e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549-1004
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the year ended December 31,
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
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GENERAL MOTORS
CORPORATION
(Exact Name of Registrant as
Specified in its Charter)
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STATE OF DELAWARE
(State or other jurisdiction of
Incorporation or Organization)
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38-0572515
(I.R.S. Employer
Identification No.)
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300 Renaissance Center, Detroit, Michigan
(Address of Principal Executive Offices)
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48265-3000
(Zip Code)
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Registrants telephone
number, including area code
(313) 556-5000
Securities registered pursuant
to Section 12(b) of the Act:
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Name of Each Exchange on
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Title of Each Class
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which Registered
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Common, $1 2/3 par value
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New York Stock Exchange, Inc.
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Note: The $1 2/3 par value common stock of the
Registrant is also listed for trading on the following
exchanges:
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Bourse de Bruxelles
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Brussels, Belgium
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Euronext Paris
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Paris, France
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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, and (2) has been subject to such filing
requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of
large accelerated filer, accelerated
filer and small reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Smaller reporting company
o
Do not check if smaller reporting
company
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 June 30, 2007, the aggregate market value of GM $1
2/3 par value common stock held by nonaffiliates of GM was
approximately $21.4 billion. The closing price on
June 30, 2007 as reported on the New York Stock Exchange
was $37.80 per share.
As of February 25, 2008, the number of shares outstanding
of GM $1 2/3 par value common stock was 566,059,249 shares.
Documents incorporated by reference are as follows:
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Part and Item Number of Form 10-K
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Document
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into which Incorporated
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General Motors Notice of Annual Meeting of Stockholders and
Proxy
Statement for the Annual Meeting of Stockholders to be held
June 3, 2008
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Part III, Items 10 through 14
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GENERAL MOTORS CORPORATION
INDEX
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART I
General Motors Corporation, incorporated in 1916 under the laws
of the State of Delaware, is sometimes referred to in this
Annual Report on
Form 10-K
as we, our, us,
ourselves, the Registrant, the
Corporation, General Motors, or
GM.
General
We are engaged primarily in the worldwide development,
production and marketing of cars, trucks and parts. 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 (GMAC LLC and General Motors Acceptance
Corporation are referred to in this Annual Report on
Form 10-K
as GMAC). GMAC was a wholly owned subsidiary until
November 30, 2006, when we sold a 51% controlling ownership
interest in GMAC to a consortium of investors (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.
Our total worldwide car and truck deliveries were
9.4 million, 9.1 million and 9.2 million, in
2007, 2006 and 2005, respectively. Substantially all of our
cars, trucks and parts are marketed through retail dealers in
North America, and through distributors and dealers outside of
North America, the substantial majority of which are
independently owned. GMNA primarily meets the demands of
customers in North America with vehicles developed, manufactured
and/or
marketed under the following brands:
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Chevrolet
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Buick
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Saab
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GMC
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Pontiac
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Cadillac
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HUMMER
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Saturn
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The demands of customers outside North America are primarily met
with vehicles developed, manufactured
and/or
marketed under the following brands:
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Opel
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Saab
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GMC
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HUMMER
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Vauxhall
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Buick
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Cadillac
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Isuzu
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Holden
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Chevrolet
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Daewoo
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Suzuki
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As of December 31, 2007, we also had equity ownership
stakes directly or indirectly through various regional
subsidiaries, including GM Daewoo Auto & Technology
Company (GM Daewoo), New United Motor Manufacturing, Inc.
(NUMMI), Shanghai General Motors Co., Ltd. (Shanghai GM),
SAIC-GM-Wuling Automobile Company Ltd. (SGMW) and CAMI
Automotive Inc. These companies design, manufacture and market
vehicles under the following brands:
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Pontiac
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Wuling
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Chevrolet
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Buick
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Suzuki
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Daewoo
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Cadillac
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Holden
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In addition to the products we sell to our dealers for consumer
retail sales, we also sell cars and trucks to fleet customers,
including daily rental car companies, commercial fleet
customers, leasing companies and governments. Sales to fleet
customers are completed through our network of dealers and in
some cases directly by us.
Our retail and fleet customers can obtain a wide range of
aftersale vehicle services and products through our dealer
network, such as maintenance, light repairs, collision repairs,
vehicle accessories and extended service warranties.
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
In addition to the information about us and our subsidiaries
contained in this Annual Report on
Form 10-K
for the year ended December 31, 2007, extensive information
about us can be found on our website located at
www.gm.com, including information about our management
team, our brands and products and our corporate governance
principles.
The following information is incorporated herein by reference to
the indicated pages:
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Item
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Page(s)
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Employment
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15
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Production Volumes
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54 - 67
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Segment Reporting (Note 29 to the consolidated financial
statements)
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181
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Vehicle
Unit Sales
Total industry sales of new motor vehicle units of domestic and
foreign makes and our competitive position in 2007, 2006 and
2005 were as follows:
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Vehicle Unit Sales(a)
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Years Ended December 31,
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2007
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2006
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2005
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GM as
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GM as
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GM as
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a % of
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a % of
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a % of
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Industry
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GM
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Industry
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Industry
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GM
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Industry
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Industry
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GM
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Industry
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(Units in thousands)
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United States
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Cars
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Small
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2,748
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381
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13.9%
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2,617
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426
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16.3%
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2,478
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490
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19.8%
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Midsize
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3,410
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884
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25.9%
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3,595
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946
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26.3%
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3,632
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1,007
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27.7%
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Sport
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345
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66
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19.1%
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436
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80
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18.3%
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424
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58
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13.6%
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Luxury
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1,169
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158
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13.6%
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1,206
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173
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14.4%
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1,208
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197
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16.3%
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Total cars
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7,672
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1,489
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19.4%
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7,854
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1,625
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20.7%
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7,742
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1,752
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22.6%
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Trucks
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Pickups
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2,710
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979
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36.1%
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2,874
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1,022
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35.6%
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3,201
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1,163
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36.3%
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Vans
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1,119
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219
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19.6%
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1,326
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245
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18.5%
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1,468
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328
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22.4%
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Utilities
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4,651
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1,136
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24.4%
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4,505
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1,174
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26.0%
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4,586
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1,212
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26.4%
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Medium Duty
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322
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44
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13.6%
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501
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59
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11.8%
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459
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63
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13.8%
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Total trucks
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8,802
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2,378
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27.0%
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9,206
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2,500
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27.1%
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9,714
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2,766
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28.5%
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Total United States
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16,474
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3,867
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23.5%
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17,060
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4,125
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24.2%
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17,456
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4,518
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25.9%
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Canada, Mexico, and Other
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3,118
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649
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20.8%
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3,131
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|
682
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21.8%
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3,111
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730
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23.5%
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Total GMNA
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19,592
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4,516
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23.0%
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|
|
20,191
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4,807
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23.8%
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20,567
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|
5,248
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25.5%
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GME
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23,069
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2,182
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9.5%
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|
21,876
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|
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|
2,003
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9.2%
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21,092
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|
1,984
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9.4%
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GMLAAM
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7,181
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1,236
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17.2%
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|
6,104
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|
1,035
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17.0%
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5,310
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|
883
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16.6%
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GMAP
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20,808
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|
1,436
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6.9%
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|
|
19,231
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|
|
|
1,248
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6.5%
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|
|
18,115
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|
|
|
1,064
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|
|
5.9%
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
|
|
|
|
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Total Worldwide (b)
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|
70,649
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|
|
|
9,370
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13.3%
|
|
|
|
67,401
|
|
|
|
9,093
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|
|
|
13.5%
|
|
|
|
65,084
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|
|
|
9,179
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|
|
|
14.1%
|
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|
|
|
|
|
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2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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Vehicle Unit Sales(a)
|
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|
|
Years Ended December 31,
|
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2007
|
|
|
2006
|
|
|
2005
|
|
|
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GM as
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GM as
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GM as
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a % of
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a % of
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a % of
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Industry
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GM
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Industry
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Industry
|
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GM
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Industry
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Industry
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GM
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Industry
|
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(Units in thousands)
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United States
|
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|
16,474
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|
|
3,867
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|
23.5%
|
|
|
|
17,060
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|
|
|
4,125
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|
|
|
24.2%
|
|
|
|
17,456
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|
|
|
4,518
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|
|
|
25.9%
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Canada
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1,691
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|
|
|
404
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23.9%
|
|
|
|
1,666
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|
|
|
421
|
|
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|
25.3%
|
|
|
|
1,630
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|
|
|
456
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|
|
|
28.0%
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Mexico
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1,146
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|
|
|
230
|
|
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|
20.1%
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|
|
|
1,179
|
|
|
|
245
|
|
|
|
20.8%
|
|
|
|
1,164
|
|
|
|
250
|
|
|
|
21.5%
|
|
Other
|
|
|
281
|
|
|
|
15
|
|
|
|
5.4%
|
|
|
|
286
|
|
|
|
16
|
|
|
|
5.5%
|
|
|
|
317
|
|
|
|
24
|
|
|
|
7.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total GMNA
|
|
|
19,592
|
|
|
|
4,516
|
|
|
|
23.0%
|
|
|
|
20,191
|
|
|
|
4,807
|
|
|
|
23.8%
|
|
|
|
20,567
|
|
|
|
5,248
|
|
|
|
25.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom
|
|
|
2,800
|
|
|
|
427
|
|
|
|
15.2%
|
|
|
|
2,734
|
|
|
|
391
|
|
|
|
14.3%
|
|
|
|
2,828
|
|
|
|
416
|
|
|
|
14.7%
|
|
Germany
|
|
|
3,483
|
|
|
|
330
|
|
|
|
9.5%
|
|
|
|
3,772
|
|
|
|
380
|
|
|
|
10.1%
|
|
|
|
3,615
|
|
|
|
389
|
|
|
|
10.8%
|
|
Russia
|
|
|
2,709
|
|
|
|
259
|
|
|
|
9.6%
|
|
|
|
2,028
|
|
|
|
133
|
|
|
|
6.5%
|
|
|
|
1,655
|
|
|
|
76
|
|
|
|
4.6%
|
|
Spain
|
|
|
1,939
|
|
|
|
170
|
|
|
|
8.8%
|
|
|
|
1,953
|
|
|
|
183
|
|
|
|
9.4%
|
|
|
|
1,959
|
|
|
|
180
|
|
|
|
9.2%
|
|
France
|
|
|
2,586
|
|
|
|
125
|
|
|
|
4.8%
|
|
|
|
2,499
|
|
|
|
123
|
|
|
|
4.9%
|
|
|
|
2,548
|
|
|
|
131
|
|
|
|
5.1%
|
|
Other
|
|
|
9,552
|
|
|
|
871
|
|
|
|
9.1%
|
|
|
|
8,890
|
|
|
|
793
|
|
|
|
8.9%
|
|
|
|
8,487
|
|
|
|
792
|
|
|
|
9.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total GME
|
|
|
23,069
|
|
|
|
2,182
|
|
|
|
9.5%
|
|
|
|
21,876
|
|
|
|
2,003
|
|
|
|
9.2%
|
|
|
|
21,092
|
|
|
|
1,984
|
|
|
|
9.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
|
8,549
|
|
|
|
1,032
|
|
|
|
12.1%
|
|
|
|
7,102
|
|
|
|
871
|
|
|
|
12.3%
|
|
|
|
5,747
|
|
|
|
664
|
|
|
|
11.6%
|
|
Australia
|
|
|
1,050
|
|
|
|
149
|
|
|
|
14.2%
|
|
|
|
963
|
|
|
|
148
|
|
|
|
15.4%
|
|
|
|
988
|
|
|
|
176
|
|
|
|
17.8%
|
|
South Korea
|
|
|
1,271
|
|
|
|
131
|
|
|
|
10.3%
|
|
|
|
1,202
|
|
|
|
129
|
|
|
|
10.7%
|
|
|
|
1,171
|
|
|
|
108
|
|
|
|
9.2%
|
|
Other
|
|
|
9,938
|
|
|
|
124
|
|
|
|
1.2%
|
|
|
|
9,964
|
|
|
|
100
|
|
|
|
1.0%
|
|
|
|
10,209
|
|
|
|
116
|
|
|
|
1.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total GMAP
|
|
|
20,808
|
|
|
|
1,436
|
|
|
|
6.9%
|
|
|
|
19,231
|
|
|
|
1,248
|
|
|
|
6.5%
|
|
|
|
18,115
|
|
|
|
1,064
|
|
|
|
5.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil
|
|
|
2,463
|
|
|
|
499
|
|
|
|
20.3%
|
|
|
|
1,928
|
|
|
|
410
|
|
|
|
21.3%
|
|
|
|
1,715
|
|
|
|
365
|
|
|
|
21.3%
|
|
Argentina
|
|
|
573
|
|
|
|
92
|
|
|
|
16.1%
|
|
|
|
454
|
|
|
|
75
|
|
|
|
16.5%
|
|
|
|
390
|
|
|
|
70
|
|
|
|
17.8%
|
|
Venezuela
|
|
|
491
|
|
|
|
151
|
|
|
|
30.8%
|
|
|
|
343
|
|
|
|
92
|
|
|
|
26.7%
|
|
|
|
228
|
|
|
|
65
|
|
|
|
28.6%
|
|
Colombia
|
|
|
251
|
|
|
|
93
|
|
|
|
36.9%
|
|
|
|
192
|
|
|
|
74
|
|
|
|
38.6%
|
|
|
|
143
|
|
|
|
54
|
|
|
|
37.6%
|
|
Other
|
|
|
3,403
|
|
|
|
401
|
|
|
|
11.8%
|
|
|
|
3,187
|
|
|
|
384
|
|
|
|
12.0%
|
|
|
|
2,834
|
|
|
|
329
|
|
|
|
11.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total GMLAAM
|
|
|
7,181
|
|
|
|
1,236
|
|
|
|
17.2%
|
|
|
|
6,104
|
|
|
|
1,035
|
|
|
|
17.0%
|
|
|
|
5,310
|
|
|
|
883
|
|
|
|
16.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Worldwide (b)
|
|
|
70,649
|
|
|
|
9,370
|
|
|
|
13.3%
|
|
|
|
67,401
|
|
|
|
9,093
|
|
|
|
13.5%
|
|
|
|
65,084
|
|
|
|
9,179
|
|
|
|
14.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Our vehicle unit sales primarily represent vehicles we
manufacture, sell under a GM brand or through a GM-owned
distribution network. Under a contractual agreement with SGMW we
also report SGMW global sales as part of our global market
share. Consistent with industry practice, vehicle unit sales
information includes estimates of industry sales in certain
countries where public reporting is not legally required or
otherwise available on a consistent basis. |
(b) |
|
Total Worldwide may include rounding differences. |
3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Fleet
Sales and Deliveries
The sales and market share data provided above includes both
retail and fleet vehicle unit sales. Our fleet sales are
comprised of vehicle unit sales to daily rental car companies,
as well as leasing companies and commercial fleet and government
customers. Certain fleet transactions, particularly daily
rental, are less profitable than average retail sales. In
addition, in some sales to daily rental fleets we guarantee to
repurchase the vehicles at contractually agreed upon values.
The table below reflects our fleet unit sales and the amount of
those unit sales as a percentage of our total vehicle unit sales
for the last three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Units in thousands)
|
|
|
GMNA
|
|
|
1,152
|
|
|
|
1,270
|
|
|
|
1,334
|
|
GME
|
|
|
833
|
|
|
|
792
|
|
|
|
814
|
|
GMLAAM
|
|
|
362
|
|
|
|
289
|
|
|
|
259
|
|
GMAP
|
|
|
229
|
|
|
|
227
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fleet units
|
|
|
2,576
|
|
|
|
2,578
|
|
|
|
2,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily rental units
|
|
|
950
|
|
|
|
1,027
|
|
|
|
1,149
|
|
Other fleet units
|
|
|
1,626
|
|
|
|
1,551
|
|
|
|
1,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fleet units
|
|
|
2,576
|
|
|
|
2,578
|
|
|
|
2,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet unit sales as a percentage of total vehicle unit sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Cars
|
|
|
32.9%
|
|
|
|
33.9%
|
|
|
|
35.2%
|
|
Trucks
|
|
|
19.5%
|
|
|
|
20.5%
|
|
|
|
19.6%
|
|
Total
|
|
|
27.5%
|
|
|
|
28.3%
|
|
|
|
28.6%
|
|
Product
Pricing
Historically, we have used a number of methods to promote our
products, including the use of dealer, retail and fleet
incentives such as rebates, finance incentives and special lease
programs. The level of incentives is dependent in large part
upon the level of competition in the markets in which we operate
and the level of demand for our products.
Since early 2006, we have executed a strategy, particularly in
the United States, that combines an emphasis on value pricing
(including reduced prices on most 2006 model year vehicles),
enhanced vehicle content and improved powertrain warranties and
the selective use of financial incentives. Additionally, as part
of this strategy, in 2007 we sold almost 184,000 fewer vehicles
to daily rental companies than in 2005 in the U.S., while
steadily improving our profit margin on those sales. During
2008, we will continue to price vehicles competitively,
including offering strategic and tactical incentives as
required. We believe this strategy builds the reputation of our
products and brands and enhances residual value for our
products, while supporting improved pricing per transaction.
Seasonal
and Cyclical Nature of Business
In the automotive business, retail sales are seasonal and
production varies from month to month. Changeovers occur
throughout the year for reasons such as new market entries and
vehicle model changeovers. Production is typically lower during
the third quarter due to annual product changeovers and the fact
that annual plant shutdowns are planned during this time to
facilitate other plant and product changes. These lower
production rates in the third quarter cause operating results to
be, in general, less favorable than those in the other three
quarters of the year.
The market for vehicles is cyclical and depends on general
economic conditions and consumer spending. If general economic
conditions deteriorate, consumers may defer purchasing or
leasing new vehicles or opt for used vehicles, which would
decrease the total number of new cars and light trucks sold.
Fluctuations in the price of fuel also affect consumer
preferences and spending.
4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Relationship
with Dealers
Globally we market our vehicles through a network of independent
retail dealers and distributors. At December 31, 2007,
there were 6,776 GM vehicle dealers in the United States, 729 in
Canada and 330 in Mexico. Additionally, there were a total of
14,052 distribution outlets throughout the rest of the world for
vehicles manufactured by us and our affiliates. These outlets
include distributors, dealers and authorized sales, service and
parts outlets.
Authorized dealers operated the following number of GM
dealerships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
GMNA
|
|
|
7,835
|
|
|
|
8,096
|
|
|
|
8,440
|
|
GME
|
|
|
8,902
|
|
|
|
8,802
|
|
|
|
8,557
|
|
GMLAAM
|
|
|
1,763
|
|
|
|
1,681
|
|
|
|
1,671
|
|
GMAP
|
|
|
3,387
|
|
|
|
3,649
|
|
|
|
3,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Worldwide
|
|
|
21,887
|
|
|
|
22,228
|
|
|
|
21,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We enter into a contract with each authorized dealer agreeing to
sell the dealer one or more specified product lines at wholesale
prices and granting the dealer the right to sell those vehicles
to retail customers from a GM approved location. GM dealers
often offer more than one GM brand of vehicle in a single
dealership. In fact, we actively promote this for several of our
brands in a number of our markets in order to enhance dealer
profitability. In some instances an authorized GM dealer may
also be an authorized dealer for another manufacturers
vehicles. Authorized GM dealers offer parts, accessories,
service and repairs for GM vehicles in the product lines that
they sell, primarily using genuine GM vehicle accessories and
service parts. GM dealers are authorized to service GM vehicles
under our limited warranty program, and those repairs are to be
made only with genuine GM parts. In addition, GM dealers
generally provide their customers access to credit or lease
financing, vehicle insurance and extended service contracts
provided by GMAC or its subsidiaries.
Because dealers maintain the primary sales and service interface
with the ultimate consumer of our products, the quality of GM
dealerships and our relationship with our dealers and
distributors are significant to our success. In addition to the
terms of our contracts with our dealers, we are regulated by
various country and state franchise laws that supersede those
contractual terms and impose specific regulatory requirements
and standards for initiating dealer network changes, pursuing
terminations for cause and other contractual matters.
Research,
Development and Intellectual Property
In 2007, we incurred $8.1 billion in costs for research,
manufacturing engineering, product engineering, design and
development activities related primarily to developing new
products or services or improving existing products or services,
including activities related to vehicle emissions control,
improved fuel economy and the safety of drivers and passengers
in our vehicles. We incurred costs of $6.6 billion and
$6.7 billion for similar company-sponsored research and
other product development activities in 2006 and 2005,
respectively.
Research
Our top priority for research is to continue to develop and
advance our alternative propulsion strategy, as energy diversity
and environmental leadership are critical elements of our
overall business strategy. In addition to continuing to improve
the efficiency of our internal combustion engines, we are
focused on introducing propulsion technologies that use
alternative fuels as we intensify our efforts to offer consumer
products powered by alternatives to traditional petroleum-based
fuels. At the same time, we continue to pursue leadership in
strategic technology such as active fuel management, variable
valve timing, six-speed transmissions, advanced diesel engines,
electronics and controls, battery technology, advanced
materials, hydrogen fuel cell technology and hybrid and
electrically-driven vehicles in order to improve the
environmental performance of our vehicles, diversify energy
sources for vehicles and provide fuel economy and efficiency
around the world.
5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
We introduced four hybrids in 2007, the Saturn Aura Green Line,
Chevrolet Malibu Hybrid, Chevrolet Tahoe and GMC Yukon Hybrids.
We have announced plans for additional hybrid vehicles that will
debut in the next few years. These vehicles will be equipped
with one of two different hybrid systems designed to meet
different American driving patterns and needs. The systems vary
in fuel economy savings and cost, providing an opportunity for
more consumers to own a hybrid vehicle and to benefit from
increased fuel economy savings.
Following a November 2006 meeting with President George Bush, we
along with DaimlerChrysler AG (now Chrysler LLC) and Ford
Motor Company (Ford), announced that the three of us intend to
make at least half of the vehicles we produce capable of
operating on biofuels by 2012, as part of an overall national
energy strategy. Biofuels, like ethanol, are renewable fuels
that are manufactured from biomass substances such as corn,
sugar cane, soy bean and timber. We recently entered into an
agreement with Coskata on cellulosic ethanol development and
production. Coskatas process maximizes ethanol production
from a variety of feedstocks. We are partnering with
governmental agencies, fuel providers and fuel retailers across
the United States to help promote availability and distribution
of E85 ethanol, an alternative fuel used in flex fuel vehicles
that is a combination of 15% unleaded gasoline and 85% ethanol,
including supporting an infrastructure of fueling stations.
Our research into flexible fuels is demonstrated in vehicles
produced around the world. In Brazil, substantially all of our
domestic fleet is available with our FlexPower and
Econo Flex flexible-fuel engines, which accept a
variety of fuels and accounted for more than 96% of the vehicles
sold domestically by GM do Brasil in 2007. In Sweden,
Saabs BioPower flexible-fuel engine can run on
E85 ethanol, petroleum or a mixture of the two. Saab offers
BioPower variants throughout its core product lineup and
Saabs 9-5 BioPower is the best-selling FlexFuel vehicle in
Europe.
In addition, we are significantly expanding and accelerating our
commitment to electrically driven vehicles, including those
powered by fuel cells, which convert hydrogen into electricity
and emit only water. In the fall of 2007, we began placing 100
Chevrolet Equinox Fuel Cell prototype vehicles with customers as
part of Project Driveway, the first large-scale
market test of fuel cell vehicles. The Equinox Fuel Cell vehicle
is equipped with our fourth-generation fuel cell propulsion
system.
We have also announced that we have begun production engineering
of the Saturn VUE plug-in hybrid vehicle and the Chevrolet Volt
Extended-Range Electric Vehicle
(E-REV). The
Volt is the first vehicle to be built using our
E-Flex
family of electrically driven propulsion systems. Production
engineering has started on a fuel cell variant of the
E-Flex
system. Advanced lithium-ion battery technology is the key
enabling technology for the Volt
E-REV and
the Saturn VUE plug-in hybrid but is not yet commercially
viable. During 2007, we signed contracts with a number of
supplier groups to develop advanced lithium-ion battery
technology for both vehicles.
We are also supporting the development of biodiesel, a
clean-burning alternative diesel fuel that is produced from
renewable sources. We currently approve the use of certified
biodiesel blends of up to 5% (B5) in our 2008 Duramax engine
that we sell in the U.S., available on Chevrolet Silverado and
GMC Sierra heavy-duty
pick-up
trucks, Chevrolet Express and GMC Savanna fullsize vans, and the
Chevrolet Kodiak and GMC Top Kick commercial vehicles. B5 is
also approved for all GM diesels in Europe. We also developed a
Special Equipment Option on the 6.6-liter Duramax for a 20%
biodiesel blend (B20). The Special Equipment Option is available
on certain configurations of the GMC Savana and Chevy Express
Vans and the Chevy Silverado and GMC Sierra Heavy-Duty One-Ton
Pickups.
Other examples of our technology leadership include telematics,
stability control and other safety systems. Our OnStar
in-vehicle security, communications and diagnostic system is the
automotive industrys leading telematics provider,
available on more than 50 GM vehicles. The third generation of
our StabiliTrak electronic stability control system debuted on
the 2008 Cadillac STS. In addition to controlling brakes and
reducing engine power, this latest iteration of the system
combines active front steering to turn the front wheels into the
skid when the rear wheels lose traction. Our Lane Departure
Warning System and Side Blind Zone Alert System, which extend
and enhance driver awareness and vision, also debuted on the
2008 Cadillac STS, DTS and 2008 Buick Lucerne.
We generate and hold a significant number of patents in a number
of countries in connection with the operation of our business.
While none of these patents by itself is material to our
business as a whole, these patents are very important to our
operations and continued technological development. In addition,
we hold a number of trademarks and service marks that are very
important to our identity and recognition in the marketplace.
6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
See Environmental and Regulatory Matters below for a discussion
of vehicle emissions requirements, vehicle noise requirements,
fuel economy requirements and safety requirements, which also
affect our research and development.
Product
Development
Over the past few years, we have integrated our vehicle
development activities into a single global organization. This
strategy built on earlier efforts to consolidate and standardize
our approach to vehicle development.
For example, during the 1990s we merged 11 different engineering
centers in the United States into a single organization. In
2005, GM Europe Engineering was created, following a similar
consolidation from three separate engineering organizations. At
the same time, we have grown our engineering operations in
emerging markets in our GMAP and GMLAAM regions.
In this integrated process, product development activities are
fully integrated on a global basis under one budget and one
decision-making group. Similar approaches have been in place for
a number of years in other key functions, such as powertrain,
purchasing and manufacturing, to take full advantage of our
global capabilities and resources.
Under our global vehicle architecture strategy, future vehicles
are developed by a network of global and regional development
teams. We generally define architecture to include a specific
range of performance characteristics and dimensions supporting a
common set of major underbody components and subsystems with
common interfaces.
Global architecture development teams are responsible for, in
general, most of the non-visible parts of the vehicle, for
example, steering, suspension, brake system, HVAC system and
electrical system. These global teams work very closely with
regional development teams, who are responsible for components
that are unique to each brand, such as fascias and interior
design, tuning of the vehicle to meet the brand character
requirements and final validation to meet applicable government
requirements.
We have eight different global architectures that are currently
managed by global leadership teams in global engineering
centers. Some vehicle architectures are focused on a single
region or a limited number of regions, and we generally locate
those global engineering centers in the most relevant regions.
The eight global architectures are:
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Mini Vehicles
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Rear-Wheel-Drive (RWD) Vehicles
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Small Vehicles
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Luxury RWD Vehicles
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Compact Vehicles
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Compact Crossover Vehicles
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Midsize Vehicles
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Midsize Trucks
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We believe that this integrated global product development
process will result in better cars and trucks across all of our
markets and brands, developed faster and at a lower cost.
Raw
Materials, Services and Supplies
We purchase a wide variety of raw materials, parts, supplies,
energy, freight, transportation and other services from numerous
suppliers for use in the manufacture of our products. The raw
materials primarily consist of steel, aluminum, resins, copper,
lead and platinum group metals. We have not experienced any
significant shortages of raw materials and normally do not carry
substantial inventories of such raw materials in excess of
levels reasonably required to meet our production requirements.
Over the past three years the global automotive industry has
experienced increases in commodity costs, most notably for raw
materials such as steel, aluminum, copper, lead and platinum
group metals. These price increases have been driven by
increased global demand largely reflecting strong demand in
emerging markets, higher energy prices and a weaker
U.S. Dollar. We attempt to manage our commodity price risk
by using derivatives to economically hedge a portion of raw
material purchases.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
In some instances, we purchase systems, components, parts and
supplies from a single source, and may be at an increased risk
for supply disruptions. Furthermore, the inability or
unwillingness of our largest supplier, Delphi Corporation
(Delphi), to supply us with parts and supplies could adversely
affect us because our production capacity would be impacted
without those parts and supplies. In 1999, we spun-off Delphi as
a separate, U.S. publicly traded corporation; since 2005
Delphi has been in bankruptcy proceedings under Chapter 11
of the Bankruptcy Code.
Based on our standard payment terms with our systems, components
and parts suppliers, we are generally required to pay most of
these suppliers on the second day of the second month following
delivery.
Competitive
Position
The global automotive industry is growing, especially in
emerging markets such as China and India, and highly
competitive. The principal factors that determine consumer
vehicle preferences in the markets in which we operate include
price, quality, style, safety, reliability, fuel economy and
functionality. Our estimated global market share was 13.3% for
2007, 13.5% for 2006 and 14.1% for 2005. Market leadership in
individual countries in which we compete varies widely and we do
not lead in every country.
We have had the largest market share in our largest market, the
United States, for 77 years. The table below sets forth the
respective U.S. market shares for 2007 and 2006 for us and
our principal competitors in passenger cars and trucks in the
United States:
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2007
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2006
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GM
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23.5%
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24.2%
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Toyota
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15.9%
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14.9%
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Ford
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15.6%
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17.1%
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Chrysler
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12.6%
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12.6%
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Honda
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9.4%
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8.8%
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Nissan
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6.5%
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6.0%
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Environmental
and Regulatory Matters
Automotive
Emissions Control
The U.S. federal government imposes stringent emission
control requirements on vehicles sold in the United States, and
additional requirements are imposed by various state
governments, most notably California. These requirements include
pre-production testing of vehicles, testing of vehicles after
assembly, the imposition of emission defect and performance
warranties and the obligation to recall and repair customer
owned vehicles that do not comply with emissions requirements.
We must obtain certification that the vehicles will meet
emission requirements from the U.S. Environmental
Protection Agency (EPA) before we can sell vehicles in the
United States and from the California Air Resources Board (CARB)
before we can sell vehicles in California and other states that
have adopted the California emissions requirements.
The EPA and the CARB both continue to emphasize testing customer
owned vehicles for compliance. We believe that our vehicles meet
currently applicable EPA and CARB requirements. If our vehicles
do not comply with the emission standards or if defective
emission control systems or components are discovered during
such testing, or as part of government required defect
reporting, we could incur substantial costs related to emissions
recalls. New CARB and federal requirements will increase the
time and mileage periods over which manufacturers are
responsible for a vehicles emission performance.
Both the EPA and the CARB emission requirements will become even
more stringent in the future. In addition, in 2002 California
passed legislation regulating the emissions of greenhouse gases.
Since we believe this regulation is effectively a form of fuel
economy requirement, it is discussed below under Automotive Fuel
Economy. A new tier of exhaust emission standards for cars and
light-duty trucks, the Low-Emission Vehicles II standards,
began phasing in for vehicles in states that have California
requirements in the 2004 model year. Similar federal Tier 2
standards began phasing in during 2004. In addition, both the
CARB and the EPA have adopted more stringent standards
applicable to heavy-duty trucks.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
California law requires that a specified percentage of cars and
certain light-duty trucks sold in the state must be zero
emission vehicles (ZEVs), such as electric vehicles or hydrogen
fuel cell vehicles. This requirement started at 10% in model
year 2005 and increases in subsequent years. Manufacturers have
the option of meeting a portion of this requirement with partial
ZEV credit for vehicles that meet very stringent exhaust and
evaporative emission standards and have extended emission system
warranties. An additional portion of the ZEV requirement can be
met with vehicles that meet these partial ZEV requirements and
incorporate advanced technology, such as a hybrid electric
propulsion system meeting specified criteria. We are complying
with the ZEV requirements using a variety of means, including
introducing products certified to the partial ZEV requirements
beginning in the 2007 model year and placing Chevrolet Equinox
Fuel Cell Vehicles powered by hydrogen into service.
The Clean Air Act permits states that have areas with air
quality compliance issues to adopt the California car and truck
emission standards in lieu of the federal requirements. Seven
states, New York, Massachusetts, Maine, Vermont, Connecticut,
Pennsylvania and Rhode Island, have these standards in effect
now. New Jersey, Oregon and Washington have adopted the
California standards effective beginning in the 2009 model year,
and Maryland and New Mexico have adopted the California
standards effective beginning in the 2011 model year. Additional
states could also adopt the California standards in the future.
In addition to the exhaust emission programs described above,
advanced onboard diagnostic (OBD) systems, used to identify and
diagnose problems with emission control systems, have been
required under federal and California law since the 1996 model
year. This system has the potential of increasing warranty costs
and the chance for recall. OBD requirements become more
challenging each year as vehicles must meet lower emission
standards, and new diagnostics are required. Beginning with the
2004 model year, California adopted more stringent OBD
requirements, including new design requirements and
corresponding enforcement procedures, and we have implemented
hardware and software changes to comply with these more
stringent requirements. In addition, California has recently
adopted technically challenging new OBD requirements that take
effect from the 2008 through the 2013 model years.
New evaporative emission control requirements for cars and
trucks began phasing in with the 1995 model year in California
and the 1996 model year federally. Systems are being further
modified to accommodate onboard refueling vapor recovery (ORVR)
control standards. ORVR was phased in on passenger cars in the
1998 through 2000 model years, and phased in on light-duty
trucks in the 2001 through 2006 model years. Beginning with the
2004 model year, federal and California evaporative emission
standards have become more stringent, and we have implemented
changes to comply with these more stringent requirements.
We are subject to similar laws and regulations, including
vehicle exhaust emission standards, vehicle evaporative emission
standards and OBD requirements, in other regions and countries
throughout the world in which we sell cars and trucks. Two
different regulatory regimes apply in Europe: the European Union
(EU) imposes stringent emission control requirements on vehicles
sold in all 27 EU Member States, and other countries apply
regulations under the framework of the United Nations Economic
Commission for Europe Working Party 29 (UN ECE). A
minority of countries in Eastern Europe, which currently do not
require compliance with the latest limited standards, are
considering convergence to those standards by the end of the
decade. In addition, EU Member States can give incentives to
environmentally friendly vehicles through tax benefits. This
could result in specific market requirements rewarding different
technical equipment in various markets, despite the fact there
is only one European wide emission requirement. The current EU
requirements include type approval of preproduction testing of
vehicles, testing of vehicles after assembly and the obligation
to recall and repair customer owned vehicles that do not comply
with emissions requirements. EU requirements and UN ECE
requirements are equivalent in terms of stringency and
implementation. We must demonstrate that vehicles will meet
emission requirements during witness tests and obtain type
approval from an approval authority before we can sell vehicles
in the EU.
Emission requirements in Europe will become even more stringent
in the future. A new level of exhaust emission standards for
cars and light-duty trucks, Euro 5 standards (Euro 5), will
apply from September 2009, while Euro 6 standards (Euro
6) are expected to apply from 2014. The OBD requirements
associated with these new standards will become more challenging
as well. The new European emission standards focus particularly
on reducing emissions from diesels. Diesel vehicles have become
important in the European marketplace and surpassed 50% market
share in 2007. The new requirements will require additional
technologies and further increase the cost of diesel engines,
which currently cost more than gasoline engines. To comply with
Euro 6, we expect that technologies need to be implemented
which are similar to those being developed to meet
U.S. emission standards. The technologies available today
are not cost effective and would therefore not be suitable for
the European market for small and midsize diesel vehicles, which
typically are under high cost pressure. Further, measures to
reduce exhaust pollutant emissions have detrimental effects on
vehicle fuel economy which drives additional technology cost to
maintain fuel economy.
9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
In the long-term, notwithstanding the already low vehicle
emissions in Europe, regulatory discussions in Europe are
expected to continue. Regulators will continue to refine the
testing requirements addressing issues such as test cycle,
durability, OBD, in-service conformity and alternative fuels.
Within the Asia Pacific region, our vehicles are subject to a
broad range of vehicle emission laws and regulations. Japan sets
specific exhaust emission and durability standards, test methods
and driving cycles. In Japan, OBD is required and evaporative
emissions follow the EU. South Korea is transitioning to
California style exhaust emission standards and considering
adopting other aspects of the California emission program. In
South Korea, OBD is required and evaporative emissions follow
the EPA standard. China is implementing European standards, with
Euro 4 first applying in Beijing starting January 1,
2008, then in other major cities such as Shanghai and Guangzhou
by 2009, and then rolling out nationwide as the required fuel
becomes available. China plans to adopt Euro 5 standards
after 2010. All other countries in which we conduct operations
within the Asia Pacific region either require or allow some form
of EPA, EU or UN ECE style emission requirements with or without
OBD.
Within Latin America, Africa and the Mid-East regions, some
countries follow the U.S. test procedure and some follow
the EU test procedure, with different levels of requirements.
Industrial
Environmental Control
Our operations are subject to a wide range of environmental
protection laws including those 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 is reasonably
estimable. This practice is followed whether the claims are
asserted or unasserted. Management expects that the amounts
reserved will be paid out over the periods of remediation for
the applicable sites, which typically range from five to
30 years. Expenditures for site remediation actions,
including ongoing operations and maintenance, aggregated
$104 million and $107 million in 2007 and 2006,
respectively. It is possible that such remediation actions could
require average annual expenditures in the range of
$80 million to $110 million over the next five years.
For many sites, the remediation costs and other damages for
which we ultimately may be responsible are not reasonably
estimable because of uncertainties with respect to factors such
as our connection to the site or to materials located at the
site, 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.
We pay annual Title V Operating Permit emission inventory
fees of $1.3 million. We have costs of on-going source
emission testing ranging from $.4 million to
$2.5 million per year. We anticipate a similar range of
costs in 2008 to comply with the Clean Air Act Amendments under
the Title V Renewable Operating Permit Program.
Additionally, we incurred costs of $38.1 million between
2005 and 2007 to comply with the Maximum Achievable Control
Technology (MACT) Standards for Hazardous Air Pollutants under
the Clean Air Act. Cost to comply with MACT standards for 2008
are estimated to be $2.7 million. We also expend over
$5 million per year to comply with all regulatory reporting
requirements, and we spend $1.5 million annually
specifically for air quality reporting.
We are implementing and publicly reporting on various voluntary
initiatives to reduce energy consumption and greenhouse gas
emissions from our worldwide operations. We set a 2006 target of
an 8% reduction in carbon dioxide
(CO2)
emissions from our worldwide facilities compared to 2005
emission levels. By 2006, we had reduced
CO2
emissions from our worldwide facilities by 22% compared to 2000
levels. Several of our facilities are included in the European
emissions trading regime, which is being implemented to meet the
European Communitys greenhouse gas reduction commitments
under the Kyoto Protocol. We have reported in accordance with
the Global Reporting Initiative, the Carbon Disclosure Project,
and the Department of Energy 1605(b) program since the inception
of the
10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
programs. Global Environment and Energy goals and progress made
on all voluntary programs are available in our Corporate
Responsibility Report at www.gmresponsibility.com.
Vehicular
Noise Control
Vehicles we manufacture and sell may be subject to noise
emission regulations.
In the United States, passenger cars and light-duty trucks are
subject to state and local motor vehicle noise regulations. We
are committed to designing and developing our products to meet
these noise requirements. Since addressing different vehicle
noise regulations established in numerous state and local
jurisdictions is not practical, we attempt to identify the most
stringent requirements and validate to those requirements. In
the rare instances where a state or local noise regulation is
not covered by the composite requirement, a waiver of the
requirement is requested. Medium to heavy-duty trucks are
regulated at the federal level. Federal truck regulations
preempt all United States state or local noise regulations for
trucks over 10,000 lbs. gross vehicle weight rating.
Outside the United States, noise regulations have been
established by authorities at the national and supranational
level (e.g., EU or UN ECE for Europe). We believe that our
vehicles meet all applicable noise regulations in the markets
where they are sold.
Automotive
Fuel Economy
The 1975 Energy Policy and Conservation Act provided for average
fuel economy requirements for passenger cars built for the 1978
model year and thereafter, weighted by production volumes under
a complex formula. Based on the EPA combined city-highway test
data, our 2007 model year domestic passenger car fleet achieved
a Corporate Average Fuel Economy (CAFE) of 29.9 miles per
gallon (mpg), which exceeded the requirement of 27.5 mpg. The
estimated CAFE for our 2008 model year domestic passenger cars
is projected to be 29.2 mpg, which would also exceed the
applicable requirement.
For our imported passenger cars, the 2007 model year CAFE was
31.9 mpg, which exceeded the requirement of 27.5 mpg. The CAFE
estimate for 2008 model year GM imported passenger cars is 30.7
mpg, which would also exceed the applicable requirement.
Fuel economy standards for light-duty trucks became effective in
1979. Our light-duty truck CAFE for the 2007 model year was
22.6 mpg, which exceeds the requirement of 22.2 mpg. The
National Highway Traffic Safety Administration (NHTSA) adopted
new fuel economy standards for trucks beginning with 2008
models. These new rules include substantial changes to the
structure of the truck CAFE program, including reformed
standards based upon truck size. In November 2007, the
U.S. Court of Appeals for the 9th Circuit ruled that
the new truck rules were deficient and remanded the rules to the
NHTSA. However, due to statutory timing constraints, the
standards are effectively locked in for 2008, 2009 and 2010. The
2011 standards are expected to be reconsidered due to federal
legislation and subsequent regulation. Under the existing truck
rules, reformed standards are optional for
2008-2010.
We plan to comply with these optional reform-based standards for
2008. Our reform standard for light-duty trucks for the 2008
model year is 21.9 mpg and our projected performance to this
standard is 22.8 mpg. The rule sets the traditional (unreformed)
truck CAFE standard at 22.5 mpg for 2008, 23.1 mpg for 2009 and
23.5 mpg for 2010.
As a result of the adoption of the Energy Independence and
Security Act of 2007 (EISA) in 2007, the NHTSA is expected to
finalize new CAFE requirements beginning with the 2011 model
year. The CAFE provisions in the energy legislation include
instructions to the NHTSA to set stepped fuel economy standards
separately for cars and trucks beginning in the 2011 model year
which would increase to 35 mpg by 2020 on a combined car and
truck fleet basis. These levels will effectively require a 40%
increase in fuel economy by 2020. Complying with these new
standards is likely to require us to sell a significant national
volume of hybrids or electrically powered vehicles across our
portfolio as well as introduce new technologies for our
conventional internal combustion engines.
In addition, in 2002 California passed legislation known as
Assembly Bill 1493 (AB 1493) requiring the CARB to regulate
greenhouse gas emissions from new motor vehicles sold in the
state beginning in the 2009 model year. Since
CO2
is the primary greenhouse gas emitted by automobiles,
CO2
emissions are directly proportional to the amount of fuel
consumed by motor vehicles, and as a result,
CO2
emissions per mile are inextricably linked to fuel consumption
per mile. We believe that AB 1493 by attempting to regulate
CO2
emissions per mile, is taking action tantamount to establishing
state level fuel economy standards, which is prohibited by
11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
the U.S. federal fuel economy law. Nonetheless, the CARB
promulgated rules under AB 1493 (AB 1493 Rules) establishing
standards that effectively require about a 40% increase in new
vehicle fuel economy for passenger cars by 2016. We have
challenged these standards in court along with the Alliance of
Automobile Manufacturers, Chrysler Corporation (Chrysler) and
several dealers. Rulings adverse to the industrys position
were handed down in U.S. District Courts in Burlington,
Vermont and Fresno, California. An appeal has been filed in the
Vermont decision. The AB 1493 Rules cannot be enforced in any
state unless the EPA grants a waiver of federal preemption. On
December 19, 2007, the EPA denied Californias request
for a waiver of the AB 1493 Rules.
Since the CARB has characterized the AB 1493 Rules as an
emission regulation, other states have adopted the
California
CO2
requirements pursuant to claimed authority under the
U.S. Clean Air Act. As of December 2007, the following
states have adopted the AB 1493 Rules imposing
CO2
requirements on new motor vehicles: Connecticut, Maine,
Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Rhode
Island, Vermont, Washington, Maryland and New Mexico. Other
states are also considering adopting the AB 1493 Rules.
We do not believe that it is technically possible to comply with
the requirements of the AB 1493 Rules, given our current product
portfolio and the extent of the technical improvements that we
believe are possible in the near future. If the EPA grants a
waiver of federal preemption of the AB 1493 Rules, and the
lawsuits do not provide relief, we could be forced to cease
selling certain vehicles in those states where the AB 1493 Rules
are in effect. Depending upon how widely the AB 1493 Rules are
applied, we might curtail production of certain popular and
profitable vehicles that do not comply with the AB 1493 Rules.
In Europe, the EU has issued a regulatory proposal to regulate
CO2
emissions/fuel consumption by 2012. It will require
manufacturers to meet an average
CO2
emission target depending on the average weight of its fleet.
According to the current regulatory proposal, we will be
required to reduce the average
CO2
emissions of our fleet by 20%. We do not expect the regulation
to be finalized before 2009, so that we will know the terms of
the final regulation only three years before we must begin to
comply. We are developing a compliance plan by adopting
operational
CO2
targets for each market entry in Europe.
In addition, the political discussion on
CO2
regulation in Europe is complicated by national initiatives to
introduce
CO2
based taxation programs. Financial budgets are within the
sovereignty of the EU Member States and therefore tax laws are
different in all EU Member States. We are faced with significant
challenges relative to the predictability of future tax laws and
the introduction of thresholds that in some case are modified
annually.
Potential
Impact of Regulations
We continue to improve the fuel efficiency of our vehicles, even
as we enhance utility and performance, address environmental
aspects of our products and add more safety features and
customer convenience options, which add mass to a vehicle and
therefore tend to lower its fuel economy. Our product lineup of
2008 models in the United States includes 15 models that get an
EPA estimated 30 miles per gallon or better on the highway,
more than any other vehicle manufacturer. Overall fuel economy
and
CO2
emissions from cars and light-duty trucks on the road are
determined by a number of factors, including what products
customers select and how they use them, traffic congestion,
transit alternatives, fuel quality and availability and land use
patterns.
As described above under Research, Development and Intellectual
Property, we have established aggressive near-, mid- and
long-term plans to develop and bring to market technologies
designed to further improve fuel efficiency, reduce emissions,
and provide additional value and benefits to our customers.
These include enhancements to conventional internal combustion
engine technology such as Active Fuel Management, variable valve
timing systems and six-speed automatic transmissions. In
addition, we currently provide hybrid-electric buses that are
capable of improving the fuel efficiency of city buses by up to
50% and reducing some emissions by as much as 90%. In 2007, we
launched the Saturn Aura Green Line and introduced the Chevrolet
Malibu Hybrid, and will launch the Chevrolet Tahoe and GMC Yukon
Hybrids in 2008. The Chevrolet Tahoe and GMC Yukon represent
hybrids in the large sport utility vehicle market. In 2006, we
launched the Saturn VUE Green Line with a GM hybrid system. By
the end of 2008 we plan to offer eight different hybrid models.
In addition, for the 2008 model year we offer 12 flex-fuel
capable models that can run on E85 ethanol, gasoline or a
combination of the two fuels. In Europe, Saab offers the 9-5
BioPower FlexFuel model and plans to extend its BioPower model
offerings, and Opel sells several models that operate on
compressed natural gas. We are also committed to biodiesel,
through our 2008 Duramax engine sold in the U.S. Our diesel
powertrains in Europe are approved for B5 biodiesel blends. In
2007, we demonstrated our commitment to electrically driven
vehicles powered by fuel cells by launching Project
Driveway which will place 100 fuel cell
12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
prototype vehicles with customers. We have extensive efforts
underway to develop production fuel cell vehicles designed to
run on hydrogen and emit only water. We believe that the
development and global implementation of new, cost-effective
energy technologies in all sectors, such as hydrogen fuel cells,
is the most effective way to improve energy efficiency and
reduce greenhouse gas emissions.
Despite these advanced technology efforts, our ability to
satisfy fuel
economy/CO2
requirements in major markets such as the United States, Europe
and China is contingent on various future economic, consumer,
legislative and regulatory factors that we cannot control and
cannot predict with certainty. If we are not able to comply with
specific new fuel economy requirements, which include higher
U.S. CAFE standards and state
CO2
requirements such as those imposed by the AB 1493 Rules, then we
could be subject to sizeable civil penalties or have to restrict
product offerings drastically to remain in compliance. In turn,
any such actions could have substantial adverse impacts on our
operations, including plant closings, reduced employment and
loss of sales revenue.
Safety
New vehicles and equipment sold in the United States are
required to meet certain safety standards promulgated by the
NHTSA. The National Traffic and Motor Vehicle Safety Act of 1966
(the Act) authorizes the NHTSA to determine these standards and
the schedule for implementing them. In addition, in the case of
a vehicle defect that creates an unreasonable risk to motor
vehicle safety or does not comply with a safety standard, the
Act generally requires that the manufacturer notify owners and
provide a remedy. The Transportation Recall Enhancement,
Accountability and Documentation Act requires us to report
certain information relating to certain customer complaints,
warranty claims, field reports and lawsuits in the United States
and fatalities and recalls outside the United States.
We are subject to certain safety standards and recall
regulations in the markets outside the United States in which we
operate. These standards often have the same purpose as the
U.S. standards, but may differ in their requirements and
test procedures. From time to time, other countries pass
regulations which are more stringent than U.S. standards.
Most countries require type approval while the U.S. and
Canada require self-certification.
Pension
Legislation
We are subject to a variety of federal rules and regulations,
including the Employee Retirement Income Security Act of 1974
(ERISA) and the Pension Protection Act of 2006 (PPA), which
govern the manner in which we administer our pensions for our
retired employees and their spouses. The PPA is designed, among
other things, to more appropriately reflect the value of pension
assets and liabilities to determine funding requirements. Our
U.S. hourly and salaried pension plans are overfunded under
current rules and also under the PPA guidelines, many of which
are not yet in effect. Given the amount of surplus and the
investment strategy for the pension assets, we expect to
maintain a surplus without making additional contributions to
our U.S. hourly and salaried pension plans for the
foreseeable future, assuming there are no material changes in
present market conditions. We also maintain pension plans for
employees in a number of countries outside the United States,
which are subject to local laws and regulations.
Export
Control
We are subject to a number of domestic and international export
control requirements. Our Office of Export Compliance (OEC) is
responsible for addressing export compliance issues that are
specified in regulations issued by the U.S. Department of
State, the U.S. Department of Commerce, and the
U.S. Department of Treasury, as well as issues relating to
export control laws of other countries. Export control laws of
countries other than the United States are likely to be
increasingly significant to our business as we develop our
research and development operations on a global basis. The OEC
works with export compliance officers in our business units who
address export compliance issues on behalf of the units. If we
fail to comply with applicable export compliance regulations, we
and our employees could be subject to criminal and civil
penalties and, under certain circumstances, suspension and
debarment from doing business with the government.
Significant
Transactions
In August 2007, we completed the sale of the commercial and
military operations of Allison. The negotiated purchase price of
$5.6 billion in cash plus assumed liabilities was paid at
closing. The purchase price was subject to adjustment based on
the amount of
13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Allisons net working capital and debt on the closing date,
which resulted in an adjusted purchase price of
$5.4 billion. A gain on the sale of Allison in the amount
of $5.3 billion ($4.3 billion after-tax), inclusive of
the final purchase price adjustments, was recognized in 2007.
Allison, formerly a division of our 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 our Powertrain
Operations facility near Baltimore, which manufactures
automatic transmissions primarily for our trucks and hybrid
propulsion systems. The results of operations and cash flows of
Allison have been reported in the consolidated financial
statements as discontinued operations for all periods presented.
Historically, Allison had been reported in the North America
Automotive business. Refer to Note 3 to the consolidated
financial statements for more information on this transaction.
In April 2006, we along with our 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 GMAC Transaction was completed on
November 30, 2006. We have retained a 49% interest in
GMACs Common Membership Interests.
As part of the GMAC Transaction, we entered into a number of
agreements with GMAC governing aspects of our relationship in
the future, including agreements related to consumer and dealer
financing by GMAC for the purchase and lease of our products in
the United States (GMAC Services Agreement). Under the GMAC
Services Agreement, GMAC will continue to finance a broad
spectrum of consumer credits, consistent with current and
historical practice, and will receive a negotiated return. GMAC
will also continue to provide full consideration to consumer
credit applications received from GM-franchised dealers and
purchase consumer financing contracts from GM dealers in
accordance with GMACs usual standards for
creditworthiness, consistent with current and historical
practice.
The GMAC Services Agreement also provides that, subject to
certain conditions and limitations, we will offer vehicle
financing and leasing incentives to U.S. customers, except
for Saturn-brand products, exclusively through GMAC. We have the
right to set the terms and conditions and eligibility of all
such incentive programs. In consideration of GMACs
exclusive relationship with us for vehicle financing and leasing
incentives for consumers, GMAC has agreed to certain targets,
and if it does not meet these targets, we could impose certain
fees and other monetary consequences or even revoke GMACs
exclusivity in whole or in part. As long as GMACs
exclusivity remains in effect, GMAC will pay us
$105 million annually.
The GMAC Services Agreement also provides that we will make
certain upfront residual support payments to GMAC with respect
to leased vehicles and vehicles sold pursuant to balloon retail
installment sale contracts to increase the vehicles
contract residual value above certain thresholds set by an
independently published guide.
We have entered into agreements with GMAC giving GMAC the right
to use the GM name on certain insurance products. In exchange,
GMAC will pay us a minimum guaranteed royalty fee of
$15 million annually.
For further information about the business relationship between
us and GMAC, see Managements Discussion and Analysis
of Financial Condition and Results of Operations Key
Factors Affecting Future and Current Results
GMAC Sale of 51% Controlling Interest and
Note 1, Note 3 and Note 27 to the consolidated
financial statements.
14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Employees
As of December 31, 2007, we employed
266,000 employees, of whom 190,000 (71%) were hourly
employees and 76,000 (29%) were salaried employees. The
following represents our employment by region at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
GMNA
|
|
|
139
|
|
|
|
152
|
|
|
|
173
|
|
GME
|
|
|
57
|
|
|
|
60
|
|
|
|
63
|
|
GMLAAM
|
|
|
34
|
|
|
|
32
|
|
|
|
31
|
|
GMAP
|
|
|
34
|
|
|
|
34
|
|
|
|
31
|
|
GMAC(a)
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Other
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
266
|
|
|
|
280
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts for 2007 and 2006 exclude GMAC employees, who were
removed from the consolidated payroll as a result of the GMAC
Transaction in November 2006. |
Approximately 78,000 of our U.S. employees (71%) were
represented by unions at December 31, 2007. The
International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America (UAW) represents the
largest portion of our U.S. employees who are union
members, representing 75,000 employees. In addition, many
of our hourly employees outside the United States are
represented by various unions. As of December 31, 2007, we
had 365,000 U.S. hourly retirees and 114,000
U.S. salaried retirees. In 2007 we entered into a new
collective bargaining agreement with the UAW (2007 National
Agreement), which includes among other terms a two-tiered wage
structure, with lower wages and benefits for employees newly
hired into certain non-core jobs. The 2007 National Agreement
included the Memorandum of Understanding
Post-Retirement Medical Care (Retiree MOU) under which we agreed
to fund a new independent Voluntary Employee Beneficiary
Association Trust (New VEBA) that will be operated by the UAW
and responsible for establishing and funding a new benefit plan
that will permanently assume certain healthcare obligations for
UAW retirees and others. On February 21, 2008, the UAW and
the class representatives in the class action relating to the
Retiree MOU filed on September 26, 2007 by the UAW and
putative class representatives entered into a settlement
agreement (Settlement Agreement) with us. If the Settlement
Agreement is approved by the court hearing this class action, it
will effect the transactions contemplated by the Retiree MOU.
15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Executive
Officers of the Registrant
The names and ages, as of January 1, 2008, of our executive
officers and their positions and offices with GM are as follows:
|
|
|
Name and (Age)
|
|
Positions and Offices
|
G. Richard Wagoner, Jr. (54)
|
|
Chairman and Chief Executive Officer
|
Frederick A. Henderson (49)
|
|
Vice Chairman and Chief Financial Officer
|
Robert A. Lutz (75)
|
|
Vice Chairman, Global Product Development
|
Bo I. Andersson (52)
|
|
Group Vice President, Global Purchasing and Supply Chain
|
Kathleen S. Barclay (52)
|
|
Vice President, Global Human Resources
|
Walter G. Borst (46)
|
|
Treasurer
|
Lawrence D. Burns (56)
|
|
Vice President, Research & Development and Strategic
Planning
|
Troy A. Clarke (52)
|
|
Group Vice President and President, North America
|
Gary L. Cowger (60)
|
|
Group Vice President, Global Manufacturing and Labor Relations
|
Nicholas S. Cyprus (54)
|
|
Controller and Chief Accounting Officer
|
Carl-Peter Forster (53)
|
|
Group Vice President and President, GM Europe
|
Steven J. Harris (62)
|
|
Vice President, Global Communications
|
Maureen Kempston-Darkes (59)
|
|
Group Vice President and President, GM Latin America, Africa and
Middle East
|
Robert S. Osborne (53)
|
|
Group Vice President and General Counsel
|
David N. Reilly (58)
|
|
Group Vice President and President, GM Asia Pacific
|
Thomas G. Stephens (59)
|
|
Group Vice President, GM Powertrain and Global Quality
|
Ralph J. Szygenda (59)
|
|
Group Vice President and Chief Information Officer
|
Ray G. Young (46)
|
|
Group Vice President, Finance
|
There are no family relationships, as defined in Item 401
of
Regulation S-K,
between any of the officers named above, and there is no
arrangement or understanding between any of the officers named
above and any other person pursuant to which he or she was
selected as an officer. Each of the officers named above was
elected by the Board of Directors or a committee of the Board to
hold office until the next annual election of officers and until
his or her successor is elected and qualified or until his or
her earlier resignation or removal. The Board of Directors
elects the officers immediately following each annual meeting of
the stockholders and may appoint other officers between annual
meetings.
G. Richard Wagoner, Jr. has been associated with
General Motors since 1977. In October 1998, he was elected a
director and President and Chief Operating Officer of General
Motors. On June 1, 2000, Mr. Wagoner was named Chief
Executive Officer and became Chairman of the Board of Directors
on May 1, 2003. He is currently a director of GMAC.
Frederick A. Henderson became Vice Chairman and Chief Financial
Officer for General Motors on January 1, 2006. Prior to his
promotion, Mr. Henderson was a GM Group Vice President and
Chairman of GME. Mr. Henderson has been associated with
General Motors since 1984. He was named GM Group Vice President
and President of GMAP effective January 1, 2002. Effective
June 1, 2004, he was appointed Group Vice President and
Chairman of GME. He is currently a director of GMAC.
Robert A. Lutz was named Vice Chairman, Product Development of
General Motors, effective September 1, 2001. He was named
Chairman of GMNA on November 13, 2001, and served in that
capacity until April 4, 2005, when he assumed
responsibility for Global Product Development. He also served as
president of GME on an interim basis from March to June 2004.
Bo I. Andersson began his career with GM in 1987. He was
appointed GM Vice President, Worldwide Purchasing, Production
Control and Logistics on December 1, 2001 and GM Vice
President, Global Purchasing and Supply Chain on March 1,
2005. He was appointed Group Vice President, Global Purchasing
and Supply Chain on April 1, 2007.
16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Kathleen S. Barclay has been associated with General Motors
since 1985 and has been Vice President in charge of Global Human
Resources since 1998.
Walter G. Borst has been associated with General Motors since
1980. He was named Treasurer in February 2003. Prior to that,
Mr. Borst was Executive Director of Finance and Chief
Financial Officer for our German subsidiary, Adam Opel AG, since
October 2000. He is currently a director of GMAC.
Lawrence D. Burns has been associated with General Motors since
1969 and has been Vice President of Research and Development and
Strategic Planning since 1998.
Troy A. Clarke joined General Motors in 1973. He was appointed
Group Vice President and President, GMNA in July 2006. He was
named Group Vice President and Executive Vice President, GMAP on
February 4, 2004, and President of GMAP, effective
June 1, 2004. Mr. Clarke was named GM Group Vice
President of Manufacturing and Labor Relations in June 2002, and
had been Vice President of Labor Relations since January 2001.
Gary L. Cowger was appointed Group Vice President, Global
Manufacturing and Labor Relations in April 2005 and had
previously been GM Group Vice President and President, GMNA
since November 13, 2001. He has been associated with
General Motors since 1965. Mr. Cowger became Group Vice
President in charge of GM Manufacturing and Labor Relations on
January 1, 2001.
Nicholas S. Cyprus joined General Motors as Controller and Chief
Accounting Officer in December 2006. Mr. Cyprus was Senior
Vice President, Controller and Chief Accounting Officer for the
Interpublic Group of Companies from May 2004 to March 2006.
Prior to that, he was Vice President, Controller and Chief
Accounting Officer from 1999 to 2004 at AT&T Corporation.
Carl-Peter Forster has been GM Vice President and President, GME
since June 2004 and was appointed GM Group Vice President and
President, GME effective January 1, 2006. He has been
Chairman of the Opel Supervisory Board since June 2004 and
Chairman of Saab since April 2005. Mr. Forster was Chairman
and Managing Director of Adam Opel AG from April 2001, and
before that date he was responsible for vehicle development
projects for BMW AG.
Steven J. Harris was elected General Motors Vice President,
Global Communications February 1, 2006, when he returned to
GM from retirement. He previously served as Vice President of GM
Communications from 1999 until his retirement on January 1,
2004.
Maureen Kempston-Darkes has been associated with General Motors
since 1975. She was named GM Group Vice President and President,
GMLAAM effective January 1, 2002. She was president and
general manager of GM Canada and Vice President of General
Motors Corporation, from 1994 to 2001. She is a member of the
Board of Directors of Thomson Corporation and the Canadian
National Railway.
Robert S. Osborne joined General Motors as Group Vice President
and General Counsel in September 2006. Prior to joining GM, he
had been a senior partner in the law firm of Jenner &
Block since 2002. He is also responsible for the Office of the
Secretary and the Office of Export Compliance and is chair of
our Senior Management Compliance Committee.
David N. Reilly was appointed Group Vice President and
President, GMAP in July 2006 and had previously been President
and Chief Executive Officer of GM Daewoo after leading GMs
transition team in the formation of GM Daewoo beginning in
January 2002. Mr. Reilly joined General Motors in 1975 and
served as Vice President GM Europe for Sales,
Marketing, and Aftersales beginning in 2001.
In December 2006, Mr. Reilly was charged with regard to
certain alleged violations of South Korean labor laws. The
criminal charges are based on the alleged illegal engagement of
certain workers employed by an outsourcing agency in production
activities at GM Daewoo, in which we own a majority interest.
The charges were filed against Mr. Reilly in his capacity
as the most senior GM executive in South Korea and the
companys Representative Director, who under South Korean
law is the most senior member of management of a stock
corporation, and is the person typically named as the individual
respondent or defendant in any legal action brought against such
17
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
company. These charges constitute a criminal offense under the
laws of South Korea but would not constitute a criminal offense
in the United States. Mr. Reilly has filed a formal request
for trial to defend against the charges.
Thomas G. Stephens is the Group Vice President responsible for
GM Global Powertrain and Global Quality. He joined General
Motors in 1969 and was named Group Vice President for GM
Powertrain in 2001. On January 2, 2007, Mr. Stephens
was appointed global process leader for quality in addition to
his Global Powertrain responsibilities.
Ralph J. Szygenda was named Group Vice President and Chief
Information Officer on January 7, 2000. Mr. Szygenda
is a member of the Board of Directors of the Handleman Company.
He has been associated with GM since 1996.
Ray G. Young was appointed Group Vice President, Finance, on
November 1, 2007. He joined General Motors at our Canadian
headquarters in Oshawa, Ontario in 1986. In his previous post,
Mr. Young was President and Managing Director of GM do
Brasil and Mercosur Operations, beginning in January 2004, and
prior to that served as chief financial officer of GMNA.
Segment
Reporting Data
Operating segment and principal geographic area data for 2007,
2006 and 2005 are summarized in Note 29 to the consolidated
financial statements.
Website
Access to GMs Reports
Our 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 Securities Exchange Act of
1934, as amended (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
U.S. Securities and Exchange Commission (SEC).
In addition to the information about us and our subsidiaries
contained in this Annual Report on
Form 10-K
for the year ended December 31, 2007, extensive information
about the Corporation can be found on our website, including
information about our management team, our brands and products
and our corporate governance principles.
Item 1A. Risk
Factors
We face a number of significant risks and uncertainties in
connection with our operations. Our business, results of
operations and financial condition could be materially adversely
affected by the factors described below.
While we describe each risk separately, some of these risks are
interrelated and certain risks could trigger the applicability
of other risks described below. Also, the risks and
uncertainties described below are not the only ones that we may
face. Additional risks and uncertainties not presently known to
us, or that we currently do not consider significant, could also
potentially impair our business, results of operations and
financial condition.
Risks
related to us and our automotive business
New laws, regulations or policies of governmental
organizations regarding increased fuel economy requirements and
reduced greenhouse gas emissions, or changes in existing ones,
may have a significant negative impact on how we do
business.
We are affected significantly by a substantial amount of
governmental regulations that increase costs related to the
production of our vehicles. We anticipate that the number and
extent of these regulations, and the costs to comply with them,
will increase significantly in the future. In the United States
and Europe, for example, governmental regulation is primarily
driven by concerns about the environment,
18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
vehicle safety and fuel economy. These government regulatory
requirements complicate our plans for global product development
and may result in substantial costs, which can be difficult to
pass through to our customers.
The CAFE requirements mandated by the U.S. government pose
special concerns. In December 2007, the United States enacted
the EISA, a new energy bill that will require significant
increases in CAFE requirements applicable to cars and light
trucks beginning in the 2011 model year in order to increase the
combined U.S. fleet average for cars and light trucks to 35
mpg by 2020, a 40% increase. The estimated cost to the
automotive industry of complying with this new standard will
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.
In addition, a growing number of states are adopting regulations
that establish
CO2
emission standards that effectively impose similarly increased
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 higher CAFE standards discussed above. The automotive
industry has filed legal challenges to these state standards in
California, Vermont and Rhode Island. 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 air pollution
laws. While the plaintiffs including us have appealed this
decision, there can be no assurance that the Court of Appeals
will reverse the lower courts order.
On December 12, 2007, the U.S. District Court for the
Eastern District of California ruled against the federal
preemption arguments made by the automotive industry but did not
lift its order enjoining California from enforcing the AB 1493
Rules in the absence of an EPA waiver. A response to the ruling
is under consideration. A related challenge in California state
court is pending. On December 21, 2007, the
U.S. District Court for the District of Rhode Island denied
the states motion to dismiss the industry challenge and
announced steps for the case to proceed to trial. Also on
December 27, 2007, several New Mexico auto dealers filed a
challenge under U.S. law to New Mexicos adoption of
the standards. There can be no assurance that these legal
challenges to the AB 1493 Rules will succeed.
Shortages and increases in the price of fuel can result in
diminished profitability due to shifts in consumer vehicle
demand.
Continued high gasoline prices in 2007 contributed to weaker
demand for some 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 in recent years 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 21% of our North American sales in
2007, compared to a total industry average of 14% of sales.
Demand for traditional sport utility vehicles and vans also
declined in 2007. Any future increases in the price of gasoline
in the United States or in our other markets or any sustained
shortage of fuel could further weaken the demand for such
vehicles, which could lower profitability and have a material
adverse effect on our business.
Our continued ability to achieve structural and materials
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.
We are continuing to implement a number of structural and
materials cost reduction and productivity improvement
initiatives in our automotive operations, including substantial
restructuring initiatives for our North American operations, as
more fully discussed in Managements Discussion and
Analysis of Financial Condition and Results of Operations.
Our future competitiveness depends upon our continued success in
implementing these restructuring initiatives throughout our
automotive operations, especially in North America. In addition,
while some of the elements of structural cost reduction are
within our control, others such as interest rates or return on
investments, which influence our expense for pension and
postretirement health care and life insurance benefits (OPEB),
depend more on external factors, and there can be no assurance
that such external factors will not adversely affect our ability
to reduce our structural costs.
Delphi may not be able to obtain sufficient financing to
finalize its Plan of Reorganization for approval by the
Bankruptcy Court.
In January 2008, the U.S. Bankruptcy Court entered an order
confirming Delphis filed plan of reorganization (Delphi
POR) and related agreements including a master restructuring
agreement, as amended (MRA) and a global settlement agreement,
as amended (GSA) with us. Delphi is pursuing exit financing in
support of the Delphi POR, which may be particularly difficult
in light of the
19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
weakness and decline in capacity in the credit markets. If
Delphi cannot secure the financing it needs, the Delphi POR
would not be consummated on the terms negotiated with us and
with other interested parties. We believe that Delphi would
likely seek alternative arrangements, but there can be no
assurance that Delphi would be successful in obtaining any
alternative arrangements. The resulting uncertainty could
disrupt our ability to plan future production and realize our
cost reduction goals, and could result in our providing
additional financial support to Delphi, receiving less than the
distributions that we expect from the resolution of
Delphis bankruptcy proceedings or assuming some of
Delphis obligations to its workforce and retirees.
Financial difficulties, labor stoppages or work slowdowns
at key suppliers could result in a disruption in our operations
and have a material adverse effect on our business.
We rely on many suppliers to provide us with the systems,
components and parts that we need to manufacture our automotive
products and operate our business. In recent years, a number of
these suppliers, including but not limited to Delphi, have
experienced severe financial difficulties and solvency problems
and some have reorganized under the U.S. Bankruptcy Code.
Financial difficulties or solvency problems at these or other
suppliers could materially adversely affect their ability to
supply us with the systems, components and parts that we need,
which could disrupt our operations including production of
certain of our higher margin vehicles. Similarly, a substantial
portion of many of these suppliers workforces are
represented by labor unions. Workforce disputes that result in
work stoppages or slowdowns at these suppliers could also have a
material adverse effect on their ability to continue meeting our
needs.
Economic and industry conditions constantly change, and
the anticipated near-term negative economic outlook in the
United States and elsewhere will create challenges for us that
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 varies from year to year, and sales in the
United States declined in 2007 from 2006. Overall vehicle sales,
including demand for our vehicles, depend largely on general
economic conditions, including the strength of the global and
local 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. 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 2007 affected customers ability to
purchase new vehicles. The decline in housing construction
further reduced demand for our vehicles, particularly fullsize
pickups, which are among our most popular and profitable models.
We believe that the slowdown in the housing market and the
constriction of consumer credit are likely to continue into
2008. Moreover, leading economic indicators such as employment
levels and income growth predict a downward trend in the United
States economy during 2008, and some commentators have predicted
a recession. Reflecting these factors, the overall market for
new vehicle sales in the United States is expected to decline in
2008, possibly significantly. As a result, we have reduced our
projected vehicle production in North America for the first
quarter of 2008. If U.S. vehicle sales do not met our
expectations, we may choose to reduce our production further. We
anticipate that this will have a negative impact on our revenues
and profits, at least early in 2008.
These trends can have a material adverse effect on our business.
Because our business is characterized by relatively high fixed
costs and high unit contribution margins, relatively small
changes in the number of vehicles sold can have a significant
effect on our business regardless of marketing measures such as
price adjustments. Consequently, if declines in industry demand
continue to decrease our business, results of operations and
financial condition may be materially adversely affected. There
can be no assurance that current levels of vehicle sales by the
industry or us will continue.
We operate in a highly competitive industry that has
excess manufacturing capacity.
The automotive industry is highly competitive, and despite
historically high global demand overall, manufacturing capacity
in the automotive industry exceeds demand. We expect competition
to increase over the next few years due primarily to aggressive
investment by manufacturers in established markets in the United
States and Western Europe and the presence of local
manufacturers in key emerging markets like China and India. Many
manufacturers including us have relatively high fixed labor
costs as well as significant limitations on their ability to
close facilities and reduce fixed costs. Our competitors may
respond to these relatively high fixed costs by attempting to
sell more vehicles by adding vehicle enhancements, providing
subsidized financing or leasing programs, offering option
package discounts or other marketing incentives or reducing
vehicle prices in certain markets. Manufacturers in lower cost
countries such as China and India have
20
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
announced their intention of exporting their products to
established markets as a bargain alternative to entry-level
automobiles. These actions have had, and are expected to
continue to have, a significant negative impact on our vehicle
pricing, market share and operating results particularly on the
low end of the market, and present a significant risk to our
ability to enhance our revenue per vehicle.
Our long term growth and success is dependent upon our
ability to grow and operate profitably in emerging
markets.
We are committed to an aggressive global growth strategy
focusing on emerging markets such as China, India and the
Southeast Asia region (ASEAN), as well as Russia, Brazil, the
Middle East and the Andean region, where in recent years we have
experienced significant growth in revenue and profits. In recent
years our market share in more mature markets such as North
America and Western Europe has been flat or declining. Our
long-term growth and success depends on our ability to develop
market share and operate profitably in these key emerging
markets. In many cases, these countries have a more volatile
political and economic landscape, greater vulnerability to
infrastructure disruptions from natural causes or terrorism
and/or a
less robust legal, accounting or regulatory environment. At the
same time, these emerging markets are becoming more competitive
as other international automobile companies enter these markets
and local low cost producers expand their capacities. We are
taking steps to integrate our operations around the world and
manage our business increasingly on a global basis. If due to
greater competition or negative economic conditions, we are
unable to profitably operate in these key emerging markets, our
long-term growth and success may be materially adversely
affected.
A significant amount of our operations are conducted by
joint ventures that we cannot operate solely for our
benefit.
Many of our operations, particularly in emerging markets, are
carried on by joint ventures such as GM Daewoo or Shanghai GM.
In joint ventures we share ownership and management of a company
with one or more parties who may not have the same goals,
strategies, priorities or resources as we do. In general, joint
ventures are intended to be operated for the equal benefit of
all co-owners, rather than for our exclusive benefit. Operating
a business as a joint venture often requires additional
organizational formalities as well as time-consuming procedures
for sharing information and making decisions. In joint ventures,
we are required to pay more attention to our relationship with
our co-owners as well as with the joint venture, and if a
co-owner changes, our relationship may be adversely affected. In
addition, the benefits from a successful joint venture are
shared among the co-owners, so that we do not receive all the
benefits from our successful joint ventures.
Increase in cost, disruption of supply or shortage of raw
materials could harm our business.
We use various raw materials in our business including steel,
non-ferrous metals such as aluminum and copper and precious
metals such as platinum and palladium. The prices for these raw
materials fluctuate depending on market conditions. In recent
years, we have experienced significant increases in freight
charges and raw material costs. Substantial increases in the
prices for our raw materials increase our operating costs, and
could reduce our profitability if we cannot recoup the increased
costs through vehicle prices. In addition, some of these raw
materials, such as corrosion-resistant steel, are available from
a limited number of suppliers. We cannot guarantee that we will
be able to maintain favorable arrangements and relationships
with these suppliers. An increase in the cost or a sustained
interruption in the supply or shortage of some of these raw
materials that may be caused by a deterioration of our
relationships with suppliers or by events such as natural
disasters, power outages or labor strikes could negatively
impact our net revenues and profits.
A decline in consumer demand for our higher margin
vehicles could result in diminished profitability.
Our results of operations depend not only on the number of
vehicles we sell, but also the product mix of our vehicle sales.
For example, in the United States sales of luxury and fullsize
vehicles are generally more profitable for us than sales of our
smaller and lower-priced vehicles. Our sales tend to be
concentrated in a relatively small number of models. If customer
preferences shift to product segments in which our competitors
offer strong portfolios, our sales could be disproportionately
affected. Moreover, shifts in demand away from higher margin
sales could materially adversely affect our business.
The pace of introduction and market acceptance of new
vehicles is important to our success.
Customers have come to expect new and improved vehicle models to
be introduced frequently. In order to meet these expectations,
we must introduce on a regular basis new vehicle models as well
as enhanced versions of existing vehicle models. Our competitors
have
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
introduced, and likely will continue to introduce, new and
improved vehicle models designed to meet consumer expectations.
Because product lifecycles do not all coincide, some
competitors vehicles are newer than some of our existing
models in the same market segments. This puts pricing and
vehicle enhancement pressure on our vehicles and, in some
vehicle segments, results in market share declines. In addition,
consumer preferences for vehicles in certain market segments
change over time. Vehicles in less popular segments may have to
be discounted in order to be sold in similar volumes. Further,
the pace of our development and introduction of new and improved
vehicles depends on our ability to successfully implement
improved technological innovations in design, engineering, and
manufacturing. Our profit margins, sales volumes and market
shares may decrease if we are unable to produce models that
compare favorably to competing models, particularly in our
higher margin vehicle lines such as fullsize
pick-up
trucks and sport utility vehicles. In 2008 and 2009 we expect to
introduce fewer new models than in 2007 and to focus instead on
variations on recently launched models, which may not attract
the same degree of consumer attention or premium pricing.
Our significant investment in new technology may not
result in successful vehicle applications.
We intend to invest up to $9 billion per year in the next
few years to support our products and to develop new technology.
In some cases, such as hydrogen fuel cells, the technologies are
not yet commercially practical and depend on significant future
technological advances by us and by suppliers, especially in the
area of advanced battery technology. For example, we have
announced that we intend to produce the Chevrolet Volt, an
electric car, which requires battery technology that has not yet
proven to be commercially viable. There can be no assurance that
these advances will occur in a timely or feasible way, that the
funds that we have budgeted for these purposes will be adequate
or that we will be able to establish our right to these
technologies. Moreover, our competitors and others are pursuing
the same technologies and other competing technologies, in some
cases with more money available, and there can be no assurance
that they will not acquire similar or superior technologies
sooner than we do or on an exclusive basis or at a significant
price advantage.
We have agreed to fund a trust pursuant to the Settlement
Agreement that will require us to contribute significant assets
in a relatively short time period.
If the arrangements contemplated by the Settlement Agreement are
approved and implemented, we will be required to contribute more
than $25 billion in assets to the New VEBA in a relatively
short time period, plus $5.6 billion immediately or in
payments through 2020 and up to 19 annual payments of
$165 million as necessary to support the New VEBAs
future solvency. There can be no assurance that we will be able
to obtain all of the necessary funding that has not been set
aside in existing VEBA trusts on terms that 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.
If we are not be able to implement the terms of the
Settlement Agreement, including the terms of the New VEBA, our
extensive OPEB obligations will remain a competitive
disadvantage to us.
We are relying on the implementation of the Settlement Agreement
to make a significant reduction in our OPEB liability. Under
certain circumstances, however, it may not be possible to
implement the Settlement Agreement. The implementation of the
Settlement Agreement is contingent on our securing satisfactory
accounting treatment for our obligations to the covered group
for retiree medical benefits, which we plan to discuss 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 Settlement Agreement with the UAW to obtain such accounting
treatment, but if we cannot accomplish such a restructuring the
Settlement Agreement will terminate. Moreover, there can be no
assurance that the terms of the Settlement Agreement will not be
changed through negotiations with the UAW or UAW retiree class
counsel in order to secure court approval or that the Settlement
Agreement will be approved by the court.
Our OPEB obligations for employees and retirees are
$60 billion at December 31, 2007, 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 was $4.6 billion in 2007
(before the effect of amounts incurred or paid on certain
benefit guarantees related to Delphi and contributions to a VEBA
Trust for paying healthcare costs established in 2005
(Mitigation 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. This is a competitive disadvantage to us
since we have a greater number of retirees for whom we have OPEB
obligations than our competitors. Trend rates for healthcare
costs are expected to continue to increase, due to a number of
factors
22
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
not within our control, such as an aging population, greater
ability to manage serious chronic illness at an increasingly
high cost and new procedures and technologies to prevent illness
and disease that extend life expectancies.
Even if we are able to successfully implement the terms of
the Settlement Agreement by establishing and making the required
contributions to the New VEBA, the earliest we will be able to
benefit from associated cash savings would be 2010.
Because the arrangements contemplated by the Settlement
Agreement require court approval, we will not be able to
implement the Settlement Agreement until at least 2010, and
implementation may be delayed further or even denied by the
court. Until the Settlement Agreement is implemented we will
continue to incur substantial costs for OPEB obligations related
to retired UAW employees, and delays in implementation or
changes in the terms could adversely affect the benefits that we
anticipate receiving from the Settlement Agreement.
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.
Our future funding obligations for our U.S. defined benefit
pension plans qualified with the Internal Revenue Service and
our estimated liability related to OPEB plans depend upon
changes in healthcare inflation trend rates, the level of
benefits provided for by the plans, the future performance of
assets set aside in trusts for these plans, the level of
interest rates used to determine funding levels, actuarial data
and experience and any changes in government laws and
regulations. In addition, our employee benefit plans hold a
significant amount of equity securities. If the market values of
these securities decline, our pension and OPEB expenses would
increase and, as a result, could materially adversely affect our
business. Decreases in interest rates that are not offset by
contributions and asset returns could also increase our
obligations under such plans. We may be legally required to make
contributions to our U.S. pension plans in the future, and
those contributions could be material. In addition, if local
legal authorities increase the minimum funding requirements for
our pension plans outside the United States, we could be
required to contribute more funds, which would negatively affect
our cash flow.
Our extensive pension obligations to retirees are a
competitive disadvantage for us.
We believe that we are competitively disadvantaged because we
provide pension benefits to more than 400,000 retirees and
surviving spouses in the United States. As a result, we believe
our pension payments as a percentage of revenues are
significantly greater than our competitors, particularly those
operating outside the United States. In addition to our large
number of U.S. retirees, we have mature manufacturing
operations in Canada and Western Europe including Germany and
the United Kingdom, and as result have pension and similar
obligations to significant numbers of current retirees and
employees who will retire in the near future. Although our
U.S. pension plans are now fully funded, certain of our
pension plans outside the United States are partially or fully
unfunded. As a result of funding our worldwide pension
obligations, we have relatively less available cash to invest in
product development and capital projects than some of our
competitors.
We could be materially adversely affected by changes or
imbalances in currency exchange and other rates.
Because we sell products and buy materials globally over a
significant period of time, we are exposed to risks related to
the effects of changes in foreign currency exchange rates,
commodity prices and interest rates, which can have material
adverse effects on our business. In recent years, the relative
weakness of certain currencies has provided competitive
advantages to certain of our competitors. Specifically, the
weakness of the Japanese Yen has provided pricing advantages for
vehicles and parts imported from Japan to markets with more
robust currencies like the United States and Western Europe.
Moreover, the relative strength of other currencies has
negatively impacted our business. For example, the relative
strength of the currencies of Western Europe, where we
manufacture vehicles, compared to the currencies of Eastern
Europe, where we import vehicles made in Western Europe, has had
an adverse effect on our results of operations in Europe.
Similarly, parts or products manufactured in Canada and sold in
the United States no longer enjoy the advantage of a Canadian
Dollar that is substantially weaker than the U.S. Dollar.
In addition, in preparing our financial statements we translate
our revenue and expenses outside the United States into
U.S. Dollars using the average exchange rate for the period
and the assets and liabilities using the exchange rate at the
balance sheet date. As a result, currency fluctuations and the
associated currency translations could have a material adverse
effect on our results of operation.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Our liquidity position could be negatively affected by a
variety of factors, which in turn could have a material adverse
effect on our business.
Our ability to meet our capital requirements over the long-term
(as opposed to the short and medium-term) will require
substantial liquidity and will depend on the continued
successful execution of our turnaround plan to return our North
American operations to profitability and positive cash flow. We
are subject to numerous risks and uncertainties that could
negatively affect our cash flow and liquidity position in the
future. These include, among other things, the high capital
costs relating to new technology research and implementation,
the effects of proposed and new legislation regarding increased
fuel economy requirements and greenhouse gas emissions and
pressure from suppliers to agree to changed payment or other
contract terms. The occurrence of one or more of these events
could weaken our liquidity position and materially adversely
affect our business, for example by curtailing our ability to
make important capital expenditures. The current weakness of the
credit markets and the general economic downturn could have a
significant negative effect on our ability to borrow funds to
meet our anticipated cash needs.
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.
Our credit ratings have been downgraded to historically low
levels. Our unsecured debt is currently assigned a
non-investment grade rating by each of the four nationally
recognized statistical rating organizations. The decline in our
credit ratings reflects the agencies concerns over our
competitive and financial strength. Our current credit ratings
have substantially reduced our access to the unsecured debt
markets and have unfavorably impacted our overall cost of
borrowing. Certain of the financing arrangements we entered into
in 2007 included collateral.
Further downgrades of our current credit ratings or significant
worsening of our financial condition could also result in
increased demands by our suppliers for accelerated payment terms
or other more onerous supply terms.
The U.S. federal government is currently
investigating certain of our accounting practices. The final
outcome of these investigations could require us to restate
prior financial results or result in other adverse
consequences.
We have received subpoenas from the SEC in connection with some
of its investigations related to various matters including our
financial reporting concerning pension and OPEB, certain
transactions between us and Delphi, supplier price reductions or
credits, any obligation we may have to fund pension and OPEB
costs in connection with Delphis Chapter 11
proceedings and certain transactions in precious metal raw
materials used in our automotive manufacturing operations. The
SEC is also investigating our accounting for certain foreign
exchange derivative transactions and commodities contracts under
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. We have produced
documents and provided testimony in response to the subpoenas
and we are continuing to cooperate in connection with all these
investigations. A negative outcome of one or more of these
investigations could require us to restate prior financial
results and could result in fines, penalties or other remedies
being imposed on us, which under certain circumstances could
have a material adverse effect on our business.
We have determined that our internal controls over
financial reporting are currently not effective. The lack of
effective internal controls could adversely affect our financial
condition and ability to carry out our strategic business
plan.
As discussed in Item 9A, Controls and Procedures, our
management team for financial reporting, under the supervision
and with the participation of our chief executive officer and
chief financial officer, conducted an evaluation of the
effectiveness of the design and operation of our internal
controls. As of December 31, 2007, they concluded that our
disclosure controls and procedures and our internal control over
financial reporting were not effective. Until we are successful
in our effort to remediate the weaknesses in our internal
control over financial reporting, they may adversely impact our
ability to report accurately our financial condition and results
of operations in the future in a timely manner.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Our indebtedness and other obligations of our automotive
operations are significant and could have a material adverse
effect on our business.
We have a significant amount of indebtedness. As of
December 31, 2007, we had $39.4 billion in loans
payable and long-term debt outstanding for our automotive
operations, in addition to funding requirements of more than
$30 billion under the Settlement Agreement. Our significant
indebtedness may have several important consequences. For
example, it could:
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Require us to dedicate a significant portion of our cash flow
from operations to the payment of principal and interest on our
indebtedness, which will reduce the funds available for other
purposes such as product development;
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Make us more vulnerable to adverse economic and industry
conditions;
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Limit our ability to withstand competitive pressures; and
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Reduce our flexibility in responding to changing business and
economic conditions.
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Any one or more of these consequences could have a material
adverse effect on our business.
Our businesses outside the United States expose us to
additional risks that may materially adversely affect our
business.
Approximately 59% of our automotive unit sales in 2007 were
generated outside the United States, and we intend to continue
to pursue growth opportunities for our business in a variety of
business environments outside the United States. Operating in a
large number of different regions and countries exposes us to
multiple foreign regulatory requirements that are subject to
change, including foreign regulations restricting our ability to
sell our products in those countries; differing local product
preferences and product requirements, including fuel economy,
vehicle emissions and safety; differing labor regulations and
union relationships and tax laws and planning. The effects of
these risks may, individually or in the aggregate, materially
adversely affect our business.
New laws, regulations or policies of governmental
organizations regarding safety standards, or changes in existing
ones, may have a significant negative impact on how we do
business.
Our 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.
We are subject to significant risks of litigation.
We are currently subject to numerous matters in litigation,
including a number of stockholder and bondholder class actions
and derivative lawsuits. We cannot provide assurance that we
will be successful in defending any of these matters, and
adverse judgments could materially adversely affect our business
or financial condition. We are also routinely named a defendant
in purported class actions alleging a variety of vehicle
defects, in product liability cases seeking damages for personal
injury and in suits alleging our responsibility for claims of
asbestos related illnesses. Some of these matters are described
in greater detail in our Legal Proceedings section below. Since
the outcomes of such pending or future litigation are not
predictable, we cannot provide assurance that such litigation
will not materially adversely affect our business, results of
operations or cash flows.
25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Risks
related to our 49% ownership interest in GMAC
General business, economic and market conditions as well
as continuing weakness in the residential mortgage market may
significantly affect the operating results of GMACs
business and earnings and may require us to record an impairment
of our equity investment in GMAC.
In recent years, GMAC contributed consistently and substantially
to our revenues and profits. Following the GMAC Transaction in
November 2006, we hold 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.
GMACs portfolio of loans held for investment grew in 2007,
which increases the risk to GMAC of borrower defaults. At
December 31, 2007 we had an equity investment of
$8.1 billion in GMAC based on our Common Membership
Interests and Preferred Membership Interests. We are required by
generally accepted accounting principles to review the carrying
value of our assets periodically, including our equity
investments. If economic conditions decline in 2008 and
GMACs earnings continue to be negatively affected, we may
be required to record an impairment of our equity investment in
GMAC.
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 declined significantly,
with falling residential sales, decreased housing construction
and rising rates of defaults and foreclosures. GMACs
revenues and profits have been adversely affected by this
decline, particularly at its residential mortgage subsidiary
Residential Capital LLC (ResCap). GMAC had a net loss of
$2.3 billion in 2007, compared to net income of
$2.1 billion in 2006. ResCaps 2006 net income of
$705 million decreased in 2007 to a net loss of
$4.3 billion, and in the third quarter of 2007, GMAC
recognized an impairment loss of $455 million. 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 Common Membership
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 that we hold.
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, however, to the extent necessary to maintain the
contractually required level of minimum book equity. GMACs
revenues and profits 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.
Moreover, we have not received dividends on our Common
Membership Interests in GMAC.
GMACs automotive finance business is critical to our
operations and provides financing support to a significant share
of our global sales; if GMAC is unable to provide financial
support in its current form our business will be materially
adversely affected.
GMACs automotive finance business for North American
Operations and International Operations supports a significant
share of our global sales through lending, leasing and financing
arrangements with dealers and retail and fleet customers. If
GMAC is unable to provide this financial support to our dealers
and customers at the current level we may need to seek a
replacement issuer or originator for
26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
our automotive financing operations. This process would be
complicated by the existing contractual arrangements that GM and
GMAC entered into in connection with the GMAC Transaction, such
as the exclusive use of GMAC to provide leasing and financing
incentives to U.S. customers (other than Saturn buyers). We
may not be able to find a replacement in a timely and cost
efficient manner and the ensuing interruption to our sales
process could materially affect our business.
Rating agencies have recently downgraded their ratings for
GMAC and ResCap, and there could be further downgrades in the
future. Future downgrades would further adversely affect
GMACs ability to raise capital in the debt markets at
attractive rates and increase the interest that GMAC pays on new
borrowings, which could have a material adverse effect on
GMACs results of operations and financial
condition.
Each of Standard & Poors Rating Services;
Moodys Investors Service, Inc.; Fitch, Inc.; and Dominion
Bond Rating Service rate GMACs debt. There have been a
series of recent negative credit rating actions, and all of
these agencies currently maintain a negative outlook with
respect to GMACs ratings. Ratings reflect the rating
agencies opinions of GMACs financial strength,
operating performance, strategic position, and ability to meet
its obligations. Agency ratings are not a recommendation to buy,
sell, or hold any security, and may be revised or withdrawn at
any time by the issuing organization. Each agencys rating
should be evaluated independently of any other agencys
rating.
Future downgrades of GMACs credit ratings would further
increase borrowing costs and constrain GMACs access to
unsecured debt markets, including capital markets for retail
debt and, as a result, would negatively affect GMACs
business. In addition, future downgrades of GMACs credit
ratings could increase the possibility of additional terms and
conditions being added to any new or replacement financing
arrangements, as well as impact elements of certain existing
secured borrowing arrangements.
GMACs business requires substantial capital, and if
GMAC is unable to maintain adequate financing sources,
GMACs profitability and financial condition will suffer
and jeopardize GMACs ability to continue
operations.
GMACs liquidity and ongoing profitability are, in large
part, dependent upon GMACs timely access to capital and
the costs associated with raising funds in different segments of
the capital markets. Currently, GMACs 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 its operations. Negative
credit events specific to us or GMAC or other events affecting
the overall debt markets have adversely impacted GMACs
funding sources, and continued or additional negative events
could further adversely impact GMACs funding sources,
especially over the long term. As an example, an insolvency
event for us would curtail GMACs ability to utilize
certain of GMACs automotive wholesale loan securitization
structures as a source of funding in the future. Furthermore,
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
values. 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. As a result, ResCaps
liquidity will continue to be negatively impacted by margin
calls and changes to advance rates on its secured facilities.
One consequence of this funding reduction is
27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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. In addition, a number
of ResCaps financing facilities have relatively short
terms, typically one year or less, and a number of facilities
are scheduled to mature during 2008. Though ResCap has generally
been able to renew maturing facilities when needed to fund its
operations, in recent months counterparties have often
negotiated more conservative terms. Such terms have included,
among other things, shorter maturities upon renewal, lower
overall borrowing limits, lower ratios of funding to collateral
value for secured facilities, and higher borrowing costs. 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 GMACs ability to
complete securitizations and sales, including conditions in the
securities markets generally, conditions in the asset- or
mortgage-backed securities markets, the credit quality and
performance of GMACs contracts and loans, GMACs
ability to service its contracts and loans, and a decline in the
ratings given to securities previously issued in GMACs
securitizations. Any of these factors could negatively affect
GMACs ability to fund in these markets and the pricing of
GMACs securitizations and sales, resulting in lower
proceeds from these activities.
Recent developments in the residential mortgage market may
continue to adversely affect GMACs revenues,
profitability, and financial condition.
Recently, the residential mortgage markets in the United States
and Europe have experienced a variety of difficulties and
changed economic conditions that adversely affected GMACs
earnings and financial condition in the fourth quarter of 2006
and through 2007. Delinquencies and losses with respect to
ResCaps nonprime mortgage loans increased significantly
and may continue to increase. Housing prices in many parts of
the United States and the United Kingdom have also declined or
stopped appreciating, after extended periods of significant
appreciation. In addition, the liquidity provided to the
mortgage sector has recently been significantly reduced. This
liquidity reduction combined with Rescaps decision to
reduce its exposure to the nonprime mortgage market caused its
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 in the United States and Europe.
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. A continuation of these trends may continue to
adversely affect our financial condition and results of
operations.
Another factor that may result in higher delinquency rates on
mortgage loans held for sale and investment and on mortgage
loans that underlie interests from securitizations is the
scheduled increase in monthly payments on adjustable rate
mortgage loans. Borrowers with adjustable rate mortgage loans
are being exposed to increased monthly payments when the related
mortgage interest rate adjusts upward under the terms of the
mortgage loan from the initial fixed rate or a low introductory
rate, as applicable, to the rate computed in accordance with the
applicable index and margin. 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.
In addition, these mortgage loans may have prepayment premiums
that inhibit refinancing. Furthermore, borrowers who intend to
sell their homes on or before the expiration of the fixed-rate
periods on their mortgage loans may find that they cannot sell
their properties for an amount equal to or greater than the
unpaid principal balance of their loans. These events, alone or
in combination, may contribute to higher delinquency rates.
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 GMACs profitability
from nonprime mortgage loans could be negatively impacted. Such
activity could also negatively impact GMACs warehouse
lending volumes and profitability. The events surrounding the
nonprime
28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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
GMACs warehouse lending volumes, which could negatively
impact GMACs 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.
Recent negative developments in the secondary mortgage
markets have led credit rating agencies to make requirements for
rating mortgage securities more stringent, and market
participants are still evaluating the impact.
The credit rating agencies that rate most classes of
ResCaps mortgage securitization transactions establish
criteria for both security terms and the underlying mortgage
loans. Recent deterioration in the residential mortgage market
in the United States and internationally, especially in the
nonprime sector, has led the rating agencies to increase their
required credit enhancement for certain loan features and
security structures. These changes, and any similar changes in
the future, may reduce the volume of securitizable loans ResCap
is able to produce in a competitive market. Similarly, increased
credit enhancement to support ratings on new securities may
reduce the profitability of ResCaps mortgage
securitization operations and, accordingly, its overall
profitability and financial condition.
GMACs indebtedness and other obligations are
significant and could materially adversely affect its
business.
GMAC has a significant amount of indebtedness. As of
December 31, 2007, GMAC had approximately $193 billion
in principal amount of indebtedness outstanding. Interest
expense on GMACs indebtedness constitutes approximately
70% of its total financing revenues. In addition, under the
terms of GMACs current indebtedness, GMAC has the ability
to create additional unsecured indebtedness. If GMACs debt
payments increase, whether due to the increased cost of existing
indebtedness or the incurrence of additional indebtedness, GMAC
may be required to dedicate a significant portion of its cash
flow from operations to the payment of principal of, and
interest on, its indebtedness, which would reduce the funds
available for other purposes. GMACs indebtedness also
could limit its ability to withstand competitive pressures and
reduce its flexibility in responding to changing business and
economic conditions.
GMACs earnings may decrease because of increases or
decreases in interest rates.
GMACs profitability is directly affected by changes in
interest rates. The following are some of the risks GMAC faces
relating to an increase in interest rates:
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Rising interest rates will increase its cost of funds.
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Rising interest rates may reduce its consumer automotive
financing volume by influencing consumers to pay cash for, as
opposed to financing, vehicle purchases.
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Rising interest rates generally reduce its residential mortgage
loan production as borrowers become less likely to refinance,
and the costs associated with acquiring a new home becomes more
expensive.
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Rising interest rates will generally reduce the value of
mortgage and automotive financing loans and contracts and
retained interests and fixed income securities held in its
investment portfolio.
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GMAC is also subject to risks from decreasing interest rates.
For example, a significant decrease in interest rates could
increase the rate at which mortgages are prepaid, which could
require it to write down the value of its retained interests.
Moreover, if prepayments are greater than expected, the cash
GMAC receives over the life of its mortgage loans held for
investment, and its retained interests would be reduced.
Higher-than-expected prepayments could also reduce the value of
GMACs mortgage servicing rights and, to the extent the
borrower does not refinance with GMAC, the size of its servicing
portfolio. Therefore, any such changes in interest rates could
harm GMACs revenues, profitability, and financial
condition.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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, as
could its failure to comply with hedge accounting principles and
interpretations.
