e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549-1004
Form 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
March 31, 2007
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission file number 1-143
GENERAL MOTORS
CORPORATION
(Exact Name of Registrant as
Specified in its Charter)
|
|
|
STATE OF DELAWARE
|
|
38-0572515
|
(State or other jurisdiction
of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
300 Renaissance Center,
Detroit, Michigan
|
|
48265-3000
|
(Address of Principal Executive
Offices)
|
|
(Zip
Code)
|
(313) 556-5000
Registrants telephone number, including area code
NA
(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 þ No o
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of April 30, 2007, the number of shares outstanding of
the Registrants common stock was 565,743,444 shares.
Website
Access to Companys Reports
General Motors (GMs) internet website address is
www.gm.com. Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
section 13(a) or 15(d) of the Exchange Act are available
free of charge through our website as soon as reasonably
practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission.
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
INDEX
2
PART I
|
|
Item 1.
|
Condensed
Consolidated Financial Statements
|
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(As restated, see
|
|
|
|
|
|
|
Notes 2 and 12)
|
|
|
Net sales and revenue
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
$
|
42,923
|
|
|
$
|
43,529
|
|
Financial services and insurance
revenue
|
|
|
986
|
|
|
|
8,847
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
|
43,909
|
|
|
|
52,376
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
39,047
|
|
|
|
40,073
|
|
Selling, general, and
administrative expense
|
|
|
3,375
|
|
|
|
3,427
|
|
Financial services and insurance
expense
|
|
|
883
|
|
|
|
8,285
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
43,305
|
|
|
|
51,785
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
604
|
|
|
|
591
|
|
Equity in loss of GMAC LLC
|
|
|
(183
|
)
|
|
|
|
|
Automotive and other interest
expense
|
|
|
(799
|
)
|
|
|
(638
|
)
|
Automotive interest income and
other non-operating income
|
|
|
386
|
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, other
equity income and minority interests
|
|
|
8
|
|
|
|
751
|
|
Income tax expense
|
|
|
|
|
|
|
232
|
|
Equity income and minority
interests, net of tax
|
|
|
54
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
62
|
|
|
$
|
602
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share:
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
$
|
.11
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, basic (millions)
|
|
|
566
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share:
|
|
|
|
|
|
|
|
|
Earnings per share, diluted
|
|
$
|
.11
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, diluted (millions)
|
|
|
567
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
.25
|
|
|
$
|
.25
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to the condensed
consolidated financial statements.
3
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(As restated,
|
|
|
|
|
|
|
|
|
|
see Note 12)
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,923
|
|
|
$
|
23,774
|
|
|
$
|
17,427
|
|
Marketable securities
|
|
|
159
|
|
|
|
138
|
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and marketable securities
|
|
|
21,082
|
|
|
|
23,912
|
|
|
|
18,823
|
|
Accounts and notes receivable, net
|
|
|
9,697
|
|
|
|
8,216
|
|
|
|
6,966
|
|
Inventories
|
|
|
15,431
|
|
|
|
13,921
|
|
|
|
14,867
|
|
Equipment on operating leases, net
|
|
|
5,650
|
|
|
|
6,125
|
|
|
|
7,217
|
|
Deferred income taxes and other
current assets
|
|
|
12,143
|
|
|
|
11,957
|
|
|
|
10,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
64,003
|
|
|
|
64,131
|
|
|
|
58,012
|
|
Financing and Insurance
Operations Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
301
|
|
|
|
349
|
|
|
|
17,441
|
|
Investments in securities
|
|
|
187
|
|
|
|
188
|
|
|
|
18,443
|
|
Finance receivables, net
|
|
|
|
|
|
|
|
|
|
|
180,173
|
|
Loans held for sale
|
|
|
|
|
|
|
|
|
|
|
18,171
|
|
Equipment on operating leases, net
|
|
|
10,457
|
|
|
|
11,794
|
|
|
|
32,570
|
|
Investment in GMAC LLC
|
|
|
7,355
|
|
|
|
7,523
|
|
|
|
|
|
Other assets
|
|
|
3,684
|
|
|
|
2,269
|
|
|
|
28,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance
Operations Assets
|
|
|
21,984
|
|
|
|
22,123
|
|
|
|
295,794
|
|
Non-Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
41,612
|
|
|
|
41,934
|
|
|
|
38,551
|
|
Deferred income taxes
|
|
|
32,476
|
|
|
|
32,967
|
|
|
|
22,387
|
|
Prepaid pension
|
|
|
17,639
|
|
|
|
17,366
|
|
|
|
37,478
|
|
Other assets
|
|
|
7,484
|
|
|
|
7,671
|
|
|
|
9,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
99,211
|
|
|
|
99,938
|
|
|
|
108,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
185,198
|
|
|
$
|
186,192
|
|
|
$
|
462,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY (DEFICIT)
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable (principally trade)
|
|
$
|
30,065
|
|
|
$
|
26,931
|
|
|
$
|
26,872
|
|
Short-term borrowings and current
portion of long-term debt
|
|
|
4,834
|
|
|
|
5,666
|
|
|
|
1,294
|
|
Accrued expenses
|
|
|
34,518
|
|
|
|
35,225
|
|
|
|
43,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
69,417
|
|
|
|
67,822
|
|
|
|
71,590
|
|
Financing and Insurance
Operations Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
133
|
|
|
|
192
|
|
|
|
3,596
|
|
Debt
|
|
|
8,297
|
|
|
|
9,438
|
|
|
|
245,260
|
|
Other liabilities and deferred
income taxes
|
|
|
1,572
|
|
|
|
1,947
|
|
|
|
29,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance
Operations Liabilities
|
|
|
10,002
|
|
|
|
11,577
|
|
|
|
277,992
|
|
Non-Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
33,120
|
|
|
|
33,067
|
|
|
|
32,612
|
|
Postretirement benefits other than
pensions
|
|
|
48,998
|
|
|
|
50,086
|
|
|
|
31,431
|
|
Pensions
|
|
|
11,293
|
|
|
|
11,934
|
|
|
|
11,576
|
|
Other liabilities and deferred
income taxes
|
|
|
15,570
|
|
|
|
15,957
|
|
|
|
20,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
108,981
|
|
|
|
111,044
|
|
|
|
95,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
188,400
|
|
|
|
190,443
|
|
|
|
445,285
|
|
Minority interests
|
|
|
1,145
|
|
|
|
1,190
|
|
|
|
1,075
|
|
Stockholders Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value,
authorized 6,000,000, no shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
$12/3
par value common stock (2,000,000,000 shares authorized,
756,637,541 and 565,738,371 shares issued and outstanding
at March 31, 2007, respectively 756,637,541 and
565,670,254 shares issued and outstanding at
December 31, 2006, respectively and 756,637,541 and
565,559,329 shares issued and outstanding at March 31,
2006, respectively)
|
|
|
943
|
|
|
|
943
|
|
|
|
943
|
|
Capital surplus (principally
additional paid-in capital)
|
|
|
15,346
|
|
|
|
15,336
|
|
|
|
15,296
|
|
Retained earnings
|
|
|
39
|
|
|
|
406
|
|
|
|
3,408
|
|
Accumulated other comprehensive
(loss)
|
|
|
(20,675
|
)
|
|
|
(22,126
|
)
|
|
|
(3,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
(deficit)
|
|
|
(4,347
|
)
|
|
|
(5,441
|
)
|
|
|
15,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities, Minority
Interests, and Stockholders Equity (Deficit)
|
|
$
|
185,198
|
|
|
$
|
186,192
|
|
|
$
|
462,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to the condensed
consolidated financial statements.
4
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
(Dollars and shares in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Shares of
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Common
|
|
|
Capital
|
|
|
Capital
|
|
|
Income
|
|
|
Retained
|
|
|
Income
|
|
|
Equity
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Surplus
|
|
|
(Loss)
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
(Deficit)
|
|
|
Balance December 31,
2005
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,285
|
|
|
|
|
|
|
$
|
2,960
|
|
|
$
|
(4,535
|
)
|
|
$
|
14,653
|
|
Net income, as restated (see
Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
602
|
|
|
|
602
|
|
|
|
|
|
|
|
602
|
|
Cumulative effect of a change in
accounting principle adoption of
SFAS No. 156, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667
|
|
|
|
|
|
|
|
667
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2006, as
restated (see Note 12)
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,296
|
|
|
|
|
|
|
$
|
3,408
|
|
|
$
|
(3,868
|
)
|
|
$
|
15,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31,
2006
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,336
|
|
|
|
|
|
|
$
|
406
|
|
|
$
|
(22,126
|
)
|
|
$
|
(5,441
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62
|
|
|
|
62
|
|
|
|
|
|
|
|
62
|
|
Effects of accounting change
regarding pension plan and OPEB measurement-dates pursuant to
SFAS No. 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(425
|
)
|
|
|
1,153
|
|
|
|
728
|
|
Cumulative effect of a change in
accounting principle adoption of
FIN No. 48, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
|
|
|
|
|
|
|
|
137
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition asset/obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
298
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31,
2007
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,346
|
|
|
|
|
|
|
$
|
39
|
|
|
$
|
(20,675
|
)
|
|
$
|
(4,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to the condensed
consolidated financial statements.
5
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
Net cash provided by operating
activities
|
|
$
|
1,468
|
|
|
$
|
790
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
Expenditures for property
|
|
|
(1,185
|
)
|
|
|
(1,376
|
)
|
Investments in marketable
securities, acquisitions
|
|
|
(26
|
)
|
|
|
(5,443
|
)
|
Investments in marketable
securities, liquidations
|
|
|
6
|
|
|
|
4,969
|
|
Net change in mortgage servicing
rights
|
|
|
|
|
|
|
(56
|
)
|
Increase in finance receivables
|
|
|
|
|
|
|
(7,589
|
)
|
Proceeds from sale of finance
receivables
|
|
|
|
|
|
|
16,220
|
|
Proceeds from sale of business
units/equity investments
|
|
|
|
|
|
|
9,911
|
|
Operating leases, acquisitions
|
|
|
|
|
|
|
(4,524
|
)
|
Operating leases, liquidations
|
|
|
789
|
|
|
|
1,625
|
|
Capital contribution to GMAC LLC
|
|
|
(1,022
|
)
|
|
|
|
|
Investments in companies, net of
cash acquired
|
|
|
2
|
|
|
|
(5
|
)
|
Other
|
|
|
(584
|
)
|
|
|
(2,402
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
(2,020
|
)
|
|
|
11,330
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
Net decrease in short-term
borrowings
|
|
|
(2,212
|
)
|
|
|
(5,900
|
)
|
Borrowings of long-term debt
|
|
|
18
|
|
|
|
23,824
|
|
Payments made on long-term debt
|
|
|
(35
|
)
|
|
|
(26,895
|
)
|
Cash dividends paid to stockholders
|
|
|
(141
|
)
|
|
|
(141
|
)
|
Other
|
|
|
|
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing
activities
|
|
|
(2,370
|
)
|
|
|
(8,031
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
23
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(2,899
|
)
|
|
|
4,142
|
|
Cash and cash equivalents at
beginning of the period
|
|
|
24,123
|
|
|
|
30,726
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of the period
|
|
$
|
21,224
|
|
|
$
|
34,868
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to the condensed
consolidated financial statements.
6
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
(Unaudited)
|
|
Note 1.
|
Nature of
Operations
|
GM is primarily engaged in the worldwide production and
marketing of cars and trucks. GM develops, manufactures, and
markets vehicles worldwide through its four regions. GMs
four automotive regions consist of GM North America (GMNA), GM
Europe (GME), GM Latin America/Africa/Mid-East (GMLAAM), and GM
Asia Pacific (GMAP). Also, GMs finance and insurance
operations are primarily conducted through GMAC LLC, the
successor to General Motors Acceptance Corporation (together
with GMAC LLC, GMAC), a wholly-owned subsidiary through November
2006. On November 30, 2006, GM sold a 51% controlling
ownership interest in GMAC to a consortium of investors. After
the sale, GM has accounted for its 49% ownership interest in
GMAC using the equity method. GMAC provides a broad range of
financial services, including consumer vehicle financing,
automotive dealership and other commercial financing,
residential mortgage services, automobile service contracts,
personal automobile insurance coverage and selected commercial
insurance coverage. GM operates in two businesses, consisting of
Automotive and Other (Auto) and Financing and Insurance
Operations (FIO).
|
|
Note 2.
|
Basis of
Presentation
|
The accompanying unaudited condensed consolidated financial
statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) for
interim financial information. Accordingly, they do not include
all of the information and footnotes required by
United States generally accepted accounting principles
(GAAP) for complete financial statements. In the opinion of
management, these condensed consolidated financial statements
include all adjustments, consisting of only normal recurring
items, considered necessary for a fair presentation of the
financial position and results of operations of GM. The
operating results for interim periods are not necessarily
indicative of results that may be expected for any other interim
period or for the full year. These unaudited condensed
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto
included in GMs Annual Report on
Form 10-K
for the year ended December 31, 2006 as filed with the SEC.
The condensed consolidated financial statements include the
accounts of General Motors Corporation and its subsidiaries that
are controlled by GM due to ownership of a majority voting
interest. In addition, GM consolidates variable interest
entities (VIEs) for which it is the primary beneficiary.
GMs share of earnings or losses of investees that are less
than 50% owned are included in the consolidated operating
results using the equity method of accounting, when GM is able
to exercise significant influence over the operating and
financial decisions of the investee. If GM is not able to
exercise significant influence over the operating and financial
decisions of the investee, the cost method of accounting is
used. All intercompany balances and transactions have been
eliminated in consolidation.
Change
in Presentation of Financial Statements
For the three months ended March 31, 2007, GM changed its
income statement presentation to present costs and expenses of
its FIO operations as a separate line. In so doing, GM
reclassified FIOs portion of selling, general and
administrative expenses and interest expense to the income
statement caption financial services and insurance
expense. Also, Automotive and other interest expense have
been presented within non-operating income and expenses. Certain
reclassifications have been made to the comparable 2006 restated
financial information to conform to the current period
presentation.
Sale
of GMAC Commercial Mortgage
In March 2006, GM, through GMAC, sold approximately 79% of our
equity in GMAC Commercial Mortgage for approximately
$1.5 billion in cash. At the closing, GMAC Commercial
Mortgage also repaid to us approximately $7.3 billion of
intercompany loans, for total cash proceeds of
$8.8 billion. Subsequent to the sale, the remaining
interest in GMAC Commercial Mortgage was reflected using the
equity method.
7
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2.
|
Basis of
Presentation (continued)
|
Changes
in Accounting Principles
Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans
As previously reported in our 2006 Annual Report on
Form 10-K,
GM recognized the funded status of its benefit plans at
December 31, 2006 in accordance with the recognition
provisions of Statement of Financial Accounting Standards
No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans,
(SFAS No. 158). Additionally, GM elected to early
adopt the measurement date provisions of SFAS No. 158
at January 1, 2007. Those provisions require the
measurement date for plan assets and liabilities to coincide
with the sponsors year end. Refer to Note 10.
Accounting
for Uncertainty in Income Taxes
During the first quarter of 2007, GM adopted Financial
Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), which supplements SFAS No. 109,
Accounting for Income Taxes, by defining the
confidence level that a tax position must meet in order to be
recognized in the financial statements. The Interpretation
requires that the tax effects of a position be recognized only
if it is
more-likely-than-not
to be sustained based solely on its technical merits as of the
reporting date. The more-likely-than-not threshold represents a
positive assertion by management that a company is entitled to
the economic benefits of a tax position. If a tax position is
not considered
more-likely-than-not
to be sustained based solely on its technical merits, no
benefits of the tax position are to be recognized. Moreover, the
more-likely-than-not
threshold must continue to be met in each reporting period to
support continued recognition of a benefit. With the adoption of
FIN 48, companies are required to adjust their financial
statements to reflect only those tax positions that are
more-likely-than-not to be sustained. Any necessary adjustment
would be recorded directly to retained earnings and reported as
a change in accounting principle.
GM recorded an increase to retained earnings as of
January 1, 2007 of $137.1 million as a cumulative
effect of a change in accounting principle for the adoption of
FIN 48 with a corresponding decrease to the liability for
uncertain tax positions. At January 1, 2007, GM had
approximately $2.7 billion of total gross unrecognized tax
benefits. Of this total, $2.1 billion represents the amount
of unrecognized tax benefits that, if recognized, would
favorably affect the effective income tax rate in future
periods. These amounts consider the guidance of FASB Staff
Position
No. FIN 48-1
Definition of Settlement in FASB Interpretation
No. 48. At March 31, 2007, the liability for
uncertain tax positions is classified as a noncurrent liability.
GM files income tax returns in multiple jurisdictions and is
subject to examination by taxing authorities throughout the
world. In the U.S., GMs federal income tax returns for
2001 through 2003 are currently under review by the Internal
Revenue Service and it is reasonably possible that this
examination will conclude in 2007. GMs Mexican subsidiary
has recently received an income tax assessment related to the
2001 tax year covering warranty, tooling costs, and withholding
taxes. Finally, certain tax reform measures, including a
corporate tax rate reduction, are currently under review by the
German tax authorities. The impact of the above events on the
total amount of unrecognized tax benefits is estimated to be a
reduction of approximately $170 million to
$180 million.
GM has open tax years from primarily 1999 to 2006 with various
significant taxing jurisdictions including the United States,
Canada, Mexico, Germany, the United Kingdom, Korea and Brazil.
These open years contain matters that could be subject to
differing interpretations of applicable tax laws and regulations
as they relate to the amount, timing or inclusion of revenue and
expenses or the sustainability of income tax credits for a given
audit cycle. GM has recorded a tax benefit only for those
positions that meet the
more-likely-than-not
standard.
GMs continuing practice is to recognize interest on
uncertain tax positions in interest expense and penalties in
selling, general and administrative expenses. For the three
months ended March 31, 2007, GM incurred interest and
penalties of approximately $14.1 million and $(7.5)
million. Penalties of approximately $8.6 million were
reversed
8
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2.
|
Basis of
Presentation (concluded)
|
in the first quarter of 2007 as part of an adjustment to the
FIN 48 liability which renders the penalties as no longer
accruable. Accrued interest and penalties as of January 1,
2007 were $210.3 million and $75.6 million,
respectively, and as of March 31, 2007 accrued interest and
penalties were $233.1 million and $68.1 million,
respectively.
Accounting
for Early Retirement or Postemployment Programs with Specific
Features
On January 1, 2006, GM adopted EITF
05-5,
Accounting for Early Retirement or Postemployment Programs
with Specific Features, which states that the bonus and
contributions made into the German government pension program
should be accounted for under the guidance in
SFAS No. 112, Employers Accounting for
Postemployment Benefit Costs, and the government subsidy
should be recognized when a company meets the necessary
conditions to be entitled to the subsidy. As clarified in EITF
05-5,
beginning in 2006, GM recognized the bonus and additional
contributions (collectively, additional compensation) into the
German government pension plan over the period from which the
employee signed the program contract until the end of the active
service period. Prior to 2006, GM recognized the full additional
compensation one-year before the employee entered the active
service period. The change, reported as a change in accounting
estimate effected by a change in accounting principle, resulted
in additional compensation expense of $68 million in the
first quarter of 2006.
Accounting
for Servicing of Financial Assets
On January 1, 2006, GM adopted SFAS No. 156,
Accounting for Servicing of Financial Assets, which
(1) provides revised guidance on when a servicing asset and
servicing liability should be recognized, (2) requires all
separately recognized servicing assets and liabilities to be
initially measured at fair value, if practicable,
(3) permits an entity to elect to measure servicing assets
and liabilities at fair value each reporting date and report
changes in fair value in earnings in the period in which the
changes occur, (4) provides that upon initial adoption, a
one-time reclassification of
available-for-sale
securities to trading securities for securities which are
identified as offsetting an entitys exposure to changes in
the fair value of servicing assets or liabilities that a
servicer elects to subsequently measure at fair value, and
(5) requires separate presentation of servicing assets and
liabilities subsequently measured at fair value in the balance
sheet and additional disclosures. GM recorded a reduction to
retained earnings as of January 1, 2006 of $13 million
as a cumulative effect of a change in accounting principle for
the adoption of SFAS No. 156.
Accounting
Standards Not Yet Adopted
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurement
(SFAS No. 157) which provides a definition of
fair value, establishes a framework for measuring fair value and
requires expanded disclosures about fair value measurements.
SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. The provisions of
SFAS No. 157 should be applied prospectively.
Management is assessing the potential impact of the standard on
GMs financial condition and results of operations.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of
SFAS No. 115 (SFAS No. 159), which
permits an entity to measure certain financial assets and
financial liabilities at fair value that are not currently
required to be measured at fair value. Entities that elect the
fair value option will report unrealized gains and losses in
earnings at each subsequent reporting date. The fair value
option may be elected on an
instrument-by-instrument
basis, with a few exceptions. SFAS No. 159 amends
previous guidance to extend the use of the fair value option to
available-for-sale
and
held-to-maturity
securities. The statement also establishes presentation and
disclosure requirements to help financial statement users
understand the effect of the election. SFAS No. 159 is
effective as of the beginning of the first fiscal year beginning
after November 15, 2007. Management is currently assessing
the potential impact of the standard on GMs financial
condition and results of operations.
9
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Productive material, work in
process, and supplies
|
|
$
|
5,982
|
|
|
$
|
5,810
|
|
|
$
|
5,916
|
|
Finished product, service parts,
etc.
|
|
|
10,957
|
|
|
|
9,619
|
|
|
|
10,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories at FIFO
|
|
|
16,939
|
|
|
|
15,429
|
|
|
|
16,392
|
|
Less LIFO allowance
|
|
|
(1,508
|
)
|
|
|
(1,508
|
)
|
|
|
(1,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,431
|
|
|
|
13,921
|
|
|
|
14,867
|
|
FIO off-lease vehicles
|
|
|
223
|
|
|
|
185
|
|
|
|
657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
15,654
|
|
|
$
|
14,106
|
|
|
$
|
15,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4.
|
Investment
in Nonconsolidated Affiliates
|
Nonconsolidated affiliates of GM identified herein are those
entities in which GM owns an equity interest and for which GM
uses the equity method of accounting, because GM has the ability
to exert significant influence over decisions relating to their
operating and financial affairs. GMs significant
affiliates and the percent of GMs current equity ownership
or voting interest in them include the following:
United States GMAC (49% at March 31, 2007 and
100% at March 31, 2006)
China Shanghai General Motors Co., Ltd (50% at
March 31, 2007 and 2006) and SAIC-GM-Wuling Automobile
Co., Ltd (34% at March 31, 2007 and 2006)
GMAC was a wholly-owned subsidiary of GM during the three months
ended March 31, 2006. In November 2006, GM sold a 51%
controlling ownership interest in GMAC. The remaining 49%
interest held by GM, in the form of GMAC Common Membership
Interests, is accounted for using the equity method. In
addition, GM acquired 1,555,000 Preferred Membership Interests
representing approximately 74% of the Preferred Membership
Interests for a cash price of $1.4 billion. The investment
in GMAC Preferred Membership Interests, a cost method
investment, was initially recorded at fair value of
$1.6 billion at the date of its acquisition. The excess of
fair value over the cash exchanged for the Preferred Membership
Interests reduced GMs investment in GMAC Common Membership
Interests. At March 31, 2007, GMs investment in GMAC
Preferred Membership Interests was $1.6 billion. GMAC is
required to make certain quarterly distributions to holders of
the Preferred Membership Interests in cash on a pro rata basis.
The Preferred Membership Interests are issued in units of $1,000
and accrue a yield at a rate of 10% per annum. GM accrued a
dividend of $39 million for the three months ended
March 31, 2007. Refer to Note 14 for a description of
the related party transactions with GMAC.
10
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4.
|
Investment
in Nonconsolidated
Affiliates (concluded)
|
Information regarding GMs share of net income (loss) for
nonconsolidated affiliates described above is included in the
table below:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
GMAC
|
|
$
|
(183
|
)
|
|
$
|
|
|
Shanghai General Motors Co., Ltd
and SAIC-GM-Wuling Automobile Co., Ltd.
|
|
|
117
|
|
|
|
71
|
|
Other
|
|
|
39
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(27
|
)
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
|
The following table represents summarized financial information
of GMAC at and for the three months ended March 31, 2007
(dollars in millions):
|
|
|
|
|
Condensed Consolidated Statement
of Operations:
|
|
|
|
|
Total net sales and revenue
|
|
$
|
5,298
|
|
Depreciation and amortization
|
|
|
1,081
|
|
Interest expense
|
|
|
3,673
|
|
Operating loss
|
|
|
(155
|
)
|
Income tax expense
|
|
|
150
|
|
Net loss
|
|
|
(305
|
)
|
Net loss available to common
|
|
|
(357
|
)
|
Condensed Consolidated Balance
Sheet:
|
|
|
|
|
Loans held for sale
|
|
$
|
22,086
|
|
Finance receivables and loans, net
|
|
|
165,017
|
|
Investment in operating leases, net
|
|
|
25,881
|
|
Other assets
|
|
|
25,520
|
|
Total assets
|
|
|
275,132
|
|
Total debt
|
|
|
223,727
|
|
Accrued expenses
|
|
|
23,083
|
|
Total liabilities
|
|
|
257,840
|
|
Preferred interests
|
|
|
2,226
|
|
Total stockholders equity
|
|
|
15,066
|
|
In March 2006, GM sold 92.36 million shares of its
investment in Suzuki Motor Corporation (Suzuki), reducing
GMs equity stake in Suzuki from 20.4% to 3.7%
(16.3 million shares). The sale of GMs interest
generated cash proceeds of $2 billion and resulted in a
gain on the sale of $666 million. Effective with completion
of the sale, GMs remaining investment in Suzuki is
accounted for as an
available-for-sale
equity security.
