
 
4,785

Accumulated other comprehensive income (loss)
11

 
(8
)
 
24

 
(16
)
 
11

Retained earnings
1,489

 
3,612

 
2,486

 
(6,098
)
 
1,489

Total shareholder's equity
6,285

 
3,683

 
6,875

 
(10,558
)
 
6,285

Total liabilities and shareholder's equity
$
11,947

 
$
5,465

 
$
35,758

 
$
(15,180
)
 
$
37,990








23


GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended September 30, 2014
(In millions) 
(Unaudited)
 
General
Motors
Financial
Company,
Inc.
 
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenue
 
 
 
 
 
 
 
 
 
Finance charge income
$

 
$
48

 
$
835

 
$

 
$
883

Leased vehicle income

 

 
297

 

 
297

Other income
18

 
115

 
46

 
(98
)
 
81

Equity in income of affiliates
242

 
139

 

 
(381
)
 

 
260

 
302

 
1,178

 
(479
)
 
1,261

Costs and expenses
 
 
 
 
 
 
 
 
 
Salaries and benefits

 
64

 
94

 

 
158

Other operating expenses
117

 
(75
)
 
160

 
(63
)
 
139

Total operating expenses
117

 
(11
)
 
254

 
(63
)
 
297

Leased vehicle expenses

 

 
228

 

 
228

Provision for loan losses

 
97

 
63

 

 
160

Interest expense
56

 
8

 
339

 
(35
)
 
368

 
173

 
94

 
884

 
(98
)
 
1,053

Income before income taxes
87

 
208

 
294

 
(381
)
 
208

Income tax (benefit) provision
(71
)
 
27

 
94

 

 
50

Net income
$
158

 
$
181

 
$
200

 
$
(381
)
 
$
158

 
 
 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(114
)
 
$
148

 
$
(71
)
 
$
(77
)
 
$
(114
)



24


GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Three Months Ended September 30, 2013
(In millions) 
(Unaudited)
 
General
Motors
Financial
Company,
Inc.
 
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenue
 
 
 
 
 
 
 
 
 
Finance charge income
$

 
$
37

 
$
610

 
$

 
$
647

Leased vehicle income

 

 
172

 

 
172

Other income
42

 
85

 
100

 
(179
)
 
48

Equity in income of affiliates
113

 
123

 

 
(236
)
 

 
155

 
245

 
882

 
(415
)
 
867

Costs and expenses
 
 
 
 
 
 
 
 
 
Salaries and benefits

 
56

 
67

 

 
123

Other operating expenses
(74
)
 
42

 
112

 

 
80

Total operating expenses
(74
)
 
98

 
179

 

 
203

Leased vehicle expenses

 

 
133

 

 
133

Provision for loan losses

 
53

 
64

 

 
117

Interest expense
57

 
54

 
236

 
(179
)
 
168

Acquisition and integration expenses

 

 
7

 

 
7

 
(17
)
 
205

 
619

 
(179
)
 
628

Income before income taxes
172

 
40

 
263

 
(236
)
 
239

Income tax provision (benefit)
11

 
(25
)
 
92

 

 
78

Net income
$
161

 
$
65

 
$
171

 
$
(236
)
 
$
161

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
256

 
$
79

 
$
266

 
$
(345
)
 
$
256




25


GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Nine Months Ended September 30, 2014
(In millions) 
(Unaudited)
 
General
Motors
Financial
Company,
Inc.
 
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenue
 
 
 
 
 
 
 
 
 
Finance charge income
$

 
$
117

 
$
2,478

 
$

 
$
2,595

Leased vehicle income

 

 
735

 

 
735

Other income
58

 
346

 
126

 
(311
)
 
219

Equity in income of affiliates
601

 
408

 

 
(1,009
)
 

 
659

 
871

 
3,339

 
(1,320
)
 
3,549

Costs and expenses
 
 
 
 
 
 
 
 
 
Salaries and benefits

 
180

 
268

 

 
448

Other operating expenses
112

 
(1
)
 
474

 
(187
)
 
398

Total operating expenses
112

 
179

 
742

 
(187
)
 
846

Leased vehicle expenses

 

 
563

 

 
563

Provision for loan losses

 
232

 
176

 

 
408

Interest expense
155

 
27

 
979

 
(124
)
 
1,037

 
267

 
438

 
2,460

 
(311
)
 
2,854

Income before income taxes
392

 
433

 
879

 
(1,009
)
 
695

Income tax (benefit) provision
(86
)
 
11

 
292

 

 
217

Net income
$
478

 
$
422

 
$
587

 
$
(1,009
)
 
$
478

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
260

 
$
392

 
$
371

 
$
(763
)
 
$
260






26


GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Nine Months Ended September 30, 2013
(In millions) 
(Unaudited)
 
General
Motors
Financial
Company,
Inc.
 
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Revenue
 
 
 
 
 
 
 
 
 
Finance charge income
$

 
$
106

 
$
1,603

 
$

 
$
1,709

Leased vehicle income

 

 
415

 

 
415

Other income
91

 
209

 
228

 
(409
)
 
119

Equity in income of affiliates
413

 
427

 

 
(840
)
 

 
504

 
742

 
2,246

 
(1,249
)
 
2,243

Costs and expenses
 
 
 
 
 
 
 
 
 
Salaries and benefits

 
158

 
155

 

 
313

Other operating expenses
(76
)
 
(7
)
 
272

 

 
189

Total operating expenses
(76
)
 
151

 
427

 

 
502

Leased vehicle expenses

 

 
314

 

 
314

Provision for loan losses

 
180

 
131

 

 
311

Interest expense
128

 
143

 
552

 
(409
)
 
414

Acquisition and integration expenses

 

 
29

 

 
29

 
52

 
474

 
1,453

 
(409
)
 
1,570

Income before income taxes
452

 
268

 
793

 
(840
)
 
673

Income tax provision (benefit)
7

 
(52
)
 
273

 

 
228

Net income
$
445

 
$
320

 
$
520

 
$
(840
)
 
$
445

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
475

 
$
341

 
$
553

 
$
(894
)
 
$
475




27


GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2014
(In millions) 
(Unaudited)
 
General
Motors
Financial
Company,
Inc.
 
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Net cash provided by operating activities
$
255

 
$
233

 
$
912

 
$

 
$
1,400

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchases of consumer finance receivables, net

 
(4,872
)
 
(9,297
)
 
3,319

 
(10,850
)
Principal collections and recoveries on consumer finance receivables

 
(109
)
 
8,233

 

 
8,124

Proceeds from sale of consumer finance receivables, net

 
3,319

 

 
(3,319
)
 

Net collections (funding) of commercial finance receivables

 
160

 
(568
)
 

 
(408
)
Purchases of leased vehicles, net

 

 
(3,227
)
 

 
(3,227
)
Proceeds from termination of leased vehicles

 

 
395

 

 
395

Acquisition of international operations, net of cash acquired
(46
)
 

 

 

 
(46
)
Purchases of property and equipment

 
(4
)
 
(33
)
 

 
(37
)
Change in restricted cash

 
1

 
(188
)
 

 
(187
)
Change in other assets

 

 
(2
)
 

 
(2
)
Net change in investment in affiliates

 
546

 

 
(546
)
 

Net cash used in investing activities
(46
)
 
(959
)
 
(4,687
)
 
(546
)
 
(6,238
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Net decrease in debt (original maturities less than three months)

 

 
(913
)
 

 
(913
)
Borrowings and issuance of secured debt

 

 
15,847

 

 
15,847

Payments on secured debt

 

 
(13,568
)
 

 
(13,568
)
Borrowings and issuance of unsecured debt
3,500

 

 
1,903

 

 
5,403

Payments on unsecured debt

 

 
(1,339
)
 

 
(1,339
)
Net capital contributions
26

 

 
(572
)
 
546

 

Debt issuance costs
(39
)
 

 
(68
)
 

 
(107
)
Net change in due from/due to affiliates

(3,696
)
 
1,140

 
2,556

 

 

Net cash (used in) provided by financing activities
(209
)
 
1,140

 
3,846

 
546

 
5,323

Net increase in cash and cash equivalents

 
414

 
71

 

 
485

Effect of foreign exchange rate changes on cash and cash equivalents

 

 
(42
)
 


 
(42
)
Cash and cash equivalents at beginning of period

 
395

 
679

 

 
1,074

Cash and cash equivalents at end of period
$

 
$
809

 
$
708

 
$

 
$
1,517


28


GENERAL MOTORS FINANCIAL COMPANY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2013
(In millions) 
(Unaudited) 
 
General
Motors
Financial
Company,
Inc.
 