GMAC employs various economic hedging strategies to mitigate the
interest rate and prepayment risk inherent in many of its assets
and liabilities. GMACs hedging strategies rely on
assumptions and projections regarding its assets, liabilities
and general market factors. If these assumptions and projections
prove to be incorrect or GMACs hedges do not adequately
mitigate the impact of changes in interest rates or prepayment
speeds, GMAC may experience volatility in its earnings that
could adversely affect its profitability and financial condition.
In addition, hedge accounting in accordance with SFAS 133
requires the application of significant subjective judgments to
a body of accounting concepts that is complex and for which the
interpretations have continued to evolve within the accounting
profession and amongst the standard-setting bodies. On
GMACs 2006 Annual Report on
Form 10-K,
GMAC restated prior period financial information to eliminate
hedge accounting treatment that had been applied to certain
callable debt hedged with derivatives.
GMACs residential mortgage subsidiarys ability
to pay dividends to GMAC is restricted by contractual
arrangements.
On June 24, 2005, GMAC entered into an operating agreement
with ResCap, the holding company for GMACs residential
mortgage business, and us to create separation between ResCap on
one hand and GMAC and us on the other hand. The operating
agreement restricts ResCaps ability to declare dividends
or prepay subordinated indebtedness to GMAC. This operating
agreement was amended on November 27, 2006, and again on
November 30, 2006, in conjunction with the GMAC
Transaction. Among other things, these amendments removed us as
a party to the agreement.
The restrictions contained in the ResCap operating agreement
include the requirements that ResCaps total equity be at
least $6.5 billion for dividends to be paid. If ResCap is
permitted to pay dividends pursuant to the previous sentence,
the cumulative amount of such dividends may not exceed 50% of
ResCaps cumulative net income (excluding payments for
income taxes from GMACs election for federal income tax
purposes to be treated as a limited liability company), measured
from July 1, 2005, at the time such dividend is paid. These
restrictions will cease to be effective if ResCaps total
equity has been at least $12 billion as of the end of each
of two consecutive fiscal quarters or if GMAC ceases to be the
majority owner. In connection with the GMAC Transaction, we were
released as a party to this operating agreement, but the
operating agreement remains in effect between ResCap and GMAC.
At December 31, 2007, ResCap had consolidated total equity
of approximately $6.0 billion.
A failure of or interruption in the communications and
information systems on which GMAC relies to conduct its business
could adversely affect GMACs revenues and
profitability.
GMAC relies heavily upon communications and information systems
to conduct its business. Any failure or interruption of
GMACs information systems or the third-party information
systems on which GMAC relies could cause underwriting or other
delays and could result in fewer applications being received,
slower processing of applications and reduced efficiency in
servicing. The occurrence of any of these events could have a
material adverse effect on GMACs business.
GMAC uses estimates and assumptions in determining the
fair value of certain of its assets, in determining GMACs
allowance for credit losses, in determining lease residual
values and in determining GMACs reserves for insurance
losses and loss adjustment expenses. If GMACs estimates or
assumptions prove to be incorrect, its cash flow, profitability,
financial condition and business prospects could be materially
adversely affected.
GMAC uses estimates and various assumptions in determining the
fair value of many of its assets, including retained interests
from 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 leased vehicles and in
determining its reserves for insurance losses and loss
adjustment expenses. It is difficult to determine the accuracy
of GMACs 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 of the
allowance for loan losses at ResCap for 2006 and 2007. A
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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 outside the United States exposes it
to additional risks that may cause GMACs revenues and
profitability to decline.
GMAC conducts a significant portion of its business outside the
United States. GMAC intends to continue to pursue growth
opportunities for its businesses outside the United States,
which could expose it to greater risks. The risks associated
with GMACs operations outside the United States include:
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multiple foreign regulatory requirements that are subject to
change;
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differing local product preferences and product requirements;
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fluctuations in foreign currency exchange rates and interest
rates;
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difficulty in establishing, staffing, and managing foreign
operations;
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differing labor regulations;
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consequences from changes in tax laws; and
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political and economic instability, natural calamities, war, and
terrorism.
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The effects of these risks may, individually or in the
aggregate, adversely affect GMACs revenues and
profitability.
GMACs business could be adversely affected by
changes in currency exchange rates.
GMAC is exposed to risks related to the effects of changes in
foreign currency exchange rates. Changes in currency exchange
rates can have a significant impact on GMACs earnings from
international operations. While GMAC carefully watches and
attempts to manage GMACs exposure to fluctuation in
currency exchange rates, these types of changes can have
material adverse effects on GMACs business and results of
operations and financial condition.
GMAC is exposed to credit risk, which could affect its
profitability and financial condition.
GMAC is subject to credit risk resulting from defaults in
payment or performance by customers for its contracts and loans,
as well as contracts and loans that are securitized and in which
it retains a residual interest. For example, the continued
decline in the domestic housing market has resulted in an
increase in delinquency rates related to mortgage loans that
ResCap either holds or retains an interest in. Furthermore, a
weak economic environment caused by higher energy prices and the
continued deterioration of the housing market could exert
pressure on our consumer automotive finance customers resulting
in higher delinquencies, repossessions and losses. There can be
no assurances that GMACs monitoring of its credit risk as
it impacts the value of these assets and its efforts to mitigate
credit risk through its risk-based pricing, appropriate
underwriting policies and loss mitigation strategies are or will
be sufficient to prevent a further adverse effect on GMACs
profitability and financial condition. As part of the
underwriting process, GMAC relies heavily upon information
supplied by third parties. If any of this information is
intentionally or negligently misrepresented and the
misrepresentation is not detected before completing the
transaction, the credit risk associated with the transaction may
be increased.
General business and economic conditions of the industries
and geographic areas in which GMAC operates affect its revenues,
profitability and financial condition.
GMACs revenues, profitability and financial condition are
sensitive to general business and economic conditions in the
United States and in the markets in which it operates outside
the United States. A downturn in economic conditions resulting
in increased
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
unemployment rates, increased consumer and commercial bankruptcy
filings or other factors that negatively impact household
incomes could decrease demand for GMACs financing and
mortgage products and increase delinquency and loss. In
addition, because GMACs credit exposures are generally
collateralized, the severity of its losses is particularly
sensitive to a decline in used vehicle and residential home
prices.
Some further examples of these risks include the following:
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A significant and sustained increase in gasoline prices could
decrease new and used vehicle purchases, thereby reducing the
demand for automotive retail and wholesale financing.
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A general decline in residential home prices in the United
States could negatively affect the value of GMACs mortgage
loans held for investment and sale and GMACs retained
interests in securitized mortgage loans. Such a decrease could
also restrict GMACs ability to originate, sell or
securitize mortgage loans and impact the repayment of advances
under its warehouse loans.
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An increase in automotive labor rates or parts prices could
negatively affect the value of GMACs automotive extended
service contracts.
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GMACs profitability and financial condition may be
materially adversely affected by decreases in the residual value
of off-lease vehicles.
GMACs expectation of the residual value of a vehicle
subject to an automotive lease contract is a critical element
used to determine the amount of the lease payments under the
contract at the time the customer enters into it. As a result,
to the extent the actual residual value of the vehicle, as
reflected in the sales proceeds received upon remarketing, is
less than the expected residual value for the vehicle at lease
inception, GMAC incurs additional depreciation expense
and/or a
loss on the lease transaction. General economic conditions, the
supply of off-lease vehicles and new vehicle market prices
heavily influence used vehicle prices and thus the actual
residual value of off-lease vehicles. Our brand image, consumer
preference for our products and our marketing programs that
influence the new and used vehicle market for our vehicles also
influence lease residual values. In addition, GMACs
ability to efficiently process and effectively market off-lease
vehicles impacts the disposal costs and proceeds realized from
the vehicle sales. While we provide support for lease residual
values, including through residual support programs, this
support does not in all cases entitle GMAC to full reimbursement
for the difference between the remarketing sales proceeds for
off-lease vehicles and the residual value specified in the lease
contract. Differences between the actual residual values
realized on leased vehicles and GMACs expectations of such
values at contract inception could have a negative impact on its
profitability and financial condition.
Fluctuations in valuation of investment securities or
significant fluctuations in investment market prices could
negatively affect revenues.
Investment market prices in general are subject to fluctuation.
Consequently, the amount realized in the subsequent sale of an
investment may significantly differ from the reported market
value that could negatively affect GMACs revenues.
Fluctuation in the market price of a security may result from
perceived changes in the underlying economic characteristics of
the investee, the relative price of alternative investments,
national and international events and general market conditions.
Changes in existing U.S. government-sponsored
mortgage programs, or disruptions in the secondary markets in
the United States or in other countries in which GMACs
mortgage subsidiaries operate, could adversely affect the
profitability and financial condition of GMACs mortgage
business.
The ability of ResCap to generate revenue through mortgage loan
sales to institutional investors in the United States depends to
a significant degree on programs administered by
government-sponsored enterprises such as Fannie Mae, Freddie
Mac, Ginnie Mae and others that facilitate the issuance of
mortgage-backed securities in the secondary market. These
government-sponsored enterprises play a powerful role in the
residential mortgage industry, and GMACs mortgage
subsidiaries have significant business relationships with them.
Proposals are being considered in Congress and by various
regulatory authorities that would affect the manner in which
these government-sponsored enterprises conduct their business,
including proposals to establish a new independent agency to
regulate the
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
government-sponsored enterprises, to require them to register
their stock with the SEC, to reduce or limit certain business
benefits they receive from the U.S. government and to limit
the size of the mortgage loan portfolios they may hold. Any
discontinuation of, or significant reduction in, the operation
of these government-sponsored enterprises could adversely affect
GMACs revenues and profitability. Also, any significant
adverse change in the level of activity in the secondary market,
including declines in institutional investors desire to
invest in GMACs mortgage products, could adversely affect
GMACs business.
GMAC may be required to repurchase contracts and provide
indemnification if it breaches representations and warranties
from its securitization and whole-loan transactions, which could
harm GMACs profitability and financial condition.
When GMAC sells retail contracts or leases through whole-loan
sales or securitizes retail contracts, leases or wholesale loans
to dealers, GMAC is required to make customary representations
and warranties about the contracts, leases or loans to the
purchaser or securitization trust. GMACs whole-loan sale
agreements generally require it to repurchase retail contracts
or provide indemnification if GMAC breaches a representation or
warranty given to the purchaser. Likewise, GMAC is required to
repurchase retail contracts, leases or loans and may be required
to provide indemnification if it breaches a representation or
warranty in connection with its securitizations. Similarly,
sales of mortgage loans through whole-loan sales or
securitizations require GMAC to make customary representations
and warranties about the mortgage loans to the purchaser or
securitization trust. GMACs whole-loan sale agreements
generally require it to repurchase or substitute loans if it
breaches a representation or warranty given to the purchaser. In
addition, GMAC may be required to repurchase mortgage loans as a
result of borrower fraud or if a payment default occurs on a
mortgage loan shortly after its origination. Likewise, GMAC is
required to repurchase or substitute mortgage loans if it
breaches a representation or warranty in connection with its
securitizations. The remedies available to a purchaser of
mortgage loans may be broader than those available to GMAC
against the original seller of the mortgage loan. Also,
originating brokers and correspondent lenders often lack
sufficient capital to repurchase more than a limited number of
such loans and numerous brokers and correspondents are no longer
in business. If a purchaser enforces its remedies, GMAC may not
be able to enforce the remedies GMAC has against the seller of
the mortgage loan to GMAC or the borrower.
Like others in the mortgage industry, ResCap has experienced a
material increase in repurchase requests. Significant repurchase
activity could continue to 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.
GMAC has repurchase obligations in its capacity as servicers in
securitizations and whole-loan sales. If a servicer breaches a
representation, warranty or servicing covenant with respect to
an automotive receivable or mortgage loan, the servicer may be
required by the servicing provisions to repurchase that asset
from the purchaser. If the frequency at which repurchases of
assets occurs increases substantially from its present rate, the
result could be a material adverse effect on GMACs
financial condition, liquidity, and results of operations.
A loss of contractual servicing rights could have a
material adverse effect on GMACs financial condition,
liquidity and results of operations.
GMAC is the servicer for all of the receivables it has
originated and transferred to other parties in securitizations
and whole-loan sales of automotive receivables. GMACs
mortgage subsidiaries service the mortgage loans it has
securitized, and GMAC services the majority of the mortgage
loans it has sold in whole-loan sales. In each case, GMAC is
paid a fee for its services, which fees in the aggregate
constitute a substantial revenue stream for GMAC. In each case,
GMAC is subject to the risk of termination under the
circumstances specified in the applicable servicing provisions.
In most securitizations and whole-loan sales, the owner of the
receivables or mortgage loans will be entitled to declare a
servicer default and terminate the servicer upon the occurrence
of specified events. These events typically include a bankruptcy
of the servicer, a material failure by the servicer to perform
its obligations and a failure by the servicer to turn over funds
on the required basis. The termination of these servicing
rights, were it to occur, could have a material adverse effect
on GMACs financial condition, liquidity and results of
operations and those of GMACs mortgage subsidiaries. For
the year ended December 31, 2007, GMACs consolidated
mortgage servicing fee income was approximately
$2.2 billion.
33
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
The regulatory environment in which GMAC operates could
have a material adverse effect on its business and
earnings.
GMACs U.S. operations are subject to various laws and
judicial and administrative decisions imposing various
requirements and restrictions relating to supervision and
regulation by state and federal authorities. Such regulation and
supervision are primarily for the benefit and protection of
GMACs customers, not for the benefit of investors in its
securities, and could limit GMACs discretion in operating
its business. Noncompliance with applicable statutes or
regulations could result in the suspension or revocation of any
license or registration at issue, as well as the imposition of
civil fines and criminal penalties.
GMACs operations are also heavily regulated in many
jurisdictions outside the United States. For example, certain of
GMACs foreign subsidiaries operate either as a bank or a
regulated finance company, and its insurance operations are
subject to various requirements in the foreign markets in which
it operates. The varying requirements of these jurisdictions may
be inconsistent with U.S. rules and may materially
adversely affect GMACs business or limit necessary
regulatory approvals, or if approvals are obtained, GMAC may not
be able to continue to comply with the terms of the approvals or
applicable regulations. In addition, in many countries the
regulations applicable to the financial services industry are
uncertain and evolving, and it may be difficult for GMAC to
determine the exact regulatory requirements.
GMACs inability to remain in compliance with regulatory
requirements in a particular jurisdiction could have a material
adverse effect on its operations in that market with regard to
the affected product and on its reputation generally. No
assurance can be given that applicable laws or regulations will
not be amended or construed differently, that new laws and
regulations will not be adopted or that GMAC will not be
prohibited by local laws from raising interest rates above
certain desired levels, any of which could materially adversely
affect its business, financial condition or results of
operations.
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.
The markets for automotive and mortgage financing, insurance and
reinsurance are highly competitive. The market for automotive
financing has grown more competitive as more consumers are
financing their vehicle purchases, primarily in North America
and Europe. GMACs mortgage business faces significant
competition from commercial banks, savings institutions,
mortgage companies and other financial institutions. GMACs
insurance business faces significant competition from insurance
carriers, reinsurers, third-party administrators, brokers and
other insurance-related companies. Many of GMACs
competitors have substantial positions nationally or in the
markets in which they operate. Some of GMACs competitors
have lower cost structures or lower cost of capital, and are
less reliant on securitization and sale activities. GMAC faces
significant competition in various areas, including product
offerings, rates, pricing and fees and customer service. If GMAC
is unable to compete effectively in the markets in which it
operates, its profitability and financial condition could be
negatively affected.
The markets for asset and mortgage securitizations and
whole-loan sales are competitive, and other issuers and
originators could increase the amount of their issuances and
sales. In addition, lenders and other investors within those
markets often establish limits on their credit exposure to
particular issuers, originators and asset classes, or they may
require higher returns to increase the amount of their exposure.
Increased issuance by other participants in the market, or
decisions by investors to limit their credit exposure
to or to require a higher yield for GMAC
or to automotive or mortgage securitizations or whole loans,
could negatively affect GMACs ability and that of its
subsidiaries to price securitizations and whole-loan sales at
attractive rates. The result would be lower proceeds from these
activities and lower profits for GMAC.
Certain of GMACs owners are subject to a regulatory
agreement that may affect GMACs control of GMAC
Bank.
On February 1, 2007, Cerberus FIM, LLC, Cerberus FIM
Investors LLC and FIM Holdings LLC (collectively, FIM
Entities), submitted a letter to the Federal Deposit
Insurance Corporation (FDIC) requesting that the FDIC waive
certain of the requirements contained in a two year disposition
agreement between each of the FIM Entities and the FDIC. The
agreement was entered into in connection with the GMAC
Transaction. The GMAC Transaction resulted in a change of
control of GMAC Bank, an industrial loan corporation, which
required the approval of the FDIC. At the time of the sale, the
FDIC had imposed a moratorium on the approval of any
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
applications for deposit insurance or change of control notices.
As a condition to granting the application in connection with
the change of control of GMAC Bank during the moratorium, the
FDIC required each of the FIM Entities to enter into a two-year
disposition agreement. As previously disclosed by the FDIC, that
agreement requires, among other things, that by no later than
November 30, 2008, the FIM Entities complete one of the
following actions: (1) become registered with the
appropriate federal banking agency as a depository institution
holding company pursuant to the Bank Holding Company Act or the
Home Owners Loan Act, (2) divest control of GMAC Bank
to one or more persons or entities other than prohibited
transferees, (3) terminate GMAC Banks status as an
FDIC-insured depository institution or (4) obtain from the
FDIC a waiver of the requirements set forth in this sentence on
the grounds that applicable law and FDIC policy permit similarly
situated companies to acquire control of FDIC-insured industrial
banks; provided that no waiver request could be filed prior to
January 31, 2008, unless, prior to that date, Congress
enacted legislation permitting, or the FDIC by regulation or
order authorizes, similarly situated companies to acquire
control of FDIC-insured industrial banks after January 31,
2007. GMAC cannot give any assurance that the FDIC will approve
the FIM Entities waiver request, or if it is approved,
that it will impose no conditions on GMACs retention of
GMAC Bank or on its operations. If the FDIC does not approve the
waiver or if certain pending legislation is not approved, GMAC
could be required to sell GMAC Bank or cause it to cease to be
insured by the FDIC, or GMAC could be subject to conditions on
GMACs retention of the bank or on its operations in return
for the waiver. Requiring GMAC to dispose of GMAC Bank or
relinquish deposit insurance would, and the imposition of such
conditions might, materially adversely affect GMACs access
to low cost liquidity and GMACs business and operating
results.
* * * * * *
Item 1B. Unresolved
Staff Comments
We have received comments regarding our 2007 third quarter
Form 10-Q
and our 2006
Form 10-K
from the Staff of the Securities and Exchange Commission. We
have responded to those comments and have updated our
disclosures in this
Form 10-K
to reflect those comments.
* * * * * *
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Item 2. Properties
We have 228 locations in 36 states and 151 cities or
towns in the United States. Of these locations, 21 are engaged
in the final assembly of our cars and trucks, 27 are service
parts operations responsible for distribution or warehousing and
the remainder are facilities involved primarily in testing
vehicles or manufacturing automotive components and power
products. In addition, we have 22 locations in Canada, and
assembly, manufacturing, distribution, office or warehousing
operations in 50 other countries, including equity interests in
associated companies which perform assembly, manufacturing or
distribution operations. The major facilities outside the United
States and Canada, which are principally vehicle manufacturing
and assembly operations, are located in:
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Argentina
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China
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India
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South Africa
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United Kingdom
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Australia
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Colombia
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Kenya
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South Korea
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Venezuela
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Belgium
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Ecuador
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Mexico
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Spain
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Vietnam
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Brazil
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Egypt
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Poland
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Sweden
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Chile
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Germany
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Russia
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Thailand
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We, or our subsidiaries, own most of the above facilities.
Leased properties consist primarily of warehouses and
administration, engineering and sales offices. The leases for
warehouses generally provide for an initial period of five to
10 years, based upon prevailing market conditions and may
contain renewal options. Leases for administrative offices are
generally for shorter periods.
Our properties include facilities which, in the opinion of
management, are suitable and adequate for the manufacture,
assembly and distribution of our products.
Item 3. Legal
Proceedings
The following section summarizes material pending legal
proceedings to which the Corporation became, or was, a party
during the year ended December 31, 2007, or after that date
but before the filing of this report, other than ordinary
routine litigation incidental to the business. We and the other
defendants affiliated with us intend to defend all of the
following actions vigorously.
Canadian
Export Antitrust Class Actions
Approximately eighty purported class actions on behalf of all
purchasers of new motor vehicles in the United States since
January 1, 2001, have been filed in various state and
federal courts against General Motors Corporation, General
Motors of Canada Limited (GM Canada), Ford, Chrysler, Toyota
Corporation (Toyota), Honda, Nissan, and BMW and their Canadian
affiliates, the National Automobile Dealers Association, and the
Canadian Automobile Dealers Association. The federal court
actions have been consolidated for coordinated pretrial
proceedings under the caption In re New Market Vehicle
Canadian Export Antitrust Litigation Cases in the
U.S. District Court for the District of Maine, and the more
than 30 California cases have been consolidated in the
California Superior Court in San Francisco County under the
case captions Belch v. Toyota Corporation, et al.
and Bell v. General Motors Corporation.
The nearly identical complaints alleged that the defendant
manufacturers, aided by the association defendants, conspired
among themselves and with their dealers to prevent the sale to
U.S. citizens of vehicles produced for the Canadian market
and sold by dealers in Canada. The complaints alleged that new
vehicle prices in Canada are 10% to 30% lower than those in the
United States, and that preventing the sale of these vehicles to
U.S. citizens resulted in the payment of higher than
competitive prices by U.S. consumers. The complaints, as
amended, sought injunctive relief under U.S. antitrust law
and treble damages under U.S. and state antitrust laws, but
did not specify damages. The complaints further alleged unjust
enrichment and violations of state unfair trade practices act.
On March 5, 2004, the U.S. District Court for the
District of Maine issued a decision holding that the purported
indirect purchaser classes failed to state a claim for damages
but allowed a separate claim seeking to enjoin future alleged
violations to continue. The U.S. District Court for the
District of Maine on March 10, 2006 certified a nationwide
class of buyers and lessees under Federal Rule 23(b)(2)
solely for injunctive relief, and on March 21,
2007 stated that it would certify 20 separate statewide
class actions for damages under various state law theories under
Federal Rule 23(b)(3), covering the period from
January 1, 2001 to April 30, 2003. On October 3,
2007, the U.S. Court of Appeals for the First Circuit heard
oral arguments on our consolidated appeal of the both class
certification orders.
36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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 claming
that a similar alleged conspiracy was now preventing lower-cost
U.S. vehicles from being sold to Canadians. No
determination has been made that the case may be maintained as a
class action, and it is not possible to determine the likelihood
of liability or reasonably ascertain the amount of any damages.
* * * * * * *
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 UAW Health Care 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 Labor Relations Management
Act of 1947 and ERISA. Although we believe that we may lawfully
change retiree healthcare benefits, we have entered into the
Settlement Agreement with the UAW which contemplates creation of
an independent VEBA trust into which we will transfer
significant funding, which thereafter would be solely
responsible for establishing and funding a new benefit plan that
would provide healthcare benefits for hourly retirees, spouses
and dependents.
* * * * * * *
General
Motors Securities Litigation
On September 19, 2005, Folksam Asset Management filed
Folksam Asset Management, et al. v. General Motors
Corporation, et al., a purported class action complaint in
the U.S. District Court for the Southern District of New
York naming as defendants GM, GMAC, and our Chairman and Chief
Executive Officer G. Richard Wagoner, Jr., former Vice
Chairman and Chief Financial Officer John Devine, Treasurer
Walter Borst, and former Chief Accounting Officer Peter Bible.
Plaintiffs purported to bring the claim on behalf of purchasers
of our debt
and/or
equity securities during the period February 25, 2002
through March 16, 2005. The complaint alleges that all
defendants violated Section 10(b) and that the individual
defendants also violated Section 20(a) of the Exchange Act.
The complaint also alleged violations by all defendants of
Section 11 and Section 12(a) and by the individual
defendants of Section 15 of the Securities Act of 1933, as
amended (Securities Act), in connection with certain registered
debt offerings during the class period. In particular, the
complaint alleged that our cash flows during the class period
were overstated based on the reclassification of
certain cash items described in our Annual Report on
Form 10-K
for the year ended December 31, 2004. The reclassification
involved cash flows relating to the financing of GMAC wholesale
receivables from dealers that resulted in no net cash receipts
and our decision to revise the Consolidated Statements of Cash
Flows for the years ended December 31, 2002 and 2003. The
complaint also alleged misrepresentations relating to
forward-looking statements of our 2005 earnings forecast which
was later revised significantly downward. In October 2005, a
similar suit, Galliani, et al. v. General Motor
Corporation, et al., which asserted claims under the
Exchange Act based on substantially the same factual
allegations, was filed and subsequently consolidated with the
Folksam case. The consolidated suit was recaptioned as
In re General Motors Corporation Securities Litigation.
Under the terms of the GMAC Transaction, we are indemnifying
GMAC in connection with these cases.
On November 18, 2005, plaintiffs in the Folksam case
filed an amended complaint, which added several additional
investors as plaintiffs, extended the end of the class period to
November 9, 2005 and named as additional defendants three
current and one former member of GMs audit committee, as
well as our independent registered public accountants,
Deloitte & Touche LLP. In addition to the claims
asserted in the original complaint, the amended complaint added
a claim against Mr. Wagoner and Mr. Devine for
rescission of their bonuses and incentive compensation during
the class period. It also included further allegations regarding
our accounting for pension obligations, restatement of income
for 2001 and financial results for the first and second quarters
of 2005. Neither the original complaint nor the amended
complaint specified the amount of damages sought, and we have no
means to estimate damages the plaintiffs will seek based upon
the limited information available in the complaint. The
courts provisional designations of lead plaintiff and lead
counsel on January 17, 2006 were made final on
February 6, 2006. Plaintiffs subsequently filed a second
amended complaint, which added various underwriters as
defendants.
37
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Plaintiffs filed a third amended securities complaint in In
re General Motors Corporation Securities and Derivative
Litigation on August 15, 2006. (As explained below,
certain shareholder derivative cases were consolidated with
In re General Motors Corporation Securities Litigation
for coordinated or consolidated pretrial proceedings and the
caption was modified). The amended complaint in the GM
securities litigation did not include claims against the
underwriters previously named as defendants, alleged a proposed
class period of April 13, 2000 through March 20, 2006,
did not include the previously asserted claim for the rescission
of incentive compensation against Mr. Wagoner and
Mr. Devine and contained additional factual allegations
regarding our restatements of financial information filed with
our reports to the SEC for the years 2000 through 2005. On
October 13, 2006, the GM defendants filed a motion to
dismiss the amended complaint in the GM securities litigation,
which remains pending. On December 14, 2006, plaintiffs
filed a motion for leave to file a fourth amended complaint in
the event the Court grants the GM defendants motion to
dismiss. The GM defendants have opposed the motion for leave to
file a fourth amended complaint.
Shareholder
Derivative Suits
On November 10, 2005, Albert Stein filed a purported
shareholder derivative action, Stein v. Bowles, et al.,
in the U.S. District Court for the Eastern District of
Michigan, ostensibly on behalf of the Corporation, against the
members of our Board of Directors at that time. The complaint
alleged that defendants breached their fiduciary duties of due
care, loyalty and good faith by, among other things, causing GM
to overstate our income (as reflected in our restatement of 2001
earnings and second quarter 2005 earnings) and exposing us to
potential damages in SEC investigations and investor lawsuits.
The suit sought damages based on defendants alleged
breaches and an order requiring defendants to indemnify us for
any future litigation losses. Plaintiffs claimed that the demand
on our Board to bring suit itself (ordinarily a prerequisite to
suit under Delaware law) was excused because it would be
futile. The complaint did not specify the amount of
damages sought, and defendants have no means to estimate damages
the plaintiffs will seek based upon the limited information
available in the complaint.
On December 15, 2005, Henry Gluckstern filed a purported
shareholder derivative action, Gluckstern v. Wagoner, et
al., in the U.S. District Court for the Eastern
District of Michigan, ostensibly on behalf of the Corporation,
against our Board of Directors. This suit was substantially
identical to Stein v. Bowles, et al. Also on
December 15, 2005, John Orr filed a substantially identical
purported shareholder derivative action, Orr v. Wagoner,
et al., in the U.S. District Court for the Eastern
District of Michigan, ostensibly on behalf of the Corporation,
against our Board of Directors.
On December 2, 2005, Sharon Bouth filed a similar purported
shareholder derivative action, Bouth v. Barnevik, et
al., in the Circuit Court of Wayne County, Michigan,
ostensibly on behalf of the Corporation, against the members of
our Board of Directors and a GM officer not on the Board. The
complaint alleged that defendants breached their fiduciary
duties of due care, loyalty and good faith by, among other
things, causing us to overstate our earnings and cash flow and
improperly account for certain transactions and exposing us to
potential damages in SEC investigations and investor lawsuits.
The suit sought damages based on defendants alleged
breaches and an order requiring defendants to indemnify us for
any future litigation losses. Plaintiffs claimed that demand on
our Board was excused because it would be futile.
The complaint did not specify the amount of damages sought, and
defendants have no means to estimate damages the plaintiffs will
seek based upon the limited information available in the
complaint.
On December 16, 2005, Robin Salisbury filed an action in
the Circuit Court of Wayne County, Michigan,
Salisbury v. Barnevik, et al., substantially
identical to the Bouth case described above. The
Salisbury and Bouth cases have been consolidated
and plaintiffs have stated they intend to file an amended
consolidated complaint. The directors and the
non-director
officer named in these cases have not yet filed their responses
to the Bouth and Salisbury complaints. On
July 21, 2006, the Court stayed the proceedings in Bouth
and Salisbury. The Court subsequently continued the
stay until mid-April 2008.
Plaintiffs filed amended complaints in In re General Motors
Corporation Securities and Derivative Litigation on
August 15, 2006. The amended complaint in the shareholder
derivative litigation alleged that our Board of Directors
breached its fiduciary obligations by failing to oversee our
operations properly and prevent alleged improprieties in
connection with our accounting with regard to cash flows,
pension-related liabilities and supplier credits. The defendants
filed a motion to dismiss the amended complaint. On
November 9, 2006, the Court granted the plaintiffs leave to
file a second consolidated and amended derivative complaint,
which adds allegations concerning recent changes to our bylaws
and the resignation of a director from our Board of Directors.
The defendants have filed a motion to dismiss plaintiffs
second consolidated and amended derivative complaint.
38
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Consolidation
of Securities and Shareholder Derivative Actions in the Eastern
District of Michigan
On December 13, 2005, defendants in In re General Motors
Corporation Securities Litigation (previously Folksam
Asset Management v. General Motors Corporation, et al.
and Galliani v. General Motors Corporation, et
al.) and Stein v. Bowles, et al. filed a Motion
with the Judicial Panel on Multidistrict Litigation to transfer
and consolidate these cases for pretrial proceedings in the
U.S. District Court for the Eastern District of Michigan.
On January 5, 2006, defendants submitted to the Judicial
Panel on Multidistrict Litigation an Amended Motion seeking to
add to their original Motion the Rosen, Gluckstern and
Orr cases for consolidated pretrial proceedings in the
U.S. District Court for the Eastern District of Michigan.
On April 17, 2006, the Judicial Panel on Multidistrict
Litigation entered an order transferring In re General Motors
Corporation Securities Litigation to the U.S. District
Court for the Eastern District of Michigan for coordinated or
consolidated pretrial proceedings with Stein v. Bowles,
et al.; Rosen, et al. v. General Motors Corp., et al.;
Gluckstern v. Wagoner, et al. and Orr v.
Wagoner, et al. (While the motion was pending, plaintiffs
voluntarily dismissed Rosen.) In October 2007, the
U.S. District Court for the Eastern District of Michigan
appointed a special master for the purpose of facilitating
settlement negotiations in the consolidated case, now captioned
In re General Motors Corporation Securities and Derivative
Litigation.
* * * * * * *
GMAC
Bondholder Class Actions
On November 29, 2005, Stanley Zielezienski filed a
purported class action, Zielezienski, et al. v. General
Motors Corporation, et al. The action was filed in the
Circuit Court for Palm Beach County, Florida, against GM, GMAC,
our Chairman and Chief Executive Officer G. Richard
Wagoner, Jr., GMACs Chairman Eric A. Feldstein and
certain GM and GMAC officers, namely, William F. Muir, Linda K.
Zukauckas, Richard J.S. Clout, John E. Gibson, W. Allen Reed,
Walter G. Borst, John M. Devine and Gary L. Cowger. The action
also named certain underwriters of GMAC debt securities as
defendants. The complaint alleged that all defendants violated
Section 11 of the Securities Act, that we violated
Section 15 and that all defendants except us violated
Section 12(a)(2) of the Securities Act. In particular, the
complaint alleged material misrepresentations in certain GMAC
financial statements incorporated by reference with GMACs
Registration Statement on
Form S-3
and Prospectus filed in 2003. More specifically, the complaint
alleged material misrepresentations in connection with the
offering for sale of GMAC SmartNotes in certain GMAC financial
statements contained in GMACs
Forms 10-Q
for the quarterly periods ended March 31, 2004 and
June 30, 2004 and in the
Form 8-K
which disclosed financial results for the quarterly period ended
September 30, 2004, which were materially false and
misleading as evidenced by GMACs 2005 restatement of these
quarterly results. In December 2005, plaintiff filed an amended
complaint making substantially the same allegations as were in
the previous filing with respect to additional debt securities
issued by GMAC during the period from April 23, 2004 to
March 14, 2005 and adding approximately 60 additional
underwriters as defendants. The complaint did not specify the
amount of damages sought, and defendants have no means to
estimate damages the plaintiffs will seek based upon the limited
information available in the complaint. On January 6, 2006,
the defendants named in the original complaint removed this case
to the U.S. District Court for the Southern District of
Florida, and on April 3, 2006, that court transferred the
case to the U.S. District Court for the Eastern District of
Michigan.
On December 28, 2005, J&R Marketing, SEP, filed a
purported class action, J&R Marketing, et al. v.
General Motors Corporation, et al. The action was filed in
the Circuit Court for Wayne County, Michigan, against GM, GMAC,
Eric Feldstein, William F. Muir, Linda K. Zukauckas, Richard
J.S. Clout, John E. Gibson, W. Allen Reed, Walter G. Borst, John
M. Devine, Gary L. Cowger, G. Richard Wagoner, Jr. and
several underwriters of GMAC debt securities. Similar to the
original complaint filed in the Zielezienski case
described above, the complaint alleged claims under
Sections 11, 12(a), and 15 of the Securities Act based on
alleged material misrepresentations or omissions in the
registration statements for GMAC SmartNotes purchased between
September 30, 2003 and March 16, 2005. The complaint
alleged inadequate disclosure of our financial condition and
performance as well as issues arising from GMACs 2005
restatement of quarterly results for the three quarters ended
September 30, 2005. The complaint did not specify the
amount of damages sought, and defendants have no means to
estimate damages the plaintiffs will seek based upon the limited
information available in the complaint. On January 13,
2006, defendants removed this case to the U.S. District
Court for the Eastern District of Michigan.
On February 17, 2006, Alex Mager filed a purported class
action, Mager v. General Motors Corporation, et al.
The action was filed in the U.S. District Court for the
Eastern District of Michigan and was substantively identical to
the J&R Marketing case described above. On
February 24, 2006, J&R Marketing filed a motion to
consolidate the Mager case with its case (discussed
above) and for appointment
39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
as lead plaintiff and the appointment of lead counsel. On
March 8, 2006, the court entered an order consolidating the
two cases and subsequently consolidated those cases with the
Zielezienski case described above. Lead plaintiffs
counsel has been appointed, and on July 28, 2006,
plaintiffs filed a Consolidated Amended Complaint, differing
mainly from the initial complaints by asserting claims for GMAC
debt securities purchased during a different time period, of
July 28, 2003 through November 9, 2005, and adding
additional underwriter defendants. On August 28, 2006, the
underwriter defendants were dismissed without prejudice. On
September 25, 2006, the GM and GMAC defendants filed a
motion to dismiss the amended complaint, and on
February 27, 2007, the District Court issued an opinion
granting defendants motion to dismiss, and dismissing
plaintiffs complaint. Plaintiffs have appealed this order,
and oral argument on plaintiffs appeal was held on
February 7, 2008.
Under the terms of the GMAC Transaction, we are indemnifying
GMAC in connection with these cases.
The securities and shareholder derivative cases described above
are in preliminary phases. No determination has been made that
the securities cases can be maintained as class actions or that
the shareholder derivative actions can proceed without making a
demand in accordance with Delaware law that our board bring the
actions. As a result, the scope of the actions and whether they
will be permitted to proceed is uncertain.
* * * * * * *
ERISA
Class Actions
In May 2005, the U.S. District Court for the Eastern
District of Michigan consolidated three related purported class
actions brought under ERISA against us and other named
defendants who are alleged to be fiduciaries of the stock
purchase programs and personal savings plans for our salaried
and hourly employees, under the case caption In re General
Motors ERISA Litigation. In June 2007, plaintiffs filed a
consolidated class action complaint against us, the Investment
Funds Committee of our Board of Directors, its individual
members, our Chairman and Chief Executive Officer, members of
our Employee Benefits Committee during the putative class
period, General Motors Investment Management Co. (GMIMCo) and
State Street Bank (State Street). The complaint alleged that the
GM defendants breached their fiduciary duties to plan
participants by, among other things, investing their assets, or
offering them the option of investing, in GM stock on the ground
that it was not a prudent investment. Plaintiffs purport to
bring these claims on behalf of all persons who were
participants in or beneficiaries of the plans from
March 18, 1999 to the present, and seek to recover losses
allegedly suffered by the plans. The complaint did not specify
the amount of damages sought, and we have no means at this time
to estimate damages that the plaintiffs will seek. On
July 17, 2006, plaintiffs amended their complaint
principally to add allegations about our restatement of a
previously issued income statement and the reclassification of
certain cash flows. The amended complaint did not name any
additional defendants or assert any new claims. In August 2006,
the GM defendants filed a motion to dismiss the amended
complaint, which was granted in part and denied in part in
August 2007. In February 2007, plaintiffs filed a motion for
class certification, which is pending. In October 2007, the
parties reached a tentative settlement, which received
preliminary court approval on January 30, 2008. The
district court has set a fairness hearing on the tentative
settlement for June 5, 2008. The tentative settlement
provides, among other key terms, that we will pay
$37.5 million in cash, which includes attorney fees and
costs for the plaintiffs. In addition, we will agree to maintain
various existing structural changes to ERISA plans for our
salaried and hourly employees for at least four years.
GMIMCo is one of numerous defendants in several purported class
action lawsuits filed in March and April 2005 in the
U.S. District Court for the Eastern District of Michigan,
alleging violations of ERISA with respect to the Delphi company
stock plans for salaried and hourly employees. The cases have
been consolidated under the case caption In re Delphi ERISA
Litigation in the Eastern District of Michigan for
coordinated pretrial proceedings with other Delphi stockholder
lawsuits in which GMIMCo is not named as a defendant. The
complaints essentially allege that GMIMCo, a named fiduciary of
the Delphi plans, breached its fiduciary duties under ERISA to
plan participants by allowing them to invest in the Delphi
Common Stock Fund when it was imprudent to do so, by failing to
monitor State Street, the entity appointed by GMIMCo to serve as
investment manager for the Delphi Common Stock Fund, and by
knowingly participating in, enabling or failing to remedy
breaches of fiduciary duty by other defendants. No determination
has been made that a class action can be maintained against
GMIMCo, and there have been no decisions on the merits of the
claims. Delphi has reached a settlement of these cases that, if
implemented, would provide for dismissal of all claims against
GMIMCo related to this litigation without payment by GMIMCo.
That settlement has been approved by both the District Judge in
the Eastern District of Michigan and the Bankruptcy Judge in the
Southern District of New York presiding over Delphis
bankruptcy proceeding. However, implementation of the settlement
remains conditioned upon i) the resolution of a pending
appeal of the District Courts approval and ii) the
implementation of
40
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Delphis plan of reorganization approved by the Bankruptcy
Court. Accordingly, the disposition of the case remains
uncertain, and it is not possible to determine whether liability
is probable or the amount of damages, if any.
On March 8, 2007, a purported class action lawsuit was
filed in the U.S. District Court for the Southern District
of New York captioned Young, et al. v. General Motors
Investment Management Corporation, et al. The case, brought
by four plaintiffs who are alleged to be participants in the
General Motors Savings-Stock Purchase Program for Salaried
Employees and the General Motors Personal Savings Plan for
Hourly-Rate Employees, purports to bring claims on behalf of all
participants in these two plans as well as participants in the
General Motors Income Security Plan for Hourly-Rate Employees
and the Saturn Individual Savings Plan for Represented Members
against GMIMCo and State Street. The complaint alleges that
GMIMCo and State Street breached their fiduciary duties to plan
participants by allowing participants to invest in five
different funds that each primarily held the equity of a single
company: the EDS Fund, the DIRECTV Fund, the News Corp. Fund,
the Raytheon Fund and the Delphi Fund, all of which plaintiffs
allege were imprudent investments because of their inherent risk
and poor performance relative to more prudent investment
alternatives. The complaint also alleges that GMIMCo breached
its fiduciary duties to plan participants by allowing
participants to invest in mutual funds offered by FMR Corp.
under the Fidelity brand name. Plaintiffs allege that by
investing in these funds, participants paid excessive fees and
costs that they would not have incurred had they invested in
more prudent investment alternatives. The complaint seeks a
declaration that defendants have breached their fiduciary
duties, an order requiring defendants to compensate the plans
for their losses resulting from their breaches of fiduciary
duties, the removal of defendants as fiduciaries, an injunction
against further breaches of fiduciary duties, other unspecified
equitable and monetary relief and attorneys fees and costs.
On April 12, 2007, a purported class action lawsuit was
filed in the U.S. District Court for the Southern District
of New York captioned Mary M. Brewer, et al. v. General
Motors Investment Management Corporation, et al. The case
was brought by a plaintiff who alleges that she is a participant
in the Delphi Savings-Stock Purchase Program for Salaried
Employees and purports to bring claims on behalf of all
participants in that plan as well as participants in the Delphi
Personal Savings Plan for Hourly-Rate Employees; the ASEC
Manufacturing Savings Plan and the Delphi Mechatronic Systems
Savings-Stock Purchase Program against GMIMCo and State Street.
The complaint alleges that GMIMCo and State Street breached
their fiduciary duties to plan participants by allowing
participants to invest in five different funds that each
primarily held the equity of a single company: the EDS Fund, the
DIRECTV Fund, the News Corp. Fund, the Raytheon Fund and the GM
Common Stock Fund, all of which plaintiffs allege were imprudent
investments because of their inherent risk and poor performance
relative to more prudent investment alternatives. The complaint
also alleges that GMIMCo breached its fiduciary duties to plan
participants by allowing participants to invest in mutual funds
offered by FMR Corp. under the Fidelity brand name. Plaintiffs
allege that by investing in these funds, participants paid
excessive fees and costs that they would not have incurred had
they invested in more prudent investment alternatives. The
complaint seeks a declaration that defendants have breached
their fiduciary duties, an order requiring defendants to
compensate the plans for their losses resulting from their
breaches of fiduciary duties, the removal of defendants as
fiduciaries, an injunction against further breaches of fiduciary
duties, other unspecified equitable and monetary relief and
attorneys fees and costs.
Motions to dismiss both Young and Brewer are
pending, and there has been no other activity on these cases. No
determination has been made that either case may be maintained
as a class action. The scope of both actions is uncertain, and
it is not possible to determine the likelihood of liability or
reasonably ascertain the amount of any damages.
* * * * * * *
Asbestos
Litigation
Like most automobile manufacturers, we have been subject in
recent years to asbestos-related claims. We have used some
products which incorporated small amounts of encapsulated
asbestos. These products, generally brake linings, are known as
asbestos-containing friction products. There is a significant
body of scientific data demonstrating that these
asbestos-containing friction products are not unsafe and do not
create an increased risk of asbestos-related disease. We believe
that the use of asbestos in these products was appropriate. A
number of the claims are filed against us by automotive
mechanics and their relatives seeking recovery based on their
alleged exposure to the small amount of asbestos used in brake
components. These claims generally identify numerous other
potential sources for the claimants alleged exposure to
asbestos that do not involve us or asbestos-containing friction
products, and many of these other potential sources would place
users at much greater risk. Most of these claimants do not have
an asbestos-related illness and may not develop one. This is
consistent with the experience reported by other automotive
manufacturers and other end users of asbestos.
41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Two other types of claims related to alleged asbestos exposure
that are asserted against us locomotive and
premises represent a significantly lower exposure to
liability than the automotive friction product claims. Like
other locomotive manufacturers, we used a limited amount of
asbestos in locomotive brakes and in the insulation used in some
locomotives. (We sold our locomotive manufacturing business in
2005). These uses have been the basis of lawsuits filed against
us by railroad workers seeking relief based on their alleged
exposure to asbestos. These claims generally identify numerous
other potential sources for the claimants alleged exposure
to asbestos that do not involve us or locomotives. Many of these
claimants do not have an asbestos-related illness and may never
develop one. Moreover, the West Virginia and Ohio supreme courts
have ruled that federal law preempts asbestos tort claims
asserted on behalf of railroad workers. Such preemption means
that federal law eliminates the possibility that railroad
workers could maintain state law claims against us. In addition,
a relatively small number of claims are brought by contractors
who are seeking recovery based on alleged exposure to
asbestos-containing products while working on premises owned by
us. These claims generally identify numerous other potential
sources for the claimants alleged exposure to asbestos
that do not involve us.
While we have resolved many of our asbestos claims 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 portion of these claimants
have or will develop an asbestos-related impairment.
The amount expended in defense of asbestos claims 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. Our expenditures related to asbestos claims, including
both defense costs and payments to claimants, have declined over
the past several years.
* * * * * * *
Patent
and Trade Secrets Litigation
In January 1994, plaintiffs commenced John Evans and Evans
Cooling Systems, Inc. v. General Motors Corporation in
Connecticut state court by filing separate suits for patent
infringement and trade secret misappropriation. In the patent
case, summary judgment in our favor was affirmed on appeal. In
the trade secret case, the 2003 ruling of the presiding judge in
our favor was reversed on appeal by the Connecticut Supreme
Court on March 15, 2006 and remanded for jury trial. The
plaintiffs expanded their claims for the new trial to include a
subsequent generation of engines, used in a wide variety of our
vehicles and sought relief in excess of $12 billion. On
September 13, 2007, the trial court granted partial summary
judgment in our favor, 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
We have been named as the defendant in 22 putative class actions
in various federal and state courts in the United States
alleging defects in the engine cooling systems in our vehicles;
14 cases are still pending in U.S. courts including six
cases that have been consolidated, either finally or
conditionally, for pre-trial proceedings in a multi-district
proceeding in the U.S. District Court for the Southern
District of Illinois. State courts in California and Michigan
have denied motions to certify cases for class treatment. In an
opinion dated February 16, 2007, certification of a
multi-state class was denied in the federal multi-district
proceeding on the grounds that individual issues predominate
over common questions. However, in Gutzler v. General
Motors Corporation, the Circuit Court of Jackson County,
Missouri in January 2006 certified an issues class
in January 2006 comprised of all consumers who purchased
or leased a GM vehicle in Missouri that was factory-equipped
with Dex Cool coolant, which was included as
original equipment in vehicles we manufactured since 1995. The
Court also certified two sub-classes comprised of 1) class
members who purchased or leased a vehicle with a 4.3-liter
engine, and 2) class members who purchased or leased a
vehicle with a 3.1, 3.4, or 3.8-liter engine. The Gutzler
courts order provided for addressing specific issues
on a class basis, including the extent of our warranty on
coolant and whether our coolant is incompatible with other
vehicle components. In Sanute v. General Motors
Corporation, the state court in California on
September 30, 2007 certified a class of claims related to
certain vehicles with 3.1 and 3.4 liter engines to consider
claims that the intake manifold gaskets were defective. In
Amico v. General Motors Corporation, the state Court
in Maricopa County, Arizona on September 17, 2007 certified
a class of all vehicles (regardless of model year) with 3.1,
3.4, 3.8, 4.3, 5.7 and 7.4 liter engines containing intake
manifold gaskets with a nylon carrier and silicon sealing bead.
42
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Kenneth Stewart v. General Motors of Canada Limited and
General Motors Corporation, a complaint filed in the
Superior Court of Ontario on April 24, 2006, alleged a
class action covering Canadian residents, except residents of
British Columbia and Quebec, who purchased 1995 to 2003 GM
vehicles with 3.1, 3.4, 3.8 and 4.3 liter engines. Plaintiff
alleged that defects in the engine cooling systems allow coolant
to leak into the engine and cause engine damage. The complaint
alleged violation of the Business Practices and Competition Acts
and sought alleged benefits received as a result of failure to
warn and negligence, compensatory damages, punitive damages,
fees and costs. Similar complaints (some involving 2004 vehicles
as well) have been filed in 17 putative class actions against GM
Canada and us, in ten provinces. Class certification has not
been approved in any of these cases, and all have been stayed on
the agreement of counsel pending the outcome of the class
certification hearing in Stewart, which was scheduled for
December 2007 and subsequently adjourned. No determination has
been made that the case may be maintained as a class action, and
it is not possible to determine the likelihood of liability or
reasonably ascertain the amount of any damages.
In October 2007, the parties reached a tentative settlement that
would resolve certain claims in the putative class actions
related to alleged defects in the engine cooling systems in our
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 Dex Cool engine coolant in
sport utility vehicles and pickup trucks with a 4.3-liter engine
from 1996 through 2000, subject to the negotiation and execution
of definitive binding agreements. If and when definitive
settlement agreements are executed, they must be submitted for
approval to the appropriate court or 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.
* * * * * * *
GM/OnStar
Analog Equipment Litigation
We or our wholly owned subsidiary OnStar Corporation (OnStar) or
both of us are parties to more than 20 putative class actions
filed in various states, including Michigan, Ohio, New Jersey,
Pennsylvania and California. All of these cases have been
consolidated for pretrial purposes in a multi-district
proceeding under the caption In re OnStar Contract Litigation
in the U.S. District Court for the Eastern District of
Michigan. The litigation arises out of the discontinuation by
OnStar of services to vehicles equipped with analog hardware.
OnStar was unable to provide services to such vehicles because
the cellular carriers which provide communication service to
OnStar terminated analog service beginning in February 2008. In
the various cases, the plaintiffs are seeking certification of
nationwide or statewide classes of owners of vehicles currently
equipped with analog equipment, alleging various breaches of
contract, misrepresentation and unfair trade practices. This
proceeding is in the early stages of development, class
certification motions have been fully briefed and the parties
have not completed any formal discovery. It is not possible at
this time to determine the likelihood of our liability of GM or
OnStar or both of us or of class certification, or to reasonably
ascertain the amount of any damages.
* * * * * * *
Environmental
Matters
Greenhouse
Gas Lawsuit
In California ex rel. Lockyer v. General Motors
Corporation, et al., the California Attorney General brought
suit against a group of major vehicle manufacturers including us
for damages allegedly suffered by the state as a result of
greenhouse gas emissions from the manufacturers vehicles,
principally based on a common law nuisance theory. On
September 18, 2007, the U.S. District Court for the
Northern District of California 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. The
Court also dismissed without prejudice the nuisance claim under
California state law. Plaintiff filed an appeal with the
U.S. Court of Appeals for the Ninth Circuit on
October 16, 2007, and the Court has set a schedule for
submission of briefs.
Carbon
Dioxide Emission Standard Litigation
In a number of cases, the Alliance of Automobile Manufacturers,
the Association of International Automobile Manufacturers,
Chrysler, various automobile dealers and GM have brought suit
for declaratory and injunctive relief from state legislation
imposing stringent controls on new motor vehicle
CO2
emissions. These cases argue that such state regulation of
CO2
emissions is preempted by
43
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
two federal statutes, the Energy Policy and Conservation Act and
the Clean Air Act. The cases were brought against the CARB 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.
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 us, have appealed to the U.S. Court of Appeals
for the Second Circuit. On December 12, 2007, the
U.S. District Court for the Eastern District of California
issued an order granting summary judgment in favor of the
defendant State of California and interveners on industrys
claims related to federal preemption. The court did not lift the
order enjoining California from enforcing the AB 1493 Rules in
the absence of an EPA waiver. The industrys response to
the ruling is under consideration. A related challenge in the
California Superior Court in Fresno is pending. On
December 21, 2007, the U.S. District Court for the
District of Rhode Island denied the states motion to
dismiss the industry challenge and announced steps for the case
to proceed to trial. Also on December 27, 2007, several New
Mexico auto dealers filed a federal legal challenge to adoption
of the standards in that state.
U.S.
Environmental Protection Agency 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.
* * * * * * *
Financial
Assurance Enforcement
The EPA has notified us that they intend to bring an
administrative enforcement action for alleged historic failures
to comply with the Resource Conservation Recovery Acts
annual financial assurance requirements. We anticipate that the
EPA will seek penalties exceeding $100,000.
* * * * * * *
Item 4. Submission
of Matters to a Vote of Security Holders
None
* * * * * * *
44
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
We list our $1 2/3 par value common stock (Common Stock) on
the stock exchanges specified on the cover page of this Annual
Report on
Form 10-K
under the trading symbol GM.
There were 345,296 and 364,408 holders of record of our Common
Stock as of December 31, 2007 and 2006, respectively. The
following table sets forth the high and low sale prices of our
Common Stock and the quarterly dividends declared for the last
two years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Quarters
|
|
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Cash dividends per share of Common Stock
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
Price range of Common Stock (a):
|
|
High
|
|
$
|
37.24
|
|
|
$
|
38.66
|
|
|
$
|
38.27
|
|
|
$
|
43.20
|
|
|
|
Low
|
|
$
|
28.81
|
|
|
$
|
28.86
|
|
|
$
|
29.10
|
|
|
$
|
24.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Quarters
|
|
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Cash dividends per share of Common Stock
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
Price range of Common Stock (a):
|
|
High
|
|
$
|
24.60
|
|
|
$
|
30.56
|
|
|
$
|
33.64
|
|
|
$
|
36.56
|
|
|
|
Low
|
|
$
|
18.47
|
|
|
$
|
19.00
|
|
|
$
|
27.12
|
|
|
$
|
28.49
|
|
|
|
|
(a) |
|
New York Stock Exchange composite interday prices as listed in
the price history database available at www.NYSEnet.com. |
On February 5, 2008, our Board of Directors declared a cash
dividend of $0.25 per share for the first quarter of 2008. Our
dividend policy is described in Managements
Discussion and Analysis of Financial Condition and Results of
Operations in Item 7.
The table below contains information about securities authorized
for issuance under equity compensation plans. The features of
these plans are described further in Note 26 to the
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
Number of Securities
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Remaining Available for
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Future Issuance Under
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Equity Compensation
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Plans(a)
|
|
|
Equity compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
General Motors 2007 Long Term Incentive Plan (2007 GMLTIP) and
the 2002 General Motors Stock Incentive Plan (GMSIP)
|
|
|
78,465,995
|
|
|
$
|
52.09
|
|
|
|
16,285,773
|
|
Equity compensation plans not approved by security
holders (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
General Motors 1998 Salaried Stock Option Plan (GMSSOP)
|
|
|
24,789,948
|
|
|
$
|
54.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
103,255,943
|
|
|
$
|
52.76
|
|
|
|
16,285,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes securities reflected in the first column, Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights. |
|
(b) |
|
All equity compensation plans except the GMSSOP were approved by
the stockholders. The GMSSOP was adopted by the Board of
Directors in 1998 and expired on December 31, 2007. The
purpose of the plans is to recognize the importance and
contribution of our employees in the creation of stockholder
value, to further align compensation with business success and
to provide employees with the opportunity for long-term capital
accumulation through the grant of options to acquire shares of
our Common Stock. |
45
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Purchases
of Equity Securities
We made no purchases of our Common Stock during the three months
ended December 31, 2007.
* * * * * *
Item 6. Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003(a)
|
|
|
|
(Dollars in millions except per share amounts)
|
|
|
Total net sales and revenues (d)
|
|
$
|
181,122
|
|
|
$
|
205,601
|
|
|
$
|
193,050
|
|
|
$
|
192,917
|
|
|
$
|
184,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(43,297
|
)
|
|
$
|
(2,423
|
)
|
|
$
|
(10,621
|
)
|
|
$
|
2,415
|
|
|
$
|
2,450
|
|
Income (loss) from discontinued operations (a, b)
|
|
|
256
|
|
|
|
445
|
|
|
|
313
|
|
|
|
286
|
|
|
|
(104
|
)
|
Gain from sale of discontinued operations (a, b)
|
|
|
4,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,179
|
|
Cumulative effect of a change in accounting principle (c)
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(38,732
|
)
|
|
$
|
(1,978
|
)
|
|
$
|
(10,417
|
)
|
|
$
|
2,701
|
|
|
$
|
3,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1 2/3 par value common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share from continuing operations
before cumulative effect of accounting change
|
|
$
|
(76.52
|
)
|
|
$
|
(4.29
|
)
|
|
$
|
(18.78
|
)
|
|
$
|
4.27
|
|
|
$
|
4.37
|
|
Basic earnings per share from discontinued operations (a, b)
|
|
|
8.07
|
|
|
|
0.79
|
|
|
|
0.55
|
|
|
|
0.51
|
|
|
|
2.34
|
|
Basic loss per share from cumulative effect of a change in
accounting principle (c)
|
|
|
|
|
|
|
|
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(68.45
|
)
|
|
$
|
(3.50
|
)
|
|
$
|
(18.42
|
)
|
|
$
|
4.78
|
|
|
$
|
6.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share from continuing operations
before cumulative effect of accounting change
|
|
$
|
(76.52
|
)
|
|
$
|
(4.29
|
)
|
|
$
|
(18.78
|
)
|
|
$
|
4.26
|
|
|
$
|
4.30
|
|
Diluted earnings (loss) per share from discontinued
operations (a, b)
|
|
|
8.07
|
|
|
|
0.79
|
|
|
|
0.55
|
|
|
|
0.50
|
|
|
|
2.31
|
|
Diluted loss per share from cumulative effect of accounting
change (c)
|
|
|
|
|
|
|
|
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
(68.45
|
)
|
|
$
|
(3.50
|
)
|
|
$
|
(18.42
|
)
|
|
$
|
4.76
|
|
|
$
|
6.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class H common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share from discontinued operations (a)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(0.22
|
)
|
Diluted loss per share from discontinued operations (a)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(0.22
|
)
|
Cash dividends declared per share
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
2.00
|
|
|
$
|
2.00
|
|
|
$
|
2.00
|
|
Total assets (d)
|
|
$
|
148,883
|
|
|
$
|
186,304
|
|
|
$
|
474,268
|
|
|
$
|
480,772
|
|
|
$
|
448,925
|
|
Notes and loans payable (d)
|
|
$
|
44,339
|
|
|
$
|
48,171
|
|
|
$
|
287,715
|
|
|
$
|
301,965
|
|
|
$
|
273,250
|
|
Stockholders equity (deficit) (e, f, g)
|
|
$
|
(37,094
|
)
|
|
$
|
(5,652
|
)
|
|
$
|
14,442
|
|
|
$
|
27,669
|
|
|
$
|
24,665
|
|
Certain prior period amounts have been reclassified in the
consolidated statements of operations to conform to the current
year presentation.
|
|
|
(a) |
|
Effective December 22, 2003, we split off Hughes
Electronics Corporation (Hughes) by distributing Hughes common
stock to the holders of Class H common stock in exchange
for all outstanding shares of Class H common stock.
Simultaneously, we sold our 19.8% retained economic interest in
Hughes to News Corporation in exchange for cash and News
Corporation Preferred American Depository Shares. All shares of
Class H common stock were then cancelled. We recorded a net
gain of $1.2 billion from the sale in 2003, and net losses
from discontinued operations of Hughes were $219 million in
2003. |
46
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
(b) |
|
In August 2007, we completed the sale of the commercial and
military operations of our Allison business. The results of
operations, cash flows and the 2007 gain on sale of Allison have
been reported as discontinued operations for all periods
presented. |
|
(c) |
|
As of December 31, 2005, we recorded an asset retirement
obligation of $181 million in accordance with the
requirements of Financial Accounting Standards Board (FASB)
Interpretation No. (FIN) 47, Accounting for Conditional
Asset Retirement Obligations. The cumulative effect on net
loss, net of related income tax effects, of recording the asset
retirement obligations was $109 million or $0.19 per share
on a diluted basis. |
|
(d) |
|
In November 2006, we sold a 51% controlling ownership interest
in General Motors Acceptance Corporation (GMAC), resulting in a
significant decrease in total consolidated net sales and
revenues, assets and notes and loans payable. |
|
(e) |
|
As of December 31, 2006, we recognized the funded status of
our benefit plans on our consolidated balance sheet with an
offsetting adjustment to Accumulated other comprehensive income
(loss) in stockholders equity (deficit) of
$16.9 billion in accordance with the adoption of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans
(SFAS No. 158). |
|
(f) |
|
As of January 1, 2007, we recorded a decrease to Retained
earnings of $425 million and an increase of
$1.2 billion to Accumulated other comprehensive income in
connection with the early adoption of the measurement provisions
of SFAS No. 158. |
|
(g) |
|
As of January 1, 2007, we recorded an increase to Retained
earnings of $137 million with a corresponding decrease to
our liability for uncertain tax positions in accordance with
FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes. |
* * * * * * *
47
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We are engaged primarily 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). Also, our finance and
insurance operations are primarily conducted through GMAC, the
successor to General Motors Acceptance Corporation, a wholly
owned subsidiary until 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.
In 2007, the global automotive industry continued to show strong
sales and revenue growth. Global industry vehicle sales to
retail and fleet customers were 70.6 million units in 2007,
representing a 4.8% increase over 2006. We expect industry sales
to be approximately 73 million units in 2008. Over the past
five years, the global automotive industry has experienced
consistent year-to-year increases, growing 19.4% from 2003 to
2007. Overall revenue growth for the industry has averaged 7.0%
per year over the last decade. Much of this growth is
attributable to demand in emerging markets, such as China, where
industry vehicle unit sales increased 20.4% to 8.6 million
units in 2007, from 7.1 million units in 2006.
Our worldwide vehicle sales for 2007 were 9.4 million units
compared to 9.1 million units in 2006. Vehicle unit sales
increased for GME, GMLAAM and GMAP and declined for GMNA. Our
global market share in 2007 was 13.3% compared to 13.5% in 2006.
Market share increased in 2007 compared to 2006 from 9.2% to
9.5% for GME, from 17.0% to 17.2% for GMLAAM and from 6.5% to
6.9% for GMAP, and declined over the same period from 23.8% to
23.0% for GMNA.
Competition and factors such as commodity and energy prices and
currency exchange imbalances continued to exert pricing pressure
in the global automotive market in 2007. We expect global
competition to increase over the next few years due primarily to
aggressive investment by manufacturers in established markets in
the United States and Western Europe and the presence of local
manufacturers in key emerging markets such as China and India.
Commodity price increases, particularly for steel, aluminum,
copper and precious metals have contributed to substantial cost
pressures in the industry for vehicle manufacturers as well as
suppliers. In addition, the historically low value of the
Japanese Yen against the U.S. Dollar has benefited Japanese
manufacturers exporting vehicles or components to the United
States. Due in part to these pressures, industry pricing for
comparably equipped products has continued to decline in most
major markets. In the United States, actual prices for vehicles
with similar content have declined at an accelerating pace over
the last decade. We expect that this challenging pricing
environment will continue for the foreseeable future.
As more fully described in this Managements Discussion and
Analysis, the following items are noted regarding 2007:
|
|
|
|
|
Consolidated net sales and revenues declined by 11.9%,
reflecting the de-consolidation of GMAC following the GMAC
Transaction in November 2006;
|
|
|
Automotive revenues increased 3.9%;
|
|
|
2007 net loss of $38.7 billion ($68.45 per diluted
share) includes valuation allowances recorded against our net
deferred tax assets in the U.S., Canada and Germany of
$39 billion;
|
|
|
Sold our Allison Transmission (Allison) business for
$5.4 billion in cash proceeds resulting in a gain of
$4.3 billion;
|
|
|
Results reflect a $1.2 billion loss on our 49% interest in
GMAC;
|
48
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
|
|
Signed 2007 National Agreement that we anticipate will support
our structural cost reduction plans;
|
|
|
Achieved structural cost reduction target in North American
turnaround plan; and
|
|
|
Continued progress on finalization of our support for Delphi
Corporation (Delphi) in emerging from bankruptcy proceedings.
|
As in 2007, our top priorities continue to be improving our
business in North America and Europe and achieving
competitiveness in an increasingly global environment, thus
positioning us for sustained profitability and growth in the
long term, while at the same time maintaining liquidity.
Our growth and profitability priorities for 2008 are
straightforward:
|
|
|
|
|
Continue to execute great products;
|
|
|
Build strong brands and distribution channels;
|
|
|
Execute additional cost reduction initiatives;
|
|
|
Grow aggressively in emerging markets;
|
|
|
Continue development and implementation of our advanced
propulsion strategy; and
|
|
|
Drive the benefits of managing the business globally.
|
|
|
|
Continue
to Execute Great Products
|
Our first priority for 2008 is continuing to focus on product
excellence by fully leveraging our global design, engineering
and powertrain expertise to produce vehicles for a wide variety
of regions and market segments. In North America, we plan to
introduce several new vehicles in 2008 including the Pontiac G8
and Chevrolet Traverse to complement our successful 2007
introductions of the GMC Acadia, Saturn Outlook, Buick Enclave,
Cadillac CTS and the Chevrolet Malibu. In emerging markets, we
plan to expand and enhance our portfolio of lower cost vehicles,
with special attention to fuel economy.
|
|
|
Build
Strong Brands and Distribution Channels
|
Our second priority for 2008 is building strong brands and
distribution channels. We plan to integrate our product and
marketing strategies and believe that if we achieve product
excellence, stronger brands will result. In addition, we plan to
build brand equity with a special focus on key car segments.
Programs in 2008 are intended to enhance the effectiveness of
our marketing, particularly using digital marketing. Finally, we
propose to leverage competitive advantages like the OnStar
telematics systems, which is available in more than 50 GM
vehicles throughout the world. We also plan to accelerate our
channel strategy of combining certain brands in a single
dealership, which we believe will differentiate products and
brands more clearly, enhance dealer profitability and provide us
with greater flexibility in product portfolio and technology
planning.
|
|
|
Execute
Additional Cost Reduction Initiatives.
|
Our third priority for 2008 is addressing costs by executing
additional cost reduction initiatives. As discussed below under
Key Factors Affecting Future and Current Results, we
have taken action in a number of areas to reduce legacy and
structural costs. In 2007, we achieved our announced target of
reducing certain annual structural costs in GMNA and Corporate
and Other primarily related to labor, pension and other
post-retirement costs by $9 billion, on average, less than
those costs in 2005. We have also reduced structural costs as a
percentage of global automotive revenue to below 30% for 2007
from 34% in 2005, and have announced global targets of 25% by
2010 and 23% by 2012. We also plan to reduce structural costs as
a percentage of global automotive revenue by pursuing
manufacturing capacity utilization of 100% or more in higher
cost countries, and will continue to assess what specific
actions may be required based on trends in industry volumes and
product mix.
In October 2007, we entered into a new collective bargaining
agreement with the International Union, United Automobile,
Aerospace and Agricultural Workers of America (UAW), including
the Settlement Agreement, which we anticipate will significantly
support our structural cost reduction plans when it is put into
effect after January 1, 2010. Additionally, we plan to
execute a collective bargaining
49
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
agreement with the National Automobile, Aerospace,
Transportation and General Workers Union of Canada (CAW) that
will support our cost reduction goals. We have announced a
special attrition program available to all of our
74,000 hourly workers represented by the UAW, and we expect
that participating employees will begin exiting in April 2008.
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, a
major supplier and former subsidiary. We recognize, however,
that 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, 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 fourth 2008 priority is to focus on emerging markets and
capitalize on the growth in areas such as China, India and the
ASEAN 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 2007, 38% of all vehicle sales took place in emerging
markets; we project that in 2012, 45% of vehicles will be sold
in 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 GM,
GM Daewoo and other potential strategic partners, such as
recently announced joint ventures in Malaysia and Uzbekistan.
During 2007, key metrics such as net margin, operating income
and market share showed continued growth across key emerging
markets. In addition to the product and brand strategies
discussed above, we plan to expand our manufacturing capacity in
emerging markets in a cost effective way and to pursue new
market opportunities. 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 Develop and Implement our Advanced Propulsion
Strategy.
|
Our fifth priority for 2008 is to continue to develop and
advance our alternative propulsion strategy, focused on fuel and
other technologies, making energy diversity and environmental
leadership a critical element of our ongoing strategy. In
addition to continuing to improve the efficiency of our internal
combustion engines, we are focused on the introduction of
propulsion technologies which utilize alternative fuels and have
intensified our efforts to displace traditional petroleum-based
fuels. For example, we have entered into arrangements with
battery and biofuel companies to support development of
commercially viable applications of these technologies. In
September 2007, we launched Project Driveway, making 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 introduced new hybrid models of the Chevrolet Tahoe and the
GMC Yukon. We anticipate that this strategy will require a major
commitment of technical and financial resources. Like others in
the automotive industry, we recognize that the key challenge to
our advanced propulsion strategy will be our ability to price
our products to cover cost increases driven by new technology.
|
|
|
Drive the
Benefits of Managing the Business Globally.
|
Our final priority for 2008 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
increasingly competitive environment. As we build functional and
technical excellence, we plan to leverage our products,
powertrains, supplier base and technical expertise globally so
that we can flow our existing resources to support opportunities
for highest returns at the lowest cost.
Basis of
Presentation
This Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) should be read
in conjunction with the accompanying consolidated financial
statements.
We operate in two businesses, consisting of Automotive (GM
Automotive or GMA) and Financing and Insurance Operations (FIO).
Our Auto business consists of our four regional segments; GMNA,
GME, GMLAAM and GMAP, which collectively constitute GMA.
50
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Our FIO business consists of the operating results of GMAC for
2005 and the eleven months ended November 30, 2006 on a
consolidated basis and includes our 49% share of GMACs
operating results for the month of December 2006 and the full
year of 2007 on an equity method basis. FIO also includes Other
Financing, which includes financing entities that are not
consolidated by GMAC and two special purpose entities holding
automotive leases previously owned by GMAC and its affiliates
that we retained having a net book value of $3.3 billion,
as well as the elimination of intercompany transactions with GM
Automotive and Corporate and Other.
In 2007, we changed our measure of segment operating performance
from segment net income to segment pre-tax income plus equity
income, net of tax and minority interest, net of tax. All prior
periods have been adjusted to reflect this change. Income taxes
are now evaluated on a consolidated basis only.
The results of operations and cash flows of Allison have been
reported as discontinued operations for all periods presented.
Historically, Allison was included in GMNA.
Consistent with industry practice, our market share information
includes estimates of industry sales in certain countries where
public reporting is not legally required or otherwise available
on a consistent basis.
Consolidated
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006 Change
|
|
|
2006 vs. 2005 Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
Net sales and revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
$
|
178,199
|
|
|
$
|
171,179
|
|
|
$
|
158,623
|
|
|
$
|
7,020
|
|
|
|
4.1%
|
|
|
$
|
12,556
|
|
|
|
7.9%
|
|
Financial services and insurance revenues
|
|
|
2,923
|
|
|
|
34,422
|
|
|
|
34,427
|
|
|
|
(31,499
|
)
|
|
|
91.5%
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
|
181,122
|
|
|
|
205,601
|
|
|
|
193,050
|
|
|
|
(24,479
|
)
|
|
|
11.9%
|
|
|
|
12,551
|
|
|
|
6.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
166,259
|
|
|
|
163,742
|
|
|
|
158,254
|
|
|
|
2,517
|
|
|
|
1.5%
|
|
|
|
5,488
|
|
|
|
3.5%
|
|
Selling, general and administrative expense
|
|
|
14,412
|
|
|
|
13,650
|
|
|
|
13,003
|
|
|
|
762
|
|
|
|
5.6%
|
|
|
|
647
|
|
|
|
5%
|
|
Financial services and insurance expense
|
|
|
2,742
|
|
|
|
29,794
|
|
|
|
30,813
|
|
|
|
(27,052
|
)
|
|
|
90.8%
|
|
|
|
(1,019
|
)
|
|
|
3.3%
|
|
Other expenses
|
|
|
2,099
|
|
|
|
4,238
|
|
|
|
7,024
|
|
|
|
(2,139
|
)
|
|
|
50.5%
|
|
|
|
(2,786
|
)
|
|
|
39.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,390
|
)
|
|
|
(5,823
|
)
|
|
|
(16,044
|
)
|
|
|
1,433
|
|
|
|
24.6%
|
|
|
|
10,221
|
|
|
|
63.7%
|
|
Equity in loss of GMAC LLC
|
|
|
(1,245
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
(1,240
|
)
|
|
|
n.m.
|
|
|
|
(5
|
)
|
|
|
|
|
Automotive interest and other income (expense)
|
|
|
(618
|
)
|
|
|
170
|
|
|
|
(1,185
|
)
|
|
|
(788
|
)
|
|
|
n.m.
|
|
|
|
1,355
|
|
|
|
114.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, equity
income and minority interests and cumulative effect of a change
in accounting principle
|
|
|
(6,253
|
)
|
|
|
(5,658
|
)
|
|
|
(17,229
|
)
|
|
|
(595
|
)
|
|
|
10.5%
|
|
|
|
11,571
|
|
|
|
67.2%
|
|
Income tax expense (benefit)
|
|
|
37,162
|
|
|
|
(3,046
|
)
|
|
|
(6,046
|
)
|
|
|
40,208
|
|
|
|
n.m.
|
|
|
|
3,000
|
|
|
|
49.6%
|
|
Equity income, net of tax
|
|
|
524
|
|
|
|
513
|
|
|
|
610
|
|
|
|
11
|
|
|
|
2.1%
|
|
|
|
(97
|
)
|
|
|
15.9%
|
|
Minority interests, net of tax
|
|
|
(406
|
)
|
|
|
(324
|
)
|
|
|
(48
|
)
|
|
|
(82
|
)
|
|
|
25.3%
|
|
|
|
(276
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of a
change in accounting principle
|
|
|
(43,297
|
)
|
|
|
(2,423
|
)
|
|
|
(10,621
|
)
|
|
|
(40,874
|
)
|
|
|
n.m.
|
|
|
|
8,198
|
|
|
|
77.2%
|
|
Income from discontinued operations, net of tax
|
|
|
256
|
|
|
|
445
|
|
|
|
313
|
|
|
|
(189
|
)
|
|
|
42.5%
|
|
|
|
132
|
|
|
|
42.2%
|
|
Gain on sale of discontinued operations, net of tax
|
|
|
4,309
|
|
|
|
|
|
|
|
|
|
|
|
4,309
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of a change in accounting principle
|
|
|
(38,732
|
)
|
|
|
(1,978
|
)
|
|
|
(10,308
|
)
|
|
|
(36,754
|
)
|
|
|
n.m.
|
|
|
|
8,330
|
|
|
|
80.8%
|
|
Cumulative effect of a change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(38,732
|
)
|
|
$
|
(1,978
|
)
|
|
$
|
(10,417
|
)
|
|
$
|
(36,754
|
)
|
|
|
n.m.
|
|
|
$
|
8,439
|
|
|
|
81%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales rate
|
|
|
93.3%
|
|
|
|
95.7%
|
|
|
|
99.8%
|
|
|
|
(2.4
|
)%
|
|
|
n.m.
|
|
|
|
(4.1
|
)%
|
|
|
n.m.
|
|
Net margin from continuing operations before cumulative effect
of a change in accounting principle
|
|
|
(23.9
|
)%
|
|
|
(1.2
|
)%
|
|
|
(5.5
|
)%
|
|
|
(22.7
|
)%
|
|
|
n.m.
|
|
|
|
4.3%
|
|
|
|
n.m.
|
|
n.m. = not meaningful
51
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Our total net sales and revenues in 2007 declined driven by the
de-consolidation of GMAC in November 2006 following the GMAC
Transaction, which was offset by increased Automotive sales
reflecting growth outside of North America. Our operating loss
decreased reflecting improved automotive results, particularly
in North America, driving a total improvement of
$4.6 billion. The improvement in automotive results was
partially offset by the de-consolidation of GMAC, which
contributed $2.2 billion of operating profit in 2006
whereas in 2007 GMACs results are reflected as equity
income (loss) and increased costs in Corporate and Other. In
addition to these factors, our loss from continuing operations
increased substantially as a result of the $39 billion
valuation allowance established in the third quarter against our
net deferred tax assets in the United States, Canada and Germany
and was also increased by our share of losses from our equity
investment in GMAC totaling $1.2 billion. Net loss for 2007
also reflected the gain on sale of Allison of $4.3 billion.
Further information on each of our businesses and segments is
presented below.
In August 2007, we completed the sale of the commercial and
military operations of Allison. The negotiated purchase price of
$5.6 billion in cash plus assumed liabilities was paid at
closing. The purchase price was subject to adjustment based on
the amount of Allisons net working capital and debt on the
closing date, which resulted in an adjusted purchase price of
$5.4 billion. A gain on the sale of Allison in the amount
of $5.3 billion ($4.3 billion after-tax), inclusive of
the final purchase price adjustments, was recognized in 2007.
Allison, formerly a division of our 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 our Powertrain
Operations facility near Baltimore, which manufactures
automatic transmissions primarily for our trucks and hybrid
propulsion systems. The results of operations and cash flows of
Allison have been reported in the consolidated financial
statements as discontinued operations for all periods presented.
Historically, Allison had been reported in GMNA.
Our total net sales and revenues in 2006 increased as a result
of higher automotive sales principally in GMNA and GMLAAM. Our
operating loss decreased due to lower restructuring charges in
GMNA and improved operating results across all of our automotive
segments. Further information on each of our businesses and
segments is presented below.
Changes
in Consolidated Financial Condition
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 United States,
Canada and Germany. See Critical Accounting
Estimates in this MD&A for a discussion of the
specific factors which lead us to this conclusion. We had
determined in prior periods that valuation allowances were not
necessary for our deferred tax assets in the United States,
Canada and Germany based on several factors including:
(1) 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) long duration of our deferred tax
assets; and (3) expectation of continued strong earnings at
GMAC and improved earnings in GMNA.
|
|
|
Accounts
and notes receivable, net
|
Accounts and notes receivable were $9.7 billion at
December 31, 2007 compared to $8.2 billion at
December 31, 2006, an increase of $1.5 billion (or
17.6%). This increase is primarily due to increased sales across
all segments totaling $.9 billion, increases of
$.3 billion at GME as a result of translation of our local
currency accounts into U.S. Dollars (Foreign Currency
Translation) and a reduction in securitization activities and
higher accrued Delphi warranty recoveries at GMNA of
$.4 billion.
52
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Inventories at December 31, 2007 were $14.9 billion
compared to $13.9 billion at December 31, 2006, an
increase of $1 billion (or 7.3%). The increase is primarily
due to increases in finished product of $.8 billion at GME
and GMAP, Foreign Currency Translation effects of
$.5 billion at GME and GMLAAM; and raw materials increases
of $.3 billion at GMLAAM, GMAP and GME to support future
production. These increases were partially offset by a reduction
in daily rental repurchase inventory of $.2 billion at GMNA.
|
|
|
Financing
equipment on operating leases, net
|
Equipment on operating leases, net, at December 31, 2007
was $6.7 billion compared to $11.8 billion at
December 31, 2006, a decrease of $5.1 billion (or
43.1%). The decrease is due to the planned reduction of
Equipment on operating leases, net which we retained as part of
the GMAC Transaction.
|
|
|
Automotive
accounts payable (principally trade)
|
Automotive accounts payable at December 31, 2007 was
$29.4 billion compared to $26.9 billion at
December 31, 2006, an increase of $2.5 billion (or
9.3%). The increase in accounts payable is primarily related to
product mix in GMNA of $.9 billion and Foreign Currency
Translation effects which resulted in increases totaling
$1.3 billion across all regions.
Financing debt at December 31, 2007 was $4.9 billion
compared to $9.4 billion at December 31, 2006, a
decrease of $4.5 billion (or 48%). The decrease in debt is
due to the planned repayment of debt of $3.4 billion
secured by equipment on operating leases which we retained as
part of the GMAC Transaction combined with payments on short
term and long-term debt of $.8 billion and
$.3 billion, respectively.
|
|
|
Financing
other liabilities and deferred income taxes
|
Financing other liabilities and deferred income taxes at
December 31, 2007 were $.9 billion compared to
$1.9 billion at December 31, 2006, a decrease of
$1 billion (or 55.1%). The decrease is due to a
$1 billion payment to GMAC for amounts owed under the GMAC
sales agreement to restore their tangible equity balance to
contractually required levels.
Further information on each of our businesses and geographic
regions is discussed below.
53
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Operations Financial Review
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006 Change
|
|
|
2006 vs. 2005 Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
178,199
|
|
|
$
|
171,435
|
|
|
$
|
158,879
|
|
|
$
|
6,764
|
|
|
|
3.9
|
%
|
|
$
|
12,556
|
|
|
|
7.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
165,632
|
|
|
|
164,107
|
|
|
|
157,531
|
|
|
|
1,525
|
|
|
|
.9
|
%
|
|
|
6,576
|
|
|
|
4.2
|
%
|
Selling, general and administrative expense
|
|
|
13,590
|
|
|
|
12,965
|
|
|
|
12,560
|
|
|
|
625
|
|
|
|
4.8
|
%
|
|
|
405
|
|
|
|
3.2
|
%
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
812
|
|
|
|
|
|
|
|
|
|
|
|
(812
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,023
|
)
|
|
|
(5,637
|
)
|
|
|
(12,024
|
)
|
|
|
4,614
|
|
|
|
81.9
|
%
|
|
|
6,387
|
|
|
|
53.1
|
%
|
Automotive interest and other income (expense)
|
|
|
(961
|
)
|
|
|
(698
|
)
|
|
|
(1,688
|
)
|
|
|
(263
|
)
|
|
|
37.7
|
%
|
|
|
990
|
|
|
|
58.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, equity
income and minority interests and cumulative effect of a change
in accounting principle
|
|
|
(1,984
|
)
|
|
|
(6,335
|
)
|
|
|
(13,712
|
)
|
|
|
4,351
|
|
|
|
68.7
|
%
|
|
|
7,377
|
|
|
|
53.8
|
%
|
Equity income, net of tax
|
|
|
522
|
|
|
|
521
|
|
|
|
596
|
|
|
|
1
|
|
|
|
.2
|
%
|
|
|
(75
|
)
|
|
|
12.6
|
%
|
Minority interests, net of tax
|
|
|
(406
|
)
|
|
|
(334
|
)
|
|
|
(112
|
)
|
|
|
(72
|
)
|
|
|
21.6
|
%
|
|
|
(222
|
)
|
|
|
198.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(1,868
|
)
|
|
$
|
(6,148
|
)
|
|
$
|
(13,228
|
)
|
|
$
|
4,280
|
|
|
|
69.6
|
%
|
|
$
|
7,080
|
|
|
|
53.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(109
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
109
|
|
|
|
n.m.
|
|
Income from discontinued operations, net of tax
|
|
$
|
256
|
|
|
$
|
$445
|
|
|
$
|
313
|
|
|
$
|
(189
|
)
|
|
|
42.5
|
%
|
|
$
|
132
|
|
|
|
42.2
|
%
|
Gain on sale of discontinued operations, net of tax
|
|
$
|
4,309
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,309
|
|
|
|
n.m.
|
|
|
$
|
|
|
|
|
|
|
Automotive cost of sales rate
|
|
|
92.9
|
%
|
|
|
95.7
|
%
|
|
|
99.2
|
%
|
|
|
(2.8
|
)%
|
|
|
n.m.
|
|
|
|
(3.5
|
)%
|
|
|
n.m.
|
|
Net margin from continuing operations before income taxes,
equity income and minority interests and cumulative effect of a
change in accounting principle
|
|
|
(1.1
|
)%
|
|
|
(3.7
|
)%
|
|
|
(8.6
|
)%
|
|
|
2.6
|
%
|
|
|
n.m.
|
|
|
|
4.9
|
%
|
|
|
n.m.
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume (a)
|
|
|
9,286
|
|
|
|
9,181
|
|
|
|
9,051
|
|
|
|
105
|
|
|
|
1.1
|
%
|
|
|
130
|
|
|
|
1.4
|
%
|
Vehicle Unit Sales (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
70,649
|
|
|
|
67,401
|
|
|
|
65,084
|
|
|
|
3,248
|
|
|
|
4.8
|
%
|
|
|
2,317
|
|
|
|
3.6
|
%
|
GM
|
|
|
9,370
|
|
|
|
9,093
|
|
|
|
9,179
|
|
|
|
277
|
|
|
|
3
|
%
|
|
|
(86
|
)
|
|
|
(.9
|
)%
|
GM market share Worldwide
|
|
|
13.3
|
%
|
|
|
13.5
|
%
|
|
|
14.1
|
%
|
|
|
(.2
|
)%
|
|
|
n.m.
|
|
|
|
(.6
|
)%
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
(a)
|
|
Production volume represents the
number of vehicles manufactured by our assembly facilities and
also includes vehicles produced by certain joint ventures.
|
(b)
|
|
Vehicle unit sales primarily
represent sales to the ultimate customer.
|
The following discussion highlights key changes in operating
results by Automotive region. The drivers of these changes are
discussed in the regional analysis that follows this section.
|
|
|
Industry
Global Vehicle Sales
|
Industry unit sales grew strongly in all regions outside North
America in 2007. Industry unit sales increased in the Asia
Pacific region 1.6 million units (or 8.2%) to
20.8 million units in 2007; Europe grew 1.2 million
units (or 5.5%) to 23.1 million units in 2007; and, the
Latin America/Africa/Mid-East region increased 1.1 million
units (or 17.7%) to 7.2 million units in 2007. Industry
sales decreased in North America by 599,000 units (or
3.0%), to 19.6 million units compared to 20.2 million
units in 2006.
Our worldwide vehicle unit sales increased to the second highest
global sales total in our history, and the third consecutive
year that we sold more than 9 million vehicles. Vehicle
unit sales increased by 201,000 at GMLAAM, 188,000 at GMAP and
179,000 at GME, offset by a decline in vehicle units sales in
GMNA of 291,000.
54
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Our global production volume increased 105,000 units over
2006. Production increased year-over-year in all regions outside
North America. Production volume increased most notably at GMAP
by 335,000 units and at GMLAAM by 130,000 units,
whereas GMNA declined by 382,000 units.
|
|
|
Total Net
Sales and Revenue
|
The increase in Total net sales and revenues was driven by
increases of $5.5 billion at GMAP, $4.3 billion at
GMLAAM and $4.1 billion at GME, offset by a decline in
Total net sales and revenue of $4.2 billion at GMNA as well
as $2.9 billion in incremental inter-segment eliminations.
The increase in Automotive cost of sales resulted from increases
of $4.8 billion at GMAP, $4.4 billion at GME and
$3.5 billion at GMLAAM, offset by a decline in Automotive
cost of sales of $8.3 billion at GMNA as well as
$2.9 billion in incremental inter-segment eliminations.
|
|
|
Selling,
General and Administrative Expense
|
The increase in Selling, general and administrative expense was
driven by increases of $.3 billion at GMAP,
$.2 billion at each of GME and GMLAAM, offset by a decrease
of $.1 billion at GMNA.
|
|
|
Automotive
Interest and Other Income (Expense)
|
The degradation in Automotive interest and other income
(expense) resulted due to a $823 million decrease in
interest and other income at GMAP, offset by increases in net
expense of $271 million at GMLAAM, $219 million at GME
and $74 million at GMNA.
|
|
|
Equity
Income, Net of Tax
|
Equity income, net of tax, was relatively flat overall in 2007;
but, we recorded increases of $60 million at GMAP due to
continued growth at GM Daewoo, $15 million at GMLAAM,
$8 million at GME, offset by a decrease of $82 million
at GMNA.
|
|
|
Minority
Interests, Net of Tax
|
The increase in Minority interests, net of tax results from
increased earnings of consolidated affiliates, most notably
$76 million at GMAP in 2007.
|
|
|
Income
from Discontinued Operations, net of taxes
|
In August 2007, we completed the sale of the commercial and
military operations of Allison, resulting in a gain of
$4.3 billion, net of tax. Exclusive of the gain on sale,
Income from discontinued operations, net of tax was
$256 million, $445 million and $313 million in
2007, 2006 and 2005, respectively.
|
|
|
Industry
Global Vehicle Sales
|
All regions outside North America experienced growth in industry
unit volume compared to 2005. The Asia Pacific region increased
1.1 million units (or 6.2%) to 19.2 million units in
2006, Latin America/Africa/Mid-East region increased
794,000 units (or 15.0%) to 6.1 million units in 2006
and Europe increased 784,000 units (or 3.7%) to
21.9 million units in 2006. Industry sales decreased in
North America by 376,000 units (or 1.8%), to
20.2 million units compared to 20.6 million units in
2005.
55
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
We reported increases in worldwide vehicle unit sales in 2006 in
all regions outside North America. GMAP increased
184,000 units (or 17.3%), GMLAAM increased
152,000 units (or 17.2%) and GME increased
19,000 units (or 1%). Vehicle unit sales declined at GMNA
by 441,000 units (or 8.4%).
Our global production volume increased 130,000 units over
2005. Production volumes increased year-over-year at GMAP by
334,000 units and by 55,000 units at GMLAAM, offset
most notably by a decline of 207,000 units at GMNA.
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenues increased worldwide during 2006,
driven by increases of $5.3 billion at GMNA,
$4.7 billion at GMAP, $2.8 billion at GMLAAM and
$1.3 billion at GME, offset by $1.5 billion in
incremental inter-segment eliminations.
The increase in Automotive cost of sales resulted from increases
of $3.9 billion at GMAP, $2.3 billion at GMNA and
$2.2 billion at GMLAAM, offset by a decline in Automotive
cost of sales of $.3 billion at GME as well as
$1.5 billion in incremental inter-segment eliminations.
|
|
|
Selling,
General and Administrative Expense
|
The increase in Selling, general and administrative expense was
driven by increases of $.4 billon at GMAP, $.2 billion at
GME, $.1 billion at GMLAAM, offset by a decrease of
$.3 billion at GMNA.
Other expense decreased to zero in 2006 resulting from a
$.8 billion decrease at GMAP.
|
|
|
Automotive
Interest and Other Income (Expense)
|
The improvement in Automotive interest and other income
(expense) in 2006 resulted primarily due to improvements of
$.8 billion at GMAP and $.1 billion at GMNA.
|
|
|
Equity
Income, net of tax
|
Equity income, net of tax, decreased in 2006 principally due to
a $152 million increase at GMNA offset by decreases of
$162 million at GMAP and $66 million at GME.
|
|
|
Minority
Interests, net of tax
|
Minority interests, net of tax increased in all regions except
GME during 2006. The increase resulted primarily due to an
increase of $172 million at GMAP.
|
|
|
Cumulative
Effect of a Change in Accounting Principle
|
Effective December 31, 2005 we adopted Financial Accounting
Standards Board Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations (FIN 47).
FIN 47 relates to legal obligations associated with
retirement of tangible long-lived assets that result from
acquisition, construction, development or normal operation of a
long-lived asset. We performed an analysis of such obligations
associated with all real property owned or leased, including
plants, warehouses and offices. Our estimates of conditional
asset retirement obligations related, in the case of owned
properties, to costs estimated to be necessary for the legally
required removal or
56
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
remediation of various regulated materials, primarily asbestos.
Asbestos abatement was estimated using site-specific surveys
where available and a per square foot estimate where surveys
were unavailable. For leased properties, such obligations
related to the estimated cost of contractually required property
restoration. Refer to Note 17. The application of
FIN 47 resulted in a charge of $109 million,
after-tax, in 2005 presented as a cumulative effect of a change
in accounting principle. The liability for conditional asset
retirement obligations as of December 31, 2007 and 2006 was
$222 million and $193 million, respectively.
We evaluate our Automotive business and make certain decisions
using supplemental categories for variable expenses and
non-variable expenses. We believe these categories provide us
with useful information and that investors would also find it
beneficial to view the business in a similar manner.
We believe contribution costs, structural costs and impairment,
restructuring and other charges provide meaningful supplemental
information regarding our expenses because they place Automotive
expenses into categories that allow us to assess the cost
performance of GMA. We use these categories to evaluate our
expenses, and believe that these categories allow us to readily
view operating trends, perform analytical comparisons, benchmark
expenses among geographic segments and assess whether the
turnaround and globalization strategy for reducing costs is 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, restructuring and other charges provide useful
information, there are limitations associated with the use of
these categories. Contribution costs, structural costs and
impairment, restructuring and other charges may not be
completely comparable to similarly titled measures of other
companies due to potential differences between companies in the
exact method of calculation. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in billions)
|
|
|
Automotive net sales and revenues
|
|
$
|
178
|
|
|
$
|
171
|
|
|
$
|
159
|
|
Contribution costs (a)
|
|
$
|
124
|
|
|
$
|
119
|
|
|
$
|
110
|
|
Structural costs (b)
|
|
$
|
53
|
|
|
$
|
51
|
|
|
$
|
55
|
|
Impairment, restructuring and other charges (c)
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
5
|
|
|
|
|
(a) |
|
Contribution costs are expenses that we consider to be variable
with production. The amount of contribution costs included in
Automotive cost of sales was $123 billion,
$118 billion and $109 billion in 2007, 2006 and 2005,
respectively, and those costs were comprised of material cost,
freight and policy and warranty expenses. The amount of
contribution costs classified in Selling, general and
administrative expenses was $1 billion in 2007, 2006 and
2005 and these costs were incurred primarily in connection with
our dealer advertising programs. |
|
(b) |
|
Structural costs are expenses that do not generally vary 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 $40 billion,
$39 billion and $44 billion in 2007, 2006 and 2005,
respectively, and the amount of structural costs included in
Selling, general and administrative expense was
$13 billion, $12 billion and $11 billion in 2007,
2006 and 2005, respectively. |
|
(c) |
|
Impairment, restructuring and other charges are included in
Automotive cost of sales. |
57
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Contribution costs in 2007 totaled $124 billion, an
increase of $5 billion from 2006. The increase was a result
of Foreign Currency Translation, accounting for
$3.7 billion, richer product mix and increased policy and
warranty costs. Overall material performance was flat
year-over-year as improvements realized from supplier
productivity, global sourcing and optimizing supplier footprints
offset higher raw material costs and product enhancements on new
vehicles. Increased global prices for steel, aluminum, copper
and precious metals increased contribution costs by
$1.3 billion in 2007 versus 2006. Contribution costs as a
percentage of revenue increased to 69.5% in 2007 from 69.4% 2006.
Contribution costs in 2006 totaled $119 billion, an
increase of $9 billion from 2005. The increase was a result
of increased material costs and higher levels of vehicle content
and product mix, as well as higher freight cost. Material
performance was slightly favorable year-over-year. Contribution
costs as a percentage of revenue increased slightly to 69.4% in
2006 from 69.2% in 2005.
Automotive structural costs were $53 billion in 2007, an
increase of $2 billion from 2006. Costs in 2007 were driven
higher by the impact of Foreign Currency Translation and lower
gains on commodity derivatives contracts related to purchases of
raw materials. Global engineering and product development costs
were higher in 2007 reflecting increased global vehicle
development and advanced technology spending. Total structural
cost expenditures were higher in GMAP and GMLAAM reflecting
higher production costs and new product launches associated with
volume growth. OPEB costs were reduced in 2007 at GMNA primarily
due to the 2005 UAW Health Care Settlement Agreement and
manufacturing labor costs declined as production-related
headcount levels were reduced by the 2006 UAW Attrition Program.
As a percentage of revenue, structural costs declined to 29.7%
in 2007 from 29.9% in 2006.
Structural costs were $51 billion in 2006, a decrease of
$4 billion from 2005. Cost reductions in GMNA of over
$6 billion were the primary reason for this reduction,
partially offset by structural cost increases in GMLAAM and GMAP
as we continued to invest in infrastructure to support the
higher unit production and sales volumes in those regions.
