Company Quick10K Filing
Quick10K
General Motors Financial Company
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2018-02-06 Annual: 2018-02-06
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-01 Regulation FD, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-04-16 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-04-03 Other Events, Exhibits
8-K 2019-02-06 Regulation FD, Exhibits
8-K 2019-02-06 Earnings, Exhibits
8-K 2019-01-14 Other Events, Exhibits
8-K 2018-11-01 Other Events, Exhibits
8-K 2018-10-31 Earnings, Exhibits
8-K 2018-10-31 Regulation FD, Exhibits
8-K 2018-09-17 Shareholder Rights, Other Events, Exhibits
8-K 2018-08-20 Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-07-25 Regulation FD, Exhibits
8-K 2018-06-14 Enter Agreement, Exhibits
8-K 2018-04-18 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-04-05 Enter Agreement, Exhibits
8-K 2018-02-12 Other Events
8-K 2018-02-07 Regulation FD, Exhibits
8-K 2018-01-02 Enter Agreement, Exhibits
PRLB Proto Labs 2,890
SLRC Solar Capital 902
NCMI National Cinemedia 603
RIGL Rigel Pharmaceuticals 375
XBIT Xbiotech 337
LHC Leo Holdings 256
CNAT Conatus Pharmaceuticals 30
SLV iShares Silver Trust 0
GOV Government Properties Income Trust 0
NSS NS Group 0
ACF 2019-03-31
Part I
Item 1. Condensed Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Related Party Transactions
Note 3. Finance Receivables
Note 4. Leased Vehicles
Note 5. Equity in Net Assets of Non-Consolidated Affiliates
Note 6. Debt
Note 7. Variable Interest Entities
Note 8. Derivative Financial Instruments and Hedging Activities
Note 9. Commitments and Contingencies
Note 10. Shareholders' Equity
Note 11. Income Taxes
Note 12. Segment Reporting
Note 13. Regulatory Capital and Other Regulatory Matters
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 gmfexhibit311certification.htm
EX-31.2 gmfexhibit312certification.htm
EX-32 gmfexhibit32certifications.htm

General Motors Financial Company Earnings 2019-03-31

ACF 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 gmf331201910-q.htm 10-Q Document

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 March 31, 2019
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 1-10667
______________________________________________ 
General Motors Financial Company, Inc.
(Exact name of registrant as specified in its charter)
State of 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) 
Not applicable
(Former name, former address and former fiscal year, if changed since last report) 
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
ý
Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  Q 
As of April 29, 2019, there were 5,050,000 shares of the registrant’s common stock, par value $0.0001 per share, outstanding. All shares of the registrant’s common stock are owned by General Motors Holdings LLC, a wholly-owned subsidiary of General Motors Company.
The registrant is a wholly-owned subsidiary of General Motors Company and meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Quarterly Report on Form 10-Q with a reduced disclosure format as permitted by Instruction H(2).



INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
       PART II
 
 


GENERAL MOTORS FINANCIAL COMPANY, INC.

PART I
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts) (unaudited)
 
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
Cash and cash equivalents
$
5,286

 
$
4,883

Finance receivables, net (Note 3; Note 7 VIEs)
53,229

 
52,512

Leased vehicles, net (Note 4; Note 7 VIEs)
43,052

 
43,559

Goodwill
1,187

 
1,186

Equity in net assets of non-consolidated affiliates (Note 5)
1,429

 
1,355

Related party receivables (Note 2)
640

 
729

Other assets (Note 7 VIEs)
6,422

 
5,696

Total assets
$
111,245

 
$
109,920

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Liabilities
 
 
 
Secured debt (Note 6; Note 7 VIEs)
$
41,625

 
$
42,835

Unsecured debt (Note 6)
50,506

 
48,153

Deferred income
3,633

 
3,605

Related party payables (Note 2)
66

 
63

Other liabilities
3,431

 
3,605

Total liabilities
99,261

 
98,261

Commitments and contingencies (Note 9)

 

Shareholders' equity (Note 10)
 
 
 
Common stock, $0.0001 par value per share

 

Preferred stock, $0.01 par value per share

 

Additional paid-in capital
8,069

 
8,058

Accumulated other comprehensive loss
(1,024
)
 
(1,066
)
Retained earnings
4,939

 
4,667

Total shareholders' equity
11,984

 
11,659

Total liabilities and shareholders' equity
$
111,245

 
$
109,920

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

1

GENERAL MOTORS FINANCIAL COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions) (unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Revenue
 
 
 
Finance charge income
$
987

 
$
866

Leased vehicle income
2,509

 
2,447

Other income
124

 
98

Total revenue
3,620

 
3,411

Costs and expenses
 
 
 
Operating expenses
370

 
365

Leased vehicle expenses
1,814

 
1,787

Provision for loan losses (Note 3)
175

 
136

Interest expense
947

 
732

Total costs and expenses
3,306

 
3,020

Equity income (Note 5)
45

 
52

Income before income taxes
359

 
443

Income tax provision (Note 11)
88

 
74

Net income
271

 
369

Less: cumulative dividends on preferred stock
23

 
14

Net income attributable to common shareholder
$
248

 
$
355


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions) (unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Net income
$
271

 
$
369

Other comprehensive income, net of tax (Note 10)
 
 
 
Unrealized (loss) gain on hedges, net of income tax (benefit) expense
of $(5) and $1
(15
)
 
1

Foreign currency translation adjustment, net of income tax expense (benefit)
of $0 and $(1)
57

 
59

Other comprehensive income, net of tax
42

 
60

Comprehensive income
$
313

 
$
429

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


2

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions) (unaudited)
 
Common Stock
 
Preferred Stock
 
Additional Paid-in Capital
 
Accumulated Other Comprehensive Loss
 
Retained Earnings
 
Total Equity
Balance at January 1, 2018
$

 
$

 
$
7,525

 
$
(768
)
 
$
3,537

 
$
10,294

Adoption of accounting standards

 

 

 

 
40

 
40

Net income

 

 

 

 
369

 
369

Other comprehensive income

 

 

 
60

 

 
60

Stock based compensation

 

 
16

 

 

 
16

Dividends paid

 

 

 

 
(30
)
 
(30
)
Other

 

 

 

 
(1
)
 
(1
)
Balance at March 31, 2018
$

 
$

 
$
7,541

 
$
(708
)
 
$
3,915

 
$
10,748

 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2019
$

 
$

 
$
8,058

 
$
(1,066
)
 
$
4,667

 
$
11,659

Net income

 

 

 

 
271

 
271

Other comprehensive income

 

 

 
42

 

 
42

Stock based compensation

 

 
11

 

 

 
11

Other

 

 

 

 
1

 
1

Balance at March 31, 2019
$

 
$

 
$
8,069

 
$
(1,024
)
 
$
4,939

 
$
11,984

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

3

GENERAL MOTORS FINANCIAL COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions) (unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities
 
 
 
Net cash provided by operating activities
$
2,143

 
$
1,669

Cash flows from investing activities
 
 
 
Purchases of retail finance receivables, net
(7,222
)
 
(5,073
)
Principal collections and recoveries on retail finance receivables
5,990

