e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549-1004
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2007
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact Name of
Registrant as Specified in its Charter)
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STATE OF DELAWARE
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38-0572515
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(State or other jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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300 Renaissance Center, Detroit, Michigan
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48265-3000
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(Address of Principal Executive
Offices)
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(Zip Code)
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(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):
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Large
accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of October 31, 2007, the number of shares outstanding of
the Registrants common stock was 565,993,943 shares.
Website
Access to Companys Reports
General Motors Corporations 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
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Page No.
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Condensed Consolidated Financial Statements
(Unaudited)
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3
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Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 2007 and 2006
(As restated)
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3
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Condensed Consolidated Balance Sheets as of
September 30, 2007, December 31, 2006, and September 30, 2006
(As restated)
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4
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Condensed Consolidated Statement of
Stockholders Equity (Deficit) for the Nine Months Ended
September 30, 2007 and 2006 (As restated)
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5
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Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2007 and 2006
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6
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Notes to Condensed Consolidated Financial
Statements
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7
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
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53
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Quantitative and Qualitative Disclosures About
Market Risk
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99
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Controls and Procedures
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99
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Legal Proceedings
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101
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Risk Factors
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103
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Purchases of Equity Securities
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110
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Exhibits
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111
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112
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First Amendment dated August 7, 2007 to the Asset Purchase Agreement dated as of June 28, 2007 |
Second Amendment dated October 1, 2007 to the Asset Purchase Agreement dated as of June 28, 2007 |
Global Settlement Agreement dated September 6, 2007 |
First Amendment to the Global Settlement Agreement dated as of October 29, 2007 |
Master Restructuring Agreement dated September 6, 2007 |
First Amendment to the Master Restructuring Agreement dated as of October 29, 2007 |
Section 302 Certification of the Chief Executive Officer |
Section 302 Certification of the Chief Financial Officer |
Certification of the Chief Executive Officer Pursuant to Section 906 |
Certification of the Chief Financial Officer Pursuant to Section 906 |
2
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Item 1.
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Condensed
Consolidated Financial Statements
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GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
(Unaudited)
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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2007
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2006
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2007
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2006
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(As restated,
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(As restated,
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Note 16)
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Note 16)
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Net sales and revenue
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Automotive sales
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$
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43,134
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$
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39,612
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$
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131,695
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$
|
127,657
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Financial services and insurance revenue
|
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700
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|
|
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9,280
|
|
|
|
2,530
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27,214
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Total net sales and revenue
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43,834
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48,892
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134,225
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154,871
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|
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Costs and expenses
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|
|
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Automotive cost of sales
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41,540
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|
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37,184
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122,210
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124,598
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Selling, general and administrative expense
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3,601
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3,155
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10,205
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9,740
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Financial services and insurance expense
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|
640
|
|
|
|
7,596
|
|
|
|
2,334
|
|
|
|
23,608
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|
Other expenses
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350
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|
|
|
1,943
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|
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|
925
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|
|
3,151
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Total costs and expenses
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46,131
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49,878
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135,674
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161,097
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Operating loss
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(2,297
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)
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|
(986
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)
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(1,449
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)
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(6,226
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)
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Equity in loss of GMAC LLC
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(809
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)
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(874
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)
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Automotive and other interest expense
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(776
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)
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|
(529
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)
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(2,256
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)
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|
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(1,861
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)
|
Automotive interest income and other non-operating income
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|
|
544
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|
|
310
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|
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|
1,535
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|
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2,093
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|
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|
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Loss from continuing operations before income taxes, other
equity income and minority interests
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(3,338
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)
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(1,205
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)
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(3,044
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)
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(5,994
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)
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Income tax expense (benefit) (Note 11)
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39,186
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(977
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)
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38,805
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|
|
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(2,523
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)
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Equity income (loss) and minority interests, net of tax
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12
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(49
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)
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|
79
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193
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|
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|
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Loss from continuing operations
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(42,512
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)
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(277
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)
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(41,770
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)
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(3,278
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)
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Discontinued Operations (Note 3)
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Income from discontinued operations, net of tax
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45
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130
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256
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350
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Gain on sale of discontinued operations, net of tax
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3,504
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3,504
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Income from discontinued operations
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|
3,549
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|
|
|
130
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|
3,760
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|
|
350
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss
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$
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(38,963
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)
|
|
$
|
(147
|
)
|
|
$
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(38,010
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)
|
|
$
|
(2,928
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Continuing operations
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|
$
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(75.12
|
)
|
|
$
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(.49
|
)
|
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$
|
(73.82
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)
|
|
$
|
(5.80
|
)
|
Discontinued operations
|
|
|
6.27
|
|
|
|
.23
|
|
|
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6.64
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|
|
|
.62
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
|
|
$
|
(68.85
|
)
|
|
$
|
(.26
|
)
|
|
$
|
(67.18
|
)
|
|
$
|
(5.18
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)
|
|
|
|
|
|
|
|
|
|
|
|
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Weighted average common shares outstanding, basic
(millions)
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(75.12
|
)
|
|
$
|
(.49
|
)
|
|
$
|
(73.82
|
)
|
|
$
|
(5.80
|
)
|
Discontinued operations
|
|
|
6.27
|
|
|
|
.23
|
|
|
|
6.64
|
|
|
|
.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(68.85
|
)
|
|
$
|
(.26
|
)
|
|
$
|
(67.18
|
)
|
|
$
|
(5.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
(millions)
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
.25
|
|
|
$
|
.25
|
|
|
$
|
.75
|
|
|
$
|
.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
(As restated,
|
|
|
(As restated,
|
|
|
|
|
|
|
Note 16)
|
|
|
Note 16)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,402
|
|
|
$
|
23,774
|
|
|
$
|
17,802
|
|
Marketable securities
|
|
|
1,978
|
|
|
|
138
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and marketable securities
|
|
|
26,380
|
|
|
|
23,912
|
|
|
|
17,909
|
|
Accounts and notes receivable, net
|
|
|
10,728
|
|
|
|
8,216
|
|
|
|
6,855
|
|
Inventories
|
|
|
15,530
|
|
|
|
13,921
|
|
|
|
14,822
|
|
Equipment on operating leases, net
|
|
|
5,572
|
|
|
|
6,125
|
|
|
|
6,569
|
|
Deferred income taxes and other current assets
|
|
|
2,204
|
|
|
|
11,957
|
|
|
|
10,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
60,414
|
|
|
|
64,131
|
|
|
|
56,968
|
|
Financing and Insurance Operations Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
328
|
|
|
|
349
|
|
|
|
3,089
|
|
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
282,847
|
|
Equipment on operating leases, net
|
|
|
7,856
|
|
|
|
11,794
|
|
|
|
13,325
|
|
Investment in GMAC LLC
|
|
|
6,852
|
|
|
|
7,523
|
|
|
|
|
|
Other assets
|
|
|
4,119
|
|
|
|
2,457
|
|
|
|
1,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations Assets
|
|
|
19,155
|
|
|
|
22,123
|
|
|
|
301,088
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
42,264
|
|
|
|
41,934
|
|
|
|
38,959
|
|
Deferred income taxes (Note 11)
|
|
|
975
|
|
|
|
33,079
|
|
|
|
24,972
|
|
Prepaid pension
|
|
|
18,920
|
|
|
|
17,366
|
|
|
|
37,691
|
|
Other assets
|
|
|
7,772
|
|
|
|
7,671
|
|
|
|
8,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
69,931
|
|
|
|
100,050
|
|
|
|
109,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
149,500
|
|
|
$
|
186,304
|
|
|
$
|
468,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable (principally trade)
|
|
$
|
30,514
|
|
|
$
|
26,931
|
|
|
$
|
27,318
|
|
Short-term borrowings and current portion of long-term debt
|
|
|
5,263
|
|
|
|
5,666
|
|
|
|
1,436
|
|
Accrued expenses
|
|
|
34,619
|
|
|
|
35,225
|
|
|
|
40,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
70,396
|
|
|
|
67,822
|
|
|
|
68,989
|
|
Financing and Insurance Operations Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities related to assets held for sale
|
|
|
|
|
|
|
|
|
|
|
272,869
|
|
Debt
|
|
|
5,962
|
|
|
|
9,438
|
|
|
|
10,073
|
|
Other liabilities and deferred income taxes
|
|
|
1,666
|
|
|
|
2,139
|
|
|
|
2,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations Liabilities
|
|
|
7,628
|
|
|
|
11,577
|
|
|
|
285,185
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
34,670
|
|
|
|
33,067
|
|
|
|
33,118
|
|
Postretirement benefits other than pensions
|
|
|
48,336
|
|
|
|
50,409
|
|
|
|
34,534
|
|
Pensions
|
|
|
12,214
|
|
|
|
11,934
|
|
|
|
15,937
|
|
Other liabilities and deferred income taxes
|
|
|
16,327
|
|
|
|
15,957
|
|
|
|
17,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
111,547
|
|
|
|
111,367
|
|
|
|
101,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
189,571
|
|
|
|
190,766
|
|
|
|
455,477
|
|
Minority interests
|
|
|
1,700
|
|
|
|
1,190
|
|
|
|
1,210
|
|
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, 6,000,000 shares authorized,
no shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock,
$12/3
par value (2,000,000,000 shares authorized, 756,637,541 and
565,877,391 shares issued and outstanding at
September 30, 2007, respectively, 756,637,541 and
565,670,254 shares issued and outstanding at
December 31, 2006, respectively, and 756,637,541 and
565,611,157 shares issued and outstanding at
September 30, 2006, respectively)
|
|
|
943
|
|
|
|
943
|
|
|
|
943
|
|
Capital surplus (principally additional paid-in capital)
|
|
|
15,264
|
|
|
|
15,336
|
|
|
|
15,316
|
|
Retained earnings (deficit)
|
|
|
(38,528
|
)
|
|
|
195
|
|
|
|
(616
|
)
|
Accumulated other comprehensive loss
|
|
|
(19,450
|
)
|
|
|
(22,126
|
)
|
|
|
(4,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(41,771
|
)
|
|
|
(5,652
|
)
|
|
|
11,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities, Minority Interests and Stockholders
Equity (Deficit)
|
|
$
|
149,500
|
|
|
$
|
186,304
|
|
|
$
|
468,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Common
|
|
|
Common
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Surplus
|
|
|
(Loss)
|
|
|
(Deficit)
|
|
|
(Loss)
|
|
|
(Deficit)
|
|
Balance December 31, 2005, as previously reported
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,285
|
|
|
|
|
|
|
$
|
2,960
|
|
|
$
|
(4,535
|
)
|
|
$
|
14,653
|
|
Prior period adjustments (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(211
|
)
|
|
|
|
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005, as restated
|
|
|
566
|
|
|
|
943
|
|
|
|
15,285
|
|
|
|
|
|
|
|
2,749
|
|
|
|
(4,535
|
)
|
|
|
14,442
|
|
Net loss, as restated (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,928
|
)
|
|
|
(2,928
|
)
|
|
|
|
|
|
|
(2,928
|
)
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240
|
|
|
|
|
|
|
|
240
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(424
|
)
|
|
|
|
|
|
|
(424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2006, as restated
(Note 16)
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,316
|
|
|
|
|
|
|
$
|
(616
|
)
|
|
$
|
(4,295
|
)
|
|
$
|
11,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006, as restated (Note 16)
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,336
|
|
|
|
|
|
|
$
|
195
|
|
|
$
|
(22,126
|
)
|
|
$
|
(5,652
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(38,010
|
)
|
|
|
(38,010
|
)
|
|
|
|
|
|
|
(38,010
|
)
|
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 48, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137
|
|
|
|
|
|
|
|
137
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition asset/obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,523
|
|
|
|
|
|
|
|
1,523
|
|
|
|
1,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(36,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(425
|
)
|
|
|
|
|
|
|
(425
|
)
|
Purchase of convertible note hedge (Note 8)
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2007
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,264
|
|
|
|
|
|
|
$
|
(38,528
|
)
|
|
$
|
(19,450
|
)
|
|
$
|
(41,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Cash provided by (used in) continuing operating activities
|
|
$
|
3,641
|
|
|
$
|
(5,835
|
)
|
Cash provided by discontinued operating activities
|
|
|
221
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
3,862
|
|
|
|
(5,340
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Expenditures for property
|
|
|
(4,939
|
)
|
|
|
(5,356
|
)
|
Investments in marketable securities, acquisitions
|
|
|
(1,984
|
)
|
|
|
(10,627
|
)
|
Investments in marketable securities, liquidations
|
|
|
113
|
|
|
|
11,591
|
|
Net change in mortgage servicing rights
|
|
|
|
|
|
|
(65
|
)
|
Increase in finance receivables
|
|
|
|
|
|
|
(55,603
|
)
|
Proceeds from sale of finance receivables
|
|
|
|
|
|
|
66,859
|
|
Proceeds from sale of business units/equity investments
|
|
|
5,354
|
|
|
|
10,524
|
|
Operating leases, acquisitions
|
|
|
|
|
|
|
(13,772
|
)
|
Operating leases, liquidations
|
|
|
2,463
|
|
|
|
5,266
|
|
Capital contribution to GMAC LLC
|
|
|
(1,022
|
)
|
|
|
|
|
Investments in companies, net of cash acquired
|
|
|
(42
|
)
|
|
|
(351
|
)
|
Other
|
|
|
19
|
|
|
|
(634
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) continuing investing activities
|
|
|
(38
|
)
|
|
|
7,832
|
|
Cash used in discontinued investing activities
|
|
|
(22
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(60
|
)
|
|
|
7,812
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term borrowings
|
|
|
(3,732
|
)
|
|
|
1,267
|
|
Borrowings of long-term debt
|
|
|
1,919
|
|
|
|
66,430
|
|
Payments made on long-term debt
|
|
|
(1,244
|
)
|
|
|
(76,384
|
)
|
Cash dividends paid to stockholders
|
|
|
(425
|
)
|
|
|
(424
|
)
|
Other
|
|
|
|
|
|
|
2,931
|
|
|
|
|
|
|
|
|
|
|
Cash used in continuing financing activities
|
|
|
(3,482
|
)
|
|
|
(6,180
|
)
|
Cash used in discontinued financing activities
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(3,487
|
)
|
|
|
(6,180
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
292
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
607
|
|
|
|
(3,532
|
)
|
Cash and cash equivalents reclassified to assets held for sale
|
|
|
|
|
|
|
(6,303
|
)
|
Cash and cash equivalents at beginning of the period
|
|
|
24,123
|
|
|
|
30,726
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
24,730
|
|
|
$
|
20,891
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to the condensed
consolidated financial statements.
6
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
Note 1.
|
Nature of
Operations
|
General Motors Corporation (GM) is primarily engaged in the
worldwide production and marketing of cars and trucks. We
develop, manufacture and market vehicles worldwide through our
four automotive regions: GM North America (GMNA), GM Europe
(GME), GM Latin America/Africa/Mid-East (GMLAAM) and GM Asia
Pacific (GMAP). Also, our 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, we sold a 51% controlling ownership
interest in GMAC to a consortium of investors. After the sale,
we have accounted for our 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.
We operate in two businesses, consisting of Automotive (GM
Automotive or GMA) 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 United States 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 our 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 GM and our subsidiaries that are controlled by us
due to ownership of a majority voting interest. In addition, we
consolidate variable interest entities (VIEs) for which we are
the primary beneficiary. Our share of earnings or losses of
investees are included in the consolidated operating results
using the equity method of accounting, when we are able to
exercise significant influence over the operating and financial
decisions of the investee. If we are 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
In 2007, we changed our income statement presentation to present
costs and expenses of our FIO operations as a separate line. In
so doing, we reclassified FIOs portion of Selling, general
and administrative expense and Interest expense to Financial
services and insurance expense. Also, Automotive and other
interest expense has been presented within non-operating income
and expenses. Additionally, prior period results have been
reclassified for the retroactive effect of discontinued
operations. Refer to Note 3. Certain reclassifications have
been made to the comparable 2006 restated financial information
to conform to the current period presentation.
Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans
As previously reported in our 2006 Annual Report on
Form 10-K,
we recognized the funded status of our benefit plans at
December 31, 2006 in accordance with the recognition
provisions of Statement of Financial Accounting Standards (SFAS)
No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans
(SFAS No. 158). Additionally, we elected to adopt
early the measurement date provisions of
7
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
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 14.
In conjunction with entering into the 2007 labor contract with
the International Union, United Automotive, Aerospace and
Agricultural Implement Workers of America (UAW) (2007 National
Agreement), we granted incremental basic pension benefits and
lump sum pension payments to current and future retirees which
resulted in plan amendments to our hourly pension plan. These
plan amendments will be amortized over the term of the 2007
National Agreement, which is four years. Previously, prior
service costs related to basic pension benefit increases were
amortized over the average remaining service period for active
employees at the time of the amendment, currently approximately
10.1 years, and lump sum payments were expensed in the
period of contract approval. During the third quarter of 2007,
we re-evaluated the period of economic benefit for basic pension
benefit increases and lump sum payments. Due to the nature of
the change in OPEB benefits under the 2007 National Agreement
(refer to Note 19), coupled with our bargaining history of
granting pension benefit increases, we now believe that the term
of the contract is more representative of the period of future
economic benefit for both basic pension benefit increases and
lump sum payments. This change, reported as a change in
estimate, resulted in $1.6 billion of additional expense in
the third quarter of 2007 related to the accelerated recognition
of unamortized prior service costs in our U.S. hourly plans
associated with pension benefit increases from prior labor
contracts due to our determination that there is no period of
future economic benefit remaining. This change resulted in an
increase in the third quarter basic and diluted loss per share
of $2.76. (Refer to Note 14.)
Accounting
for Uncertainty in Income Taxes
During the first quarter of 2007, we 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. FIN 48 requires
that the tax effect(s) 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. 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. We adopted FIN 48 as of January 1, 2007,
and recorded an increase to Retained earnings of
$137 million as a cumulative effect of a change in
accounting principle with a corresponding decrease to the
liability for uncertain tax positions. Refer to Note 11 for
more information regarding the impact of adopting FIN 48.
Accounting
for Early Retirement or Postemployment Programs with Specific
Features
On January 1, 2006, we adopted Emerging Issues Task Force
Issue
No. 05-5,
Accounting for Early Retirement or Postemployment Programs
with Specific Features
(EITF 05-5),
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, we recognized the bonus and additional
contribution, 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, we 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 for the
nine months ended September 30, 2006.
8
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Accounting
for Servicing of Financial Assets
On January 1, 2006, we adopted SFAS No. 156,
Accounting for Servicing of Financial Assets
(SFAS No. 156), 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 that 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. We 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 Measurements (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 are to be applied prospectively.
Management is currently assessing the potential impact of the
standard on our 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 our financial condition and
results of operations.
In June 2007, the FASB ratified EITF Issue
No. 07-3,
Accounting for Nonrefundable Payments for Goods or
Services to Be Used in Future Research and Development
Activities
(EITF 07-3),
requiring that nonrefundable advance payments for future
research and development activities be deferred and capitalized.
Such amounts should be expensed as the related goods are
delivered or the related services are performed. The statement
is effective for fiscal years beginning after December 15,
2007. Management is currently assessing the potential impact of
the standard on our financial condition and results of
operations.
In June 2007, the FASB ratified EITF Issue
No. 06-11
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11),
which requires entities to record tax benefits on dividends or
dividend equivalents that are charged to retained earnings for
certain share-based awards to additional paid-in capital. In a
share-based payment arrangement, employees may receive dividends
or dividend equivalents on awards of nonvested equity shares,
nonvested equity share units during the vesting period, and
share options until the exercise date. Generally, the payment of
such dividends can be treated as deductible compensation for tax
purposes. The amount of tax benefits recognized in additional
paid-in capital should be included in the pool of excess tax
benefits available to absorb tax deficiencies on share-based
payment awards.
EITF 06-11
is effective for fiscal years beginning after December 15,
2007, and interim periods within those years. Management does
not expect this guidance to have a material effect on our
financial condition and results of operations.
9
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
|
|
Note 3.
|
Divestitures
of Businesses
|
Sale
of Allison Transmission Business
In August 2007, we completed the sale of the commercial and
military operations of our Allison Transmission (Allison)
business. The negotiated purchase price of $5.6 billion in
cash plus assumed liabilities was paid on closing. The purchase
price was subject to adjustment based on the amount of
Allisons net working capital and debt on the closing date.
Subsequently, we advanced $200 million to the buyer as a
preliminary purchase price adjustment resulting in an adjusted
purchase price of $5.4 billion. We currently anticipate
that the final purchase price adjustment will be made in the
fourth quarter of 2007. A gain on the sale of Allison in the
amount of $5.3 billion, $3.5 billion after-tax,
inclusive of the preliminary purchase price adjustments, was
recognized in the three and nine months ended September 30,
2007. Allison, formerly a division of GMs Powertrain
Operations, is a global leader in the design and manufacture of
commercial and military automatic transmissions and a premier
global provider of commercial vehicle automatic transmissions
for on-highway, including trucks, specialty vehicles, buses and
recreational vehicles, off-highway and military vehicles, as
well as hybrid propulsion systems for transit buses. We retained
the GM Powertrain Operations facility near Baltimore,
which manufactures automatic transmissions primarily for GM
trucks and hybrid propulsion systems, was retained by GM.
The results of operations and cash flows of Allison have been
reported in the Condensed Consolidated Financial Statements as
discontinued operations for all periods presented. Historically,
Allison was reported within North America Operations in the
Automotive business.
The following table summarizes the results of discontinued
operations (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
$
|
164
|
|
|
$
|
521
|
|
|
$
|
1,225
|
|
|
$
|
1,631
|
|
Operating income from discontinued operations
|
|
|
73
|
|
|
|
205
|
|
|
|
409
|
|
|
|
552
|
|
Income tax provision
|
|
|
25
|
|
|
|
77
|
|
|
|
148
|
|
|
|
204
|
|
Income from discontinued operations, net of tax
|
|
|
45
|
|
|
|
130
|
|
|
|
256
|
|
|
|
350
|
|
Gain on sale of discontinued operations, net of tax
|
|
|
3,504
|
|
|
|
|
|
|
|
3,504
|
|
|
|
|
|
As part of the transaction, GM and the buyers of Allison entered
into an agreement whereby we may provide the new parent company
of Allison with contingent financing of up to $100 million.
Such financing would be made available if, during a defined
period of time, Allison was not in compliance with its financial
maintenance covenant under a separate credit agreement. Such GM
financing would be contingent on the stockholders of the new
parent company of Allison committing to provide an equivalent
amount of funding to Allison, either in the form of equity or a
loan, and, if a loan, such loan would be granted on the same
terms as the GM loan. This commitment expires on
December 31, 2010. Additionally, both parties have entered
into non-compete arrangements for a term of 10 years in the
United States and for a term of five years in Europe.
Sale
of 51% Controlling Interest in GMAC
In April 2006, GM and its wholly owned subsidiaries, GMAC and GM
Finance Co. Holdings Inc., entered into a definitive agreement
pursuant to which we agreed to sell a 51% controlling interest
in GMAC for a purchase price of $7.4 billion to FIM
Holdings LLC (FIM Holdings). FIM Holdings is a consortium of
investors, including Cerberus FIM Investors, LLC, Citigroup
Inc., Aozora Bank Limited and a subsidiary of the PNC Financial
Services Group, Inc. The sale was completed on November 30,
2006. We have retained a 49% interest in GMACs Common
Membership Interests. The total value of the cash proceeds and
distributions to us after repayment of certain intercompany
obligations, and before we purchased the preferred membership
interests of GMAC, was expected to
10
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
be $14 billion over three years, comprised of the
$7.4 billion purchase price and a $2.7 billion cash
dividend at closing, and other transaction related cash flows
including the monetization of certain retained assets. In March
2007, we made a capital contribution to GMAC of $1 billion
to restore its adjusted tangible equity balance to the
contractually required amount of $14.4 billion, due to the
decrease in the adjusted tangible equity balance of GMAC as of
November 30, 2006.
For the three and nine months ended September 30, 2006,
GMACs earnings and cash flows are fully consolidated in
our Condensed Consolidated Statements of Operations and
Statements of Cash Flows. However, as a result of the agreement
to sell the 51% equity interest, certain assets and liabilities
of GMAC were classified as held for sale in our Condensed
Consolidated Balance Sheet as of September 30, 2006.
Pursuant to SFAS No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets
(SFAS No. 144), we ceased depreciation on GMACs
long-lived assets classified as held for sale. The following
table presents GMACs major classes of assets and
liabilities classified as held for sale as of September 30,
2006 (dollars in millions):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,303
|
|
Marketable securities
|
|
|
19,261
|
|
Finance receivables, net
|
|
|
181,243
|
|
Loans held for sale
|
|
|
24,996
|
|
Account and notes receivable
|
|
|
7,651
|
|
Inventories, net
|
|
|
554
|
|
Net equipment on operating leases, net
|
|
|
24,347
|
|
Other assets
|
|
|
20,315
|
|
Allowance to reflect assets held for sale at fair value less
cost to sell
|
|
|
(1,823
|
)
|
|
|
|
|
|
Total assets held for sale
|
|
$
|
282,847
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,215
|
|
Notes and loans payable
|
|
|
237,900
|
|
Deferred income taxes
|
|
|
1,502
|
|
Accrued expenses and other liabilities
|
|
|
29,252
|
|
|
|
|
|
|
Total liabilities related to assets held for sale
|
|
$
|
272,869
|
|
|
|
|
|
|
The table above represents 100% of the respective assets and
liabilities of GMAC that were held for sale as of
September 30, 2006.
We recognized a non-cash impairment charge of $2.9 billion
during 2006, of which $615 million and $1.8 billion
was recorded in Other expenses in the Condensed Consolidated
Statements of Operations for the three and nine months ended
September 30, 2006, respectively, to reflect GMACs
assets that were classified as held for sale at the lower of
carrying value or fair value less costs to sell. The total
charge is comprised of the write-down of the carrying value of
GMAC assets that were sold on November 30, 2006, partially
offset by the realization of 51% of the unrecognized net gains
reflected in GMACs Accumulated other comprehensive income.
Refer to Notes 1, 5, and 18 for additional information
regarding the sale of, investment in, and transactions with GMAC.
11
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Sale
of GMAC Commercial Mortgage
In March 2006, GM, through GMAC, sold 79% of our equity in GMAC
Commercial Mortgage for $1.5 billion in cash. At the
closing, GMAC Commercial Mortgage also repaid to us
$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 reported using the
equity method.
Note 4. Inventories
Inventories are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Productive material, work in process, and supplies
|
|
$
|
6,434
|
|
|
$
|
5,810
|
|
|
$
|
7,119
|
|
Finished product, including service parts, etc.
|
|
|
10,550
|
|
|
|
9,619
|
|
|
|
9,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories at FIFO
|
|
|
16,984
|
|
|
|
15,429
|
|
|
|
16,347
|
|
Less LIFO allowance
|
|
|
(1,454
|
)
|
|
|
(1,508
|
)
|
|
|
(1,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive inventories
|
|
|
15,530
|
|
|
|
13,921
|
|
|
|
14,822
|
|
FIO off-lease vehicles, included in FIO Other assets
|
|
|
237
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
15,767
|
|
|
$
|
14,106
|
|
|
$
|
14,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2006, FIO off-lease vehicles totaling
$554 million are presented as held for sale as disclosed in
Note 3.
Note 5. Investment
in Nonconsolidated Affiliates
Nonconsolidated affiliates of GM identified herein are those
entities in which we own an equity interest and for which we use
the equity method of accounting, because we have the ability to
exert significant influence over decisions relating to their
operating and financial affairs. Our significant affiliates and
the percent of our current equity ownership or voting interest
in them are as follows:
United States GMAC (49% at September 30, 2007
and 100% at September 30, 2006)
China Shanghai General Motors Co., Ltd (50% at
September 30, 2007 and 2006) and SAIC-GM-Wuling
Automobile Co., Ltd (34% at September 30, 2007 and 2006)
GMAC was a wholly-owned subsidiary during the three and nine
months ended September 30, 2006. In November 2006, we sold
a 51% controlling ownership interest in GMAC. The remaining 49%
interest, in the form of GMAC Common Membership Interests, is
accounted for using the equity method. In addition, we 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 its fair value of $1.6 billion on the
date of its acquisition. The excess of fair value over the cash
exchanged for the Preferred Membership Interests reduced our
investment in GMAC Common Membership Interests. Our investment
in GMAC Preferred Membership Interests was $1.6 billion at
September 30, 2007 and December 31, 2006. As discussed
in our 2006
10-K, GMAC
may be 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.
We accrued dividends of $39 million and $116 million
for the three and nine months ended September 30, 2007,
respectively. Refer to Note 18 for a description of the
related party transactions with GMAC and to Note 19 for
12
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
details concerning the partial conversion of the Preferred
Membership Interests into GMAC Common Membership Interests.
As a result of deteriorating conditions in the residential and
home building markets, recent credit downgrades of its unsecured
debt obligations and significant year-to-date losses of its
residential mortgage business, GMAC conducted an interim
goodwill impairment test during the third quarter of 2007. GMAC
concluded that the carrying amount of the reporting unit,
including goodwill, exceeded its fair value and recorded an
impairment loss of $455 million. We reduced our investment
in GMAC by $223 million at September 30, 2007. Equity
in loss of GMAC LLC for the three and nine months ended
September 30, 2007 includes GMs share of GMACs
impairment charge.
Information regarding our share of net income (loss) for the
nonconsolidated affiliates is included in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
GMAC
|
|
$
|
(809
|
)
|
|
$
|
|
|
|
$
|
(874
|
)
|
|
$
|
|
|
Shanghai General Motors Co., Ltd and SAIC-GM-Wuling Automobile
Co., Ltd.
|
|
|
73
|
|
|
|
76
|
|
|
|
306
|
|
|
|
233
|
|
Other
|
|
|
42
|
|
|
|
26
|
|
|
|
134
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(694
|
)
|
|
$
|
102
|
|
|
$
|
(434
|
)
|
|
$
|
431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarized financial information of GMAC is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2007
|
|
September 30, 2007
|
|
|
(Dollars in millions)
|
|
Condensed Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
$
|
5,381
|
|
|
$
|
15,994
|
|
Depreciation expense on operating lease assets
|
|
|
1,276
|
|
|
|
3,530
|
|
Interest expense
|
|
|
3,715
|
|
|
|
11,122
|
|
Operating loss
|
|
|
(1,664
|
)
|
|
|
(1,367
|
)
|
Income tax expense (benefit)
|
|
|
(68
|
)
|
|
|
241
|
|
Net loss
|
|
|
(1,596
|
)
|
|
|
(1,608
|
)
|
Net loss available to members
|
|
|
(1,649
|
)
|
|
|
(1,765
|
)
|
13
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
December 31, 2006
|
|
|
(Dollars in millions)
|
|
Condensed Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
23,992
|
|
|
$
|
27,718
|
|
Finance receivables and loans, net
|
|
|
143,612
|
|
|
|
170,870
|
|
Investment in operating leases, net
|
|
|
31,300
|
|
|
|
24,184
|
|
Other assets
|
|
|
27,570
|
|
|
|
23,496
|
|
Total assets
|
|
|
278,778
|
|
|
|
287,439
|
|
Total debt
|
|
|
221,100
|
|
|
|
236,985
|
|
Accrued expenses
|
|
|
29,971
|
|
|
|
22,659
|
|
Total liabilities
|
|
|
262,514
|
|
|
|
270,875
|
|
Preferred interests
|
|
|
2,226
|
|
|
|
2,195
|
|
Total stockholders equity
|
|
|
14,038
|
|
|
|
14,369
|
|
Refer to Note 18 for a description of the related party
transactions with GMAC and to Note 19 for details
concerning the conversion of the Preferred Membership Interests
into GMAC Common Membership Interests.
In March 2006, we sold 92.4 million shares of our
investment in Suzuki Motor Corporation (Suzuki), reducing our
equity stake in Suzuki from 20.4% to 3.7%, or 16.3 million
shares. The sale of our interest generated cash proceeds of
$2 billion and resulted in a gain on the sale of
$666 million, which was recorded in Automotive interest
income and other non-operating income in the Condensed
Consolidated Statement of Operations for the nine months ended
September 30, 2006. Effective with completion of the sale,
our remaining investment in Suzuki is accounted for as an
available-for-sale equity security.
In April 2006, GMAC recognized a gain of $415 million on
the sale of its equity interest in a regional home builder,
which was recorded in Automotive interest income and other
non-operating income in the Condensed Consolidated Statement of
Operations. Under the equity method of accounting, GMACs
share of income recorded from this investment was
$42.4 million for the nine months ended September 30,
2006.
Note 6. Product
Warranty Liability
Activity for policy, product warranty, recall campaigns and
certified used vehicle warranty liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Year
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Beginning balance
|
|
$
|
9,064
|
|
|
$
|
9,135
|
|
|
$
|
9,135
|
|
Increase in liability (warranties issued during period)
|
|
|
3,742
|
|
|
|
4,517
|
|
|
|
3,525
|
|
Payments
|
|
|
(3,395
|
)
|
|
|
(4,463
|
)
|
|
|
(3,304
|
)
|
Adjustments to liability (pre-existing warranties)
|
|
|
(97
|
)
|
|
|
(570
|
)
|
|
|
(425
|
)
|
Effect of foreign currency translation
|
|
|
301
|
|
|
|
445
|
|
|
|
157
|
|
Liabilities transferred in the sale of Allison (Note 3)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
9,512
|
|
|
$
|
9,064
|
|
|
$
|
9,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management reviews and adjusts these estimates on a regular
basis based on the differences between actual experience and
historical estimates or other available information.
14
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Note 7. GMNA
Postemployment Benefit Costs
Historically, costs to idle, consolidate or close facilities and
provide postemployment benefits to employees idled on an other
than temporary basis were accrued based on managements
best estimate of the wage and benefit costs to be incurred for
qualified employees under the Job Opportunity Bank security
program (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 had intended to negotiate in the
JOBS program after the expiration of the current collective
bargaining agreement. In the third quarter of 2007, GM revised
its estimate to take into account the new JOBS Bank provisions
negotiated in its 2007 UAW-GM National Labor Agreement. Such
revisions did not result in a significant change from the
previous estimates being used to develop the accrual for wage
and benefit costs. Refer to Note 19 for further discussion
of the provisions of the 2007 GM-UAW National Labor Agreement.
Costs related to the idling of employees that are expected to be
temporary are expensed as incurred. We review the adequacy and
continuing need for these liabilities on a quarterly basis in
conjunction with our quarterly production and labor forecasts.
In March 2006, GM, Delphi Corporation (Delphi) and the 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, we provided certain UAW-represented employees
at GM with: (1) a lump sum payment of $35,000 for normal or
early voluntary retirements retroactive to October 1, 2005;
(2) a mutually satisfactory retirement for employees with
at least 10 years of credited service and 50 years of
age or older; (3) 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 (4) a buyout
of $140,000 for employees with 10 or more years of seniority, or
$70,000 for employees with less than 10 years seniority,
provided such employees severed all ties with us except for any
vested pension benefits. Approximately 34,400 GM hourly
employees agreed to the terms of the Attrition Program. We
recorded a charge of $2.1 billion in 2006 to recognize the
wage and benefit cost of those accepting normal and voluntary
retirements, buyouts or pre-retirement leaves. As a result of
the Attrition Program, the JOBS Bank was substantially reduced
as employees from the JOBS Bank retired, accepted a buyout or
filled openings created by the Attrition Program. Certain
employees who chose to leave GM retired or left by
January 1, 2007 but will continue to receive payments until
2010.
In 2005, we recognized a charge of $1.8 billion for
postemployment benefits related to the restructuring of our
North American operations. Approximately 17,500 employees
were included in the 2005 charge for locations included in this
action, with some leaving GM through attrition and the remainder
transferring to other sites. Throughout 2006, we recorded
favorable adjustments totaling $1 billion to the
postemployment benefits reserve primarily as a result of:
(1) the transfer of employees from idled plants to other
plant sites to replace those positions previously held by
employees who accepted retirements, buyouts, or pre-retirement
leaves; (2) 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, (3) higher than anticipated
headcount reductions associated with the GMNA plant idling
activities announced in 2005.
The liability for postemployment benefit costs of
$920 million at September 30, 2007 reflects estimated
future wages and benefits for 8,200 employees primarily
located at idled facilities and facilities to be idled, and
4,400 employees subject to the terms of the Attrition
Program. At December 31, 2006, the postemployment benefit
costs liability reflects estimated future wages and benefits of
$1.3 billion related to 8,500 employees primarily
located at idled facilities and facilities to be idled as a
result of previous GMNA plant idling activities and
10,900 employees subject to the terms of the Attrition
Program. The liability for postemployment benefit costs as of
September 30, 2006 reflects estimated future wages and
benefits of $1.7 billion related to 9,300 employees
primarily at idled facilities and facilities to be idled as a
result of previous announcements and 15,400 employees under
the terms of the Attrition Program.
15
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Activity for postemployment benefit costs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Year
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Beginning balance
|
|
$
|
1,269
|
|
|
$
|
2,012
|
|
|
$
|
2,012
|
|
Additions
|
|
|
294
|
|
|
|
2,212
|
|
|
|
2,213
|
|
Interest accretion
|
|
|
14
|
|
|
|
31
|
|
|
|
24
|
|
Payments
|
|
|
(655
|
)
|
|
|
(1,834
|
)
|
|
|
(1,490
|
)
|
Adjustments
|
|
|
(2
|
)
|
|
|
(1,152
|
)
|
|
|
(1,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
920
|
|
|
$
|
1,269
|
|
|
$
|
1,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Short-Term
Borrowings and Long-Term Debt
Revolving
Credit Facilities
In May 2007, we entered into an unsecured revolving credit
agreement expiring in June 2008, with a lender that provides for
borrowings of up to $500 million. Borrowings under the
facility bear interest based on LIBOR. The borrowings are to be
used for general corporate purposes, including working capital
needs. No borrowings were outstanding under this agreement at
September 30, 2007.
In June 2007, we entered into a short-term revolving credit
agreement with a syndicate of third-party lenders that provides
for borrowings of up to $4.1 billion and matures in June
2008. Borrowings under the facility bear a variable interest
rate based on either the prime rate or LIBOR, at our option. The
credit facility is collateralized by our common equity interest
in GMAC. The total commitment available under the agreement will
be reduced or eliminated if our interest held in the common
equity of GMAC is either disposed of or diluted beyond specified
thresholds as a result of a common stock issuance by GMAC. The
borrowings are to be used for general corporate purposes,
including working capital needs. No borrowings were outstanding
under this agreement at September 30, 2007.
In August 2007, we entered into a revolving credit agreement
expiring in August 2009, with a lender that provides for
borrowings of up to $1.3 billion. Borrowings under this
facility bear interest based on either the commercial paper rate
or LIBOR. The borrowings are to be used for general corporate
purposes, including working capital needs. Under the facility,
borrowings are limited to an amount based on the value of
underlying collateral, which consists of residual interests in
trusts that own leased vehicles and issue asset-backed
securities collateralized by the vehicles and the associated
leases. The underlying collateral was previously owned by GMAC
and was transferred to us as part of the GMAC transaction in
November 2006. The underlying collateral is held by
bankruptcy-remote subsidiaries and pledged to a trustee for the
benefit of the lender. We consolidate the bankruptcy-remote
subsidiaries and trusts for financial reporting purposes. No
borrowings were outstanding under this agreement at
September 30, 2007.
We pay commitment fees on revolving credit facilities at rates
negotiated in each agreement. Amounts paid and expensed for
these commitments fees are not significant to any period.
We also have an additional $1.5 billion in undrawn
committed facilities (including certain off-balance sheet
securitization programs) with various maturities and
$900 million in undrawn uncommitted lines of credit. In
addition, our consolidated affiliates with non-GM minority
shareholders, primarily GM Daewoo, have a combined
$1.6 billion in undrawn committed facilities.