Guarantor
 
Non-
Guarantors
 
Eliminations
 
Consolidated
 Net cash provided by operating activities
$
106

 
$
286

 
$
862

 
$

 
$
1,254

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchases of consumer finance receivables, net

 
(3,971
)
 
(6,546
)
 
4,207

 
(6,310
)
Principal collections and recoveries on consumer finance receivables

 

 
5,099

 

 
5,099

Proceeds from sale of consumer finance receivables, net

 
4,207

 

 
(4,207
)
 

Net funding of commercial finance receivables

 
(2,326
)
 
(886
)
 
2,593

 
(619
)
Proceeds from sale of commercial finance receivables, net

 
2,593

 

 
(2,593
)
 

Purchases of leased vehicles, net

 

 
(1,746
)
 

 
(1,746
)
Proceeds from termination of leased vehicles

 

 
142

 

 
142

Acquisition of international operations, net of cash acquired
(2,547
)
 
(863
)
 
440

 
863

 
(2,107
)
Purchases of property and equipment

 
(1
)
 
(9
)
 

 
(10
)
Change in restricted cash

 

 
(74
)
 

 
(74
)
Change in other assets

 
(44
)
 
22

 

 
(22
)
Net change in investment in affiliates
(29
)
 
(350
)
 

 
379

 

Net cash used in investing activities
(2,576
)
 
(755
)
 
(3,558
)
 
1,242

 
(5,647
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Borrowings and issuance of secured debt

 

 
11,676

 

 
11,676

Payments on secured debt

 

 
(9,009
)
 

 
(9,009
)
Borrowings and issuance of unsecured debt
2,500

 

 
1,698

 

 
4,198

Payments on unsecured debt

 

 
(1,817
)
 

 
(1,817
)
Borrowings on related party line of credit
1,100

 

 

 

 
1,100

Payments on related party line of credit
(1,100
)
 

 

 

 
(1,100
)
Repayment of debt to Ally Financial

 

 
(1,416
)
 

 
(1,416
)
Net capital contributions
1,300

 

 
382

 
(382
)
 
1,300

Debt issuance costs
(29
)
 

 
(40
)
 

 
(69
)
Net change in due from/due to affiliates
(1,301
)
 
467

 
1,697

 
(863
)
 

Net cash provided by financing activities
2,470

 
467

 
3,171

 
(1,245
)
 
4,863

Net increase (decrease) in cash and cash equivalents

 
(2
)
 
475

 
(3
)
 
470

Effect of foreign exchange rate changes on cash and cash equivalents

 

 
(6
)
 
3

 
(3
)
Cash and cash equivalents at beginning of period

 
1,252

 
37

 

 
1,289

Cash and cash equivalents at end of period
$

 
$
1,250

 
$
506

 
$

 
$
1,756










29


Item 2.
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We are a global provider of automobile finance solutions, and we operate in the market as the wholly-owned captive finance subsidiary of our parent, GM. We conduct our business generally in two segments, in North America and internationally in Europe and Latin America. The North America Segment includes operations in the U.S. and Canada. The International Segment includes operations in Austria, Belgium, Brazil, Chile, Colombia, France, Germany, Greece, Italy, Mexico, the Netherlands, Portugal, Spain, Sweden, Switzerland and the U.K. Additionally, we have agreed to acquire Ally Financial's non-controlling 40% equity interest in GMAC-SAIC Automotive Finance Company Limited ("GMAC-SAIC"), a joint venture, which conducts auto finance operations in China. This agreement is subject to certain regulatory and other approvals. We consider it probable that our acquisition of Ally Financial's interest in GMAC-SAIC will occur in late 2014 or as soon as practicable thereafter.
North America Operations
Consumer
Our automobile finance programs in the North America Segment include sub-prime lending and full credit spectrum leasing and, more recently, prime lending, offered through GM-franchised dealers under the "GM Financial" brand. We also offer sub-prime lending, through other manufacturer-franchised and independent dealers under the "AmeriCredit" brand. Our sub-prime lending program is designed to serve customers who have limited access to automobile financing through banks and credit unions. Our typical borrowers have experienced prior credit difficulties or have limited credit histories and generally have credit bureau scores ranging from 500 to 700. We generally charge higher rates than those charged by banks and credit unions and we also expect to sustain a higher level of defaults than these other automobile financing sources.
We are currently seeking to expand our prime lending programs through GM-franchised dealers in North America and anticipate that prime lending will become an increasing percentage of our originations and consumer portfolio balance over time.
We focus our marketing activities on automobile dealerships. We are selective in choosing the dealers with whom we conduct business and primarily pursue GM and non-GM manufacturer-franchised dealerships with new and used car operations; however, we also conduct business with a limited number of independent dealerships. We generally finance new GM vehicles, moderately-priced new vehicles from other manufacturers, and later-model, low-mileage used vehicles.
Our leasing product is offered through GM-franchised dealers and primarily targets prime consumers leasing new GM vehicles. We seek to provide competitive alternatives to existing marketplace lease offerings in GM-franchised dealers.
Our origination platform provides specialized focus on marketing our financing programs and underwriting loans and leases. Responsibilities are segregated so that the sales group markets our programs and products to our dealer customers, while the underwriting group focuses on underwriting, negotiating and closing loans and leases. In the U.S. our sales and underwriting groups are further segregated with separate teams servicing GM dealers and non-GM dealers, allowing us to continue efficient service for our non-GM dealers under the "AmeriCredit" brand while providing GM-franchised dealers the broader loan, lease and commercial lending products we offer under the "GM Financial" brand.
We utilize a proprietary credit scoring system to support the credit approval process. The credit scoring system was developed through statistical analysis of our consumer demographic and portfolio databases consisting of data which we have collected in more than 20 years of operating history. Credit scoring is used to differentiate credit applications and to statistically rank-order credit risk in terms of expected default rates, which enables us to evaluate credit applications for approval and tailor contract pricing and structure. In addition to our proprietary credit scoring system, we utilize other underwriting guidelines in our underwriting process to help us further evaluate the credit risk of our consumer financing activities.
Our servicing activities include collecting and processing customer payments, responding to customer inquiries, initiating contact with customers who are delinquent, maintaining the security interests in the financed vehicles, monitoring physical damage insurance coverage of the financed vehicles, and arranging for the repossession of financed vehicles, liquidation of collateral and pursuit of deficiencies when appropriate. Our servicing activities also include managing an end-of-term process for consumers purchasing or returning leased vehicles.
Commercial
Our commercial lending offerings target GM-franchised dealers and affiliated non-GM franchised dealers and consist of loans to finance the purchase of vehicle inventory, also known as wholesale or floorplan financing, as well as dealer loans, which

30


are loans to finance improvements to dealership facilities, to provide working capital and to purchase and/or finance dealership real estate.
Each dealer is assigned a risk rating based on various factors, including, but not limited to, collateral analysis, capital sufficiency, operating performance, financial outlook and credit and payment history, if available. The risk rating indicates the pricing for and guides the management of the account. We monitor the level of borrowing under each dealer's account daily. Our commercial loan servicing activities include dealership customer service, account maintenance, exception processing, credit line monitoring and adjustment and insurance monitoring.
International Operations
Consumer
We primarily employ an indirect-to-consumer model similar to the one we use in the North America Segment. Our consumer lending programs focus on financing prime quality consumers purchasing new GM vehicles. In many of the countries in which we operate, we also offer financial leases and a lease/retail hybrid product that includes a balloon payment at expiration, at which time the consumer may elect to make the payment, refinance or return the vehicle. Additionally, we recently began to offer an operating lease product in select markets. We also offer finance-related insurance products through third parties, such as credit life, gap and extended warranty coverage. We finance primarily new automobiles, although we also finance used automobiles. In most of the countries in which we operate, similar to our underwriting process in the North America Segment, we utilize a proprietary credit scoring system to differentiate consumer credit applications and to statistically rank-order credit risk in terms of expected default rates, which enables us to evaluate credit applications for approval and tailor loan and lease pricing and structure.
Our servicing activities include collecting and processing customer payments, responding to customer inquiries, initiating contact with customers who are delinquent, maintaining the security interest in the financed vehicle, monitoring physical damage insurance coverage of the financed vehicle, and arranging for the repossession of financed vehicles, liquidation of collateral and pursuit of deficiencies when appropriate.
Commercial
Commercial products offered primarily to GM-franchised dealers include new and used vehicle inventory financing, inventory insurance, working capital and capital improvement loans. Other commercial products include fleet financing and storage center financing. In addition, we provide training to dealer employees to help them maximize the value of these finance and insurance products. We utilize a proprietary underwriting system for commercial lending that has been refined through decades of experience in managing economic cycles. This process involves assigning a risk rating to each dealer based on our due diligence of various factors, including, but not limited to, collateral analysis, capital sufficiency, operating performance, financial outlook and credit and payment history, if available. The underwriting processes are performed in commercial lending centers located in Mexico, Brazil and Germany, the management of which operates independently of in-country sales and servicing operations. Our commercial loan servicing activities include dealership customer service, account maintenance and monitoring, exception processing, credit line monitoring and adjustment and insurance monitoring.
Financing
We primarily finance our loan, lease and commercial origination volume through the use of our secured and unsecured bank lines, through public and private securitization transactions where such markets are developed, through the issuance of senior notes and through public markets including the issuance of commercial paper and other financing programs.
We seek to fund our operations through local sources of funding to minimize currency and country risk. As such, the mix of funding sources varies from country to country, based on the characteristics of our receivables and the relative development of debt capital and securitization markets in each country. Our Latin American operations are entirely funded locally. Our European operations obtain most of their funding from local sources, but also borrow funds from affiliated companies.
In addition to our bank lines and securitization programs, GM provides us with financial resources through a tax sharing agreement, which effectively defers up to $1.0 billion in income taxes that we would otherwise be required to pay to GM over time, and through a $1.0 billion unsecured intercompany revolving credit facility (the "Junior Subordinated Revolving Credit Facility"), which replaced an existing $600 million intercompany credit facility with GM.
In October 2014, GM amended its two primary unsecured revolving credit facilities, increasing GM's aggregate borrowing capacity from $11.0 billion to $12.5 billion. These facilities consist of a three-year, $5.0 billion facility and a five-year, $7.5 billion facility.