 
3,576

Net collections of commercial finance receivables
380

 
32

Purchases of leased vehicles, net
(3,747
)
 
(4,496
)
Proceeds from termination of leased vehicles
3,059

 
2,379

Other investing activities
(16
)
 
(20
)
Net cash used in investing activities
(1,556
)
 
(3,602
)
Cash flows from financing activities
 
 
 
Net change in debt (original maturities less than three months)
479

 
23

Borrowings and issuances of secured debt
6,530

 
5,602

Payments on secured debt
(7,789
)
 
(6,166
)
Borrowings and issuances of unsecured debt
4,544

 
3,861

Payments on unsecured debt
(2,893
)
 
(486
)
Debt issuance costs
(34
)
 
(40
)
Dividends paid
(46
)
 
(30
)
Net cash provided by financing activities
791

 
2,764

Net increase in cash, cash equivalents and restricted cash
1,378

 
831

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
8

 
8

Cash, cash equivalents and restricted cash at beginning of period
7,443

 
6,567

Cash, cash equivalents and restricted cash at end of period
$
8,829

 
$
7,406

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheet:
 
March 31, 2019
Cash and cash equivalents
$
5,286

Restricted cash included in other assets
3,543

Total
$
8,829

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

4

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Basis of Presentation The condensed consolidated financial statements include our accounts and the accounts of our consolidated subsidiaries, including certain special purpose entities (SPEs) utilized in secured financing transactions, which are considered variable interest entities (VIEs). All intercompany transactions and accounts have been eliminated in consolidation.
The consolidated financial statements, including the notes thereto, are condensed and do not include all disclosures required by generally accepted accounting principles (GAAP) in the U.S. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements that are included in our Annual Report on Form 10–K for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission (SEC) on February 6, 2019 (2018 Form 10–K). Except as otherwise specified, dollar amounts presented within tables are stated in millions.
The condensed consolidated financial statements at March 31, 2019, and for the three months ended March 31, 2019 and 2018, are unaudited and, in management’s opinion, include all adjustments, which consist of normal recurring adjustments and transactions or events discretely impacting the interim periods, considered necessary by management to fairly state our results of operations. The results for interim periods are not necessarily indicative of results for a full year. The condensed consolidated balance sheet at December 31, 2018 was derived from audited annual financial statements.
Segment Information We are the wholly-owned captive finance subsidiary of General Motors Company (GM). 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: North America (the North America Segment) and International (the International Segment). Our North America Segment includes operations in the U.S. and Canada. Our International Segment includes operations in Brazil, Chile, Colombia, Mexico and Peru, as well as our equity investments in joint ventures in China.
Recently Adopted Accounting Standards
Effective January 1, 2019, we adopted ASU 2016-02, "Leases" (ASU 2016-02) using the optional transition method, resulting in the recognition of right of use assets for $129 million, included in other assets, and lease obligations for $144 million, included in other liabilities on our condensed consolidated balance sheet related to our existing operating leases at January 1, 2019. We elected to apply the package of practical expedients permitted under the transition guidance in the new standard, which allowed us to carry forward our historical lease classification. The accounting for finance leases and leases where we are lessor remained substantially unchanged. The application of ASU 2016-02 had no impact on our condensed consolidated statement of income or condensed consolidated statement of cash flows.
The following table summarizes our minimum commitments under noncancelable operating leases having initial terms in excess of one year as of December 31, 2018:
 
Years Ending December 31,
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
Minimum commitments
$
27

 
$
26

 
$
25

 
$
23

 
$
19

 
$
47

 
$
167

Refer to Note 9 for information on our operating leases as of March 31, 2019.
As lessor, we have investments in leased vehicles recorded as operating leases. Leased vehicles consist of automobiles leased to customers and are carried at amortized cost less unearned manufacturer subvention payments, which are received up front. Depreciation expense is recorded on a straight-line basis over the term of the lease agreement to the estimated residual value. Manufacturer subvention is earned on a straight-line basis as a reduction to depreciation expense.
The lessee may purchase the leased vehicle at the maturity of the lease by paying the purchase price stated in the lease agreement, which equals the contract residual value determined at origination of the lease, plus any fees and all other amounts owed under the lease. If the lessee decides not to purchase the leased vehicle, the lessee must return it to a dealer by the lease's scheduled lease maturity date. Extensions may be granted to the lessee for up to six months. If the lessee extends the maturity date on their lease agreement, the lessee is responsible for additional monthly payments until the leased vehicle is returned or purchased. Since the lessee is not obligated to purchase the vehicle at the end of the contract, we are exposed to a risk of loss to the extent the customer returns the vehicle prior to or at the end of the lease term and the value of the vehicle is lower than the residual value estimated at inception of the lease.

5

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

We estimate the expected residual value based on third party data which considers various data points and assumptions including recent auction values, the expected future volume of returning leased vehicles, used vehicle prices, manufacturer incentive programs and fuel prices. Changes in the expected residual value result in increased or decreased depreciation of the leased asset over the remaining term of the lease. Upon disposition, a gain or loss is recorded for any difference between the net book value of the lease and the proceeds from the disposition of the asset, including any insurance proceeds. Under the accounting for impairment or disposal of long-lived assets, vehicles on operating leases are evaluated by asset group for impairment. We aggregate leased vehicles into asset groups based on make, year and model. When asset group indicators of impairment exist and aggregate future cash flows from the operating lease, including the expected realizable fair value of the leased assets at the end of the lease, are less than the book value of the lease asset group, an immediate impairment write-down is recognized if the difference is deemed not recoverable.
Note 2. Related Party Transactions
We offer loan and lease finance products through GM-franchised dealers to customers purchasing new vehicles manufactured by GM and certain used vehicles and make commercial loans directly to GM-franchised dealers and their affiliates. We also offer commercial loans to dealers that are consolidated by GM and those balances are included in our finance receivables, net.
Under subvention programs, GM makes cash payments to us for offering incentivized rates and structures on retail loan and lease finance products. In addition, GM makes cash payments to us to cover certain interest payments on commercial loans.
We purchase certain program vehicles from GM subsidiaries. We simultaneously lease these vehicles to those subsidiaries for use primarily in their vehicle-sharing arrangements. We account for these leases as direct-finance leases, sales-type leases or loans depending on the origin of the asset, all of which are included in our finance receivables, net.
We periodically purchase finance receivables from other GM subsidiaries for vehicles sold to rental car companies and for vehicles sold to certain dealerships. During the three months ended March 31, 2019, we purchased $194 million of these receivables from GM, which are included in our finance receivables, net.
We have related party payables due to GM, primarily for commercial finance receivables originated but not yet funded.
The following tables present related party transactions:
Balance Sheet Data
March 31, 2019
 
December 31, 2018
Commercial finance receivables, net due from dealers consolidated by GM(a)
$
430

 
$
445

Finance receivables from GM subsidiaries(a)
$
121

 
$
134

Subvention receivable(b)
$
639

 
$
727

Commercial loan funding payable(c)
$
57

 
$
61

 
Three Months Ended March 31,
Income Statement Data
2019
 
2018
Interest subvention earned on retail finance receivables(d)
$
131

 
$
112

Interest subvention earned on commercial finance receivables(d)
$
17

 
$
18

Leased vehicle subvention earned(e)
$
835

 
$
798

_________________
(a)
Included in finance receivables, net.
(b)
Included in related party receivables. We received subvention payments from GM of $1.1 billion and $0.6 billion for the three months ended March 31, 2019 and 2018.
(c)
Included in related party payables.
(d)
Included in finance charge income.
(e)
Included as a reduction to leased vehicle expenses.
Under the support agreement with GM (the Support Agreement), if our earning assets leverage ratio at the end of any calendar quarter exceeds the applicable threshold set in the Support Agreement, we may require GM to provide funding sufficient to bring our earning assets leverage ratio to within the applicable threshold. In determining our earning assets leverage ratio (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, as each may be adjusted for derivative accounting from time to time.