11
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 5.
|
Product
Warranty Liability
|
Policy, product warranty, recall campaigns and certified used
vehicles liability included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Beginning balance
|
|
$
|
9,064
|
|
|
$
|
9,135
|
|
|
$
|
9,135
|
|
Payments
|
|
|
(1,151
|
)
|
|
|
(4,463
|
)
|
|
|
(1,119
|
)
|
Increase in liability (warranties
issued during period)
|
|
|
1,222
|
|
|
|
4,517
|
|
|
|
1,090
|
|
Adjustments to liability
(pre-existing warranties)
|
|
|
(11
|
)
|
|
|
(570
|
)
|
|
|
(10
|
)
|
Effect of foreign currency
translation
|
|
|
29
|
|
|
|
445
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
9,153
|
|
|
$
|
9,064
|
|
|
$
|
9,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reviews and adjusts these estimates on a regular
basis based on the differences between actual experience and
historical estimates or other available information.
|
|
Note 6.
|
GMNA
Postemployment Benefit Costs
|
Costs to idle, consolidate or close facilities and provide
postemployment benefits to employees idled on an other than
temporary basis are accrued based on managements best
estimate of the wage and benefits costs that will be incurred
for qualified employees under the JOBS Bank provisions of the
current labor agreement through the date of its expiration in
September 2007, plus estimated costs expected to be paid
thereafter taking into account policy changes that GM intends to
negotiate into the JOBS program after the expiration of the
current collective bargaining agreement. Costs related to the
idling of employees that are expected to be temporary are
expensed as incurred. GM reviews the adequacy and continuing
need for these liabilities on a quarterly basis in conjunction
with its quarterly production and labor forecasts.
In March 2006, GM, Delphi and the United Auto Workers (UAW)
reached an agreement (the UAW Attrition Agreement) intended to
reduce the number of U.S. hourly employees through an
accelerated attrition program (the Attrition Program). Under the
Attrition Program, GM provided certain UAW-represented employees
at GM with (i) a lump sum payment of $35,000 for normal or
early voluntary retirements retroactive to October 1, 2005;
(ii) a mutually satisfactory retirement for employees with
at least 10 years of credited service and 50 years of
age or older; (iii) payment of gross monthly wages ranging
from $2,750 to $2,900 to those employees who participate in a
special voluntary pre-retirement program depending on years of
credited service and plant work location; and (iv) a
buy-out of $140,000 for employees with ten or more years of
seniority, or $70,000 for employees with less than 10 years
seniority, provided such employees severed all ties with GM
except for any vested pension benefits. Approximately 34,400 GM
hourly employees agreed to the terms of the Attrition Program.
GM recorded a charge of approximately $2.1 billion in 2006
to recognize the wage and benefit cost of those accepting normal
and voluntary retirements, buy-outs or pre-retirement leaves. As
a result of the Attrition Program, the JOBS Bank was
substantially reduced as employees from the JOBS Bank retired,
took a buy-out or filled openings created by the Attrition
Program. Certain employees who choose to leave GM retired or
left by January 1, 2007 will continue to receive payments
until 2010.
Throughout 2006, GM recorded favorable adjustments totaling
$1 billion to the postemployment benefits reserve primarily
as a result of (i) the transfer of employees from idled
plants to other plant sites to replace those positions
previously held by employees who accepted retirements, buy-outs,
or pre-retirement leaves, (ii) a higher than anticipated
level of Attrition Program participation by employees at idled
facilities and facilities to be idled that were previously
accrued for under the JOBS Bank provisions, and
(iii) higher than anticipated headcount reductions
associated with the GMNA plant idling activities announced in
2005. In 2005, GM recognized a charge of $1.8 billion for
postemployment benefits related to the restructuring of its
North American operations.
12
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6.
|
GMNA
Postemployment Benefit
Costs (concluded)
|
Approximately 17,500 employees were included in the 2005 charge
for locations included in this action, some leaving the
Corporation through attrition and the remainder transferring to
other sites.
The liability for postemployment benefit costs of
$0.9 billion at March 31, 2007 reflects estimated
future wages and benefits for approximately 12,600 employees
primarily related to employees subject to the terms of the
Attrition Program and at idled facilities and facilities to be
idled. At December 31, 2006, the postemployment benefit
costs liability reflects estimated future wages and benefits of
$1.3 billion related to approximately 8,500 employees,
primarily located at idled facilities and facilities to be idled
as a result of previous GMNA plant idling activities and
approximately 10,900 employees subject to the terms of the
Attrition Program. The liability for postemployment benefit
costs as of March 31, 2006 reflects estimated future wages
and benefits of $1.8 billion related to approximately
17,600 employees located at multiple plants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Beginning balance
|
|
$
|
1,269
|
|
|
$
|
2,012
|
|
|
$
|
2,012
|
|
Additions
|
|
|
|
|
|
|
2,212
|
|
|
|
|
|
Interest accretion
|
|
|
4
|
|
|
|
31
|
|
|
|
8
|
|
Payments
|
|
|
(376
|
)
|
|
|
(1,834
|
)
|
|
|
(109
|
)
|
Adjustments
|
|
|
(4
|
)
|
|
|
(1,152
|
)
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
893
|
|
|
$
|
1,269
|
|
|
$
|
1,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7.
|
Commitments
and Contingent Matters
|
Commitments
GM has provided guarantees in relation to the residual value of
certain operating leases, primarily related to the lease of
GMs corporate headquarters. At March 31, 2007, the
maximum potential amount of future undiscounted payments that
could be required to be made under these guarantees amount to
$592 million. Years of expiration pertaining to these
guarantees range from 2008 to 2018, and certain of the leases
contain renewal options.
GM has agreements with third parties that guarantee the
fulfillment of certain suppliers commitments. At
March 31, 2007, the maximum potential future undiscounted
payments that could be required to be made under these
guarantees amount to approximately $80 million. Years of
expiration pertaining to these guarantees range from 2007 to
2035. Other guarantees with a maximum potential amount of future
undiscounted payments that could be required amounted to
approximately $5 million with the period of expiration
determined by business conditions, i.e., emergence from
bankruptcy or the sale of the business.
In addition, in some instances, certain assets of the party
whose debt or performance is guaranteed may offset, to some
degree, the effect of the triggering of the guarantee. The
offset of certain payables of GM may also apply to certain
guarantees. No liabilities were recorded with respect to such
guarantees as the amounts were determined to be insignificant.
GM also provides payment guarantees on commercial loans made by
GMAC and outstanding with certain third-parties. As of
March 31, 2007 maximum commercial obligations guaranteed by
GM were approximately $93 million. Years of expiration
pertaining to these guarantees range from 2007 to 2012. Based on
the creditworthiness of these third parties, the value ascribed
to the guarantee provided by GM was determined to be
insignificant.
In addition, GM has entered into agreements with GMAC and FIM
Holdings LLC, related to the disposal of its 51% interest in
GMAC, that incorporate indemnification provisions. The maximum
potential future
13
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7.
|
Commitments
and Contingent Matters (continued)
|
undiscounted payments to which GM may be exposed in terms of
these indemnification provisions amount to approximately
$2.5 billion. No amounts have been recorded for such
indemnities as the fair value of these indemnifications is
immaterial.
GM has entered into agreements indemnifying certain parties with
respect to environmental conditions pertaining to existing or
sold GM properties. Due to the nature of the indemnifications,
GMs maximum exposure under these guarantees cannot be
estimated. No amounts have been recorded for such indemnities,
as GMs obligations are not probable or estimable at this
time.
In addition to the guarantees and indemnifying agreements
mentioned above, GM periodically enters into agreements that
incorporate indemnification provisions in the normal course of
business. Due to the nature of these agreements, the maximum
potential amount of future undiscounted payments to which GM may
be exposed cannot be estimated. No amounts have been recorded
for such indemnities as GMs obligations under them are not
probable and estimable at this time.
Environmental
GMs operations, like operations of other companies engaged
in similar businesses, are subject to a wide range of
environmental protection laws including laws regulating air
emissions, water discharges, waste management, and environmental
cleanup. GM is in various stages of investigation or remediation
for sites where contamination has been alleged. We are involved
in a number of remediation actions to clean up hazardous wastes
as required by federal and state laws. Such statutes require
that responsible parties fund remediation actions regardless of
fault, legality of original disposal or ownership of a disposal
site.
The future impact of environmental matters, including potential
liabilities, is often difficult to estimate. We record an
environmental reserve when it is probable that a liability has
been incurred and the amount of the liability is reasonably
estimable. This practice is followed whether the claims are
asserted or unasserted. Management expects that the amounts
reserved will be paid out over the periods of remediation for
the applicable sites, which typically range from five to
30 years.
For many sites, the remediation costs and other damages for
which we ultimately may be responsible are not reasonably
estimable because of uncertainties with respect to factors such
as our connection to the site or to materials there, the
involvement of other potentially responsible parties, the
application of laws and other standards or regulations, site
conditions, and the nature and scope of investigations, studies,
and remediation to be undertaken (including the technologies to
be required and the extent, duration, and success of
remediation). As a result, we are unable to determine or
reasonably estimate the amount of costs or other damages for
which we are potentially responsible in connection with these
sites, although that total could be substantial.
While the final outcome of environmental matters cannot be
predicted with certainty, it is the opinion of GM that none of
these items, when finally resolved, will have a material adverse
effect on the Companys financial position or liquidity.
However, should a number of these items occur in the same
period, it could have a material adverse effect on the results
of operations in a particular quarter or fiscal year.
Asbestos
Claims
Like most automobile manufacturers, GM has been subject in
recent years to asbestos-related claims. GM has seen these
claims primarily arise from three circumstances. A majority of
these claims seek damages for illnesses alleged to have resulted
from asbestos used in brake components. A limited numbers of
claims have arisen from asbestos contained in the insulation and
brakes used in the manufacturing of locomotives and claims
brought by contractors who allege exposure to
asbestos-containing products while working on premises owned by
GM.
14
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7.
|
Commitments
and Contingent Matters (continued)
|
While GM has resolved many of the asbestos-related cases over
the years and continues to do so for strategic litigation
reasons such as avoiding defense costs and possible exposure to
excessive verdicts, management believes that only a small
proportion of the claimants has or will ever develop any
asbestos-related impairment. Only a small percentage of the
claims pending against GM allege causation of a malignant
disease associated with asbestos exposure. The amount expended
on asbestos-related matters in any year depends on the number of
claims filed, the amount of pretrial proceedings, and the number
of trials and settlements during the period.
GM records an estimated liability associated with reported
asbestos claims when it believes that the expected loss is both
probable and can be reasonably estimated. Prior to 2006, with
respect to incurred but not yet reported claims, GM concluded
that a range of probable losses was not reasonably estimable.
Over the last several years, GM has continued to accumulate data
associated with asbestos claims. Based on review of this data
during the fourth quarter of 2006, management determined that it
had enough information to determine a reasonable estimate of its
projected incurred, but not yet reported, claims that could be
asserted over the next two years. Based on its analysis, GM
recorded $127 million charge for unasserted asbestos claims
in the fourth quarter of 2006.
The amounts recorded by GM for the asbestos-related claims were
based upon currently known information. Future events, such as
the number of new claims to be filed each year and the average
cost of disposing of claims, as well as the numerous
uncertainties surrounding asbestos litigation in the United
States, could cause the actual costs to be significantly
different from those projected. Due to the uncertainty inherent
in factors used to determine GMs asbestos-related
liabilities, it is reasonably possible that future costs to
resolve asbestos claims may be greater than the estimate;
however, GM does not believe that it can reasonably estimate how
much greater it could be.
While the final outcome of asbestos-related matters cannot be
predicted with certainty, after discussion with counsel and
considering among other things liabilities that have been
recorded, it is the opinion of management that none of these
items, when finally resolved, is expected to have a material
adverse effect on GMs financial position or liquidity.
However, should many of these items occur in the same period,
they could have a material adverse effect on the results of
operations in a particular quarter or year.
Contingent
Matters
Litigation is subject to uncertainties and the outcome of
individual litigated matters is not predictable with assurance.
Various legal actions, governmental investigations, claims, and
proceedings are pending against the Corporation, including a
number of shareholder class actions, bondholder class actions,
shareholder derivative suits and ERISA class actions and other
matters arising out of alleged product defects including
asbestos-related claims; employment-related matters;
governmental regulations relating to safety, emissions, and fuel
economy; product warranties; financial services; dealer,
supplier, and other contractual relationships; and environmental
matters.
GM has established reserves for matters in which it believes
that losses are probable and can be reasonably estimated. Some
of the matters may involve compensatory, punitive, or other
treble damage claims, or demands for recall campaigns, incurred
but not reported asbestos-related claims, environmental
remediation programs, or sanctions, that if granted, could
require the Corporation to pay damages or make other
expenditures in amounts that could not be reasonably estimated
at March 31, 2007. While the final outcome of these matters
cannot be predicted with certainty, after discussion with
counsel, it is the opinion of management that such claims are
not expected to have a material adverse effect on GMs
consolidated financial condition or results of operations.
However, should many of these items occur in the same period,
they could have a material adverse effect on the results of
operations in a particular quarter or year.
Delphi
GM provided guarantees with respect to benefits for former GM
employees related to pensions and postretirement health care and
life insurance (OPEB) for certain divestitures made prior to
January 1, 2003. As
15
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7.
|
Commitments
and Contingent Matters (continued)
|
such, in connection with GMs spin-off of Delphi in 1999,
GM entered into separate agreements with the UAW, the IUE-CWA
and the United Steel Workers (Benefit Guarantee Agreements)
providing contingent benefit guarantees to make payments for
limited pension and OPEB expenses to certain former GM
U.S. hourly employees who transferred to Delphi and meet
the eligibility requirements for such payments (Covered
Employees). Each Benefit Guarantee Agreement contains separate
benefit guarantees relating to pension and OPEB obligations,
with different triggering events under which GM could be liable
if Delphi fails to provide the corresponding benefit at the
required level. Therefore, GM could incur liability under one of
the guarantees (e.g., OPEB) without triggering the other
guarantees (e.g., pension). In addition, with respect to pension
benefits, GMs guarantee of pension benefits arises only to
the extent that the pension benefits provided by Delphi and the
Pension Benefit Guaranty Corporation falls short of the
guaranteed amount. The benefit guarantees will expire on
October 18, 2007 unless Delphi fails before that date to
pay the specified benefits which would trigger the related
guarantee. If a benefit guarantee is triggered before its
expiration date, GMs obligation could extend for the lives
of affected Covered Employees, subject to the applicable terms
of the pertinent benefit plans or other relevant agreements. A
separate agreement between GM and Delphi which also expires on
October 18, 2007, requires Delphi to indemnify GM for any
payments under the benefit guarantees to the UAW employees or
retirees. Any recovery by GM under indemnity claims against
Delphi might be subject to partial or complete discharge in the
Delphi reorganization proceeding. As a result, GMs claims
for indemnity may not be paid in part or full.
In 2006, GM together with Delphi and the UAW entered into the
UAW Attrition Agreement, which provided a combination of early
retirement payments and other incentives to reduce the number of
U.S. hourly employees at GM and Delphi. A total of
12,400 UAW-represented Delphi employees elected one of the
retirement options available under the UAW agreement.
Under the UAW Attrition Agreement, GM agreed to assume certain
costs regarding UAW-represented Delphi employees. Specifically,
GM agreed to: (1) pay lump sums of $35,000 to certain
employees who participate in the Attrition Program;
(2) allow Delphi employees who agree to retire under the
Attrition Program to return to GM for purposes of retirement
whereby GM would assume all OPEB obligations to such retiree;
(3) subsidize OPEB costs for Delphi employees participating
in a special voluntary pre-retirement program for an interim
period, if Delphi reduces or eliminates its health care
and/or life
insurance coverage provided to active UAW employees; and
(4) accept 5,000 active flowback employees. GM will
have a prepetition, general unsecured claim assertable against
Delphi, other than the $35,000 lump sum payment subject to
objections on any grounds other than the claim did not arise
under the terms of the pre-existing contractual agreements
between GM and Delphi.
Approximately 6,200 IUE-CWA-represented Delphi employees
and approximately 1,400 UAW-represented Delphi employees
elected to participate in these attrition and buyout programs
similar to the program under the UAW attrition agreements
described above. GM and Delphi will share the cost of these
programs.
GM believes that it is probable that it has incurred a liability
due to Delphis Chapter 11 filing in October 2005. GM
established a liability of $5.5 billion in 2005 and
recorded an additional charge of $0.5 billion in 2006 for
OPEB obligations associated with previously divested Delphi
business units and certain labor restructuring costs, including
but not limited to expenditures related to the attrition
programs discussed above. Based on currently available data and
ongoing discussions with Delphi and other stakeholders, GM
believes that the range of the contingent exposures is between
$6.0 billion and $7.5 billion, with amounts near the
low end of the range considered more possible than amounts near
the high end of the range. These views reflect GMs current
assessment that it is unlikely that a Chapter 11 process
will result in both a termination of Delphis pension plan
in addition to complete elimination of its OPEB plans. The
amount of this charge may change, depending on further
discussions among GM, Delphi, and Delphis unions, and
other factors. In addition to these charges, GM may agree to
reimburse Delphi for certain labor expenses to be incurred upon
and after Delphis emergence from bankruptcy. GMs
current estimate of these expenses has increased as a result of
ongoing negotiations and involves an initial payment in 2007 of
approximately $500 million, and for a limited time, annual
payments between $100 million and
16
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7.
|
Commitments
and Contingent Matters (concluded)
|
$200 million. In addition, GM expects to incur certain
transitional operating expenses of approximately
$100 million in 2008. GM will recognize these expenses as
incurred in the future. GM expects these payments to be far
exceeded by anticipated reductions in the price of systems,
components, and parts it purchases from Delphi. Because
negotiations are ongoing, the actual impact of the resolution of
issues related to Delphi cannot be determined until the
Bankruptcy Courts approval of a comprehensive resolution,
and there can be no assurance that the parties will reach a
comprehensive resolution or that the Bankruptcy Court will
approve such a resolution, or that any resolution will include
the terms described above.
At March 31, 2007 and December 31, 2006, GMs
contingent liability related to the Delphi matters was
$1.1 billion and $1.5 billion, respectively. During
2006 and the first quarter of 2007, amounts previously recorded
under the benefit guarantee were reclassified to GMs OPEB
liability as GM has assumed the OPEB obligation for
approximately 17,800 Delphi employees that have returned back to
GM to continue working or retire with GM and for those covered
employees that remain at Delphi.
In March 2006, Delphi also filed a motion under the
U.S. Bankruptcy Code seeking authority to reject certain
supply contracts with GM. A hearing on this motion was adjourned
indefinitely by the court pending further developments related
to Delphis U.S. labor agreements and retiree welfare
benefits. Although Delphi has not rejected any GM contracts as
of this time and has assured GM that it does not intend to
disrupt production at GM assembly facilities, there is a risk
that Delphi or one or more of its affiliates may reject or
threaten to reject individual contracts with GM, either for the
purpose of exiting specific lines of business or in an attempt
to increase the price GM pays for certain parts and components.
As a result, GM could be materially adversely affected by
disruption in the supply of automotive systems, components and
parts that could force the suspension of production at GM
assembly facilities.
Delphi is GMs largest supplier of automotive systems,
components and parts, and GM is Delphis largest customer.
GM has worked and will continue to work constructively in the
court proceedings with Delphi, Delphis unions, and other
participants in Delphis restructuring process. GMs
goal is to achieve outcomes that are in the best interests of GM
and its stockholders, and to the extent conducive to that goal,
that enable Delphi to continue as an important supplier to GM.
Benefit
Guarantees Related to Divested Unit
GM has entered into various guarantees regarding benefits for
former GM employees at two previously divested plants that
manufacture component parts whose results continue to be
included in GMs financial statements in accordance with
FIN 46(R), Consolidation of Variable Interest Entities. For
these divested plants, GM entered into agreements with both the
purchasers to indemnify, defend, and hold each purchaser
harmless for any liabilities arising out of the divested plants
and with the UAW guaranteeing certain postretirement health care
benefits and payment of postemployment benefits.
In October 2006, it was announced that production would cease at
these two plants which would permanently idle approximately
2,000 workers. Accordingly, during the fourth quarter of 2006,
GM results include a charge of $206 million comprised of
the following related to the closure of these plants: (1) a
$214 million charge to recognize wage and benefit costs
associated with employees accepting retirement packages,
buyouts, or supplemental unemployment benefit costs in
connection with the plant closure, (2) a curtailment loss
of $3 million related to pension benefits, and (3) a
curtailment gain of $11 million with respect to other
postretirement benefits. In the first quarter of 2007, GM
recognized a $38.2 million curtailment gain with respect to
OPEB and a favorable adjustment of $2.6 million in
connection with the plant closures.
17
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8.
|
Earnings
Per Share
|
Basic earnings per share has been computed by dividing net
income by the weighted average number of shares outstanding
during the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock.
The reconciliation of the amounts used in the basic and diluted
earnings per share computations was as follows (in millions,
except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Three Months Ended
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
$
|
62
|
|
|
|
566
|
|
|
$
|
0.11
|
|
Effect of common stock equivalents
arising from settlement of contingent convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exercise of stock
options and vesting of restricted stock units
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
62
|
|
|
|
567
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
$
|
602
|
|
|
|
566
|
|
|
$
|
1.06
|
|
Effect of common stock equivalents
arising from settlement of contingent convertible debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exercise of stock options
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
602
|
|
|
|
569
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain stock options with exercise prices that exceed the fair
market value of GMs common stock had an antidilutive
effect and therefore were excluded from the computation of
diluted earnings per share. The number of such shares not
included in the computation of diluted earnings per share were
104 million and 108 million at March 31, 2007 and
2006, respectively.
GM has contingently convertible debentures of $2.6 billion
principal amount of 5.25% Series B due in 2032 and
$4.3 billion principal amount of 6.25% Series C due in
2033 outstanding that, if converted in the future, would have a
potentially dilutive effect on GMs common stock. GM has
unilaterally and irrevocably waived and relinquished its right
to use stock, and has committed to use cash, to settle the
principal amount of the debentures if (1) holders choose to
convert the debentures or (2) GM is required by holders to
repurchase the debentures. GM retains the right to use either
cash or stock to settle any amount that may become due to debt
holders in excess of the principal amount. As of March 31,
2007 and 2006, shares potentially issuable under these
debentures were excluded from the computation of diluted
earnings per share as the effect is antidilutive under the
treasury stock method.
On March 6, 2007, Series A convertible debentures in
the amount of $1.1 billion were put to GM and settled
entirely in cash.
18
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9.
|
Depreciation
and Amortization
|
Depreciation and amortization, including asset impairment
charges, included in automotive cost of sales, selling, general
and administrative expense, and financial services and insurance
expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Depreciation
|
|
$
|
1,257
|
|
|
$
|
1,114
|
|
Amortization of special tools
|
|
|
725
|
|
|
|
738
|
|
Amortization of intangible assets
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,999
|
|
|
|
1,869
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance
Operations
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
379
|
|
|
|
1,505
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
379
|
|
|
|
1,511
|
|
|
|
|
|
|
|
|
|
|
Total consolidated depreciation
and amortization
|
|
$
|
2,378
|
|
|
$
|
3,380
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10.
|
Pensions
and Other Postretirement Benefits
|
GM recognized the funded status of its benefit plans at
December 31, 2006 in accordance with the recognition
provisions of SFAS No. 158. Additionally, GM elected
to early adopt the measurement date provisions of SFAS
No. 158 at January 1, 2007. Those provisions require
the measurement date for plan assets and liabilities to coincide
with the sponsors year end. Using the
two-measurement approach for those defined benefit
plans where the measurement date was not historically consistent
with GMs year-end, GM recorded a decrease to retained
earnings of $0.7 billion, or $0.4 billion after-tax,
representing the net periodic benefit cost for the period
between the measurement date utilized in 2006 and the beginning
of 2007, which previously would have been recorded in the first
quarter of 2007 on a delayed basis. GM also performed a
measurement at January 1, 2007 for those benefit plans
whose previous measurement dates were not historically
consistent with GMs year-end. As a result of the
January 1, 2007 measurement, GM recorded an increase to
accumulated other comprehensive income of $2.3 billion, or
$1.5 billion after-tax, representing other changes in the
fair value of the plan assets and the benefit obligations for
the period between the measurement date utilized in 2006 and
January 1, 2007. These amounts are offset principally by an
immaterial adjustment of $400 million, or $250 million
after-tax, related to the adoption of the recognition provisions
of SFAS No. 158 to correct certain demographic
information used in determining the amount of the cumulative
effect of a change in accounting principle reported at
December 31, 2006.
19
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10.
|
Pensions
and Other Postretirement
Benefits (concluded)
|
The components of pension and OPEB expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
U.S. Other
|
|
|
Non-U.S.
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
Other Benefits
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Components of (income)
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
160
|
|
|
$
|
253
|
|
|
$
|
118
|
|
|
$
|
113
|
|
|
$
|
93
|
|
|
$
|
176
|
|
|
$
|
10
|
|
|
$
|
13
|
|
Interest cost
|
|
|
1,216
|
|
|
|
1,219
|
|
|
|
255
|
|
|
|
211
|
|
|
|
901
|
|
|
|
1,077
|
|
|
|
46
|
|
|
|
47
|
|
Expected return on plan assets
|
|
|
(1,986
|
)
|
|
|
(2,014
|
)
|
|
|
(218
|
)
|
|
|
(174
|
)
|
|
|
(350
|
)
|
|
|
(375
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
130
|
|
|
|
273
|
|
|
|
7
|
|
|
|
25
|
|
|
|
(461
|
)
|
|
|
(28
|
)
|
|
|
(20
|
)
|
|
|
(20
|
)
|
Recognized net actuarial loss
|
|
|
211
|
|
|
|
406
|
|
|
|
82
|
|
|
|
94
|
|
|
|
339
|
|
|
|
619
|
|
|
|
28
|
|
|
|
32
|
|
Curtailments, settlements, and
other
|
|
|
2
|
|
|
|
23
|
|
|
|
23
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) expense
|
|
$
|
(267
|
)
|
|
$
|
160
|
|
|
$
|
267
|
|
|
$
|
282
|
|
|
$
|
522
|
|
|
$
|
1,469
|
|
|
$
|
64
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective March 31, 2006, the U.S. District Court for
the Eastern District of Michigan approved the tentative
settlement agreement with the UAW (UAW Settlement Agreement)
related to reductions in hourly retiree health care; this
approval is now under appeal. The UAW Settlement Agreement will
remain in effect until at least September 2011, after which
either GM or the UAW may cancel the agreement upon 90 days
written notice. Similarly, GMs contractual obligations to
provide health care benefits to UAW hourly retirees extends to
at least September 2011 and will continue thereafter until
terminated by either GM or the UAW. As a result, the provisions
of the UAW Settlement Agreement will continue in effect for the
UAW retirees beyond the expiration in September 2007 of the
current collective bargaining agreement between GM and the UAW.