16
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Contingent
Convertible Debt
In May 2007, we issued $1.5 billion of 1.5% Series D
convertible debentures due in 2009, with interest payable
semiannually. The debentures are senior unsecured obligations
ranking equally with all other unsecured and unsubordinated
debt. The Series D debentures may be converted at the
option of the holder into common stock based on an initial
conversion rate of .6837 shares per $25.00 principal amount
of debentures, which represents an initial conversion price of
approximately $36.57 per share. The Series D debentures
become convertible upon the occurrence of one of the following
events:
|
|
|
|
|
closing price of our common stock exceeds 120% of the conversion
price for at least 20 trading days in the 30 consecutive trading
days ending on the last trading day of the preceding calendar
quarter; or
|
|
|
|
during the five business day period after any nine consecutive
trading day period in which the trading price of the debentures
for each day of such period was less than 95% of the product of
the closing sale price of our common stock on such day and the
applicable conversion rate; or
|
|
|
|
upon the occurrence of specified corporate events, as defined,
including but not limited to, merger, consolidation, binding
share exchange or transfer or lease of all or substantially all
of our assets, pursuant to which our common stock would be
converted into cash, securities, or other assets; or,
|
|
|
|
at any time from March 1, 2009 to the second business day
immediately preceding the maturity date. The Series D
debentures mature June 1, 2009.
|
We have committed to use cash to settle the principal amount of
the debentures if: (1) holders choose to convert the
debentures; or (2) we are required by the holders to
repurchase the debentures. Upon conversion, we retain the right
to use cash, stock or a combination thereof, to settle any
amount that may become due to debt holders in excess of the
principal amount. The conversion price of $36.57 is subject to
adjustment upon certain events, including but not limited to,
the occurrence of stock dividends, the issuance of rights and
warrants, and the distribution of assets or debt securities to
all holders of shares of common stock. In addition, in the event
of a make-whole fundamental change, as defined in the underlying
prospectus supplement, the conversion rate will be increased
based on: (1) the date on which such make-whole fundamental
change becomes effective; and (2) our common stock price
paid in the make-whole fundamental change or average common
stock price. In any event, the conversion rate shall not exceed
.8205 per $25.00 principal amount of Series D debentures,
subject to adjustment for events previously mentioned. If a
fundamental change occurs prior to maturity, the debenture
holders may require us to repurchase all or a portion of the
debentures for cash at a price equal to the principal amount
plus accrued and unpaid interest, if any, up to but not
including, the date of repurchase. We may not elect to redeem
the Series D debentures prior to the maturity date.
In connection with the issuance of the Series D debentures,
we purchased a convertible note hedge for the Series D
debentures in a private transaction. The convertible note hedge
is expected to reduce the potential dilution with respect to our
common stock upon conversion of the Series D debentures to
the extent that the market value per share of our common stock
does not exceed a specified cap, resulting in an effective
conversion price of $45.71 per share. This transaction will
terminate at the earlier of the maturity date of the
Series D debentures or when the Series D debentures
are no longer outstanding due to conversion or otherwise.
We received net proceeds from the issuance of the Series D
debentures, net of issue costs and the purchase of the
convertible note hedge, of $1.4 billion. Debt issue costs
of $32 million were incurred and are being amortized using
the effective interest method over the term of the Series D
debentures. In accordance with EITF Issue
No. 00-19,
Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Companys Own
Stock, we recorded the cost of the convertible note hedge
of $99 million as a reduction of Additional paid-in
capital. Any subsequent changes in fair value of the convertible
note hedge are not recognized. The net proceeds will be used for
general corporate purposes, including working capital needs.
17
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
In March 2007, Series A convertible debentures in the
amount of $1.1 billion were put to us and settled entirely
in cash. At September 30, 2007, the amount of the
Series A convertible debentures outstanding was
$39 million.
Note 9. Finance
Receivables and Securitizations
We generate receivables from sales of vehicles to our dealer
network domestically, as well as from service parts and
powertrain sales. Certain of these receivables are sold to a
wholly-owned bankruptcy-remote Special Purpose Entity (SPE). The
SPE is a separate legal entity that assumes risks and rewards of
ownership of the receivables. In turn, the SPE participates in a
trade accounts receivable securitization program whereby it
enters into an agreement to sell undivided interests in an
eligible pool of trade receivables. As part of this program, on
September 19, 2007, we renewed an agreement to sell
undivided interests in eligible trade receivables up to
$600 million directly to banks and to a bank conduit which
funds its purchases through issuance of commercial paper. The
receivables sold under this program are sold at fair market
value and removed from the Condensed Consolidated Balance Sheets
at the time of sale. The loss on trade receivables sold included
in Automotive cost of sales was $.2 million and
$2.4 million for the three and nine months ended September
2007, respectively, and $5.6 million and $20.6 million
for the three and nine months ended September 30, 2006,
respectively. We do not have a retained interest in the
receivables sold, but perform collection and administrative
functions. The gross amount of proceeds received from the sale
of receivables under this program was $16 million and
$600 million, and $1.5 billion and $7.4 billion
for the three and nine months ended September 30, 2007 and
2006, respectively.
Note 10. Commitments
and Contingent Matters
Commitments
We have provided guarantees in relation to the residual value of
certain operating leases, primarily related to the lease of our
corporate headquarters. At September 30, 2007, the maximum
potential amount of future undiscounted payments that could be
required to be made under these guarantees amount to
$592 million. These guarantees terminate during years
ranging from 2008 to 2018. Certain leases contain renewal
options. No liabilities were recorded with respect to such
guarantees as the amounts were determined to be insignificant.
We have agreements with third parties that guarantee the
fulfillment of certain suppliers commitments and related
obligations. At September 30, 2007, the maximum potential
future undiscounted payments that could be required to be made
under these guarantees amount to $108 million. Years of
expiration related to these guarantees range from 2007 to 2035.
In connection with such guarantees, we have recorded liabilities
totaling $16 million.
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.
We also provide payment guarantees on commercial loans made by
GMAC and outstanding with certain third-parties. As of
September 30, 2007, the maximum commercial obligations we
guaranteed related to these loans was $126 million. Years
of expiration related to these guarantees range from 2007 to
2012. Based on the creditworthiness of these third parties, the
value ascribed to the guarantees we provided was determined to
be insignificant.
In addition, we have entered into agreements with GMAC and FIM
Holdings related to the disposal of our 51% interest in GMAC
that incorporate indemnification provisions. The maximum
potential future undiscounted payments to which we may be
exposed in terms of these indemnification provisions amount to
$2.5 billion. No amounts have been recorded for such
indemnities as the fair value of these indemnifications is
immaterial.
We have entered into agreements indemnifying certain parties
with respect to environmental conditions related to existing or
sold GM properties. Due to the nature of the indemnifications,
our maximum exposure under these
18
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
guarantees cannot be estimated. No amounts have been recorded
for such indemnities as our obligations are not probable or
estimable at this time.
In addition to the guarantees and indemnifying agreements
mentioned above, our periodically enter 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 we may
be exposed cannot be estimated. No amounts have been recorded
for such indemnities as our obligations under them are not
probable and estimable at this time.
Environmental
Our 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. We are
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 can be reasonably
estimated. This practice is followed whether the claims are
asserted or unasserted. Management expects that the amounts
reserved will be paid 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 cannot be reasonably
estimated 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 management that
none of these items, when finally resolved, is expected to have
a material adverse effect on our 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, we have been subject to
asbestos-related claims in recent years. We have seen these
claims primarily arise from three circumstances:
(1) majority of these claims seek damages for illnesses
alleged to have resulted from asbestos used in brake components;
(2) limited numbers of claims have arisen from asbestos
contained in the insulation and brakes used in the manufacturing
of locomotives; and (3) claims brought by contractors who
allege exposure to asbestos-containing products while working on
premises owned by GM.
While we have resolved many of the asbestos-related cases over
the years and continue 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 us 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.
19
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
We record an estimated liability associated with reported
asbestos claims when we believe that the expected loss is both
probable and can be reasonably estimated. Prior to 2006, with
respect to incurred but not yet reported claims, we concluded
that a range of probable losses could not be reasonably
estimated. Over the last several years, we have continued to
accumulate data associated with asbestos claims. Based on review
of this data during the fourth quarter of 2006, management
determined that we had sufficient 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 this analysis, we recorded a $127 million charge
for unasserted asbestos claims in 2006. We believe our liability
for asbestos claims recorded at September 30, 2007 is
adequate.
The amounts recorded for asbestos-related claims was 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 our asbestos-related liabilities, it is reasonably
possible that future costs to resolve asbestos claims may be
greater than the estimate; however, we do not believe that we
can reasonably estimate how much greater it could be.
The final outcome of asbestos-related matters cannot be
predicted with certainty. After discussion with counsel and
considering the liabilities that have been recorded, among other
things, it is the opinion of management that none of these items
is expected to have a material adverse effect on our financial
position or liquidity when finally resolved. 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 fiscal year.
Contingent
Matters
During the third quarter of 2007, GMLAAM settled and paid fines
totaling $45 million related to improper information
submitted to the tax authorities related to material included in
consignment contracts at one of its facilities. We had
previously accrued $43 million for this contingency
representing the low end of the range of potential additional
taxes and fines that may be assessed during the third quarter.
This amount recorded represents the probable loss as of
September 30, 2007.
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 us, including a number of
shareholder class actions, bondholder class actions, shareholder
derivative suits and class actions under the U.S. Employee
Retirement Income Security Act of 1974, as amended, 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.
With regard to the matters discussed in the previous paragraph,
we have established reserves for matters in which we believe
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 us to pay damages or make other expenditures in amounts
that could not be reasonably estimated at September 30,
2007. The ultimate outcome of these contingencies can not be
determined at this time, and we cannot provide assurance that,
under certain circumstances, such contingencies will not
materially adversely affect our business, results of operations
or cash flows.
Delphi
Corporation
In connection with our spin-off of Delphi Corporation (Delphi)
in 1999, we entered into separate agreements with the UAW, the
IUE-CWA and
the United Steel Workers (Benefit Guarantee Agreements)
providing contingent
20
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
benefit guarantees to make payments for limited pension and
postretirement health care and life insurance (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 we
could be liable if Delphi fails to provide the corresponding
benefit at the required level. Therefore, we 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, our guarantee of pension
benefits arises only to the extent that the pension benefits
provided by Delphi and the Pension Benefit Guaranty Corporation
fall short of the guaranteed amount. The original benefit
guarantees were scheduled to expire on October 18, 2007
unless Delphi triggered the benefit guarantees before that date
by failing to provide the specified benefits. In a separate
agreement between us and Delphi, Delphi has indemnified us for
any payments under the Benefit Guarantee Agreements to the UAW
employees and retirees (Indemnification Agreement). Our rights
under this Indemnification Agreement were originally scheduled
to expire on October 18, 2007, or on the expiration of our
obligations to provide benefits under the Benefit Guarantees. In
June 2007, we agreed to extend the expiration date of the
Benefit Guarantee Agreement with the UAW and Delphi agreed to
extend the expiration date of the Indemnification Agreement,
under certain circumstances and within certain time periods.
Although our obligations under the Benefit Guarantee Agreements
have not been triggered by Delphis Chapter 11 filing
in October 2005 or its motion in Bankruptcy Court to reject its
U.S. labor agreements and modify retiree welfare benefits,
we believe it is probable that we have incurred a liability
under the Benefit Guarantee Agreements and have recorded charges
of $5.5 billion and $500 million in 2005 and 2006,
respectively, and $350 million and $925 million for
the three and nine months ended September 30, 2007,
respectively, in connection with the Delphi reorganization plan.
The Benefit Guarantee Agreements do not obligate us to guarantee
any benefits for Delphi retirees in excess of the corresponding
benefits we provide at the time to our own hourly retirees.
Accordingly, any reduction in the benefits we provide our hourly
retirees reduces our obligation under the corresponding benefit
guarantee.
On June 22, 2007, GM, Delphi, and the UAW entered into a
Memorandum of Understanding (UAW MOU) which included terms
relating to the consensual triggering of the Benefit Guarantee
Agreement with the UAW as well as additional terms relating to
Delphis restructuring. The UAW MOU was ratified by the UAW
membership on June 28, 2007 and became effective upon
receipt of Bankruptcy Court approval on July 19, 2007. The
more significant items covered in the UAW MOU include;
(1) the extension of the
GM-UAW
benefit guarantee and the related Delphi indemnity; (2) an
additional attrition program offered by Delphi to Delphi UAW
employees; (3) the settlement by GM of a UAW claim against
Delphi; (4) our support for future operations at certain
Delphi sites, and (5) our agreement to provide additional
benefits for certain healthcare costs related to the covered
employees with the UAW. These items are described as follows:
(1) We agreed to extend the expiration date of the Benefit
Guarantee Agreement with the UAW from October 18, 2007 to
December 31, 2007. If Delphi has commenced solicitation of
acceptance of its plan of reorganization prior to
December 31, 2007, but the plan has not been confirmed and
substantially consummated by then, the Benefit Guarantee
Agreement with the UAW would be further extended to
March 31, 2008. Delphi agreed through the UAW MOU to extend
its agreement to indemnify us for payments made under the
Benefit Guarantee Agreement with the UAW on the same basis and
for the same time period. We also agreed that if Delphi
terminates its pension plan, ceases to provide
on-going
service, or fails or refuses to provide post-retirement medical
benefits for certain UAW employees at any time before both;
(i) GM and Delphi execute a comprehensive settlement
agreement resolving the financial, commercial and other matters
between them
(GM-Delphi
Settlement Agreements); and (ii) the U.S. Bankruptcy
Court substantially confirms a Delphi plan of reorganization
that incorporates, approves and is consistent with the
GM-Delphi
Settlement Agreements, the applicable provisions of the Benefit
Guarantee Agreement will be triggered for those UAW employees.
21
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
(2) Delphi and the UAW agreed to the terms of an additional
attrition program with terms substantially similar to one
previously offered to GM and Delphi employees as described in
Note 7. Our financial commitments related to this
additional program are set forth in the
GM-Delphi
Settlement Agreements as more fully described below.
(3) We committed to pay $450 million to settle a UAW
claim asserted against Delphi, which the UAW has directed us to
pay directly to the GM UAW VEBA trust. We expect to make this
payment upon execution of the
GM-Delphi
Settlement Agreements and substantial consummation of
Delphis reorganization plan, confirmed by the Bankruptcy
Court, which incorporates the
GM-Delphi
Settlement Agreements.
(4) Delphi and the UAW agreed to plans to close certain
Delphi sites and divest others. We have agreed to assist Delphi
with such closures and divestitures which, under certain
circumstances, may require us to facilitate the transfer of
operations to third parties or to us by specified dates. Our
obligations around such closures and divestitures were further
expanded and described in the
GM-Delphi
Settlement Agreements. In addition, Delphi and the UAW agreed to
continue operating certain Delphi sites at which we will provide
future product programs. Our financial commitments related to
these sites are set forth in the
GM-Delphi
Settlement Agreements which are more fully described below.
(5) We agreed to pay for certain healthcare costs of Delphi
retirees and their beneficiaries in order to provide a level of
benefits that is consistent with that being provided to GM
retirees and their beneficiaries from the Mitigation Plan VEBA.
The actuarially determined cost to GM of providing these
benefits is estimated to be approximately $360 million.
On July 31, 2007 and August 1, 2007, GM and Delphi
entered into a Memorandum of Understanding with each of the
International Union of Operating Engineers, International
Association of Machinists and International Brotherhood of
Electrical Workers (collectively the Splinter MOUs) which offer
an attrition program and provide for OPEB for certain hourly
retirees and eligible hourly employees. The Splinter MOUs were
each ratified by the respective union memberships and were
approved by the Bankruptcy Court in August 2007.
On August 5, 2007, GM, Delphi, and the
IUE-CWA
entered into a Memorandum of Understanding
(IUE-CWA
MOU) which provide terms that are similar to those of the UAW
MOU with regard to establishing terms related to the consensual
triggering of the Benefit Guarantee Agreement, offering an
additional attrition program, and continuing operations at
certain Delphi sites for which we committed to certain product
programs. The
IUE-CWA MOU
was ratified by the
IUE-CWA
membership and approved by the Bankruptcy Court in August 2007.
The more significant items covered in the
IUE-CWA MOU
include: (1) an additional attrition program offered to
Delphi
IUE-CWA
employees; and (2) GM provision of future product programs
at certain Delphi sites.
On August 16, 2007, GM, Delphi and the United Steel, Paper
and Forestry, Rubber, Manufacturing, Energy, Allied Industrial
and Service Workers (USW) entered into two separate Memoranda of
Understanding (collectively the USW MOUs) which provide terms
that are similar to the UAW MOU with regard to the consensual
triggering of the Benefit Guarantee Agreement and offering an
attrition program. Delphi and the USW agreed to an attrition
program with terms substantially consistent with those
previously offered to the UAW and
IUE-CWA. Our
financial commitments related to this program are set forth in
the
GM-Delphi
Settlement Agreements as more fully described below. The USW
MOUs were ratified by the USW membership and approved by the
Bankruptcy Court in August 2007.
On September 6, 2007, GM and Delphi entered into the Global
Settlement Agreement and the Master Restructuring Agreement
(together the
GM-Delphi
Settlement Agreements), which were filed with the
Bankruptcy Court as part of Delphis plan of reorganization
on that same day. The Global Settlement Agreement is intended to
resolve all outstanding issues between GM and Delphi that have
arisen or may arise prior to the effective date of the Global
Settlement Agreement and Delphis plan of reorganization.
The more significant items contained in the Global Settlement
Agreement include; (1) commitments regarding OPEB and
pension obligations; (2) treatment of Delphis hourly
pension plans; (3) other GM contributions related to
Delphis labor matters; (4) releases and
22
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
claims treatment; (5) withdrawal of Delphis March
2006 motion seeking authority to reject certain supply contracts
with GM; and (6) conditions to effectiveness of the Global
Settlement Agreement. On October 29, 2007, GM and Delphi
agreed to amendments to the
GM-Delphi
Settlement Agreement, which have also been filed with the
Bankruptcy Court. These provisions, as amended, are described
more fully as follows:
(1) We agreed to reimburse Delphi for its costs to provide
OPEB to certain of Delphis hourly retirees from and after
January 1, 2007 through the date that Delphi ceases to
provide such benefits. Also, Delphi agreed to make payments to
us for certain portions of the OPEB that we have agreed to
assume with respect to active and retired IAM, IBEW, IUOE and
non-represented hourly employees. Further, we agreed that Delphi
has no obligation to make any additional OPEB payments for or in
relation to hourly employees at business units divested from
Delphi prior to the 1999 spin-off, or for Delphi employees that
returned to GM.
(2) We agreed to reimburse Delphi for the normal
cost of credited service in Delphis pension plan
between January 1, 2007 and the date its pension plans are
frozen. Also, we will assume $1.5 billion of net pension
obligations of Delphi, and we will receive a note payable for
the amount of the obligations assumed, which will be payable in
cash by Delphi within 10 days after the plan of
reorganization becomes effective.
(3) We agreed to reimburse Delphi for all retirement
incentives and half of the buy-out payments made pursuant to the
attrition program provisions of the UAW MOU, the
IUE-CWA MOU
and the USW MOUs. We additionally agreed to reimburse or
fund Delphi for certain of the buy-down payments made to
its hourly employees or to be made pursuant to the UAW MOU and
the IUE-CWA
MOU. GM agreed to make certain payments, totaling
$35 million, as part of settlement of claims by the
IUE-CWA and
the USW against the bankruptcy estate. We further agreed to pay
Delphi $25 million to provide for costs and expenses
incurred by Delphi in connection with the execution and
performance of the
IUE-CWA MOU.
(4) GM and Delphi agreed to resolve all claims in existence
as of the effective date of the plan of reorganization that
either party has or may have against the other. Further, the
agreement requires that the Delphi plan of reorganization
provide that the other stakeholders in the Delphi bankruptcy
proceedings, including, but not limited to, creditors of Delphi,
current and former equity holders of Delphi, Delphis
statutory committees, Delphis
Debtor-In-Possession
lenders, and Delphis labor unions and all of their current
and formerly represented members be released. However, this
release will not govern any claims arising in connection with
ordinary course relationship, certain continuing agreements, or
deriving pursuant to any of the labor MOUs or the
GM-Delphi
Settlement Agreements.
(5) Delphi originally agreed to pay us the
$1.5 billion note discussed above and $2.7 billion in
cash on the effective date of the plan of reorganization. This
provision was subsequently amended to provide that on the
effective date we would receive $1.5 billion in a
combination of at least $750 million in cash and a second
lien note for the remaining amount and junior convertible
preferred stock of Delphi with a bankruptcy plan of
reorganization value of $1.1 billion. The ultimate value of
the junior convertible preferred stock is subject to adjustment
based on the fair market value of Delphis common stock
upon emergence from bankruptcy.
(6) Delphi agreed to withdraw, within 10 days
following the approval of the Disclosure Statement, its motion
seeking authority to reject certain supply contracts with us.
(7) The Global Settlement Agreement provides that it shall
become effective after; (i) Bankruptcy Court approval of
the
GM-Delphi
Settlement Agreements; (ii) we have consented to any
provisions of the Confirmation Order that would materially
affect us; and (iii) we have received our consideration
provided for in the plan.
The Master Restructuring Agreement contains agreements between
GM and Delphi which require implementation over time and outline
the ongoing relationship between GM and Delphi. The more
significant items contained in the Master Restructuring
Agreement include; (1) a revenue support plan;
(2) reimbursement for certain U.S. hourly labor costs;
(3) reimbursement for cash losses for certain of
Delphis U.S. facilities; (4) a Delphi
23
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Corporation guaranty of performance of obligations by certain of
its subsidiaries; (5) guaranteed minimum recovery of the
net working capital that Delphi has invested in certain
businesses held for sale; (6) treatment of unsold Delphi
businesses and transfer of certain Delphi hourly employees; and
(7) treatment of legacy agreements and ordinary course
matters. These items are described more fully below. The Master
Restructuring Agreement shall become effective when the Global
Settlement Agreement becomes effective, as described above.
(1) We agreed to award certain product programs to Delphi,
as well as to provide Delphi with a preferential sourcing
process for certain other product programs. We also agreed to
certain limitations on our ability to transfer production from
Delphi to another supplier. Delphi agreed to certain
re-pricing
of existing or awarded business (together the Revenue
Plan).
(2) We agreed to reimburse a certain portion of
Delphis U.S. hourly labor costs incurred to produce
systems, components, and parts for us from October 1, 2006
through September 14, 2015 (the Labor Cost
Subsidy) and to offer similar reimbursement to prospective
buyers of certain of Delphis to be divested
U.S. facilities which also produce systems, components and
parts for us.
(3) We agreed to reimburse Delphi to the extent that it
incurs cash flow deficiency attributable to production at
certain of Delphis U.S. facilities for continuing to
produce systems, components and parts for us until the
facilities are either closed or sold (the Production Cash
Burn Support).
(4) Delphi agreed to guarantee payment and performance by
certain of its subsidiaries of their obligations under
GM-Delphi
agreements through September 14, 2015.
(5) We agreed to make advance deposits against our accounts
payable to Delphi in an amount equivalent to a certain
percentage of the net working capital invested in specified
businesses that Delphi plans to sell. As each business is then
sold, Delphi will refund the related deposit to us. We agreed to
fund a certain portion of any shortfall if Delphi does not fully
recover the net working capital invested in each such business,
and if sales proceeds exceed net working capital, we will
receive a certain portion of such excess.
(6) Delphi agreed to provide us or our designee with an
option to purchase certain businesses for $1.00 in the event
that a sale of such businesses does not occur by specified
dates. In the event that the businesses have not sold, and
neither us nor our designee have exercised our purchase option
by a future date, Delphi may effect a deemed
transfer of the business, including substantially all
assets and liabilities, to us or an affiliate of ours. Further,
we have agreed that if any transfer of employee responsibility
at certain Delphi facilities has not occurred, pursuant to the
UAW MOU, by specified dates, that the applicable employees will
transfer to us or an affiliate.
(7) Delphi agreed to assume or reinstate, as applicable,
certain agreements with us, including certain agreements related
to the 1999 spin-off of Delphi from GM, certain subsequent
agreements, and all ordinary course agreements. Most contracts
between GM and Delphi that originated before Delphis
Chapter 11 filing, including contracts related to the 1999
spin-off of Delphi from GM, were terminated.
We expect that funding under the Labor Cost Subsidy to Delphi
and to buyers of certain of Delphis divested
U.S. facilities could result in future annual cash payments
of between $300 million and $400 million through 2015.
We expect to receive price reductions on certain products that
we will continue to purchase from Delphi, as defined in the
Revenue Plan. Any such funding above, and any such price
reductions, will commence upon emergence of Delphi from
Bankruptcy. Price reductions could extend for periods up to
approximately five years.
In March 2006, Delphi also filed a motion under the
U.S. Bankruptcy Code seeking authority to reject certain
supply contracts with us. 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. Delphi has not rejected any GM contracts as of this
time and has assured us that it does not intend to disrupt
production at our assembly facilities however, until the
Bankruptcy Court approves a comprehensive resolution and plan of
reorganization, there is a risk that Delphi or one or more of
its affiliates may reject or threaten to reject individual
contracts with us, either for the
24
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
purpose of exiting specific lines of business or in an attempt
to increase the price we pay for certain parts and components.
As a result, we could be materially adversely affected by
disruption in the supply of automotive systems, components and
parts that could force the suspension of production at our
assembly facilities.
While the final outcome cannot be predicted with certainty, we
expect to reach a comprehensive resolution and plan of
reorganization related to Delphi with the parties. Even if the
parties reach agreement, the Bankruptcy Court must approve the
resolution of the issues and plan. As a result the final effect
of the matters related to Delphi cannot be determined until
receipt of the Bankruptcy Court approval.
Benefit
Guarantees Related to Divested Plants
We have 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 our financial statements in accordance with
FIN 46(R), Consolidation of Variable Interest
Entities (FIN 46(R)). For these divested plants, we
entered into agreements with both of 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.
During the fourth quarter of 2006, we recorded a charge of
$206 million related to the closure of two plants and the
permanent idling of 2,000 employees. The components of the
charge were as follows: (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.
During the nine months ended September 30, 2007, we
recognized favorable adjustments of $15 million related to
the postemployment benefit liability in connection with the
plant closures. Additionally, during the nine months ended
September 30, 2007, we recognized a $38 million
curtailment gain with respect to OPEB.
Under Accounting Principles Board Opinion No. 28,
Interim Financial Reporting, we are required to
adjust our effective tax rate each quarter to be consistent with
the estimated annual effective tax rate. We are also required to
record the tax impact of certain discrete items, unusual or
infrequently occurring, including changes in judgment about
valuation allowances and effects of changes in tax laws or
rates, in the interim period in which they occur. In addition,
jurisdictions with a projected loss for the year or a
year-to-date
loss where no tax benefit can be recognized are excluded from
the estimated annual effective tax rate. The impact of such an
exclusion could result in a higher or lower effective tax rate
during a particular quarter, based upon the mix and timing of
actual earnings versus annual projections.
In the third quarter of 2007, we recorded a charge of
$39 billion related to establishing full valuation
allowances against our deferred tax assets in the U.S., Canada
and Germany. In accordance with SFAS No. 109,
Accounting for Income Taxes
(SFAS No. 109), we evaluate our deferred income taxes
quarterly to determine if valuation allowances are required.
SFAS No. 109 requires that companies assess whether
valuation allowances should be established against their
deferred tax assets based on the consideration of all available
evidence using a more likely than not standard. In
making such judgments, significant weight is given to evidence
that can be objectively verified. As previously disclosed in our
2006
Form 10-K,
we had determined in prior periods that valuation allowances
were not necessary for our deferred tax assets in the U.S.,
Canada and Germany based on several factors including:
(1) the degree to which our three-year historical
cumulative losses were attributable to unusual items or charges,
several of which were incurred as a result of actions to improve
future profitability; (2) the long duration of our deferred
tax assets; and (3) the expectation of continued strong
earnings at GMAC and improved earnings in GMNA.
25
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
We believe that a valuation allowance is now required due to
events and developments that occurred during the third quarter
of 2007. In conducting our third quarter 2007 analysis, we
utilized a consistent approach which considers our three-year
historical cumulative income (loss) including an assessment of
the degree to which any losses were driven by items that are
unusual in nature and incurred in order to improve future
profitability. In addition, we reviewed changes in near-term
market conditions and any other factors arising during the
period which may impact our future operating results. We
consider both positive and negative evidence in our analysis.
Our analysis for the third quarter of 2007 showed that we have a
three-year historical cumulative loss in the U.S., Canada and
Germany. This loss continued to exist even after adjusting our
results to remove unusual items and charges, which is considered
a significant factor in our analysis as it is objectively
verifiable and therefore, significant negative evidence. This
was coupled with other significant factors which all occurred in
the third quarter of 2007. The ongoing weakness at GMAC related
to its Residential Capital, LLC (ResCap) mortgage business
resulting in substantial U.S. losses incurred in the third
quarter of 2007. Further, the outlook for ResCap and the
mortgage industry in general became highly uncertain, with
significantly reduced near-term forecast profitability. In
addition, in both the U.S. and Germany near-term automotive
market conditions were more challenging than we believed in the
second quarter of 2007. This, when combined with the pressures
of the residential mortgage business, resulted in lower
projected earnings in the near-term than we previously
anticipated. We also noted that in the near-term a greater
percentage of our deferred tax assets were going to be subject
to expiration (e.g. 20 years) than in prior periods
primarily due to changes associated with the Retiree MOU, which
accelerates our tax deductions for OPEB liabilities when
compared to our previously expected timing for these deductions.
Accordingly, based on a three year historical cumulative loss,
combined with significant and inherent uncertainty as to the
timing of when we would be able to generate the necessary level
of earnings to recover our deferred tax assets in the U.S.,
Canada and Germany, we concluded that a full valuation allowance
was required.
Excluding the charge related to the valuation allowance
discussed above, for the three and nine months ended
September 30, 2007, we recorded net unfavorable adjustments
to income tax expense. These adjustments included:
(1) foreign income taxed at rates lower than 35%, which is
the U.S. federal statutory tax rate; (2) various
permanent book-tax differences; (3) discrete items such as
the reversal of valuation allowances and the reversal of
previously required tax liabilities in accordance with
FIN 48 for uncertain tax positions now deemed
more-likely-than-not to be realized; and, (4) enactment of
new income tax legislation.
Upon adoption of FIN 48 as of January 1, 2007, we had
$2.7 billion of total gross unrecognized tax benefits, of
which $2.1 billion represents the amount of unrecognized
tax benefits that, if recognized, would favorably affect the
effective income tax rate in future periods. At
September 30, 2007 the amount of gross unrecognized tax
benefits before valuation allowances and the amount that would
favorably affect the effective income tax rate in future periods
after valuation allowances were $2.5 billion and
$.1 billion, respectively. These amounts consider the
guidance in
FIN 48-1,
Definition of Settlement in FASB Interpretation
No. 48. At September 30, 2007, $2 billion
of the liability for uncertain tax positions is netted against
deferred tax assets relating to the same tax jurisdictions. The
remainder of the liability for uncertain tax positions is
classified as a non-current liability.
We file income tax returns in multiple jurisdictions and are
subject to examination by taxing authorities throughout the
world. In the U.S., our federal income tax returns for 2001
through 2003 are currently under review by the Internal Revenue
Service, and except for one transfer pricing matter, it is
likely that this examination will conclude in 2007. A pre-filing
meeting was held with the Internal Revenue Service on the
transfer pricing matter in preparation for bilateral
negotiations. The Internal Revenue Service will begin its review
of the 2004 through 2006 federal income tax returns in the
fourth quarter. Our Mexican subsidiary has recently received an
income tax assessment related to the 2001 tax year covering
warranty, tooling costs, and withholding taxes. In addition, our
previously filed tax returns are currently under review in
Argentina, Australia, Belgium, China, France, Greece, Indonesia,
India, Italy, Korea, Portugal, New Zealand, Thailand, and
Turkey, Taiwan, United Kingdom, Venezuela and Vietnam and we
have received notices that tax audits will commence in Germany
and Spain. As of
26
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
September 30, 2007 it is not possible to reasonably
estimate the expected change to the total amount of unrecognized
tax benefits over the next twelve months.
We have open tax years from primarily 1999 to 2006 with various
significant taxing jurisdictions including the U.S., Australia,
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. We have recorded a tax benefit only for those
positions that meet the more-likely-than-not standard.
Our continuing practice is to recognize interest on uncertain
tax positions in Automotive and other interest expense and
penalties in Selling, general, and administrative expense. For
the three and nine months ended September 30, 2007, we
increased accrued interest expense by $10 million and
reduced accrued interest expense by $170 million and
increased accrued penalties of $27 million and
$16 million, respectively. Accrued interest and penalties
as of January 1, 2007 were $210 million and
$76 million, respectively, and as of September 30,
2007 accrued interest and penalties were $44 million and
$96 million, respectively.
In July 2007, the German Parliament passed legislation to lower
its statutory corporate tax rate. The President signed the
legislation into law on August 14, 2007. This new law
reduces by approximately 9%, effective as of January 1,
2008, the combined German business tax rate, which consists of
the corporate tax rate, the local trade tax rate, and the
solidarity levy tax rate. The impact of this change was a
reduction in the carrying amount of our German deferred tax
assets of $475 million, which is included in the charge
related to the valuation allowance discussed above.
In October 2007, Mexico enacted major tax reform legislation
that, among other reforms, eliminated the Asset Tax law and
replaced it with a new tax, the Single or Flat Business Tax,
effective January 1, 2008. We are still evaluating the
impact the change will have on our results of operations and
financial condition.
Basic loss per share has been computed by dividing Loss from
continuing operations by the weighted average number of shares
outstanding during the period. Diluted loss 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, such as stock options and contingently convertible
securities.
27
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The reconciliation of the amounts used in the basic and diluted
loss per share computations is as follows (in millions, except
per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Loss from continuing operations, net of tax
|
|
$
|
(42,512
|
)
|
|
$
|
(277
|
)
|
|
$
|
(41,770
|
)
|
|
$
|
(3,278
|
)
|
Weighted average number of shares outstanding
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
Incremental effect of shares from exercise of stock options and
vesting of restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of dilutive shares outstanding
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share from continuing operations
|
|
$
|
(75.12
|
)
|
|
$
|
(.49
|
)
|
|
$
|
(73.82
|
)
|
|
$
|
(5.80
|
)
|
Incremental effect of exercise of stock options and vesting of
restricted stock units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share from continuing operations
|
|
$
|
(75.12
|
)
|
|
$
|
(.49
|
)
|
|
$
|
(73.82
|
)
|
|
$
|
(5.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to net losses from continuing operations for all periods
presented, the assumed exercise of certain stock options had an
antidilutive effect and therefore were excluded from the
computation of diluted loss per share. The number of such
options not included in the computation of diluted loss per
share was 107 million at both September 30, 2007 and
2006.
We have contingently convertible debentures of $2.6 billion
principal amount of 5.25% Series B due in 2032,
$4.3 billion principal amount of 6.25% Series C due in
2033 and $1.5 billion principal amount of 1.50%
Series D due in 2009 outstanding that, if converted in the
future, would have a potentially dilutive effect on our common
stock. We have unilaterally and irrevocably waived and
relinquished our right to settle the principal amount in stock
for our Series B and C debentures, and has committed to use
cash to settle the principal amount of the Series B and C
debentures if holders choose to convert the debentures or we are
required by holders to repurchase the debentures. The principal
amount of the Series D debentures must be settled in cash.
For all outstanding debentures, we retain 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 for all
outstanding convertible debentures. As of September 30,
2007 and 2006, shares potentially issuable under these
debentures, including those shares issuable pursuant to the
convertible note hedge related to the Series D convertible
debentures, were excluded from the computation of diluted loss
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 us and settled
entirely in cash. At September 30, 2007, the amount
outstanding on the Series A convertible debentures was
$39 million.
28
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
|
|
Note 13.
|
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 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
1,237
|
|
|
$
|
1,060
|
|
|
$
|
3,725
|
|
|
$
|
3,220
|
|
Amortization of special tools
|
|
|
744
|
|
|
|
869
|
|
|
|
2,327
|
|
|
|
2,712
|
|
Amortization of intangible assets
|
|
|
16
|
|
|
|
17
|
|
|
|
51
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,997
|
|
|
|
1,946
|
|
|
|
6,103
|
|
|
|
5,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of intangible assets
|
|
|
297
|
|
|
|
561
|
|
|
|
1,010
|
|
|
|
2,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated depreciation and amortization
|
|
$
|
2,294
|
|
|
$
|
2,507
|
|
|
$
|
7,113
|
|
|
$
|
8,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14.
|
Pensions
and Other Postretirement Benefits
|
We recognized the funded status of our benefit plans at
December 31, 2006 in accordance with the recognition
provisions of SFAS No. 158. Additionally, we 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 our year-end, we recorded a decrease to Retained earnings
of $.7 billion, $.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 during the three
months ended March 31, 2007 on a delayed basis. We also
performed a measurement at January 1, 2007 for those
benefit plans whose previous measurement dates were not
historically consistent with our year-end. As a result of the
January 1, 2007 measurement, we recorded an increase to
Accumulated other comprehensive income of $2.3 billion,
$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 partially by an
immaterial adjustment of $400 million, $250 million
after-tax, 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 to adopt
the recognition provisions of SFAS No. 158.
29
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
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
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
Components of (income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
155
|
|
|
$
|
150
|
|
|
$
|
134
|
|
|
$
|
140
|
|
|
$
|
92
|
|
|
$
|
113
|
|
|
$
|
11
|
|
|
$
|
13
|
|
Interest cost
|
|
|
1,216
|
|
|
|
1,257
|
|
|
|
279
|
|
|
|
295
|
|
|
|
901
|
|
|
|
891
|
|
|
|
51
|
|
|
|
48
|
|
Expected return on plan assets
|
|
|
(1,986
|
)
|
|
|
(2,052
|
)
|
|
|
(240
|
)
|
|
|
(278
|
)
|
|
|
(350
|
)
|
|
|
(422
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
|
|
1,686
|
|
|
|
164
|
|
|
|
7
|
|
|
|
15
|
|
|
|
(455
|
)
|
|
|
(487
|
)
|
|
|
(22
|
)
|
|
|
(21
|
)
|
Recognized net actuarial loss
|
|
|
208
|
|
|
|
220
|
|
|
|
82
|
|
|
|
113
|
|
|
|
337
|
|
|
|
432
|
|
|
|
31
|
|
|
|
34
|
|
Curtailments, settlements, and other
|
|
|
23
|
|
|
|
(21
|
)
|
|
|
14
|
|
|
|
78
|
|
|
|
(214
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
Divestiture of Allison
|
|
|
(20
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) expense
|
|
$
|
1,282
|
|
|
$
|
(286
|
)
|
|
$
|
276
|
|
|
$
|
363
|
|
|
$
|
527
|
|
|
$
|
547
|
|
|
$
|
71
|
|
|
$
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
U.S. Other
|
|
|
Non-U.S.