6

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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. GM also agrees to certain provisions in the Support Agreement intended to ensure that we maintain adequate access to liquidity. Pursuant to these provisions, GM provides us with a $1.0 billion junior subordinated unsecured intercompany revolving credit facility (the Junior Subordinated Revolving Credit Facility), and GM agrees to use commercially reasonable efforts to ensure that we will continue to be designated as a subsidiary borrower under GM's corporate revolving credit facilities.
In April 2019, GM renewed the 364-day, $2.0 billion facility (the GM Revolving 364-Day Credit Facility) for an additional 364-day term. This facility has been allocated for exclusive access by us since April 2018. At March 31, 2019, we had no amounts borrowed under any of the GM facilities.
We are included in GM's consolidated U.S. federal income tax returns and certain U.S. state returns, and we are obligated to pay GM for our share of these tax liabilities. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. At March 31, 2019 and December 31, 2018, there are no related party taxes payable to GM.
Note 3. Finance Receivables
 
March 31, 2019
 
December 31, 2018

Retail finance receivables
 
 
 
Retail finance receivables, collectively evaluated for impairment, net of fees
$
39,452

 
$
38,354

Retail finance receivables, individually evaluated for impairment, net of fees
2,333

 
2,348

Total retail finance receivables, net of fees(a)
41,785

 
40,702

Less: allowance for loan losses - collective
(538
)
 
(523
)
Less: allowance for loan losses - specific
(324
)
 
(321
)
Total retail finance receivables, net
40,923

 
39,858

Commercial finance receivables
 
 
 
Commercial finance receivables, collectively evaluated for impairment, net of fees
12,334

 
12,680

Commercial finance receivables, individually evaluated for impairment, net of fees
34

 
41

Total commercial finance receivables, net of fees(b)
12,368

 
12,721

Less: allowance for loan losses - collective
(60
)
 
(63
)
Less: allowance for loan losses - specific
(2
)
 
(4
)
Total commercial finance receivables, net
12,306

 
12,654

Total finance receivables, net
$
53,229

 
$
52,512

Fair value utilizing Level 2 inputs
$
12,306

 
$
12,654

Fair value utilizing Level 3 inputs
$
40,951

 
$
39,564

________________
(a) Net of unearned income, unamortized premiums and discounts, and deferred fees and costs of $29 million and $53 million at March 31, 2019 and December 31, 2018.
(b) Net of dealer cash management balances of $1,083 million and $922 million at March 31, 2019 and December 31, 2018.

Rollforward of Allowance for Retail Loan Losses A summary of the activity in the allowance for retail loan losses is as follows:
 
Three Months Ended March 31,
 
2019
 
2018
Allowance for retail loan losses beginning balance
$
844

 
$
889

Provision for loan losses
178

 
135

Charge-offs
(307
)
 
(295
)
Recoveries
145

 
123

Foreign currency translation
2

 
6

Allowance for retail loan losses ending balance
$
862

 
$
858



7

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Retail Credit Quality Our retail finance receivables portfolio includes loans made to consumers and businesses to finance the purchase of vehicles for personal and commercial use. We review the credit quality of our retail finance receivables based on customer payment activity. A retail account is considered delinquent if a substantial portion of a scheduled payment has not been received by the date such payment was contractually due. Retail 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 customer defaults on the payment terms of the contract. The following is a consolidated summary of the contractual amounts of delinquent retail finance receivables, which is not significantly different than the recorded investment for such receivables: 
 
March 31, 2019
 
March 31, 2018
 
Amount
 
Percent of Contractual Amount Due
 
Amount
 
Percent of Contractual Amount Due
31 - 60 days
$
1,048

 
2.5
%
 
$
1,265

 
3.7
%
Greater than 60 days
412

 
1.0

 
605

 
1.7

Total finance receivables more than 30 days delinquent
1,460

 
3.5

 
1,870

 
5.4

In repossession
47

 
0.1

 
53

 
0.2

Total finance receivables more than 30 days delinquent or in repossession
$
1,507

 
3.6
%
 
$
1,923

 
5.6
%
At March 31, 2019 and December 31, 2018, the accrual of finance charge income had been suspended on retail finance receivables with contractual amounts due of $745 million and $888 million.
Impaired Retail Finance Receivables - TDRs Retail finance receivables 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. Accounts that become classified as TDRs because of a payment deferral 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; therefore, there are no additional financial effects of deferred loans becoming classified as TDRs. Accounts in the U.S. 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. 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.
The outstanding recorded investment for retail finance receivables that are considered to be TDRs and the related allowance is presented below:
 
March 31, 2019
 
December 31, 2018
Outstanding recorded investment
$
2,333

 
$
2,348

Less: allowance for loan losses
(324
)
 
(321
)
Outstanding recorded investment, net of allowance
$
2,009

 
$
2,027

Unpaid principal balance
$
2,364

 
$
2,379

Additional information about loans classified as TDRs is presented below:
 
Three Months Ended March 31,
 
2019
 
2018
Average outstanding recorded investment
$
2,341

 
$
2,214

Finance charge income recognized
$
68

 
$
64

Number of loans classified as TDRs during the period
16,532

 
13,336

Recorded investment of loans classified as TDRs during the period
$
308

 
$
251

The unpaid principal balance, net of recoveries, of loans charged off during the reporting period within 12 months of being modified as a TDR was insignificant for the three months ended March 31, 2019 and 2018.
Commercial Credit Quality Our commercial finance receivables consist of dealer financings, primarily for inventory purchases. Proprietary models are used to assign a risk rating to each dealer. We perform periodic credit reviews of each dealership and adjust

8

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

the dealership's risk rating, if necessary. Dealers in Group VI are subject to additional restrictions on funding, including suspension of lines of credit and liquidation of assets. The following table summarizes the credit risk profile by dealer risk rating of commercial finance receivables: 
 
 
 
March 31, 2019
 
December 31, 2018
 
 
 