Given the significance of the effect of the UAW Settlement
Agreement, the plans were remeasured in March 2006. The
remeasurement of the U.S. hourly OPEB plans as of
March 31, 2006 due to the UAW Settlement Agreement
generated a $1.3 billion reduction in OPEB expense
recognized in the remaining period in 2006 and reduced the
U.S. accumulated benefit obligation by $14.5 billion.
|
|
Note 11.
|
Impairments,
Restructuring and Other Initiatives
|
Impairments
In the first quarter of 2007, GMAP recorded impairment charges
totaling $9 million related to product specific assets
based on GMs periodic review of its long-lived assets
classified as held and used.
Restructuring
and Other Initiatives
GME results for the first quarter of 2007 include charges for
separation programs of $57 million primarily at its Germany
facilities. A charge of $43 million was recorded in the
first quarter of 2007 related to early retirement programs and a
new separation program in Germany. Approximately
5,000 employees will leave under early retirement programs
through 2013. The cost will be recognized over the remaining
service period of these employees. The charge for the new
separation program relates to approximately 80 employees.
The remaining separation charges related to separations in
Sweden, the closure of GMs Portugal assembly plant, and
the shift reduction at the Ellesmere Port plant in the United
Kingdom. These separation programs are substantially completed
at March 31, 2007. GME results for the first quarter of
2006 included charges for separations and contract cancellations
of $47 million. These charges are related to the
restructuring plan announced in the fourth quarter of 2004.
20
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 11.
|
Impairments,
Restructuring and Other
Initiatives (concluded)
|
GMAP results for the first quarter of 2007 include a charge for
separation programs of $40 million at its Australian
facilities. This charge relates to the voluntary separation of
approximately 600 employees.
GMNA results for the first quarter of 2006 included a charge of
$100 million related to wage and benefit costs incurred
under a salaried severance program, which allows involuntarily
terminated employees to receive continued salary and benefits
for a period of time after termination.
GMLAAM results for the first quarter of 2006 include
restructuring charges of $27 million. These restructuring
charges relate to the costs of voluntary employee separations at
GMs facilities in Brazil.
|
|
Note 12.
|
Restatement
of Previously Issued Condensed Consolidated Financial
Statements
|
As previously disclosed in our 2006 Annual Report on
Form 10-K,
GM has restated its prior years consolidated financial
statements. As such, the accompanying condensed consolidated
financial statements in this Quarterly Report on
Form 10-Q
as of and for the three months ended March 31, 2006 have
been restated to correct the accounting for certain derivative
transactions under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended
(SFAS No. 133), and various other accounting
adjustments.
The following table sets forth a reconciliation of previously
reported and restated net income for the three months ended
March 31, 2006 (in millions):
|
|
|
|
|
Net income, as previously
reported
|
|
$
|
445
|
|
Pre-tax adjustments:
|
|
|
|
|
Derivative and hedge accounting
adjustments
|
|
|
|
|
Commodity Contracts
|
|
|
|
|
Normal purchases and normal
sales scope exception for certain commodity contracts
|
|
|
80
|
|
Hedge accounting related to
commodity cash flow hedges
|
|
|
270
|
|
Foreign Exchange
Contracts
|
|
|
|
|
Hedge accounting related to
foreign currency cash flow and net investment hedges
|
|
|
115
|
|
Interest Rate
Contracts
|
|
|
|
|
Hedge accounting related to
certain debt instruments
|
|
|
(191
|
)
|
|
|
|
|
|
Total derivative and hedge
accounting adjustments
|
|
|
274
|
|
Other
out-of-period
adjustments
|
|
|
(80
|
)
|
|
|
|
|
|
Total pre-tax adjustments
|
|
|
194
|
|
Income tax expense
|
|
|
37
|
|
|
|
|
|
|
Total of above adjustments, net of
tax
|
|
|
157
|
|
|
|
|
|
|
Net income, as
restated
|
|
$
|
602
|
|
|
|
|
|
|
21
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12.
|
Restatement
of Previously Issued Condensed Consolidated Financial
Statements (continued)
|
The following table sets forth a reconciliation of previously
reported and restated earnings per share for the three months
ended March 31, 2006:
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
Earnings per share, as reported
|
|
$
|
0.79
|
|
Adjustments
|
|
|
0.27
|
|
|
|
|
|
|
Earnings per share, as restated
|
|
$
|
1.06
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
Earnings per share, as reported
|
|
$
|
0.78
|
|
Adjustments
|
|
|
0.28
|
|
|
|
|
|
|
Earning per share, as restated
|
|
$
|
1.06
|
|
|
|
|
|
|
These restatement adjustments and revisions are further
described below:
Derivatives
and Hedge Accounting Adjustments
Commodity
Contracts
In reviewing the accounting for certain commodity purchase
contracts, GM determined that it had incorrectly concluded that
the normal purchases and normal sales scope
exception in paragraph 10(b) of SFAS No. 133
applied. Therefore, these commodity purchase contracts should
have been accounted for as derivatives. The financial statements
have been restated to record the fair value of these purchase
contracts in the 2006 condensed consolidated balance sheet and
record the changes in the fair value of the commodity contracts
as charges or credits in the condensed consolidated statement of
income. As a result of the restatement, the derivative assets
were $251.8 million at March 31, 2006. Additionally,
pre-tax earnings were increased, through a reduction of
Automotive cost of sales, by $80.1 million
($52.1 million after tax) for the three months ended
March 31, 2006.
Additionally, GM entered into various commodity derivatives
contracts, including swaps and options, to hedge its forecasted
purchases of precious and non-ferrous metals and energy. These
commodity derivatives were designated as cash flow hedges. Under
SFAS No. 133, hedge accounting is appropriate only for
those hedging relationships that a company expects will be
highly effective in achieving offsetting changes in fair value
or cash flows attributable to the risk being hedged. To
determine whether transactions satisfy these requirements,
companies must periodically assess and document the
effectiveness of their hedging relationships both
retrospectively and prospectively and measure and recognize any
ineffectiveness. For certain commodity cash flow hedges, GM
inappropriately applied the matched terms method of
assessing hedge effectiveness as outlined in paragraph 65
of SFAS No. 133 by not considering in its assessment
certain terms of the underlying commodity contracts that created
ineffectiveness in the cash flow hedging relationship. In
addition, for other commodity cash flow hedges, GM did not
properly document the hedging relationship or properly perform
the periodic retrospective assessment of effectiveness necessary
to qualify for hedge accounting or properly measure hedge
ineffectiveness, and did not properly reclassify amounts from
Other Comprehensive Income (OCI) when the underlying hedged
forecasted transaction affected earnings. Accordingly, the
commodity derivatives should have been
marked-to-market
with gains and losses recorded in cost of sales. Changes in the
fair value of the commodity derivatives that had been recorded
in OCI as part of these cash flow hedging relationships were
reversed and recorded in Automotive cost of sales. Pre-tax
earnings were increased through a reduction of Automotive cost
of sales, by $270.1 million ($175.6 million after tax)
for the three months ended March 31, 2006.
22
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12.
|
Restatement
of Previously Issued Condensed Consolidated Financial
Statements (continued)
|
Foreign
Exchange Contracts
GM enters into foreign currency forward contracts and
cross-currency swaps to hedge foreign-currency-denominated debt
and forecasted transactions. GM also designates
foreign-currency-denominated debt as hedges of net investments
in foreign operations.
GM concluded that it did not properly apply the matched
terms method of assessing hedge effectiveness as outlined
in paragraph 65 of SFAS No. 133, inadequately
measured hedging effectiveness and lacked contemporaneous hedge
documentation and, therefore, incorrectly applied hedge
accounting to certain cash flow hedges and net investment
hedges. The changes in fair value of certain derivatives used in
cash flow hedging relationships and amounts related to a net
investment hedge previously recorded in OCI were released from
OCI and recorded in Automotive cost of sales. Pre-tax earnings
were increased by $83.6 million ($54.3 million after
tax) for the three months ended March 31, 2006.
In addition, GM determined it incorrectly applied cash flow
hedge accounting treatment to one of two concurrent offsetting
derivatives by accounting for the two derivatives separately
instead of treating them as one combined arrangement in
accordance with SFAS No. 133, Implementation
Issue F6, Concurrent Offsetting Matching Swaps and Use of One as
Hedging Instrument, and SFAS No. 133,
Implementation Issue K1, Determining Whether Separate
Transactions Should Be Viewed as a Unit. The changes in
fair value of the derivatives used in this hedging strategy
previously accounted for as cash flow hedges were released from
OCI and recorded in Automotive cost of sales. Pre-tax earnings
were increased by $31.1 million ($20.2 million after
tax) for the three months ended March 31, 2006.
Interest
Rate Contracts
GMAC determined that its hedge accounting documentation and
hedge effectiveness assessment methodologies did not meet the
requirements of paragraph 20(b) of SFAS No. 133
for certain hedges of callable fixed rate debt instruments.
Under SFAS No. 133, hedge accounting is appropriate
only for those hedging relationships that a company has
sufficiently documented an expectation that such relationship
will be highly effective in achieving offsetting changes in fair
values attributable to the risk being hedged at the inception of
the hedging relationship. To determine whether transactions
satisfy these requirements, a company must periodically assess
the effectiveness of its hedging relationships both
prospectively and retrospectively. After review, GMAC determined
that the interest rate derivatives did not qualify for hedge
accounting. Accordingly, hedge accounting should not have been
applied to any of the hedging relationships in this strategy and
therefore, market value adjustments on the debt instruments
included in the hedging relationships related to changes in fair
value due to movements in the designated benchmark interest rate
should not have been recorded. Changes in the fair value of the
debt instruments recorded in earnings under these fair value
hedge relationships were reversed. Pre-tax earnings were
decreased, through an increase to interest expense, by
$190.7 million ($124.0 million after tax) for the
three months ended March 31, 2006.
Other
Out-of-Period
Adjustments
Also, GM identified adjustments that should have been recorded
in the three months ended March 31, 2006. Upon
identification, GM determined these adjustments to be
immaterial, individually and in the aggregate, to our previously
filed condensed consolidated financial statements, and recorded
these
out-of-period
adjustments in the periods in which they were identified. Due to
the adjustments that required a restatement of our previously
filed condensed consolidated financial statements, GM is
correcting these
out-of-period
adjustments by recording them in the proper periods.
23
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12.
|
Restatement
of Previously Issued Condensed Consolidated Financial
Statements (continued)
|
The
out-of-period
adjustments in the table above include the following:
Unemployment benefit payments. Subsequent to
December 31, 2005 but prior to the issuance of our 2005
consolidated financial statements, we were notified by the
German Labor Office that we were released from certain
contingent unemployment benefit payment obligations. We
initially recorded the release in the three months ended
March 31, 2006. We subsequently determined that the
adjustment should have been recorded in the three months ended
December 31, 2005. Accordingly, as part of our restatement,
pre-tax earnings were decreased, through an increase of
Automotive cost of sales, by $50.2 million
($31.1 million after-tax) in the three months ended
March 31, 2006.
Automotive revenue recognition. We recorded an
adjustment to correct deferred revenue related to data disks
provided to customers to update their vehicles
navigational system. We did not compute deferred revenue using
fair value as determined by vendor specific objective evidence
as required by
EITF 00-21,
Revenue Arrangements with Multiple Deliverables.
Additionally, we did not defer revenue on the correct number of
2006 model year vehicles containing navigation systems. As part
of our restatement, pre-tax earnings were decreased, through a
reduction of Automotive sales, by $21.4 million
($13.9 million after-tax) for the three months ended
March 31, 2006.
Development costs. We recorded an adjustment to
correctly expense supplier development costs. As part of our
restatement, pre-tax and after-tax earnings were increased,
through a reduction of Automotive cost of sales, by
$56.7 million for the three months ended March 31,
2006.
Advertising expenses. Under our cooperative
advertising program with our dealers, we are obligated to match
a portion of the funds contributed by our dealers for
advertising. We recorded an adjustment to correctly reflect the
timing of our obligation under this arrangement. Previously, our
matching portion of the advertising costs was expensed as
incurred. As part of our restatement, pre-tax earnings were
decreased, through an increase to selling, general and
administrative expenses, by $35.3 million
($22.9 million after-tax) for the three months ended
March 31, 2006.
Gain on sale of equity method investment. We
erroneously determined a gain on the sale of a portion of an
equity method investment. As part of our restatement, pre-tax
earnings were increased by $36.0 million
($23.4 million after-tax) for the three months ended
March 31, 2006.
Employee related costs. We erroneously recorded
employee-related costs related to the Attrition Program and
restructuring activities at GME. As part of our restatement,
pre-tax earnings were decreased, through an increase to
Automotive cost of sales, by $52.1 million
($32.3 million after-tax) for the three months ended
March 31, 2006.
In addition to the items listed above, we also recorded other
less significant
out-of-period
pre-tax and income tax adjustments, the net effect of which
decreased pre-tax earnings by $13.7 million and decreased
after-tax earnings by $1.0 million for the three months
ended March 31, 2006.
In addition to the above adjustments, to comply with EITF
00-10,
Accounting for Shipping and Handling Fees and Costs,
in 2006 GM reclassified shipping and handling costs incurred to
transport product to its customers. The correction for this
reclassification increased Automotive sales and Automotive cost
of sales by $1.0 billion for the three months ended
March 31, 2006.
24
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12.
|
Restatement
of Previously Issued Condensed Consolidated Financial
Statements (continued)
|
The following is a summary of the effect of the restatement on
the originally issued Condensed Consolidated Statement of Income
and Condensed Consolidated Balance Sheet (dollars in millions,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2006
|
|
|
|
Previously
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
Reclassified
|
|
|
Restated
|
|
|
Net sales and revenue
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
$
|
42,542
|
|
|
$
|
43,529
|
|
Financial services and insurance
revenue
|
|
|
8,855
|
|
|
|
8,847
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
|
51,397
|
|
|
|
52,376
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
39,514
|
|
|
|
40,073
|
|
Selling, general, and
administrative expense
|
|
|
3,400
|
|
|
|
3,427
|
|
Financial services and insurance
expense
|
|
|
8,075
|
|
|
|
8,285
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
50,989
|
|
|
|
51,785
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
408
|
|
|
|
591
|
|
Automotive and other interest
expense
|
|
|
(684
|
)
|
|
|
(638
|
)
|
Automotive interest income and
other non-operating income
|
|
|
848
|
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, other
equity income and minority interests
|
|
|
572
|
|
|
|
751
|
|
Income tax expense
|
|
|
194
|
|
|
|
232
|
|
Equity income and minority
interests, net of tax
|
|
|
67
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
445
|
|
|
$
|
602
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share:
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
$
|
.79
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, basic (millions)
|
|
|
566
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share:
|
|
|
|
|
|
|
|
|
Earnings per share, diluted
|
|
$
|
.78
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding, diluted (millions)
|
|
|
569
|
|
|
|
569
|
|
|
|
|
|
|
|
|
|
|
25
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12.
|
Restatement
of Previously Issued Condensed Consolidated Financial
Statements (concluded)
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
|
Previously
|
|
|
|
|
|
|
Reported
|
|
|
Restated
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,427
|
|
|
$
|
17,427
|
|
Marketable securities
|
|
|
1,396
|
|
|
|
1,396
|
|
|
|
|
|
|
|
|
|
|
Total cash and marketable securities
|
|
|
18,823
|
|
|
|
18,823
|
|
Accounts and notes receivable, net
|
|
|
9,440
|
|
|
|
6,966
|
|
Inventories
|
|
|
14,862
|
|
|
|
14,867
|
|
Equipment on operating leases, net
|
|
|
7,217
|
|
|
|
7,217
|
|
Deferred income taxes and other
current assets
|
|
|
10,032
|
|
|
|
10,139
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
60,374
|
|
|
|
58,012
|
|
Financing and Insurance
Operations Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
17,441
|
|
|
|
17,441
|
|
Investments in securities
|
|
|
18,443
|
|
|
|
18,443
|
|
Finance receivables, net
|
|
|
180,161
|
|
|
|
180,173
|
|
Loans held for sale
|
|
|
18,171
|
|
|
|
18,171
|
|
Equipment on operating leases, net
|
|
|
32,570
|
|
|
|
32,570
|
|
Other assets
|
|
|
31,608
|
|
|
|
28,996
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance
Operations Assets
|
|
|
298,394
|
|
|
|
295,794
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
38,457
|
|
|
|
38,551
|
|
Deferred income taxes
|
|
|
21,034
|
|
|
|
22,387
|
|
Prepaid pension
|
|
|
37,592
|
|
|
|
37,478
|
|
Other assets
|
|
|
7,813
|
|
|
|
9,917
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
104,896
|
|
|
|
108,333
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
463,664
|
|
|
$
|
462,139
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable (principally trade)
|
|
$
|
26,614
|
|
|
$
|
26,872
|
|
Short-term borrowings and current
portion of long-term debt
|
|
|
1,207
|
|
|
|
1,294
|
|
Accrued expenses
|
|
|
43,317
|
|
|
|
43,424
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
71,138
|
|
|
|
71,590
|
|
Finance and Insurance Operations
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
3,596
|
|
|
|
3,596
|
|
Debt
|
|
|
244,779
|
|
|
|
245,260
|
|
Other liabilities and deferred
income taxes
|
|
|
31,924
|
|
|
|
29,136
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance
Operations Liabilities
|
|
|
280,299
|
|
|
|
277,992
|
|
Non-Current
Liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
31,021
|
|
|
|
32,612
|
|
Postretirement benefits other than
pensions
|
|
|
31,431
|
|
|
|
31,431
|
|
Pensions
|
|
|
11,576
|
|
|
|
11,576
|
|
Other liabilities and deferred
income taxes
|
|
|
21,699
|
|
|
|
20,084
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
95,727
|
|
|
|
95,703
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
447,164
|
|
|
|
445,285
|
|
Minority interest
|
|
|
1,075
|
|
|
|
1,075
|
|
Stockholders
Equity
|
|
|
|
|
|
|
|
|
Preferred stock, no par value,
authorized 6,000,000, no shares issued and outstanding
|
|
|
|
|
|
|
|
|
$12/3
par value common stock (2,000,000 shares authorized,
756,637,541 and 565,559,329 shares issued and outstanding,
respectively)
|
|
|
943
|
|
|
|
943
|
|
Capital surplus (principally
additional
paid-in-capital)
|
|
|
15,296
|
|
|
|
15,296
|
|
Retained earnings
|
|
|
2,652
|
|
|
|
3,408
|
|
Accumulated other comprehensive
(loss)
|
|
|
(3,466
|
)
|
|
|
(3,868
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
15,425
|
|
|
|
15,779
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities, Minority
Interests, and Stockholders Equity
|
|
$
|
463,664
|
|
|
$
|
462,139
|
|
|
|
|
|
|
|
|
|
|
26
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13.
|
Segment
Reporting
|
GM operates in two businesses, consisting of Automotive and
Other (Auto) and Financing and Insurance Operations (FIO).
GMs four automotive regions consist of GMNA, GME, GMLAAM
and GMAP. For the three months ended March 31, 2007,
GMs FIO business primarily consists of our 49% share of
GMACs operating results which we accounted for under the
equity method, and two special purpose entities holding
automotive leases previously owned by GMAC and its affiliates
that were retained by GM, as well as the elimination of
intercompany transactions with GM Automotive and Corporate and
Other. For the three months ended March 31, 2006, GMs
FIO business consists of the consolidated operating results of
GMACs lines of business: Automotive Finance Operations,
Mortgage Operations; Insurance, and Other, which includes its
Commercial Finance business and GMACs equity investment in
Capmark (previously GMAC Commercial Finance). Also included in
FIO is Other Financing, which consists of the equity earnings of
financing entities that are not consolidated by GMAC as well as
the elimination of intercompany transactions with GM Automotive
and Corporate and Other. Corporate and other includes the
elimination of intersegment transactions, certain non-segment
specific revenues and expenditures, including costs related to
postretirement benefits for Delphi and other retirees, and
certain corporate activities.
In 2007, GM changed its segment presentation to reflect the
elimination of transactions occurring between GM Automotive
regions, previously included in the GMNA region, to the Other
column within total GMA. These transactions consist primarily of
intra-segment vehicle and service parts sales in accordance with
GMs transfer pricing policy. Accordingly, 2006 amounts
have been revised for comparability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GM
|
|
|
|
|
|
|
|
|
Total
|
|
|
Corporate
|
|
|
Excluding
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
LAAM
|
|
|
GMAP
|
|
|
Other
|
|
|
GMA
|
|
|
& Other
|
|
|
FIO
|
|
|
GMAC (a)
|
|
|
Financing
|
|
|
Financing
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
For the Three Months Ended
March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
27,963
|
|
|
$
|
8,084
|
|
|
$
|
3,460
|
|
|
$
|
3,396
|
|
|
$
|
(2
|
)
|
|
$
|
42,901
|
|
|
$
|
22
|
|
|
$
|
42,923
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
42,923
|
|
Intersegment
|
|
|
543
|
|
|
|
401
|
|
|
|
113
|
|
|
|
1,163
|
|
|
|
(2,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
28,506
|
|
|
|
8,485
|
|
|
|
3,573
|
|
|
|
4,559
|
|
|
|
(2,222
|
)
|
|
|
42,901
|
|
|
|
22
|
|
|
|
42,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,923
|
|
Financial services and insurance
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
936
|
|
|
|
986
|
|
|
|
986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
$
|
28,506
|
|
|
$
|
8,485
|
|
|
$
|
3,573
|
|
|
$
|
4,559
|
|
|
$
|
(2,222
|
)
|
|
$
|
42,901
|
|
|
$
|
22
|
|
|
$
|
42,923
|
|
|
$
|
50
|
|
|
$
|
936
|
|
|
$
|
986
|
|
|
$
|
43,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1,383
|
|
|
$
|
381
|
|
|
$
|
73
|
|
|
$
|
147
|
|
|
$
|
9
|
|
|
$
|
1,993
|
|
|
$
|
6
|
|
|
$
|
1,999
|
|
|
$
|
|
|
|
$
|
379
|
|
|
$
|
379
|
|
|
$
|
2,378
|
|
Interest income
|
|
$
|
253
|
|
|
$
|
155
|
|
|
$
|
26
|
|
|
$
|
34
|
|
|
$
|
|
|
|
$
|
468
|
|
|
$
|
(219
|
)
|
|
$
|
249
|
|
|
$
|
|
|
|
$
|
140
|
|
|
$
|
140
|
|
|
$
|
389
|
|
Interest expense(a)
|
|
$
|
744
|
|
|
$
|
191
|
|
|
$
|
36
|
|
|
$
|
56
|
|
|
$
|
3
|
|
|
$
|
1,030
|
|
|
$
|
(231
|
)
|
|
$
|
799
|
|
|
$
|
|
|
|
$
|
248
|
|
|
$
|
248
|
|
|
$
|
1,047
|
|
Income tax expense (benefit)
|
|
$
|
3
|
|
|
$
|
(1
|
)
|
|
$
|
53
|
|
|
$
|
27
|
|
|
$
|
(3
|
)
|
|
$
|
79
|
|
|
$
|
(85
|
)
|
|
$
|
(6
|
)
|
|
$
|
(19
|
)
|
|
$
|
25
|
|
|
$
|
6
|
|
|
$
|
|
|
Earnings (losses) of
nonconsolidated affiliates
|
|
$
|
13
|
|
|
$
|
8
|
|
|
$
|
6
|
|
|
$
|
127
|
|
|
$
|
|
|
|
$
|
154
|
|
|
$
|
2
|
|
|
$
|
156
|
|
|
$
|
(183
|
)
|
|
$
|
|
|
|
$
|
(183
|
)
|
|
$
|
(27
|
)
|
Net income (loss)
|
|
$
|
(46
|
)
|
|
$
|
5
|
|
|
$
|
201
|
|
|
$
|
116
|
|
|
$
|
(4
|
)
|
|
$
|
272
|
|
|
$
|
(124
|
)
|
|
$
|
148
|
|
|
$
|
(115
|
)
|
|
$
|
29
|
|
|
$
|
(86
|
)
|
|
$
|
62
|
|
Investments in nonconsolidated
affiliates
|
|
$
|
302
|
|
|
$
|
419
|
|
|
$
|
145
|
|
|
$
|
1,099
|
|
|
$
|
|
|
|
$
|
1,965
|
|
|
$
|
36
|
|
|
$
|
2,001
|
|
|
$
|
7,355
|
|
|
$
|
|
|
|
$
|
7,355
|
|
|
$
|
9,356
|
|
Total assets
|
|
$
|
129,713
|
|
|
$
|
28,945
|
|
|
$
|
4,883
|
|
|
$
|
14,117
|
|
|
$
|
(10,656
|
)
|
|
$
|
167,002
|
|
|
$
|
(3,788
|
)
|
|
$
|
163,214
|
|
|
$
|
9,011
|
|
|
$
|
12,973
|
|
|
$
|
21,984
|
|
|
$
|
185,198
|
|
Goodwill
|
|
$
|
271
|
|
|
$
|
492
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
763
|
|
|
$
|
|
|
|
$
|
763
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
763
|
|
|
|
|
(a) |
|
Refer to Note 4 for summarized financial information of
GMAC for the three months ended March 31, 2007. |
27
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13.