31


We have the ability to borrow up to $2.0 billion against each of GM's unsecured revolving credit facilities, subject to available capacity. Our borrowings under GM's facilities are limited by GM's ability to borrow the entire amount available under the facilities. Therefore, we may be able to borrow up to $4.0 billion in total or may be unable to borrow depending on GM's borrowing activity. If we do borrow under these facilities, we expect such borrowings would be short-term in nature and, except in extraordinary circumstances, would not be used to fund our operating activities in the ordinary course of business. Neither we, nor any of our subsidiaries, guarantee any obligations under these facilities and none of our or our subsidiaries' assets secure these facilities.

32


RESULTS OF OPERATIONS
Three Months Ended September 30, 2014 as compared to
Three Months Ended September 30, 2013
Average Earning Assets:
Average earning assets were as follows (dollars in millions):
 
Three Months Ended September 30,
 
 
 
2014
 
2013
 
2014 vs. 2013 Change
 
North America
 
International
 
Total
 
North America
 
International
 
Total
 
Amount
 
%
Average consumer finance receivables
$
12,383

 
$
12,943

 
$
25,326

 
$
11,438

 
$
7,448

 
$
18,886

 
$
6,440

 
34.1
%
Average commercial finance receivables
2,404

 
4,519

 
6,923

 
1,244

 
3,781

 
5,025

 
1,898

 
37.8
%
Average finance receivables
14,787

 
17,462

 
32,249

 
12,682

 
11,229

 
23,911

 
8,338

 
34.9
%
Average leased vehicles, net
5,299

 
5

 
5,304

 
2,883

 
4

 
2,887

 
2,417

 
83.7
%
Average earning assets
$
20,086

 
$
17,467

 
$
37,553

 
$
15,565

 
$
11,233

 
$
26,798

 
$
10,755

 
40.1
%
In the North America Segment, average consumer finance receivables increased $945 million from September 30, 2013 to September 30, 2014, primarily because loan originations exceeded portfolio liquidations through payments and defaults. We purchased $2.0 billion and $1.3 billion of consumer finance receivables for the three months ended September 30, 2014 and 2013. The average new consumer loan size increased to $23,730 for the three months ended September 30, 2014 from $21,551 for the three months ended September 30, 2013. The average annual percentage rate for consumer finance receivables purchased during the three months ended September 30, 2014 decreased to 11.0% from 13.5% for the three months ended September 30, 2013. The increase in average loan size and decrease in average annual percentage rate are both primarily due to higher volumes of new car originations, which typically are for higher amounts, and have lower contractual rates due to the rate subvention support provided by GM, as well as the introduction of prime lending programs.
In the North America Segment, average commercial finance receivables increased $1.2 billion from September 30, 2013 to September 30, 2014, primarily due to the continued ramp-up in business since the introduction of our commercial lending platform in April 2012 and dealer conquests and related origination growth in the business since that time.
Average leased vehicles, net, increased $2.4 billion from September 30, 2013 to September 30, 2014. We purchased $1.7 billion and $727 million of leased vehicles for the three months ended September 30, 2014 and 2013. The increase in leased vehicles purchased was a result of GM's overall increased market penetration in leases as well as an increase in our share of GM's lease business.
The increase in average finance receivables in the International Segment is primarily due to the addition of the consumer and commercial receivables portfolios in Brazil, which were acquired October 1, 2013, as well as growth in U.K. consumer finance receivables.


33


Revenue:
Revenues were as follows (dollars in millions):
 
Three Months Ended September 30,
 
 
 
2014
 
2013
 
2014 vs. 2013 Change
 
North America
 
International
 
Total
 
North America
 
International
 
Total
 
Amount
 
%
Finance charge income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Consumer finance receivables
$
429

 
$
354

 
$
783

 
$
426

 
$
147

 
$
573

 
$
210

 
36.6
%
Commercial finance receivables
$
19

 
$
81

 
$
100

 
$
10

 
$
64

 
$
74

 
$
26

 
35.1
%
Leased vehicle income
$
295

 
$
2

 
$
297

 
$
170

 
$
2

 
$
172

 
$
125

 
72.7
%
Other income
$
16

 
$
65

 
$
81

 
$
16

 
$
32

 
$
48

 
$
33

 
68.8
%
In the North America Segment, finance charge income on consumer finance receivables was flat for the three months ended September 30, 2014, compared to the three months ended September 30, 2013. Increased finance charge income resulting from the increase in average consumer finance receivables was offset by a decrease in effective yield. The effective yield on our consumer finance receivables decreased to 13.7% for the three months ended September 30, 2014, from 14.8% for the three months ended September 30, 2013, primarily due to a decrease in the average annual percentage rate on new originations as well as a reduced yield impact from the accretion on the pre-acquisition portfolio. The effective yield represents finance charges and fees recorded in earnings during the period as a percentage of average consumer finance receivables. The effective yield, as a percentage of average consumer finance receivables, is higher than the contractual rates of our auto finance contracts because the effective yield includes, in addition to the contractual rates and fees, the impact of rate subvention provided by GM, as well as the impact of excess cash flows transferred from non-accretable difference to accretable yield, which impact has decreased over time with the amortization of the pre-acquisition portfolio.
The increase in commercial finance charge income reflects the increase in the average commercial finance receivables portfolio.
Leased vehicle income increased to $295 million for the three months ended September 30, 2014 from $170 million for the three months ended September 30, 2013, due to the increased size of the leased asset portfolio.
The increase in revenue for the International Segment is primarily due to the acquisition of the operations in Brazil in October 2013, as well as growth in consumer finance receivables in the U.K.
Costs and Expenses:
Costs and expenses were as follows (dollars in millions):
 
Three Months Ended September 30,
 
 
 