Amount
 
Percent
 
Amount
 
Percent
Group I
-
Dealers with superior financial metrics
$
2,075

 
16.8
%
 
$
2,192

 
17.2
%
Group II
-
Dealers with strong financial metrics
4,897

 
39.6

 
4,500

 
35.4

Group III
-
Dealers with fair financial metrics
3,737

 
30.2

 
4,292

 
33.7

Group IV
-
Dealers with weak financial metrics
1,167

 
9.4

 
1,205

 
9.5

Group V
-
Dealers warranting special mention due to elevated risks
423

 
3.4

 
449

 
3.5

Group VI
-
Dealers with loans classified as substandard, doubtful or impaired
69

 
0.6

 
83

 
0.7

Balance at end of period
$
12,368

 
100.0
%
 
$
12,721

 
100.0
%
At March 31, 2019 and December 31, 2018, substantially all of our commercial finance receivables were current with respect to payment status. Commercial finance receivables on non-accrual status were insignificant, and none were classified as TDRs. Activity in the allowance for commercial loan losses was insignificant for the three months ended March 31, 2019 and 2018.
Note 4. Leased Vehicles
 
March 31, 2019
 
December 31, 2018
Leased vehicles
$
64,585

 
$
64,928

Manufacturer subvention
(9,925
)
 
(9,934
)
Net capitalized cost
54,660

 
54,994

Less: accumulated depreciation
(11,608
)
 
(11,435
)
Leased vehicles, net
$
43,052

 
$
43,559

The following table summarizes lease payments due to us as lessor under operating leases at March 31, 2019:
 
Years Ending December 31,
 
2019
 
2020
 
2021
 
2022
 
2023
 
Total
Lease payments under operating leases
$
5,220

 
$
4,740

 
$
2,143

 
$
306

 
$
15

 
$
12,424

Note 5. Equity in Net Assets of Non-consolidated Affiliates
We use the equity method to account for our equity interest in joint ventures. The income of these joint ventures is not consolidated into our financial statements; rather, our proportionate share of the earnings is reflected as equity income.
There have been no significant ownership changes in our joint ventures since December 31, 2018. The following table presents certain aggregated operating data of our joint ventures:
 
Three Months Ended March 31,
Summarized Operating Data
2019
 
2018
Finance charge income
$
350

 
$
307

Provision for loan losses
$
6

 
$
3

Interest expense
$
152

 
$
124

Income before income taxes
$
170

 
$
198

Net income
$
127

 
$
148

At March 31, 2019 and December 31, 2018, we had undistributed earnings of $543 million and $498 million related to our non-consolidated affiliates.

9

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 6. Debt
 
March 31, 2019
 
December 31, 2018
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Secured debt
 
 
 
 
 
 
 
Revolving credit facilities
$
2,305

 
$
2,311

 
$
3,410

 
$
3,413

Securitization notes payable
39,320

 
39,427

 
39,425

 
39,422

Total secured debt
41,625

 
41,738

 
42,835

 
42,835

Unsecured debt
 
 
 
 
 
 
 
Senior notes
44,890

 
45,249

 
42,611

 
42,015

Credit facilities
1,869

 
1,865

 
2,157

 
2,151

Other unsecured debt
3,747

 
3,752

 
3,385

 
3,390

Total unsecured debt
50,506

 
50,866

 
48,153

 
47,556

Total secured and unsecured debt
$
92,131

 
$
92,604

 
$
90,988

 
$
90,391

Fair value utilizing Level 2 inputs
 
 
$
90,615

 
 
 
$
88,305

Fair value utilizing Level 3 inputs
 
 
$
1,989

 
 
 
$
2,086

Secured Debt Most of the secured debt was issued by VIEs and is repayable only from proceeds related to the underlying pledged assets. Refer to Note 7 for further discussion.
During the three months ended March 31, 2019, we entered into new credit facilities or renewed credit facilities with a total net additional borrowing capacity of $75 million, and we issued $4.6 billion in aggregate principal amount of securitization notes payable with an initial weighted average interest rate of 3.16% and legal final maturity dates ranging from 2023 to 2025.
Unsecured Debt During the three months ended March 31, 2019, we issued $3.9 billion in aggregate principal amount of senior notes with a weighted average interest rate of 4.22% and maturity dates ranging from 2021 to 2029.
In April 2019, we issued $1.3 billion in senior notes with an interest rate of 3.55% due in 2022.
The principal amount outstanding of our commercial paper in the U.S. was $1.5 billion and $1.2 billion at March 31, 2019 and December 31, 2018.
General Motors Financial Company, Inc. is the sole guarantor of its subsidiaries' unsecured debt obligations for which a guarantee is provided.
Compliance with Debt Covenants Several of our revolving credit facilities require compliance with certain financial and operational covenants as well as regular reporting to lenders, including providing certain subsidiary financial statements. Certain of our secured debt agreements also contain various covenants, including maintaining portfolio performance ratios as well as limits on deferment levels. Our unsecured debt obligations contain covenants including limitations on our ability to incur certain liens. At March 31, 2019, we were in compliance with these debt covenants.
Note 7. Variable Interest Entities
Securitizations and Credit Facilities The following table summarizes the assets and liabilities related to our consolidated VIEs:
 
March 31, 2019
 
December 31, 2018
Restricted cash(a)
$
2,682

 
$
2,380

Finance receivables, net of fees
$
32,065

 
$
32,626

Lease related assets
$
20,313

 
$
21,781

Secured debt
$
41,355

 
$
42,504

_______________
(a) Included in other assets.

10

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

These amounts are related to securitization and credit facilities held by consolidated VIEs. Our continuing involvement with these VIEs consists of servicing assets held by the entities and holding residual interests in the entities. We have determined that we are the primary beneficiary of each VIE because we hold both (i) the power to direct the activities of the VIEs that most significantly impact the VIEs' economic performance and (ii) the obligation to absorb losses from and the right to receive benefits of the VIEs that could potentially be significant to the VIEs. We are not required, and do not currently intend, to provide any additional financial support to these 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 other subsidiaries' obligations.

11

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 8. Derivative Financial Instruments and Hedging Activities
We are exposed to certain risks arising from both our business operations and economic conditions. We manage economic risks, including interest rate risk, primarily by managing the amount, sources, and duration of our assets and liabilities and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our borrowings.
Certain of our foreign operations expose us to fluctuations of foreign interest rates and exchange rates. We primarily finance our earning assets with debt in the same currency to minimize the impact to earnings from our exposure to fluctuations in exchange rates. When we use a different currency, these fluctuations may impact the value of our cash receipts and payments in terms of our functional currency. We enter into derivative financial instruments to protect the value or fix the amount of certain assets and liabilities in terms of the relevant functional currency. The table below presents the gross amounts of fair value of our derivative instruments and the associated notional amounts:
 
 
March 31, 2019
 
December 31, 2018
 
 
Notional
 
Fair Value of Assets(a)
 
Fair Value of Liabilities(a)
 
Notional
 
Fair Value of Assets(a)
 
Fair Value of Liabilities(a)
Derivatives designated as hedges
 
 
 
 
 
 
 
 
 
 
 
 
Fair value hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
13,039

 
$
135

 
$
127

 
$
9,533

 
$
42

 
$
231

Foreign currency swaps
 
1,797

 
18

 
72

 
1,829

 
37

 
60

Cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
599

 
4

 

 
768

 
8

 

Foreign currency swaps
 
3,298

 
35

 
96

 
2,075

 
43

 
58

Derivatives not designated as hedges
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
 
96,296

 
233

 
428

 
99,666

 
372

 
520

Total(b)
 