|
Segment
Reporting (concluded)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GM
|
|
|
|
|
|
|
|
|
Total
|
|
|
Corporate
|
|
|
Excluding
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
LAAM
|
|
|
GMAP
|
|
|
Other
|
|
|
GMA
|
|
|
& Other
|
|
|
FIO
|
|
|
GMAC
|
|
|
Financing
|
|
|
Financing
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
For the Three Months Ended
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
30,315
|
|
|
$
|
7,565
|
|
|
$
|
2,983
|
|
|
$
|
2,715
|
|
|
$
|
|
|
|
$
|
43,578
|
|
|
$
|
(49
|
)
|
|
$
|
43,529
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43,529
|
|
Intersegment
|
|
|
542
|
|
|
|
490
|
|
|
|
178
|
|
|
|
671
|
|
|
|
(1,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
30,857
|
|
|
|
8,055
|
|
|
|
3,161
|
|
|
|
3,386
|
|
|
|
(1,881
|
)
|
|
|
43,578
|
|
|
|
(49
|
)
|
|
|
43,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,529
|
|
Financial services and insurance
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,813
|
|
|
|
34
|
|
|
|
8,847
|
|
|
|
8,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
$
|
30,857
|
|
|
$
|
8,055
|
|
|
$
|
3,161
|
|
|
$
|
3,386
|
|
|
$
|
(1,881
|
)
|
|
$
|
43,578
|
|
|
$
|
(49
|
)
|
|
$
|
43,529
|
|
|
$
|
8,813
|
|
|
$
|
34
|
|
|
$
|
8,847
|
|
|
$
|
52,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1,359
|
|
|
$
|
355
|
|
|
$
|
54
|
|
|
$
|
87
|
|
|
$
|
9
|
|
|
$
|
1,864
|
|
|
$
|
5
|
|
|
$
|
1,869
|
|
|
$
|
1,511
|
|
|
$
|
|
|
|
$
|
1,511
|
|
|
$
|
3,380
|
|
Interest income
|
|
$
|
303
|
|
|
$
|
107
|
|
|
$
|
20
|
|
|
$
|
25
|
|
|
$
|
3
|
|
|
$
|
458
|
|
|
$
|
(316
|
)
|
|
$
|
142
|
|
|
$
|
605
|
|
|
$
|
(154
|
)
|
|
$
|
451
|
|
|
$
|
593
|
|
Interest expense
|
|
$
|
799
|
|
|
$
|
153
|
|
|
$
|
28
|
|
|
$
|
55
|
|
|
$
|
|
|
|
$
|
1,035
|
|
|
$
|
(397
|
)
|
|
$
|
638
|
|
|
$
|
3,814
|
|
|
$
|
(17
|
)
|
|
$
|
3,797
|
|
|
$
|
4,435
|
|
Income tax expense (benefit)
|
|
$
|
(11
|
)
|
|
$
|
35
|
|
|
$
|
57
|
|
|
$
|
252
|
|
|
$
|
(2
|
)
|
|
$
|
331
|
|
|
$
|
(321
|
)
|
|
$
|
10
|
|
|
$
|
222
|
|
|
$
|
|
|
|
$
|
222
|
|
|
$
|
232
|
|
Earnings (loss) of nonconsolidated
affiliates
|
|
$
|
13
|
|
|
$
|
7
|
|
|
$
|
4
|
|
|
$
|
101
|
|
|
$
|
|
|
|
$
|
125
|
|
|
$
|
1
|
|
|
$
|
126
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
126
|
|
Net income (loss)
|
|
$
|
(292
|
)
|
|
$
|
59
|
|
|
$
|
40
|
|
|
$
|
492
|
|
|
$
|
(4
|
)
|
|
$
|
295
|
|
|
$
|
(189
|
)
|
|
$
|
106
|
|
|
$
|
495
|
|
|
$
|
1
|
|
|
$
|
496
|
|
|
$
|
602
|
|
Investments in nonconsolidated
affiliates
|
|
$
|
155
|
|
|
$
|
351
|
|
|
$
|
152
|
|
|
$
|
1,097
|
|
|
$
|
|
|
|
$
|
1,755
|
|
|
$
|
34
|
|
|
$
|
1,789
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,789
|
|
Total assets
|
|
$
|
133,864
|
|
|
$
|
25,962
|
|
|
$
|
4,734
|
|
|
$
|
10,967
|
|
|
$
|
(8,252
|
)
|
|
$
|
167,275
|
|
|
$
|
(930
|
)
|
|
$
|
166,345
|
|
|
$
|
303,744
|
|
|
$
|
(7,950
|
)
|
|
$
|
295,794
|
|
|
$
|
462,139
|
|
Goodwill
|
|
$
|
308
|
|
|
$
|
445
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
753
|
|
|
$
|
|
|
|
$
|
753
|
|
|
$
|
2,521
|
|
|
$
|
|
|
|
$
|
2,521
|
|
|
$
|
3,274
|
|
|
|
Note 14.
|
Transactions
with GMAC
|
GM has entered into various operating and financing arrangements
with GMAC. The nature and terms of these arrangements were
negotiated at arms length. The following describes the
transactions and related impacts that occurred between GM and
GMAC for the three month period ended March 31, 2007 that
have not been eliminated in GMs consolidated financial
statements:
Marketing
Incentives and Operating Lease Residuals
As a marketing incentive, GM may sponsor interest rate support,
capitalized cost reduction and residual support programs as a
way to lower customers monthly lease and retail contract
payments. In addition GM may sponsor lease pull-ahead programs
to encourage customers to terminate their leases early in
conjunction with the acquisition of a new GM vehicle.
Under the interest rate support program, GM pays an amount to
GMAC at the time of lease or retail contract origination to
adjust the interest rate implicit in the lease or retail
contract below GMACs standard interest rate. Such
marketing incentives are referred to as rate support or
subvention and the amount paid at contract origination
represents the present value of the difference between the
customer rates and the GMAC standard rates.
Under the capitalized cost reduction program, GM pays an amount
to GMAC at the time of lease or retail contract origination to
reduce the principal amount implicit in the lease or retail
contract below GMs standard MSRP (manufacturers suggested
retail price) value.
Under the residual support program, the customers
contractual residual value is adjusted above GMACs
standard residual values. GM reimburses GMAC to the extent that
sales proceeds are less than the customers contractual
residual value, limited to GMACs standard residual value.
As it relates to U.S. lease originations and
U.S. balloon retail contract originations occurring after
April 30, 2006 that GMAC retained after the consummation of
the GMAC sale, GM agreed to begin payment of the present value
of the expected residual support owed to GMAC at the time of
contract origination as opposed to after contract termination
when the related used vehicle is sold. The residual support
amount owed to GMAC is adjusted as the contracts terminate and,
in cases where the estimate is adjusted, GM may be obligated to
pay GMAC or GMAC may be obliged to reimburse GM. At
March 31,
28
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 14.
|
Transactions
with GMAC (continued)
|
2007 the maximum additional amount that could be paid by GM
under the residual support programs is approximately
$400 million. GMs assessment is that it would be
unlikely that the proceeds from the entire portfolio of assets
would be lower than both the contractual residual value and
GMACs standard residual rates.
Under the lease pull-ahead program, customers are encouraged to
terminate their leases early in conjunction with the acquisition
of a new GM vehicle. As part of this program, GMAC waives the
customers remaining payment obligation under their current
lease, and GM compensates GMAC for any foregone revenue from the
waived payments. Since these programs generally accelerate the
re-sale of the vehicle, the proceeds are typically higher than
otherwise would have been realized had the vehicle been sold at
the contract maturity. The reimbursement to GMAC for the
foregone payments is reduced by the amount of this benefit. GM
makes anticipated payments to GMAC at the end of each month
following lease termination. As with residual support payments
discussed above, these estimates are adjusted to actual once all
vehicles that could have been pulled ahead have terminated and
the vehicles have been resold. To the extent that the original
estimates were adjusted, GM or GMAC may be obligated to pay each
other the difference, as appropriate under the lease pull-ahead
programs.
In addition to the interest rate support, capitalized cost
reduction, residual support and lease pull-ahead programs, GM
also participates in a risk sharing arrangement that was amended
on November 30, 2006 and applies to all new lease
contracts. GM is responsible for risk sharing on returns of
lease vehicles in the U.S. and Canada whose resale proceeds are
less than standard GMAC residual values, subject to a
limitation. GM will also pay GMAC a quarterly leasing payment in
connection with the agreement beginning in the first quarter of
2009 and ending in the fourth quarter of 2014. At March 31,
2007, the maximum amount guaranteed under the risk sharing
arrangement is approximately $600 million and would only be
paid in the unlikely event that the proceeds from all
outstanding lease vehicles would be lower than GMACs
standard residual rates, subject to the limitation.
In accordance with GMs revenue recognition accounting
policy the marketing incentives, apart from the lease pull-ahead
programs, as well as the risk sharing arrangement are accrued as
reductions to automotive sales at the time of the sale of the
vehicle to the dealers based on the estimated GMAC lease and
retail contract penetration. The lease pull-ahead programs are
accrued as reductions to automotive sales when the specific
lease pull-ahead program is announced. GM paid approximately
$900 million under these programs in the first quarter of
2007.
The terms and conditions of interest rate support, capitalized
cost reduction, residual support and lease pull-ahead programs,
as well as the risk sharing arrangement, are included in the
U.S., Canadian, and International Consumer Financing Services
Agreements, which expire in November 2016.
Operating
Lease Assets Transferred to GM by GMAC
In November 2006, GMAC transferred to GM certain U.S. lease
assets, along with related debt and other assets. GMAC retained
an investment in a note, which had a balance of
$446 million at March 31, 2007 and is secured by the
lease assets transferred to GM. GMAC will continue to service
the leased assets and related debt on behalf of GM and receive a
servicing fee. GMAC is obligated as servicer to repurchase any
leased asset that is in breach of any of the covenants in the
securitization agreements. In addition, in a number of the
transactions securitizing the lease assets, the trusts issued
one or more series of floating rate debt obligations and entered
into derivative transactions to eliminate the market risk
associated with funding the fixed payment lease assets with
floating interest rate debt. To facilitate these securitization
transactions, GMAC entered into secondary derivative
transactions with the primary derivative counterparties,
essentially offsetting the primary derivatives. As part of the
transfer, GM assumed the rights and obligations of the primary
derivative while GMAC retained the secondary, leaving both
companies exposed to market value movements of their respective
derivatives. GM and GMAC subsequently entered into derivative
transactions with each other that are intended to offset the
exposure each party has to its component of the primary and
secondary derivatives.
29
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 14.
|
Transactions
with GMAC (continued)
|
Exclusivity
Arrangement
Subject to GMACs fulfillment of certain conditions, GM has
granted GMAC exclusivity for U.S., Canadian, and international
GM-sponsored consumer and wholesale marketing incentives for GM
products in specified markets around the world, with the
exception of Saturn branded products. In return for this
exclusivity, GMAC will pay GM an annual exclusivity fee of
$105 million ($75 million for the U.S. retail
business, $15 million for the Canadian retail business,
$10 million for retail business in international
operations, and $5 million for the dealer business) and is
committed to provide financing to GM customers and dealers
consistent with historical practices. The amount of exclusivity
fee revenue recognized by GM for the three months ended
March 31, 2007 was approximately $26 million.
Marketing
Service Agreement
GM and GMAC have entered into a ten-year marketing, promoting,
advertising, and customer support arrangement related to GM
products, GMAC products and the retail financing for GM
products. This agreement expires in November 2016.
Royalty
Arrangement
For certain insurance products, GM and GMAC have entered into
ten-year intellectual property license agreements giving GMAC
the right to use the GM name on certain insurance products. In
exchange, GMAC will pay a royalty fee of 3.25% of revenue, net
of cancellations, related to these products with a minimum
annual guarantee of $15 million. The amount of royalty
recognized for the three months ended March 31, 2007 was
approximately $4 million.
Shared
and Transition Services Agreement
GM and GMAC entered into a Shared and Transition Services
Agreement to continue to provide to each other global support
services, primarily treasury, tax, real estate, and human
resources, for a transition period of one to two years from the
transaction date. GM expects that when the Shared and Transition
Services Agreement expires, GM and GMAC will either renew this
services agreement or GM and GMAC will perform the related
services internally or potentially outsource to other providers.
Balance
Sheet
A summary of the balance sheet effects of transactions with GMAC
at March 31, 2007 are as follows (dollars in millions):
|
|
|
|
|
Assets:
|
|
|
|
|
Accounts and notes receivable(a)
|
|
$
|
1,335
|
|
Other assets(b)
|
|
|
41
|
|
Liabilities:
|
|
|
|
|
Accounts payable(c)
|
|
|
679
|
|
Short-term borrowings and current
portion of long-term debt(d)
|
|
|
3,081
|
|
Accrued expenses(e)
|
|
|
63
|
|
Long-term debt(f)
|
|
|
411
|
|
|
|
|
(a) |
|
Represents wholesale settlements due from GMAC, amounts owed by
GMAC with respect to the operating lease assets transferred to
GM, and the exclusivity fee and royalty arrangement as discussed
above. |
|
(b) |
|
Represents primarily distributions due from GMAC on GMs
Preferred Membership Interests. |
30
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Concluded)
|
|
Note 14.
|
Transactions
with GMAC (concluded)
|
|
|
|
(c) |
|
Represents amounts accrued with respect to interest rate
support, capitalized cost reduction, residual support and lease
pull-ahead programs and well as the risk sharing arrangement. |
|
(d) |
|
Represents wholesale financing, sales of receivable transactions
and the short term portion of term loans provided to certain
dealerships wholly-owned by GM or in which GM has an equity
interest. In addition, it includes borrowing arrangements with
Adam Opel and arrangements related to GMACs funding of GM
company-owned vehicles, rental car vehicles awaiting sale at
auction, and funding of the sale of GM vehicles in which GM
retains title while the vehicles are consigned to GMAC or
dealers in the United Kingdom. The financing to GM remains
outstanding until the title is transferred to the dealers. Also
included is the short-term portion of a note provided to a
wholly-owned subsidiary of GM holding debt related to the
operating leases transferred to GM and a note related to the
overpayment of approximately $0.3 billion of income taxes
by GMAC. These taxes were paid by GMAC to GM and are expected to
be refunded to GMAC on or before December 15, 2007. |
|
(e) |
|
Represents mainly interest accrued on the transactions in
(d) above. |
|
(f) |
|
Represents primarily the long-term portion of term loans and a
note payable with respect to the operating leases transferred to
GM discussed in (d) above. |
Statement
of Operations
A summary of the income statement effects of transactions with
GMAC for the three months ended March 31, 2007 are as
follows (dollars in millions):
|
|
|
|
|
Net sales and revenue(a)
|
|
$
|
56
|
|
Cost of sales and other expenses
|
|
|
1
|
|
Automotive interest income and
other non-operating income(b)
|
|
|
107
|
|
Derivatives(c)
|
|
|
5
|
|
Interest expense(d)
|
|
|
80
|
|
Servicing expense(e)
|
|
|
50
|
|
|
|
|
(a) |
|
Represents primarily the sale of vehicles to a subsidiary of
GMAC for a GM employee lease program. |
|
(b) |
|
Represents income on GMs Preferred Membership Interest in
GMAC, exclusivity and royalty fee income, as well as
reimbursements by GMAC for certain services provided by GM.
Included in this amount is rental income related to GMACs
primary executive and administrative offices located in the
Renaissance Center in Detroit, Michigan. The lease agreement
expires on November 30, 2016. |
|
(c) |
|
Represents gains recognized in connection with a derivative
transaction entered into with GMAC as the counterparty. |
|
(d) |
|
Represents interest incurred on term loans, notes payable and
wholesale settlements. |
|
(e) |
|
Represents servicing fees paid to GMAC on the automotive leases
retained by GM. |
31
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
GM is primarily engaged in the worldwide development,
production, and marketing of automobiles, consisting of cars and
trucks. GM develops, manufactures, and markets vehicles
worldwide through four automotive regions: GM North America
(GMNA), GM Europe (GME), GM Latin America/Africa/Mid-East
(GMLAAM), and GM Asia Pacific (GMAP) (collectively the
Automotive business). Also, GMs finance and insurance
operations are primarily conducted through GMAC, the successor
to General Motors Acceptance Corporation, a wholly-owned
subsidiary until the end of November 2006 when GM sold a 51%
controlling ownership interest in GMAC to a consortium of
investors (the GMAC Transaction). Since the GMAC Transaction, GM
has accounted for its 49% ownership interest in GMAC using the
equity method. GMAC provides a broad range of financial
services, including consumer vehicle financing, automotive
dealership and other commercial financing, residential mortgage
services, automobile service contracts, personal automobile
insurance coverage and selected commercial insurance coverage.
From time to time, GM discusses issues of shared interest such
as possible transactions with other parties, including other
vehicle manufacturers. Frequently these proposals do not come to
fruition. We do not confirm or comment on any potential
transactions or other matters unless, and until, we determine
that disclosure is appropriate.
Financial
Results
Consolidated net sales and revenue was $43.9 billion in the
first quarter of 2007 as compared to $52.4 billion in the
first quarter of 2006. Consolidated net income was
$62 million for the first quarter in 2007, a decrease of
$540 million from the first quarter in 2006. A discussion
of our regional automotive operating results and FIO financial
review follows.
Strategy
As GM previously described in more detail in its Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2006 (2006
Form 10-K),
our top priorities continue to be improving our business in
North America and achieving global competitiveness in an
increasingly global environment, thus positioning GM for
sustained profitability and growth in the long term, while at
the same time maintaining strong liquidity.
Our growth and profitability priorities for 2007 are
straightforward:
Continue to execute the North America turnaround
plan. Our first priority in 2007 is improving our
earnings and cash flow, particularly in GMNA, the traditional
core of our operations and financial results. Our turnaround
plan for GMNA is built on four elements: achieve and sustain
product excellence; revitalize our sales and marketing strategy;
accelerate cost reductions and quality improvements; and address
health care/legacy cost burden. Our primary revenue related
goals for 2007 include improving our contribution margin in
North America by selling a more profitable vehicle product mix
which we are pursuing by emphasizing the quality and value of
our vehicles, reducing reliance on sales marketing incentives
and increasing our marketing efforts on our newly launched
products. Our primary cost related goals for 2007 in North
America remain addressing our legacy cost burden and reducing
our structural costs. Going forward, we intend to reduce our
structural costs in North America by an average of
$9 billion per year on a running rate basis in 2007
compared to 2005, and we remain focused on repositioning our
business for long-term competitiveness, including achieving a
successful resolution to the Delphi situation and a new
collective bargaining agreement with the International Union,
United Auto, Aerospace and Agricultural Implement Workers of
America (UAW) in 2007 that benefits both GM and its hourly
employees.
Grow Aggressively in Emerging Markets. Our second
key priority is to focus on emerging markets and capitalize on
the growth in areas such as China, India, and the Southeast
Asian region, as well as Russia, Brazil, the Middle East, and
the Andean region. Vehicle sales and revenues continue to grow
globally, with the strongest growth in these emerging markets.
In response, we are planning to expand capacity in China,
Russia, and India, and to pursue additional growth opportunities
through our relationships with Shanghai General Motors Co., Ltd.
and GM Daewoo Auto & Technology Company (GM Daewoo).
In the first quarter of 2006, we experienced growth in
32
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Strategy (concluded)
revenue in each of our geographic regions and improved
profitability in all four of our regions. In the first quarter
of 2007, we sold a record number of cars and trucks. Revenue at
GME and GMLAAM set a first-quarter record, and GMAPs
revenue was larger than any quarter in its history. Improvements
in vehicle sales were particularly strong in Russia and
countries in Eastern Europe, Venezuela, Colombia, South Africa,
China, India, and South Korea.
Continue to Drive the Benefits of Managing the Business
Globally. Our third key priority is to continue to
integrate our operations around the world to manage our business
on a global basis. GM has been focusing on restructuring its
operations and has already taken a number of steps to globalize
our principal business functions such as product development,
manufacturing, powertrain, and purchasing, to improve our
performance in an ever-more competitive environment.
Continue to Develop and Implement GMs Advanced
Propulsion Strategy. Our fourth key priority is to
continue to develop and advance our alternative propulsion
strategy, focused on fuel and other technologies, making energy
diversity and environmental leadership a critical element of our
ongoing strategy. In addition to continuing to improve the
efficiency of our internal combustion engines, we are focused on
the introduction of propulsion technologies which utilize
alternative fuels and have intensified our efforts to displace
traditional petroleum-based fuels.
Improve Business Results Earnings and Cash
Flow. We anticipate improved automotive earnings and
cash flow in 2007, resulting from further cost reductions and
increased vehicle sales, particularly of newly introduced
models. In addition to our other priorities outlined above, we
are focused on the continued improvement of our balance sheet
and liquidity position.
Basis of
Presentation
This Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) gives effect to
the restatement discussed in Note 12 to the Condensed
Consolidated Financial Statements and should be read in
conjunction with GMs 2006 Annual Report on
Form 10-K
filed separately with the U.S. Securities and Exchange
Commission (SEC). All earnings per share amounts included in the
MD&A are reported on a fully diluted basis.
GM operates in two businesses, consisting of Automotive (Auto)
and Financing and Insurance Operations (FIO).
GMs Auto business consists of GMNA, GME, GMLAAM, GMAP, and
intra-segment eliminations classified within Other-Auto which
together constitute GM Automotive (GMA).
GMs FIO business consists of the operating results of GMAC
for the three months ended March 31, 2006 on a consolidated
basis and includes GMs 49% share of GMACs operating
results for the three months ended March 31, 2007 on an
equity method basis. FIO also includes Other Financing which for
the three months ended March 31, 2006 includes financing
entities that were not consolidated by GMAC and for the three
months ended March 31, 2007, includes certain assets with
respect to automotive leases previously owned by GMAC and its
affiliates having a net book value of approximately
$3.8 billion at March 31, 2007.
Consistent with industry practice, our market share information
includes estimates of sales in certain countries where public
reporting is not legally required or otherwise available on a
consistent basis.
33
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Consolidated
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Net sales and revenue
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
$
|
42,923
|
|
|
$
|
43,529
|
|
Financial services and insurance
revenue
|
|
|
986
|
|
|
|
8,847
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
|
43,909
|
|
|
|
52,376
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
39,047
|
|
|
|
40,073
|
|
Selling, general, and
administrative expenses
|
|
|
3,375
|
|
|
|
3,427
|
|
Financial services and insurance
expense
|
|
|
883
|
|
|
|
8,285
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
604
|
|
|
|
591
|
|
Equity in loss of GMAC LLC
|
|
|
(183
|
)
|
|
|
|
|
Automotive interest and other
income (expense)
|
|
|
(413
|
)
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, other
equity income and minority interests
|
|
|
8
|
|
|
|
751
|
|
Income tax expense
|
|
|
|
|
|
|
232
|
|
Equity income and minority
interests, net of tax
|
|
|
54
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
62
|
|
|
$
|
602
|
|
|
|
|
|
|
|
|
|
|
Net margin
|
|
|
0.1
|
%
|
|
|
1.1
|
%
|
GMs consolidated net sales and revenue was
$43.9 billion in the first quarter of 2007 as compared to
$52.4 billion in the first quarter of 2006. GMs
consolidated net income was $62 million for the first
quarter in 2007, a decrease of $540 million from the first
quarter in 2006. The reduction in revenue was primarily due to
GMs sale of a 51% controlling ownership interest in GMAC
in November of 2006. Since then, GM has accounted for its 49%
ownership interest in GMAC using the equity method. GMs
consolidated results reflect GMAC on an equity basis in the
first quarter of 2007, as compared to GMAC on a consolidated
basis for comparable period of 2006. Revenue and net income
related to GMACs operations were $9 billion and
$495 million in the first quarter of 2006, respectively.
Further information on each of GMs businesses and
geographic regions are discussed below.
Changes
in Consolidated Financial Condition
Accounts
and notes receivable
Accounts and notes receivable at March 31, 2007 was
$9.7 billion as compared to $8.2 billion at
December 31, 2006, an increase of $1.5 billion or 18%.
The increase is primarily due to the lower receivable balance at
December 31, 2006 as a result of the seasonal plant
shutdowns during the holiday season that significantly reduce
shipments during the last 2 weeks of the period while we
continue to collect existing receivables. Accounts receivable
have also increased $0.5 billion due to increased sales to
overseas distribution channels.
Inventories
Inventories at March 31, 2007 were $15.4 billion as
compared to $13.9 billion at December 31, 2006, an
increase of $1.5 billion or 11%. The increase in inventory
at March 31, 2007 is primarily due to a $1.3 billion
build up during the first quarter, to normal levels, subsequent
to the two week plant shut down leading up to December 31,
2006. During the shutdown period GM monitors procurement to
align with our production schedule to reduce inventory levels.
These increases were most significant at GMNA,
$0.3 billion, GME, $0.8 billion, and GMAP
$0.2 billion. GME attributed an additional
$0.2 billion of inventory at March 31, 2007 due to a
vehicle mix that contained higher total content.
34
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Consolidated
Results of Operations (concluded)
Changes
in Financial
Condition (concluded)
Financing
equipment on operating leases, net
Equipment on operating leases, net, consisting of the portfolio
of leases retained by GM, was $10.5 billion at
March 31, 2007 as compared to $11.8 billion at
December 31, 2006, a decrease of $1.3 billion or 11%.
The decrease was due to the termination of vehicle leases that
are not being replaced.
Automotive
accounts payable (principally trade)
Automotive accounts payable at March 31, 2007 was
$30.1 billion as compared to $26.9 billion at
December 31, 2006, an increase of $3.2 billion or 12%.
The increase of $2.8 billion in accounts payable is
primarily due to normal resumption in production following the
year end shut down period. This increase in automotive payables
by region was: GMNA, $1.4 billion; GME, $0.7 billion;
GMLAAM, $0.2 billion; and GMAP, $0.5 billion. During
the shut down period purchasing is significantly reduced while
GM continues to pay suppliers on their normal payment terms.
Additionally, payables have increased $0.2 billion due to a
shift in vehicle mix containing more content, and
$0.2 billion of additional payables due to miscellaneous
items such as foreign exchange and the timing of the payment of
sales allowances.