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
Other Benefits
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
Components of (income) expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
475
|
|
|
$
|
575
|
|
|
$
|
363
|
|
|
$
|
381
|
|
|
$
|
278
|
|
|
$
|
457
|
|
|
$
|
33
|
|
|
$
|
39
|
|
Interest cost
|
|
|
3,648
|
|
|
|
3,713
|
|
|
|
800
|
|
|
|
723
|
|
|
|
2,704
|
|
|
|
3,011
|
|
|
|
144
|
|
|
|
143
|
|
Expected return on plan assets
|
|
|
(5,958
|
)
|
|
|
(6,110
|
)
|
|
|
(688
|
)
|
|
|
(629
|
)
|
|
|
(1,050
|
)
|
|
|
(1,172
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
|
|
1,946
|
|
|
|
621
|
|
|
|
21
|
|
|
|
65
|
|
|
|
(1,378
|
)
|
|
|
(620
|
)
|
|
|
(63
|
)
|
|
|
(62
|
)
|
Recognized net actuarial loss
|
|
|
630
|
|
|
|
906
|
|
|
|
250
|
|
|
|
303
|
|
|
|
1,016
|
|
|
|
1,668
|
|
|
|
89
|
|
|
|
100
|
|
Curtailments, settlements, and other
|
|
|
25
|
|
|
|
4,369
|
|
|
|
56
|
|
|
|
109
|
|
|
|
(213
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
Divestiture of Allison
|
|
|
(30
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
211
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) expense
|
|
$
|
736
|
|
|
$
|
4,061
|
|
|
$
|
802
|
|
|
$
|
952
|
|
|
$
|
1,568
|
|
|
$
|
3,355
|
|
|
$
|
203
|
|
|
$
|
220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the Allison Transmission divestiture, we recorded
an adjustment to the unrecognized prior service cost of our U.S.
hourly and salaried pension plans of $18 million and our
U.S. hourly and salaried OPEB plans of $223 million. Those
adjustments were included in the determination of the gain
recognized on the sale of Allison. The net periodic pension and
OPEB benefit expenses related to Allison were reported as a
component of discontinued operations. All such amounts related
to Allison are reflected in the tables above, and the effects of
those amounts are shown as an adjustment to arrive at net
periodic pension and OPEB expense (income) from continuing
operations.
Historically, we amortized prior service cost related to our
hourly pension plans in the U.S. over the average remaining
service period for active employees at the time of the
amendment, currently approximately 10.1 years. We expensed
lump sum payments granted to retirees in the quarter the
contract was approved. In conjunction with
30
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
entering into the 2007 UAW labor agreement, we determined that
the contractual life of the 2007 UAW labor agreement better
reflected the period of future economic benefit received from
pension plan amendments for its collectively bargained hourly
pension plans. Therefore lump sum payments estimated at
$.7 billion will be amortized over the contract period
rather than expensed in the fourth quarter. Also, we recorded
$1.6 billion, pre-tax, of additional pension expense in the
third quarter of 2007 related to the accelerated recognition of
previously unamortized prior service cost related to pension
increases in the U.S. from prior collectively bargained
agreements due to our determination that there is no period of
future economic benefit remaining. Such charge is included as a
component of Automotive costs of sales of $1.5 billion and
a component of Selling, general and administrative expense of
$.1 billion in the accompanying Condensed Consolidated
Statements of Operations for the three and nine months ended
September 30, 2007.
In conjunction with the October 10, 2007 ratification of
the 2007 National Agreement between GM and the UAW, GM and the
UAW signed a Memorandum of Understanding
Post-Retirement Medical Care (Retiree MOU). The Retiree MOU
(refer to Note 19) is intended to replace the tentative
settlement agreement (2005 UAW Health Care Settlement
Agreement) related to reductions in hourly retiree health care
which is described below.
On March 31, 2006, the U.S. District Court for the
Eastern District of Michigan approved the 2005 UAW Health Care
Settlement Agreement. Upon court approval, the 2005 UAW Health
Care Settlement Agreement was to remain in effect until at least
September 2011, after which either GM or the UAW could cancel
the agreement upon 90 days written notice. As mentioned
above, the 2005 UAW Health Care Settlement Agreement will be
replaced by the Retiree MOU at the later of the date when all
appeals have been exhausted (Final Effective Date) or
January 1, 2010. Given the significance of the effect of
the 2005 UAW Health Care Settlement Agreement, the plans were
remeasured in March 2006 generating a $1.3 billion
reduction in OPEB expense for the remaining periods in 2006 and
reduced the U.S. APBO by $14.5 billion. The effects of
the settlement were recorded beginning in the third quarter of
2006.
The 2005 UAW Health Care Settlement Agreement also provides that
we make contributions to a new independent Voluntary
Employees Beneficiary Association (VEBA) (Mitigation
Plan). The assets of the Mitigation Plan will be used to
mitigate the effect of reduced GM health care coverage to
individual UAW retirees, and depending on the level of
mitigation, are expected to be available for a number of years.
The new independent Mitigation Plan is being partially funded by
our contributions of $1 billion in each of 2006, 2007 and
2011. We will also make future contributions subject to
provisions of the 2005 UAW Health Care Settlement Agreement that
relate to profit sharing payments, increases in the value of a
notional number of shares of our common stock (collectively, the
Supplemental Contributions), as well as wage deferral payments
and dividend payments. We made $1 billion contributions to
the independent VEBA in both the second quarters of 2007 and
2006. At the Final Effective Date, the Retiree MOU (refer to
Note 19) eliminates our obligation to the Mitigation
Plan for the Supplemental Contributions.
As detailed in Note 7, GM, Delphi and the UAW reached an
agreement in March 2006 which intended to reduce the number of
U.S. hourly employees through the Attrition Program. As a
result of the Attrition Program, we have recognized curtailment
losses under SFAS No. 88, Employers
Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits and
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions due to the
significant reduction in the expected aggregate years of future
service of the employees in the U.S. hourly pension, OPEB
and extended disability plans. The curtailment losses include
recognition of the change in the projected benefit obligation
(PBO) or APBO and a portion of the previously unrecognized prior
service cost reflecting the reduction in expected future
service. We recognized a curtailment loss related to the
U.S. hourly pension plan of $4.4 billion at
April 30, 2006. The impact of the curtailment loss related
to the U.S. hourly OPEB plans measured at May 31,
2006, as a result of the Attrition Program, was recorded in the
third quarter of 2006.
31
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The remeasurement of our U.S. hourly pension plan as of
April 30, 2006, as a result of the Attrition Program,
generated a $.4 billion reduction in pension expense for
the nine months ended September 30, 2006. This
remeasurement reduced the U.S. pension PBO by
$1.2 billion.
|
|
Note 15.
|
Impairments,
Restructuring and Other Initiatives
|
Impairments
We periodically review the carrying value of our long-lived
assets to be held and used when events and circumstances warrant
and in conjunction with the annual business planning cycle. If
the carrying value of a long-lived asset is considered impaired,
an impairment charge is recorded for the amount by which the
carrying amount of the long-lived asset exceeds the fair market
value for assets. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Product specific assets may
become impaired as a result of declines in profitability due to
changes in volume, pricing or costs. Asset impairment charges
are recorded in Automotive cost of sales in the Condensed
Consolidated Statements of Operations.
During the nine months ended September 30, 2007, we
recorded impairment charges primarily related to
product-specific assets totaling $84 million. Of this,
$70 million was recorded at GMNA and $14 million was
recorded at GMAP.
During the nine months ended September 30, 2006, we
recorded impairment charges related to product specific and
plant assets of $624 million. Of this amount, impairment
charges related to product specific assets were recorded in the
third quarter at GMNA of $102 million, in addition to
impairment charges for various plant assets of $70 million
at GMNA and $5 million at GME. Additional impairment
charges were recorded during the nine months ended
September 30, 2006 and related to product specific assets
at GMNA of $303 million and at GME of $60 million. GME
also recorded impairment charges of $84 million related to
various plant assets.
During the third quarter of 2006, GMAC recognized a goodwill
impairment loss of $828 million related to its Commercial
Finance business. The fair value of the Commercial Finance
business was determined using an internally developed discounted
cash flow analysis based on five year projected net income and a
market driven terminal value multiple. As GMAC was a
wholly-owned subsidiary during the third quarter of 2006, the
entire amount of this impairment loss is included in Financial
services and insurance expense for the three and nine months
ended September 30, 2006.
Restructuring
and Other Initiatives
We have executed various restructuring and other initiatives and
may execute additional initiatives in the future in order to
realign manufacturing capacity to prevailing global automotive
production and to improve the utilization of remaining
facilities. Estimates of restructuring and other charges are
based on information available at the time such charges are
recorded. Due to the inherent uncertainty involved in estimating
restructuring expenses, actual amounts paid for such activities
may differ from amounts initially recorded. Accordingly, we may
record revisions of previous estimates by adjusting previously
established reserves.
During the three and nine months ended September 30, 2007,
we recorded charges of $262 million and $399 million,
respectively, for restructuring and other initiatives.
Additional details as to the specific segment where such charges
were recorded and the restructuring or other initiatives follow.
During the three and nine months ended September 30, 2007
GME recorded charges for separation programs of
$262 million and $349 million, respectively. Charges
of $33 million and $103 million were recorded in the
three and nine months ended September 30, 2007,
respectively, primarily related to early retirement programs,
along with additional minor separations under other current
programs in Germany. Approximately 4,900 employees will
leave under early retirement programs in Germany through 2013.
The total remaining cost for the early retirements,
32
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
which are currently being reviewed by management, will be
recognized over the remaining service period of the employees.
Additional separation programs have been announced with respect
to the Antwerp, Belgium facility. These programs impacts
approximately 1,900 employees, who will leave through
June 30, 2008, and have total estimated costs of
$400 million. Of this amount, $226 million was
recorded in the three months ended September 30, 2007 in
connection with these separation programs. The remaining cost of
the Antwerp, Belgium program will be recognized through
June 30, 2008 over the remaining service period of the
employees. The remaining separation charges for the nine months
ended September 30, 2007 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.
During the nine months ended September 30, 2007 GMAP
recorded charges for separation programs of $50 million at
its Australian facilities. This charge relates to the voluntary
separation of 650 employees.
During the three and nine months ended September 30, 2006,
we recorded charges of $118 million and $437 million,
respectively, for restructuring and other initiatives.
Additional details as to the specific segment where such charges
were recorded and the restructuring or other initiatives follow.
During the three and nine months ended September 30, 2006
GME recorded charges for separations and contract cancellations
of $118 million and $294 million, respectively. The
most significant charges in the three and nine months ended
September 30, 2006 totaling $35 million and
$143 million, respectively, relate to the restructuring
plan for the operations in Germany announced in the fourth
quarter of 2004. The remaining charges totaling $83 million
and $151 million for the three and nine months ended
September 30, 2006 relate to the closure of GMs
assembly plant in Portugal and the reduction of one shift at the
Ellesmere Port plant in the United Kingdom.
During the nine months ended September 30, 2006 GMNA
recorded a charge of $100 million related to wage and
benefit costs incurred under a salaried severance program, which
allowed involuntarily terminated employees to receive continued
salary and benefits for a period of time after termination.
During the nine months ended September 30, 2006 GMLAAM
recorded restructuring charges of $43 million. These
restructuring charges relate to the costs of voluntary employee
separations at GMs facilities in Brazil.
|
|
Note 16.
|
Restatement
of Previously Issued Condensed Consolidated Financial
Statements
|
As previously disclosed in our 2006 Annual Report on
Form 10-K,
we have restated our prior years consolidated financial
statements 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. As a result, the accompanying Condensed
Consolidated Financial Statements in this Quarterly Report on
Form 10-Q
as of and for the three and nine months ended September 30,
2006 have been restated.
Also, the Condensed Consolidated Financial Statements have been
further adjusted as we sold the commercial and military business
of Allison. Refer to Note 3. The operations and cash flows
of Allison have been reported as discontinued operations for the
three and nine months ended September 30, 2006.
33
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The following table sets forth a reconciliation of the
previously reported and restated net loss for the three and nine
months ended September 30, 2006, respectively:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Net loss, as previously reported
|
|
$
|
(91
|
)
|
|
$
|
(3,025
|
)
|
Less income from discontinued operations
|
|
|
130
|
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(221
|
)
|
|
|
(3,386
|
)
|
Pre-tax adjustments:
|
|
|
|
|
|
|
|
|
Derivative and hedge accounting adjustments
|
|
|
|
|
|
|
|
|
Commodity Contracts
|
|
|
|
|
|
|
|
|
Normal purchases and normal sales scope exception
for certain commodity contracts
|
|
|
(33
|
)
|
|
|
64
|
|
Hedge accounting related to commodity cash flow hedges
|
|
|
(194
|
)
|
|
|
126
|
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
Hedge accounting related to foreign currency cash flow and net
investment hedges
|
|
|
(48
|
)
|
|
|
54
|
|
Interest Rate Contracts
|
|
|
|
|
|
|
|
|
Hedge accounting related to certain debt instruments
|
|
|
336
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
Total derivative and hedge accounting adjustments
|
|
|
61
|
|
|
|
197
|
|
Other out-of-period adjustments
|
|
|
(126
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
Total pre-tax adjustments
|
|
|
(65
|
)
|
|
|
139
|
|
Income tax expense (benefit)
|
|
|
(9
|
)
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Total of above adjustments, net of tax
|
|
|
(56
|
)
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations, as restated
|
|
|
(277
|
)
|
|
|
(3,278
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
130
|
|
|
|
361
|
|
Effect of restatement on discontinued operations, net of
tax
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations, as restated
|
|
|
130
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
Net loss, as restated
|
|
$
|
(147
|
)
|
|
$
|
(2,928
|
)
|
|
|
|
|
|
|
|
|
|
34
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The following table sets forth a reconciliation of previously
reported and restated loss per share for the three and nine
months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2006
|
|
|
Net loss per share, as previously reported
|
|
$
|
(.16
|
)
|
|
$
|
(5.34
|
)
|
Less income per share from discontinued operations
|
|
|
.23
|
|
|
|
.64
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations
|
|
|
(.39
|
)
|
|
|
(5.98
|
)
|
Adjustments related to continuing operations
|
|
|
(.10
|
)
|
|
|
.18
|
|
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations, as restated
|
|
|
(.49
|
)
|
|
|
(5.80
|
)
|
|
|
|
|
|
|
|
|
|
Income per share from discontinued operations
|
|
|
.23
|
|
|
|
.64
|
|
Adjustments related to discontinued operations
|
|
|
|
|
|
|
(.02
|
)
|
|
|
|
|
|
|
|
|
|
Income per share from discontinued operations, as restated
|
|
|
.23
|
|
|
|
.62
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, as restated
|
|
$
|
(.26
|
)
|
|
$
|
(5.18
|
)
|
|
|
|
|
|
|
|
|
|
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, we determined that we 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 Condensed Consolidated Balance Sheet and record
the changes in the fair value of the commodity contracts as
charges or credits in the Condensed Consolidated Statements of
Operations. As a result of the restatement, additional
derivative assets of $236 million were recorded at
September 30, 2006. Additionally, pre-tax earnings were
decreased, through an adjustment to Automotive cost of sales, by
$33 million ($22 million after-tax) and increased by
$64 million ($41 million after-tax) for the three and
nine months ended September 30, 2006, respectively.
Additionally, we 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, we
inappropriately applied the matched terms method of
assessing hedge effectiveness as outlined in paragraph 65
of SFAS No. 133 by not considering in our 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, we 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
Accumulated other comprehensive income (AOCI) when the
underlying hedged forecasted transaction affected earnings.
Accordingly, the commodity derivatives should have been
marked-to-market with gains and losses recorded in Automotive
cost of sales. Changes in the fair value of the commodity
derivatives that had been recorded in Other Comprehensive Income
(OCI) as part of these cash flow
35
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
hedging relationships were reversed and recorded in Automotive
cost of sales. Pre-tax earnings were decreased, through an
adjustment to Automotive cost of sales, by $194 million
($126 million after-tax) and increased by $126 million
($82 million after-tax) for the three and nine months ended
September 30, 2006, respectively.
Foreign
Exchange Contracts
We enter into foreign currency forward contracts and
cross-currency swaps to hedge foreign currency-denominated debt
and forecasted transactions. We also designate foreign
currency-denominated debt as hedges of net investments in
foreign operations.
We concluded that we 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 AOCI were released from
OCI and recorded in Automotive cost of sales. Pre-tax earnings
were decreased by $94 million ($61 million after-tax)
and were increased by $24 million ($16 million
after-tax) for the three and nine months ended
September 30, 2006, respectively.
In addition, we determined that we 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
AOCI and recorded in Automotive cost of sales. Pre-tax earnings
were increased by $46 million ($30 million after-tax)
and $30 million ($20 million after-tax) for the three
and nine months ended September 30, 2006, respectively.
Interest
Rate Contracts
GMAC determined that our 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 a
sufficiently documented 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
increased, through an adjustment to Interest expense, by
$336 million ($219 million after-tax) and were
decreased by $47 million ($30 million after-tax) for
the three and nine months ended September 30, 2006,
respectively.
Other
Out-of-Period Adjustments
Also, we identified adjustments that should have been recorded
in the three and nine months ended September 30, 2006. Upon
identification, we 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
36
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
of our previously filed Condensed Consolidated Financial
Statements, we are correcting these out-of-period adjustments by
recording them in the proper periods.
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 from these obligations 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 million
($31 million after-tax) for the nine months ended
September 30, 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 $22 million
($14 million after-tax) and $65 million
($43 million after-tax) for the three and nine months ended
September 30, 2006, respectively.
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
$57 million for the nine months ended September 30,
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
increased, through adjustments to Selling, general and
administrative expense, by $17 million ($11 million
after-tax) and decreased by $23 million ($15 million
after-tax) for the three and nine months ended
September 30, 2006, respectively.
Gain on sale of equity method investment. We
erroneously calculated the gain on the sale of a portion of an
equity method investment. As part of our restatement, pre-tax
earnings were increased, through an increase to Automotive
interest and other non operating income, by $36 million
($23 million after-tax) for the nine months ended
September 30, 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 million ($32 million
after-tax) for the nine months ended September 30, 2006.
Manufacturing utilities costs. We recorded an
adjustment to correctly expense manufacturing utilities costs.
As part of our restatement, pre-tax earnings were increased,
through a decrease to Automotive cost of sales, by
$2 million ($1 million after-tax) and $25 million
($16 million after-tax) for the three and nine months ended
September 30, 2006, respectively.
Extended disability curtailment costs. We recorded
an adjustment to correctly state the extended disability
curtailment costs based on updated actuarial assumptions. As
part of our restatement, pre-tax earnings were decreased by,
through an increase to Automotive cost of sales,
$52 million ($34 million after-tax) for the three
months ended September 30, 2006, with no effect on earnings
for the nine months ended September 30, 2006.
Special attrition program charge. We recorded an
adjustment to correctly state the special attrition program
expense as a result of the review of employees
eligibility. As part of our restatement, pre-tax earnings were
37
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
increased, through a decrease to Automotive cost of sales, by
$28 million ($18 million after-tax) for the nine
months ended September 30, 2006.
Extended warranty deferred revenue. We recorded an
adjustment to correctly state deferred revenue as a result of
the review of prior years sales. As part of our
restatement, pre-tax earnings were decreased by $18 million
($11 million after-tax) for the nine months ended
September 30, 2006. This adjustment affected the earnings
of the Allison Transmission business.
Credit card. We recorded an adjustment to
appropriately defer credit card revenue in accordance with Staff
Accounting Bulletin No. 104 Revenue
Recognition (SAB 104). As a result, we recorded an
adjustment in the fourth quarter of 2006 to reverse
$128 million of revenue which was then allocated to and
recorded in the appropriate prior periods. As part of our
restatement, pre-tax earnings were increased by $11 million
($7 million after-tax) and $31 million
($20 million after-tax) for the three and nine months ended
September 30, 2006, respectively.
We also recorded other less significant out-of-period
adjustments, the net effect of which decreased pre-tax earnings
by $82 million ($54 million after-tax) and
$27 million ($11 million after-tax) for the three and
nine months ended September 30, 2006, respectively.
In addition to the above adjustments, to comply with
EITF 00-10,
Accounting for Shipping and Handling Fees and Costs
(EITF 00-10),
in 2006 we reclassified shipping and handling costs incurred to
transport product to our customers. The correction for this
reclassification increased Automotive sales and Automotive cost
of sales by $1 billion and $3.4 billion for the three
and nine months ended September 30, 2006, respectively.
Legal
Services Plan
The accompanying Condensed Consolidated Balance Sheet and
Statement of Stockholders Equity (Deficit) in this
Quarterly Report on
Form 10-Q
as of September 30, 2006 and December 31, 2006 have
been restated to correct the accounting for certain GM sponsored
benefit plans that provide legal services to hourly employees
represented by the UAW, IUE-CWA and the CAW (Legal Services
Plans). Historically the Legal Services Plans were accounted for
on a pay as you go basis. However, we have now concluded that
the Legal Services Plans should be accounted for as defined
benefit plans under the provisions of SFAS No. 106,
Employers Accounting for Postretirement Benefits Other
than Pensions, and a liability of $323 million has
been recorded in our Condensed Consolidated Balance Sheet as of
September 30, 2006, the earliest period included in these
Condensed Consolidated Financial Statements. A charge in the
amount of $211 million, which is net of a deferred tax
asset of $112 million, to record the liability and related
tax effects has been recorded as an adjustment to Retained
earnings, because the liability related to the Legal Service
Plans existed prior to December 31, 2004.
We have evaluated the effects of this misstatement on prior
periods consolidated financial statements in accordance
with the guidance provided by SEC Staff Accounting
Bulletin No. 108, codified as SAB Topic 1.N,
Considering the Effects of Prior Year Misstatements When
Quantifying Misstatements in Current Year Financial Statements
(SAB 108), and concluded that no prior period financial
statements are materially misstated. However, we considered the
effects of correcting this misstatement on our interim and
forecasted annual results of operations for the period ended
September 30, 2007 and period ending December 31,
2007, respectively, and concluded that the impact on these
periods may be material. As permitted by SAB 108 we will
correct our prior period consolidated financial statements for
the immaterial effect of this misstatement the next time we file
the prior period financial statements affected by the
misstatement. As such, we do not intend to amend our previous
filings with the SEC with respect to this misstatement.
In order to correct the accompanying Condensed Consolidated
Financial Statements, we increased deferred tax assets and OPEB
liabilities by $112 million and $323 million,
respectively, at December 31, 2006. Previously reported
amounts for deferred tax assets and OPEB liabilities of
$33 billion and $50.1 billion, respectively, at
38
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
December 31, 2006 have been restated to $33.1 billion
and $50.4 billion, respectively. We also increased deferred
tax assets and OPEB liabilities by $112 million and
$323 million, respectively, at September 30, 2006.
We are not restating the Condensed Consolidated Statements of
Operations or Cash Flows for the three and nine months ended
September 30, 2007 and 2006 in this Quarterly Report on
Form 10-Q
for this misstatement because we have concluded that the impact
is immaterial.
We will reflect similar adjustments to deferred tax assets and
OPEB liabilities in the consolidated Balance Sheets at
December 31, 2006 in addition to an adjustment to opening
retained earnings at January 1, 2005 that will be included
in our Annual Report on
Form 10-K
for the year ending December 31, 2007. We will not restate
our consolidated statement of operations or cash flows for the
years ended December 31, 2004, 2005 and 2006, or any
interim period in those years for this item, as the impact on
those periods is also immaterial.
39
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
The following is a summary of the effect of the restatement on
the previously issued Condensed Consolidated Statements of
Operations and Condensed Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2006
|
|
|
September 30, 2006
|
|
|
|
Previously
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
Reported
|
|
|
|
|
|
Reported
|
|
|
|
|
|
|
and
|
|
|
|
|
|
and
|
|
|
|
|
|
|
Reclassified(a)
|
|
|
Restated
|
|
|
Reclassified(a)
|
|
|
Restated
|
|
|
|
(Dollars in millions, except per share amounts)
|
|
|
Net sales and revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
$
|
38,569
|
|
|
$
|
39,612
|
|
|
$
|
124,305
|
|
|
$
|
127,657
|
|
Financial services and insurance revenue
|
|
|
9,364
|
|
|
|
9,280
|
|
|
|
27,286
|
|
|
|
27,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
|
47,933
|
|
|
|
48,892
|
|
|
|
151,591
|
|
|
|
154,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
36,457
|
|
|
|
37,184
|
|
|
|
122,189
|
|
|
|
124,598
|
|
Selling, general and administrative expense
|
|
|
3,147
|
|
|
|
3,155
|
|
|
|
9,708
|
|
|
|
9,740
|
|
Financial services and insurance expense
|
|
|
7,810
|
|
|
|
7,596
|
|
|
|
23,415
|
|
|
|
23,608
|
|
Other expenses
|
|
|
1,443
|
|
|
|
1,943
|
|
|
|
2,651
|
|
|
|
3,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
48,857
|
|
|
|
49,878
|
|
|
|
157,963
|
|
|
|
161,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(924
|
)
|
|
|
(986
|
)
|
|
|
(6,372
|
)
|
|
|
(6,226
|
)
|
Automotive and other interest expense
|
|
|
(608
|
)
|
|
|
(529
|
)
|
|
|
(2,015
|
)
|
|
|
(1,861
|
)
|
Automotive interest income and other non-operating income
|
|
|
425
|
|
|
|
310
|
|
|
|
2,285
|
|
|
|
2,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, other
equity income and minority interests
|
|
|
(1,107
|
)
|
|
|
(1,205
|
)
|
|
|
(6,102
|
)
|
|
|
(5,994
|
)
|
Income tax benefit
|
|
|
(945
|
)
|
|
|
(977
|
)
|
|
|
(2,539
|
)
|
|
|
(2,523
|
)
|
Equity income (loss) and minority interests, net of tax
|
|
|
(59
|
)
|
|
|
(49
|
)
|
|
|
176
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(221
|
)
|
|
|
(277
|
)
|
|
|
(3,387
|
)
|
|
|
(3,278
|
)
|
Income from discontinued operations, net of tax
|
|
|
130
|
|
|
|
130
|
|
|
|
362
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(91
|
)
|
|
$
|
(147
|
)
|
|
$
|
(3,025
|
)
|
|
$
|
(2,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(.39
|
)
|
|
$
|
(.49
|
)
|
|
$
|
(5.98
|
)
|
|
$
|
(5.80
|
)
|
Discontinued operations
|
|
|
.23
|
|
|
|
.23
|
|
|
|
.64
|
|
|
|
.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(.16
|
)
|
|
$
|
(.26
|
)
|
|
$
|
(5.34
|
)
|
|
$
|
(5.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
(millions)
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(.39
|
)
|
|
$
|
(.49
|
)
|
|
$
|
(5.98
|
)
|
|
$
|
(5.80
|
)
|
Discontinued operations
|
|
|
.23
|
|
|
|
.23
|
|
|
|
.64
|
|
|
|
.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(.16
|
)
|
|
$
|
(.26
|
)
|
|
$
|
(5.34
|
)
|
|
$
|
(5.18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
(millions)
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The previously reported and reclassified columns have been
restated to report Allison as discontinued operations for the
three and nine months ended September 30, 2006. |
40
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006
|
|
|
|
Previously
|
|
|
|
|
|
|
Reported
|
|
|
Restated
|
|
|
|
(Dollars in millions)
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,802
|
|
|
$
|
17,802
|
|
Marketable securities
|
|
|
107
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
Total cash and marketable securities
|
|
|
17,909
|
|
|
|
17,909
|
|
Accounts and notes receivable, net
|
|
|
9,022
|
|
|
|
6,855
|
|
Inventories
|
|
|
14,825
|
|
|
|
14,822
|
|
Equipment on operating leases, net
|
|
|
6,569
|
|
|
|
6,569
|
|
Deferred income taxes and other current assets
|
|
|
10,698
|
|
|
|
10,813
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
59,023
|
|
|
|
56,968
|
|
Financing and Insurance Operations Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
3,089
|
|
|
|
3,089
|
|
Assets held for sale
|
|
|
282,955
|
|
|
|
282,847
|
|
Equipment on operating leases, net
|
|
|
13,325
|
|
|
|
13,325
|
|
Other assets
|
|
|
4,378
|
|
|
|
1,827
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations Assets
|
|
|
303,747
|
|
|
|
301,088
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
38,893
|
|
|
|
38,959
|
|
Deferred income taxes
|
|
|
23,496
|
|
|
|
24,972
|
|
Prepaid pension
|
|
|
37,805
|
|
|
|
37,691
|
|
Other assets
|
|
|
6,614
|
|
|
|
8,357
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
106,808
|
|
|
|
109,979
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
469,578
|
|
|
$
|
468,035
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable (principally trade)
|
|
$
|
27,113
|
|
|
$
|
27,318
|
|
Short-term borrowings and current portion of long-term debt
|
|
|
1,346
|
|
|
|
1,436
|
|
Accrued expenses
|
|
|
40,183
|
|
|
|
40,235
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
68,642
|
|
|
|
68,989
|
|
Financing and Insurance Operations Liabilities
|
|
|
|
|
|
|
|
|
Liabilities related to assets held for sale
|
|
|
272,725
|
|
|
|
272,869
|
|
Debt
|
|
|
10,073
|
|
|
|
10,073
|
|
Other liabilities and deferred income taxes
|
|
|
4,794
|
|
|
|
2,243
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations Liabilities
|
|
|
287,592
|
|
|
|
285,185
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
31,414
|
|
|
|
33,118
|
|
Postretirement benefits other than pensions
|
|
|
34,211
|
|
|
|
34,534
|
|
Pensions
|
|
|
15,937
|
|
|
|
15,937
|
|
Other liabilities and deferred income taxes
|
|
|
19,426
|
|
|
|
17,714
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
100,988
|
|
|
|
101,303
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
457,222
|
|
|
|
455,477
|
|
Minority interest
|
|
|
1,212
|
|
|
|
1,210
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, 6,000,000 shares authorized,
no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock,
$12/3
par value (2,000,000,000 shares authorized, 756,637,541 and
565,611,157 shares issued and outstanding, respectively)
|
|
|
943
|
|
|
|
943
|
|
Capital surplus (principally additional paid-in capital)
|
|
|
15,316
|
|
|
|
15,316
|
|
Retained deficit
|
|
|
(1,101
|
)
|
|
|
(616
|
)
|
Accumulated other comprehensive loss
|
|
|
(4,014
|
)
|
|
|
(4,295
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
11,144
|
|
|
|
11,348
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities, Minority Interests, and Stockholders
Equity
|
|
$
|
469,578
|
|
|
$
|
468,035
|
|
|
|
|
|
|
|
|
|
|
41
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
|
|
Note 17.
|
Segment
Reporting
|
We operate in two businesses, consisting of Automotive (GM
Automotive or GMA) and Financing and Insurance Operations (FIO).
Our four automotive regions consist of GMNA, GME, GMLAAM and
GMAP. For the three and nine months ended September 30,
2007, our 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 us, as well as the elimination of
intercompany transactions with GM Automotive and Corporate and
Other. For the three and nine months ended September 30,
2006, our FIO business consisted of the consolidated operating
results of GMACs lines of business as follows: Automotive
Finance Operations, Mortgage Operations, Insurance, and Other,
which included 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 the first quarter of 2007, we changed our segment
presentation to reflect the elimination of transactions
occurring between GM Automotive regions, previously included in
the GMNA region, in the Auto Eliminations column within total
GMA. These transactions consist primarily of intra-segment
vehicle and service parts sales in accordance with our transfer
pricing policy. Accordingly, 2006 amounts have been revised for
comparability. Additionally, the three and nine months ended
September 30, 2006, have been reclassified for the
retroactive effect of discontinued operations. Refer to
Note 3.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GM
|
|
|
|
|
|
Auto
|
|
|
Total
|
|
|
Corporate
|
|
|
Excluding
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
LAAM
|
|
|
GMAP
|
|
|
Eliminations
|
|
|
GMA
|
|
|
& Other
|
|
|
FIO
|
|
|
GMAC(a)
|
|
|
Financing
|
|
|
Financing
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
As of and For the Three Months Ended September 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
26,022
|
|
|
$
|
8,322
|
|
|
$
|
4,829
|
|
|
$
|
3,933
|
|
|
$
|
|
|
|
$
|
43,106
|
|
|
$
|
28
|
|
|
$
|
43,134
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
43,134
|
|
Intersegment
|
|
|
585
|
|
|
|
400
|
|
|
|
115
|
|
|
|
1,513
|
|
|
|
(2,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
26,607
|
|
|
|
8,722
|
|
|
|
4,944
|
|
|
|
5,446
|
|
|
|
(2,613
|
)
|
|
|
43,106
|
|
|
|
28
|
|
|
|
43,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,134
|
|
Financial services and insurance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700
|
|
|
|
700
|
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
$
|
26,607
|
|
|
$
|
8,722
|
|
|
$
|
4,944
|
|
|
$
|
5,446
|
|
|
$
|
(2,613
|
)
|
|
$
|
43,106
|
|
|
$
|
28
|
|
|
$
|
43,134
|
|
|
$
|
|
|
|
$
|
700
|
|
|
$
|
700
|
|
|
$
|
43,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1,341
|
|
|
$
|
407
|
|
|
$
|
76
|
|
|
$
|
150
|
|
|
$
|
9
|
|
|
$
|
1,983
|
|
|
$
|
14
|
|
|
$
|
1,997
|
|
|
$
|
|
|
|
$
|
297
|
|
|
$
|
297
|
|
|
$
|
2,294
|
|
Interest income
|
|
$
|
365
|
|
|
$
|
178
|
|
|
$
|
41
|
|
|
$
|
44
|
|
|
$
|
1
|
|
|
$
|
629
|
|
|
$
|
(277
|
)
|
|
$
|
352
|
|
|
$
|
|
|
|
$
|
36
|
|
|
$
|
36
|
|
|
$
|
388
|
|
Interest expense
|
|
$
|
747
|
|
|
$
|
134
|
|
|
$
|
58
|
|
|
$
|
61
|
|
|
$
|
1
|
|
|
$
|
1,001
|
|
|
$
|
(225
|
)
|
|
$
|
776
|
|
|
$
|
|
|
|
$
|
106
|
|
|
$
|
106
|
|
|
$
|
882
|
|
Income tax expense (benefit)
|
|
$
|
36,429
|
|
|
$
|
2,471
|
|
|
$
|
34
|
|
|
$
|
48
|
|
|
$
|
(9
|
)
|
|
$
|
38,973
|
|
|
$
|
140
|
|
|
$
|
39,113
|
|
|
$
|
50
|
|
|
$
|
23
|
|
|
$
|
73
|
|
|
$
|
39,186
|
|
Earnings (losses) of nonconsolidated affiliates
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
86
|
|
|
$
|
|
|
|
$
|
115
|
|
|
$
|
|
|
|
$
|
115
|
|
|
$
|
(809
|
)
|
|
$
|
|
|
|
$
|
(809
|
)
|
|
$
|
(694
|
)
|
Income from discontinued operations, net of tax
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
45
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45
|
|
Gain on sale of discontinued operations, net of tax
|
|
$
|
3,504
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,504
|
|
|
$
|
|
|
|
$
|
3,504
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,504
|
|
Net income (loss)
|
|
$
|
(34,646
|
)
|
|
$
|
(2,869
|
)
|
|
$
|
340
|
|
|
$
|
138
|
|
|
$
|
(19
|
)
|
|
$
|
(37,056
|
)
|
|
$
|
(1,136
|
)
|
|
$
|
(38,192
|
)
|
|
$
|
(803
|
)
|
|
$
|
32
|
|
|
$
|
(771
|
)
|
|
$
|
(38,963
|
)
|
Investments in nonconsolidated affiliates
|
|
$
|
326
|
|
|
$
|
437
|
|
|
$
|
64
|
|
|
$
|
1,167
|
|
|
$
|
|
|
|
$
|
1,994
|
|
|
$
|
37
|
|
|
$
|
2,031
|
|
|
$
|
6,852
|
|
|
$
|
|
|
|
$
|
6,852
|
|
|
$
|
8,883
|
|
Total assets
|
|
$
|
92,377
|
|
|
$
|
27,655
|
|
|
$
|
6,611
|
|
|
$
|
14,860
|
|
|
$
|
(10,945
|
)
|
|
$
|
130,558
|
|
|
$
|
(213
|
)
|
|
$
|
130,345
|
|
|
$
|
12,413
|
|
|
$
|
6,742
|
|
|
$
|
19,155
|
|
|
$
|
149,500
|
|
Goodwill
|
|
$
|
188
|
|
|
$
|
575
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
763
|
|
|
$
|
|
|
|
$
|
763
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
763
|
|
42
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GM
|
|
|
|
|
|
Auto
|
|
|
Total
|
|
|
Corporate
|
|
|
Excluding
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
LAAM
|
|
|
GMAP
|
|
|
Eliminations
|
|
|
GMA
|
|
|
& Other
|
|
|
FIO
|
|
|
GMAC
|
|
|
Financing
|
|
|
Financing
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
As of and For the Three Months Ended September 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
26,102
|
|
|
$
|
7,048
|
|
|
$
|
3,499
|
|
|
$
|
3,003
|
|
|
$
|
|
|
|
$
|
39,652
|
|
|
$
|
(40
|
)
|
|
$
|
39,612
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39,612
|
|
Intersegment
|
|
|
686
|
|
|
|
396
|
|
|
|
159
|
|
|
|
844
|
|
|
|
(2,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
26,788
|
|
|
|
7,444
|
|
|
|
3,658
|
|
|
|
3,847
|
|
|
|
(2,085
|
)
|
|
|
39,652
|
|
|
|
(40
|
)
|
|
|
39,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,612
|
|
Financial services and insurance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,282
|
|
|
|
(2
|
)
|
|
|
9,280
|
|
|
|
9,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
$
|
26,788
|
|
|
$
|
7,444
|
|
|
$
|
3,658
|
|
|
$
|
3,847
|
|
|
$
|
(2,085
|
)
|
|
$
|
39,652
|
|
|
$
|
(40
|
)
|
|
$
|
39,612
|
|
|
$
|
9,282
|
|
|
$
|
(2
|
)
|
|
$
|
9,280
|
|
|
$
|
48,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
1,382
|
|
|
$
|
378
|
|
|
$
|
58
|
|
|
$
|
114
|
|
|
$
|
8
|
|
|
$
|
1,940
|
|
|
$
|
6
|
|
|
$
|
1,946
|
|
|
$
|
1,466
|
|
|
$
|
(905
|
)
|
|
$
|
561
|
|
|
$
|
2,507
|
|
Interest income
|
|
$
|
421
|
|
|
$
|
151
|
|
|
$
|
22
|
|
|
$
|
31
|
|
|
$
|
(1
|
)
|
|
$
|
624
|
|
|
$
|
(430
|
)
|
|
$
|
194
|
|
|
$
|
697
|
|
|
$
|
(187
|
)
|
|
$
|
510
|
|
|
$
|
704
|
|
Interest expense
|
|
$
|
819
|
|
|
$
|
174
|
|
|
$
|
15
|
|
|
$
|
57
|
|
|
$
|
|
|
|
$
|
1,065
|
|
|
$
|
(536
|
)
|
|
$
|
529
|
|
|
$
|
3,899
|
|
|
$
|
(18
|
)
|
|
$
|
3,881
|
|
|
$
|
4,410
|
|
Income tax expense (benefit)
|
|
$
|
(261
|
)
|
|
$
|
(63
|
)
|
|
$
|
(5
|
)
|
|
$
|
(260
|
)
|
|
$
|
1
|
|
|
$
|
(588
|
)
|
|
$
|
(649
|
)
|
|
$
|
(1,237
|
)
|
|
$
|
184
|
|
|
$
|
76
|
|
|
$
|
260
|
|
|
$
|
(977
|
)
|
Earnings (losses) of nonconsolidated affiliates
|
|
$
|
17
|
|
|
$
|
12
|
|
|
$
|
(4
|
)
|
|
$
|
79
|
|
|
$
|
|
|
|
$
|
104
|
|
|
$
|
3
|
|
|
$
|
107
|
|
|
$
|
(5
|
)
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
102
|
|
Income from discontinued operations, net of tax
|
|
$
|
130
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
130
|
|
|
$
|
|
|
|
$
|
130
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
130
|
|
Net income (loss)
|
|
$
|
(537
|
)
|
|
$
|
(126
|
)
|
|
$
|
183
|
|
|
$
|
205
|
|
|
$
|
4
|
|
|
$
|
(271
|
)
|
|
$
|
(25
|
)
|
|
$
|
(296
|
)
|
|
$
|
(173
|
)
|
|
$
|
322
|
|
|
$
|
149
|
|
|
$
|
(147
|
)
|
Investments in nonconsolidated affiliates
|
|
$
|
298
|
|
|
$
|
387
|
|
|
$
|
140
|
|
|
$
|
1,124
|
|
|
$
|
|
|
|
$
|
1,949
|
|
|
$
|
42
|
|
|
$
|
1,991
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,991
|
|
Total assets
|
|
$
|
132,745
|
|
|
$
|
24,170
|
|
|
$
|
4,687
|
|
|
$
|
12,794
|
|
|
$
|
(7,687
|
)
|
|
$
|
166,709
|
|
|
$
|
238
|
|
|
$
|
166,947
|
|
|
$
|
309,730
|
|
|
$
|
(8,642
|
)
|
|
$
|
301,088
|
|
|
$
|
468,035
|
|
Goodwill
|
|
$
|
296
|
|
|
$
|
472
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
768
|
|
|
$
|
|
|
|
$
|
768
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
768
|
|
43
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GM
|
|
|
|
|
|
Auto
|
|
|
Total
|
|
|
Corporate
|
|
|
Excluding
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
LAAM
|
|
|
GMAP
|
|
|
Eliminations
|
|
|
GMA
|
|
|
& Other
|
|
|
FIO
|
|
|
GMAC(a)
|
|
|
Financing
|
|
|
Financing
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
For the Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
82,311
|
|
|
$
|
25,563
|
|
|
$
|
12,555
|
|
|
$
|
11,193
|
|
|
$
|
|
|
|
$
|
131,622
|
|
|
$
|
73
|
|
|
$
|
131,695
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
131,695
|
|
Intersegment
|
|
|
2,016
|
|
|
|
1,257
|
|
|
|
299
|
|
|
|
4,276
|
|
|
|
(7,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
84,327
|
|
|
|
26,820
|
|
|
|
12,854
|
|
|
|
15,469
|
|
|
|
(7,848
|
)
|
|
|
131,622
|
|
|
|
73
|
|
|
|
131,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,695
|
|
Financial services and insurance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,530
|
|
|
|
2,530
|
|
|
|
2,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
$
|
84,327
|
|
|
$
|
26,820
|
|
|
$
|
12,854
|
|
|
$
|
15,469
|
|
|
$
|
(7,848
|
)
|
|
$
|
131,622
|
|
|
$
|
73
|
|
|
$
|
131,695
|
|
|
$
|
|
|
|
$
|
2,530
|
|
|
$
|
2,530
|
|
|
$
|
134,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
4,170
|
|
|
$
|
1,219
|
|
|
$
|
227
|
|
|
$
|
428
|
|
|
$
|
32
|
|
|
$
|
6,076
|
|
|
$
|
27
|
|
|
$
|
6,103
|
|
|
$
|
|
|
|
$
|
1,010
|
|
|
$
|
1,010
|
|
|
$
|
7,113
|
|
Interest income
|
|
$
|
916
|
|
|
$
|
499
|
|
|
$
|
107
|
|
|
$
|
119
|
|
|
$
|
1
|
|
|
$
|
1,642
|
|
|
$
|
(648
|
)
|
|
$
|
994
|
|
|
$
|
|
|
|
$
|
302
|
|
|
$
|
302
|
|
|
$
|
1,296
|
|
Interest expense
|
|
$
|
2,269
|
|
|
$
|
523
|
|
|
$
|
35
|
|
|
$
|
177
|
|
|
$
|
7
|
|
|
$
|
3,011
|
|
|
$
|
(755
|
)
|
|
$
|
2,256
|
|
|
$
|
|
|
|
$
|
561
|
|
|
$
|
561
|
|
|
$
|
2,817
|
|
Income tax expense (benefit)
|
|
$
|
36,354
|
|
|
$
|
2,568
|
|
|
$
|
170
|
|
|
$
|
128
|
|
|
$
|
(12
|
)
|
|
$
|
39,208
|
|
|
$
|
(526
|
)
|
|
$
|
38,682
|
|
|
$
|
46
|
|
|
$
|
77
|
|
|
$
|
123
|
|
|
$
|
38,805
|
|
Earnings (losses) of nonconsolidated affiliates
|
|
$
|
50
|
|
|
$
|
30
|
|
|
$
|
23
|
|
|
$
|
335
|
|
|
$
|
|
|
|
$
|
438
|
|
|
$
|
2
|
|
|
$
|
440
|
|
|
$
|
(874
|
)
|
|
$
|
|
|
|
$
|
(874
|
)
|
|
$
|
(434
|
)
|
Income from discontinued operations, net of tax
|
|
$
|
256
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
256
|
|
|
$
|
|
|
|
$
|
256
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
256
|
|
Gain on sale of discontinued operations, net of tax
|
|
$
|
3,504
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,504
|
|
|
$
|
|
|
|
$
|
3,504
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,504
|
|
Net income (loss)
|
|
$
|
(34,656
|
)
|
|
$
|
(2,647
|
)
|
|
$
|
754
|
|
|
$
|
481
|
|
|
$
|
(23
|
)
|
|
$
|
(36,091
|
)
|
|
$
|
(1,258
|
)
|
|
$
|
(37,349
|
)
|
|
$
|
(779
|
)
|
|
$
|
118
|
|
|
$
|
(661
|
)
|
|
$
|
(38,010
|
)
|
44
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GM
|
|
|
|
|
|
Auto
|
|
|
Total
|
|
|
Corporate
|
|
|
Excluding
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
LAAM
|
|
|
GMAP
|
|
|
Eliminations
|
|
|
GMA
|
|
|
& Other
|
|
|
FIO
|
|
|
GMAC
|
|
|
Financing
|
|
|
Financing
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
For the Nine Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
86,159
|
|
|
$
|
22,888
|
|
|
$
|
10,182
|
|
|
$
|
8,566
|
|
|
$
|
|
|
|
$
|
127,795
|
|
|
$
|
(138
|
)
|
|
$
|
127,657
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
127,657
|
|
Intersegment
|
|
|
1,978
|
|
|
|
1,392
|
|
|
|
470
|
|
|
|
2,464
|
|
|
|
(6,303
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
88,137
|
|
|
|
24,280
|
|
|
|
10,652
|
|
|
|
11,030
|
|
|
|
(6,303
|
)
|
|
|
127,796
|
|
|
|
(139
|
)
|
|
|
127,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,657
|
|
Financial services and insurance revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,143
|
|
|
|
71
|
|
|
|
27,214
|
|
|
|
27,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
$
|
88,137
|
|
|
$
|
24,280
|
|
|
$
|
10,652
|
|
|
$
|
11,030
|
|
|
$
|
(6,303
|
)
|
|
$
|
127,796
|
|
|
$
|
(139
|
)
|
|
$
|
127,657
|
|
|
$
|
27,143
|
|
|
$
|
71
|
|
|
$
|
27,214
|
|
|
$
|
154,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
4,203
|
|
|
$
|
1,278
|
|
|
$
|
168
|
|
|
$
|
295
|
|
|
$
|
24
|
|
|
$
|
5,968
|
|
|
$
|
16
|
|
|
$
|
5,984
|
|
|
$
|
4,389
|
|
|
$
|
(1,680
|
)
|
|
$
|
2,709
|
|
|
$
|
8,693
|
|
Interest income
|
|
$
|
1,014
|
|
|
$
|
383
|
|
|
$
|
68
|
|
|
$
|
82
|
|
|
$
|
|
|
|
$
|
1,547
|
|
|
$
|
(1,063
|
)
|
|
$
|
484
|
|
|
$
|
2,003
|
|
|
$
|
(498
|
)
|
|
$
|
1,505
|
|
|
$
|
1,989
|
|
Interest expense
|
|
$
|
2,440
|
|
|
$
|
486
|
|
|
$
|
114
|
|
|
$
|
164
|
|
|
$
|
|
|
|
$
|
3,204
|
|
|
$
|
(1,343
|
)
|
|
$
|
1,861
|
|
|
$
|
11,735
|
|
|
$
|
(45
|
)
|
|
$
|
11,690
|
|
|
$
|
13,551
|
|
Income tax expense (benefit)
|
|
$
|
(2,486
|
)
|
|
$
|
(37
|
)
|
|
$
|
80
|
|
|
$
|
96
|
|
|
$
|
(1
|
)
|
|
$
|
(2,348
|
)
|
|
$
|
(1,277
|
)
|
|
$
|
(3,625
|
)
|
|
$
|
767
|
|
|
$
|
335
|
|
|
$
|
1,102
|
|
|
$
|
(2,523
|
)
|
Earnings (losses) of nonconsolidated affiliates
|
|
$
|
122
|
|
|
$
|
29
|
|
|
$
|
5
|
|
|
$
|
279
|
|
|
$
|
|
|
|
$
|
435
|
|
|
$
|
5
|
|
|
$
|
440
|
|
|
$
|
(9
|
)
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
$
|
431
|
|
Income from discontinued operations, net of tax
|
|
$
|
350
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
350
|
|
|
$
|
|
|
|
$
|
350
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
350
|
|
Net income (loss)
|
|
$
|
(4,668
|
)
|
|
$
|
(106
|
)
|
|
$
|
362
|
|
|
$
|
1,073
|
|
|
$
|
(1
|
)
|
|
$
|
(3,340
|
)
|
|
$
|
(333
|
)
|
|
$
|
(3,673
|
)
|
|
$
|
1,109
|
|
|
$
|
(364
|
)
|
|
$
|
745
|
|
|
$
|
(2,928
|
)
|
|
|
|
(a) |
|
Refer to Note 5 for summarized financial information of
GMAC for the three and nine months ended September 30, 2007. |
|
|
Note 18.