2014
 
2013
 
2014 vs. 2013 Change
 
North America
 
International
 
Total
 
North America
 
International
 
Total
 
Amount
%
Operating expenses
$
139

 
$
158

 
$
297

 
$
114

 
$
89

 
$
203

 
$
94

46.3
 %
Leased vehicle expenses
$
227

 
$
1

 
$
228

 
$
132

 
$
1

 
$
133

 
$
95

71.4
 %
Provision for loan losses
$
119

 
$
41

 
$
160

 
$
108

 
$
9

 
$
117

 
$
43

36.8
 %
Interest expense(a)
$
142

 
$
226

 
$
368

 
$
114

 
$
54

 
$
168

 
$
200

119.0
 %
Acquisition and integration expenses
$

 
$

 
$

 
$

 
$
7

 
$
7

 
$
(7
)
(100.0
)%
_________________ 

34


(a)
Amounts do not reflect allocation of senior note interest expense, and therefore do not agree with amounts presented in Note 12 - "Segment Reporting" in our consolidated financial statements in this Form 10-Q.
Operating Expenses
In the North America Segment, the increase in operating expenses reflects the growth in earning assets and investments to support our prime lending program and enhance our lease origination and servicing capabilities. Our operating expenses are predominantly related to personnel costs that include base salary and wages, performance incentives and benefits as well as related employment taxes. These expenses represented 76.0% and 74.3% of total operating expenses for the three months ended September 30, 2014 and 2013.
The increase in operating expenses for the International Segment is primarily due to the acquisition of the operations in Brazil, which were acquired October 1, 2013.
Operating expenses as an annualized percentage of average earning assets were 3.1% and 3.0% for the three months ended September 30, 2014 and 2013.
Leased Vehicle Expenses
Leased vehicle expenses increased primarily due to the increased size of the leased asset portfolio in the North America Segment. Our leased vehicle expenses are predominantly related to depreciation of leased assets.
Provision for Loan Losses
Provision for losses on consumer finance receivables are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the consumer finance receivables portfolio. The provision for loan losses recorded for the three months ended September 30, 2014 and 2013 reflects inherent losses on receivables originated during these periods and changes in the amount of inherent losses on post-acquisition finance receivables originated in prior periods. In the North America Segment, the provision for consumer loan losses increased to $119 million for the three months ended September 30, 2014 from $107 million for the three months ended September 30, 2013, primarily due to growth in the consumer finance receivables portfolio. As an annualized percentage of average post-acquisition consumer finance receivables, the provision for loan losses was 4.0% and 4.1% for the three months ended September 30, 2014 and 2013. In the International Segment, the provision for consumer loan losses increased to $43 million for the three months ended September 30, 2014 from $9 million for the three months ended September 30, 2013, primarily due to the acquisition of the operations in Brazil, which were acquired October 1, 2013.
The provision for loan losses on commercial finance receivables in the North America Segment was insignificant for the three months ended September 30, 2014 and 2013. In the International Segment, the provision was more than offset by the release of $3 million in specific reserves against commercial loans to Chevrolet dealers in Europe.  The specific reserve was established following GM’s decision to discontinue the Chevrolet brand in Europe; however, the related portfolio has been substantially repaid, with insignificant losses.
Interest Expense
In the North America Segment, interest expense increased primarily as a result of an increase in average debt outstanding to $19.8 billion for the three months ended September 30, 2014, from $15.5 billion for the three months ended September 30, 2013. The increase in debt was due to funding requirements for growth in the loan and lease portfolio, as well as for the acquisition of the international operations. The effective rate of interest on our debt was 2.8% and 2.9% for the three months ended September 30, 2014 and 2013.
The increase in interest expense for the International Segment is primarily due to the acquisition of the operations in Brazil in October 2013, as well as increased funding related to the growth in consumer receivables in the U.K.
Other Comprehensive Income
Foreign Currency Translation Adjustment
Consolidated foreign currency translation adjustments included in other comprehensive (loss) income were $(272) million and $95 million for three months ended September 30, 2014 and 2013. Most of the international operations use functional currencies other than the U.S. dollar. Translation adjustments result from changes in the values of our international currency-denominated assets and liabilities as the value of the U.S. dollar changes in relation to international currencies. The change in other comprehensive (loss) income is primarily due to decreases in the values of the Brazilian real and the euro in relation to the U.S dollar.

35


Nine Months Ended September 30, 2014 as compared to
Nine Months Ended September 30, 2013
Average Earning Assets:
Average earning assets were as follows (dollars in millions):
 
Nine Months Ended September 30,
 
 
 
2014
 
2013
 
2014 vs. 2013 Change
 
North America
 
International
 
Total
 
North America
 
International
 
Total
 
Amount
 
%
Average consumer finance receivables
$
11,924

 
$
12,585

 
$
24,509

 
$
11,281

 
$
4,801

 
$
16,082

 
$
8,427

 
52.4
%
Average commercial finance receivables
2,235

 
4,649

 
6,884

 
998

 
2,428

 
3,426

 
3,458

 
100.9
%
Average finance receivables
14,159

 
17,234

 
31,393

 
12,279

 
7,229

 
19,508

 
11,885

 
60.9
%
Average leased vehicles, net
4,352

 
3

 
4,355

 
2,393

 
4

 
2,397

 
1,958

 
81.7
%
Average earning assets
$
18,511

 
$
17,237

 
$
35,748

 
$
14,672

 
$
7,233

 
$
21,905

 
$
13,843

 
63.2
%
In the North America Segment, average consumer finance receivables increased $643 million from September 30, 2013 to September 30, 2014, primarily because loan originations exceeded portfolio liquidation through payments and defaults. We purchased $4.9 billion and $4.0 billion of consumer finance receivables in the North America Segment for the nine months ended September 30, 2014 and 2013. The average new consumer loan size increased to $22,790 for the nine months ended September 30, 2014 from $21,468 for the nine months ended September 30, 2013. The average annual percentage rate for consumer finance receivables purchased during the nine months ended September 30, 2014 decreased to 12.0% from 13.4% for the nine months ended September 30, 2013. The increase in average loan size and decrease in average annual percentage rate are both primarily due to higher volumes of new car originations, which typically are for higher amounts, and have lower contractual rates due to the rate subvention provided by GM, as well as the introduction of prime lending programs.
In the North America Segment, average commercial finance receivables increased $1.2 billion from September 30, 2013 to September 30, 2014, primarily due to the continued ramp-up in business since the introduction of our commercial lending platform in April 2012 and dealer conquests and related origination growth in the business since that time.
Average leased vehicles, net, increased $2.0 billion from September 30, 2013 to September 30, 2014. We purchased $4.0 billion and $2.2 billion of leased vehicles for the nine months ended September 30, 2014 and 2013. The increase in leased vehicles purchased was a result of GM's overall increased market penetration in leases as well as an increase in our share of GM's business.
The increase in the average earning assets for the International Segment is primarily due to the acquisition of the majority of the international operations on April 1, 2013, and the operations in Brazil, which were acquired October 1, 2013.
Revenue:
Revenues were as follows (dollars in millions):
 
Nine Months Ended September 30,
 
 
 
2014
 
2013
 
2014 vs. 2013 Change
 
North America
 
International
 
Total
 
North America
 
International
 
Total
 
Amount
 
%
Finance charge income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer finance receivables
$
1,254

 
$
1,038

 
$
2,292

 
$
1,262

 
$
289

 
$
1,551

 
$
741

 
47.8
%
Commercial finance receivables
$
53

 
$
250

 
$
303

 
25

 
133

 
$
158

 
$
145

 
91.8
%
Leased vehicle income
$
731

 
$
4

 
$
735

 
411

 
4

 
$
415

 
$
320

 
77.1
%
Other income
$
48

 
$
171

 
$
219

 
52

 
67

 
$
119

 
$
100

 
84.0
%
In the North America Segment, finance charge income on consumer finance receivables was flat for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013. Increased finance charge income resulting from

36


the increase in average consumer finance receivables was offset by a decrease in effective yield. The effective yield on our consumer finance receivables decreased to 14.0% for the nine months ended September 30, 2014, from 15.0% for the nine months ended September 30, 2013, primarily due to a decrease in the average annual percentage rate on new originations as well as a reduced yield impact from the accretion on the pre-acquisition portfolio. The effective yield represents finance charges and fees recorded in earnings during the period as a percentage of average consumer finance receivables. The effective yield, as a percentage of average consumer finance receivables, is higher than the contractual rates of our auto finance contracts because the effective yield includes, in addition to the contractual rates and fees, the impact of rate subvention provided by GM, as well as the impact of excess cash flows transferred from non-accretable difference to accretable yield, which impact has decreased over time with the amortization of the pre-acquisition portfolio.
The increase in commercial finance charge income reflects the increase in the average commercial finance receivables portfolio.
Leased vehicle income increased to $731 million for the nine months ended September 30, 2014 from $411 million for the nine months ended September 30, 2013, due to the increased size of the leased asset portfolio.
The increase in revenue for the International Segment is primarily due to the acquisition of the majority of the international operations on April 1, 2013, and the operations in Brazil, which were acquired October 1, 2013.
Costs and Expenses:
Costs and expenses were as follows (dollars in millions):
 
Nine Months Ended September 30,
 
 
 