Consolidation of GM Daewoo also increased 2006 structural costs
in GMAP by over $1 billion as compared to 2005 since GM
Daewoo was consolidated on June 30, 2005. As a percentage
of revenue, structural costs declined to 29.9% in 2006 from
34.6% in 2005.
|
|
|
Impairment,
Restructuring and Other Charges
|
We incurred certain expenses primarily related to restructuring
and asset impairments, which are included in Automotive cost of
sales. Additional details regarding these expenses are included
in Notes 20, 21 and 22 of our consolidated financial
statements. These expenses are comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
2006 UAW Attrition Program
|
|
$
|
|
|
|
$
|
6,385
|
|
|
$
|
|
|
Restructuring initiatives
|
|
|
918
|
|
|
|
(412
|
)
|
|
|
3,183
|
|
Asset impairments
|
|
|
279
|
|
|
|
686
|
|
|
|
2,052
|
|
Change in amortization period for pension prior service costs
|
|
|
1,310
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(85
|
)
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,422
|
|
|
$
|
6,847
|
|
|
$
|
5,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2007 amounts are related to the following:
|
|
|
|
|
$918 million of total charges for restructuring initiatives
as follows: GMNA, $290 million; GME, $579 million;
GMAP, $49 million.
|
|
|
$265 million for product-specific asset impairments at GMNA
and $14 million at GMAP.
|
|
|
$1.3 billion of additional pension expense at GMNA related
to the accelerated recognition of unamortized prior service cost.
|
|
|
Adjustment of $85 million in conjunction with cessation of
production at a previously divested business.
|
58
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
The 2006 amounts are related to the following:
|
|
|
|
|
$6.4 billion net charge related to the program under the
UAW Attrition Program primarily for payments to employees of
$2.1 billion and for the curtailment charges associated
with our U.S. hourly pension, OPEB, and extended disability
plans as a result of the 2006 UAW Attrition Program of
$4.3 billion.
|
|
|
Net reduction of $412 million for various restructuring and
other matters. GMNA recorded favorable revisions of
$1.1 billion to the reserves recorded in the fourth quarter
of 2005 related to plant capacity actions, as a result of the
favorable effects of the 2006 UAW Attrition Program and to the
reserve for postemployment benefits, primarily due to higher
than anticipated headcount reductions associated with plant
idling activities. This was partially offset by other charges
for restructuring initiatives of $146 million at GMNA,
$437 million at GME, $43 million at GMLAAM and
$16 million at GMAP.
|
|
|
$405 million for product-specific asset impairment charges
at GMNA, $60 million at GME and $61 million at GMAP,
as well as impairment charges of $70 million and
$89 million for the write-down of plant facilities at GMNA
and GME, respectively.
|
|
|
$224 million recorded in conjunction with cessation of
production at a previously divested business, partially offset
by a $36 million adjustment related to the sale of the
majority of our investment in Suzuki.
|
The 2005 amounts are related to the following:
|
|
|
|
|
$3.2 billion associated with restructuring initiatives. Of
this, $2.1 billion was incurred at GMNA, including
$1.8 billion for employee related costs in connection with
the restructuring initiatives announced in the fourth quarter of
2005, and $222 million associated with a voluntary salaried
early retirement program and other separation programs related
to the U.S. salaried workforce. GME recognized separation
and contract cancellation charges of $1.1 billion, mainly
related to the restructuring plan announced in the fourth
quarter of 2004. In addition, GMAP recognized separation costs
of $55 million related to restructuring activities at GM
Holden in Australia.
|
|
|
$2.1 billion for product-specific asset impairment charges,
of which $689 million was at GMNA, $262 million was at
GME, $150 million at GMLAAM and $64 million at GMAP
related to the write-down of product-specific assets. Also
includes $887 million of impairment charges related to the
write-down of plant facilities at GMNA.
|
59
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM
Automotive Regional Results
GM
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006 Change
|
|
|
2006 vs. 2005 Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
112,448
|
|
|
$
|
116,653
|
|
|
$
|
111,376
|
|
|
$
|
(4,205
|
)
|
|
|
3.6%
|
|
|
$
|
5,277
|
|
|
|
4.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
106,097
|
|
|
|
114,373
|
|
|
|
112,088
|
|
|
|
(8,276
|
)
|
|
|
7.2%
|
|
|
|
2,285
|
|
|
|
2.0%
|
|
Selling, general and administrative expense
|
|
|
8,316
|
|
|
|
8,456
|
|
|
|
8,770
|
|
|
|
(140
|
)
|
|
|
1.7%
|
|
|
|
(314
|
)
|
|
|
3.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,965
|
)
|
|
|
(6,176
|
)
|
|
|
(9,482
|
)
|
|
|
4,211
|
|
|
|
68.2%
|
|
|
|
3,306
|
|
|
|
34.9%
|
|
Automotive interest and other income (expense)
|
|
|
(1,325
|
)
|
|
|
(1,399
|
)
|
|
|
(1,539
|
)
|
|
|
74
|
|
|
|
5.3%
|
|
|
|
140
|
|
|
|
9.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, equity
income and minority interests and cumulative effect of a change
in accounting principle
|
|
|
(3,290
|
)
|
|
|
(7,575
|
)
|
|
|
(11,021
|
)
|
|
|
4,285
|
|
|
|
56.6%
|
|
|
|
3,446
|
|
|
|
31.3%
|
|
Equity income (loss), net of tax
|
|
|
22
|
|
|
|
104
|
|
|
|
(48
|
)
|
|
|
(82
|
)
|
|
|
78.8%
|
|
|
|
152
|
|
|
|
n.m.
|
|
Minority interests, net of tax
|
|
|
(46
|
)
|
|
|
(63
|
)
|
|
|
1
|
|
|
|
17
|
|
|
|
27.0%
|
|
|
|
(64
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(3,314
|
)
|
|
$
|
(7,534
|
)
|
|
$
|
(11,068
|
)
|
|
$
|
4,220
|
|
|
|
56.0%
|
|
|
$
|
3,534
|
|
|
|
31.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(83
|
)
|
|
$
|
|
|
|
|
n.m.
|
|
|
$
|
83
|
|
|
|
n.m.
|
|
Income from discontinued operations, net of tax
|
|
$
|
256
|
|
|
$
|
445
|
|
|
$
|
313
|
|
|
$
|
(189
|
)
|
|
|
42.5%
|
|
|
$
|
132
|
|
|
|
42.2%
|
|
Gain on sale of discontinued operations, net of tax
|
|
$
|
4,309
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,309
|
|
|
|
n.m.
|
|
|
$
|
|
|
|
|
n.m.
|
|
Automotive cost of sales rate
|
|
|
94.4%
|
|
|
|
98.0%
|
|
|
|
100.6%
|
|
|
|
(3.6)%
|
|
|
|
n.m.
|
|
|
|
(2.6)%
|
|
|
|
n.m.
|
|
Net margin from continuing operations before income taxes,
equity income and minority interests and cumulative effect of a
change in accounting principle
|
|
|
(2.9)%
|
|
|
|
(6.5)%
|
|
|
|
(9.9)%
|
|
|
|
3.6%
|
|
|
|
n.m.
|
|
|
|
3.4%
|
|
|
|
n.m.
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cars
|
|
|
1,526
|
|
|
|
1,821
|
|
|
|
1,834
|
|
|
|
(295
|
)
|
|
|
(16.2)%
|
|
|
|
(13
|
)
|
|
|
(0.7)%
|
|
Trucks
|
|
|
2,741
|
|
|
|
2,828
|
|
|
|
3,022
|
|
|
|
(87
|
)
|
|
|
(3.1)%
|
|
|
|
(194
|
)
|
|
|
(6.4)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,267
|
|
|
|
4,649
|
|
|
|
4,856
|
|
|
|
(382
|
)
|
|
|
(8.2)%
|
|
|
|
(207
|
)
|
|
|
(4.3)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Unit Sales (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry North America
|
|
|
19,592
|
|
|
|
20,191
|
|
|
|
20,567
|
|
|
|
(599
|
)
|
|
|
(3.0)%
|
|
|
|
(376
|
)
|
|
|
(1.8)%
|
|
GMNA
|
|
|
4,516
|
|
|
|
4,807
|
|
|
|
5,248
|
|
|
|
(291
|
)
|
|
|
(6.1)%
|
|
|
|
(441
|
)
|
|
|
(8.4)%
|
|
GM market share North America
|
|
|
23.0%
|
|
|
|
23.8%
|
|
|
|
25.5%
|
|
|
|
(0.8)%
|
|
|
|
n.m.
|
|
|
|
(1.7)%
|
|
|
|
n.m.
|
|
Industry U.S.
|
|
|
16,474
|
|
|
|
17,060
|
|
|
|
17,456
|
|
|
|
(586
|
)
|
|
|
(3.4)%
|
|
|
|
(396
|
)
|
|
|
(2.3)%
|
|
GM market share U.S. industry
|
|
|
23.5%
|
|
|
|
24.2%
|
|
|
|
25.9%
|
|
|
|
(0.7)%
|
|
|
|
n.m.
|
|
|
|
(1.7)%
|
|
|
|
n.m.
|
|
GM cars market share U.S. industry
|
|
|
19.4%
|
|
|
|
20.7%
|
|
|
|
22.6%
|
|
|
|
(1.3)%
|
|
|
|
n.m.
|
|
|
|
(1.9)%
|
|
|
|
n.m.
|
|
GM trucks market share U.S. industry
|
|
|
27.0%
|
|
|
|
27.1%
|
|
|
|
28.5%
|
|
|
|
(0.1)%
|
|
|
|
n.m.
|
|
|
|
(1.4)%
|
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
(a)
|
|
Production volume represents the
number of vehicles manufactured by our assembly facilities and
also includes vehicles produced by certain joint ventures.
|
(b)
|
|
Vehicle unit sales primarily
represent sales to the ultimate customer.
|
Industry vehicle sales in North America decreased 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.
60
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue decreased due to a decline in
volumes, net of favorable mix, of $4.6 billion, which was
partially offset by the impact of favorable pricing on vehicles
sold of $.4 billion, related to the recently launched
fullsize
pick-up
trucks. The decrease in volume was driven by a reduction in
year-end dealer inventories of 160,000 units from
2006 year-end levels as a result of lower
U.S. industry sales volumes and the impact of our declining
market share in the United States and a reduction in daily
rental volume of 108,000 units.
Automotive cost of sales decreased due to restructuring and
impairment charges of $.5 billion in 2007, compared to
$6.2 billion in 2006. In 2006, we recorded restructuring
charges related to the UAW Attrition Program which were not
incurred in 2007. Also contributing to the decrease in 2007
were: (1) lower production volumes, partially offset by mix
which had a favorable net impact of $3.8 billion;
(2) savings on retiree pension/OPEB costs of
$1.8 billion, primarily due to the 2005 UAW Health Care
Settlement Agreement; and (3) manufacturing savings of
$1 billion from lower hourly headcount levels driven by the
UAW Attrition Program and productivity improvements.
These cost reductions were partially offset by:
(1) $1.3 billion of additional expense due to the
accelerated recognition of pension unamortized prior service
costs (Refer to Note 15); (2) higher material and
freight costs of $.8 billion; (3) higher warranty
related costs of $.5 billion primarily as a result of
favorable adjustments to warranty reserves in 2006 which did not
occur in 2007; (4) higher engineering costs of
$.6 billion related to increased investment in future
products; (5) higher foreign exchange losses of
$.3 billion due to the appreciation of the Canadian Dollar
against the U.S. Dollar; and (6) a decrease of
$.5 billion on gains from commodity derivative contracts
used to hedge forecasted purchases of raw materials.
Automotive cost of sales rate decreased due to the reduction in
labor and pension costs driven by the 2006 UAW Attrition Program.
|
|
|
Selling,
General and Administrative Expense
|
Selling, general and administrative expense decreased due to
ongoing cost reduction initiatives as well as a reduction in
dealerships we own.
|
|
|
Automotive
Interest and Other Income (Expense)
|
Automotive interest and other expense decreased primarily due to
reductions in debt balances with other segments utilizing
certain proceeds from the Allison sale.
|
|
|
Equity
Income (Loss), net of tax
|
Equity income decreased due to decreased income from GMNAs
investment in New United Motor Manufacturing, Inc. (NUMMI) as a
result of increased project spending and pre-production expenses
due to the upcoming launch of the new Vibe and increases in
material, freight and labor costs.
|
|
|
Income
from Discontinued Operations, net of tax
|
In August 2007, we completed the sale of the commercial and
military operations of Allison, resulting in a gain of
$4.3 billion. Income and the gain on sale from this
business have been reported as discontinued operations for all
periods presented.
61
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Industry vehicle sales in North America decreased due to very
strong 2005 sales levels and some weakness in the economy in
2006.
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue increased primarily due to favorable
mix, which more than offset declines in volume.
Automotive cost of sales increased primarily due to increases in
restructuring and impairment charges of $2.5 billion,
driven by charges for: (1) the 2006 UAW Attrition Program
of $6.4 billion in 2006; (2) net reductions in vehicle
and facility impairment charges of $1 billion; and
(3) net reductions in the closed plant and other
restructuring initiatives totaling $2.8 billion.
These increases were offset by: (1) $1.5 billion in
reduced costs due to lower production volumes, which were
partially offset by mix; (2) savings on retiree
pension/OPEB costs of $2.8 billion, due to the 2005 UAW
Health Care Settlement Agreement; (3) manufacturing savings
of $1 billion from lower hourly headcount levels driven by
the 2006 UAW Attrition Program; (4) lower warranty related
costs of $.2 billion; (5) lower engineering costs of
$.4 billion; (6) lower tooling amortization of
$.3 billion; and (7) an increase of $.3 billion
in gains from commodity derivative contracts used to hedge
forecasted purchases of raw materials.
Automotive cost of sales rate decreased primarily due to the
increase in revenue described above.
|
|
|
Selling,
General and Administrative Expense
|
Selling, general and administrative expense decreased primarily
due to reduced advertising and sales promotion expense of
$540 million, and reduced administrative expense due to
GMNA cost reduction initiatives.
|
|
|
Automotive
Interest and Other Income (Expense)
|
Automotive interest and other expense decreased due to the gain
on the sale of our Mesa, Arizona proving grounds in 2006 of
$270 million.
|
|
|
Equity
Income (Loss), net of taxes
|
Equity income increased due to improved operating results from
GMNAs investment in NUMMI.
62
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006 Change
|
|
|
2006 vs. 2005 Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
37,397
|
|
|
$
|
33,278
|
|
|
$
|
31,942
|
|
|
$
|
4,119
|
|
|
|
12.4%
|
|
|
$
|
1,336
|
|
|
|
4.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
35,254
|
|
|
|
30,868
|
|
|
|
31,202
|
|
|
|
4,386
|
|
|
|
14.2%
|
|
|
|
(334
|
)
|
|
|
1.1%
|
|
Selling, general and administrative expense
|
|
|
2,781
|
|
|
|
2,600
|
|
|
|
2,406
|
|
|
|
181
|
|
|
|
7.0%
|
|
|
|
194
|
|
|
|
8.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(638
|
)
|
|
|
(190
|
)
|
|
|
(1,666
|
)
|
|
|
(448
|
)
|
|
|
n.m.
|
|
|
|
1,476
|
|
|
|
88.6%
|
|
Automotive interest and other income (expense)
|
|
|
97
|
|
|
|
(122
|
)
|
|
|
(128
|
)
|
|
|
219
|
|
|
|
179.5%
|
|
|
|
6
|
|
|
|
4.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, equity
income and minority interests and cumulative effect of a change
in accounting principle
|
|
|
(541
|
)
|
|
|
(312
|
)
|
|
|
(1,794
|
)
|
|
|
(229
|
)
|
|
|
73.4%
|
|
|
|
1,482
|
|
|
|
82.6%
|
|
Equity income, net of tax
|
|
|
44
|
|
|
|
36
|
|
|
|
102
|
|
|
|
8
|
|
|
|
22.2%
|
|
|
|
(66
|
)
|
|
|
64.7%
|
|
Minority interests, net of tax
|
|
|
(27
|
)
|
|
|
(21
|
)
|
|
|
(49
|
)
|
|
|
(6
|
)
|
|
|
28.6%
|
|
|
|
28
|
|
|
|
57.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
$
|
(524
|
)
|
|
$
|
(297
|
)
|
|
$
|
(1,741
|
)
|
|
$
|
(227
|
)
|
|
|
76.4%
|
|
|
$
|
1,444
|
|
|
|
82.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(21
|
)
|
|
$
|
|
|
|
|
|
|
|
$
|
21
|
|
|
|
n.m.
|
|
Automotive cost of sales rate
|
|
|
94.3%
|
|
|
|
92.8%
|
|
|
|
97.7%
|
|
|
|
1.5%
|
|
|
|
n.m.
|
|
|
|
(4.9)%
|
|
|
|
n.m.
|
|
Net margin from continuing operations before income taxes,
equity income and minority interests and cumulative effect of a
change in accounting principle
|
|
|
(1.4)%
|
|
|
|
(.9)%
|
|
|
|
(5.6)%
|
|
|
|
(.5)%
|
|
|
|
n.m.
|
|
|
|
4.7%
|
|
|
|
n.m.
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume (a)
|
|
|
1,828
|
|
|
|
1,806
|
|
|
|
1,858
|
|
|
|
22
|
|
|
|
1.2%
|
|
|
|
(52
|
)
|
|
|
(2.8)%
|
|
Vehicle Unit Sales (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry Europe
|
|
|
23,069
|
|
|
|
21,876
|
|
|
|
21,092
|
|
|
|
1,193
|
|
|
|
5.5%
|
|
|
|
784
|
|
|
|
3.7%
|
|
GM Europe
|
|
|
2,182
|
|
|
|
2,003
|
|
|
|
1,984
|
|
|
|
179
|
|
|
|
8.9%
|
|
|
|
19
|
|
|
|
1.0%
|
|
GM market share Europe
|
|
|
9.5%
|
|
|
|
9.2%
|
|
|
|
9.4%
|
|
|
|
.3%
|
|
|
|
n.m.
|
|
|
|
(.2)%
|
|
|
|
n.m.
|
|
GM market share Germany
|
|
|
9.5%
|
|
|
|
10.1%
|
|
|
|
10.8%
|
|
|
|
(.6)%
|
|
|
|
n.m.
|
|
|
|
(.7)%
|
|
|
|
n.m.
|
|
GM market share United Kingdom
|
|
|
15.2%
|
|
|
|
14.3%
|
|
|
|
14.7%
|
|
|
|
.9%
|
|
|
|
n.m.
|
|
|
|
(.4)%
|
|
|
|
n.m.
|
|
GM market share Russia
|
|
|
9.6%
|
|
|
|
6.5%
|
|
|
|
4.6%
|
|
|
|
3.1%
|
|
|
|
n.m.
|
|
|
|
1.9%
|
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
(a)
|
|
Production volume represents the
number of vehicles manufactured by our assembly facilities and
also includes vehicles produced by certain joint ventures.
|
(b)
|
|
Vehicle unit sales primarily
represent sales to the ultimate customer, including unit sales
of Chevrolet brand products in the region. The financial results
from sales of Chevrolet brand products are reported as part of
GMAP as those units are sold by GM Daewoo.
|
The 1.2 million (or 5.5%) growth in industry vehicle unit
sales in 2007 primarily resulted from an increase of 680,000
vehicles (or 33.5%) in Russia; increases in Italy, the Ukraine,
France, Poland, the United Kingdom, and various other markets in
central and southeastern Europe, which were partially offset by
a decrease of 290,000 vehicles (or 7.7%) in Germany.
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue increased due to: (1) a
favorable impact of $2.9 billion in Foreign Currency
Translation, driven mainly by the strengthening of the Euro,
British Pound and Swedish Krona versus the U.S. Dollar;
(2) an increase of $1.6 billion due to higher
wholesale sales volume outside of Germany; and (3) an
increase of $.4 billion due to improvements in pricing
outside of Germany, primarily on the Corsa. Offsetting these
increases was a decrease of $1.3 billion related to lower
wholesale volumes and unfavorable pricing in Germany.
63
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
In line with the industry trends noted above, GMEs
revenue, which excludes sales of Chevrolet brand products,
increased most significantly in Russia, where wholesale volumes
were up 51,000 units (or 215%), followed by the United
Kingdom, where wholesale volumes were up 35,000 units (or
9.2%). Wholesale volumes in Germany declined by
68,000 units (or 18.9%).
Automotive cost of sales increased due to: (1) an
unfavorable impact of $2.9 billion as a result of Foreign
Currency Translation; (2) an increase of $.5 billion
for unfavorable vehicle and country mix, primarily as a result
of higher freight and duties associated with vehicles imported
into Russia and from Korea; and (3) an increase of
$.4 billion related to higher wholesale sales volume.
Automotive cost of sales rate deteriorated during 2007 primarily
due to the unfavorable impact of vehicle and country mix in
Automotive cost of sales, partially offset by the favorable
impact of price in Total net sales and revenue.
|
|
|
Selling,
General, and Administrative Expense
|
Selling, general and administrative expense increased primarily
due to Foreign Currency Translation.
|
|
|
Automotive
Interest and Other Income (Expense)
|
Automotive interest and other income (expense) increased
primarily as a result of a $.1 billion favorable settlement
of VAT claims with the U.K. tax authorities.
Industry vehicle sales grew 784,000 vehicles (or 3.7%) during
2006 primarily due to increases of 373,000 vehicles (or 22.6%)
in Russia, 157,000 vehicles (or 4.4%) in Germany, 122,000
vehicles (or 39.2%) in the Ukraine and 108,000 vehicles (or
4.3%) in Italy, which were offset by decreases of 98,000
vehicles (or 12.8%) in Turkey and 94,000 vehicles (or 3.3%) in
the United Kingdom.
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue increased primarily due to:
(1) an increase of $.3 billion due to improvements in
pricing, primarily associated with the Zafira and Corsa;
(2) an increase of $.3 billion related to vehicle mix,
primarily associated with the Zafira and Astra; (3) a
$.2 billion favorable impact associated with increased
volume on parts and accessories; (4) a favorable impact of
$.2 billion due to Foreign Currency Translation; and
(5) an increase of $.2 billion for inclusion of a full
years results of the European Powertrain organization in
2006, as opposed to a partial years results in 2005
following the dissolution of the Fiat joint venture.
Automotive cost of sales decreased due to: (1) a decrease
in restructuring and impairment charges of $.7 billion;
(2) lower material costs of $.3 billion; (3) an
increase of $.2 billion related to vehicle mix, primarily
associated with the Zafira; (4) a $.1 billion increase
attributed to increased volume on parts and accessories;
(5) a $.1 billion unfavorable impact due to Foreign
Currency Translation; and (6) an increase of
$.2 billion for inclusion of a full years results of
the European Powertrain organization in 2006, as opposed to a
partial years results in 2005 following the dissolution of
the Fiat joint venture.
Automotive cost of sales rate improved during 2006 as a result
of lower separation costs.
|
|
|
Selling,
General, and Administrative Expense
|
Selling, general, and administrative expense increased primarily
due to an increase in commercial expense.
64
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Equity
Income, net of tax
|
Equity income, net of tax decreased in 2006 due to a 2005 change
in Polish tax law, which had generated additional equity income
in 2005.
GM
Latin America/Africa/Mid-East
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006 Change
|
|
|
2006 vs. 2005 Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
18,894
|
|
|
$
|
14,627
|
|
|
$
|
11,851
|
|
|
$
|
4,267
|
|
|
|
29.2%
|
|
|
$
|
2,776
|
|
|
|
23.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
16,776
|
|
|
|
13,305
|
|
|
|
11,077
|
|
|
|
3,471
|
|
|
|
26.1%
|
|
|
|
2,228
|
|
|
|
20.1%
|
|
Selling, general and administrative expense
|
|
|
1,009
|
|
|
|
764
|
|
|
|
623
|
|
|
|
245
|
|
|
|
32.1%
|
|
|
|
141
|
|
|
|
22.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,109
|
|
|
|
558
|
|
|
|
151
|
|
|
|
551
|
|
|
|
98.7%
|
|
|
|
407
|
|
|
|
n.m.
|
|
Automotive interest and other income (expense)
|
|
|
240
|
|
|
|
(31
|
)
|
|
|
(108
|
)
|
|
|
271
|
|
|
|
n.m.
|
|
|
|
77
|
|
|
|
71.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes, equity
income and minority interests and cumulative effect of a change
in accounting principle
|
|
|
1,349
|
|
|
|
527
|
|
|
|
43
|
|
|
|
822
|
|
|
|
156.0%
|
|
|
|
484
|
|
|
|
n.m.
|
|
Equity income, net of tax
|
|
|
31
|
|
|
|
16
|
|
|
|
15
|
|
|
|
15
|
|
|
|
93.8%
|
|
|
|
1
|
|
|
|
6.7%
|
|
Minority interests, net of tax
|
|
|
(32
|
)
|
|
|
(25
|
)
|
|
|
(11
|
)
|
|
|
(7
|
)
|
|
|
28.0%
|
|
|
|
(14
|
)
|
|
|
127.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
1,348
|
|
|
$
|
518
|
|
|
$
|
47
|
|
|
$
|
830
|
|
|
|
160.2%
|
|
|
$
|
471
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
|
0.0%
|
|
|
$
|
2
|
|
|
|
n.m.
|
|
Automotive cost of sales rate
|
|
|
88.8%
|
|
|
|
91.0%
|
|
|
|
93.5%
|
|
|
|
(2.2)%
|
|
|
|
n.m.
|
|
|
|
(2.5)%
|
|
|
|
n.m.
|
|
Net margin from continuing operations before income taxes,
equity income and minority interests and cumulative effect of a
change in accounting principle
|
|
|
7.1%
|
|
|
|
3.6%
|
|
|
|
0.4%
|
|
|
|
3.5%
|
|
|
|
n.m.
|
|
|
|
3.2%
|
|
|
|
n.m.
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume(a)
|
|
|
960
|
|
|
|
830
|
|
|
|
775
|
|
|
|
130
|
|
|
|
15.7%
|
|
|
|
55
|
|
|
|
7.1%
|
|
Vehicle Unit Sales(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry LAAM
|
|
|
7,181
|
|
|
|
6,104
|
|
|
|
5,310
|
|
|
|
1,077
|
|
|
|
17.7%
|
|
|
|
794
|
|
|
|
15.0%
|
|
GMLAAM
|
|
|
1,236
|
|
|
|
1,035
|
|
|
|
883
|
|
|
|
201
|
|
|
|
19.4%
|
|
|
|
152
|
|
|
|
17.2%
|
|
GM market share LAAM
|
|
|
17.2%
|
|
|
|
17.0%
|
|
|
|
16.6%
|
|
|
|
0.2%
|
|
|
|
n.m.
|
|
|
|
0.4%
|
|
|
|
n.m.
|
|
GM market share Brazil
|
|
|
20.3%
|
|
|
|
21.3%
|
|
|
|
21.3%
|
|
|
|
(1.0)%
|
|
|
|
n.m.
|
|
|
|
0.0%
|
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
(a)
|
|
Production volume represents the
number of vehicles manufactured by our assembly facilities and
also includes vehicles produced by certain joint ventures.
|
(b)
|
|
Vehicle unit sales primarily
represent sales to the ultimate customer.
|
Industry vehicle sales in the LAAM region increased because of
strong growth throughout the region. This included increases in
Brazil of 535,000 vehicles (or 27.7%), Venezuela of 148,000
vehicles (or 43.0%), Argentina of 119,000 vehicles (or 26.3%),
the Middle East (excluding Israel) of 93,000 vehicles (or 6.0%),
Colombia of 59,000 vehicles (or 30.8%), Egypt of 57,000 vehicles
(or 36.1%), and Israel of 41,000 (or 26.6%) during 2007.
Industry vehicle sales in South Africa declined by 34,000
vehicles (or 5.2%).
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue increased due to:
(1) $2.9 billion in higher volumes across most GMLAAM
business units, including increases in Brazil, Venezuela and
Argentina, which more than offset a small decrease in Ecuador;
(2) favorable impact of Foreign Currency Translation of
$.7 billion, primarily related to the Brazilian Real and
Colombian Peso; (3) favorable vehicle pricing of
$.5 billion; and (4) favorable vehicle mix of
$.2 billion.
65
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive cost of sales increased due to: (1) increased
volume impact in the region of $2.3 billion;
(2) unfavorable Foreign Currency Translation of
$.7 billion, which also includes the impact of foreign
exchange losses as a result of translating amounts payable in a
currency other than the local currency; (3) higher content
cost of $.3 billion; and (4) unfavorable product mix
impact of $.1 billion.
Automotive cost of sales rate improved due to higher pricing and
favorable product mix.
|
|
|
Selling,
General and Administrative Expense
|
Selling, general and administrative expense increased due to:
(1) a $66 million charge recorded in GM do Brasil
during the second quarter of 2007 for additional retirement
benefits under a government sponsored pension plan;
(2) unfavorable Foreign Currency Translation impact of
$40 million; (3) an increase in the cost of these
expenses compared to 2006 of $29 million; and
(4) $105 million of increased administrative,
marketing and other expenses throughout the region in support of
the higher volume levels.
|
|
|
Automotive
Interest and Other Income (Expense)
|
Automotive interest and other income (expense) improved due to:
(1) a gain of $194 million in 2007 recorded as a
result of GM do Brasils favorable resolution of prior tax
cases; (2) reversals of previously established tax accruals
of $81 million in 2007 associated with duties, federal
excise tax and related matters that were no longer required; and
(3) income of $25 million in South Africa relating to
increased export incentives due to increases in volume of
exports. These increases were partially offset by: (1) a
$64 million charge related to previously recorded tax
credits in GM do Brasil; and (2) $56 million of
settlement and fines related to information submitted to the
Brazil tax authorities for material included in consignment
contracts at one of our facilities.
Industry vehicle sales in the LAAM region increased by 794,000
vehicles (or 15.0%) during 2006 as compared to 2005. This
included increases in Brazil of 214,000 vehicles (or 12.5%), the
Middle East of 193,000 vehicles (or 12.7%), Venezuela of 115,000
vehicles (or 50.3%), South Africa of 82,000 vehicles (or 14.4%),
Argentina of 64,000 vehicles (or 16.3%), Egypt of 59,000
vehicles (or 60.2%) and Colombia of 50,000 vehicles (or 34.7%).
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue increased due to:
(1) $1.4 billion in increased volumes across most
GMLAAM business units, including increased revenues in
Venezuela, Colombia, South Africa, the Middle East and Brazil,
which more than offset a decrease in Chile; (2) favorable
vehicle pricing of $.7 billion; and (3) favorable
effects of Foreign Currency Transaction of $.2 billion.
Automotive cost of sales increased due to: (1) increased
volume in the region of $1.1 billion; (2) higher
content cost of $.4 billion; and (3) unfavorable
Foreign Currency Translation effects of $.4 billion.
Automotive cost of sales rate improved due to higher pricing and
favorable product mix.
|
|
|
Selling,
General and Administrative Expense
|
Selling, general and administrative expense increased due to:
(1) unfavorable Foreign Currency Translation effects of
$25 million; (2) increases in the cost of these
expenses as compared to the cost in 2005 of $18 million;
and (3) increased administrative, marketing and other
expenses of $99 million throughout the region in support of
the higher volume levels.
66
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Automotive
Interest and Other Income (Expense)
|
Automotive interest and other income (expense) improved due to:
(1) a decrease in interest expense of $74 million on
short-term borrowings in GM do Brasil due to reduced short-term
debt outstanding; and (2) a general increase in interest
income of $23 million spread throughout the region. These
factors were partially offset by: (1) an increase in
interest expense of $15 million on short-term borrowings in
Venezuela due primarily to increased short-term debt
outstanding; and (2) unfavorable Foreign Currency
Translation effects of $16 million.
GM
Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006 Change
|
|
|
2006 vs. 2005 Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenue
|
|
$
|
21,003
|
|
|
$
|
15,532
|
|
|
$
|
10,846
|
|
|
$
|
5,471
|
|
|
|
35.2%
|
|
|
$
|
4,686
|
|
|
|
43.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
19,004
|
|
|
|
14,182
|
|
|
|
10,249
|
|
|
|
4,822
|
|
|
|
34.0%
|
|
|
|
3,933
|
|
|
|
38.4%
|
|
Selling, general and administrative expense
|
|
|
1,473
|
|
|
|
1,145
|
|
|
|
761
|
|
|
|
328
|
|
|
|
28.6%
|
|
|
|
384
|
|
|
|
50.5%
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
812
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
(812
|
)
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
526
|
|
|
|
205
|
|
|
|
(976
|
)
|
|
|
321
|
|
|
|
156.6%
|
|
|
|
1,181
|
|
|
|
121.0%
|
|
Automotive interest and other income
|
|
|
31
|
|
|
|
854
|
|
|
|
87
|
|
|
|
(823
|
)
|
|
|
96.4%
|
|
|
|
767
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes,
equity income and minority interests and cumulative effect of a
change in accounting principle
|
|
|
557
|
|
|
|
1,059
|
|
|
|
(889
|
)
|
|
|
(502
|
)
|
|
|
47.4%
|
|
|
|
1,948
|
|
|
|
n.m.
|
|
Equity income, net of tax
|
|
|
425
|
|
|
|
365
|
|
|
|
527
|
|
|
|
60
|
|
|
|
16.4%
|
|
|
|
(162
|
)
|
|
|
30.7%
|
|
Minority interests, net of tax
|
|
|
(301
|
)
|
|
|
(225
|
)
|
|
|
(53
|
)
|
|
|
(76
|
)
|
|
|
33.8%
|
|
|
|
(172
|
)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax
|
|
$
|
681
|
|
|
$
|
1,199
|
|
|
$
|
(415
|
)
|
|
$
|
(518
|
)
|
|
|
43.2%
|
|
|
$
|
1,614
|
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
$
|
|
|
|
|
0.0%
|
|
|
$
|
3
|
|
|
|
n.m.
|
|
Automotive cost of sales rate
|
|
|
90.5%
|
|
|
|
91.3%
|
|
|
|
94.5%
|
|
|
|
(0.8)%
|
|
|
|
n.m.
|
|
|
|
(3.2)%
|
|
|
|
n.m.
|
|
Net margin from continuing operations before income taxes,
equity income and minority interests and cumulative effect of a
change in accounting principle
|
|
|
2.7%
|
|
|
|
6.8%
|
|
|
|
(8.2)%
|
|
|
|
(4.1)%
|
|
|
|
n.m.
|
|
|
|
15.0%
|
|
|
|
n.m.
|
|
|
|
|
|
|
(Volume in thousands)
|
Production Volume (a)(b)
|
|
|
2,231
|
|
|
|
1,896
|
|
|
|
1,562
|
|
|
|
335
|
|
|
|
17.7%
|
|
|
|
334
|
|
|
|
21.4%
|
|
Vehicle Unit Sales (a)(c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry Asia Pacific
|
|
|
20,808
|
|
|
|
19,231
|
|
|
|
18,115
|
|
|
|
1,577
|
|
|
|
8.2%
|
|
|
|
1,116
|
|
|
|
6.2%
|
|
GMAP
|
|
|
1,436
|
|
|
|
1,248
|
|
|
|
1,064
|
|
|
|
188
|
|
|
|
15.1%
|
|
|
|
184
|
|
|
|
17.3%
|
|
GM market share Asia Pacific (d)
|
|
|
6.9%
|
|
|
|
6.5%
|
|
|
|
5.9%
|
|
|
|
0.4%
|
|
|
|
n.m.
|
|
|
|
0.6%
|
|
|
|
n.m.
|
|
GM market share Australia
|
|
|
14.2%
|
|
|
|
15.4%
|
|
|
|
17.8%
|
|
|
|
(1.2)%
|
|
|
|
n.m.
|
|
|
|
(2.4)%
|
|
|
|
n.m.
|
|
GM market share China (d)
|
|
|
12.1%
|
|
|
|
12.3%
|
|
|
|
11.6%
|
|
|
|
(0.2)%
|
|
|
|
n.m.
|
|
|
|
0.7%
|
|
|
|
n.m.
|
|
n.m. = not meaningful
|
|
|
(a)
|
|
Includes GM Daewoo, Shanghai GM and
SAIC-GM-Wuling Automobile Co., Ltd. (SGMW) joint venture
production/sales. We own 34% of SGMW and under the joint venture
agreement have significant rights as a member as well as the
contractual right to report SGMW global sales as part of our
global market share.
|
(b)
|
|
Production volume represents the
number of vehicles manufactured by our assembly facilities and
also includes vehicles produced by certain joint ventures.
|
(c)
|
|
Vehicle unit sales primarily
represent sales to the ultimate customer.
|
(d)
|
|
Includes SGMW joint venture sales.
|
Industry vehicle sales in the Asia Pacific region increased due
to strong growth in China and India. In 2007, industry sales
increased by 1.4 million vehicles (or 20.4%) in China,
increased by 246,000 vehicles (or 14.1%) in India and increased
by 87,000 vehicles (or 9.1%) in Australia. The growth from these
markets more than offset a decline of 385,000 vehicles (or 6.7%)
in Japan. Chinas vehicle market
67
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
remained strong in 2007 and increased to 8.5 million
vehicles during 2007, compared to 7.1 million vehicles
during 2006. GMAP continued to capitalize on the demand in the
China passenger and light commercial vehicle markets. GMAP
increased its vehicle sales in the Asia Pacific region in part
due to strong sales in China where volumes exceeded
1 million vehicles in 2007.
GMAP market share increased due to increased market share in
India driven by the launch of the Chevrolet Spark and the
performance of other new models in the portfolio. Although our
market share in Japan did not change, our overall regional
market share was favorably impacted due to the decline in the
Japanese market. Our market share in China declined due to
continued robust industry growth at a faster pace than our
volume growth and more intense competition. Our market share in
Australia decreased because of an industry shift to small
segments, away from GM Holdens (Holden) traditional
strength. This change was attributable to relatively less
expensive imports from Japan and Korea and the shift by major
fleet buyers to small segments. Our market share in Thailand
declined due to relatively aged models currently in production
and political uncertainties on the industry, which had a greater
adverse impact on those manufacturers with smaller market share.
Our market share in South Korea also declined due to competitive
pressure and product cycle, with several vehicles leaving our
lineup and expected to be replaced in 2008 and beyond.
|
|
|
Total Net
Sales and Revenue
|
Total net sales and revenue increased due to: (1) a
$3.5 billion increase in GM Daewoo export sales to a
diverse global customer base, which was driven by the
Captiva/Winstrom launch; (2) a $1.2 billion favorable
effect of Foreign Currency Translation, primarily related to the
Australian Dollar and Euro; and (3) an increase in domestic
unit sales in the remainder of the region.
Automotive cost of sales increased due to: (1) a 30%
increase in GM Daewoo export volumes amounting to
$2.9 billion; (2) higher product engineering expenses
at GM Daewoo of $.2 billion and at Holden of
$.1 billion; and (3) effect of Foreign Currency
Translation primarily related to the Australian Dollar and
Korean Won of $.8 billion.
Automotive cost of sales rate decreased due to material cost
performance and efficiencies primarily in GM Daewoo.
|
|
|
Selling,
General and Administrative Expense
|
Selling, general and administrative expense increased due to
higher consumer influence, sales promotion and selling expense
amounting to $181 million and increased administrative and
other expenses amounting to $147 million in line with the
growth in business across various operations in the region.
|
|
|
Automotive
Interest and Other Income
|
Automotive interest and other income decreased due to:
(1) a non-recurring gain of $.7 billion in 2006 for
the sale of our equity stake in Suzuki, which reduced our
ownership from 20.4% to 3.7%; and (2) the non-recurring
gain of $.3 billion in 2006 for the sale of our remaining
investment in Isuzu.
|
|
|
Equity
Income, net of tax
|
Equity income increased due to improved performance at Shanghai
GM, offset by decreased equity income due to the sale of part of
our equity stake in Suzuki during 2006.
|
|
|
Minority
Interests, net of tax
|
Minority interests increased due to the growth of income at GM
Daewoo.
68
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Industry vehicle sales in the Asia Pacific region increased due
to strong growth in China, where industry vehicle sales
increased 23.6% to 7.1 million vehicles during 2006,
compared to 5.7 million vehicles during 2005. GMAP
increased its vehicle sales in the Asia Pacific region due to
the growth in China.
GMAP market share increased due to increased market share in
China as we capitalized on the strong industry growth. Our
market share in Australia declined due to the industry shift to
small segments.
|
|
|
Consolidation
of GM Daewoo
|
Beginning in June 2005, we consolidated GM Daewoo as a result of
our obtaining majority ownership. This change primarily drives
the increase in Total net sales and revenues, Automotive cost of
sales, Selling, general and administrative expense and Minority
interests, net of tax.
Other Expense was zero in 2006 compared to $.8 billion
expense in 2005 due to the write-down to fair market value of
our investment in FHI.
|
|
|
Automotive
Interest and Other Income
|
Automotive interest and other income increased due
to: (1) a gain of $.7 billion for the sale
of our equity stake in Suzuki, which reduced our ownership from
20.4% to 3.7% in 2006 and (2) a gain of $.3 billion
from the sale of our remaining investment in Isuzu in 2006.
|
|
|
Equity
Income, net of tax
|
Equity income, net of tax decreased due to the sale of our
equity stake in Suzuki during 2006.
FIO
Financial Review
Our FIO business includes the consolidated operating results of
GMACs lines of business consisting of Automotive Finance
Operations, Mortgage Operations, Insurance, and Other, which
includes GMACs Commercial Finance business and GMACs
equity investment in Capmark Financial Group (previously 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 are the 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 retained by us as
part of the GMAC Transaction. Therefore, in 2007, FIOs
operations primarily reflected our 49% share of the operating
results of GMAC as compared to 2006, which included
11 months of fully consolidated GMAC operations and one
month of its 49% share of operating results of GMAC.
FIO reported a loss before income taxes of $.7 billion in
2007 compared to income before income taxes of $1.9 billion
in 2006. This change was primarily due to lower operating
results at GMAC during 2007. See the commentary below for a
detailed discussion of the events and factors contributing to
this change in GMACs consolidated operating results, of
which we record our proportionate share as equity income
beginning in December 2006.
69
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC reported net loss available to members of $2.5 billion
in 2007 compared to net income available to members of
$2.1 billion in 2006. GMACs net losses in 2007
reflect the adverse effects of the continued disruption in the
mortgage, housing and capital markets on the Mortgage business
and lower levels of realized capital gains by the Insurance
business, which more than offset the continued strong
performance in the Global Automotive Finance business. Mortgage
results were 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. The Mortgage
business was also affected by a downturn in certain foreign
mortgage and capital markets. The disruption of mortgage,
housing and capital markets has contributed to a lack of
liquidity, depressed asset valuations, additional loss
provisions related to credit deterioration and lower production
levels.
Global Automotive Finance Operations benefited in 2007 from
lower interest expense and higher gains on sales and servicing
fee income due to an acceleration of its transition to an
originate-to-distribute model in the United States, which
resulted in higher levels of off-balance sheet securitizations
and whole-loan sales.
Mortgage losses increased significantly in 2007 compared to
2006. During 2007, the mortgage and capital markets experienced
severe stress due to credit concerns and housing market
contractions in the United States. During the second half of the
year, these negative market conditions spread to the foreign
markets in which GMACs Mortgage business operates,
predominantly in the United Kingdom and Continental Europe, and
to the residential homebuilders in the United States. The
reduced accessibility to cost efficient capital in the secondary
markets has made the residential mortgage industry even more
capital intensive. In the short-term, it is probable the
mortgage industry will continue to experience both declining
mortgage origination volumes and reduced total mortgage
indebtedness due to the deterioration of the nonprime and
nonconforming mortgage market. Due to these market factors,
including interest rates, the business of acquiring and selling
mortgage loans is cyclical. The industry is experiencing a
downturn in this cycle. The Mortgage business does not expect
the current market conditions to turn favorable in the near term.
The persistence of the global dislocation in the mortgage and
credit markets may continue to negatively affect the value of
GMACs mortgage-related assets. These markets continue to
experience greater volatility, less liquidity, widening of
credit spreads, repricing of credit risk and a lack of price
transparency. The Mortgage business operates in these markets
with exposure to loans, trading securities, derivatives and
lending commitments. Mortgages accessibility to capital
markets continues to be restricted, both domestically and
internationally, impacting the renewal of certain facilities and
the cost of funding. It is difficult to predict how long these
conditions will exist and which markets, products and businesses
will continue to be affected. Accordingly, these factors could
continue to adversely impact Mortgages results of
operations in the near term.
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 during 2007.
Insurance Operations net income decreased in 2007 due to a
lower level of realized capital gains.
FIOs Other Financing reported income before income taxes
of $.5 billion in 2007 compared to a loss before income
taxes of $.4 billion in 2006. This increase was due to:
(1) $2 billion of additional revenue in 2007 for two
special purpose entities holding outstanding leases previously
owned by GMAC, which were included in GMACs net income for
the first 11 months of 2006; and (2) a
$2.9 billion loss on the GMAC Transaction recorded in 2006.
These favorable items were partially offset by: (1) a
$.3 billion increase in interest expense on lease assets;
and (2) a $2.5 billion decrease in depreciation
expense in 2006 on GMACs long-lived assets classified as
held for sale.
FIO reported income before income taxes of $1.9 billion in
2006 compared to $3.5 billion in 2005. This decrease of
46%, or $1.6 billion from 2005 to 2006, was primarily due
to the GMAC Transaction. In 2006, FIO net income of
$1 billion includes 12 months of activity for GMAC
comprised of 11 months of operations as a wholly-owned
subsidiary totaling $2.2 billion of income and one month of
70
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
equity loss of $5 million as a result of the sale of a
controlling interest in GMAC to FIM Holdings LLC. All
comparisons for the GMAC activity below are on a 12 month
basis.
Global Automotive Finance Operations net income for 2006
increased 7.8% when compared to 2005. Net income was positively
impacted by $.4 billion related to the write-off of certain
net deferred tax liabilities as part of the conversion of GMAC
to a limited liability corporation during November 2006. Results
for 2006 include an unfavorable after-tax earnings impact of
$.1 billion from a $1 billion debt tender offer to
repurchase certain deferred interest debentures.
Net income for GMACs ResCap mortgage subsidiary in 2006
declined 31% when compared to 2005. The 2006 operating results
were adversely affected by domestic economic conditions
especially during the fourth quarter. These developments were
offset by the conversion to a limited liability corporation for
income tax purposes, which resulted in the elimination of a
$.5 billion net deferred tax liability. Excluding the
benefit realized from the conversion to a limited liability
company, Mortgages net income was $.2 billion.
Insurance Operations reported net income of
$1.1 billion in 2006 compared to $.4 billion in 2005.
The increase in income is mainly a result of higher realized
capital gains of $1 billion in 2006 as compared to
$.1 billion in 2005. Underwriting results were favorable
primarily due to increased insurance premiums and service
revenue earned and improved loss and loss adjustment expense
experience partially offset by higher expenses.
GMACs Other segment had a net loss of $1 billion in
2006 compared to a loss of $.3 billion in 2005. The
increased loss was mainly due to the decline in income from
Capmark Financial Group of $.2 billion due to the sale of
79% interest of the business in March 2006, goodwill impairment
charges of $.7 billion, higher loss provisions, and the tax
impact related to GMACs conversion to a limited liability
corporation.
FIOs Other Financing reported a loss before income taxes
of $.4 billion in 2006 compared to $27 million in
2005. This change was primarily due to: (1) a
$2.9 billion loss on the GMAC Transaction recorded in 2006;
and (2) a $2.5 billion decrease in depreciation
expense in 2006 on GMACs long-lived assets classified as
held for sale.
Corporate
and Other Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006 Change
|
|
|
2006 vs. 2005 Change
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Amount
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
(Dollars in millions)
|
|
|
Total net sales and revenues
|
|
$
|
|
|
|
$
|
(256
|
)
|
|
$
|
(256
|
)
|
|
$
|
256
|
|
|
|
100%
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
627
|
|
|
|
(365
|
)
|
|
|
723
|
|
|
|
992
|
|
|
|
n.m.
|
|
|
|
(1,088
|
)
|
|
|
150.5%
|
|
Selling, general and administrative expense
|
|
|
822
|
|
|
|
685
|
|
|
|
443
|
|
|
|
137
|
|
|
|
20%
|
|
|
|
242
|
|
|
|
54.6%
|
|
Other expense
|
|
|
2,354
|
|
|
|
1,065
|
|
|
|
5,997
|
|
|
|
1,289
|
|
|
|
121%
|
|
|
|
(4,932
|
)
|
|
|
82.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,803
|
)
|
|
|
(1,641
|
)
|
|
|
(7,419
|
)
|
|
|
(2,162
|
)
|
|
|
131.7%
|
|
|
|
5,778
|
|
|
|
77.9%
|
|
Automotive interest and other income (expense)
|
|
|
184
|
|
|
|
453
|
|
|
|
503
|
|
|
|
(269
|
)
|
|
|
59.4%
|
|
|
|
(50
|
)
|
|
|
9.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, equity
income and minority interests and cumulative effect of a change
in accounting principle
|
|
|
(3,619
|
)
|
|
|
(1,188
|
)
|
|
|
(6,916
|
)
|
|
|
(2,431
|
)
|
|
|
n.m.
|
|
|
|
5,728
|
|
|
|
82.8%
|
|
Income tax expense (benefit)
|
|
|
37,129
|
|
|
|
(3,881
|
)
|
|
|
(7,239
|
)
|
|
|
41,010
|
|
|
|
n.m.
|
|
|
|
3,358
|
|
|
|
46.4%
|
|
Equity income, net of tax
|
|
|
2
|
|
|
|
3
|
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
33.3%
|
|
|
|
(17
|
)
|
|
|
85.0%
|
|
Minority interests, net of tax
|
|
|
12
|
|
|
|
|
|
|
|
7
|
|
|
|
12
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(40,734
|
)
|
|
$
|
2,696
|
|
|
$
|
350
|
|
|
$
|
(43,430
|
)
|
|
|
n.m.
|
|
|
$
|
2,346
|
|
|
|
670.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n.m. = not meaningful
Corporate and Other includes certain centrally recorded income
and costs, such as interest and income taxes, corporate
expenditures, the elimination of inter-region transactions and
costs related to pension and OPEB for Delphi retirees and
retirees of other divested businesses for which we have retained
responsibility. Automotive interest and other income (expense)
in prior years includes eliminations between our Automotive
business and GMAC.
71
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive cost of sales and Selling, general and administrative
expense increased $1.1 billion in 2007 compared to 2006.
Pension expense increased $251 million in 2007 as the
result of the accelerated recognition of unamortized prior
service cost. Ongoing legacy costs were lower in 2007 by more
than $100 million due to changes in U.S. salaried
pension and OPEB plans and the 2005 UAW Health Care Settlement
Agreement. Expenses were lower in 2006 due to a curtailment gain
of $600 million associated with pension/OPEB expense
related to the GMAC transaction, and reductions of
$250 million related to the elimination of intersegment
transactions with GMAC recorded in Automotive cost of sales in
2006. These transactions are no longer eliminated in 2007, as we
no longer consolidate GMAC.
Other expense increased $1.3 billion in 2007 compared to
2006. Other expense in 2007 of $2.4 billion was comprised
of charges of $1.5 billion related to the Delphi benefit
guarantee, a charge to pension expense of $552 million for
the Delphi portion of the 2007 National Agreement negotiations
and $255 million related to transactions with other FIO. In
2006 Other expense was comprised of a charge of
$500 million related to the Delphi benefit guarantee and
$565 million of expenses related to transactions with GMAC,
which did not recur in 2007.
Automotive interest and other income (expense) decreased due to
the effect of the elimination of interest expense related to
GMAC in 2006, partially offset by higher interest income in 2007.
Loss from continuing operations before income taxes, equity
income and minority interests and cumulative effect of a change
in accounting principle was $3.6 billion in 2007 compared
to $1.2 billion in 2006. Income tax expense was
$37.1 billion in 2007, compared to a benefit of
$3.9 billion in 2006. The increase is attributable to the
valuation allowance of $39 billion we established in 2007
against our net deferred tax assets in the U.S., Canada and
Germany.
Automotive cost of sales and Selling, general and administrative
expense decreased $846 million in 2006 compared to 2005.
The decrease was due primarily to a decrease of
$1.1 billion in OPEB expense resulting from the 2005 UAW
Health Care Settlement Agreement that reduced legacy costs
related to employee benefits of divested businesses for which we
have retained responsibility and the OPEB curtailment gain
related to the GMAC Transaction noted above. This was partially
offset by $250 million of increased administrative
expenses, driven by higher outside consulting and information
technology expenditures.
Other expense decreased due to a $5.5 billion charge
recorded in 2005 related to the Delphi benefit guarantee
pertaining to the contingent exposures relating to Delphis
Chapter 11 filing, compared to the $500 million charge
recorded during 2006.
Automotive interest and other income (expense) was offset by the
elimination of certain transactions with GMAC.
Loss from continuing operations before income taxes, equity
income and minority interests and cumulative effect of a change
in accounting principle decreased by $5.7 billion in 2006
compared to 2005. Income tax benefit was $3.9 billion in
2006 compared to $7.2 billion in 2005.
Key
Factors Affecting Future and Current Results
The following discussion identifies the key factors, known
events and trends that could affect our future results.
|
|
|
North
American Turnaround Plan
|
Our top priorities continue to be improving our business in
North America and achieving competitiveness in an increasingly
global environment, thus positioning us for sustained
profitability and growth in the long term, while maintaining
liquidity. We have been
72
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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:
We continue to focus significant attention on maintaining
consistent product freshness by introducing new vehicles
frequently and reducing the average vehicle lifecycle. In 2008
we expect that a significant percentage of our retail sales will
come from vehicles launched in the prior 18 months, such as
the Cadillac CTS and the Chevrolet Malibu, Buick Lucerne and
Saturn Aura, our fullsize 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 launched two of
these vehicles the Cadillac CTS and the Chevrolet
Malibu, both of which achieved robust sales volumes as well as
significant industry awards, the Chevrolet Malibu receiving the
2008 North America Car of the Year award, and the Cadillac CTS
being named the 2008 Motor Trend Car of the Year. Entering 2008,
we expect the Cadillac CTS and the Chevrolet Malibu, as well as
the upcoming launches of the Pontiac G8 and Chevrolet Traverse
to contribute favorably to restoring our brand health.
We anticipate capital spending in North America of approximately
$5 billion in 2008, which would be comparable to 2007
levels. GMNA will allocate 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 introduced 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. Since early 2006, our promotion strategy has
emphasized our brands and vehicles, rather than price
incentives. In addition, we have begun increasing advertising in
support of new products and specific marketing initiatives,
including price incentives, 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 and higher average transaction prices for our
cars and trucks. For 2008, we plan to accelerate the alignment
of our U.S. brands into four distinct dealer channels:
Chevrolet, Saturn, Buick/Pontiac/GMC and Cadillac/Hummer/Saab.
We expect that this will enhance dealer profitability and, over
time, facilitate more highly differentiated products and brands.
Continued weakness in the U.S. automotive market will be a
significant challenge for us in the near-term, as more fully
discussed in Near-Term Market Challenges.
|
|
|
Accelerate
Cost Reductions and Quality Improvements.
|
Since the 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
achieved our announced target of reducing certain annual
structural costs primarily related to labor, pension and other
post retirement costs in GMNA and Corporate and other by
$9 billion, on average, less than those costs in 2005. This
improvement is due largely to the success of attrition programs
which reduced the number of our hourly employees by 34,400, the
effect of the resulting pension remeasurement, as well as a
number of other items including the 2005 Health Care Settlement
Agreement with the UAW, reductions in pensions for salaried
employees and caps on healthcare costs for salaried retirees. In
2008, we have implemented an additional voluntary special
attrition program, for which all 74,000 UAW-represented
73
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
employees are eligible to participate, including
46,000 employees who are currently eligible for retirement.
We continue to focus on our long-term goal of reducing our
global automotive structural costs of revenues as a percentage
of 2005 revenues to less than 25% by 2010. For 2007, global
automotive structural costs were less than 30% of revenue. We
believe that the new collective bargaining agreement entered
into in October 2007 (2007 National Agreement) provides
additional cost reduction opportunities, particularly in the
areas of healthcare costs and savings from the implementation of
the Tier II wage structure and, accordingly, have revised
our previously announced target for further reductions in
structural costs as a percent of revenues from 25% in 2010 to
23% by 2012.
Reducing material costs remains a critical part of GMNAs
overall long-term cost reduction plans. In 2007, improved
performance in purchasing was more than offset by improvements
and content additions on new vehicle programs and higher
commodity prices for steel and non-ferrous metals. Looking
forward, we expect that commodity pricing pressures will remain
flat or improve modestly. We also expect to reduce a substantial
portion of the cost premiums we have historically paid to Delphi
for systems and components over the next three to five years.
The savings will be offset by various labor and transitional
subsidies, so that we expect to achieve annual net savings over
the medium term of approximately $500 million. Full
realization of such savings depends on Delphis successful
emergence from bankruptcy protection on the terms that Delphi
has negotiated with us (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 have enabled
the implementation of the extended powertrain warranty. In 2008,
we plan to continue to focus on reducing these costs through
continued investment in product development and new technology.
Vehicle quality demonstrates continued improvements in 2007. Our
recent vehicle launches are performing at record warranty
levels, and our Buick and Cadillac brands were first and third,
respectively, in the most recent JD Power Vehicle Dependability
Study. We have also experienced an 89% decrease in the number of
vehicles included in safety and non-compliance recall campaigns
since 2005. In 2008, we will maintain our focus on improving our
vehicle quality.
|
|
|
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 we face. For the past three 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 the 2005 UAW
Health Care Settlement Agreement, which modified postretirement
healthcare benefits for UAW active employees, retirees and their
eligible dependents to require monthly contributions,
deductibles and co-pay obligations for the first time. In
October 2007, we signed a Memorandum of Understanding
Post-Retirement Medical Care (Retiree MOU) with the
UAW, now superseded by the Settlement Agreement currently
pending for court approval (Settlement Agreement). The
Settlement Agreement 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 Settlement Agreement 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 in OPEB expense and $14.5 billion
reduction in the OPEB obligation, including the Mitigation Plan
as described in Note 15 to our consolidated financial
statements. In April 2006, we reached a tentative agreement with
the International Union of Electrical Workers Communications
Workers of America (IUE-CWA) 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
healthcare agreement reduced our 2007 OPEB expense by
$.1 billion and OPEB obligation by $.5 billion. The
IUE-CWA collective bargaining agreement expired in the fourth
quarter of 2007, and we anticipate that our new collective
bargaining agreement with the IUE-CWA will include arrangements
similar to those contemplated by the Settlement Agreement.
We also increased our U.S. salaried workforces
participation in the cost of healthcare. In January 2007 we
established a cap on our contributions to salaried retiree
healthcare at the level of our 2006 expenditures. In the future,
when average costs exceed established
74
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
limits, we will make additional plan changes that affect
cost-sharing features of program coverage, effective with the
start of the following calendar year. Program changes may
include, but are not limited to, higher monthly contributions,
deductibles, coinsurance, out-of-pocket maximums and
prescription drug payments. We have also reduced the levels of
coverage for corporate-paid life insurance for salaried retirees.
The 2007 National Agreement provides for a permanent shift in
responsibility for retiree healthcare liabilities of
$47 billion to a new benefit plan to be established and
funded by the New VEBA, promptly after the Implementation Date.
We believe that our initiatives in this area will reduce our
U.S. healthcare related cash payments to $2 billion
per year, beginning in 2010, reduced from $4.6 billion in
2007.
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
Settlement Agreement 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.
We have agreed with the UAW to form a National Institute for
Health Care Reform, which will conduct research and analyze the
current medical delivery system in the United States, 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 2007 also
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.
|
|
|
Near-Term
Market Challenges
|
In the near-term, we expect the challenging market conditions
that developed in the third quarter of 2007 in North America and
Germany to continue.
In North America, the turmoil in the mortgage and credit
markets, continued reductions in housing values, high energy
prices and the threat of a recession have had a negative impact
on consumers willingness to purchase our products. These
factors have contributed to lower unit sales in North America in
2007 and, combined with shifts in consumer preferences towards
cars and away from fullsize trucks and utility vehicles, have
negatively impacted our results as such larger vehicles are
among our more profitable products. We expect these lower unit
sales to continue in the near-term. In addition, competition in
fullsize trucks has increased, resulting in increased consumer
incentives as compared to our earlier expectations.
The German market experienced a 7.7% decrease in unit sales
volumes during 2007 compared to 2006. While we had anticipated a
drop in unit sales volumes during early 2007 as a result of
increases in taxes on automobiles, however, we did not expect
that the decrease would continue through the entire 2007
calendar year and into the near-term future. In response to this
industry-wide volume decline, competitors increased consumer
incentives to maintain volume. We expect that these increased
consumer incentives will continue in the near-term. In addition,
significant uncertainty developed in the market reflecting a new
factor the impact new European environmental
regulations would have on the German automotive market. This
further constrained volumes as consumers delayed purchases over
the uncertainty of the cost of these new environmental
regulations on automobiles. Finally, the global effect of the
turmoil in the credit markets and increased oil prices continued
to diminish consumers ability and willingness to purchase
new vehicles in Germany as well as other markets.
On October 10, 2007, the 2007 National Agreement between us
and the UAW and the related Retiree MOU were ratified. The 2007
National Agreement covers the wages, hours and terms and
conditions of employment for UAW-represented employees. The
Retiree MOU has been superseded by the Settlement Agreement
executed in February 2008. The Settlement Agreement provides
that responsibility for providing retiree health care will
permanently shift from us to a new retiree plan funded by the
New VEBA. Final effectiveness of the Settlement Agreement is
subject to a number of conditions as described below, but we
have already begun executing certain provisions of the
Settlement Agreement. Following are the key terms and provisions
of the 2007 National Agreement and the Settlement Agreement.
75
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
2007
National Agreement
The 2007 National Agreement established a new wage and benefit
package for new hires (Tier II Wage) in certain non-core
positions including but not limited to material movement,
kitting, sequencing, certain stampings and certain
sub-assemblies. New hires in Tier II Wage positions will
receive base wages of approximately $15 per hour versus
approximately $28 per hour for existing employees.
In addition, Tier II Wage new hires will have higher cost
sharing arrangements for active healthcare coverage, a cash
balance pension plan and receive a $1 per hour 401(k)
contribution in lieu of a defined benefit postretirement medical
benefit plan. In addition, the agreement provides lump sum
payments of $3,000 in 2007 and 3%, 4% and 3% of wages in 2008,
2009 and 2010, respectively, for traditional employees. We will
amortize each of these lump sum payments over the
12-month
period following the payment. Finally, pension benefit increases
and lump sum payments were provided to current retirees and
covered employees of Delphi. As a result of these changes, we
expect that our average hourly manufacturing wage rate for
Tier II Wage positions will be reduced from approximately
$78 per hour to $26 per hour.
Settlement
Agreement
When fully implemented, the Settlement Agreement will cap our
retiree healthcare obligations to UAW associated employees,
retirees and dependents, as defined in the Settlement Agreement;
will supersede and replace the 2005 UAW Health Care Settlement
Agreement and will transfer responsibility for administering
retiree healthcare benefits for these individuals to a new
benefit plan to be established and funded by the New VEBA trust.
Before it can become effective, the Settlement Agreement is
subject to class certification, court approval and the
completion of discussions between us and the SEC regarding
accounting treatment for the transactions contemplated by the
Settlement Agreement on a basis reasonably satisfactory to us.
In light of these contingencies, no recognition to the effects
of the Settlement Agreement has been made in these consolidated
financial statements. The Settlement Agreement provides that on
the later of January 1, 2010 or final court approval of the
Settlement Agreement, we will transfer our obligations to
provide covered UAW employees with post-retirement medical
benefits to a new retiree health care plan (the New Plan) to be
established and funded by the New VEBA.
In accordance with the Settlement Agreement, effective
January 1, 2008 for bookkeeping purposes only, we will
divide the existing internal VEBA into two bookkeeping accounts.
One account will consist of the percentage of the existing
internal VEBAs assets as of January 1, 2008 that is
equal to the estimated percentage of our hourly OPEB liability
covered by the existing internal VEBA attributable to Non-UAW
represented employees and retirees, their eligible spouses,
surviving spouses and dependents (Non-UAW Related Account) and
will have a balance of approximately $1.2 billion. The
second account will consist of the remaining assets in the
existing internal VEBA as of January 1, 2008 (UAW Related
Account) and will have a balance of approximately
$14.5 billion. No amounts will be withdrawn from the UAW
Related Account, including its investment returns, from
January 1, 2008 until transfer to the New VEBA.
Pursuant to the Settlement Agreement we have issued
$4.4 billion principal amount of our 6.75% Series U
Convertible Senior Debentures due December 31, 2012 (the
Convertible Note) to LBK, LLC, a Delaware limited liability
company of which we are the sole member (LBK). LBK will hold the
Convertible Note until it is transferred to the New VEBA in
accordance with the terms of the Settlement Agreement. Interest
on the Convertible Note is payable semiannually. In accordance
with the Settlement Agreement LBK will transfer any interest it
receives on the Convertible Note to a temporary asset account we
maintain. The funds in the temporary asset account will be
transferred to the New VEBA in accordance with the terms of the
Settlement Agreement.
In conjunction with the issuance of the Convertible Note, LBK
and we have entered into certain cash-settled derivative
instruments maturing on June 30, 2011 that will have the
economic effect of reducing the conversion price of the
Convertible Note from $40 to $36. These derivative instruments
will also entitle us to partially recover the additional
economic value provided if our Common Stock price appreciates to
between $63.48 and $70.53 per share and to fully recover the
additional economic value provided if our common stock price
reaches $70.53 per share or above. Pursuant to the Settlement
Agreement, LBK will transfer its interests in the derivatives to
the New VEBA when the Convertible Note is transferred from LBK
to the New VEBA.
We also issued a $4 billion short term note to LBK (the
Short Term Note) pursuant to the Settlement Agreement. The Short
Term Note pays interest at a rate of 9% and matures on the date
that the face amount of the Short Term Note is paid with
interest to the New VEBA in accordance with the terms of the
Settlement Agreement. LBK will hold the Short Term Note until it
matures.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
As a wholly owned consolidated subsidiary of ours, LBK will hold
the convertible note, the short term note and the derivatives
until they are paid or transferred to the New VEBA. As such,
these three securities will be effectively eliminated in our
consolidated financial statements until they are paid or
transferred to the New VEBA without restrictions.
On April 1, 2008, we will make an additional contribution
of $165 million to the temporary asset account. Beginning
in 2009, we may be required to contribute an additional
$165 million per year, limited to a maximum of an
additional 19 payments, to either the temporary asset account or
the New VEBA (when established). Such contributions will be
required only if annual cash flow projections show that the New
VEBA will become insolvent on a rolling
25-year
basis. At any time, we will have the option to prepay all
remaining contingent $165 million payments.
Additionally, at the initial effective date of the Settlement
Agreement, we may transfer up to an additional
$5.6 billion, subject to adjustment, to the New VEBA or we
may instead opt to make annual payments of varying amounts
between $421 million and $3.3 billion through 2020.
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. Delphis financial
distress and Chapter 11 filing posed significant risks to
us for two principal reasons: (1) our production operations
rely on systems, components and parts provided by Delphi, our
largest supplier, and could be substantially disrupted if Delphi
rejected its GM supply agreements or its labor agreements and
thereby affected the availability or price of the required
systems, components or parts; and (2) in connection with
the 1999 spin-off of Delphi from GM, we provided limited
guarantees of pension and OPEB benefits for hourly employees
represented by the UAW, the IUE-CWA, and the United Steel
Workers (USW) who were transferred to Delphi from GM (Benefit
Guarantees), which could have been triggered in connection with
the Chapter 11 proceedings.
Since the filing, we have worked with Delphi, its unions and
other interested parties to negotiate a satisfactory resolution
to Delphis Chapter 11 restructuring process,
including several interim agreements such as the 2006 attrition
and buyout programs affecting certain GM and Delphi employees.
As described below, certain labor issues have been resolved
among Delphi, the union, and us. The Bankruptcy Court has
approved Delphis plan of reorganization (Delphi POR),
which includes agreements between Delphi and GM (Delphi-GM
Settlement Agreements) that would settle other claims. Delphi is
pursuing approximately $6.1 billion of new exit financing
in support of the Delphi POR, which may be difficult in light of
the current challenging conditions of the U.S. and global credit
markets, particularly the weakness and decline in the capacity
of the market for highly leveraged loans. In its 2007 Annual
Report on Form 10-K, Delphi stated that it was in
discussions with its plan investors and with us regarding
implementation of exit financing and that there could be no
assurance as to whether such exit financing could be obtained.
The plan investors obligation to invest in Delphi is
subject to a number of conditions including Delphis
obtaining adequate exit financing. If the investments have not
closed by March 31, 2008, or a later date if the parties
agree, the lead investor can terminate the investment agreement.
We are exploring alternatives with Delphi in the event that the
planned financing level is not achieved, including providing an
additional significant portion of Delphis exit financing.
Delphis emergence from Chapter 11 proceedings remains
contingent upon obtaining sufficient financing for the Delphi
POR, and there can be no assurance that Delphi will obtain
sufficient financing or that it will emerge from bankruptcy on
the terms set forth in the Delphi POR. If Delphi cannot secure
the financing it needs, the Delphi POR would not be consummated
on the terms negotiated with us and with other interested
parties. We believe that Delphi would likely seek alternative
arrangements, but there can be no assurance that Delphi would be
successful in obtaining any alternative arrangements. The
resulting uncertainty could disrupt our ability to plan future
production and realize our cost reduction goals, and could
affect our relationship with the UAW and result in our providing
additional financial support to Delphi, receiving less than the
distributions that we expect from the resolution of
Delphis bankruptcy proceedings or assuming some of
Delphis obligations to its workforce and retirees. Due to
these uncertainties it is reasonably possible that additional
losses could arise in the future, but we currently are unable to
estimate the amount or range of such losses, if any.
In July 2007, a Memorandum of Understanding among Delphi, the
UAW, and us (Delphi UAW MOU) was approved by the Bankruptcy
Court, and similar labor agreements with Delphis other
major unions have also been approved. 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.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
In the Delphi UAW MOU, we agreed to extend the expiration date
of the Benefit Guarantees with the UAW, and Delphi agreed to
extend its agreement to indemnify us for Benefit Guarantee
payments, from October 18, 2007 to March 31, 2008. We
also agreed that the applicable Benefit Guarantees will be
triggered for certain UAW employees if Delphi terminates its
pension plan, ceases to provide on-going service, or fails or
refuses to provide post-retirement medical benefits for those
UAW employees at any time before both: (1) the execution of
a comprehensive settlement agreement by Delphi and us resolving
the financial, commercial and other matters between us, and
(2) substantial consummation of a plan of reorganization
for Delphi such as the Delphi POR, which has been confirmed by
the Bankruptcy Court.
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 under
certain circumstances. We 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 agreed to
assume OPEB obligations for those retirees. 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 upon execution of the Delphi-GM
Settlement Agreements and substantial consummation of the Delphi
POR or another reorganization plan for Delphi that incorporates
the Delphi-GM Settlement Agreements. Our financial contribution
for payments such as retirement incentives, buyouts, buy downs
and severance payments agreed to by Delphi and the UAW in the
Delphi UAW MOU is covered in the Delphi-GM Settlement
Agreements, as described below.
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.
On August 5, 2007, we entered into a 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 USW
and other U.S. labor unions that represent Delphi hourly
employees. The Delphi IUE-CWA MOU and the similar agreements
with the other labor unions representing U.S. employees
transferred from GM to Delphi have now been ratified by the
appropriate membership and approved by the Bankruptcy Court.
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Warranty
Claims Settlement
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On October 1, 2007, the Bankruptcy Court approved the
Warranty Settlement Agreement between Delphi and us, which
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.
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Delphi
POR and Delphi GM Settlement Agreements
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The Bankruptcy Court entered an order on January 25, 2008
confirming the Delphi POR, including the Delphi-GM Settlement
Agreements. As mentioned above, Delphi is currently pursuing
exit financing in support of the Delphi POR which may be
particularly difficult in light of the recent contraction of the
credit markets. The following discussion describes how
implementing the Delphi POR would affect us. There can be no
assurance, however, that the Delphi POR will be substantially
consummated on the terms set forth therein or on other terms
that are acceptable to us, and we also discuss below how we
could be affected if Delphis Chapter 11 process is
not resolved.
Delphi POR. Under the Delphi POR and the terms
of Delphi-GM Settlement Agreements, we would receive
$1.5 billion in a combination of at least $750 million
in cash and a second lien note, and $1 billion in junior
preferred convertible stock at Delphi POR value. The ultimate
value of any consideration is contingent on the fair market
value of Delphis securities upon emergence from
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
bankruptcy. We would release our claims against Delphi, and we
would receive an unconditional release of any alleged claims
against us by Delphi. As with other customers, certain of our
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. Delphi is
continuing to experience difficulty in obtaining exit financing,
as a result of the current weakness in the credit market. We
have informed Delphi that we are prepared to reduce the cash
portion of our distributions significantly and accept an
equivalent amount of debt in the form of a first lien note to
help facilitate Delphis successful emergence from
bankruptcy proceedings.
Delphi-GM Settlement Agreements. The Global
Settlement Agreement, as amended (GSA) and the Master
Restructuring Agreement, as amended (MRA) comprise the Delphi-GM
Settlement Agreements. Under the GSA, 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 our spinoff of Delphi,
collective bargaining agreements, and the Delphi bankruptcy by
Delphis subsidiaries outside the U.S., and we and our
affiliates would release similar claims against Delphi and its
affiliates. Claims resulting from the ordinary course of
business would not be released under the GSA. We agreed to
assume approximately $1.5 billion of Delphis net
pension obligations, and Delphi agreed to issue us a note for
the same amount. 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 the cost of OPEB claims
paid by Delphi on behalf of those employees in 2007 after their
retirement. The GSA 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. We would also make payments aggregating
$60 million related to claims by the IUE-CWA and the USW
against Delphi and costs and expenses incurred by Delphi in
connection with the Delphi IUE-CWA MOU.
The MRA 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 us 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 us from October 1, 2006 through
September 14, 2015, and to offer similar reimbursement to
prospective buyers of certain Delphi facilities with GM
production (Labor Cost Subsidy). The MRA provides additional GM
commitments with regard to specific Delphi facilities. At
certain U.S. facilities providing production for us, 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 (Production Cash Burn
Support). 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, we 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,
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 Delphi-GM Settlement Agreements.
Delphi further agreed to maintain majority ownership of such
subsidiary, with certain limited exceptions.
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Risks if
Delphi POR is Not Consummated
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If Delphi is not successful consummating the Delphi POR, we
could be subject to many of the risks that we have reported
since Delphis 2005 bankruptcy filing. For example, Delphi
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. Until the Delphi POR is consummated, we intend to
continue to protect our right of setoff against the
$1.15 billion we owed to Delphi in the ordinary course of
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
recorded setoffs of approximately $54 million against that
pre-petition obligation, with Delphis agreement. We have
also filed a Consolidated Proof of Claim, in accordance with the
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Bankruptcy Courts procedures, setting forth our claims
(including the claims of various GM subsidiaries) against Delphi
and the other debtor entities, although 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.
Under the Labor MOUs, the Benefit Guarantees and the related
indemnification agreement by Delphi will not expire until
March 31, 2008, but if the Delphi POR or a similar
agreement is not consummated, our obligation to make Benefit
Guarantee payments could be triggered if Delphi makes certain
changes in its pension or OPEB plans or ceases to provide
on-going credited service. Delphi would be required to indemnify
us for such payments but our claims for indemnity might not be
paid, or may be partially paid, depending upon the
reorganization plan approved for Delphi.
We would also have a claim against Delphi for $3.8 billion
related to some of the costs we paid 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.
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. We have recorded charges of $1.1 billion,
$.5 billion and $5.5 billion in 2007, 2006 and 2005,
respectively, in connection with the Benefit Guarantee
Agreements. In addition, during 2007 we have recorded charges of
$.5 billion related to the Delphi-GM Settlement Agreements,
consisting primarily of our guarantee of Delphis recovery
of the net working capital at facilities held for sale and
amounts due under the Labor Cost Subsidy. These charges are net
of estimated recoveries that would be due to us upon emergence
of Delphi from bankruptcy. Our commitments under the Delphi-GM
Settlement Agreements for the Labor Cost Subsidy and Production
Cash Burn Support are expected to result in additional expense
of between $300 million and $400 million annually
beginning in 2008 through 2015, which will be treated as a
period cost and expensed 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 estimated
$1.5 billion price penalty we now pay Delphi annually for
systems, components, and parts.
During 2006 and 2007, certain amounts previously recorded under
the Benefit Guarantee were reclassified to our OPEB liability,
since we assumed OPEB obligations for 18,500 Delphi employees
who returned to GM to continue working as GM employees or to
retire from GM.
The actual impact of the resolution of issues related to Delphi
cannot be determined until Delphi emerges from bankruptcy
protection under the Delphi POR or another comprehensive
resolution and plan of reorganization, and there can be no
assurance that the parties will successfully consummate the
Delphi POR that has been approved by the Bankruptcy Court, or
that the parties will reach a subsequent 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.
GMAC
Sale of 51% Controlling Interest
In November 2006, we completed the GMAC Transaction, which was
the sale of a 51% controlling interest in GMAC for a purchase
price of $7.4 billion to 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. We have retained a 49% interest
in GMACs Common Membership Interests. In addition, FIM
Holdings purchased 555,000 of GMACs Preferred Membership
Interests for a cash purchase price of $500 million and we
purchased 1,555,000 Preferred Membership Interests for a cash
purchase price of $1.4 billion. On November 1, 2007,
FIM Holdings converted 555,000 of its Preferred Membership
Interests into Common Membership Interests and we converted
533,236 of our Preferred Membership Interests into Common
Membership Interests, so that our percentage ownership of the
Common Membership Interests remained unchanged.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
The total value of the cash proceeds and distributions to us
after payment of certain intercompany obligations, and before we
purchased the preferred membership interests of GMAC was
expected to be approximately $14 billion over three years,
comprised of the $7.4 billion purchase price and
$2.7 billion cash dividend at closing, and other
transaction related cash flows including the monetization of a
portfolio of vehicle leases and the related vehicles. The
delinquency rate on this portfolio has increased recently,
consistent with other trends in the credit markets. In January
2007, we made a capital contribution to GMAC of approximately
$1 billion to restore its adjusted tangible equity balance
to the contractually required amount due to the decrease in the
adjusted tangible equity balance of GMAC as of November 30,
2006.
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.
GMACs Board of Managers (GMAC Board) may reduce any
distribution to the extent required to avoid a reduction of the
equity capital of GMAC below a minimum amount of equity capital
equal to the net book value of GMAC at November 30, 2006.
In addition, the GMAC Board may suspend the payment of Preferred
Membership Interest distributions with the consent of the
holders of a majority of the Preferred Membership Interest. If
distributions are not made with respect to any fiscal quarter,
the distributions would not be cumulative. If the accrued yield
of GMACs Preferred Membership Interests for any fiscal
quarter is fully paid to the preferred holders, then a portion
of the excess of the net financial book income of GMAC in any
fiscal quarter over the amount of yield distributed to the
holders of the Preferred Membership Interests in such quarter
will be distributed to the holders of the Common Membership
Interests as follows: at least 40% of the excess will be paid
for fiscal quarters ending prior to December 31, 2008 and
at least 70% of the excess will be paid for fiscal quarters
ending after December 31, 2008.
Prior to consummation of the GMAC Transaction: (1) certain
assets with respect to automotive leases owned by GMAC and its
affiliates having a net book value of approximately
$4 billion and related deferred tax liabilities of
$1.8 billion were transferred to us; (2) we assumed or
retained certain of GMACs OPEB obligations of
$842 million, and related deferred tax assets of
$302 million; (3) GMAC transferred entities that hold
certain real properties to us; (4) GMAC paid cash dividends
to us based on GMACs anticipated net income for the period
September 30, 2005 to November 30, 2006 totaling
$1.9 billion; (5) we repaid certain indebtedness and
specified intercompany unsecured obligations owing to GMAC; and
(6) GMAC made a one-time cash distribution to us of
$2.7 billion of cash to reflect the increase in GMACs
equity resulting from the transfer of a portion of GMACs
net deferred tax liabilities arising from the conversion of GMAC
and certain of its subsidiaries to limited liability
corporations.
As part of the agreement, we retained an option, for ten years
after the closing date, to repurchase from GMAC certain assets
related to the automotive finance business of the North American
Operations and International Operations of GMAC. Our exercise of
the option is conditional on our credit rating being investment
grade or higher than GMACs credit rating. The call option
price is calculated as the higher of (1) fair market value
or (2) 9.5 times the consolidated net income of GMACs
automotive finance business in either the calendar year the call
option is exercised or the calendar year immediately following
the year the call option is exercised.
The GMAC Transaction, an important element in our turnaround
efforts, provided the following:
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Strong long-term services agreement between us and
GMAC As part of the transaction, we entered into a
number of agreements with GMAC that were intended to continue
the mutually-beneficial global relationship between us and GMAC.
These agreements, in substance, were consistent with the
existing and historical practices between GMAC and us, including
requiring GMAC to continue to allocate capital to automotive
financing, thereby continuing to provide critical financing
support to a significant share of our global sales. While GMAC
retains the right to make individual credit decisions, GMAC has
committed to fund a broad spectrum of our customers and dealers
consistent with historical practice in the relevant
jurisdictions. Subject to GMACs fulfillment of certain
conditions, we have granted GMAC exclusivity for our products in
specified markets around the world for U.S., Canadian and
international GM-sponsored retail, lease and dealer marketing
incentives, with the exception of Saturn branded products.
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Improved liquidity We received significant cash
proceeds at the closing to bolster our liquidity, strengthening
our balance sheet and funding the turnaround plan.
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Enhanced stockholder value through a stronger GMAC
We retained a 49% Common Membership Interest in GMAC, and will
be able to continue to participate in GMACs financial
results.
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GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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Delinkage of GMACs credit rating from ours In
pursuing the sale of a majority interest in GMAC, we expected
that the introduction of a new controlling investor for GMAC,
new capital at GMAC and significantly reduced intercompany
exposures to us would provide GMAC with a solid foundation to
improve its current credit rating, and de-link the GMAC credit
ratings from us.
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In November 2007, we converted 533,236 of our Preferred
Membership Interests and FIM Holdings converted 555,000 of its
Preferred Membership Interests into 3,912 and 4,072,
respectively, of Common Membership Interests in order to
strengthen GMACs capital position. Our percentage
ownership of the Common Membership Interests in GMAC remained
unchanged after the conversion. We accounted for the conversion
at fair value and recorded a loss of $27 million during
2007. The loss on conversion represents the difference between
the fair value and the carrying value of the Preferred
Membership Interests converted. GMAC accounted for the
conversion of the Preferred Membership Interests as a
recapitalization recorded at book value. Our proportionate share
of the increase in GMACs net equity attributable to Common
Membership Interest holders as a result of the conversion
exceeded the fair value of the Preferred Membership Interests we
converted by $27 million. The difference was recorded as an
increase to Additional paid-in capital in 2007. At
December 31. 2007, we hold the remaining 1,021,764 of
Preferred Membership Interests and 49% or 52,912 of Common
Membership Interests in GMAC.
We periodically evaluate the carrying value of our investment in
GMAC, including our Preferred Membership Interests, to assess
whether our investment is impaired. We currently believe our
investment in GMAC is not impaired. However, there are many
economic factors which are unstable at December 31, 2007,
which may affect GMACs ability to generate sustainable
earnings and continue distributions on its Preferred Membership
Interests and, accordingly, our assessment of impairment. These
factors include:
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The instability of the global credit and mortgage markets and
the effect of this on GMACs Residential Capital, LLC
(ResCap) subsidiary as well as its automotive finance, insurance
and other operations;
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The deteriorating conditions in the residential and home
building markets, including significant changes in the mortgage
secondary market, tightening underwriting guidelines and reduced
product offerings;
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Recent credit downgrades of GMAC and ResCap and the effect on
their ability to raise capital necessary on acceptable terms; and
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Effect of the expected near-term automotive market conditions on
GMACs automotive finance operations.
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As previously reported, we are cooperating with federal
governmental agencies in connection with a number of
investigations.
The 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 us and Delphi,
supplier price reductions or credits and any obligation we may
have to fund pension and OPEB costs in connection with
Delphis proceedings under Chapter 11 of the
Bankruptcy Code. In addition, the SEC has issued a subpoena in
connection with an investigation of our transactions in precious
metal raw materials used in our automotive manufacturing
operation.
We have produced documents and provided testimony in response to
the subpoenas and will continue to cooperate 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 U.S. securities laws, and any of
these outcomes could under certain circumstances have a material
adverse effect on our business.
Liquidity
and Capital Resources
Investors or potential investors in our securities consider cash
flows of the Automotive and FIO businesses to be a relevant
measure in the analysis of our various securities that trade in
public markets. Accordingly, we provide supplemental statements
of cash flows to aid users of our consolidated financial
statements in the analysis of performance and liquidity and
capital resources.
82
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
This information reconciles to the 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 years ended December 31, 2007, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive and Other
|
|
|
Financing and Insurance
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(38,037
|
)
|
|
$
|
(3,007
|
)
|
|
$
|
(12,674
|
)
|
|
$
|
(695
|
)
|
|
$
|
1,029
|
|
|
$
|
2,257
|
|
Less income from discontinued operations
|
|
|
4,565
|
|
|
|
445
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less cumulative effect of a change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(42,602
|
)
|
|
|
(3,452
|
)
|
|
|
(12,878
|
)
|
|
|
(695
|
)
|
|
|
1,029
|
|
|
|
2,257
|
|
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) continuing
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, impairment and amortization expense
|
|
|
8,254
|
|
|
|
8,094
|
|
|
|
10,036
|
|
|
|
1,259
|
|
|
|
2,791
|
|
|
|
5,696
|
|
Mortgage servicing rights and premium amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,021
|
|
|
|
1,142
|
|
Goodwill impairment GMAC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
828
|
|
|
|
712
|
|
Delphi charge
|
|
|
1,547
|
|
|
|
500
|
|
|
|
5,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of 51% interest in GMAC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,910
|
|
|
|
|
|
Provision for credit financing losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,799
|
|
|
|
1,074
|
|
Net gains on sale of credit receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,256
|
)
|
|
|
(1,741
|
)
|
Net gains on sale of investment securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,006
|
)
|
|
|
(104
|
)
|
Other postretirement employee benefit (OPEB) expense
|
|
|
2,362
|
|
|
|
3,523
|
|
|
|
5,558
|
|
|
|
|
|
|
|
44
|
|
|
|
92
|
|
OPEB payments
|
|
|
(3,751
|
)
|
|
|
(3,759
|
)
|
|
|
(4,030
|
)
|
|
|
|
|
|
|
(43
|
)
|
|
|
(54
|
)
|
VEBA/401(h) withdrawals
|
|
|
1,694
|
|
|
|
3,061
|
|
|
|
3,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense
|
|
|
1,799
|
|
|
|
4,888
|
|
|
|
2,433
|
|
|
|
|
|
|
|
23
|
|
|
|
62
|
|
Pension contributions
|
|
|
(937
|
)
|
|
|
(1,032
|
)
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
Retiree lump sum and vehicle voucher expense, net of payments
|
|
|
|
|
|
|
(325
|
)
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in mortgage loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,578
|
)
|
|
|
(29,119
|
)
|
Net change in mortgage securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427
|
|
|
|
(1,155
|
)
|
Provisions for deferred taxes
|
|
|
36,956
|
|
|
|
(5,002
|
)
|
|
|
(7,924
|
)
|
|
|
21
|
|
|
|
836
|
|
|
|
1,193
|
|
Change in other investments and miscellaneous assets
|
|
|
(202
|
)
|
|
|
581
|
|
|
|
136
|
|
|
|
865
|
|
|
|
(1,058
|
)
|
|
|
(826
|
)
|
Change in other operating assets and liabilities, net of
acquisitions and disposals
|
|
|
(2,800
|
)
|
|
|
(3,567
|
)
|
|
|
(2,975
|
)
|
|
|
(612
|
)
|
|
|
(4,945
|
)
|
|
|
2,995
|
|
Other
|
|
|
3,099
|
|
|
|
1,456
|
|
|
|
1,747
|
|
|
|
1,250
|
|
|
|
862
|
|
|
|
932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operating
activities
|
|
|
5,419
|
|
|
|
4,966
|
|
|
|
(278
|
)
|
|
|
2,088
|
|
|
|
(17,316
|
)
|
|
|
(16,892
|
)
|
Cash provided by discontinued operating activities
|
|
|
224
|
|
|
|
591
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
5,643
|
|
|
$
|
5,557
|
|
|
$
|
36
|
|
|
$
|
2,088
|
|
|
$
|
(17,316
|
)
|
|
$
|
(16,892
|
)
|
83
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive and Other
|
|
|
Financing and Insurance
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property
|
|
$
|
(7,538
|
)
|
|
$
|
(7,500
|
)
|
|
$
|
(7,858
|
)
|
|
$
|
(4
|
)
|
|
$
|
(402
|
)
|
|
$
|
(283
|
)
|
Investments in marketable securities, acquisitions
|
|
|
(10,098
|
)
|
|
|
(2,681
|
)
|
|
|
(8,295
|
)
|
|
|
(57
|
)
|
|
|
(25,381
|
)
|
|
|
(19,184
|
)
|
Investments in marketable securities, liquidations
|
|
|
8,080
|
|
|
|
4,259
|
|
|
|
13,342
|
|
|
|
39
|
|
|
|
26,822
|
|
|
|
14,874
|
|
Net change in mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61
|
)
|
|
|
(267
|
)
|
Increase in finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,160
|
)
|
|
|
(6,582
|
)
|
Proceeds from sale of finance receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,374
|
|
|
|
31,652
|
|
Proceeds from the sale of 51% interest in GMAC
|
|
|
|
|
|
|
7,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of discontinued operations
|
|
|
5,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of business units/equity investments
|
|
|
|
|
|
|
1,968
|
|
|
|
846
|
|
|
|
|
|
|
|
8,538
|
|
|
|
|
|
Operating leases, acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,070
|
)
|
|
|
(15,496
|
)
|
Operating leases, liquidations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,165
|
|
|
|
7,039
|
|
|
|
5,362
|
|
Net investing activity with Financing and Insurance Operations
|
|
|
944
|
|
|
|
3,354
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution to GMAC LLC
|
|
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in companies, net of cash acquired
|
|
|
(46
|
)
|
|
|
(20
|
)
|
|
|
1,357
|
|
|
|
|
|
|
|
(337
|
)
|
|
|
(2
|
)
|
Other
|
|
|
374
|
|
|
|
(353
|
)
|
|
|
640
|
|
|
|
15
|
|
|
|
338
|
|
|
|
(1,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing investing
activities
|
|
|
(3,952
|
)
|
|
|
6,380
|
|
|
|
2,532
|
|
|
|
3,158
|
|
|
|
16,700
|
|
|
|
8,571
|
|
Cash used in discontinued investing activities
|
|
|
(22
|
)
|
|
|
(31
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(3,974
|
)
|
|
|
6,349
|
|
|
|
2,494
|
|
|
|
3,158
|
|
|
|
16,700
|
|
|
|
8,571
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term borrowings
|
|
|
(1,297
|
)
|
|
|
(259
|
)
|
|
|
(176
|
)
|
|
|
(4,452
|
)
|
|
|
7,289
|
|
|
|
(9,949
|
)
|
Borrowings of long-term debt
|
|
|
2,131
|
|
|
|
1,937
|
|
|
|
386
|
|
|
|
|
|
|
|
77,629
|
|
|
|
77,890
|
|
Payments made on long-term debt
|
|
|
(1,403
|
)
|
|
|
(97
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
(92,193
|
)
|
|
|
(69,520
|
)
|
Net financing activity with Automotive and Other Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(944
|
)
|
|
|
(3,354
|
)
|
|
|
(2,500
|
)
|
Cash dividends paid to stockholders
|
|
|
(567
|
)
|
|
|
(563
|
)
|
|
|
(1,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,487
|
|
|
|
6,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing financing
activities
|
|
|
(1,136
|
)
|
|
|
1,018
|
|
|
|
(970
|
)
|
|
|
(5,396
|
)
|
|
|
(8,142
|
)
|
|
|
1,951
|
|
Cash provided by (used in) discontinued financing activities
|
|
|
(5
|
)
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(1,141
|
)
|
|
|
1,021
|
|
|
|
(971
|
)
|
|
|
(5,396
|
)
|
|
|
(8,142
|
)
|
|
|
1,951
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
316
|
|
|
|
189
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
176
|
|
|
|
(45
|
)
|
Net transactions with Automotive Other/Financing Insurance
|
|
|
(69
|
)
|
|
|
(4,529
|
)
|
|
|
520
|
|
|
|
69
|
|
|
|
4,529
|
|
|
|
(520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
775
|
|
|
|
8,587
|
|
|
|
2,039
|
|
|
|
(81
|
)
|
|
|
(4,053
|
)
|
|
|
(6,935
|
)
|
Cash and cash equivalents retained by GMAC LLC upon disposal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,137
|
)
|
|
|
|
|
Cash and cash equivalents of held for sale operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(371
|
)
|
Cash and cash equivalents at beginning of the year
|
|
|
23,774
|
|
|
|
15,187
|
|
|
|
13,148
|
|
|
|
349
|
|
|
|
15,539
|
|
|
|
22,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
$
|
24,549
|
|
|
$
|
23,774
|
|
|
$
|
15,187
|
|
|
$
|
268
|
|
|
$
|
349
|
|
|
$
|
15,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive
and Other
We believe we have sufficient liquidity and financial
flexibility to meet our capital requirements, including the
required funding of the UAW Attrition Program, and other funding
needs over the short and medium-term, even in the event of
further U.S. industry decline. Over the medium to
long-term, we believe that our ability to meet our capital
requirements and other funding obligations, including the
required funding outlined in the Settlement Agreement, primarily
will depend on the successful execution of our turnaround plan
and the return of our North American operations to profitability
and positive cash flow. Automotive and Other (Automotive)
available liquidity includes its cash balances, marketable
securities and readily available assets of our VEBA trusts. At
December 31, 2007, available liquidity was
$27.3 billion compared with $26.4 billion at
December 31, 2006 and $20.4 billion at
December 31, 2005. The amount of our 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. We manage our global liquidity centrally which
allows us to optimize funding of our global operations. As of
December 31, 2007, 60% of our reported liquidity was held
in the U.S. Additionally, our U.S. operations have
further access to much of our overseas liquidity through
inter-company arrangements. A summary of our global liquidity is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in billions)
|
|
|
Cash and cash equivalents
|
|
$
|
24.6
|
|
|
$
|
23.8
|
|
|
$
|
15.2
|
|
Marketable securities
|
|
|
2.1
|
|
|
|
.1
|
|
|
|
1.4
|
|
Readily-available assets of VEBA trusts
|
|
|
.6
|
|
|
|
2.5
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available Liquidity
|
|
$
|
27.3
|
|
|
$
|
26.4
|
|
|
$
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007, the total VEBA trust assets and
related accounts were $16.3 billion, $.6 billion of
which was readily available. At December 31, 2006 the total
VEBA trust assets and related accounts were $17.8 billion,
$2.5 billion of which was readily available. At
December 31, 2005, the total VEBA trust assets and related
accounts were $19.1 billion, $3.8 billion of which was
readily available. The decline in VEBA balances since
December 31, 2006 was primarily driven by $2.7 billion
of withdrawals during 2007 partially offset by favorable asset
returns during the year. In connection with the Settlement
Agreement a significant portion of the VEBA trust assets has
been allocated to the UAW Related Account which will also hold
the proportional investment returns on that percentage of the
trust. No amounts will be withdrawn from the UAW Related Account
including its investment returns from January 1, 2008 until
transfer to the New VEBA. This treatment has led us to exclude
any portion of the UAW Related Account from our available
liquidity at December 31, 2007.
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 December 31, 2007, the availability under the
revolving credit facility was $4.5 billion. There are
$91 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 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. The collateral also
secures certain lines of credit, automatic clearinghouse and
overdraft arrangements and letters of credit provided by the
same secured lenders. The facility totals $6 billion,
$4.5 billion of which is the maximum available through the
revolving credit facility. As of December 31, 2007, in
addition to the $91 million of letters of credit issued
under the revolving credit facility, $1.6 billion was
utilized to secure other facilities. In the event of certain
work stoppages, the secured revolving credit facility would be
temporarily reduced to $3.5 billion.
In May 2007, we entered into an unsecured revolving credit
agreement expiring in June 2008 that provided for borrowings of
up to $500 million. After reviewing our liquidity position
in December 2007, we believe that we have sufficient liquidity
and financial flexibility to meet our capital requirements in
the first half of 2008 without the credit agreement. As a
result, we terminated the credit agreement on January 9,
2008. We never borrowed under this credit agreement.
85
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 in June 2007. The facility was secured by our
Common Membership Interests in GMAC and scheduled to mature in
June 2008. After reviewing our liquidity position in December
2007, we believe that we have sufficient liquidity and financial
flexibility to meet our capital requirements in the first half
of 2008 without the credit agreement. As a result, we terminated
the credit agreement on December 31, 2007. We never
borrowed under this credit agreement.
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 this 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 December 31, 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 $1 billion 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
Series D convertible 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
$36.57 per share. In connection with the issuance of the
Series D convertible 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 convertible 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 and additional public or
private financing transactions. 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 cash
requirements outlined in the Settlement Agreement and
potentially similar arrangements with other labor unions and the
UAW Special Attrition Program.
We believe that it is possible that issues may arise under
various other financing arrangements in connection with the
restatement of prior consolidated financial statements. These
financing arrangements principally consist 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 connection with the
2006 restatement of prior consolidated financial statements, we
evaluated the effect of our restatement under these agreements,
including our legal rights with respect to any claims that could
be asserted, such as our ability to cure. Based on our review,
we believe that, although no assurances can be given as to the
likelihood, nature or amount of any claims that may be asserted,
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.
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
December 31, 2007 the amount of obligations reclassified
from long-term debt to short-term debt based on this review was
$212 million. We believe we have sufficient liquidity over
the short and medium term to satisfy any claims related to these
matters. To date, we have not received any such claims and we do
not anticipate receiving any such claims.
The increase in available liquidity to $27.3 billion at
December 31, 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, and cash flows received in connection with
portfolios of vehicle operating leases held by FIO. This
increase was partially offset
86
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
by capital expenditures, $1 billion capital contribution to
GMAC, and a decrease in readily-available VEBA trust assets of
$1.9 billion primarily as a result of the Settlement
Agreement.
Investments in marketable securities primarily consist of
purchases, sales and maturities of highly-liquid corporate,
U.S. government, U.S. government agency and
mortgage-backed debt securities used for cash management
purposes. During 2007, we acquired net $2.0 billion of
marketable securities.
For the year ended December 31, 2007, we had positive
operating cash flow of $5.4 billion on a net loss from
continuing operations of $42.6 billion. That result
compares with the positive operating cash flow of
$5 billion on a net loss from continuing operations of
$3.5 billion in 2006. Operating cash flow in 2007 included
withdrawals of $2.7 billion from our VEBA trust assets for
our OPEB plans for reimbursement of retiree health-care and life
insurance benefits provided to eligible plan participants.
Operating cash flow was unfavorably impacted by $.9 billion
of cash expenditures related to the GMNA restructuring
initiative, $.4 billion of cash expenditures related to the
GME restructuring initiative and $.3 billion of cash
expenditures related to Delphis restructuring activities,
for which the charges were recorded in 2003 through 2006.
Capital expenditures of $7.5 billion were a significant use
of investing cash in 2007 and were primarily attributable to
global product programs, powertrain and tooling requirements.
For the years ended December 31, 2006 and 2005, capital
expenditures were $7.5 billion and $7.9 billion,
respectively. We anticipate that capital expenditures in 2008
will increase to approximately $8 billion.
In August 2007, we completed the sale of the commercial and
military operations of Allison for $5.4 billion in cash
plus assumed liabilities.
In November 2006, we consummated the GMAC Transaction, in which
we sold a controlling 51% interest in GMAC to FIM Holdings. 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 levels. This
capital contribution was required due to the decrease in the
adjusted tangible equity balance of GMAC as of November 30,
2006.
Automotives total debt, including capital leases,
industrial revenue bond obligations and borrowings from GMAC at
December 31, 2007 was $39.4 billion, of which
$6 billion was classified as short-term or current portion
of long-term debt and $33.4 billion was classified as
long-term debt. 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 billion was
long-term debt. 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 borrowings and current portion of long-term debt of
$6 billion includes $1.3 billion of debt issued by our
subsidiaries and consolidated affiliates, and $2.5 billion
of related party debt, mainly dealer financing from GMAC. We
have various debt maturities of $2.3 billion in 2009 and
$.2 billion in 2010 and various debt maturities of
$30.9 billion thereafter. We believe we have 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 December 31, 2007, there was no
outstanding balance owed by us to GMACCF under the program.
