GENERAL

We are a leading independent auto finance company specializing in purchasing retail automobile installment sales contracts originated by franchised and select independent dealers in connection with the sale of used and new automobiles. We generate revenue and cash flows primarily through the purchase, retention, subsequent securitization and servicing of finance receivables. As used herein, "loans" include auto finance receivables originated by dealers and purchased by us. To fund the acquisition of receivables prior to securitization, we use available cash and borrowings under our credit facilities. We earn finance charge income on the finance receivables and pay interest expense on borrowings under our credit facilities.

Through wholly-owned subsidiaries, we periodically transfer receivables to securitization trusts ("Trusts") that issue asset-backed securities to investors. We retain an interest in these securitization transactions in the form of restricted cash accounts and overcollateralization, whereby more receivables are transferred to the Trusts than the amount of asset-backed securities issued by the Trusts, as well as the estimated future excess cash flows expected to be received by us over the life of the securitization. Excess cash flows result from the difference between the finance charges received from the obligors on the receivables and the interest paid to investors in the asset-backed securities, net of credit losses and expenses.

Excess cash flows from the Trusts are initially utilized to fund credit enhancement requirements in order to attain specific credit ratings for the asset-backed securities issued by the Trusts. Once targeted credit enhancement requirements are reached and maintained, excess cash flows are distributed to us or, in a securitization utilizing a senior subordinated structure, may be used to accelerate the repayment of certain subordinated securities. In addition to excess cash flows, we receive monthly base servicing fees and we collect other fees, such as late charges, as servicer for securitization Trusts. For securitization transactions that involve the purchase of a financial guaranty insurance policy, credit enhancement requirements will increase if specified portfolio performance ratios are exceeded. Excess cash flows otherwise distributable to us from Trusts in which the portfolio performance ratios were exceeded and from other Trusts which may be subject to limited cross-collateralization provisions are accumulated in the Trusts until such higher levels of credit enhancement are reached and maintained. Senior subordinated securitizations typically do not utilize portfolio performance ratios.

We structure our securitization transactions as secured financings. Accordingly, following a securitization, the finance receivables and the related securitization notes payable remain on the consolidated balance sheets. We recognize finance charge and fee income on the receivables and interest expense on the securities issued in the securitization transaction and record a provision for loan losses to cover probable loan losses on the receivables.

Prior to October 1, 2002, our securitization transactions were structured as sales of finance receivables. In connection with the acquisitions described below, we also acquired two securitization Trusts which were accounted for as sales of finance receivables. Receivables sold under this structure are referred to herein as "gain on sale receivables." At June 30, 2009, we had no outstanding gain on sale securitizations.

On May 1, 2006, we acquired the stock of Bay View Acceptance Corporation ("BVAC"). BVAC served auto dealers in 32 states offering specialized auto finance products, including extended term financing and higher loan-to-value advances to consumers with prime credit bureau scores.

On January 1, 2007, we acquired the stock of Long Beach Acceptance Corporation ("LBAC"). LBAC served auto dealers in 34 states offering auto finance products primarily to consumers with near prime credit bureau scores.

The operations of BVAC and LBAC have been integrated into our origination, servicing and administrative activities and we provide auto finance products solely under the AmeriCredit Financial Services, Inc. name.

Throughout calendar 2008 and the first half of calendar 2009, we continually revised our operating plans in an effort to preserve and strengthen our capital and liquidity position and to maintain sufficient capacity on our credit facilities to fund new loan originations until capital market conditions improve for securitization transactions. Under these revised plans, we increased the minimum credit score requirements and tightened loan structures for new loan originations, decreased our originations infrastructure by closing and consolidating credit center locations, selectively decreased the number of dealers from whom we purchase loans and reduced originations and support function headcount. We have discontinued new originations in our direct lending, leasing and specialty prime platforms, certain partner relationships, and in Canada. Our origination levels were reduced to $175 million for the three months ended June 30, 2009, compared to $780 million for the three months ended June 30, 2008. We completed a securitization transaction in July 2009 and used the proceeds primarily to repay borrowings under our credit facilities. As a result, we have greater unused borrowing capacity on our credit facilities and we are seeking to modestly increase origination levels in fiscal 2010 from our annualized originations levels for the three months ended June 30, 2009.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the amount of revenue and costs and expenses during the reporting periods. Actual results could differ from those estimates and those differences may be material. The accounting estimates that we believe are the most critical to understanding and evaluating our reported financial results include the following:

Allowance for loan losses

The allowance for loan losses is established systematically based on the determination of the amount of probable credit losses inherent in the finance receivables as of the reporting date. We review charge-off experience factors, delinquency reports, historical collection rates, estimates of the value of the underlying collateral, economic trends, such as unemployment rates, and other information in order to make the necessary judgments as to the probable credit losses. We also use historical charge-off experience to determine a loss confirmation period, which is defined as the time between when an event, such as delinquency status, giving rise to a probable credit loss occurs with respect to a specific account and when such account is charged off. This loss confirmation period is applied to the forecasted probable credit losses to determine the amount of losses inherent in finance receivables at the reporting date. Assumptions regarding credit losses and loss confirmation periods are reviewed periodically and may be impacted by actual performance of finance receivables and changes in any of the factors discussed above. Should the credit loss assumption or loss confirmation period increase, there would be an increase in the amount of allowance for loan losses required, which would decrease the net carrying value of finance receivables and increase the amount of provision for loan losses recorded on the consolidated statements of operations and comprehensive operations. A 10% and 20% increase in cumulative net credit losses over the loss confirmation period would increase the allowance for loan losses as of June 30, 2009, as follows (in thousands):

                                                10% adverse     20% adverse
                                                  change          change
         Impact on allowance for loan losses   $      89,064   $     178,128

We believe that the allowance for loan losses is adequate to cover probable losses inherent in our receivables; however, because the allowance for loan losses is based on estimates, there can be no assurance that the ultimate charge-off amount will not exceed such estimates or that our credit loss assumptions will not increase.

Income Taxes

We are subject to income tax in the United States and Canada. In the ordinary course of our business, there may be transactions, calculations, structures and filing positions where the ultimate tax outcome is uncertain. At any point in time, multiple tax years are subject to audit by various taxing jurisdictions and we record liabilities for estimated tax results based on the requirements of Financial Accounting Standards Board Interpretation No. 48 ("FIN 48") (Accounting Standards Codification™ ("ASC") 740 10 65-1), Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement 109. Management believes that the estimates its uses are reasonable. However, due to expiring statutes of limitations, audits, settlements, changes in tax law or new authoritative rulings, no assurance can be given that the final outcome of these matters will be comparable to what was reflected in the historical income tax provisions and accruals. We may need to adjust our accrued tax assets or liabilities if actual results differ from estimated results or if we adjust these assumptions in the future, which could materially impact the effective tax rate, earnings, accrued tax balances and cash.

As a part of our financial reporting process, we must assess the likelihood that our deferred tax assets can be recovered. Unless recovery is more likely than not, the provision for income taxes must be increased by recording a reserve in the form of a valuation allowance for all or a portion of the deferred tax assets. In this process, certain criteria are evaluated including the existence of deferred tax liabilities that can be used to absorb deferred tax assets, taxable income in prior carryback years that can be used to absorb net operating losses, credit carrybacks, estimated taxable income in future years and the duration of the carryforward periods. We incurred a significant taxable loss for fiscal 2009. For U.S. tax purposes, we can carryback approximately $600 million of taxable losses for fiscal 2009 to offset taxes paid in fiscal 2007 and 2008. Any remaining U.S. net operating loss can be carried forward for 20 years. We expect to fully utilize this asset over the carryforward period. In contrast to U.S. federal tax rules, there is generally no carryback potential for the majority of U.S. state tax jurisdictions and the various state carryforward periods range from 5 to 20 years. We have established a valuation allowance against a portion of our state tax net operating loss. Our judgment regarding future taxable income may change due to evolving corporate and operational strategies, market conditions, changes in U.S., state or international tax laws and other factors which may later alter our judgment of the utilization of these assets.