2014
 
2013
 
2014 vs. 2013 Change
 
North America
 
International
 
Total
 
North America
 
International
 
Total
 
Amount
%
Operating expenses
$
390

 
$
456

 
$
846

 
$
326

 
$
176

 
$
502

 
$
344

68.5
 %
Leased vehicle expenses
$
560

 
$
3

 
$
563

 
$
311

 
$
3

 
$
314

 
$
249

79.3
 %
Provision for loan losses
$
312

 
$
96

 
$
408

 
$
283

 
$
28

 
$
311

 
$
97

31.2
 %
Interest expense(a)
$
390

 
$
647

 
$
1,037

 
$
300

 
$
114

 
$
414

 
$
623

150.5
 %
Acquisition and integration expenses
$

 
$

 
$

 
$

 
$
29

 
$
29

 
$
(29
)
(100.0
)%
_________________ 
(a)
Amounts do not reflect allocation of senior note interest expense, and therefore do not agree with amounts presented in Note 12 - "Segment Reporting" in our consolidated financial statements in this Form 10-Q.
Operating Expenses
In the North America Segment, the increase in operating expenses reflects the growth in earning assets and investments to support our prime lending program and enhance our lease origination and servicing capabilities. Our operating expenses are predominantly related to personnel costs that include base salary and wages, performance incentives and benefits as well as related employment taxes. These expenses represented 75.9% and 73.2% of total operating expenses for the nine months ended September 30, 2014 and 2013.
The increase in operating expenses for the International Segment is primarily due to the acquisition of the majority of the international operations on April 1, 2013, and the operations in Brazil, which were acquired October 1, 2013.
Operating expenses as an annualized percentage of average earning assets were 3.2% for the nine months ended September 30, 2014 compared to 3.1% for the nine months ended September 30, 2013.
Leased Vehicle Expenses
Leased vehicle expenses increased due to the increased size of the leased asset portfolio. Our leased vehicle expenses are predominantly related to depreciation of leased assets.
Provision for Loan Losses
Provision for losses on consumer finance receivables are charged to income to bring our allowance for loan losses to a level which management considers adequate to absorb probable credit losses inherent in the consumer finance receivables portfolio. The provision for loan losses recorded for the nine months ended September 30, 2014 and 2013 reflects inherent losses on receivables originated during these periods and changes in the amount of inherent losses on post-acquisition finance receivables originated in prior periods. In the North America Segment, the provision for consumer loan losses increased to $312 million for the nine months

37


ended September 30, 2014 from $276 million for the nine months ended September 30, 2013, as a result of the increase in the size of the consumer finance receivables portfolio. As an annualized percentage of average post-acquisition consumer finance receivables, the provision for loan losses was 3.7% and 3.6% for the nine months ended September 30, 2014 and 2013. In the International Segment, the provision for consumer loan losses increased to $109 million for the nine months ended September 30, 2014 from $17 million for the nine months ended September 30, 2013, primarily due to the acquisition of the majority of the international operations on April 1, 2013, and the operations in Brazil, which were acquired October 1, 2013.
The provision for loan losses on commercial finance receivables in the North America Segment was insignificant for the nine months ended September 30, 2014 and $7 million for the nine months ended September 30, 2013. In the International Segment, the provision was more than offset by the release of $11 million in specific reserves against commercial loans to Chevrolet dealers in Europe.  The specific reserve was established following GM’s decision to discontinue the Chevrolet brand in Europe; however, the related portfolio has been substantially repaid, with insignificant losses.
Interest Expense
In the North America Segment, interest expense increased primarily as a result of an increase in average debt outstanding to $18.1 billion for the nine months ended September 30, 2014, from $13.7 billion for the nine months ended September 30, 2013. The increase in debt was due to funding requirements for growth in the loan and lease portfolio, as well as for the acquisition of the international operations. The effective rate of interest on our debt was 2.9% for the nine months ended September 30, 2014 and 2013.
The increase in interest expense for the International Segment is primarily due to the acquisition of the majority of the international operations in April 2013, and the operations in Brazil, in October 2013, as well as increased funding related to the growth in consumer receivables in the U.K.
Other Comprehensive Income
Foreign Currency Translation Adjustment
Consolidated foreign currency translation adjustments included in other comprehensive (loss) income were $(218) million and $30 million for the nine months ended September 30, 2014 and 2013. Most of the international operations use functional currencies other than the U.S. dollar. Translation adjustments result from changes in the values of our international currency-denominated assets and liabilities as the value of the U.S. dollar changes in relation to international currencies. The change in other comprehensive (loss) income is primarily due to decreases in the values of the Brazilian real and the euro in relation to the U.S dollar.
CREDIT QUALITY
Consumer Finance Receivables
In the North America Segment, we primarily provide financing in relatively high-risk markets, and therefore anticipate a corresponding high level of delinquencies and charge-offs. In the International Segment, the consumer financing we provide is generally to borrowers with prime credit and considered lower-risk; therefore, we expect correspondingly lower levels of delinquencies and charge-offs than in our North America Segment.

38


The following tables present certain data related to the consumer finance receivables portfolio (dollars in millions, except where noted):
 
September 30, 2014
 
December 31, 2013
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Pre-acquisition consumer finance receivables - outstanding balance
$
460

 
$
200

 
$
660

 
$
931

 
$
363

 
$
1,294

Pre-acquisition consumer finance receivables - carrying value
$
401

 
$
197

 
$
598

 
$
826

 
$
348

 
$
1,174

Post-acquisition consumer finance receivables, net of fees
12,214

 
12,404

 
24,618

 
10,562

 
11,394

 
21,956

 
12,615

 
12,601

 
25,216

 
11,388

 
11,742

 
23,130

Less: allowance for loan losses
(536
)
 
(72
)
 
(608
)
 
(468
)
 
(29
)
 
(497
)
Total consumer finance receivables, net
$
12,079

 
$
12,529

 
$
24,608

 
$
10,920

 
$
11,713

 
$
22,633

Number of outstanding contracts
761,726

 
1,401,130

 
2,162,856

 
725,797

 
1,224,845

 
1,950,642

Average amount of outstanding contracts (in dollars)(a)
$
16,639


$
8,996


$
11,687


$
15,835

 
$
9,599

 
$
11,919

Allowance for loan losses as a percentage of post-acquisition consumer finance receivables, net of fees
4.4
%

0.6
%

2.5
%

4.4
%
 
0.3
%
 
2.3
%
_________________ 
(a)
Average amount of outstanding contract consists of pre-acquisition consumer finance receivables - outstanding balance and post-acquisition consumer finance receivables, net of fees, divided by number of outstanding contracts.
The allowance for loan losses for the North America Segment as a percentage of post-acquisition consumer finance receivables, net of fees, was consistent with the level at December 31, 2013. The allowance for the acquired international receivables was eliminated in acquisition accounting at the acquisition dates. As a result, the allowance at September 30, 2014 for the International Segment represents an estimate of losses inherent in only the receivables originated since the acquisition dates. The allowance for losses for the International Segment will grow over time as the post-acquisition loan balance grows. However, the allowance for losses for the International Segment is expected to be much less than that for the North America Segment due to the higher credit quality of its originations.
Delinquency
The following is a summary of the contractual amounts of consumer finance receivables, which is not materially different than recorded investment, that are (i) more than 30 days delinquent, but not yet in repossession, and (ii) in repossession, but not yet charged off (dollars in millions):

 
 
September 30,
 
 
2014
 
2013
 
 
North America
 
International
 
Total
 
North America
 
International
 
Total
 
 
Amount
 
Amount
 
Amount
 
Percent of Contractual Amount Due
 
Amount
 
Amount
 
Amount
 
Percent of Contractual Amount Due
31 - 60 days
 
$
865

 
$
114

 
$
979

 
3.9
%
 
$
690

 
$
49

 
$
739

 
3.8
%
Greater than 60 days
 
305

 
120

 
425

 
1.7

 
247

 
44

 
291

 
1.5

 
 
1,170

 
234

 
1,404

 
5.6

 
937

 
93

 
1,030

 
5.3

In repossession
 
44

 
5

 
49

 
0.2

 
41

 
4

 
45

 
0.3

 
 
$
1,214

 
$
239

 
$
1,453

 
5.8
%
 
$
978

 
$
97

 
$
1,075

 
5.6
%

An account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Delinquencies may vary from period to period based upon the average credit scores in the portfolio which reflects our underwriting strategies and risk tolerance, the average age or seasoning of the portfolio, seasonality within the