87
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Net debt, calculated as cash, marketable securities, and
$.6 billion ($2.5 billion at December 31,
2006) of readily-available assets of the VEBA trust less
the short-term borrowings and long-term debt, was
$12.1 billion at December 31, 2007, compared with
$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 December 31, 2007, these bankruptcy-remote subsidiaries
had vehicles subject to operating leases of $6.7 billion
compared to $11.8 billion at December 31, 2006, other
net assets of $1.4 billion compared to $1.5 billion at
December 31, 2006, outstanding secured debt of
$4.9 billion compared to $9.4 billion at
December 31, 2006 and net equity of $3.3 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 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 total
$.9 billion at December 31, 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 amortize gradually over the next two to
three 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 two to three 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 year ended
December 31, 2007, the total cash flows released to these
two bankruptcy-remote subsidiaries were $864 million and
from November 2006 through December 31, 2007 the total cash
flows released were $987 million.
Status of
Debt Ratings
Our fixed income securities are rated by four independent credit
rating agencies: Dominion Bond Rating Services (DBRS),
Moodys Investor Service (Moodys), Fitch Ratings
(Fitch), and Standard & Poors (S&P). The
ratings indicate the agencies assessment of a
companys ability to pay interest, distributions, dividends
and principal on these securities. Lower credit ratings are
generally representative of higher borrowing costs and reduced
access to capital markets to a company. Their ratings on us are
based on information provided by us and other sources. Factors
the agencies consider when determining a rating include, but are
not limited to, cash flows, liquidity, profitability, business
position and risk profile, ability to service debt and the
amount of debt as a component of total capitalization.
88
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
DBRS, Moodys, Fitch and S&P currently rate our credit
at non-investment grade. The following table summarizes our
credit ratings as of February 18, 2008:
|
|
|
|
|
|
|
|
|
|
|
Rating Agency
|
|
Corporate
|
|
Secured
|
|
Senior Unsecured
|
|
Outlook
|
|
DBRS
|
|
B (high)
|
|
Not Rated
|
|
|
B
|
|
|
Stable
|
Fitch
|
|
B
|
|
BB
|
|
|
B-
|
|
|
Negative
|
Moodys
|
|
B3
|
|
Ba3
|
|
|
Caa1
|
|
|
Stable
|
S&P
|
|
B
|
|
BB-
|
|
|
B-
|
|
|
Stable
|
Rating actions taken by each of the credit rating agencies
during 2007 are as follows:
DBRS: On May 14, 2007, DBRS affirmed our senior
unsecured debt rating at B with Negative
trend. 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 Stable trend.
Fitch: On May 23, 2007, Fitch affirmed our
issuer default rating at B with Rating Watch
Negative but downgraded our senior unsecured debt rating
to B- from B. On July 12, 2007
Fitch affirmed our issuer default rating at B but
removed it from Rating Watch Negative. 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.
Moodys: 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 November 7, 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 Stable outlook from
Positive outlook.
S&P: On June 7, 2007, S&P recalibrated
its rating scale resulting in an upgrade to our secured credit
rating to BB- from B+. 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 our non-investment grade rating has increased borrowing
costs and limited access to unsecured debt markets, we have
mitigated these outcomes by actions taken 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. In addition, the ratings situation and
outlook increase the importance of successfully executing our
plans for improvement of operating results.
Pension
and Other Postretirement Benefits
Plans covering represented employees generally provide benefits
of negotiated, stated amounts for each year of service as well
as significant supplemental benefits for employees who retire
with 30 years of service before normal retirement age.
89
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Our policy with respect to our qualified pension plans is to
contribute annually not less than the minimum required by
applicable law and regulation, or to directly pay benefit
payments where appropriate. As of December 31, 2007, all
legal funding requirements had been met. We made contributions
to our pension plans as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
U.S. hourly and salaried
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
Other U.S.
|
|
$
|
89
|
|
|
$
|
78
|
|
|
$
|
125
|
|
Non-U.S.
|
|
$
|
848
|
|
|
$
|
889
|
|
|
$
|
708
|
|
In 2008, we do not have any contributions due and we do not
expect to make discretionary contributions to our
U.S. hourly or salaried pension plans. During 2008, we
expect to contribute or pay benefits of approximately
$100 million to our other U.S. pension plan and
approximately $900 million to our primary
non-U.S. pension
plans.
Our U.S. pension plans were overfunded by
$18.8 billion at the end of 2007 and $16 billion at
the end of 2006. This increase was primarily attributable to
actual asset returns of 11% in 2007. Our
non-U.S. pension
plans were underfunded by a net amount of $10.4 billion for
2007 and $11.0 billion for 2006. The funded status of
U.S. pension plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
U.S. hourly and salaried
|
|
$
|
20.0
|
|
|
$
|
17.2
|
|
U.S. nonqualified
|
|
|
(1.2
|
)
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18.8
|
|
|
$
|
16.0
|
|
|
|
|
|
|
|
|
|
|
We also maintain hourly and salaried OPEB plans that provide
postretirement medical, dental, vision and life insurance to
most U.S. retirees and eligible dependents. Certain of our
non-U.S. subsidiaries
have postretirement benefit plans, although most participants
are covered by government sponsored or administered programs.
Our U.S. OPEB plan was underfunded by $43.4 billion in
2007 and $47.6 billion in 2006. Our
non-U.S. OPEB
plans were underfunded by $4.3 billion in 2007 and
$3.7 billion in 2006.
In 2007, we withdrew a total of $2.7 billion from plan
assets of our VEBA trusts for our OPEB plans for reimbursement
of retiree healthcare and life insurance benefits provided to
eligible plan participants. In 2006, we withdrew a total of
$4.1 billion from our VEBA trusts.
Pursuant to the 2005 UAW Health Care Settlement Agreement, we
are required to make certain contributions to an independent
VEBA trust, the Mitigation VEBA to be used to mitigate the
effect of reduced GM health-care coverage for UAW retirees over
a number of years. We have no control over the assets of this
VEBA trust.
The following benefit payments, which reflect estimated future
employee services, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits(a)
|
|
|
Other Benefits(b)
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
(Dollars in millions)
|
|
|
2008
|
|
$
|
7,665
|
|
|
$
|
1,357
|
|
|
$
|
3,845
|
|
|
$
|
195
|
|
2009
|
|
$
|
7,604
|
|
|
$
|
1,375
|
|
|
$
|
3,981
|
|
|
$
|
208
|
|
2010
|
|
$
|
7,518
|
|
|
$
|
1,414
|
|
|
$
|
4,121
|
|
|
$
|
219
|
|
2011
|
|
$
|
7,392
|
|
|
$
|
1,451
|
|
|
$
|
4,234
|
|
|
$
|
232
|
|
2012
|
|
$
|
7,168
|
|
|
$
|
1,481
|
|
|
$
|
4,309
|
|
|
$
|
244
|
|
2013 2017
|
|
$
|
34,462
|
|
|
$
|
8,071
|
|
|
$
|
22,161
|
|
|
$
|
1,408
|
|
|
|
|
(a) |
|
Benefits for most U.S. pension plans and certain
non-U.S.
pension plans are paid out of plan assets rather than our assets. |
(b) |
|
Benefit payments presented in this table do not reflect changes
which will result from the implementation of the Settlement
Agreement. |
90
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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 we sell principally consist of trade
receivables that are part of a securitization program in which
we have participated since 2004. As part of this program, we
sell receivables to a wholly-owned bankruptcy remote Special
Purpose Entity (SPE). The SPE is a separate legal entity that
assumes the risks and rewards of ownership of the receivables.
In turn, the SPE has entered into an agreement to sell undivided
interests in eligible trade receivables up to $600 million
and $850 million in 2007 and 2006, respectively, directly
to third party banks and to a third party bank conduit that
funds its purchases through issuance of commercial paper or via
direct bank funding. The receivables under the program are sold
at a fair market value and removed from our consolidated balance
sheets. The loss on the trade receivables sold is included in
Automotive cost of sales and was $2 million in 2007 and
$30 million in 2006. As of December 31, 2007, the
banks and the bank conduit had no beneficial interest of the
SPEs pool of eligible receivables. As of December 31,
2006, the banks and bank conduit had a beneficial interest of
$200 million of the SPEs pool of eligible trade
receivables. 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 to SPE under this program was $600 million
and $9 billion in 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 of $87 million and
$109 million as of December 31, 2007 and 2006,
respectively, related to those securitization programs.
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, warehouses and machinery and
equipment. The use of such entities allows the parties providing
the financing to isolate particular assets in a single entity
and thereby syndicate the financing to multiple third parties.
This is a conventional financing technique used to lower the
cost of borrowing and, thus, the lease cost to a lessee. 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,
us. We believe that none of our officers, directors, or
employees, or their affiliates hold any direct or indirect
equity interests in such entities.
Because of the GMAC Transaction in November 2006, GMACs
assets in off-balance sheet entities were not attributable to us
at the end of 2006. Assets in off-balance sheet entities were as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Assets leased under operating leases
|
|
$
|
2,164
|
|
|
$
|
2,248
|
|
Trade receivables sold
|
|
|
87
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,251
|
|
|
$
|
2,557
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations and Other Long-Term Liabilities
We have the following minimum commitments under contractual
obligations, including purchase obligations. A purchase
obligation is defined as an agreement to purchase goods or
services that is enforceable and legally binding on us and that
specifies all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum, or variable price
provisions; and the approximate timing of the transaction. Other
long-term liabilities are defined as long-term liabilities that
are reflected on our consolidated balance sheet. Based on this
definition, the table below includes only those contracts which
include fixed or minimum obligations. The majority of our
purchases are not included in the table as they are made under
purchase orders which are requirements based and accordingly do
not specify minimum quantities.
91
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
The following table provides aggregated information about our
outstanding contractual obligations and other long-term
liabilities as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
2008
|
|
|
2009-2010
|
|
|
2011-2012
|
|
|
2013 and after
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Debt (a)
|
|
$
|
7,929
|
|
|
$
|
6,498
|
|
|
$
|
5,861
|
|
|
$
|
65,988
|
|
|
$
|
86,276
|
|
Capital lease obligations (a)
|
|
|
480
|
|
|
|
349
|
|
|
|
240
|
|
|
|
637
|
|
|
|
1,706
|
|
Operating lease obligations
|
|
|
501
|
|
|
|
932
|
|
|
|
670
|
|
|
|
551
|
|
|
|
2,654
|
|
Contractual commitments for capital expenditures
|
|
|
771
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
998
|
|
Other contractual commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefits (b)
|
|
|
3,338
|
|
|
|
6,802
|
|
|
|
4,814
|
|
|
|
|
|
|
|
14,954
|
|
Less: VEBA assets (c)
|
|
|
(3,338
|
)
|
|
|
(6,802
|
)
|
|
|
(4,814
|
)
|
|
|
|
|
|
|
(14,954
|
)
|
Net post retirement benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Material
|
|
|
2,113
|
|
|
|
3,208
|
|
|
|
2,344
|
|
|
|
330
|
|
|
|
7,995
|
|
Information technology
|
|
|
1,012
|
|
|
|
906
|
|
|
|
100
|
|
|
|
6
|
|
|
|
2,024
|
|
Marketing
|
|
|
1,034
|
|
|
|
484
|
|
|
|
165
|
|
|
|
43
|
|
|
|
1,726
|
|
Facilities
|
|
|
447
|
|
|
|
402
|
|
|
|
92
|
|
|
|
26
|
|
|
|
967
|
|
Rental car repurchases
|
|
|
5,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,037
|
|
Policy, product warranty and recall campaigns liability
|
|
|
4,655
|
|
|
|
3,531
|
|
|
|
1,173
|
|
|
|
256
|
|
|
|
9,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual commitments
|
|
$
|
23,979
|
|
|
$
|
16,537
|
|
|
$
|
10,645
|
|
|
$
|
67,837
|
|
|
$
|
118,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining balance postretirement benefits
|
|
$
|
728
|
|
|
$
|
1,772
|
|
|
$
|
5,248
|
|
|
$
|
41,311
|
|
|
$
|
49,059
|
|
Less: VEBA assets (c)
|
|
|
(728
|
)
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
|
|
|
$
|
1,151
|
|
|
$
|
5,248
|
|
|
$
|
41,311
|
|
|
$
|
47,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts include interest payments based on contractual terms and
current interest rates on our debt and capital lease obligations. |
(b) |
|
Amounts include postretirement benefits under the. current
contractual labor agreements in North America. The remainder of
the estimated liability, for benefits beyond the current labor
agreement and for essentially all salaried employees, is
classified under remaining balance of postretirement benefits.
These obligations are not contractual. Any amounts that would be
required or reduced in accordance with the Settlement Agreement,
when approved, have been excluded from the table. |
(c) |
|
Total VEBA assets were allocated based on projected spending
requirements. VEBA asset allocations do not reflect the impact
of the Settlement Agreement which has not yet been approved by
the court. |
The table above does not reflect unrecognized tax benefits of
$2.8 billion due to the high degree of uncertainty
regarding the future cash outflows associated with these
amounts. Refer to Note 18 in our consolidated financial
statements for additional discussion of unrecognized tax
benefits.
The combined U.S. hourly and salaried pension plans were
$20 billion overfunded at December 31, 2007. As a
result, we do not expect to make any contributions to our
U.S. hourly and salaried pension plans for the foreseeable
future, assuming there are no material changes in present market
conditions.
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 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 our business. Cash
dividends per share of Common Stock were $1.00 in 2007 and 2006,
and $2.00 in 2005. At the February 5, 2008 meeting of our
Board of Directors, the Board approved the payment of a $0.25
quarterly dividend on our Common Stock for the first quarter of
2008. For 2007, cash dividends per share of Common Stock were
$0.25 per quarter.
92
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Critical
Accounting Estimates
Our consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United
States, which require the use of estimates, judgments, and
assumptions that affect the reported amounts of asset and
liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported
amounts of revenues and expenses during the periods presented.
Management believes that the accounting estimates employed are
appropriate and the resulting balances are reasonable; however,
due to the inherent uncertainties in making estimates actual
results could differ from the original estimates, requiring
adjustments to these balances in future periods.
The critical accounting estimates that affect our consolidated
financial statements and that use judgments and assumptions are
listed below. In addition, the likelihood that materially
different amounts could be reported under varied conditions and
assumptions is discussed.
Pensions
We account for our defined benefit pension plans in accordance
with Statement of Financial Accounting Standards (SFAS)
No. 87, Employers Accounting for Pensions
(SFAS No. 87) as amended by
SFAS No. 158, which requires that amounts recognized
in the financial statements be determined on an actuarial basis.
This determination involves the selection of various
assumptions, including an expected rate of return on plan assets
and a discount rate.
A key assumption in determining our net pension expense in
accordance with SFAS No. 87 is the expected long-term
rate of return on plan assets. The expected return on plan
assets that is included in pension expense is determined from
periodic studies, which include a review of asset allocation
strategies, anticipated future long-term performance of
individual asset classes, risks using standard deviations, and
correlations of returns among the asset classes that comprise
the plans asset mix. While the studies give appropriate
consideration to recent plan performance and historical returns,
the assumptions are primarily long-term, prospective rates of
return. The weighted average expected long-term rate of return
on U.S. Plan assets used to determine net pension expense
for 2007 was 8.5% compared to 9.0% for 2006 and 2005.
Another key assumption in determining our net pension expense is
the assumed discount rate to be used to discount plan
obligations. In estimating this rate, we use an iterative
process based on a hypothetical investment in a portfolio of
high-quality bonds rated AA or higher by a recognized rating
agency and a hypothetical reinvestment of the proceeds of such
bonds upon maturity using forward rates derived from a yield
curve until our U.S. pension obligation is defeased. We
incorporate this reinvestment component into our methodology
because it is not feasible, in light of the magnitude and time
horizon over which our U.S. pension obligations extend, to
accomplish full defeasance through direct cash flows from an
actual set of bonds selected at any given measurement date. The
weighted average discount rate used to determine the
U.S. net pension expense for 2007 was 6.0% as compared to
5.7% for 2006 and 5.6% for 2005.
The following table illustrates the sensitivity to a change in
certain assumptions for US pension plans, holding all other
assumptions constant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 15
|
|
|
|
|
|
|
December 31,
|
|
|
|
Impact on 2008
|
|
|
2007
|
|
|
|
Pension Expense
|
|
|
Impact on PBO
|
|
|
25 basis point decrease in discount rate
|
|
+$
|
110 million
|
|
|
+$
|
1.9 billion
|
|
25 basis point increase in discount rate
|
|
|
−110 million
|
|
|
−$
|
1.9 billion
|
|
25 basis point decrease in expected return on assets
|
|
+$
|
240 million
|
|
|
|
|
|
25 basis point increase in expected return on assets
|
|
|
−240 million
|
|
|
|
|
|
Our U.S. pension plans generally provide covered
U.S. hourly employees with pension benefits of negotiated,
flat dollar amounts for each year of credited service earned by
an individual employee. Formulas providing for such stated
amounts are contained in the applicable labor contract. The 2007
pension expense and pension obligation at December 31, 2007
do not comprehend any future benefit
93
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
increases or decreases that may occur beyond our current labor
contract. The usual cycle for negotiating new labor contracts is
every four years. There is not a past practice of maintaining a
consistent level of benefit increases or decreases from one
contract to the next. However, the following data illustrates
the sensitivity of changes in our pension expense and pension
obligation as a result of changes in future benefit units. An
annual one-percentage point increase in the benefit units for
U.S. hourly employees, effective after the expiration of
the current contract, would result in a $60 million
increase in 2008 pension expense and a $300 million
increase in the U.S. hourly plan pension benefit obligation
at December 31, 2007. An annual one-percentage point
decrease in the same benefit units would result in a
$60 million decrease in 2008 pension expense and a
$290 million decrease in the same pension benefit
obligation.
Other
Post Retirement Benefits
We account for our OPEB in accordance with
SFAS No. 106, Employers Accounting for
Post Retirement Benefits Other Than Pensions,
(SFAS No. 106), as amended by SFAS No. 158,
which requires that amounts recognized in financial statements
be determined on an actuarial basis. This determination requires
the selection of various assumptions, including a discount rate
and health care cost trend rates used to value benefit
obligations. In estimating the discount rate, we use an
iterative process based on a hypothetical investment in a
portfolio of high-quality bonds rated AA or higher by a
recognized rating agency and a hypothetical reinvestment of the
proceeds of such bonds upon maturity using forward rates derived
from a yield curve until our U.S. OPEB obligation is
defeased. We incorporate this reinvestment component into our
methodology because it is not feasible, in light of the
magnitude and time horizon over which our U.S. OPEB
obligations extend to accomplish full defeasance through direct
cash flows from an actual set of bonds selected at any given
measurement date. We develop our estimate of the health care
cost trend rates used to value benefit obligations through
review of historical retiree cost data and near-term health care
outlook which includes appropriate cost control measures
implemented by us. Changes in the assumed discount rate or
health care cost trend rate can have significant impact on our
actuarially determined obligation and related OPEB expense.
The following are the significant assumptions used in the
measurement of the accumulated projected benefit obligations
(APBO) as of December 31, the measurement date:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Assumed Health-Care Trend Rates at December 31
|
|
2007
|
|
2006
|
|
Initial health-care cost trend rate
|
|
|
8.2
|
%
|
|
|
9.0
|
%
|
Ultimate health-care cost trend rate
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
Number of years to ultimate trend rate
|
|
|
6
|
|
|
|
6
|
|
Based on our assumptions as of December 31, 2007, the
measurement date, a change in these assumptions, holding all
other assumptions constant, would have the following effect on
our U.S. OPEB expense and obligations on an annual basis
(the U.S. APBO was a significant portion of our worldwide
APBO of $64.0 billion as of December 31, 2007):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on
|
|
|
|
|
|
|
December 31,
|
|
|
|
Effect on 2008 OPEB
|
|
|
2007
|
|
Change in Assumption
|
|
Expense
|
|
|
APBO
|
|
|
25 basis point decrease in discount rate
|
|
+ $
|
103 million
|
|
|
+ $
|
1.6 billion
|
|
25 basis point increase in discount rate
|
|
−$
|
103 million
|
|
|
−$
|
1.5 billion
|
|
A one-percentage point increase in the assumed U.S. health
care trend rates would have increased the U.S. APBO by
$6.4 billion, and the U.S. aggregate service and interest
cost components of non-pension postretirement benefit expense on
an annualized basis by $511 million. A one-percentage point
decrease would have decreased the U.S. APBO by
$5.4 billion and the U.S. aggregate service and interest
cost components of non-pension postretirement benefit expense on
an annualized basis by $420 million.
94
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
We have significant net deferred tax assets resulting from net
operating loss carryforwards, tax credit carryforwards and
deductible temporary differences that may reduce taxable income
in future periods. The detailed components of our deferred tax
assets, liabilities and valuation allowances are included in
Note 18 to our consolidated financial statements.
Valuation allowances have been established for deferred tax
assets based on a more likely than not threshold.
Our ability to realize our deferred tax assets depends on our
ability to generate sufficient taxable income within the
carryback or carryforward periods provided for in the tax law
for each applicable tax jurisdiction. We have considered the
following possible sources of taxable income when assessing the
realization of our deferred tax assets:
|
|
|
|
|
Future reversals of existing taxable temporary differences;
|
|
|
Future taxable income exclusive of reversing temporary
differences and carryforwards;
|
|
|
Taxable income in prior carryback years; and
|
|
|
Tax-planning strategies.
|
In the third quarter of 2007, we recorded a charge of
$39 billion related to establishing full valuation
allowances against our net deferred tax assets in the U.S.,
Canada and Germany. Concluding that a valuation allowance is not
required is difficult when there is significant negative
evidence which is objective and verifiable, such as cumulative
losses in recent years. We utilize a rolling twelve quarters of
results as a measure of our cumulative losses in recent years.
We then adjust those historical results to remove certain
unusual items and charges. In the U.S., Canada and Germany our
analysis indicates that we have cumulative three year historical
losses on an adjusted basis. This is considered significant
negative evidence which is objective and verifiable and
therefore, difficult to overcome. In addition, as discussed in
Near-Term Market Challenges our near-term financial
outlook in the U.S., Canada and Germany deteriorated during the
third quarter. While our long-term financial outlook in the U.S,
Canada and Germany remains positive, we concluded that our
ability to rely on our long-term outlook as to future taxable
income was limited due to uncertainty created by the weight of
the negative evidence, particularly:
|
|
|
|
|
The possibility for continued or increasing price competition in
the highly competitive U.S. market. This was seen in the
external market in the third quarter of 2007 when a competitor
introduced its new fullsize trucks and offered customer
incentives to gain market share. Accordingly, we increased
customer incentives on our recently launched fullsize trucks,
which were not previously anticipated;
|
|
|
Continued high fuel prices and the possible effect that may have
on consumer preferences related to our most profitable products,
fullsize trucks and utility vehicles;
|
|
|
Uncertainty over the effect on our cost structure from more
stringent U.S. fuel economy and global emissions standards
which may require us to sell a significant volume of alternative
fuel vehicles across our portfolio;
|
|
|
Uncertainty as to the future operating results of GMACs
Residential Capital, LLC mortgage business; and
|
|
|
Acceleration of tax deductions for OPEB liabilities as compared
to prior expectations due to changes associated with the
Settlement Agreement.
|
Accordingly, based on our current circumstances and uncertainty
regarding our future taxable income, we recorded full valuation
allowances against these net deferred tax assets during the
third quarter of 2007. If and when our operating performance
improves on a sustained basis, our conclusion regarding the need
for full valuation allowances could change, resulting in the
reversal of some or all of the valuation allowances in the
future.
Sales
Incentives
We record the estimated impact of sales incentives to our
dealers and customers as a reduction of revenue at the later of
the time of sale or when an incentive program has been announced
to our dealers. There may be numerous types of incentives
available at any particular time, including a choice of
incentives for a specific model. Incentive programs are
generally brand specific, model specific, or regionally
specific, and are for specified time periods, which may be
extended. Significant factors used in estimating the cost of
incentives include the volume of vehicles that will be affected
by the incentive programs offered by product, product mix, and
the rate of
95
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
customer acceptance of any incentive program, and the likelihood
that an incentive program will be extended, all of which are
estimated based upon historical experience and assumptions
concerning customer behavior and future market conditions.
Additionally, when an incentive program is announced, we
determine the number of vehicles in dealer inventory that are
eligible for the incentive program, and record a reduction to
our revenue in the period in which the program is announced. If
the actual number of affected vehicles differs from this
estimate, or if a different mix of incentives is actually paid,
the reduction of revenue for sales incentives could be affected.
As discussed above, there are a multitude of inputs affecting
the calculation of the estimate for sales incentives, an
increase or decrease of any of these variables could have a
significant impact on the reduction of revenue for sales
incentives.
Policy,
Warranty and Recalls
Provisions for estimated expenses related to policy and product
warranties are made at the time products are sold. These
estimates are established using historical information on the
nature, frequency, and average cost of claims. We actively study
trends of claims and take action to improve vehicle quality and
minimize claims. Actual experience could differ from the amounts
estimated requiring adjustments to these liabilities in future
periods.
Impairment
of Long-Lived Assets
We periodically evaluate the carrying value of our long-lived
assets held and used in the business, other than goodwill and
intangible assets with indefinite lives and assets held for
sale, when events and circumstances warrant. If the carrying
value of a long-lived asset is considered impaired, a loss is
recognized based on the amount by which the carrying value
exceeds the fair value for assets to be held and used. For
assets classified as held for sale, such assets are reflected at
the lower of carrying value or fair value less cost to sell.
Fair market value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk
involved. Product lines could become impaired in the future or
require additional charges as a result of declines in
profitability due to changes in volume, pricing or costs.
Derivatives
We use derivatives in the normal course of business to manage
our exposure to fluctuations in commodity prices and interest
and foreign currency rates. We account for our derivatives in
the consolidated balance sheet as assets or liabilities at fair
value in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities.
Accounting for derivatives is complex and significant judgment
and estimates are involved in estimating the fair values of
these instruments, particularly in the absence of quoted market
prices. Generally, fair value estimates of derivative contracts
involve the selection of an appropriate valuation model and
determining the appropriate inputs to use in those models, such
as contractual terms, market prices, yield curves, credit
curves, measures of volatility, prepayment rates and
correlations of these factors. The majority of our derivatives
are related to assets or indexes that are actively traded or
quoted, and the selection of the appropriate valuation model and
inputs into those models are not subject to significant
judgment, as market information is readily available.
In contrast, the selection of the appropriate valuation model
and the related inputs for a minority of our derivatives that
relate to assets or indexes that are thinly traded may be highly
judgmental, as such instruments tend to be more complex and
market information is less available. For example, valuing a
commodities purchase contract that meets the definition of a
derivative requires a subjective determination of the timing and
quantities of expected purchases. Moreover, because the tenor of
thinly traded commodities contracts is greater than the
available market data used to value those contracts, forward
prices and volatility curves are generally extrapolated using a
linear methodology over the contract life.
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Valuation
of Vehicle Operating Leases and Lease Residuals
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In accounting for vehicle operating leases, we must make a
determination at the beginning of the lease of the estimated
realizable value (i.e., residual value) of the vehicle at the
end of the lease. Residual value represents an estimate of the
market value of the vehicle at the end of the lease term, which
typically ranges from nine months to four years. The customer is
obligated to make payments during the
96
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
term of the lease to the contract residual. However, since the
customer is not obligated to purchase the vehicle at the end of
the contract, we are exposed to a risk of loss to the extent the
value of the vehicle is below the residual value estimated at
contract inception.
Residual values are initially determined by consulting
independently published residual value guides. Realization of
the residual values is dependent on our future ability to market
the vehicles under the prevailing market conditions. Over the
life of the lease, we evaluate the adequacy of our estimate of
the residual value and may make adjustments to the extent the
expected value of the vehicle at lease termination declines. For
operating leases arising from vehicle sales to daily rental car
companies, the adjustment may be in the form of revisions to the
depreciation rate or recognition of an impairment loss.
Impairment is determined to exist if the undiscounted expected
future cash flows are lower than the carrying value of the
asset. For operating leases arising from vehicles sold to
dealers, the adjustment is made to the estimate of marketing
incentive accruals for residual support programs initially
recognized when vehicles are sold to dealers. When a lease
vehicle is returned to us, the asset is reclassified from
Equipment on operating leases, net to Inventory at the lower of
cost or estimated fair value, less costs to sell.
Our depreciation methodology related to Equipment on operating
leases, net considers managements expectation of the value
of the vehicles upon lease termination, which is based on
numerous assumptions and factors influencing used automotive
vehicle values. The critical assumptions underlying the
estimated carrying value of automotive lease assets include:
(1) estimated market value information obtained and used by
management in estimating residual values; (2) proper
identification and estimation of business conditions;
(3) our remarketing abilities; and (4) our vehicle and
marketing programs. Changes in these assumptions could have a
significant impact on the value of the lease residuals.
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Accounting
Standards Not Yet Adopted
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In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157) which provides a consistent
definition of fair value which focuses on exit price and
prioritizes, within a measurement of fair value, the use of
market-based inputs over entity-specific inputs.
SFAS No. 157 requires expanded disclosures about fair
value measurements and establishes a three-level hierarchy for
fair value measurements based on the transparency of inputs to
the valuation of an asset or liability as of the measurement
date. The standard also requires that a company use its own
nonperformance risk when measuring liabilities carried at fair
value, including derivatives. In February 2008, the FASB
approved a FASB Staff Position (FSP) that permits companies to
partially defer the effective date of SFAS No. 157 for
one year for nonfinancial assets and nonfinancial liabilities
that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. The FSP did not permit
companies to defer recognition and disclosure requirements for
financial assets and financial liabilities or for nonfinancial
assets and nonfinancial liabilities that are remeasured at least
annually. SFAS No. 157 is effective for financial
assets and financial liabilities and for nonfinancial assets and
nonfinancial liabilities that are remeasured at least annually
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 will be applied
prospectively. We intend to defer adoption of
SFAS No. 157 for one year for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at
fair value in the financial statements on a nonrecurring basis.
We are currently evaluating the effects, if any, that
SFAS No. 157 may have 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 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. We do not expect the adoption of this
standard to have a material impact on our financial condition
and results of operations.
In June 2007, the FASB ratified Emerging Issue Task Force (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.
97
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Management estimates that upon adoption, this guidance will not
have a material effect 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 to additional paid in capital
the tax benefits on dividends or dividend equivalents that are
charged to retained earnings for certain share-based awards. 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
estimates that upon adoption, this guidance will not have a
material effect on our financial condition and results of
operations.
In December 2007, the FASB issued SFAS 141(R),
Business Combinations (SFAS No. 141(R))
which retained the underlying concepts of SFAS No. 141
in that all business combinations are still required to be
accounted for at fair value under the acquisition method of
accounting but SFAS No. 141(R) changed the method of
applying the acquisition method in a number of significant
aspects. SFAS 141(R) will require that: (1) for all
business combinations, the acquirer records all assets and
liabilities of the acquired business, including goodwill,
generally at their fair values; (2) certain contingent
assets and liabilities acquired be recognized at their fair
values on the acquisition date; (3) contingent
consideration be recognized at its fair value on the acquisition
date and, for certain arrangements, changes in fair value will
be recognized in earnings until settled;
(4) acquisition-related transaction and restructuring costs
be expensed rather than treated as part of the cost of the
acquisition and included in the amount recorded for assets
acquired; (5) in step acquisitions, previous equity
interests in an acquiree held prior to obtaining control be
re-measured to their acquisition-date fair values, with any gain
or loss recognized in earnings; and (6) when making
adjustments to finalize initial accounting, companies revise any
previously issued post-acquisition financial information in
future financial statements to reflect any adjustments as if
they had been recorded on the acquisition date.
SFAS No. 141(R) is effective on a prospective basis
for all business combinations for which the acquisition date is
on or after the beginning of the first annual period subsequent
to December 15, 2008, with the exception of the accounting
for valuation allowances on deferred taxes and acquired tax
contingencies. SFAS No. 141(R) amends
SFAS No. 109 such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective
date of this statement should also apply the provisions of
SFAS No. 141(R). This standard will be applied to
future business combinations.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB 51
(SFAS No. 160) which amends ARB 51 to establish
new standards that will govern the accounting for and reporting
of noncontrolling interests in partially owned consolidated
subsidiaries and the loss of control of subsidiaries. Also,
SFAS No. 160 requires: that (1) noncontrolling
interest, previously referred to as minority interest, be
reported as part of equity in the consolidated financial
statements; (2) losses be allocated to the noncontrolling
interest even when such allocation might result in a deficit
balance, reducing the losses attributed to the controlling
interest; (3) changes in ownership interests be treated as
equity transactions if control is maintained; and, (4) upon
a loss of control, any gain or loss on the interest sold be
recognized in earnings. SFAS No. 160 is effective on a
prospective basis for all fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008, except for the presentation and
disclosure requirements, which will be applied retrospectively.
We are currently evaluating the effects, if any, that
SFAS No. 160 may have on our financial condition and
results of operations.
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,
when, 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
98
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
supplemented in subsequent reports on SEC
Forms 10-K,
10-Q and
8-K. Such
factors include those listed above in Risk Factors, among
others, and the following:
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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;
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The pace of product introductions and development of technology
associated with the products;
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Market acceptance of our new products;
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Significant changes in the competitive environment and the
effect of competition in our markets, including on our pricing
policies;
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Our ability to maintain adequate liquidity and financing sources
and an appropriate level of debt;
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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;
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Costs and risks associated with litigation;
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The final results of investigations and inquiries by the SEC and
other governmental agencies;
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Changes in the ability of GMAC to make distributions on the
Preferred Membership Interests held by us;
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Changes in accounting principles, or their application or
interpretation, and our ability to make estimates and the
assumptions underlying the estimates, including the estimates
for the Delphi pension benefit guarantees, which could result in
an impact on earnings;
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Negotiations and bankruptcy court actions with respect to
Delphis obligations to us and our obligations to Delphi,
negotiations with respect to our obligations under the benefit
guarantees to Delphi employees and our ability to recover any
indemnity claims against Delphi;
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Labor strikes or work stoppages at our facilities or our key
suppliers such as Delphi or financial difficulties at our key
suppliers such as Delphi;
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Additional credit rating downgrades and the effects thereof;
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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 our
employees in the United States other than the UAW;
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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 2007 National Agreement pursuant to the Settlement
Agreement 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 Post-Retirement Medical Benefits for the Covered Group as
set forth in the Settlement Agreement, 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;
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Shortages of and price increases for fuel; and
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Changes in economic conditions, commodity prices, currency
exchange rates or political stability in the markets in which we
operate.
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99
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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:
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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;
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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;
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The profitability and financial condition of its operations are
dependent upon our operations, and it has substantial credit
exposure to us;
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Recent developments in the residential mortgage market,
especially in the nonprime sector, may adversely affect
GMACs revenues, profitability and financial condition;
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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;
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Significant changes in the competitive environment and the
effect of competition in GMACs markets, including on
GMACs pricing policies;
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Restrictions on the ability of GMACs residential mortgage
subsidiary to pay dividends and prepay subordinated debt
obligations to GMAC;
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Changes in the residual value of off-lease vehicles;
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Changes in U.S. government-sponsored mortgage programs or
disruptions in the markets in which GMACs mortgage
subsidiaries operate;
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Changes in GMACs contractual servicing rights;
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Costs and risks associated with litigation;
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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;
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The threat of natural calamities;
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Changes in economic conditions, currency exchange rates, or
political stability in the markets in which it operates; and
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Changes in the existing, or the adoption of new laws,
regulations, policies, or other activities of governments,
agencies and similar organizations.
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We caution investors not to place undue reliance on
forward-looking statements. We undertake no obligation to update
publicly or otherwise revise any forward-looking statements,
whether as a result of new information, future events or other
factors that affect the subject of these statements, except
where we are expressly required to do so by law.
* * * * * *
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in foreign currency
exchange rates, interest rates and certain commodity prices. We
enter into a variety of foreign exchange, interest rate and
commodity forward contracts and options to maintain the desired
level of exposure arising from these risks.
100
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
The overall financial risk management program is placed under
the responsibility of our Risk Management Committee (RMC), which
reviews and, where appropriate, approves recommendations on the
level of exposure and the strategies to be pursued to mitigate
these risks. A risk management control system is utilized to
monitor the strategies, risks and related hedge positions, in
accordance with the policies and procedures approved by the RMC.
A discussion of our accounting policies for derivative financial
instruments is included in Note 2 to the consolidated
financial statements. Further information on our exposure to
market risk is included in Notes 16 and 19 to the
consolidated financial statements.
The following analyses provide quantitative information
regarding our exposure to foreign currency exchange rate risk,
interest rate risk and commodity price risk. We use sensitivity
analysis to measure the potential loss in the fair value of
financial instruments with exposure to market risk. The model
used assumes instantaneous, parallel shifts in exchange rates,
interest rate yield curves and commodity prices. For options and
other instruments with nonlinear returns, models appropriate to
these types of instruments are utilized to determine the impact
of market shifts. There are certain shortcomings inherent in the
sensitivity analyses presented, primarily due to the assumption
that interest rates and commodity prices change in a parallel
fashion and that spot exchange rates change instantaneously. In
addition, the analyses are unable to reflect the complex market
reactions that normally would arise from the market shifts
modeled.
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Foreign
Exchange Rate Risk
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We have foreign currency exposures related to buying, selling
and financing in currencies other than the local currencies in
which we operate. Derivative instruments, such as foreign
currency forwards, swaps and options are used to hedge these
exposures. At December 31, 2007 and 2006, the net fair
value asset of financial instruments with exposure to foreign
currency risk was $1.9 billion and $4.4 billion,
respectively. The potential loss in fair value for such
financial instruments from a 10% adverse change in quoted
foreign currency exchange rates would be $2 billion and
$2 billion for 2007 and 2006, respectively.
We are subject to market risk from exposure to changes in
interest rates due to our financing activities. Interest rate
risk is managed mainly with interest rate swaps.
At December 31, 2007 and 2006, the net fair value liability
of financial instruments held for purposes other than trading
with exposure to interest rate risk was $26.7 billion and
$25.3 billion, respectively. The potential loss in fair
value resulting from a 10% adverse shift in quoted interest
rates would be $1.7 billion and $1.5 billion for 2007
and 2006, respectively.
We are exposed to changes in prices of commodities used in our
Automotive business, primarily associated with various
non-ferrous and precious metals for automotive components and
energy used in the overall manufacturing process. Some of the
commodity purchase contracts meet the definition of a derivative
under SFAS No. 133. In addition, we enter into various
derivatives, such as commodity swaps and options, to offset our
commodity price exposures.
At December 31, 2007 and 2006 the net fair value asset of
derivative and purchase contracts was $517 million and
$755 million, respectively. The potential loss in fair
value resulting from a 10% adverse change in the underlying
commodity prices would be $331 million and
$318 million for 2007 and 2006, respectively. This amount
excludes the offsetting impact of the commodity price risk
inherent in the physical purchase of the underlying commodities.
* * * * * * *
101
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
General
Motors Corporation, its Directors, and Stockholders:
We have audited the internal control over financial reporting of
General Motors Corporation and subsidiaries (the Corporation) as
of December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Corporations management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in Managements Report
on Internal Control over Financial Reporting in Item 9A.
Our responsibility is to express an opinion on the
Corporations internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
that risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis.
The following material weaknesses have been identified and
included in managements assessment:
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(1)
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Controls over the period-end financial reporting process were
not effective.
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(2)
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Controls to ensure the consolidated financial statements comply
with SFAS No. 109, Accounting for Income Taxes,
were not effective.
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(3)
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Controls over the accounting for employee benefit arrangements
were not effective.
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These material weaknesses were considered in determining the
nature, timing, and extent of audit tests applied in our audit
of the consolidated financial statements and the financial
statement schedule listed in the Index at Item 15 as of and
for the year ended December 31, 2007. This report does not
affect our report on such financial statements and financial
statement schedule.
In our opinion, because of the effect of the material weaknesses
identified above on the achievement of the objectives of the
control criteria, the Corporation has not maintained effective
internal control over financial reporting as of
December 31, 2007, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
102
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Consolidated Balance Sheets and the related Consolidated
Statements of Operations, Cash Flows, and Stockholders
Equity (Deficit) of the Corporation as of and for the year ended
December 31, 2007. Our audit also included the financial
statement schedule listed in the Index at Item 15 as of and
for the year ended December 31, 2007. Our report dated
February 28, 2008 expressed an unqualified opinion on those
financial statements and financial statement schedule and
included an explanatory paragraph relating to the adoption of
the recognition and measurement provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109, and the change in measurement date for defined
benefit plan assets and liabilities to coincide with the
Corporations year end to conform to Statement of Financial
Accounting Standards No. 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106 and 132(R).
/s/ Deloitte &
Touche LLP
Deloitte & Touche LLP
Detroit, Michigan
February 28, 2008
103
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
General
Motors Corporation, its Directors, and Stockholders:
We have audited the accompanying Consolidated Balance Sheets of
General Motors Corporation and subsidiaries (the Corporation) as
of December 31, 2007 and 2006, and the related Consolidated
Statements of Operations, Cash Flows and Stockholders
Equity (Deficit) for each of the three years in the period ended
December 31, 2007. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and financial statement schedule are the
responsibility of the Corporations management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
General Motors Corporation and subsidiaries at December 31,
2007 and 2006, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, the Corporation: (1) effective January 1,
2007, adopted the recognition and measurement provisions of FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109, (2) effective January 1, 2007,
changed the measurement date for defined benefit plan assets and
liabilities to coincide with its year end to conform to
Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R)
(SFAS No. 158), (3) effective
December 31, 2006, began to recognize the funded status of
its defined benefit plans in its consolidated balance sheets to
conform to SFAS No. 158, and (4) effective
December 31, 2005, began to account for the estimated fair
value of conditional asset retirement obligations to conform to
FASB Interpretation No. 47, Accounting for Conditional
Asset Retirement Obligations.
As discussed in Note 3 to the consolidated financial
statements, on November 30, 2006, the Corporation sold a
51% controlling interest in GMAC LLC, its former wholly-owned
finance subsidiary. The Corporations remaining 49%
interest in GMAC LLC is accounted for as an equity method
investment.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Corporations internal control over financial reporting as
of December 31, 2007, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 28, 2008 expressed
an adverse opinion on the Corporations internal control
over financial reporting.
/s/ Deloitte &
Touche LLP
Deloitte & Touche LLP
Detroit, Michigan
February 28, 2008
104
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Dollars
in millions, except per share amounts)
Item 8. Financial
Statements and Supplementary Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales and revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
$
|
178,199
|
|
|
$
|
171,179
|
|
|
$
|
158,623
|
|
Financial services and insurance revenue
|
|
|
2,923
|
|
|
|
34,422
|
|
|
|
34,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
|
181,122
|
|
|
|
205,601
|
|
|
|
193,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive cost of sales
|
|
|
166,259
|
|
|
|
163,742
|
|
|
|
158,254
|
|
Selling, general and administrative expense
|
|
|
14,412
|
|
|
|
13,650
|
|
|
|
13,003
|
|
Financial services and insurance expense
|
|
|
2,742
|
|
|
|
29,794
|
|
|
|
30,813
|
|
Other expenses
|
|
|
2,099
|
|
|
|
4,238
|
|
|
|
7,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
185,512
|
|
|
|
211,424
|
|
|
|
209,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(4,390
|
)
|
|
|
(5,823
|
)
|
|
|
(16,044
|
)
|
Equity in loss of GMAC LLC
|
|
|
(1,245
|
)
|
|
|
(5
|
)
|
|
|
|
|
Automotive and other interest expense
|
|
|
(2,902
|
)
|
|
|
(2,642
|
)
|
|
|
(2,534
|
)
|
Automotive interest income and other non-operating income
|
|
|
2,284
|
|
|
|
2,812
|
|
|
|
1,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes, equity
income, minority interests and cumulative effect of a change in
accounting principle
|
|
|
(6,253
|
)
|
|
|
(5,658
|
)
|
|
|
(17,229
|
)
|
Income tax expense (benefit)
|
|
|
37,162
|
|
|
|
(3,046
|
)
|
|
|
(6,046
|
)
|
Equity income, net of tax
|
|
|
524
|
|
|
|
513
|
|
|
|
610
|
|
Minority interests, net of tax
|
|
|
(406
|
)
|
|
|
(324
|
)
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(43,297
|
)
|
|
|
(2,423
|
)
|
|
|
(10,621
|
)
|
Discontinued operations (Note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
|
256
|
|
|
|
445
|
|
|
|
313
|
|
Gain on sale of discontinued operations, net of tax
|
|
|
4,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
4,565
|
|
|
|
445
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of a change in accounting principle
|
|
|
(38,732
|
)
|
|
|
(1,978
|
)
|
|
|
(10,308
|
)
|
Cumulative effect of a change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(38,732
|
)
|
|
$
|
(1,978
|
)
|
|
$
|
(10,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(76.52
|
)
|
|
$
|
(4.29
|
)
|
|
$
|
(18.78
|
)
|
Discontinued operations
|
|
|
8.07
|
|
|
|
0.79
|
|
|
|
0.55
|
|
Cumulative effect of a change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(68.45
|
)
|
|
$
|
(3.50
|
)
|
|
$
|
(18.42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
(millions)
|
|
|
566
|
|
|
|
566
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to consolidated financial
statements.
105
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,549
|
|
|
$
|
23,774
|
|
Marketable securities
|
|
|
2,139
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
Total cash and marketable securities
|
|
|
26,688
|
|
|
|
23,912
|
|
Accounts and notes receivable, net
|
|
|
9,659
|
|
|
|
8,216
|
|
Inventories
|
|
|
14,939
|
|
|
|
13,921
|
|
Equipment on operating leases, net
|
|
|
5,283
|
|
|
|
6,125
|
|
Other current assets and deferred income taxes
|
|
|
3,566
|
|
|
|
12,982
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
60,135
|
|
|
|
65,156
|
|
Financing and Insurance Operations Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
268
|
|
|
|
349
|
|
Investments in securities
|
|
|
215
|
|
|
|
188
|
|
Equipment on operating leases, net
|
|
|
6,712
|
|
|
|
11,794
|
|
Equity in net assets of GMAC LLC
|
|
|
7,079
|
|
|
|
7,523
|
|
Other assets
|
|
|
2,715
|
|
|
|
2,269
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations assets
|
|
|
16,989
|
|
|
|
22,123
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
Equity in net assets of nonconsolidated affiliates
|
|
|
1,919
|
|
|
|
1,969
|
|
Property, net
|
|
|
43,017
|
|
|
|
41,934
|
|
Goodwill and intangible assets, net
|
|
|
1,066
|
|
|
|
1,118
|
|
Deferred income taxes
|
|
|
2,116
|
|
|
|
33,079
|
|
Prepaid pension
|
|
|
20,175
|
|
|
|
17,366
|
|
Other assets
|
|
|
3,466
|
|
|
|
3,559
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
71,759
|
|
|
|
99,025
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
148,883
|
|
|
$
|
186,304
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable (principally trade)
|
|
$
|
29,439
|
|
|
$
|
26,931
|
|
Short-term borrowings and current portion of long-term debt
|
|
|
6,047
|
|
|
|
5,666
|
|
Accrued expenses
|
|
|
34,822
|
|
|
|
34,120
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
70,308
|
|
|
|
66,717
|
|
Financing and Insurance Operations Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
30
|
|
|
|
192
|
|
Debt
|
|
|
4,908
|
|
|
|
9,438
|
|
Other liabilities and deferred income taxes
|
|
|
875
|
|
|
|
1,947
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations liabilities
|
|
|
5,813
|
|
|
|
11,577
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
33,384
|
|
|
|
33,067
|
|
Postretirement benefits other than pensions
|
|
|
47,375
|
|
|
|
50,409
|
|
Pensions
|
|
|
11,381
|
|
|
|
11,934
|
|
Other liabilities and deferred income taxes
|
|
|
16,102
|
|
|
|
17,062
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
108,242
|
|
|
|
112,472
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
184,363
|
|
|
|
190,766
|
|
Commitments and contingencies (Note 17)
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
1,614
|
|
|
|
1,190
|
|
Stockholders Deficit
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, authorized 6,000,000, no shares
issued and outstanding
|
|
|
|
|
|
|
|
|
$1 2/3 par value common stock (2,000,000,000 shares
authorized, 756,637,541 and 566,059,249 shares issued and
outstanding at December 31, 2007, respectively, and
756,637,541 and 565,670,254 shares issued and outstanding
at December 31, 2006, respectively)
|
|
|
943
|
|
|
|
943
|
|
Capital surplus (principally additional paid-in capital)
|
|
|
15,319
|
|
|
|
15,336
|
|
Retained earnings (deficit)
|
|
|
(39,392
|
)
|
|
|
195
|
|
Accumulated other comprehensive loss
|
|
|
(13,964
|
)
|
|
|
(22,126
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(37,094
|
)
|
|
|
(5,652
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority interests, and stockholders
deficit
|
|
$
|
148,883
|
|
|
$
|
186,304
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to consolidated financial
statements.
106
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(38,732
|
)
|
|
$
|
(1,978
|
)
|
|
$
|
(10,417
|
)
|
Less income from discontinued operations
|
|
|
4,565
|
|
|
|
445
|
|
|
|
313
|
|
Less cumulative effect of a change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(43,297
|
)
|
|
|
(2,423
|
)
|
|
|
(10,621
|
)
|
Adjustments to reconcile loss from continuing operations to net
cash provided by (used in) continuing operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, impairments and amortization expense
|
|
|
9,513
|
|
|
|
10,885
|
|
|
|
15,732
|
|
Mortgage servicing rights and premium amortization
|
|
|
|
|
|
|
1,021
|
|
|
|
1,142
|
|
Goodwill impairment GMAC
|
|
|
|
|
|
|
828
|
|
|
|
712
|
|
Delphi charge
|
|
|
1,547
|
|
|
|
500
|
|
|
|
5,500
|
|
Loss on sale of 51% interest in GMAC
|
|
|
|
|
|
|
2,910
|
|
|
|
|
|
Provision for credit financing losses
|
|
|
|
|
|
|
1,799
|
|
|
|
1,074
|
|
Net gains on sale of credit receivables
|
|
|
|
|
|
|
(1,256
|
)
|
|
|
(1,741
|
)
|
Net gains on sale of investment securities
|
|
|
|
|
|
|
(1,006
|
)
|
|
|
(104
|
)
|
Other postretirement employee benefit (OPEB) expense
|
|
|
2,362
|
|
|
|
3,567
|
|
|
|
5,650
|
|
OPEB payments
|
|
|
(3,751
|
)
|
|
|
(3,802
|
)
|
|
|
(4,084
|
)
|
VEBA/401(h) withdrawals
|
|
|
1,694
|
|
|
|
3,061
|
|
|
|
3,168
|
|
Pension expense
|
|
|
1,799
|
|
|
|
4,911
|
|
|
|
2,495
|
|
Pension contributions
|
|
|
(937
|
)
|
|
|
(1,032
|
)
|
|
|
(833
|
)
|
Retiree lump sum and vehicle voucher expense, net of payments
|
|
|
|
|
|
|
(325
|
)
|
|
|
(264
|
)
|
Net change in mortgage loans
|
|
|
|
|
|
|
(21,578
|
)
|
|
|
(29,119
|
)
|
Net change in mortgage securities
|
|
|
|
|
|
|
427
|
|
|
|
(1,155
|
)
|
Provisions for deferred taxes
|
|
|
36,977
|
|
|
|
(4,166
|
)
|
|
|
(6,731
|
)
|
Change in other investments and miscellaneous assets
|
|
|
663
|
|
|
|
(477
|
)
|
|
|
(690
|
)
|
Change in other operating assets and liabilities, net of
acquisitions and disposals
|
|
|
(3,412
|
)
|
|
|
(8,512
|
)
|
|
|
20
|
|
Other
|
|
|
4,349
|
|
|
|
2,318
|
|
|
|
2,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operating
activities
|
|
|
7,507
|
|
|
|
(12,350
|
)
|
|
|
(17,170
|
)
|
Cash provided by discontinued operating activities
|
|
|
224
|
|
|
|
591
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
7,731
|
|
|
$
|
(11,759
|
)
|
|
$
|
(16,856
|
)
|
107
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Concluded)
(Dollars
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property
|
|
$
|
(7,542
|
)
|
|
$
|
(7,902
|
)
|
|
$
|
(8,141
|
)
|
Investments in marketable securities, acquisitions
|
|
|
(10,155
|
)
|
|
|
(28,062
|
)
|
|
|
(27,479
|
)
|
Investments in marketable securities, liquidations
|
|
|
8,119
|
|
|
|
31,081
|
|
|
|
28,216
|
|
Net change in mortgage servicing rights
|
|
|
|
|
|
|
(61
|
)
|
|
|
(267
|
)
|
Increase in finance receivables
|
|
|
|
|
|
|
(1,160
|
)
|
|
|
(6,582
|
)
|
Proceeds from sale of finance receivables
|
|
|
|
|
|
|
18,374
|
|
|
|
31,652
|
|
Proceeds from sale of 51% interest in GMAC
|
|
|
|
|
|
|
7,353
|
|
|
|
|
|
Proceeds from sale of discontinued operations
|
|
|
5,354
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of business units/equity investments
|
|
|
|
|
|
|
10,506
|
|
|
|
846
|
|
Operating leases, acquisitions
|
|
|
|
|
|
|
(17,070
|
)
|
|
|
(15,496
|
)
|
Operating leases, liquidations
|
|
|
3,165
|
|
|
|
7,039
|
|
|
|
5,362
|
|
Capital contribution to GMAC LLC
|
|
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
Investments in companies, net of cash acquired
|
|
|
(46
|
)
|
|
|
(357
|
)
|
|
|
1,355
|
|
Other
|
|
|
389
|
|
|
|
(15
|
)
|
|
|
(863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing investing
activities
|
|
|
(1,738
|
)
|
|
|
19,726
|
|
|
|
8,603
|
|
Cash used in discontinued investing activities
|
|
|
(22
|
)
|
|
|
(31
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(1,760
|
)
|
|
|
19,695
|
|
|
|
8,565
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in short-term borrowings
|
|
|
(5,749
|
)
|
|
|
7,030
|
|
|
|
(10,125
|
)
|
Borrowings of long-term debt
|
|
|
2,131
|
|
|
|
79,566
|
|
|
|
78,276
|
|
Payments made on long-term debt
|
|
|
(1,403
|
)
|
|
|
(92,290
|
)
|
|
|
(69,566
|
)
|
Cash dividends paid to stockholders
|
|
|
(567
|
)
|
|
|
(563
|
)
|
|
|
(1,134
|
)
|
Other
|
|
|
|
|
|
|
2,487
|
|
|
|
6,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing financing
activities
|
|
|
(5,588
|
)
|
|
|
(3,770
|
)
|
|
|
3,481
|
|
Cash provided by (used in) discontinued financing activities
|
|
|
(5
|
)
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(5,593
|
)
|
|
|
(3,767
|
)
|
|
|
3,480
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
316
|
|
|
|
365
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
694
|
|
|
|
4,534
|
|
|
|
(4,896
|
)
|
Cash and cash equivalents retained by GMAC LLC upon disposal
|
|
|
|
|
|
|
(11,137
|
)
|
|
|
|
|
Cash and cash equivalents of held for sale operations
|
|
|
|
|
|
|
|
|
|
|
(371
|
)
|
Cash and cash equivalents at beginning of the year
|
|
|
24,123
|
|
|
|
30,726
|
|
|
|
35,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
$
|
24,817
|
|
|
$
|
24,123
|
|
|
$
|
30,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to consolidated financial
statements.
108
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006, AND 2005
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Other
|
|
|
Total
|
|
|
|
Shares of
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Common
|
|
|
Capital
|
|
|
Capital
|
|
|
Income
|
|
|
(Accumulated
|
|
|
Income
|
|
|
Equity
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Surplus
|
|
|
(Loss)
|
|
|
Deficit)
|
|
|
(Loss)
|
|
|
(Deficit)
|
|
|
Balance January 1, 2005
|
|
|
565
|
|
|
$
|
942
|
|
|
$
|
15,241
|
|
|
|
|
|
|
$
|
14,511
|
|
|
$
|
(2,814
|
)
|
|
$
|
27,880
|
|
Prior period adjustment (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(211
|
)
|
|
|
|
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2005, as restated
|
|
|
565
|
|
|
|
942
|
|
|
|
15,241
|
|
|
|
|
|
|
|
14,300
|
|
|
|
(2,814
|
)
|
|
|
27,669
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(10,417
|
)
|
|
|
(10,417
|
)
|
|
|
|
|
|
|
(10,417
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,721
|
)
|
|
|
|
|
|
|
(1,721
|
)
|
|
|
(1,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(12,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1
|
|
|
|
1
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,134
|
)
|
|
|
|
|
|
|
(1,134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005, as restated
|
|
|
566
|
|
|
|
943
|
|
|
|
15,285
|
|
|
|
|
|
|
|
2,749
|
|
|
|
(4,535
|
)
|
|
|
14,442
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,978
|
)
|
|
|
(1,978
|
)
|
|
|
|
|
|
|
(1,978
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(645
|
)
|
|
|
|
|
|
|
(645
|
)
|
|
|
(645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting
principle adoption of SFAS 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,946
|
)
|
|
|
(16,946
|
)
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
Cumulative effect of a change in accounting
principle adoption of SFAS 156, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(563
|
)
|
|
|
|
|
|
|
(563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006, as restated
|
|
|
566
|
|
|
|
943
|
|
|
|
15,336
|
|
|
|
|
|
|
|
195
|
|
|
|
(22,126
|
)
|
|
|
(5,652
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(38,732
|
)
|
|
|
(38,732
|
)
|
|
|
|
|
|
|
(38,732
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans, net (Note 24)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,009
|
|
|
|
|
|
|
|
7,009
|
|
|
|
7,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(31,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of accounting change regarding pension plans and OPEB
plans 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
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
Conversion of GMAC Preferred Membership Interest (Note 8)
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(567
|
)
|
|
|
|
|
|
|
(567
|
)
|
Purchase of convertible note hedge (Note 14)
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
566
|
|
|
$
|
943
|
|
|
$
|
15,319
|
|
|
|
|
|
|
$
|
(39,392
|
)
|
|
$
|
(13,964
|
)
|
|
$
|
(37,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to consolidated financial
statements.
109
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature
of Operations
We (also General Motors Corporation, GM or the Corporation) are
primarily engaged in the worldwide production and marketing of
cars and trucks. We develop, manufacture and market vehicles
worldwide through our four regions which consist of 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. Significant
Accounting Policies
|
|
|
Principles
of Consolidation
|
The consolidated financial statements include the accounts of
General Motors Corporation and our majority-owned subsidiaries
and variable interest entities (VIEs) of which it has been
determined that we are the primary beneficiary. Our share of
earnings or losses of nonconsolidated affiliates 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 affiliates. If
we are not able to exercise significant influence over the
operating and financial decisions of the affiliate, 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 statement of operations 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 and 2005
financial statements to conform to the current period
presentation.
|
|
|
Use of
Estimates in the Preparation of the Financial
Statements
|
Our consolidated financial statements are prepared in conformity
with accounting principles generally accepted in the United
States, which require the use of estimates, judgments, and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the periods
presented. Management believes that the accounting estimates
employed are appropriate and the resulting balances are
reasonable; however, due to the inherent uncertainties in making
estimates actual results could differ from the original
estimates, requiring adjustments to these balances in future
periods.
Automotive sales consist primarily of revenue generated from the
sale of vehicles. Vehicle sales are recorded when the title and
risks and rewards of ownership have passed, which is generally
when the vehicle is released to the carrier responsible for
transporting vehicles to dealers. Provisions for recurring
dealer and customer sales and leasing incentives, consisting of
allowances and rebates, are recorded as reductions to Automotive
sales at the time of vehicle sales. Additionally, all other
incentives, allowances, and rebates related to vehicles
previously sold are recognized as reductions to Automotive sales
when announced.
110
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Vehicle sales to daily rental car companies with guaranteed
repurchase obligations are accounted for as Equipment on
operating leases, net. Lease revenue is recognized ratably over
the term of the lease based on the difference between net sales
proceeds and the guaranteed repurchase amount. Equipment on
operating leases, net is depreciated based on the difference
between the cost of the vehicle and estimated residual value
using the straight-line method over the term of the lease
agreement. Management reviews residual values periodically to
determine that estimates remain appropriate, and if an asset is
impaired losses are recognized at the time of the impairment.
We also generate revenue from customer subscriptions related to
comprehensive in-vehicle security, communications, and
diagnostic systems in our vehicles, as well as the sale of
prepaid minutes for our Hands-Free Calling (HFC) system.
Subscription service revenue is deferred and recognized on a
straight-line basis over the subscription period. OnStar offers
a one-year subscription as part of the sale or lease of a new
vehicle. The fair value of the subscription is recorded as
deferred revenue when a vehicle is sold, and amortized over the
one year subscription period beginning when the end user
activates the subscription. The HFC revenue is deferred and
recognized on a straight-line basis over the life of the
contract.
For credit card programs in which we have a redemption
liability, we recognize the payments received from the bank over
our estimate of the time period the customer will accumulate and
redeem their rebate points. Currently, this time period is
estimated to be 60 months for the majority of our credit
card programs and such revenue is amortized using the
straight-line method. This redemption period is reviewed
periodically to determine if it remains appropriate. We estimate
and accrue the redemption liability anticipated to be paid to
the dealer at the time specific vehicles are sold to the dealer.
The redemption cost is classified as a reduction of Automotive
revenue in our statements of operations.
|
|
|
Financial
Services and Insurance Revenues
|
Financial services revenues are generated through the purchase
of retail installment loans, dealer floor plan financing and
other lines of credit to dealers, fleet leasing, and factoring
of receivables. Financing revenue is recorded over the terms of
the receivables using the interest method. Income from operating
lease assets is recognized on a straight-line basis over the
scheduled lease terms.
Insurance revenues consist of premiums earned on a basis related
to coverage provided over the terms of the policies.
Commissions, premium taxes, and other costs incurred in
acquiring new business are deferred and amortized over the terms
of the related policies on the same basis as premiums are earned.
Mortgage service revenues are generated through the origination,
purchase, servicing, sale and securitization of consumer (i.e.,
residential) and commercial mortgage loans, and other mortgage
related products. Typically, mortgage loans are originated and
sold to investors in the secondary market, including
securitization sales.
Advertising costs of $5.5 billion, $5.4 billion and
$5.8 billion in 2007, 2006 and 2005, respectively, were
expensed as incurred.
|
|
|
Research
and Development Expenditures
|
Research and development expenditures of $8.1 billion,
$6.6 billion, and $6.7 billion in 2007, 2006 and 2005,
respectively, were expensed as incurred.
Property, plant and equipment, including internal use software,
is recorded at cost. Major improvements that extend the useful
life of property are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. As of
January 1, 2001, we adopted the straight-line method of
depreciation for real estate, plants and equipment placed in
service after that date. Assets placed in service before
January 1, 2001 continue to be depreciated using
accelerated methods. The accelerated methods accumulate
depreciation of
111
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approximately two-thirds of the depreciable cost during the
first half of the estimated useful lives of property groups as
compared to the straight-line method, which allocates
depreciable costs equally over the estimated useful lives of
property groups. Leasehold improvements are amortized over the
period of lease or the life of the asset, whichever is shorter.
Special tools represent product specific tools, dies, molds and
other items used in the manufacturing process of vehicles.
Expenditures for special tools placed in service after
January 1, 2001 were capitalized and amortized using the
straight-line method over their estimated useful lives which
range from one year to 10 years. Expenditures for special
tools placed in service prior to January 1, 2001, were
capitalized and amortized over their estimated useful lives,
using the units of production method.
|
|
|
Goodwill
and Intangible Assets
|
Goodwill represents the excess of the cost of an acquisition
over the fair value of net assets acquired. In accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142), goodwill is reviewed for
impairment utilizing a two-step process. The first step of the
impairment test requires the identification of the reporting
units, and comparison of the fair value of each of these
reporting units to the respective carrying value. The fair value
of the reporting units is determined based on valuation
techniques using the best information that is available, such as
discounted cash flow projections. If the carrying value is less
than the fair value, no impairment exists and the second step is
not performed. If the carrying value is higher than the fair
value, there is an indication that impairment may exist and the
second step must be performed to compute the amount of the
impairment. In the second step, the impairment is computed by
comparing the implied fair value of reporting unit goodwill with
the carrying amount of that goodwill. SFAS No. 142
requires goodwill to be tested for impairment annually at the
same time every year, and when an event occurs or circumstances
change such that it is reasonably possible that an impairment
may exist. The annual impairment tests are performed in the
fourth quarter of each year.
Other intangible assets, which include customer lists,
trademarks, and other identifiable intangible assets, are
amortized on a straight-line basis over estimated useful lives
of three to 10 years.
|
|
|
Valuation
of Long-Lived Assets
|
We periodically evaluate the carrying value of long-lived assets
to be held and used in the business, other than goodwill and
intangible assets with indefinite lives and assets held for
sale, when events and circumstances warrant. If the carrying
value of a long-lived asset is considered impaired, a loss is
recognized based on the amount by which the carrying value
exceeds the fair market value for assets to be held and used.
Assets classified as held for sale are reflected at the lower of
carrying value or fair value less cost to sell. Fair market
value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved.
Long-lived assets to be disposed of other than by sale are
considered held for use until disposition.
|
|
|
Valuation
of Equity Method Investments
|
Investees accounted for under the equity method of accounting
are evaluated for impairment in accordance with Accounting
Principles Board Opinion No. 18, The Equity Method of
Accounting for Investments in Common Stock. An impairment
loss would be recorded whenever a decline in value of an equity
investment below its carrying amount is determined to be other
than temporary. In determining if a decline is other than
temporary we consider such factors as the length of time and
extent to which the fair value of the investment has been less
than the carrying amount of the equity affiliate, the near-term
and longer-term operating and financial prospects of the
affiliate and our intent and ability to hold the investment for
a period of time sufficient to allow for any anticipated
recovery.
|
|
|
Equipment
on Operating Leases, net
|
Equipment on operating leases, net is reported at cost, less
accumulated depreciation and net of origination fees or costs.
Income from operating lease assets, which includes lease
origination fees, net of lease origination costs, is recognized
as operating lease revenue on a
112
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
straight-line basis over the scheduled lease term. Depreciation
of vehicles is generally provided on a straight-line basis to an
estimated residual value over a period of time, consistent with
the term of the underlying operating lease agreement. We
evaluate our depreciation policy for leased vehicles on a
regular basis.
We have significant investments in vehicles in our operating
lease portfolio and are exposed to changes in the residual
values of those assets. The residual values represent an
estimate of the values of the assets at the end of the lease
contracts and are determined by consulting an independently
published residual value guide. Realization of the residual
values is dependent on our future ability to market the vehicles
under the prevailing market conditions. Over the life of the
lease, we evaluate the adequacy of our estimate of the residual
value and may make adjustments to the extent the expected value
of the vehicle at lease termination changes. For operating
leases arising from vehicle sales to daily rental car companies,
the adjustment may be in the form of revisions to the
depreciation rate or recognition of an impairment loss.
Impairment is determined to exist if the undiscounted expected
future cash flows are lower than the carrying value of the
asset. For operating leases arising from vehicles sold to
dealers, the adjustment is made to the estimate of marketing
incentive accruals for residual support programs initially
recognized when vehicles are sold to dealers. Refer to
Note 27. When a lease vehicle is returned to us, the asset
is reclassified from Equipment on operating leases, net to
Inventory at the lower of cost or estimated fair value, less
costs to sell.
|
|
|
Foreign
Currency Transactions and Translation
|
The assets and liabilities of our foreign subsidiaries, using
the local currency as their functional currency, are translated
to U.S. Dollars based on the current exchange rate
prevailing at each balance sheet date and any resulting
translation adjustments are included in Accumulated other
comprehensive income (loss). Our revenues and expenses are
translated into U.S. Dollars using the average exchange
rates prevailing for each period presented.
Included in Net income (loss) are the gains and losses arising
from foreign currency transactions. The impact on net income
(loss) of foreign currency transactions including the results of
our foreign currency hedging activities, amounted to a loss of
$669 million, a gain of $296 million and a loss of
$118 million in 2007, 2006 and 2005, respectively.
Provisions for estimated expenses related to policy and product
warranties are made at the time products are sold. These
estimates are established using historical information on the
nature, frequency, and average cost of claims. Revision to the
reserves for estimated policy and product warranties is made
when necessary, based on changes in these factors. We actively
study trends of claims and take action to improve vehicle
quality and minimize claims.
Provisions for estimated expenses related to product recalls
based on a formal campaign soliciting return of that product are
made when they are deemed to be probable and can be reasonably
estimated.
We record a liability for environmental cleanup costs when a
loss is probable and can be reasonably estimated. For
environmental sites where there are potentially multiple
responsible parties, we record a liability for the allocable
share of the costs related to our involvement with the site, as
well as an allocable share of costs related to insolvent parties
or unidentified shares. For environmental sites where we are the
only potentially responsible party, we record a liability for
the total estimated costs of remediation before consideration of
recovery from insurers or other third parties.
We have an established process to develop our environmental
reserve. This process consists of a number of phases which
begins with the visual site inspections and an examination of
historical site records. Once a potential problem has been
identified, physical sampling of the site may include analysis
of ground water and soil borings. The evidence obtained is then
evaluated and based upon this evaluation,
113
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
a remediation strategy is submitted for approval. The final
phase of this process involves the commencement of remediation
activities according to the approved plan. This process is used
globally for all such sites.
Included in the estimated environmental liabilities are costs
for ongoing operating, maintenance, and monitoring at
environmental sites where remediation has been put in place. The
process of estimating environmental remediation liabilities is
complex and dependent primarily on the nature and extent of
historical information and physical data relating to a
contaminated site, the complexity of the site, the uncertainty
as to what remediation and technology will be required, and the
outcome of discussions with regulatory agencies and other
potentially responsible parties at multi-party sites.
Liabilities which have fixed or reliably determinable cash flows
are discounted using a risk-free rate of return over the periods
in which the ongoing maintenance is expected to occur, generally
five to 30 years. Subsequent adjustments to initial
estimates are recorded as necessary based upon additional
information developed in subsequent periods. In future periods,
new laws or regulations, advances in remediation technologies
and additional information about the ultimate remediation
methodology to be used could significantly change our estimates.
Cash equivalents are defined as short-term, highly-liquid
investments with original maturities of 90 days or less.
Marketable securities are classified as available-for-sale,
except for certain mortgage-related securities, which are
classified as held-to-maturity. Available-for-sale securities
are recorded at fair value with unrealized gains and losses
reported, net of related income taxes, in Accumulated other
comprehensive income (loss) until realized. Held-to-maturity
securities are recorded at amortized cost. We determine realized
gains and losses using the specific identification method.
We are party to a variety of foreign exchange rate, interest
rate, and commodity derivative contracts entered into in
connection with the management of our exposure to fluctuations
in foreign exchange rates, interest rates, and certain commodity
prices. These financial exposures are managed in accordance with
corporate policies and procedures.
All derivatives are recorded at fair value in the consolidated
balance sheets. Effective changes in fair value of derivatives
designated as cash flow hedges are recorded in net unrealized
gains (losses) on derivatives within a separate component of
Other comprehensive income (loss). Amounts are reclassified from
Accumulated other comprehensive income (loss) when the
underlying hedged item affects earnings. All ineffective changes
in fair value are recorded currently in earnings. Changes in
fair value of derivatives designated as fair value hedges are
recorded currently in earnings offset by changes in fair value
of the hedged item to the extent the derivative was effective.
Changes in fair value of derivatives not designated as hedging
instruments are recorded currently in earnings.
|
|
|
Accounting
for Income Taxes
|
We use the liability method in accounting for income taxes.
Deferred tax assets and liabilities are recorded for temporary
differences between the tax basis of assets and liabilities and
their reported amounts in the consolidated financial statements,
using the statutory tax rates in effect for the year in which
the differences are expected to reverse. The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized in the results of operations in the period that
includes the enactment date under the law. A valuation allowance
is recorded to reduce the carrying amounts of deferred tax
assets unless it is more likely than not that such assets will
be realized.
|
|
|
Accounting
for Early Retirement Programs
|
We offer an early retirement program to certain employees
located in the GME region which allows these employees to early
transition from employment into retirement before their legal
retirement age. Eligible employees who elect to participate in
this pre-retirement leave program work full time during half of
the pre-retirement period (the active period) and then do not
work for the
114
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
remaining half, the inactive period, and receive 50% of their
salary during this pre-retirement period. These employees also
receive an annual bonus equal to 35% of their annual net pay at
the beginning of the pre-retirement period. Additionally, we are
required to make contributions into the German government
pension program for participants during the pre-retirement
period. Under these programs, companies are entitled to a
government subsidy if certain conditions are met. We have not
been entitled to any program subsidy.
On January 1, 2006, we adopted Emerging Issue Task Force
(EITF) 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
(SFAS No. 112), 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
contributions (collectively, additional compensation) into the
German government pension plan over the period from when 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 in 2006.
|
|
|
Accounting
for Extended Disability Benefits
|
We accrue for estimated extended disability benefits ratably
over the employees active service period using the delayed
recognition provisions prescribed by SFAS No. 106,
Employers Accounting for Postretirement Benefits
Other than Pensions, (SFAS No. 106). As
discussed in Note 15, at December 31, 2006, we adopted
the recognition provisions of SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106 and 132(R) (SFAS No. 158).
The liability consists of the future obligations for income
replacement, health care costs and life insurance premiums for
employees currently disabled and those in the active workforce
who may become disabled. We estimate future disabilities in the
current workforce using actuarial methods based on sufficient
historical experience.
On a worldwide basis, we have a concentration of our workforce
working under the guidelines of unionized collective bargaining
agreements. The current International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America (UAW)
labor contract is effective for a four-year term which began in
October 2007 and expires in September 2011. Our current contract
established a new wage and benefit structure for entry-level
employees hired after the effective date of the contract in
certain non-core positions, such as material movement, kitting
and sequencing functions and certain stamping and subassemblies
positions. These employees will receive base wages of
approximately $15 per hour and will have a higher cost sharing
arrangement for health care benefits. Additionally, the contract
includes a $3,000 lump sum payment in 2007 and performance
bonuses of 3%, 4% and 3% of wages in 2008, 2009 and 2010,
respectively, for each UAW employee. We amortize these payments
over the
12-month
period following the respective payment dates. Active UAW
employees and current retirees and surviving spouses were also
granted pension benefit increases. Refer to Note 15.
Our previous UAW labor contract was effective for a four year
term which began in October 2003 and expired in September 2007.
This contract provided for a $3,000 lump sum payment for each
UAW employee which was paid in October 2003, and a 3%
performance bonus for each UAW employee, which was paid in
October 2004. We amortized these payments over the
12-month
period following the respective payment dates. UAW employees
received a gross wage increase of 2% in 2005. For 2006, these
employees were also granted a 3% gross wage increase under the
labor contract, which was subsequently agreed between us and the
UAW to be contributed to a Mitigation Voluntary Employee
Beneficiary Association (VEBA) as a wage deferral, in connection
with the 2005 UAW Health Care Settlement Agreement. Refer to
Note 15. Active UAW employees were also granted pension
benefit increases. There were no pension benefit increases
granted to current retirees and surviving spouses. However, the
contract did provide for four lump sum payments and two vehicle
discount vouchers for current retirees and surviving spouses.
115
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes
in Accounting Principles
|
|
|
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 which are identified as offsetting an entitys
exposure to changes in the fair value of servicing assets or
liabilities that a servicer elects to subsequently measure at
fair value; and (5) requires separate presentation of
servicing assets and liabilities subsequently measured at fair
value in the balance sheet and additional disclosures. 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
for Conditional Asset Retirement Obligations
|
Effective December 31, 2005, we adopted FASB Interpretation
No. 47, Accounting for Conditional Asset Retirement
Obligations (FIN 47). FIN 47 relates to legal
obligations associated with retirement of tangible long-lived
assets that result from acquisition, construction, development,
or normal operation of a long-lived asset. We performed an
analysis of such obligations associated with all real property
owned or leased, including plants, warehouses, and offices. Our
estimates of conditional asset retirement obligations relate, in
the case of owned properties, to costs estimated to be necessary
for the legally required removal or remediation of various
regulated materials, primarily asbestos. Asbestos abatement was
estimated using site-specific surveys where available and a per
square foot estimate where surveys were unavailable. For leased
properties, such obligations relate to the estimated cost of
contractually required property restoration. The application of
FIN 47 resulted in a charge of $109 million,
after-tax, in 2005 presented as a cumulative effect of a change
in accounting principle. The liability for conditional asset
retirement obligations at December 31, 2007 and 2006 was
$222 million and $193 million, respectively. Pro forma
amounts, as if FIN 47 had been applied for 2005 are as
follows (Dollars in millions except per share amounts):
|
|
|
|
|
Net loss, as reported
|
|
$
|
(10,417
|
)
|
Add: FIN 47 cumulative effect, net of tax
|
|
|
109
|
|
Less: FIN 47 depreciation and accretion expense, net of tax
|
|
|
(16
|
)
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(10,324
|
)
|
|
|
|
|
|
Loss per share, basic and diluted, as reported
|
|
$
|
(18.42
|
)
|
|
|
|
|
|
Pro forma loss per share
|
|
$
|
(18.26
|
)
|
|
|
|
|
|
Pro forma asset retirement obligation net, as of
year-end
|
|
$
|
181
|
|
|
|
|
|
|
Asset retirement obligations are included in Other long-term
liabilities on the consolidated balance sheets. The following
table reconciles our asset retirement obligations as of
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Asset retirement obligations as of January 1
|
|
$
|
193
|
|
|
$
|
181
|
|
Accretion expense
|
|
|
22
|
|
|
|
18
|
|
Liabilities incurred
|
|
|
43
|
|
|
|
5
|
|
Liabilities settled or disposed
|
|
|
(40
|
)
|
|
|
(9
|
)
|
Effect of foreign currency
|
|
|
4
|
|
|
|
|
|
Revisions to estimates
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations as of December 31
|
|
$
|
222
|
|
|
$
|
193
|
|
|
|
|
|
|
|
|
|
|
116
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2007, our asset retirement obligation
was primarily related to removal or remediation of various
regulated materials, primarily asbestos.
|
|
|
Accounting
for Uncertainty in Income Taxes
|
During the first quarter of 2007, we adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), which supplements
SFAS No. 109 Accounting for Income Taxes
(SFAS No. 109), 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 18 for
more information regarding the impact of adopting FIN 48.
|
|
|
Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans
|
We recognized the funded status of our benefit plans at
December 31, 2006 in accordance with the recognition
provisions of 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
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 15.
Accounting
Standards Not Yet Adopted
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157) which provides a consistent
definition of fair value which focuses on exit price and
prioritizes, within a measurement of fair value, the use of
market-based inputs over entity-specific inputs.
SFAS No. 157 requires expanded disclosures about fair
value measurements and establishes a three-level hierarchy for
fair value measurements based on the transparency of inputs to
the valuation of an asset or liability as of the measurement
date. The standard also requires that a company use its own
nonperformance risk when measuring liabilities carried at fair
value, including derivatives. In February 2008, the FASB
approved a FASB Staff Position (FSP) that permits companies to
partially defer the effective date of SFAS No. 157 for
one year for nonfinancial assets and nonfinancial liabilities
that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. The FSP did not permit
companies to defer recognition and disclosure requirements for
financial assets and financial liabilities or for nonfinancial
assets and nonfinancial liabilities that are remeasured at least
annually. SFAS No. 157 is effective for financial
assets and financial liabilities and for nonfinancial assets and
nonfinancial liabilities that are remeasured at least annually
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 will be applied
prospectively. We intend to defer adoption of
SFAS No. 157 for one year for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at
fair value in the financial statements on a nonrecurring basis.
We are currently evaluating the effects, if any, that
SFAS No. 157 may have on our financial condition and
results of operations.
|
|
|
Fair
Value Option for Financial Assets and Financial
Liabilities
|
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
117
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and losses in earnings at each subsequent reporting date. The
fair value option may be elected on an
instrument-by-instrument
basis, with 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. We do not expect the adoption of this
standard to have a material impact on our financial condition
and results of operations.
|
|
|
Accounting
for Nonrefundable Payments for Goods or Services to Be Used in
Future Research and Development Activities
|
In June 2007, the FASB ratified Emerging Issue Task Force (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 estimates that upon adoption, this guidance
will not have a material effect on our financial condition and
results of operations.
|
|
|
Accounting
for Income Tax Benefits of Dividends on Share-Based Payment
Awards
|
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 to additional paid in capital
the tax benefits on dividends or dividend equivalents that are
charged to retained earnings for certain share-based awards. 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
estimates that upon adoption, this guidance will not have a
material effect on our financial condition and results of
operations.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS No. 141(R))
which retained the underlying concepts of SFAS No. 141
in that all business combinations are still required to be
accounted for at fair value under the acquisition method of
accounting but SFAS No. 141(R) changed the method of
applying the acquisition method in a number of significant
aspects. SFAS No. 141(R) will require that:
(1) for all business combinations, the acquirer records all
assets and liabilities of the acquired business, including
goodwill, generally at their fair values; (2) certain
contingent assets and liabilities acquired be recognized at
their fair values on the acquisition date; (3) contingent
consideration be recognized at its fair value on the acquisition
date and, for certain arrangements, changes in fair value will
be recognized in earnings until settled;
(4) acquisition-related transaction and restructuring costs
be expensed rather than treated as part of the cost of the
acquisition and included in the amount recorded for assets
acquired; (5) in step acquisitions, previous equity
interests in an acquiree held prior to obtaining control be
re-measured to their acquisition-date fair values, with any gain
or loss recognized in earnings; and (6) when making
adjustments to finalize initial accounting, companies revise any
previously issued post-acquisition financial information in
future financial statements to reflect any adjustments as if
they had been recorded on the acquisition date.
SFAS No. 141(R) is effective on a prospective basis
for all business combinations for which the acquisition date is
on or after the beginning of the first annual period subsequent
to December 15, 2008, with the exception of the accounting
for valuation allowances on deferred taxes and acquired tax
contingencies. SFAS No. 141(R) amends
SFAS No. 109 such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective
date of this statement should also apply the provisions of
SFAS No. 141(R). This standard will be applied to all
future business combinations.
|
|
|
Noncontrolling
Interests in Consolidated Financial Statements
|
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of ARB 51
(SFAS No. 160) which amends ARB 51 to establish
new standards that will govern the accounting for and reporting
of
118
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
noncontrolling interests in partially owned consolidated
subsidiaries and the loss of control of subsidiaries. Also,
SFAS No. 160 requires that: (1) noncontrolling
interest, previously referred to as minority interest, be
reported as part of equity in the consolidated financial
statements; (2) losses be allocated to the noncontrolling
interest even when such allocation might result in a deficit
balance, reducing the losses attributed to the controlling
interest; (3) changes in ownership interests be treated as
equity transactions if control is maintained; and, (4) upon
a loss of control, any gain or loss on the interest sold be
recognized in earnings. SFAS No. 160 is effective on a
prospective basis for all fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008, except for the presentation and
disclosure requirements, which will be applied retrospectively.
We are currently evaluating the effects, if any, that
SFAS No. 160 may have on our financial condition and
results of operations.
|
|
Note 3.
|
Acquisition
and Disposal 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,
which resulted in an adjusted purchase price of
$5.4 billion. A gain on the sale of Allison in the amount
of $5.3 billion, $4.3 billion after-tax, inclusive of
the final purchase price adjustments, was recognized in 2007.
Allison, formerly a division of our 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 Powertrain
Operations facility near Baltimore, which manufactures
automatic transmissions primarily for our trucks and hybrid
propulsion systems.
The results of operations and cash flows of Allison have been
reported in the consolidated financial statements as
discontinued operations for all periods presented. Historically,
Allison was reported within GMNA in the Automotive business.
The following table summarizes the results of discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,225
|
|
|
$
|
2,142
|
|
|
$
|
1,750
|
|
Income from discontinued operations before income taxes
|
|
$
|
404
|
|
|
$
|
706
|
|
|
$
|
489
|
|
Income tax provision
|
|
$
|
148
|
|
|
$
|
261
|
|
|
$
|
176
|
|
Income from discontinued operations, net of tax
|
|
$
|
256
|
|
|
$
|
445
|
|
|
$
|
313
|
|
Gain on sale of discontinued operations, net of tax
|
|
$
|
4,309
|
|
|
$
|
|
|
|
$
|
|
|
As part of the transaction, we entered into an agreement with
the buyers of Allison 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 financing. This commitment
expires on December 31, 2010. The new parent company of
Allison did not borrow against this facility in 2007.
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 November 2006, we completed the sale of a 51% controlling
interest in GMAC (GMAC Transaction) 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. We retained
a 49% interest in GMACs
119
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Common Membership Interests. In addition, FIM Holdings purchased
555,000 of GMACs Preferred Membership Interests for a cash
purchase price of $500 million, and we purchased 1,555,000
Preferred Membership Interests for a cash purchase price of
$1.4 billion. 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 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 January 2007, we made a capital
contribution to GMAC of $1 billion to restore its adjusted
tangible equity balance to the contractually required amount due
to the decrease in the adjusted tangible equity balance of GMAC
as of November 30, 2006.
Prior to consummation of the transaction: (1) certain
assets with respect to automotive leases owned by GMAC and its
affiliates having a net book value of $4 billion and
related deferred tax liabilities of $1.8 billion were
transferred to us; (2) we assumed or retained certain of
GMACs postemployment benefit obligations totaling
$842 million and related deferred tax assets of
$302 million; (3) GMAC transferred to us certain
entities that hold a fee interest in certain real properties;
(4) GMAC paid cash dividends to us based upon GMACs
anticipated net income for the period September 30, 2005 to
November 30, 2006 totaling $1.9 billion; (5) we
repaid certain indebtedness owing to GMAC and specified
intercompany unsecured obligations owing to GMAC; and
(6) GMAC made a one-time distribution to us of
$2.7 billion of cash to reflect the increase in GMACs
equity resulting from the transfer of a portion of GMACs
net deferred tax liabilities arising from the conversion of GMAC
and certain of its subsidiaries to limited liability company
form.
In accordance with the terms of the sale agreement, in the
second quarter of 2006, we settled our estimated outstanding
liability with respect to a residual support and risk sharing
agreement that was in place with GMAC related to certain
operating lease portfolios for $1.4 billion. Under this
arrangement, the customers contractual residual value was
set above GMACs standard residual values. We reimbursed
GMAC to the extent that remarketing sales proceeds were less
than the customers contractual residual value limited to
GMACs standard residual sales value. We also participated
in a risk sharing arrangement whereby we shared equally in
residual losses to the extent that remarketing proceeds were
below GMAC standard residual values limited to a floor. The
amount of the liability we previously recorded amounted to
$1.8 billion, resulting in a gain on settlement of
$390 million. We recognized $252 million of the gain
in 2006 with the remainder reflected as a deferred gain which
will be recognized in future periods as the leases terminate.
We recognized a non-cash impairment charge of $2.9 billion
in Other expenses in 2006. The 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
other comprehensive income.
For the eleven months ended November 30, 2006, GMACs
earnings and cash flows are fully consolidated in our
consolidated statements of operations and consolidated
statements of cash flows. After November 30, 2006, our
remaining 49% interest in GMACs common membership
interests is reflected as an equity method investment. Also, our
interest in GMACs preferred membership interests is
reflected as a cost method investment. Refer to Note 11.
As part of the agreement, we retained an option, for
10 years after the closing date, to repurchase from GMAC
certain assets related to the automotive finance business of the
North American Operations and International Operations of GMAC.
Our exercise of the option is conditional on our credit rating
being investment grade or higher than GMACs credit rating.
The call option price is calculated as the higher of:
(1) fair market value, or (2) 9.5 times the
consolidated net income of GMACs automotive finance
business in either the calendar year the call option is
exercised or the calendar year immediately following the year
the call option is exercised. No value was assigned to this fair
value option.
We entered into a number of agreements with GMAC that were
intended to continue the mutually-beneficial global relationship
between us and GMAC. These agreements, in substance, were
consistent with the existing and historical practices between us
and GMAC, including requiring GMAC to continue to allocate
capital to automotive financing thereby continuing to provide
critical financing support to a significant share of our global
sales. While GMAC retains the right to make individual credit
decisions, GMAC has committed to fund a broad spectrum of
customers and dealers consistent with historical practice in the
relevant jurisdiction. 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 our products in specified markets
around the world, with the exception of Saturn branded products.
Refer to Note 27 for additional information concerning
these ongoing arrangements.
120
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Sale
of GMAC Commercial Mortgage
|
In March 2006, through GMAC, we sold 79% of our equity in GMAC
Commercial Mortgage for $1.5 billion in cash. Subsequent to
the sale, the remaining interest in GMAC Commercial Mortgage is
reflected using the equity method.
|
|
|
Sale
of Electro-Motive Division
|
In April 2005, we completed the sale of our Electro-Motive
Division (EMD) to an investor group led by Greenbriar Equity
Group LLC and Berkshire Partners LLC for total consideration of
$201 million. The sale covered substantially all of the EMD
businesses and both the LaGrange, Illinois and London, Ontario
manufacturing facilities. This transaction did not have a
material effect on our consolidated financial position or
results of operations.
|
|
|
Acquisition
of GM Daewoo Auto & Technology Company
|
In February 2005, we completed the purchase of 16.6 million
newly-issued shares of common stock in GM Daewoo
Auto & Technology Company (GM Daewoo) for
$49 million, which increased our ownership in GM Daewoo to
48.2% from 44.6%. No other shareholders in GM Daewoo
participated in the issue. In June 2005, we purchased from
Suzuki Motor Corporation (Suzuki) 6.9 million shares of
outstanding common stock in GM Daewoo for $21 million. This
increased our ownership in GM Daewoo to 50.9%. Accordingly, we
began consolidating the operations of GM Daewoo in June 2005.
The pro forma unaudited impact on Automotive sales had we
consolidated GM Daewoo for the full year in 2005 would have been
an increase to revenue of $2.8 billion. The pro forma
effect on Net income (loss) is not significant compared to
equity income recognized.
|
|
Note 4.
|
Marketable
Securities
|
Marketable securities we hold are classified as
available-for-sale, except for certain mortgage-related
securities, which are classified as held-to-maturity. Unrealized
gains and losses, net of related income taxes, for
available-for-sale securities are included as a separate
component of stockholders equity. We determine cost on the
specific identification basis.
121
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investments in marketable securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(Dollars in millions)
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities and other
|
|
$
|
1,278
|
|
|
$
|
3
|
|
|
$
|
9
|
|
|
$
|
1,272
|
|
|
$
|
122
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
122
|
|
United States government and agencies
|
|
|
559
|
|
|
|
12
|
|
|
|
|
|
|
|
571
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Mortgage-backed securities
|
|
|
296
|
|
|
|
2
|
|
|
|
2
|
|
|
|
296
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Automotive
|
|
|
2,133
|
|
|
|
17
|
|
|
|
11
|
|
|
|
2,139
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government and agencies
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign government securities
|
|
|
20
|
|
|
|
1
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and asset-backed securities
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities and other
|
|
|
74
|
|
|
|
2
|
|
|
|
1
|
|
|
|
75
|
|
|
|
98
|
|
|
|
|
|
|
|
4
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
128
|
|
|
|
3
|
|
|
|
1
|
|
|
|
130
|
|
|
|
98
|
|
|
|
|
|
|
|
4
|
|
|
|
94
|
|
Mortgage-backed securities held-to-maturity
|
|
|
84
|
|
|
|
1
|
|
|
|
|
|
|
|
85
|
|
|
|
93
|
|
|
|
1
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations
|
|
|
212
|
|
|
|
4
|
|
|
|
1
|
|
|
|
215
|
|
|
|
191
|
|
|
|
1
|
|
|
|
4
|
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
2,345
|
|
|
$
|
21
|
|
|
$
|
12
|
|
|
$
|
2,354
|
|
|
$
|
329
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of marketable securities totaled
$955 million, $7.9 billion and $20.4 billion in
2007, 2006 and 2005, respectively. The gross gains related to
sales of marketable securities were $10 million,
$1.1 billion and $223 million in 2007, 2006, and 2005,
respectively. The gross losses related to sales of marketable
securities were $4 million, $105 million and
$132 million in 2007, 2006 and 2005, respectively.
The amortized cost and fair value of investments in
available-for-sale securities by contractual maturity at
December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
|
|
Financing and Insurance
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
Contractual Maturity
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
1 year
|
|
$
|
875
|
|
|
$
|
874
|
|
|
$
|
16
|
|
|
$
|
17
|
|
2-5 years
|
|
|
878
|
|
|
|
880
|
|
|
|
14
|
|
|
|
14
|
|
6-10 years
|
|
|
126
|
|
|
|
131
|
|
|
|
36
|
|
|
|
37
|
|
11 years and thereafter
|
|
|
254
|
|
|
|
254
|
|
|
|
62
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,133
|
|
|
$
|
2,139
|
|
|
$
|
128
|
|
|
$
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On a monthly basis, we evaluate whether unrealized losses
related to investments in debt and equity securities are
temporary in nature. Factors considered in determining whether a
loss is temporary include the length of time and extent to which
the fair value has been below cost, the financial condition and
near-term prospects of the issuer and our ability and intent to
hold the investment for a period of time sufficient to allow for
any anticipated recovery. If losses are determined to be
other-than-temporary, the investment carrying amount is
considered impaired and adjusted to fair value. We recorded an
other-than-temporary impairment of $72 million on certain
marketable securities in 2007.
122
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value and gross unrealized losses of investments in an
unrealized loss position that are not deemed to be
other-than-temporarily impaired are summarized in the following
table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
|
(Dollars in millions)
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities and other
|
|
$
|
483
|
|
|
$
|
9
|
|
|
$
|
3
|
|
|
$
|
|
|
Mortgage-backed securities
|
|
|
88
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
571
|
|
|
$
|
11
|
|
|
$
|
3
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
|
(Dollars in millions)
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities and other
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
31
|
|
|
|
$1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
31
|
|
|
|
$1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
Less than 12 Months
|
|
|
|
Fair Value
|
|
|
Unrealized Losses
|
|
|
|
(Dollars in millions)
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
Corporate debt securities and other
|
|
$
|
94
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
94
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
In addition, we hold a strategic 3.7% stake in Suzuki that is
recorded in Other Assets at its fair value of $492 million
and $460 million as of December 31, 2007 and 2006,
respectively. Our cost basis in this investment is
$236 million. As discussed in Note 8, we also hold an
investment in GMAC Preferred Membership Interests that is
recorded in Other Assets at $1 billion and
$1.6 billion as of December 31, 2007 and 2006,
respectively. The fair value of this investment is
$933 million and $1.6 billion as of December 31,
2007 and 2006, respectively.
|
|
Note 5.
|
Finance
Receivables and Securitizations
|
We generate receivables from our 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 limited to $600 million
and $850 million in 2007 and 2006, respectively, directly
to banks and to a bank conduit, which funds its purchases
through issuance of commercial paper. The receivables under the
program are sold at fair market value and removed from our
consolidated balance sheet at the time of sale. The loss
recorded on the trade receivables sold, included in Automotive
cost of sales, was $2 million, $30 million and
$23 million in 2007, 2006 and 2005, respectively. As of
December 31, 2007, the banks and the bank conduit had no
beneficial interest in the SPEs pool of eligible trade
receivables. As of December 31, 2006, the banks and the
bank conduit had a beneficial interest of $200 million in
the SPEs pool of eligible trade receivables. We do not
have a retained interest in the receivables sold or provide any
guarantees or other credit enhancements, but perform collection
and administrative functions. The gross amount of proceeds from
collections reinvested in revolving securitizations was
$600 million, $9 billion and $12.8 billion in
2007, 2006, and 2005 respectively.
123
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 of $87 million and
$109 million as of December 31, 2007 and 2006,
respectively, related to those securitization programs.
Since April 2006, certain other trade accounts receivables
related to vehicle sales to dealers primarily in the Middle East
are pledged as collateral under an on-balance sheet securitized
borrowing program. The receivables pledged are not reported
separately from other trade accounts receivables on the
consolidated balance sheet. The amount of receivables pledged
under this program was $215 million and $300 million,
as of December 31, 2007 and 2006, respectively. Such
amounts are also reported as short-term borrowings.
|
|
|
Securitizations
of Finance Receivables and Mortgage Loans
|
Prior to the consummation of the GMAC Transaction, GMAC
transferred to us two bankruptcy-remote subsidiaries, which
function as SPEs that hold the equity interests in ten trusts
that are parties to lease asset securitizations. The balance of
lease securitization debt under these two SPEs was
$4.8 billion and $9.4 billion as of December 31,
2007 and 2006, respectively.
With the completion of the GMAC Transaction in 2006, GMACs
finance receivables are no longer part of our consolidated
balance sheet. Below is information on GMAC finance receivables
for the eleven months ended November 30, 2006 and the year
ended December 31, 2005.
GMAC sold retail finance receivables, wholesale and dealer
loans, and residential mortgage loans. The following discussion
and related information is only applicable to the transfers of
finance receivables and loans that qualified as off-balance
sheet securitizations under the requirements of
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities a replacement of FASB Statement
125 (SFAS No. 140).
GMAC retained servicing responsibilities for and subordinated
interests in all of its securitizations of retail finance
receivables and wholesale loans. Servicing responsibilities were
retained for the majority of its residential and commercial
mortgage loan securitizations and GMAC retained subordinated
interests in some of these securitizations. GMAC also held
subordinated interests and acted as collateral manager in its
collateralized debt obligation (CDO) securitization program.
As servicer, GMAC received a monthly fee stated as a percentage
of the outstanding sold receivables. Typically, for retail
automotive finance receivables where GMAC was paid a fee, it
concluded that the fee represents adequate compensation as a
servicer and, as such, no servicing asset or liability was
recognized. Considering the short-term revolving nature of
wholesale loans, no servicing asset or liability was recognized
upon securitization of the loans. As of December 31, 2005,
the weighted average basic servicing fees for its primary
servicing activities were 100 basis points, 100 basis
points and 40 basis points of the outstanding principal
balance for sold retail finance receivables, wholesale loans,
residential mortgage loans and commercial mortgage loans,
respectively. Additionally, GMAC retained the rights to cash
flows remaining after the investors in most securitization
trusts have received their contractual payments. In certain
retail securitization transactions, retail receivables were sold
on a servicing retained basis, but with no servicing
compensation and, as such, a servicing liability was established
and recorded in Other liabilities.
For mortgage servicing, GMAC capitalizes the value expected to
be realized from performing specified residential and commercial
mortgage servicing activities as mortgage servicing rights.