Short-term
borrowings and current portion of long-term debt
Short-term borrowings and current portion of long-term debt at
March 31, 2007 was $4.8 billion as compared to
$5.7 billion at December 31, 2006, a decrease of
$0.9 billion. The decrease in debt is primarily due to the
repayment of $1.1 billion of contingently convertible
(Series A) debt in the first quarter of 2007.
Financing
other liabilities and deferred income taxes
Financing other liabilities and deferred income taxes at
March 31, 2007 was $1.6 billion as compared to
$1.9 billion at December 31, 2006, a decrease of
$0.3 billion. The decrease is primarily related to a
$1.0 billion payment to GMAC for amounts owed under the
GMAC sales agreement to restore their adjusted tangible equity
balance to $14.4 billion.
Financing
debt
Financing debt at March 31, 2007 was $8.3 billion as
compared to $9.4 billion at December 31, 2006, a
decrease of $1.1 billion or 12%. The decrease in debt is
primarily due to the repayment of the secured debt associated
with the bankruptcy-remote subsidiaries that hold the equity
interests in a number of trusts that own leased vehicles.
35
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Operations Financial Review
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
42,901
|
|
|
$
|
43,578
|
|
Automotive cost of sales
|
|
|
38,957
|
|
|
|
39,870
|
|
Selling, general, and
administrative expenses
|
|
|
3,210
|
|
|
|
3,221
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
734
|
|
|
|
487
|
|
Automotive interest and other
income (expense)
|
|
|
(436
|
)
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, other
equity income and minority interests
|
|
|
298
|
|
|
|
556
|
|
Income tax expense
|
|
|
79
|
|
|
|
331
|
|
Equity income and minority
interests, net of tax
|
|
|
53
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
272
|
|
|
$
|
295
|
|
|
|
|
|
|
|
|
|
|
Net margin
|
|
|
0.6
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Volume in thousands)
|
|
Vehicle Unit Sales
|
|
|
|
|
|
|
|
|
Industry
|
|
|
17,419
|
|
|
|
16,851
|
|
GM
|
|
|
2,266
|
|
|
|
2,200
|
|
GM as a % of industry
|
|
|
13.0
|
%
|
|
|
13.1
|
%
|
GMs management evaluates its automotive business and makes
certain decisions using supplemental categories for variable
expenses and non-variable expenses. GM believes that because
these categories provide them with useful information, investors
would find it beneficial to have the opportunity to view the
business in a similar manner.
Management believes that contribution costs, structural costs,
and impairment and restructuring charges provide meaningful
supplemental information regarding our expenses because they
place Automotive expenses into categories that allow GM
management to assess the cost performance of GMA. GM management
uses these categories to evaluate GMs expenses and
believes these categories allow GM management to readily
view operating trends, perform analytical comparisons, benchmark
expenses among geographic regions, and assess whether the
turnaround and globalization strategy for cutting costs are on
target. GM management uses these categories for forecasting
purposes, evaluating management, and determining its future
capital investment allocations. Accordingly, GM believes these
categories are useful to investors in allowing for greater
transparency of supplemental information used by management in
its financial and operational decision-making.
While GM believes that contribution costs, structural costs, and
impairment and restructuring charges provide useful information,
there are limitations associated with the use of these
categories. Contribution costs, structural costs, and impairment
and restructuring charges may not be completely comparable to
similarly titled measures of other companies due to potential
differences in the exact method of calculation between
companies. As a result, these categories have limitations and
should not be considered in isolation from, or as a substitute
for, other measures such as automotive cost of sales and
selling, general, and administrative expenses. GM compensates
for
36
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Operations Financial
Review (continued)
these limitations by using these categories as supplements to
automotive cost of sales and selling, general, and
administrative expenses.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in billions)
|
|
|
Automotive net sales and revenue
|
|
$
|
42.9
|
|
|
$
|
43.6
|
|
Contribution costs(a)
|
|
|
29.4
|
|
|
|
29.6
|
|
Structural costs(b)
|
|
|
12.6
|
|
|
|
13.3
|
|
Impairment and restructuring
charges(c)
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
(a) |
|
Contribution costs are expenses that vary with production. The
amount of contribution costs included in Automotive cost of
sales is $29.2 billion and $29.4 billion in the first
quarter of 2007 and 2006, respectively. These costs primarily
consist of material costs, freight, and policy and warranty
expenses. The amount of contribution costs classified in the
caption Selling, general, and administrative
expenses is approximately $250 million related to
advertising expenses in both 2007 and 2006 which were incurred
in connection with our dealer advertising programs. |
|
(b) |
|
Structural costs are expenses that do not generally vary in
direct proportion with production and are recorded in both
Automotive cost of sales and selling, general, and
administrative expenses. Such costs include manufacturing labor,
pension and OPEB costs, engineering expense, and marketing
related costs. Certain costs related to restructuring and
impairments that are included in cost of sales are also excluded
from structural costs. The amount of structural costs included
in Automotive cost of sales was $9.6 billion and
$10.3 billion, in the first quarter of 2007 and 2006,
respectively, and the amount of structural costs included in
selling, general and administrative expenses is approximately
$3.0 billion in both 2007 and 2006. |
|
(c) |
|
The amount of impairment and restructuring charges included in
Automotive cost of sales was $44 million and
$206 million in the first quarters of 2007 and 2006,
respectively. |
Industry
Global Vehicle Sales
Worldwide industry vehicle unit sales increased approximately
0.5 million units in the first quarter of 2007, to
approximately 17.4 million units, compared to approximately
16.9 million units in the first quarter of 2006. Industry
sales decreased in North America by approximately 60 thousand
units, to 4.7 million units in the first quarter of 2007,
compared to approximately 4.8 million units in the first
quarter of 2006. All other regions experienced growth in
industry unit volume compared to 2006, particularly the Latin
America/Africa/Mid-East region, up over 200 thousand units
to about 1.6 million units in 2007, and the Asia Pacific
region, up over 300 thousand units to about
5.4 million units in 2007.
GM
Global Vehicle Sales
Worldwide GM vehicle unit sales were 2.3 million units, an
increase of approximately 66 thousand units, compared to about
2.2 million units in the first quarter of 2006. GME,
GMLAAM, and GMAP all reported sales unit increases, while a
sales decline was reported in GMNA. Global market share for GM
was 13.0% compared to 13.1% in the first quarter of 2006. Market
share declines in GMNA due to planned reductions in sales to
rental car fleet customers were largely offset by market share
gains in GME, GMLAAM and GMAP.
GM global production volume for the first quarter of 2007 was
2.3 million units, a decrease of approximately
75 thousand units from first quarter 2006. This was due to
a decrease in GMNA of approximately 190 thousand units, which
was partially offset by production increases
year-over-year
in GMLAAM, GME, and GMAP. The production decline in GMNA was
largely attributable to a dealer inventory reduction of
91,000 units in the U.S. and Canada compared to a year ago,
as well as a reduction in daily rental deliveries of
69,000 units.
37
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Operations Financial
Review (continued)
Automotive
Net Sales and Revenue
GM automotive net sales and revenue was $42.9 billion in
the first quarter of 2007, a decrease of approximately
$0.7 billion from the comparable period of 2006. Lower
global vehicle sales units resulted in a revenue reduction of
$4.1 billion, primarily driven by GMNA, which included
reductions of less profitable daily rental units. Sales volumes
increased in GMLAAM and GMAP offsetting a portion of the GMNA
revenue decline.
Favorable vehicle mix increased revenue compared to the first
quarter of 2006 by approximately $2.3 billion. New vehicle
launches, primarily full size
pick-ups and
cross-overs in North America and VE Commodore in Australia
contributed to this increase, as well as fewer daily rental
vehicles and higher vehicle option content.
The impact of the weaker U.S. dollar relative to the Euro,
British Pound, Swedish Krona, Brazilian Real and Korean Won had
a favorable impact of approximately $0.8 billion on global
revenues in the first quarter of 2007.
Favorable
year-to-year
pricing at GMNA, GME and GMLAAM and higher part and accessory
sales, outside powertrain sales, and other miscellaneous sales
contributed to a revenue increase of approximately
$0.3 billion in the first quarter of 2007.
Contribution
Costs
Contribution costs in the first quarter of 2007 were
$29.4 billion, a reduction of $0.2 billion from the
comparable period of 2006. Contribution costs decreased, as a
result of lower global sales volumes mostly at GMNA by
approximately $2.9 billion. The decrease in costs due to
the impact of lower unit volume was partially offset by
increases in vehicle content primarily in North America driven
by launches of new
pick-ups and
cross-over vehicles that contributed to higher material cost of
approximately $1.3 billion. Higher prices for non-ferrous
metals and steel resulted in an increase of approximately
$0.3 billion in material costs from the prior period. A
weak U.S. dollar also contributed to higher contribution
costs. Although vehicle unit sales have declined, policy and
warranty expenses were unchanged from the first quarter of 2006
due to additional costs relating to the GM powertrain
100,000 mile extended warranty coverage announced in
September 2006.
Structural
Costs
Automotive structural costs were $12.6 billion in the first
quarter of 2007, a reduction of $0.7 billion from the first
quarter of 2006. Structural costs were reduced by
$1.2 billion as a result of the UAW attrition program and
healthcare settlements. These programs lowered pension and OPEB
cost by reducing healthcare costs for certain hourly retirees
and those employees who left GM through
buy-out and
early retirement programs. Hourly labor costs were also reduced
by $0.4 billion due to a decrease in the number of hourly
employees. Offsetting these reductions in wage and benefit costs
were higher global product engineering and development expenses
of $0.3 billion consistent with GMs strategy to
increase support for global vehicle program development.
Mark-to-market
adjustments on commodity derivative contracts to hedge
forecasted purchases of metals and energy were lower in the
first quarter of 2007 compared to 2006 by $0.4 billion.
Additionally, structural costs at GME were higher due to the
impact of a stronger Euro, British Pound, and Swedish Krona, and
at GMLAAM and GMAP as a result of higher vehicle sales, by
$0.2 billion.
38
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Operations Financial
Review (continued)
Impairment
and Restructuring Charges
GM incurred certain expenses primarily related to restructuring
initiatives and asset impairments, which are included in
Automotive cost of sales. Such costs totaled approximately
$44 million and $206 million for the quarter ended
March 31, 2007 and 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
UAW Attrition Program
|
|
$
|
(19
|
)
|
|
$
|
|
|
Restructuring initiatives
|
|
|
95
|
|
|
|
206
|
|
Asset impairment
|
|
|
9
|
|
|
|
|
|
Other
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44
|
|
|
$
|
206
|
|
|
|
|
|
|
|
|
|
|
The 2007 amounts were primarily related to the following:
|
|
|
|
|
$95 million for restructuring initiatives at GME
($57 million) and GMAP ($40 million), offset by a
favorable adjustment related to the reserve for postemployment
benefits at GMNA ($2 million).
|
The 2006 restructuring charge of $206 million is related to
the following:
|
|
|
|
|
$64 million at GMNA, consisting of a charge of
$100 million related to a salaried severance program, a
charge of $81 million for certain components of the
U.S. hourly attrition program related to lump sum benefit
payments, and curtailment charges of $19 million related to
modifications in GMs pension plans for U.S. salaried
employees. These were partially offset by a favorable adjustment
of $136 million related to the reserve for postemployment
benefits, primarily due to higher than anticipated headcount
reductions associated with GMNA plant idling activities.
|
|
|
|
Other restructuring charges recognized at GME and GMLAAM of
$115 million and $27 million, respectively.
|
Cost
of Sales and Selling, General and Administrative
Expenses
Automotive cost of sales was $39.0 billion in the first
quarter of 2007, $900 million below the same period in
2006. This reduction was driven by GMNA primarily due to lower
sales, partially offset by increases in GME, GMLAAM, and GMAP
primarily driven by increases in sales volumes. Further details
are described in the regional analyses.
Automotive selling, general and administrative expenses were
$3.2 billion in the first quarter of 2007 and 2006. A
decrease in selling, general and administrative expenses of
$150 million in GMNA was due to lower advertising in 2007,
and was offset by increased spending in GME, GMLAAM and GMAP.
Further details are described in the regional analyses.
Automotive
Interest and Other Income (Expense)
Automotive interest and other income (expense) was
($0.4) billion during the first quarter of 2007 as compared
to $0.2 billion in the first quarter of 2006, a decrease of
$0.6 billion. The decrease is primarily related to a gain
attributable to the sale of the majority of GMs investment
in Suzuki in the first quarter of 2006.
39
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Operations Financial
Review (continued)
Income
Tax Expense
Automotive tax expense decreased by $0.3 billion during the
first quarter of 2007 as compared to the first quarter of 2006.
The decrease is primarily attributable to the taxes on the sale
of the majority of GMs investment in Suzuki in the first
quarter of 2006.
Equity
Income and Minority Interests, Net of Tax
Automotive equity income and minority interests was
$53 million during the first quarter of 2007 as compared to
$70 million in the first quarter of 2006, a decrease of
$17 million. The decrease in 2007 was primarily due to the
loss of equity income related to the sale of the majority of
GMs investment in Suzuki in the first quarter of 2006.
GM
Automotive Regional Results
GM
North America
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
28,506
|
|
|
$
|
30,857
|
|
Automotive cost of sales
|
|
|
26,073
|
|
|
|
28,537
|
|
Selling, general, and
administrative expenses
|
|
|
2,056
|
|
|
|
2,209
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
377
|
|
|
|
111
|
|
Automotive interest and other
income (expense)
|
|
|
(423
|
)
|
|
|
(420
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, other
equity income and minority interests
|
|
|
(46
|
)
|
|
|
(309
|
)
|
Income tax expense (benefit)
|
|
|
3
|
|
|
|
(11
|
)
|
Equity income and minority
interests, net of tax
|
|
|
3
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(46
|
)
|
|
$
|
(292
|
)
|
Net margin
|
|
|
(0.2
|
)%
|
|
|
(0.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Volume in thousands)
|
|
Production volume
|
|
|
|
|
|
|
|
|
Cars
|
|
|
399
|
|
|
|
496
|
|
Trucks
|
|
|
664
|
|
|
|
759
|
|
Total
|
|
|
1,063
|
|
|
|
1,255
|
|
Vehicle Unit Sales
|
|
|
|
|
|
|
|
|
Industry North America
|
|
|
4,699
|
|
|
|
4,763
|
|
GM
|
|
|
1,055
|
|
|
|
1,123
|
|
GM as % of industry
|
|
|
22.5
|
%
|
|
|
23.6
|
%
|
Industry U.S.
|
|
|
3,989
|
|
|
|
4,054
|
|
GM as a percentage of industry
|
|
|
22.8
|
%
|
|
|
23.8
|
%
|
GM cars
|
|
|
19.3
|
%
|
|
|
20.7
|
%
|
GM trucks
|
|
|
25.7
|
%
|
|
|
26.3
|
%
|
GMNA reported a net loss of $46 million in the first
quarter of 2007 compared to a net loss of $292 million in
the first quarter of 2006, an improvement of $246 million.
40
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Regional
Results (continued)
GM
North America (concluded)
Net
Sales and Revenue
Industry vehicle unit sales in North America were
4.7 million units during the first quarter of 2007 as
compared to 4.8 million units in 2006, a decrease of
approximately 0.1 million units, or 1.3%. While the
industry volume remained consistent with the prior comparable
period, GMNAs market share has decreased to 22.5% in the
first quarter of 2007 as compared to 23.6% in the first quarter
of 2006, a decrease of 1.1 percentage points. GMs shift
away from daily rental sales was the primary contributor to
GMNAs decline in market share.
Net sales and revenue were $28.5 billion in the first
quarter of 2007 as compared to $30.9 billion in the first
quarter of 2006, a decrease of approximately $2.4 billion,
or 7.6%. The decline in revenue was primarily driven by lower
volumes and partially offset by the impact of a greater mix of
higher content vehicles. The decrease in volumes was
attributable to GMs ongoing efforts to reduce low margin
daily rental sales, shifting production more to our new full
size trucks as well as managements action that reduced
dealer inventories by 91,000 units in the U.S. and Canada
as compared to year ago levels.
Automotive
Cost of Sales
Automotive cost of sales was $26.1 billion in the first
quarter of 2007 as compared to $28.5 billion in the first
quarter of 2006, a decrease of $2.4 billion or 8.6%. The
decrease in cost of sales is largely driven by the lower
production volume which was partially offset by production of
higher costing vehicles. Cost of sales as a percentage of net
sales and revenues was 91% in the first quarter of 2007 as
compared to 92% in the first quarter of 2006. Additionally,
pension and OPEB costs decreased approximately $1.2 billion
due to GMs UAW Health Care Settlement Agreement, which
reduced GMs health care costs related to certain hourly
retirees, and the UAW Attrition Program, which reduced health
care costs for those employees who left GM through buy-out and
early retirement programs. Manufacturing related costs decreased
approximately $350 million due to reduced hourly employee
headcounts as a result of the UAW Attrition Program. These cost
reductions were partially offset by higher material costs
primarily due to additional content on new vehicles and higher
cost paid for raw materials along with increased engineering
spending due to a continued focus on supporting product
excellence. Additionally,
mark-to-market
adjustments on commodity derivative contracts to hedge
forecasted purchases of raw materials and foreign exchange
contracts to hedge foreign exchange risk were reduced in the
first quarter of 2007 by approximately $0.3 billion, as
compared to the first quarter of 2006.
Selling,
General, and Administrative Expenses
Selling, general, and administrative expenses decreased
approximately $150 million primarily due to higher than
normal advertising spending in the first quarter of 2006 to
promote the vehicle price repositioning initiative. This
initiative called Total Value Promise, announced in
January 2006, reduced selling prices and reduced the use and
amount of retail incentives in North America operations.
41
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Regional
Results (continued)
GM
Europe
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
8,485
|
|
|
$
|
8,055
|
|
Automotive cost of sales
|
|
|
7,785
|
|
|
|
7,329
|
|
Selling, general, and
administrative expenses
|
|
|
662
|
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
38
|
|
|
|
137
|
|
Automotive interest and other
income (expense)
|
|
|
(36
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes, other
equity income and minority interests
|
|
|
2
|
|
|
|
92
|
|
Income tax expense (benefit)
|
|
|
(1
|
)
|
|
|
35
|
|
Equity income and minority
interests, net of tax
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5
|
|
|
$
|
59
|
|
Net margin
|
|
|
0.1
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(Volume in thousands)
|
|
Production volume
|
|
|
511
|
|
|
|
494
|
|
Vehicle Unit Sales
|
|
|
|
|
|
|
|
|
Industry
|
|
|
5,660
|
|
|
|
5,570
|
|
GM
|
|
|
554
|
|
|
|
523
|
|
GM as a percentage of industry
|
|
|
9.8
|
%
|
|
|
9.4
|
%
|
GM market share Germany
|
|
|
10.0
|
%
|
|
|
10.1
|
%
|
GM market share United
Kingdom
|
|
|
14.9
|
%
|
|
|
14.5
|
%
|
GME generated net income of $5 million in the first quarter
of 2007, as compared to a net income of $59 million in the
first quarter of 2006.
Net
Sales and Revenues
Regional industry vehicle unit sales were 5.7 million units
during the first quarter of 2007, as compared to
5.6 million units in the first quarter of 2006, an increase
of approximately 0.1 million units or 2%. Industry vehicle
sales growth in the region was led by a 103 thousand vehicle
increase in Russia (up 26%). This gain was offset by a 73
thousand unit decrease in Germany (down 8%) . A combination of
smaller positive and negative volume changes in the other
countries in the region accounted for the balance of the period
to period change.
GMEs revenue was $8.5 billion in the three months
ended March 31, 2007, an increase of approximately
$0.4 billion from the same period in 2006. This increase
was primarily driven by an approximately $0.7 billion
increase due to the impact of foreign exchange rates, primarily
the strengthening of the Euro, British Pound and Swedish Krona
versus the US Dollar, and an approximately
$0.1 billion increase due to improvements in pricing
associated with the introduction of new models, partially offset
by an approximately $0.4 billion decrease due to lower
sales volume and unfavorable country as well as vehicle mix. In
line with the industry trends noted above, the most significant
decrease in wholesale volume was experienced in Germany (down
approximately 15 thousand units or 17%), partially offset
by a substantial increase in Russia (up approximately 7 thousand
units or 223%). This change in country of sale contributed to
the unfavorable country mix. Vehicle mix was unfavorable
primarily due to an increase in sales of smaller cars with the
successful launch of the Corsa.
42
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Regional
Results (continued)
GM Europe (concluded)
Automotive
Cost of Sales
GMEs cost of sales was $7.8 billion in the three
months ended March 31, 2007, an increase of approximately
$0.5 billion from the same period in 2006. Key factors in
the increase in cost of sales include an approximately
$0.7 billion increase due to the impact of foreign exchange
rates, primarily related to the strengthening of the Euro,
British Pound and Swedish Krona versus the US Dollar, and
an approximately $0.1 billion increase due to higher
material cost and lower gains from commodity hedging, partially
offset by an approximately $0.2 billion decrease due to
lower wholesale sales volume together with vehicle and country
mix as described above and an approximately $0.1 billion
decrease due to the expense recorded in the first quarter of
2006 associated with GMs January 1, 2006 adoption of
EITF 05-5,
Accounting for Early Retirement or Postemployment Programs
with Specific Features.
Selling,
General and Administrative Expenses
GMEs selling, general & administrative expenses
were $0.7 billion in the three months ended March 31,
2007, an increase of approximately $0.1 billion from the
same period in 2006. The increase is mainly related to the
impact of foreign exchange rates as the Euro, British Pound and
Swedish Krona strengthened against the U.S. Dollar and
higher sales and marketing expense.
GM
Latin America/Africa/Mid-East
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
3,573
|
|
|
$
|
3,161
|
|
Automotive cost of sales
|
|
|
3,157
|
|
|
|
2,912
|
|
Selling, general, and
administrative expenses
|
|
|
177
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
239
|
|
|
|
98
|
|
Automotive interest and other
income (expense)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, other
equity income and minority interests
|
|
|
255
|
|
|
|
98
|
|
Income tax expense
|
|
|
53
|
|
|
|
57
|
|
Equity (loss) and minority
interests, net of tax
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
201
|
|
|
$
|
40
|
|
Net margin
|
|
|
5.6
|
%
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Volume in thousands)
|
|
|
Production volume
|
|
|
222
|
|
|
|
194
|
|
Vehicle unit sales
|
|
|
|
|
|
|
|
|
Industry
|
|
|
1,648
|
|
|
|
1,433
|
|
GM
|
|
|
269
|
|
|
|
230
|
|
GM as a percentage of industry
|
|
|
16.3
|
%
|
|
|
16.1
|
%
|
GM market share Brazil
|
|
|
20.2
|
%
|
|
|
21.4
|
%
|
GMLAAMs regional business generated net income of
$201 million during the first quarter of 2007, compared to
net income of $40 million during the same period in 2006.
43
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Regional
Results (continued)
GM
Latin
America/Africa/Mid-East (concluded)
Net
Sales and Revenue
Regional industry vehicle unit sales were 1.6 million units
during the first quarter of 2007, as compared to
1.4 million units in the first quarter of 2006, an increase
of approximately 0.2 million units or 15.0%. The increase
in sales was primarily due to improving economic conditions in
the majority of the countries in the region. Industry vehicle
sales growth in the region was led by a 75 thousand vehicle
increase in Brazil (up 18%); a 33 thousand vehicle increase in
Venezuela (up 50%); a 29 thousand vehicle increase in Argentina
(up 21%); and a 17 thousand vehicle increase in Colombia (up
44%). All other markets in GMLAAM posted
quarter-to-quarter
industry sales gains and contributed to the remaining vehicle
sales increase.
GMLAAMs total net sales and revenue was $3.6 billion
during the first quarter of 2007, as compared to
$3.2 billion in the first quarter 2006, an increase of
$0.4 billion or 13.0%. This increase in revenue is
primarily attributable to improved unit sales. As GMLAAMs
sales have grown faster than the overall industry, its market
share has increased to 16.3% for the first quarter of 2007 as
compared to 16.1% for the first quarter of 2006. The market
share growth of 0.2 percentage points is primarily attributable
to strong vehicle sales in Venezuela and Colombia. In addition,
market share gains in Saudi Arabia and Dubai provided further
growth. These factors were partially offset by the overall
impact of market share declines in Argentina and Brazil.
In addition to the $0.4 billion of volume increases
described above, there was an additional increase of
$0.1 billion in sales and revenue attributable to higher
vehicle pricing primarily in Venezuela, Argentina, and the
Middle East. This increase was offset by $0.1 billion of
unfavorable items, including unfavorable vehicle mix and foreign
exchange losses.
Automotive
Cost of Sales
Automotive cost of sales at GMLAAM was $3.2 billion during
the first quarter of 2007, as compared to $2.9 billion
during the first quarter of 2006, an increase of approximately
$0.3 billion or 8.4%. This increase of 0.3 billion is
primarily attributable to higher sales volume in the region.
Other factors contributing to this increase include unfavorable
foreign exchange and rising material costs partially offset by
the impact of vehicle mix. In the first quarter of 2006, GMLAAM
recorded $27 million of restructuring expense related to
voluntary employee separations at GM do Brasil. No restructuring
charges were recorded at GMLAAM in the first quarter of 2007.
Selling,
General, and Administrative Expenses
GMLAAM selling, general and administrative expenses were
$0.2 billion during the first quarter of 2007 which was
comparable to the first quarter of 2006.