|
Transactions
with GMAC
|
We have 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 their related financial statement
effects that occurred between GM and GMAC for the three and nine
months ended September 30, 2007 that have not been
eliminated in our Condensed Consolidated Financial Statements.
Marketing
Incentives and Operating Lease Residuals
As a marketing incentive, we 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 we 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, we pay 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, we pay 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 our standard MSRP (manufacturers suggested retail
price) value.
Under the residual support program, the customers
contractual residual value is adjusted above GMACs
standard residual values. We reimburse 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, we agreed to begin payment of the present value
of the expected residual support owed to GMAC
45
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
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, we may
be obligated to pay GMAC or GMAC may be obliged to reimburse us.
At September 30, 2007 the maximum additional amount that
could be paid by us under the residual support program is
$903 million. Our 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. As of September 30, 2007, we have
a total reserve of $92 million based on our estimated
required future payments to GMAC associated with the residual
support program.
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 we compensate 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. We
make 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 are 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, we
also participate in a risk sharing arrangement that was amended
on November 30, 2006 and applies to all new lease
contracts. We are 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. We 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
September 30, 2007, the maximum amount guaranteed under the
risk sharing arrangement is $978 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. As of
September 30, 2007, we have a total reserve of
$123 million based on our estimated future payments to GMAC
associated with the risk sharing arrangement.
In accordance with our revenue recognition accounting policy,
the marketing incentives, apart from the lease pull-ahead
programs, as well as the risk sharing arrangement, are recorded
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
recorded as reductions to Automotive sales when the specific
lease pull-ahead program is announced. We paid $1.4 billion
and $3.5 billion under these programs during the three and
nine months ended September 30, 2007, respectively.
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 us certain U.S. lease
assets, along with related debt and other assets. GMAC retained
an investment in a note, which had a balance of
$373 million at September 30, 2007, and is secured by
the lease assets transferred to us. GMAC continues to service
the leased assets and related debt on our behalf and receives 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
46
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
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, we 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.
Exclusivity
Arrangement
Subject to GMACs fulfillment of certain conditions, we
have 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 us 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 our customers and dealers
consistent with historical practices. The amount of exclusivity
fee revenue recognized by us for the three and nine months ended
September 30, 2007 was $26 million and
$79 million, respectively.
Marketing
Service Agreement
GM and GMAC have entered into a 10 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
10 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 and nine months ended
September 30, 2007 was $5 million and
$14 million, respectively.
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.
47
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Balance
Sheet
A summary of the balance sheet effects of transactions with GMAC
at September 30, 2007 is as follows (dollars in millions):
|
|
|
|
|
Assets:
|
|
|
|
|
Accounts and notes receivable(a)
|
|
$
|
1,758
|
|
Other assets(b)
|
|
|
39
|
|
Liabilities:
|
|
|
|
|
Accounts payable(c)
|
|
|
643
|
|
Short-term borrowings and current portion of long-term debt(d)
|
|
|
2,935
|
|
Accrued expenses(e)
|
|
|
44
|
|
Long-term debt(f)
|
|
|
284
|
|
|
|
|
(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) |
|
Primarily represents distributions due from GMAC on GMs
Preferred Membership Interests. |
|
(c) |
|
Represents amounts accrued with respect to interest rate
support, capitalized cost reduction, residual support and lease
pull-ahead programs and 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 us or in which we have 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 we
retain 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 us and a note related to the overpayment of
$317 million of income taxes by GMAC. These taxes were paid
by GMAC to us 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
us discussed in (d) above. |
48
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
Statement
of Operations
A summary of the income statement effects of transactions with
GMAC is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Net sales and revenue(a)
|
|
$
|
175
|
|
|
$
|
494
|
|
Cost of sales and other expenses
|
|
|
140
|
|
|
|
384
|
|
Automotive interest income and other non-operating income(b)
|
|
|
109
|
|
|
|
321
|
|
Derivatives(c)
|
|
|
14
|
|
|
|
13
|
|
Interest expense(d)
|
|
|
18
|
|
|
|
171
|
|
Servicing expense(e)
|
|
|
39
|
|
|
|
134
|
|
|
|
|
(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 and 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 us. |
|
|
Note 19.
|
Subsequent
Events
|
2007
National Agreement
On October 10, 2007, the 2007 National Agreement between
the UAW and GM and the related Retiree MOU were ratified. The
2007 National Agreement covers the wages, hours and terms and
conditions of employment for the UAW-represented employees, and
the Retiree MOU provides that the responsibility for providing
retiree health care will permanently shift from GM to a new
retiree plan funded by a new independent VEBA. Final
effectiveness of the Retiree MOU is subject to a number of
conditions as described below, but we will begin executing
certain provisions of the Retiree MOU promptly pursuant to its
terms. Following are the key terms and provisions of the Retiree
MOU and the 2007 National Agreement:
Retiree
MOU
The Retiree MOU is subject to class certification and court
approval. Therefore, the parties intend to negotiate and enter
into a detailed settlement agreement and other related
agreements (Final Settlement Documentation) to effect the
transactions contemplated by the Retiree MOU, which will then be
submitted to the United States District Court for the Eastern
District of Michigan for approval. The Final Settlement
Documentation will also require negotiation with and the
approval of counsel retained by the named plaintiffs in the
class action case filed against GM on September 26, 2007 by
the UAW and putative class representatives of GM-UAW retirees
(International Union, UAW, et al. v. General Motors
Corporation, Case: 2:07-cv-14074 (E.D. Mich.)). Certain
other provisions of the Retiree MOU will be carried out after
the date the District Court issues an order approving the
Retiree MOU and the Final Settlement Documentation (Initial
Effective Date), and all provisions of the Retiree MOU will be
effective
49
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
on the later of the date when all appeals from the District
Courts order have been exhausted (Final Effective Date) or
January 1, 2010 (Implementation Date).
The Retiree MOU provides that as of the Implementation Date, we
will transfer our obligations for providing UAW retirees in the
Covered Group with post-retirement medical benefits,
including but not limited to hospital, surgical, medical,
prescription, drug, vision, and, as applicable to a limited
group of retirees, dental coverage, as well as the cost of
administering such benefits and $76.20 of the Medicare
Part B premium (Postretirement Medical Benefits) to a new
retiree health care plan (New Plan) to be established and
maintained by either an independent committee or a joint
labor-management committee and to be funded by a newly
established Voluntary Employee Beneficiary Association trust
(New VEBA). The Covered Group is comprised of:
(1) all members of the class defined in the 2005 UAW Health
Care Settlement Agreement; (2) all future retirees as such
term is defined in the 2005 UAW Health Care Settlement
Agreement; (3) all currently active UAW-represented
employees of GM with seniority as of September 14, 2007 who
retire with eligibility for post-retirement medical coverage;
(4) all UAW retirees from Delphi as of September 14,
2007 who are entitled to GM retiree medical coverage under a
previous agreement negotiated among the UAW, GM, and Delphi
(Delphi MOU); (5) upon their retirement, all active
UAW-represented employees of Delphi or a former Delphi divested
unit who are eligible for GM retiree medical coverage under the
Delphi MOU; (6) all UAW retirees from any other closed or
divested GM-UAW business units as of September 26, 2007 to
the extent GM is responsible for their retiree medical coverage;
and (7) upon retirement after September 26, 2007, all
active UAW-represented employees of any other closed or divested
GM-UAW unit if GM would have responsibility for their retiree
medical coverage. The Covered Group also includes the spouses,
surviving spouses, and dependents of such current or former
GM-UAW employees who are eligible for GM-provided retiree
medical coverage.
Prior to the Implementation Date, we will continue to provide
Postretirement Medical Benefits to UAW retirees and their
eligible spouses, surviving spouses and dependents on the basis
set forth in the 2005 UAW Health Care Settlement Agreement. The
New Plan and the New VEBA, when approved and implemented, will
supersede the terms set forth in the 2005 UAW Health Care
Settlement Agreement, and assume responsibility as of the
Implementation Date for all Post-Retirement Medical Benefits as
of the Implementation Date for the Covered Group for which we
were previously responsible.
The New VEBA will also be established effective on the
Implementation Date under the Retiree MOU and the Final
Settlement Documentation. Funding for the New VEBA will begin
within 10 days after the Final Effective Date, and will
come from a number of sources:
|
|
|
|
|
On January 1, 2008, we will allocate a percentage of the
assets of the General Motors Welfare Benefit Trust (Internal
VEBA) that is equal to the percentage of our OPEB liability
attributable to UAW-associated employees and retirees and their
eligible spouses, surviving spouses and dependents to a separate
account (UAW Related Account), which will also hold the
proportional investment returns on that percentage of the trust.
Effective January 1, 2008 and subject to the termination of
the Retiree MOU, we will not disburse any assets from the UAW
Related Account until the Final Effective Date. We will then
transfer the assets in the UAW Related Account or an amount
equal to the balance in that account to the New VEBA.
|
|
|
|
The assets and liabilities of the Mitigation VEBA
(Note 14) including the remaining $1 billion
contribution to be made by GM in 2011, will be transferred to
the New VEBA after the transfer of assets of the Internal VEBA.
Refer to Note 14.
|
|
|
|
On January 1, 2008, we will establish a temporary asset
account (TAA) and deposit a contingent cash payment equal to the
difference between $18.5 billion and the value of the UAW
Related Account on January 1, 2008. The Final Settlement
Documentation and its court approval will provide that on the
Initial Effective Date, we will also deposit in the TAA:
(1) $3.8 billion (subject to adjustment for payments
under the 2005 UAW Health Care Settlement Agreement) or, at our
discretion, an annual amount as described in
|
50
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
|
|
|
|
|
the amortization schedule under Wages/COLA in
Appendix C to the Retiree MOU; and
(2) $1.8 billion or, at our discretion, an annual
amount as described in the amortization schedule under
Base in Appendix C to the Retiree MOU. We may
prefund such annual payments by paying the applicable buyout
amount provided in Appendix C to the Retire MOU. If we
choose to pay these amounts either in total on the Initial
Effective Date or later by terminating annual payments through
the applicable buyout amount, our payment will include interest
on the amount paid from January 1 of the applicable year through
the date of the deposit.
|
|
|
|
|
|
We will transfer the assets in the TAA related to these deposits
or an amount equal to the balance in the TAA related to these
deposits to the New VEBA after the transfer of the assets and
liabilities of the External VEBA.
|
|
|
|
On January 1, 2008, we will issue into the TAA a five-year
convertible note in the principal amount of $4.4 billion
with 6.75% interest payable semiannually (Convertible Note). We
may call the Convertible Note at any time beginning three years
after issuance. The Convertible Note may be converted into
109,312,500 shares of GM common stock,
$12/3
par value (Converted Stock): (1) if GM provides notice that
we are calling the Convertible Note; (2) within three
months before the maturity date; or (3) if in any quarter,
the closing market price of GM common stock is at least $48.00
for at least 20 trading days of the last 30 trading days in the
preceding calendar quarter. The Final Settlement Documentation
will include an agreement providing that the Convertible Note
may not be sold or hedged before the Implementation Date. After
the Implementation Date the Convertible Note or the Converted
Stock may be sold subject to certain volume restrictions
(maximum 54 million shares per year). After the
Implementation Date, the New VEBA will have the right to demand
registration of one public offering of the Convertible Note or
the Converted Stock per year and to participate in public
offerings of securities by GM, under certain circumstances. In
private transactions, the New VEBA may not sell: (1) a
block of Converted Stock that would be more than 2% of the
outstanding shares of GM common stock to a single buyer; or
(2) any Converted Stock to a holder of more than 5% of the
outstanding shares of GM common stock that has intention to
influence GMs directors or management. The trustee of the
New VEBA will vote Converted Stock held in the New VEBA in the
same proportion as the votes cast by all other stockholders in a
given election. The Trustee may sell the Convertible Note or the
Converted Stock to a tender offeror only if the tender offer has
been recommended by an independent committee of the GM Board of
Directors. After the cash and other investments in the TAA have
been transferred to the New VEBA, the Convertible Note (or
another convertible note with identical terms other than the
date of issuance) will be transferred to the New VEBA, as
permitted by law governing contributions of employer securities
to a benefit plan and a VEBA.
|
|
|
|
On April 1, 2008, we will make an initial contribution of
$165 million to the TAA. Each year beginning in 2009, if
the annual cash flow projection for the New VEBA shows that the
New VEBA will become insolvent within the next 25 years, GM
will deposit $165 million by April 1 of that year
(Shortfall Amount Contribution) into the TAA or, after the
Implementation Date, into the New VEBA, provided that we will
not make more than 19 Shortfall Amount Contributions (not
including the payment on April 1, 2008 referred to in the
previous sentence). At any time, we may prefund all future
annual Shortfall Amount Contributions by paying the applicable
buyout amount provided in Appendix C of the Retiree MOU. We
will transfer the assets in the TAA related to the initial
$165 million deposit and additional Shortfall Amount
Contributions deposited in the TAA or an amount equal to the
balance in the TAA related to such deposit and Shortfall Amount
Contributions to the New VEBA in conjunction with the transfer
to the New VEBA.
|
In the Retiree MOU, the UAW and GM acknowledged that our
obligations are fixed and capped and that we are not responsible
for, and do not provide a guarantee of: (1) the payment of
future benefits to plan participants; (2) the asset returns
of the funds in the TAA or the New VEBA; or (3) whether
there will be sufficient assets in the New VEBA to fully pay the
obligations of the New VEBA or New Plan. In the event the assets
of the New VEBA are not
51
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Concluded)
sufficient to fully fund the obligations of the New Plan, the
New VEBA and New Plan will be required to reduce benefits to
plan participants.
In the Retiree MOU, GM and the UAW agreed to amend GMs
hourly pension plan on the Final Effective Date to provide GM
retirees and surviving spouses who are members of the Covered
Group and receiving a GM pension benefit with a flat monthly
special lifetime benefit of $66.70, commencing on the first
month following the Final Effective Date. This special lifetime
benefit is intended to serve as cost pass-through to the New
VEBA of an after-tax increase in the monthly contribution
applicable to Post-Retirement Medical Benefits under the New
Plan for the Covered Group. As a result, the New Plan will
assess an additional monthly contribution of $51.67 to the
Covered Group for retiree medical coverage.
Other
Items
The 2007 National Agreement also established a new wage and
benefit package for new hires (Tier II Wage) in certain
non-core positions including material movement, kitting and
sequencing and housekeeping. New hires in Tier II Wage
positions will receive base wages of approximately $15.30 per
hour versus $28.12 per hour for existing employees. In addition,
these new hires will have higher cost sharing arrangements for
active healthcare coverage, a Cash Balance pension plan and
receive $1 per hour in 401(k) contributions in lieu of a defined
benefit postretirement medical benefit plan. The agreement
provides lump sum payments of $3,000 in 2007 and 3%, 4% and 3%
of wages in 2008, 2009 and 2010, respectively. The lump sum
payments will each be amortized over a one year period. Also,
pension benefit increases and lump sum payments to retirees and
covered employees of Delphi as defined in Note 10 were
provided, which is estimated to increase our December 31,
2007 projected benefit obligation by $4.3 billion. These
estimated increases in pension benefits also include increases
to non-UAW hourly employees that historically have followed UAW
contract provisions.
Conversion
of Preferred Membership Interests in GMAC LLC
As described in Note 5, in connection with the GMAC
Transaction, 1,555,000 Preferred Membership Interests in GMAC
(Preferred Interests) were acquired by GMs indirect wholly
owned subsidiary GM Preferred Finance Co. Holdings Inc. (GM
Finance). Effective November 1, 2007, 533,236 of the
Preferred Interests held by GM Finance were converted into 3,912
Class B Membership Interests in GMAC (Class B
Interests), in the interest of strengthening GMACs capital
position. Following this transaction (Preferred Conversion), GM
subsidiaries hold in the aggregate 1,021,764 Preferred Interests
and 52,912 Class B Interests. The Preferred Conversion did
not change our indirect ownership of 49% percentage of
GMACs Common Membership Interests; FIM Holdings LLC
continues to hold the remaining 51%.
52
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
General Motors Corporation (GM) is primarily engaged in the
worldwide development, production, and marketing of automobiles.
We develop, manufacture and market 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). Our
finance and insurance operations are primarily conducted through
GMAC, the successor to General Motors Acceptance Corporation
(together with GMAC LLC, GMAC), a wholly-owned subsidiary until
the end of November 2006 when we sold a 51% controlling
ownership interest in GMAC to a consortium of investors (the
GMAC Transaction). Since the GMAC Transaction, we have accounted
for our 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, we discuss 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.
In August 2007, we completed the sale of the commercial and
military operations of our Allison Transmission (Allison)
business. The negotiated purchase price of $5.6 billion in
cash plus assumed liabilities was paid on closing. The purchase
price was subject to adjustment based on the amount of
Allisons net working capital and debt on the closing date.
Subsequently, we advanced $200 million to the buyer as a
preliminary purchase price adjustment resulting in an adjusted
purchase price of $5.4 billion. We currently anticipate
that the final purchase price adjustment will be made in the
fourth quarter of 2007. A gain on the sale of Allison in the
amount of $5.3 billion ($3.5 billion after-tax),
inclusive of the preliminary purchase price adjustments, was
recognized in the three and nine months ended September 30,
2007. Allison, formerly a division of GMs Powertrain
Operations, is a global leader in the design and manufacture of
commercial and military automatic transmissions and a premier
global provider of commercial vehicle automatic transmissions
for on-highway, including trucks, specialty vehicles, buses and
recreational vehicles, off-highway and military vehicles, as
well as hybrid propulsion systems for transit buses. GM
Powertrain Operations facility near Baltimore, which
manufactures automatic transmissions primarily for GM trucks and
hybrid propulsion systems, was retained by us. The results of
operations and cash flows of Allison have been reported in the
Condensed Consolidated Financial Statements as discontinued
operations for all periods presented. Historically, Allison had
been reported in the North America Automotive business.
Financial
Results
During the third quarter of 2007, we established a valuation
allowance of $39 billion against our net deferred tax
assets in the U.S., Canada and Germany. Such valuation allowance
and charges associated with a reduction in the German business
tax rate were the primary reasons for an increase in income tax
expense. Accordingly, consolidated net loss was $39 billion
and $38 billion for the three and nine months ended
September 30, 2007, respectively. Loss from continuing
operations before income taxes, other equity income and minority
interests was $3.3 billion for the third quarter of 2007,
compared to $1.2 billion for 2006. For the first nine
months of 2007, loss from continuing operations before income
taxes, other equity income and minority interests was
$3 billion, compared to $6 billion in 2006.
Consolidated net sales and revenue was $43.8 billion for
the three months ended September 30, 2007 as compared to
$48.9 billion during the three months ended
September 30, 2006. For the nine months ended
September 30, 2007, our consolidated net sales and revenues
were $134.2 billion, a decrease of $20.7 billion, or
13.3% below the $154.9 billion for the nine months ended
September 30, 2006. Since the sale of a 51% controlling
interest in GMAC on November 30, 2006, we began accounting
for our remaining interest in GMAC using the equity method.
Therefore, our consolidated results reflect our 49% share of the
operating results of GMAC on an
53
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
equity basis for the three and nine months ended
September 30, 2007 as compared to the operating results of
GMAC on a consolidated basis for the comparable periods in 2006.
A discussion of our regional automotive operating results and
Finance and Insurance Operations financial review follows.
Strategy
As previously described in more detail in our Annual Report on
Form 10-K
for the 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: (1) achieve and
sustain product excellence; (2) revitalize our sales and
marketing strategy; (3) accelerate cost reductions and
quality improvements; and (4) address our 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 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.
Beginning in 2007, we are on track to achieve our announced
target of reducing our annual structural costs in GMNA and
Corporate and Other by $9 billion, on average, less than
those costs in 2005. In October 2007, we entered into a new
collective bargaining agreement (2007 National Agreement) with
the International Union, United Automotive, Aerospace and
Agricultural Implement Workers of America (UAW), including a
Memorandum of Understanding Post-Retirement Medical
Benefits (Retiree MOU) that we anticipate will significantly
support our structural cost reduction plans. We remain focused
on repositioning our business for long-term competitiveness,
including achieving a successful resolution to the issues
related to the bankruptcy proceedings of Delphi Corporation
(Delphi), a major supplier and former subsidiary. We recognize,
however, that in the near term continuing weakness in the
U.S. automotive market, and its impact on Canadian
operations that are linked to the U.S. market, will provide
a significant challenge to improving earnings and cash flow, and
could constrain our ability to achieve future revenue goals.
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 these
emerging markets, and to pursue additional growth opportunities
through our relationships with Shanghai General Motors Co., Ltd.
(Shanghai GM), GM Daewoo Auto & Technology Company (GM
Daewoo) and other potential strategic partners, such as recently
announced joint ventures in Malaysia and Uzbekistan. During the
nine months ended September 30, 2007, key metrics such as
net margin, operating income and market share show continued
growth across key emerging markets. We believe that growth in
these emerging markets will help to offset challenging near-term
market conditions in mature markets, such as the U.S. and
Germany.
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. We have been focusing on restructuring our
operations and have 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
54
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
technologies which utilize alternative fuels and have
intensified our efforts to displace traditional petroleum-based
fuels. In September 2007, we launched Project Driveway, which
will make more than 100 Chevrolet Equinox fuel cell electric
vehicles available for driving by the public in the vicinity of
Los Angeles, New York City, and Washington D.C. During the
fourth quarter of 2007 we plan to introduce new 2-mode hybrid
models of the Chevrolet Tahoe and the GMC Yukon.
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. In August 2007, we completed the sale of
the commercial and military business of Allison for
$5.4 billion in cash, and in the second quarter of 2007, we
received $1.4 billion from a public offering of convertible
securities. While implementing the Retiree MOU will require a
significant initial investment of cash, as well as a limited
amount of additional payments over time, we anticipate that the
cost reductions resulting from the 2007 National Agreement and
the Retiree MOU will improve our cash flow in the long term.
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 16 to the Condensed
Consolidated Financial Statements and should be read in
conjunction with our 2006
Form 10-K.
Additionally, the Condensed Consolidated Financial Statements
have been further adjusted as we have sold the commercial and
military operations of Allison. The operations and cash flows of
Allison have been reported as discontinued operations for all
periods presented. For additional information relating to the
sale of Allison, refer to Note 3 to the Condensed
Consolidated Financial Statements.
We operate in two businesses, consisting of Automotive (GM Auto
or GMA) and Financing and Insurance Operations (FIO).
Our Auto business consists of GMNA, GME, GMLAAM, GMAP and
intra-segment eliminations classified within Auto Eliminations,
which collectively constitute GM Automotive (GMA).
For the three and nine months ended September 30, 2007, our
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 us having a net book value of $3.4 billion, as
well as the elimination of intercompany transactions with GM
Automotive and Corporate and Other. For the three and nine
months ended September 30, 2006, our FIO business consisted
of the consolidated operating results of GMACs lines of
business as follows: Automotive Finance Operations, Mortgage
Operations, Insurance, and Other, which included 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.
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.
55
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Consolidated
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
(Dollars in millions)
|
|
|
Net sales and revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
$
|
43,134
|
|
|
$
|
39,612
|
|
|
$
|
131,695
|
|
|
$
|
127,657
|
|
Financial services and insurance revenue
|
|
|
700
|
|
|
|
9,280
|
|
|
|
2,530
|
|
|
|
27,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
|
43,834
|
|
|
|
48,892
|
|
|
|
134,225
|
|
|
|
154,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
41,540
|
|
|
|
37,184
|
|
|
|
122,210
|
|
|
|
124,598
|
|
Selling, general and administrative expense
|
|
|
3,601
|
|
|
|
3,155
|
|
|
|
10,205
|
|
|
|
9,740
|
|
Financial services and insurance expense
|
|
|
640
|
|
|
|
7,596
|
|
|
|
2,334
|
|
|
|
23,608
|
|
Other expenses
|
|
|
350
|
|
|
|
1,943
|
|
|
|
925
|
|
|
|
3,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(2,297
|
)
|
|
|
(986
|
)
|
|
|
(1,449
|
)
|
|
|
(6,226
|
)
|
Equity in loss of GMAC LLC
|
|
|
(809
|
)
|
|
|
|
|
|
|
(874
|
)
|
|
|
|
|
Automotive interest and other income (expense)
|
|
|
(232
|
)
|
|
|
(219
|
)
|
|
|
(721
|
)
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, other
equity income and minority interests
|
|
|
(3,338
|
)
|
|
|
(1,205
|
)
|
|
|
(3,044
|
)
|
|
|
(5,994
|
)
|
Income tax expense (benefit)
|
|
|
39,186
|
|
|
|
(977
|
)
|
|
|
38,805
|
|
|
|
(2,523
|
)
|
Equity income (loss) and minority interests, net of tax
|
|
|
12
|
|
|
|
(49
|
)
|
|
|
79
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(42,512
|
)
|
|
|
(277
|
)
|
|
|
(41,770
|
)
|
|
|
(3,278
|
)
|
Income from discontinued operations, net of tax
|
|
|
3,549
|
|
|
|
130
|
|
|
|
3,760
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(38,963
|
)
|
|
$
|
(147
|
)
|
|
$
|
(38,010
|
)
|
|
$
|
(2,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net margin from continuing operations
|
|
|
(97
|
)%
|
|
|
(.6
|
)%
|
|
|
(31.1
|
)%
|
|
|
(2.1
|
)%
|
Our consolidated net sales and revenue was $43.8 billion in
the third quarter of 2007 compared to $48.9 billion in the
third quarter of 2006. The reduction in total net sales and
revenue was primarily due to our sale of a 51% controlling
ownership interest in GMAC in November of 2006. Automotive sales
increased $3.5 billion in the third quarter compared to
2006, reflecting our global growth outside North America.
Operating loss increased by $1.3 billion compared to 2006,
to $2.3 billion in the third quarter of 2007, driven
largely by additional pension expense of $1.6 billion
resulting from a change in the amortization period for prior
service cost. Our loss from continuing operations was
$42.5 billion for the third quarter of 2007, an increase of
$42.2 billion from the third quarter of 2006 primarily as a
result of the valuation allowance established against deferred
tax assets in the U.S., Canada and Germany. Net loss for the
third quarter of 2007 was $39 billion, reflecting increased
income tax expense due to the establishment of a valuation
allowance against deferred tax assets offset by a gain of
$3.5 billion from the sale of Allison, compared to a net
loss of $147 million in 2006. Further information on each
of our businesses and geographic regions is presented below.
Our consolidated net sales and revenue for the nine months ended
September 30, 2007 and 2006 was $134.2 billion and
$154.9 billion, respectively. The net reduction in revenue
was due to our sale of a 51% controlling ownership interest in
GMAC in November of 2006, while automotive sales increased
$4 billion. Operating loss was $1.4 billion, compared
to a loss of $6.2 billion, for the nine months ended
September 30, 2007 and 2006, respectively, reflecting
improved automotive results. Our loss from continuing operations
was $41.8 billion for the nine months ended
September 30, 2007 and $3.3 billion for the
corresponding period in 2006. Net loss for the first nine months
of 2007 was $38 billion, compared to a net loss of
$2.9 billion in 2006. The nine months results reflect
56
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
increased income tax expense related to the establishment of a
valuation allowance against deferred tax assets in the U.S.,
Canada and Germany.
Since our sale of a 51% controlling ownership interest in GMAC
in November 2006, we have accounted for our 49% ownership
interest in GMAC using the equity method. Therefore, our
consolidated results reflect its 49% share of the operating
results of GMAC on an equity basis for the three and nine months
ended September 30, 2007, compared to the operating results
of GMAC on a consolidated basis for the comparable periods of
2006. Revenue and net loss related to GMACs operations
included in our consolidated results in the third quarter of
2006 were $9.3 billion and $173 million, respectively.
For the nine months ended September 30, 2006, revenue and
net income related to GMACs operations included in our
consolidated results were $27.1 billion and
$1.1 billion, respectively.
Changes
in Consolidated Financial Condition
Deferred
income taxes
In the third quarter of 2007, we recorded a charge of
$39 billion related to establishing full valuation
allowances against our deferred tax assets in the U.S., Canada
and Germany. In accordance with SFAS No. 109,
Accounting for Income Taxes
(SFAS No. 109), we evaluate our deferred income taxes
quarterly to determine if valuation allowances are required.
SFAS No. 109 requires that companies assess whether
valuation allowances should be established against their
deferred tax assets based on the consideration of all available
evidence using a more likely than not standard. In
making such judgments, significant weight is given to evidence
that can be objectively verified. As previously disclosed in our
2006
Form 10-K,
we had determined in prior periods that valuation allowances
were not necessary for our deferred tax assets in the U.S.,
Canada and Germany based on several factors including:
(1) the degree to which our three-year historical
cumulative losses were attributable to unusual items or charges,
several of which were incurred as a result of actions to improve
future profitability; (2) the long duration of our deferred
tax assets; and (3) the expectation of continued strong
earnings at GMAC and improved earnings in GMNA.
We believe that a valuation allowance is now required due to
events and developments that occurred during the third quarter
of 2007. In conducting our third quarter 2007 analysis, we
utilized a consistent approach which considers our three-year
historical cumulative income (loss) including an assessment of
the degree to which any losses were driven by items that are
unusual in nature and incurred in order to improve future
profitability. In addition, we reviewed changes in near-term
market conditions and any other factors arising during the
period which may impact our future operating results. We
consider both positive and negative evidence in our analysis.
Our analysis for the third quarter of 2007 showed that we have a
three-year historical cumulative loss in the U.S., Canada and
Germany. This loss continued to exist even after adjusting our
results to remove unusual items and charges, which is considered
a significant factor in our analysis as it is objectively
verifiable and therefore, significant negative evidence. This
was coupled with other significant factors which all occurred in
the third quarter of 2007. The ongoing weakness at GMAC related
to its Residential Capital, LLC (ResCap) mortgage business
resulting in substantial U.S. losses incurred in the third
quarter of 2007. Further, the outlook for ResCap and the
mortgage industry in general became highly uncertain, with
significantly reduced near-term forecast profitability. In
addition, in both the U.S. and Germany near-term automotive
market conditions were more challenging than we believed in the
second quarter of 2007. This, when combined with the pressures
of the residential mortgage business, resulted in lower
projected earnings in the near-term than we previously
anticipated. We also noted that in the near-term a greater
percentage of our deferred tax assets were going to be subject
to expiration (e.g. 20 years) than in prior periods
primarily due to changes associated with the Retiree MOU, which
accelerates our tax deductions for OPEB liabilities when
compared to our previously expected timing for these deductions.