124
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables summarize gains on securitizations and
certain cash flows received from and paid to securitization
trusts for transfers of finance receivables and loans that were
completed during the eleven months ended November 30, 2006,
and the year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven Months Ended November 30, 2006
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
Finance
|
|
|
Wholesale
|
|
|
Mortgage
|
|
|
|
Receivables
|
|
|
Loans
|
|
|
Residential
|
|
|
|
(Dollars in millions)
|
|
|
Pre-tax gains on securitizations
|
|
$
|
|
|
|
$
|
551
|
|
|
$
|
731
|
|
Cash inflow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations
|
|
$
|
3,315
|
|
|
$
|
|
|
|
$
|
56,510
|
|
Servicing fees received
|
|
$
|
|
|
|
$
|
166
|
|
|
$
|
435
|
|
Other cash flows received on retained interests
|
|
$
|
308
|
|
|
$
|
28
|
|
|
$
|
534
|
|
Proceeds from collections reinvested in revolving securitizations
|
|
$
|
|
|
|
$
|
89,385
|
|
|
$
|
|
|
Repayments of servicing advances
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
1,065
|
|
Cash outflow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing advances
|
|
$
|
(48
|
)
|
|
$
|
|
|
|
$
|
(1,125
|
)
|
Purchase obligations and options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans under conditional call option
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(20
|
)
|
Representations and warranties obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(37
|
)
|
Administrator or servicer actions
|
|
$
|
(5
|
)
|
|
$
|
|
|
|
$
|
(56
|
)
|
Asset performance conditional calls
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(47
|
)
|
Clean-up
calls
|
|
$
|
(242
|
)
|
|
$
|
|
|
|
$
|
(1,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
Finance
|
|
|
Wholesale
|
|
|
Mortgage Loans
|
|
|
Mortgage
|
|
|
|
Receivables
|
|
|
Loans
|
|
|
Residential
|
|
|
Commercial
|
|
|
Securities
|
|
|
|
(Dollars in millions)
|
|
|
Pre-tax gains (losses) on securitizations
|
|
$
|
(2
|
)
|
|
$
|
543
|
|
|
$
|
513
|
|
|
$
|
68
|
|
|
$
|
8
|
|
Cash inflow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations
|
|
$
|
4,874
|
|
|
$
|
7,705
|
|
|
$
|
41,987
|
|
|
$
|
3,990
|
|
|
$
|
741
|
|
Servicing fees received
|
|
$
|
65
|
|
|
$
|
179
|
|
|
$
|
245
|
|
|
$
|
21
|
|
|
$
|
|
|
Other cash flows received on retained interests
|
|
$
|
249
|
|
|
$
|
503
|
|
|
$
|
583
|
|
|
$
|
262
|
|
|
$
|
42
|
|
Proceeds from collections reinvested in revolving securitizations
|
|
$
|
|
|
|
$
|
102,306
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Repayments of servicing advances
|
|
$
|
43
|
|
|
$
|
|
|
|
$
|
1,115
|
|
|
$
|
198
|
|
|
$
|
|
|
Cash outflow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing advances
|
|
$
|
(46
|
)
|
|
$
|
|
|
|
$
|
(1,163
|
)
|
|
$
|
(188
|
)
|
|
$
|
|
|
Purchase obligations and options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans under conditional call option
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(9
|
)
|
|
$
|
|
|
|
$
|
|
|
Representations and warranties obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(29
|
)
|
|
$
|
|
|
|
$
|
|
|
Administrator or servicer actions
|
|
$
|
(76
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Asset performance conditional calls
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(99
|
)
|
|
$
|
|
|
|
$
|
|
|
Clean-up
calls
|
|
$
|
(715
|
)
|
|
$
|
|
|
|
$
|
(2,202
|
)
|
|
$
|
|
|
|
$
|
|
|
125
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Key economic assumptions used in measuring the estimated fair
value of retained interests of sales completed during the eleven
months ended November 30, 2006 and the year ended
December 31, 2005, as of the dates of such sales, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven Months
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
November 30, 2006
|
|
Year Ended December 31, 2005
|
|
|
Retail
|
|
Residential
|
|
Retail
|
|
|
|
|
|
|
|
|
Finance
|
|
Mortgage
|
|
Finance
|
|
Mortgage Loans
|
|
Commercial
|
|
|
Receivables
|
|
Loans
|
|
Receivables
|
|
Residential
|
|
|
|
Mortgage
|
|
|
(a)
|
|
(b)
|
|
(a)
|
|
(b)
|
|
Commercial
|
|
Securities
|
|
Key assumptions(c) (rates per annum):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual prepayment rate(d)
|
|
|
0.9-1.7
|
%
|
|
|
0.0-90.0
|
%
|
|
|
0.9-1.2
|
%
|
|
|
0.0-60.0
|
%
|
|
|
0.0-50.0
|
%
|
|
|
0.0
|
%
|
Weighted average life (in years)
|
|
|
1.4-1.5
|
|
|
|
1.1-7.2
|
|
|
|
1.6-1.7
|
|
|
|
1.1-8.5
|
|
|
|
0.3-8.6
|
|
|
|
5.9-9.9
|
|
Expected credit losses
|
|
|
0.4-1.0
|
|
|
|
0.0-18.3
|
|
|
|
0.4-1.6
|
|
|
|
0.0-4.9
|
|
|
|
0.0
|
|
|
|
0.0
|
|
Discount rate
|
|
|
9.5-16.0
|
%
|
|
|
7.0-25.0
|
%
|
|
|
9.5-15.0
|
%
|
|
|
6.5-21.4
|
%
|
|
|
4.2-10.7
|
%
|
|
|
10.0-12.0
|
%
|
|
|
|
(a) |
|
The fair value of retained interests in wholesale
securitizations approximates cost because of the short-term and
floating rate nature of wholesale loans. |
(b) |
|
Included within residential mortgage loans are home equity loans
and lines, high loan-to-value loans, and residential first and
second mortgage loans. |
(c) |
|
The assumptions used to measure the expected yield on variable
rate retained interests are based on a benchmark interest rate
yield curve plus a contractual spread, as appropriate. The
actual yield curve utilized varies depending on the specific
retained interests. |
(d) |
|
Based on the weighted average maturity for finance receivables
and constant prepayment rate for mortgage loans and commercial
mortgage securities. |
We hedge interest rate and prepayment risks associated with
certain of the retained interests; the effects of such hedge
strategies have not been considered herein. Expected static pool
net credit losses include actual incurred losses plus projected
net credit losses divided by the original balance of the
outstandings comprising the securitization pool. The table below
displays the expected static pool net credit losses based on our
securitization transactions.
|
|
|
|
|
|
|
|
|
|
|
Loans Securitized In Periods
|
|
|
|
Ended December 31,(a)
|
|
|
|
2006(b)
|
|
|
2005
|
|
|
Retail automotive
|
|
|
0.7%
|
|
|
|
0.6%
|
|
Residential mortgage
|
|
|
0.0-12.8%
|
|
|
|
0.0-16.9%
|
|
Commercial mortgage
|
|
|
|
|
|
|
0.0-3.4%
|
|
Commercial investment securities
|
|
|
|
|
|
|
0.0-6.7%
|
|
|
|
|
(a) |
|
Static pool losses not applicable to wholesale finance
receivable securitizations because of their short-term nature. |
(b) |
|
Represents eleven months ended November 30, 2006. |
126
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Productive material, work in process, and supplies
|
|
$
|
6,267
|
|
|
$
|
5,810
|
|
Finished product, including service parts, etc.
|
|
|
10,095
|
|
|
|
9,619
|
|
|
|
|
|
|
|
|
|
|
Total inventories at FIFO
|
|
|
16,362
|
|
|
|
15,429
|
|
Less LIFO allowance
|
|
|
(1,423
|
)
|
|
|
(1,508
|
)
|
|
|
|
|
|
|
|
|
|
Total automotive inventories, less allowances
|
|
|
14,939
|
|
|
|
13,921
|
|
FIO off-lease vehicles, included in FIO Other assets
|
|
|
254
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
Total consolidated inventories, less allowances
|
|
$
|
15,193
|
|
|
$
|
14,106
|
|
|
|
|
|
|
|
|
|
|
Inventories are stated at cost, which is not in excess of
market. The cost of 50% of U.S. inventories is determined
by the
last-in,
first-out (LIFO) method. The cost of all other inventories is
determined by either the
first-in,
first-out (FIFO) or average cost methods.
During 2007 and 2006, U.S. LIFO eligible inventory
quantities were reduced. This reduction resulted in a
liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior years as compared with the cost of 2007 and
2006 purchases, the effect of which decreased Automotive cost of
sales by approximately $100 million and $50 million in
2007 and 2006, respectively.
|
|
Note 7.
|
Equipment
on Operating Leases, net
|
Information related to Assets leased to others and accumulated
depreciation is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
Equipment on operating leases
|
|
$
|
5,798
|
|
|
$
|
6,629
|
|
Less accumulated depreciation
|
|
|
(515
|
)
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
5,283
|
|
|
|
6,125
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
Equipment on operating leases
|
|
|
9,313
|
|
|
|
14,909
|
|
Less accumulated depreciation
|
|
|
(2,601
|
)
|
|
|
(3,115
|
)
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
6,712
|
|
|
|
11,794
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net book value
|
|
$
|
11,995
|
|
|
$
|
17,919
|
|
|
|
|
|
|
|
|
|
|
The lease payments to be received related to Equipment on
operating leases, net maturing in each of the five years
following December 31, 2007, are as follows:
Auto none, as the payment is received at lease
inception and the revenue is deferred over the lease period;
FIO $1.2 billion, $477 million and
$51 million maturing in 2008, 2009 and 2010, respectively.
There are no leases maturing after 2010.
127
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8.
|
Investment
in Nonconsolidated Affiliates
|
Our nonconsolidated affiliates 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 equity ownership or voting interest in them include the
following:
|
|
|
|
|
GMAC (49% at December 31, 2007 and 2006)
|
|
|
Shanghai General Motors Co., Ltd (50% at December 31, 2007,
2006 and 2005)
|
|
|
SAIC-GM-Wuling Automobile Co., Ltd (34% at December 31,
2007, 2006 and 2005)
|
|
|
Suzuki (20.4% at December 31, 2005)
|
Investment
in GMAC
Summarized financial information for GMAC as of
December 31, 2007 and 2006 and the year ended
December 31, 2007 is presented in the tables below:
Results
of Operations
|
|
|
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
|
2007
|
|
|
(Dollars in millions)
|
|
Total financing revenue
|
|
$
|
21,187
|
|
Interest expense
|
|
$
|
14,776
|
|
Depreciation expense on operating lease assets
|
|
$
|
4,915
|
|
Total other revenue
|
|
$
|
10,303
|
|
Total non interest expense
|
|
$
|
10,645
|
|
Loss before income tax expense
|
|
$
|
(1,942
|
)
|
Income tax expense
|
|
$
|
390
|
|
Net loss
|
|
$
|
(2,332
|
)
|
Financial
Position
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Loans held for sale
|
|
$
|
20,559
|
|
|
$
|
27,718
|
|
Total finance receivables and loans, net
|
|
$
|
124,759
|
|
|
$
|
170,870
|
|
Investment in operating leases, net
|
|
$
|
32,348
|
|
|
$
|
24,184
|
|
Other assets
|
|
$
|
27,026
|
|
|
$
|
23,496
|
|
Total assets
|
|
$
|
247,710
|
|
|
$
|
287,439
|
|
Total debt
|
|
$
|
193,148
|
|
|
$
|
236,985
|
|
Accrued expenses and deposits and other liabilities
|
|
$
|
27,484
|
|
|
$
|
22,659
|
|
Total liabilities
|
|
$
|
232,145
|
|
|
$
|
270,875
|
|
Redeemable preferred membership interests
|
|
$
|
|
|
|
$
|
2,195
|
|
Total equity
|
|
$
|
15,565
|
|
|
$
|
14,369
|
|
Total liabilities, preferred interests and equity
|
|
$
|
247,710
|
|
|
$
|
287,439
|
|
Our investment in GMAC was $7.1 billion and
$7.5 billion at December 31, 2007 and 2006,
respectively.
128
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As discussed in Note 3, we sold a 51% ownership interest in
GMAC in November 2006. As such, our remaining 49% ownership
interest is accounted for under the equity method. In addition,
we purchased 1,555,000 Preferred Membership Interests for a cash
purchase price of $1.4 billion, which are included within
Other Assets in our consolidated balance sheet. Refer to
Note 11.
The investment in GMAC Preferred Membership Interests, a cost
method investment, was initially recorded at fair value at the
date of its acquisition. The excess of fair value over the
purchase price of the Preferred Membership Interests reduced our
investment in GMAC Common Membership Interests. GMAC is required
to make certain quarterly distributions to holders of the
Preferred Membership Interests in cash on a pro rata basis. The
Preferred Membership Interests are issued in units of $1,000 and
accrue a yield at a rate of 10% per annum. GMACs Board of
Managers (GMAC Board) may reduce any distribution to the extent
required to avoid a reduction of the equity capital of GMAC
below a minimum amount of equity capital equal to the net book
value of GMAC at November 30, 2006. In addition, the GMAC
Board may suspend the payment of Preferred Membership Interest
distributions with the consent of a majority of the Preferred
Membership Interests. If distributions are not made with respect
to any fiscal quarter, the distributions would not be
cumulative. If the accrued yield of GMACs Preferred
Membership Interests for any fiscal quarter is fully paid to the
preferred holders, then a portion of the excess of the net
financial book income of GMAC in any fiscal quarter over the
amount of yield distributed to the holders of the Preferred
Membership Interests in such quarter will be distributed to the
holders of the Common Membership Interests as follows: at least
40% of the excess will be paid for fiscal quarters ending prior
to December 31, 2008 and at least 70% of the excess will be
paid for fiscal quarters ending after December 31, 2008.
In November 2007, we converted 533,236 of our Preferred
Membership Interests and FIM Holdings converted 555,000 of its
Preferred Membership Interests into 3,912 and 4,072,
respectively, of Common Membership Interests in order to
strengthen GMACs capital position. The percentage
ownership of the Common Membership Interests in GMAC remained
unchanged after the conversion. We accounted for the conversion
at fair value and recorded a loss of $27 million during
2007. The loss on conversion represents the difference between
the fair value and the carrying value of the Preferred
Membership Interests converted. GMAC accounted for the
conversion of the Preferred Membership Interests as a
recapitalization recorded at book value. Our proportionate share
of the increase in GMACs net equity attributable to Common
Membership Interest holders as a result of the conversion
exceeded the fair value of the Preferred Membership Interests we
converted by $27 million. The difference was recorded as an
increase to Additional paid-in capital in 2007. At
December 31, 2007, we hold the remaining 1,021,764 of
Preferred Membership Interests and 49% or 52,912 of Common
Membership Interests in GMAC.
We periodically evaluate the carrying value of our investment in
GMAC, including our Preferred Membership Interests, to assess
whether our investment is impaired. We currently believe our
investment in GMAC is not impaired. However, there are many
economic factors which are unstable at December 31, 2007,
which may affect GMACs ability to generate sustainable
earnings and continue distributions on its Preferred Membership
Interests and, accordingly, our assessment of impairment. These
factors include:
|
|
|
|
|
The instability of the global credit and mortgage markets and
its effect on GMACs Residential Capital, LLC (ResCap)
subsidiary as well as its automotive finance, insurance and
other operations;
|
|
|
|
The deteriorating conditions in the residential and home
building markets, including significant changes in the mortgage
secondary market, tightening underwriting guidelines and reduced
product offerings;
|
|
|
|
Recent credit downgrades of GMAC and ResCap and the effect on
their ability to raise capital necessary on acceptable terms; and
|
|
|
|
Effect of the expected near-term automotive market conditions on
GMACs automotive finance operations.
|
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. Our share of the
impairment loss decreased our investment in GMAC by
$223 million at December 31, 2007 and is included in
Equity in loss of GMAC LLC for 2007.
129
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Prior to the GMAC Transaction in November 2006, GMAC recognized
a gain of $415 million on the sale of its entire equity
interest in a regional home builder, which was recorded in
Automotive interest income and other non-operating income in the
consolidated statements of operations. Under the equity method
of accounting, GMACs share of income recorded from this
investment was $42 million and $35 million in 2006 and
2005, respectively.
Investment
in Other Nonconsolidated Affiliates
Information regarding our remaining significant nonconsolidated
affiliates, excluding GMAC, is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Book value of our investments in affiliates
|
|
$
|
811
|
|
|
$
|
851
|
|
|
$
|
2,398
|
|
Our share of affiliates net income
|
|
$
|
382
|
|
|
$
|
327
|
|
|
$
|
475
|
|
Total assets of significant affiliates
|
|
$
|
6,441
|
|
|
$
|
4,828
|
|
|
$
|
19,419
|
|
Total liabilities of significant affiliates
|
|
$
|
4,096
|
|
|
$
|
2,951
|
|
|
$
|
9,646
|
|
In 2006, we sold 92.4 million shares of our investment in
Suzuki, reducing our equity stake in Suzuki from 20.4% to 3.7%
(16.3 million shares). The sale of our interest generated
cash proceeds of $2 billion and a gain on sale of
$666 million, which was recorded in Automotive interest
income and other non-operating income in the consolidated
statement of operations. Effective with completion of the sale,
our remaining investment in Suzuki is accounted for as an
available-for-sale equity security. Refer to Note 4.
|
|
|
Investment
in Fuji Heavy Industries (FHI)
|
In the fourth quarter of 2005, we completed the sale of our
20.1% investment in the common stock of FHI. In the second
quarter of 2005, we recorded an impairment charge of
$812 million associated with our investment in the common
stock of FHI. In the fourth quarter of 2005, we recorded a gain
of $78 million, due to the appreciation of the fair value
of such stock after June 30, 2005, the date of the FHI
impairment charge. The sale generated net proceeds of
$775 million.
Note 9. Property
Net
Property net is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful Lives
|
|
|
December 31,
|
|
|
|
(Years)
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
$
|
1,222
|
|
|
$
|
1,235
|
|
Buildings and land improvements
|
|
|
2-40
|
|
|
|
19,127
|
|
|
|
18,535
|
|
Machinery and equipment
|
|
|
3-30
|
|
|
|
51,687
|
|
|
|
51,017
|
|
Construction in progress
|
|
|
|
|
|
|
4,439
|
|
|
|
3,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, plants, and equipment
|
|
|
|
|
|
|
76,475
|
|
|
|
74,183
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(44,474
|
)
|
|
|
(43,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, plants, and equipment net
|
|
|
|
|
|
|
32,001
|
|
|
|
30,743
|
|
Special tools net
|
|
|
1-10
|
|
|
|
11,016
|
|
|
|
11,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property net
|
|
|
|
|
|
$
|
43,017
|
|
|
$
|
41,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Depreciation, impairment and amortization expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and impairment
|
|
$
|
4,937
|
|
|
$
|
4,575
|
|
|
$
|
5,470
|
|
Amortization and impairment of special tools
|
|
|
3,243
|
|
|
|
3,450
|
|
|
|
4,498
|
|
Amortization of intangible assets
|
|
|
74
|
|
|
|
69
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,254
|
|
|
|
8,094
|
|
|
|
10,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation (a)
|
|
|
1,259
|
|
|
|
2,776
|
|
|
|
5,680
|
|
Amortization of intangible assets
|
|
|
|
|
|
|
15
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,259
|
|
|
|
2,791
|
|
|
|
5,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated depreciation, impairment and amortization
|
|
$
|
9,513
|
|
|
$
|
10,885
|
|
|
$
|
15,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Depreciation of property held by GMAC was ceased in April 2006
at the time the assets were classified as held for sale. |
In December 2006, we sold our proving grounds facility in Mesa,
Arizona for $283 million in cash and subsequently leased it
back for a three-year period. We recognized a gain of
$270 million, which is included in Automotive interest
income and other non-operating income in our consolidated
statement of operations.
Note 10. Goodwill
and Intangible Assets
The components of goodwill and intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(Dollars in millions)
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and intellectual property rights
|
|
$
|
570
|
|
|
$
|
240
|
|
|
$
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
$
|
1,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and intellectual property rights
|
|
$
|
488
|
|
|
$
|
169
|
|
|
$
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
$
|
1,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense on existing acquired intangible
assets was $74 million, $84 million and
$84 million in 2007, 2006 and 2005, respectively. Estimated
amortization expense in each of the next five years is as
follows: 2008 $76 million;
2009 $70 million; 2010
$36 million; 2011 $22 million; and
2012 $16 million.
131
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The changes in the carrying amounts of goodwill in 2007 and 2006
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
Auto
|
|
|
GMAC(b)
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Balance as of January 1, 2006
|
|
$
|
324
|
|
|
$
|
433
|
|
|
$
|
757
|
|
|
$
|
2,446
|
|
|
$
|
3,203
|
|
Goodwill acquired during the period (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
|
|
151
|
|
Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(828
|
)
|
|
|
(828
|
)
|
GMAC divestiture (c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,827
|
)
|
|
|
(1,827
|
)
|
Effect of foreign currency translation and other
|
|
|
(25
|
)
|
|
|
67
|
|
|
|
42
|
|
|
|
58
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
299
|
|
|
|
500
|
|
|
|
799
|
|
|
|
|
|
|
|
799
|
|
Goodwill acquired during the period
|
|
|
|
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
28
|
|
Allison divestiture (d)
|
|
|
(66
|
)
|
|
|
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
(66
|
)
|
Effect of foreign currency translation and other
|
|
|
(60
|
)
|
|
|
35
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
173
|
|
|
$
|
563
|
|
|
$
|
736
|
|
|
$
|
|
|
|
$
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During 2006, GMAC recorded goodwill of $151 million
primarily as a result of the purchase of a regional insurance
company. |
(b) |
|
With the changes in key personnel in the Commercial Finance
business, GMAC initiated a goodwill impairment test, in
accordance with SFAS No. 142, outside of the annual
goodwill impairment testing period. A thorough review of the
business by the new leadership, with a particular focus on
long-term strategy, was performed. As a result of the review,
the operating divisions were reorganized, and the decision was
made to implement a different exit strategy for the workout
portfolio and to exit product lines with lower returns. These
decisions had a significant impact on expected asset levels and
growth rate assumptions used to estimate the fair value of the
business. In particular, the analysis performed during the third
quarter of 2006 incorporates managements decision to
discontinue activity in the equipment finance business, which
had a portfolio of over $1 billion, representing 20% of
Commercial Finance business average assets outstanding during
2006. 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. Based upon the results of the
assessment, an impairment charge of $828 million was
recorded in 2006. |
(c) |
|
In November 2006, we completed the sale of a 51% controlling
interest in GMAC (Refer to Note 3). |
(d) |
|
In August 2007, we completed the sale of Allison which resulted
in the disposition of goodwill based on the relative fair value
of Allison (Refer to Note 3). |
Note 11. Other
Assets
Other assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
595
|
|
|
$
|
1,055
|
|
Restricted cash
|
|
|
938
|
|
|
|
879
|
|
Other
|
|
|
1,933
|
|
|
|
1,625
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
3,466
|
|
|
|
3,559
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
Investment in GMAC Preferred Membership Interests
|
|
|
1,046
|
|
|
|
1,601
|
|
Inventory
|
|
|
254
|
|
|
|
185
|
|
Restricted cash held for securitization trusts
|
|
|
1,107
|
|
|
|
1,143
|
|
Other
|
|
|
308
|
|
|
|
(660
|
)
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
2,715
|
|
|
|
2,269
|
|
|
|
|
|
|
|
|
|
|
Total consolidated other assets
|
|
$
|
6,181
|
|
|
$
|
5,828
|
|
|
|
|
|
|
|
|
|
|
132
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 12. Variable
Interest Entities
We are providing the information below concerning VIEs that:
(1) are consolidated since we are deemed to be the primary
beneficiary; and (2) those entities that we do not
consolidate because, although we have significant interests in
such VIEs, we are not the primary beneficiary. Those VIEs listed
below that relate to the Financing and Insurance Operations were
consolidated in 2005 and the period January 1, 2006 to
November 30, 2006, the date of our sale of a 51%
controlling interest in GMAC.
Automotive
We lease real estate and equipment from various SPEs that have
been established to facilitate the financing of those assets for
us by nationally prominent, creditworthy lessors. These assets
consist principally of office buildings, warehouses, and
machinery and equipment. The use of SPEs 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. There is a well-established market in which institutions
participate in the financing of such property through their
purchase of interests in these SPEs. Certain of these SPEs were
determined to be VIEs under FIN 46(R) Consolidation
of Variable Interest Entities, an Interpretation of ARB
No. 51 (FIN 46(R)) and we consolidate such SPEs
where we provide a residual value guarantee of the leased
property and are considered the primary beneficiary under
FIN 46(R). As of December 31, 2007, the carrying
amount of assets and liabilities consolidated under
FIN 46(R) amounted to $287 million and
$335 million, respectively, compared to $636 million
and $797 million as of December 31, 2006. Assets
consolidated are reflected in
Property-net
in our consolidated financial statements. Liabilities
consolidated are reflected in Debt in our consolidated financial
statements. Our maximum exposure to loss related to these
consolidated VIEs amounted to $335 million at
December 31, 2007. For other such lease arrangements
involving VIEs, we hold significant variable interests but are
not considered the primary beneficiary under FIN 46(R). Our
maximum exposure to loss related to these VIEs where we have a
significant variable interest, but do not consolidate the
entity, amounted to $705 million at December 31, 2007.
We also concluded an entity from whom we receive royalty
payments and over whom we exercise control but in which we do
not hold an equity interest meets the definition of a VIE. The
entity modifies standard GM vehicles into high performance
vehicles and sells them to the GM dealer network. We concluded
that we are the primary beneficiary and consolidate the entity
under FIN 46(R). Assets consolidated are reflected in Other
Assets and liabilities are reflected in Other liabilities in our
consolidated balance sheets. As of December 31, 2007, the
carrying amount of assets and liabilities consolidated under
FIN 46(R) amounted to $43 million and
$29 million, respectively. Our maximum exposure to loss
related to this consolidated VIE at December 31, 2007 is
insignificant.
Finance and Insurance Operations
Mortgage warehouse funding GMACs
Mortgage operations transferred to warehouse funding entities
commercial and residential mortgage loans, lending receivables,
home equity loans, and lines of credit pending permanent sale or
securitization through various structured finance arrangements
in order to provide funds for the origination and purchase of
future loans. We determined that for certain mortgage warehouse
funding entities, GMAC was the primary beneficiary.
Construction and real estate lending GMAC was the
primary beneficiary of an SPE used to finance construction
lending receivables.
Warehouse lending GMAC had a facility in
which it transferred mortgage warehouse lending receivables to a
wholly owned SPE which then sold a senior participation interest
in the receivables to an unconsolidated qualifying special
purpose entity (QSPE). GMAC was the primary beneficiary of the
SPE.
Collateralized debt obligations (CDOs)
GMACs Mortgage operations sponsored and served as
collateral manager for CDOs. Under CDO transactions, a trust is
established that purchases a portfolio of securities and issues
debt and equity certifications, representing interests in the
portfolio of assets. In addition to receiving variable
compensation for managing the portfolio, GMAC sometimes retained
equity investments in the CDOs. The majority of the CDOs
sponsored by GMAC were initially structured or were restructured
as QSPEs, and were therefore exempt from FIN 46(R). For
certain CDO entities, GMAC was the primary beneficiary.
133
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interests in real estate partnerships
GMACs Commercial Mortgage operations syndicate
investments in real estate partnerships to unaffiliated
investors, and in certain partnerships, had guaranteed the
timely payments of specified returns to those investors. GMAC
had variable interests in the underlying operating partnerships.
For certain partnerships, we determined that GMAC was the
primary beneficiary; however, the consolidation of these
entities did not impact reported net income.
New market tax credit funds GMAC syndicated
and managed investments in partnerships that make investments,
typically mortgage loans that, in turn, qualify the partnerships
to earn New Markets Tax Credits. For certain tax credit funds,
GMAC was the primary beneficiary.
Note 13. Accrued
Expenses, Other Liabilities, and Deferred Income Taxes
Accrued expenses, other liabilities and deferred income taxes
are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Automotive Current
|
|
|
|
|
|
|
|
|
Dealer and customer allowances, claims and discounts
|
|
$
|
10,631
|
|
|
$
|
10,057
|
|
Deposits from rental car companies
|
|
|
7,758
|
|
|
|
9,112
|
|
Deferred revenue
|
|
|
1,242
|
|
|
|
906
|
|
Policy, product warranty, and recall campaigns
|
|
|
4,655
|
|
|
|
4,389
|
|
Delphi contingent liability
|
|
|
924
|
|
|
|
|
|
Payrolls and employee benefits excluding postemployment benefits
|
|
|
2,146
|
|
|
|
2,116
|
|
Self-insurance reserves
|
|
|
351
|
|
|
|
361
|
|
Taxes
|
|
|
1,421
|
|
|
|
1,761
|
|
Derivative liability
|
|
|
587
|
|
|
|
462
|
|
Postemployment benefits plant idling
|
|
|
476
|
|
|
|
956
|
|
Postemployment benefits extended disability benefits
|
|
|
122
|
|
|
|
146
|
|
Interest
|
|
|
812
|
|
|
|
827
|
|
Pensions
|
|
|
446
|
|
|
|
335
|
|
Postretirement benefits
|
|
|
335
|
|
|
|
275
|
|
Deferred income taxes
|
|
|
116
|
|
|
|
11
|
|
Other
|
|
|
2,800
|
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
34,822
|
|
|
$
|
34,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Noncurrent
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
1,933
|
|
|
$
|
2,109
|
|
Policy, product warranty, and recall campaigns
|
|
|
4,960
|
|
|
|
4,675
|
|
Delphi contingent liability
|
|
|
1,870
|
|
|
|
1,451
|
|
Payrolls and employee benefits excluding postemployment benefits
|
|
|
2,082
|
|
|
|
1,897
|
|
Self-insurance reserves
|
|
|
1,483
|
|
|
|
1,557
|
|
Derivative liability
|
|
|
264
|
|
|
|
454
|
|
Postemployment benefits plant idling
|
|
|
382
|
|
|
|
313
|
|
Postemployment benefits extended disability benefits
|
|
|
631
|
|
|
|
849
|
|
Deferred income taxes
|
|
|
1,034
|
|
|
|
722
|
|
Other
|
|
|
1,463
|
|
|
|
3,035
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities and deferred income taxes
|
|
$
|
16,102
|
|
|
$
|
17,062
|
|
|
|
|
|
|
|
|
|
|
134
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
Unpaid insurance losses, loss adjustment expenses, and unearned
insurance premiums
|
|
$
|
|
|
|
$
|
125
|
|
Interest
|
|
|
23
|
|
|
|
46
|
|
Interest rate derivatives
|
|
|
6
|
|
|
|
2
|
|
GMAC capital contribution
|
|
|
|
|
|
|
1,022
|
|
Other
|
|
|
846
|
|
|
|
752
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities and deferred income taxes
|
|
$
|
875
|
|
|
$
|
1,947
|
|
|
|
|
|
|
|
|
|
|
Activity for policy, product warranty, recall campaigns and
certified used vehicle warranty liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Balance at January 1
|
|
$
|
9,064
|
|
|
$
|
9,135
|
|
Payments
|
|
|
(4,539
|
)
|
|
|
(4,463
|
)
|
Increase in liability (warranties issued during period)
|
|
|
5,135
|
|
|
|
4,517
|
|
Adjustments to liability (pre-existing warranties)
|
|
|
(165
|
)
|
|
|
(570
|
)
|
Effect of foreign currency translation
|
|
|
223
|
|
|
|
445
|
|
Liabilities transferred in the sale of Allison (Note 3)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
9,615
|
|
|
$
|
9,064
|
|
|
|
|
|
|
|
|
|
|
Management reviews and adjusts these estimates on a regular
basis based on the differences between actual experience and
historical estimates or other available information.
Note 14. Short-Term
Borrowings and Long-Term Debt
We had short-term borrowings of $4.2 billion and
$3.3 billion at December 31, 2007 and 2006,
respectively. As of December 31, 2007 and 2006, short-term
borrowings included related party debt of $2.5 billion and
$2.8 billion, respectively, mainly dealer financing from
GMAC. Amounts available under short-term line of credit
agreements were $3.3 billion and $2.6 billion at
December 31, 2007 and 2006, respectively. The interest rate
on short-term borrowings outstanding ranged from 1.7% to 17.3%
at December 31, 2007 and 2.5% to 11.2% at December 31,
2006. The weighted average interest rate on outstanding
borrowings was 6.2% and 6% at December 31, 2007 and 2006,
respectively. The weighted average interest rate on outstanding
borrowings includes interest rates on debt denominated in
various currencies.
We pay commitment fees on these credit facilities at rates
negotiated in each agreement. Amounts paid and expensed for
these commitments fees are not significant to any period.
135
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Unsecured bonds
|
|
$
|
16,127
|
|
|
$
|
16,119
|
|
Contingent convertible debt
|
|
|
8,440
|
|
|
|
8,050
|
|
Foreign-currency-denominated bonds
|
|
|
4,875
|
|
|
|
4,479
|
|
Other long-term debt
|
|
|
5,779
|
|
|
|
6,824
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
35,221
|
|
|
|
35,472
|
|
Less current portion of long-term debt
|
|
|
(1,893
|
)
|
|
|
(2,341
|
)
|
Fair value adjustment (a)
|
|
|
56
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
33,384
|
|
|
$
|
33,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
To adjust hedged fixed rate debt for fair value changes
attributable to the hedged risk in accordance with
SFAS No. 133, Accounting for Derivatives and
Hedging Activities (SFAS No. 133). |
Unsecured
Bonds
Unsecured bonds represent obligations having various annual
coupons ranging from 6.375% to 9.45% and maturities ranging from
2008 to 2052.
Contingent
Convertible Debt
In May 2007, we issued $1.5 billion of 1.5% Series D
convertible debentures (Series D) 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 may be converted at
the option of the holder into our
$12/3
par value common stock (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
$36.57 per share.
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, 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 prior
to the maturity date.
In connection with the issuance of the Series D, we
purchased a convertible note hedge for the Series D 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 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 or when the
Series D are no longer outstanding due to conversion or
otherwise.
We received net proceeds from the issuance of the Series D,
net of issue costs and the purchase of the convertible note
hedge, of $1.4 billion. The net proceeds will be used for
general corporate purposes, including working capital needs.
Debt issue costs of
136
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$32 million were incurred and are being amortized using the
effective interest method over the term of the Series D. 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.
Convertible debt includes $1.2 billion original principal
amount of 4.5% Series A convertible senior debentures due
in 2032 (Series A), $2.6 billion principal amount of
5.25% Series B convertible senior debentures due in 2032
(Series B), $4.3 billion principal amount of 6.25%
Series C convertible senior debentures due in 2033
(Series C) and $1.5 billion principal amount of
1.5% Series D due in 2009. We have unilaterally and
irrevocably waived and relinquished our right to use stock, and
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 holders to repurchase
the 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. Conversion prices for the bonds
are as follows: $70.20 for the Series A securities, $64.90
for the Series B securities, $47.62 for the Series C
securities and $36.57 for the Series D securities. In 2007,
a majority of the Series A convertible debentures were put
to us and settled in cash on March 6, 2007 for
$1.1 billion. At December 31, 2007, the amount of the
Series A convertible debentures outstanding was
$39 million.
The notes are convertible by the holder as outlined below:
|
|
|
|
|
If the closing sale 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 fiscal quarter; or
|
|
|
|
If 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 multiplied
by the number of shares issuable upon conversion of $25.00
principal amount of the debentures; or
|
|
|
|
If the debentures have been called for redemption (Series A
on or after March 6, 2007, Series B on or after
March 6, 2009, Series C on or after July 20,
2010; or
|
|
|
|
For Series D, anytime from March 1, 2009 to the second
business day immediately preceding the maturity date. The
Series D mature June 1, 2009; or
|
|
|
|
Upon the occurrence of specified corporate events.
|
Our requirement to repurchase all or a portion of the notes is
described below:
|
|
|
|
|
If the investor exercises their right to require us to
repurchase all or a portion of the debentures on the specified
repurchase dates for each security (Series A: March 6,
2007, 2012, 2017, 2022, or 2027; Series B: March 6,
2014, 2019, 2024, or 2029; Series C: July 15, 2018,
2023 or 2028); or, if any of those days is not a business day,
the next succeeding business day.
|
Foreign
Currency Denominated Bonds
Foreign currency denominated bonds include Euro-denominated
bonds with annual coupons ranging from 7.25% to 8.375% and
maturity dates ranging from 2013 to 2033. Also, included within
foreign-currency-denominated bonds are British Pounds bonds with
annual coupons ranging from 8.375% to 8.875% and maturity dates
ranging from 2015 to 2023. To mitigate the foreign exchange
exposure created by this debt, we enter into cross currency
swaps. The notional values of these swaps was $2.7 billion
and $2.4 billion at December 31, 2007 and 2006,
respectively.
137
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Long-Term Debt
Other long-term debt of $5.8 billion and $6.8 billion
at December 31, 2007 and 2006, respectively, consisted of
municipal bonds, capital leases, and other long-term obligations.
Revolving
Credit Agreements
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
December 31, 2007.
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 December 31, 2007, the availability under the
revolving credit facility was $4.5 billion. There are
$91 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
certain 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. The collateral also secures certain
lines of credit, automatic clearinghouse and overdraft
arrangements, and letters of credit provided by the same secured
lenders. The facility totals $6 billion, $4.5 billion
of which is the maximum available through the revolving credit
facility. As of December 31, 2007, in addition to the
$91 million letters of credit issued under the revolving
credit facility, $1.6 billion was utilized to secure other
facilities under the facility. In the event of certain work
stoppages, the secured revolving credit facility would be
temporarily reduced to $3.5 billion.
Our available long-term borrowings under line of credit
arrangements with various banks totaled $5.9 billion and
$4.7 billion at December 31, 2007 and 2006,
respectively. The unused portion of the credit lines totaled
$5.8 billion at December 31, 2007. In addition, our
consolidated affiliates with non-GM minority shareholders,
primarily GM Daewoo, have lines of credit with various banks
that totaled $2.1 billion at December 31, 2007, all of
which represented long-term facilities, compared with
$2.7 billion at December 31, 2006. The unused portion
of the credit lines totaled $1.6 billion at
December 31, 2007.
In May 2007, we entered into an unsecured revolving credit
agreement expiring in June 2008 that provided for borrowings of
up to $500 million. After reviewing our liquidity position
in December 2007, we believe that we have sufficient liquidity
and financial flexibility to meet our capital requirements in
the first half of 2008 without the credit agreement. As a
result, we terminated the credit agreement on January 9,
2008. We never borrowed under this credit agreement.
Interest
Rate Risk Management
To achieve our desired balance between fixed and variable debt,
we have entered into interest rate swaps. The notional amount of
pay variable swap agreements as of December 31, 2007 and
2006 for Automotive was $5.4 billion and $5.3 billion,
respectively.
At December 31, 2007 and 2006, long-term debt included
$26.2 billion and $25.5 billion, respectively, of
obligations with fixed interest rates and $7.2 billion and
$7.6 billion, respectively, of obligations with variable
interest rates (predominantly LIBOR), after interest rate swap
agreements.
138
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
We have other financing arrangements consisting principally of
obligations in connection with sale/leaseback transactions and
other lease obligations (including off-balance sheet
arrangements). In view of the restatement of our prior financial
statements, we have evaluated the effect of the 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. Based on this review, we
reclassified $212 million of these obligations from
long-term debt to short-term debt.
Long-term debt maturities including capital leases at
December 31, 2007 are as follows: 2008
$1.9 billion; 2009 $2.3 billion;
2010 $.2 billion; 2011
$1.7 billion; 2012 $.2 billion,
thereafter $29 billion.
Financing
and Insurance Operations
Debt is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
Bank loans and overdrafts
|
|
$
|
10
|
|
|
$
|
23
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Secured debt
|
|
|
4,863
|
|
|
|
8,944
|
|
Related party GMAC
|
|
|
35
|
|
|
|
471
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
4,908
|
|
|
$
|
9,438
|
|
|
|
|
|
|
|
|
|
|
Prior to the consummation of the GMAC Transaction, GMAC
transferred to us two bankruptcy-remote subsidiaries that hold a
number of trusts that are parties to lease asset
securitizations. The $4.9 billion of secured debt as of
December 31, 2007 is primarily comprised of the
asset-backed debt securities issued by these trusts as part of
these lease securitizations.
To achieve our desired balance between fixed and variable rate
debt, we have entered into interest rate swaps and cap
agreements with GMAC as the counterparty. The notional amount of
such agreements as of December 31, 2007 for FIO was
$3.2 billion pay floating, and the variable interest rates
ranged from 5.2% to 6.5%. The notional amount of such agreements
as of December 31, 2006 for FIO was $7.2 billion pay
floating, and the variable interest rates ranged from 5.3% to
6.6%.
Long-term debt maturities at December 31, 2007 are as
follows: 2008 $3.6 billion; 2009
$1.2 billion; 2010 $0; 2011
$5 million; 2012 $17 million;
thereafter $45 million.
Note 15. Pensions
and Other Postretirement Benefits
Employee
Benefit Plans
|
|
|
Defined
Benefit Pension Plans
|
We sponsor a number of qualified defined benefit pension plans
covering eligible hourly and salaried U.S. employees as
well as certain other
non-U.S. employees.
Defined benefit pension plans covering eligible hourly
U.S. and Canadian employees generally provide benefits of
negotiated, stated amounts for each year of service as well as
significant supplemental benefits for employees who retire with
30 years of service before normal retirement age. The
benefits provided by the defined benefit pension plans covering
eligible U.S. and Canadian salaried employees and salaried
employees in certain other
non-U.S. locations
are generally based on years of service
139
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and compensation history. We also have unfunded nonqualified
pension plans covering certain executives that are based on
targeted wage replacement percentages.
|
|
|
Defined
Contribution Plans
|
We also sponsor the Savings-Stock Purchase Program (S-SPP), a
defined contribution retirement savings plan for eligible
U.S. salaried employees. The S-SPP provides for
discretionary matching contributions up to certain predefined
limits based upon eligible base salary (Matching Contribution).
We suspended our Matching Contribution effective January 1,
2006, and reinstated the Matching Contribution effective
January 1, 2007. In addition to the Matching Contribution,
we also contribute an amount equal to 1% of eligible base salary
for U.S. salaried employees with a service commencement
date on or after January 1, 1993 to cover certain benefits
in retirement that are different from U.S. salaried
employees with a service commencement date prior to
January 1, 1993 (Benefit Contribution). Effective
January 1, 2007, we established a new contribution to the
S-SPP for eligible U.S. salaried employees with a service
commencement date on or after January 1, 2001. We
automatically contribute an amount equal to 4% of eligible base
salary under this program (Retirement Contribution). The total
of these contributions to the S-SPP was $82 million,
$12 million and $65 million in 2007, 2006 and 2005,
respectively.
We also contribute to certain
non-U.S. defined
contribution plans. Contributions to the
non-U.S. defined
contribution plans were immaterial for all periods presented.
|
|
|
Other
Postretirement Benefit Plans
|
Additionally, we sponsor hourly and salaried benefit plans that
provide postretirement medical, dental, vision and life
insurance to eligible U.S. and Canadian retirees and their
eligible dependents. The cost of such benefits is recognized
during the period employees provide service to us. Certain other
non-U.S. subsidiaries
have postretirement benefit plans, although most employees are
covered by government sponsored or administered programs. The
cost of such other
non-U.S. postretirement
plans is not significant.
We also provide post-employment extended disability benefits
comprised of income security, health care and life insurance to
eligible U.S. and Canadian employees who become disabled
and can no longer actively work. The cost of such benefits is
recognized during the period employees provide service.
In 2005 we entered into the 2005 UAW Health Care Settlement
Agreement which reduced health care coverage to individual UAW
retirees. To mitigate the effects of the reduced coverage, the
2005 UAW Health Care Settlement Agreement also provided that we
make contributions to a new independent VEBA. These
contributions constitute a defined benefit plan with a cap
(Mitigation Plan) and are expected to be available to pay
benefits for a number of years depending on the level of
mitigation. Our obligation to make contributions to the
Mitigation Plan is determined by a formula, consisting of fixed
and variable components, as defined in the 2005 UAW Health Care
Settlement Agreement. Our obligations are limited to these
contributions. The 2005 UAW Health Care Settlement Agreement
further provides that we do not guarantee the ability of the
assets in the Mitigation Plan to mitigate retiree health care
costs. Furthermore, the Mitigation Plan is completely
independent of us and is administered by an independent trust
committee (the Committee) which does not include any of our
representatives. The assets of the independent VEBA trust for
UAW retirees of GM are the responsibility of the Committee,
which has full fiduciary responsibility for the investment
strategy, safeguarding of assets and execution of the benefit
plan as designed.
The Mitigation Plan is partially funded by our contributions of
$1 billion in 2006, 2007 and a third contribution of
$1 billion to be made in 2011. We shall 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. Amounts we
contribute to the Mitigation Plan related to wage deferrals,
dividends or changes in the estimate of Supplemental
Contributions are recorded as an expense in the quarter that the
hours are worked, the dividend is declared, or the change in
estimate occurs. We recognize the expense for the wage deferrals
as the future services are rendered, since the active-UAW
represented-hourly-employees
elected to forgo contractual wage increases and to have those
amounts contributed to the Mitigation Plan.
140
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The net underfunded status of the Mitigation Plan is reflected
in our consolidated balance sheets and in the Changes in Benefit
Obligation (under U.S. Other Benefits) as detailed in the
table below. The following represents the changes in plan assets
and benefit obligation of the Mitigation Plan for 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Changes in Benefit Obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
2,805
|
|
|
$
|
|
|
SFAS No. 158 measurement date adjustment
|
|
|
20
|
|
|
|
|
|
Interest cost
|
|
|
69
|
|
|
|
56
|
|
Amendments
|
|
|
|
|
|
|
2,876
|
|
Actuarial (gains)/losses
|
|
|
166
|
|
|
|
7
|
|
Benefits paid
|
|
|
(580
|
)
|
|
|
(119
|
)
|
Other
|
|
|
286
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
2,766
|
|
|
$
|
2,805
|
|
|
|
|
|
|
|
|
|
|
Changes in Plan Assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
914
|
|
|
$
|
|
|
Contributions
|
|
|
1,000
|
|
|
|
1,000
|
|
Wage deferral contributions
|
|
|
286
|
|
|
|
4
|
|
Benefits paid
|
|
|
(580
|
)
|
|
|
(119
|
)
|
Actual return on plan assets
|
|
|
109
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
1,729
|
|
|
$
|
914
|
|
|
|
|
|
|
|
|
|
|
Legal
Services Plans and Restatement of Financial
Information
The accompanying consolidated balance sheets and statement of
stockholders equity (deficit) as of December 31, 2006
and January 1, 2005, respectively, have been restated to
correct the accounting for certain benefit plans that provide
legal services to hourly employees represented by the UAW,
International Union of Electrical Workers Communications Workers
of America (IUE-CWA) and the Canadian Auto Workers (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 and a liability of $323 million has
been recorded in our consolidated balance sheet as of
January 1, 2005, the earliest period included in these
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 January 1, 2005.
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 effect of correcting this misstatement on our
interim and annual results of operations for the periods ended
September 30 and December 31, 2007, respectively, and
concluded that the impact of recording the cumulative effect in
each of these periods may be material. Therefore, as permitted
by SAB 108 we corrected our prior period consolidated
financial statements for the immaterial effect of this
misstatement in these consolidated financial statements. As
such, we do not intend to amend our previous filings with the
SEC with respect to this misstatement.
In order to correct the consolidated balance sheet at
December 31, 2006, we increased deferred tax assets and
OPEB liabilities by $112 million and $323 million,
respectively. Previously reported amounts for deferred tax
assets and OPEB liabilities of $33 billion and
$50.1 billion, respectively, at December 31, 2006 have
been restated to $33.1 billion and $50.4 billion,
respectively.
141
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We are not restating the consolidated statements of operations
or cash flows for 2006 and 2005, or any interim periods in those
years, for this misstatement because we have concluded that the
impact is immaterial to all periods presented.
Adoption
of SFAS No. 158
Effective December 31, 2006, we adopted
SFAS No. 158 and recognized the funded status of our
defined benefit plans at December 31, 2006 in accordance
with the recognition provisions of SFAS No. 158. The
incremental effect of applying the recognition provisions of
SFAS No. 158 on the individual line items in the
consolidated balance sheet as of December 31, 2006 is
presented in the table below. 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 $728 million, or $425 million after-tax,
representing the net periodic benefit cost for the period
between the measurement date utilized in 2006 and the beginning
of 2007, which previously would have been recorded in the first
quarter of 2007 on a delayed basis. 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, or $1.5 billion
after-tax, representing other changes in the fair value of the
plan assets and the benefit obligations for the period between
the measurement date utilized in 2006 and January 1, 2007.
These amounts are principally offset by an immaterial adjustment
of $390 million, or $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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to
|
|
|
|
|
|
|
Application of
|
|
|
|
After Application
|
|
|
SFAS No. 158
|
|
Adjustments
|
|
of SFAS No. 158
|
|
|
(Dollars in millions)
|
|
Other current assets and deferred income taxes
|
|
$
|
2,147
|
|
|
$
|
10,835
|
|
|
$
|
12,982
|
|
Goodwill and intangible assets, net
|
|
$
|
1,578
|
|
|
$
|
(460
|
)
|
|
$
|
1,118
|
|
Prepaid pension
|
|
$
|
33,949
|
|
|
$
|
(16,583
|
)
|
|
$
|
17,366
|
|
Total assets
|
|
$
|
192,512
|
|
|
$
|
(6,208
|
)
|
|
$
|
186,304
|
|
Accrued expenses
|
|
$
|
37,737
|
|
|
$
|
(3,617
|
)
|
|
$
|
34,120
|
|
Postretirement benefits other than pensions
|
|
$
|
36,373
|
|
|
$
|
14,036
|
|
|
$
|
50,409
|
|
Pensions
|
|
$
|
11,541
|
|
|
$
|
393
|
|
|
$
|
11,934
|
|
Other liabilities and deferred income taxes
|
|
$
|
17,136
|
|
|
$
|
(74
|
)
|
|
$
|
17,062
|
|
Total liabilities
|
|
$
|
180,028
|
|
|
$
|
10,738
|
|
|
$
|
190,766
|
|
Accumulated other comprehensive loss
|
|
$
|
(5,180
|
)
|
|
$
|
(16,946
|
)
|
|
$
|
(22,126
|
)
|
Total stockholders equity (deficit)
|
|
$
|
11,294
|
|
|
$
|
(16,946
|
)
|
|
$
|
(5,652
|
)
|
Total liabilities, minority interests and stockholders
equity (deficit)
|
|
$
|
192,512
|
|
|
$
|
(6,208
|
)
|
|
$
|
186,304
|
|
Significant
Plan Amendments, Benefit Modifications and Related
Events
In October 2007, we signed a Memorandum of
Understanding Post-Retirement Medical Care (Retiree
MOU) with the UAW, now superseded by the settlement agreement
entered into February 21, 2008 currently pending for court
approval (Settlement Agreement). The Settlement Agreement
provides that responsibility for providing retiree health care
will permanently shift from us to a new retiree plan funded by a
new independent VEBA (New VEBA).
When fully implemented, the Settlement Agreement will cap our
retiree healthcare obligations to UAW associated employees,
retirees and dependents, as defined in the Settlement Agreement;
will supersede and replace the 2005 UAW Health Care Settlement
Agreement; and will transfer responsibility for administering
retiree healthcare benefits for these individuals to the New
VEBA trust. Before it can become effective, the Settlement
Agreement is subject to class certification, court approval and
the completion of discussions between us and the SEC regarding
accounting treatment for the transactions contemplated by the
Settlement
142
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Agreement on a basis reasonably satisfactory to us. In light of
these contingencies, no recognition to the effects of the
Settlement Agreement has been made in these consolidated
financial statements. The Settlement Agreement provides that on
the later of January 1, 2010 or final court approval of the
Settlement Agreement, we will transfer our obligations to
provide covered UAW employees with post-retirement medical
benefits to a new retiree health care plan (the New Plan) to be
established and funded by the New VEBA.
In accordance with the Settlement Agreement, effective
January 1, 2008 for bookkeeping purposes only, we will
divide the existing internal VEBA into two bookkeeping accounts.
One account will consist of the percentage of the existing
internal VEBAs assets as of January 1, 2008 that is
equal to the estimated percentage of our hourly OPEB liability
covered by the existing internal VEBA attributable to Non-UAW
represented employees and retirees, their eligible spouses,
surviving spouses and dependents (Non-UAW Related Account) and
will have a balance of approximately $1.2 billion. The
second account will consist of the remaining percentage of the
assets in the existing internal VEBA as of January 1, 2008
(UAW Related Account) and will have a balance of approximately
$14.5 billion. No amounts will be withdrawn from the UAW
Related Account, including its investment returns, from
January 1, 2008 until transfer to the New VEBA.
Pursuant to the Settlement Agreement we have issued
$4.4 billion principal amount of our 6.75% Series U
Convertible Senior Debentures Due December 31, 2012 (the
Convertible Note) to LBK, LLC, a Delaware limited liability
company of which we are the sole member (LBK). LBK will hold the
Convertible Note until it is transferred to the New VEBA in
accordance with the terms of the Settlement Agreement. Interest
on the Convertible Note is payable semiannually. In accordance
with the Settlement Agreement LBK will transfer any interest it
receives on the Convertible Note to a temporary asset account we
maintain. The funds in the temporary asset account will be
transferred to the New VEBA in accordance with the terms of the
Settlement Agreement.
In conjunction with the issuance of the Convertible Note, LBK
and we have entered into certain cash-settled derivative
instruments maturing on June 30, 2011 that will have the
economic effect of reducing the conversion price of the
Convertible Note from $40 to $36. These derivative instruments
will also entitle us to partially recover the additional
economic value provided if our Common Stock price appreciates to
between $63.48 and $70.53 per share and to fully recover the
additional economic value provided if our Common Stock price
reaches $70.53 per share or above. Pursuant to the Settlement
Agreement, LBK will transfer its interests in the derivatives to
the New VEBA when the Convertible Note is transferred from LBK
to the New VEBA.
We also issued a $4 billion short term note to LBK (the
Short Term Note) pursuant to the Settlement Agreement. The Short
Term Note pays interest at a rate of 9% and matures on the date
that the face amount of the Short Term Note is paid with
interest to the New VEBA in accordance with the terms of the
Settlement Agreement. LBK will hold the Short Term Note until it
matures.
Because LBK is a wholly-owned consolidated subsidiary, and LBK
will hold the Convertible Note, the Short Term Note and the
derivatives until they are paid or transferred to the New VEBA,
these three securities will be effectively eliminated in our
consolidated financial statements until they are transferred to
the New VEBA without restrictions.
On April 1, 2008, we will make an additional contribution
of $165 million to the temporary asset account. Beginning
in 2009, we may be required to contribute an additional
$165 million per year, limited to a maximum of an
additional 19 payments, to either the temporary asset account or
the New VEBA (when established). Such contributions will be
required only if annual cash flow projections show that the New
VEBA will become insolvent on a rolling
25-year
basis. At any time, we will have the option to prepay all
remaining contingent $165 million payments.
Additionally, at the initial effective date of the Settlement
Agreement, we may transfer up to an additional
$5.6 billion, subject to adjustment, to the New VEBA or we
may instead opt to make annual payments of varying amounts
between $421 million and $3.3 billion through 2020.
As a result of the increased pension benefits granted as part of
the 2007 National Agreement, we remeasured the U.S. hourly
defined benefit pension plan as of October 1, 2007
generating a $41 million increase in pension expense in
2007. The remeasurement increased our U.S. hourly projected
benefit obligation (PBO) by $4.2 billion. The terms of the
2007 National Agreement also provided for pension benefits to
certain future and current retirees for Delphi Corporation
(Delphi) that were transferred at the time of the spin off from
us. Future Delphi retirees received the same incremental pension
increase consistent with our employees while the current Delphi
retirees
143
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
will receive four lump-sum payments with the same terms of those
received by our retirees. These pension benefits granted to
future and current retirees of Delphi will be funded by our
hourly pension plan and were included in our October 1,
2007 remeasurement of our hourly pension plan. The value of the
increased pension benefits of $552 million to future and
current Delphi retirees was charged to Other expense in 2007.
Prior to the 2007 National Agreement, we amortized prior service
cost related to our hourly defined benefit pension plans in the
U.S. over the average remaining service period for active
employees at the time of the amendment, currently estimated to
be 10.1 years. We also expensed any lump sum payments
granted to retirees in the quarter the associated contract was
approved. In conjunction with entering into the 2007 National
Agreement, we determined that the contractual life of the labor
agreements better reflected the period of future economic
benefit received from pension plan amendments for our
collectively bargained hourly pension plans. Therefore, we are
amortizing these amounts over a four year period. Also, we
recorded $1.6 billion 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. This change in estimate
resulted in an increase in basic and diluted loss per share of
$2.76 in 2007. 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
$77 million in the consolidated statements of operations.
In February 2006, we announced we would increase the
U.S. salaried workforces participation in the cost of
health care, capping our contributions to salaried retiree
health care at the level of 2006 expenditures. The resulting
remeasurement of the U.S. salaried OPEB plans as of
February 9, 2006 due to these benefit modifications
generated a $500 million reduction in OPEB expense for 2006
and is reflected in the Components of pension and OPEB expense
table. This remeasurement reduced the U.S. accumulated
postretirement benefit obligation (APBO) by $4.7 billion.
In March 2006, we modified the terms of the U.S. salaried
defined benefit pension plan to freeze benefits under the then
current plan as of December 31, 2006 and implement a new
plan using a new pension formula thereafter. The resulting
remeasurement of our U.S. salaried defined benefit pension
plan as of March 31, 2006 due to these benefit
modifications generated a $383 million reduction in pension
expense for 2006 and is reflected in the Components of pension
and OPEB expense table. This remeasurement reduced the
U.S. PBO by $2.8 billion.
In March 2006, the U.S. District Court for the Eastern
District of Michigan approved the 2005 UAW Health Care
Settlement Agreement, which reduced the health care provisions
for our Health Care Program for Hourly Employees (Modified
Plan). Upon court approval, the 2005 UAW Health Care Settlement
Agreement was to remain in effect until at least September 2011,
after which either we or the UAW could cancel the agreement upon
90 days written notice. The 2005 UAW Health Care Settlement
Agreement will be replaced by the Settlement Agreement, as
discussed above, at the later of the Final Effective Date or
January 1, 2010. The 2005 UAW Health Care Settlement
Agreement also provided that we make contributions to the
Mitigation Plan described earlier. As a result of the 2005 UAW
Health Care Settlement Agreement, we remeasured the Modified
Plan as of March 31, 2006 generating a $1.3 billion
reduction in OPEB expense for the remaining periods in 2006 and
reducing the 2006 U.S. APBO by $17.4 billion. The
$17.4 billion reduction is being amortized on a straight
line basis over the period to full eligibility of the active UAW
hourly employees (7.4 years) as a reduction of OPEB
expense. The measurement as of March 31, 2006 of the
Mitigation Plan generated a U.S. APBO of $2.9 billion
which will be amortized on a straight-line basis over the period
to full eligibility of active UAW employees (7.4 years) as
U.S. OPEB expense. The net result of the March 31,
2006 remeasurement of the Modified Plan and the initial
measurement of the Mitigation Plan was a $14.5 billion
reduction of the 2006 U.S. hourly APBO and a
$1.3 billion reduction in OPEB expense in 2006.
In March 2006, we reached an agreement with Delphi and the UAW,
which significantly reduced the number of U.S. hourly
employees (the UAW Attrition Program), thereby significantly
reducing the expected aggregate years of future service of
employees covered by the U.S. hourly defined benefit
pension, OPEB and extended disability plans. The resulting
remeasurement of our U.S. hourly defined benefit pension
plan as of April 30, 2006 generated a $4.4 billion
curtailment loss, a $704 million reduction in pension
expense in 2006 and a reduction of our U.S. hourly PBO of
$1.2 billion. The resulting remeasurement of our
U.S. hourly OPEB plan as of May 31, 2006 generated a
$23 million curtailment loss, a $143 million reduction
in OPEB expense in 2006, and a reduction of
144
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
our U.S. hourly APBO of $700 million. We also
recognized a curtailment gain of $132 million related to
the U.S. hourly extended disability plan measured as of
June 30, 2006. The impacts for the pension and OPEB plans
are reflected in the Components of pension and OPEB expense
table.
In October 2006, we reduced the levels of coverage for
corporate-paid life insurance for salaried retirees. For
eligible salaried employees who retire on or after May 1,
2007, coverage will be reduced by 50% on the tenth anniversary
of their retirement date, and salaried employees who retire
before May 1, 2007 will have their coverage reduced by 50%
on January 1, 2017. This change reduced our U.S. APBO
by $500 million and is reflected in 2007 OPEB expense.
As a result of the sale of GMAC in November 2006, as described
in Note 3, GMAC salaried employees had their defined
benefit pension benefits frozen under our defined benefit
pension plans in place at the time of the sale. The resulting
remeasurement of our U.S. salaried defined benefit pension
plans as of November 30, 2006 generated an $86 million
curtailment gain and an $8 million reduction in pension
expense in 2006. This remeasurement increased the U.S. PBO
by $200 million. We also agreed to maintain the salaried
OPEB obligation for current GMAC retirees and OPEB-eligible
employees. GMAC employees who were non OPEB-eligible were
offered a cash lump sum payment based on credited service in
lieu of GM provided OPEB at their date of retirement. The
resulting remeasurement of the U.S. and
non-U.S. OPEB
plans as of November 30, 2006 generated a $563 million
curtailment gain, $27 million settlement loss, and
$536 million reduction in OPEB expense for 2006. This
remeasurement reduced the U.S. and
non-U.S. APBO
by $100 million. The impact to extended disability benefits
was a curtailment gain of $14 million in 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
|
|
Non-U.S.
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
U.S. Other Benefits*
|
|
|
Other Benefits*
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
85,422
|
|
|
$
|
89,133
|
|
|
$
|
22,538
|
|
|
$
|
20,850
|
|
|
$
|
64,584
|
|
|
$
|
81,467
|
|
|
$
|
3,744
|
|
|
$
|
3,797
|
|
SFAS 158 measurement date adjustment
|
|
|
|
|
|
|
|
|
|
|
(539
|
)
|
|
|
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
627
|
|
|
|
727
|
|
|
|
486
|
|
|
|
484
|
|
|
|
370
|
|
|
|
551
|
|
|
|
45
|
|
|
|
53
|
|
Interest cost
|
|
|
4,931
|
|
|
|
4,965
|
|
|
|
1,143
|
|
|
|
967
|
|
|
|
3,609
|
|
|
|
3,929
|
|
|
|
199
|
|
|
|
190
|
|
Plan participants contributions
|
|
|
|
|
|
|
19
|
|
|
|
29
|
|
|
|
30
|
|
|
|
354
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
Amendments
|
|
|
3,635
|
|
|
|
(1,960
|
)
|
|
|
75
|
|
|
|
(669
|
)
|
|
|
(1,338
|
)
|
|
|
(15,091
|
)
|
|
|
(66
|
)
|
|
|
|
|
Actuarial (gains) losses
|
|
|
(2,452
|
)
|
|
|
(3,682
|
)
|
|
|
(1,486
|
)
|
|
|
524
|
|
|
|
(3,225
|
)
|
|
|
(6,468
|
)
|
|
|
(133
|
)
|
|
|
(145
|
)
|
Benefits paid
|
|
|
(7,574
|
)
|
|
|
(7,013
|
)
|
|
|
(1,287
|
)
|
|
|
(1,049
|
)
|
|
|
(4,753
|
)
|
|
|
(4,188
|
)
|
|
|
(147
|
)
|
|
|
(133
|
)
|
Medicare Part D receipts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
Exchange rate movements
|
|
|
|
|
|
|
|
|
|
|
2,736
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
666
|
|
|
|
4
|
|
Curtailments, settlements, and other
|
|
|
688
|
|
|
|
3,233
|
|
|
|
58
|
|
|
|
151
|
|
|
|
(351
|
)
|
|
|
4,012
|
|
|
|
2
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
85,277
|
|
|
|
85,422
|
|
|
|
23,753
|
|
|
|
22,538
|
|
|
|
59,703
|
|
|
|
64,584
|
|
|
|
4,310
|
|
|
|
3,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
|
|
Non-U.S.
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
U.S. Other Benefits*
|
|
|
Other Benefits*
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
101,392
|
|
|
|
95,250
|
|
|
|
11,506
|
|
|
|
10,063
|
|
|
|
16,939
|
|
|
|
20,282
|
|
|
|
|
|
|
|
|
|
SFAS 158 measurement date adjustment
|
|
|
|
|
|
|
|
|
|
|
277
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
10,073
|
|
|
|
13,384
|
|
|
|
492
|
|
|
|
1,280
|
|
|
|
1,183
|
|
|
|
1,834
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
89
|
|
|
|
80
|
|
|
|
848
|
|
|
|
810
|
|
|
|
2,470
|
|
|
|
(1,118
|
)
|
|
|
147
|
|
|
|
133
|
|
Plan participants contributions
|
|
|
|
|
|
|
19
|
|
|
|
29
|
|
|
|
30
|
|
|
|
354
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(7,574
|
)
|
|
|
(7,013
|
)
|
|
|
(1,287
|
)
|
|
|
(1,049
|
)
|
|
|
(4,753
|
)
|
|
|
(4,188
|
)
|
|
|
(147
|
)
|
|
|
(133
|
)
|
Exchange rate movements
|
|
|
|
|
|
|
|
|
|
|
1,507
|
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailments, settlements, and other
|
|
|
90
|
|
|
|
(328
|
)
|
|
|
(64
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
104,070
|
|
|
|
101,392
|
|
|
|
13,308
|
|
|
|
11,506
|
|
|
|
16,303
|
|
|
|
16,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status(a)
|
|
|
18,793
|
|
|
|
15,970
|
|
|
|
(10,445
|
)
|
|
|
(11,032
|
)
|
|
|
(43,400
|
)
|
|
|
(47,645
|
)
|
|
|
(4,310
|
)
|
|
|
(3,744
|
)
|
Employer contributions/withdrawals in fourth quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
Benefits paid in fourth quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
Curtailments and settlements in fourth quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
18,793
|
|
|
$
|
15,970
|
|
|
$
|
(10,445
|
)
|
|
$
|
(10,873
|
)
|
|
$
|
(43,400
|
)
|
|
$
|
(46,940
|
)
|
|
$
|
(4,310
|
)
|
|
$
|
(3,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent asset
|
|
$
|
19,984
|
|
|
$
|
17,150
|
|
|
$
|
191
|
|
|
$
|
216
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Current liability
|
|
|
(85
|
)
|
|
|
(85
|
)
|
|
|
(361
|
)
|
|
|
(250
|
)
|
|
|
(168
|
)
|
|
|
(134
|
)
|
|
|
(167
|
)
|
|
|
(141
|
)
|
Noncurrent liability
|
|
|
(1,106
|
)
|
|
|
(1,095
|
)
|
|
|
(10,275
|
)
|
|
|
(10,839
|
)
|
|
|
(43,232
|
)
|
|
|
(46,806
|
)
|
|
|
(4,143
|
)
|
|
|
(3,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,793
|
|
|
$
|
15,970
|
|
|
$
|
(10,445
|
)
|
|
$
|
(10,873
|
)
|
|
$
|
(43,400
|
)
|
|
$
|
(46,940
|
)
|
|
$
|
(4,310
|
)
|
|
$
|
(3,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
10,180
|
|
|
$
|
15,483
|
|
|
$
|
4,981
|
|
|
$
|
6,478
|
|
|
$
|
16,425
|
|
|
$
|
21,957
|
|
|
$
|
1,418
|
|
|
$
|
1,406
|
|
Net prior service cost (credit)
|
|
|
2,617
|
|
|
|
1,165
|
|
|
|
81
|
|
|
|
13
|
|
|
|
(11,277
|
)
|
|
|
(12,450
|
)
|
|
|
(563
|
)
|
|
|
(501
|
)
|
Transition obligation
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,797
|
|
|
$
|
16,648
|
|
|
$
|
5,079
|
|
|
$
|
6,516
|
|
|
$
|
5,148
|
|
|
$
|
9,507
|
|
|
$
|
855
|
|
|
$
|
905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Table does not include extended disability plans with a total
APBO of $701 million at December 31, 2007 and
$866 million at December 31, 2006.
|
The total accumulated benefit obligation, the accumulated
benefit obligation and fair value of plan assets for our defined
benefit pension plans with accumulated benefit obligations in
excess of plan assets, and the projected benefit obligation and
fair value of plan assets for defined benefit pension plans with
projected benefit obligations in excess of plan assets are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Accumulated Benefit Obligation
|
|
$
|
85,226
|
|
|
$
|
85,422
|
|
|
$
|
23,179
|
|
|
$
|
21,926
|
|
Plans with ABO in excess of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABO
|
|
$
|
1,189
|
|
|
$
|
1,180
|
|
|
$
|
22,390
|
|
|
$
|
21,429
|
|
Fair value of plan assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,351
|
|
|
$
|
10,769
|
|
Plans with PBO in excess of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PBO
|
|
$
|
1,191
|
|
|
$
|
1,180
|
|
|
$
|
23,380
|
|
|
$
|
22,270
|
|
Fair value of plan assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,941
|
|
|
$
|
11,155
|
|
146
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of pension and OPEB expense along with the
assumptions used to determine benefit obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Plans
|
|
|
|
|
|
Non-U.S.
|
|
|
|
U.S. Plans Pension Benefits
|
|
|
Pension Benefits
|
|
|
U.S. Other Benefits*
|
|
|
Other Benefits*
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Components of expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
627
|
|
|
$
|
727
|
|
|
$
|
1,117
|
|
|
$
|
486
|
|
|
$
|
484
|
|
|
$
|
345
|
|
|
$
|
370
|
|
|
$
|
551
|
|
|
$
|
702
|
|
|
$
|
45
|
|
|
$
|
53
|
|
|
$
|
50
|
|
Interest cost
|
|
|
4,931
|
|
|
|
4,965
|
|
|
|
4,883
|
|
|
|
1,143
|
|
|
|
967
|
|
|
|
965
|
|
|
|
3,609
|
|
|
|
3,929
|
|
|
|
4,107
|
|
|
|
199
|
|
|
|
190
|
|
|
|
218
|
|
Expected return on plan assets
|
|
|
(7,983
|
)
|
|
|
(8,167
|
)
|
|
|
(7,898
|
)
|
|
|
(984
|
)
|
|
|
(842
|
)
|
|
|
(740
|
)
|
|
|
(1,400
|
)
|
|
|
(1,593
|
)
|
|
|
(1,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
|
|
2,167
|
|
|
|
785
|
|
|
|
1,164
|
|
|
|
32
|
|
|
|
78
|
|
|
|
102
|
|
|
|
(1,830
|
)
|
|
|
(1,071
|
)
|
|
|
(70
|
)
|
|
|
(86
|
)
|
|
|
(82
|
)
|
|
|
8
|
|
Amortization of transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
7
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
764
|
|
|
|
1,126
|
|
|
|
2,065
|
|
|
|
407
|
|
|
|
399
|
|
|
|
281
|
|
|
|
1,352
|
|
|
|
1,986
|
|
|
|
2,250
|
|
|
|
122
|
|
|
|
133
|
|
|
|
88
|
|
Curtailments, settlements, and other losses (gains)
|
|
|
75
|
|
|
|
4,260
|
|
|
|
115
|
|
|
|
156
|
|
|
|
139
|
|
|
|
114
|
|
|
|
(213
|
)
|
|
|
(505
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
(9
|
)
|
|
|
2
|
|
Divestiture of Allison(c)
|
|
|
(30
|
)
|
|
|
(17
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211
|
|
|
|
(15
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expense
|
|
$
|
551
|
|
|
$
|
3,679
|
|
|
$
|
1,422
|
|
|
$
|
1,248
|
|
|
$
|
1,232
|
|
|
$
|
1,073
|
|
|
$
|
2,099
|
|
|
$
|
3,282
|
|
|
$
|
5,284
|
|
|
$
|
263
|
|
|
$
|
285
|
|
|
$
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine benefit
obligations at December 31(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.35
|
%
|
|
|
5.90
|
%
|
|
|
5.70
|
%
|
|
|
5.72
|
%
|
|
|
4.76
|
%
|
|
|
4.72
|
%
|
|
|
6.35
|
%
|
|
|
5.90
|
%
|
|
|
5.45
|
%
|
|
|
5.75
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Rate of compensation increase
|
|
|
5.25
|
%
|
|
|
5.00
|
%
|
|
|
4.90
|
%
|
|
|
3.60
|
%
|
|
|
3.00
|
%
|
|
|
3.10
|
%
|
|
|
3.30
|
%
|
|
|
4.60
|
%
|
|
|
4.20
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Weighted-average assumptions used to determine net expense
for years ended December 31(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.97
|
%
|
|
|
5.70
|
%
|
|
|
5.60
|
%
|
|
|
4.97
|
%
|
|
|
4.72
|
%
|
|
|
5.61
|
%
|
|
|
5.90
|
%
|
|
|
5.45
|
%
|
|
|
5.75
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
6.00
|
%
|
Expected return on plan assets
|
|
|
8.50
|
%
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
|
|
7.85
|
%
|
|
|
8.40
|
%
|
|
|
8.50
|
%
|
|
|
8.40
|
%
|
|
|
8.80
|
%
|
|
|
8.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
5.00
|
%
|
|
|
4.90
|
%
|
|
|
5.00
|
%
|
|
|
3.46
|
%
|
|
|
3.10
|
%
|
|
|
3.20
|
%
|
|
|
4.60
|
%
|
|
|
4.20
|
%
|
|
|
3.90
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
|
* |
|
Table does not include extended disability plans with a total
net expense of $63 million, $105 million and
$79 million in 2007, 2006 and 2005, respectively (excluding
curtailments), as the amounts are not material. |
|
(a) |
|
Determined as of end of year. |
(b) |
|
Determined as of beginning of year and updated for
remeasurements. Appropriate discount rates were used during 2007
to measure the effects of curtailments and plan amendments on
various plans. |
(c) |
|
As a result of the Allison divestiture, we recorded an
adjustment to the unamortized prior service cost of our U.S.
hourly and salaried defined benefit 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. |
Estimated amounts to be amortized from Accumulated other
comprehensive income into net periodic benefit cost during 2008
based on December 31, 2007 plan measurements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
|
Pension Benefits
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
Other Benefits
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
|
$
|
841
|
|
|
$
|
40
|
|
|
$
|
(1,861
|
)
|
|
$
|
(92
|
)
|
Amortization of transition obligation
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
263
|
|
|
|
282
|
|
|
|
747
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,104
|
|
|
$
|
329
|
|
|
$
|
(1,114
|
)
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective with the December 31, 2007 remeasurement, we will
begin amortizing actuarial gains/losses and new prior service
costs/credits over the life expectancy of inactive participants
in the U.S. hourly healthcare plan due to the changing
demographics of the participants in the plan.
147
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assumptions
We set the discount rate assumption annually for each of our
retirement-related U.S. benefit plans at their respective
measurement dates to reflect the yield of a portfolio of high
quality, fixed-income debt instruments that would produce cash
flows sufficient in timing and amount to defease projected
future benefits. We have established for our U.S. defined
benefit pension plans and U.S. OPEB plans a discount rate
of 6.35% for year-end 2007.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Assumed Health-Care Trend Rates
|
|
2007
|
|
2006
|
|
Initial health-care cost trend rate
|
|
|
8
|
.2%
|
|
|
9
|
.0%
|
Ultimate health-care cost trend rate
|
|
|
5
|
.0%
|
|
|
5
|
.0%
|
Number of years to ultimate trend rate
|
|
|
6
|
|
|
|
6
|
|
A one percentage point increase in the assumed health care trend
rates for all future periods would have increased the
U.S. APBO by $6.4 billion at December 31, 2007
and the U.S. aggregate service and interest cost components
of non-pension postretirement benefit expense for 2007 by
$511 million. A one percentage point decrease would have
decreased the U.S. APBO by $5.4 billion and the
U.S. aggregate service and interest cost components of
non-pension postretirement benefit expense for 2007 by
$420 million.
|
|
|
Long-term
Rate of Return on Plan Assets
|
We use detailed periodic studies conducted by our outside
actuaries and our asset management group to determine our
long-term strategic mix among asset classes and the expected
return on asset assumptions for our U.S. pension plans. The
U.S. study includes a review of alternative asset
allocation strategies, anticipated future long-term performance
of individual asset classes, risks (standard deviations) and
correlations among the asset classes that comprise the
plans asset mix. The primary
non-U.S. pension
plans conduct similar studies in conjunction with outside
actuaries and asset managers. While the studies give appropriate
consideration to recent fund performance and historical returns,
the assumptions are primarily long-term, prospective rates of
return.
Based on a study performed in 2006, our asset management group
implemented certain changes in the long-run strategic asset
allocations of the U.S. defined benefit pension plans.
Specifically, we modified the target allocations to increase the
fixed income exposure by 20% of total plan assets and to reduce
the equity exposure by a corresponding amount. This change in
strategic asset allocation was intended to significantly lower
the expected volatility of asset returns and plan funded status,
as well as the probability of future contribution requirements.
In setting the new strategic asset mix, we considered the
likelihood that the selected mix would effectively fund the
projected pension plan liabilities while aligning with the risk
tolerance of the plans fiduciaries. Our strategic asset
mix for U.S. defined benefit pension plans is intended to
reduce exposure to equity market risks, to utilize asset classes
which reduce surplus volatility and to utilize asset classes
where active management has historically generated excess
returns above market returns.
This asset mix is intended to place greater emphasis on
investment manager skills than on general market returns to
produce expected long-term returns, while employing various risk
mitigation strategies to reduce surplus volatility. Based on the
target asset allocations and a re-examination of expected asset
return assumptions, we revised our expected long-term annual
return rate assumption for our U.S. defined benefit plans
effective January 1, 2007 to 8.5%, a reduction from our
previous level of 9.0%. With the strategic mix fully
implemented, our U.S. pension assets have the following
target allocation relative to total assets: equity securities,
29%; debt securities, 52%; real estate, 8%; and other
alternative investments, 11%. In 2006, our target allocations
for such assets were: equity securities, 49%; debt securities,
32%; real estate, 8%; and other alternative investments, 11%.
The hourly VEBA is managed to achieve long-term asset returns
while maintaining adequate liquidity for reimbursement of
benefit payments, as needed. For 2006, the expected annual
return for the hourly VEBA plan was 9.0% and the expected annual
return for the
148
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
salaried VEBA was 4.5%. Based on a reexamination of expected
long-term asset return assumptions, we revised our expected
annual return assumptions effective January 1, 2007 for the
hourly VEBA and salaried VEBA to 8.5% and 6%, respectively.
Plan
Assets
Plan assets are valued using quoted market prices when
available. Assets for which quoted market prices are not
available are valued using independent pricing vendors, dealer
or counterparty supplied valuations and net asset values
provided by fund managers or portfolio investment advisors whose
fair value estimates may utilize appraisals of the underlying
assets or discounted cash flow models. In some instances, asset
values are estimated by management in the absence of readily
determinable fair values. Because of the inherent uncertainty of
valuation, estimated fair values may differ significantly from
the fair values that would have been used had a ready market
existed.
Our defined benefit pension plans and U.S. OPEB plans have
the following asset allocations, as of their respective
measurement dates in 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets
|
|
|
|
|
|
|
Plan Assets
|
|
|
Non-U.S.
|
|
|
|
|
|
|
U.S. Pension
|
|
|
Pension
|
|
|
|
|
|
|
Plans Actual
|
|
|
Plans Actual
|
|
|
Plan Assets OPEB
|
|
|
|
Percentage of
|
|
|
Percentage of
|
|
|
Actual Percentage of
|
|
|
|
Plan Assets
|
|
|
Plan Assets
|
|
|
Plan Assets
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
26
|
%
|
|
|
38
|
%
|
|
|
62
|
%
|
|
|
60
|
%
|
|
|
53
|
%
|
|
|
54
|
%
|
Debt securities
|
|
|
52
|
%
|
|
|
43
|
%
|
|
|
25
|
%
|
|
|
31
|
%
|
|
|
25
|
%
|
|
|
28
|
%
|
Real estate
|
|
|
9
|
%
|
|
|
8
|
%
|
|
|
10
|
%
|
|
|
9
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
Other
|
|
|
13
|
%
|
|
|
11
|
%
|
|
|
3
|
%
|
|
|
0
|
%
|
|
|
18
|
%
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities include our Common Stock in the amounts of
$17 million (less than 1% of total pension plan assets) and
$24 million (less than 1% of total pension plan assets) at
December 31, 2007 and 2006, respectively.
Plan
Funding Policy and Contributions
Our funding policy with respect to our qualified defined benefit
pension plans is to contribute annually not less than the
minimum required by applicable law and regulations, or to
directly pay benefit payments where appropriate. We made pension
contributions to the U.S. hourly and salaried, other U.S.,
and
non-U.S. defined
benefit pension plans, or made direct payments where
appropriate, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
U.S. hourly and salaried
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
Other U.S.
|
|
$
|
89
|
|
|
$
|
78
|
|
|
$
|
125
|
|
Non-U.S.
|
|
$
|
848
|
|
|
$
|
889
|
|
|
$
|
708
|
|
In 2008, we do not have any contributions due, and we do not
expect to make any discretionary contributions into the
U.S. hourly and salaried defined benefit pension plans. We
expect to contribute or pay benefits of approximately
$100 million to our other U.S. defined benefit pension
plans and approximately $900 million to our
non-U.S. pension
plans.
We contribute to our U.S. hourly and salaried VEBA trusts
for U.S. OPEB plans. There were no contributions made to
the VEBA trust in 2007 and 2006. Contributions by participants
to the U.S. OPEB plans were $354 million and
$129 million in 2007 and 2006, respectively. We withdrew a
total of $2.7 billion and $4.1 billion from plan
assets of our VEBA trusts for OPEB plans in 2007 and 2006,
respectively.
149
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Benefit
Payments
The following benefit payments, which include assumptions
related to estimated future employee service, as appropriate,
are expected to be paid in the future:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Other
|
|
|
|
Pension Benefits(a)
|
|
|
U.S. Other Benefits(b)
|
|
|
Benefits
|
|
|
|
|
|
|
Non-
|
|
|
Gross Benefit
|
|
|
Gross Medicare
|
|
|
Gross Benefit
|
|
|
|
U.S. Plans
|
|
|
U.S. Plans
|
|
|
Payments
|
|
|
Part D Receipts
|
|
|
Payments
|
|
|
|
(Dollars in millions)
|
|
|
2008
|
|
$
|
7,665
|
|
|
$
|
1,357
|
|
|
$
|
4,064
|
|
|
$
|
219
|
|
|
$
|
195
|
|
2009
|
|
$
|
7,604
|
|
|
$
|
1,375
|
|
|
$
|
4,219
|
|
|
$
|
238
|
|
|
$
|
208
|
|
2010
|
|
$
|
7,518
|
|
|
$
|
1,414
|
|
|
$
|
4,381
|
|
|
$
|
260
|
|
|
$
|
219
|
|
2011
|
|
$
|
7,392
|
|
|
$
|
1,451
|
|
|
$
|
4,514
|
|
|
$
|
280
|
|
|
$
|
232
|
|
2012
|
|
$
|
7,168
|
|
|
$
|
1,481
|
|
|
$
|
4,609
|
|
|
$
|
300
|
|
|
$
|
244
|
|
2013-2017
|
|
$
|
34,462
|
|
|
$
|
8,071
|
|
|
$
|
23,920
|
|
|
$
|
1,759
|
|
|
$
|
1,408
|
|
|
|
|
(a) |
|
Benefits for most U.S. pension plans and certain
non-U.S.
pension plans are paid out of plan assets rather than our cash. |
(b) |
|
U.S. Other Benefit payments exclude any amounts that would be
required under the Settlement Agreement when approved. |
Note 16.
Derivative Financial Instruments and Risk Management
Derivatives
and Hedge Accounting
We are exposed to market risk from changes in foreign currency
exchange rates, interest rates, and certain commodity prices. In
the normal course of business, we enter into a variety of
foreign exchange, interest rate, and commodity forward
contracts, swaps and options, with the objective of managing our
financial and operational exposure arising from these risks by
offsetting gains and losses on the underlying exposures with
gains and losses on the derivatives used to hedge them. Our risk
management control system is used to assist in monitoring the
hedging program, derivative positions and hedging strategies.
Our hedging documentation includes hedging objectives, practices
and procedures, and the related accounting treatment. Hedges
that receive designated hedge accounting treatment are evaluated
for effectiveness at the time they are designated as well as
throughout the hedging period.
We use financial instruments designated as cash flow hedges for
SFAS No. 133 purposes to hedge our exposure to foreign
currency exchange risk associated with buying, selling, and
financing in currencies other than the local currencies in which
we operate. We also use financial instruments to hedge exposure
to variability in cash flows related to
foreign-currency-denominated debt. For foreign currency
transactions, we typically hedge forecasted exposures up to
three years in the future.
For derivatives designated as cash flow hedges for
SFAS No. 133 purposes, we record changes in fair value
in Other comprehensive income (OCI), then release those changes
to earnings contemporaneously with the earnings effects of the
hedged item. If the hedge relationship is terminated and the
forecasted transaction is probable of not occurring, then the
cumulative change in fair value of the derivative recorded in
Accumulated OCI (AOCI) is recognized in earnings. To the extent
the hedging relationship is not effective, the ineffective
portion of the change in fair value of the derivative instrument
is recorded in earnings.
Hedge ineffectiveness associated with instruments designated as
cash flow hedges for SFAS No. 133 purposes increased
Automotive cost of sales by $17 million and decreased
Automotive cost of sales by $10 million in 2006 and 2005,
respectively. Hedge ineffectiveness in 2007 was not significant.
Net derivative gains of $51 million were reclassified from
AOCI to Automotive cost of sales and net derivative gains of
$225 million were reclassified from AOCI to Automotive
revenue in 2007. Net derivative gains of $484 million were
reclassified from AOCI to Automotive cost of sales and
$693 million were reclassified from AOCI to Automotive
revenue in 2006. Net
150
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
derivative gains of $206 million were reclassified from
AOCI to Automotive cost of sales and $200 million were
reclassified to Automotive revenue in 2005. These net (losses)
gains were offset by net gains (losses) on the transactions
being hedged.
Net derivative gains of $122 million included in AOCI at
December 31, 2007 are expected to be reclassified into
earnings within 12 months from that date.
We use financial instruments designated as fair value hedges for
SFAS No. 133 purposes to manage certain of our
exposures to interest rate risk. We are subject to market risk
from exposures to changes in interest rates due to our
financing, investing, and cash management activities. A variety
of instruments are used to hedge our exposure associated with
our fixed rate debt and, prior to 2007, mortgage servicing
rights (MSRs). We record changes in the fair value of a
derivative designated as a fair value hedge for
SFAS No. 133 purposes in earnings, offset by
corresponding changes in the fair value of the hedged item to
the extent the hedge is effective.
Hedge ineffectiveness associated with instruments designated as
fair value hedges, primarily due to hedging of MSRs, increased
Selling, general and administrative expenses by $1 million
and decreased Selling, general and administrative expenses by
$26 million in 2006 and 2005, respectively. We recorded no
hedging ineffectiveness in 2007.
We designate foreign-currency-denominated-debt to hedge foreign
currency exposure related to our net investment in foreign
entities. Foreign currency transaction gains and losses related
to these debt instruments are recorded in the Accumulated
foreign currency translation adjustment. Unrealized losses of
$224 million and $139 million were recorded in
Accumulated foreign currency translation adjustment in 2007 and
2006, respectively.
Derivatives
Not Designated as Hedges
We use derivatives such as forward contracts and options,
including caps, floors and collars to economically hedge
exposures. Unrealized and realized gains and losses related to
these derivatives that are not designated as accounting hedges
are recorded currently in Automotive cost of sales.
We purchase commodities and parts with commodity content for use
in production of vehicles which have purchase prices that vary
based on commodity price indices. We hedge the commodity price
risk economically by entering into derivative contracts.
Unrealized and realized gains and losses related to these
derivatives that are not designated as accounting hedges are
recorded currently in Automotive cost of sales.
Additionally, we are exposed to foreign exchange risk related to
forecasted foreign currency purchases of machinery and equipment
and foreign-currency-denominated-debt. We hedge this foreign
exchange risk economically by entering into derivative
contracts. Unrealized and realized gains and losses related to
these derivatives that are not designated as accounting hedges
are recorded currently in Automotive cost of sales.
Derivatives
Not Meeting a Scope Exception from Fair Value
Accounting
We enter into purchase contracts to hedge our physical exposure
to the availability of certain commodities used in the
production of cars and trucks. We have determined that some of
these contracts did not qualify for the normal purchases and
normal sales scope exception from fair value accounting in
SFAS No. 133, and therefore these purchase contracts
have been accounted for as derivatives with unrealized gains and
losses recorded currently in Automotive cost of sales.
151
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net
Change in Accumulated Other Comprehensive Income
The net change in accumulated OCI related to cash flow hedging
activities in 2007 and 2006 is as follows:
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|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Beginning of year net unrealized gain (loss) on derivatives
|
|
$
|
359
|
|
|
$
|
608
|
|
Change in fair value
|
|
|
140
|
|
|
|
515
|
|
Reclassification to earnings
|
|
|
(178
|
)
|
|
|
(764
|
)
|
|
|
|
|
|
|
|
|
|
End of year net unrealized gain on derivatives
|
|
$
|
321
|
|
|
$
|
359
|
|
|
|
|
|
|
|
|
|
|
Note 17.
Commitments and Contingencies
We had the following minimum commitments under noncancelable
operating leases having remaining terms in excess of one year,
primarily for property:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
and after
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Minimum commitments
|
|
$
|
719
|
|
|
$
|
683
|
|
|
$
|
662
|
|
|
$
|
565
|
|
|
$
|
500
|
|
|
$
|
2,731
|
|
Sublease income
|
|
|
(218
|
)
|
|
|
(212
|
)
|
|
|
(201
|
)
|
|
|
(199
|
)
|
|
|
(196
|
)
|
|
|
(2,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net minimum commitments
|
|
$
|
501
|
|
|
$
|
471
|
|
|
$
|
461
|
|
|
$
|
366
|
|
|
$
|
304
|
|
|
$
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Certain of these minimum commitments fund the obligations of
non-consolidated VIEs. Certain of the leases contain escalation
clauses and renewal or purchase options. Rental expense under
operating leases was $812 million, $1.2 billion and
$1 billion in 2007, 2006 and 2005, respectively.
We sponsor credit card programs, which offer rebates that can be
applied primarily against the purchase or lease of GM vehicles.
The amount of rebates available to qualified cardholders, net of
deferred program income, was $3.9 billion at
December 31, 2007 and 2006. Refer to Note 2 for
additional information regarding our accounting policy for
credit card programs we sponsor.
Our credit card program deferred revenue and redemption
liability for estimated rebates applicable to sold vehicles are
comprised of the following:
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|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
$
|
214
|
|
|
$
|
141
|
|
Other liabilities and credits:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
$
|
532
|
|
|
$
|
547
|
|
We have provided guarantees related to the residual value of
certain operating leases, primarily related to the lease of our
corporate headquarters. At December 31, 2007, the maximum
potential amount of future undiscounted payments that could be
required to be made under these guarantees amount to
$754 million. These guarantees terminate during years
ranging from 2008 to 2018. Certain leases contain renewal
options. In connection with the residual value guarantee related
to the lease of our corporate headquarters, we have
152
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recorded liabilities totaling $63 million as of
December 31, 2007. We expect to record an additional
$83 million with respect to the residual value guarantees
related to this lease prior to its expiration in May 2008.
We have agreements with third parties to guarantee the
fulfillment of certain suppliers commitments and related
obligations. At December 31, 2007, the maximum potential
future undiscounted payments that could be required to be made
under these guarantees amount to $171 million. These
guarantees terminate during years ranging from 2008 to 2017, or
upon the occurrence of specific events, such as an entitys
cessation of business. In connection with such guarantees, we
have recorded liabilities totaling $18 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 may also apply to certain guarantees.
Accordingly, no liabilities were recorded.
We also provide payment guarantees on outstanding commercial
loans made by GMAC with certain third-parties, such as dealers
or rental car companies. As of December 31, 2007, the
maximum commercial obligations we guaranteed related to these
loans were $123 million. Years of expiration related to
these guarantees range from 2008 to 2012. Based on the
creditworthiness of these third parties, the value ascribed to
the guarantees we provided was determined to be insignificant.
We have entered into agreements indemnifying certain parties
with respect to environmental conditions related to existing or
sold properties. Due to the nature of the indemnifications, our
maximum exposure under these guarantees cannot be estimated. No
amounts have been recorded for such indemnities as our
obligations are not probable or estimable at this time.
In connection with certain divestitures of assets or operating
businesses, we have entered into agreements indemnifying certain
buyers and other parties with respect to environmental
conditions pertaining to real property we owned. Also, in
connection with such divestitures, we have provided guarantees
with respect to benefits to be paid to former employees relating
to pensions, postretirement health care and life insurance.
Aside from indemnifications and guarantees related to Delphi or
a specific divested unit, both of which are discussed below, due
to the conditional nature of these obligations it is not
possible to estimate our maximum exposure under these
indemnifications or guarantees. No amounts have been recorded
for such obligations as they are not probable and estimable at
this time.
In addition to the guarantees and indemnifying agreements
mentioned above, we 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.
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
153
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, it is possible that the resolution of one or
more environmental matters could exceed the amounts accrued in
an amount that could be material to our results of operations in
any particular reporting period.
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) a
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 we owned.
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 develop any
asbestos-related impairment. Only a small percentage of the
claims pending against us allege causation of a 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.
We record the estimated liability associated with asbestos
personal injury claims where the expected loss is both probable
and can reasonably be estimated. Before 2006, we concluded we
could not reasonably estimate losses that could arise from
future asbestos related claims not yet asserted against us. In
the fourth quarter of 2006, we determined that based on our
ongoing analysis of data regarding asbestos personal injury
claims asserted against us, we had sufficient information to
determine a reasonable estimate of incurred but not yet reported
claims that could be asserted in the following two years and
recognized a liability of $127 million. We continued to
monitor and evaluate our claims experience during 2007, and
found that we incurred fewer claims and lower expense than we
projected in 2006. As a result, we reduced the reserve for
existing claims by $251 million.
In the fourth quarter of 2007 we retained Hamilton,
Rabinovitz & Associates, Inc., a firm specializing in
estimating asbestos claims to assist us in determining our
potential liability for pending and unasserted future asbestos
personal injury claims. The analysis relies upon and includes
the following information and factors:
|
|
|
|
(1)
|
A third-party forecast of the projected incidence of malignant
asbestos related disease likely to occur in the general
population of individuals occupationally exposed to asbestos;
|
|
|
(2)
|
Data concerning claims filed against us and resolved, amounts
paid, and the nature of the asbestos related disease or
condition asserted during approximately the last four years
(Asbestos Claims Experience);
|
|
|
(3)
|
The estimated rate of asbestos related claims likely to be
asserted against us in the future based on our Asbestos Claims
Experience and the projected incidence of asbestos related
disease in the general population of individuals occupationally
exposed to asbestos;
|
|
|
(4)
|
The estimated rate of dismissal of claims by disease type based
on our Asbestos Claims Experience; and
|
|
|
(5)
|
The estimated indemnity value of the projected claims based on
our Asbestos Claims Experience, adjusted for inflation.
|
We reviewed a number of factors, including the analysis provided
by Hamilton, Rabinovitz & Associates, Inc. and
increased the reserve to $637 million as a reasonable
estimate of our probable liability for pending and future
asbestos related claims projected to be
154
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
asserted over the next ten years, including legal defense costs.
We will monitor our actual claims experience for consistency
with this estimate and make periodic adjustments as appropriate.
We believe that our analysis was based on the most relevant
information available combined with reasonable assumptions, and
that we may prudently rely on its conclusions to determine the
estimated liability for asbestos related claims. We note,
however, that the analysis is inherently subject to significant
uncertainties. The data sources and assumptions used in
connection with the analysis may not prove to be reliable
predictors with respect to claims asserted against us. Our
experience in the recent past includes substantial variation in
relevant factors, and a change in any of these
assumptions which include the source of the claiming
population, the filing rate and the value of claims
could affect the estimate significantly up or down. In addition,
other external factors such as legislation affecting the format
or timing of litigation, the actions of other entities sued in
asbestos personal injury actions, the distribution of assets
from various trusts established to pay asbestos claims and the
outcome of cases litigated to a final verdict could affect the
estimate.
|
|
|
Contingent
Matters Litigation
|
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 (ERISA), 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 litigation 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 December 31, 2007. We believe that we have appropriately
accrued for such matters under SFAS No. 5 or, for
matters not requiring accrual, that such matters will not have a
material adverse effect on our results of operations or
financial position based on information currently available to
us. Litigation is inherently unpredictable, however, and
unfavorable resolutions could occur. Accordingly, it is possible
that an adverse outcome from such proceedings could exceed the
amounts accrued in an amount that could be material to us with
respect to our results of operations in any particular reporting
period.
Benefit
Guarantee
In 1999, we spun off our Automotive Components Group (ACG) into
a new entity, which became Delphi. Delphi is our largest
supplier of automotive systems, components and parts and we are
Delphis largest customer. At the time of the spin-off,
employees of ACG became employees of Delphi. As part of the
separation agreements, Delphi assumed the pension and other
postretirement benefit obligations for these transferred
U.S. hourly employees who retired after October 1,
2000 and we retained pension and other postretirement
obligations for U.S. hourly employees who retired on or
before October 1, 2000. Additionally at the time of the
spin-off, we entered into separate agreements with the UAW, the
IUE-CWA and the USW (Benefit Guarantee Agreements) providing
contingent benefit guarantees whereby we would make payments for
certain pension benefits and OPEB benefits to certain former
U.S. hourly employees that became employees of Delphi
(defined as Covered Employees). Each Benefit Guarantee Agreement
contains separate benefit guarantees relating to pension and
OPEB obligations, with different triggering events. The UAW,
IUE-CWA and USW required through the Benefit Guarantee
Agreements that in the event that Delphi or its successor
companies ceases doing business or becomes subject to financial
distress we could be liable if Delphi fails to provide the
corresponding benefits at the required level. 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. In turn, Delphi has entered into an agreement
(Indemnification Agreement) with us that requires Delphi to
indemnify us if we are required to perform under the UAW Benefit
Guarantee Agreement. In addition, with respect to pension
benefits, our guarantee arises only to the extent that the
pension benefits provided by Delphi and the Pension Benefit
Guaranty
155
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Corporation fall short of the guaranteed amount. Our rights
under this Indemnification Agreement and our obligations to
provide benefits under the Benefit Guarantees expire on
March 31, 2008 unless we agree with Delphi and the UAW to
extend the period.