During fiscal 2009, the Company experienced an ownership change under
Section 382 of the Internal Revenue Code. In general under Section 382, an ownership change is defined as an increase in ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. Under Section 382, following an "ownership change," special limitations apply to the use by a "loss corporation" of its (i) net operating loss carryforwards arising before the ownership change and (ii) net unrealized built-in-losses. The Company does not believe that the ownership change significantly impacts the ability to utilize its existing net operating losses.

RESULTS OF OPERATIONS

Year Ended June 30, 2009 as compared to Year Ended June 30, 2008

Changes in Finance Receivables

A summary of changes in our finance receivables is as follows (in thousands):

     Years Ended June 30,                             2009              2008
     Balance at beginning of period               $ 14,981,412      $ 15,922,458
     Loans purchased                                 1,285,091         6,075,412
     Loans repurchased from gain on sale Trusts                           18,401
     Liquidations and other                         (5,338,534 )      (7,034,859 )

     Balance at end of period                     $ 10,927,969      $ 14,981,412

     Average finance receivables                  $ 13,001,773      $ 16,059,129

The decrease in loans purchased during fiscal 2009 as compared to fiscal 2008 was primarily due to the implementation of revised operating plans which included significantly reduced loan origination targets. The decrease in liquidations and other resulted primarily from reduced average finance receivables.

The average new loan size decreased to $17,507 for fiscal 2009 from $19,093 for fiscal 2008 primarily as a result of limiting loan-to-value ratios on new loan originations. The average annual percentage rate for finance receivables purchased during fiscal 2009 increased to 17.0 % from 15.4% during fiscal 2008 due to increased pricing on new loan originations necessitated by higher funding costs.

Net Margin

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

Our net margin as reflected on the consolidated statements of operations and comprehensive operations is as follows (in thousands):

                Years Ended June 30,       2009             2008
                Finance charge income   $ 1,902,684      $ 2,382,484
                Other income                116,488          160,598
                Interest expense           (704,620 )       (837,412 )

                Net margin              $ 1,314,552      $ 1,705,670

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

    Years Ended June 30,                                        2009      2008
    Finance charge income                                       14.6 %    14.8 %
    Other income                                                 0.9       1.0
    Interest expense                                            (5.4 )    (5.2 )

    Net margin as a percentage of average finance receivables   10.1 %    10.6 %

The decrease in net margin for fiscal 2009, as compared to fiscal 2008, was the result of a lower effective yield on the portfolio due to higher delinquency levels in fiscal 2009 and an increase in funding costs primarily from the warrant costs and commitment fees related to the Deutsche Bank ("Deutsche") forward purchase agreement terminated in December 2008.

Revenue

Finance charge income decreased by 20.1% to $1,902.7 million for fiscal 2009 from $2,382.5 million for fiscal 2008, primarily due to the decrease in average finance receivables. The effective yield on our finance receivables decreased to 14.6% for fiscal 2009 from 14.8% for fiscal 2008. The effective yield represents finance charges and fees taken into earnings during the period as a percentage of average finance receivables and is lower than the contractual rates of our auto finance contracts due to finance receivables in nonaccrual status.

Other income consists of the following (in thousands):

                                               Years Ended June 30,
                                                 2009         2008
                Investment income            $     16,295   $  56,769
                Leasing income                     47,073      40,679
                Late fees and other income         53,120      63,150

                                             $    116,488   $ 160,598

Investment income decreased as a result of lower invested cash balances combined with lower market interest rates. Late fees and other income decreased as a result of the reduction in our finance receivables.