Accordingly, based on a three year historical cumulative loss,
combined with significant and inherent uncertainty as to the
timing of when we would be able to generate the necessary level
of earnings to recover our deferred tax assets in the U.S.,
Canada and Germany, we concluded that a full valuation allowance
was required.
57
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Accounts
and notes receivable, net
Accounts and notes receivable were $10.7 billion at
September 30, 2007 compared to $8.2 billion at
December 31, 2006, an increase of $2.5 billion or
30.6%. This increase is primarily due to lower receivable
balances at GMNA of $1.6 billion as of December 31,
2006, as a result of the seasonal plant shutdowns during the
last two weeks of the year that significantly reduce shipments
for the period, while we continue to collect outstanding
receivables. GME, GMLAAM and GMAP contributed an additional
$275 million, $200 million and $50 million to the
increased receivables balance due to increased unit sales.
GMAPs receivables balance increased an additional
$100 million, primarily due to increased dividends
receivable from our non consolidated affiliate, Shanghai GM.
Inventories
Inventories at September 30, 2007 were $15.5 billion
compared to $13.9 billion at December 31, 2006, an
increase of $1.6 billion or 11.5%. The increase in
inventories at September 30, 2007 is primarily due to
increases in finished product of $550 million at GME and
$550 million at GMAP, together with mix and currency
effects. Additionally, GMLAAM and GMNA inventory balances
increased $200 million and $150 million, respectively,
in order to support higher sales forecasts for the rest of the
year. GMNA and GME have also increased their raw materials
balance by $600 million and $200 million to support
future production. These increases in the inventory balance have
been offset by a reduction of daily rental repurchase inventory
at GMNA of $300 million.
Financing
equipment on operating leases, net
Equipment on operating leases, net, at September 30, 2007
was $7.9 billion compared to $11.8 billion at
December 31, 2006, a decrease of $3.9 billion or
33.4%. The decrease is due to the termination of vehicle leases
that are not being replaced.
Automotive
accounts payable (principally trade)
Automotive accounts payable at September 30, 2007 were
$30.5 billion compared to $26.9 billion at
December 31, 2006, an increase of $3.6 billion or
13.3%. The increase in accounts payable related to volume
increases at each of the regions as follows: GMNA,
$1.5 billion; GME, $175 million; GMLAAM,
$350 million; and GMAP, $300 million, together with
mix and currency effects. During the year-end shutdown period
purchasing is significantly reduced while GM continues to pay
suppliers on their normal payment terms.
Financing
debt
Financing debt at September 30, 2007 was $6 billion
compared to $9.4 billion at December 31, 2006, a
decrease of $3.5 billion or 36.8%. 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.
Financing
other liabilities and deferred income taxes
Financing other liabilities and deferred income taxes at
September 30, 2007 was $1.7 billion compared to
$2.1 billion at December 31, 2006, a decrease of
$.5 billion or 22.1%. The decrease is related primarily to
a $1 billion payment to GMAC for amounts owed under the
GMAC sales agreement to restore their tangible equity balance to
$14.4 billion.
58
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Operations Financial Review
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
43,106
|
|
|
$
|
39,652
|
|
|
$
|
131,622
|
|
|
$
|
127,796
|
|
Automotive cost of sales
|
|
|
41,224
|
|
|
|
37,219
|
|
|
|
121,781
|
|
|
|
124,289
|
|
Selling, general and administrative expense
|
|
|
3,300
|
|
|
|
3,040
|
|
|
|
9,578
|
|
|
|
9,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(1,418
|
)
|
|
|
(607
|
)
|
|
|
263
|
|
|
|
(5,734
|
)
|
Automotive interest and other expense, net
|
|
|
(231
|
)
|
|
|
(335
|
)
|
|
|
(990
|
)
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, other equity income and minority
interests
|
|
|
(1,649
|
)
|
|
|
(942
|
)
|
|
|
(727
|
)
|
|
|
(6,225
|
)
|
Income tax expense (benefit)
|
|
|
38,973
|
|
|
|
(588
|
)
|
|
|
39,208
|
|
|
|
(2,348
|
)
|
Equity income (loss) and minority interests, net of tax
|
|
|
17
|
|
|
|
(47
|
)
|
|
|
84
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(40,605
|
)
|
|
|
(401
|
)
|
|
|
(39,851
|
)
|
|
|
(3,690
|
)
|
Income from discontinued operations
|
|
|
3,549
|
|
|
|
130
|
|
|
|
3,760
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(37,056
|
)
|
|
$
|
(271
|
)
|
|
$
|
(36,091
|
)
|
|
$
|
(3,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net margin from continuing operations
|
|
|
(94.2
|
)%
|
|
|
(1
|
)%
|
|
|
(30.3
|
)%
|
|
|
(2.9
|
)%
|
|
|
|
|
|
(Volume in thousands)
|
GM production volume(1)
|
|
|
2,156
|
|
|
|
2,072
|
|
|
|
6,906
|
|
|
|
6,907
|
|
Vehicle unit sales(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
17,376
|
|
|
|
16,475
|
|
|
|
53,029
|
|
|
|
50,830
|
|
GM
|
|
|
2,387
|
|
|
|
2,295
|
|
|
|
7,061
|
|
|
|
6,893
|
|
GM as a % of industry
|
|
|
13.7
|
%
|
|
|
13.9
|
%
|
|
|
13.3
|
%
|
|
|
13.6
|
%
|
|
|
|
(1) |
|
Production volume represents the number of vehicles manufactured
from GMs assembly facilities, and also includes vehicles
produced by certain joint ventures. |
|
(2) |
|
Vehicle unit sales primarily represent sales to the ultimate
customer. |
Our management evaluates our Automotive business and makes
certain decisions using supplemental categories for variable
expenses and non-variable expenses. We believe these categories
provide management with useful information and that 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 our
management to assess the cost performance of GMA. Our management
uses these categories to evaluate our expenses and believes
these categories allow our management to readily view operating
trends, perform analytical comparisons, benchmark expenses among
geographic regions and assess whether the turnaround and
globalization strategy for reducing costs are on target. We use
these categories for forecasting purposes, evaluating management
and determining our future capital investment allocations.
Accordingly, we believe these categories are useful to investors
in allowing for greater transparency of supplemental information
used by management in our financial and operational
decision-making.
While we believe 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
59
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
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 expense. We
compensate for these limitations by using these categories as
supplements to Automotive cost of sales and Selling, general and
administrative expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in billions)
|
|
|
Total net sales and revenue
|
|
$
|
43.1
|
|
|
$
|
39.7
|
|
|
$
|
131.6
|
|
|
$
|
127.8
|
|
Contribution costs(a)
|
|
|
29.6
|
|
|
|
27.9
|
|
|
|
91.0
|
|
|
|
88.8
|
|
Structural costs(b)
|
|
|
13.2
|
|
|
|
12.3
|
|
|
|
38.4
|
|
|
|
38.2
|
|
Impairment, restructuring and other charges(c)
|
|
|
1.7
|
|
|
|
.1
|
|
|
|
2.0
|
|
|
|
6.5
|
|
|
|
|
(a) |
|
Contribution costs are expenses that vary with production. The
amount of contribution costs included in Automotive cost of
sales is $29.3 billion and $27.6 billion in the third
quarters of 2007 and 2006, respectively. These costs consist
primarily of material costs, freight and policy and warranty
expenses. The amount of contribution costs classified in
Selling, general and administrative expense is $.3 billion
in the third quarters of both 2007 and 2006, which were incurred
primarily in connection with our dealer advertising programs.
The amount of contribution costs included in Automotive cost of
sales is $90.2 billion and $88 billion in the first
nine months of 2007 and 2006, respectively. For the nine months
ended September 30, 2007 and 2006, $.8 billion of
contribution costs related primarily to advertising, were
included in Selling, general and administrative expense. |
|
(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
expense. Such costs include manufacturing labor, pension and
other postretirement employee benefits (OPEB) costs, engineering
expense and marketing related costs. Certain costs related to
restructuring and impairments that are included in Automotive
cost of sales are also excluded from structural costs. The
amount of structural costs included in Automotive cost of sales
was $10.2 billion and $9.5 billion in the third
quarters of 2007 and 2006, respectively, and the amount of
structural costs included in Selling, general and administrative
expense was $3 billion in 2007 and $2.8 billion in
2006. The amount of structural costs included in Automotive cost
of sales was $29.6 billion and $29.8 billion in the
first nine months of 2007 and 2006, respectively, and the amount
of structural costs included in Selling, general and
administrative expense was $8.8 billion and
$8.4 billion in the same respective periods. |
|
(c) |
|
The amount of impairment, restructuring and other charges
included in Automotive cost of sales was $1.7 billion and
$.1 billion in the third quarters of 2007 and 2006,
respectively, and $2 billion and $6.5 billion for the
nine months ended September 30, 2007 and 2006,
respectively. See below for further discussion. |
Industry
Global Vehicle Sales
Worldwide industry vehicle unit sales increased
901,000 units during the three months ended
September 30, 2007, to 17.4 million units, compared to
16.5 million units during the three months ended
September 30, 2006. North America industry sales decreased
by 291,000 units, to 5 million units during the three
months ended September 30, 2007, compared to
5.2 million units during the three months ended
September 30, 2006, due to weakness in the
U.S. economy resulting from a decline in housing and
mortgage markets and volatile fuel prices. All other regions
experienced growth in industry unit volume compared to 2006,
with the Asia Pacific region up 473,000 units to
5 million units in 2007, European region up
427,000 units to 5.5 million units in 2007 and Latin
America/Africa/Mid-East region up 294,000 units, to
1.9 million units in 2007.
For the nine months ended September 30, 2007, worldwide
industry vehicle unit sales increased 2.2 million units to
53 million units, compared to 50.8 million units
during the nine months ended September 30, 2006. North
60
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
America industry sales decreased by 465,000 units, to
14.9 million units during the nine months ended
September 30, 2007. All other regions experienced growth in
industry unit volume compared to 2006, with the Asia Pacific
region up 1.2 million units, Latin America/Africa/Mid-East
region up 757,000 units and European region up
699,000 units in 2007.
GM
Global Vehicle Sales
Worldwide GM vehicle unit sales were a third quarter record
2.4 million units, an increase of 92,000 units
compared to the three months ended September 30, 2006. GME,
GMLAAM and GMAP all reported sales unit increases and record
third quarter sales, while sales declined in GMNA. Market share
declined in GMNA due to planned reductions in sales to rental
car fleet customers and lower retail truck sales as demand
shifted to cars due to higher fuel prices. This decline was
partially offset by market share gains in GME, GMLAAM and GMAP,
so that global market share for GM was 13.7% compared to 13.9%
during the three months ended September 30, 2006.
For the nine months ended September 30, 2007, worldwide GM
vehicle unit sales increased 168,000 units, to
7.1 million units, compared to 6.9 million units for
the nine months ended September 30, 2006. Increases at GME,
GMLAAM and GMAP more than offset a sales decline in GMNA. For
the first nine months of 2007, global market share for GM was
13.3% compared to 13.6% for the nine months ended
September 30, 2006. As in the third quarter of 2007, market
share declines in GMNA were partially offset by market share
gains in GME, GMLAAM and GMAP.
GM global production volume for the three months ended
September 30, 2007 was 2.2 million units, an increase
of 84,000 units from the three months ended
September 30, 2006. Production at GMAP, GMLAAM and GME
increased by 56,000 units, 36,000 units and
22,000 units, respectively, more than offsetting a decline
of 30,000 units at GMNA related primarily to the two day
UAW strike in September 2007.
For the nine months ended September 30, 2007, GMs
global production volume was 6.9 million units, a decrease
of 1,000 units from the comparable period in 2006. A
decrease at GMNA of 317,000 units was nearly offset by
increases at GMAP, GMLAAM and GME of 217,000 units,
91,000 units and 8,000 units, respectively.
Total
Net Sales and Revenue
Total net sales and revenue was $43.1 billion in the third
quarter of 2007, an increase of $3.5 billion from the
comparable prior period resulting from higher vehicle sales to
dealers. Revenue improved at GME, GMLAAM and GMAP, driven
largely by higher volume, while revenue at GMNA declined
slightly. Net pricing was also positive at GMNA, GME and GMLAAM,
and the weak U.S. dollar against most foreign currencies
had a favorable effect on global revenue.
Total net sales and revenue for GMA was $131.6 billion for
the nine months ended September 30, 2007, an increase of
$3.8 billion from the comparable period of 2006. This
increase was driven by a significant revenue increase in GMAP,
with increases also in GME and GMLAAM, partly offset by a
decrease in revenue in GMNA.
Contribution
Costs
Contribution costs in the third quarter of 2007 were
$29.6 billion, an increase of $1.7 billion compared to
$27.9 billion in 2006. Higher prices for steel and
non-ferrous metals resulted in an increase of $.3 billion
in material costs from the prior period. A weak U.S. dollar
against most foreign currencies also contributed
$.8 billion to higher contribution costs. Policy and
warranty and vehicle recall campaign expense decreased in the
third quarter of 2007 by $.4 billion due primarily to an
adjustment made in the third quarter of 2006 to pre-existing
warranties and lower recall expense and a supplier recovery in
the third quarter of 2007. Contribution costs increased by
$1 billion as a result of higher global sales volumes
including the effect of mix associated with new vehicle launches
and lower volumes at GMNA.
61
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Contribution costs for the first nine months of 2007 were
$91 billion, an increase of $2.2 billion compared to
$88.8 billion in the first nine months of 2006. Higher
vehicle content in the U.S., the weak U.S. dollar, price
increases for non-ferrous metals and steel, and policy, warranty
and campaign expense drove the cost increase.
Structural
Costs
Automotive structural costs were $13.2 billion in the third
quarter of 2007, an increase of $.9 billion from
$12.3 billion incurred in the third quarter of 2006. Global
product engineering and development expense was $.5 billion
higher in the third quarter of 2007, reflecting increased global
vehicle development expenditures. The effect of the weak
U.S. dollar increased structural costs by $.3 billion.
Higher advertising expenditures related to new product launches
and higher production costs associated with volume growth in
GME, GMLAAM and GMAP increased expense by $.1 billion
compared to the third quarter of 2006.
Automotive structural costs for the nine months ended
September 30, 2007 were $38.4 billion, an increase of
$.2 billion from $38.2 billion in the same period in
2006. The increase in costs related to the weak U.S. dollar
offset a portion of the savings in GMNA. Global engineering
costs increased consistent with our strategy to support global
vehicle program development, and certain costs increased in line
with volume expansion, particularly in GMLAAM and GMAP. These
increases were offset by $2.8 billion of cost decreases in
GMNA, resulting from reduced OPEB, pension and manufacturing
costs relating to the 2005 UAW Health Care Settlement and an
attrition program in the period (UAW Attrition Program).
Impairment,
Restructuring and Other Charges
We incurred certain expenses primarily related to asset
impairments and restructuring initiatives, which are included in
Automotive cost of sales as described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
UAW Attrition Program
|
|
$
|
33
|
|
|
$
|
(98
|
)
|
|
$
|
9
|
|
|
$
|
6,385
|
|
Restructuring initiatives
|
|
|
387
|
|
|
|
55
|
|
|
|
618
|
|
|
|
(431
|
)
|
Asset impairment
|
|
|
|
|
|
|
177
|
|
|
|
84
|
|
|
|
540
|
|
Change in amortization period for pension prior service costs
|
|
|
1,310
|
|
|
|
|
|
|
|
1,310
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,730
|
|
|
$
|
134
|
|
|
$
|
1,973
|
|
|
$
|
6,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts for the three months ended September 30, 2007
were related primarily to the following:
|
|
|
|
|
$33 million charge for ongoing costs related to the UAW
Attrition Program at GMNA.
|
|
|
|
$125 million charge for capacity initiatives at GMNA and a
$262 million charge at GME, primarily related to
separations at the Antwerp, Belgium facility.
|
|
|
|
$1.3 billion of additional pension expense in the third
quarter related to the accelerated recognition of unamortized
prior service cost.
|
The amounts for the three months ended September 30, 2006
were primarily related to the following:
|
|
|
|
|
$98 million favorable net adjustment at GMNA, primarily
related to sickness and accident and extended disability benefit
reserves as a result of the significant reduction of GMs
hourly employees through the UAW Attrition Program.
|
|
|
|
$118 million of other restructuring charges recognized at
GME. In addition, GMNA recorded a favorable adjustment of
$63 million to the reserve initially recorded in the fourth
quarter of 2005 related to North
|
62
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
|
|
American plant capacity actions. This adjustment resulted
primarily from the transfer of employees from idled plants to
other plant sites to replace those positions held by employees
who accepted retirements, buyouts or pre-retirement leaves.
|
|
|
|
|
|
$172 million charge at GMNA, comprised of $102 million
related to the impairment of product-specific assets and
$70 million related to the impairment of plant assets.
Plant asset impairments of $5 million were recorded at GME.
|
The amounts for the nine months ended September 30, 2007
were related primarily to the following, in addition to the
items above:
|
|
|
|
|
$231 million for restructuring initiatives at GMNA,
$96 million, GME, $87 million and GMAP,
$48 million.
|
|
|
|
$70 million for product-specific asset impairments at GMNA
and $14 million at GMAP.
|
The amounts related to restructuring initiatives for the nine
months ended September 30, 2006 were primarily related to
the following, in addition to the items above:
|
|
|
|
|
$6.5 billion for a charge related to the UAW Attrition
Program, for payments to employees of $2.1 billion and for
curtailment charges associated with our U.S. hourly
pension, OPEB, and extended disability plans as a result of the
UAW Attrition Program of $4.4 billion.
|
|
|
|
$.8 billion favorable net adjustments at GMNA, consisting
of a favorable revision to the reserve recorded in the fourth
quarter of 2005 related to North American plant capacity actions
of $.9 billion, primarily attributable to the impact of the
UAW Attrition Program. GMNA also recorded 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. These
were partially offset by 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.
|
|
|
|
Other restructuring charges recognized at GME and GMLAAM of
$261 million and $43 million, respectively.
|
|
|
|
$303 million charge at GMNA and a $60 million charge
at GME, both related to the write down of product-specific
assets.
|
Automotive
Cost of Sales
Automotive cost of sales was $41.2 billion in the third
quarter of 2007, $4 billion higher than the same period in
2006. Automotive cost of sales was 95.6% and 93.9% of Total net
sales and revenues for the three months ended September 30,
2007 and 2006, respectively. This was the result primarily of an
increase in Automotive cost of sales in GMAP, GME and GMLAAM,
driven by higher sales volume, as well as additional pension
expense of $1.3 billion at GMNA resulting from a change in
the amortization period for prior service cost. Further details
are provided below in the regional analyses.
Automotive cost of sales was $121.8 billion for the first
nine months of 2007, $2.5 billion lower than the same
period in 2006. Automotive cost of sales was 92.5% and 97.3% of
Total net sales and revenues for the nine months ended
September 30, 2007 and 2006, respectively. The decrease in
2007 was driven primarily by GMNA where a $6.5 billion
charge was recorded in the second quarter of 2006 relating to
the UAW Attrition Program, for payments to employees of
$2.1 billion and for the curtailment charges associated
with GMs U.S. hourly pension, OPEB, and extended
disability plans as a result of the UAW Attrition Program of
$4.4 billion. This decrease was partially offset by volume
driven increases at the other regions, as well as additional
pension expense at GMNA noted above.
63
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Selling,
General and Administrative Expense
Selling, general and administrative expense was
$3.3 billion and $3 billion in the third quarters of
2007 and 2006, respectively. Costs increased at all regions due
to unfavorable foreign currency exchange rates and higher
advertising and administrative changes. Further details are
provided below in the regional analyses.
Selling, general and administrative expenses were
$9.6 billion in the first nine months of 2007 compared to
$9.2 billion in 2006 due to increased spending and
unfavorable exchange rates at GME, GMLAAM and GMAP, partially
offset by decreases at GMNA.
Automotive
Interest and Other Expense
Automotive interest and other expense was $.2 billion
during the third quarter of 2007, a decrease of $.1 billion
compared to the third quarter of 2006.
For the first nine months of 2007, Automotive interest and other
expense was $1 billion, compared to $.5 billion in
2006. The increase in expense in 2007 was primarily attributable
to a gain of $.7 billion on the sale of the majority of our
investment in Suzuki Motor Corporation (Suzuki) in the first
quarter of 2006.
Income
Tax Expense (Benefit)
Income tax expense was $39 billion during the third quarter
of 2007, compared to a benefit of $.6 billion in the third
quarter of 2006. The increase of $39.6 billion in tax
expense in the third quarter of 2007 is primarily attributable
to the establishment of a valuation allowance against deferred
tax assets.
For the nine months ended September 30, 2007, income tax
expense was $39.2 billion, compared to a benefit of
$2.3 billion in 2006. This increase is also principally
attributable to the valuation allowance against deferred tax
assets.
Equity
Income and Minority Interests, Net of Tax
Equity income and minority interests was $17 million during
the third quarter of 2007, compared to a loss of
$47 million in the third quarter of 2006, an increase of
$64 million, due primarily to lower minority interest
associated with decreased third quarter 2007 GM Daewoo earnings.
The decrease in earnings was driven by a reversal of the
valuation allowance of $215 million against GM
Daewoos deferred tax assets in the third quarter of 2006,
as the valuation allowance was no longer necessary. For the nine
months ended September 30, 2007, Equity income and minority
interests, net of tax decreased $103 million compared to
2006, primarily due to the increase of minority interest as a
result of growth in year-to-date income at GM Daewoo in 2007, as
well as the loss of equity income related to the sale of the
majority of our investment in Suzuki in the first quarter of
2006, partly offset by increased equity earnings from Shanghai
GM.
Income
from Discontinued Operations
In August 2007, we completed the sale of the commercial and
military operations of Allison, resulting in a gain of
$3.5 billion. Accordingly, income, net of tax, from this
operation has been reported as income from discontinued
operations for all periods presented. Income was
$45 million, exclusive of the gain on sale, and
$130 million for the three months ended September 30,
2007 and 2006, respectively, and $256 million, exclusive of
the gain on sale, and $350 million for the nine months
ended September 30, 2007 and 2006, respectively.
64
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Regional Results
GM
North America (GMNA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
26,607
|
|
|
$
|
26,788
|
|
|
$
|
84,327
|
|
|
$
|
88,137
|
|
Automotive cost of sales
|
|
|
26,065
|
|
|
|
25,480
|
|
|
|
79,461
|
|
|
|
88,430
|
|
Selling, general and administrative expense
|
|
|
2,021
|
|
|
|
1,903
|
|
|
|
5,822
|
|
|
|
6,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,479
|
)
|
|
|
(595
|
)
|
|
|
(956
|
)
|
|
|
(6,361
|
)
|
Automotive interest and other expense
|
|
|
(281
|
)
|
|
|
(332
|
)
|
|
|
(1,113
|
)
|
|
|
(1,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, other
equity income and minority interests
|
|
|
(1,760
|
)
|
|
|
(927
|
)
|
|
|
(2,069
|
)
|
|
|
(7,580
|
)
|
Income tax expense (benefit)
|
|
|
36,429
|
|
|
|
(261
|
)
|
|
|
36,354
|
|
|
|
(2,486
|
)
|
Equity income (loss) and minority interests, net of tax
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(38,195
|
)
|
|
|
(667
|
)
|
|
|
(38,416
|
)
|
|
|
(5,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
|
45
|
|
|
|
130
|
|
|
|
256
|
|
|
|
350
|
|
Gain on sale of discontinued operations, net of tax
|
|
|
3,504
|
|
|
|
|
|
|
|
3,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
3,549
|
|
|
|
130
|
|
|
|
3,760
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(34,646
|
)
|
|
$
|
(537
|
)
|
|
$
|
(34,656
|
)
|
|
$
|
(4,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net margin from continuing operations
|
|
|
(143.6
|
)%
|
|
|
(2.5
|
)%
|
|
|
(45.6
|
)%
|
|
|
(5.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cars
|
|
|
367
|
|
|
|
417
|
|
|
|
1,168
|
|
|
|
1,375
|
|
Trucks
|
|
|
653
|
|
|
|
633
|
|
|
|
2,057
|
|
|
|
2,167
|
|
Total
|
|
|
1,020
|
|
|
|
1,050
|
|
|
|
3,225
|
|
|
|
3,542
|
|
Vehicle Unit Sales(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry North America
|
|
|
4,958
|
|
|
|
5,249
|
|
|
|
14,946
|
|
|
|
15,411
|
|
GMNA
|
|
|
1,206
|
|
|
|
1,285
|
|
|
|
3,462
|
|
|
|
3,698
|
|
GM market share North America industry
|
|
|
24.3
|
%
|
|
|
24.5
|
%
|
|
|
23.2
|
%
|
|
|
24.0
|
%
|
Industry U.S.
|
|
|
4,170
|
|
|
|
4,458
|
|
|
|
12,598
|
|
|
|
13,084
|
|
GM market share U.S. industry
|
|
|
25.1
|
%
|
|
|
25.1
|
%
|
|
|
23.6
|
%
|
|
|
24.3
|
%
|
GM cars market share U.S. industry
|
|
|
20.4
|
%
|
|
|
21.8
|
%
|
|
|
19.6
|
%
|
|
|
20.8
|
%
|
GM trucks market share U.S. industry
|
|
|
29.1
|
%
|
|
|
27.9
|
%
|
|
|
27.0
|
%
|
|
|
27.4
|
%
|
|
|
|
(1) |
|
Production volume represents the number of vehicles manufactured
from our assembly facilities, and also includes vehicles
produced by joint ventures. |
|
(2) |
|
Vehicle unit sales primarily represent sales to the ultimate
customer. |
Industry vehicle unit sales in North America decreased by
291,000 units (or 5.5%) and by 465,000 units (or 3%)
for the three and nine months ended September 30, 2007,
respectively, in relation to the comparable periods of the prior
year principally due to weakness in the economy resulting from a
decline in the housing market and rising and volatile gas
prices. We expect that the weakness in the U.S. economy
will result in challenging near-term market conditions in GMNA.
65
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Total Net
Sales and Revenue
Total net sales and revenue decreased by $.2 billion (or
.7%) during the three months ended September 30, 2007 as
compared to the three months ended September 30, 2006 due
to a decline in volumes, which was partially offset by favorable
content mix on those units sold, primarily on the recently
launched full size
pick-up
trucks.
Total net sales and revenue decreased by $3.8 billion (or
4.3%) during the nine months ended September 30, 2007 as
compared to the nine months ended September 30, 2006 due to
a decline in volumes, which was partially offset by favorable
mix of vehicles sold and favorable content mix on those units
sold, primarily on the recently launched full size
pick-up
trucks. Additionally, we recognize the near-term continuing
weakness in the U.S. automotive market and its impact on
our Canadian operations that are linked to the U.S. market,
and we expect it will constrain our ability to achieve our
future revenue goals in the near term.
Automotive
Cost of Sales
Automotive cost of sales increased by $.6 billion (or 2.3%)
during the three months ended September 30, 2007 compared
to the three months ended September 30, 2006. This increase
was primarily due to the $1.3 billion charge related to the
accelerated recognition of unamortized prior service cost
associated with pension increases from prior labor contracts due
to our determination that there is no future economic benefit
remaining. Also contributing unfavorably were higher material
costs of $.2 billion, and an increase in the closed plant
reserve of $.1. These costs were partially offset by the impact
of lower production volumes during the third quarter of 2007 and
favorable mix, which accounted for a net favorable impact of
$.8 billion. Also contributing favorably were lower
warranty related costs of $.3 billion, primarily due to a
warranty and product recall campaign recovery from Delphi
recorded in the third quarter of 2007, and due to the increases
in the warranty accrual recorded in 2006 as a result of the
extension of the powertrain warranty for all 2007 models sold in
the U.S. and Canada.
Automotive cost of sales decreased by $9 billion (or 10.1%)
during the nine months ended September 30, 2007 as compared
to the nine months ended September 30, 2006. The decrease
was primarily due to $5.7 billion in higher restructuring
and impairment charges taken in the first nine months of 2006
compared to the same period in 2007, including: (1) UAW
Attrition Program expenses of $6.5 billion;
(2) impairment charges of $.5 billion; and,
(3) net reductions in the closed plant expenses totaling
$.9 billion. These compare to charges in the first nine
months of 2007 related to vehicle line impairments of
$.1 billion, and increases in the closed plant reserve of
$.2 billion. Lower production volumes, partially offset by
favorable mix, accounted for an additional net favorable impact
of $4 billion. Also contributing favorably were savings on
retiree pension/OPEB costs of $1.7 billion, primarily due
to the UAW Health Care Settlement Agreement, as well as
manufacturing savings of $1.1 billion from lower hourly
headcount levels driven by the UAW Attrition Program. Partially
offsetting these favorable variances was $1.3 billion of
additional expense in the third quarter related to the
accelerated recognition of unamortized prior service cost
associated with pension increases from prior labor contracts due
to our determination that there is no future economic benefit
remaining. In addition, GMNA had higher material costs of
$.6 billion, higher warranty related costs of
$.4 billion, higher engineering costs of $.4 billion,
higher losses on foreign exchange of $.3 billion due to the
appreciation of the Canadian Dollar and $.2 billion lower
gains on commodity derivative contracts used to hedge forecasted
purchases of raw materials.
Automotive cost of sales as a percentage of Total net sales and
revenue was 98% and 95.1% for the three months ended
September 30, 2007 and 2006, respectively. This increase
was primarily due to the increase in pension expense mentioned
above. Automotive cost of sales as a percentage of Total net
sales and revenue was 94.2% and 100.3% for the nine months ended
September 30, 2007 and 2006, respectively. The decrease was
primarily due to less restructuring and impairment charges in
2007 than in 2006, as mentioned above.
Selling,
General and Administrative Expense
Selling, general and administrative expense increased by
$.1 billion (or 6.2%) for the three months ended
September 30, 2007 compared to the three months ended
September 30, 2006 primarily due to product liability
reserve reductions of $.1 billion recorded in the third
quarter of 2006.
66
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Selling, general and administrative expense decreased by
$.2 billion (or 4.1%) during the nine months ended
September 30, 2007 compared to the nine months ended
September 30, 2006. The decrease resulted from less
advertising spending compared to the first quarter of 2006 to
promote the vehicle price repositioning initiative, called
Total Value Promise, which reduced selling prices
and reduced the use and amount of retail incentives in North
American operations, as well as a reduction across the board in
spending in 2007.
Income
Tax Expense (Benefit)
Income tax expense increased by $36.7 billion and
$38.8 billion for the three and nine months ended
September 30, 2007, respectively, compared to the same
periods in the prior year due to the fact that we established
valuation allowances against our net deferred tax assets in the
U.S. and Canada based on SFAS No. 109 guidelines.
Net
Income from Discontinued Operations
We announced on June 28, 2007 that we reached an agreement
to sell the commercial and military business of Allison, and
subsequently consummated this transaction on August 7,
2007. As such, income from this operation has been reported as
discontinued operations for all periods presented.
GM Europe
(GME)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
8,722
|
|
|
$
|
7,444
|
|
|
$
|
26,820
|
|
|
$
|
24,280
|
|
Automotive cost of sales
|
|
|
8,487
|
|
|
|
6,970
|
|
|
|
24,875
|
|
|
|
22,518
|
|
Selling, general and administrative expense
|
|
|
683
|
|
|
|
649
|
|
|
|
2,015
|
|
|
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(448
|
)
|
|
|
(175
|
)
|
|
|
(70
|
)
|
|
|
(60
|
)
|
Automotive interest and other income (expense)
|
|
|
42
|
|
|
|
(22
|
)
|
|
|
(22
|
)
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, other equity income and minority
interests
|
|
|
(406
|
)
|
|
|
(197
|
)
|
|
|
(92
|
)
|
|
|
(159
|
)
|
Income tax expense (benefit)
|
|
|
2,471
|
|
|
|
(63
|
)
|
|
|
2,568
|
|
|
|
(37
|
)
|
Equity income and minority interests, net of tax
|
|
|
8
|
|
|
|
8
|
|
|
|
13
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,869
|
)
|
|
$
|
(126
|
)
|
|
$
|
(2,647
|
)
|
|
$
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net margin
|
|
|
(32.9
|
)%
|
|
|
(1.7
|
)%
|
|
|
(9.9
|
)%
|
|
|
(.4
|
)%
|
|
|
(Volume in thousands)
|
Production Volume(1)
|
|
|
396
|
|
|
|
374
|
|
|
|
1,371
|
|
|
|
1,363
|
|
Vehicle Unit sales(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry Europe
|
|
|
5,504
|
|
|
|
5,077
|
|
|
|
17,335
|
|
|
|
16,636
|
|
GME
|
|
|
524
|
|
|
|
457
|
|
|
|
1,652
|
|
|
|
1,529
|
|
GM market share Europe
|
|
|
9.5
|
%
|
|
|
9.0
|
%
|
|
|
9.5
|
%
|
|
|
9.2
|
%
|
GM market share Germany
|
|
|
9.4
|
%
|
|
|
9.9
|
%
|
|
|
9.5
|
%
|
|
|
10.1
|
%
|
GM market share United Kingdom
|
|
|
14.9
|
%
|
|
|
13.3
|
%
|
|
|
15.2
|
%
|
|
|
14.3
|
%
|
GM market share Russia
|
|
|
9.1
|
%
|
|
|
7.1
|
%
|
|
|
9.3
|
%
|
|
|
6.2
|
%
|
|
|
|
(1) |
|
Production volume represents the number of vehicles manufactured
from our assembly facilities, and also includes vehicles
produced by joint ventures. |
|
(2) |
|
Vehicle unit sales primarily represent sales to the ultimate
customer. |
67
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Industry
Vehicle Unit Sales
Industry vehicle unit sales in Europe increased by 427,000
vehicles (or 8.4%) and by 699,000 vehicles (or 4.2%) during the
three and nine months ended September 30, 2007,
respectively, in relation to the comparable period of the prior
year.
For the three months ended September 30, 2007,
Europes industry vehicle unit sales growth primarily
resulted from an increase of 195,000 vehicles (or 36.8%) in
Russia, in addition to increases in various markets throughout
southeastern Europe, Ukraine, France, Italy, the United Kingdom,
Poland, Turkey and the Netherlands. These industry improvements
were partially offset by a decrease of 31,000 vehicles (or 3.5%)
in Germany. For the nine months ended September 30, 2007,
Europes industry vehicle unit sales growth primarily
resulted from an increase of 449,000 vehicles (or 30.6%) in
Russia, in addition to increases in various markets throughout
southeastern Europe, Ukraine, Italy and Poland. These industry
improvements were partially offset by decreases of 184,000
vehicles (or 6.6%) in Germany and 84,000 vehicles (or 17.2%) in
Turkey. We expect that challenges in the German automotive
market will continue in the near-term.
GMs market share in Europe increased by .5% and .3% for
the three and nine months ended September 30, 2007,
respectively, in comparison to the prior year periods.
Total Net
Sales and Revenue
Total net sales and revenue increased by $1.3 billion (or
17.2%) during the three months ended September 30, 2007,
compared to the same period of the prior year. This increase
primarily resulted from: (1) a $.6 billion favorable
impact of foreign currency exchange rates, mainly the
strengthening of the Euro, British Pound and Swedish Krona
versus the U.S. Dollar; and (2) a $.6 billion
increase due to higher wholesale sales volume. In line with the
industry trends noted above and also supported by the start of
Opel Antara production in St. Petersburg, wholesale sales
increased most significantly in Russia, where sales were up
14,000 units (or 243.3%). This impact was partially offset
by a decrease in Germany, where sales were down 5,000 units
(or 7%).
Total net sales and revenue increased by $2.5 billion (or
10.5%) during the nine months ended September 30, 2007.
This increase primarily resulted from: (1) a
$2 billion favorable impact of foreign currency exchange
rates; (2) a $.4 billion increase due to improvements
in pricing associated with the introduction of new models,
primarily the Corsa; (3) a $.1 billion increase due to
higher wholesale sales volume; and (4) a $.2 billion
decrease related to vehicle mix. The most significant increases
in wholesale sales volume were experienced in Russia, where
sales were up 34,000 units (or 240.6%), and in the United
Kingdom, where sales were up 23,000 units (or 7.7%). This
impact was partially offset by a decrease in Germany, where
sales were down 44,000 units (or 16.9%). Unfavorable
vehicle mix primarily resulted from the unfavorable impact of
lower Zafira and higher Corsa volumes, which more than offset
the favorable impact of higher Antara volume. Additionally, we
recognize the near-term continued weakness in the German
automotive market, and we expect it will constrain our ability
to achieve our future revenue goals in the near term.
Automotive
Cost of Sales
Automotive cost of sales increased by $1.5 billion (or
21.8%) during the three months ended September 30, 2007
compared to the same period in the prior year. This increase
primarily resulted from: (1) a $.6 billion increase
due to the impact of foreign currency exchange rates; (2) a
$.4 billion increase due to higher wholesale sales volume;
(3) a $.1 billion increase due to unfavorable vehicle
and country mix, primarily as a result of higher freight and
duties associated with vehicles imported into Russia and from
Korea; and (4) a $.1 billion increase in separation
charges.
Automotive cost of sales increased by $2.4 billion (or
10.5%) for the nine months ended September 30, 2007
compared to the same period in the prior year. This increase
primarily resulted from: (1) a $1.9 billion increase
due to the impact of foreign currency exchange rates; and
(2) a $.3 billion increase due to unfavorable vehicle
and
68
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
country mix, primarily as a result of higher freight and duties
associated with vehicles imported into Russia and from Korea.
Automotive cost of sales as a percentage of Total net sales and
revenue was 97.3% and 93.6% for the three months ended
September 30, 2007 and 2006, respectively, representing a
3.7 percentage point deterioration in margin. This decline
primarily resulted from higher separation costs in the current
quarter. For the nine months ended September 30, 2007 and
2006, Automotive cost of sales as a percentage of Total net
sales and revenue was 92.7%. This resulted from the favorable
effect of improvements in pricing offset by the unfavorable
effect of country and vehicle mix.
Selling,
General and Administrative Expense
Selling, general and administrative expense increased by
$34 million (or 5.2%) and $.2 billion (or 10.6%)
during the three and nine months ended September 30, 2007
and 2006, respectively, as compared to the same periods of the
prior year. These increases resulted primarily from the
unfavorable impact of foreign currency exchange rates.
Income
Tax Expense (Benefit)
Income tax expense increased by $2.5 billion and
$2.6 billion for the three and nine months ended
September 30, 2007, respectively, in relation to the
comparable 2006 periods. These increases primarily resulted from
establishing a valuation allowance of $2 billion against
certain deferred tax assets in Germany during the third quarter,
following our quarterly evaluation of our deferred tax assets in
accordance with SFAS No. 109, and $.5 billion of
expense related to the reduction in value of deferred tax assets
as a result of a reduction in the German business tax rate.