We received notice from Delphi, dated October 8, 2005, that
it was more likely than not that we would become obligated to
provide benefits pursuant to the Benefit Guarantee Agreements,
in connection with its commencement of Chapter 11
proceedings under the U.S. Bankruptcy Code. The notice
stated that Delphi was unable to estimate the timing and scope
of any benefits we might be required to provide under the
benefit guarantees; however, in 2005, we believed it was
probable that we had incurred a liability under the Benefit
Guarantee Agreements. Also, on October 8, 2005, Delphi
filed a petition for Chapter 11 proceedings under the
U.S. Bankruptcy Code for itself and many of its
U.S. subsidiaries. On June 22, 2007, we entered into a
Memorandum of Understanding with Delphi and the UAW (Delphi 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. Under
the Delphi UAW MOU we also agreed to pay for certain healthcare
costs of Delphi retirees and their beneficiaries in order to
provide a level of benefits consistent with those provided to
our retirees and their beneficiaries from the Mitigation Plan
VEBA. We also 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. Such amount is expected
to be amortized to expense over future years. In August 2007, we
entered into a Memorandum of Understanding with Delphi and the
IUE-CWA (Delphi IUE-CWA MOU), and we entered into two separate
Memoranda of Understanding with Delphi and the USW (collectively
the USW MOUs). The terms of the Delphi IUE-CWA MOU and the USW
MOUs are similar to the Delphi UAW MOU with regard to the
consensual triggering of the Benefit Guarantee Agreements.
Delphi-GM
Settlement Agreements
We have entered into comprehensive settlement agreements with
Delphi (Delphi-GM Settlement Agreements) consisting of a Global
Settlement Agreement, as amended (GSA) and a Master
Restructuring Agreement, as amended (MRA) that would become
effective upon Delphis substantial consummation of its
Plan of Reorganization and our receipt of consideration provided
for in the Plan. The GSA is intended to resolve outstanding
issues between Delphi and us that have arisen or may arise
before Delphis emergence from Chapter 11 and will be
implemented with Delphi shortly after emergence from bankruptcy.
The MRA is intended to govern certain aspects of our commercial
relationship following Delphis emergence from
Chapter 11. The more significant items contained in the
Delphi-GM Settlement Agreements include our commitment 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;
|
|
|
|
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;
|
|
|
|
assume $1.5 billion of net pension obligations of Delphi
and Delphi providing us a $1.5 billion note receivable;
|
|
|
|
reimburse Delphi for all retirement incentives and half of the
buy-out payments made pursuant to the various attrition program
provisions and to reimburse certain U.S. hourly buydown
payments made to hourly employees of Delphi;
|
|
|
|
award future product programs to Delphi and provide Delphi with
ongoing preferential sourcing for other product programs, with
Delphi re-pricing existing and awarded business;
|
|
|
|
reimburse certain U.S. hourly labor costs incurred to
produce systems, components and parts for us from
October 1, 2006 through September 14, 2015 at certain
U.S. facilities owned or to be divested by Delphi (Labor
Cost Subsidy);
|
|
|
|
reimburse Delphis cash flow deficiency attributable to
production at certain U.S. facilities that continue to
produce systems, components and parts for us until the
facilities are either closed or sold by Delphi (Production Cash
Burn Support); and
|
|
|
|
guarantee a minimum recovery of the net working capital that
Delphi has invested in certain businesses held for sale.
|
In addition, 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
156
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
any affiliate pursuant to the option by the applicable deadline,
we (or at our option, an 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, responsibility for the UAW hourly
employees of such an unsold business affected would
automatically transfer to us or our designated affiliate.
The GSA also resolves all claims in existence as of the
effective date of Delphis plan of reorganization that
either Delphi or we have or may have against the other.
Additionally, the GSA provides that Delphi will pay us:
(1) $1.5 billion in a combination of at least
$750 million in cash and a second lien note; and
(2) $1 billion in junior preferred convertible stock
at Plan of Reorganization Value upon Delphis substantial
consummation of its Plan of Reorganization. The ultimate value
of any consideration is contingent on the fair market value of
Delphis securities upon emergence from bankruptcy.
We have recorded charges of $1.1 billion, $.5 billion,
and $5.5 billion in 2007, 2006 and 2005, respectively, in
connection with the Benefit Guarantee Agreements. These charges
are net of estimated recoveries that would be due to us upon
emergence of Delphi from bankruptcy. In addition, during 2007 we
have recorded charges of $.5 billion related to the
Delphi-GM Settlement Agreements, consisting primarily of our
guarantee of Delphis recovery of the net working capital
at facilities held for sale and amounts due under the Labor Cost
Subsidy. Our commitments under the Delphi-GM Settlement
Agreements for the Labor Cost Subsidy and Production Cash Burn
Support are expected to result in additional expense of between
$300 million and $400 million annually beginning in
2008 through 2015, which will be treated as a period cost and
expensed as incurred as part of Automotive cost of sales.
In January 2008, Delphi withdrew its March 2006 motion under the
U.S. Bankruptcy Code seeking to reject certain supply
contracts with us.
The Bankruptcy Court entered an order on January 25, 2008
confirming Delphis Plan of Reorganization (POR), including
the Delphi-GM Settlement Agreements. Delphi is pursuing
approximately $6.1 billion in exit financing in support of
its POR, which may be particularly difficult in light of the
weakness and decline in capacity in the credit markets. We have
informed Delphi that we are prepared to reduce the cash portion
of our distributions significantly and accept an equivalent
amount of debt in the form of a first lien note to help
facilitate Delphis successful emergence from bankruptcy
proceedings. If Delphi cannot secure the financing it needs, the
Delphi POR would not be consummated on the terms negotiated with
us and with other interested parties. We believe that Delphi
would likely seek alternative arrangements, but there can be no
assurance that Delphi would be successful in obtaining any
alternative arrangements. The resulting uncertainty could
disrupt our ability to plan future production and realize our
cost reduction goals, and could affect our relationship with the
UAW and result in our providing additional financial support to
Delphi, receiving less than the distributions that we expect
from the resolution of Delphis bankruptcy proceedings or
assuming some of Delphis obligations to its workforce and
retirees. Due to these uncertainties it is reasonably possible
that additional losses could arise in the future, but we
currently are unable to estimate the amount or range of such
losses, if any.
|
|
|
Benefit
Guarantees Related to Divested Plants
|
We have entered into various guarantees regarding benefits for
our former employees at two previously divested plants that
manufacture component parts whose results continue to be
included in our consolidated financial statements in accordance
with 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.
In 2006, we recorded a charge of $206 million related to
the closure of two plants and the permanent idling of
2,000 employees, primarily consisting of a
$214 million charge to recognize wage and benefit costs
associated with employees accepting retirement packages, buyouts
or supplemental unemployment, which was reduced by a curtailment
gain of $11 million with respect to other postretirement
benefits. During 2007, we recognized favorable adjustments of
$44 million related to these plant closures, in addition to
a $38 million curtailment gain with respect to OPEB.
157
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 18. Income
Taxes
Income (loss) from continuing operations before income taxes,
equity income, minority interests and a cumulative effect of a
change in accounting principle included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
U.S. loss
|
|
$
|
(9,355
|
)
|
|
$
|
(5,917
|
)
|
|
$
|
(16,491
|
)
|
Non-U.S.
income (loss)
|
|
|
3,102
|
|
|
|
259
|
|
|
|
(738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(6,253
|
)
|
|
$
|
(5,658
|
)
|
|
$
|
(17,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimate the provision for income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Current income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
(131
|
)
|
|
$
|
|
|
|
$
|
(147
|
)
|
Non-U.S.
|
|
|
295
|
|
|
|
1,099
|
|
|
|
834
|
|
U.S. state and local
|
|
|
21
|
|
|
|
21
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
185
|
|
|
|
1,120
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
32,357
|
|
|
|
(2,719
|
)
|
|
|
(7,025
|
)
|
Non-U.S.
|
|
|
5,064
|
|
|
|
(1,201
|
)
|
|
|
(656
|
)
|
U.S. state and local
|
|
|
(444
|
)
|
|
|
(246
|
)
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
36,977
|
|
|
|
(4,166
|
)
|
|
|
(6,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
37,162
|
|
|
$
|
(3,046
|
)
|
|
$
|
(6,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual tax provisions include amounts considered sufficient to
pay assessments that may result from examination of prior year
tax returns. Cash paid for income taxes was $404 million,
$259 million and $305 million in 2007, 2006 and 2005,
respectively.
Provisions are made for estimated U.S. and
non-U.S. income
taxes, less available tax credits and deductions, which may be
incurred on the remittance of our share of subsidiaries
undistributed earnings not deemed to be permanently reinvested.
Taxes have not been provided on
non-U.S. subsidiaries
earnings, which are deemed permanently reinvested, of
$6.1 billion and $5.6 billion at December 31,
2007 and 2006, respectively. Quantification of the deferred tax
liability, if any, associated with permanently reinvested
earnings is not practicable.
158
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the provision (benefit) for income taxes
compared with the amounts at the U.S. federal statutory
rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Tax at U.S. federal statutory income tax rate
|
|
$
|
(2,189
|
)
|
|
$
|
(1,978
|
)
|
|
$
|
(6,031
|
)
|
State and local tax expense
|
|
|
(275
|
)
|
|
|
(147
|
)
|
|
|
(616
|
)
|
Foreign income taxed at rates other than 35%
|
|
|
149
|
|
|
|
(499
|
)
|
|
|
(775
|
)
|
Taxes on unremitted earnings of subsidiaries
|
|
|
(135
|
)
|
|
|
(124
|
)
|
|
|
(100
|
)
|
Other tax credits
|
|
|
(86
|
)
|
|
|
(115
|
)
|
|
|
(69
|
)
|
Settlement of prior year tax matters
|
|
|
|
|
|
|
(160
|
)
|
|
|
(515
|
)
|
Change in valuation allowance (a)
|
|
|
38,892
|
|
|
|
239
|
|
|
|
2,780
|
|
Change in statutory tax rates (b)
|
|
|
885
|
|
|
|
(27
|
)
|
|
|
|
|
Tax effects of foreign reorganizations
|
|
|
269
|
|
|
|
96
|
|
|
|
(84
|
)
|
Medicare prescription drug benefit
|
|
|
(199
|
)
|
|
|
(348
|
)
|
|
|
(324
|
)
|
Other adjustments
|
|
|
(149
|
)
|
|
|
17
|
|
|
|
(312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
37,162
|
|
|
$
|
(3,046
|
)
|
|
$
|
(6,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
See discussion related to valuation allowances on certain
deferred tax assets below. |
(b) |
|
Changes in the tax laws of two jurisdictions in 2007 had a
significant impact on our consolidated financial statements as
follows: |
|
|
|
|
|
In December 2007, the Canadian government enacted legislation to
reduce its combined statutory corporate tax rates by 3.5% in
addition to a .5% rate reduction enacted in June 2007. The
combined 4% reduction will be phased in gradually over a period
of five years beginning in 2008. The impact of this change was a
reduction in the carrying amount of our Canadian deferred tax
assets of $376 million as of December 31, 2007. The
valuation allowance discussed below has been adjusted to reflect
this change in statutory rates.
|
|
|
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 below.
|
Deferred income tax assets and liabilities at December 31,
2007 and 2006 reflect the effect of temporary differences
between amounts of assets, liabilities and equity for financial
reporting purposes and the bases of such assets, liabilities and
equity as measured by tax laws, as well as tax loss and tax
credit carryforwards.
159
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Temporary differences and carryforwards that give rise to
deferred tax assets and liabilities are comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Deferred Tax
|
|
|
Deferred Tax
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
(Dollars in millions)
|
|
|
Postretirement benefits other than pensions
|
|
$
|
17,726
|
|
|
$
|
|
|
|
$
|
18,721
|
|
|
$
|
|
|
Pension and other employee benefit plans
|
|
|
2,582
|
|
|
|
6,618
|
|
|
|
5,044
|
|
|
|
6,137
|
|
Warranties, dealer and customer allowances, claims and discounts
|
|
|
4,148
|
|
|
|
54
|
|
|
|
4,070
|
|
|
|
47
|
|
Depreciation and amortization
|
|
|
7,108
|
|
|
|
4,536
|
|
|
|
6,098
|
|
|
|
2,008
|
|
Tax carryforwards
|
|
|
14,148
|
|
|
|
|
|
|
|
13,293
|
|
|
|
|
|
Lease transactions
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
199
|
|
Miscellaneous U.S.
|
|
|
7,799
|
|
|
|
1,556
|
|
|
|
8,240
|
|
|
|
2,194
|
|
Miscellaneous
non-U.S.
|
|
|
2,598
|
|
|
|
37
|
|
|
|
2,992
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
56,109
|
|
|
|
12,937
|
|
|
|
58,458
|
|
|
|
10,625
|
|
Valuation allowances
|
|
|
(42,489
|
)
|
|
|
|
|
|
|
(6,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred taxes
|
|
|
13,620
|
|
|
$
|
12,937
|
|
|
|
51,935
|
|
|
$
|
10,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
683
|
|
|
|
|
|
|
$
|
41,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following deferred tax assets and liabilities are included
in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Current deferred tax assets
|
|
$
|
493
|
|
|
$
|
10,293
|
|
Current deferred tax liabilities
|
|
|
(116
|
)
|
|
|
(9
|
)
|
Non-current deferred tax assets
|
|
|
1,340
|
|
|
|
31,751
|
|
Non-current deferred tax liabilities
|
|
|
(1,034
|
)
|
|
|
(725
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
683
|
|
|
$
|
41,310
|
|
|
|
|
|
|
|
|
|
|
The amount and expiration dates of operating loss and tax credit
carryforwards as of December 31, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Expiration Dates
|
|
|
Amounts
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
U.S. federal and state net operating loss carryforwards
|
|
|
2024-2027
|
|
|
$
|
5,297
|
|
Non-U.S. net
operating loss carryforwards
|
|
|
Indefinite
|
|
|
|
2,406
|
|
Non-U.S. net
operating loss carryforwards
|
|
|
2008-2026
|
|
|
|
1,648
|
|
U.S. alternative minimum tax credit
|
|
|
Indefinite
|
|
|
|
694
|
|
U.S. general business credits(a)
|
|
|
2008-2027
|
|
|
|
1,514
|
|
U.S. foreign tax credits
|
|
|
2010-2017
|
|
|
|
2,589
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
14,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The general business credits principally consist of research and
experimentation credits. |
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 or should be adjusted.
SFAS No. 109 requires that companies assess whether
valuation allowances should be established against their
deferred tax assets based on consideration of all available
evidence, both positive and negative, using a more likely
than not standard. This assessment considers, among other
matters, the nature, frequency and severity of
160
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recent losses, forecasts of future profitability, the duration
of statutory carryforward periods, our experience with tax
attributes expiring unused and tax planning alternatives. In
making such judgments, significant weight is given to evidence
that can be objectively verified.
Valuation allowances have been established for deferred tax
assets based on a more likely than not threshold.
Our ability to realize our deferred tax assets depends on our
ability to generate sufficient taxable income within the
carryback or carryforward periods provided for in the tax law
for each applicable tax jurisdiction. We have considered the
following possible sources of taxable income when assessing the
realization of our deferred tax assets:
|
|
|
|
|
Future reversals of existing taxable temporary differences;
|
|
|
Future taxable income exclusive of reversing temporary
differences and carryforwards;
|
|
|
Taxable income in prior carryback years; and
|
|
|
Tax-planning strategies.
|
The valuation allowances that we have recognized relate to
certain net deferred tax assets in U.S. and
non-U.S. jurisdictions.
The change in the valuation allowance and related considerations
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Balance at January 1
|
|
$
|
6,523
|
|
|
$
|
6,284
|
|
|
$
|
3,504
|
|
Additions (Reversals):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
31,353
|
|
|
|
250
|
|
|
|
1,425
|
|
Canada
|
|
|
2,435
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
1,927
|
|
|
|
|
|
|
|
|
|
Poland
|
|
|
94
|
|
|
|
6
|
|
|
|
538
|
|
Sweden
|
|
|
91
|
|
|
|
73
|
|
|
|
109
|
|
Spain
|
|
|
31
|
|
|
|
|
|
|
|
|
|
Brazil
|
|
|
16
|
|
|
|
(48
|
)
|
|
|
617
|
|
South Korea
|
|
|
|
|
|
|
(211
|
)
|
|
|
16
|
|
Other
|
|
|
19
|
|
|
|
169
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
42,489
|
|
|
$
|
6,523
|
|
|
$
|
6,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States, Canada and Germany: In the third
quarter of 2007, we recorded a charge of $39 billion
related to establishing full valuation allowances against our
net deferred tax assets in the U.S., Canada and Germany.
Concluding that a valuation allowance is not required is
difficult when there is significant negative evidence which is
objective and verifiable, such as cumulative losses in recent
years. We utilize a rolling twelve quarters of results as a
measure of our cumulative losses in recent years. We then adjust
those historical results to remove certain unusual items and
charges. In the U.S., Canada and Germany our analysis indicates
that we have cumulative three year historical losses on an
adjusted basis. This is considered significant negative evidence
which is objective and verifiable and therefore, difficult to
overcome. In addition, our near-term financial outlook in the
U.S., Canada and Germany deteriorated during the third quarter.
While our long-term financial outlook in the U.S., Canada and
Germany remains positive, we concluded that our ability to rely
on our long-term outlook as to future taxable income was limited
due to uncertainty created by the weight of the negative
evidence, particularly:
|
|
|
|
|
The possibility for continued or increasing price competition in
the highly competitive U.S. market. This was seen in the
external market in the third quarter of 2007 when a competitor
introduced its new fullsize trucks and offered customer
incentives to gain market share. Accordingly, we increased
customer incentives on our recently launched fullsize trucks,
which were not previously anticipated;
|
|
|
Continued high fuel prices and the possible effect that may have
on consumer preferences related to our most profitable products,
fullsize trucks and utility vehicles;
|
161
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Uncertainty over the effect on our cost structure from more
stringent U.S. fuel economy and global emissions standards
which may require us to sell a significant volume of alternative
fuel vehicles across our portfolio;
|
|
|
Uncertainty as to the future operating results of GMACs
Residential Capital, LLC mortgage business, and
|
|
|
Acceleration of tax deductions for OPEB liabilities as compared
to prior expectations due to changes associated with the
Settlement Agreement.
|
Accordingly, based on our current circumstances and uncertainty
regarding our future taxable income, we recorded full valuation
allowances against these net deferred tax assets during the
third quarter of 2007. If and when our operating performance
improves on a sustained basis, our conclusion regarding the need
for full valuation allowances could change, resulting in the
reversal of some or all of the valuation allowances in the
future.
In the U.S., a valuation allowance was recorded during 2006 and
2005 related to the 2006 and 2005 losses allocable to certain
U.S. state jurisdictions where it was previously determined
that tax attributes related to those jurisdictions were not
realizable.
Brazil In 2005, we determined that it was more
likely than not that the net deferred taxes in our Brazilian
operations would not be realized, and accordingly, we recorded a
full valuation allowance against all tax credit carryforwards
and net timing differences in Brazil. The decision was based on
a consideration of historical results at our operations in
Brazil coupled with the government imposed 30% annual limitation
on net operating loss utilization. In 2007, we reversed a
portion of our full valuation allowance because we utilized
certain deferred tax assets. However, due to appreciation of the
Brazilian Real against the U.S. Dollar in 2007, a net
increase in the valuation allowance arose upon translation of
the valuation allowance into U.S. Dollars. In the event our
operating performance improves on a sustained basis, our
conclusion regarding the need for a full valuation allowance
could change, resulting in the reversal of some or all of the
remaining valuation allowance in the future.
United Kingdom No valuation allowance has been
established for our net deferred tax assets in the U.K. Although
our U.K. operations have incurred cumulative losses in recent
years, we believe other considerations overcome that fact and,
accordingly, these deferred tax assets will more likely than not
be realized. This determination is based in particular on the
unlimited expiration of net operating loss carryforwards in the
U.K., together with those operations histories of
utilizing tax attributions in the past through earnings and
strong prospects for future earnings.
Spain We established a valuation allowance in 2007
against our Spanish deferred tax assets related to investment
tax credits, which we do not expect will be realizable under a
more likely than not threshold. Although Spanish net operating
loss carryforwards expire after 15 years, we believe that
our Spanish deferred tax assets related to these net operating
loss carryforwards will more likely than not be realized because
losses in our Spanish operations have largely been caused by
non-recurring transactions. In addition, we believe our Spanish
operations continue to have strong prospects for future earnings.
South Korea While a full valuation allowance had
historically been recorded, several positive events occurred
during 2006 that lead us to conclude that a valuation allowance
was no longer necessary. Accordingly, we reversed our full
valuation allowance against the net deferred tax assets in South
Korea in 2006. We expect continuing profitability in South Korea
and that the net deferred tax asset will more likely than not be
realized.
We allocate our income tax expense (benefit) between continuing
operations, discontinued operations and other comprehensive
income in accordance with SFAS No. 109.
SFAS No. 109 is applied by tax jurisdiction, and in
periods in which there is a pre-tax loss from continuing
operations and pre-tax income in another category, such as
discontinued operations or other comprehensive income, income
tax expense is first allocated to the other sources of income,
with a related benefit recorded in continuing operations.
Upon adoption of FIN 48 as of January 1, 2007, we
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. At 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
December 31, 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 was $2.8 billion and
$.1 billion, respectively. These amounts consider the
guidance in
FIN 48-1,
162
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Definition of Settlement in FASB Interpretation
No. 48. At December 31, 2007, $2.2 billion
of the liability for uncertain tax positions reduces 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.
A reconciliation of the total amounts of unrecognized tax
benefits at the beginning and end of the period is as follows
(dollars in millions):
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
2,717
|
|
Additions to tax positions recorded during the current year
|
|
|
274
|
|
Additions to tax positions recorded during prior years
|
|
|
454
|
|
Reductions to tax positions recorded during prior years
|
|
|
(602
|
)
|
Reductions in tax positions due to lapse of statutory limitations
|
|
|
(75
|
)
|
Other
|
|
|
(14
|
)
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
2,754
|
|
|
|
|
|
|
Our practice is to classify interest income on uncertain tax
positions in Automotive interest income and other non-operating
income, interest expense in Automotive and other interest
expense and penalties in Selling, general and administrative
expense. We recognized interest income of $133 million in
2007 on uncertain tax positions, and we recognized a net
reduction in interest expense of ($32) million in 2007
principally due to the reversal of $88 million in
previously accrued interest expense as the statute of
limitations had expired for the related uncertain tax positions.
Additionally, we recognized $23 million in penalties in
2007. As of December 31, 2007, we had $132 million
accrued for the receipt of interest on uncertain tax positions,
$192 million accrued for the payment of interest on
uncertain tax positions and $104 million accrued for the
payment of penalties.
We have open tax years from 1999 to 2007, with various taxing
jurisdictions where our taxes remain subject to examination,
including the United States, Australia, Canada, Mexico, Germany,
the United Kingdom, Korea and Brazil. In the United States, our
federal income tax returns for 2001 through 2006 are currently
under review by the Internal Revenue Service, and we anticipate
that the examination for years 2001 through 2003 will conclude
in early 2008. 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, Canada, China, Colombia, France,
Germany, Greece, Hungary, Indonesia, India, Italy, Korea,
Portugal, New Zealand, Taiwan, Thailand, Turkey, the United
Kingdom, Venezuela and Vietnam, and we have received notices
that tax audits will commence in the Netherlands and Spain. As
of December 31, 2007, it is not possible to reasonably
estimate the expected change to the total amount of unrecognized
tax benefits over the next twelve months.
Note 19. Fair
Value of Financial Instruments
The estimated fair value of financial instruments has been
determined using available market information or other
appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop
estimates of fair value; therefore, the estimates are not
necessarily indicative of the amounts that could be realized or
would be paid in a current market exchange. The effect of using
different market assumptions
and/or
estimation methodologies may be material to the estimated fair
value amounts.
163
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Book and estimated fair values of financial instruments for
which it is practicable to estimate fair value are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
Book Value
|
|
|
Fair Value
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
1,567
|
|
|
$
|
1,567
|
|
|
$
|
2,080
|
|
|
$
|
2,080
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (a)
|
|
$
|
33,384
|
|
|
$
|
25,940
|
|
|
$
|
33,067
|
|
|
$
|
28,877
|
|
Derivative liabilities
|
|
$
|
851
|
|
|
$
|
851
|
|
|
$
|
916
|
|
|
$
|
916
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
35
|
|
|
$
|
35
|
|
Other assets (b)
|
|
$
|
1,046
|
|
|
$
|
933
|
|
|
$
|
1,601
|
|
|
$
|
1,601
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt (a)
|
|
$
|
4,908
|
|
|
$
|
4,918
|
|
|
$
|
9,438
|
|
|
$
|
9,438
|
|
Derivative liabilities
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
(a) |
|
Long-term debt has an estimated fair value based on quoted
market prices for the same or similar issues or based on the
current rates offered to us for debt of similar remaining
maturities. Estimated values of Industrial Development Bonds,
included in long-term debt, were based on quoted market prices
for the same or similar issues. |
(b) |
|
The fair value of the GMAC Preferred Membership Interest was
estimated by discounting the future cash flows considering
dividend rate, interest rate, and credit spreads. |
Due to their short-term nature, the book value approximates fair
value for cash and marketable securities, accounts and notes
receivable (less allowances), accounts payable (principally
trade), Automotive & Other loans payable and FIO debt
payable within one year as of December 31, 2007 and 2006.
Note 20. GMNA
Postemployment Benefit Costs
The majority of our hourly employees working within the
U.S. are represented by the UAW. The collective bargaining
agreement with the UAW contains a job security provision,
commonly referred as the JOB Opportunity Bank (JOBS Bank)
provisions. As stated in this provision, we are required to pay
idled employees certain wage and benefit costs. In connection
with our 2007 National Agreement, the provisions of the JOBS
Bank were modified to substantially reduce the duration of time
an idled employee can remain inactive. The modifications also
increases our ability to redeploy and relocate idled employees
to active facilities based on required manpower needs.
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 JOBS Bank provisions of the
previous labor agreement through September 2007 plus the
estimated costs expected to be paid thereafter factoring in
revisions for anticipated policy changes with our new labor
contracts. In the third quarter of 2007, we revised our estimate
to provide for the new JOBS Bank provisions negotiated in our
2007 National Agreement. Such revisions did not result in a
significant change from the previous estimate used to develop
the accrual for wage and benefit costs. 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, we reached an agreement with Delphi and the UAW
(the UAW Attrition Program) intended to reduce the number of
U.S. hourly employees through an accelerated attrition
program (the Attrition Program). Under the UAW 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
164
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 UAW 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 UAW Attrition Program, the JOBS Bank was substantially
reduced as employees from the JOBS Bank retired, accepted a
buyout or filled openings created by the UAW Attrition Program.
Certain employees who chose to leave GM retired or left by
January 1, 2007 but will continue to receive payments until
2010. 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 UAW 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.
In 2005, we recognized a charge of $1.8 billion for
postemployment benefits related to the restructuring of our
North American operations. The 2005 charge included
17,500 employees for locations included in this action,
with some leaving through attrition and the remainder
transferring to other sites.
The liability for postemployment benefit costs of
$.9 billion at December 31, 2007 reflects estimated
future wages and benefits for 8,900 employees primary
located at idled facilities and facilities to be idled, and
3,800 employees subject to the terms of the 2006 Attrition
Program. At December 31, 2006, the postemployment benefit
cost reserve 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 announcements, and 10,900 employees
under the terms of the UAW Attrition Program. At
December 31, 2005, this reserve was $2 billion related
to the estimated future wages and benefits of
18,400 employees, primarily at idled facilities and
facilities to be idled as a result of previous announcements in
2005. The following table summarizes the activity in the reserve
for the years 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Balance at January 1
|
|
$
|
1,269
|
|
|
$
|
2,012
|
|
|
$
|
237
|
|
Additions
|
|
|
364
|
|
|
|
2,212
|
|
|
|
1,891
|
|
Interest accretion
|
|
|
21
|
|
|
|
31
|
|
|
|
12
|
|
Payments
|
|
|
(792
|
)
|
|
|
(1,834
|
)
|
|
|
(91
|
)
|
Adjustments
|
|
|
(4
|
)
|
|
|
(1,152
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
858
|
|
|
$
|
1,269
|
|
|
$
|
2,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 21.
|
Restructuring
and Other Initiatives
|
We have executed various restructuring and other initiatives and
may execute additional initiatives in the future to align
manufacturing capacity to prevailing global automotive
production and to improve the utilization of remaining
facilities. Such initiatives may include plant closings,
consolidation of operations and functions, production
relocations or reductions and voluntary and involuntary employee
separation programs. Estimates of restructuring and other
initiative charges are based on information available at the
time such charges are recorded. Due to the inherent uncertainty
involved, 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.
165
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes our restructuring and other
initiative charges, by segment in 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
Automotive Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMNA
|
|
$
|
9
|
|
|
$
|
115
|
|
|
$
|
222
|
|
|
|
|
|
|
|
|
|
GME
|
|
|
579
|
|
|
|
437
|
|
|
|
1,068
|
|
|
|
|
|
|
|
|
|
GMLAAM
|
|
|
18
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAP
|
|
|
49
|
|
|
|
16
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Automotive Operations
|
|
|
655
|
|
|
|
611
|
|
|
|
1,355
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
655
|
|
|
$
|
611
|
|
|
$
|
1,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 20 for further discussion of postemployment
benefits costs related to hourly employees of GMNA, Note 22
for asset impairment charges related to our restructuring
initiatives and Note 15 for pension curtailments and other
postretirement benefit charges related to our hourly employee
separation initiatives.
2007
Activities
The following table details the components of our 2007
restructuring charges by region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
GMLAAM
|
|
|
GMAP
|
|
|
Other
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Separation costs
|
|
$
|
9
|
|
|
$
|
579
|
|
|
$
|
18
|
|
|
$
|
49
|
|
|
$
|
|
|
|
$
|
655
|
|
Contract termination costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
9
|
|
|
$
|
579
|
|
|
$
|
18
|
|
|
$
|
49
|
|
|
$
|
|
|
|
$
|
655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMNA recorded restructuring charges of $9 million in 2007
for a U.S. salaried severance program, which allows
involuntarily terminated employees to receive ongoing wages and
benefits for no longer than 12 months.
GME recorded charges of $579 million for separation
programs during 2007. These charges were related to the
following restructuring initiatives:
|
|
|
|
|
Charges of $162 million, primarily related to early
retirement programs, along with additional minor separations
under other current programs in Germany. Approximately
4,600 employees will leave under early retirement programs
in Germany through 2013. The total remaining cost for the early
retirements will be recognized over the remaining service period
of the employees.
|
|
|
|
During the second quarter of 2007, we announced additional
separation programs at the Antwerp, Belgium facility. These
programs impact 1,900 employees, who will leave through
July 2008, and have total estimated costs of $430 million.
Of this amount, $353 million was recorded in 2007 in
connection with these separation programs. The remaining cost of
the Antwerp, Belgium program will be recognized over the
remaining service period of the employees through July 2008.
|
|
|
|
The remaining $64 million in separation charges relates to
initiatives announced in 2006. These include separations in
Sweden and the United Kingdom and the closure of our Portugal
assembly plant.
|
GMLAAM recorded restructuring charges of $18 million in
2007 for employee separations at GM do Brasil. These initiatives
were announced and completed during the second quarter of 2007
and resulted in the separation of 600 employees.
166
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
GMAP recorded charges of $49 million for a voluntary
employee separation program at GM Holdens vehicle
operations facility, which was announced in the first quarter of
2007. This initiative reduces the facilitys workforce by
650 employees as a result of increased plant operational
efficiency.
2006
Activities
The following table details the components of our 2006
restructuring charges by region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
GMLAAM
|
|
|
GMAP
|
|
|
Other
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Separation costs
|
|
$
|
115
|
|
|
$
|
408
|
|
|
$
|
43
|
|
|
$
|
16
|
|
|
$
|
|
|
|
$
|
582
|
|
Contract termination costs
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
115
|
|
|
$
|
437
|
|
|
$
|
43
|
|
|
$
|
16
|
|
|
$
|
|
|
|
$
|
611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMNA recorded restructuring charges of $115 million related
to costs incurred under a new salaried severance program, which
allows involuntarily terminated employees to receive continued
salary and benefits for a period of time after termination.
GME recorded restructuring charges of $437 million in 2006.
These charges consisted of separation and contract costs for
several restructuring initiatives. Details of the individual
restructuring initiatives and charges follow.
|
|
|
|
|
We announced our European operations restructuring initiative in
the fourth quarter of 2004. The European restructuring
initiative targeted a total reduction of 12,000 employees
from 2005 to 2007 through separation programs, early
retirements, and selected outsourcing initiatives. GME recorded
charges of $184 million in 2006 for activities related to
the European restructuring initiative announced in 2004.
|
|
|
|
In the third quarter of 2006, we announced the closure of our
Azambuja, Portugal assembly plant and the transfer of its
production to a lower cost facility in Zaragoza, Spain. The
Portugal plant ceased production in December 2006, resulting in
a total separation of 1,100 employees. GME recorded
separation charges of $53 million and contract cancellation
charges of $26 million for this closure.
|
|
|
|
In May 2006, we announced the reduction of one shift at the
Ellesmere Port plant in the United Kingdom in order to reduce
costs and improve competitiveness. This shift reduction was
achieved primarily through the offering of a voluntary
separation package and reduced the work force in the U.K. by
1,200 employees by the end of 2006. GME recorded separation
charges of $131 million and contract cancellation charges
of $3 million during 2006 for the shift reduction at
Ellesmere Port.
|
|
|
|
New separation programs for Belgium, the United Kingdom and
Sweden were announced in the fourth quarter of 2006. GME
recorded $32 million in restructuring charges for these
programs related to the separation of 280 employees,
primarily in Sweden. In addition, GME also recorded a charge of
$8 million for an early retirement program announced in the
fourth quarter of 2006 in Germany. We recognize the cost over
the remaining service period of each employee.
|
GMLAAM recorded restructuring charges of $43 million
related to the costs of voluntary employee separations at GM do
Brasil. This initiative resulted in separations of
1,500 hourly and administrative employees at our Sao Jose
dos Campos and Sao Caetano do Sul facilities during 2006.
GMAP recorded restructuring charges of $16 million related
to a voluntary separation program at GM Holden, which we
announced in the fourth quarter of 2006. This program provided
for the voluntary separation of 205 employees at our GM
Holden engine plant.
167
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2005
Activities
The following table details the components of our 2005
restructuring charges by region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
GMLAAM
|
|
|
GMAP
|
|
|
Other
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
Separation costs
|
|
$
|
222
|
|
|
$
|
1,009
|
|
|
$
|
|
|
|
$
|
65
|
|
|
$
|
13
|
|
|
$
|
1,309
|
|
Contract termination costs
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
222
|
|
|
$
|
1,068
|
|
|
$
|
|
|
|
$
|
65
|
|
|
$
|
13
|
|
|
$
|
1,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2005, GMNA and Other Operations recorded restructuring
charges of $222 million and $13 million, respectively.
These costs related to voluntary early retirement and other
separation programs for certain salaried employees in the United
States.
GME recorded restructuring charges of $1.1 billion in 2005.
These charges consisted primarily of $1 billion in
separation costs for our European operations restructuring
initiative, which we announced in the fourth quarter of 2004. In
addition, we also recorded contract cancellation charges of
$39 million for the dissolution of our Fiat powertrain
joint venture in the second quarter of 2005 and contract
cancellation charges of $20 million related to the sale of
our investment in FHI.
GMAP recorded restructuring charges of $65 million during
2005 related to the elimination of one shift, and the reduction
of 1,400 employees by mid-2006 at the Adelaide, Australia
plant.
Note 22. 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 or asset group is
considered impaired, an impairment charge is recorded for the
amount by which the carrying amount exceeds fair market value.
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 consolidated statements of
operations.
In addition, we test our goodwill for impairment annually and
when an event occurs or circumstances change such that it is
reasonably possible that impairment may exist. The annual
impairment test requires the identification of our reporting
units and a comparison of the fair value of each of our
reporting units to the respective carrying value. The fair value
of our reporting units is determined based on valuation
techniques using the best information that is available,
primarily discounted cash flow projections. If the carrying
value of a reporting unit is greater than the fair value of the
reporting unit then impairment may exist.
Our long-lived asset and goodwill impairment charges in 2007,
2006 and 2005 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
Goodwill impairments
|
|
$
|
|
|
|
$
|
828
|
|
|
$
|
712
|
|
|
|
|
|
Long-lived asset impairments related to restructuring initiatives
|
|
|
|
|
|
|
89
|
|
|
|
700
|
|
|
|
|
|
Other long-lived asset impairments
|
|
|
259
|
|
|
|
596
|
|
|
|
1,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
259
|
|
|
$
|
1,513
|
|
|
$
|
2,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2007
Impairments
We recorded long-lived asset impairment charges of
$259 million in 2007 for the following segments:
(1) GMNA recorded charges of $240 million for
product-specific tooling assets; (2) GMAP recorded asset
impairment charges of $14 million related to the cessation
of production VZ Commodore passenger car derivatives at our
Holden facility; and (3) GMLAAM recorded $5 million of
vehicle and facility impairments at our South Africa and Chile
locations.
2006
Impairments
We recorded long-lived asset impairment charges of
$685 million in 2006. Of this amount, $424 million
related to product-specific assets, including:
(1) $303 million at GMNA; (2) $60 million at
GME; and (3) $61 million at GMAP. In addition, GMNA
recorded impairment charges totaling $172 million, which
included $102 million related to product-specific assets
and $70 million related to the write-down of various plant
assets due to decreased profitability and production associated
with the planned cessation of production at the Doraville,
Georgia assembly plant in 2008. Additionally, GME recorded a
charge of $89 million in connection with the December 2006
closure of our Portugal assembly plant.
During the third quarter of 2006, GMAC recognized a goodwill
impairment charge 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.
2005
Impairments
In November 2005, we announced our North America restructuring
initiative (Turnaround Plan), which was implemented to improve
capacity utilization of our manufacturing operations and
accelerate structural cost reductions. This plan includes
ceasing operations at nine assembly, stamping and powertrain
facilities and three Service & Parts Operations
facilities by 2008. As a result of these capacity reduction
initiatives, GMNA recorded an impairment charge of
$700 million for the write-down to fair market value of
property, plants, and equipment for assets that were still in
service as of December 31, 2005. Refer to Note 20 for
further discussion of the employee costs associated with this
restructuring.
GMNA recorded an additional impairment charge of
$134 million for the write-down to fair market value of
various plant assets. This charge was related to the first
quarter announcement to discontinue production at a Lansing,
Michigan assembly plant during the second quarter of 2005.
We accelerated our business planning cycle in 2005 as a result
of the lack of improved performance in the second quarter of
2005. In connection with this process, we reviewed the carrying
value of certain long-lived assets held and used, other than
goodwill and intangible assets with indefinite lives. These
reviews resulted in impairment charges for assets still in
service in GMNA and GME of $743 million and
$262 million, respectively.
In addition, restructuring initiatives were announced in the
third quarter of 2005 in GMAP related to production in
Australia, resulting in additional impairment charges of
$64 million. In GMLAAM, unusually strong South American
currencies adversely affected the profitability of GMLAAMs
export business. Managements decision to adjust
GMLAAMs export volumes resulted in lower expected future
cash flows, resulting in a $150 million impairment charge
in the region during 2005.
In the fourth quarter of 2005, GMAC recognized a goodwill
impairment charge of $712 million related to its Commercial
Finance operating segment and, in particular, primarily to the
goodwill recognized in connection with the 1999 acquisition of
The Bank of New Yorks commercial finance business. This
charge resulted from the annual impairment test that was
performed for all of its reporting units. As GMAC was a
wholly-owned subsidiary during the fourth quarter of 2005, the
entire amount of this impairment loss is included in Financial
services and insurance expense.
169
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 23. Other
Expenses
Other expenses are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Loss on sale of 51% interest in GMAC (Note 3)
|
|
$
|
|
|
|
$
|
2,910
|
|
|
$
|
|
|
FHI impairment loss (Note 8)
|
|
|
|
|
|
|
|
|
|
|
812
|
|
Delphi contingent exposure (Note 17)
|
|
|
1,547
|
|
|
|
500
|
|
|
|
5,500
|
|
Pension benefits for certain current and future retirees of
Delphi (Note 15)
|
|
|
552
|
|
|
|
|
|
|
|
|
|
Goodwill impairment GMAC (Note 10)
|
|
|
|
|
|
|
828
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
$
|
2,099
|
|
|
$
|
4,238
|
|
|
$
|
7,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 24. Stockholders
Equity
We have 2 billion shares of Common Stock authorized. The
liquidation rights of our Common Stock are subject to certain
adjustments if outstanding Common Stock is subdivided, by stock
split or otherwise.
We have 6 million shares of preferred stock authorized,
without par value. The preferred stock is issuable in series
with such voting powers, designations, powers, privileges, and
rights and such qualifications, limits, or restrictions as may
be determined by our Board of Directors, without stockholder
approval. The preferred stock ranks senior to our Common Stock
and any other class of stock we have issued. Holders of
preferred stock shall be entitled to receive cumulative
dividends, when and as declared by the Board of Directors on a
quarterly basis. No shares of preferred stock were issued and
outstanding at December 31, 2007 and 2006.
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
The following table summarizes the components of Accumulated
other comprehensive income (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Foreign currency translation adjustments
|
|
$
|
(965
|
)
|
|
$
|
(1,965
|
)
|
|
$
|
(2,140
|
)
|
Net unrealized gain on derivatives
|
|
|
321
|
|
|
|
359
|
|
|
|
608
|
|
Net unrealized gain on securities
|
|
|
265
|
|
|
|
282
|
|
|
|
786
|
|
Defined benefit plans
|
|
|
(13,585
|
)
|
|
|
(20,802
|
)
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
(3,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
(13,964
|
)
|
|
$
|
(22,126
|
)
|
|
$
|
(4,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Other
Comprehensive Income
|
The following table summarizes the components of Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Tax
|
|
|
|
|
|
|
|
|
Tax
|
|
|
|
|
|
|
|
|
Tax
|
|
|
|
|
|
|
Pre-tax
|
|
|
Expense
|
|
|
Net
|
|
|
Pre-tax
|
|
|
Expense
|
|
|
Net
|
|
|
Pre-tax
|
|
|
Expense
|
|
|
Net
|
|
|
|
Amount
|
|
|
(Credit)
|
|
|
Amount
|
|
|
Amount
|
|
|
(Credit)
|
|
|
Amount
|
|
|
Amount
|
|
|
(Credit)
|
|
|
Amount
|
|
|
|
(Dollars in millions)
|
|
|
Foreign currency translation adjustments
|
|
$
|
769
|
|
|
$
|
(231
|
)
|
|
$
|
1,000
|
|
|
$
|
370
|
|
|
$
|
195
|
|
|
$
|
175
|
|
|
$
|
(975
|
)
|
|
$
|
(46
|
)
|
|
$
|
(929
|
)
|
Unrealized gain on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses)
|
|
|
(23
|
)
|
|
|
(6
|
)
|
|
|
(17
|
)
|
|
|
196
|
|
|
|
69
|
|
|
|
127
|
|
|
|
146
|
|
|
|
51
|
|
|
|
95
|
|
Reclassification adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(971
|
)
|
|
|
(340
|
)
|
|
|
(631
|
)
|
|
|
(249
|
)
|
|
|
(87
|
)
|
|
|
(162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss)
|
|
|
(23
|
)
|
|
|
(6
|
)
|
|
|
(17
|
)
|
|
|
(775
|
)
|
|
|
(271
|
)
|
|
|
(504
|
)
|
|
|
(103
|
)
|
|
|
(36
|
)
|
|
|
(67
|
)
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost from plan amendments
|
|
|
(2,813
|
)
|
|
|
(700
|
)
|
|
|
(2,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: amortization of prior service cost included in net
periodic benefit cost
|
|
|
(5
|
)
|
|
|
52
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net prior service cost
|
|
|
(2,818
|
)
|
|
|
(648
|
)
|
|
|
(2,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gains (losses) from plan measurements
|
|
|
8,910
|
|
|
|
2,066
|
|
|
|
6,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: amortization of actuarial loss included in net periodic
benefit cost
|
|
|
1,723
|
|
|
|
331
|
|
|
|
1,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial amounts
|
|
|
10,633
|
|
|
|
2,397
|
|
|
|
8,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition asset (obligation) from plan initiations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: amortization of transition asset / obligation included in
net periodic benefit cost
|
|
|
2
|
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transition amounts
|
|
|
2
|
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans, net
|
|
|
7,817
|
|
|
|
1,753
|
|
|
|
6,064
|
|
|
|
(103
|
)
|
|
|
(36
|
)
|
|
|
(67
|
)
|
|
|
(1,166
|
)
|
|
|
(408
|
)
|
|
|
(758
|
)
|
Net unrealized gain (loss) on derivatives
|
|
|
(74
|
)
|
|
|
(36
|
)
|
|
|
(38
|
)
|
|
|
(383
|
)
|
|
|
(134
|
)
|
|
|
(249
|
)
|
|
|
51
|
|
|
|
18
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
8,489
|
|
|
$
|
1,480
|
|
|
$
|
7,009
|
|
|
$
|
(891
|
)
|
|
$
|
(246
|
)
|
|
$
|
(645
|
)
|
|
$
|
(2,193
|
)
|
|
$
|
(472
|
)
|
|
$
|
(1,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 25. Loss
Per Share
Basic loss per share has been computed by dividing Loss from
continuing operations by the weighted average number of common
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.
Due to net losses from continuing operations for all periods
presented, the assumed exercise of certain stock option awards
had an antidilutive effect and therefore were excluded from the
computation of diluted loss per share. Total shares not
considered for inclusion in the computation of diluted earnings
per share were 104 million, 106 million and
112 million for the years ended December 31, 2007,
2006 and 2005, respectively.
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 December 31, 2007, the amount
outstanding on the Series A convertible debentures was
$39 million. No shares potentially issuable to satisfy the
in-the-money amount of the convertible debentures have been
included in diluted earnings per share for the years ended
December 31, 2007, 2006 and 2005, respectively, as the
convertible debentures were
not-in-the-money.
171
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 26. Stock
Incentive Plans
In accordance with the disclosure requirements of
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure
(SFAS No. 148), we adopted the fair value based method
of accounting for stock-based employee compensation pursuant to
SFAS No. 123 effective January 1, 2003, for newly
granted stock-based compensation awards only. On January 1,
2006, we adopted SFAS No. 123(R), Accounting for
Stock-Based Compensation (SFAS No. 123(R)). In
2007, 2006 and 2005, all awards were accounted for at fair value.
Our stock incentive plans consist of the General Motors 2007
Long Term Incentive Plan (2007 GMLTIP), the General Motors 2002
Stock Incentive Plan (GMSIP), the General Motors 2002 Long Term
Incentive Plan (2002 GMLTIP), the General Motors 1998 Salaried
Stock Option Plan (GMSSOP), the General Motors 2007 Cash-Based
Restricted Stock Unit Plan (2007 GMCRSU) and the General Motors
2006 Cash-Based Restricted Stock Unit Plan (2006 GMCRSU),
collectively the Plans. The 2007 GMLTIP, GMSIP, and the GMCRSU
plans are administered by the Executive Compensation Committee
of our Board of Directors. The GMSSOP is administered by the
Vice President of Global Human Resources.
The compensation cost for the above plans was $136 million,
$170 million and $89 million in 2007, 2006 and 2005,
respectively. The total income tax benefit recognized for
share-based compensation arrangements was $43 million,
$53 million and $31 million in 2007, 2006 and 2005,
respectively.
In November 2006, we sold a 51% controlling interest in GMAC.
GMAC employees who participated in our stock incentive plans
changed status from employee to non-employee. Based on this
change in status, certain outstanding share-based payment awards
were forfeited under the original terms but were modified to
allow continued vesting. This resulted in the cancellation of
the original awards and the issuance of a new award to
non-employees. The remainder of the awards were not forfeited
under the original terms, and thus there was no modification to
the outstanding awards. GM awards that require future service
with GMAC will be accounted for as awards to non-employees over
the remaining service period. The effect on compensation cost
was not significant.
In August 2007, we completed the sale of the commercial and
military operations of our Allison business. Allison employees
who participated in our stock incentive plans were considered
terminated employees on the date of sale. Based on this change
in employment status, certain outstanding non vested share-based
payment awards were forfeited. The remaining outstanding
share-based payment awards were prorated for previous services
provided under the original terms of the award and will remain
exercisable for the earlier of three years from the date of
termination, or the expiration of the option.
Under the GMSIP, 27.4 million shares of our Common Stock
were eligible for grants from June 1, 2002 through
May 31, 2007. Stock option grants awarded since 1997 were
generally exercisable one-third after one year, another
one-third after two years and fully after three years from the
dates of grant. Option prices were 100% of fair market value on
the dates of grant, and the options generally expire
10 years from the dates of grant, subject to earlier
termination under certain conditions. Our policy is to issue
treasury shares upon exercise of employee stock options.
In 2007, the GMSIP was replaced with the 2007 GMLTIP. Under the
2007 GMLTIP, 16 million shares of our Common Stock may be
granted from June 5, 2007 through May 31, 2012. At
December 31, 2007 16.3 million shares were available
for grant as a result of .3 million shares granted and
undelivered under the GMSIP due primarily to termination which
again become available for grant. Stock options granted under
this plan are generally exercisable one-third after one year,
another one-third after two years and fully after three years
from the dates of grant. Option prices are 100% of fair market
value on the dates of grant, and the options generally expire
10 years from the dates of grant, subject to earlier
termination under certain conditions. Our policy is to issue
treasury shares upon exercise of employee stock options.
Under the GMSSOP, which commenced January 1, 1998 and ended
December 31, 2006, the number of shares of our Common Stock
that could be granted each year was determined by management.
Based on an amendment to the GMSSOP in 2006, there were no
shares of our Common Stock available for grants after
December 19, 2006. Stock options granted from 1998 through
2004 were exercisable two
172
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
years from the date of grant. There have been no option grants
made under the plan since 2004. Option prices were 100% of fair
market value on the dates of grant, and the options generally
expire ten years and two days from the grant date subject to
earlier termination under certain conditions.
The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the
weighted-average assumptions noted in the following table.
Expected volatilities are based on both the implied and
historical volatility of our stock. We used historical data to
estimate option exercise and employee termination within the
valuation model. The expected term of options represents the
period of time that options granted were expected to be
outstanding. The interest rate for periods during the expected
life of the option was based on the U.S. Treasury yield
curve in effect at the time of the grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
GMSIP
|
|
GMSIP
|
|
GMSIP
|
|
Interest rate
|
|
|
4
|
.98%
|
|
|
4
|
.66%
|
|
|
3
|
.80%
|
Expected life (years)
|
|
|
6
|
.0
|
|
|
6
|
.0
|
|
|
6
|
.0
|
Expected volatility
|
|
|
35
|
.80%
|
|
|
47
|
.90%
|
|
|
32
|
.50%
|
Dividend yield
|
|
|
3
|
.43%
|
|
|
4
|
.71%
|
|
|
5
|
.50%
|
The primary grants to executives on March 20, 2007,
February 23, 2006 and January 24, 2005 made under the
GMSIP were 2,771,920, 2,702,796 and 7,612,000 shares,
respectively, at a grant date fair value of $8.75, $7.06 and
$7.21, respectively. The assumptions used to estimate the grant
date fair value of these grants are detailed in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Interest rate
|
|
|
4
|
.98%
|
|
|
4
|
.63%
|
|
|
3
|
.74%
|
Expected life (years)
|
|
|
6
|
.0
|
|
|
6
|
.0
|
|
|
6
|
.0
|
Expected volatility
|
|
|
35
|
.80%
|
|
|
48
|
.40%
|
|
|
32
|
.40%
|
Dividend yield
|
|
|
3
|
.44%
|
|
|
4
|
.78%
|
|
|
5
|
.50%
|
Changes in the status of outstanding options in 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 GMLTIP (formerly GMSIP)
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Shares Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Option
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Options outstanding at January 1, 2007
|
|
|
81,655,278
|
|
|
$
|
52.41
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,786,920
|
|
|
$
|
29.12
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(252,570
|
)
|
|
$
|
25.36
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(5,723,633
|
)
|
|
$
|
45.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2007
|
|
|
78,465,995
|
|
|
$
|
52.09
|
|
|
|
4.0
|
|
|
$
|
9,769,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest at December 31, 2007
|
|
|
6,534,957
|
|
|
$
|
29.53
|
|
|
|
8.2
|
|
|
$
|
6,566,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable at December 31, 2007
|
|
|
71,513,914
|
|
|
$
|
54.28
|
|
|
|
3.6
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMSSOP
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Shares Under
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Option
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Options outstanding at January 1, 2007
|
|
|
26,583,895
|
|
|
$
|
55.23
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(17,771
|
)
|
|
$
|
40.05
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(1,776,176
|
)
|
|
$
|
60.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2007
|
|
|
24,789,948
|
|
|
$
|
54.87
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable at December 31, 2007
|
|
|
24,789,948
|
|
|
$
|
54.87
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value was $8.76, $7.19, and
$7.23 for the GMSIP options granted in 2007, 2006 and 2005,
respectively. There were no GMSSOP options granted in 2007,
2006, and 2005. The total intrinsic value of options exercised
under the GMSIP was $3 million, $0 and $2 million in
2007, 2006 and 2005, respectively. The total intrinsic value of
GMSSOP options exercised was $0 in 2007, 2006 and 2005. The tax
benefit from the exercise of the share-based payment
arrangements totaled $0 million, $0 and $1 million in
2007, 2006 and 2005, respectively.
Summary
A summary of the status of our options as of December 31,
2007 and the changes during the year is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested at January 1, 2007
|
|
|
10,093,967
|
|
|
$
|
8.57
|
|
Granted
|
|
|
2,786,920
|
|
|
|
8.76
|
|
Vested
|
|
|
(5,799,594
|
)
|
|
|
9.58
|
|
Forfeited
|
|
|
(129,212
|
)
|
|
|
7.91
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2007
|
|
|
6,952,081
|
|
|
$
|
7.82
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, there was $7 million of total
unrecognized compensation cost related to nonvested share-based
compensation arrangements granted under the Plans. That cost is
expected to be recognized over a weighted-average period of
0.9 years.
Cash received from option exercise under all share-based payment
arrangements was $1 million, $0 and $0 in 2007, 2006 and
2005, respectively.
Market
Condition Awards
The 2007 GMLTIP, formerly the 2002 GMLTIP, also consists of
award opportunities granted to participants that are based on a
minimum percentile ranking of our Total Stockholder Return (TSR)
among the companies in the S&P 500. The target number of
shares of our Common Stock that may be granted each year is
determined by management. The 2006 and 2005 grants under the
2002 GMLTIP are subject to a three year performance period and
the final award payout may vary based on the achievement of
those criteria. The 2007 grants under the 2002 GMLTIP are
subject to four separate performance periods, three one-year
performance periods and one three-year performance period, and
the final award payout may vary based on the achievement of
those criteria.
174
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the outstanding 2002 GMLTIP shares is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
|
|
|
2005
|
|
|
1.8
|
|
|
$
|
36.37
|
|
2006
|
|
|
2.2
|
|
|
$
|
24.81
|
|
2007
|
|
|
1.7
|
|
|
$
|
33.70
|
|
|
|
|
|
|
|
|
|
|
Total outstanding at December 31, 2007
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are required to settle these awards in cash. As a result,
these cash-settled awards are recorded as a liability until the
date of final award payout. In accordance with
SFAS No. 123(R), the fair value of each cash-settled
award is recalculated at the end of each reporting period and
the liability and expense adjusted based on the change in fair
value. The preceding is the targeted number of shares that would
be used in the final award calculation should the targeted
performance condition be achieved. Final payout is subject to
approval by the Executive Compensation Committee of the Board of
Directors. The fair value at December 31, 2007 was $21.43,
$31.11 and $0 for the awards granted in 2007, 2006 and 2005,
respectively.
Prior to the adoption of SFAS No. 123(R), the fair
value of each award under the GMLTIP was equal to the fair
market value of the underlying shares on the date of grant.
Beginning January 1, 2006 in accordance with the adoption
of SFAS No. 123(R), the fair value of each
cash-settled award under the GMLTIP is estimated on the date of
grant, and for each subsequent reporting period, using a Monte
Carlo simulation valuation model that uses the multiple input
variables noted in the following table. Expected volatilities
are based on the implied volatility from our tradeable options.
The expected term of these target awards represent the remaining
time in the performance period. The risk-free rate for periods
during the contractual life of the performance shares is based
on the U.S. Treasury yield curve in effect at the time of
valuation. Since the payout depends on our performance ranked
with the S&P 500, the valuation also depends on the
performance of other stocks in the S&P 500 from the grant
date to the exercise date as well as estimates of the
correlations among their future performances. The following are
the assumptions used at December 31, 2007 to value open
award years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Expected volatility
|
|
|
47
|
.66%
|
|
|
48
|
.38%
|
|
|
45
|
.96%
|
Expected dividends
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Expected term (years)
|
|
|
2
|
.0
|
|
|
1
|
.0
|
|
|
|
|
Risk-free interest rate
|
|
|
3
|
.83%
|
|
|
4
|
.03%
|
|
|
4
|
.54%
|
The primary grant to executives on March 20, 2007,
February 23, 2006 and January 24, 2005 made under the
GMLTIP were 1.7 million, 2.4 million and
2 million shares, respectively, at a grant date fair value
of $33.70, $24.81 and $36.37, respectively. The assumptions used
to estimate fair value at December 31, 2007 and 2006 are
detailed in the table above.
The weighted average remaining contractual term was
1.4 years for target awards outstanding at
December 31, 2007. As the threshold performance required
for a payment under the
2005-2007
GMLTIP was not achieved, there were no cash payments made under
this plan in 2007. The
2006-2008
and
2007-2009
performance periods remain open at December 31, 2007.
Cash-Based
Restricted Stock Units
In 2006, we established a cash-based restricted stock unit plan
that provides cash equal to the value of underlying restricted
share units to certain global executives at predetermined
vesting dates. Awards under the plan vest and are paid in
one-third increments on each anniversary date of the award over
a three year period. Compensation expense is recognized on a
straight-line basis over the requisite service period for each
separately vesting portion of the award. Since the awards are
settled in cash, these cash-settled awards are recorded as a
liability until the date of payment. In accordance with
SFAS No. 123(R), the fair value of each cash-settled
award is recalculated at the end of each reporting period and
the liability and expense adjusted based on the new fair value.
175
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of each GMCRSU is based on our stock price on the
date of grant and each subsequent reporting period until date of
settlement. There were 5.2 million and 4.3 million
GMCRSUs granted with a weighted average grant date fair value of
$29.39 and $21.04 per share, respectively, in 2007 and 2006,
respectively. The fair value at December 31, 2007 was
$24.89 per share, and there were 7.4 million GMCRSUs
outstanding.
The weighted average remaining contractual term was
1.9 years for the CRSUs outstanding at December 31,
2007. The total payments made for GMCRSUs vested in 2007 was
$42.3 million.
Note 27. Transactions
with GMAC
We have entered into various operating and financing
arrangements with GMAC. The following describes our material
transactions with GMAC and the related financial statement
effects for the years ended December 31, 2007 and 2006,
which are included in our 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 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 each other the difference. As of December 31, 2007 and
2006, the maximum additional amount that could be paid by us
under the U.S. residual support program was
$1.1 billion and $276 million, respectively. We
believe 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 December 31, 2007 and 2006, we had a total
reserve recorded on our consolidated balance sheet of
$118 million and $4 million, respectively, based on
our estimated required future payments to GMAC associated with
the maximum additional amount that could be paid by us to GMAC
under the U.S. residual support program.
Under the lease pull-ahead program, customers are encouraged to
terminate their leases early to buy or lease 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 resale
of the vehicle, the proceeds are typically higher than if the
vehicle had 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. 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, we may be obligated to pay each other the difference.
176
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
December 31, 2007 and 2006, the maximum amount guaranteed
under the U.S. risk sharing arrangement was
$1.1 billion and $339 million, respectively. The
maximum amount 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 December 31, 2007 and 2006, we had a total reserve
recorded on our consolidated balance sheet of $144 million
and $50 million, respectively, based on our estimated
future payments to GMAC associated with the maximum amount
guaranteed under the U.S. risk sharing arrangement.
In accordance with our revenue recognition accounting policy,
the marketing incentives, lease pull-ahead programs and the risk
sharing arrangement, are recorded as reductions to Automotive
sales at the time the vehicle is sold to the dealer based on the
estimated GMAC lease and retail contract penetration. We paid
$4.7 billion and $.2 billion under these
U.S. programs during the years ended December 31, 2007
and 2006, 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.
Equipment
on Operating Leases Transferred to Us by GMAC
In November 2006, GMAC transferred certain U.S. lease
assets to us, along with related debt and other assets. GMAC
retained an investment in a note, which had a balance of
$35 million and $471 million at December 31, 2007
and 2006, respectively, and is secured by the lease assets
transferred to us. GMAC continues to service the portfolio of
leased assets and related debt on our behalf and receives a
servicing fee. GMAC is obligated, as servicer, to repurchase any
lease asset that is in breach of any of the covenants in the
securitization agreements. In addition, in a number of the
transactions securitizing the lease assets, the trusts issued
one or more series of floating rate debt obligations and entered
into derivative transactions to eliminate the market risk
associated with funding the fixed payment lease assets with
floating interest rate debt. To facilitate these securitization
transactions, GMAC entered into secondary derivative
transactions with the primary derivative counterparties,
essentially offsetting the primary derivatives. As part of the
transfer, 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. We subsequently entered into derivative
transactions with GMAC 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 we recognized for the year ended December 31,
2007 and the month of December 2006 was $105 million and
$9 million, respectively.
177
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Marketing
Service Agreement
We have entered into a
10-year
marketing, promoting, advertising and customer support
arrangement with GMAC 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, we have entered into
10-year
intellectual property license agreements with GMAC 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 in the U.S. The amount
of royalty income recognized in the U.S. for the year ended
December 31, 2007 and the month ended December 31,
2006 was $18 million and $1 million, respectively.
Shared
and Transition Services Agreement
We entered into a Shared and Transition Services Agreement with
GMAC to continue to provide to each other with global support
services, primarily treasury, tax, real estate and human
resources, generally for a transition period of one to two years
from November 30, 2006. GM expects that when the Shared and
Transition Services Agreement expires, we will either renew this
services agreement with GMAC or GM and GMAC will perform the
related services internally or potentially outsource to other
providers. We have agreed to continue to provide certain of
these services through July 2011.
Balance
Sheet
A summary of the balance sheet effects of transactions with GMAC
at December 31, 2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Accounts and notes receivable (a)
|
|
$
|
1,285
|
|
|
$
|
678
|
|
Other assets (b)
|
|
$
|
30
|
|
|
$
|
18
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable (c)
|
|
$
|
548
|
|
|
$
|
694
|
|
Short-term borrowings and current portion of long-term debt
(d)(e)
|
|
$
|
2,802
|
|
|
$
|
3,175
|
|
Accrued expenses (f)
|
|
$
|
50
|
|
|
$
|
1,051
|
|
Long-term debt (g)
|
|
$
|
119
|
|
|
$
|
445
|
|
|
|
|
(a) |
|
Represents wholesale settlements due from GMAC, as well as
amounts owed by GMAC with respect to the Equipment on operating
leases transferred to us, and the exclusivity fee and royalty
arrangement as discussed above. |
(b) |
|
Primarily represents distributions due from GMAC on our
Preferred Membership Interests. |
(c) |
|
Represents amounts accrued for 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 our
company-owned vehicles, rental car vehicles awaiting sale at
auction and funding of the sale of our vehicles in which we
retain title while the vehicles are consigned to GMAC or
dealers, primarily in the United Kingdom. Our financing remains
outstanding until the title is transferred to the dealers. This
amount also includes the short- |
178
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
term portion of a note provided to our wholly-owned subsidiary
holding debt related to the Equipment on operating leases
transferred to us from GMAC. |
(e) |
|
At December 31, 2006, this amount included a note related
to the overpayment of $317 million of income taxes by GMAC.
These taxes were refunded to GMAC during December 2007. |
(f) |
|
Primarily represents interest accrued on the transactions in
(d) above. At December 31, 2006, this amount also
included the $1 billion capital contribution that we owed
GMAC to restore its adjusted tangible equity balance to the
contractually required amount due to the decrease in adjusted
tangible equity balance of GMAC as of November 30 2006. |
(g) |
|
Primarily represents the long-term portion of term loans and a
note payable with respect to the Equipment on operating leases
transferred to us mentioned in (d) above. |
Statement
of Operations
A summary of the income statement effects of transactions with
GMAC for the year ended December 31, 2007 and the month of
December 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Period Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Net sales and revenues (a)
|
|
$
|
(4,323
|
)
|
|
$
|
(63
|
)
|
Cost of sales and other expenses (b)
|
|
$
|
590
|
|
|
$
|
55
|
|
Automotive interest income and other non-operating income (c)
|
|
$
|
433
|
|
|
$
|
20
|
|
Interest expense (d)
|
|
$
|
229
|
|
|
$
|
22
|
|
Servicing expense (e)
|
|
$
|
167
|
|
|
$
|
18
|
|
Derivatives (f)
|
|
$
|
19
|
|
|
$
|
6
|
|
|
|
|
(a) |
|
Primarily represents the reduction in net sales and revenues for
marketing incentives on vehicles which are sold to customers or
dealers and financed by GMAC. This includes the estimated amount
of residual support accrued under the residual support and risk
sharing programs, rate support under the interest rate support
programs, operating lease and finance receivable capitalized
cost reduction incentives paid to GMAC to reduce the capitalized
cost in automotive lease contracts and retail automotive
contracts, and costs under lease pull-ahead programs. This
amount is offset by net sales for vehicles sold to GMAC for
employee and governmental lease programs and third party resale
purposes. |
(b) |
|
Primarily represents cost of sales on the sale of vehicles to
GMAC for employee and governmental lease programs and third
party resale purposes. Also includes miscellaneous expenses on
services performed for us by GMAC. |
(c) |
|
Represents income on our Preferred Membership Interests in GMAC,
exclusivity and royalty fee income and reimbursements by GMAC
for certain services we provided. 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. |
(d) |
|
Represents interest incurred on term loans, notes payable and
wholesale settlements. |
(e) |
|
Represents servicing fees paid to GMAC on the automotive leases
we retained. |
(f) |
|
Represents gains recognized in connection with a derivative
transaction entered into with GMAC as the counterparty. |
179
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 28:
|
Supplementary
Quarterly Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
(Dollars in millions, except per share amounts)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and revenue
|
|
$
|
43,387
|
|
|
$
|
46,844
|
|
|
$
|
43,806
|
|
|
$
|
47,085
|
|
Income (loss) from continuing operations
|
|
$
|
(42
|
)
|
|
$
|
784
|
|
|
$
|
(42,512
|
)
|
|
$
|
(1,527
|
)
|
Income from discontinued operations
|
|
$
|
104
|
|
|
$
|
107
|
|
|
$
|
3,549
|
|
|
$
|
805
|
|
Net income (loss)
|
|
$
|
62
|
|
|
$
|
891
|
|
|
$
|
(38,963
|
)
|
|
$
|
(722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.07
|
)
|
|
$
|
1.38
|
|
|
$
|
(75.12
|
)
|
|
$
|
(2.70
|
)
|
Discontinued operations
|
|
|
0.18
|
|
|
|
0.19
|
|
|
|
6.27
|
|
|
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.11
|
|
|
$
|
1.57
|
|
|
$
|
(68.85
|
)
|
|
$
|
(1.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.07
|
)
|
|
$
|
1.37
|
|
|
$
|
(75.12
|
)
|
|
$
|
(2.70
|
)
|
Discontinued operations
|
|
|
0.18
|
|
|
|
0.19
|
|
|
|
6.27
|
|
|
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.11
|
|
|
$
|
1.56
|
|
|
$
|
(68.85
|
)
|
|
$
|
(1.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenue
|
|
$
|
51,930
|
|
|
$
|
54,018
|
|
|
$
|
48,850
|
|
|
$
|
50,803
|
|
Income (loss) from continuing operations
|
|
$
|
493
|
|
|
$
|
(3,494
|
)
|
|
$
|
(277
|
)
|
|
$
|
855
|
|
Income from discontinued operations
|
|
$
|
109
|
|
|
$
|
111
|
|
|
$
|
130
|
|
|
$
|
95
|
|
Net income (loss)
|
|
$
|
602
|
|
|
$
|
(3,383
|
)
|
|
$
|
(147
|
)
|
|
$
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.87
|
|
|
$
|
(6.18
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
1.51
|
|
Discontinued operations
|
|
|
0.19
|
|
|
|
0.20
|
|
|
|
0.23
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.06
|
|
|
$
|
(5.98
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
1.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.87
|
|
|
$
|
(6.18
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
1.50
|
|
Discontinued operations
|
|
|
0.19
|
|
|
|
0.20
|
|
|
|
0.23
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.06
|
|
|
$
|
(5.98
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results for the three months ended September 30, 2007
included:
|
|
|
|
|
Charges of $39 billion related to establishing valuation
allowances against our net deferred tax assets in the U.S.,
Canada and Germany.
|
Results for the three months ended December 31, 2007
included:
|
|
|
|
|
Expenses of $622 million related to amendment of the
GM-Delphi Settlement Agreements, support of Delphis
disposition of businesses and retiree healthcare and other
expenses.
|
|
|
Expenses of $552 million related to pension benefit
increases pursuant to the 2007 National Agreement.
|
|
|
Income tax expense on the sale of Allison, net of purchase price
and other adjustments, in the amount of $805 million was
reallocated between discontinued operations, continuing
operations and Other comprehensive income.
|
180
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Results for the three months ended June 30, 2006 included:
|
|
|
|
|
Charges of $6.5 billion related to the UAW Special
Attrition program.
|
Results for the three months ended December 31, 2006
included:
|
|
|
|
|
Other income of $270 million resulting from the sale of our
providing ground in Mesa, Arizona.
|
|
|
Adjustments of $1.1 billion to previously recorded
estimates relating to the sale of GMAC.
|
|
|
Note 29.
|
Segment
Reporting
|
We operate in two businesses, consisting of GM Automotive (or
GMA) and FIO. Our four automotive segments consist of GMNA, GME,
GMLAAM and GMAP. We manufacture our cars and trucks in 35
countries under the following brands: Buick, Cadillac,
Chevrolet, GMC, GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab,
Saturn, Vauxhall and Wuling. For 2007 and for the month of
December 2006, our FIO business consists of our 49% share of
GMACs operating results, which we account for under the
equity method, and Other Financing, which is comprised primarily
of two special purpose entities holding automotive leases
previously owned by GMAC and its affiliates that we retained,
and the elimination of inter-segment transactions between GM
Automotive and Corporate and Other. For the eleven months ended
November 30, 2006 and for 2005, 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
Financial Group (previously GMAC Commercial Finance). Also
included in FIO were the equity earnings of financing entities
that were not consolidated by GMAC and the elimination of
inter-segment transactions between GM Automotive and either GMAC
or Corporate and Other.
Corporate and Other includes the elimination of inter-segment
transactions, certain non-segment specific revenues and
expenditures, including costs related to postretirement benefits
for Delphi and other retirees and certain corporate activities.
Amounts presented in Automotive sales, Interest income and
Interest expense in the tables that follow principally relate to
the inter-segment transactions eliminated at Corporate and
Other. All inter-segment balances and transactions have been
eliminated in consolidation.
In the fourth quarter of 2007, we changed our measure of segment
profitability from net income to income before income taxes plus
equity income, net of tax and minority interests, net of tax. In
the first quarter of 2007, we changed our segment presentation
to reflect the elimination of transactions that occur between GM
Automotive segments in the Auto Eliminations column within total
GMA, which was previously included in the GMNA region. These
transactions consist primarily of inter-segment vehicle and
service parts sales in accordance with our transfer pricing
policy. Amounts for 2006 and 2005 have been revised to reflect
these periods on a comparable basis for the changes discussed
above. Additionally, 2006 and 2005 amounts have been
reclassified for the retroactive effect of discontinued
operations as discussed in Note 3.
181
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GM
|
|
|
|
|
|
Auto
|
|
|
Total
|
|
|
Corporate
|
|
|
Excluding
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
LAAM
|
|
|
GMAP
|
|
|
Eliminations
|
|
|
GMA
|
|
|
& Other(a)
|
|
|
FIO
|
|
|
GMAC(c)
|
|
|
Financing(b)
|
|
|
FIO
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
As of and for the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
109,024
|
|
|
$
|
35,481
|
|
|
$
|
18,326
|
|
|
$
|
15,368
|
|
|
$
|
|
|
|
$
|
178,199
|
|
|
$
|
|
|
|
$
|
178,199
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
178,199
|
|
Inter-segment
|
|
|
3,424
|
|
|
|
1,916
|
|
|
|
568
|
|
|
|
5,635
|
|
|
|
(11,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
112,448
|
|
|
|
37,397
|
|
|
|
18,894
|
|
|
|
21,003
|
|
|
|
(11,543
|
)
|
|
|
178,199
|
|
|
|
|
|
|
|
178,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,199
|
|
Financial services and insurance revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,923
|
|
|
|
2,923
|
|
|
|
2,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$
|
112,448
|
|
|
$
|
37,397
|
|
|
$
|
18,894
|
|
|
$
|
21,003
|
|
|
$
|
(11,543
|
)
|
|
$
|
178,199
|
|
|
$
|
|
|
|
$
|
178,199
|
|
|
$
|
|
|
|
$
|
2,923
|
|
|
$
|
2,923
|
|
|
$
|
181,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment
|
|
$
|
5,612
|
|
|
$
|
1,679
|
|
|
$
|
302
|
|
|
$
|
576
|
|
|
$
|
48
|
|
|
$
|
8,217
|
|
|
$
|
37
|
|
|
$
|
8,254
|
|
|
$
|
|
|
|
$
|
1,259
|
|
|
$
|
1,259
|
|
|
$
|
9,513
|
|
Equity in loss of GMAC
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,245
|
)
|
|
$
|
|
|
|
$
|
(1,245
|
)
|
|
$
|
(1,245
|
)
|
Interest income
|
|
$
|
1,174
|
|
|
$
|
694
|
|
|
$
|
164
|
|
|
$
|
163
|
|
|
$
|
2
|
|
|
$
|
2,197
|
|
|
$
|
(969
|
)
|
|
$
|
1,228
|
|
|
$
|
|
|
|
$
|
88
|
|
|
$
|
88
|
|
|
$
|
1,316
|
|
Interest expense
|
|
$
|
2,936
|
|
|
$
|
727
|
|
|
$
|
(4
|
)
|
|
$
|
236
|
|
|
$
|
10
|
|
|
$
|
3,905
|
|
|
$
|
(1,003
|
)
|
|
$
|
2,902
|
|
|
$
|
|
|
|
$
|
405
|
|
|
$
|
405
|
|
|
$
|
3,307
|
|
Income (loss) from continuing operations before income taxes,
equity income, minority interests and cumulative effect of a
change in accounting principle
|
|
$
|
(3,290
|
)
|
|
$
|
(541
|
)
|
|
$
|
1,349
|
|
|
$
|
557
|
|
|
$
|
(59
|
)
|
|
$
|
(1,984
|
)
|
|
$
|
(3,619
|
)
|
|
$
|
(5,603
|
)
|
|
$
|
(1,147
|
)
|
|
$
|
497
|
|
|
$
|
(650
|
)
|
|
$
|
(6,253
|
)
|
Equity income (loss), net of tax
|
|
|
22
|
|
|
|
44
|
|
|
|
31
|
|
|
|
425
|
|
|
|
|
|
|
|
522
|
|
|
|
2
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
524
|
|
Minority interests, net of tax
|
|
|
(46
|
)
|
|
|
(27
|
)
|
|
|
(32
|
)
|
|
|
(301
|
)
|
|
|
|
|
|
|
(406
|
)
|
|
|
12
|
|
|
|
(394
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
|
(406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
(3,314
|
)
|
|
$
|
(524
|
)
|
|
$
|
1,348
|
|
|
$
|
681
|
|
|
$
|
(59
|
)
|
|
$
|
(1,868
|
)
|
|
$
|
(3,605
|
)
|
|
$
|
(5,473
|
)
|
|
$
|
(1,147
|
)
|
|
$
|
485
|
|
|
$
|
(662
|
)
|
|
$
|
(6,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
256
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
256
|
|
|
$
|
|
|
|
$
|
256
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
256
|
|
Gain on sale of discontinued operations, net of tax
|
|
$
|
4,309
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,309
|
|
|
$
|
|
|
|
$
|
4,309
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,309
|
|
Investments in nonconsolidated affiliates
|
|
$
|
269
|
|
|
$
|
476
|
|
|
$
|
57
|
|
|
$
|
1,081
|
|
|
$
|
|
|
|
$
|
1,883
|
|
|
$
|
36
|
|
|
$
|
1,919
|
|
|
$
|
7,079
|
|
|
$
|
|
|
|
$
|
7,079
|
|
|
$
|
8,998
|
|
Total assets
|
|
$
|
95,433
|
|
|
$
|
25,201
|
|
|
$
|
7,733
|
|
|
$
|
15,567
|
|
|
$
|
(11,313
|
)
|
|
$
|
132,621
|
|
|
$
|
(727
|
)
|
|
$
|
131,894
|
|
|
$
|
12,339
|
|
|
$
|
4,650
|
|
|
$
|
16,989
|
|
|
$
|
148,883
|
|
Goodwill
|
|
$
|
173
|
|
|
$
|
563
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
736
|
|
|
$
|
|
|
|
$
|
736
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
736
|
|
Expenditures for property
|
|
$
|
4,988
|
|
|
$
|
1,311
|
|
|
$
|
220
|
|
|
$
|
899
|
|
|
$
|
41
|
|
|
$
|
7,459
|
|
|
$
|
79
|
|
|
$
|
7,538
|
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
7,542
|
|
182
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GM
|
|
|
|
|
|
Auto
|
|
|
Total
|
|
|
Corporate
|
|
|
Excluding
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
LAAM
|
|
|
GMAP
|
|
|
Eliminations
|
|
|
GMA
|
|
|
& Other(a)
|
|
|
FIO
|
|
|
GMAC(c)
|
|
|
Financing(b)
|
|
|
FIO
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
As of and for the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
113,976
|
|
|
$
|
31,490
|
|
|
$
|
14,024
|
|
|
$
|
11,945
|
|
|
$
|
|
|
|
$
|
171,435
|
|
|
$
|
(256
|
)
|
|
$
|
171,179
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
171,179
|
|
Inter-segment
|
|
|
2,677
|
|
|
|
1,788
|
|
|
|
603
|
|
|
|
3,587
|
|
|
|
(8,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
116,653
|
|
|
|
33,278
|
|
|
|
14,627
|
|
|
|
15,532
|
|
|
|
(8,655
|
)
|
|
|
171,435
|
|
|
|
(256
|
)
|
|
|
171,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,179
|
|
Financial services and insurance revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,629
|
|
|
|
793
|
|
|
|
34,422
|
|
|
|
34,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$
|
116,653
|
|
|
$
|
33,278
|
|
|
$
|
14,627
|
|
|
$
|
15,532
|
|
|
$
|
(8,655
|
)
|
|
$
|
171,435
|
|
|
$
|
(256
|
)
|
|
$
|
171,179
|
|
|
$
|
33,629
|
|
|
$
|
793
|
|
|
$
|
34,422
|
|
|
$
|
205,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment
|
|
$
|
5,691
|
|
|
$
|
1,634
|
|
|
$
|
227
|
|
|
$
|
483
|
|
|
$
|
37
|
|
|
$
|
8,072
|
|
|
$
|
22
|
|
|
$
|
8,094
|
|
|
$
|
5,252
|
|
|
$
|
(2,461
|
)
|
|
$
|
2,791
|
|
|
$
|
10,885
|
|
Interest income
|
|
$
|
1,350
|
|
|
$
|
533
|
|
|
$
|
87
|
|
|
$
|
122
|
|
|
$
|
1
|
|
|
$
|
2,093
|
|
|
$
|
(1,375
|
)
|
|
$
|
718
|
|
|
$
|
2,332
|
|
|
$
|
(480
|
)
|
|
$
|
1,852
|
|
|
$
|
2,570
|
|
Interest expense
|
|
$
|
3,283
|
|
|
$
|
664
|
|
|
$
|
158
|
|
|
$
|
222
|
|
|
$
|
|
|
|
$
|
4,327
|
|
|
$
|
(1,685
|
)
|
|
$
|
2,642
|
|
|
$
|
14,196
|
|
|
$
|
105
|
|
|
$
|
14,301
|
|
|
$
|
16,943
|
|
Income (loss) from continuing operations before income taxes,
equity income, minority interests and cumulative effect of a
change in accounting principle
|
|
$
|
(7,575
|
)
|
|
$
|
(312
|
)
|
|
$
|
527
|
|
|
$
|
1,059
|
|
|
$
|
(34
|
)
|
|
$
|
(6,335
|
)
|
|
$
|
(1,188
|
)
|
|
$
|
(7,523
|
)
|
|
$
|
2,242
|
|
|
$
|
(377
|
)
|
|
$
|
1,865
|
|
|
$
|
(5,658
|
)
|
Equity income (loss), net of tax
|
|
|
104
|
|
|
|
36
|
|
|
|
16
|
|
|
|
365
|
|
|
|
|
|
|
|
521
|
|
|
|
3
|
|
|
|
524
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
513
|
|
Minority interests, net of tax
|
|
|
(63
|
)
|
|
|
(21
|
)
|
|
|
(25
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
(334
|
)
|
|
|
|
|
|
|
(334
|
)
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
(324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
(7,534
|
)
|
|
$
|
(297
|
)
|
|
$
|
518
|
|
|
$
|
1,199
|
|
|
$
|
(34
|
)
|
|
$
|
(6,148
|
)
|
|
$
|
(1,185
|
)
|
|
$
|
(7,333
|
)
|
|
$
|
2,241
|
|
|
$
|
(377
|
)
|
|
$
|
1,864
|
|
|
$
|
(5,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
445
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
445
|
|
|
$
|
|
|
|
$
|
445
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
445
|
|
Investments in nonconsolidated affiliates
|
|
$
|
295
|
|
|
$
|
408
|
|
|
$
|
132
|
|
|
$
|
1,100
|
|
|
$
|
|
|
|
$
|
1,935
|
|
|
$
|
34
|
|
|
$
|
1,969
|
|
|
$
|
7,523
|
|
|
$
|
|
|
|
$
|
7,523
|
|
|
$
|
9,492
|
|
Total assets
|
|
$
|
126,478
|
|
|
$
|
26,610
|
|
|
$
|
4,202
|
|
|
$
|
13,273
|
|
|
$
|
(7,819
|
)
|
|
$
|
162,744
|
|
|
$
|
1,437
|
|
|
$
|
164,181
|
|
|
$
|
13,050
|
|
|
$
|
9,073
|
|
|
$
|
22,123
|
|
|
$
|
186,304
|
|
Goodwill
|
|
$
|
299
|
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
799
|
|
|
$
|
|
|
|
$
|
799
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
799
|
|
Expenditures for property
|
|
$
|
5,017
|
|
|
$
|
1,103
|
|
|
$
|
279
|
|
|
$
|
1,030
|
|
|
$
|
|
|
|
$
|
7,429
|
|
|
$
|
71
|
|
|
$
|
7,500
|
|
|
$
|
401
|
|
|
$
|
1
|
|
|
$
|
402
|
|
|
$
|
7,902
|
|
183
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GM
|
|
|
|
|
|
Auto
|
|
|
Total
|
|
|
Corporate &
|
|
|
Excluding
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
GMNA
|
|
|
GME
|
|
|
LAAM
|
|
|
GMAP
|
|
|
Eliminations
|
|
|
GMA
|
|
|
Other(a)
|
|
|
FIO
|
|
|
GMAC
|
|
|
Financing(b)
|
|
|
FIO
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
As of and for the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers
|
|
$
|
108,724
|
|
|
$
|
30,223
|
|
|
$
|
11,136
|
|
|
$
|
8,796
|
|
|
$
|
|
|
|
$
|
158,879
|
|
|
$
|
(256
|
)
|
|
$
|
158,623
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
158,623
|
|
Inter-segment
|
|
|
2,652
|
|
|
|
1,719
|
|
|
|
715
|
|
|
|
2,050
|
|
|
|
(7,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total automotive sales
|
|
|
111,376
|
|
|
|
31,942
|
|
|
|
11,851
|
|
|
|
10,846
|
|
|
|
(7,136
|
)
|
|
|
158,879
|
|
|
|
(256
|
)
|
|
|
158,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,623
|
|
Financial services and insurance revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,081
|
|
|
|
346
|
|
|
|
34,427
|
|
|
|
34,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$
|
111,376
|
|
|
$
|
31,942
|
|
|
$
|
11,851
|
|
|
$
|
10,846
|
|
|
$
|
(7,136
|
)
|
|
$
|
158,879
|
|
|
$
|
(256
|
)
|
|
$
|
158,623
|
|
|
$
|
34,081
|
|
|
$
|
346
|
|
|
$
|
34,427
|
|
|
$
|
193,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and impairment
|
|
$
|
7,528
|
|
|
$
|
1,788
|
|
|
$
|
325
|
|
|
$
|
379
|
|
|
$
|
|
|
|
$
|
10,020
|
|
|
$
|
16
|
|
|
$
|
10,036
|
|
|
$
|
5,548
|
|
|
$
|
148
|
|
|
$
|
5,696
|
|
|
$
|
15,732
|
|
Interest income
|
|
$
|
1,329
|
|
|
$
|
420
|
|
|
$
|
57
|
|
|
$
|
47
|
|
|
$
|
|
|
|
$
|
1,853
|
|
|
$
|
(1,329
|
)
|
|
$
|
524
|
|
|
$
|
2,185
|
|
|
$
|
(514
|
)
|
|
$
|
1,671
|
|
|
$
|
2,195
|
|
Interest expense
|
|
$
|
3,168
|
|
|
$
|
555
|
|
|
$
|
197
|
|
|
$
|
107
|
|
|
$
|
|
|
|
$
|
4,027
|
|
|
$
|
(1,493
|
)
|
|
$
|
2,534
|
|
|
$
|
13,106
|
|
|
$
|
(35
|
)
|
|
$
|
13,071
|
|
|
$
|
15,605
|
|
Income (loss) from continuing operations before income taxes,
equity income, minority interests and cumulative effect of a
change in accounting principle
|
|
$
|
(11,021
|
)
|
|
$
|
(1,794
|
)
|
|
$
|
43
|
|
|
$
|
(889
|
)
|
|
$
|
(51
|
)
|
|
$
|
(13,712
|
)
|
|
$
|
(6,916
|
)
|
|
$
|
(20,628
|
)
|
|
$
|
3,426
|
|
|
$
|
(27
|
)
|
|
$
|
3,399
|
|
|
$
|
(17,229
|
)
|
Equity income (loss), net of tax
|
|
|
(48
|
)
|
|
|
102
|
|
|
|
15
|
|
|
|
527
|
|
|
|
|
|
|
|
596
|
|
|
|
20
|
|
|
|
616
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
610
|
|
Minority interests, net of tax
|
|
|
1
|
|
|
|
(49
|
)
|
|
|
(11
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
(112
|
)
|
|
|
7
|
|
|
|
(105
|
)
|
|
|
57
|
|
|
|
|
|
|
|
57
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
(11,068
|
)
|
|
$
|
(1,741
|
)
|
|
$
|
47
|
|
|
$
|
(415
|
)
|
|
$
|
(51
|
)
|
|
$
|
(13,228
|
)
|
|
$
|
(6,889
|
)
|
|
$
|
(20,117
|
)
|
|
$
|
3,477
|
|
|
$
|
(27
|
)
|
|
$
|
3,450
|
|
|
$
|
(16,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
313
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
313
|
|
|
$
|
|
|
|
$
|
313
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
313
|
|
Investments in nonconsolidated affiliates
|
|
$
|
18
|
|
|
$
|
359
|
|
|
$
|
155
|
|
|
$
|
2,590
|
|
|
$
|
|
|
|
$
|
3,122
|
|
|
$
|
120
|
|
|
$
|
3,242
|
|
|
$
|
308
|
|
|
$
|
(308
|
)
|
|
$
|
|
|
|
$
|
3,242
|
|
Total assets
|
|
$
|
133,277
|
|
|
$
|
21,069
|
|
|
$
|
4,340
|
|
|
$
|
10,138
|
|
|
$
|
(6,718
|
)
|
|
$
|
162,106
|
|
|
$
|
218
|
|
|
$
|
162,324
|
|
|
$
|
320,557
|
|
|
$
|
(8,613
|
)
|
|
$
|
311,944
|
|
|
$
|
474,268
|
|
Goodwill
|
|
$
|
324
|
|
|
$
|
433
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
757
|
|
|
$
|
|
|
|
$
|
757
|
|
|
$
|
2,446
|
|
|
$
|
|
|
|
$
|
2,446
|
|
|
$
|
3,203
|
|
Expenditures for property
|
|
$
|
5,380
|
|
|
$
|
1,396
|
|
|
$
|
229
|
|
|
$
|
839
|
|
|
$
|
|
|
|
$
|
7,844
|
|
|
$
|
14
|
|
|
$
|
7,858
|
|
|
$
|
279
|
|
|
$
|
4
|
|
|
$
|
283
|
|
|
$
|
8,141
|
|
184
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We attribute our revenues to geographic areas based on the
country in which the product is sold, except for our revenues
from certain joint ventures. In such case, these revenues are
attributed based on the geographic location of the joint
venture. Information concerning principal geographic areas is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Net
|
|
|
Long
|
|
|
Net
|
|
|
Long
|
|
|
Net
|
|
|
Long
|
|
|
|
|
|
|
Sales &
|
|
|
Lived
|
|
|
Sales &
|
|
|
Lived
|
|
|
Sales &
|
|
|
Lived
|
|
|
|
|
|
|
Revenues
|
|
|
Assets(d)
|
|
|
Revenues
|
|
|
Assets(d)
|
|
|
Revenues
|
|
|
Assets(d)
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
100,545
|
|
|
$
|
32,293
|
|
|
$
|
127,260
|
|
|
$
|
39,434
|
|
|
$
|
123,215
|
|
|
$
|
49,619
|
|
|
|
|
|
Canada and Mexico
|
|
|
14,758
|
|
|
|
5,772
|
|
|
|
19,979
|
|
|
|
4,906
|
|
|
|
16,769
|
|
|
|
12,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total North America
|
|
|
115,303
|
|
|
|
38,065
|
|
|
|
147,239
|
|
|
|
44,340
|
|
|
|
139,984
|
|
|
|
62,358
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France
|
|
|
2,699
|
|
|
|
309
|
|
|
|
2,411
|
|
|
|
284
|
|
|
|
2,612
|
|
|
|
333
|
|
|
|
|
|
Germany
|
|
|
6,147
|
|
|
|
4,172
|
|
|
|
7,687
|
|
|
|
3,651
|
|
|
|
7,384
|
|
|
|
4,090
|
|
|
|
|
|
Italy
|
|
|
3,671
|
|
|
|
256
|
|
|
|
2,883
|
|
|
|
78
|
|
|
|
2,971
|
|
|
|
40
|
|
|
|
|
|
Spain
|
|
|
2,911
|
|
|
|
1,359
|
|
|
|
2,866
|
|
|
|
1,364
|
|
|
|
2,847
|
|
|
|
1,182
|
|
|
|
|
|
Sweden
|
|
|
2,330
|
|
|
|
1,207
|
|
|
|
2,229
|
|
|
|
1,255
|
|
|
|
2,161
|
|
|
|
1,139
|
|
|
|
|
|
United Kingdom
|
|
|
7,869
|
|
|
|
1,214
|
|
|
|
7,975
|
|
|
|
1,143
|
|
|
|
7,859
|
|
|
|
1,958
|
|
|
|
|
|
Other
|
|
|
9,789
|
|
|
|
2,347
|
|
|
|
8,380
|
|
|
|
2,250
|
|
|
|
7,752
|
|
|
|
2,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
35,416
|
|
|
|
10,864
|
|
|
|
34,431
|
|
|
|
10,025
|
|
|
|
33,586
|
|
|
|
11,357
|
|
|
|
|
|
Latin America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil
|
|
|
6,477
|
|
|
|
1,026
|
|
|
|
4,961
|
|
|
|
882
|
|
|
|
3,813
|
|
|
|
784
|
|
|
|
|
|
Other Latin America
|
|
|
6,875
|
|
|
|
193
|
|
|
|
4,777
|
|
|
|
159
|
|
|
|
3,836
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Latin America
|
|
|
13,352
|
|
|
|
1,219
|
|
|
|
9,738
|
|
|
|
1,041
|
|
|
|
7,649
|
|
|
|
946
|
|
|
|
|
|
Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
397
|
|
|
|
10
|
|
|
|
301
|
|
|
|
18
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
Korea
|
|
|
9,178
|
|
|
|
2,443
|
|
|
|
7,550
|
|
|
|
2,154
|
|
|
|
2,861
|
|
|
|
1,523
|
|
|
|
|
|
Other Asia Pacific
|
|
|
6,058
|
|
|
|
2,185
|
|
|
|
3,386
|
|
|
|
2,126
|
|
|
|
5,387
|
|
|
|
1,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Asia Pacific
|
|
|
15,633
|
|
|
|
4,638
|
|
|
|
11,237
|
|
|
|
4,298
|
|
|
|
8,605
|
|
|
|
3,504
|
|
|
|
|
|
All Other
|
|
|
1,418
|
|
|
|
239
|
|
|
|
2,956
|
|
|
|
158
|
|
|
|
3,226
|
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
181,122
|
|
|
$
|
55,025
|
|
|
$
|
205,601
|
|
|
$
|
59,862
|
|
|
$
|
193,050
|
|
|
$
|
78,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregation of principal geographic information by
U.S. and
non-U.S. is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Net
|
|
|
Long
|
|
|
Net
|
|
|
Long
|
|
|
Net
|
|
|
Long
|
|
|
|
Sales &
|
|
|
Lived
|
|
|
Sales &
|
|
|
Lived
|
|
|
Sales &
|
|
|
Lived
|
|
|
|
Revenues
|
|
|
Assets(d)
|
|
|
Revenues
|
|
|
Assets(d)
|
|
|
Revenues
|
|
|
Assets(d)
|
|
|
|
(Dollars in millions)
|
|
|
U.S.
|
|
$
|
100,545
|
|
|
$
|
32,293
|
|
|
$
|
127,260
|
|
|
$
|
39,434
|
|
|
$
|
123,215
|
|
|
$
|
49,619
|
|
Non-U.S.
|
|
|
80,577
|
|
|
|
22,732
|
|
|
|
78,341
|
|
|
|
20,428
|
|
|
|
69,835
|
|
|
|
28,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
181,122
|
|
|
$
|
55,025
|
|
|
$
|
205,601
|
|
|
$
|
59,862
|
|
|
$
|
193,050
|
|
|
$
|
78,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Corporate and Other includes charges of $1.5 billion,
$.5 billion and $5.5 billion for 2007, 2006 and 2005,
respectively, related to the Benefit Guarantee Agreements and
the restructuring of Delphis operations. In addition,
Corporate and Other includes $552 million in 2007 related
to pension benefit increases granted to Delphi employees and
retirees/surviving spouses as part of the 2007 National
Agreement. |
(b) |
|
In 2006, we recognized a non-cash impairment charge of
$2.9 billion in connection with the sale of a controlling
interest in GMAC, which is reflected in Other Financing. Refer
to Note 3. Other Financing also includes the elimination of
net receivables from total assets. Receivables eliminated at
December 31, 2007, 2006 and 2005 were $4.2 billion,
$4.1 billion and $4.5 billion, respectively. |
185
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(c) |
|
We sold a 51% ownership interest in GMAC in November 2006. The
remaining 49% ownership interest is accounted for using the
equity method and is included in GMACs segment assets.
Refer to Notes 8 and 27 for summarized financial
information of GMAC for the year ended December 31, 2007
and the month of December 2006. |
(d) |
|
Primarily consists of property and Equipment on operating
leases, net. Refer to Notes 7 and 9. |
|
|
Note 30.
|
Supplemental
Information for Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in millions)
|
|
|
Increase (decrease) in other operating assets and liabilities is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
(1,035
|
)
|
|
$
|
(231
|
)
|
|
$
|
83
|
|
Other receivables
|
|
|
214
|
|
|
|
(2,982
|
)
|
|
|
4,091
|
|
Prepaid expenses and other deferred charges
|
|
|
(649
|
)
|
|
|
294
|
|
|
|
(95
|
)
|
Inventories
|
|
|
(699
|
)
|
|
|
384
|
|
|
|
(1,444
|
)
|
Other assets
|
|
|
(80
|
)
|
|
|
(173
|
)
|
|
|
(32
|
)
|
Accounts payable
|
|
|
1,119
|
|
|
|
367
|
|
|
|
(80
|
)
|
Deferred taxes and income taxes payable
|
|
|
(1,311
|
)
|
|
|
(75
|
)
|
|
|
345
|
|
Accrued expenses and other liabilities
|
|
|
(851
|
)
|
|
|
(5,921
|
)
|
|
|
(775
|
)
|
Fleet rental acquisitions
|
|
|
(6,443
|
)
|
|
|
(8,701
|
)
|
|
|
(9,452
|
)
|
Fleet rental liquidations
|
|
|
6,323
|
|
|
|
8,526
|
|
|
|
7,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,412
|
)
|
|
$
|
(8,512
|
)
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,346
|
|
|
$
|
17,415
|
|
|
$
|
15,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 31:
|
Subsequent
Event
|
On February 12, 2008, we announced an agreement was reached
with the UAW regarding a Special Attrition Program which is
intended to further reduce the number of U.S. hourly
employees. The program that will be offered to our 74,000
UAW-represented employees consists of wage and benefit packages
for normal and voluntary retirements, buyouts or pre-retirement
employees with 26 to 29 years of service. Those employees
that are retirement eligible will receive a lump sum payment of
$45,000 or $62,500 depending upon classification, that will be
funded from our U.S. Hourly Pension Plan in addition to
their vested pension benefits. For those employees not
retirement eligible, other retirement and buyout options will be
offered. These options are similar to the packages offered in
our UAW Attrition Program. The cost of the special termination
benefits for those employees participating in the program
including any effect of curtailments related to our pension,
OPEB and extended disability benefit plans is not known. Such
effects will be recorded in 2008.
186
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 9.
|
Changes
in and disagreements with accountants on accounting and
financial disclosure
|
None
* * * * * *
|
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Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We maintain disclosure controls and procedures designed to
provide reasonable assurance that information required to be
disclosed in reports filed under the Securities Exchange Act of
1934, as amended (Exchange Act) is recorded, processed,
summarized and reported within the specified time periods and
accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
Our management, with the participation of our 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 December 31,
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
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.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
effective internal control over financial reporting. This system
is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in
accordance with generally accepted accounting principles.