$
115,029

 
$
425

 
$
723

 
$
113,871

 
$
502

 
$
869

 _________________
(a)
The gross amounts of the fair value of our assets and liabilities are included in other assets and other liabilities, respectively. Amounts accrued for interest payments in a net receivable position are included in other assets. Amounts accrued for interest payments in a net payable position are included in other liabilities. All our derivatives are categorized within Level 2 of the fair value hierarchy. The fair value for Level 2 instruments was derived using the market approach based on observable market inputs including quoted prices of similar instruments and foreign exchange and interest rate forward curves.
(b)
We primarily enter into derivative instruments through AmeriCredit Financial Services, Inc. (AFSI); however, our SPEs may also be parties to derivative instruments. Agreements between AFSI and its derivative counterparties include rights of setoff for positions with offsetting values or for collateral held or posted. At March 31, 2019 and December 31, 2018, the fair value of assets and liabilities available for offset was $283 million and $320 million. At March 31, 2019 and December 31, 2018, we held $42 million and $30 million and posted $284 million and $451 million of collateral available for netting.
The following amounts were recorded in the condensed consolidated balance sheet related to items designated and qualifying as hedged items in fair value hedging relationships:
 
Carrying Amount of
Hedged Items
 
Cumulative Amount of Fair Value
Hedging Adjustments
(a)
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Unsecured debt
$
20,200

 
$
17,923

 
$
281

 
$
459

 _________________
(a)
Includes $228 million and $247 million at March 31, 2019 and December 31, 2018 of adjustments remaining on hedged items for which hedge accounting has been discontinued.

12

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The table below presents the effect of our derivative financial instruments in the condensed consolidated statements of income:
 
Income (Losses) Recognized In Income
 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
 
Interest Expense(a)
 
Operating Expenses(b)
 
Interest Expense(a)
 
Operating Expenses(b)
Fair value hedges
 
 
 
 
 
 
 
Hedged items - interest rate swaps
$
(210
)
 
$

 
$
208

 
$

Interest rate swaps
181

 

 
(210
)
 

Hedged items - foreign currency swaps

 
32

 

 

Foreign currency swaps
(16
)
 
(31
)
 

 

Cash flow hedges
 
 
 
 
 
 
 
Interest rate swaps
3

 

 
4

 

Foreign currency swaps
(18
)
 
(33
)
 
(9
)
 
24

Derivatives not designated as hedges
 
 
 
 
 
 
 
Interest rate contracts
(5
)
 

 
6

 

Foreign currency swaps

 

 
(7
)
 
22

Total
$
(65
)
 
$
(32
)
 
$
(8
)
 
$
46

_________________
(a)
Total interest expense was $947 million and $732 million for the three months ended March 31, 2019 and 2018.
(b)
Activity is offset by translation activity also recorded in operating expenses related to foreign currency-denominated loans. Total operating expense was $370 million and $365 million for the three months ended March 31, 2019 and 2018.
The tables below present the effect of our derivative financial instruments in the condensed consolidated statements of comprehensive income:
 
Gains (Losses) Recognized In
Accumulated Other Comprehensive Loss
 
Three Months Ended March 31,
 
2019
 
2018
Fair value hedges
 
 
 
Foreign currency swaps
$
(11
)
 
$

Cash flow hedges
 
 
 
Interest rate contracts

 
4

Foreign currency contracts
(52
)
 
18

Total
$
(63
)
 
$
22

 
(Gains) Losses Reclassified From
Accumulated Other Comprehensive Loss Into Income(a)(b)
 
Three Months Ended March 31,
 
2019
 
2018
Fair value hedges
 
 
 
Foreign currency swaps
$
11

 
$

Cash flow hedges
 
 
 
Interest rate contracts
(2
)
 
(3
)
Foreign currency contracts
39

 
(18
)
Total
$
48

 
$
(21
)
_________________
(a)
All amounts reclassified from accumulated other comprehensive loss were recorded to interest expense.
(b)
During the next twelve months, we estimate $5 million will be reclassified into pretax earnings from derivatives designated for hedge accounting.

13

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 9. Commitments and Contingencies
Operating Leases Our portfolio of leases consists primarily of real estate office space. Certain leases contain escalation clauses and renewal options, and generally our leases have no residual value guarantees or material covenants. We exclude from our balance sheet leases with a term equal to one year or less and do not separate non-lease components from our real estate leases. Rent expense under operating leases was $5 million for the three months ended March 31, 2019. At March 31, 2019, operating lease right of use assets, included in other assets, were $123 million and operating lease liabilities, included in other liabilities, were $138 million. As of March 31, 2019, our undiscounted future lease obligations related to operating leases having initial terms in excess of one year are $20 million for the nine months ended December 31, 2019 and $26 million, $26 million, $24 million, $19 million and $46 million for the years 2020, 2021, 2022, 2023 and thereafter. The weighted average discount rate is 4.8% and the weighted average remaining lease term is 6.6 years as of March 31, 2019. Imputed interest for operating leases and variable lease costs were insignificant for the three months ended March 31, 2019.
Guarantees of Indebtedness At March 31, 2019 and December 31, 2018, we guaranteed approximately $1.1 billion in aggregate principal amount of Euro Medium Term Notes issued by General Motors Financial International B.V., our former subsidiary, pursuant to our Euro Medium Term Note Programme. Subject to the terms and conditions of a letter agreement with BNP Paribas in connection with the sale of certain of our European Operations, BNP Paribas will reimburse us for any amount that we may pay under any such guarantees.
Legal Proceedings We are subject to various pending and potential legal and regulatory proceedings in the ordinary course of business, including litigation, arbitration, claims, investigations, examinations, subpoenas and enforcement proceedings. Some litigation against us could take the form of class actions. The outcome of these proceedings is inherently uncertain, and thus we cannot confidently predict how or when proceedings will be resolved. An adverse outcome in one or more of these proceedings could result in substantial damages, settlements, fines, penalties, diminished income or reputational harm. We identify below the material proceedings in connection with which we believe a material loss is reasonably possible or probable.
In accordance with the current accounting standards for loss contingencies, we establish reserves for legal matters when it is probable that a loss associated with the matter has been incurred and the amount of the loss can be reasonably estimated. The actual costs of resolving legal matters may be higher or lower than any amounts reserved for these matters. At March 31, 2019, we estimated our reasonably possible legal exposure for unfavorable outcomes is up to $66 million, and have accrued $23 million.
In 2014 and 2015, we were served with investigative subpoenas from various state attorneys general and other governmental offices to produce documents and data relating to our automobile loan and lease business and securitization of loans and leases. We believe that we have cooperated fully with all reasonable requests for information. We are currently unable to estimate any reasonably possible loss or range of loss that may result from these investigations.
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. Where there is a reasonable possibility that losses exceeding amounts already recognized may be incurred, our estimate of the additional range of loss is up to $13 million as of March 31, 2019.
Note 10. Shareholders' Equity
 
March 31, 2019
 
December 31, 2018
Common Stock
 
 
 
Number of shares authorized
10,000,000

 
10,000,000

Number of shares issued and outstanding
5,050,000

 
5,050,000



14

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 
March 31, 2019
 
December 31, 2018
Preferred Stock
 
 
 
Number of shares authorized
250,000,000

 
250,000,000

Number of shares issued and outstanding
 
 
 