69
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM Latin
America/Africa/Mid-East (LAAM) Operations (GMLAAM)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
4,944
|
|
|
$
|
3,658
|
|
|
$
|
12,854
|
|
|
$
|
10,652
|
|
Automotive cost of sales
|
|
|
4,333
|
|
|
|
3,287
|
|
|
|
11,344
|
|
|
|
9,645
|
|
Selling, general and administrative expense
|
|
|
237
|
|
|
|
202
|
|
|
|
711
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
374
|
|
|
|
169
|
|
|
|
799
|
|
|
|
471
|
|
Automotive interest and other income (expense)
|
|
|
1
|
|
|
|
18
|
|
|
|
126
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, other equity income and minority
interests
|
|
|
375
|
|
|
|
187
|
|
|
|
925
|
|
|
|
453
|
|
Income tax expense (benefit)
|
|
|
34
|
|
|
|
(5
|
)
|
|
|
170
|
|
|
|
80
|
|
Equity loss and minority interests, net of tax
|
|
|
(1
|
)
|
|
|
(9
|
)
|
|
|
(1
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
340
|
|
|
$
|
183
|
|
|
$
|
754
|
|
|
$
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net margin
|
|
|
6.9
|
%
|
|
|
5.0
|
%
|
|
|
5.9
|
%
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Volume in thousands)
|
|
|
Production Volume(1)
|
|
|
251
|
|
|
|
215
|
|
|
|
706
|
|
|
|
615
|
|
Vehicle Unit Sales(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
1,878
|
|
|
|
1,584
|
|
|
|
5,238
|
|
|
|
4,481
|
|
GMLAAM
|
|
|
329
|
|
|
|
270
|
|
|
|
894
|
|
|
|
746
|
|
GM market share LAAM
|
|
|
17.5
|
%
|
|
|
17.1
|
%
|
|
|
17.1
|
%
|
|
|
16.6
|
%
|
GM market share Brazil
|
|
|
20.9
|
%
|
|
|
21.1
|
%
|
|
|
20.4
|
%
|
|
|
21.4
|
%
|
|
|
|
(1) |
|
Production volume represents the number of vehicles manufactured
from our assembly facilities, and also includes vehicles
produced by joint ventures. |
|
(2) |
|
Vehicle unit sales primarily represent sales to the ultimate
customer. |
Industry
and Regional Vehicle Unit Sales
Industry vehicle unit sales in the LAAM region increased by
294,000 vehicles (or 18.6%) and by 757,000 vehicles (or 16.9%)
during the three and nine months ended September 30, 2007,
respectively, as compared to the same periods of the prior year.
Strong growth throughout the region contributed to these
increases including increases in Brazil of 153,000 vehicles (or
30.4%), Venezuela of 42,000 vehicles (or 45.7%), Argentina of
39,000 vehicles (or 32.7%), the Middle East of 46,000 vehicles
(or 10.7%) and Colombia of 15,000 vehicles (or 29.7%) for the
three months ended September 30, 2007. The nine month
period ended September 30, 2007 also saw increases in
Brazil of 374,000 vehicles (or 27.4%), Venezuela of 114,000
vehicles (or 49.3%), Argentina of 90,000 vehicles or 24.6%, the
Middle East of 80,000 vehicles (or 6.2%) and Colombia of 50,000
vehicles (or 36.7%).
Total Net
Sales and Revenue
Total net sales and revenue increased by $1.3 billion (or
35.2%) for the three months ended September 30, 2007
compared to the same period of 2006. This increase resulted
primarily from: (1) $.8 billion of increased volumes
across most GMLAAM business units, including increased revenues
in Brazil, Venezuela, and Argentina offset by a small decrease
in Ecuador; (2) favorable vehicle pricing of
$.1 billion; (3) favorable vehicle mix of
$.1 billion; and (4) favorable effect of foreign
currency exchange primarily related to the Brazilian Real and
Colombian Peso of $.2 billion.
Total net sales and revenue increased by $2.2 billion (or
20.7%) for the nine months ended September 30, 2007 in
relation to the comparable 2006 period. This increase resulted
primarily from: (1) $1.7 billion due to increased
70
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
volumes across most GMLAAM business units, including increased
revenues in Brazil, Venezuela, Argentina and Colombia, offset by
a decrease in the Middle East; (2) favorable vehicle
pricing of $.3 billion; and (3) favorable effect of
foreign currency exchange of $.3 billion; which were
partially offset by $.2 billion of unfavorable product mix
in GMs vehicle portfolio.
Automotive
Cost of Sales
Automotive cost of sales increased by $1 billion (or 31.8%)
during the three months ended September 30, 2007 as
compared to the same period of the prior year. The increase is
primarily due to: (1) $.6 billion in higher vehicle
sales volume; (2) unfavorable product mix impact of
$.1 billion; and (3) an unfavorable foreign currency
exchange impact of $.2 billion.
Automotive cost of sales increased by $1.7 billion or 17.6%
during the nine months ended September 30, 2007 as compared
to the same period of the prior year. The increase is primarily
due to: (1) $1.3 billion in higher vehicle sales
volume; (2) higher content cost of $.1 billion; and
(3) an unfavorable foreign currency exchange impact of
$.4 billion, all of which were partially offset by
favorable product mix impact of $.2 billion.
Automotive cost of sales as a percentage of Total net sales and
revenue was 87.6% and 89.9% for the three months ended
September 30, 2007 and 2006, respectively. Automotive cost
of sales as a percentage of Total net sales and revenue was
88.3% and 90.5% for the nine months ended September 30,
2007 and 2006, respectively. The improvements in margins of 2.3
and 2.2 percentage points for the three and nine months
ended September 30, 2007, respectively, as compared to the
prior year periods, resulted principally from higher pricing and
favorable product mix.
Selling,
General and Administrative Expense
Selling, general and administrative expense increased by
$35 million (or 17.3%) during the three months ended
September 30, 2007, in relation to the comparable 2006
period. The increase is primarily due to an unfavorable foreign
currency exchange impact along with higher commercial expenses.
Selling, general and administrative expense increased by
$175 million (or 32.6%) during the nine months ended
September 30, 2007 as compared to the same period during
2006. The increase primarily arose due to a $66 million
charge recorded in Brazil during the second quarter of 2007 for
additional retirement benefits under a government sponsored
pension plan and an unfavorable foreign currency exchange impact
of $24 million along with increased administrative,
marketing and other expenses of $85 million throughout the
region in support of the higher volume levels.
In October 2007, GM do Brasil received a final favorable
decision on a prior tax case involving an increased tax base and
taxes in Brazil. As a result, we will record a gain of
approximately $100 million during the fourth quarter of
2007.
Automotive
Interest and Other Income (Expense)
Automotive interest and other income (expense) decreased by
$17 million (or 94.4%) and increased by $144 million
(or 800%) for the three and nine months ended September 30,
2007, respectively, in relation to the comparable 2006 periods.
The three month decrease primarily results from reduced
liability for tax related interest as a result of a tax amnesty
program in Brazil during the three months ended
September 30, 2006. The nine month increase primarily
results from a gain of $87 million recorded in Brazil
associated with the recovery of previously overpaid employee
taxes and benefits as well as reversal of a previously
established tax accrual of $34 million associated with
duties, federal excise tax and related matters that was no
longer required, both in the second quarter of 2007.
During the third quarter of 2007, GM do Brasil settled and paid
fines totaling $45 million related to improper information
submitted to the Brazilian tax authorities related to material
included in consignment contracts at one of its facilities. This
amount recorded represents the probable loss as of
September 30, 2007.
71
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Income
Tax Expense (Benefit)
Income tax expense increased by $39 million and by
$90 million for the three and nine months ended
September 30, 2007, respectively, in relation to the
comparable 2006 periods. These increases arose primarily as a
result of higher pre-tax income across most GMLAAM business
units, especially Brazil, Venezuela and Colombia.
72
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
GM
Asia Pacific (GMAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
5,446
|
|
|
$
|
3,847
|
|
|
$
|
15,469
|
|
|
$
|
11,030
|
|
Automotive cost of sales
|
|
|
4,931
|
|
|
|
3,572
|
|
|
|
13,927
|
|
|
|
9,997
|
|
Selling, general and administrative expense
|
|
|
355
|
|
|
|
286
|
|
|
|
1,022
|
|
|
|
815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
160
|
|
|
|
(11
|
)
|
|
|
520
|
|
|
|
218
|
|
Automotive interest and other income
|
|
|
8
|
|
|
|
1
|
|
|
|
24
|
|
|
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, other equity income and
minority interests
|
|
|
168
|
|
|
|
(10
|
)
|
|
|
544
|
|
|
|
1,063
|
|
Income tax expense (benefit)
|
|
|
48
|
|
|
|
(260
|
)
|
|
|
128
|
|
|
|
96
|
|
Equity income (loss) and minority interests, net of tax
|
|
|
18
|
|
|
|
(45
|
)
|
|
|
65
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
138
|
|
|
$
|
205
|
|
|
$
|
481
|
|
|
$
|
1,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net margin
|
|
|
2.5
|
%
|
|
|
5.3
|
%
|
|
|
3.1
|
%
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Volume in thousands)
|
|
|
Production Volume(1)(4)
|
|
|
489
|
|
|
|
433
|
|
|
|
1,604
|
|
|
|
1,387
|
|
Vehicle Unit Sales(2)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
5,037
|
|
|
|
4,564
|
|
|
|
15,509
|
|
|
|
14,302
|
|
GMAP
|
|
|
328
|
|
|
|
283
|
|
|
|
1,054
|
|
|
|
920
|
|
GM market share Asia Pacific
|
|
|
6.5
|
%
|
|
|
6.2
|
%
|
|
|
6.8
|
%
|
|
|
6.4
|
%
|
GM market share Australia
|
|
|
14.2
|
%
|
|
|
14.8
|
%
|
|
|
14.6
|
%
|
|
|
15.3
|
%
|
GM market share China(3)
|
|
|
11.3
|
%
|
|
|
12.0
|
%
|
|
|
11.9
|
%
|
|
|
12.6
|
%
|
|
|
|
(1) |
|
Includes GM Daewoo, Shanghai GM and SAIC-GM-Wuling Automobile
Co., Ltd. (SGMW) joint venture production. GM owns 34% of SGMW
and under the joint venture agreement has significant rights as
a member as well as the contractual right to report SGMW global
sales as part of GMs global market share. |
|
(2) |
|
Includes GM Daewoo, Shanghai GM and SGMW joint venture sales. GM
owns 34% of SGMW and under the joint venture agreement has
significant rights as a member as well as the contractual right
to report SGMW global sales as part of GMs global market
share. |
|
(3) |
|
Includes SGMW joint venture sales. GM owns 34% SGMW and under
the joint venture agreement has significant rights as a member
as well as the contractual right to report SGMW global sales as
part of GMs global market share. |
|
(4) |
|
Production volume represents the number of vehicles manufactured
from GMs assembly facilities, and also includes vehicles
produced by joint ventures. |
|
(5) |
|
Vehicle unit sales primarily represent sales to the ultimate
customer. |
Industry
and Regional Vehicle Unit Sales
Industry vehicle unit sales in the Asia Pacific region increased
by 473,000 vehicles (or 10.4%) and by 1.2 million vehicles
(or 8.4%) during the three and nine months ended
September 30, 2007, respectively, compared to the three and
nine months ended September 30, 2006. This result reflected
strong growth in China, where industry vehicle unit sales
increased by 457,000 vehicles (or 28.8%) and by 1.2 million
vehicles (or 23.8%) during the three and nine months ended
September 30, 2007, respectively, compared to the three and
nine months ended September 30, 2006. Following a record
year in 2006, Chinas vehicle market has remained strong in
2007,
73
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
and we continue to capitalize on the demand in the China
passenger car and light commercial vehicle markets. Industry
sales in Japan decreased by 110,000 vehicles (or 7.9%) and by
338,000 (or 7.6%) during the three and nine months ended
September 30, 2007.
Sales in China represented 70% and 72% of total GMAP sales in
the region for the three and nine months ended
September 30, 2007, respectively. Relative to the
comparable periods of 2006, GMAP gained market share in India
and lost market share in China, Australia and Thailand. Market
share gains in India were achieved with the addition of the Aveo
and Spark to the vehicle portfolio.
Our market share in the Asia Pacific region increased by .3 and
.4 percentage points for the three and nine months ended
September 30, 2007 and 2006, respectively, in comparison to
the prior year periods. Although we reported record sales in
China in the three and nine months ended September 30,
2007, our share of the Chinese market deteriorated due to
continued robust industry growth at a faster pace and more
intense competition. The market share of Holden Ltd. (Holden) in
Australia deteriorated partly due to share loss in the small,
medium, lower medium and medium
pick-up
segments. Our market share in Thailand deteriorated due to
relatively aged models currently in production and the impact of
political uncertainties on the industry.
Total Net
Sales and Revenue
Total net sales and revenue grew by $1.6 billion (or 42%)
during the three months ended September 30, 2007 compared
to the three months ended September 30, 2006. The revenue
growth was primarily due to: (1) a $.9 billion
increase in GM Daewoo export unit sales to a diverse global
customer base, which was driven by the Captiva/Winstrom launch;
(2) a $.1 billion favorable impact on exchange rates,
primarily related to the Australian dollar; and (3) an
increase in domestic unit sales in the rest of operations in the
region.
Total net sales and revenue grew by $4.4 billion (or 40%)
during the nine months ended September 30, 2007 compared to
the nine months ended September 30, 2006. The revenue
growth was primarily due to: (1) a $3.1 billion
increase in GM Daewoo export unit sales to a diverse global
customer base, which was driven by the Captiva/Winstrom launch;
(2) a $.3 billion favorable impact on foreign exchange
rates, primarily related to the Australian dollar; and
(3) an increase in domestic unit sales in the rest of the
operations in the region.
Automotive
Cost of Sales
Automotive cost of sales increased by $1.4 billion (or 38%)
and by $3.9 billion (or 39.3%) during the three and nine
months ended September 30, 2007, respectively, compared to
the three and nine months ended September 30, 2006. These
increased costs resulted primarily from: (1) 26% and 32%
export unit volume increases for the respective comparable
periods at GM Daewoo; and (2) higher product engineering
expenses amounting to $144 million and $250 million
for the three and nine months ended September 30, 2007,
respectively, mainly at GM Daewoo.
During the nine months ended September 30, 2007, GMAP
recognized separation costs of $48 million related to
restructuring activities at Holden, and impairment charges of
$14 million related to the write-down of product-specific
assets at Holden.
Automotive cost of sales as a percentage of Total net sales and
revenue was 90.5% and 92.9% for the three months ended
September 30, 2007 and 2006, respectively. Automotive cost
of sales as a percentage of Total net sales and revenue was 90%
and 90.6% for the nine months ended September 30, 2007 and
2006, respectively. In addition, foreign exchange rate
movements, primarily related to the Australian dollar and Korean
won, had an unfavorable impact on Automotive cost of sales
amounting to $.1 billion and $.3 billion for the three
and nine months ended September 30, 2007, respectively.
Selling,
General and Administrative Expense
Selling, general and administrative expense increased by
$.1 billion and $.2 billion for the three and nine
month periods ended September 30, 2007, as compared to the
three and nine month periods ended September 30,
74
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
2006, due to higher consumer influence, advertising, sales
promotion and administrative expenses in line with the growth in
business over the periods.
Automotive
Interest and Other Income
Automotive interest and other income during the three months
ended September 30, 2006 included a gain of
$.7 billion related to the sale of our equity stake in
Suzuki from 20.4% to 3.6% and a gain of $.3 billion from
the sale of our remaining investment in Isuzu Motors Ltd.
(Isuzu) (90 million shares).
Income
Tax Expense (Benefit)
Income tax expense was $48 million for the three months
ended September 30, 2007, compared to an income tax benefit
of $260 million in the same period of 2006. This increase
of $308 million in the third quarter of 2007 is primarily
due to: (1) a $215 million benefit from the reversal
of a deferred tax asset valuation allowance at GM Daewoo during
the third quarter of 2006; (2) lower U.S. residual
taxes of $38 million related to the sale of our equity
stake in Suzuki in 2006; and (3) increased tax expense
mainly at GM Daewoo.
For the nine months ended September 30, 2007, income tax
expense was $128 million compared to $96 million in
the same period of 2006. This increase of $32 million is
due to a $215 million benefit from the reversal of a
deferred tax asset valuation allowance at GM Daewoo in 2006 and
lower U.S. residual taxes of $38 million related to
the sale of our equity stake in Suzuki, which was more than
offset by an increase of $370 million in tax expense
related to the sale of our investments in Suzuki and Isuzu in
2006 and increased tax expenses mainly at GM Daewoo.
Equity
Income and Minority Interests, Net of Tax
Equity income and minority interests was $18 million during
the third quarter of 2007, compared to a loss of
$45 million in the third quarter of 2006, an increase of
$63 million, due primarily to lower minority interest
associated with decreased third quarter 2007 GM Daewoo earnings.
The decrease in earnings was driven by a reversal of the
valuation allowance of $215 million against GM
Daewoos deferred tax assets in the third quarter of 2006,
as the valuation allowance was no longer necessary. For the nine
months ended September 30, 2007, Equity income and minority
interests, net of tax decreased $41 million compared to
2006, primarily due to the increase of minority interest as a
result of growth in
year-to-date
income at GM Daewoo in 2007, as well as the loss of equity
income related to the sale of the majority of our investment in
Suzuki in the first quarter of 2006, partly offset by increased
equity earnings from Shanghai GM.
75
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Corporate
and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
28
|
|
|
$
|
(40
|
)
|
|
$
|
73
|
|
|
$
|
(139
|
)
|
Automotive cost of sales
|
|
|
316
|
|
|
|
(35
|
)
|
|
|
429
|
|
|
|
309
|
|
Selling, general and administrative expense
|
|
|
301
|
|
|
|
115
|
|
|
|
627
|
|
|
|
499
|
|
Other expense
|
|
|
370
|
|
|
|
674
|
|
|
|
945
|
|
|
|
976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(959
|
)
|
|
|
(794
|
)
|
|
|
(1,928
|
)
|
|
|
(1,923
|
)
|
Automotive interest and other income (expense)
|
|
|
(40
|
)
|
|
|
116
|
|
|
|
141
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, other equity income and minority
interests
|
|
|
(999
|
)
|
|
|
(678
|
)
|
|
|
(1,787
|
)
|
|
|
(1,615
|
)
|
Income tax expense (benefit)
|
|
|
140
|
|
|
|
(649
|
)
|
|
|
(526
|
)
|
|
|
(1,277
|
)
|
Equity income and minority interests, net of tax
|
|
|
3
|
|
|
|
4
|
|
|
|
3
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,136
|
)
|
|
$
|
(25
|
)
|
|
$
|
(1,258
|
)
|
|
$
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other includes certain centrally recorded costs,
such as interest and income taxes, corporate expenditures, the
elimination of intersegment transactions and costs related to
pension and OPEB for Delphi retirees and other retirees of
divested businesses for which we have retained responsibility.
Total net sales and revenue primarily reflects prior year
eliminations between our automotive business and GMAC. The
remainder is associated with our corporate leasing activities.
Automotive cost of sales and Selling, general and administrative
expense increased by $537 million for the three months
ended September 30, 2007, compared to the same period in
2006. The increase was driven, in large part, by
$251 million of additional pension expense related to the
accelerated recognition of unamortized prior service cost. Costs
related to pension and OPEB for Delphi retirees increased
$82 million, of which $9 million related to Selling,
general and administrative expense. Increases related to the
elimination of intersegment transactions with GMAC recorded in
Automotive cost of sales was $81 million.
Automotive cost of sales and Selling, general and administrative
expense increased $248 million for the nine months ended
September 30, 2007, compared to the same period in 2006.
The pension expense increase of $251 million, noted above,
is the primary reason for the increase.
Other expense was $370 million and $674 million for
the three months ended September 30, 2007 and 2006,
respectively. The decrease in Other expense resulted from a
$150 million decrease in expenses related to our contingent
liability for certain Delphi obligations, as discussed below in
Delphi Bankruptcy, when compared to 2006. The remaining
decrease, in Other expense, is due to lower costs of
$154 million related to GMAC, which did not recur in 2007,
as a result of our sale of a 51% controlling ownership interest
when compared to 2006.
Other expense was $945 million compared to
$976 million, a decrease of $31 million, for the nine
months ended September 30, 2007 and 2006, respectively. The
2006 period includes $456 million of expenses related to
transactions with GMAC, which did not recur in the 2007 period.
The 2007 period includes $425 million of expenses
associated with our financial support of the bankruptcy and
reorganization of Delphi. These expenses consist of incremental
retiree health care costs, reimbursement of labor costs at
certain facilities and reimbursement of certain pension
obligations. Please see Delphi Bankruptcy below, for further
discussion.
Automotive interest and other income (expense), was expense of
$40 million and income of $116 million and expense of
$141 million and $308 million for the three and nine
months ended September 30, 2007 and 2006, respectively. The
decline is primarily due to the elimination of interest expense
related to GMAC in 2006, which is
76
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
no longer required after the GMAC Transaction in November 2006,
partially offset by higher interest income in 2007.
Income tax expense recognized in Corporate and Other for the
three months ended September 30, 2007 was
$140 million, compared to a tax benefit of
$649 million in 2006. For the nine months ended
September 30, 2007 and 2006, income tax benefit was
$526 million and $1.3 billion, respectively. The
increase in tax expense for the three and nine month periods is
attributable to the valuation allowance established against
deferred tax assets, as well as a net reduction to tax expense
recognized in the third quarter of 2006 related to the
settlement of various tax issues. As discussed in Note 11
to the Condensed Consolidated Financial Statements, we adopted
FIN 48 as of January 1, 2007. All adjustments related
to FIN 48 are recorded in the Corporate and Other segment.
FIO
Operations Financial Review
Our FIO business includes 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). In the GMAC Transaction in November 2006, we sold a
51% controlling interest in GMAC to FIM Holdings LLC (FIM
Holdings). Our 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 us as part of the GMAC Transaction in November
2006. Therefore, for the three and nine months ended
September 30, 2007, FIOs operations primarily
reflected its 49% share of the operating results of GMAC as
compared to the operating results of GMAC fully consolidated for
the comparable 2006 period.
FIO reported a net loss of $.8 billion for the three months
ended September 30, 2007 compared to net income of
$.1 billion for the 2006 period primarily due to lower
operating results at GMAC. See the commentary below for a
detailed discussion of the events and factors contributing to
this change in GMACs operating results. FIO had net loss
of $.7 billion and net income of $.7 billion for the
nine months ended September 30, 2007 and 2006, respectively.
GMAC reported net loss available to members of $1.6 billion
and $1.8 billion during the three and nine months ended
September 30, 2007, as compared to net loss of
$173 million and net income of $1.1 billion for the
comparable periods of 2006. Included in FIOs Other
Financing is $32 million and $118 million for three
and nine months ended September 30, 2007 respectively, of
net income relating to the two special purpose entities holding
outstanding leases previously owned by GMAC, which were included
in GMACs net income in the comparable period of the prior
year.
GMAC net losses for the three and nine months ended
September 30, 2007 reflect the continued adverse effects of
the global deterioration in the mortgage and credit markets on
the Mortgage business that more than offset the continued strong
performance in the Automotive Finance and Insurance businesses.
Mortgage results continue to be adversely affected by domestic
economic conditions, including increases in delinquencies and
significant deterioration in the securitization and residential
housing markets. In addition, during the three months ended
September 30, 2007, the Mortgage business was also affected
by a deterioration in certain foreign mortgage capital markets.
Automotive Finance Operations benefited in the three and nine
months ended September 30, 2007 from higher gains on sales
and servicing fee income due to continued off-balance sheet
securitization and whole-loan sale activity, which also
favorably impacted the provision for credit losses.
Mortgage losses increased significantly in the three and nine
months ended September 30, 2007 compared to earnings in the
same periods of 2006. The 2007 results continue to be adversely
affected by domestic economic conditions, including delinquency
increases in the mortgage loans held for investment portfolio
and a significant deterioration in the securitization and
residential housing markets. In addition, during the three
months ended September 30, 2007, a downturn was experienced
in the foreign real estate markets. The deterioration of the
77
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
mortgage credit markets has continued due to a lack of
liquidity, depressed asset valuations, additional loss
provisions related to credit deterioration, and lower production
levels.
As a result, GMAC conducted a goodwill impairment test of its
Mortgage business in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS No. 142) during the third quarter of 2007.
Based upon the results of their assessment, GMAC concluded that
the carrying value of goodwill of its Mortgage business exceeded
its fair value and recorded an impairment loss of
$455 million. We reduced our investment in GMAC by
$223 million for our share of GMACs impairment loss
and recorded a charge to Equity in loss of GMAC LLC for the
three months and nine months ended September 30, 2007.
Insurance Operations earnings decreased in the three and nine
months ended September 30, 2007 in comparison with the same
period in 2006. This decrease is due primarily to a lower level
of realized capital gains.
Key
Factors Affecting Future and Current Results
The following discussion identifies the key factors, known
events and trends that have affected our current results or
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. We have been systematically and
aggressively implementing our 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: 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. We continue to focus significant
attention on maintaining consistent product freshness by
introducing new vehicles frequently and reducing the average
vehicle lifecycle. In 2007 we expect that approximately 40% of
GMNAs retail sales will come from vehicles launched in the
prior 18 months such as the Buick Lucerne and Saturn Aura,
our full size trucks and sport utility vehicles and our mid-size
crossovers, the Saturn Outlook, GMC Acadia and Buick Enclave. In
the fourth quarter of 2007, we will launch two additional new
cars; the Cadillac CTS and the Chevrolet Malibu. GMNA is also
allocating capital and engineering resources 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. During the fourth quarter
of 2007, we plan to introduce new
2-mode
hybrid models of the Chevrolet Tahoe and the GMC Yukon. In
addition, we are undertaking a major initiative in alternative
fuels through sustainable technologies such as E85 Flex Fuel
vehicles, which run on gasoline, ethanol or any combination of
the two fuels. In September 2007, we launched Project Driveway,
which will make more than 100 Chevrolet Equinox fuel cell
electric vehicles available for driving by the public in the
vicinity of Los Angeles, New York City and Washington, D.C.
Revitalize Sales and Marketing Strategy. We are
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, we significantly lowered manufacturers
suggested retail prices on vehicles that accounted for
approximately 80% of our 2006 model year automotive sales
volume. Our promotion strategy now emphasizes its brands and
vehicles, rather than price incentives. In addition, we have
begun increasing advertising in support of new products and
specific marketing initiatives to improve our sales performance
in key under-developed states. Our pricing strategy, improved
quality, product execution, reduced sales to daily rental fleets
and a strong market for used vehicles resulted in higher
residual values on GMs cars and trucks. For 2007, we are
continuing to focus on consistent alignment of our dealers,
particularly among Buick, Pontiac and GMC dealers, improved
retail performance in key
78
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
metropolitan markets and further reductions in sales to daily
rental companies. We recognize, however, that continuing
weakness in the U.S. automotive market is likely to provide
a significant challenge to improving sales of vehicles
manufactured in the U.S. and Canada in the near term.
Accelerate Cost Reductions and Quality
Improvements. Since our November 2005 announcement of
our strategy to reduce structural costs in the manufacturing
area, we have introduced a variety of initiatives to accomplish
that strategy. In 2007, we remain on track to realize the
$9 billion average annual structural-cost savings target
versus 2005 in our GMNA and Corporate and Other segments. 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 $5 billion. In addition, we are focusing on
our long-term goal of reducing our global automotive structural
costs as a percentage of global revenue. For 2006, global
automotive structural costs were less than 30% of revenue, down
from approximately 35% in 2005. Previously, we had set a
long-term goal of 25% of revenue. Based on the 2007 National
Agreement (see UAW Agreements below), we are
re-evaluating
that target to determine the impact that the significant cost
savings we anticipate from that agreement will have on our goal.
Reducing material costs remains a critical part of GMNAs
overall long-term cost reduction plans. In 2007, improved
performance in purchasing has been offset by improvements and
content additions on new programs and higher commodity prices
for steel and non-ferrous metals. Looking forward, we expect
that commodity pricing pressures will moderate. In addition, we
expect savings from reductions in prices we pay to Delphi for
purchased components. Such reductions depend on the outcome of
negotiations with Delphi and the UAW and Delphis
successful emergence from bankruptcy protection (see Delphi
Bankruptcy below).
We continue our aggressive pursuit of material cost reductions
via improvements in our 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 our global reach to take
advantage of economies of scale in purchasing, engineering,
advertising, salaried employment levels and indirect material
costs, we seek to continue to achieve cost reductions. We have
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 through
continued investment in product development and new technology.
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. For the past two years we have worked with the UAW and our
other U.S. labor unions to find solutions to this
challenge. In October 2005, we announced an agreement with the
UAW (the 2005 UAW Health Care Settlement Agreement), which
modified postretirement healthcare benefits for UAW active
employees, retirees and their eligible dependents to impose for
the first time monthly contributions, deductibles and
co-pay
obligations. The Retiree MOU executed in connection with the
2007 National Agreement will incorporate and supersede the 2005
UAW Health Care Settlement Agreement when it is implemented on
the later of January 1, 2010 or the date when all appeals
or challenges to court approval of the Retiree MOU have been
exhausted (Implementation Date).
We began recognizing benefits from the 2005 UAW Health Care
Settlement Agreement during the three months ended
September 30, 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
$14.5 billion reduction in the OPEB obligation. In April
2006, GM and the International Union of Electrical Workers
Communications Workers of America
(IUE-CWA)
also reached a tentative agreement to reduce healthcare costs
that is similar to the 2005 UAW Health Care Settlement
Agreement. This agreement was ratified by the
IUE-CWA
membership in April 2006 and received court approval in November
2006. The
IUE-CWA
collective bargaining agreement expires in the fourth quarter of
2007. As part of the negotiations for a new contract with the
IUE-CWA, we
anticipate agreeing to arrangements similar to those
contemplated by the Retiree MOU.
79
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
We also increased the U.S. salaried workforces
participation in the cost of healthcare. In February 2006, we
announced that beginning in January 2007 we would cap our
contributions to salaried retiree healthcare at the level of its
2006 expenditures. After 2006, when average costs exceed
established limits, we 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, our
Board of Directors approved a reduction in the levels of
coverage for corporate-paid life insurance for salaried retirees.
We will continue to work with our employees, healthcare
providers and the U.S. government to find solutions to the
critical issues posed by the rising cost of healthcare. The
Retiree MOU provides that we will publicly support federal
policies to improve the quality and affordability of healthcare
and work cooperatively with the UAW toward that goal. GM and the
UAW have agreed to form a National Institute for Health Care
Reform, which would conduct research and analyze the current
medical delivery system in the U.S., develop targeted and
broad-based reform proposals to improve the quality,
affordability and accountability of the system and educate the
public, policymakers and others about how these reforms could
address the deficiencies of the current system. Our initiatives
to reduce healthcare costs during the nine months ended
September 30, 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 healthcare costs.
UAW
Agreements
2007 National Agreement. In October 2007, GM and the
UAW announced the 2007 National Agreement, which we anticipate
will enable further cost reductions by enhancing our ability to
deploy our labor force in the U.S. where it is required and
to adjust employment levels to reflect market conditions and by
establishing wage and benefit structures that will result in
lower costs. Under the 2007 National Agreement, we will
establish a two-tier wage structure that provides significantly
lower base wage rates and modified benefits to newly hired
employees in non-core positions (Tier II). More than 16,000
current hourly positions in the U.S. are deemed non-core.
Current demographics indicate that approximately 65% of the
current UAW workforce will be eligible for retirement or early
retirement by the end of 2007, increasing to approximately 75%
by the expiration of the 2007 National Agreement in 2011. Given
these demographics, we expect to have the opportunity to
transition a significant number of positions to Tier II. We
are likely to incur significant upfront restructuring
expenditures to provide incentives to encourage such work force
turnover. The 2007 National Agreement provides lump sum payments
of $3,000 in 2007 and 3%, 4% and 4% of wages in 2008, 2009 and
2010, respectively. The agreement does provide modest increases
to pension benefits for current and future retirees and reduces
the escalation rate of the cost of living allowance (COLA), more
than half of which will be retained by us. In addition, we
agreed to hire 2,800 current temporary workers as permanent
employees.
The 2007 National Agreement also revises job security and other
provisions to provide us with greater flexibility. For example,
provisions in earlier UAW contracts that set benchmark minimum
employment levels by facilities have been eliminated. The Job
Opportunity Bank Security program (JOBS) has been significantly
modified, such that no employee can be protected in the JOBS
bank for more than two years, and employees in the JOBS bank
will be put on leave without pay or benefits if they refuse one
job offer within 50 miles or, with limited exceptions, four
job offers more than 50 miles away. The 2007 National
Agreement also includes provisions to reduce the number of
employees in the JOBS bank such as retraining and relocation
options and a special attrition program, including mandatory
placements. We believe that these revised job security
provisions will allow us to address the cost of responding to
changing market conditions by permitting us to utilize the
available workforce through timely redeployment.
In addition, in negotiating the 2007 National Agreement we
agreed upfront on certain product and sourcing plans with the
UAW. The 2007 National Agreement permits us to subcontract
certain specific work such as housekeeping and large scale
construction programs. The UAW agreement recognizes the
implementation of capacity actions that were announced in 2005,
as well as the addition of three plants. At the same time, we
80
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
committed to continued investment in 14 assembly plants and 25
related powertrain and stamping facilities in the U.S., subject
to market demand, business case, and approval by our Board of
Directors. Future investment in plants that are not specifically
provided for in the 2007 National Agreement will depend on
future market conditions and our product plans.
Retiree MOU. In the Retiree MOU, GM and the UAW
agreed that responsibility for retiree health care will
permanently shift from GM to a new retiree plan (New Plan)
funded by a new independent Voluntary Employee Beneficiary
Association trust (New VEBA). As of the Implementation Date, we
will transfer our obligations for providing UAW retirees in the
Covered Group with post-retirement medical benefits,
including but not limited to hospital, surgical, medical,
prescription, drug, vision and, as applicable to a limited group
of retirees, dental coverage, as well as the cost of
administering such benefits and $76.20 of the Medicare
Part B premium (Post-Retirement Medical Benefits). The
Covered Group is comprised of: (1) all members
of the class defined in the settlement agreement approved in the
class action challenging the 2005 UAW Health Care Settlement
Agreement; (2) all future retirees as such term is defined
in the 2005 UAW Health Care Settlement Agreement; (3) all
currently active
UAW-represented
employees of GM with seniority as of September 14, 2007 who
retire with eligibility for post-retirement medical coverage;
(4) all UAW retirees from Delphi as of September 14,
2007 who are entitled to GM retiree medical coverage under a
previous agreement negotiated among the UAW, GM and Delphi;
(5) upon their retirement, all active
UAW-represented
employees of Delphi or a former Delphi unit who are eligible for
GM retiree medical coverage under such MOU; (6) all UAW
retirees from any other closed or divested
GM-UAW
business units as of September 26, 2007 to the extent GM is
responsible for their retiree medical coverage; and
(7) upon retirement after September 26, 2007, all
active
UAW-represented
employees of any other closed or divested
GM-UAW
business if GM would have responsibility for their retiree
medical coverage. The Covered Group also includes the spouses,
surviving spouses and dependents of such current or former
GM-UAW
employees who are eligible for
GM-provided
retiree medical coverage. Until the Implementation Date, we will
continue to provide Post-Retirement Medical Benefits to UAW
retirees and their eligible spouses, surviving spouses and
dependents on the basis set forth in the 2005 UAW Health Care
Settlement Agreement. The Retiree MOU provides that the New VEBA
will be established on the Implementation Date and maintained by
either an independent committee or a joint labor-management
committee. Under the Retiree MOU we will provide funding to the
New VEBA as follows:
(1) Existing Internal VEBA. On January 1,
2008, we will allocate a percentage of the General Motors
Welfare Benefit Trust (Internal VEBA) equal to the percentage of
our OPEB liability attributable to UAW employees and retirees
and their eligible dependents to a separate account in the
Internal VEBA (UAW Related Account), which will also hold the
investment returns attributable to that percentage of the trust.
Effective January 1, 2008 and subject to the termination of
the Retiree MOU, we will not disburse any assets from the UAW
Related Account until the Implementation Date. We will then
transfer the assets in the UAW Related Account or an amount
equal to the balance in that account to the New VEBA.
(2) Existing External VEBA. The assets and
liabilities of the DC VEBA established for mitigation purposes
under the 2005 UAW Health Care Settlement Agreement (Mitigation
VEBA) will be transferred to the New VEBA after the transfer of
assets of the Internal VEBA. We will be obligated to make the
final $1 billion payment required under the 2005 UAW Health
Care Settlement Agreement in 2011, to the New VEBA if it has
been established by then, or if not, to the Mitigation VEBA.
(3) Temporary Asset Account
Cash. On January 1, 2008, we will establish a
temporary asset account (TAA) and deposit a contingent cash
payment equal to the difference between $18.5 billion and
the value of the UAW Related Account on January 1, 2008.
The $18.5 billion includes $2.5 billion representing
the present value of the COLA adjustments and the forgone 2009
wage increase, as provided in the Retiree MOU.
Upon initial court approval of the Retiree MOU, we will also
deposit in the TAA: (i) $3.8 billion (subject to
adjustment for payments under the 2005 UAW Health Care
Settlement Agreement) or, at our discretion, an annual amount as
described in the amortization schedule to the Retiree MOU under
Wages/COLA; and (ii) $1.8 billion or, at
our discretion, an annual amount as described in the
amortization schedule to the Retiree
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GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
MOU under Base. We may prefund such annual payments
by paying the applicable buyout amount provided in
Appendix C to the Retiree MOU. If we choose to pay these
amounts either in total upon the initial court approval or later
by terminating annual payments through the applicable buyout
amount, our payments will include interest at nine percent per
annum on the amount paid from January 1 of the applicable year
through the date of the deposit.
We will transfer the assets in the TAA related to these deposits
or an amount equal to the balance in the TAA related to these
deposits to the New VEBA after the transfer of the assets and
liabilities of the Mitigation VEBA.
(4) Temporary Asset Account Convertible
Note. On January 1, 2008, we will issue into the
TAA a five-year convertible note in the principal amount of
$4.4 billion, with 6.75% interest payable semiannually
(Convertible Note), which we may call at any time beginning
three years after issuance. The Convertible Note may be
converted into 109,312,500 shares of GM common stock,
$12/3
par value (Converted Stock): (i) if we provide notice that
it is calling the Convertible Note; (ii) within three
months before the maturity date; or (iii) during any
calendar quarter if for at least 20 trading days of the last 30
trading days in the preceding calendar quarter the closing
market price of GM common stock is at least $48.00. The
Convertible Note may not be sold or hedged before the
Implementation Date. After the Implementation Date the
Convertible Note or the Converted Stock may be sold subject to
certain volume restrictions (maximum 54 million shares per
year). After the Implementation Date, the New VEBA will have the
right to demand registration of one public offering of the
Convertible Note or the Converted Stock per year and to
participate in public offerings of securities by GM, under
certain circumstances. In private transactions, the New VEBA may
not sell: (i) a block of Converted Stock that would be more
than 2% of the outstanding shares of GM common stock to a single
buyer; or (ii) any Converted Stock to a holder of more than
5% of the outstanding shares of GM common stock that has intent
to influence GMs directors or management. The trustee of
the New VEBA will vote the Converted Stock held in the New VEBA
in the same proportion as the votes cast by all other
stockholders in a given vote. The Trustee may sell the
Convertible Note or the Converted Stock to a tender offeror only
if the tender offer has been recommended by an independent
committee of our Board of Directors. After the cash and other
investments in the TAA have been transferred to the New VEBA,
the Convertible Note (or a replacement convertible note with
terms that are substantially identical other than the date of
issuance) will be transferred to the New VEBA, as permitted by
law governing contributions of employer securities to a benefit
plan and a VEBA.
(5) Shortfall Amount Contributions. On
April 1, 2008, we will make an initial contribution of
$165 million to the TAA. Each year beginning in 2009, if
that years annual cash flow projection for the New VEBA
shows that the New VEBA will become insolvent within the next
25 years, we will deposit $165 million by April 1 of
that year (Shortfall Amount Contribution) into the TAA or, after
the Implementation Date, into the New VEBA, provided that we
will not make more than 19 Shortfall Amount Contributions (not
including the payment on April 1, 2008 referred to in the
previous sentence). At any time, we may prefund all future
annual Shortfall Amount Contributions by paying the applicable
buyout amount provided in Appendix C of the Retiree MOU. We
will transfer the assets in the TAA related to the initial
$165 million deposit and additional Shortfall Amount
Contributions deposited in the TAA or an amount equal to the
balance in the TAA related to such deposit and Shortfall Amount
Contributions to the New VEBA in conjunction with the transfer
to the New VEBA described above in
TAA-Cash.