39


calendar year and economic factors. Our customer base in the North America Segment is predominantly sub-prime; therefore, a relatively high percentage of accounts become delinquent at some point in the life of a loan and there is a high rate of account movement between current and delinquent status in the portfolio.
Delinquencies in the North America Segment increased to 9.2% at September 30, 2014 from 8.2% at September 30, 2013, consistent with normalizing credit trends. Our customer base in the International Segment is primarily prime; therefore, delinquency levels are much lower, with 1.9% and 1.2% in delinquencies at September 30, 2014 and 2013. The increase in delinquencies from September 30, 2013 is due to the acquisition of the international operations in Brazil.
Deferrals
Due to the lower-risk nature of the consumer base in the International Segment, it is unnecessary to offer deferrals as frequently as in the North America Segment, which leads to an immaterial overall level of deferrals in the International Segment. Therefore, the following information regarding deferrals is presented for consumer finance receivables in the North America Segment only.
In accordance with our policies and guidelines, we, at times, offer payment deferrals to consumers, whereby the consumer is allowed to move up to two delinquent payments to the end of the loan generally by paying a fee (approximately the interest portion of the payment deferred, except where state law provides for a lesser amount). Our policies and guidelines limit the number and frequency of deferments that may be granted. Additionally, we generally limit the granting of deferments on new accounts until a requisite number of payments have been received.
Due to the nature of our consumer base in the North America Segment and policies and guidelines of the deferral program, which policies and guidelines have not changed materially in several years, approximately 50% to 60% of accounts historically comprising the consumer finance receivables in the North America Segment receive a deferral at some point in the life of the account.
An account for which all delinquent payments are deferred or paid in a deferment transaction is classified as current at the time the deferment is granted and therefore is not included as a delinquent account. Thereafter, such account is aged based on the timely payment of future installments in the same manner as any other account.
Contracts receiving a payment deferral as an average quarterly percentage of average consumer finance receivables outstanding were 6.6% and 6.7% for the three months ended September 30, 2014 and 2013 and 6.1% and 6.3% for nine months ended September 30, 2014 and 2013.
The following is a summary of deferrals in the North America Segment as a percentage of consumer finance receivables outstanding:
 
September 30, 2014

December 31, 2013
Never deferred
75.8
%
 
74.7
%
Deferred:
 
 
 
1-2 times
20.2

 
21.6

3-4 times
4.0

 
3.7

Total deferred
24.2

 
25.3

Total
100.0
%
 
100.0
%
We evaluate the results of our deferment strategies based upon the amount of cash installments that are collected on accounts after they have been deferred versus the extent to which the collateral underlying the deferred accounts has depreciated over the same period of time. Based on this evaluation, we believe that payment deferrals granted according to our policies and guidelines are an effective portfolio management technique and result in higher ultimate cash collections from the portfolio.
Changes in deferment levels do not have a direct impact on the ultimate amount of consumer finance receivables charged off by us. However, the timing of a charge-off may be affected if the previously deferred account ultimately results in a charge-off. To the extent that deferrals impact the ultimate timing of when an account is charged off, historical charge-off ratios, loss confirmation periods and cash flow forecasts for loans classified as TDRs used in the determination of the adequacy of our allowance for loan losses are also impacted. Increased use of deferrals may result in a lengthening of the loss confirmation period, which would increase expectations of credit losses inherent in the portfolio and therefore increase the allowance for loan losses and related provision for loan losses. Changes in these ratios and periods are considered in determining the appropriate level of allowance for loan losses and related provision for loan losses.

40


Troubled Debt Restructurings
See Note 2 - "Finance Receivables" to our condensed consolidated financial statements in this Form 10-Q for further discussion of TDRs.
Credit Losses - non-U.S. GAAP measure
We analyze portfolio performance of both the pre- and post-acquisition finance receivables portfolios on a combined basis. This information allows us and investors the ability to analyze credit loss trends in the combined portfolio. Additionally, information on credit losses, on a combined basis, facilitates comparisons of current and historical results.
The following is a reconciliation of charge-offs on the post-acquisition portfolio to credit losses on the combined portfolio (in millions):
 
Three Months Ended September 30,
 
2014
 
2013
 
North America(a)
 
International
 
Total
 
North America(a)
 
International
 
Total
Charge-offs
$
194

 
$
36

 
$
230

 
$
153

 
$
18

 
$
171

Adjustments to reflect write-offs of the contractual amounts on the pre-acquisition portfolio
13

 
2

 
15

 
34

 
4

 
38

Total credit losses
$
207

 
$
38

 
$
245

 
$
187

 
$
22

 
$
209

_________________ 
(a)
Total credit losses in the North America Segment is comprised of the sum of repossession credit losses and mandatory credit losses.

 
Nine Months Ended September 30,
 
2014
 
2013
 
North America(a)
 
International
 
Total
 
North America(a)
 
International
 
Total
Charge-offs
$
543

 
$
102

 
$
645

 
$
401

 
$
18

 
$
419

Adjustments to reflect write-offs of the contractual amounts on the pre-acquisition portfolio
52

 
7

 
59

 
123

 
9

 
132

Total credit losses
$
595

 
$
109

 
$
704

 
$
524

 
$
27

 
$
551

_________________ 
(a)
Total credit losses in the North America Segment is comprised of the sum of repossession credit losses and mandatory credit losses.
The following table presents credit loss data (which includes charge-offs on the post-acquisition portfolio and write-offs of contractual amounts on the pre-acquisition portfolio) with respect to our consumer finance receivables portfolio (dollars in millions): 
 
Three Months Ended September 30,
 
2014
 
2013
 
North America
 
International(a)
 
Total
 
North America
 
International(a)
 
Total
Repossession credit losses
$
188

 
$
38

 
$
226

 
$
180

 
$
18

 
$
198

Less: recoveries
(106
)
 
(12
)
 
(118
)
 
(105
)
 
(15
)
 
(120
)
Mandatory credit losses(b)
19

 

 
19

 
7

 
4

 
11

Net credit losses
$
101

 
$
26

 
$
127

 
$
82


$
7

 
$
89

Net annualized credit losses as a percentage of average consumer finance receivables(c)
3.2
%
 
0.8
%
 
2.0
%
 
2.8
%
 
0.4
%
 
1.9
%
Recoveries as a percentage of gross repossession credit losses
56.6
%
 
 
 
 
 
58.7
%
 
 
 
 



41


 
Nine Months Ended September 30,
 
2014
 
2013
 
North America
 
International(a)
 
Total
 
North America
 
International(a)
 
Total
Repossession credit losses
$
575

 
$
109

 
$
684

 
$
519

 
$
18

 
$
537

Less: recoveries
(339
)
 
(45
)
 
(384
)
 
(313
)
 
(15
)
 
(328
)
Mandatory credit losses(b)
20

 

 
20

 
5

 
9

 
14

Net credit losses
$
256

 
$
64

 
$
320

 
$
211

 
$
12

 
$
223

Net annualized credit losses as a percentage of average consumer finance receivables(c)
2.9
%
 
0.7
%
 
1.8
%
 
2.5
%
 
0.4
%
 
1.9
%
Recoveries as a percentage of gross repossession credit losses
59.0
%
 
 
 
 
 
60.3
%
 
 
 
 
_________________ 
(a)
Repossession credit losses for the International Segment represent the write-down of defaulted receivables to net realizable value. As a result, a calculation of recoveries as a percentage of gross repossession credit losses is not meaningful.
(b)
Mandatory credit losses represent accounts 120 days delinquent in the post-acquisition portfolio that are charged off in full, with no recovery amounts realized at time of charge-off, net of any subsequent recoveries as well as the net write-down of consumer finance receivables in repossession to the net realizable value of the repossessed vehicle when the repossessed vehicle is legally available for sale.
(c)
Average consumer finance receivables are defined as the average receivable balance excluding the carrying value adjustment.
Net credit losses as a percentage of average consumer finance receivables outstanding may vary from period to period based upon the average credit scores in the portfolio which reflects our underwriting strategies and risk tolerance, the average age or seasoning of the portfolio and economic conditions.
Commercial Finance Receivables
The following table presents certain data related to the commercial finance receivables portfolio (dollars in millions):
 
September 30, 2014
 
December 31, 2013
 
North America
 
International
 
Total
 
North America
 
International
 
Total
Commercial finance receivables, net of fees
$
2,513

 
$
4,638

 
$
7,151

 
$
1,975

 
$
4,725

 
$
6,700

Less: allowance for loan losses
(17
)
 
(20
)
 
(37
)
 
(17
)
 
(34
)
 
(51
)
Total commercial finance receivables, net
$
2,496

 
$
4,618

 
$
7,114

 
$
1,958

 
$
4,691

 
$
6,649

Number of dealers
406

 
2,174

 
2,580

 
309

 
2,646

 
2,955

Average carrying amount per dealer
$
6


$
2


$
3


$
6

 
$
2

 
$
2

Allowance for loan losses as a percentage of commercial finance receivables, net of fees
0.7
%
 
0.4
%
 
0.5
%
 
0.9
%
 
0.7
%
 
0.8
%
Commercial finance receivables are assessed for impairment and any required allowance for credit losses is recorded based on the present value of the expected future cash flows of the receivable discounted at the loan's original effective interest rate. For receivables where foreclosure is probable, the fair value of the collateral is used to estimate the specific impairment. At September 30, 2014 and December 31, 2013, there were no outstanding commercial finance receivables classified as TDRs.
There were no charge-offs of commercial finance receivables for the three or nine months ended September 30, 2014 and 2013. At September 30, 2014 and December 31, 2013 substantially all of our commercial finance receivables were current with respect to payment status.
Leased Vehicles
At September 30, 2014 and 2013, 98.4% and 99.0% of our leases were current with respect to payment status. Leased vehicles returned as a result of a default were $15 million and $7 million for the three months ended September 30, 2014 and 2013 and $39 million and $16 million for the nine months ended September 30, 2014 and 2013.