44
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Regional
Results (continued)
GM
Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
4,559
|
|
|
$
|
3,386
|
|
Automotive cost of sales
|
|
|
4,160
|
|
|
|
2,967
|
|
Selling, general, and
administrative expenses
|
|
|
313
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
86
|
|
|
|
147
|
|
Automotive interest and other
income (expense)
|
|
|
8
|
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, other
equity income and minority interests
|
|
|
94
|
|
|
|
681
|
|
Income tax expense
|
|
|
27
|
|
|
|
252
|
|
Equity income and minority
interests, net of tax
|
|
|
49
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
116
|
|
|
$
|
492
|
|
Net margin
|
|
|
2.5
|
%
|
|
|
14.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Volume in thousands)
|
|
|
Production volume(1)
|
|
|
544
|
|
|
|
472
|
|
Vehicle unit sales(2)(3)
|
|
|
|
|
|
|
|
|
Industry
|
|
|
5,413
|
|
|
|
5,085
|
|
GM
|
|
|
388
|
|
|
|
323
|
|
GM as a percentage of industry
|
|
|
7.2
|
%
|
|
|
6.4
|
%
|
GM market share
Australia
|
|
|
15.0
|
%
|
|
|
16.5
|
%
|
GM market share
China(3)
|
|
|
13.9
|
%
|
|
|
13.4
|
%
|
|
|
|
(1) |
|
Includes GM Daewoo and China Wuling joint venture production |
|
(2) |
|
Includes GM Daewoo and China Wuling joint venture sales |
|
(3) |
|
Includes China Wuling joint venture sales due to GM equity
position and local ownership requirements |
Net income was $116 million in the first quarter of 2007 as
compared to $492 million in the first quarter of 2006.
Net
Sales and Revenue
Industry vehicle unit sales in the Asia Pacific region increased
approximately 6.4% in the first quarter of 2007, to
5.4 million units compared to 5.1 million units in the
first quarter of 2006. This result reflects strong growth in
China, where industry vehicle unit sales increased 20.8% to
2.1 million units in the first quarter of 2007 from
1.7 million units in the first quarter of 2006. Following a
record year in 2006, Chinas vehicle market has remained
strong in 2007, and GM continues to capitalize on the demand in
the China passenger car and light commercial vehicle markets.
GMAP increased its vehicle unit sales in the Asia Pacific region
by almost 20% in the first quarter of 2007, to 388 thousand
units from 323 thousand units in the first quarter of 2006.
GMs sales in China accounted for 290 thousand units
sold, or approximately 70% of total GMAP sales in the Asia
Pacific region for the first three months of 2007. This
approximated a 25% increase from 232 thousand units sold in
China in the first quarter of 2006. GMAPs first quarter
2007 market share increased to 7.2% from 6.4% in the first
quarter of 2006. Market share in China for the first quarter of
2007 increased 0.5 percentage points to 13.9%, compared to
the first quarter of 2006.
45
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Regional
Results (continued)
GM
Asia Pacific (concluded)
GMAP revenue rose almost 35% to $4.6 billion in the first
quarter of 2007, compared to $3.4 billion in the first
quarter of 2006. The revenue growth was primarily due to the 20%
increase in domestic and export vehicle unit sales, as discussed
above, favorable product mix at Holden primarily due to the VE
Commodore launch in the third quarter of 2006, and favorable mix
at GMDAT due to the launch of the Captiva in the second quarter
of 2006.
Automotive
Cost of Sales
Automotive cost of sales increased by $1.2 billion or 40.2%
to $4.2 billion in the first quarter of 2007 compared to
$3.0 billion in the first quarter of 2006. This is
primarily due to a significant volume increase at GM Daewoo in
2007. Cost of sales as a percentage of net sales and revenues
was 91% in the first quarter of 2007 as compared to 88% in the
first quarter of 2006. In addition, in the first quarter of
2007, GMAP recognized separation costs of $40 million
related to restructuring activities at GM Holden located in
Australia and impairment charges of $9 million related to
the write-down of product-specific assets at GM Holden.
Selling,
General, and Administrative Expenses
Selling, general and administrative expenses rose slightly
during the first quarter of 2007 consistent with increased
vehicle unit sales.
Automotive
Interest and Other Income (Expense)
Other income in the first quarter of 2006 included
$0.7 billion gain related to the sale of approximately 85%
of GMs investment in Suzuki. There were no additional
significant items that were recorded in automotive interest and
other income and expense in the first quarter of 2007 or 2006.
Corporate
and Other
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
22
|
|
|
$
|
(49
|
)
|
Automotive cost of sales
|
|
|
90
|
|
|
|
203
|
|
Selling, general, and
administrative expenses
|
|
|
165
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(233
|
)
|
|
|
(457
|
)
|
Automotive interest and other
income (expense)
|
|
|
23
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, other
equity income and minority interests
|
|
|
(210
|
)
|
|
|
(512
|
)
|
Income tax (benefit)
|
|
|
(85
|
)
|
|
|
(321
|
)
|
Equity income and minority
interests, net of tax
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(124
|
)
|
|
$
|
(189
|
)
|
Automotive
Cost of Sales
Automotive cost of sales decreased by approximately
$113 million primarily as a result of a reduction in OPEB
expense resulting from the UAW Health Care Settlement Agreement
that reduced legacy costs related to employee benefits of
divested businesses for which GM has retained responsibility,
and from the U.S. salaried workforces increased
participation in the cost of health care, capping GMs
contributions to salaried retiree health care at the level of
2006 expenditures.
46
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Corporate
and Other (concluded)
Selling,
General, and Administrative Expenses
Selling, general, and administrative expenses decreased
approximately $40 million primarily from reduced outside
consultant fees in 2007.
Income
Tax Benefit
The after-tax effect of the above items reduced Corporate and
Others first quarter 2007 results by approximately
$236 million compared to the year-earlier period. GM
recognizes quarterly income tax expense or benefit by using an
estimated annual effective tax rate related to ordinary income
or loss; tax expense or benefit in excess of that recognized in
GMs automotive regions and GMAC is allocated to the
Corporate sector. Tax on income or loss related to unusual or
infrequently occurring items or discontinued operations is
calculated separately and recognized when incurred. The lower
tax benefit in the first quarter of 2007 was primarily a result
of a lower 2007 pretax loss and allocation from GMAC.
FIO
Operations Financial Review
GMs FIO business included the operating results of
GMACs lines of businesses consisting of Automotive Finance
Operations, Mortgage Operations; Insurance, and Other, which
includes GMACs Commercial Finance business and GMACs
equity investment in Capmark (previously known as GMAC
Commercial Mortgage). On November 30, 2006, GM sold a 51%
controlling interest in GMAC to FIM Holdings LLC (FIM Holdings).
GMs remaining interest in GMAC is accounted for using the
equity method. Also included in FIO is Other
Financing which includes financing entities that are not
consolidated by GMAC as well as two special purpose entities
holding automotive leases previously owned by GMAC and its
affiliates that were transferred to GM as part of the GMAC
Transaction in November 2006. Therefore, for the three months
ended March 31, 2007, FIOs operations primarily
reflects its 49% share of the operating results of GMAC LLC as
compared to the operating results of GMAC LLC fully consolidated
for the comparable 2006 period.
FIO had a net loss of $86 million and net income of
$496 million for the three months ended March 31, 2007
and 2006, respectively.
GMAC LLC reported a net loss available to members of
$357 million in the first quarter of 2007, as compared to
net income of $495 million for the comparable period of
2006. The improved earnings in the Automotive Finance, Insurance
and Other operations sectors was more than offset by losses
incurred in its Mortgage operations. Automotive finance results
reflect improved margins in North America, despite continued
margin pressure overseas. The improvement in North America is
due to an increase in servicing income related to the growth in
the whole loan serviced portfolio and lower debt levels due to
the continued use of whole loan sales, and a favorable mark to
market effect related to the accounting treatment for certain
hedging activities. While the Mortgage international business
experienced record performance in the quarter, the
U.S. residential mortgage market continued to experience a
significant slow-down, with declining home prices and weakening
consumer credit putting significant pressure on performance. The
Mortgage operations first quarter results primarily reflect a
decline related to continued stress in the non-prime mortgage
sector, which also began to affect certain products in prime
sectors. Insurance earnings increased due to favorable
underwriting results and a lower effective tax rate partially
offset by a lower level of realized capital gains in line with
the reduced equity portfolio. Underwriting results grew from an
increase in insurance premium and revenue earned coupled with a
lower level of losses and loss adjustment expenses, partially
offset by higher acquisition and underwriting expenses. Included
in FIOs Other Financing is $33 million of
net income relating to the two special purpose entities holding
outstanding leases previously owned by GMAC which would have
been included in GMACs net income in the prior year.
GMAC net income for the three months ended March 31, 2006
benefited from increases in the Automotive Finance and Insurance
operations largely as a result of continued strong loss
performance, however these increases were more than offset by
lower Mortgage earnings. Automotive Finance Operations benefited
due to lower consumer
47
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
FIO
Operations Financial
Review (concluded)
credit provisions primarily as a result of the impact of
automotive whole loan sale activity and favorable international
credit performance. Mortgage revenues were strong from higher
asset levels however results were negatively impacted by lower
net margins resulting from both pricing pressures and higher
funding costs partially offset by lower credit provisions as a
result of favorable credit trends. Insurance Operations
reflected the impact of strong underwriting results in
particular loss experience as well as the strategic acquisition
of MEEMIC Insurance Company, a personal lines business that
offers automobile and homeowners insurance in the Midwest. In
addition on March 23, 2006 GMAC closed on the sale of
approximately 79% of their equity in GMAC Commercial Mortgage.
Key
Factors Affecting Future and Current Results
The following discussion identifies the key factors, known
events, and trends that could affect our future results:
Turnaround
Plan
Our top priorities continue to be improving our business in
North America and achieving global competitiveness in an
increasingly global environment, thus positioning GM for
sustained profitability and growth in the long term, while
maintaining strong liquidity at the same time. GM has been
systematically and aggressively implementing its turnaround plan
for GMNAs business to return the operations to
profitability and positive cash flow as soon as possible. Our
turnaround plan for GMNA is built on four elements: achieving
and sustaining product excellence; revitalizing sales and
marketing strategy; accelerating cost reductions and quality
improvements; and addressing health care/legacy cost burden.
The following update describes what we have done so far to
achieve these elements:
Product Excellence. GM continues to focus
significant attention on maintaining consistent product
freshness by introducing new vehicles and reducing the average
vehicle lifecycle. In 2007 we expect that approximately 40% of
GMNAs retail sales will come from vehicles launched within
the prior 18 months. GM expects to increase its total
capital expenditures going forward to be between
$8.5 billion and $9.0 billion in 2007 and 2008. GMNA
is also allocating capital and engineering to support more
fuel-efficient vehicles, including hybrid vehicles in the United
States, and is increasing production of active fuel management
engines and six-speed transmissions. In addition, GM is
undertaking a major initiative in alternative fuels through
sustainable technologies such as E85 Flex Fuel vehicles.
Revitalize Sales and Marketing Strategy. GM is
pursuing a revised sales and marketing strategy by focusing on
clearly differentiating our brands, optimizing our distribution
network, growing in key metropolitan markets, and re-focusing
our marketing efforts on the strength and value of our products.
In January 2006, GM significantly lowered manufacturers
suggested retail prices on vehicles that accounted for about 80%
of its 2006 model year automotive sales volume. GMs
promotion strategy now emphasizes its brands and vehicles,
rather than price incentives. In addition, GM has begun
increasing advertising in support of new products and specific
marketing initiatives to improve GMs sales performance in
key under-developed states. GMs pricing strategy, improved
quality, and product execution, reduced sales to daily rental
fleets, as well as a strong market for used vehicles, resulted
in higher residual values on GMs cars and trucks. For
2007, GM is continuing to focus on consistent alignment of its
dealers, particularly among Buick, Pontiac, and GMC dealers,
improved retail performance in key metropolitan markets, and
further reductions in sales to daily rental companies.
Accelerate Cost Reductions and Quality
Improvements. Since our November 2005 announcement of
our strategy to reduce structural costs in the manufacturing
area, GM has introduced a variety of initiatives to accomplish
that strategy. In 2007, we expect to realize the $9 billion
structural-cost savings target versus 2005 in our GMNA and
Corporate and Other segments on a running rate basis. Running
rate basis refers to the average annualized cost savings into
the foreseeable future anticipated to result from cost savings
actions when fully implemented. GM realized $6.8 billion in
structural cost reductions in North America during 2006,
exceeding the
48
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Key
Factors Affecting Future and Current
Results (continued)
Turnaround
Plan (concluded)
$4 billion of structural cost reductions estimated for 2006
in GMs 2005 Annual Report on
Form 10-K.
This improvement is due largely to the success of the attrition
programs, including the effect of the pension remeasurement. The
expected total annual cash savings from structural cost
reductions is approximately $5 billion on an average
running rate basis. In addition, GM is focusing on our long-term
goal of reducing our global automotive structural costs to 25%
of global revenue. For 2006, global automotive structural costs
were less than 30% of revenue, down from about 35% in 2005.
Reducing material costs remains a critical part of GMNAs
overall long-term cost reduction plans, although improved
performance in purchasing has been offset by higher commodity
prices for steel and
non-ferrous
metals and support for troubled suppliers. GM continues its
aggressive pursuit of material cost reductions via improvements
in its global processes for product development, which will
enable further commonization and application of parts among
vehicle architectures, as well as through the continued use of
the most competitive supply sources globally and the extensive
use of benchmarking and supplier footprint optimization. By
leveraging its global reach to take advantage of economies of
scale in purchasing, engineering, advertising, salaried
employment levels, and indirect material costs, GM seeks to
continue to achieve cost reductions. GM has seen significant
improvements in both warranty and other quality related costs
over the past several years, which has enabled the
implementation of the extended powertrain warranty. In 2007, we
are continuing to focus on reducing these costs.
Address Health Care/Legacy Cost Burden. Addressing
the legacy cost burden of health care for employees and retirees
in the United States is one of the critical challenges facing
GM. In October 2005, we announced an agreement with the UAW that
will reduce GMs hourly retiree health-care obligations. GM
began recognizing the benefit from the UAW Health Care
Settlement Agreement in the third quarter of 2006. The
remeasurement of the U.S. hourly OPEB plans as of
March 31, 2006 generated a $1.3 billion reduction in
OPEB expense and an approximate $17 billion reduction in
the OPEB obligation. This reduction in expense was partially
offset by the recognition of expense associated with the
approximate $3 billion related to capped benefits expected
to be paid from GM contributions to the new UAW Mitigation Plan.
In April 2006, GM and the IUE-CWA also reached a tentative
agreement to reduce health-care costs that is similar to the UAW
Health Care Settlement Agreement, that was ratified by the
IUE-CWA membership in April 2006 and received court approval in
November 2006. GM is also increasing the U.S. salaried
workforces participation in the cost of health care. In
February 2006, GM announced that beginning in January 2007, it
would cap its contributions to salaried retiree health care at
the level of its 2006 expenditures. After 2006, when average
costs exceed established limits, GM will make additional plan
changes that affect cost-sharing features of program coverage,
effective with the start of the next calendar year. Program
changes may include, but are not limited to, higher monthly
contributions, deductibles, coinsurance,
out-of-pocket
maximums, and prescription drug payments. In October 2006, the
GM board of directors approved a reduction in the levels of
coverage for corporate-paid life insurance for salaried
retirees. GM will continue to work with its employees,
health-care providers, and the U.S. government to find
solutions to the critical issues posed by the rising cost of
health care. Initiatives in the first quarter of 2007 included
using the global purchasing process to identify more
cost-effective suppliers and auditing the eligibility of plan
participants as well as working with the UAW and other vehicle
manufacturers to support a variety of federal legislation that
would reduce employer health care costs.
Labor
Negotiations
GMs current collective bargaining agreement with the UAW
expires in September 2007. The negotiations present both risks
and opportunities to address cost competitiveness issues.
GM recognizes the impact that any resulting labor stoppages
could have on GM, its suppliers, and its dealers. If the
collective bargaining agreement expires before a new agreement
is reached, GM anticipates that it would attempt to persuade the
UAW to support continuing its operations while negotiations
continue. It is possible, however, that the expiration of the
collective bargaining agreement could result in labor
disruptions affecting some or all GM facilities in the United
States, or the operations of some of its suppliers that employ
workers represented
49
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Key
Factors Affecting Future and Current
Results (continued)
Labor
Negotiations (concluded)
by the UAW. A lengthy strike by the UAW that involves all or a
significant portion of our manufacturing facilities in the
United States would have a material adverse effect on our
operations and financial condition, particularly our liquidity.
Delphi
Bankruptcy
General. In October 2005, Delphi filed a
petition for Chapter 11 proceedings under the
U.S. Bankruptcy Code for itself and many of its
U.S. subsidiaries. Delphi is GMs largest supplier of
automotive systems, components, and parts, and GM is
Delphis largest customer.
GM has worked and will continue to work constructively in the
court proceedings with Delphi, Delphis unions, and other
participants in Delphis Chapter 11 restructuring
process. Delphi continues to assure GM that it expects no
disruption in its ability to supply GM with the systems,
components, and parts it needs as Delphi pursues a restructuring
plan under the Chapter 11 process. Although the challenges
faced by Delphi during its restructuring process could create
operating and financial risks for GM, that process is also
expected to present opportunities for GM. These opportunities
include reducing, over the long term, the significant cost
penalty GM incurs in obtaining parts from Delphi, as well as
improving the quality of systems, components, and parts GM
procures from Delphi. However, there can be no assurance that GM
will be able to realize any benefits as a result of
Delphis restructuring process.
Framework
Support Agreement.
On December 18, 2006, to facilitate the consensual
resolution of Delphis bankruptcy, GM entered into a Plan
Framework Support Agreement (Framework Agreement) with Delphi
and a consortium of potential investors in Delphi (Plan
Investors), which outlines certain material terms of a proposed
restructuring plan for Delphi (Proposed Plan). The Proposed Plan
is conditioned both on the implementation of an overall
transformation strategy that would include the settlement of
certain issues and disputes between GM and Delphi (Designated
Issues) and on proposed equity investments by the Plan Investors
in Delphi. The Designated Issues include (a) legacy
obligations related to Delphi employees who formerly were GM
hourly employees, including responsibility for various pension
and other OPEB obligations, (b) costs associated with the
transformation of Delphis business, (c) Delphis
support for GMs efforts to resource certain products
purchased by GM, (d) the restructuring of on-going
contractual relationships between GM and Delphi, and
(e) the amount and treatment of GMs claims against
Delphi in the Chapter 11 proceedings. Under the Framework
Agreement, GM has agreed to, among other things, negotiate these
matters in good faith but is not obligated to enter into any
agreements.
If GM and Delphi reach any commercial, business, and
labor-related agreements, those agreements will be evidenced in
definitive documentation. On April 19, 2007, Delphi
announced that it anticipated negotiating changes to the
Framework Agreement and other agreements with the Plan
Investors, primarily to address differences in views regarding
Delphis enterprise value following reorganization held by
Delphi, GM, the Plan Investors, and other involved parties. As
discussed below under GM Contingent Liability, GM
continues to believe, based on current negotiations, that the
range of its contingent exposures is between $6 billion and
$7.5 billion.
Pursuant to the Framework Agreement, Delphi intends to, among
other things, negotiate and finalize the Proposed Plan and other
related documents, seek Bankruptcy Court approval of the
Proposed Plan and payment of related expenses, prepare and
distribute a draft disclosure statement with respect to the
Proposed Plan to the Plan Investors and GM, and seek Bankruptcy
Court approval of such disclosure statement (the
Disclosure Statement Order). Provided that GM and
Delphi reach agreement on all the issues and documents affecting
GM that are negotiated under the Proposed Plan, GM will support
the Disclosure Statement Order and not object to confirmation of
the Proposed Plan by the Bankruptcy Court. As previously
disclosed, GM can terminate the Framework Agreement at any time.
Otherwise, if the investment agreement between Delphi and the
Plan Investors is terminated, the Framework Agreement would
terminate automatically, and the Framework Agreement can be
terminated at the option of any party other than GM at any time
prior to the date of entry of the Disclosure Statement Order.
50
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Key
Factors Affecting Future and Current
Results (continued)
Delphi
Bankruptcy (continued)
If GM and Delphi reach a comprehensive resolution of the issues
affecting them, which is the goal of current negotiations under
the Framework Agreement, the matters described in the remainder
of this section will be handled as the parties agree. Since
negotiations are still underway, however, and there can be no
assurance that GM and Delphi will succeed in agreeing upon a
comprehensive resolution, the following matters continue to pose
significant risks to GM.
Delphi
Motions Seeking Authority to Reject Various Contracts.
Delphi has consented, in consideration of the progress made
toward a consensual resolution of the Chapter 11 process,
to an indefinite adjournment of hearings on its motions filed in
March 2006 under the U.S. Bankruptcy Code seeking authority
to reject its U.S. labor agreements and modify retiree
welfare benefits and to reject certain supply contracts with GM.
If Delphi, its unions, the Plan Investors, and GM are unable to
negotiate comprehensive agreements to resolve the issues
involved in Delphis bankruptcy, Delphi or one or more of
its affiliates could be subject to labor disruptions or could
reject or threaten to reject individual contracts with GM,
either for the purpose of exiting specific lines of business or
in an attempt to increase the price GM pays for certain parts
and components. Any of these events could materially adversely
affect GM by disrupting the supply of automotive systems,
components, and parts, and could even force the suspension of
production at GM assembly facilities.
While GM believes that it is likely that GM and Delphi will
reach a consensual resolution pursuant to the Framework
Agreement, we are seeking to minimize our risks by protecting
our right of setoff against the $1.15 billion we owed to
Delphi as of the date of its Chapter 11 filing. However,
the extent to which these obligations are covered by our right
to setoff may be subject to dispute by Delphi, the
creditors committee, or Delphis other creditors, and
limitation by the court. GM cannot provide any assurance that it
will be able to setoff such amounts fully or partially. To date,
GM has taken setoffs of approximately $53.6 million against
that pre-petition obligation, with Delphis agreement.
Benefit
Guarantee Agreements.
As described above, the Designated Issues between Delphi and GM
include legacy obligations and responsibility for various
pension and other OPEB obligations related to certain
U.S. hourly employees who formerly were GM employees and
became Delphi employees in GMs spin-off of Delphi in 1999
(Transferred Employees). In connection with that spin-off, GM
entered into separate agreements with the UAW, the IUE-CWA, and
the United Steel Workers (Benefit Guarantee Agreements),
providing contingent benefit guarantees to make payments for
limited pension and OPEB to certain Transferred Employees who
meet the applicable eligibility requirements for such payments
(Covered Employees).
Each Benefit Guarantee Agreement contains separate benefit
guarantees relating to pension and OPEB obligations, with
different triggering events under which GM could be liable if
Delphi fails to provide the corresponding benefit at the
required level. Therefore, GM could incur liability under one of
the guarantees (e.g., OPEB) without triggering the other
guarantees (e.g., pension). In addition, with respect to pension
benefits, GMs guarantee of pension benefits arises only to
the extent that pension benefits provided both by Delphi (or an
applicable successor) and by the Pension Benefit Guaranty
Corporation fall short of the guaranteed amounts.
GMs obligations under the Benefit Guarantee Agreements
have not been triggered by Delphis Chapter 11 filing,
Delphis motions in Bankruptcy Court to reject its
U.S. labor agreements and modify retiree welfare benefits,
or any other actions to date. The benefit guarantees will expire
on October 18, 2007 unless they are triggered before that
date.
The Benefit Guarantee Agreements do not obligate GM to guarantee
any benefits for Delphi retirees in excess of the corresponding
benefits GM provides at the time to its own hourly retirees.
Accordingly, any reduction of the
51
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Key
Factors Affecting Future and Current
Results (continued)
Delphi
Bankruptcy (continued)
benefits GM provides to its hourly retirees would reduce
GMs obligations under the corresponding benefit guarantee.
A separate agreement between GM and Delphi, which also expires
on October 18, 2007, requires Delphi to indemnify GM for
any payments under the benefit guarantees to the UAW employees
or retirees. Any recovery by GM under indemnity claims against
Delphi might be subject to partial or complete discharge in the
Delphi reorganization proceeding. As a result, GMs claims
for indemnity may not be paid fully or partially.
As part of GMs discussions in 2005 with the UAW that led
to a settlement with the UAW changing health-care benefits for
hourly retirees, GM provided the Covered Employees represented
by the UAW the potential to earn up to seven years of credited
service for purposes of eligibility for certain health-care
benefits under the GM/UAW benefit guarantee agreement.
UAW
Attrition Agreement.
In the first half of 2006, GM, Delphi, and the UAW implemented
the UAW Attrition Agreement, which provided a combination of
early retirement programs and other incentives to reduce hourly
employment levels at both GM and Delphi. As of December 31,
2006, approximately 12,400 UAW represented Delphi employees
elected one of the retirement options available under the UAW
Attrition Program.
Under the UAW Attrition Agreement, GM agreed to assume certain
costs regarding UAW-represented Delphi employees. Specifically,
GM agreed to: (1) pay lump sums of $35,000 to certain
employees who participate in the UAW Attrition Program;
(2) assume all OPEB obligations to Transferred Employees
who agree to retire under the UAW Attrition Program via a return
to GM; (3) subsidize health-care costs for Delphi employees
participating in a special voluntary pre-retirement program for
an interim period, if Delphi reduces or eliminates its health
care and/or
life insurance coverage provided to active UAW employees; and
(4) accept back 5,000 active Transferred Employees.
GM will have a pre-petition, general unsecured claim assertable
against Delphi in the amount of approximately $2.9 billion,
related to certain of GMs costs under the UAW Attrition
Agreement, subject to objections on any grounds other than that
the claim did not arise under the terms of certain pre-existing
contractual agreements between GM and Delphi.
Additional
Attrition Programs
As of December 31, 2006 approximately 6,200 Transferred
Employees represented by the IUE-CWA and approximately 1,400
Transferred Employees represented by the UAW elected to
participate in additional attrition and buyout programs offered
in the second half of 2006, which were similar to the program
under the UAW Attrition Agreement described above. GM will have
a pre-petition, general unsecured claim assertable against
Delphi in the amount of approximately $0.6 billion, related
to certain of GMs costs under the IUE-CWA attrition
program, subject to objections on any grounds other than that
the claim did not arise under the terms of a certain preexisting
contractual agreement between GM and Delphi. GM will also have
an allowed pre-petition general unsecured claim against Delphi
in the amount of approximately $0.3 billion for GMs
portion of buyout payments made under these additional IUE-CWA
and UAW programs.