Our internal control over financial reporting includes those
policies and procedures that: (1) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect our transactions and dispositions of our
assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of consolidated
financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of our assets that
could have a material effect on the consolidated financial
statements.
Our management performed an assessment of the effectiveness of
our internal control over financial reporting as of
December 31, 2007, utilizing the criteria described in the
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The objective of this assessment was
to determine whether our internal control over financial
reporting was effective as of December 31, 2007.
A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material
misstatement of our annual or interim consolidated financial
statements will not be prevented or detected on a timely basis.
In our assessment of the effectiveness of internal control over
financial reporting as of December 31, 2007, we identified
the following material weaknesses:
Material
weaknesses previously identified as of December 31, 2006
that continue to exist as of December 31, 2007:
1. Controls over the period-end financial reporting process
were not effective. This has resulted in a significant number
and magnitude of out-of-period adjustments to our consolidated
financial statements and in previously reported restatements.
Specifically, controls were not effective to ensure that
significant non-routine transactions, accounting estimates, and
other adjustments were appropriately reviewed, analyzed and
monitored by competent accounting staff on a timely basis.
Additionally,
187
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
some of the adjustments that have been recorded relate to
account reconciliations not being performed effectively. A
material weakness in the period-end financial reporting process
has a pervasive effect on the reliability of our financial
reporting and could result in us not being able to meet our
regulatory filing deadlines. If not remediated, it is reasonably
possible that our consolidated financial statements will contain
a material misstatement or that we will miss a filing deadline
in the future.
2. Controls to ensure our consolidated financial statements
comply with SFAS No. 109, Accounting for Income
Taxes were not effective. We lacked sufficient technical
expertise, reporting standards and policies and procedures.
Additionally, we did not maintain adequate controls with respect
to: (i) timely tax account reconciliations and analyses;
(ii) coordination and communication between Corporate
Accounting, Corporate and Regional Tax Staffs; (iii) timely
review and analysis of corporate journals recorded in the
consolidation process; and (iv) accuracy and completeness
of legal entity accounting results. This material weakness
resulted in a restatement of prior financial statements, as
previously reported in our 2006 Annual Report on Form
10-K, and,
if not remediated, it is reasonably possible that a material
misstatement of our consolidated financial statements will occur
in the future.
Material
weakness initially identified as of December 31,
2007:
3. Controls over the accounting for employee benefit
arrangements were not effective. We lacked sufficient control
procedures as well as adequate involvement of technical
accounting resources to ensure that employee benefit
arrangements were accounted for properly. Specifically, certain
employee benefit plans that we sponsor provide legal services to
hourly employees represented by the UAW, IUE-CWA and the CAW
(Legal Services Plans) were historically accounted for on a pay
as you go basis. However, we have concluded that the Legal
Services Plans should have been accounted for as defined benefit
plans under the provisions of SFAS No. 106,
Employers Accounting for Postretirement Benefits Other
than Pensions. Additionally, out-of-period adjustments
have been recorded in 2007 related to our accounting for other
benefit plans, including pensions and incentive compensation
plans. This material weakness resulted in a restatement of prior
periods to correct the accounting for the Legal Services Plans,
as described in Note 15 to the Consolidated Financial
Statements, and, if not remediated, it is reasonably possible
that our consolidated financial statements will contain a
material misstatement in the future.
Based on our assessment, and because of the material weaknesses
described above, we have concluded that our internal control
over financial reporting was not effective as of
December 31, 2007.
The effectiveness of our internal control over financial
reporting has been audited by Deloitte & Touche LLP,
an independent registered public accounting firm, as stated in
their report which is included herein.
Remediation
and Changes in Internal Controls
We have developed and are implementing remediation plans to
address our material weaknesses. We have taken the following
actions to improve our internal control over financial reporting.
Actions
to address previously reported material weaknesses that no
longer exist as of December 31, 2007:
1. Our 2006 Annual Report on
Form 10-K
identified a material weakness because 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 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
previously reported in our 2006 Annual Report on
Form 10-K.
Since December 31, 2006 we have completed the following
remedial actions: (i) reorganized and restructured
Corporate Accounting by revising the reporting structure, hiring
additional technical accounting personnel to address our complex
accounting and financial reporting requirements and assessing
the technical accounting capabilities in the operating units to
ensure the right complement of knowledge, skills and training;
(ii) 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; (iii) hired
an experienced professional with strong SEC and technical
accounting skills as an assistant controller and divided
responsibility for accounting policy and research from SEC
reporting to provide greater role clarity and focus;
188
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
(iv) established a new chief accounting officer for our
Treasurers Office; (v) continued the deployment of
several key training classes and hired 35 outside accountants in
key accounting positions; (vi) hired a new assistant
controller for Accounting Operations and Consolidations; and
(vii) utilized over 100 external technical accounting
resources in areas in which additional technical expertise was
needed. Based on the foregoing, we now believe we have a
sufficient complement of personnel with an appropriate level of
technical accounting knowledge such that it is no longer
reasonably possible that our consolidated financial statements
will be materially misstated as a result of lack of technical
accounting resources.
2. Our 2006 Annual Report on
Form 10-K
identified a material weakness because we 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, 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 departments involved in complex
financial transactions. This material weakness resulted in a
restatement of prior financial statements, as previously
reported in our 2006 Annual Report on
Form 10-K.
Since December 31, 2006, we have completed the following
remedial actions: (i) terminated hedge accounting in areas
where important control deficiencies were identified;
(ii) enhanced procedures and controls regarding
documentation requirements for hedge accounting to ensure
compliance with SFAS No. 133; (iii) hired consultants
in SFAS No. 133 until the necessary technical
accounting personnel have been hired to support our complex
hedge accounting activities; (iv) developed and started to
provide training to operational organizations and traders; and
(v) through regular internal meetings and other forums,
have increased operational awareness of the implications of SFAS
No. 133. Based on the foregoing, we now believe that it is
no longer reasonably possible that our consolidated financial
statements will be materially misstated as it relates to
accounting for derivatives and hedging.
Actions
implemented or initiated to address the material weaknesses
described above that exist as of December 31,
2007:
1. Actions to strengthen controls over
the period-end financial reporting process include:
(i) improving period-end closing procedures by requiring
all significant non-routine transactions to be reviewed by
Corporate Accounting; (ii) ensuring that account
reconciliations and analyses for significant financial statement
accounts are reviewed for completeness and accuracy by qualified
accounting personnel; (iii) implementing a process that
ensures the timely review and approval of complex accounting
estimates by qualified accounting personnel and subject matter
experts, where appropriate; (iv) developing improved
monitoring controls at Corporate Accounting and the operating
units; (v) enhancing pre and post-closure communications
processes to facilitate early identification, resolution and
conclusions on accounting treatment of business transactions
putting over 100 technical accounting resources both at
headquarters and in the regions to ensure large and complex
transactions are appropriately accounted for; and
(vi) initiating re-design of our consolidation process.
2. Actions to strengthen controls over
income tax accounting include: (i) relocated tax accounting
to reside within the tax department to assure that they are
aware of tax issues with joint responsibility for tax accounting
between controllers and tax; (ii) established focused tax
accounting group and began securing necessary in-house and
external technical resources; (iii) implemented new tax
policies and procedures to ensure that tax account
reconciliations and analyses are properly prepared and monitored
on a timely basis; (iv) established appropriate
communication and collaboration protocols between the Tax Staff
and Controllers Staff, and began strengthening global
reporting standards; (v) initiated re-engineering of tax
accounting procedures and policies to ensure timely and accurate
tax accounting, including establishing desk procedures for
interim reporting; (vi) initiated corrective action
designed to resolve legal entity accounting issues;
(vii) initiated efforts designed to strengthen global tax
reporting policies; and (viii) developed plans to complete
staffing of the Tax Accounting Group.
3. Actions to strengthen controls over
accounting for employee benefit arrangements include:
(i) established a new Technical Accounting Manager for
Compensation; (ii) began utilizing significant external
resources to provide necessary technical expertise;
(iii) Initiated the hiring of a new Director of
Compensation and Benefits Accounting responsible for ensuring
adequate involvement of technical accounting resources related
to employee benefit arrangements; (iv) began implementing a
process to obtain information regarding benefit arrangements
world-wide for accounting analysis and to strengthen controls
over census data completeness and accuracy; (v) began
updating the use of spreadsheets for adequate controls; and
(vi) began clarifying responsibilities over close process
procedures and updating desk procedures.
189
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
As previously noted we have augmented the resources in Corporate
Accounting, the Tax Department and other key departments by
utilizing over 100 external resources in technical
accounting areas and implemented additional closing procedures
during 2007. As a result, we believe that there are no material
inaccuracies or omissions of material fact and, to the best of
our knowledge, believe that the consolidated financial
statements as of and for the year ended December 31, 2007,
fairly present in all material respects the financial condition
and results of operations in conformity with accounting
principles generally accepted in the United States of America.
Other than as described above, there have not been any other
changes in our internal control over financial reporting during
the quarter ended December 31, 2007, which have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
|
|
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/s/ G.
RICHARD WAGONER, JR.
G.
Richard Wagoner, Jr.
Chairman and Chief Executive Officer
|
|
/s/ FREDERICK
A. HENDERSON
Frederick
A. Henderson
Vice Chairman and Chief Financial Officer
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February 28, 2008
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|
February 28, 2008
|
Limitations
on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that
our disclosure controls or our internal control over financial
reporting will prevent or detect all errors and all fraud. A
control system cannot provide absolute assurance due to its
inherent limitations; it is a process that involves human
diligence and compliance and is subject to lapses in judgment
and breakdowns resulting from human failures. A control system
also can be circumvented by collusion or improper management
override. 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 such limitations, disclosure controls and internal control
over financial reporting cannot prevent or detect all
misstatements, whether unintentional errors or fraud. However,
these inherent limitations are known features of the financial
reporting process, therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
|
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Item 9B.
|
Other
Information
|
None
* * * * * *
190
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART III
|
|
Item 10.
|
Directors
and Executive Officers of the Registrant Code of
Ethics
|
We have adopted a code of ethics that applies to the
Corporations directors, officers, and employees, including
the Chief Executive Officer, Chief Financial Officer, Controller
and Chief Accounting Officer and any other persons performing
similar functions. The text of our code of ethics, Winning
With Integrity, has been posted on our website at
http://investor.gm.com at Investor
Information Corporate Governance. We will
provide a copy of the code of ethics without charge upon request
to Corporate Secretary, General Motors Corporation, Mail Code
482-C38-B71, 300 Renaissance Center, P. O. Box 300, Detroit, MI
48265-3000.
* * * * * *
Items 10,
11, 12, 13 and 14
Information required by Part III (Items 10, 11, 12, 13
and 14) of this
Form 10-K
is incorporated by reference from our definitive Proxy Statement
for our 2008 Annual Meeting of Stockholders, which will be filed
with the Securities and Exchange Commission, pursuant to
Regulation 14A, not later than 120 days after the end
of the 2007 fiscal year, all of which information is hereby
incorporated by reference in, and made part of, this
Form 10-K,
except the information required by Item 10 with respect to
our code of ethics in Item 10 above and disclosure of our
executive officers, which is included in Item 1 of
Part I of this report.
* * * * * *
191
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART IV
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ITEM 15.
|
Exhibits
and Financial Statement Schedule
|
(a) 1. All Financial Statements and Supplemental
Information
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2.
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Financial Statement Schedule II Valuation and
Qualifying Accounts
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3.
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Consolidated Financial Statements of GMAC LLC and subsidiaries
as of December 31, 2007 and 2006 and for each of the three
years in the period ended December 31, 2007.
|
4. Exhibits
(b) Exhibits
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Exhibits listed below, which have been filed with the SEC
pursuant to the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, and which were
filed as noted below, are hereby incorporated by reference and
made a part of this report with the same effect as filed
herewith.
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(3)(i)
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Restated Certificate of Incorporation dated March 1, 2004
incorporated herein by reference to Exhibit 3(i) to General
Motors Corporations Annual Report on Form 10-K filed March
11, 2004.
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(3)(ii)
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Bylaws of General Motors Corporation, as amended, dated October
3, 2006 incorporated herein by reference to Exhibit 3.1 to
General Motors Corporations Current Report on Form 8-K
filed March 9, 2007.
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(4)(a)
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Indenture, dated as of November 15, 1990, between General Motors
Corporation and Citibank, N.A., Trustee, incorporated herein by
reference to Exhibit Amendment No. 1(a) to Form S-3 Registration
Statement No. 33-41577 filed July 3, 1991.
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(4)(b)(i)
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Indenture, dated as of December 7, 1995, between General Motors
Corporation and Citibank, N.A., Trustee, incorporated herein by
reference to Exhibit 4(a) to Amendment No. 1 to Form S-3
Registration Statement No. 33-64229 filed November 14, 1995.
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(4)(b)(ii)
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First Supplemental Indenture, dated as of March 4, 2002, between
General Motors Corporation and Citibank, N.A., incorporated
herein by reference to Exhibit 2 to the Current Report on Form
8-K of General Motors Corporation filed March 6, 2002.
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(4)(b)(iii)
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Second Supplemental Indenture, dated as of November 5, 2004,
between General Motors Corporation and Citibank, N.A.,
incorporated herein by reference to Exhibit 4.1 to the Current
Report on Form 8-K of General Motors Corporation filed November
10, 2004.
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(4)(b)(iv)
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Third Supplemental Indenture, dated as of November 5, 2004,
between General Motors Corporation and Citibank, N.A.
incorporated herein by reference to Exhibit 4.2 to the Current
Report on Form 8-K of General Motors Corporation filed November
10, 2004.
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(4)(b)(v)
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Fourth Supplemental Indenture, dated as of November 5, 2004,
between General Motors Corporation and Citibank, N.A.,
incorporated herein by reference to Exhibit 4.3 to the Current
Report on Form 8-K of General Motors Corporation filed November
10, 2004.
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(4)(b)(vi)
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Indenture, dated as of January 8, 2008, between General Motors
Corporation and The Bank of New York, as Trustee, incorporated
herein by reference to Exhibit 10.3 to the Current Report on
Form 8-K of General Motors Corporation filed February 25, 2008.
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(4)(b)(vii)
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First Supplemental Indenture, dated as of February 22, 2008
between General Motors Corporation and The Bank of New York, as
Trustee, incorporated herein by reference to Exhibit 10.4 to the
Current Report on Form 8-K of General Motors Corporation filed
February 25, 2008.
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192
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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ITEM 15.
|
Exhibits
and Financial Statement Schedule
(continued)
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(4)(b)(viii)
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Subordinated Indenture, dated as of January 8, 2008, between
General Motors Corporation and The Bank of New York, as Trustee.
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(4)(c)
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Amended and Restated Credit Agreement, dated July 20, 2006,
among General Motors Corporation, General Motors Canada Limited,
Saturn Corporation, and a syndicate of lenders, incorporated
herein by reference to Exhibit 4 to General Motors
Corporations Quarterly Report on Form 10-Q filed August 8,
2006.
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(10)(a)
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Agreement, dated as of October 22, 2001, between General Motors
Corporation and General Motors Acceptance Corporation,
incorporated herein by reference to Exhibit 10 to the Annual
Report on Form 10-K of General Motors Corporation filed March
28, 2006.
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(10)(b)
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Agreement, dated as of November 30, 2006, between General Motors
Corporation and GMAC LLC, incorporated herein by reference to
Exhibit 10.1 to the Current Report on Form 8-K of General Motors
Corporation filed November 30, 2006.
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(10)(c)
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General Motors 2002 Annual Incentive Plan, as amended.
Incorporated herein by reference to Exhibit 10(b) to the Annual
Report on Form 10-K of General Motors Corporation filed March
14, 2007. .
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(10)(d)
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General Motors 2002 Stock Incentive Plan, as amended.
Incorporated herein by reference to Exhibit 10(c) to the Annual
Report on Form 10-K of General Motors Corporation filed March
14, 2007.
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(10)(e)*
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Compensation Plan for Nonemployee Directors, incorporated herein
by reference to Exhibit A to the Proxy Statement of General
Motors Corporation filed April 16, 1997.
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(10)(f)*
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General Motors Company Vehicle Operations -- Senior Management
Vehicle Program (SMVP) Supplement, revised December 15, 2005,
incorporated herein by reference to Exhibit 10(g) to the Annual
Report on Form 10-K of General Motors Corporation filed March
28, 2006.
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(10)(g)*
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Compensation Statement for G.R. Wagoner, Jr. commencing January
1, 2003, incorporated herein by reference to Exhibit 10(h) to
the Annual Report on Form 10-K of General Motors Corporation
filed March 28, 2006.
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(10)(h)*
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Compensation Statement for Frederick A. Henderson commencing
January 1, 2006, incorporated herein by reference to Exhibit
10(j) to the Annual Report on Form 10-K of General Motors
Corporation filed March 14, 2007.
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(10)(i)*
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Compensation Statement for Robert A. Lutz commencing January 1,
2003, incorporated herein by reference to Exhibit 10(j) to the
Annual Report on Form 10-K of General Motors Corporation filed
March 28, 2006.
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(10)(j)*
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Compensation Statement for G.L. Cowger commencing February 1,
2004, incorporated herein by reference to Exhibit 10(k) to the
Annual Report on Form 10-K of General Motors Corporation filed
March 28, 2006.
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(10)(k)*
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Description of Executive and Board Compensation Reductions,
incorporated herein by reference to Exhibit 10(o) to the Annual
Report on Form 10-K of General Motors Corporation filed March
28, 2006.
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(10)(l)*
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Deferred Compensation Plan for Executive Employees, incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K
of General Motors Corporation filed December 8, 2006.
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(10)(m)
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Settlement Agreement, dated as of February 21, 2008, by and
among General Motors Corporation, the International Union,
United Automobile, Aerospace and Agricultural Workers of America
and the class representatives in the class action case filed
against General Motors Corporation on September 26, 2007 by the
UAW and putative class representatives of GM-UAW.
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(10)(n)
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General Motors 2002 Long-Term Incentive Plan, as amended.
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(10)(o)
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General Motors 2007 Long-Term Incentive Plan, as amended.
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(10)(p)
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Amended General Motors Corporation 2006 Cash-Based Restricted
Stock Unit Plan, as amended October 1, 2007.
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(10)(q)
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General Motors Corporation 2007 Cash-Based Restricted Stock Unit
Plan, as amended October 1, 2007.
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(10)(r)
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General Motors Corporation Compensation Plan for Non-Employee
Directors, as amended December 4, 2007.
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193
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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ITEM 15.
|
Exhibits
and Financial Statement Schedule
(continued)
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(10)(s)
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General Motors Corporation 2007 Annual Incentive Plan, as
amended October 1, 2007.
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(10)(t)
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General Motors Corporation Deferred Compensation Plan, as
amended October 1, 2007.
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193.1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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ITEM 15.
|
Exhibits
and Financial Statement Schedule
(continued)
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(10)(u)
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General Motors Executive Retirement Plan, as amended.
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(10)(v)
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Form of Compensation Statement.
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(10)(w)
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Form of Restricted Stock Unit Grant Award.
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(10)(x)
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Form of Special Cash-based RSU Grant for March 2007 Award.
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(10)(y)
|
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Form of Special RSU Grant for March 2007 Award.
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(10)(z)
|
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General Motors Corporation $4,372,500,000 principal amount of
6.75% Series U Convertible Senior Debentures due December 31,
2012, dated February 22, 2008, incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K of General Motors
dated February 25, 2008.
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(12)
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Computation of Ratios of Earnings to Fixed Charges for the Years
Ended December 31, 2007, 2006, 2005, 2004 and 2003.
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(21)
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Subsidiaries of the Registrant as of December 31, 2007.
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(23.1)
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Consent of Independent Registered Public Accounting Firm.
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(23.2)
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Consent of Hamilton, Rabinovitz & Associates, Inc.
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(24)
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Power of Attorney for Directors of General Motors Corporation
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(31.1)
|
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Section 302 Certification of the Chief Executive Officer.
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(31.2)
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Section 302 Certification of the Chief Financial Officer.
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(32.1)
|
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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.
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(32.2)
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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.
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* |
|
Management contract or compensatory plan required to be filed as
an exhibit pursuant to Item 15(b) of
Form 10-K. |
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Filed herewith. |
194
GENERAL
MOTORS CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
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Additions
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Additions
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Balance at
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|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
End of
|
|
Description
|
|
of Year
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Year
|
|
|
|
(Dollars in millions)
|
|
|
For the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances Deducted from Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Accounts and notes receivable (for doubtful receivables)
|
|
|
397
|
|
|
|
|
|
|
|
11
|
|
|
|
70
|
|
|
|
338
|
|
Inventories (principally for obsolescence of service parts)
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
456
|
|
Other investments and miscellaneous assets (receivables and
other)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
14
|
|
Miscellaneous allowances (mortgage and other)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances Deducted from Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
$
|
3,085
|
|
|
$
|
1,799
|
|
|
$
|
|
|
|
$
|
4,884
|
(a)
|
|
$
|
|
|
Accounts and notes receivable (for doubtful receivables)
|
|
|
353
|
|
|
|
56
|
|
|
|
|
|
|
|
12
|
|
|
|
397
|
|
Inventories (principally for obsolescence of service parts)
|
|
|
411
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
532
|
|
Other investments and miscellaneous assets (receivables and
other)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
Miscellaneous allowances (mortgage and other)
|
|
|
84
|
|
|
|
62
|
|
|
|
|
|
|
|
146
|
(a)
|
|
|
|
|
For the Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances Deducted from Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses
|
|
$
|
3,402
|
|
|
$
|
1,074
|
|
|
$
|
|
|
|
$
|
1,391
|
|
|
$
|
3,085
|
|
Accounts and notes receivable (for doubtful receivables)
|
|
|
318
|
|
|
|
73
|
|
|
|
|
|
|
|
38
|
|
|
|
353
|
|
Inventories (principally for obsolescence of service parts)
|
|
|
340
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
411
|
|
Other investments and miscellaneous assets (receivables and
other)
|
|
|
10
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
17
|
|
Miscellaneous allowances (mortgage and other)
|
|
|
161
|
|
|
|
25
|
|
|
|
21
|
|
|
|
123
|
|
|
|
84
|
|
|
|
|
(a) |
|
Primarily reflects allowances removed as a result of sale of 51%
controlling interest in GMAC. At the time of the sale GMAC had
an allowance for credit loss balance and miscellaneous allowance
balance of $3.5 billion and $123 million, respectively. |
195
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Member Interest Holders of GMAC
LLC:
We have audited the accompanying Consolidated Balance Sheet of
GMAC LLC and subsidiaries (the Company) as of
December 31, 2007 and 2006, and the related Consolidated
Statements of Income, Changes in Equity, and Cash Flows for each
of the three years in the period ended December 31, 2007.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company at December 31, 2007 and 2006, and the results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2007, based on the
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report (not
presented herein) dated February 27, 2008, expressed an
unqualified opinion on the Companys internal control over
financial reporting.
/s/ Deloitte &
Touche LLP
Deloitte & Touche LLP
Detroit,
Michigan
February 27, 2008
196
Consolidated
Statement of Income
GMAC
LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
$9,469
|
|
|
|
$10,472
|
|
|
|
$9,943
|
|
Commercial
|
|
|
2,947
|
|
|
|
3,112
|
|
|
|
2,685
|
|
Loans held for sale
|
|
|
1,557
|
|
|
|
1,777
|
|
|
|
1,652
|
|
Operating leases
|
|
|
7,214
|
|
|
|
7,742
|
|
|
|
7,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financing revenue
|
|
|
21,187
|
|
|
|
23,103
|
|
|
|
21,312
|
|
Interest expense
|
|
|
14,776
|
|
|
|
15,560
|
|
|
|
13,106
|
|
Depreciation expense on operating lease assets
|
|
|
4,915
|
|
|
|
5,341
|
|
|
|
5,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing revenue
|
|
|
1,496
|
|
|
|
2,202
|
|
|
|
2,962
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fees
|
|
|
2,193
|
|
|
|
1,893
|
|
|
|
1,730
|
|
Amortization and impairment of servicing rights
|
|
|
|
|
|
|
(23
|
)
|
|
|
(869
|
)
|
Servicing asset valuation and hedge activities, net
|
|
|
(544
|
)
|
|
|
(1,100
|
)
|
|
|
61
|
|
Insurance premiums and service revenue earned
|
|
|
4,378
|
|
|
|
4,183
|
|
|
|
3,762
|
|
Gain on sale of loans, net
|
|
|
508
|
|
|
|
1,470
|
|
|
|
1,656
|
|
Investment income
|
|
|
473
|
|
|
|
2,143
|
|
|
|
1,216
|
|
Gains on sale of equity-method investments, net
|
|
|
|
|
|
|
411
|
|
|
|
|
|
Other income
|
|
|
3,295
|
|
|
|
3,643
|
|
|
|
4,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenue
|
|
|
10,303
|
|
|
|
12,620
|
|
|
|
11,955
|
|
Total net revenue
|
|
|
11,799
|
|
|
|
14,822
|
|
|
|
14,917
|
|
Provision for credit losses
|
|
|
3,096
|
|
|
|
2,000
|
|
|
|
1,074
|
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits expense
|
|
|
2,453
|
|
|
|
2,558
|
|
|
|
3,163
|
|
Insurance losses and loss adjustment expenses
|
|
|
2,451
|
|
|
|
2,420
|
|
|
|
2,355
|
|
Other operating expenses
|
|
|
5,286
|
|
|
|
4,776
|
|
|
|
4,134
|
|
Impairment of goodwill and other intangible assets
|
|
|
455
|
|
|
|
840
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
10,645
|
|
|
|
10,594
|
|
|
|
10,364
|
|
Income (loss) before income tax expense
|
|
|
(1,942
|
)
|
|
|
2,228
|
|
|
|
3,479
|
|
Income tax expense
|
|
|
390
|
|
|
|
103
|
|
|
|
1,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
($2,332
|
)
|
|
|
$2,125
|
|
|
|
$2,282
|
|
|
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
197
Consolidated
Balance Sheet
GMAC
LLC
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$17,677
|
|
|
|
$15,459
|
|
Investment securities
|
|
|
16,740
|
|
|
|
16,791
|
|
Loans held for sale
|
|
|
20,559
|
|
|
|
27,718
|
|
Finance receivables and loans, net of unearned income
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
87,769
|
|
|
|
130,542
|
|
Commercial
|
|
|
39,745
|
|
|
|
43,904
|
|
Allowance for credit losses
|
|
|
(2,755
|
)
|
|
|
(3,576
|
)
|
|
|
|
|
|
|
|
|
|
Total finance receivables and loans, net
|
|
|
124,759
|
|
|
|
170,870
|
|
Investment in operating leases, net
|
|
|
32,348
|
|
|
|
24,184
|
|
Notes receivable from General Motors
|
|
|
1,868
|
|
|
|
1,975
|
|
Mortgage servicing rights
|
|
|
4,703
|
|
|
|
4,930
|
|
Premiums and other insurance receivables
|
|
|
2,030
|
|
|
|
2,016
|
|
Other assets
|
|
|
27,026
|
|
|
|
23,496
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$247,710
|
|
|
|
$287,439
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
Unsecured
|
|
|
$102,339
|
|
|
|
$113,500
|
|
Secured
|
|
|
90,809
|
|
|
|
123,485
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
193,148
|
|
|
|
236,985
|
|
Interest payable
|
|
|
2,253
|
|
|
|
2,592
|
|
Unearned insurance premiums and service revenue
|
|
|
4,921
|
|
|
|
5,002
|
|
Reserves for insurance losses and loss adjustment expenses
|
|
|
3,089
|
|
|
|
2,630
|
|
Deposit liabilities
|
|
|
15,281
|
|
|
|
11,854
|
|
Accrued expenses and other liabilities
|
|
|
12,203
|
|
|
|
10,805
|
|
Deferred income taxes
|
|
|
1,250
|
|
|
|
1,007
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
232,145
|
|
|
|
270,875
|
|
Preferred interests
|
|
|
|
|
|
|
2,195
|
|
Equity
|
|
|
|
|
|
|
|
|
Members interest
|
|
|
8,912
|
|
|
|
6,711
|
|
Preferred interests
|
|
|
1,052
|
|
|
|
|
|
Retained earnings
|
|
|
4,649
|
|
|
|
7,173
|
|
Accumulated other comprehensive income
|
|
|
952
|
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
15,565
|
|
|
|
14,369
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, preferred interests, and equity
|
|
|
$247,710
|
|
|
|
$287,439
|
|
|
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
198
Consolidated
Statement of Changes in Equity
GMAC
LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
paid-in
|
|
|
Members
|
|
|
Preferred
|
|
|
Retained
|
|
|
comprehensive
|
|
|
Total
|
|
|
Comprehensive
|
|
($ in millions)
|
|
capital
|
|
|
interest
|
|
|
interests
|
|
|
earnings
|
|
|
income (loss)
|
|
|
equity
|
|
|
income (loss)
|
|
|
|
Balance at December 31, 2004
|
|
|
$5,760
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$15,508
|
|
|
|
$1,168
|
|
|
|
$22,436
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,282
|
|
|
|
|
|
|
|
2,282
|
|
|
|
$2,282
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
Repurchase transaction (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195
|
)
|
|
|
|
|
|
|
(195
|
)
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(338
|
)
|
|
|
(338
|
)
|
|
|
(338
|
)
|
|
|
Balance at December 31, 2005
|
|
|
5,760
|
|
|
|
|
|
|
|
|
|
|
|
15,095
|
|
|
|
830
|
|
|
|
21,685
|
|
|
|
1,944
|
|
|
Conversion of common stock to members interest on
July 20, 2006
|
|
|
(5,760
|
)
|
|
|
5,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
|
|
|
|
951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
951
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,125
|
|
|
|
|
|
|
|
2,125
|
|
|
|
2,125
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,739
|
)
|
|
|
|
|
|
|
(9,739
|
)
|
|
|
|
|
Preferred interest accretion to redemption value and dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(295
|
)
|
|
|
|
|
|
|
(295
|
)
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of
tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of unrealized loss for certain available-for-sale
securities to trading securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
Recognize mortgage servicing rights at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(362
|
)
|
|
|
(362
|
)
|
|
|
(362
|
)
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
|
6,711
|
|
|
|
|
|
|
|
7,173
|
|
|
|
485
|
|
|
|
14,369
|
|
|
|
1,767
|
|
|
Conversion of preferred membership interests
|
|
|
|
|
|
|
1,121
|
|
|
|
1,052
|
|
|
|
|
|
|
|
|
|
|
|
2,173
|
|
|
|
|
|
Capital contributions
|
|
|
|
|
|
|
1,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,080
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,332
|
)
|
|
|
|
|
|
|
(2,332
|
)
|
|
|
(2,332
|
)
|
Preferred interests dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
(192
|
)
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450
|
|
|
|
450
|
|
|
|
450
|
|
Cumulative effect of a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
change in accounting principle, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of Financial Accounting Standards Board Statement
No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
$
|
|
|
|
$8,912
|
|
|
|
$1,052
|
|
|
|
$4,649
|
|
|
|
$952
|
|
|
|
$15,565
|
|
|
|
($1,882
|
)
|
|
|
|
|
(a)
|
|
In October 2005, we repurchased
operating lease assets and related deferred tax liabilities from
GM. Refer to Note 19 to the Consolidated Financial
Statements for further detail.
|
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
199
Consolidated
Statement of Cash Flows
GMAC
LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
($2,332
|
)
|
|
|
$2,125
|
|
|
|
$2,282
|
|
|
|
Reconciliation of net income (loss) to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,937
|
|
|
|
6,459
|
|
|
|
5,964
|
|
|
|
Goodwill impairment
|
|
|
455
|
|
|
|
840
|
|
|
|
712
|
|
|
|
Amortization and valuation adjustments of mortgage servicing
rights
|
|
|
1,260
|
|
|
|
843
|
|
|
|
782
|
|
|
|
Provision for credit losses
|
|
|
3,096
|
|
|
|
2,000
|
|
|
|
1,074
|
|
|
|
Gain on sale of loans, net
|
|
|
(508
|
)
|
|
|
(1,470
|
)
|
|
|
(1,741
|
)
|
|
|
Net losses (gains) on investment securities
|
|
|
737
|
|
|
|
(1,005
|
)
|
|
|
(104
|
)
|
|
|
Capitalized interest income
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
628
|
|
|
|
370
|
|
|
|
(1,155
|
)
|
|
|
Loans held for sale (a)
|
|
|
(6,956
|
)
|
|
|
(19,346
|
)
|
|
|
(29,119
|
)
|
|
|
Deferred income taxes
|
|
|
95
|
|
|
|
(1,346
|
)
|
|
|
351
|
|
|
|
Interest payable
|
|
|
(332
|
)
|
|
|
(470
|
)
|
|
|
(290
|
)
|
|
|
Other assets
|
|
|
(121
|
)
|
|
|
(2,340
|
)
|
|
|
(2,446
|
)
|
|
|
Other liabilities
|
|
|
686
|
|
|
|
(1,067
|
)
|
|
|
45
|
|
|
|
Other, net
|
|
|
(1,185
|
)
|
|
|
(287
|
)
|
|
|
568
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
1,460
|
|
|
|
(14,694
|
)
|
|
|
(23,100
|
)
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of available-for-sale securities
|
|
|
(16,682
|
)
|
|
|
(28,184
|
)
|
|
|
(19,165
|
)
|
|
|
Proceeds from sales of available-for-sale securities
|
|
|
8,049
|
|
|
|
6,628
|
|
|
|
5,721
|
|
|
|
Proceeds from maturities of available-for-sale securities
|
|
|
8,080
|
|
|
|
23,147
|
|
|
|
8,887
|
|
|
|
Net increase in finance receivables and loans
|
|
|
(41,972
|
)
|
|
|
(94,869
|
)
|
|
|
(96,028
|
)
|
|
|
Proceeds from sales of finance receivables and loans
|
|
|
70,903
|
|
|
|
117,830
|
|
|
|
125,836
|
|
|
|
Purchases of operating lease assets
|
|
|
(17,268
|
)
|
|
|
(18,190
|
)
|
|
|
(15,496
|
)
|
|
|
Disposals of operating lease assets
|
|
|
5,472
|
|
|
|
7,303
|
|
|
|
5,164
|
|
|
|
Change in notes receivable from GM
|
|
|
138
|
|
|
|
1,660
|
|
|
|
1,053
|
|
|
|
Sales (purchases) of mortgage servicing rights, net
|
|
|
561
|
|
|
|
(61
|
)
|
|
|
(267
|
)
|
|
|
Acquisitions of subsidiaries, net of cash acquired
|
|
|
(209
|
)
|
|
|
(340
|
)
|
|
|
(2
|
)
|
|
|
Proceeds from sale of business units, net
|
|
|
15
|
|
|
|
8,537
|
|
|
|
|
|
|
|
Settlement of residual support and risk-sharing obligations with
GM
|
|
|
|
|
|
|
1,357
|
|
|
|
|
|
|
|
Other, net (b)
|
|
|
1,157
|
|
|
|
(21
|
)
|
|
|
(1,549
|
)
|
|
|
|
|
Net cash provided by investing activities
|
|
|
18,244
|
|
|
|
24,797
|
|
|
|
14,154
|
|
|
|
|
|
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
200
Consolidated
Statement of Cash Flows (continued)
GMAC
LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term debt
|
|
|
(9,248
|
)
|
|
|
2,665
|
|
|
|
(9,970
|
)
|
|
|
Proceeds from issuance of long-term debt
|
|
|
70,230
|
|
|
|
88,180
|
|
|
|
77,890
|
|
|
|
Repayments of long-term debt
|
|
|
(82,134
|
)
|
|
|
(100,840
|
)
|
|
|
(69,520
|
)
|
|
|
Dividends paid
|
|
|
(179
|
)
|
|
|
(4,755
|
)
|
|
|
(2,500
|
)
|
|
|
Proceeds from issuance of preferred interests
|
|
|
|
|
|
|
1,900
|
|
|
|
|
|
|
|
Other, net (c)
|
|
|
3,753
|
|
|
|
2,259
|
|
|
|
6,168
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(17,578
|
)
|
|
|
(10,591
|
)
|
|
|
2,068
|
|
|
|
|
|
Effect of exchange-rate changes on cash and cash equivalents
|
|
|
92
|
|
|
|
152
|
|
|
|
(45
|
)
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,218
|
|
|
|
(336
|
)
|
|
|
(6,923
|
)
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
15,459
|
|
|
|
15,795
|
|
|
|
22,718
|
|
|
|
|
|
Cash and cash equivalents at end of year (d)
|
|
|
$17,677
|
|
|
|
$15,459
|
|
|
|
$15,795
|
|
|
|
|
Supplemental disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
$14,871
|
|
|
|
$15,889
|
|
|
|
$13,025
|
|
|
|
Income taxes
|
|
|
481
|
|
|
|
1,087
|
|
|
|
1,339
|
|
|
|
Noncash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in equity (e)
|
|
|
2,173
|
|
|
|
|
|
|
|
(195
|
)
|
|
|
Loans held for sale transferred to finance receivables and loans
|
|
|
13,834
|
|
|
|
14,549
|
|
|
|
20,084
|
|
|
|
Finance receivables and loans transferred to loans held for sale
|
|
|
8,181
|
|
|
|
3,889
|
|
|
|
3,904
|
|
|
|
Finance receivables and loans transferred to other assets
|
|
|
2,976
|
|
|
|
1,771
|
|
|
|
1,017
|
|
|
|
Trading securities transferred to available-for-sale
|
|
|
|
|
|
|
|
|
|
|
257
|
|
|
|
Various assets and liabilities acquired through consolidation of
variable interest entities
|
|
|
|
|
|
|
|
|
|
|
325
|
|
|
|
Available-for-sale securities transferred to trading securities
|
|
|
|
|
|
|
927
|
|
|
|
|
|
|
|
Capital contributions from GM
|
|
|
56
|
|
|
|
951
|
|
|
|
|
|
|
|
Noncash dividends paid to GM relating to GMAC sale (f)
|
|
|
|
|
|
|
4,984
|
|
|
|
|
|
|
|
Proceeds from sales and repayments of mortgage loans held for
investment originally designated as held for sale
|
|
|
6,790
|
|
|
|
7,562
|
|
|
|
2,063
|
|
|
|
Liabilities assumed through acquisition
|
|
|
1,030
|
|
|
|
342
|
|
|
|
|
|
|
|
Deconsolidation of loans, net
|
|
|
25,856
|
|
|
|
|
|
|
|
|
|
|
|
Deconsolidation of collateralized borrowings
|
|
|
26,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes origination of mortgage
servicing rights of $1.6 billion, $1.7 billion, and
$1.3 billion for 2007, 2006, and 2005, respectively.
|
(b)
|
|
Includes securities lending
transactions where cash collateral is received and a
corresponding liability is recorded, both of which are presented
in investing activities in the amount of $856 million and
$445 million for 2007 and 2006, respectively.
|
(c)
|
|
2007 includes a $1 billion
capital contribution from General Motors pursuant to the sale of
51% of GMAC to FIM Holdings LLC.
|
(d)
|
|
2005 includes $371 million of
cash and cash equivalents classified as assets held for sale.
|
(e)
|
|
Represents conversion of preferred
membership interests in 2007. Represents the repurchase of
operating lease assets and related deferred tax liabilities from
GM in 2005.
|
(f)
|
|
Further described in Note 19
to the Consolidated Financial Statements.
|
The Notes to the Consolidated Financial Statements are an
integral part of these statements.
201
Notes to
Consolidated Financial Statements
GMAC
LLC
1. Description
of Business and Significant Accounting Policies
GMAC LLC (referred to herein as GMAC, we, our, or us) was
founded in 1919 as a wholly owned subsidiary of General Motors
Corporation (General Motors or GM). On
November 30, 2006, GM sold a 51% interest in us for
approximately $7.4 billion (the Sale Transactions) to FIM
Holdings LLC (FIM Holdings). FIM Holdings is an investment
consortium led by Cerberus FIM Investors, LLC, the sole managing
member. The consortium also includes Citigroup Inc., Aozora Bank
Ltd., and a subsidiary of The PNC Financial Services Group, Inc.
Throughout most of 2007, the domestic and international
residential real estate and capital markets experienced
significant dislocation. As a result, ResCaps liquidity
was negatively impacted by margin calls, changes to advance
rates on secured facilities, and the loss of significant
asset-backed commercial paper conduit financing capacity, along
with other secured sources of liquidity, including weak
securitization markets. The market dislocation prompted
ResCaps liquidity providers to evaluate their risk
tolerance for their exposure to mortgage-related credits. ResCap
has identified several risks and uncertainties, which could
impact their liquidity position in 2008. The risks and
uncertainties include, but are not limited to, the following:
further negative rating agency actions; their ability to close
new and renew existing key sources of liquidity; further
tightening by liquidity providers, such as, encountering more
counterparties opting for shorter-dated extensions of existing
facilities with more expensive terms and lower advance rates;
and incremental margin calls related to potentially lower
valuations of collateralized assets and credit support annexes
on interest rate and foreign exchange swaps.
ResCap actively manages liquidity and capital positions and has
developed plans to address liquidity needs, including debt
maturing in 2008, and the identified risks and uncertainties.
The plans include, but are not limited to, the following:
continue to work proactively and maintain an active dialog with
all key credit providers to optimize all available liquidity
options including negotiating credit terms, refinancing term
loans, and other secured facilities; potential pursuit of
strategic alternatives that will improve liquidity, such as,
continued strategic reduction of assets and other dispositions;
focused production on prime conforming products which currently
provide more liquidity options; exploring potential alliances
and joint ventures with third parties involving portions of our
ResCap business and strategic acquisitions; potential
utilization of available committed unsecured lines of credit;
and explore opportunities for funding and or capital support.
While successful execution cannot be assured, management
believes plans are sufficient to meet ResCaps liquidity
requirements and expects ResCap to comply with its financial
covenants for the next twelve months. If unanticipated market
factors emerged and ResCap was unable to successfully execute
their plan, it would have a material adverse effect on our
business, results of operations, and our financial position.
Consolidation
and Basis of Presentation
The consolidated financial statements include our accounts and
accounts of our majority-owned subsidiaries after eliminating
all significant intercompany balances and transactions, and
includes all variable interest entities in which we are the
primary beneficiary. Refer to Note 22 for further details
on our variable interest entities. Our accounting and reporting
policies conform to accounting principles generally accepted in
the United States of America (GAAP). Certain amounts in prior
periods have been reclassified to conform to the current
periods presentation.
We operate our international subsidiaries in a similar manner as
in the United States of America (U.S. or United States),
subject to local laws or other circumstances that may cause us
to modify our procedures accordingly. The financial statements
of subsidiaries that operate outside of the United States
generally are measured using the local currency as the
functional currency. All assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at year-end
exchange rates. The resulting translation adjustments are
recorded as accumulated other comprehensive income, a component
of equity. Income and expense items are translated at average
exchange rates prevailing during the reporting period.
Change in
Reportable Segment Information
As a result of a change in the management of certain corporate
intercompany activities, we have recast certain financial data
from our North American Automotive Finance operations operating
segment to our Other operating segment. This financial data
primarily relates to intercompany borrowing arrangements and
certain corporate expenses. Amounts for 2006 and 2005 have been
recast to conform to the current management view.
Use of
Estimates and Assumptions
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and that affect income and
expenses during the reporting period. In developing the
estimates and assumptions, management uses all available
evidence. However, because of uncertainties associated with
estimating the amounts, timing, and
202
Notes to
Consolidated Financial Statements
GMAC
LLC
likelihood of possible outcomes, actual results could differ
from estimates.
Cash and
Cash Equivalents
Cash and cash equivalents include cash on hand and short-term,
highly liquid investments with original maturities of
90 days or less. Cash and cash equivalents that have
restrictions on our ability to withdraw the funds are included
in other assets on our Consolidated Balance Sheet. The balance
of cash equivalents was $14.1 billion and
$13.4 billion at December 31, 2007 and 2006,
respectively. The book value of cash equivalents approximates
fair value because of the short maturities of these instruments.
Certain securities with original maturities less than
90 days that are held as a portion of longer-term
investment portfolios, primarily relating to GMAC Insurance, are
classified as investment securities.
Investment
Securities
Our portfolio of investment securities includes bonds, equity
securities, asset- and mortgage-backed securities, notes,
interests in securitization trusts, and other investments.
Investment securities are classified based on managements
intent. Our trading securities primarily consist of retained and
purchased interests in certain securitizations. The retained
interests are carried at fair value with changes in fair value
recorded in current period earnings. Debt securities that
management has the intent and ability to hold to maturity are
classified as held-to-maturity and reported at amortized cost as
of the trade date. Premiums and discounts on debt securities are
amortized as an adjustment to investment yield over the
contractual term of the security. All other investment
securities are classified as available-for-sale and carried at
fair value as of the trade date, with unrealized gains and
losses included in accumulated other comprehensive income or
loss, a component of equity, on an after-tax basis. We employ a
systematic methodology that considers available evidence in
evaluating potential other than temporary impairment of our
investments classified as available-for-sale or
held-to-maturity. If the cost of an investment exceeds its fair
value, we evaluate, among other factors, the magnitude and
duration of the decline in fair value. We also evaluate the
financial health of and business outlook for the issuer, the
performance of the underlying assets for interests in
securitized assets, and our intent and ability to hold the
investment. Once a decline in fair value is determined to be
other than temporary, an impairment charge is recorded to
investment income in our Consolidated Statement of Income, and a
new cost basis in the investment is established. Realized gains
and losses on investment securities are reported in investment
income and are determined using the specific identification
method.
In the normal course of business, we enter into securities
lending agreements with various counterparties. Under these
agreements, we lend the rights to designated securities we own
in exchange for collateral in the form of cash or governmental
securities, approximating 102% (domestic) or 105% (foreign) of
the value of the securities loaned. These agreements are
primarily overnight in nature and settle the next business day.
We had loaned securities of $850 million and
$439 million and had received corresponding cash collateral
of $856 million and $445 million for these loans at
December 31, 2007 and 2006, respectively.
Loans
Held for Sale
Loans held for sale may include automotive, commercial finance,
and residential receivables and loans and are carried at the
lower of aggregate cost or estimated fair value. Due to changes
in the securitization market in the fourth quarter of 2006, we
disaggregated all delinquent nonprime mortgage loans in our
evaluation. Fair value is based on contractually established
commitments from investors or is based on current investor yield
requirements. Revenue recognition on consumer automotive finance
receivables and mortgage loans is suspended when placed on
nonaccrual status. Interest income accrued at the date a loan is
placed on nonaccrual status is reversed and subsequently
realized only to the extent it is received in cash. Automotive
loans and mortgage loans held for sale are generally placed on
nonaccrual status when contractually delinquent for
120 days and 60 days, respectively.
Finance
Receivables and Loans
Finance receivables and loans are reported at the principal
amount outstanding, net of unearned income, discounts and
allowance. Unearned income, which includes deferred origination
fees reduced by origination costs and unearned rate support
received from GM, is amortized over the contractual life of the
related finance receivable or loan using the interest method.
Loan commitment fees are generally deferred and amortized into
commercial revenue over the commitment period.
We classify finance receivables and loans between loans held for
sale and loans held for investment based on managements
assessment of our intent and ability to hold loans for the
foreseeable future or until maturity. Managements intent
and ability with respect to certain loans may change from time
to time depending on a number of factors including economic,
liquidity, and capital conditions.
Acquired
Loans
We acquire certain loans individually and in groups or
portfolios that have experienced deterioration of credit quality
between origination and our acquisition. The amount
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paid for these loans reflects our determination that it is
probable we will be unable to collect all amounts due according
to the loans contractual terms. These acquired loans are
accounted for under American Institute of Certified Public
Accountants Statement of Position
03-3,
Accounting for Certain Loans or Debt Securities Acquired in a
Transfer
(SOP 03-3).
We recognize the accretable yield to the excess of our estimate
of undiscounted expected principal, interest, and other cash
flows (expected at acquisition to be collected) over our initial
investment in the acquired asset.
Over the life of the loan or pool, we update the estimated cash
flows we expect to collect. At each balance sheet date, we
evaluate whether the expected cash flows of these loans have
changed. We adjust the amount of accretable yield for any loans
or pools where there is an increase in expected cash flows. We
record a valuation allowance for any loans or pools for which
there is a decrease in expected cash flows. In accordance with
Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan
(SFAS 114), we measure these impairments based upon the
present value of the expected future cash flows discounted using
the loans effective interest rate or, as a practical
expedient when reliable information is available, through the
fair value of the collateral less expected costs to sell. The
present value of any subsequent increase in the loans or
pools actual cash flows or cash flows expected to be
collected is used first to reverse any existing valuation
allowance for that loan or pool.
Nonaccrual
Loans
Consumer and commercial revenue recognition is suspended when
finance receivables and loans are placed on nonaccrual status.
Prime retail automotive receivables are placed on nonaccrual
status when delinquent for 120 days. Nonprime retail
automotive receivables are placed on nonaccrual status when
delinquent for 60 days. Residential mortgages and
commercial real estate loans are placed on nonaccrual status
when delinquent for 60 days. Warehouse, construction, and
other lending receivables are placed on nonaccrual status when
delinquent for 90 days. Revenue accrued but not collected
at the date finance receivables and loans are placed on
nonaccrual status is reversed and subsequently recognized only
to the extent it is received in cash. Finance receivables and
loans are restored to accrual status only when contractually
current and the collection of future payments is reasonably
assured.
Impaired
Loans
Commercial loans are considered impaired when we determine it is
probable that we will be unable to collect all amounts due
according to the terms of the loan agreement and the recorded
investment in the loan exceeds the fair value of the underlying
collateral. We recognize income on impaired loans as discussed
previously for nonaccrual loans. If the recorded investment in
impaired loans exceeds the fair value, a valuation allowance is
established as a component of the allowance for credit losses.
In addition to commercial loans specifically identified for
impairment, we have pools of loans that are collectively
evaluated for impairment, as discussed within the allowance for
credit losses accounting policy.
Allowance
for Credit Losses
The allowance for credit losses is managements estimate of
incurred losses in the lending portfolios. Portions of the
allowance for credit losses are specified to cover the estimated
losses on commercial loans specifically identified for
impairment in accordance with SFAS 114. The unspecified
portion of the allowance for credit losses covers estimated
losses on the homogeneous portfolios of finance receivables and
loans collectively evaluated for impairment in accordance with
Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies (SFAS 5). Amounts
determined to be uncollectible are charged against the allowance
for credit losses in our Consolidated Statement of Income.
Additionally, losses arising from the sale of repossessed
assets, collateralizing automotive finance receivables, and
loans are charged to the allowance for credit losses. Recoveries
of previously charged-off amounts are credited at time of
collection.
Loans outside the scope of SFAS 114 and loans that are
individually evaluated and determined not to be impaired under
SFAS 114 are grouped into pools, based on similar risk
characteristics, and evaluated for impairment in accordance with
SFAS 5. Impairment of loans determined to be impaired under
SFAS 114 is measured based on the present value of expected
future cash flows discounted at the loans effective
interest rate, an observable market price, or the fair value of
the collateral, whichever is determined to be the most
appropriate. Estimated costs to sell or realize the value of the
collateral on a discounted basis are included in the impairment
measurement.
We perform periodic and systematic detailed reviews of our
lending portfolios to identify inherent risks and to assess the
overall collectibility of those portfolios. The allowance
relates to portfolios collectively reviewed for impairment,
generally consumer finance receivables and loans, and is based
on aggregated portfolio evaluations by product type. Loss models
are utilized for these portfolios, which consider a variety of
factors including, but not limited to, historical loss
experience, current economic conditions, anticipated
repossessions or foreclosures based on portfolio trends,
delinquencies and credit scores, and expected loss factors by
receivable and loan type. Loans in the commercial portfolios are
generally reviewed on an individual loan basis and, if
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necessary, an allowance is established for individual loan
impairment. Loans subject to individual reviews are analyzed
based on factors including, but not limited to, historical loss
experience, current economic conditions, collateral performance,
performance trends within specific geographic and portfolio
segments, and any other pertinent information that results in
the estimation of specific allowances for credit losses. The
evaluation of these factors for both consumer and commercial
finance receivables and loans involves complex, subjective
judgments.
Securitizations
and Other Off-balance Sheet Transactions
We securitize, sell, and service retail finance receivables,
operating leases, wholesale loans, securities, and residential
loans. Securitizations are accounted for both as sales and
secured financings. Interests in the securitized and sold assets
are generally retained in the form of interest-only strips,
senior or subordinated interests, cash reserve accounts, and
servicing rights. Our retained interests are generally
subordinate to investors interests. The investors and the
securitization trusts generally have no recourse to our other
assets for failure of debtors to pay when due.
We retain servicing responsibilities for all of our retail
finance receivable, operating lease, and wholesale loan
securitizations and for the majority of our residential loan
securitizations. We may receive servicing fees based on the
securitized loan balances and certain ancillary fees, all of
which are reported in servicing fees in the Consolidated
Statement of Income. We also retain the right to service the
residential loans sold as a result of mortgage-backed security
transactions with Ginnie Mae, Fannie Mae, and Freddie Mac. We
also serve as the collateral manager in the securitizations of
commercial investment securities.
Gains or losses on securitizations and sales depend on the
previous carrying amount of the assets involved in the transfer
and are allocated between the assets sold and the retained
interests based on relative fair values, except for certain
servicing assets or liabilities, which are initially recorded at
fair value at the date of sale. The estimate of the fair value
of the retained interests requires us to exercise significant
judgment about the timing and amount of future cash flows from
interests. Since quoted market prices are generally not
available, we estimate the fair value of retained interests by
determining the present value of future expected cash flows
using modeling techniques that incorporate managements
best estimates of key variables, including credit losses,
prepayment speeds, weighted average life and discount rates
commensurate with the risks involved and, if applicable,
interest or finance rates on variable and adjustable rate
contracts. Credit loss assumptions are based upon historical
experience, market information for similar investments, and the
characteristics of individual receivables and loans underlying
the securities. Prepayment speed estimates are determined
utilizing data obtained from market participants, where
available, or based on historical prepayment rates on similar
assets. Discount rate assumptions are determined using data
obtained from market participants, where available, or based on
current relevant U.S. Treasury or LIBOR yields, plus a risk
adjusted spread based on analysis of historical spreads on
similar types of securities. Estimates of interest rates on
variable and adjustable contracts are based on spreads over the
applicable benchmark interest rate using market-based yield
curves.
Gains or losses on securitizations and sales are reported in
gain on sale of loans, net in our Consolidated Statement of
Income for retail finance receivables, wholesale loans, and
residential loans. Declines in the fair value of retained
interests below the carrying amount are reflected in other
comprehensive income, a component of equity, or in earnings, if
declines are determined to be other than temporary or if the
interests are classified as trading. Retained interest-only
strips and senior and subordinated interests are generally
included in available-for-sale investment securities or in
trading investment securities, depending on managements
intent at the time of securitization. Retained cash reserve
accounts are included in other assets on our Consolidated
Balance Sheet.
On December 6, 2007, the American Securitization Forum
(ASF) issued the Streamlined Foreclosure and Loss Avoidance
Framework for Securitized Subprime Adjustable Rate Mortgage
Loans (the ASF Framework). The ASF Framework provides guidance
for servicers to streamline borrower evaluation procedures and
to facilitate the use of foreclosure and loss prevention efforts
in an attempt to reduce the number of subprime residential
mortgage borrowers who might default in the coming year because
the borrowers cannot afford to pay the increased loan interest
rate after their rate reset. The ASF Framework requires a
borrower and its loan to meet specific conditions to qualify for
a modification under which the qualifying borrowers
loans interest rate would be kept at the existing rate,
generally for five years following an upcoming reset period. The
ASF Framework is focused on U.S. subprime first-lien
adjustable-rate residential mortgages that have an initial fixed
interest rate period of 36 months or less; are included in
securitized pools; were originated between January 1, 2005,
and July 31, 2007; and have an initial interest rate reset
date between January 1, 2008 and July 31, 2010
(defined as Segment 2 Subprime ARM Loans within the
ASF Framework).
On January 8, 2008, the SECs Office of Chief
Accountant (the OCA) issued a letter (the OCA Letter) addressing
accounting issues that may be raised by the ASF Framework.
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Specifically, the OCA Letter expressed the view that if a
Segment 2 Subprime ARM Loan is modified pursuant to the ASF
Framework and the loan could legally be modified, the OCA will
not object to continued status of the transferee as a qualifying
special-purpose entity (QSPE) under Financial Accounting
Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities
(SFAS 140). Management intends to conform with ASF
Framework guidelines and to continue to comply with QSPE
requirements under SFAS 140.
Investment
in Operating Leases
Investment in operating leases is reported at cost, less
accumulated depreciation and net of origination fees or costs.
Income from operating lease assets, which includes lease
origination fees net of lease origination costs, is recognized
as operating lease revenue on a straight-line basis over the
scheduled lease term. Depreciation of vehicles is generally
provided on a straight-line basis to an estimated residual value
over a period, consistent with the term of the underlying
operating lease agreement. We evaluate our depreciation policy
for leased vehicles on a regular basis.
We have significant investments in the residual values of assets
in our operating lease portfolio. The residual values represent
an estimate of the values of the assets at the end of the lease
contracts and are initially recorded based on residual values
established at contract inception by consulting independently
published residual value guides. Realization of the residual
values is dependent on our future ability to market the vehicles
under the prevailing market conditions. Over the life of the
lease, we evaluate the adequacy of our estimate of the residual
value and may make adjustments to the depreciation rates to the
extent the expected value of the vehicle (including any residual
support payments from GM) at lease termination changes. In
addition to estimating the residual value at lease termination,
we also evaluate the current value of the operating lease asset
and test for impairment to the extent necessary based on market
considerations and portfolio characteristics. Impairment is
determined to exist if the undiscounted expected future cash
flows are lower than the carrying value of the asset. When a
lease vehicle is returned to us, the asset is reclassified from
investment in operating leases to other assets at the
lower-of-cost or estimated fair value, less costs to sell.
Mortgage
Servicing Rights
Primary servicing involves the collection of payments from
individual borrowers and the distribution of these payments to
the investors. Master servicing rights represent our right to
service mortgage- and asset-backed securities and
whole-loan
packages issued for investors. Master servicing involves the
collection of borrower payments from primary servicers and the
distribution of those funds to investors in mortgage- and
asset-backed securities and
whole-loan
packages.
We capitalize the value expected to be realized from performing
specified mortgage servicing activities for others as mortgage
servicing rights (MSRs). These capitalized servicing rights are
purchased or retained upon sale or securitization of mortgage
loans. Before January 1, 2006, mortgage servicing
rights were recorded on both securitizations that were accounted
for as sales, as well as those accounted for as secured
financings. Effective January 1, 2006, with the
adoption of SFAS 156, mortgage-servicing rights are not
recorded on securitizations accounted for as secured financings.
We measure mortgage servicing assets and liabilities at fair
value at the date of sale.
We define our classes of servicing rights based on both the
availability of market inputs and the manner in which we manage
the risks of our servicing assets and liabilities. We manage our
servicing rights at the legal entity level domestically and the
reportable operating segment level internationally, and
sufficient market inputs exist to determine the fair value of
our recognized servicing assets and liabilities.
Since quoted market prices for MSRs are not available, we
estimate the fair value of MSRs by determining the present value
of future expected cash flows using modeling techniques that
incorporate managements best estimates of key variables,
including expected cash flows, credit losses, prepayment speeds,
and return requirements commensurate with the risks involved.
Cash flow assumptions are based on our actual performance, and
where possible, the reasonableness of assumptions is
periodically validated through comparisons to other market
participants. Credit loss assumptions are based upon historical
experience and the characteristics of individual loans
underlying the MSRs. Prepayment speed estimates are determined
from historical prepayment rates on similar assets or obtained
from third-party data. Return requirement assumptions are
determined using data obtained from market participants, where
available, or based on current relevant interest rates plus a
risk-adjusted spread. Since many factors can affect the estimate
of the fair value of mortgage servicing rights, we regularly
evaluate the major assumptions and modeling techniques used in
our estimate and review these assumptions against market
comparables, if available. We monitor the actual performance of
our MSRs by regularly comparing actual cash flow, credit, and
prepayment experience to modeled estimates.
Reinsurance
We assume and cede insurance risk under various reinsurance
agreements. We seek to reduce the loss that may arise from
catastrophes or other events that cause unfavorable
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underwriting results by reinsuring certain levels of risk with
other insurance enterprises. We remain liable with respect to
any reinsurance ceded if the assuming companies are unable to
meet their obligations under these reinsurance agreements. We
also assume insurance risks from other insurance companies,
receiving a premium as consideration for the risk assumption.
Amounts recoverable from reinsurers on paid losses and loss
adjustment expenses are included in premiums and other insurance
receivables. Amounts recoverable from reinsurers on unpaid
losses, including incurred but not reported losses and loss
adjustment expenses, pursuant to reinsurance contracts are
estimated and reported with premiums and other insurance
receivables. Amounts paid to reinsurers relating to the
unexpired portion of reinsurance contracts are reported as
prepaid reinsurance premiums within premiums and other insurance
receivables.
Repossessed
and Foreclosed Assets
Assets are classified as repossessed and foreclosed and included
in other assets when physical possession of the collateral is
taken, regardless of whether foreclosure proceedings have taken
place. Repossessed and foreclosed assets are carried at the
lower of the outstanding balance at the time of repossession or
foreclosure or the fair value of the asset less estimated costs
to sell. Losses on the revaluation of repossessed and foreclosed
assets are charged to the allowance for credit losses at the
time of repossession. Subsequent holding period losses and
losses arising from the sale of repossessed assets
collateralizing automotive finance receivables and loans are
expensed as incurred in other operating expenses.
Goodwill
and Other Intangibles
Goodwill and other intangible assets, net of accumulated
amortization, are reported in other assets. In accordance with
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (SFAS 142),
goodwill represents the excess of the cost of an acquisition
over the fair value of net assets acquired. Goodwill is reviewed
for impairment utilizing a two-step process. The first step of
the impairment test requires us to define the reporting units
and compare the fair value of each of these reporting units to
the respective carrying value. The reporting units used for our
2006 testing represented our operating segments as disclosed in
Note 23. During the third quarter of 2007, we reevaluated
our reporting units and determined that our Insurance and ResCap
operating segments have reporting units one level below the
operating segment, and therefore, goodwill should be evaluated
at the lower level. Insurance has four reporting units based on
product offerings, while ResCaps reporting units are
consistent with its reportable segments in its stand-alone
financial statements. The primary factors considered for this
change were how management operates, reports, and manages these
segments. The fair value of the reporting units in our
impairment test is determined based on various analyses,
including discounted cash flow projections. If the carrying
value is less than the fair value, no impairment exists, and the
second step does not need to be completed. If the carrying value
is higher than the fair value, there is an indication that
impairment may exist, and a second step must be performed to
compute the amount of the impairment, if any. SFAS 142
requires goodwill to be tested for impairment annually at the
same time every year, and whenever an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. Our
annual goodwill impairment assessment takes place during the
fourth quarter each year. Certain triggering events necessitated
an impairment review during the third quarter of 2007 for
ResCaps goodwill reporting units. See Note 11 for a
discussion of the related goodwill impairment charge.
Other intangible assets, which include customer lists,
trademarks, and other identifiable intangible assets, are
amortized on a straight-line basis over an estimated useful life
of 3 to 15 years.
Impairment
of Long-lived Assets
The carrying value of long-lived assets (including premises and
equipment and investment in operating leases as well as certain
identifiable intangibles) are evaluated for impairment whenever
events or changes in circumstances indicate that their carrying
values may not be recoverable from the estimated undiscounted
future cash flows expected to result from their use and eventual
disposition. Recoverability of assets to be held and used is
measured by a comparison of their carrying amount to future net
undiscounted cash flows expected to be generated by the assets.
If these assets are considered to be impaired, the impairment is
measured as the amount by which the carrying amount of the
assets exceeds the fair value as estimated by discounted cash
flows. No material impairment was recognized in 2007, 2006, or
2005.
Property
and Equipment
Property and equipment, stated at cost net of accumulated
depreciation and amortization, are reported in other assets.
Included in property and equipment are certain buildings,
furniture and fixtures, leasehold improvements, company
vehicles, IT hardware and software, and capitalized software
costs. Depreciation is computed on the straight-line basis over
the estimated useful lives of the assets, which generally ranges
from 3 to 30 years. Capitalized software is generally
amortized on a straight-line basis over its useful life for a
period not to exceed three years. Capitalized software that is
not expected to provide substantive service potential or for
which development costs significantly exceed the amount
originally expected is considered impaired and written down to
fair value. Software
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expenditures that are considered general, administrative, or of
a maintenance nature are expensed as incurred. Depreciation and
amortization expense for property and equipment for the years
ended December 31, 2007, 2006, and 2005, was
$196 million, $253 million, and $288 million,
respectively.
Deferred
Policy Acquisition Costs
Commissions, including compensation paid to producers of
extended service contracts and other costs of acquiring
insurance that are primarily related to and vary with the
production of business, are deferred and recorded in other
assets. These costs are subsequently amortized over the terms of
the related policies and service contracts on the same basis as
premiums and revenue are earned, except for direct response
advertising costs, which are amortized over a three-year period
based on the anticipated future benefit.
Unearned
Insurance Premiums and Service Revenue
Insurance premiums, net of premiums ceded to reinsurers, and
service revenue are earned over the terms of the policies. The
portion of premiums and service revenue written applicable to
the unexpired terms of the policies is recorded as unearned
insurance premiums or unearned service revenue. For short
duration contracts, premiums and unearned service revenue are
earned on a pro rata basis. For extended service and maintenance
contracts, premiums and service revenues are earned on a basis
proportionate to the anticipated loss emergence.
Reserves
for Insurance Losses and Loss Adjustment Expenses
Reserves for insurance losses and loss adjustment expenses are
established for the unpaid cost of insured events that have
occurred as of a point in time. More specifically, the reserves
for insurance losses and loss adjustment expenses represent the
accumulation of estimates for reported losses and a provision
for losses incurred but not reported, including claims
adjustment expenses, relating to direct insurance and assumed
reinsurance agreements. Estimates for salvage and subrogation
recoverable are recognized at the time losses are incurred and
netted against insurance losses and loss adjustment expenses.
Reserves are established for each business at the lowest
meaningful level of homogeneous data based on actuarial analysis
and volatility considerations. Since the reserves are based on
estimates, the ultimate liability may be more or less than the
reserves. Adjustments in the estimated reserves are included in
the period in which the adjustments are considered necessary.
These adjustments may occur in future periods and could have a
material impact on our consolidated financial position, results
of operations, or cash flows.
Derivative
Instruments and Hedging Activities
In accordance with SFAS 133, all derivative financial
instruments, whether designated for hedging relationships or
not, are required to be recorded on the balance sheet as assets
or liabilities, carried at fair value. At inception of a hedging
relationship, we designate each qualifying derivative financial
instrument as a hedge of the fair value of a specifically
identified asset or liability (fair value hedge) or as a hedge
of the variability of cash flows to be received or paid related
to a recognized asset or liability (cash flow hedge). We also
use derivative financial instruments, which although acquired
for risk management purposes, do not qualify for hedge
accounting under GAAP. Changes in the fair value of derivative
financial instruments that are designated and qualify as fair
value hedges, along with the gain or loss on the hedged asset or
liability attributable to the hedged risk, are recorded in
current period earnings. For qualifying cash flow hedges, the
effective portion of the change in the fair value of the
derivative financial instruments is recorded in accumulated
other comprehensive income, a component of equity, and
recognized in the income statement when the hedged cash flows
affect earnings. Changes in the fair value of derivative
financial instruments held for risk management purposes that do
not meet the criteria to qualify as hedges under GAAP are
reported in current period earnings. The ineffective portions of
fair value and cash flow hedges are immediately recognized in
earnings.
We formally document all relationships between hedging
instruments and hedged items, as well as our risk management
objectives for undertaking various hedge transactions. This
process includes linking all derivatives that are designated as
fair value or cash flow hedges to specific assets and
liabilities on our Consolidated Balance Sheet to specific firm
commitments or the forecasted transactions. Both at the
hedges inception and on an ongoing basis, we formally
assess whether the derivatives that are used in hedging
relationships are highly effective in offsetting changes in fair
values or cash flows of hedged items.
The hedge accounting treatment described herein is no longer
applied if a derivative financial instrument is terminated or
the hedge designation is removed or is assessed to be no longer
highly effective. For these terminated fair value hedges, any
changes to the hedged asset or liability remain as part of the
basis of the asset or liability and are recognized into income
over the remaining life of the asset or liability. In 2007 we
discontinued hedge accounting for mortgage loans held for sale.
For terminated cash flow hedges, unless it is probable that the
forecasted cash flows will not occur within a specified period,
any changes in fair value of the derivative financial instrument
previously recognized remain in other comprehensive income, a
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component of equity, and are reclassified into earnings in the
same period that the hedged cash flows affect income.
Loan
Commitments
We enter into commitments to make loans whereby the interest
rate on the loan is set before funding (i.e., interest rate lock
commitments). Interest rate lock commitments for loans to be
originated or purchased for sale and for loans to be purchased
and held for investment are derivative financial instruments
carried at fair value in accordance with SFAS 133 and Staff
Accounting Bulletin No. 105, Application of
Accounting Principles to Loan Commitments (SAB 105).
SAB 105 provides specific guidance on the measurement of
loan commitments, specifying that fair value measurement exclude
any expected future cash flows related to the customer
relationship or loan servicing. Servicing assets are recognized
once they are contractually separated from the underlying loan
by sale or securitization. Interest rate lock commitments for
loans to be held for sale are recorded as derivatives.
Subsequent changes in value from the time of the lock are
recognized as assets or liabilities, with a corresponding
adjustment to current period earnings. The determination of the
change in fair value does not include an estimate of the future
MSR that will arise when the loan is sold or securitized.
Income
Taxes
Prior to November 30, 2006, we filed a consolidated
U.S. federal income tax return with GM. The portion of the
consolidated tax recorded by us and our subsidiaries included in
the consolidated tax return generally was equivalent to the
liability that we would have incurred on a separate return basis
and was settled as GMs tax payments became due.
During 2006, we and a number of our U.S. subsidiaries
converted to limited liability companies (LLCs) and effective
November 28, 2006, became pass-through entities for
U.S. federal income tax purposes. Income taxes incurred by
these converting entities have been provided through
November 30, 2006, as required under the tax-sharing
agreement between GM and GMAC. With a few minor exceptions,
subsequent to November 30, 2006, U.S. federal and
state and local income taxes have not been provided for these
entities as they have generally ceased to be taxable entities.
Any related deferred taxes have been eliminated with respect to
entities that have ceased to be taxable enterprises. Entity
level taxes still apply for a small number of state and local
tax jurisdictions along with foreign withholding taxes. Where an
entity level or withholding tax applies, it has been provided
for in the consolidated financial statements.
Our banking, insurance, and foreign subsidiaries are generally
corporations and continue to be subject to and provide for
U.S. federal, state, and foreign income taxes. Deferred tax
assets and liabilities are established for future tax
consequences of events that have been recognized in the
financial statements or tax returns, based upon enacted tax laws
and rates. Deferred tax assets are recognized subject to
managements judgment that realization is more likely than
not. In addition, tax benefits related to positions considered
uncertain are recognized only if, based on the technical merits
of the issue, we are more likely than not to sustain the
position and then at the largest amount that is greater than 50%
likely to be realized upon ultimate settlement.
Membership
Interests
Before the Sale Transactions, GMAC was a wholly owned subsidiary
of GM and, accordingly, there was no market for our common
ownership interests. After the Sale Transactions, there
continues to be no established trading market for our ownership
interests as we are a privately held company. We currently have
authorized and outstanding common membership interests
consisting of 55,072 Class A Membership Interests and
52,912 Class B Membership Interests, which have equal
rights and preferences in the assets of GMAC. FIM Holdings owns
all 55,072 Class A Interests (a 51% ownership interest in
us) and GM, through wholly owned subsidiaries, owns all 52,912
Class B Interests (a 49% ownership interest in us). In
addition, we have authorized and outstanding 1,021,764 Preferred
Membership Interests (Preferred Interests), all of which are
held by GM Preferred Finance Co. Holdings Inc., a wholly owned
subsidiary of GM.
Effective November 1, 2007, FIM Holdings and GM Finance Co.
Holdings LLC (GM Finance) executed an amendment to the GMAC
Amended and Restated Limited Liability Company Operating
Agreement (the Amendment) that resulted in certain modifications
to GMACs capital structure. Prior to the Amendment, GMAC
had authorized and outstanding 51,000 Class A Interests,
all held by FIM Holdings, and 49,000 Class B Interests, all
held by GM Finance. Prior to the Amendment, GMAC further had
authorized and outstanding 2,110,000 Preferred Membership
Interests, 555,000 of which were held by FIM Holdings (the
Original FIM Preferred Interests), and 1,555,000 of which were
held by GM Preferred Finance Co. Holdings Inc. (the Original GM
Preferred Interests). The Amendment resulted in the conversion
of 100% of the Original FIM Preferred Interests into 4,072
additional Class A Interests and the conversion of 533,236
of the Original GM Preferred Interests into 3,912 additional
Class B Interests (collectively, the Conversions).
Following the Conversions, FIM Holdings continues to hold 51% of
GMACs Common Equity Interests, and GM Finance and GM
Preferred Finance Co. Holdings Inc. collectively hold 49% of
GMACs Common Equity Interests, as described above. The
converted Preferred
209
Notes to
Consolidated Financial Statements
GMAC
LLC
Interests have been deemed no longer issued and outstanding. All
other terms and conditions related to the Common Equity
Interests and the remaining Preferred Interests remain unchanged.
Prior to the Conversions, the Preferred Interests were deemed to
be redeemable at the option of the holder, due to the collective
holders (FIM Holdings and GM) having control of the Board. In
accordance with Emerging Issues Task Force Topic
No. D-98,
Classification and Measurement of Redeemable Securities
(EITF D-98), the Preferred Interests were recorded as
mezzanine equity at their redemption value, due to this
substantive redemption feature, with subsequent revaluation at
each balance sheet date. The initial accretion to redemption
value, dividends on the Preferred Interests, and revaluation
adjustments were recorded to retained earnings. Subsequent to
the Conversions, the remaining Preferred Interests are solely
owned by GM. As GM does not have control of the Board, the
remaining shares do not have the substantive redemption feature,
at the option of the holder, noted above. As such, these
interests do not qualify as mezzanine equity pursuant to EITF
D-98, and were therefore reclassed to permanent equity at their
carrying value after the conversions.
We have further authorized 5,820 Class C Membership
Interests, which are considered profit interests and
not capital interests as defined in Revenue
Procedure
93-27,
1993-2 C.B.
343. These Class C Membership Interests may be issued from
time to time pursuant to the GMAC Management LLC Class C
Membership Interest Plan. There were 4,799 Class C
Membership Interests outstanding as of December 31, 2007.
Membership
Interest Distributions
We are required to make certain distributions to holders of the
Preferred Interests (preferred holders). Distributions will be
made in cash on a pro rata basis within ten business days of
delivering the GMAC financial statements to the members.
Distributions are issued in units of $1,000 and will accrue
yield during each fiscal quarter at a rate of 10% per annum. Our
Board may reduce any distribution to the extent required to
avoid a reduction of the equity capital of GMAC below a minimum
amount of equity capital equal to the net book value of GMAC as
of November 30, 2006 (determined in accordance with GAAP).
In addition, our Board may suspend the payment distributions
with respect to any one or more fiscal quarters with majority
members consent. If distributions are not made with
respect to any fiscal quarter, the distributions will be
noncumulative and will be reduced to zero. If the accrued yield
of GMACs Preferred Interests for any fiscal quarter is
fully paid to the preferred members, the excess of the net
financial book income of GMAC in any fiscal quarter over the
amount of yield distributed to the holders of our preferred
equity interests in such fiscal quarter will be distributed to
the holders of our common membership interests (Class A and
Class B Membership Interests) as follows: at least 40% of
the excess will be paid for fiscal quarters ending prior to
December 31, 2008, and at least 70% of the excess will be
paid for fiscal quarters ending after December 31, 2008. In
this event, distribution priorities are to common membership
interest holders first, up to the agreed upon amounts, and then
ratably to Class A, Class B, and Class C
Membership Interest holders based on the total interest of each
such holder. During 2007, there were no distributions to
Class A, Class B, and Class C Membership Interest
holders. Preferred Interest distributions accrued in 2007 and
2006 were $192 million and $21 million, respectively.
In the event of sale or dissolution of GMAC, cash proceeds
available for distribution to the members shall be distributed
first to the Preferred Interest holders ratably for the amount
of preferred accrued dividends. Thereafter, distributions shall
be made to the Preferred Interest holders ratably for the amount
of aggregate unreturned preferred capital amounts, until the
unreturned preferred capital amounts are fully paid. Following
these dividends to preferred holders, distributions shall be
made to the holders of our common equity interest ratably until
such holders have received a return of their agreed initial
value. Finally, remaining distributions shall be made to
Class A, Class B, and Class C Membership Interest
holders based on the total interest of each such holder.
Share-based
Incentive Plans
We have two share-based compensation plans for executives, a
Long-Term Phantom Interest Plan (LTIP) and a Management Profits
Interest Plan (MPI), which were approved by the Compensation
Committee. These compensation plans provide our executives with
an opportunity to share in the future growth in value of GMAC.
While the plans were formed in 2006, no grants were made until
the first quarter of 2007.
The LTIP is an incentive plan for executives based on the
appreciation of GMACs value in excess of a return of 10%
during a three-year performance period. The awards vest at the
end of the performance period and are paid in cash following a
valuation of GMAC performed by FIM Holdings. The awards do not
entitle the participant to an equity-ownership interest in GMAC.
The plan authorizes 500 units to be granted for the
performance period ending December 31, 2009, of which
approximately 372 units were granted and outstanding at
December 31, 2007. The LTIP awards are accounted for under
SFAS No. 123(R), Share-Based Payment
(SFAS 123(R)), as they meet the definition of
share-based compensation awards. Under SFAS 123(R), the
awards require liability treatment and are remeasured
210
Notes to
Consolidated Financial Statements
GMAC
LLC
quarterly at fair value until they are settled. The compensation
cost related to these awards will be ratably charged to expense
over the requisite service period, which is the vesting period
ending December 31, 2009. The quarterly fair value
remeasurement will encompass changes in the market and industry,
as well as our latest forecasts for the performance period.
Changes in fair value relating to the portion of the awards that
have vested will be recognized in earnings in the period in
which the changes occur. The fair value of the awards
outstanding at December 31, 2007, was approximately
$41 million of which $12 million was recognized as
expense during 2007.
The MPI is an incentive plan whereby Class C Membership
interests in GMAC held by a management company are granted to
senior executives. The total Class C Membership interests
are 5,820 of which approximately 4,799 were outstanding at
December 31, 2007. Half of the awards vest based on a
service requirement, and half vest based on meeting operating
performance objectives. The service portion vests ratably over
five years beginning January 3, 2008, and on each of
the next four anniversaries thereafter. The performance portion
vests based on five separate annual targets. If the performance
objectives are met, that years pro rata share of the
awards vest. If the current year objectives are not met, but the
annual performance objectives of a subsequent year are met, all
unvested shares from previous years will vest. Any unvested
awards as of December 31, 2011, shall be forfeited.
The MPI awards are accounted for under SFAS 123(R) as they
meet the definition of share-based compensation awards. Under
SFAS 123(R), the awards require equity treatment and are
fair valued as of their grant date using assumptions such as our
forecasts, historical trends, and the overall industry and
market environment. Compensation expense for the MPI shares is
ratably charged to expense over the five-year requisite service
period for service-based awards and over each one-year requisite
service period for the performance-based awards, both to the
extent the awards actually vest. During the third quarter of
2007, the performance vesting for 2007 was not deemed to be
probable. As such, the remaining expense for the 2007
performance vesting portion of the awards will be ratably
accrued throughout the remaining 2007 and 2008 performance
periods. The value of the awards outstanding at
December 31, 2007, was approximately $25 million of
which $4 million was recognized as expense during 2007.
Change in
Accounting Principle
Financial Accounting Standards Board (FASB) Interpretation
No. 48 On January 1, 2007, we adopted
FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes (FIN 48), which clarifies
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 effects of a position be recognized only
if it is more-likely-than-not to be sustained solely
on its technical merits. 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
position are to be recognized. The cumulative effect of applying
FIN 48 was recorded directly to retained earnings and
reported as a change in accounting principle. The adoption of
this interpretation as of January 1, 2007, did not have a
material impact on our consolidated financial position. Gross
unrecognized tax benefits totaled approximately
$126 million at January 1, 2007, of which
approximately $124 million would affect our effective tax
rate, if recognized.
We recognize interest and penalties accrued related to uncertain
income tax positions in interest expense and other operating
expenses, respectively. As of January 1, 2007, we had
approximately $116 million accrued for the payment of
interest and penalties.
SFAS No. 158 In September 2006, the
FASB issued SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans (SFAS 158), which amends SFAS No. 87,
Employers Accounting for Pensions;
SFAS No. 88, Employers Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits; SFAS No. 106,
Employers Accounting for Postretirement Benefits Other
Than Pensions; and SFAS No. 132(R),
Employers Disclosures about Pensions and Other
Postretirement Benefits (revised 2003). This Statement
requires companies to recognize an asset or liability for the
overfunded or underfunded status of their benefit plans in their
financial statements. The asset or liability is the offset to
accumulated other comprehensive income, consisting of previously
unrecognized prior service costs and credits, actuarial gains or
losses, and accumulated transition obligations and assets.
SFAS 158 also requires the measurement date for plan assets
and liabilities to coincide with the sponsors year-end.
The standard provides two transition alternatives for companies
to make the measurement-date provisions. We adopted the
recognition and disclosure elements of SFAS 158, which did
not have a material effect on our consolidated financial
position, results of operations, or cash flows. In addition, we
will adopt the measurement elements of SFAS 158 for the
year ending December 31, 2008. We do not expect the
adoption of the measurement elements to have a material impact
on our consolidated financial condition, results of operations,
or cash flows.
211
Notes to
Consolidated Financial Statements
GMAC
LLC
Recently
Issued Accounting Standards
SFAS No. 157 In September 2006, the
FASB issued SFAS No. 157, Fair Value Measurements
(SFAS 157), which provides a definition of fair value,
establishes a framework for measuring fair value, and requires
expanded disclosures about fair value measurements. The standard
applies when GAAP requires or allows assets or liabilities to be
measured at fair value and, therefore, does not expand the use
of fair value in any new circumstance. SFAS 157 defines
fair value as the price that would be received to sell an asset
or paid to transfer a liability in an arms-length
transaction between market participants in the markets where we
conduct business. SFAS 157 clarifies that fair value should
be based on the assumptions market participants would use when
pricing an asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those
assumptions. The fair value hierarchy gives the highest priority
to quoted prices available in active markets and the lowest
priority to data lacking transparency. The level of the
reliability of inputs utilized for fair value calculations
drives the extent of disclosure requirements of the valuation
methodologies used under the standard. SFAS 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods
within those years. The provisions of SFAS 157 are required
to be applied prospectively, except for certain financial
instruments for which the standard should be applied
retrospectively. We adopted SFAS 157 on January 1,
2008, on a prospective basis. This included inventorying all
items recorded at fair value and, where necessary, modifying
valuation models in accordance with SFAS 157. The impact of
adopting SFAS 157 on January 1, 2008, resulted in an
increase to retained earnings of approximately $18 million,
related to the recognition of day-one gains on purchased MSRs
and certain residential loan commitments.
SFAS No. 159 In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (SFAS 159).
SFAS 159 permits entities to choose to measure at fair
value many financial instruments and certain other items that
are not currently required to be measured at fair value.
Subsequent changes in fair value for designated items will be
required to be reported in earnings in the current period.
SFAS 159 also establishes presentation and disclosure
requirements for similar types of assets and liabilities
measured at fair value. SFAS 159 is effective for financial
statements issued for fiscal years beginning after
November 15, 2007. We adopted SFAS 159 on
January 1, 2008. We elected to measure at fair value
certain financial assets and liabilities including certain
collateralized debt obligations and certain mortgage loans held
for investment in financing securitization structures. The
estimated cumulative effect to beginning retained earnings is a
decrease of $149 million on January 1, 2008.
FASB Staff Position (FSP)
FIN 39-1
In April 2007, the FASB issued FSP
FIN 39-1,
Amendment of FASB Interpretation No. 39. FSP
FIN 39-1
defines right of setoff and specifies what
conditions must be met for a derivative contract to qualify for
this right of setoff. It also addresses the applicability of a
right of setoff to derivative instruments and clarifies the
circumstances in which it is appropriate to offset amounts
recognized for those instruments in the statement of financial
position. In addition, this FSP permits offsetting of fair value
amounts recognized for multiple derivative instruments executed
with the same counterparty under a master netting arrangement
and fair value amounts recognized for the right to reclaim cash
collateral (a receivable) or the obligation to return cash
collateral (a payable) arising from the same master netting
arrangement as the derivative instruments. This interpretation
is effective for fiscal years beginning after November 15,
2007, with early application permitted. The adoption of
FSP FIN 39-1
on January 1, 2008, did not result in a material change to
our consolidated balance sheet and did not impact our results of
operations.
SEC Staff Accounting
Bulletin No. 109 In November 2007, the
SEC issued Staff Accounting Bulletin No. 109,
Written Loan Commitments Recorded at Fair Value Through
Earnings (SAB 109). SAB 109 provides the SEC
staffs views on the accounting for written loan
commitments recorded at fair value under GAAP and revises and
rescinds portions of SAB 105, Application of Accounting
Principles to Loan Commitments (SAB 105). SAB 105
provided the views of the SEC staff regarding derivative loan
commitments that are accounted for at fair value through
earnings pursuant to SFAS 133. SAB 105 states
that in measuring the fair value of a derivative loan
commitment, the staff believed it would be inappropriate to
incorporate the expected net future cash flows related to the
associated servicing of the loan. SAB 109 supersedes
SAB 105 and expresses the current view of the SEC staff
that, consistent with the guidance in SFAS No. 156,
Accounting for Servicing of Financial Assets, and
SFAS 159, the expected net future cash flows related to the
associated servicing of the loan should be included in the
measurement of all written loan commitments that are accounted
for at fair value through earnings. SAB 105 also indicated
that the SEC staff believed that internally developed intangible
assets (such as customer relationship intangible assets) should
not be recorded as part of the fair value of a derivative loan
commitment. SAB 109 retains that SEC staff view and
broadens its application to all written loan commitments that
are accounted for at fair value through earnings.
The SEC staff expects registrants to apply the views of
SAB 109 in measuring the fair value of derivative loan
commitments on a prospective basis to derivative loan
commitments issued or modified in fiscal quarters beginning
212
Notes to
Consolidated Financial Statements
GMAC
LLC
after December 15, 2007. The impact of adopting
SAB 109 will not have a material impact on our consolidated
financial condition and results of operations.
SFAS No. 141(R) In December 2007,
the FASB issued SFAS No. 141(R), Business
Combinations (SFAS 141(R)), which replaces FASB
Statement No. 141, Business Combinations.
SFAS 141(R) establishes principles and requirements for how
an acquiring company (1) recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the
acquiree, (2) recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase,
and (3) determines what information to disclose to enable
users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141(R)
is effective for business combinations occurring on or after the
beginning of the fiscal year beginning on or after
December 15, 2008. SFAS 141(R), effective for GMAC on
January 1, 2009, applies to all transactions or other
events in which GMAC obtains control in one or more businesses.
Management will assess each transaction on a
case-by-case
basis as they occur.
SFAS No. 160 In December 2007, the
FASB also issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements an
amendment of ARB No. 51 (SFAS 160), which requires
the ownership interests in subsidiaries held by parties other
than the parent be clearly identified, labeled, and presented in
the consolidated statement of financial position within equity,
but separate from the parents equity. It also requires the
amount of consolidated net income attributable to the parent and
to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income.
SFAS 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after
December 15, 2008, and early adoption is prohibited.
SFAS 160 shall be applied prospectively as of the beginning
of the fiscal year in which it is initially applied, except for
the presentation and disclosure requirements. The presentation
and disclosure requirements shall be applied retrospectively for
all periods presented. Management is currently assessing the
retrospective impacts of adoption and will assess new
transactions as they occur.
FSP FAS 140-3 In February 2008, the FASB
issued FSP FAS 140-3, Accounting for Transfers of Financial
Assets and Repurchase Financing Transactions (FSP FAS
140-3), which provides a consistent framework for the evaluation
of a transfer of a financial asset and subsequent repurchase
agreement entered into with the same counterparty. FSP FAS 140-3
provides guidelines that must be met in order for an initial
transfer and subsequent repurchase agreement to not be
considered linked for evaluation. If the transactions do not
meet the specified criteria, they are required to be accounted
for as one transaction. This FSP is effective for fiscal years
beginning after November 15, 2008, and shall be applied
prospectively to initial transfers and repurchase financings for
which the initial transfer is executed on or after adoption.
Management is currently assessing the impact of further adoption.
2. Insurance
Premiums and Service Revenue Earned
The following table is a summary of insurance premiums and
service revenue written and earned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Year ended December 31, ($
in millions)
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
|
|
|
Insurance premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
|
$2,726
|
|
|
|
$2,810
|
|
|
|
$2,575
|
|
|
|
$2,733
|
|
|
|
$2,493
|
|
|
|
$2,644
|
|
|
|
Assumed
|
|
|
671
|
|
|
|
675
|
|
|
|
696
|
|
|
|
693
|
|
|
|
634
|
|
|
|
595
|
|
|
|
|
|
Gross insurance premiums
|
|
|
3,397
|
|
|
|
3,485
|
|
|
|
3,271
|
|
|
|
3,426
|
|
|
|
3,127
|
|
|
|
3,239
|
|
|
|
Ceded
|
|
|
(452
|
)
|
|
|
(460
|
)
|
|
|
(451
|
)
|
|
|
(450
|
)
|
|
|
(401
|
)
|
|
|
(387
|
)
|
|
|
|
|
Net insurance premiums
|
|
|
2,945
|
|
|
|
3,025
|
|
|
|
2,820
|
|
|
|
2,976
|
|
|
|
2,726
|
|
|
|
2,852
|
|
|
|
Service revenue
|
|
|
1,134
|
|
|
|
1,353
|
|
|
|
1,215
|
|
|
|
1,207
|
|
|
|
1,345
|
|
|
|
910
|
|
|
|
|
|
Insurance premiums and service revenue written and earned
|
|
|
$4,079
|
|
|
|
$4,378
|
|
|
|
$4,035
|
|
|
|
$4,183
|
|
|
|
$4,071
|
|
|
|
$3,762
|
|
|
|
|
213
Notes to
Consolidated Financial Statements
GMAC
LLC
3. Other
Income
Details of other income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Real estate services
|
|
|
$218
|
|
|
|
$593
|
|
|
|
$712
|
|
|
|
Interest and service fees on transactions with GM (a)
|
|
|
326
|
|
|
|
576
|
|
|
|
568
|
|
|
|
Interest on cash equivalents
|
|
|
449
|
|
|
|
489
|
|
|
|
480
|
|
|
|
Other interest revenue
|
|
|
581
|
|
|
|
536
|
|
|
|
450
|
|
|
|
Gain on extinguishment of debt
|
|
|
563
|
|
|
|
|
|
|
|
|
|
|
|
Full-service leasing fees
|
|
|
332
|
|
|
|
280
|
|
|
|
170
|
|
|
|
Late charges and other administrative fees
|
|
|
177
|
|
|
|
164
|
|
|
|
164
|
|
|
|
Mortgage processing fees and other mortgage income
|
|
|
96
|
|
|
|
136
|
|
|
|
461
|
|
|
|
Interest on restricted cash deposits
|
|
|
145
|
|
|
|
119
|
|
|
|
102
|
|
|
|
Real estate and other investments
|
|
|
74
|
|
|
|
106
|
|
|
|
157
|
|
|
|
Insurance service fees
|
|
|
154
|
|
|
|
131
|
|
|
|
111
|
|
|
|
Factoring commissions
|
|
|
55
|
|
|
|
60
|
|
|
|
74
|
|
|
|
Specialty lending fees
|
|
|
39
|
|
|
|
57
|
|
|
|
59
|
|
|
|
Fair value adjustment on certain derivatives (b)
|
|
|
100
|
|
|
|
6
|
|
|
|
(36
|
)
|
|
|
Other
|
|
|
(14
|
)
|
|
|
390
|
|
|
|
927
|
|
|
|
|
|
Total other income
|
|
|
$3,295
|
|
|
|
$3,643
|
|
|
|
$4,399
|
|
|
|
|
|
|
|
(a)
|
|
Refer to Note 19 for a
description of transactions with GM.
|
(b)
|
|
Refer to Note 16 for a
description of our derivative instruments and hedging activities.
|
4. Other
Operating Expenses
Details of other operating expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Insurance commissions
|
|
|
$947
|
|
|
|
$898
|
|
|
|
$901
|
|
|
|
Technology and communications expense
|
|
|
655
|
|
|
|
573
|
|
|
|
591
|
|
|
|
Professional services
|
|
|
451
|
|
|
|
493
|
|
|
|
452
|
|
|
|
Advertising and marketing
|
|
|
282
|
|
|
|
363
|
|
|
|
359
|
|
|
|
Mortgage representation and warranty obligation
|
|
|
256
|
|
|
|
66
|
|
|
|
(13
|
)
|
|
|
Premises and equipment depreciation
|
|
|
196
|
|
|
|
253
|
|
|
|
288
|
|
|
|
Rent and storage
|
|
|
227
|
|
|
|
243
|
|
|
|
272
|
|
|
|
Full-service leasing vehicle maintenance costs
|
|
|
298
|
|
|
|
257
|
|
|
|
236
|
|
|
|
Lease and loan administration
|
|
|
208
|
|
|
|
222
|
|
|
|
196
|
|
|
|
Auto remarketing and repossession
|
|
|
220
|
|
|
|
288
|
|
|
|
187
|
|
|
|
Restructuring expenses
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease disposal loss (gain)
|
|
|
27
|
|
|
|
29
|
|
|
|
(304
|
)
|
|
|
Other
|
|
|
1,385
|
|
|
|
1,091
|
|
|
|
969
|
|
|
|
|
|
Total other operating expenses
|
|
|
$5,286
|
|
|
|
$4,776
|
|
|
|
$4,134
|
|
|
|
|
214
Notes to
Consolidated Financial Statements
GMAC
LLC
5. Investment
Securities
Our portfolio of securities includes bonds, equity securities,
asset- and mortgage-backed securities, notes, interests in
securitization trusts, and other investments. The cost, fair
value, and gross unrealized gains and losses on
available-for-sale and held-to-maturity securities were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
unrealized
|
|
|
Fair
|
|
|
|
|
|
unrealized
|
|
|
Fair
|
|
December 31, ($ in
millions)
|
|
Cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
|
Cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
|
$1,687
|
|
|
|
$30
|
|
|
|
($1
|
)
|
|
|
$1,716
|
|
|
|
$3,173
|
|
|
|
$3
|
|
|
|
($19
|
)
|
|
|
$3,157
|
|
States and political subdivisions
|
|
|
695
|
|
|
|
23
|
|
|
|
(3
|
)
|
|
|
715
|
|
|
|
734
|
|
|
|
23
|
|
|
|
(1
|
)
|
|
|
756
|
|
Foreign government securities
|
|
|
795
|
|
|
|
7
|
|
|
|
(2
|
)
|
|
|
800
|
|
|
|
809
|
|
|
|
6
|
|
|
|
(5
|
)
|
|
|
810
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
230
|
|
|
|
1
|
|
|
|
|
|
|
|
231
|
|
|
|
185
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
183
|
|
Commercial
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
Asset-backed securities
|
|
|
1,412
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1,412
|
|
|
|
1,735
|
|
|
|
2
|
|
|
|
|
|
|
|
1,737
|
|
Interest-only strips
|
|
|
11
|
|
|
|
7
|
|
|
|
|
|
|
|
18
|
|
|
|
43
|
|
|
|
10
|
|
|
|
|
|
|
|
53
|
|
Corporate debt securities
|
|
|
6,548
|
|
|
|
24
|
|
|
|
(84
|
)
|
|
|
6,488
|
|
|
|
3,713
|
|
|
|
18
|
|
|
|
(32
|
)
|
|
|
3,699
|
|
Other
|
|
|
1,532
|
|
|
|
4
|
|
|
|
(10
|
)
|
|
|
1,526
|
|
|
|
994
|
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
1,000
|
|
|
|
Total debt securities (a)
|
|
|
12,928
|
|
|
|
97
|
|
|
|
(101
|
)
|
|
|
12,924
|
|
|
|
11,412
|
|
|
|
71
|
|
|
|
(62
|
)
|
|
|
11,421
|
|
Equity securities
|
|
|
475
|
|
|
|
185
|
|
|
|
(22
|
)
|
|
|
638
|
|
|
|
418
|
|
|
|
161
|
|
|
|
(5
|
)
|
|
|
574
|
|
|
|
Total available-for-sale securities
|
|
|
$13,403
|
|
|
|
$282
|
|
|
|
($123
|
)
|
|
|
$13,562
|
|
|
|
$11,830
|
|
|
|
$232
|
|
|
|
($67
|
)
|
|
|
$11,995
|
|
|
Held-to-maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held-to-maturity securities
|
|
|
$3
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$3
|
|
|
|
$12
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$12
|
|
|
|
|
|
(a)
|
|
In connection with certain
borrowings and letters of credit relating to certain assumed
reinsurance contracts, $162 million and $194 million
of primarily U.S. Treasury securities were pledged as collateral
as of December 31, 2007 and 2006, respectively.
|
215
Notes to
Consolidated Financial Statements
GMAC
LLC
We had other than temporary impairment write-downs of
$5 million, $12 million, and $16 million for the
years ended December 31, 2007, 2006, and 2005,
respectively. Gross unrealized gains and losses on investment
securities available-for-sale totaled $989 million and
$106 million, respectively, as of December 31, 2005.