42


LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of cash are finance charge income, leasing income, servicing fees, net distributions from secured debt facilities, including securitizations, secured and unsecured borrowings and collections and recoveries on finance receivables. Our primary uses of cash are purchases of consumer finance receivables and leased vehicles, the funding of commercial finance receivables, funding credit enhancement requirements in connection with securitizations and secured facilities, repayment of secured and unsecured debt, operating expenses, interest costs, capital expenditures and business acquisitions.
We used cash of $10.9 billion and $6.3 billion for the purchase of consumer finance receivables for the nine months ended September 30, 2014 and 2013. We used cash of $3.2 billion and $1.7 billion for the purchase of leased vehicles for the nine months ended September 30, 2014 and 2013. We used cash of $0.4 billion and $0.6 billion for the funding of commercial finance receivables, net of collections, for the nine months ended September 30, 2014 and 2013. We used cash of $3.5 billion for the acquisition of the international operations and repayment of debt to Ally Financial for the nine months ended September 30, 2013.
In the North America Segment, our purchase and funding of finance receivables and lease vehicles were financed initially utilizing cash and borrowings on our secured and unsecured credit facilities. Subsequently, our strategy is to obtain long-term financing for consumer and commercial finance receivables and leased vehicles through securitization transactions and the liquidity generated by the issuance of senior notes.
In the International Segment, our purchase and funding of finance receivables are typically financed with borrowings on secured and unsecured credit facilities. In certain countries where the debt capital and securitization markets are sufficiently developed, such as in Germany and the U.K., we obtain permanent financing through securitization transactions. In addition, in September 2014, we established a euro medium term note program, registered on the Irish Stock Exchange, allowing us to raise unsecured debt in the international capital markets through the issuance of notes with different maturities and in different currencies.
Liquidity
Our available liquidity consists of the following (in millions): 
 
September 30, 2014
 
December 31, 2013
Cash and cash equivalents(a)
$
1,517

 
$
1,074

Borrowing capacity on unpledged eligible assets
4,666

 
1,650

Borrowing capacity on committed unsecured lines of credit
819

 
615

Borrowing capacity on Junior Subordinated Revolving Credit Facility
1,000

 

Borrowing capacity on GM Related Party Credit Facility

 
600

Available liquidity
$
8,002

 
$
3,939

_________________
(a)
Includes $665 million and $659 million in unrestricted cash outside of the U.S. at September 30, 2014 and December 31, 2013. This cash is considered to be indefinitely invested based on specific plans for reinvestment of these earnings.
The increase in available liquidity is primarily due to the issuance of $3.9 billion in senior notes in the nine months ended September 30, 2014. In addition, in September 2014, we and GM entered into the Support Agreement which, among other things, contains certain provisions intended to ensure that we maintain adequate access to liquidity. Pursuant to these provisions, GM provided us with the $1.0 billion unsecured intercompany Junior Subordinated Revolving Credit Facility, which replaced an existing $600 million credit facility with GM.
In October 2014, GM amended its two primary unsecured revolving credit facilities, increasing GM's aggregate borrowing capacity from $11.0 billion to $12.5 billion. These facilities consist of a three-year, $5.0 billion facility and a five-year, $7.5 billion facility.
We have the ability to borrow up to $2.0 billion against each of GM's unsecured revolving credit facilities, subject to available capacity. Our borrowings under GM's facilities are limited by GM's ability to borrow the entire amount available under the facilities. Therefore, we may be able to borrow up to $4.0 billion in total or may be unable to borrow depending on GM's borrowing activity. If we do borrow under these facilities, we expect such borrowings would be short-term in nature and, except in extraordinary circumstances, would not be used to fund our operating activities in the ordinary course of business. Neither we, nor any of our subsidiaries, guarantee any obligations under these facilities and none of our assets secure these facilities. Liquidity available to us under the GM unsecured revolving credit facilities is not included in the table above.

43




Credit Facilities
In the normal course of business, in addition to using our available cash, we utilize borrowings under our credit facilities, which may be secured or structured as securitizations, or may be unsecured, and we repay these borrowings as appropriate under our cash management strategy.
At September 30, 2014, credit facilities consist of the following (in millions):
Facility Type
 
Facility Amount
 
Advances Outstanding
Revolving consumer asset-secured facilities(a)
 
$
14,330

 
$
6,037

Revolving commercial asset-secured facilities(b)
 
3,004

 
417

Total secured
 
$
17,334

 
$
6,454

Unsecured committed facilities
 
1,284

 
465

Unsecured uncommitted facilities(c)
 

 
1,752

Total unsecured
 
$
1,284

 
$
2,217

Junior Subordinated Revolving Credit Facility
 
1,000

 

Total
 
$
19,618

 
$
8,671

Acquisition accounting discount
 
 
 
(21
)
 
 
 
 
$
8,650

_________________
(a)
Includes revolving credit facilities backed by consumer finance receivables and leases.
(b)
Includes revolving credit facilities backed by loans to dealers for floorplan financing.
(c)
The financial institutions providing the uncommitted facilities are not contractually obligated to advance funds under them; therefore, we do not include available capacity on these facilities in our liquidity. We had $521 million in unused borrowing capacity on these facilities at September 30, 2014.
See Note 5 - "Debt" to our condensed consolidated financial statements in this Form 10-Q for further discussion of the terms of our revolving credit facilities.
We are required to hold funds in restricted cash accounts to provide additional collateral for borrowings under certain of our
secured credit facilities. Additionally, our secured credit facilities contain various covenants requiring minimum financial ratios, asset quality and portfolio performance ratios (portfolio net loss and delinquency ratios, and pool level cumulative net loss ratios) as well as limits on deferment levels. Failure to meet any of these covenants 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, restrict our ability to obtain additional borrowings under these agreements and/or remove us as servicer. As of September 30, 2014, we were in compliance with all covenants related to our credit facilities.
Securitization Notes Payable
We seek to finance our consumer and commercial finance receivables and leases through public and private term securitization transactions, where the debt capital and securitization markets are sufficiently developed, such as in the U.S., Canada, Germany and the U.K. The proceeds from the transactions were primarily used to repay borrowings outstanding under our revolving credit facilities.

44


A summary of securitization notes payable is as follows (in millions):
Year of Transaction
 
Maturity Date (a)
 
Original Issuance Amounts
 
Note Balance At
September 30, 2014
2007
 
June 2018
 
 
 
$
74

 
 
 
$
62

2010
 
November 2017
-
April 2018
 
$
200

-
$
850

 
257

2011
 
July 2018
-
December 2019
 
$
518

-
$
1,000

 
1,104

2012
 
June 2016
-
July 2020
 
$
183

-
$
1,300

 
4,061

2013
 
July 2015
-
October 2021
 
$
212

-
$
1,107

 
4,745

2014
 
March 2019
-
March 2022
 
$
444

-
$
1,400

 
6,277

Total active securitizations
 
 
 
 
 
 
 
 
 
16,506

Acquisition accounting discount
 
 
 
 
 
 
 
 
 
(7
)
 
 
 
 
 
 
 
 
 
 
$
16,499

_________________ 
(a)
Maturity dates represent legal final maturity of issued notes. The notes are expected to be paid based on amortization of the finance receivables pledged.
Our securitizations utilize special purpose entities which are also VIEs that meet the requirements to be consolidated in our financial statements. See Note 6 - "Variable Interest Entities" to our condensed consolidated financial statements in this Form 10-Q for further discussion.
Senior Notes and Other Unsecured Debt
We also access the public capital markets through the issuance of unsecured debt. In the North America Segment, we periodically issue senior unsecured notes. At September 30, 2014 we had $7.9 billion in senior unsecured notes outstanding.
In the International Segment, particularly in Latin America, we issue other unsecured debt through commercial paper offerings and other non-bank funding instruments. At September 30, 2014 we had $767 million of this type of unsecured debt outstanding.
In October 2014, a European subsidiary issued €500 million of 1.875% notes under its euro medium term notes program, which are listed on the Irish Stock Exchange. These notes are due in October 2019 with interest payable annually. These notes are guaranteed by our top-tier holding company and by AFSI. We intend to use the net proceeds for general corporate purposes.