Fixed-to-Floating Rate Cumulative Perpetual Preferred Stock,
Series A (Series A Preferred Stock)
1,000,000

 
1,000,000

Fixed-to-Floating Rate Cumulative Perpetual Preferred Stock,
Series B (Series B Preferred Stock)
500,000

 
500,000

During the three months ended March 31, 2019, we paid dividends of $29 million to holders of record of our Series A Preferred Stock, and $17 million to holders of record of our Series B Preferred Stock. During the three months ended March 31, 2018, we paid dividends of $30 million to holders of record of our Series A Preferred Stock.
The following table summarizes the significant components of accumulated other comprehensive loss:
 
Three Months Ended March 31,
 
2019
 
2018
Unrealized (loss) gain on hedges
 
 
 
Beginning balance
$
9

 
$
16

Change in value of hedges, net of tax
(15
)
 
1

Ending balance
(6
)
 
17

Defined benefit plans
 
 
 
Beginning balance
1

 
1

Unrealized gain on subsidiary pension, net of tax

 

Ending balance
1

 
1

Foreign currency translation adjustment
 
 
 
Beginning balance
(1,076
)
 
(785
)
Translation gain, net of tax
57

 
59

Ending balance
(1,019
)
 
(726
)
Total accumulated other comprehensive loss
$
(1,024
)
 
$
(708
)
Note 11. 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.
During the three months ended March 31, 2019 and 2018, income tax expense of $88 million and $74 million primarily resulted from tax expense attributable to entities included in our effective tax rate calculation.
We are included in GM’s consolidated U.S. federal income tax return and for certain states’ income tax returns. Net operating losses and certain tax credits generated by us have been utilized by GM; however, income tax expense and deferred tax balances are presented in these financial statements as if we filed our own tax returns in each jurisdiction.

15

GENERAL MOTORS FINANCIAL COMPANY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 12. Segment Reporting
Our chief operating decision maker evaluates the operating results and performance of our business based on our North America and International Segments. The management of each segment is responsible for executing our strategies. Key operating data for our operating segments were as follows:
 
Three Months Ended March 31, 2019
 
North
America
 
International
 
Total
Total revenue
$
3,306

 
$
314

 
$
3,620

Operating expenses
276

 
94

 
370

Leased vehicle expenses
1,803

 
11

 
1,814

Provision for loan losses
139

 
36

 
175

Interest expense
823

 
124

 
947

Equity income

 
45

 
45

Income before income taxes
$
265

 
$
94

 
$
359

 
Three Months Ended March 31, 2018
 
North
America
 
International
 
Total
Total revenue
$
3,085

 
$
326

 
$
3,411

Operating expenses
271

 
94

 
365

Leased vehicle expenses
1,778

 
9

 
1,787

Provision for loan losses
97

 
39

 
136

Interest expense
597

 
135

 
732

Equity income

 
52

 
52

Income before income taxes
$
342

 
$
101

 
$
443

 
March 31, 2019
 
December 31, 2018
 
North
America
 
International
 
Total
 
North
America
 
International
 
Total
Finance receivables, net
$
46,608

 
$
6,621

 
$
53,229

 
$
45,711

 
$
6,801

 
$
52,512

Leased vehicles, net
$
42,887

 
$
165

 
$
43,052

 
$
43,396

 
$
163

 
$
43,559

Total assets
$
101,824

 
$
9,421

 
$
111,245

 
$
100,176

 
$
9,744

 
$
109,920

Note 13. Regulatory Capital and Other Regulatory Matters
We are required to comply with a wide variety of laws and regulations. Certain of our entities operate in international markets as either banks or regulated finance companies that are subject to regulatory restrictions. These regulatory restrictions, among other things, require that certain of these entities meet minimum capital requirements and may restrict dividend distributions and ownership of certain assets. We were in compliance with all regulatory capital requirements as most recently reported. Total assets of our regulated international banks and finance companies were approximately $7.5 billion and $7.9 billion at March 31, 2019 and December 31, 2018.

16

GENERAL MOTORS FINANCIAL COMPANY, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to the "Forward-Looking Statements" section of this MD&A and the "Risk Factors" section of our 2018 Form 10-K for a discussion of these risks and uncertainties.
Basis of Presentation
This MD&A should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto and the audited consolidated financial statements and notes thereto included in our 2018 Form 10-K.
Except as otherwise specified, dollar amounts presented within tables are stated in millions. Average balances are calculated using daily balances, where available. Otherwise, average balances are calculated using monthly balances.
Results of Operations
Earnings before taxes for the three months ended March 31, 2019 decreased to $359 million from $443 million for the three months ended March 31, 2018 due primarily to the following:
Retail finance charge income increased $74 million due primarily to an increase in the average balance of the consumer finance receivables portfolio, partially offset by a decrease in effective yield as the portfolio shifts to lower yielding prime loan assets.
Commercial finance charge income increased $47 million due to an increase in the average balance of the commercial finance receivables portfolio as well as increased interest rates on the portfolio.
Leased vehicle income net of leased vehicle expenses increased $35 million due to growth in the lease portfolio and increased volume of lease terminations, partially offset by decreased gains on terminated leased vehicles sold at auction.
Interest expense increased $97 million due to an increase in the average balance of debt outstanding, and $118 million due to an increase in the effective rate of interest on debt.
Return on average equity is widely used to measure earnings in relation to invested capital. Our return on average equity was 12.9% for the four quarters ended March 31, 2019 and 2018.
We use return on average tangible common equity (a non-GAAP measure) to measure our contribution to GM's enterprise profitability and cash flow. Our return on average tangible common equity increased to 15.6% for the four quarters ended March 31, 2019 from 15.3% for the four quarters ended March 31, 2018.
The following table presents our reconciliation of return on average tangible common equity to return on average equity, the most directly comparable GAAP measure:
 
Four Quarters Ended
 
March 31, 2019
 
March 31, 2018
Net income attributable to common shareholder
$
1,397

 
$
798

Plus: loss from discontinued operations, net of tax

 
447

Net income from continuing operations attributable to common shareholder
1,397

 
1,245

 
 
 
 
Average equity
11,395

 
9,866

Less: average preferred equity
1,250

 
530

Average common equity
10,145

 
9,336

Less: average goodwill
1,189

 
1,199

Average tangible common equity
$
8,956

 
$
8,137

 
 
 
 
Return on average equity
12.9
%
 
12.9
%
Return on average tangible common equity
15.6
%
 
15.3
%

17

GENERAL MOTORS FINANCIAL COMPANY, INC.