In the Retiree MOU, the UAW and we acknowledged that our
obligations are fixed and capped and that we are not responsible
for, and do not provide a guarantee of: (1) the payment of
Retiree Medical Benefits to the Covered Group after the Final
Effective Date; (2) the asset returns of the funds in the
TAA or the New VEBA; or (3) whether there will be
sufficient assets in the New VEBA to fully pay the obligations
of the New VEBA or New Plan. In the event the assets of the New
VEBA are not sufficient to fully fund the obligations of the New
Plan, the New VEBA and New Plan will be required to reduce
benefits to plan participants. In the Retiree MOU, the UAW and
the Covered Group agreed that they would not negotiate to
increase any of our funding obligations under the MOU. In
addition, the UAW agreed that it will not seek to obligate us
to: (1) provide additional contributions to the New
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MOTORS CORPORATION AND SUBSIDIARIES
VEBA; (2) make any other payments related to providing
retiree medical benefits to the Covered Group; or
(3) provide retiree medical benefits through any other
means to the Covered Group. In the future, there may be
circumstances in which employees may contribute earnings that
they received from wages, profit sharing, COLA or signing
bonuses.
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
continues to assure us that it expects no disruption in its
ability to supply us with the systems, components, and parts we
need 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 us, that process is also expected to present
opportunities for us. These opportunities include reducing, over
the long term, the significant cost penalty we incur in
obtaining parts from Delphi, as well as improving the quality of
systems, components, and parts we procures from Delphi.
Since the initial filing, we have worked and will continue to
work constructively with Delphi, Delphis unions and other
participants in Delphis Chapter 11 restructuring
process. Delphi, GM, and other interested parties have
negotiated certain arrangements described below and set forth in
the Plan of Reorganization (Delphi POR) that has been submitted
to the Bankruptcy Court for approval as the basis for a
successful consensual resolution of Delphis
Chapter 11 proceedings. However, some of these agreements
have been renegotiated as described below, and there can be no
assurance that these proceedings will be resolved substantially
on the terms set forth in the Delphi POR or on other consensual
terms, or that we will be able to realize any benefits as a
result of Delphis restructuring process.
Delphis financial distress and Chapter 11 filing
posed significant risks to us for two principal reasons, namely:
(1) our production operations rely on systems, components,
and parts provided by Delphi, our largest supplier, and could be
substantially disrupted if Delphi rejects its GM supply
agreements or its labor agreements and thereby affects the
availability or price of the required systems, components, or
parts; and, (2) in connection with the 1999 spin-off of
Delphi, we provided limited benefit guarantees with regard to
certain hourly employees who were transferred to Delphi from GM,
which could be triggered in connection with the Chapter 11
proceedings.
Delphi
Motions to Reject Various Contracts.
In March 2006, Delphi filed motions in Bankruptcy Court seeking
authority to reject its U.S. labor agreements and modify
retiree welfare benefits, and to reject certain supply contracts
with us. Hearings on these motions have been adjourned
indefinitely while the parties seek a consensual resolution.
Delphi has now withdrawn or agreed to withdraw these motions
without prejudice. If the Delphi POR is not successful, Delphi
or one or more of its affiliates could be subject to labor
disruptions or could reject or threaten to reject individual
contracts with us, either for the purpose of exiting specific
lines of business or in an attempt to increase the price we pay
for certain parts and components. We believe that Delphi is
likely to complete a restructuring based substantially on the
Delphi POR, but we are seeking to minimize the risks to us in
case the Delphi POR is not consummated or is significantly
modified by protecting our right of setoff against the
$1.15 billion we owed to Delphi in the course of ordinary
business when it made 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. We cannot provide any assurance that we will be able
to setoff such amounts fully or partially. To date, we have
taken setoffs of approximately $54 million against that
pre-petition obligation, with Delphis agreement.
GM Claims
Against Delphi.
In July 2006, we filed a Consolidated Proof of Claim, in
accordance with the Bankruptcy Courts procedures, setting
forth our claims (including the claims of various GM
subsidiaries) against Delphi and the other debtor entities. The
exact amount of our 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 our claims could be as
much as $13 billion.
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MOTORS CORPORATION AND SUBSIDIARIES
Although the Proof of Claim preserves GMs right to pursue
recovery of its claims from Delphi, under the Global Settlement
Agreement described below these claims would be settled pursuant
to the Delphi POR if and when it becomes effective.
Benefit
Guarantee Agreements.
In connection with the 1999 spin-off of Delphi, we made
commitments to guarantee limited pension and OPEB payments to
eligible hourly employees who were transferred to Delphi from GM
(Covered Employees), entering into separate agreements with the
UAW, the
IUE-CWA, and
the United Steel Workers (Benefit Guarantee Agreements). Each
Benefit Guarantee Agreement contains separate benefit guarantees
relating to pension and OPEB obligations, with different
triggering events under which we could be liable if Delphi fails
to provide the corresponding benefit at the required level.
Therefore, we 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, our
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.
Our obligations under the Benefit Guarantee Agreements have not
been triggered by Delphis Chapter 11 filing or its
motions in Bankruptcy Court to reject its U.S. labor
agreements and modify retiree welfare benefits. The Benefit
Guarantee Agreements do not obligate us to guarantee any
benefits for Delphi retirees in excess of the corresponding
benefits we provide at the time to our own hourly retirees.
Accordingly, any reduction of the benefits we provide to our
hourly retirees would reduce our obligations under the
corresponding benefit guarantee.
A separate agreement between GM and Delphi requires Delphi to
indemnify us for any payments under the benefit guarantees to
the UAW employees or retirees. Any recovery by us under
indemnity claims against Delphi, however, might be subject to
partial or complete discharge in the Delphi reorganization
proceeding. As a result, our claims for indemnity may not be
paid fully or partially.
The Benefit Guarantee Agreements were originally scheduled to
expire on October 18, 2007, unless triggered before then.
As described below, we have agreed to extend the expiration date
of the existing Benefit Guarantee Agreement with the UAW from
October 18, 2007 to December 31, 2007, and further to
March 31, 2008 if approval of the Delphi POR (or any
successor plan of reorganization) is being sought. Delphi has
agreed to extend its agreement to indemnify us for payments made
under the Benefit Guarantee Agreement with the UAW on the same
basis and for the same time period. We have also agreed to
obligations under the Benefit Guarantee Agreements with the UAW
under certain circumstances described below under Delphi
POR Labor MOUs.
Delphi
Attrition Programs.
We have also assumed costs related to Delphi hourly employees
who participated in special attrition and buyout programs, which
provided a combination of early retirement programs and other
incentives to reduce hourly employment at both GM and Delphi. In
2006, 13,800 Delphi employees represented by the UAW and 6,300
Delphi employees represented by the
IUE-CWA
elected to participate in these attrition and buyout programs.
If Delphis bankruptcy proceedings are not resolved
consensually according to the Delphi POR, or otherwise, we will
have a pre-petition, general unsecured claim against Delphi of
$3.8 billion related to some of our costs under these
attrition and buyout programs, $3.5 billion of such claim
would be 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.
Delphi
POR
GM and Delphi have entered into agreements with the UAW, the
IUE-CWA and
other labor unions that represent Delphis U.S. hourly
employees. In September 2007, GM and Delphi signed a settlement
agreement and a restructuring agreement (together,
GM-Delphi
Settlement Agreements) that resolved all claims by and against
Delphi and documents our support of the Delphi POR. On
October 29, 2007, the parties executed amendments to the
GM-Delphi
Settlement Agreements as described below. We believe that the
arrangements contemplated by these agreements, which are
described in this section, would resolve the issues discussed
above.
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MOTORS CORPORATION AND SUBSIDIARIES
Labor MOUs. On June 22, 2007, GM, Delphi, and
the UAW entered into a Memorandum of Understanding regarding
Delphis restructuring (Delphi UAW MOU), which was ratified
by the UAW membership on June 28, 2007 and became effective
upon bankruptcy court approval on July 19, 2007. In
connection with receiving the court order, Delphi agreed to
withdraw its motion to reject the U.S. labor agreements
with the UAW without prejudice. The Delphi UAW MOU covers a
number of issues, including: (1) an extension of the
GM-UAW
benefit guarantee and the related Delphi indemnity;
(2) flowbacks by certain Delphi UAW employees;
(3) settlement of a UAW claim against Delphi; and
(4) GM support for certain specific Delphi sites.
In the Delphi UAW MOU, we agreed to extend the expiration date
of the Benefit Guarantee Agreement with the UAW from
October 18, 2007 to December 31, 2007. If Delphi has
commenced solicitation of acceptance of its plan of
reorganization prior to December 31, 2007, but the plan has
not been confirmed and substantially consummated by then, the
Benefit Guarantee Agreement with the UAW would be further
extended to March 31, 2008. Delphi agreed to extend its
agreement to indemnify us for payments made under the Benefit
Guarantee Agreement with the UAW on the same basis and for the
same time period. We also agreed that if Delphi terminates its
pension plan, ceases to provide
on-going
service, or fails or refuses to provide post-retirement medical
benefits for certain UAW employees at any time before both:
(1) GM and Delphi execute a comprehensive settlement
agreement resolving the financial, commercial, and other matters
between them, and (2) the U.S. Bankruptcy Court
substantially confirms a Delphi plan of reorganization that
incorporates, approves and is consistent with such a
comprehensive settlement agreement, the applicable provisions of
the Benefit Guarantee Agreement will be triggered for those UAW
employees.
We also agreed in the Delphi UAW MOU to allow Delphi UAW
employees who were on the payroll prior to October 8, 2005
to flowback to GM and be offered job opportunities at GM for
purposes of OPEB under certain circumstances. We also permitted
certain Delphi UAW represented employees who agreed to retire by
September 1, 2007 under the retirement incentives agreed to
by Delphi and the UAW in the Delphi UAW MOU to flowback to GM,
and we will assume OPEB obligations for those retirees. With
respect to the retirement incentives, buyouts, buy downs and
severance payments agreed to by Delphi and the UAW in the Delphi
UAW MOU, our financial contribution for such payments is covered
in the
GM-Delphi
Settlement Agreements, as described below. We further committed
in the Delphi UAW MOU to pay $450 million to settle a UAW
claim against Delphi, which the UAW has directed us to pay
directly to the External VEBA. We will be required to make this
payment upon execution of the
GM-Delphi
Settlement Agreements and substantial confirmation of the Delphi
POR or another reorganization plan for Delphi that incorporates
the
GM-Delphi
Settlement Agreements.
In the Delphi UAW MOU, we also agreed to make commitments to
certain product programs at certain specified Delphi sites. In
addition, at certain Delphi sale sites (Saginaw
Steering Saginaw, Sandusky, and Adrian) and the
Delphi Footprint sites (Flint East, Needmore Road,
and Saginaw Manufacturing), we agreed to cause the production
operations and the active and inactive Delphi UAW employees to
be transferred to a third party by certain dates and under
certain circumstances. Finally, we agreed to provide a certain
number of job opportunities at each of the Delphi
Footprint sites by providing business at Flint and
Needmore Road to a facility operated by us or a third party
designated by us, either of which would operate at or near the
site, and at Saginaw Manufacturing to a facility operated by a
third party.
On August 5, 2007, we entered into Memorandum of
Understanding with Delphi and the
IUE-CWA
(Delphi
IUE-CWA
MOU), which provides terms that are similar to the Delphi UAW
MOU with regard to establishing terms related to the consensual
triggering of the Benefit Guarantee Agreement offering an
additional attrition program, and continuing operations at
certain Delphi sites for which we committed to certain product
programs. We also entered into similar agreements with the
United Steel Workers (USW) and other U.S. labor unions that
represent Delphi hourly employees. The Delphi
IUE-CWA MOU
and the agreement with the other labor unions have been ratified
by the appropriate membership and approved by the Bankruptcy
Court.
Delphi Reorganization. On July 7, 2007, Delphi
announced the termination of the December 18, 2006 Plan
Framework Support Agreement with GM and a consortium of
potential investors and the related investment agreement. On
July 18, 2007 Delphi announced that it would seek
bankruptcy court approval of an equity purchase
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GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
and commitment agreement (EPCA) with a modified investor group
led by Appaloosa Management L.P., which would be supported by
Delphis Statutory Committees and GM. On August 2,
2007, the Bankruptcy Court issued an order approving the EPCA.
Under the terms of the EPCA and the
GM-Delphi
Settlement Agreement as contemplated, we would release claims
against Delphi in exchange for $2.7 billion in cash and an
unconditional release of any alleged claims against GM by the
bankruptcy estate. In addition, we would assume up to
$2 billion but not less than $1.5 billion of net
pension obligations of Delphi, and GM would receive a note
payable for the amount of the obligations assumed, which would
be payable in cash by Delphi on market terms within 10 days
after the plan of reorganization becomes effective. As with
other customers, certain GM claims related to ordinary business
would flow through the Chapter 11 proceedings and be
satisfied by Delphi after the reorganization in the ordinary
course of business.
GM-Delphi
Settlement Agreements. GM and Delphi entered into the
Global Settlement Agreement and the Master Restructuring
Agreement on September 6, 2007, the same date that Delphi
filed its Plan of Reorganization and related Disclosure
Statement with the Bankruptcy Court. Under the Global Settlement
Agreement, we would be released from all claims by Delphi and
its U.S. affiliates, their creditors, their unions, and all
current and future stockholders of Delphi, and from any claims
related to the spin-off of Delphi from GM, collective bargaining
agreements, and the Delphi bankruptcy by Delphis
subsidiaries outside the U.S., and GM and its affiliates would
release similar claims against Delphi and its affiliates. Claims
resulting from the ordinary course of business would not be
released under the Global Settlement Agreement. We agreed to
assume approximately $1.5 billion of Delphis net
pension obligations, and Delphi agreed to issue GM a note for
the same amount, which would be payable in cash within
10 days after the Delphi POR is substantially consummated.
We also agreed to reimburse Delphi for the cost of credited
service accrued since January 1, 2007 by Delphi
U.S. hourly employees, as well as OPEB obligations to
hourly retirees in 2007. The Global Settlement Agreement also
provides that we would reimburse Delphi for 100% of retirement
incentives, 50% of the buyout payments and 100% of the buydown
payments, each made as part of the most recent Delphi attrition
programs for members of the UAW, the
IUE-CWA, and
the USW, and would make payments aggregating $51 million to
Delphi related to
IUE-CWA
claims against Delphi and costs and expenses incurred by Delphi
in connection with the
IUE-CWA MOU.
We further committed to pay $9 million to a VEBA as part of
a settlement of certain USW claims against Delphi in connection
with the agreement between the USW and Delphi. Finally, the
Global Settlement Agreement provided that Delphi would pay us
$2.7 billion in cash on the effective date of the Delphi
POR which has been subsequently amended as discussed below.
The Master Restructuring Agreement sets forth the terms and
conditions governing the scope of the existing supply contracts,
related pricing agreements, and extensions of certain supply
contracts; our rights to move production to certain suppliers;
and Delphis rights to bid and qualify for new business.
Delphi also agreed to assume or reinstate, as applicable,
certain agreements with us, including certain agreements related
to the 1999 spin-off of Delphi from GM, certain subsequent
agreements, and all ordinary course agreements. Most prepetition
contracts between GM and Delphi, including contracts related to
the 1999 spin-off of Delphi from GM, were terminated. We agreed
to reimburse a certain portion of Delphis hourly labor
costs incurred to produce systems, components, and parts for GM
from October 1, 2006 through September 14, 2015, and
to offer similar reimbursement to prospective buyers of certain
Delphi facilities with GM production. The Master Restructuring
Agreement provides additional GM commitments with regard to
specific Delphi facilities. At certain U.S. facilities
providing production for GM, we agreed to reimburse
Delphis expenses as necessary to make up cash losses
attributable to such production until the facilities are either
closed or sold. With regard to certain businesses that Delphi is
holding for sale, we agreed to make up a certain portion of any
shortfall if Delphi does not fully recover the net working
capital invested in each such business, and if sales proceeds
exceed net working capital, GM would receive a certain portion
of the excess. Finally, Delphi agreed to provide us or our
designee with an option to purchase all or any of certain Delphi
businesses for one dollar if such businesses have not been sold
by certain specified deadlines. If such a business is not sold
either to a third party or to us or any affiliate pursuant to
the option by the applicable deadline, we (or at our option, a
GM affiliate) will be deemed to have exercised the purchase
option, and the unsold business, including materially all of its
assets and liabilities, will automatically transfer to the GM
buyer. Similarly, under the Delphi UAW MOU if such a
transfer has not occurred by the applicable deadline,
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GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
responsibility for the UAW hourly employees of such an unsold
business affected would automatically transfer to us or our
designated affiliate. Delphi agreed to guarantee the performance
of the subsidiary to which we will issue our U.S. purchase
orders, provided that we are not in material breach of certain
of our obligations under the
GM-Delphi
Settlement Agreements. Delphi further agreed to maintain
majority ownership of such subsidiary, with certain limited
exceptions.
Renegotiation of
GM-Delphi
Settlement Agreements. In late September 2007, Delphi
informed the Bankruptcy Court that hearings on the Disclosure
Statement related to the Delphi POR should be delayed to provide
more time to negotiate exit financing, due to changes in the
credit markets, and to seek narrow modifications to the Delphi
POR, which includes the
GM-Delphi
Settlement Agreements. On October 29, 2007, following
renegotiations with all interested parties, GM and Delphi
amended the Global Settlement Agreement to provide that on the
effective date of the Delphi POR, instead of receiving
$2.7 billion in cash GM would receive $1.5 billion in
a combination of at least $750 million in cash and a second
lien note for the remaining amount, and junior convertible
preferred stock of Delphi with a plan value of
$1.1 billion. Changes to the Delphi POR and all the related
amendments have been submitted to the Bankruptcy Court for
approval. In light of continuing weakness in the credit markets,
however, it is possible that Delphi, GM, and other interested
parties may consider additional changes to the recoveries of
each party.
Warranty Claims Settlement. On August 14, 2007,
GM and Delphi entered into a Warranty Settlement Agreement,
which was approved by the Bankruptcy Court on October 1,
2007. This agreement resolves certain outstanding warranty
claims asserted by us against Delphi related to components or
systems supplied by Delphi to us, for an estimated settlement
amount of $170 million, comprised of payments anticipated
to total $130 million in cash and replacement components
valued at $40 million. This agreement is an exhibit to the
Global Settlement Agreement.
GM
Contingent Liability.
Depending on the outcome of the current negotiations and other
factors, we believe that it is probable that we have incurred a
contingent liability due to Delphis Chapter 11
filing. In our quarterly report on
Form 10-Q
for the second quarter of 2007, we reported that we believed
that the range of the contingent exposures was approximately
$7 billion. During the third quarter of 2007, as a result
of finalizing the
IUE-CWA MOU,
the similar agreements with Delphis other U.S. labor
unions and the
GM-Delphi
Settlement Agreements, and to reflect ongoing negotiations with
Delphi and other stakeholders in Delphis bankruptcy
proceedings to modify certain arrangements in the Delphi POR, we
recorded additional charges totaling $350 million. We
expect under the
GM-Delphi
Settlement Agreements provisions described above to reimburse
Delphi for certain labor expenses with an initial payment of up
to approximately $500 million when it emerges from
bankruptcy, and to provide annual labor-related payments through
2015 between $300 million and $400 million and annual
transitional payments for a shorter period of approximately
$100 million, which will be recognized in the future as
incurred. We continue to expect that the cost of these
reimbursements will be more than offset in the long term by our
savings from reductions to the $2 billion price penalty we
now pay Delphi annually for systems, components, and parts.
During 2006, amounts previously recorded under the benefit
guarantee were reclassified to GMs OPEB liability as we
have assumed the OPEB obligation for 17,800 Delphi employees who
have returned back to GM to continue working or retire from GM.
Because negotiations are not complete, the actual impact of the
resolution of issues related to Delphi cannot be determined
until the Bankruptcy Courts approval of a comprehensive
resolution and plan of reorganization, and there can be no
assurance that the parties will reach a comprehensive resolution
and plan or that the Bankruptcy Court will approve such a
resolution and plan, or that any resolution and plan will
include the terms described above.
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GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Investigations
As previously reported, we are cooperating with federal
governmental agencies in connection with a number of
investigations.
The Securities and Exchange Commission (SEC) has issued
subpoenas and information requests to us in connection with
various matters including restatements of our previously
disclosed financial statements in connection with our accounting
for certain foreign exchange contracts and commodities
contracts, our financial reporting concerning pension and OPEB,
certain transactions between GM and Delphi, supplier price
reductions or credits and any obligation we may have to fund
pension and OPEB costs in connection with Delphis
bankruptcy proceedings. 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.
We have produced documents and provided testimony in response to
the SEC and federal grand jury subpoenas. We 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.5
Liquidity
and Capital Resources
Investors or potential investors in GM securities consider cash
flows of the Automotive and Other and FIO businesses to be
relevant measures in the analysis of GMs various
securities that trade in public markets. Accordingly, we provide
supplemental statements of cash flows to aid users of our
Condensed Consolidated Financial Statements in the analysis of
liquidity and capital resources.
88
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
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 Other
Operations line items shown in the table below. Following
are such statements for the nine months ended September 30,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive and Other
|
|
|
Financing and Insurance
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Net cash provided by (used in) continuing operating
activities
|
|
$
|
2,042
|
|
|
$
|
3,855
|
|
|
$
|
1,599
|
|
|
$
|
(9,690
|
)
|
Net cash provided by discontinued operating activities
|
|
|
221
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
2,263
|
|
|
|
4,350
|
|
|
|
1,599
|
|
|
|
(9,690
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property
|
|
|
(4,937
|
)
|
|
|
(5,071
|
)
|
|
|
(2
|
)
|
|
|
(285
|
)
|
Investments in marketable securities, acquisitions
|
|
|
(1,927
|
)
|
|
|
(102
|
)
|
|
|
(57
|
)
|
|
|
(10,525
|
)
|
Investments in marketable securities, liquidations
|
|
|
76
|
|
|
|
1,711
|
|
|
|
37
|
|
|
|
9,880
|
|
Net change in mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65
|
)
|
Increase in finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,603
|
)
|
Proceeds from sale of finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,859
|
|
Proceeds from sale of business units/equity investments
|
|
|
5,354
|
|
|
|
1,968
|
|
|
|
|
|
|
|
8,556
|
|
Capital contribution to GMAC LLC
|
|
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases, acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,772
|
)
|
Operating leases, liquidations
|
|
|
|
|
|
|
|
|
|
|
2,463
|
|
|
|
5,266
|
|
Net investing activity with Financing and Insurance Operations
|
|
|
721
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
Investments in companies, net of cash acquired
|
|
|
(42
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
(324
|
)
|
Other
|
|
|
(29
|
)
|
|
|
(663
|
)
|
|
|
48
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing investing
activities
|
|
|
(1,806
|
)
|
|
|
(284
|
)
|
|
|
2,489
|
|
|
|
10,016
|
|
Net cash used in discontinued investing activities
|
|
|
(22
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(1,828
|
)
|
|
|
(304
|
)
|
|
|
2,489
|
|
|
|
10,016
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term borrowing
|
|
|
(305
|
)
|
|
|
(244
|
)
|
|
|
(3,427
|
)
|
|
|
1,511
|
|
Borrowings of long-term debt
|
|
|
1,919
|
|
|
|
430
|
|
|
|
|
|
|
|
66,000
|
|
Repayment of long-term debt
|
|
|
(1,244
|
)
|
|
|
(341
|
)
|
|
|
|
|
|
|
(76,043
|
)
|
Net financing activity with Automotive and Other Operations
|
|
|
|
|
|
|
|
|
|
|
(721
|
)
|
|
|
(1,900
|
)
|
Cash dividends paid to stockholders
|
|
|
(425
|
)
|
|
|
(424
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing financing activities
|
|
|
(55
|
)
|
|
|
(579
|
)
|
|
|
(4,148
|
)
|
|
|
(7,501
|
)
|
Net cash used in discontinued financing activities
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(60
|
)
|
|
|
(579
|
)
|
|
|
(4,148
|
)
|
|
|
(7,501
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
292
|
|
|
|
115
|
|
|
|
|
|
|
|
61
|
|
Net transactions with Automotive/Financing Operations
|
|
|
(39
|
)
|
|
|
(967
|
)
|
|
|
39
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
628
|
|
|
|
2,615
|
|
|
|
(21
|
)
|
|
|
(6,147
|
)
|
Cash and cash equivalents reclassified as Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,303
|
)
|
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
|
|
$
|
24,402
|
|
|
$
|
17,802
|
|
|
$
|
328
|
|
|
$
|
3,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Automotive
and Other
Available
Liquidity
We believe we have sufficient liquidity and financial
flexibility to meet our capital requirements over the short and
medium term, including the required funding of the New VEBA and
TAA as outlined in the Retiree MOU, under reasonably foreseeable
circumstances, refer to Key Factors Affecting Future and Current
Results UAW Agreement. Over the long term, we
believe that our ability to meet our capital requirements
primarily will depend on the successful execution of our
turnaround plan and the return of GMNA operations to
profitability and positive cash flow. Available liquidity
includes cash balances, marketable securities and
readily-available assets of the VEBA trusts. At
September 30, 2007, available liquidity was
$30 billion compared with $26.4 billion at
December 31, 2006 and $20.4 billion at
September 30, 2006. At September 30, 2007, available
liquidity included $3.6 billion of readily-available VEBA
trust assets. As a result of the Retiree MOU discussed above,
and in Key Factors Affecting Future and Current
Results UAW Agreements, we expect that reported
liquidity will decline by $2.6 billion as of year-end 2007
due to the exclusion of UAW related readily-available VEBA trust
assets that are currently included in reported liquidity. The
amount of consolidated cash and marketable securities is subject
to intra-month and seasonal fluctuations and includes balances
held by various business units and subsidiaries worldwide that
are needed to fund their operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in billions)
|
|
|
Cash and cash equivalents
|
|
$
|
24.4
|
|
|
$
|
23.8
|
|
|
$
|
17.8
|
|
Marketable securities
|
|
|
2.0
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Readily-available assets of VEBA trusts
|
|
|
3.6
|
|
|
|
2.5
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available liquidity
|
|
$
|
30.0
|
|
|
$
|
26.4
|
|
|
$
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the $3.6 billion of readily-available VEBA
trust assets included in available liquidity, we have additional
VEBA trust assets totaling $15.5 billion at
September 30, 2007, making the total VEBA trust assets
available to us $19.1 billion at September 30, 2007.
At December 31, 2006, the total VEBA trust assets were
$17.8 billion, $2.5 billion of which was
readily-available. At September 30, 2006, the total VEBA
trust assets were $16.9 billion, $2.5 billion of which
was readily-available. The increase in the total VEBA trust
assets since December 31, 2006 was due to asset returns
during the year. As a result of the Retiree MOU, however, we
expect to allocate a significant portion of our VEBA trust
assets to the UAW Related Account as described above in more
detail in Key Factors Affecting Future and Current
Results UAW Agreements. Effective January 1,
2008 and subject to the termination of the Retiree MOU, we will
not disburse any VEBA assets from the UAW Related Account until
the Implementation Date under the Retiree MOU.
We also have 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 September 30, 2007, the availability under the
revolving credit facility was $4.5 billion. There are
$119 million of letters of credit issued under the credit
facility, and 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 General Motors of
Canada Limited (GM Canada), certain plants, property and
equipment of GM Canada and a pledge of 65% of the stock of the
holding company for our indirect subsidiary General Motors de
Mexico, S de R.L. de C.V. 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 $1.5 billion. In the event of certain
work stoppages, the secured facility would be temporarily
reduced to $3.5 billion.
In May 2007, we entered into an unsecured revolving credit
agreement expiring in June 2008, with a lender that provides for
borrowings of up to $500 million. No borrowings were
outstanding under this agreement at September 30, 2007.
90
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
As an additional source of available liquidity, we obtained a
$4.1 billion standby revolving credit agreement with a
syndicate of banks on June 22, 2007. The facility is
secured by our common equity interest in GMAC and matures in
June 2008. As of September 30, 2007, the availability under
this facility was $4.1 billion. There are no loans
currently outstanding.
In August 2007, we entered into a revolving credit agreement
expiring in August 2009 that provides for borrowings of up to
$1.3 billion. This agreement provides additional available
liquidity that we could use for general corporate purposes,
including working capital needs. Under the facility, borrowings
are limited to an amount based on the value of underlying
collateral, which consists of residual interests in trusts that
own leased vehicles and issue asset-backed securities
collateralized by the vehicles and the associated leases. The
underlying collateral was previously owned by GMAC and was
transferred to us as part of the GMAC transaction in
November 2006. The underlying collateral is held by
bankruptcy-remote subsidiaries and pledged to a trustee for the
benefit of the lender. We consolidate the bankruptcy-remote
subsidiaries and trusts for financial reporting purposes. No
borrowings were outstanding under this agreement at
September 30, 2007.
We also have an additional $1.5 billion in undrawn
committed facilities, including certain off-balance sheet
securitization programs, with various maturities up to one year
and $900 million in undrawn uncommitted lines of credit. In
addition, our consolidated affiliates with non-GM minority
shareholders, primarily GM Daewoo, have a combined
$1.6 billion in undrawn committed facilities.
In May 2007, we issued $1.5 billion principal amount of
Series D convertible debentures due in 2009. The debentures
were issued at par with interest at a rate of 1.5%, and may be
converted at the option of the holder into common stock based on
an initial conversion rate of .6837 shares per $25.00
principal amount of debentures, which represents an initial
conversion price of approximately $36.57 per share. In
connection with the issuance of the Series D debentures, we
purchased a convertible note hedge of the convertible debentures
in a private transaction. The convertible note hedge is expected
to reduce the potential dilution with respect to our common
stock upon conversion of the Series D debentures, and
effectively increases the conversion price to $45.71 per share.
The proceeds from these debentures provided additional available
liquidity that we may use for general corporate purposes,
including working capital needs.
Other potential measures to strengthen available liquidity could
include the sale of non-core assets, additional public or
private financing transactions and recoveries under various
agreements with Delphi and the Plan Investors. In connection
with Delphi, the recoveries to us under the arrangement
contemplated by the
GM-Delphi
Settlement Agreements and current negotiations are expected to
include cash. We anticipate that such additional liquidity,
along with other currently available liquidity described above,
will be used for general corporate purposes including working
capital needs as well as funding the TAA and the New VEBA and
similar arrangements with other labor unions.
We believe that it is possible that issues may arise from our
recent restatement of our 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 our public debt indentures. In view of the
restatement of our prior consolidated financial statements, we
have evaluated the effect of our restatement under these
agreements, including our legal rights, such as our ability to
cure, with respect to any claims that could be asserted. Based
on our review, we believe 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, we believe there may be economic or
other disincentives for third parties to raise such claims to
the extent they have them. Based on this review, we reclassified
$257 million of these obligations, as of December 31,
2006, from long-term debt to short-term debt. As of
September 30, 2007 the amount of such reclassified
obligations was $213 million. We believe we have sufficient
liquidity over the short and medium term, regardless of the
resolution of these matters. To date, we have not received any
claims related to these matters.
91
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Cash
Flow
The increase in available liquidity to $30 billion at
September 30, 2007 from $26.4 billion at
December 31, 2006 was primarily a result of positive
operating cash flow, net of a $1 billion contribution to
the Mitigation VEBA, $5.4 billion in proceeds from the sale
of Allison, an increase in readily-available VEBA trust assets
of $1.1 billion and cash flows received from FIO. This
increase was partially offset by capital expenditures and the
$1 billion capital contribution to GMAC.
For the nine months ended September 30, 2007, Automotive
and Other had positive cash flow from continuing operations of
$2 billion on a net loss from continuing operations of
$41.1 billion. That result compares with positive cash flow
from continuing operations of $3.9 billion and a net loss
from continuing operations of $4 billion in the comparable
period of 2006. During the nine months ended September 30,
2006, we withdrew $4 billion from our VEBA trusts to
reimburse OPEB plan costs. Operating cash flow for the nine
month period ended September 30, 2007 was unfavorably
impacted by $.8 billion of costs related to the GMNA
restructuring initiative, $.2 billion of costs related to
the GME restructuring initiative, and $.3 billion of costs
related to the Delphi special attrition programs, for which the
charges were previously recorded from 2003 to 2006.
Capital expenditures of $4.9 billion and $5.1 billion
were a significant use of investing cash in the nine months
ended September 30, 2007 and 2006, respectively. Capital
expenditures were primarily made for global product programs,
powertrain and tooling requirements.
In August 2007, we completed the sale of the commercial and
military operations of Allison for $5.4 billion in cash
plus assumed liabilities.
On November 30, 2006, we consummated the GMAC Transaction,
in which we sold a controlling 51% interest in GMAC to FIM
Holdings. Subsequently, in the first quarter of 2007, we made a
capital contribution of $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
Total debt, including capital leases, industrial revenue bond
obligations and borrowings from GMAC at September 30, 2007
was $39.9 billion, of which $5.3 billion was
classified as short-term or current portion of long-term debt
and $34.7 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 $33.1 billion was long-term. This
increase in total debt was primarily a result of
$1.5 billion convertible debenture issuance on May 31,
2007 and increases in overseas debt balances, partly offset by
$1.1 billion convertible debentures that were put to us and
settled for cash on March 6, 2007. We funded this
settlement using cash flow from operations and available
liquidity.
Short-term borrowing and current portion of long-term debt of
$5.3 billion includes $2.4 billion of debt issued by
our subsidiaries and consolidated affiliates and
$2.8 billion of related party debt, mainly dealer wholesale
floor plan financing from GMAC. We have various debt maturities
other than current of $2.7 billion in 2008 and
$2.2 billion in 2009 and various debt maturities of
$29.8 billion thereafter. GM believes it has adequate
liquidity to settle those obligations as they become due.
In order to provide financial flexibility to us and our
suppliers, we maintain a trade payables program through GMAC
Commercial Finance (GMACCF). Under the terms of the GMAC
Transaction, we will be permitted to continue administering the
program through GMACCF so long as we provide the funding of
advance payments to suppliers under the program. As of
May 1, 2006, we commenced funding of the advance payments,
and as a result, at September 30, 2007, there was no
outstanding balance owed by us to GMACCF under the program.
92
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Net
Liquidity
Net liquidity, calculated as cash, marketable securities and
$3.6 billion of readily-available assets of the VEBA trust,
$2.5 billion at December 31, 2006, less the short-term
borrowings and long-term debt, was a negative $9.9 billion
at September 30, 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 paid a
dividend to us of lease-related assets, having a net book value
of $4 billion and related deferred tax liabilities of
$1.8 billion. This dividend resulted in the transfer to us
of two bankruptcy-remote subsidiaries that hold 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. In August 2007 we entered into a secured
revolving credit arrangement of up to $1.3 billion that is
secured by the equity interest on these ten securitization
trusts. In connection with this credit facility, we contributed
these two bankruptcy remote subsidiaries into a third bankruptcy
remote subsidiary. We consolidate the bankruptcy-remote
subsidiaries and the ten trusts for financial reporting purposes.
At September 30, 2007, in connection with these
bankruptcy-remote subsidiaries we had vehicles subject to
operating leases of $7.9 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
$5.9 billion compared to $9.4 billion at
December 31, 2006 and net equity of $3.4 billion
compared to $3.9 billion at December 31, 2006.
The decrease in operating leases, secured debt and net equity
from December 31, 2006 is the result of the termination of
some leases during the nine months ended September 30, 2007
and the repayment of the related secured debt. The secured debt
has recourse solely to the leased vehicles and related assets.
We continue to be obligated to the bankruptcy-remote
subsidiaries for residual support payments on the leased
vehicles in an amount estimated to equal $1.2 billion at
September 30, 2007 and $1.6 billion at
December 31, 2006. However, neither the securitization
investors nor the trusts have any rights to the residual support
payments. We expect 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 we expect to realize from the leased vehicle
securitizations over the next three to four years will come from
three principal sources: (1) 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; (2) cash received upon and following termination of
a securitization to the extent of remaining
overcollateralization; and (3) return of the residual
support payments owing from us each month. For the nine months
ended September 30, 2007, the total cash flows released to
these two bankruptcy-remote subsidiaries was $643 million
and from November 2006 through September 30, 2007 the total
cash flows released were $761 million.
Status
of Debt Ratings
Dominion Bond Rating Services (DBRS), Fitch Ratings (Fitch),
Moodys Investor Service (Moodys), and
Standard & Poors (S&P) currently rate our credit
at non-investment grade. The following table summarizes our
credit ratings as of November 2, 2007:
|
|
|
|
|
|
|
|
|
Rating Agency
|
|
Corporate
|
|
Secured
|
|
Senior Unsecured
|
|
Outlook
|
|
DBRS
|
|
B (high)
|
|
Not Rated
|
|
B
|
|
Stable
|
Fitch
|
|
B
|
|
BB
|
|
B−
|
|
Negative
|
Moodys
|
|
B3
|
|
Ba3
|
|
Caa1
|
|
Positive
|
S&P
|
|
B
|
|
BB−
|
|
B−
|
|
Stable
|
On October 11, 2007, DBRS affirmed our senior unsecured
debt rating at B but placed the credit rating on
Stable trend from Negative trend. On
November 2, 2007, DBRS assigned us an issuer rating at
B (high) with
93
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
stable trend. On September 24, 2007, Fitch
affirmed our issuer-default rating at B but placed
the credit rating on Rating Watch Negative. On
September 26, 2007, Fitch affirmed our issuer-default
rating at B but placed the credit rating on
Negative outlook from Rating Watch
Negative. On October 16, 2007, Moodys affirmed
our long-term debt rating, including the B3
corporate family rating, Ba3 senior secured rating,
and Caa1 senior unsecured rating and placed the
credit rating on Positive outlook from
Negative outlook. On September 16, 2007
S&P affirmed our Corporate debt rating at B and
placed the credit rating on Credit Watch Positive
from Negative outlook. On October 19, 2007,
S&P affirmed our Corporate debt rating at B but
placed the credit rating on Stable outlook from
Credit Watch Positive.
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 us 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 our 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 we will continue to have access
to sufficient capital to meet our 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 our funding strategy as well as
the importance of successfully executing our plans for
improvement of operating results.
Off-Balance
Sheet Arrangements
We use off-balance sheet arrangements where the economics and
sound business principles warrant their use. Our principal use
of off-balance sheet arrangements occurs in connection with the
securitization and sale of financial assets.
The financial assets sold by us consist principally of trade
receivables that are part of a securitization program in which
we have participated since 2004. As part of this program, on
September 19, 2007, we renewed an agreement to sell
undivided interests in eligible trade receivables up to
$600 million directly to banks and to a bank conduit which
funds its purchases through issuance of commercial paper.
Receivables sold under the program are sold at fair market value
and are excluded from our Condensed Consolidated Balance Sheets.
The loss on the trade receivables sold, which is included in
Automotive cost of sales, was $.2 million and
$5.6 million for the three months ended September 30,
2007 and 2006, respectively. We do not have a retained interest
in the receivables sold, but perform collection and
administrative functions. The gross amount of proceeds received
from the sale of receivables under this program was
$16 million and $1.5 billion for three months ended
September 30, 2007 and 2006, respectively.
In addition to this securitization program, we participate in
other trade receivable securitization programs, primarily in
Europe. Financing providers had a beneficial interest in our
pool of eligible European receivables related to those
securitization programs of $83 million, $109 million
and $60 million as of September 30, 2007,
December 31, 2006 and September 30, 2006, respectively.