GM Claims
Against Delphi.
In July 2006, GM filed a Consolidated Proof of Claim, in
accordance with the Bankruptcy Courts procedures order,
setting forth GM claims (including the claims of various GM
subsidiaries) against Delphi and the other debtor entities. The
exact amount of GMs claims cannot be established because
of the contingent nature of many of the claims involved and the
fact that the validity and amount of the claims may be subject
to objections from Delphi and other stakeholders, but, based on
currently available data, the amount of GMs claims could
be as much as
52
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Key
Factors Affecting Future and Current
Results (continued)
Delphi Bankruptcy (concluded)
$13 billion. Although the Proof of Claim preserves
GMs right to pursue recovery of its claims from Delphi,
these claims may be subject to compromise in the bankruptcy
process or as part of a negotiated settlement, and GM may
receive only a portion, if any, of these claims.
GM
Contingent Liability.
Depending on the outcome of the current negotiations and other
factors, GM believes that it is probable that it has incurred a
contingent liability due to Delphis Chapter 11
filing. Based on currently available data and ongoing
discussions with Delphi and other stakeholders, GM believes that
the range of the contingent exposures is between $6 billion
and $7.5 billion, with amounts near the low end of the
range considered more possible than amounts near the high end of
the range. Initially, GM established a liability of
$5.5 billion ($3.6 billion after tax) for this
contingent exposure in the fourth quarter of 2005, and recorded
an additional charge of $0.5 billion ($0.3 billion
after tax) in the third quarter of 2006 to reflect GMs
potential exposure for OPEB costs associated with previously
divested Delphi business units and certain labor restructuring
costs, including but not limited to expenditures related to the
attrition plans discussed above. At December 31, 2006 and
2005, GMs contingent liability related to the Delphi
matters was $1.5 billion and $5.5 billion,
respectively.
During 2006, amounts previously recorded under the benefit
guarantee were reclassified to GMs OPEB liability as GM
has assumed the OPEB obligation for approximately 17,800 Delphi
employees who have returned back to GM to continue working or
retire from GM. These views reflect GMs current assessment
that it is unlikely that a Chapter 11 process will result
in both a termination of Delphis pension plan and complete
elimination of its OPEB plans.
In addition to these charges, GM may agree to reimburse Delphi
for certain labor expenses to be incurred upon and after
Delphis emergence from bankruptcy. GMs current
estimate of these expenses has increased as a result of ongoing
negotiations and involves an initial payment in 2007, of
approximately $500 million, and for a limited time annual
payments between $100 million and $200 million. In
addition, GM expects to incur certain transitional operating
expenses of approximately $100 million in 2008. GM will
recognize these expenses as incurred in the future. GM expects
that its savings from the reduced prices for systems,
components, and parts it purchases from Delphi after Delphi
emerges from bankruptcy would, in the long term, far exceed the
cost of these additional reimbursements. Because negotiations
are ongoing, the actual impact of the resolution of issues
related to Delphi cannot be determined until the Bankruptcy
Courts approval of a comprehensive resolution, and there
can be no assurance that the parties will reach a comprehensive
resolution or that the Bankruptcy Court will approve such a
resolution, or that any resolution will include the terms
described above.
If GM is required to make OPEB payments to current Delphi
retirees under the Benefit Guarantee Agreements, GM would expect
to make such payments from ongoing operating cash flow and
financings. Such payments, if any, are not expected to have a
material effect on GMs cash flows in the short term.
However, if required, these payments would be likely to increase
over time and could have a material effect on GMs
liquidity in coming years. (For reference, Delphis 2006
Annual Report on
Form 10-K
reported that in 2006 it paid benefits of $229 million to
hourly and salaried retirees; salaried retirees are not covered
under the Benefit Guarantee Agreements).
Investigations
As previously reported, GM is cooperating with federal
governmental agencies in connection with a number of
investigations.
The SEC has issued subpoenas to GM in connection with various
matters including GMs financial reporting concerning
pension and OPEB, certain transactions between GM and Delphi,
supplier price reductions or credits,
53
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Key
Factors Affecting Future and Current
Results (concluded)
Investigations (concluded)
and any obligation GM may have to fund pension and OPEB costs in
connection with Delphis proceedings under Chapter 11
of the Bankruptcy Code. In addition, the SEC has issued a
subpoena in connection with an investigation of our transactions
in precious metal raw materials used in our automotive
manufacturing operation, and a federal grand jury issued a
subpoena in connection with supplier credits.
GM has produced documents and provided testimony in response to
the SEC and federal grand jury subpoenas. GM will continue to
cooperate with the SEC and federal grand jury with respect to
these matters. A negative outcome of one or more of these
investigations could require us to restate prior financial
results, pay fines or penalties, or satisfy other remedies under
various provisions of the federal securities laws, and any of
these outcomes could under certain circumstances have a material
adverse effect on our business.
Liquidity
and Capital Resources
Investors or potential investors in GM securities consider cash
flows of the Automotive and FIO businesses to be a relevant
measure in the analysis of GMs various securities that
trade in public markets. Accordingly, GM provides supplemental
statements of cash flows to aid users of GMs condensed
consolidated financial statements in the analysis of performance
and liquidity and capital resources.
This information reconciles to the Condensed Consolidated
Statements of Cash Flows after the elimination of Net
investing activity with Financing and Insurance Operations
and Net financing activity with Automotive and
54
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Liquidity
and Capital Resources (continued)
Other Operations line items shown in the table below.
Following are such statements for the three months ended
March 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive and Other
|
|
|
Financing and Insurance
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Net cash provided by (used in)
operating activities
|
|
$
|
1,009
|
|
|
$
|
2,962
|
|
|
$
|
459
|
|
|
$
|
(2,172
|
)
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property
|
|
|
(1,185
|
)
|
|
|
(1,272
|
)
|
|
|
|
|
|
|
(104
|
)
|
Investments in marketable
securities, acquisitions
|
|
|
(25
|
)
|
|
|
(44
|
)
|
|
|
(1
|
)
|
|
|
(5,399
|
)
|
Investments in marketable
securities, liquidations
|
|
|
4
|
|
|
|
61
|
|
|
|
2
|
|
|
|
4,908
|
|
Net change in mortgage servicing
rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
Increase in finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,589
|
)
|
Proceeds from sale of finance
receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,220
|
|
Proceeds from sale of business
units/equity investments
|
|
|
|
|
|
|
1,968
|
|
|
|
|
|
|
|
7,943
|
|
Capital contribution to GMAC LLC
|
|
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases, acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,524
|
)
|
Operating leases, liquidations
|
|
|
|
|
|
|
|
|
|
|
789
|
|
|
|
1,625
|
|
Net investing activity with
Financing and Insurance Operations
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in companies, net of
cash acquired
|
|
|
2
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(592
|
)
|
|
|
(1,053
|
)
|
|
|
8
|
|
|
|
(1,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
(2,625
|
)
|
|
|
(345
|
)
|
|
|
798
|
|
|
|
11,675
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
short-term borrowing
|
|
|
(1,070
|
)
|
|
|
(361
|
)
|
|
|
(1,142
|
)
|
|
|
(5,539
|
)
|
Borrowings of long-term debt
|
|
|
18
|
|
|
|
58
|
|
|
|
|
|
|
|
23,766
|
|
Repayment of long-term debt
|
|
|
(35
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
(26,749
|
)
|
Net financing activity with
Automotive and Other Operations
|
|
|
|
|
|
|
|
|
|
|
(193
|
)
|
|
|
|
|
Cash dividends paid to stockholders
|
|
|
(141
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) financing
activities
|
|
|
(1,228
|
)
|
|
|
(590
|
)
|
|
|
(1,335
|
)
|
|
|
(7,441
|
)
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
23
|
|
|
|
56
|
|
|
|
|
|
|
|
(3
|
)
|
Net transactions with
Automotive/Financing Operations
|
|
|
(30
|
)
|
|
|
157
|
|
|
|
30
|
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(2,851
|
)
|
|
|
2,240
|
|
|
|
(48
|
)
|
|
|
1,902
|
|
Cash and cash equivalents at
beginning of the period
|
|
|
23,774
|
|
|
|
15,187
|
|
|
|
349
|
|
|
|
15,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at
end of the period
|
|
$
|
20,923
|
|
|
$
|
17,427
|
|
|
$
|
301
|
|
|
$
|
17,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Liquidity
and Capital Resources (continued)
Available
Liquidity
GM believes it has sufficient liquidity and financial
flexibility to meet its capital requirements over the short and
medium term under reasonably foreseeable circumstances. Over the
long term, GM believes that its ability to meet its capital
requirements will primarily depend on the successful execution
of its turnaround plan and the return of its North American
operations to profitability and positive cash flow.
Automotives available liquidity includes its cash
balances, marketable securities and readily-available assets of
its VEBA trusts. At March 31, 2007, Automotives
available liquidity was $24.7 billion compared with
$26.4 billion at December 31, 2006 and
$21.6 billion at March 31, 2006. The amount of
GMs consolidated cash and marketable securities is subject
to intra-month and seasonal fluctuations and includes balances
held by various GM business units and subsidiaries worldwide
that are needed to fund their operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in billions)
|
|
|
Cash and cash equivalents
|
|
$
|
20.9
|
|
|
$
|
23.8
|
|
|
$
|
17.4
|
|
Marketable securities
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
1.4
|
|
Readily-available assets of VEBA
trusts
|
|
|
3.6
|
|
|
|
2.5
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available Liquidity
|
|
$
|
24.7
|
|
|
$
|
26.4
|
|
|
$
|
21.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the $3.6 billion of readily-available VEBA
trust assets included in available liquidity, GM expects to have
access to additional VEBA trust assets over time to reimburse
OPEB plan costs. These additional VEBA trust assets totaled
approximately $14.6 billion at March 31, 2007, making
the total VEBA trust assets available to GM $18.2 billion
at March 31, 2007. At December 31, 2006, the total
VEBA trust assets were $17.8 billion, $2.5 billion of
which was readily-available. At March 31, 2006, the total
VEBA trust assets were $18.6 billion, $2.8 billion of
which was readily-available. The increase in the total VEBA
assets since December 31, 2006 was due to asset returns
during the quarter.
GM also has a $4.6 billion standby revolving credit
facility with a syndicate of banks, of which $150 million
terminates in June 2008 and $4.5 billion terminates in July
2011. As of March 31, 2007, the availability under the
revolving credit facility was $4.6 billion. In late April
2007, GM borrowed approximately $100 million under this
credit facility, which has been repaid. There are approximately
$69 million of letters of credit issued under the credit
facility, but no loans are currently outstanding. Under the
$4.5 billion secured facility, borrowings are limited to an
amount based on the value of the underlying collateral, which
consists of certain North American accounts receivable and
inventory of GM, Saturn Corporation, and GM Canada, certain
plants, property and equipment of GM Canada, and a pledge of 65%
of the stock of the holding company for GMs indirect
subsidiary GM de Mexico. In addition to the $4.5 billion
secured line of credit, the collateral also secures certain
lines of credit, automatic clearinghouse and overdraft
arrangements, and letters of credit provided by the same secured
lenders, totaling approximately $1.5 billion. In the event
of certain work stoppages, the secured facility would be
temporarily reduced to $3.5 billion.
GM believes that it is possible that issues may arise from its
restatement of its prior consolidated financial statements under
various other financing arrangements. These financing
arrangements consist principally of obligations in connection
with sale/leaseback transactions and other lease obligations
(including off-balance sheet arrangements) and do not include
GMs public debt indentures. In view of the restatement of
its prior consolidated financial statements, GM has evaluated
the effect of its restatement under these agreements, including
its legal rights (such as its ability to cure) with respect to
any claims that could be asserted. Based on its review, GM
believes that amounts subject to possible claims of
acceleration, termination or other remedies are not likely to
exceed $2.7 billion (consisting primarily of off-balance
sheet arrangements), although no assurances can be given as to
the likelihood, nature, or amount of any claims that may be
asserted. Moreover, GM believes there may be economic or other
disincentives for third parties to raise such claims to the
extent they have them. Based on this review, GM
56
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Liquidity
and Capital Resources (continued)
Available
Liquidity (continued)
reclassified approximately $257 million of these
obligations, as of December 31, 2006, from long-term debt
to short-term debt. As of March 31, 2007 the amount of such
reclassified obligations was $214 million. GM believes that
it has sufficient liquidity over the short and medium term,
regardless of the resolution of these matters.
GM also has an additional $1.6 billion in undrawn committed
facilities (including certain off-balance sheet securitization
programs) with various maturities and $0.8 billion in
undrawn uncommitted lines of credit. In addition, GMs
consolidated affiliates with non-GM minority shareholders,
primarily GM Daewoo, have a combined $1.6 billion in
undrawn committed facilities.
Other potential measures to strengthen available liquidity could
include the sale of non-core assets, additional public or
private financing transactions, and recoveries under the
Framework Agreement entered into with Delphi and the Plan
Investors. In January 2007, GM announced that it was looking at
strategic options for its Allison Transmission commercial and
military operations, including a potential sale of the business.
Additionally, GM currently believes it has access to bank
financing and limited access to the public markets through debt
or equity or some combination thereof. Access to these markets
is dependent on market conditions and our own financial
condition. In connection with Delphi, the recoveries to GM under
the arrangement contemplated by the Framework Agreement and
current negotiations are expected to include cash. GM
anticipates that such additional liquidity could be used in
funding the turnaround plan and addressing the potential risks
and contingencies described below and in our 2006 Annual Report
on
Form 10-K
in Risk Factors Risks related to GM and its
automotive business.
Cash
Flow
The decrease in available liquidity to $24.7 billion at
March 31, 2007 from $26.4 billion at December 31,
2006 was primarily a result of significant capital expenditures,
the $1.0 billion capital contribution to GMAC and the
repayment of $1.1 billion of convertible debt put to GM in
March 2007. This decrease was partially offset by positive
operating cash flow and an increase in the readily-available
VEBA trust assets.
For the quarter ended March 31, 2007, Automotive had
positive operating cash flow of $1.0 billion on a net
income of $0.1 billion. That result compares with the
positive operating cash flow of $3.0 billion and a net
income of $0.1 billion in the comparable period of 2006. In
the first quarter of 2006, GM withdrew $2.0 billion from
its VEBA trusts to reimburse OPEB plan costs. In the first
quarter of 2007, operating cash was unfavorably impacted by
approximately $0.4 billion of costs related to the GMNA
restructuring initiative, $0.1 billion of costs related to
the GME restructuring initiative, and $0.3 billion of costs
related to the Delphi special attrition programs, for which the
charges were recorded in 2003 to 2006.
Capital expenditures of $1.2 billion and $1.3 billion
were a significant use of investing cash in the quarter ended
March 31, 2007 and 2006, respectively. Capital expenditures
were primarily made for global product programs, powertrains and
tooling requirements.
On November 30, 2006, GM consummated the GMAC Transaction,
in which it sold a controlling 51% interest in GMAC to FIM
Holdings. Subsequently, in the first quarter of 2007, GM made a
capital contribution of approximately $1 billion to GMAC to
restore GMACs adjusted tangible equity balance to the
contractually required amount of $14.4 billion. This
capital contribution was required due to the decrease in the
adjusted tangible equity balance of GMAC as of November 30,
2006.
Debt
Automotives total debt, including capital leases,
industrial revenue bond obligations, and borrowings from GMAC at
March 31, 2007 was $38.0 billion, of which
$4.9 billion was classified as short-term or current
portion of long-term debt and $33.1 billion was classified
as long-term. At December 31, 2006, total debt was
$38.7 billion, of which $5.7 billion was short-term or
current portion of long-term debt and $33.0 billion was
long-term. This
57
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Liquidity
and Capital Resources (continued)
Available
Liquidity (concluded)
decrease in total debt was primarily a result of
$1.1 billion convertible debentures that were put to GM and
settled for cash on March 6, 2007. GM funded this
settlement using cash flow from operations and available
liquidity.
Short-term borrowing and current portion of long-term debt of
$4.8 billion includes approximately $1.3 billion of
debt issued by GMs subsidiaries and consolidated
affiliates, and $2.9 billion of related party debt, mainly
dealer financing from GMAC. GM has various debt maturities of
approximately $2.8 billion in 2008 and $0.7 billion in
2009. GM believes it has adequate liquidity to settle those
obligations as they become due.
In order to provide financial flexibility to GM and its
suppliers, GM maintains a trade payables program through GMAC
Commercial Finance (GMACCF). Under the terms of the GMAC
Transaction, GM will be permitted to continue administering the
program through GMACCF so long as GM provides the funding of
advance payments to suppliers under the program. As of
May 1, 2006, GM commenced funding of the advance payments,
and as a result, at March 31, 2007, there was no
outstanding balance owed by GM to GMACCF under the program.
Net
Liquidity
Net liquidity, calculated as cash, marketable securities, and
$3.6 billion ($2.5 billion at December 31,
2006) of readily-available assets of the VEBA trust less
the short-term borrowings and long-term debt, was a negative
$13.3 billion at March 31, 2007, compared with a
negative $12.3 billion at December 31, 2006.
Financing
and Insurance Operations
Prior to the consummation of the GMAC Transaction, GMAC dividend
to GM lease-related assets having a net book value of
approximately $4 billion and related deferred tax
liabilities of $1.8 billion. This dividend resulted in the
transfer to GM of two bankruptcy-remote subsidiaries that hold
the equity interests in ten trusts that own leased vehicles and
issued asset-backed securities collateralized by the vehicles.
GMAC originated these securitizations and remains as the
servicer of the securitizations. GM consolidates the
bankruptcy-remote subsidiaries and the ten trusts for financial
reporting purposes.
At March 31, 2007, GM had vehicles subject to operating
leases of $10.5 billion compared to $11.8 billion at
December 31, 2006, other net assets of $1.5 billion
compared to $1.5 billion at December 31, 2006,
outstanding secured debt of $8.2 billion compared to
$9.4 billion at December 31, 2006, and net equity of
$3.8 billion compared to $3.9 billion at
December 31, 2006 associated with these bankruptcy-remote
subsidiaries.
The decrease in operating leases, secured debt and net equity
from December 31, 2006 is the result of the termination of
some leases in the first quarter of 2007 and the repayment of
the related secured debt. The secured debt has recourse solely
to the leased vehicles and related assets. GM continues to be
obligated to the bankruptcy-remote subsidiaries for residual
support payments on the leased vehicles in an amount estimated
to equal approximately $1.4 billion at March 31, 2007
(December 31, 2006 $1.6 billion). However,
neither the securitization investors nor the trusts have any
rights to the residual support payments. GM expects the
operating leases and related securitization debt to gradually
amortize over the next three to four years resulting in the
release to these two bankruptcy-remote subsidiaries of certain
cash flows related to their ownership of the securitization
trusts and related operating leases.
The cash flow that GM expects to realize from the leased vehicle
securitizations over the next three to four years will come from
three principal sources. The first is cash released from the
securitizations on a monthly basis, as a result of available
funds exceeding debt service and other required payments in that
month. The second is cash received upon and following
termination of a securitization, to the extent of remaining
overcollateralization. The third is a return of the residual
support payments owing from GM each month. For the three months
ended March 31, 2007, the total cash flows released to
these two bankruptcy-remote subsidiaries was approximately
$191 million
58
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Liquidity
and Capital Resources (continued)
Financing
and Insurance
Operations (concluded)
and from November 2006 through March 31, 2007 the total
cash flows released was approximately $309 million.
Status
of Debt Ratings
Dominion Bond Rating Services (DBRS), Fitch Ratings (Fitch),
Moodys Investor Service (Moodys), and
Standard & Poors (S&P) currently rate GMs
credit at non-investment grade. The following table summarizes
GMs credit ratings as of May 1, 2007:
|
|
|
|
|
|
|
Rating Agency
|
|
Senior Unsecured Debt
|
|
Outlook
|
|
Commercial Paper
|
|
DBRS
|
|
B
|
|
Negative
|
|
R-5
|
Fitch
|
|
B
|
|
Rating Watch Negative
|
|
Withdrawn
|
Moodys
|
|
Caa1
|
|
Negative
|
|
Not Prime
|
S&P
|
|
B−
|
|
Negative
|
|
B-3
|
For the period January 1, 2007 through May 1, 2007,
DBRS, Fitch, Moodys and S&P have taken no ratings
action on GMs unsecured or secured debt. As of May 1,
2007, GMs secured credit is rated at BB by
Fitch, Ba3 by Moodys and B+ by
S&P.
While the non-investment grade ratings identified above have
translated into higher borrowing costs and limited access to
unsecured debt markets, these outcomes have been mitigated by
actions taken by GM over the past few years to focus on
increased use of liquidity sources other than institutional
unsecured markets, which are not directly affected by ratings on
unsecured debt, including secured funding sources and conduit
facilities. Further reductions of GMs credit ratings could
increase the possibility of additional terms and conditions
contained in any new or replacement financing arrangements. As a
result of specific funding actions taken over the past few
years, management believes that GM will continue to have access
to sufficient capital to meet its ongoing funding needs over the
short and medium term. Notwithstanding the foregoing, management
believes that the current ratings situation and outlook increase
the level of risk for achieving GMs funding strategy. In
addition, the ratings situation and outlook increase the
importance of successfully executing GMs plans for
improvement of operating results.
Off-Balance
Sheet Arrangements
GM uses off-balance sheet arrangements where the economics and
sound business principles warrant their use. GMs principal
use of off-balance sheet arrangements occurs in connection with
the securitization and sale of financial assets.
The financial assets sold by GM consist principally of trade
receivables that are part of a securitization program that GM
has participated in since 2004. As part of this program, GM
entered into an agreement to sell undivided interests in
eligible trade receivables up to $850 million in 2006, to a
bank conduit that funds its purchases through issuance of
commercial paper or via direct bank funding. The receivables
under the program were sold at fair market value and were
excluded from the consolidated balance sheets. The loss on the
trade receivables sold is included in Automotive cost of sales
and was $3 million and $7 million for the first
quarter of 2007 and 2006, respectively. The amount of
receivables sold as of March 31, 2007, December 31,
2006 and March 31, 2006 was $25 million,
$200 million and $587 million, respectively. GM does
not have a retained interest in the receivables sold, but
performs collection and administrative functions. The gross
amount of proceeds received from the sale of receivables under
this program was approximately $0.5 billion and
$2.8 billion for the first quarter of 2007 and 2006,
respectively.
In addition to this securitization program, GM participates in
other trade receivable securitization programs, primarily in
Europe. Financing providers had a beneficial interest in
GMs pool of eligible European receivables of
$0.1 billion, as of March 31, 2007, December 31,
2006 and March 31, 2006, related to those securitization
programs.
59
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Liquidity
and Capital Resources (concluded)
Off-Balance
Sheet Arrangements (concluded)
GM leases real estate and equipment from various off-balance
sheet entities that have been established to facilitate the
financing of those assets for GM by nationally prominent lessors
that GM believes are creditworthy. These assets consist
principally of office buildings, warehouses, and machinery and
equipment. The use of such entities allows the parties providing
the financing to isolate particular assets in a single entity
and thereby syndicate the financing to multiple third parties.
This is a conventional financing technique used to lower the
cost of borrowing and, thus, the lease cost to a lessee such as
GM. There is a well-established market in which institutions
participate in the financing of such property through their
purchase of ownership interests in these entities, and each is
owned by institutions that are independent of, and not
affiliated with, GM. GM believes that no officers, directors, or
employees of GM, or their affiliates hold any direct or indirect
equity interests in such entities.
Assets in off-balance sheet entities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Assets leased under operating
leases
|
|
$
|
2,170
|
|
|
$
|
2,248
|
|
|
$
|
2,288
|
|
Trade receivables sold*
|
|
|
143
|
|
|
|
309
|
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,313
|
|
|
$
|
2,557
|
|
|
$
|
3,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables sold or securitized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
|
|
|
|
|
|
|
$
|
90,207
|
|
Retail finance
receivables
|
|
|
|
|
|
|
|
|
|
|
8,212
|
|
Wholesale
finance receivables
|
|
|
|
|
|
|
|
|
|
|
21,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
119,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
As of March 31, 2006, additional off-balance sheet trade
receivables sold to GMAC were $595 million. |
Dividends
Dividends may be paid on our common stock when, as, and if
declared by GMs board of directors in its sole discretion
out of amounts available for dividends under applicable law.
Under Delaware law, our board may declare dividends only to the
extent of our statutory surplus (i.e., total assets
minus total liabilities, in each case at fair market value,
minus statutory capital), or if there is no such surplus, out of
our net profits for the then current
and/or
immediately preceding fiscal year.
GMs policy is to distribute dividends on its common stock
based on the outlook and indicated capital needs of the
business. Cash dividends per share on common stock were $1.00 in
2006, and $2.00 in 2005 and 2004. At the February 6, 2007
and May 1, 2007 meetings of the GM board of directors, the
board approved the payment of a $0.25 quarterly dividend on
GMs common stock for the first and second quarters of
2007, respectively. Cash dividends per share of common stock
were $0.25 per quarter for 2006.
60
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Employees
As of March 31, 2007, GM employed approximately 273,000
employees. The following represents GMs employment by
regions at March 31, 2007, December 31, 2006 and
March 31, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
GMNA(1)
|
|
|
145
|
|
|
|
152
|
|
|
|
169
|
|
GME
|
|
|
59
|
|
|
|
60
|
|
|
|
64
|
|
GMLAAM
|
|
|
33
|
|
|
|
32
|
|
|
|
31
|
|
GMAP
|
|
|
34
|
|
|
|
34
|
|
|
|
32
|
|
GMAC(2)
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Other
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
273
|
|
|
|
280
|
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The number of employees for GMNA at March 31, 2007,
December 31, 2006, and March 31, 2006 excludes
U.S. hourly employees of 4,286, 3,620, and 6,853,
respectively, who are on a temporary leave of absence. |
|
(2) |
|
The number of employees at March 31, 2007 and
December 31, 2006 exclude GMAC employees, who were removed
from the consolidated payroll as a result of the GMAC
Transaction in November 2006. |
Critical
Accounting Estimates
The condensed consolidated financial statements of GM are
prepared in conformity with GAAP, which requires the use of
estimates, judgments, and assumptions that affect the reported
assets and liabilities as of the financial statements dates and
the reported revenues and expenses for the periods presented.