Our calculation of this non-GAAP measure may not be comparable to similarly titled measures of other companies due to potential differences between companies in the method of calculation. As a result, the use of this non-GAAP measure has limitations and should not be considered superior to, in isolation from, or as a substitute for, related U.S. GAAP measures. This non-GAAP measure allows investors the opportunity to measure and monitor our performance against our externally communicated targets and evaluate the investment decisions being made by management to improve our return on average tangible common equity. Management uses this measure in its financial, investment and operational decision-making processes, for internal reporting and as part of its forecasting and budgeting processes. For these reasons we believe this non-GAAP measure is useful for our investors.
Three Months Ended March 31, 2019 compared to Three Months Ended March 31, 2018
Average Earning Assets
Three Months Ended March 31,
 
2019 vs. 2018 Change
 
2019
 
2018
 
Amount
 
Percentage
Average retail finance receivables
$
41,591

 
$
33,471

 
$
8,120

 
24.3
 %
Average commercial finance receivables
12,167

 
10,068

 
2,099

 
20.8
 %
Average finance receivables
53,758

 
43,539

 
10,219

 
23.5
 %
Average leased vehicles, net
43,394

 
43,177

 
217

 
0.5
 %
Average earning assets
$
97,152

 
$
86,716

 
$
10,436

 
12.0
 %
 
 
 
 
 
 
 
 
Retail finance receivables purchased
$
7,162

 
$
5,078

 
$
2,084

 
41.0
 %
Leased vehicles purchased
$
5,210

 
$
5,712

 
$
(502
)
 
(8.8
)%
Average retail finance receivables increased due to a higher volume of new loan originations in excess of principal collections and payoffs. Our retail penetration of GM's retail sales in the U.S. increased to 52.8% for the three months ended March 31, 2019 from 44.5% for the three months ended March 31, 2018 due primarily to further alignment with GM and greater dealer engagement. Average commercial finance receivables increased due primarily to an increase in our GM-franchised dealer commercial lending relationships. Leased vehicles purchased during the three months ended March 31, 2019 decreased primarily as a result of a change in GM's retail sales mix.
Revenue
Three Months Ended March 31,
 
2019 vs. 2018 Change
 
2019
 
2018
 
Amount
 
Percentage
Finance charge income
 
 
 
 
 
 
 
Retail finance receivables
$
816

 
$
742

 
$
74

 
10.0
 %
Commercial finance receivables
$
171

 
$
124

 
$
47

 
37.9
 %
Leased vehicle income
$
2,509

 
$
2,447

 
$
62

 
2.5
 %
Other income
$
124

 
$
98

 
$
26

 
26.5
 %
Equity income
$
45

 
$
52

 
$
(7
)
 
(13.5
)%
Effective yield - retail finance receivables
8.0
%
 
9.0
%
 
 
 
 
Effective yield - commercial finance receivables
5.7
%
 
5.0
%
 
 
 
 
Finance charge income on retail finance receivables increased due to growth in the portfolio, partially offset by a decrease in effective yield. The effective yield on our retail finance receivables decreased due primarily to increased lending to borrowers with prime credit. The effective yield represents finance charges, rate subvention and fees recorded in earnings during the period as a percentage of average retail finance receivables.
Finance charge income on commercial finance receivables increased due to growth in the portfolio, including an increase in the number of dealers in our floorplan program, and an increase in the effective yield resulting from rising benchmark interest rates.
The increase in other income is primarily due to an increase in investment income due to rising benchmark interest rates.


18

GENERAL MOTORS FINANCIAL COMPANY, INC.

Costs and Expenses
Three Months Ended March 31,
 
2019 vs. 2018 Change
 
2019
 
2018
 
Amount
 
Percentage
Operating expenses
$
370

 
$
365

 
$
5

 
1.4
%
Leased vehicle expenses
$
1,814

 
$
1,787

 
$
27

 
1.5
%
Provision for loan losses
$
175

 
$
136

 
$
39

 
28.7
%
Interest expense
$
947

 
$
732

 
$
215

 
29.4
%
Average debt outstanding
$
92,321

 
$
81,525

 
$
10,796

 
13.2
%
Effective rate of interest on debt
4.2
%
 
3.6
%
 
 
 
 
Operating Expenses Operating expenses as an annualized percentage of average earning assets decreased to 1.5% for the three months ended March 31, 2019 from 1.7% for the three months ended March 31, 2018, due primarily to efficiency gains achieved through higher earning asset levels.
Provision for Loan Losses As an annualized percentage of average retail finance receivables, the provision for retail loan losses increased to 1.7% for the three months ended March 31, 2019 from 1.6% for the three months ended March 31, 2018, due primarily to an adjustment recorded in the three months ended March 31, 2018 for a decrease in the loss confirmation period, resulting from a shift in the credit mix of the portfolio to a larger percentage of prime loans.
Interest Expense Interest expense increased due to an increase in the average debt outstanding resulting from growth in the loan and lease portfolios as well as a higher effective rate of interest on our debt.
Taxes Our consolidated effective income tax rate was 28.0% and 18.9% of income before income taxes and equity income for the three months ended March 31, 2019 and 2018. The increase in the effective income tax rate is due primarily to a reduction in our electrical vehicle tax credit and a new inclusion for global intangible low-taxed income (GILTI) that imposes U.S. tax on certain foreign earnings in excess of a deemed return on tangible depreciable assets.
Other Comprehensive Income
Foreign Currency Translation Adjustment Foreign currency translation adjustments included in other comprehensive income were $57 million and $59 million for the three months ended March 31, 2019 and 2018. Translation adjustments resulted from changes in the values of our international currency-denominated assets and liabilities as the value of the U.S. Dollar changed in relation to international currencies, particularly the Canadian Dollar and the Chinese Yuan Renminbi.

19

GENERAL MOTORS FINANCIAL COMPANY, INC.

Earning Asset Quality
Retail Finance Receivables Our retail finance receivables portfolio includes loans made to consumers and businesses to finance the purchase of vehicles for personal and commercial use. A summary of the credit risk profile by FICO score or its equivalent, determined at origination, of the retail finance receivables is as follows:
 
March 31, 2019
 
December 31, 2018
 
Amount
 
Percent
 
Amount
 
Percent
Prime - FICO Score 680 and greater
$
25,452

 
60.9
%
 
$
24,434

 
60.0
%
Near-prime - FICO Score 620 to 679
6,324

 
15.1

 
6,144

 
15.1

Sub-prime - FICO Score less than 620
10,009

 
24.0

 
10,124

 
24.9

Retail finance receivables, net of fees
41,785

 
100.0
%
 
40,702

 
100.0
%
Less: allowance for loan losses
(862
)
 
 
 
(844
)
 
 
Retail finance receivables, net
$
40,923

 
 
 
$
39,858

 
 
Number of outstanding contracts
2,651,794

 
 
 
2,607,703

 
 
Average amount of outstanding contracts (in dollars)(a)
$
15,757

 
 
 
$
15,608

 
 
Allowance for loan losses as a percentage of retail finance receivables, net of fees
2.1
%
 
 
 
2.1
%
 
 
_________________ 
(a)
Average amount of outstanding contracts consists of retail finance receivables, net of fees, divided by number of outstanding contracts.
Delinquency The following is a consolidated summary of the contractual amounts of delinquent retail finance receivables:
 
March 31, 2019
 
March 31, 2018
 
Amount
 
Percent of Contractual Amount Due
 
Amount
 
Percent of Contractual Amount Due
31 - 60 days
$
1,048

 
2.5
%
 
$
1,265

 
3.7
%
Greater than 60 days
412

 
1.0

 
605

 
1.7

Total finance receivables more than 30 days delinquent
1,460

 
3.5

 
1,870

 
5.4

In repossession
47

 
0.1

 
53

 
0.2

Total finance receivables more than 30 days delinquent or in repossession
$
1,507

 
3.6
%
 
$
1,923

 
5.6
%
Delinquency continues to improve due primarily to the continued shift in credit mix to prime credit. In addition, delinquency at March 31, 2018 was elevated due to operational constraints resulting from the conversion of our loan servicing system at the beginning of calendar 2018.
TDRs Refer to Note 3 to our condensed consolidated financial statements for further discussion of TDRs.
Net Charge-offs The following table presents charge-off data with respect to our retail finance receivables portfolio:
 
Three Months Ended March 31,
 
2019
 
2018
Charge-offs
$
307

 
$
295

Less: recoveries
(145
)
 
(123
)
Net charge-offs
$
162

 
$
172

Net charge-offs as an annualized percentage of average retail finance receivables
1.6
%
 
2.1
%
Net charge-offs as an annualized percentage of average retail finance receivables decreased during the three months ended March 31, 2019 from the corresponding period in 2018, due primarily to the shift in the portfolio toward prime credit quality.