We lease real estate and equipment from various off-balance
sheet entities that have been established to facilitate the
financing of those assets for us by nationally prominent lessors
that we believe are creditworthy. These assets consist
principally of office buildings 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. We believe that no officers, directors or
employees of GM or their affiliates hold any direct or indirect
equity interests in such entities.
94
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Assets in off-balance sheet entities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Assets leased under operating leases
|
|
$
|
2,181
|
|
|
$
|
2,248
|
|
|
$
|
2,286
|
|
Trade receivables sold*
|
|
|
83
|
|
|
|
309
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,264
|
|
|
$
|
2,557
|
|
|
$
|
3,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations Receivables sold or
securitized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
|
|
|
|
|
|
|
|
$
|
106,026
|
|
Retail finance receivables
|
|
|
|
|
|
|
|
|
|
|
6,119
|
|
Wholesale finance receivables
|
|
|
|
|
|
|
|
|
|
|
18,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
130,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
As of September 30, 2006, additional off-balance sheet
trade receivables sold to GMAC were $497 million. |
Dividends
Dividends may be paid on our common stock when, as, and if
declared by our 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.
Our policy is to distribute dividends on our 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. In 2007, the GM Board of Directors
declared on February 6, 2007, May 1, 2007,
August 7, 2007 and November 6, 2007 a $0.25 quarterly
dividend on GMs common stock for each of the first,
second, third and fourth quarters of 2007, respectively. Cash
dividends per share of common stock were $0.25 per quarter for
2006.
Employees
As of September 30, 2007, GM employed
267,000 employees. The following represents GMs
employment by regions at September 30, 2007,
December 31, 2006 and September 30, 2006 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
GMNA(1)
|
|
|
139
|
|
|
|
152
|
|
|
|
156
|
|
GME
|
|
|
58
|
|
|
|
60
|
|
|
|
62
|
|
GMLAAM
|
|
|
34
|
|
|
|
32
|
|
|
|
32
|
|
GMAP
|
|
|
34
|
|
|
|
34
|
|
|
|
34
|
|
GMAC(2)
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Other
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
267
|
|
|
|
280
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The number of employees for GMNA at September 30, 2007,
December 31, 2006 and September 30, 2006 excludes U.S.
hourly employees of 4,577, 3,620, and 4,234, respectively, who
were on a temporary leave of absence. |
95
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
(2) |
|
The number of employees at September 30, 2007 and
December 31, 2006 excludes GMAC employees who were removed
from the consolidated payroll in November 2006 as a result of
the GMAC Transaction described in Note 3 to the Condensed
Consolidated Financial Statements. |
Critical
Accounting Estimates
Our Condensed Consolidated Financial Statements are prepared in
conformity with United States generally accepted accounting
principles, which requires the use of estimates, judgments and
assumptions that affect the reported assets and liabilities as
of the financial statement dates and the reported revenues and
expenses for the periods presented. Our 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
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 our 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 Measurements (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 are to be applied prospectively.
Management is currently assessing the potential impact of the
standard on our 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 our financial condition and
results of operations.
In June 2007, the FASB ratified the consensus in EITF Issue
No. 07-3
Accounting for Nonrefundable Payments for Goods or
Services to Be Used in Future Research and Development
Activities
(EITF 07-3),
requiring that nonrefundable advance payments for future
research and development activities be deferred and capitalized.
Such amounts should be expensed as the related goods are
delivered or the related services are performed. The statement
is effective for fiscal years beginning after December 15,
2007. Management is currently assessing the potential impact of
the standard on our financial condition and results of
operations.
In June 2007, the FASB ratified EITF Issue
No. 06-11
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11),
which requires entities to record tax benefits on dividends or
dividend equivalents that are charged to retained earnings for
certain share-based awards to additional paid-in capital. In a
share-based payment arrangement, employees may receive dividends
or dividend equivalents on awards of nonvested equity shares,
nonvested equity share units during the vesting period, or share
options until the exercise date. Generally, the payment of such
dividends can be treated as deductible compensation for tax
purposes. The amount of tax benefits recognized in additional
paid-in capital (APIC) should be included in the pool of excess
tax benefits available to absorb tax deficiencies on share-based
payment awards.
EITF 06-11
is effective for fiscal years beginning after December 15,
2007, and interim periods within those years. Management does
not expect this guidance to have a material effect on our
financial condition and results of operations.
96
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Forward-Looking
Statements
In this report and in reports we subsequently file with the SEC
on
Forms 10-K
and 10-Q and
filed or furnished on
Form 8-K,
and in related comments by our management, 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 we may
file with the SEC on
Forms 10-K
and 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 our 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:
|
|
|
|
|
Our ability 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 our new products;
|
|
|
|
Significant changes in the competitive environment and the
effect of competition in our markets, including on our 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 the ability of GMAC to make distributions on the
Preferred Membership Interests held by GM;
|
|
|
|
Changes in 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;
|
|
|
|
Negotiations and bankruptcy court actions with respect to
Delphis obligations to us, negotiations with respect to
our obligations under the pension benefit guarantees to Delphi
employees and our 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 our key suppliers such as
Delphi;
|
|
|
|
Additional credit rating downgrades and the effects thereof;
|
|
|
|
Changes in relations with unions and employees/retirees and the
legal interpretations of the agreements with those unions with
regard to employees/retirees, including the negotiation of new
collective bargaining agreements with unions representing GM
employees in the U.S. other than the UAW;
|
|
|
|
Completion of the final settlement with the UAW and UAW
retirees, including obtaining court approval in a form
acceptable to us, the UAW, and class counsel; treatment of the
terms of the 2006 Settlement Agreement pursuant to the Retiree
MOU in a form acceptable to us, the UAW and class counsel; our
completion of discussions with the staff of the SEC regarding
accounting treatment with respect to the New VEBA and the
|
97
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Post-Retirement Medical Benefits for the Covered Group as set
forth in the Retiree MOU, on a basis reasonably satisfactory to
us; and as applicable, a determination by us that the New VEBA
satisfies the requirements of section 302(c)(5) of the
Labor-Management Relations Act of 1947, as amended (LMRA), as
well as bank and other regulatory approval;
|
|
|
|
|
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.
|
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. The
factors identified by GMAC include, among others, the following:
|
|
|
|
|
Rating agencies may downgrade their ratings for GMAC or ResCap
in the future, which would adversely affect GMACs ability
to raise capital in the debt markets at attractive rates and
increase the interest that it pays on its outstanding publicly
traded notes, which could have a material adverse effect on its
results of operations and financial condition;
|
|
|
|
GMACs business requires substantial capital, and if it is
unable to maintain adequate financing sources, its profitability
and financial condition will suffer and jeopardize its ability
to continue operations;
|
|
|
|
The profitability and financial condition of its operations are
dependent upon the operations of GM, and it has substantial
credit exposure to GM;
|
|
|
|
Recent developments in the residential mortgage market,
especially in the nonprime sector, may adversely affect
GMACs revenues, profitability and financial condition;
|
|
|
|
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, its margins could be materially
adversely affected;
|
|
|
|
Significant changes in the competitive environment and the
effect of competition in GMACs markets, including on
GMACs pricing policies;
|
|
|
|
Restrictions on the ability of GMACs residential mortgage
subsidiary 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 GMACs 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;
|
|
|
|
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
98
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
events or other 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 2006 Annual Report on
Form 10-K.
* * * * *
*
|
|
Item 4.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We maintain 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
(Exchange Act), is recorded, processed, summarized and reported
within the specified time periods and accumulated and
communicated to our management, including our principal
executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
Our management, with the participation of our Chairman and Chief
Executive Officer (CEO) and our 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 Exchange Act) as of
September 30, 2007. Based on that evaluation, our CEO and
CFO concluded that, as of that date, our 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 our Annual Report on
Form 10-K
for the year ended December 31, 2006, managements
assessment identified the following material weaknesses:
(1) We lacked the technical expertise and processes to
ensure compliance with SFAS No. 109, Accounting
for Income Taxes (SFAS No. 109), and did not
maintain adequate controls with respect to (i) timely tax
account reconciliations and analyses, (ii) coordination and
communication between Corporate Accounting and Tax Staffs and
(iii) 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 16 to the Condensed Consolidated
Financial Statements, and, if not remediated, has the potential
to cause a material misstatement in the future.
(2) 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 (i) properly evaluate hedge accounting
treatment, (ii) meet the documentation requirements of
SFAS No. 133, (iii) adequately assess and measure
hedge effectiveness on a quarterly basis and (iv) 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 16 to the Condensed
Consolidated Financial Statements and, if not remediated, has
the potential to cause a material misstatement in the future.
(3) We 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 our
complex financial accounting and reporting requirements and low
materiality
99
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
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 16 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 our not being able to meet our regulatory filing
deadlines and, if not remediated, has the potential to cause a
material misstatement or to miss a filing deadline in the future.
Remediation
and Changes in Internal Controls
We have developed and are in the process of implementing
remediation plans to address our material weaknesses. The
details of those remediation plans are included in Item 9A,
Controls and Procedures of our Annual Report on
Form 10-K
for the year ended December 31, 2006 and in our interim
filings on
Form 10-Q
for the quarters ended March 31, 2007 and June 30,
2007 and incorporated herein by reference. During the quarter
ended September 30, 2007, the following specific remedial
actions have been put in place:
|
|
|
|
|
Hired a new assistant controller responsible for complex
centrally managed accounting processes including compensation
and benefit plans, treasury and hedge accounting, certain
complex accruals and complex contracts.
|
|
|
|
Divided responsibility for accounting policy and research from
SEC reporting to provide greater role clarity and focus. A new
assistant controller was hired during the quarter with
responsibility for the new SEC reporting function.
|
|
|
|
Enhanced pre and post-closure communications processes to
facilitate early identification, resolution and conclusions on
accounting treatment of business transactions.
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Continued the deployment of several key training classes and
hired approximately 25 outside candidates in key accounting
positions.
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As previously noted management has augmented the resources in
Corporate Accounting, the Tax Department and other key
departments by utilizing approximately 80 external resources in
technical accounting areas and implemented additional closing
procedures during 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 Condensed
Consolidated Financial Statements for the three and nine months
ended September 30, 2007, fairly present in all material
respects the financial condition and results of operations of GM
in conformity with accounting principles generally accepted in
the United States of America.
As discussed in our Annual Report on
Form 10-K
for the year ended December 31, 2006, our management also
identified a significant deficiency in internal controls related
to accounting for complex contracts. As part of its remediation
efforts, our management issued procedural guidance to ensure
review and evaluation of the appropriate accounting for complex
contracts by experienced accounting personnel. Our management
will continue to monitor the effectiveness of the remedial
actions.
Other than as described above, there have not been any other
changes in our internal control over financial reporting during
the three and nine months ended September 30, 2007, which
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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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 GM 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.
* * * * *
*
Item 1. Legal
Proceedings
Canadian
Export Antitrust Class Action
On October 3, 2007, the U.S. Court of Appeals for the First
Circuit in the previously reported consolidated antitrust class
action, In re New Market Vehicle Canadian Export Antitrust
Litigation Cases, heard oral arguments on our consolidated
appeal of the orders of the U.S. District Court for the District
of Maine certifying 20 separate statewide class actions for
damages under various state law theories and certifying a
nationwide class for injunctive relief only. On
September 25, 2007, a claim was filed in Ontario Superior
Court of Justice on behalf of a purported class of actual and
intended purchasers of vehicles in Canada claiming that a
similar alleged conspiracy was now preventing lower-cost U.S.
vehicles from being sold to Canadians. We have not been served
in this lawsuit.
Health
Care Litigation 2005 Agreement
On August 2, 2007, the U.S. Court of Appeals for the Sixth
Circuit issued an order in the previously reported case UAW,
et al. v. General Motors Corporation affirming the lower
courts decision approving the settlement agreement of a
putative class action seeking to enjoin modifications by GM to
hourly retiree healthcare benefits pursuant to the
October 31, 2005 memorandum of understanding between the
UAW and GM (2005 Settlement Agreement).
Health
Care Litigation 2007 Agreement
On September 27, 2007, the UAW and eight putative class
representatives filed a class action, UAW, et al. v. General
Motors Corporation, in the U.S. District Court for the
Eastern District of Michigan on behalf of hourly retirees,
spouses, and dependents, seeking to enjoin us from making
unilateral changes to hourly retiree healthcare coverage upon
termination of the 2005 Settlement Agreement in 2011. Plaintiffs
claim that hourly retiree healthcare benefits are vested and
cannot be modified, and that our announced intention to make
changes violates the federal LMRA and the Employee Retirement
Income Security Act. Although we believe that we may lawfully
change retiree healthcare benefits, the UAW and we have entered
into a Memorandum of Understanding that contemplates creation of
an independent VEBA trust into which we will transfer
significant capital, which thereafter would be solely
responsible for healthcare benefits for hourly retirees, spouses
and dependents. Before this Memorandum of Understanding can be
implemented, the arrangements it contemplates will be finalized
and documented in an
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MOTORS CORPORATION AND SUBSIDIARIES
agreement with the UAW and class counsel; we anticipate that
court approval of such an agreement will be sought as part of
settling this litigation.
General
Motors Securities and Derivative Litigation
In October 2007, in the previously reported consolidated action
In re General Motors Securities and Derivative
Litigation, the U.S. District Court for the Eastern District
of Michigan appointed a special master for the purpose of
facilitating settlement negotiations.
ERISA
Class Actions
In August 2007, the U.S. District Court for the Eastern District
of Michigan granted in part and denied in part the
defendants motion to dismiss the previously reported
consolidated purported class actions In re General Motors
Corporation ERISA Litigation. In October 2007, the parties
reached a tentative settlement. Once a definitive settlement
agreement has been executed, it will be submitted to the U.S.
District Court for the Eastern District of Michigan for approval.
Patent
and Trade Secret Lawsuit
In the previously reported case of John Evans and Evans
Cooling Systems, Inc. v. General Motors Corporation,
following the Connecticut Supreme Courts reversal and
remand to the trial court for a jury trial, plaintiffs had
sought to expand their claims to include a subsequent generation
of engines. On September 13, 2007, the trial court granted
partial summary judgment in favor of GM, dismissing
plaintiffs attempt to expand their claims to the
subsequent generation of engines. Plaintiffs are expected to
appeal this ruling, which substantially restricts the scope of
damages available under their current theory, following the
trial.
Coolant
System Class Action Litigation
In October 2007, the parties reached a tentative settlement that
would resolve certain claims in the previously reported putative
class actions related to alleged defects in the engine cooling
systems in GM vehicles. The settlement as negotiated would apply
to claims related to vehicles sold in the U.S. with a 3.1, 3.4,
or 3.8-liter engine or to the use of Dexcool engine coolant in
sport utility vehicles and pickup trucks with a 4.3-liter engine
from 1996 through 2000. Once definitive settlement agreements
have been executed, they will be submitted for approval to the
appropriate courts. The tentative settlement does not include
claims asserted in several different alleged class actions
related to alleged gasket failures in certain other engines,
including 4.3, 5.0 and 5.7-liter engines (without model year
restrictions), or claims relating to alleged coolant related
failures in vehicles other than those covered by the tentative
settlement.
Environmental
Matters
Carbon
Dioxide Emission Standard Litigation
In a number of cases, the Alliance of Automobile Manufacturers,
the Association of International Automobile Manufacturers,
Daimler-Chrysler Corp., various automobile dealers and GM have
brought suit for declaratory and injunctive relief from state
legislation imposing stringent controls on new motor vehicle
carbon dioxide
(CO2)
emissions. These cases argue that such state regulation of
CO2
emissions is preempted by two federal statutes, the Energy
Policy and Conservation Act and the Clean Air Act. The cases
were brought against the California Air Resources Board on
December 7, 2004, in the U.S. District Court for the
Eastern District of California (Fresno Division); against the
Vermont Agency of Natural Resources and the Vermont Department
of Environmental Conservation on November 18, 2005, in the
U.S. District Court for the District of Vermont; and against the
Rhode Island Department of Environmental Management on
February 13, 2006, in the U.S. District Court for the
District of Rhode Island.
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On September 12, 2007, the U.S. District Court for the
District of Vermont issued an order rejecting plaintiffs
argument and dismissing the complaint. The industry plaintiffs,
including GM, have appealed to the U.S. Court of Appeals for the
Second Circuit. The other two cases described above are in their
initial stages, and no trial dates have been set.
Greenhouse
Gas Lawsuit
In the previously reported tort case, California ex rel.
Lockyer v. General Motors Corporation, et al., the United
States District Court for the Northern District of California on
September 18, 2007 granted the defendants motion to
dismiss the complaint on the grounds that the claim under the
federal common law of nuisance raised non-justiciable political
questions beyond the Courts jurisdiction. Plaintiff has
filed a Notice of Appeal with the U.S. Court of Appeals for the
Ninth Circuit. The Court also dismissed without prejudice the
nuisance claim under California state law.
U.S.
Environmental Protection Agency (EPA) Region III Administrative
Complaint
On September 27, 2007, EPA Region III brought a nine-count
Administrative Complaint against our manufacturing facility in
Wilmington, Delaware seeking undisclosed penalties. The
Complaint is substantially similar to the previously disclosed
2003 EPA Region V matter now on appeal before the EPA
Environmental Appeal Board. Both cases center around whether
purge solvent used in cleaning paint applicators is a solid
waste, and whether its continued use in keeping pipes from
clogging is part of the solvents original intended
purpose. We intend to file an Answer and to seek a stay in
enforcement until all appeals have been exhausted. EPA Region
III may seek penalties in excess of $100,000.
* * * * * * * *
The following risk factors, which were disclosed in the 2006
Form 10-K,
have been modified to provide additional disclosure related to
changes since we filed the 2006
Form 10-K
and the First and Second Quarter 2007
Forms 10-Q.
Refer to the 2006
Form 10-K
and the First and Second Quarter 2007
Forms 10-Q
for an expanded discussion of other risks facing the Corporation
listed below under the caption Other Risk Factors.
Risks
related to GM and our automotive business
Changes
in existing, or the adoption of new, laws, regulations or
policies of governmental organizations, particularly
environmental or fuel economy regulations, may have a
significant negative impact on how we do business.
We are affected significantly by a substantial amount of
governmental regulations, which are expensive to comply with and
anticipated to increase. In the U.S. and Europe, for example,
governmental regulation is primarily driven by concerns about
the environment, vehicle safety, and fuel economy. These
government regulatory requirements complicate our plans for
global product development and can result in substantial costs,
which can be difficult to pass through to our customers.
The Corporate Average Fuel Economy (CAFE) requirements mandated
by the U.S. government pose special concerns. In June 2007, the
U.S. Senate approved an energy bill that would significantly
increase CAFE requirements to a combined standard for cars and
trucks of 35 miles per gallons by 2020, a 40% increase. The
estimated cost to the automotive industry of compliance with
this new standard would likely exceed $100 billion, and our
compliance cost could require us to alter our capital spending
and research and development plans, curtail sales of our higher
margin vehicles, cease production of certain models, or even
exit certain segments of the vehicle market. Proposals that
would result in dramatically higher standards could disrupt our
future product plans in ways that would significantly and
adversely affect our sales volume, revenue, and profitability in
the U.S. and could result
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in plant closures and job losses. We anticipate that the U.S.
House of Representatives will soon consider energy legislation
that would impose similarly aggressive CAFE standards.
In addition, a growing number of states have adopted regulations
that establish
CO2
emission standards that effectively impose similarly heightened
fuel economy standards for new vehicles sold in those states. If
stringent
CO2
emission standards are imposed on us on a
state-by-state
basis, the result could be even more disruptive to our business
than the heightened CAFE standards discussed above. Some of
these state regulations have been challenged in court by the
automotive industry. On September 12, 2007, the U.S.
District Court for the District of Vermont rejected the
industrys position that such state regulation of
CO2
emissions is preempted by federal fuel economy and pollution
laws. While GM and the other plaintiffs have appealed this
decision, there can be no assurance that the court of appeals
will reverse the lower courts order.
In addition to fuel economy standards, GM products must satisfy
legal safety requirements. Meeting or exceeding
government-mandated safety standards is difficult and costly,
because crashworthiness standards tend to conflict with the need
to reduce vehicle weight in order to meet emissions and fuel
economy standards. While we are managing our product development
and production operations on a global basis to reduce costs and
lead times, unique national or regional standards or vehicle
rating programs can result in additional costs for product
development, testing, and manufacturing. Governments often
require the implementation of new requirements during the middle
of a product cycle, which can be substantially more expensive
than accommodating these requirements during the design of a new
product.
Shortages
and increases in the price of fuel can result in diminished
profitability due to shifts in consumer vehicle
demand.
High gasoline prices in 2006 and the first three quarters of
2007 contributed to weaker demand for certain of our higher
margin vehicles, especially our fullsize sport utility vehicles,
as consumer demand shifted to smaller, more fuel-efficient
vehicles, which provide lower profit margins and generally
represent a smaller proportion of our sales volume in North
America. Fullsize
pick-up
trucks, which are generally less fuel efficient than smaller
vehicles, provided more than 22% of our sales in the third
quarter of 2007, compared to a total industry average of 14% of
sales. Any future increases in the price of gasoline in the
United States or in our other markets or any sustained shortage
of fuel could weaken further the demand for such vehicles. Such
a result could lower profitability and have a material adverse
effect on our business.
Delphis
proposed Plan of Reorganization and its related agreements with
GM to resolve its bankruptcy proceedings may be contested by
other parties or rejected by the Bankruptcy Court.
On September 6, 2007, Delphi filed the Delphi POR and
related agreements including a master restructuring agreement
and a global settlement agreement with GM with the Bankruptcy
Court, which were amended and filed with the court on
October 29, 2007. This plan and the related agreements are
subject to court approval and resolution of certain other
uncertainties such as Delphis ability to obtain new
financing, particularly in light of the recent contraction of
the credit market. In addition, parties excluded from the Plan
Investors or other entities negatively affected by the proposed
resolution may oppose the Delphi POR in whole or request changes
that would have a negative effect on our position. Finally, the
Bankruptcy Court may delay its decision or refuse to approve the
Delphi POR, which could result in uncertainty that affects our
relationship with the UAW as well as our ability to plan future
production.
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 OPEB obligations for employees and retirees are significant,
$68 billion at December 31, 2006, and could grow even
larger on a global basis. In recent years, we have paid our OPEB
obligations from operating cash flow, which reduces our
liquidity and cash flow from operations. Our U.S. healthcare
cash spending in 2006 was $4.8 billion, and we expect that
it will be $4.7 billion in 2007 (before the effect, if any,
of any amounts incurred or
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MOTORS CORPORATION AND SUBSIDIARIES
paid on certain benefit guarantees related to Delphi and
contributions to the External VEBA). Failure to adequately
control our healthcare costs is likely to result in materially
higher expenses and have a material adverse effect on our
results of operations and financial condition.
Continued progress in the reduction of healthcare liabilities
and expenses, particularly with respect to our hourly employees
and retirees is a critical element of our GMNA turnaround
initiatives, and we are relying on the implementation of the
Retiree MOU to result in a significant reduction of our OPEB
liability. Under certain circumstances, however, it may not be
possible to implement the Retiree MOU. The implementation of the
Retiree MOU is contingent on our securing satisfactory
accounting treatment for our obligations to the Covered Group
for Retiree Medical Benefits. We intend to discuss the proposed
accounting treatment for such obligations and for the New VEBA
with the staff of the SEC. If, based on those discussions, we
believe that the accounting may be some treatment other than
settlement or a substantive negative plan amendment that would
be reasonably satisfactory to us, we will attempt to restructure
the Retiree MOU with the UAW to obtain such accounting
treatment, and if we cannot accomplish such a restructuring the
Retiree MOU will terminate. In addition, because the
arrangements contemplated by the Retiree MOU require court
approval, we will not be able to implement the Retiree MOU until
at least 2010, and implementation may be delayed further or even
denied by the court. Moreover, there can be no assurance that
the terms of the Retiree MOU will not be changed through
negotiations with the UAW or class counsel in order to secure
court approval.
The
funding of the New VEBA will require the contribution of
significant assets in a relatively short period, including
funding requirements for a temporary account before obtaining
court and regulatory approval.
Even before the Retiree MOU receives court approval, we will
begin funding an account that is intended to provide funding to
the New VEBA, and if and when the Retiree MOU is approved we
will be required to contribute a large amount of assets in a
relatively short period. There can be no assurance that we will
be able to obtain all of the necessary funding or that the terms
of such funding will be acceptable. If we are unable to obtain
funding on terms that are consistent with our business plans, we
may have to delay or reduce other planned expenditures.
Economic
and industry conditions constantly change and could have a
material adverse effect on our business and results of
operations.
Our business and results of operations are tied to general
economic and industry conditions. The number of cars and trucks
sold industry-wide can vary from year to year. Demand for our
vehicles depends largely on general economic conditions,
including the strength of the global and local market economies,
unemployment levels, consumer confidence levels, the
availability of credit and the availability and cost of fuel.
Cars and trucks are durable items, and consumers can choose to
defer their acquisition or replacement significantly. Difficult
economic conditions may also cause consumers to shift to new
models that are less expensive and yield lower margins or to
used vehicles. The significant decline in the housing market and
the related weakness in the availability and affordability of
consumer credit during the first three quarters of 2007 affected
customers ability to purchase new GM vehicles. Moreover,
the decline in housing construction has reduced demand for our
vehicles, particularly fullsize pickups, which are among our
most popular and profitable models. It is likely that the
slowdown in the housing market and the constriction of consumer
credit will continue, at least through the end of 2007 and
perhaps significantly longer.
While we may attempt to limit the effect of these trends through
pricing or other marketing measures, these trends can have a
material adverse effect on our business. Because we have
relatively high fixed costs, relatively small changes in the
number of vehicles sold can have a significant effect on our
business. Consequently, if industry demand decreases due to,
among other things, slowing or negative economic growth, our
business, results of operations and financial condition may be
materially adversely affected. There can be no assurance that
current industry vehicle sales levels will continue.
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GENERAL
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Risks
related to our 49% ownership interest in GMAC
General
business, economic, and market conditions may significantly
affect the operating results of GMACs business and
earnings.
In recent years, GMAC contributed consistently and substantially
to our revenues and profits. Following the GMAC Transaction in
November 2006, we have a 49% ownership interest in GMAC, which
is accounted for in our consolidated financial statements using
the equity method. GMACs business and earnings are
sensitive to general business and economic conditions in the
United States. These conditions include short-term and long-term
interest rates, inflation, fluctuations in both debt and equity
capital markets and the strength of the U.S. economy, as well as
the local economies in which they conduct business. If any of
these conditions worsens, GMACs business and earnings
could be adversely affected and significantly affect our equity
investment. For example, a rising interest rate environment
could decrease the demand for loans or business, and economic
conditions that negatively impact household incomes could
decrease the demand for loans and increase the number of
customers who become delinquent or default on their loans. The
risk of borrower default becomes more important as GMACs
portfolio of loans held for investment continues to grow.
A significant proportion of GMACs revenues and profits in
recent years came from originating, servicing and securitizing
residential mortgages, including subprime loans. In 2007 the
real estate market in the United States has significantly
declined, with falling residential sales, decreased housing
construction and rising rates of defaults and foreclosures; we
believe that this market is not likely to return to its peak
level in the near future. GMACs revenues and profits have
been adversely affected by this decline, particularly at its
Mortgage unit resulting in an impairment loss of
$455 million recognized by GMAC in the third quarter of
2007. Our consolidated financial results have been adversely
affected by this decline in GMACs revenues and profits.
Moreover, GMAC may request GM and its other equity holder to
provide financial support for its operations and strategic
planning during this period of stress. While we do not have any
legal obligation to provide additional capital to GMAC, we may
determine that such an investment is necessary or advisable to
maintain the value of our current interest in GMAC. For example,
effective November 1, 2007, we converted
533,236 shares of Preferred Membership Interests in GMAC
into Class B Interests, in the interest of strengthening
GMACs capital position.
If
GMACs equity capital decreases, it may not be able to pay
dividends or may pay partial dividends on the Preferred
Membership Interests held by GM.
GMACs Operating Agreement provides that the Preferred
Membership Interests are entitled to receive a quarterly
distribution equal to 10% per annum of the related capital
account. GMACs Board of Managers, and under certain
circumstances the Independent Managers, may reduce this
distribution to the extent required to address equity capital
levels. GMACs revenues and profits have declined
significantly during 2007, and we believe that the weakness in
its Mortgage business unit is likely to continue for the
foreseeable future. If GMACs financial results continue to
be significantly adversely affected by challenges in the
mortgage market, GMACs equity capital may decrease to the
point that its Board of Managers or its Independent Managers
determine that distributions on the Preferred Membership
Interests should be reduced or cancelled. Since distributions on
the Preferred Membership Interests are not cumulative under the
Operating Agreement, such a reduction in distributions would not
be reimbursed if and when GMACs financial results improve.
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GMAC
uses estimates and assumptions in determining the fair value of
certain of its assets, in determining its allowance for credit
losses, in determining lease residual values and in determining
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
could be materially adversely affected.
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GMAC uses estimates and various assumptions in determining the
fair value of many of its assets, including retained interests
and securitizations of loans and contracts, mortgage servicing
rights and other investments, which do not have an established
market value or are not publicly traded. GMAC also uses
estimates and assumptions in determining its allowance for
credit losses on its loan and contract portfolios, in
determining the residual values of
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GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
leased vehicles and in determining its reserves for insurance
losses and loss adjustment expenses. It is difficult to
determine the accuracy of its estimates and assumptions, and its
actual experience may differ materially from these estimates and
assumptions. As an example, the continued decline of the
domestic housing market, especially (but not exclusively) with
regard to the nonprime sector, has resulted in increases in the
allowance for loan losses at ResCap for 2006 and the first half
of 2007. A material difference between GMACs estimates and
assumptions and its actual experience may adversely affect its
cash flow, profitability, financial condition, and business
prospects.
GMACs
business requires substantial capital, and if it is unable to
maintain adequate financing sources, its profitability and
financial condition will suffer and jeopardize its ability to
continue operations.
GMACs liquidity and ongoing profitability are, in large
part, dependent upon its timely access to capital and the costs
associated with raising funds in different segments of the
capital markets. Currently, its primary sources of financing
include public and private securitizations and whole loan sales.
To a lesser extent, GMAC also uses institutional unsecured term
debt, commercial paper and retail debt offerings. Reliance on
any one source can change going forward.
GMAC depends and will continue to depend on its ability to
access diversified funding alternatives to meet future cash flow
requirements and to continue to fund our operations. Negative
credit events specific to GMAC or GM, or other events affecting
the overall debt markets have adversely impacted GMACs
funding sources, and continued or additional negative events
could further adversely impact its funding sources, especially
over the long term. ResCaps access to capital can be
impacted by changes in the market value of its mortgage products
and the willingness of market participants to provide liquidity
for such products.
ResCaps liquidity may also be adversely affected by margin
calls under certain of its secured credit facilities that are
dependent in part on the lenders valuation of the
collateral securing the financing. Each of these credit
facilities allows the lender, to varying degrees, to revalue the
collateral to values that the lender considers to reflect
market. If a lender determines that the value of the collateral
has decreased, it may initiate a margin call requiring ResCap to
post additional collateral to cover the decrease. When ResCap is
subject to such a margin call, it must provide the lender with
additional collateral or repay a portion of the outstanding
borrowings with minimal notice. Any such margin call could harm
ResCaps liquidity, results of operation, financial
condition, and business prospects. Additionally, in order to
obtain cash to satisfy a margin call, ResCap may be required to
liquidate assets at a disadvantageous time, which could cause it
to incur further losses and adversely affect its results of
operations and financial condition.
Recent developments in the market for many types of mortgage
products (including mortgage-backed securities) have resulted in
reduced liquidity for these assets. Although this reduction in
liquidity has been most acute with regard to nonprime assets,
there has been an overall reduction in liquidity across the
credit spectrum of mortgage products. One consequence of this
reduction is that ResCap may decide to retain interests in
securitized mortgage pools that in other circumstances it would
sell to investors, and ResCap will have to secure additional
financing for these retained interests. If ResCap is unable to
secure sufficient financing for them, or if there is further
general deterioration of liquidity for mortgage products, it
will adversely impact ResCaps business. If ResCap is
unable to maintain adequate financing or if other sources of
capital are not available, it could be forced to suspend,
curtail or reduce certain aspects of its operations, which could
harm ResCaps revenues, profitability, financial condition
and business prospects.
Furthermore, GMAC utilizes asset and mortgage securitizations
and sales as a critical component of its diversified funding
strategy. Several factors could affect its ability to complete
securitizations and sales, including conditions in the
securities markets generally, conditions in the asset-backed or
mortgage-backed securities markets, the credit quality and
performance of its contracts and loans, its ability to service
its contracts and loans and a decline in the ratings given to
securities previously issued in its securitizations. Any of
these factors could negatively affect the pricing of GMACs
securitizations and sales, resulting in lower proceeds from
these activities.
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Recent
developments in the residential mortgage market may adversely
affect GMACs revenues, profitability and financial
condition.
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Recently, the residential mortgage market in the United States
has experienced a variety of difficulties and changed economic
conditions that adversely affected GMACs earnings and
financial condition in the fourth quarter of 2006 and the first
three-quarters of 2007. Delinquencies and losses with respect to
ResCaps nonprime mortgage loans increased significantly
and may continue to increase. Housing prices in many states have
also declined or stopped appreciating, after extended periods of
significant appreciation. In addition, the liquidity provided to
the nonprime sector has recently been significantly reduced,
which has caused ResCaps nonprime mortgage production to
decline, and such declines may continue. Similar trends are
emerging beyond the nonprime sector, especially at the lower end
of the prime credit quality scale, and may have a similar effect
on ResCaps related liquidity needs and businesses. These
trends have resulted in significant write-downs to ResCaps
mortgage loans held for sale portfolio and additions to
allowance for loan losses for its mortgage loans held for
investment and warehouse lending receivables portfolios. The
lack of liquidity may also have the effect of reducing the
margin available to ResCap in its sales and securitizations of
nonprime mortgage loans.
Another factor that may result in higher delinquency rates on
mortgage loans is the scheduled increase in monthly payments on
adjustable rate mortgage loans. This increase in borrowers
monthly payments, together with any increase in prevailing
market interest rates, may result in significantly increased
monthly payments for borrowers with adjustable rate mortgage
loans. Borrowers seeking to avoid these increased monthly
payments by refinancing their mortgage loans may no longer be
able to find available replacement loans at comparably low
interest rates. A decline in housing prices may also leave
borrowers with insufficient equity in their homes to permit them
to refinance their loans or sell their homes. In addition, these
mortgage loans may have prepayment premiums that inhibit
refinancing.
Certain government regulators have observed these issues
involving nonprime mortgages and have indicated an intention to
review the mortgage loan programs. To the extent that regulators
restrict the volume, terms and/or type of nonprime mortgage
loans, the liquidity of GMACs nonprime mortgage loan
production and its profitability from nonprime mortgage loans
could be negatively impacted. Such activity could also
negatively impact GMACs warehouse lending units
volumes and profitability.
The events surrounding the nonprime segment have forced certain
originators to exit the market. Such activities may limit the
volume of nonprime mortgage loans available for GMAC to acquire
and/or its warehouse lending volumes, which could negatively
impact its profitability.
These events, alone or in combination, may contribute to higher
delinquency rates, reduce origination volumes, or reduce
warehouse lending volumes at ResCap. These events could
adversely affect GMACs revenues, profitability, and
financial condition.
|
|
|
GMAC
has concluded that material weaknesses exist in the design and
operation of its internal controls as of September 30,
2007, which, if its remediation efforts fail, could result in
material misstatements in its financial statements in future
periods.
|
GMAC has concluded that material weaknesses exist in the design
and operation of its internal controls as of September 30,
2007. GMAC is now in the process of designing and implementing
enhanced controls to remediate the material weaknesses. If GMAC
is unable to design and implement enhanced controls or if they
are insufficient to address the identified material weaknesses,
or if additional material weaknesses in its internal controls
are identified in the future, GMAC may fail to meet its future
reporting obligations and its financial statements may contain
material misstatements. Any such failure could also adversely
affect the results of the periodic management evaluations and
annual auditor attestation reports regarding the effectiveness
of GMACs internal control over financial reporting.
108
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
Other
Risk Factors
The following risk factors, which were disclosed in the 2006
Form 10-K,
have not materially changed since we filed the 2006
Form 10-K.
Refer to the 2006
Form 10-K
for a complete discussion of these risk factors.
Risks
related to GM and our 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.
|
|
|
|
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.
|
|
|
|
Delphi may seek to reject or compromise its obligations to us
through its Chapter 11 bankruptcy proceedings.
|
|
|
|
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.
|
|
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|
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.
|
|
|
|
Our significant investment in new technology may not result in
successful vehicle applications.
|
|
|
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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.
|
|
|
|
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.
|
|
|
|
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.
|
109
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
|
|
Our businesses outside the United States expose us to additional
risks that may cause our revenues and profitability to decline.
|
|
|
|
We are subject to significant risks of litigation.
|
Risks
related to our 49% ownership interest in GMAC
|
|
|
|
|
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 is exposed to credit risk which could affect its
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.
|
|
|
|
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 September 30, 2007.
* * * * *
* * *
110
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Name
|
|
|
10
|
.1
|
|
First Amendment dated August 7, 2007 to the Asset Purchase
Agreement dated as of June 28, 2007 by and between General
Motors Corporation and Clutch Operating Company, Inc
|
|
10
|
.2
|
|
Second Amendment dated October 1, 2007 to the Asset
Purchase Agreement dated as of June 28, 2007 by and between
General Motors Corporation and Clutch Operating Company, Inc
|
|
10
|
.3
|
|
Global Settlement Agreement dated September 6, 2007 between
General Motors Corporation and Delphi Corporation
|
|
10
|
.3A
|
|
First Amendment to the Global Settlement Agreement between
General Motors Corporation and Delphi Corporation dated as of
October 29, 2007
|
|
10
|
.4
|
|
Master Restructuring Agreement dated September 6, 2007
between General Motors Corporation and Delphi Corporation
|
|
10
|
.4A
|
|
First Amendment to the Master Restructuring Agreement between
General Motors Corporation and Delphi Corporation dated as of
October 29, 2007
|
|
10
|
.5
|
|
Memorandum of Understanding Post-Retirement Medical
Care dated September 26, 2007 between General Motors
Corporation and the United Auto Workers Union incorporated
herein by reference to Exhibit 10.1 to General Motors
Corporations Current Report on
Form 8-K
filed on October 15, 2007
|
|
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
|
* * * * *
* * *
111
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: November 8, 2007
112
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Name
|
|
|
10
|
.1
|
|
First Amendment dated August 7, 2007 to the Asset Purchase
Agreement dated as of June 28, 2007 by and between General
Motors Corporation and Clutch Operating Company, Inc.
|
|
10
|
.2
|
|
Second Amendment dated October 1, 2007 to the Asset
Purchase Agreement dated as of June 28, 2007 by and between
General Motors Corporation and Clutch Operating Company, Inc.
|
|
10
|
.3
|
|
Global Settlement Agreement dated September 6, 2007 between
General Motors Corporation and Delphi Corporation
|
|
10
|
.3A
|
|
First Amendment to the Global Settlement Agreement between
General Motors Corporation and Delphi Corporation dated as of
October 29, 2007
|
|
10
|
.4
|
|
Master Restructuring Agreement dated September 6, 2007
between General Motors Corporation and Delphi Corporation
|
|
10
|
.4A
|
|
First Amendment to the Master Restructuring Agreement between
General Motors Corporation and Delphi Corporation dated as of
October 29, 2007
|
|
10
|
.5
|
|
Memorandum of Understanding Post-Retirement Medical
Care dated September 26, 2007 between General Motors
Corporation and the United Auto Workers Union incorporated
herein by reference to Exhibit 10.1 to General Motors
Corporations Current Report on
Form 8-K
filed on October 15, 2007
|
|
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
|
113