Gain on retirement of debt for the year ended June 30, 2009 was $63.2 million. We repurchased on the open market, $60.0 million of our convertible senior notes due in 2013 at an average price of 44.1% of the principal amount, $200.0 million of our convertible senior notes due in 2023 at an average price of 99.5% of the principal amount, and $28.0 million of our convertible senior notes due in 2011 at an average price of 44.2% of the principal amount. In connection with these repurchases, we recorded a gain on retirement of debt of $48.5 million. We also issued 15,122,670 shares of our common stock to Fairholme Funds Inc. ("Fairholme"), in a non-cash transaction, in exchange for $108.4 million of our senior notes due 2015, held by Fairholme, at a price of $840 per $1,000 principal amount of the notes. We recognized a gain of $14.7 million, net of transaction costs, on retirement of debt in the exchange. Fairholme and its affiliates held approximately 19.8% of our outstanding common stock prior to the issuance of the shares described above.

Costs and Expenses

Operating Expenses

Operating expenses decreased to $308.8 million for fiscal 2009 from $397.8 million for fiscal 2008, as a result of cost savings from revised operating plans. Our operating expenses are predominately related to personnel costs that include base salary and wages, performance incentives and benefits as well as related employment taxes. Personnel costs represented 72.8% and 79.4% of total operating expenses for fiscal 2009 and 2008, respectively.

Operating expenses as a percentage of average finance receivables were 2.4% for fiscal 2009, as compared to 2.5% for fiscal 2008.

Provision for Loan Losses

Provisions for loan losses 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 portfolio of finance receivables. The provision for loan losses recorded for fiscal 2009 and 2008 reflects inherent losses on receivables originated during those periods and changes in the amount of inherent losses on receivables originated in prior periods. The provision for loan losses decreased to $972.4 million for fiscal 2009 from $1,131.0 million for fiscal 2008 as a result of a lower level of receivables originated during fiscal 2009 and the improved credit profile of loans originated since implementation of revised operating plans in January 2008, partially offset by higher expected future losses on receivables originated in periods prior to the implementation of revised operating plans due to weaker economic conditions. As a percentage of average finance receivables, the provision for loan losses was 7.5% and 7.0% for fiscal 2009 and 2008, respectively.

Interest Expense

Interest expense decreased to $704.6 million for fiscal 2009 from $837.4 million for fiscal 2008. Average debt outstanding was $11,886.4 million and $15,207.0 million for fiscal 2009 and 2008, respectively. Our effective rate of interest paid on our debt increased to 5.9% for fiscal 2009 compared to 5.5% for fiscal 2008, primarily from the warrant costs and commitment fees related to the Deutsche forward purchase agreement.

Taxes

Our effective income tax rate was 62.3% and 24.8% for fiscal 2009 and 2008, respectively. The fiscal 2009 effective tax rate was negatively impacted primarily by state income tax rates and adjustments to state deferred tax assets and liabilities. The fiscal 2008 effective tax rate was impacted by the effect of no longer being

permanently reinvested with respect to our Canadian subsidiaries, an impairment of non-deductible goodwill, adjustment of FIN 48 (ASC 740 10 65-1) uncertain tax positions and revision of deferred tax assets and liabilities.

Other Comprehensive Loss

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



      Years Ended June 30,                               2009           2008
      Unrealized losses on cash flow hedges            $ (26,871 )    $ (84,404 )
      Foreign currency translation adjustment                750          5,855
      Unrealized losses on credit enhancement assets                       (232 )
      Income tax benefit                                  11,426         26,683

                                                       $ (14,695 )    $ (52,098 )

Cash Flow Hedges

Unrealized losses on cash flow hedges consisted of the following (in thousands):



  Years Ended June 30,                                     2009            2008
  Unrealized losses related to changes in fair value    $ (109,115 )    $ (109,039 )
  Reclassification of unrealized losses into earnings       82,244          24,635

                                                        $  (26,871 )    $  (84,404 )

Unrealized losses related to changes in fair value for fiscal 2009 and 2008, were due to changes in the fair value of interest rate swap agreements that were designated as cash flow hedges for accounting purposes. The fair value of the interest rate swap agreements changed in fiscal 2009 and 2008 because of significant declines in forward interest rates.