GMs accounting policies and critical accounting estimates
are consistent with those described in Note 3 to the
Consolidated Financial Statements and the Managements
Discussion and Analysis section in our 2006 Annual Report on
Form 10-K.
Management believes that the accounting estimates employed are
appropriate and resulting balances are reasonable; however,
actual results could differ from the original estimates,
requiring adjustments to these balances in future periods.
Management has discussed the development, selection and
disclosures of its critical accounting estimates with the Audit
Committee of GMs Board of Directors, and the Audit
Committee has reviewed the disclosures relating to these
estimates.
Accounting
Standards Not Yet Adopted
In September 2006, the FASB issued SFAS No. 157
Fair Value Measurement
(SFAS No. 157) which provides a definition of
fair value, establishes a framework for measuring fair value and
requires expanded disclosures about fair value measurements.
SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. The provisions of
SFAS No. 157 should be applied prospectively.
Management is assessing the potential impact of this standard on
GMs financial condition and results of operations.
In February 2007, the FASB issued SFAS No. 159
The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of
SFAS No. 115 (SFAS No. 159), which
permits an entity to measure many financial assets and financial
liabilities at fair value that are not currently required to be
measured at fair value. Entities that elect the fair value
option will report unrealized gains and losses in earnings at
each subsequent reporting date. The fair value option may be
elected on an
instrument-by-instrument
basis, with a few exceptions. SFAS No. 159 amends
previous guidance to extend the use of the fair value option to
available-for-sale
and
held-to-maturity
securities. The Statement also establishes presentation and
disclosure requirements to help financial statement users
understand the effect of the election. SFAS No. 159 is
effective as of the beginning of the first fiscal year beginning
after November 15, 2007. Management is currently assessing
the potential impact of the standard on GMs financial
condition and results of operations.
61
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Forward-Looking
Statements
In this report and in reports subsequently filed by GM with the
SEC on
Form 10-K
and filed or furnished on
Form 8-K,
and in related comments by management of GM, our use of the
words expect, anticipate,
estimate, forecast,
initiative, objective, plan,
goal, project, outlook,
priorities, target, intend,
evaluate, pursue, seek,
may, would, could,
should, believe, potential,
continue, designed, impact,
or the negative of any of those words or similar expressions is
intended to identify forward-looking statements that represent
our current judgment about possible future events. All
statements in this report and subsequent reports which GM may
file with the SEC on
Form 10-Q
or file or furnish on
Form 8-K,
other than statements of historical fact, including without
limitation, statements about future events and financial
performance, are forward-looking statements that involve certain
risks and uncertainties. We believe these judgments are
reasonable, but these statements are not guarantees of any
events or financial results, and GMs actual results may
differ materially due to a variety of important factors that may
be revised or supplemented in subsequent reports on SEC
Forms 10-K,
10-Q, and
8-K. Such
factors include, among others, the following:
|
|
|
|
|
The ability of GM to realize production efficiencies, to achieve
reductions in costs as a result of the turnaround restructuring
and health care cost reductions and to implement capital
expenditures at levels and times planned by management;
|
|
|
|
The pace of product introductions;
|
|
|
|
Market acceptance of the Corporations new products;
|
|
|
|
Significant changes in the competitive environment and the
effect of competition in the Corporations markets,
including on the Corporations pricing policies;
|
|
|
|
Our ability to maintain adequate liquidity and financing sources
and an appropriate level of debt;
|
|
|
|
Changes in the existing, or the adoption of new, laws,
regulations, policies, or other activities of governments,
agencies, and similar organizations where such actions may
affect the production, licensing, distribution, or sale of our
products, the cost thereof or applicable tax rates;
|
|
|
|
Costs and risks associated with litigation;
|
|
|
|
The final results of investigations and inquiries by the SEC and
other governmental agencies;
|
|
|
|
Changes in our accounting principles, or their application or
interpretation, and our ability to make estimates and the
assumptions underlying the estimates, including the range of
estimates for the Delphi pension benefit guarantees, which could
result in an impact on earnings;
|
|
|
|
Changes in relations with unions and employees/retirees and the
legal interpretations of the agreements with those unions with
regard to employees/retirees;
|
|
|
|
Negotiations and bankruptcy court actions with respect to
Delphis obligations to GM, negotiations with respect to
GMs obligations under the pension benefit guarantees to
Delphi employees, and GMs ability to recover any indemnity
claims against Delphi;
|
|
|
|
Labor strikes or work stoppages at GM or its key suppliers such
as Delphi or financial difficulties at GMs key suppliers
such as Delphi;
|
|
|
|
Additional credit rating downgrades and the effects thereof;
|
|
|
|
Shortages of and price increases for fuel; and
|
|
|
|
Changes in economic conditions, commodity prices, currency
exchange rates, or political stability in the markets in which
we operate.
|
62
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Forward-Looking
Statements (concluded)
In addition, GMACs actual results may differ materially
due to numerous important factors that are described in
GMACs most recent report on SEC
Form 10-K,
which may be revised or supplemented in subsequent reports on
SEC
Forms 10-K,
10-Q, and
8-K. Such
factors include, among others, the following:
|
|
|
|
|
Changes in the residential mortgage market, especially in the
nonprime sector;
|
|
|
|
Significant changes in the competitive environment and the
effect of competition in the GMACs markets, including on
the GMACs pricing policies;
|
|
|
|
Its ability to maintain adequate financing sources;
|
|
|
|
Its ability to maintain an appropriate level of debt;
|
|
|
|
Restrictions on ResCaps ability to pay dividends and
prepay subordinated debt obligations to GMAC;
|
|
|
|
Changes in the residual value of off-lease vehicles;
|
|
|
|
Changes in U.S. government-sponsored mortgage programs or
disruptions in the markets in which GMACs mortgage
subsidiaries operate;
|
|
|
|
Changes in its contractual servicing rights;
|
|
|
|
Costs and risks associated with litigation;
|
|
|
|
Changes in GMACs accounting assumptions that may require
or that result from changes in the accounting rules or their
application, which could result in an impact on earnings;
|
|
|
|
Changes in the credit ratings of GMAC or GM;
|
|
|
|
The threat of natural calamities;
|
|
|
|
Changes in economic conditions, currency exchange rates, or
political stability in the markets in which it operates; and
|
|
|
|
Changes in the existing, or the adoption of new, laws,
regulations, policies, or other activities of governments,
agencies and similar organizations.
|
We caution investors not to place undue reliance on
forward-looking statements. We undertake no obligation to update
publicly or otherwise revise any forward-looking statements,
whether as a result of new information, future events, or other
such factors that affect the subject of these statements, except
where we are expressly required to do so by law.
* * * * * *
|
|
Item 3.
|
Quantitative
And Qualitative Disclosures About Market Risk
|
There have been no significant changes in the Corporations
exposure to market risk since December 31, 2006. Refer to
Item 7A in GMs Annual Report on
Form 10-K
for the year ended December 31, 2006.
* * * * * *
|
|
Item 4.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
GM maintains disclosure controls and procedures designed to
ensure that information required to be disclosed in reports
filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized, and reported within the
specified time periods and accumulated and communicated to
GMs management, including its
63
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 4.
|
Controls
and Procedures (continued)
|
principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
GMs management, with the participation of its Chairman and
Chief Executive Officer (CEO) and its Vice Chairman and Chief
Financial Officer (CFO), evaluated the effectiveness of our
disclosure controls and procedures (as defined in
Rules 13a-15(e)
or 15d-15(e)
promulgated under the Securities Exchange Act of 1934) as
of March 31, 2007. Based on that evaluation, GMs CEO
and CFO concluded that, as of that date, GMs disclosure
controls and procedures required by paragraph (b) of
Exchange Act
Rules 13a-15
or 15d-15
were not effective at the reasonable assurance level because of
the identification of material weaknesses in our internal
control over financial reporting, which we view as an integral
part of our disclosure controls and procedures.
As discussed in GMs Annual Report on
Form 10-K
for the year ended December 31, 2006, managements
assessment identified the following material weaknesses:
1. The Corporation lacked the technical expertise and
processes to ensure compliance with SFAS No. 109,
Accounting for Income Taxes, and did not
maintain adequate controls with respect to (a) timely tax
account reconciliations and analyses, (b) coordination and
communication between Corporate Accounting and Tax Staffs, and
(c) timely review and analysis of corporate journals
recorded in the consolidation process. This material weakness
resulted in a restatement of prior financial statements, as
described in Note 12 to the Condensed Consolidated
Financial Statements, and, if not remediated, has the potential
to cause a material misstatement in the future.
2. The Corporation in certain instances lacked the
technical expertise and did not maintain adequate procedures to
ensure that the accounting for derivative financial instruments
under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities
(SFAS No. 133), was appropriate. Procedures relating
to hedging transactions in certain instances did not operate
effectively to (a) properly evaluate hedge accounting
treatment (b) meet the documentation requirements of
SFAS No. 133, (c) adequately assess and measure
hedge effectiveness on a quarterly basis, and (d) establish
the appropriate communication and coordination between relevant
GM departments involved in complex financial transactions. This
material weakness resulted in a restatement of prior financial
statements, as described in Note 12 to the Condensed
Consolidated Financial Statements and, if not remediated, has
the potential to cause a material misstatement in the future.
3. The Corporation did not maintain a sufficient complement
of personnel with an appropriate level of technical accounting
knowledge, experience, and training in the application of
generally accepted accounting principles commensurate with the
Corporations complex financial accounting and reporting
requirements and low materiality thresholds. This was evidenced
by a significant number of
out-of-period
adjustments noted during the year-end closing process. This
material weakness contributed to the restatement of prior
financial statements, as described in Note 12 to the
Condensed Consolidated Financial Statements and, if not
remediated, has the potential to cause a material misstatement
in the future.
4. Due to the previously reported material weaknesses, as
evidenced by the significant number and magnitude of
out-of-period
adjustments identified during the year-end closing process and
the resulting restatements related to deferred taxes and hedging
activities, management has concluded that the controls over the
period-end financial reporting process were not operating
effectively. Specifically, controls were not effective to ensure
that significant non-routine transactions, accounting estimates,
and other adjustments were appropriately reviewed, analyzed, and
monitored on a timely basis. A material weakness in the
period-end financial reporting process could result in the
Corporation not being able to meet its regulatory filing
deadlines and, if not remediated, has the potential to cause a
material misstatement or to miss a filing deadline in the future.
64
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 4.
|
Controls
and Procedures (continued)
|
Remediation
and Changes in Internal Controls
The Corporation is in the process of developing and implementing
remediation plans to address our material weaknesses. Management
has taken the following actions described below to improve the
internal controls over financial reporting.
Since year-end, management has added approximately
25 professional accountants in key support roles to address
some of its internal control weaknesses in technical accounting.
Management is also conducting remediation planning. This plan
details organization design changes to better align accounting
responsibilities, as well as addresses technical accounting
staffing shortfalls.
Changes that took place during calendar year 2006:
|
|
|
|
|
A new Controller and Corporate Chief Accounting Officer was
appointed, effective December 1, 2006.
|
|
|
|
A new Chief Accounting Officer (CAO) for GMNA was appointed
along with the appointment of six new accounting managers
to support GMNA, Global Purchasing Supply Chain, Information
Systems and Services, Vehicle Sales, Service and Marketing,
Manufacturing related activities, and Powertrain. Also, a new
CAO was appointed for Treasury Operations.
|
|
|
|
A new Director of Accounting Policy, Research, and SEC Reporting
was appointed to manage all SEC related activities including
accounting guidance and periodic reporting.
|
|
|
|
Management has initiated the Accounting Career Development
Program, which is intended to facilitate improvements in the
recruitment, training, and development of technical accounting
personnel.
|
In addition, the following describes specific remedial actions
to be taken for each of the material weaknesses described above:
1. Reorganize and restructure the Tax Department by
(a) moving the Tax Accounting function from Corporate
Accounting to the Tax Department to ensure better coordination
on complex tax issues, (b) implementing new policies and
procedures to ensure that tax account reconciliations and
analyses are properly prepared and monitored on a timely basis,
(c) establishing appropriate communication and
collaboration protocols between the Tax Department and Corporate
Accounting group, and (d) hiring the necessary technical
tax accounting personnel to support GMs complex tax
environment.
2. Implement additional policies, procedures, and
documentation retention requirements for hedge accounting to
ensure compliance with SFAS No. 133. Contract with
outside SFAS No. 133 experts in the interim until the
necessary technical accounting personnel can be hired to support
GMs complex hedge accounting activities.
3. Reorganize and restructure Corporate Accounting by
(a) revising the reporting structure and establishing clear
roles, responsibilities, and accountability, (b) hiring
additional technical accounting personnel to address GMs
complex accounting and financial reporting requirements, and
(c) assessing the technical accounting capabilities in the
operating units to ensure the right complement of knowledge,
skills, and training.
4. Improve period-end closing procedures by
(a) requiring all significant non-routine transactions to
be reviewed by Corporate Accounting, (b) ensuring that
account reconciliations and analyses for significant financial
statement accounts are reviewed for completeness and accuracy by
qualified accounting personnel, (c) implementing a process
that ensures the timely review and approval of complex
accounting estimates by qualified accounting personnel and
subject matter experts, where appropriate, and
(d) developing better monitoring controls at Corporate
Accounting and the operating units.
As previously noted, management has augmented the resources in
Corporate Accounting by utilizing external resources in
technical accounting areas and implemented additional closing
procedures for the quarter ended
65
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 4. |
Controls and Procedures (concluded)
|
March 31, 2007. As a result, management believes that there
are no material inaccuracies or omissions of material fact and,
to the best of its knowledge, believes that the consolidated
financial statements for the quarter ended March 31, 2007,
fairly present in all material respects the financial condition
and results of operations of the Corporation in conformity with
accounting principles generally accepted in the United States of
America.
As discussed in GMs Annual Report on
Form 10-K
for the year ended December 31, 2005, GM management also
identified a significant deficiency in internal controls related
to accounting for complex contracts. This deficiency was noted
as a result of certain contracts being accounted for incorrectly
and without appropriate consideration of the economic substance
of the contracts. As part of its remediation efforts, GM
management issued procedural guidance regarding the evaluation
of and accounting for complex contracts. Further, GM management
has implemented a delegation of authority for approval of the
accounting for complex contracts that requires formal review and
approval by experienced accounting personnel. GM management will
continue to monitor the effectiveness of the remedial actions.
Certain of the personnel changes described in the remedial
actions occurred during the fourth quarter of 2006. Other than
as described above, there have not been any other changes in the
Corporations internal control over financial reporting
during the quarter ended March 31, 2007, which have
materially affected, or are reasonably likely to materially
affect, the Corporations internal control over financial
reporting.
Limitations
on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that
our disclosure controls or our internal controls will prevent or
detect all errors and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives
will be met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within General
Motors have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty,
and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become
inadequate because of changes in conditions or deterioration in
the degree of compliance with associated policies or procedures.
Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.
* * * * * *
PART II
|
|
Item 1.
|
Legal
Proceedings
|
Canadian
Export Antitrust Class Action
In the previously reported antitrust class action consolidated
in the U.S. District Court for the District of Maine, In
re New Market Vehicle Canadian Export Antitrust Litigation
Cases, the court ruled on March 21, 2007 that it will
certify 20 separate statewide class actions for damages under
various state law theories under Federal Rule 23(b)(3),
covering the period from January 1, 2001 to April 30,
2003. General Motors will appeal the certification of the
damages classes following the entry of the class certification
order and anticipates that its appeal will be consolidated with
its pending appeal of a prior order certifying a nationwide
class for injunctive relief only.
66
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 1.
|
Legal
Proceedings (concluded)
|
GMAC
Bondholder Class Actions
In the previously reported consolidated cases captioned
J&R Marketing, et al. v. General Motors
Corporation, et al., plaintiffs filed a notice of
appeal on March 27, 2007 from the order of the
U.S. District Court for the Eastern District of Michigan
dated February 27, 2007, granting defendants motion
to dismiss and dismissing plaintiffs complaint.
Coolant
System Class Action Litigation
With respect to this previously reported subject of litigation,
GM has been named as the defendant in an additional putative
class action alleging a defect in the engine cooling system in
certain GM vehicles, filed in federal district court. No
determination has been made that this case may be maintained as
a class action. GM intends to defend this action vigorously.
* * * * * *
The following risk factors, which were disclosed in the 2006
Annual Report on
Form 10-K,
have been modified to provide additional disclosure related to
changes since we filed the 2006 Annual Report on
Form 10-K.
Refer to the 2006 Annual Report on
Form 10-K
for an expanded discussion of other risks facing the Corporation
listed below under the caption Other Risk Factors.
Risks
related to GM and its automotive business
Delphi
may seek to reject or compromise its obligations to us through
its Chapter 11 bankruptcy proceedings.
In connection with its Chapter 11 bankruptcy proceeding,
Delphi has filed a motion seeking authority to reject certain
supply contracts with GM, which is now indefinitely adjourned
while negotiations are in progress. Although Delphi has not
rejected any GM contracts as of this time and has assured GM
that it does not intend to disrupt production at GM assembly
facilities, if GM, Delphi, and the other parties cannot reach
the agreements necessary to resolve all the matters involved in
Delphis bankruptcy, there is a risk that Delphi or one or
more of its affiliates may reject or threaten to reject
individual contracts with GM, either to exit specific lines of
business or to increase the price GM pays for certain parts and
components. As a result, we could experience a material
disruption in our supply of automotive systems, components, and
parts that could force the suspension of production at GM
assembly facilities, which could materially adversely affect our
business, including key elements of our North America turnaround
initiative. In addition, we would likely find it difficult to
locate a different supplier for some of the systems, components,
and parts we purchase from Delphi, particularly those that
require extended lead times for validation and production.
GM is seeking to minimize its risks by protecting our right of
setoff against the $1.15 billion we owed to Delphi as of
the date of its Chapter 11 filing. However, our ability to
benefit from a right to setoff may be subject to limitation by
the Court or dispute by Delphi, the creditors committee,
or Delphis other creditors, so that GM cannot provide any
assurance that it will be able to setoff such amounts fully or
partially. To date setoffs of approximately $53.6 million
against that $1.15 billion have been taken by GM, with
Delphis agreement. The financial impact of a substantial
compromise of our right of setoff could have a material adverse
impact on our financial position. In addition, the basis,
amounts, and priority of any claims against Delphi that GM
currently has or may have in the future may be challenged by
other parties in interest in Delphis bankruptcy
proceeding. The scope and results of such challenges cannot be
predicted with certainty.
67
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 1A.
|
Risk
Factors (continued)
|
Other
Risk Factors
The following risk factors, which were disclosed in the 2006
Annual Report on
Form 10-K,
have not materially changed since we filed the 2006 Annual
Report on
Form 10-K.
Refer to the 2006 Annual Report on
Form 10-K
for a complete discussion of these risk factors.
Risks
related to GM and its automotive business
|
|
|
|
|
Our continued ability to achieve structural and material cost
reductions and to realize production efficiencies for our
automotive operations is critical to our ability to achieve our
turnaround plan and return to profitability.
|
|
|
|
Restrictions in our labor agreements could limit our ability to
pursue or achieve cost savings through restructuring
initiatives, and labor strikes, work stoppages, or similar
difficulties could significantly disrupt our operations.
|
|
|
|
We must continue to make structural changes to reduce our
U.S. health-care cost burden, the source of our largest
competitive cost disadvantage.
|
|
|
|
Our extensive pension and OPEB obligations to retirees are a
competitive disadvantage for us.
|
|
|
|
Our pension and OPEB expenses are affected by factors outside
our control, including the performance of plan assets, interest
rates, actuarial data and experience, and changes in laws and
regulations.
|
|
|
|
We have guaranteed a significant amount of Delphis
financial obligations to its unionized workers. If Delphi fails
to satisfy these obligations, we would be obligated to pay some
of these obligations.
|
|
|
|
Financial difficulties, labor stoppages, or work slowdowns at
key suppliers, including Delphi, could result in a disruption in
our operations and have a material adverse effect on our
business.
|
|
|
|
Increase in cost, disruption of supply, or shortage of raw
materials could harm our business.
|
|
|
|
A decline in consumer demand for our higher margin vehicles
could result in diminished profitability.
|
|
|
|
Shortages and increases in the price of fuel could result in
diminished profitability due to shifts in consumer vehicle
demand.
|
|
|
|
The pace of introduction and market acceptance of new vehicles
is important to our success.
|
|
|
|
Decreases in the residual value of our vehicles could have a
significant negative effect on our results of operations.
|
|
|
|
GMs significant investment in new technology may not
result in successful vehicle applications.
|
|
|
|
We operate in a highly competitive industry that has excess
manufacturing capacity.
|
|
|
|
The financial distress, bankruptcy, or insolvency of a major
competitor could have significant adverse consequences for us.
|
|
|
|
We could be materially adversely affected by changes or
imbalances in currency exchange or other rates.
|
|
|
|
Our liquidity position could be negatively affected by a variety
of factors, which in turn could have a material adverse effect
on our business.
|
|
|
|
Continued failure to achieve profitability may cause some or all
of our deferred tax assets to expire.
|
|
|
|
Further reduction of our credit ratings, or failure to restore
our credit ratings to higher levels, could have a material
adverse effect on our business.
|
68
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 1A.
|
Risk
Factors (continued)
|
Risks
related to GM and its automotive
business (concluded)
|
|
|
|
|
The federal government is currently investigating certain of our
accounting practices. The final outcome of these investigations
could require us to restate prior financial results.
|
|
|
|
We have determined that our internal controls over financial
reporting are currently ineffective. The lack of effective
internal controls could adversely affect our financial condition
and ability to carry out our strategic business plan.
|
|
|
|
Our indebtedness and other obligations of our automotive
operations are significant and could materially adversely affect
our business.
|
|
|
|
Economic and industry conditions constantly change and could
have a material adverse effect on our business and results of
operations.
|
|
|
|
Our businesses outside the United States expose us to additional
risks that may cause our revenues and profitability to decline.
|
|
|
|
Changes in existing, or the adoption of new laws, regulations or
policies of government organizations, particularly environmental
or fuel economy regulations, may have a significant negative
impact on how we do business.
|
|
|
|
We are subject to significant risks of litigation.
|
Risks
related to GMs 49% ownership interest in GMAC
|
|
|
|
|
General business, economic, and market conditions may
significantly affect the operating results of GMACs
business and earnings.
|
|
|
|
GMAC requires substantial capital, and if GMAC is unable to
maintain adequate financing sources, its profitability and
financial condition will suffer and jeopardize its ability to
continue operations.
|
|
|
|
GMACs indebtedness and other obligations are significant
and could materially adversely affect its business.
|
|
|
|
GMACs earnings may decrease because of increases or
decreases in interest rates.
|
|
|
|
GMACs hedging strategies may not be successful in
mitigating its risks associated with changes in interest rates
and could affect its profitability and financial condition.
|
|
|
|
GMACs residential mortgage subsidiarys ability to
pay dividends to GMAC is restricted by contractual arrangements.
|
|
|
|
GMAC uses estimates and assumptions in determining the fair
value of certain of its assets, its allowance for credit losses,
lease residual values, and its reserves for insurance losses and
loss adjustment expenses. If its estimates or assumptions prove
to be incorrect, its cash flow, profitability, financial
condition, and business prospects would be materially adversely
affected.
|
|
|
|
GMAC is exposed to credit risk which could affect its
profitability and financial condition.
|
|
|
|
Recent developments in the residential mortgage market,
especially in the nonprime sector, may adversely affect
GMACs revenues, profitability, and financial condition.
|
|
|
|
Changes in existing U.S. government-sponsored mortgage
programs, or disruptions in the secondary markets in the United
States or other countries in which GMACs mortgage
subsidiaries operate, could adversely affect the profitability
and financial condition of GMACs mortgage business.
|
69
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Risks
related to GMs 49% ownership interest in GMAC
(concluded)
|
|
|
|
|
GMAC may be required to repurchase contracts and provide
indemnification if it breaches representations and warranties in
its securitization and whole loan transactions, which could harm
GMACs profitability and financial condition.
|
|
|
|
Significant indemnification payments or contract, lease, or loan
repurchase activity of retail contracts or leases or mortgage
loans could harm GMACs profitability and financial
condition.
|
|
|
|
A loss of contractual servicing rights could have a material
adverse effect on GMACs financial condition, liquidity,
and results of operations.
|
|
|
|
The regulatory environment in which GMAC operates could have a
material adverse effect on its business and earnings.
|
|
|
|
The worldwide financial services industry is highly competitive.
If GMAC is unable to compete successfully or if there is
increased competition in the automotive financing, mortgage,
and/or
insurance markets or generally in the markets for
securitizations or asset sales, GMACs margins could be
materially adversely affected.
|
* * * * *
Item 2(c). Purchases
of Equity Securities
GM made no purchases of its common stock during the three months
ended March 31, 2007.
70
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Name
|
|
|
10
|
.1
|
|
General Motors 2002 Stock
Incentive Plan, as amended.
|
|
31
|
.1
|
|
Section 302 Certification of
the Chief Executive Officer
|
|
31
|
.2
|
|
Section 302 Certification of
the Chief Financial Officer
|
|
32
|
.1
|
|
Certification of the Chief
Executive Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
32
|
.2
|
|
Certification of the Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
71
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
GENERAL MOTORS CORPORATION
(Registrant)
(Nick S. Cyprus, Controller and Chief Accounting Officer)
Date: May 8, 2007
72
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Name
|
|
|
10
|
.1
|
|
General Motors 2002 Stock
Incentive Plan, as amended.
|
|
31
|
.1
|
|
Section 302 Certification of
the Chief Executive Officer
|
|
31
|
.2
|
|
Section 302 Certification of
the Chief Financial Officer
|
|
32
|
.1
|
|
Certification of the Chief
Executive Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
32
|
.2
|
|
Certification of the Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
73