20

GENERAL MOTORS FINANCIAL COMPANY, INC.

Commercial Finance Receivables
March 31, 2019
 
December 31, 2018
Commercial finance receivables, net of fees
$
12,368

 
$
12,721

Less: allowance for loan losses
(62
)
 
(67
)
Commercial finance receivables, net
$
12,306

 
$
12,654

Number of dealers
1,773

 
1,750

Average carrying amount per dealer
$
7

 
$
7

Allowance for loan losses as a percentage of commercial finance receivables, net of fees
0.5
%
 
0.5
%
There were insignificant charge-offs of commercial finance receivables during the three months ended March 31, 2019 and 2018. At March 31, 2019 and December 31, 2018, substantially all of our commercial finance receivables were current with respect to payment status and none were classified as TDRs.
Leased Vehicles At March 31, 2019 and 2018, 99.1% and 98.8% of our operating leases were current with respect to payment status.
The following table summarizes the residual value and the number of units included in leased vehicles, net by vehicle type (units in thousands):
 
March 31, 2019
 
December 31, 2018
 
Residual Value
 
Units
 
Percentage
of Units
 
Residual Value
 
Units
 
Percentage
of Units
Cars
$
4,567

 
347

 
20.5
%
 
$
4,884

 
379

 
22.3
%
Trucks
7,134

 
290

 
17.2

 
7,299

 
296

 
17.4

Crossovers
15,457

 
939

 
55.7

 
15,057

 
917

 
53.8

SUVs
4,074

 
111

 
6.6

 
4,160

 
111

 
6.5

Total
$
31,232

 
1,687

 
100.0
%
 
$
31,400

 
1,703

 
100.0
%
Used vehicle prices for the three months ended March 31, 2019 decreased slightly compared to the same period in 2018. We expect used vehicle prices to decrease between 4% and 5% in 2019 compared to 2018, due primarily to continued increases in the industry supply of used vehicles as well as increases in our off-lease vehicles.
The following table summarizes additional information for operating leases (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Operating leases originated
138

 
149

Operating leases terminated
155

 
124

Operating lease vehicles returned(a)
117

 
94

Percentage of lease vehicles returned(b)
75
%
 
76
%
________________ 
(a)
Represents the number of vehicles returned to us for remarketing.
(b)
Calculated as the number of operating leases returned divided by the number of operating leases terminated.
Operating leases originated decreased primarily as a result of a change in GM's retail sales mix. Operating leases terminated and operating lease vehicles returned increased due to the growth and maturity of the leased asset portfolio. The return rate can fluctuate based upon the level of used vehicle pricing compared to residual values at lease inception and growth and age of the lease portfolio.

21

GENERAL MOTORS FINANCIAL COMPANY, INC.

Liquidity and Capital Resources
General Our primary sources of cash are finance charge income, leasing income and proceeds from the sale of terminated leased vehicles, net distributions from credit facilities, securitizations, secured and unsecured borrowings, and collections and recoveries on finance receivables. Our primary uses of cash are purchases of retail finance receivables and leased vehicles, the funding of commercial finance receivables, repayment of secured and unsecured debt, funding credit enhancement requirements in connection with securitizations and secured credit facilities, operating expenses and interest costs.
Typically, our purchase and funding of retail and commercial finance receivables and leased vehicles are financed initially by utilizing cash and borrowings on our secured credit facilities. Subsequently, we typically obtain long-term financing for finance receivables and leased vehicles through securitization transactions and the issuance of unsecured debt.
Cash Flow During the three months ended March 31, 2019, net cash provided by operating activities increased due primarily to an increase in finance charge income and leased vehicle income, partially offset by increased interest expense.
During the three months ended March 31, 2019, net cash used in investing activities decreased due to increased collections and recoveries on retail finance receivables of $2.4 billion, an increase in proceeds received on terminated leases of $0.7 billion, a decrease in purchases of leased vehicles of $0.7 billion, and an increase in collections of commercial finance receivables of $0.4 billion, partially offset by an increase in purchases of retail finance receivables of $2.1 billion.
During the three months ended March 31, 2019, net cash provided by financing activities decreased due primarily to an increase in payments, net of borrowings of $2.0 billion.
Liquidity
March 31, 2019
 
December 31, 2018
Cash and cash equivalents(a)
$
5,286

 
$
4,883

Borrowing capacity on unpledged eligible assets
19,715

 
18,048

Borrowing capacity on committed unsecured lines of credit
342

 
290

Borrowing capacity on the Junior Subordinated Revolving Credit Facility
1,000

 
1,000

Borrowing capacity on the GM Revolving 364-Day Credit Facility
2,000

 
2,000

Available liquidity
$
28,343

 
$
26,221

_________________
(a)
Includes $314 million and $503 million in unrestricted cash outside of the U.S. at March 31, 2019 and December 31, 2018. This cash is considered to be indefinitely invested based on specific plans for reinvestment of these earnings.
During the three months ended March 31, 2019, available liquidity increased due primarily to an increase in cash and additional capacity on new and renewed secured revolving credit facilities, resulting from the issuance of securitizations and unsecured debt.
The Support Agreement provides that GM will use commercially reasonable efforts to ensure that we will continue to be designated as a subsidiary borrower under GM's unsecured revolving credit facilities. In April 2019, GM renewed the 364-day, $2.0 billion facility (the GM Revolving 364-Day Credit Facility) for an additional 364-day term. This facility has been allocated for exclusive access by us since April 2018. At March 31, 2019, we had no borrowings outstanding under any of these facilities.
Credit Facilities In the normal course of business, in addition to using our available cash, we fund our operations by borrowing under our credit facilities, which may be secured and/or structured as securitizations, or may be unsecured. We repay these borrowings as appropriate under our liquidity management strategy.

22

GENERAL MOTORS FINANCIAL COMPANY, INC.

At March 31, 2019, credit facilities consist of the following:
Facility Type
 
Facility Amount
 
Advances Outstanding
Revolving retail asset-secured facilities(a)
 
$
22,539

 
$
2,038

Revolving commercial asset-secured facilities(b)
 
3,974

 
267

Total secured
 
26,513

 
2,305

Unsecured committed facilities
 
439

 
97

Unsecured uncommitted facilities(c)
 
1,772

 
1,772