Unrealized losses on cash flow hedges of our floating rate debt are reclassified into earnings when interest rate fluctuations on securitization notes payable or other hedged items affect earnings.

Canadian Currency Translation Adjustment

Canadian currency translation adjustment gains of $0.7 million and $5.9 million for fiscal 2009 and 2008, respectively, were included in other comprehensive loss. The translation adjustment gains are due to the increase in the value of our Canadian dollar denominated assets related to the decline in the U.S. dollar to Canadian dollar conversion rates.

Year Ended June 30, 2008 as compared to Year Ended June 30, 2007

Changes in Finance Receivables

A summary of changes in our finance receivables is as follows (in thousands):

     Years Ended June 30,                             2008              2007
     Balance at beginning of period               $ 15,922,458      $ 11,775,665
     Loans purchased                                 6,075,412         8,419,669
     Loans repurchased from gain on sale Trusts         18,401           315,153
     LBAC acquisition                                                  1,784,263
     Liquidations and other                         (7,034,859 )      (6,372,292 )

     Balance at end of period                     $ 14,981,412      $ 15,922,458

     Average finance receivables                  $ 16,059,129      $ 13,621,386

The decrease in loans purchased during fiscal 2008 as compared to fiscal 2007 was primarily due to the implementation of revised operating plans, which included significantly reduced loan origination targets. The increase in liquidations and other resulted primarily from higher collections and charge-offs on finance receivables due to the increase in average finance receivables.

The average new loan size increased to $19,093 for fiscal 2008 from $18,506 for fiscal 2007. The average annual percentage rate for finance receivables purchased during fiscal 2008 decreased to 15.4% from 15.8% during fiscal 2007 due to a generally higher credit quality mix of loans purchased in fiscal 2008 with lower relative annual percentage rates.

Net Margin

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

Our net margin as reflected on the consolidated statements of operations and comprehensive operations is as follows (in thousands):

                Years Ended June 30,       2008             2007
                Finance charge income   $ 2,382,484      $ 2,142,470
                Other income                160,598          145,456
                Interest expense           (837,412 )       (680,825 )

                Net margin              $ 1,705,670      $ 1,607,101

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

    Years Ended June 30,                                        2008      2007
    Finance charge income                                       14.8 %    15.7 %
    Other income                                                 1.0       1.1
    Interest expense                                            (5.2 )    (5.0 )

    Net margin as a percentage of average finance receivables   10.6 %    11.8 %

The decrease in net margin for fiscal 2008, as compared to fiscal 2007, was a result of the lower effective yield due to a shift to a higher credit quality mix in the portfolio, combined with an increase in interest expense caused by a continued amortization of older securitizations with lower market interest costs.

Revenue

Finance charge income increased by 11.2% to $2,382.5 million for fiscal 2008 from $2,142.5 million for fiscal 2007, primarily due to the increase in average finance receivables. The effective yield on our finance receivables decreased to 14.8% for fiscal 2008 from 15.7% for fiscal 2007. The effective yield represents finance charges and fees taken into earnings during the period as a percentage of average finance receivables and is lower than the contractual rates of our auto finance contracts due to finance receivables in nonaccrual status.

Other income consists of the following (in thousands):

                                               Years Ended June 30,
                                                 2008         2007
                Investment income            $     56,769   $  84,718
                Leasing income                     40,679       1,426
                Late fees and other income         63,150      59,312

                                             $    160,598   $ 145,456

Investment income decreased as a result of lower invested cash balances combined with lower market interest rates.

Costs and Expenses

Operating Expenses . . .