FORWARD-LOOKING STATEMENTS
This report contains several "forward-looking statements." Forward-looking statements are those that use words such as "believe," "expect," "anticipate," "intend," "plan," "may," "likely," "should," "estimate," "continue," "future" and/or other comparable expressions. These words indicate future events and trends. Forward-looking statements are our current views with respect to future events and financial performance. These forward-looking statements are subject to many assumptions, risks and uncertainties that could cause actual results to differ significantly from historical results or from those anticipated by us. The most significant risks are detailed from time to time in our filings and reports with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2013. It is advisable not to place undue reliance on our forward-looking statements. We undertake no obligation to, and do not, publicly update or revise any forward-looking statements, except as required by federal securities laws, whether as a result of new information, future events or otherwise.
The following factors are among those that may cause actual results to differ materially from historical results or from the forward-looking statements:
our ability to close the acquisition of Ally Financial's equity interest in GMAC-SAIC and operate that business successfully;
changes in general economic and business conditions;
GM's ability to sell new vehicles that we finance in the markets we serve in North America, Europe and Latin America;
interest rate and currency fluctuations;
our financial condition and liquidity, as well as future cash flows and earnings;
competition;
the effect, interpretation or application of new or existing laws, regulations, court decisions and accounting pronouncements;

45


the availability of sources of financing;
the level of net charge-offs, delinquencies and prepayments on the loans and leases we originate;
the viability of GM-franchised dealers that are commercial loan customers;
the prices at which used cars are sold in the wholesale auction markets; and
changes in business strategy, including acquisitions and expansion of product lines and credit risk appetite.
If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in our exposure to interest rate risk since December 31, 2013. See Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" in our Form 10-K.
Item 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended ("Exchange Act"), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) at September 30, 2014. Based on this evaluation required by paragraph (b) of Rules 13a-15 and 15d-15, our CEO and CFO concluded that our disclosure controls and procedures were effective at September 30, 2014.
Changes in Internal Control Over Financial Reporting
There were no changes made in our internal control over financial reporting during the quarter ended September 30, 2014, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Limitations Inherent in all Controls
Our management, including the CEO and CFO, recognize that the disclosure controls and internal controls (discussed above) cannot prevent all errors or all attempts at fraud. Any controls system, no matter how well crafted and operated, can only provide reasonable, and not absolute, assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in any control system, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected.
Part II.
OTHER INFORMATION
Item 1.
Legal Proceedings
In July 2014, in connection with an investigation by the U.S. Department of Justice in contemplation of a civil proceeding for potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, we were served with a subpoena by the U.S. Department of Justice directing us to produce certain documents relating to our and our subsidiaries’ and affiliates’ origination and securitization of subprime automobile loans since 2007. Among other matters, the subpoena requests information relating to the underwriting criteria used to originate these automobile loans and the representations and warranties relating to those underwriting criteria that were made in connection with the securitization of the automobile loans. In September 2014, we were served with additional investigative subpoenas to produce documents from state attorneys general and other governmental offices relating to our subprime auto finance business and securitization of subprime auto loans.  We are investigating these matters internally and believe we are cooperating with all requests.  Such investigations could in the future result in the imposition of damages, fines or civil or criminal claims and/or penalties. No assurance can be given that the ultimate outcome of the investigations or any resulting proceedings would not materially and adversely affect us or any of our subsidiaries and affiliates.

Item 1A.
Risk Factors

46


The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial also may adversely affect our business, financial condition and/or operating results. This section updates our risk factors as stated in our Annual Report in Form 10-K to reflect material developments since our Form 10-K was filed.
Our operations are subject to regulation, supervision and licensing under various statutes, ordinances and regulations.
As an entity operating in the financial services sector, we are required to comply with a wide variety of laws and regulations that may be costly to adhere to and may affect both our operating results and our ability to service our earning assets. Compliance with these laws and regulations requires that we maintain forms, processes, procedures, controls and the infrastructure to support these requirements and these laws and regulations often create operational constraints both on our ability to implement servicing procedures and on pricing. Laws in the financial services industry are designed primarily for the protection of consumers. The failure to comply with these laws could result in significant statutory civil and criminal penalties for us, monetary damages, attorneys’ fees and costs, possible revocation of licenses and damage to reputation, brand and valued customer relationships.
In July 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). The Dodd-Frank Act is extensive and significant legislation that, among other things, strengthens the regulatory oversight of securities and capital markets activities by the SEC and increases the regulation of the securitization markets. The various requirements of the Dodd-Frank Act may substantially impact the origination, servicing and securitization program of our subsidiaries.
The Dodd-Frank Act also created the Consumer Financial Protection Bureau ("CFPB"), a federal agency that has extensive rulemaking and enforcement authority and that began operating in 2011. The CFPB and the Federal Trade Commission ("FTC") have recently become more active in investigating the products, services and operations of credit providers, including banks and other finance companies engaged in auto finance activities, such as us. The CFPB has recently indicated an intention to review the actions of indirect auto finance companies such as us with regard to pricing activities and issued a bulletin to such lenders on how to limit fair lending risk under the Equal Credit Opportunity Act. In September 2014, the CFPB proposed supervising the largest nonbank auto lenders such as us, which is the initial step that is expected to lead to examinations of such nonbank auto lenders as early as 2015. Gaining supervisory power over nonbank lenders such as us will allow the agency to conduct comprehensive and rigorous on-site examinations that could result in enforcement actions, fines, and mandated process, procedure or product-related changes or consumer refunds if violations of law or unfair lending practices are found. Both the FTC and the CFPB have announced various enforcement actions against lenders beginning in 2012 involving significant penalties, cease and desist orders, and similar remedies that, if applicable to auto finance providers and to products, services and operations of the nature offered by us, may require us to cease or alter certain business practices, which could have a material adverse effect on our financial condition and results of operations.
In July 2014, in connection with an investigation by the U.S. Department of Justice in contemplation of a civil proceeding for potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, we were served with a subpoena by the U.S. Department of Justice directing us to produce certain documents relating to our and our subsidiaries’ and affiliates’ origination and securitization of subprime automobile loans since 2007. Among other matters, the subpoena requests information relating to the underwriting criteria used to originate these automobile loans and the representations and warranties relating to those underwriting criteria that were made in connection with the securitization of the automobile loans. In September 2014, we were served with additional investigative subpoenas to produce documents from state attorneys general and other governmental offices relating to our subprime auto finance business and securitization of subprime auto loans.  We are investigating these matters internally and believe we are cooperating with all requests.  Such investigations could in the future result in the imposition of damages, fines or civil or criminal claims and/or penalties. No assurance can be given that the ultimate outcome of the investigations or any resulting proceedings would not materially and adversely affect us or any of our subsidiaries and affiliates.




47


Item 6.
Exhibits
4.1
 
First Amendment to Third Supplemental Indenture, dated October 17, 2014
 
Filed Herewith
 
 
 
 
 
4.2
 
First Amendment to Fourth Supplemental Indenture, dated October 17, 2014
 
Filed Herewith
 
 
 
 
 
31.1
 
Officers' Certifications of Periodic Report pursuant to Section 302 of Sarbanes-Oxley Act of 2002
 
Filed Herewith
 
 
 
 
 
32.1
 
Officers' Certifications of Periodic Report pursuant to Section 906 of Sarbanes-Oxley Act of 2002
 
Furnished with this Report
 
 
 
 
 
101.INS*
 
XBRL Instance Document
 
Furnished with this Report
 
 
 
 
 
101.SCH*
 
XBRL Taxonomy Extension Schema Document
 
Furnished with this Report
 
 
 
 
 
101.CAL*
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
Furnished with this Report
 
 
 
 
 
101.DEF*
 
XBRL Taxonomy Extension Definition Linkbase Document
 
Furnished with this Report
 
 
 
 
 
101.LAB*
 
XBRL Taxonomy Extension Label Linkbase Document
 
Furnished with this Report
 
 
 
 
 
101.PRE*
 
XBRL Taxonomy Presentation Linkbase Document
 
Furnished with this Report
__________
*
Submitted electronically with this Report.


48


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
General Motors Financial Company, Inc.
 
 
 
 
 
(Registrant)
 
 
 
 
 
 
Date:
October 23, 2014
 
By:
 
/S/    CHRIS A. CHOATE        
 
 
 
 
 
(Signature)
 
 
 
 
 
Chris A. Choate
 
 
 
 
 
Executive Vice President and
 
 
 
 
 
Chief Financial Officer


49