The fair value, unrealized gains (losses) and amount pledged as
collateral for our portfolio of trading securities were as
follows:
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
2006
|
|
Trading securities
|
|
|
|
|
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities
|
|
|
$257
|
|
|
|
$401
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
Residential
|
|
|
924
|
|
|
|
1,748
|
|
Commercial
|
|
|
6
|
|
|
|
|
|
Mortgage residual interests
|
|
|
686
|
|
|
|
1,019
|
|
Asset-backed securities
|
|
|
469
|
|
|
|
19
|
|
Interest-only strips
|
|
|
771
|
|
|
|
572
|
|
Principal-only strips
|
|
|
46
|
|
|
|
957
|
|
Debt and other
|
|
|
16
|
|
|
|
68
|
|
|
|
Total trading securities
|
|
|
$3,175
|
|
|
|
$4,784
|
|
|
Net unrealized (losses) gains (a)
|
|
|
($635
|
)
|
|
|
$118
|
|
Pledged as collateral
|
|
|
$752
|
|
|
|
$3,681
|
|
|
|
|
|
(a)
|
|
Unrealized gains and losses are
included in investment income on a current period basis. Net
unrealized gains totaled $131 million at December 31,
2005.
|
The maturity distribution of available-for-sale and
held-to-maturity debt securities outstanding is summarized in
the following table. Prepayments may cause actual maturities to
differ from scheduled maturities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-
|
|
Held-to-
|
|
|
for-sale
|
|
maturity
|
December 31, 2007
|
|
|
|
Fair
|
|
|
|
Fair
|
($ in millions)
|
|
Cost
|
|
value
|
|
Cost
|
|
value
|
|
Due in one year or less
|
|
|
$2,943
|
|
|
|
$2,962
|
|
|
|
$
|
|
|
|
$
|
|
Due after one year through five years
|
|
|
5,913
|
|
|
|
5,870
|
|
|
|
|
|
|
|
|
|
Due after five years through ten years
|
|
|
1,999
|
|
|
|
2,002
|
|
|
|
|
|
|
|
|
|
Due after ten years
|
|
|
699
|
|
|
|
707
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities and interests in securitization trusts
|
|
|
1,374
|
|
|
|
1,383
|
|
|
|
3
|
|
|
|
3
|
|
|
|
Total securities
|
|
|
$12,928
|
|
|
|
$12,924
|
|
|
|
$3
|
|
|
|
$3
|
|
|
The following table presents gross gains and losses realized
upon the sales of available-for-sale securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
Gross realized gains (a)
|
|
|
$253
|
|
|
|
$1,081
|
|
|
|
$186
|
|
|
|
Gross realized losses
|
|
|
(65
|
)
|
|
|
(76
|
)
|
|
|
(66
|
)
|
|
|
|
|
Net realized gains
|
|
|
$188
|
|
|
|
$1,005
|
|
|
|
$120
|
|
|
|
|
|
|
|
(a)
|
|
Gains realized in 2006 primarily
relate to the rebalancing of the investment portfolio at our
Insurance operations.
|
216
Notes to
Consolidated Financial Statements
GMAC
LLC
Certain available-for-sale securities were sold at a loss in
2007, 2006, and 2005 as a result of market conditions within
these respective periods (e.g., a downgrade in the rating of a
debt security). In the opinion of management, the gross
unrealized losses in the table below are not considered to be
other than temporarily impaired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Less than 12 months
|
|
12 months or longer
|
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
($ in millions)
|
|
Fair value
|
|
loss
|
|
Fair value
|
|
loss
|
|
Fair value
|
|
loss
|
|
Fair value
|
|
loss
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and federal agencies
|
|
|
$130
|
|
|
|
$
|
|
|
|
$212
|
|
|
|
($1
|
)
|
|
|
$858
|
|
|
|
($3
|
)
|
|
|
$919
|
|
|
|
($16
|
)
|
States and political subdivisions
|
|
|
78
|
|
|
|
(1
|
)
|
|
|
31
|
|
|
|
(2
|
)
|
|
|
127
|
|
|
|
(1
|
)
|
|
|
29
|
|
|
|
|
|
Foreign government securities
|
|
|
290
|
|
|
|
(1
|
)
|
|
|
51
|
|
|
|
(1
|
)
|
|
|
338
|
|
|
|
(3
|
)
|
|
|
81
|
|
|
|
(2
|
)
|
Residential mortgage-backed securities
|
|
|
17
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
82
|
|
|
|
(2
|
)
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
|
|
185
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
1,000
|
|
|
|
(13
|
)
|
|
|
3,294
|
|
|
|
(71
|
)
|
|
|
697
|
|
|
|
(3
|
)
|
|
|
1,191
|
|
|
|
(29
|
)
|
Other
|
|
|
519
|
|
|
|
(9
|
)
|
|
|
53
|
|
|
|
(1
|
)
|
|
|
299
|
|
|
|
(1
|
)
|
|
|
107
|
|
|
|
(2
|
)
|
|
|
Total temporarily impaired debt securities
|
|
|
2,034
|
|
|
|
(24
|
)
|
|
|
3,843
|
|
|
|
(77
|
)
|
|
|
2,379
|
|
|
|
(11
|
)
|
|
|
2,409
|
|
|
|
(51
|
)
|
Equity securities
|
|
|
125
|
|
|
|
(19
|
)
|
|
|
9
|
|
|
|
(3
|
)
|
|
|
73
|
|
|
|
(4
|
)
|
|
|
7
|
|
|
|
(1
|
)
|
|
|
Total available-for-sale securities
|
|
|
$2,159
|
|
|
|
($43
|
)
|
|
|
$3,852
|
|
|
|
($80
|
)
|
|
|
$2,452
|
|
|
|
($15
|
)
|
|
|
$2,416
|
|
|
|
($52
|
)
|
|
6. Finance
Receivable and Loans
The composition of finance receivables and loans outstanding was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
December 31, ($ in
millions)
|
|
Domestic
|
|
Foreign
|
|
Total
|
|
Domestic
|
|
Foreign
|
|
Total
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail automotive
|
|
|
$20,030
|
|
|
|
$25,576
|
|
|
|
$45,606
|
|
|
|
$40,568
|
|
|
|
$20,538
|
|
|
|
$61,106
|
|
Residential mortgages
|
|
|
34,839
|
|
|
|
7,324
|
|
|
|
42,163
|
|
|
|
65,928
|
|
|
|
3,508
|
|
|
|
69,436
|
|
|
|
Total consumer
|
|
|
54,869
|
|
|
|
32,900
|
|
|
|
87,769
|
|
|
|
106,496
|
|
|
|
24,046
|
|
|
|
130,542
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
14,689
|
|
|
|
8,272
|
|
|
|
22,961
|
|
|
|
12,723
|
|
|
|
7,854
|
|
|
|
20,577
|
|
Leasing and lease financing
|
|
|
296
|
|
|
|
930
|
|
|
|
1,226
|
|
|
|
326
|
|
|
|
901
|
|
|
|
1,227
|
|
Term loans to dealers and others
|
|
|
2,478
|
|
|
|
857
|
|
|
|
3,335
|
|
|
|
1,843
|
|
|
|
764
|
|
|
|
2,607
|
|
Commercial and industrial
|
|
|
6,431
|
|
|
|
2,313
|
|
|
|
8,744
|
|
|
|
14,068
|
|
|
|
2,213
|
|
|
|
16,281
|
|
Real estate construction and other
|
|
|
2,943
|
|
|
|
536
|
|
|
|
3,479
|
|
|
|
2,969
|
|
|
|
243
|
|
|
|
3,212
|
|
|
|
Total commercial
|
|
|
26,837
|
|
|
|
12,908
|
|
|
|
39,745
|
|
|
|
31,929
|
|
|
|
11,975
|
|
|
|
43,904
|
|
|
|
Total finance receivables and loans (a) (b)
|
|
|
$81,706
|
|
|
|
$45,808
|
|
|
|
$127,514
|
|
|
|
$138,425
|
|
|
|
$36,021
|
|
|
|
$174,446
|
|
|
|
|
|
(a)
|
|
Net of unearned income of
$4.0 billion and $5.7 billion at December 31,
2007, and 2006, respectively.
|
(b)
|
|
The aggregate amount of finance
receivables and loans maturing in the next five years is as
follows: $46,461 million in 2008; $13,742 million in
2009; $11,232 million in 2010; $7,500 million in 2011;
$7,127 million in 2012; and $45,451 million in 2013
and thereafter. Prepayments and charge-offs may cause actual
maturities to differ from scheduled maturities.
|
In addition to the finance receivables and loans outstanding
held for investment as summarized in the table above, we had
loans held for sale of $20.6 billion and $27.7 billion
as of December 31, 2007 and 2006, respectively. As of
December 31, 2007, loans held for sale by our Global
Automotive Finance operations were $8.5 billion, compared
to having no loans held for sale as of December 31, 2006.
The increase in loans held for sale by our Global Automotive
Finance operations is attributable to a change in our funding
strategy as we have moved to an originate to distribute model.
As of December 31, 2007, loans held for
217
Notes to
Consolidated Financial Statements
GMAC
LLC
sale by ResCap were $12.1 billion, as compared to
$27.1 billion as of December 31, 2006. As of
December 31, 2006, our Commercial Finance operations also
had $652 million of loans held for sale.
The following table presents an analysis of the activity in the
allowance for credit losses on finance receivables and loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
|
($ in millions)
|
|
Consumer
|
|
Commercial
|
|
Total
|
|
Consumer
|
|
Commercial
|
|
Total
|
|
Consumer
|
|
Commercial
|
|
Total
|
|
|
|
|
Allowance at beginning of year
|
|
|
$2,969
|
|
|
|
$607
|
|
|
|
$3,576
|
|
|
|
$2,652
|
|
|
|
$433
|
|
|
|
$3,085
|
|
|
|
$2,931
|
|
|
|
$471
|
|
|
|
$3,402
|
|
|
|
Provision for credit losses
|
|
|
2,600
|
|
|
|
496
|
|
|
|
3,096
|
|
|
|
1,668
|
|
|
|
332
|
|
|
|
2,000
|
|
|
|
1,006
|
|
|
|
68
|
|
|
|
1,074
|
|
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
(1,956
|
)
|
|
|
(442
|
)
|
|
|
(2,398
|
)
|
|
|
(1,436
|
)
|
|
|
(139
|
)
|
|
|
(1,575
|
)
|
|
|
(1,302
|
)
|
|
|
(45
|
)
|
|
|
(1,347
|
)
|
|
|
Foreign
|
|
|
(219
|
)
|
|
|
(74
|
)
|
|
|
(293
|
)
|
|
|
(182
|
)
|
|
|
(35
|
)
|
|
|
(217
|
)
|
|
|
(194
|
)
|
|
|
(26
|
)
|
|
|
(220
|
)
|
|
|
|
|
Total charge-offs
|
|
|
(2,175
|
)
|
|
|
(516
|
)
|
|
|
(2,691
|
)
|
|
|
(1,618
|
)
|
|
|
(174
|
)
|
|
|
(1,792
|
)
|
|
|
(1,496
|
)
|
|
|
(71
|
)
|
|
|
(1,567
|
)
|
|
|
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
207
|
|
|
|
17
|
|
|
|
224
|
|
|
|
198
|
|
|
|
14
|
|
|
|
212
|
|
|
|
168
|
|
|
|
9
|
|
|
|
177
|
|
|
|
Foreign
|
|
|
67
|
|
|
|
7
|
|
|
|
74
|
|
|
|
47
|
|
|
|
3
|
|
|
|
50
|
|
|
|
48
|
|
|
|
4
|
|
|
|
52
|
|
|
|
|
|
Total recoveries
|
|
|
274
|
|
|
|
24
|
|
|
|
298
|
|
|
|
245
|
|
|
|
17
|
|
|
|
262
|
|
|
|
216
|
|
|
|
13
|
|
|
|
229
|
|
|
|
|
|
Net charge-offs
|
|
|
(1,901
|
)
|
|
|
(492
|
)
|
|
|
(2,393
|
)
|
|
|
(1,373
|
)
|
|
|
(157
|
)
|
|
|
(1,530
|
)
|
|
|
(1,280
|
)
|
|
|
(58
|
)
|
|
|
(1,338
|
)
|
|
|
Reduction of
allowance due to deconsolidation (a)
|
|
|
(1,540
|
)
|
|
|
|
|
|
|
(1,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
(28
|
)
|
|
|
Impacts of foreign currency translation
|
|
|
13
|
|
|
|
3
|
|
|
|
16
|
|
|
|
19
|
|
|
|
(1
|
)
|
|
|
18
|
|
|
|
(9
|
)
|
|
|
(15
|
)
|
|
|
(24
|
)
|
|
|
Securitization activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
4
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
|
|
Allowance at end of year
|
|
|
$2,141
|
|
|
|
$614
|
|
|
|
$2,755
|
|
|
|
$2,969
|
|
|
|
$607
|
|
|
|
$3,576
|
|
|
|
$2,652
|
|
|
|
$433
|
|
|
|
$3,085
|
|
|
|
|
|
|
|
(a)
|
|
During 2007, ResCap completed the
sale of residual cash flows related to a number of on-balance
sheet securitizations. ResCap completed the approved actions
necessary to cause the securitization trusts to satisfy the
qualifying special-purpose entity requirement of
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of
Liabilities. The actions resulted in the deconsolidation of
various securitization trusts.
|
218
Notes to
Consolidated Financial Statements
GMAC
LLC
The following table presents information about commercial
finance receivables and loans specifically identified for
impairment.
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
2006
|
|
|
Impaired loans
|
|
$
|
677
|
|
|
$
|
1,975
|
|
Related allowance
|
|
|
333
|
|
|
|
346
|
|
Average balance of impaired loans during the year
|
|
|
544
|
|
|
|
972
|
|
|
We have loans that were acquired in a transfer, which at
acquisition had evidence of deterioration of credit quality
since origination and for which it was probable, at acquisition,
that all contractually required payments would not be collected.
The carrying amount of these loans, included in the balance
sheet amounts of finance receivables and loans, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
Consumer finance receivables
|
|
|
$2,590
|
|
|
|
$2,576
|
|
|
|
$1,658
|
|
|
|
Allowance
|
|
|
(97
|
)
|
|
|
(105
|
)
|
|
|
(103
|
)
|
|
|
|
|
Total carrying amount
|
|
|
$2,493
|
|
|
|
$2,471
|
|
|
|
$1,555
|
|
|
|
|
For loans acquired after December 31, 2005,
SOP 03-3
requires us to record revenue using an accretable yield method.
The following table represents accretable yield activity:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
($ in millions)
|
|
2007
|
|
2006
|
|
|
|
|
Accretable yield at beginning of year
|
|
|
$146
|
|
|
|
$52
|
|
|
|
Additions
|
|
|
58
|
|
|
|
251
|
|
|
|
Accretion
|
|
|
(72
|
)
|
|
|
(69
|
)
|
|
|
Reclassification from nonaccretable difference
|
|
|
(6
|
)
|
|
|
|
|
|
|
Transfers to assets held for sale
|
|
|
|
|
|
|
|
|
|
|
Disposals
|
|
|
(28
|
)
|
|
|
(88
|
)
|
|
|
|
|
Accretable yield at end of year
|
|
|
$98
|
|
|
|
$146
|
|
|
|
|
Loans acquired during each year for which it was probable at
acquisition that all contractually required payments would not
be collected are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
($ in millions)
|
|
2007
|
|
2006
|
|
|
|
|
Contractually required payments receivable at
acquisition consumer
|
|
|
$2,605
|
|
|
|
$6,992
|
|
|
|
Cash flows expected to be collected at acquisition
|
|
|
968
|
|
|
|
3,155
|
|
|
|
Basis in acquired loans at acquisition
|
|
|
691
|
|
|
|
2,588
|
|
|
|
|
7. Off-balance
Sheet Securitizations
We securitize automotive and mortgage financial assets as a
funding source. We sell retail finance receivables, wholesale
and dealer loans, and residential mortgage loans in
securitization transactions structured as sales. The following
discussion and related information is only applicable to the
transfers of finance receivables and loans that qualify as
off-balance sheet securitizations under the requirements of
SFAS 140.
We retain servicing responsibilities for and subordinated
interests in all of our securitizations of retail finance
receivables and wholesale loans. Servicing responsibilities are
retained for the majority of our residential loan
securitizations, and we may retain subordinated interests in
some of these securitizations. We also hold subordinated
interests and act as collateral manager in our collateralized
debt obligation (CDO) securitization program.
As servicer, we generally receive a monthly fee stated as a
percentage of the outstanding sold receivables. Typically, for
retail automotive finance receivables where we are paid a fee,
we have concluded that the fee represents adequate compensation
as a servicer and, as such, no servicing asset or liability is
recognized. Considering the short-term revolving nature of
wholesale loans, no servicing asset or liability is recognized
upon securitization of the loans. As of December 31, 2007,
the weighted average basic servicing fees for our primary
servicing activities were 100 basis points, 100 basis
points, and 33 basis points of the outstanding principal
balance for sold retail finance receivables, wholesale loans,
and residential mortgage loans, respectively. Additionally, we
retain the rights to cash flows remaining after the investors in
most securitization trusts have received their contractual
payments. In certain retail securitization transactions, retail
receivables are sold on a servicing retained basis but with no
servicing compensation and, as such, a servicing liability is
established and recorded in other liabilities. As of
December 31, 2007 and 2006, servicing liabilities of
$9 million and $18 million, respectively, were
outstanding related to these retail automotive securitization
transactions. In addition, in 2005 we completed a retail
automotive securitization where the servicing fee received is
considered greater than adequate
219
Notes to
Consolidated Financial Statements
GMAC
LLC
compensation requiring the recording of a servicing asset. As of
December 31, 2007 and 2006, the fair value of the servicing
asset was $0 million and $9 million, respectively.
For mortgage servicing, we capitalize the value expected to be
realized from performing specified residential mortgage
servicing activities as mortgage servicing rights. Refer to
Note 9.
We maintain cash reserve accounts at predetermined amounts for
certain securitization activities in the unlikely event that
deficiencies occur in cash flows owed to the investors. The
amounts available in these cash reserve accounts related to
securitizations of retail finance receivables, wholesale loans,
and residential mortgage loans, totaled $100 million,
$811 million, and $277 million, as of
December 31, 2007, respectively, and $39 million,
$1,001 million, and $309 million as of
December 31, 2006, respectively.
Key economic assumptions used in measuring the estimated fair
value of retained interests of sales completed during 2007,
2006, and 2005, as of the dates of those sales, were as follows:
|
|
|
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
finance
|
|
|
|
|
Year ended December 31,
|
|
receivables (a)
|
|
ResCap (b)
|
|
Other (c)
|
|
|
2007
|
|
|
|
|
|
|
Key assumptions (d):
|
|
|
|
|
|
|
Annual prepayment speed (e)
|
|
1.2-1.4%
|
|
0.6-43.4%
|
|
|
Weighted average life (in years)
|
|
1.8-1.9
|
|
1.1-14.0
|
|
|
Expected credit losses
|
|
1.5-2.1%
|
|
0.0-14.5%
|
|
|
Discount rate
|
|
16.0-20.0%
|
|
4.3-32.6%
|
|
|
|
2006
|
|
|
|
|
|
|
Key assumptions (d):
|
|
|
|
|
|
|
Annual prepayment speed (e)
|
|
0.9-1.7%
|
|
0.0-90.0%
|
|
|
Weighted average life (in years)
|
|
1.5-1.8
|
|
1.1-10.5
|
|
|
Expected credit losses
|
|
0.4-0.9%
|
|
0.0-18.3%
|
|
|
Discount rate
|
|
9.5-16.0%
|
|
7.0-25.0%
|
|
|
|
2005
|
|
|
|
|
|
|
Key assumptions (d):
|
|
|
|
|
|
|
Annual prepayment speed (e)
|
|
0.9-1.1%
|
|
0.0-60.0%
|
|
0.0-50.0%
|
Weighted average life (in years)
|
|
1.6-1.7
|
|
1.1-8.5
|
|
0.3-9.9
|
Expected credit losses
|
|
0.4-1.6%
|
|
0.0-4.9%
|
|
0.0%
|
Discount rate
|
|
9.5-15.0%
|
|
6.5-21.4%
|
|
4.2-12.0%
|
|
|
|
|
(a)
|
|
The fair value of retained
interests in wholesale securitizations approximates cost because
of the short-term and floating-rate nature of wholesale loans.
|
(b)
|
|
Included within residential
mortgage loans are home equity loans and lines, high
loan-to-value loans, and residential first and second mortgage
loans.
|
(c)
|
|
Represents the former GMAC
Commercial Mortgage, for which we sold approximately 79% of our
equity interest on March 23, 2006.
|
(d)
|
|
The assumptions used to measure the
expected yield on variable-rate retained interests are based on
a benchmark interest rate yield curve plus a contractual spread,
as appropriate. The actual yield curve utilized varies depending
on the specific retained interests.
|
(e)
|
|
Based on the weighted average
maturity (WAM) for finance receivables and constant prepayment
rate (CPR) for mortgage loans.
|
220
Notes to
Consolidated Financial Statements
GMAC
LLC
The following table summarizes pretax gains on securitizations
and certain cash flows received from and paid to securitization
trusts for transfers of finance receivables and loans completed
during 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
Retail
|
|
|
|
|
|
|
|
|
finance
|
|
Wholesale
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
receivables
|
|
loans
|
|
ResCap
|
|
|
|
|
Pretax gains on securitizations
|
|
|
$141
|
|
|
|
$511
|
|
|
|
$45
|
|
|
|
Cash inflows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations
|
|
|
11,440
|
|
|
|
1,318
|
|
|
|
36,089
|
|
|
|
Servicing fees received
|
|
|
96
|
|
|
|
157
|
|
|
|
545
|
|
|
|
Other cash flows received on retained interests
|
|
|
284
|
|
|
|
522
|
|
|
|
401
|
|
|
|
Proceeds from collections reinvested in revolving securitizations
|
|
|
|
|
|
|
87,985
|
|
|
|
122
|
|
|
|
Repayments of servicing advances
|
|
|
79
|
|
|
|
|
|
|
|
987
|
|
|
|
Cash outflows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing advances
|
|
|
(90
|
)
|
|
|
|
|
|
|
(1,023
|
)
|
|
|
Purchase obligations and options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans under conditional call option
|
|
|
|
|
|
|
|
|
|
|
(147
|
)
|
|
|
Representations and warranties obligations
|
|
|
|
|
|
|
|
|
|
|
(457
|
)
|
|
|
Administrator or servicer actions
|
|
|
(39
|
)
|
|
|
|
|
|
|
(54
|
)
|
|
|
Asset performance conditional calls
|
|
|
|
|
|
|
|
|
|
|
(607
|
)
|
|
|
Cleanup calls
|
|
|
(8
|
)
|
|
|
|
|
|
|
(254
|
)
|
|
|
|
The following table summarizes pretax (losses) gains on
securitizations and certain cash flows received from and paid to
securitization trusts for transfers of finance receivables and
loans completed during 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
Retail
|
|
|
|
|
|
Retail
|
|
|
|
|
|
|
Year ended December 31,
|
|
finance
|
|
Wholesale
|
|
|
|
finance
|
|
Wholesale
|
|
|
|
|
($ in millions)
|
|
receivables
|
|
loans
|
|
ResCap
|
|
receivables
|
|
loans
|
|
ResCap
|
|
Other (a)
|
|
|
Pretax (losses) gains on securitizations
|
|
|
($51
|
)
|
|
|
$601
|
|
|
|
$825
|
|
|
|
($2
|
)
|
|
|
$543
|
|
|
|
$513
|
|
|
|
$76
|
|
Cash inflows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from new securitizations
|
|
|
6,302
|
|
|
|
|
|
|
|
65,687
|
|
|
|
4,874
|
|
|
|
7,705
|
|
|
|
41,987
|
|
|
|
4,731
|
|
Servicing fees received
|
|
|
65
|
|
|
|
181
|
|
|
|
480
|
|
|
|
65
|
|
|
|
179
|
|
|
|
245
|
|
|
|
21
|
|
Other cash flows received on retained interests
|
|
|
232
|
|
|
|
140
|
|
|
|
587
|
|
|
|
249
|
|
|
|
503
|
|
|
|
583
|
|
|
|
304
|
|
Proceeds from collections reinvested in revolving securitizations
|
|
|
|
|
|
|
96,969
|
|
|
|
|
|
|
|
|
|
|
|
102,306
|
|
|
|
|
|
|
|
|
|
Repayments of servicing advances
|
|
|
46
|
|
|
|
|
|
|
|
1,199
|
|
|
|
43
|
|
|
|
|
|
|
|
1,115
|
|
|
|
198
|
|
Cash outflows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing advances
|
|
|
(51
|
)
|
|
|
|
|
|
|
(1,265
|
)
|
|
|
(46
|
)
|
|
|
|
|
|
|
(1,163
|
)
|
|
|
(188
|
)
|
Purchase obligations and options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans under conditional call option
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
Representations and warranties obligations
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
Administrator or servicer actions
|
|
|
(27
|
)
|
|
|
|
|
|
|
(60
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset performance conditional calls
|
|
|
|
|
|
|
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
Cleanup calls
|
|
|
(242
|
)
|
|
|
|
|
|
|
(1,055
|
)
|
|
|
(715
|
)
|
|
|
|
|
|
|
(2,202
|
)
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents the former GMAC
Commercial Mortgage for which we sold approximately 79% of our
equity interest on March 23, 2006.
|
221
Notes to
Consolidated Financial Statements
GMAC
LLC
The following table summarizes the key economic assumptions and
the sensitivity of the fair value of retained interests at
December 31, 2007 and 2006, to immediate 10% and 20%
adverse changes in those assumptions.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Retail finance
|
|
|
|
Retail finance
|
|
|
Year ended December 31, ($ in millions)
|
|
receivables (a)
|
|
ResCap
|
|
receivables
|
|
ResCap
|
|
|
Carrying value/fair value of retained interests
|
|
$1,097
|
|
$912
|
|
$355
|
|
$1,420
|
Weighted average life (in years)
|
|
0.0-1.7
|
|
1.5-35.5
|
|
0.0-1.3
|
|
1.0-8.9
|
Annual prepayment rate
|
|
0.6-1.3%WAM
|
|
0.0-60.7%CPR
|
|
0.8-1.4%WAM
|
|
0.0-90.0%CPR
|
Impact of 10% adverse change
|
|
($5)
|
|
($26)
|
|
($4)
|
|
($55)
|
Impact of 20% adverse change
|
|
(10)
|
|
(49)
|
|
(7)
|
|
(102)
|
|
|
Loss assumption
|
|
0.3-2.3 (b)
|
|
0.0-38.0%
|
|
0.4-1.0% (b)
|
|
0.0-12.8%
|
Impact of 10% adverse change
|
|
($17)
|
|
($47)
|
|
($5)
|
|
($37)
|
Impact of 20% adverse change
|
|
(33)
|
|
(86)
|
|
(10)
|
|
(70)
|
|
|
Discount rate
|
|
6.7-25.0%
|
|
4.4-33.9%
|
|
9.5-16.0%
|
|
6.5-43.5%
|
Impact of 10% adverse change
|
|
($29)
|
|
($40)
|
|
($6)
|
|
($51)
|
Impact of 20% adverse change
|
|
(57)
|
|
(76)
|
|
(12)
|
|
(94)
|
|
|
Market rate
|
|
(c)
|
|
(c)
|
|
(c)
|
|
(c)
|
Impact of 10% adverse change
|
|
($2)
|
|
($13)
|
|
($4)
|
|
($38)
|
Impact of 20% adverse change
|
|
(4)
|
|
(23)
|
|
(9)
|
|
(74)
|
|
|
|
|
(a)
|
|
The fair value of retained
interests in wholesale securitizations approximates cost of
$959 million because of the short-term and floating-rate
nature of wholesale receivables.
|
(b)
|
|
Net of a reserve for expected
credit losses totaling $7 million and $8 million at
December 31, 2007 and 2006, respectively. These amounts are
included in the fair value of the retained interests, which are
classified as investment securities.
|
(c)
|
|
Forward benchmark interest rate
yield curve plus contractual spread.
|
These sensitivities are hypothetical and should be used with
caution. Changes in fair value based on a 10% and 20% variation
in assumptions generally cannot be extrapolated because the
relationship of the change in assumption to the change in fair
value may not be linear. Also, in this table, the effect of a
variation in a particular assumption on the fair value of the
retained interest is calculated without changing any other
assumption. In reality, changes in one factor may result in
changes in another, which may magnify or counteract the
sensitivities. Additionally, we hedge interest rate and
prepayment risks associated with certain of the retained
interests; the effects of these hedge strategies have not been
considered herein.
Expected static pool net credit losses include actual incurred
losses plus projected net credit losses divided by the original
balance of the outstandings comprising the securitization pool.
The following table displays the expected static pool net credit
losses on our securitization transactions.
|
|
|
|
|
|
|
December 31, (a)
|
|
2007
|
|
2006
|
|
2005
|
|
|
Retail automotive
|
|
1.1%
|
|
0.6%
|
|
0.4%
|
Residential mortgage
|
|
0.0-38.0%
|
|
0.0-12.8%
|
|
0.0-16.9%
|
Other
|
|
(b)
|
|
(b)
|
|
0.0-6.7%
|
|
|
|
|
(a)
|
|
Static pool losses not applicable
to wholesale finance receivable securitizations because of their
short-term nature.
|
(b)
|
|
Represents the former commercial
mortgage operations, for which we sold approximately 79% of our
equity interest on March 23, 2006.
|
222
Notes to
Consolidated Financial Statements
GMAC
LLC
The following table presents components of securitized financial
assets and other assets managed, along with quantitative
information about delinquencies and net credit losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance
|
|
Amount 60 days or
|
|
|
|
|
receivables and loans
|
|
more past due
|
|
Net credit losses
|
December 31, ($ in
millions)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Retail automotive
|
|
|
$68,382
|
|
|
|
$68,348
|
|
|
|
$654
|
|
|
|
$693
|
|
|
|
$672
|
|
|
|
$707
|
|
Residential mortgage
|
|
|
192,579
|
|
|
|
217,972
|
|
|
|
12,360
|
|
|
|
15,175
|
|
|
|
4,302
|
|
|
|
981
|
|
|
|
Total consumer
|
|
|
260,961
|
|
|
|
286,320
|
|
|
|
13,014
|
|
|
|
15,868
|
|
|
|
4,974
|
|
|
|
1,688
|
|
|
|
Wholesale
|
|
|
40,820
|
|
|
|
40,484
|
|
|
|
54
|
|
|
|
66
|
|
|
|
2
|
|
|
|
2
|
|
Commercial mortgage (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Other automotive and commercial
|
|
|
16,864
|
|
|
|
23,385
|
|
|
|
580
|
|
|
|
1,582
|
|
|
|
388
|
|
|
|
8
|
|
|
|
Total commercial
|
|
|
57,684
|
|
|
|
63,869
|
|
|
|
634
|
|
|
|
1,648
|
|
|
|
390
|
|
|
|
16
|
|
|
|
Total managed portfolio (b)
|
|
|
318,645
|
|
|
|
350,189
|
|
|
|
$13,648
|
|
|
|
$17,516
|
|
|
|
$5,364
|
|
|
|
$1,704
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized finance receivables and loans
|
|
|
(170,572
|
)
|
|
|
(148,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale (unpaid principal)
|
|
|
(20,559
|
)
|
|
|
(27,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance receivables and loans
|
|
|
$127,514
|
|
|
|
$174,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
On March 23, 2006, we sold
approximately 79% of our equity interest in Capmark, our
commercial mortgage operations.
|
(b)
|
|
Managed portfolio represents
finance receivables and loans on the balance sheet or that have
been securitized, excluding securitized finance receivables and
loans that we continue to service but have no other continuing
involvement (i.e., in which we retain an interest or risk of
loss in the underlying receivables).
|
8. Investment
in Operating Leases
Investments in operating leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
2006
|
|
|
|
|
Vehicles and other equipment, at cost
|
|
|
$40,410
|
|
|
|
$30,281
|
|
|
|
Accumulated depreciation
|
|
|
(8,062
|
)
|
|
|
(6,097
|
)
|
|
|
|
|
Investment in operating leases, net (a)
|
|
|
$32,348
|
|
|
|
$24,184
|
|
|
|
|
|
|
|
(a)
|
|
On November 22, 2006,
$12.6 billion of operating lease assets consisting of
$15.7 billion of vehicles at cost, net of $3.1 billion
of accumulated depreciation were distributed to GM. Refer to
Note 19 for further description of the distribution.
|
The future lease payments due from customers for equipment on
operating leases at December 31, 2007, totaled
$15,531 million and are due as follows: $6,873 million
in 2008, $5,016 million in 2009, $2,887 million in
2010, $714 million in 2011, and $41 million in 2012
and after.
Our investments in operating lease assets represents the
expected future cash flows we expect to realize under the
operating leases and includes both customer payments and the
expected residual value upon remarketing the vehicle at the end
of the lease. As described in Note 19, GM may sponsor
residual support programs that result in the contractual
residual value being in excess of our standard residual value.
GM reimburses us if remarketing sales proceeds are less than the
customers contract residual value limited to our standard
residual value. In addition to residual support programs, GM
also participates in a risk-sharing arrangement whereby GM
shares equally in residual losses to the extent that remarketing
proceeds are below our standard residual rates (limited to a
floor). In connection with the sale of 51% ownership interest in
GMAC, GM settled its estimated liabilities with respect to
residual support and risk sharing on a portion of our operating
lease portfolio. Based on the December 31, 2007 outstanding
U.S. operating lease portfolio, the maximum amount that
could be paid by GM under the residual support programs and the
risk-sharing arrangement is approximately $1.1 billion and
$1.1 billion, respectively, as more fully discussed in
Note 19.
9. Mortgage
Servicing Rights
We define our classes of servicing rights based on both the
availability of market inputs and the manner in which we manage
our risks of our servicing assets and liabilities. We manage our
servicing rights at the reportable operating segment level and
where sufficient market inputs exist to determine the fair value
of our recognized servicing assets and servicing liabilities.
223
Notes to
Consolidated Financial Statements
GMAC
LLC
The following table summarizes activity related to mortgage
servicing rights (MSRs) carried at fair value.
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2007
|
|
2006
|
|
|
|
|
Estimated fair value at January 1,
|
|
|
$4,930
|
|
|
|
$4,021
|
|
|
|
Additions obtained from sales of financial assets
|
|
|
1,597
|
|
|
|
1,723
|
|
|
|
Additions from purchases of servicing rights
|
|
|
3
|
|
|
|
12
|
|
|
|
Subtractions from disposals
|
|
|
(564
|
)
|
|
|
|
|
|
|
Changes in fair value:
|
|
|
|
|
|
|
|
|
|
|
Due to changes in valuation inputs or assumptions used in the
valuation model
|
|
|
(687
|
)
|
|
|
(44
|
)
|
|
|
Other changes in fair value
|
|
|
(572
|
)
|
|
|
(776
|
)
|
|
|
Other changes that affect the balance
|
|
|
(4
|
)
|
|
|
(6
|
)
|
|
|
|
|
Estimated fair value at December 31,
|
|
|
$4,703
|
|
|
|
$4,930
|
|
|
|
|
Changes in fair value, due to changes in valuation inputs or
assumptions used in the valuation models, include all changes
due to a revaluation by a model or by a benchmarking exercise.
This line item also includes changes in fair value due to a
change in valuation assumptions
and/or model
calculations. Other changes in fair value primarily include the
accretion of the present value of the discount related to
forecasted cash flows and the economic run-off of the portfolio,
as well as foreign currency adjustments and the extinguishment
of mortgage servicing rights related to
clean-up
calls of securitization transactions.
The key economic assumptions and sensitivity of the current fair
value of MSRs to immediate 10% and 20% adverse changes in those
assumptions are as follows:
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
2006
|
|
|
Range of prepayment speeds (constant prepayment rate)
|
|
0.0-49.1%
|
|
1.0-43.2%
|
Impact on fair value of 10% adverse change
|
|
($265)
|
|
($227)
|
Impact on fair value of 20% adverse change
|
|
($501)
|
|
($413)
|
Range of discount rates
|
|
5.0-29.0%
|
|
8.0-14.0%
|
Impact on fair value of 10% adverse change
|
|
($66)
|
|
($67)
|
Impact on fair value of 20% adverse change
|
|
($120)
|
|
($132)
|
|
These sensitivities are hypothetical and should be considered
with caution. Changes in fair value based on a 10% variation in
assumptions generally cannot be extrapolated because the
relationship of the change in assumptions to the change in fair
value may not be linear. Also, the effect of a variation in a
particular assumption on the fair value is calculated without
changing any other assumption. In reality, changes in one factor
may result in changes in another (e.g., increased market
interest rates may result in lower prepayments and increased
credit losses), which could magnify or counteract the
sensitivities. Further, these sensitivities show only the change
in the asset balances and do not show any expected change in the
fair value of the instruments used to manage the interest rates
and prepayment risks associated with these assets.
The primary risk relating to servicing rights is interest rate
risk and the resulting impact on prepayments. A significant
decline in interest rates could lead to higher than expected
prepayments, which could reduce the value of the mortgage
servicing rights. We economically hedge the income statement
impact of these risks with both derivative and nonderivative
financial instruments. These instruments include interest rate
swaps, caps and floors, options to purchase these items,
futures, and forward contracts
and/or
purchasing or selling U.S. Treasury and principal-only
securities. At December 31, 2007, the fair value of
derivative financial instruments and nonderivative financial
instruments used to mitigate these risks amounted to
$901 million and $257 million, respectively. At
December 31, 2006, the fair value of derivative financial
instruments and nonderivative financial instruments used to
mitigate these risks amounted to $159 million and
$1.3 billion, respectively. The change in the fair value of
the derivative financial instruments amounted to a loss of
$716 million and $281 million for the years ended
December 31, 2007 and 2006, respectively, and is included
in servicing asset valuation and hedge activities, net in our
Consolidated Statement of Income.
The components of servicing fees were as follows:
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
($ in millions)
|
|
2007
|
|
2006
|
|
|
Contractual servicing fees, net of guarantee fees and including
subservicing
|
|
|
$1,517
|
|
|
|
$1,327
|
|
Late fees
|
|
|
164
|
|
|
|
130
|
|
Ancillary fees
|
|
|
110
|
|
|
|
127
|
|
|
|
Total
|
|
|
$1,791
|
|
|
|
$1,584
|
|
|
We pledged MSRs of $2.7 billion and $2.4 billion as
collateral for borrowings at December 31, 2007 and 2006,
respectively.
We have an active risk management program to hedge the value of
MSRs. The MSRs risk management program contemplates the use of
derivative financial instruments, U.S. treasury securities,
and principal-only securities that experience changes in value
offsetting those of the MSRs in response to changes in market
interest rates. See Note 16 for a discussion of the
derivative financial instruments used to hedge
mortgage-servicing rights. U.S. Treasury securities used in
connection with this risk management strategy are designated as
trading or available-for-sale.
224
Notes to
Consolidated Financial Statements
GMAC
LLC
10. Premiums
and Other Insurance Receivables
Premiums and other insurance receivables consisted of the
following:
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
|
2006
|
|
|
|
Prepaid reinsurance premiums
|
|
|
$364
|
|
|
|
$367
|
|
Reinsurance recoverable on unpaid losses
|
|
|
893
|
|
|
|
876
|
|
Reinsurance recoverable on paid losses (a)
|
|
|
52
|
|
|
|
95
|
|
Premiums receivable (b)
|
|
|
721
|
|
|
|
678
|
|
|
|
Total premiums and other insurance receivables
|
|
|
$2,030
|
|
|
|
$2,016
|
|
|
|
|
|
(a)
|
|
Net of $1 million allowance
for uncollectible reinsurance recoverable on paid losses at
December 31, 2006.
|
(b)
|
|
Net of $9 million and
$7 million allowance for uncollectible premiums receivable
at December 31, 2007 and 2006, respectively.
|
11. Other
Assets
Other assets consisted of:
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
|
2006
|
|
Property and equipment at cost
|
|
|
$1,759
|
|
|
|
$1,645
|
|
Accumulated depreciation
|
|
|
(1,200
|
)
|
|
|
(1,067
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
559
|
|
|
|
578
|
|
Cash reserve deposits held for securitization trusts (a)
|
|
|
3,350
|
|
|
|
2,623
|
|
Fair value of derivative contracts in receivable position
|
|
|
4,448
|
|
|
|
2,544
|
|
Real estate and other investments (b)
|
|
|
2,237
|
|
|
|
3,074
|
|
Restricted cash collections for securitization trusts (c)
|
|
|
2,397
|
|
|
|
1,858
|
|
Goodwill
|
|
|
1,496
|
|
|
|
1,827
|
|
Deferred policy acquisition cost
|
|
|
1,702
|
|
|
|
1,740
|
|
Accrued interest and rent receivable
|
|
|
881
|
|
|
|
1,315
|
|
Repossessed and foreclosed assets, net
|
|
|
1,347
|
|
|
|
1,215
|
|
Debt issuance costs
|
|
|
601
|
|
|
|
643
|
|
Servicer advances
|
|
|
1,847
|
|
|
|
606
|
|
Securities lending
|
|
|
856
|
|
|
|
445
|
|
Investment in used vehicles held for sale, at lower of cost or
market
|
|
|
792
|
|
|
|
423
|
|
Subordinated note receivable
|
|
|
250
|
|
|
|
250
|
|
Intangible assets, net of accumulated amortization (d)
|
|
|
93
|
|
|
|
59
|
|
Receivables related to taxes
|
|
|
|
|
|
|
9
|
|
Other assets
|
|
|
4,170
|
|
|
|
4,287
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
$27,026
|
|
|
|
$23,496
|
|
|
|
|
|
(a)
|
|
Represents credit enhancement in
the form of cash reserves for various securitization
transactions we have executed. On November 22, 2006,
$710 million of cash reserve deposits were transferred to
GM as part of a distribution of certain securitized U.S. lease
assets. Refer to Note 19 for further description of the
distribution.
|
(b)
|
|
Includes residential real estate
investments of $1 billion and $2 billion and related
accumulated depreciation of $16 million and
$13 million for years ended December 31, 2007 and
2006, respectively.
|
(c)
|
|
Represents cash collection from
customer payments on securitized receivables. These funds are
distributed to investors as payments on the related secured debt.
|
(d)
|
|
Aggregate amortization expense on
intangible assets was $18 million and $16 million,
including $1 million for Capmark for the year ended
December 31, 2006. Amortization expense is expected to
average $12 million per year over the next five fiscal
years. In addition, during 2006, our Commercial Finance Group
had $13 million of intangible assets that were deemed
impaired and subsequently written off during the third quarter
of 2006.
|
225
Notes to
Consolidated Financial Statements
GMAC
LLC
The changes in the carrying amounts of goodwill for the periods
shown were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
International
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
Operations
|
|
Operations
|
|
ResCap
|
|
Insurance
|
|
Other
|
|
Total
|
|
|
|
|
Goodwill at beginning of 2006
|
|
|
$14
|
|
|
|
$504
|
|
|
|
$460
|
|
|
|
$669
|
|
|
|
$799
|
|
|
|
$2,446
|
|
|
|
Goodwill acquired
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
148
|
|
|
|
|
|
|
|
151
|
|
|
|
Impairment losses (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(827
|
)
|
|
|
(827
|
)
|
|
|
Other
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
Foreign currency translation effect
|
|
|
|
|
|
|
16
|
|
|
|
7
|
|
|
|
2
|
|
|
|
28
|
|
|
|
53
|
|
|
|
|
|
Goodwill at beginning of 2007
|
|
|
$14
|
|
|
|
$523
|
|
|
|
$471
|
|
|
|
$819
|
|
|
|
$
|
|
|
|
$1,827
|
|
|
|
Goodwill acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
134
|
|
|
|
Impairment losses (b)
|
|
|
|
|
|
|
|
|
|
|
(455
|
)
|
|
|
|
|
|
|
|
|
|
|
(455
|
)
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
Foreign currency translation effect
|
|
|
|
|
|
|
4
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
Goodwill at end of 2007
|
|
|
$14
|
|
|
|
$527
|
|
|
|
$
|
|
|
|
$953
|
|
|
|
$2
|
|
|
|
$1,496
|
|
|
|
|
|
|
|
(a)
|
|
Following attrition of key
personnel around the middle of 2006, our Commercial Finance
reporting unit initiated a goodwill impairment test, in
accordance with SFAS 142, outside the normal fourth quarter
cycle. A necessary precedent to this test was a thorough review
of the business by new leadership, with a particular focus on
long-term strategy. As a result of the review the operating
divisions were reorganized, and the decision was made to
implement a different exit strategy for the workout portfolio
and to exit product lines with lower returns. These decisions
had a significant impact on expected asset levels and growth
rate assumptions used to estimate the fair value of the
business. In particular, the analysis performed during the third
quarter incorporates managements decision to discontinue
activity in the equipment finance business, which had a
portfolio of over $1 billion, representing approximately
20% of Commercial Finance businesss average commercial
loan portfolio during 2006. Consistent with the prior analysis,
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. Based upon the results of the
assessment, we concluded the carrying value of goodwill exceeded
its fair value, resulting in an impairment loss of
$827 million during 2006.
|
(b)
|
|
During the three months ended
September 30, 2007, we initiated an evaluation of goodwill
of ResCap for potential impairment in accordance with
SFAS 142. This interim test was initiated in light of
deteriorating conditions in the residential and home building
markets, including significant changes in the mortgage secondary
market, tightening underwriting guidelines, reducing product
offerings, and recent credit downgrades of ResCaps
unsecured debt obligations. These factors had a significant
impact on our view of ResCaps future expected asset levels
and growth rate assumptions. Consistent with prior assessments,
the fair value of the ResCap business was determined using an
internally developed discounted cash flow methodology. In
addition, we took into consideration other relevant indicators
of value available in the marketplace such as recent market
transactions and trading values of all ResCap goodwill exceeded
its fair value, resulting in an impairment loss of
$455 million in 2007.
|
226
Notes to
Consolidated Financial Statements
GMAC
LLC
12. Debt
In the following table, we classify domestic and foreign debt on
the basis of the location of the office recording the
transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
average interest
|
|
|
|
|
|
|
|
|
|
rates (a)
|
|
|
2007
|
|
|
2006
|
|
December 31, ($ in
millions)
|
|
2007
|
|
|
2006
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Total
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Total
|
|
Short-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
|
|
|
|
|
|
|
|
$440
|
|
|
|
$999
|
|
|
|
$1,439
|
|
|
|
$742
|
|
|
|
$781
|
|
|
|
$1,523
|
|
Demand notes
|
|
|
|
|
|
|
|
|
|
|
6,382
|
|
|
|
202
|
|
|
|
6,584
|
|
|
|
5,917
|
|
|
|
157
|
|
|
|
6,074
|
|
Bank loans and overdrafts
|
|
|
|
|
|
|
|
|
|
|
563
|
|
|
|
6,619
|
|
|
|
7,182
|
|
|
|
991
|
|
|
|
5,272
|
|
|
|
6,263
|
|
Repurchase agreements and other (b)
|
|
|
|
|
|
|
|
|
|
|
7,920
|
|
|
|
10,681
|
|
|
|
18,601
|
|
|
|
22,506
|
|
|
|
7,232
|
|
|
|
29,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
6.6%
|
|
|
|
5.8%
|
|
|
|
15,305
|
|
|
|
18,501
|
|
|
|
33,806
|
|
|
|
30,156
|
|
|
|
13,442
|
|
|
|
43,598
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within one year
|
|
|
6.1%
|
|
|
|
5.5%
|
|
|
|
23,356
|
|
|
|
14,173
|
|
|
|
37,529
|
|
|
|
20,010
|
|
|
|
15,204
|
|
|
|
35,214
|
|
Due after one year
|
|
|
6.3%
|
|
|
|
5.9%
|
|
|
|
95,833
|
|
|
|
25,409
|
|
|
|
121,242
|
|
|
|
135,693
|
|
|
|
22,589
|
|
|
|
158,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
6.3%
|
|
|
|
5.9%
|
|
|
|
119,189
|
|
|
|
39,582
|
|
|
|
158,771
|
|
|
|
155,703
|
|
|
|
37,793
|
|
|
|
193,496
|
|
Fair value adjustment (c)
|
|
|
|
|
|
|
|
|
|
|
592
|
|
|
|
(21
|
)
|
|
|
571
|
|
|
|
(3
|
)
|
|
|
(106
|
)
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
|
|
|
|
$135,086
|
|
|
|
$58,062
|
|
|
|
$193,148
|
|
|
|
$185,856
|
|
|
|
$51,129
|
|
|
|
$236,985
|
|
|
|
|
|
(a)
|
|
The weighted average interest rates
include the effects of derivative financial instruments
designated as hedges of debt.
|
(b)
|
|
Repurchase agreements consist of
secured financing arrangements with third parties at ResCap.
Other primarily includes nonbank secured borrowings, as well as
notes payable to GM. Refer to Note 19 for further details.
|
(c)
|
|
To adjust designated fixed-rate
debt to fair value in accordance with SFAS 133.
|
The following summarizes assets restricted as collateral for the
payment of the related debt obligation primarily arising from
securitization transactions accounted for as secured borrowings
and repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Related secured
|
|
|
|
|
|
Related secured
|
|
December 31, ($ in
millions)
|
|
Assets
|
|
|
debt (a)
|
|
|
Assets
|
|
|
debt (a)
|
|
|
|
Loans held for sale
|
|
|
$10,437
|
|
|
|
$6,765
|
|
|
|
$22,834
|
|
|
|
$20,525
|
|
Mortgage assets held for investment and lending receivables
|
|
|
45,534
|
|
|
|
33,911
|
|
|
|
80,343
|
|
|
|
68,333
|
|
Retail automotive finance receivables
|
|
|
23,079
|
|
|
|
19,094
|
|
|
|
17,802
|
|
|
|
16,439
|
|
Wholesale automotive finance receivables
|
|
|
10,092
|
|
|
|
7,709
|
|
|
|
2,108
|
|
|
|
1,479
|
|
Investment securities
|
|
|
880
|
|
|
|
788
|
|
|
|
3,662
|
|
|
|
4,523
|
|
Investment in operating leases, net
|
|
|
20,107
|
|
|
|
17,926
|
|
|
|
8,258
|
|
|
|
7,636
|
|
Real estate investments and other assets
|
|
|
14,429
|
|
|
|
4,616
|
|
|
|
8,025
|
|
|
|
4,550
|
|
|
|
Total
|
|
|
$124,558
|
|
|
|
$90,809
|
|
|
|
$143,032
|
|
|
|
$123,485
|
|
|
|
|
|
(a)
|
|
Included as part of secured debt
are repurchase agreements of $3.6 billion and
$11.5 billion where we have pledged assets as collateral
for approximately the same amount of debt at December 31,
2007 and 2006, respectively.
|
From time to time, we repurchase our publicly traded debt as
part of our cash and liquidity management strategy. In the
fourth quarter of 2007, we paid $900 million through
open-market
repurchases and $241 million through a tender offer for
publicly traded ResCap debt securities, resulting in an
after-tax gain of $563 million. Also in the fourth quarter,
we paid $287 million through
open-market
repurchases of GMAC debt securities, resulting in an after-tax
gain of $16 million. In October 2006, we successfully
completed a debt tender offer by paying $1 billion to
retire a portion of our deferred interest debentures, resulting
in a $135 million after-tax loss.
227
Notes to
Consolidated Financial Statements
GMAC
LLC
The following table presents the scheduled maturity of long-term
debt at December 31, 2007, assuming no early redemptions
will occur. The actual payment of secured debt may vary based on
the payment activity of the related pledged assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
Secured
|
|
|
Unsecured
|
|
|
Total
|
|
|
|
2008
|
|
|
$19,590
|
|
|
|
$17,575
|
|
|
|
$37,165
|
|
|
|
2009
|
|
|
16,146
|
|
|
|
14,910
|
|
|
|
31,056
|
|
|
|
2010
|
|
|
12,636
|
|
|
|
10,066
|
|
|
|
22,702
|
|
|
|
2011
|
|
|
2,510
|
|
|
|
13,397
|
|
|
|
15,907
|
|
|
|
2012
|
|
|
2,823
|
|
|
|
7,804
|
|
|
|
10,627
|
|
|
|
2013 and thereafter
|
|
|
19,288
|
|
|
|
22,431
|
|
|
|
41,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (a)
|
|
|
72,993
|
|
|
|
86,183
|
|
|
|
159,176
|
|
|
|
Unamortized discount
|
|
|
(108
|
)
|
|
|
(297
|
)
|
|
|
(405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
$72,885
|
|
|
|
$85,886
|
|
|
|
$158,771
|
|
|
|
|
|
|
|
(a)
|
|
Debt issues totaling
$13,985 million are redeemable at or above par, at our
option anytime before the scheduled maturity dates, the latest
of which is November 2049.
|
To achieve the desired balance between fixed and variable-rate
debt, we utilize interest rate swap and interest rate cap
agreements. The use of these derivative financial instruments
had the effect of synthetically converting $76.6 billion of
our $111.6 billion of fixed-rate debt into variable-rate
obligations and $9.5 billion of our $81.3 billion of
variable-rate debt into fixed-rate obligations at
December 31, 2007. In addition, certain of our debt
obligations are denominated in currencies other than the
currency of the issuing country. Foreign currency swap
agreements are used to hedge exposure to changes in the exchange
rates of these obligations.
Liquidity
facilities
Liquidity facilities represent additional funding sources. The
financial institutions providing the uncommitted facilities are
not legally obligated to advance funds under them. The following
table summarizes the liquidity facilities that we maintain.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capacity
|
|
Unused capacity
|
|
Outstanding
|
December 31, ($ in
billions)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
Committed unsecured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Finance operations
|
|
|
$8.9
|
|
|
|
$10.2
|
|
|
|
$7.0
|
|
|
|
$9.1
|
|
|
|
$1.9
|
|
|
|
$1.1
|
|
ResCap
|
|
|
3.6
|
|
|
|
4.0
|
|
|
|
1.8
|
|
|
|
2.0
|
|
|
|
1.8
|
|
|
|
2.0
|
|
Other
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
Committed secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Finance operations
|
|
|
90.3
|
|
|
|
91.2
|
|
|
|
57.9
|
|
|
|
65.9
|
|
|
|
32.4
|
|
|
|
25.3
|
|
ResCap
|
|
|
33.2
|
|
|
|
29.5
|
|
|
|
17.5
|
|
|
|
7.9
|
|
|
|
15.7
|
|
|
|
21.6
|
|
Other
|
|
|
22.8
|
|
|
|
13.9
|
|
|
|
11.5
|
|
|
|
10.1
|
|
|
|
11.3
|
|
|
|
3.8
|
|
|
|
Total committed facilities
|
|
|
159.0
|
|
|
|
149.1
|
|
|
|
95.9
|
|
|
|
95.3
|
|
|
|
63.1
|
|
|
|
53.8
|
|
|
|
Uncommitted unsecured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Finance operations
|
|
|
9.7
|
|
|
|
8.7
|
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
8.3
|
|
|
|
7.3
|
|
ResCap
|
|
|
0.6
|
|
|
|
1.5
|
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
0.4
|
|
|
|
0.8
|
|
Other
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.1
|
|
Uncommitted secured:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ResCap
|
|
|
21.6
|
|
|
|
73.3
|
|
|
|
9.5
|
|
|
|
51.9
|
|
|
|
12.1
|
|
|
|
21.4
|
|
|
|
Total uncommitted facilities
|
|
|
32.1
|
|
|
|
83.6
|
|
|
|
11.1
|
|
|
|
54.0
|
|
|
|
21.0
|
|
|
|
29.6
|
|
|
|
Total
|
|
|
$191.1
|
|
|
|
$232.7
|
|
|
|
$107.0
|
|
|
|
$149.3
|
|
|
|
$84.1
|
|
|
|
$83.4
|
|
|
Certain of ResCaps credit facilities contain a financial
covenant, among other covenants, requiring ResCap to maintain a
minimum consolidated tangible net worth (as defined in each
respective agreement) as of the end of each fiscal quarter.
Under the agreements, ResCaps tangible net worth cannot
fall below a base amount plus an amount equal to 25% of
ResCaps net income (if positive) for the fiscal year since
the closing date of the applicable agreement. As of
December 31, 2007, the most
228
Notes to
Consolidated Financial Statements
GMAC
LLC
restrictive provision requires a minimum tangible net worth of
$5.4 billion. ResCaps reported tangible net worth as
of December 31, 2007, was $6.0 billion.
|
|
13.
|
Reserves
for Insurance Losses and Loss Adjustment Expenses
|
The following table provides a reconciliation of the activity in
the reserves for insurance losses and loss adjustment expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
($ in millions)
|
|
2007
|
|
2006
|
|
2005
|
Balance at beginning of year
|
|
|
$2,630
|
|
|
|
$2,534
|
|
|
|
$2,505
|
|
Reinsurance recoverables
|
|
|
(876
|
)
|
|
|
(762
|
)
|
|
|
(775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at beginning of year
|
|
|
1,754
|
|
|
|
1,772
|
|
|
|
1,730
|
|
Net reserves from acquisitions
|
|
|
418
|
|
|
|
80
|
|
|
|
|
|
Incurred related to
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
2,522
|
|
|
|
2,513
|
|
|
|
2,471
|
|
Prior years (a)
|
|
|
(71
|
)
|
|
|
(93
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred (b)
|
|
|
2,451
|
|
|
|
2,420
|
|
|
|
2,355
|
|
Paid related to
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
(1,641
|
)
|
|
|
(1,723
|
)
|
|
|
(1,682
|
)
|
Prior years
|
|
|
(808
|
)
|
|
|
(803
|
)
|
|
|
(619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid
|
|
|
(2,449
|
)
|
|
|
(2,526
|
)
|
|
|
(2,301
|
)
|
Other (c)
|
|
|
22
|
|
|
|
8
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at end of year (d)
|
|
|
2,196
|
|
|
|
1,754
|
|
|
|
1,772
|
|
Reinsurance recoverables
|
|
|
893
|
|
|
|
876
|
|
|
|
762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
$3,089
|
|
|
|
$2,630
|
|
|
|
$2,534
|
|
|
|
|
|
(a)
|
|
Incurred losses and loss adjustment
expenses during 2007 and 2006 were reduced by $71 million
and $93 million, respectively, as a result of decreases in
prior years reserve estimates for private passenger
automobile coverages and certain reinsurance coverages assumed
in both the United States and internationally, and extended
service contracts internationally. In addition, 2006 included a
$20 million reduction of reserves related to an insurance
program, which was ultimately transferred to GM.
|
(b)
|
|
Reflected net of reinsurance
recoveries totaling $246 million, $306 million, and
$342 million for the years ended December 31, 2007,
2006, and 2005, respectively.
|
(c)
|
|
Effects of exchange-rate changes
for the years ended December 31, 2007, 2006, and 2005.
|
(d)
|
|
Includes exposure to asbestos and
environmental claims from the reinsurance of general liability,
commercial multiple peril, homeowners and workers
compensation claims. Reported claim activity to date has not
been significant. Net reserves for loss and loss adjustment
expenses for these matters were $5 million at
December 31, 2007 and 2006, and $6 million at
December 31, 2005.
|
14. Deposit
Liabilities
Deposit liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
2006
|
|
Noninterest bearing deposits
|
|
|
$1,570
|
|
|
|
$1,366
|
|
NOW and money market checking accounts
|
|
|
3,673
|
|
|
|
1,810
|
|
Certificate of deposit
|
|
|
7,697
|
|
|
|
6,390
|
|
Dealer wholesale deposits
|
|
|
2,300
|
|
|
|
2,213
|
|
Dealer term-loan deposits
|
|
|
41
|
|
|
|
75
|
|
|
|
Deposit liabilities
|
|
|
$15,281
|
|
|
|
$11,854
|
|
|
Noninterest bearing deposits primarily represent third-party
escrows associated with ResCaps loan servicing portfolio.
The escrow deposits are not subject to an executed agreement and
can be withdrawn without penalty at any time. At
December 31, 2007, certificates of deposit included
$6.6 billion of brokered certificates of deposit.
The following table presents the scheduled maturity of brokered
deposits at December 31, 2007.
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
|
|
2008
|
|
|
$4,823
|
|
2009
|
|
|
1,235
|
|
2010
|
|
|
413
|
|
2011
|
|
|
115
|
|
2012
|
|
|
14
|
|
|
|
Total brokered deposits
|
|
|
$6,600
|
|
|
|
|
15.
|
Accrued
Expenses and Other Liabilities
|
Accrued expenses and other liabilities consisted of:
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
2006
|
|
Fair value of derivative contracts in payable position
|
|
|
$1,311
|
|
|
|
$1,745
|
|
Employee compensation and benefits
|
|
|
458
|
|
|
|
540
|
|
Factored client payables
|
|
|
770
|
|
|
|
813
|
|
Securitization trustee payable
|
|
|
1,152
|
|
|
|
902
|
|
GM payable, net
|
|
|
513
|
|
|
|
70
|
|
Taxes payable
|
|
|
425
|
|
|
|
249
|
|
Accounts payable
|
|
|
1,970
|
|
|
|
1,844
|
|
Deferred revenue
|
|
|
1,184
|
|
|
|
1,623
|
|
Other liabilities
|
|
|
4,420
|
|
|
|
3,019
|
|
|
|
Total accrued expenses and other liabilities
|
|
|
$12,203
|
|
|
|
$10,805
|
|
|
229
Notes to
Consolidated Financial Statements
GMAC
LLC
|
|
16.
|
Derivative
Instruments and Hedging Activities
|
We enter into interest rate and foreign currency futures,
forwards, options, and swaps in connection with our market risk
management activities. Derivative instruments are used to manage
interest rate risk relating to specific groups of assets and
liabilities, including investment securities, loans held for
sale, mortgage servicing rights, debt, and deposits, as well as
off-balance sheet securitizations. In addition, foreign exchange
contracts are used to hedge foreign-currency-denominated debt
and foreign exchange transactions. In accordance with
SFAS 133, as amended and interpreted, we record derivative
financial instruments on our Consolidated Balance Sheet as
assets or liabilities at fair value. Changes in fair value are
accounted for depending on the use of the derivative financial
instruments and whether it qualifies for hedge accounting
treatment.
Our primary objective for utilizing derivative financial
instruments is to manage market risk volatility associated with
interest rate and foreign currency risks related to the assets
and liabilities of the automotive finance and mortgage
operations. Managing this volatility enables us to price our
finance and mortgage offerings at competitive rates and to
minimize the impact of market risk on our earnings. These
strategies are applied on a decentralized basis by the
respective Global Automotive Finance and ResCap operations,
consistent with the level at which market risk is managed, but
are subject to various limits and controls at both the local
unit and consolidated level. One of the key goals of our
strategy is to modify the asset and liability and interest rate
mix, including the assets and liabilities associated with
securitization transactions that may be recorded in off-balance
sheet special-purpose entities. In addition, we use derivative
financial instruments to mitigate the risk of changes in the
fair values of mortgage loans held for sale and mortgage
servicing rights. Derivative financial instruments are also
utilized to manage the foreign currency exposure related to
foreign-currency-denominated debt. The following summarizes our
derivative activity based on the accounting hedge designation:
Fair
Value Hedges
Our fair value hedges consist of hedges of fixed-rate debt
obligations. Interest rate swaps are used to modify our exposure
to interest rate risk by converting
fixed-rate
debt to a floating rate. Generally, individual swaps are
designated as hedges of specific debt at the time of issuance
with the terms of the swap matching the terms of the underlying
debt. As the terms of the swap are designed to match the terms
of the debt, a significant portion of our debt obligation
hedging relationships receive short-cut treatment under
SFAS 133, resulting in the assumption of no hedge
ineffectiveness. However, certain of our fair value hedges of
debt do not receive short-cut treatment, because of differences
in option features between the interest rate swap and the
companion hedged debt or the underlying debt hedged was
partially repurchased after the swap was traded. Ineffectiveness
is measured based on the difference in the fair value movement
of the swap and the related hedged debt. Effectiveness is
assessed using historical data. We assess hedge effectiveness
employing a statistical-based approach, which must meet
thresholds for R-squared, slope, F-statistic, and T-statistic.
Cash Flow
Hedges
We enter into derivative financial instrument contracts to hedge
exposure to variability in cash flows related to floating-rate
and foreign currency financial instruments. Interest rate swaps
are used to modify exposure to variability in expected future
cash flows attributable to variable-rate debt. Currency swaps
and forwards are used to hedge foreign exchange exposure on
foreign-currency-denominated debt by converting the funding
currency to the same currency of the assets being financed.
Similar to our fair value hedges, the swaps are generally
entered or traded concurrent with the debt issuance, with the
terms of the swap matching the terms of the underlying debt.
Economic
Hedges not Designated as Accounting Hedges
We utilize certain derivative financial instruments that do not
qualify or are not designated as hedges under SFAS 133 to
facilitate securitization transactions and manage risks related
to interest rate, price, and foreign currency. As these
derivatives are not designated as accounting hedges, changes in
the fair value of the derivative instruments are recognized in
earnings each period.
|
|
|
Mortgage servicing rights We enter into a
combination of derivative contracts that are economic hedges of
the servicing rights associated with groups of similar mortgage
loans. These derivatives include interest rate caps and floors,
futures options, futures,
mortgage-backed
security options, interest rate swaps and swaptions. The
maturities of these instruments range between six months and
twenty years. We have entered into written options on
U.S. Treasury futures for notional amounts lower than
purchased options on futures. The purchased option coverage is
at a strike price less than or equal to the corresponding
written option coverage, thereby mitigating our loss exposure.
We are required to deposit cash in margin accounts maintained by
counterparties for unrealized losses on future contracts.
|
|
|
Loans held for sale We use derivative
financial instruments to hedge exposure to risk associated with
our mortgage and automotive loans held for sale. After
|
230
Notes to
Consolidated Financial Statements
GMAC
LLC
|
|
|
mortgage loans are funded, they are generally sold into the
secondary market to various investors, often as
mortgage-backed
securities sponsored by Fannie Mae, Freddie Mac, or
Ginnie Mae. Mortgage loans that are not eligible for
agency-sponsored
securitization are sold through public or private securitization
transactions or in
whole-loan
sales. Automotive loans are sold through public or private
securitization transactions or in
whole-loan
sales. The primary risk associated with closed loans awaiting
sale is a change in the fair value of the loans attributable to
fluctuations in interest rates. Our primary strategies to
protect against this risk are selling loans or
mortgage-backed
securities forward to investors using mandatory and optional
forward commitments and the use of interest rate swaps.
|
|
|
|
Off-balance
sheet securitization activities We enter into
interest rate swaps to facilitate securitization transactions
where the underlying receivables are sold to a nonconsolidated
QSPE. As the underlying assets are carried in a nonconsolidated
entity, the interest rate swaps do not qualify for hedge
accounting treatment.
|
|
|
Foreign currency debt We have elected not to
treat currency swaps that are used to convert foreign
denominated debt back into the functional currency at a floating
rate as hedges for accounting purposes. Although these currency
swaps are similar to the foreign currency cash flow hedges
described in the foregoing, we have not designated them as
hedges as the changes in the fair values of the currency swaps
are substantially offset by the foreign currency revaluation
gains and losses of the underlying debt.
|
|
|
Mortgage related securities We use interest
rate options, futures, swaps, caps, and floors to mitigate risk
related to mortgage related securities classified as trading.
|
|
|
Callable debt obligations We enter into
cancellable interest rate swaps as economic hedges of certain
callable
fixed-rate
debt in connection with our market risk management policy. If
the hedging relationship does not meet a specified effectiveness
assessment threshold, it will be treated as an economic hedge.
Prior to May 2007, all cancellable swaps hedging callable debt
were treated as economic hedges.
|
The following table summarizes the pretax earnings effect for
each type of hedge classification, segregated by the asset or
liability hedged.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2007
|
|
2006
|
|
2005
|
|
Income statement classification
|
|
Fair value hedge ineffectiveness gain (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations
|
|
|
$54
|
|
|
|
$
|
|
|
|
($2
|
)
|
|
Interest expense
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
Servicing asset valuation and hedge activities, net
|
Loans held for sale
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(29
|
)
|
|
Gain on sale of loans, net
|
Cash flow hedges ineffectiveness gain (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt obligations
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
Interest expense
|
Economic hedge change in fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-balance sheet securitization activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Finance operations
|
|
|
114
|
|
|
|
2
|
|
|
|
(36
|
)
|
|
Other income
|
Mortgage operations
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
Other income
|
Foreign currency debt (a)
|
|
|
33
|
|
|
|
54
|
|
|
|
(202
|
)
|
|
Interest expense
|
Loans held for sale or investment
|
|
|
(293
|
)
|
|
|
35
|
|
|
|
59
|
|
|
Gain on sale of loans, net
|
Mortgage servicing rights
|
|
|
716
|
|
|
|
(281
|
)
|
|
|
(55
|
)
|
|
Servicing asset valuation and hedge activities, net
|
Mortgage related securities
|
|
|
(161
|
)
|
|
|
3
|
|
|
|
(42
|
)
|
|
Investment income
|
Callable debt obligations
|
|
|
49
|
|
|
|
(22
|
)
|
|
|
(240
|
)
|
|
Interest expense
|
Other
|
|
|
(37
|
)
|
|
|
21
|
|
|
|
(11
|
)
|
|
Other income, Interest expense, Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses)
|
|
|
$474
|
|
|
|
($189
|
)
|
|
|
($497
|
)
|
|
|
|
|
|
|
(a)
|
|
Amount represents the difference
between the changes in the fair values of the currency swap, net
of the revaluation of the related foreign denominated debt.
|
231
Notes to
Consolidated Financial Statements
GMAC
LLC
The following table presents additional information related to
our derivative financial instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, ($ in millions)
|
|
2007
|
|
2006
|
|
2005
|
|
Net gain on fair value hedges excluded from assessment of
effectiveness
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59
|
|
Expected reclassifications from other comprehensive income to
earnings (a)
|
|
|
2
|
|
|
|
8
|
|
|
|
12
|
|
|
|
|
|
(a)
|
|
Estimated to occur over the next
12 months.
|
Derivative financial instruments contain an element of credit
risk if counterparties are unable to meet the terms of the
agreements. Credit risk associated with derivative financial
instruments is measured as the net replacement cost should the
counterparties which owe us under the contract completely fail
to perform under the terms of those contracts, assuming no
recoveries of underlying collateral, as measured by the market
value of the derivative financial instrument. At
December 31, 2007 and 2006, the market value of derivative
financial instruments in an asset or receivable position (from
our perspective) was $4.4 billion and $2.5 billion,
including accrued interest of $400 million and
$600 million, respectively. We minimize the credit risk
exposure by limiting the counterparties to those major banks and
financial institutions that meet established credit guidelines.
As of December 31, 2007, more than 88% of our exposure is
with counterparties with a Fitch rating of A+ or higher (or an
equivalent rating from another rating agency if a counterparty
is not rated by Fitch), compared with more than 74% as of
December 31, 2006. Additionally, we reduce credit risk on
the majority of our derivative financial instruments by entering
into legally enforceable agreements that permit the closeout and
netting of transactions with the same counterparty upon
occurrence of certain events. To further mitigate the risk of
counterparty default, we maintain collateral agreements with
certain counterparties. The agreements require both parties to
maintain cash deposits in the event the fair values of the
derivative financial instruments meet established thresholds. We
have placed cash deposits totaling $67 million and
$206 million at December 31, 2007 and 2006,
respectively, in accounts maintained by counterparties. We have
received cash deposits from counterparties totaling
$944 million and $215 million at December 31,
2007 and 2006, respectively. The cash deposits placed and
received are included on our Consolidated Balance Sheet in other
assets and accrued expenses and other liabilities, respectively.
|
|
17.
|
Pension
and Other Postretirement Benefits
|
Pension
Certain of our employees were eligible to participate in
separate retirement plans that provide for pension payments to
eligible employees upon retirement based on factors such as
length of service and salary. Pursuant to the Sale Transactions,
we transferred, froze or terminated a portion of our other
defined benefit plans. During 2006, we froze the benefits and
participation of a pension plan covering primarily ResCap
employees, which resulted in a curtailment gain of approximately
$43 million. We also curtailed the GMAC Commercial Finance
UK and GMAC Commercial Finance Canada (CF Canada) retirement
plans in 2006, and subsequently terminated the CF Canada plan in
2007. We recorded a curtailment charge of approximately
$9 million in 2006 for these plans, which was revised to
approximately $4 million in 2007. Additionally, on
April 30, 2007, we closed the GMAC UK (Car Care) pension
plan to future accrual, thereby freezing the benefits for all
participants. This resulted in a minimal impact on earnings. In
2006, we also recorded expense payments of approximately
$48 million as a Section 75 debt obligation to fully
fund the GMAC portion of the GM U.K. pension plans, as required
under the UK Pension Act of 2004. All income and expense noted
for pension accounting was recorded in compensation and benefits
expense in our Consolidated Statement of Income.
Furthermore, prior to the consummation of the Sale Transactions
on November 30, 2006, a number of our employees were
eligible to participate in various domestic and foreign pension
plans of GM. While we were a participating employer in these
plans, GM allocated to us a portion of their pension expense,
which was made on a pro rata basis and affected by the various
assumptions (discount rate, return on plan assets, etc.) that GM
utilized in determining its pension obligation. Upon completion
of the sale, our employees were no longer eligible to
participate in these pension plans. We also transferred to GM
the financial liability associated with the GMAC portion of
certain GM plans in Canada as of the sale date.
We adopted SFAS 158 in the fiscal year ended
December 31, 2007, resulting in a $21 million
increase in other assets, a $3 million increase in deferred
tax assets, an $11 million increase in other liabilities,
and a $13 million increase in accumulated other
comprehensive income, net of tax. Each overfunded pension plan
is recognized as an asset, and each underfunded pension plan is
recognized as a liability. Unrecognized prior service costs or
credits, net actuarial gains or losses and net transition
obligations, as well as the subsequent changes in the funded
status, are recognized as a component of accumulated other
comprehensive loss in equity.
232
Notes to
Consolidated Financial Statements
GMAC
LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
Pre-SFAS 158
|
|
FAS 158
|
|
Post-SFAS 158
|
($ in millions)
|
|
adoption
|
|
adjustments
|
|
adoption
|
|
Other assets
|
|
|
$27,005
|
|
|
$
|
21
|
|
|
|
$27,026
|
|
Deferred income taxes
|
|
|
1,253
|
|
|
|
(3
|
)
|
|
|
1,250
|
|
Accrued expenses and other liabilities
|
|
|
12,192
|
|
|
|
11
|
|
|
|
12,203
|
|
Accumulated other comprehensive income (net of tax)
|
|
|
939
|
|
|
|
13
|
|
|
|
952
|
|
|
The following summarizes information relating to our pension
plans:
|
|
|
|
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
2007
|
|
2006
|
|
Projected benefit obligation
|
|
$
|
432
|
|
|
|
$434
|
|
Fair value of plan assets
|
|
|
426
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
(6
|
)
|
|
|
(43
|
)
|
Unrecognized net actuarial gain
|
|
|
|
|
|
|
16
|
|
Unrecognized prior service cost
|
|
|
|
|
|
|
2
|
|
Net transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued pension cost
|
|
|
($6
|
)
|
|
|
($25
|
)
|
|
The expected rate of return on plan assets is an estimate we
determine by calculating the expected inflation and the expected
real rate of return on stocks and bonds based on allocation
percentages within the trust. The weighted average assumptions
used for determining the net periodic benefit cost are as
follows:
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2007
|
|
2006
|
Discount rate
|
|
|
5.60
|
%
|
|
|
5.47
|
%
|
Expected
long-term
return on plan assets
|
|
|
8.59
|
%
|
|
|
8.48
|
%
|
Rate of compensation increase
|
|
|
3.09
|
%
|
|
|
4.40
|
%
|
|
Net periodic pension expense includes the curtailment and other
gains and losses from the transactions described above for 2007
and 2006. Net pension expense (income) for non-GM-sponsored
plans totaled ($2) million, ($3) million, and
$28 million for 2007, 2006, and 2005, respectively.
Allocations received from GM related to net pension expense for
our employees that participated in GM-sponsored plans in 2006
and 2005 was $80 million and $60 million, respectively.
Employer contributions to our pension plans for 2007 and 2006
were approximately $3 million and $4 million,
respectively. We expect these contribution levels to remain
minimal for 2008. The weighted-average asset allocations for our
pension plans at December 31, 2007, by asset category are
were follows: equity securities 58%, debt securities 35%, and
other 7%.
Other
Postretirement Benefits
Certain of our subsidiaries participated in various
postretirement medical, dental, vision, and life insurance plans
of GM, whereas other subsidiaries participated in separately
maintained postretirement plans. These benefits were funded as
incurred from our general assets. We previously accrued
postretirement benefit costs over the active service period of
employees to the date of full eligibility for these benefits.
Effective November 30, 2006, upon completion of the sale,
our employees were no longer eligible to participate in
GMs postretirement plans. Before the sale, GM agreed to
assume or retain approximately $801 million of liabilities
related to
U.S.-based,
GM-sponsored other postretirement benefit programs for our
employees, as well as approximately $302 million of related
deferred tax assets, and the net amount was recorded as a
capital contribution. We have provided for certain amounts
associated with estimated future postretirement benefits other
than pensions and characterized such amounts as other
postretirement benefits. Notwithstanding the recording of these
amounts and the use of these terms, we do not admit or otherwise
acknowledge that these amounts or existing postretirement
benefit plans (other than pensions) represent legally
enforceable liabilities. Other postretirement benefits expense
(income), which is recorded in compensation and benefits expense
in our Consolidated Statement of Income, totaled
($2) million, $35 million, and $88 million in
2007, 2006, and 2005, respectively. The decrease in expense
during 2007 relates to the transactions described above. We
expect our other postretirement benefit expense to be minimal in
future years. The impact of the adoption of SFAS 158 for
other postretirement benefits was a decrease to other
liabilities of $5 million, an increase to deferred tax
liabilities of $2 million, and an increase to accumulated
other comprehensive income of approximately $3 million, net
of tax.
Defined
Contribution Plan
A significant number of our employees are covered by defined
contribution plans. Employer contributions vary based on
criteria specific to each individual plan and amounted to
$71 million, $40 million, and $41 million in
2007, 2006, and 2005, respectively. These costs were also
recorded in compensation and benefit expenses in our
Consolidated Statement of Income. The increase in contributions
for 2007 mainly resulted from the change of our benefit
structure at the end of 2006 from defined benefit plans to
defined contribution plans. Based on this benefit restructuring,
we expect contributions for 2008 to be similar to contributions
made in 2007.
233
Notes to
Consolidated Financial Statements
GMAC
LLC
18. Income
Taxes
Effective November 28, 2006, GMAC, along with certain
U.S. subsidiaries, became pass-through entities for
U.S. federal income tax purposes. Income taxes incurred by
these converting entities have been provided through
November 30, 2006, as required under the
tax-sharing
agreement between GM and GMAC. Subsequent to November 30,
2006, U.S. federal and state and local income taxes have
generally not been provided for these entities as they ceased to
be taxable entities, with the exception of a few local
jurisdictions that continue to tax LLCs or partnerships. Due to
our change in tax status, a net deferred tax liability was
eliminated through income tax expense totaling $791 million
in 2006. Members each report their share of our taxable income
in their respective income tax returns. Our banking, insurance,
and foreign subsidiaries are generally corporations and continue
to be subject to and provide for U.S. federal and foreign
income taxes. The income tax expense related to these
corporations is included in our income tax expense, along with
other miscellaneous state, local, and franchise taxes of GMAC
and certain other subsidiaries.
The significant components of income tax expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Current income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
$268
|
|
|
|
$1,115
|
|
|
|
$620
|
|
|
Foreign
|
|
|
114
|
|
|
|
432
|
|
|
|
52
|
|
|
State and local
|
|
|
(55
|
)
|
|
|
43
|
|
|
|
17
|
|
|
|
|
Total current expense
|
|
|
327
|
|
|
|
1,590
|
|
|
|
689
|
|
|
|
|
Deferred income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
108
|
|
|
|
(396
|
)
|
|
|
168
|
|
|
Foreign
|
|
|
(76
|
)
|
|
|
(316
|
)
|
|
|
271
|
|
|
State and local
|
|
|
31
|
|
|
|
16
|
|
|
|
69
|
|
|
|
|
Total deferred expense (benefit)
|
|
|
63
|
|
|
|
(696
|
)
|
|
|
508
|
|
|
|
|
Total income tax expense before change in tax status
|
|
|
390
|
|
|
|
894
|
|
|
|
1,197
|
|
|
Change in tax status
|
|
|
|
|
|
|
(791
|
)
|
|
|
|
|
|
|
|
Total income tax expense
|
|
|
$390
|
|
|
|
$103
|
|
|
|
$1,197
|
|
|
|
|
A reconciliation of the statutory
U.S. federal income tax rate to our effective tax rate
applicable to income and our change in tax status is shown in
the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Statutory U.S. federal tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
Change in tax rate resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes, net of federal income tax benefit
|
|
|
|
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
Tax-exempt income
|
|
|
0.5
|
|
|
|
(0.9
|
)
|
|
|
(1.1
|
)
|
|
|
Foreign income tax rate differential
|
|
|
(4.5
|
)
|
|
|
(5.4
|
)
|
|
|
(1.9
|
)
|
|
|
Goodwill impairment
|
|
|
(0.4
|
)
|
|
|
7.5
|
|
|
|
|
|
|
|
Other (a)
|
|
|
0.1
|
|
|
|
(0.8
|
)
|
|
|
0.6
|
|
|
|
|
|
Effective tax rate before change in tax status
|
|
|
30.7
|
|
|
|
37.2
|
|
|
|
34.4
|
|
|
|
Effect of valuation allowance change
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect of tax status change
|
|
|
|
|
|
|
(35.5
|
)
|
|
|
|
|
|
|
LLC loss not subject to federal or state income taxes
|
|
|
(46.1
|
)
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(20.1
|
)%
|
|
|
4.6
|
%
|
|
|
34.4
|
%
|
|
|
|
Results for 2007 reflect the effect of our domestic subsidiaries
generally not being taxed at the entity level resulting in our
effective tax rate on a consolidated basis varying significantly
in comparison with the same period in 2006. The primary reason
is that the majority of the net loss experienced at ResCap is
attributable to its LLCs and no tax benefits for these losses
are recorded. Excluding ResCap, the consolidated effective tax
rate is approximately 17%, which represents the provision for
taxes
234
Notes to
Consolidated Financial Statements
GMAC
LLC
at our non-LLC subsidiaries combined with taxable income that is
not subject to tax at our LLC subsidiaries. The effective tax
rates applicable to our non-LLC subsidiaries remain comparable
with 2006.
At December 31, 2007, the valuation allowance is
attributable to certain foreign subsidiaries, principally
Canada, that based on actual and forecast operating results and,
after consideration for available tax planning, we believe will
be unable to utilize all or a portion of their loss
carryforwards.
Deferred tax assets and liabilities result from differences
between assets and liabilities measured for financial reporting
purposes and those measured for income tax return purposes.
Under the terms of the Purchase and Sale Agreement between GM
and FIM Holdings LLC, the distribution of lease assets and
assumption by GM of certain postretirement benefits resulted in
a reduction of deferred tax liabilities and assets of
$1,845 million and $302 million, respectively, in
2006. Additionally, the change in tax status resulted in a
$791 million reduction in income tax expense related to the
elimination of deferred tax liabilities and assets of
$1,486 million and $695 million, respectively. The
significant components of deferred tax assets and liabilities
after consideration of these adjustments are reflected in the
following table.
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
|
2006
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Lease transactions
|
|
$
|
1,549
|
|
|
$
|
1,236
|
|
Deferred acquisition costs
|
|
|
560
|
|
|
|
560
|
|
Tax on unremitted earnings
|
|
|
51
|
|
|
|
46
|
|
Unrealized gains on securities
|
|
|
44
|
|
|
|
54
|
|
Accumulated translation adjustment
|
|
|
19
|
|
|
|
8
|
|
State and local taxes
|
|
|
17
|
|
|
|
1
|
|
Sales of finance receivables
|
|
|
8
|
|
|
|
45
|
|
Debt issuance costs
|
|
|
6
|
|
|
|
10
|
|
Other
|
|
|
18
|
|
|
|
82
|
|
|
|
Gross deferred tax liabilities
|
|
|
2,272
|
|
|
|
2,042
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Unearned insurance premiums
|
|
|
299
|
|
|
|
317
|
|
Tax loss carryforwards
|
|
|
248
|
|
|
|
156
|
|
Provision for credit losses
|
|
|
191
|
|
|
|
156
|
|
Contingency
|
|
|
141
|
|
|
|
82
|
|
Manufacturer incentive payments
|
|
|
58
|
|
|
|
132
|
|
Tax credit carryforwards
|
|
|
52
|
|
|
|
49
|
|
Depreciation
|
|
|
22
|
|
|
|
5
|
|
Postretirement benefits
|
|
|
15
|
|
|
|
27
|
|
Hedging transactions
|
|
|
9
|
|
|
|
1
|
|
Goodwill
|
|
|
3
|
|
|
|
(2)
|
|
Other
|
|
|
73
|
|
|
|
112
|
|
|
|
Gross deferred tax assets
|
|
|
1,111
|
|
|
|
1,035
|
|
|
|
Valuation allowance
|
|
|
(89
|
)
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
1,022
|
|
|
$
|
1,035
|
|
|
|
Net deferred tax liability
|
|
$
|
1,250
|
|
|
$
|
1,007
|
|
|
At December 31, 2007, the book basis of our net assets for
flow-through entities exceeded their tax basis by approximately
$6,080 million as compared with $2,460 million at
December 31, 2006, primarily related to lease transactions,
mortgage-servicing rights, and sales of finance receivables.
Foreign pretax income (loss) totaled ($333) million in
2007, $336 million in 2006, and $988 million in 2005.
Foreign pretax income is subject to U.S. taxation when
effectively repatriated. For our entities that are disregarded
for U.S. federal income tax purposes, it is the
responsibility of our members to provide federal income taxes on
the undistributed earnings of foreign subsidiaries to the extent
these earnings are not deemed indefinitely reinvested outside
the United States. For our banking and insurance subsidiaries
that continue to be subject to U.S. federal income taxes,
we provide for federal income taxes on the
235
Notes to
Consolidated Financial Statements
GMAC
LLC
undistributed earnings of foreign subsidiaries, except to the
extent these earnings are indefinitely reinvested outside the
United States. At December 31, 2007, $4,895 million of
accumulated undistributed earnings of foreign subsidiaries were
indefinitely reinvested. Quantification of the deferred tax
liability, if any, associated with indefinitely reinvested
earnings is not practicable.
For the eleven months ending November 30, 2006, and year
ending December 31, 2005, GM had consolidated federal net
operating losses. After GM utilized all prior year federal
carryback potential, the remaining net operating losses were
carried forward. The consolidated federal net operating losses
also created charitable contribution deduction and foreign tax
credit carryforwards. Pursuant to the
tax-sharing
agreement between GM and us, our allocation of consolidated tax
attributes from GM for these periods federal net operating
losses (due to certain loss subsidiaries), charitable
contributions deduction, and foreign tax credits are carried
forward for our subsidiaries that remain separate
U.S. tax-paying
entities. For GMAC and certain subsidiaries, which have
converted to limited liability companies and have elected to be
treated as pass-through entities, intercompany receivables from
GM related to tax attributes totaling $1.1 billion were
dividended to GM as of November 30, 2006.
Under the terms of the Purchase and Sale Agreement between GM
and FIM Holdings LLC, the
tax-sharing
agreement between GM and us was terminated as of
November 30, 2006. Terms of the sale agreement stipulate GM
will indemnify us for any contingent tax liabilities related to
periods before November 30, 2006, in excess of those
established as of the sale date. Additionally, net tax-related
assets consisting of tax deposits, claims, and contingencies as
of November 30, 2006, for the converting entities have been
assumed by and transferred to GM through equity totaling
$107 million.
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, on
January 1, 2007. The cumulative effect of applying
FIN 48 was recorded directly to retained earnings and
reported as a change in accounting principle. The adoption of
this interpretation did not have a material impact on our
consolidated financial position. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as
follows:
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
126
|
|
Additions based on tax positions related to the current year
|
|
|
13
|
|
Additions for tax positions of prior years
|
|
|
5
|
|
Reductions for tax positions of prior years
|
|
|
(2)
|
|
Settlements
|
|
|
(1)
|
|
Foreign currency translation adjustments
|
|
|
14
|
|
|
|
Balance at December 31, 2007
|
|
$
|
155
|
|
|
The amount of unrecognized tax benefits that, if recognized,
would affect our effective tax rate is approximately
$153 million.
Included within deferred taxes and excluded from unrecognized
tax benefits detailed above at December 31, 2007, are
$260 million of tax positions for which ultimate
deductibility is certain but for which there is uncertainty
about the timing of deductibility. Under deferred tax
accounting, the timing of deductibility would not affect the
effective tax rate but would accelerate the payment of cash to
the taxing authority to an earlier period.
We recognize interest and penalties accrued related to uncertain
income tax positions in interest expense and other operating
expenses, respectively. For the year ending December 31,
2007, $38 million was accrued for interest and penalties
with the cumulative accrued balance as of that date totaling
$164 million.
We anticipate the Internal Revenue Service examination of our
U.S. income tax returns for 2001 through 2003, along with
the examinations by various state and local jurisdictions, will
be completed within the next twelve months. As such, it is
reasonably possible that certain tax positions may be settled
and the unrecognized tax benefits would decrease by
approximately $10 million.
We file tax returns in the U.S. federal jurisdiction, and
various states and foreign jurisdictions. For our most
significant operations, as of December 31, 2007, the oldest
tax years that remain subject to examination are: United
States 2001, Canada 2003,
Germany 2003, United Kingdom 1995,
Mexico 2001, Brazil 2003, and
Australia 2002.
236
Notes to
Consolidated Financial Statements
GMAC
LLC
19. Related
Party Transactions
Balance
Sheet
A summary of the balance sheet effect of transactions with GM,
FIM Holdings, and affiliated companies is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, ($ in millions)
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investment in asset-backed security (a)
|
|
|
$35
|
|
|
|
$471
|
|
|
|
Finance receivables and loans, net of unearned income
|
|
|
|
|
|
|
|
|
|
|
Wholesale auto financing (b)
|
|
|
717
|
|
|
|
938
|
|
|
|
Term loans to dealers (b)
|
|
|
166
|
|
|
|
207
|
|
|
|
Lending receivables (c)
|
|
|
145
|
|
|
|
|
|
|
|
Investment in operating leases, net (d)
|
|
|
330
|
|
|
|
290
|
|
|
|
Notes receivable from GM (e)
|
|
|
1,868
|
|
|
|
1,975
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
Receivable related to taxes due from GM (f)
|
|
|
|
|
|
|
317
|
|
|
|
Subvention receivables (rate and residual support)
|
|
|
365
|
|
|
|
|
|
|
|
Lease pull-ahead receivable
|
|
|
22
|
|
|
|
|
|
|
|
Other
|
|
|
60
|
|
|
|
50
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Unsecured debt
|
|
|
|
|
|
|
|
|
|
|
Notes payable to GM
|
|
|
585
|
|
|
|
60
|
|
|
|
Accrued expenses and other liabilities
|
|
|
|
|
|
|
|
|
|
|
Wholesale payable
|
|
|
466
|
|
|
|
499
|
|
|
|
Subvention receivables (rate and residual support)
|
|
|
|
|
|
|
(309
|
)
|
|
|
Lease pull-ahead receivable
|
|
|
|
|
|
|
(62
|
)
|
|
|
Other receivables (payables)
|
|
|
55
|
|
|
|
(100
|
)
|
|
|
Preferred interests (g)
|
|
|
|
|
|
|
2,195
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
Dividends to members (h)
|
|
|
|
|
|
|
9,739
|
|
|
|
Preferred interests (g)
|
|
|
1,052
|
|
|
|
|
|
|
|
Conversion of preferred membership interests (g)
|
|
|
1,121
|
|
|
|
|
|
|
|
Capital contributions received (i)
|
|
|
1,080
|
|
|
|
951
|
|
|
|
Preferred interest accretion to redemption value and dividends
|
|
|
192
|
|
|
|
295
|
|
|
|
|
|
|
|
(a)
|
|
In November 2006, GMAC retained an
investment in a note secured by operating lease assets
transferred to GM. As part of the transfer, GMAC provided a note
to a trust, a wholly owned subsidiary of GM. The note is
classified in investment securities on our Consolidated Balance
Sheet.
|
(b)
|
|
Represents wholesale financing and
term loans to certain dealerships wholly owned by GM or in which
GM has an interest.
|
(c)
|
|
Primarily represents loans with
various affiliates of FIM Holdings.
|
(d)
|
|
Includes vehicles, buildings, and
other equipment classified as operating lease assets that are
leased to GM-affiliated and FIM Holdings-affiliated entities.
|
(e)
|
|
During 2007 and 2006, we have also
provided wholesale financing to GM for vehicles, parts, and
accessories in which GM retains title while consigned to us or
dealers in the UK, Italy, and Germany. The financing to GM
remains outstanding until the title is transferred to the
dealers. The amount of financing provided to GM under this
arrangement varies based on inventory levels. Also included in
the 2007 balance is the note receivable from GM referenced in
(f) below.
|
(f)
|
|
In November 2006, GMAC transferred
NOL tax receivables to GM for entities converting to an LLC. For
all nonconverting entities, the amount was reclassified to
deferred income taxes on our Consolidated Balance Sheet. At
December 31, 2006, this balance represents a 2006
overpayment of taxes from GMAC to GM under our former
tax-sharing arrangement and was included in accrued expenses and
other liabilities on our Consolidated Balance Sheet.
|
(g)
|
|
During the fourth quarter of 2007,
GM and FIM Holdings converted $1.1 billion of preferred
membership interest into common equity interests. Refer to
Note 1 for further discussion.
|
(h)
|
|
Amount includes cash dividends of
$4.8 billion and noncash dividends of $4.9 billion in
2006. During the fourth quarter of 2006, in connection with the
Sale Transactions, GMAC paid $7.8 billion of dividends to
GM, which was composed of the following: (i) a cash
dividend of $2.7 billion representing a one-time
distribution to GM primarily to reflect the increase in
GMACs equity resulting from the elimination of a portion
of our net deferred tax liabilities arising from the conversion
of GMAC and certain of our subsidiaries to a limited liability
company; (ii) certain assets with respect to automotive
leases owned by GMAC and its affiliates having a net book value
of approximately $4.0 billion and related deferred tax
liabilities of $1.8 billion; (iii) certain Michigan
properties with a carrying value of approximately
$1.2 billion to GM; (iv) intercompany receivables from
GM related to tax attributes of $1.1 billion; (v) net
contingent tax assets of $491 million; and (vi) other
miscellaneous transactions.
|
(i)
|
|
During the first quarter of 2007,
under the terms of the Sale Transactions, GM made a capital
contribution of $1 billion to GMAC. The amount in 2006 was
composed of the following: (i) approximately
$801 million of liabilities related to
U.S.- and
Canadian-based, GM-sponsored, other postretirement programs and
related deferred tax assets of $302 million;
(ii) contingent tax liabilities of $384 million
assumed by GM; and (iii) deferred tax assets transferred
from GM of $68 million.
|
237
Notes to
Consolidated Financial Statements
GMAC
LLC
Income
Statement
A summary of the income statement effect of transactions with GM
and affiliated companies is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
Net financing revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GM and affiliates lease residual value support (a)
|
|
|
$1,024
|
|
|
|
$749
|
|
|
|
$507
|
|
|
|
Wholesale subvention and service fees from GM
|
|
|
269
|
|
|
|
207
|
|
|
|
159
|
|
|
|
Interest paid on loans from GM
|
|
|
(23
|
)
|
|
|
(50
|
)
|
|
|
(46
|
)
|
|
|
Consumer lease payments from GM (b)
|
|
|
39
|
|
|
|
74
|
|
|
|
168
|
|
|
|
Insurance premiums earned from GM
|
|
|
254
|
|
|
|
334
|
|
|
|
384
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on notes receivable from GM and affiliates
|
|
|
134
|
|
|
|
282
|
|
|
|
300
|
|
|
|
Interest on wholesale settlements (c)
|
|
|
179
|
|
|
|
183
|
|
|
|
150
|
|
|
|
Revenues from GM leased properties, net
|
|
|
13
|
|
|
|
93
|
|
|
|
79
|
|
|
|
Derivatives (d)
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
Other
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
Service fee income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAC of Canada operating lease administration (e)
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
Rental car repurchases held for resale (f)
|
|
|
|
|
|
|
18
|
|
|
|
22
|
|
|
|
U.S. Automotive operating leases (g)
|
|
|
26
|
|
|
|
37
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee retirement plan costs allocated by GM
|
|
|
(1
|
)
|
|
|
136
|
|
|
|
157
|
|
|
|
Off-lease vehicle selling expense reimbursement (h)
|
|
|
(38
|
)
|
|
|
(29
|
)
|
|
|
(17
|
)
|
|
|
Payments to GM for services, rent, and marketing
expenses (i)
|
|
|
156
|
|
|
|
106
|
|
|
|
131
|
|
|
|
|
|
|
|
(a)
|
|
Represents total amount of residual
support and risk sharing paid (or invoiced) under the residual
support and
risk-sharing
programs and deferred revenue related to the settlement of
residual support and
risk-sharing
obligations for a portion of the lease portfolio in 2006, as
described below.
|
(b)
|
|
GM sponsors lease pull-ahead
programs whereby consumers are encouraged to terminate lease
contracts early in conjunction with the acquisition of a new GM
vehicle, with the customers remaining payment obligation
waived. For certain programs, GM compensates us for the waived
payments, adjusted based on the remarketing results associated
with the underlying vehicle.
|
(c)
|
|
The settlement terms related to the
wholesale financing of certain GM products are at shipment date.
To the extent wholesale settlements with GM are made before the
expiration of transit, we receive interest from GM.
|
(d)
|
|
Represents income (loss) related to
derivative transactions entered into with GM as counterparty.
|
(e)
|
|
GMAC of Canada, Limited
administered operating lease receivables on behalf of GM of
Canada, Limited (GMCL) and received a servicing fee, which was
included in other income. As of October 2005, GMAC of Canada,
Limited no longer administers these operating lease receivables.
|
(f)
|
|
Represents receive a servicing fee
from GM related to the resale of rental car repurchases. At
December 31, 2006, this program was terminated.
|
(g)
|
|
Represents servicing income related
to automotive leases distributed to GM on November 22, 2006.
|
(h)
|
|
An agreement with GM provides for
the reimbursement of certain selling expenses incurred by us on
off-lease vehicles sold by GM at auction.
|
(i)
|
|
We reimburse GM for certain
services provided to us. This amount includes rental payments
for our primary executive and administrative offices located in
the Renaissance Center in Detroit, Michigan, as well as
exclusivity and royalty fees.
|
Retail
and Lease Programs
GM may elect to sponsor incentive programs (on both retail
contracts and operating leases) by supporting financing rates
below the standard market rates at which we purchase retail
contracts and leases. These marketing incentives are also
referred to as rate support or subvention. When GM utilizes
these marketing incentives, it pays us the present value of the
difference between the customer rate and our standard rate at
contract inception, which we defer and recognize as a yield
adjustment over the life of the contract.
GM may also sponsor lease residual support programs as a way to
lower customer monthly payments. Under residual support
programs, the customers contractual residual value is
adjusted above our standard residual values. Historically, GM
reimbursed us at the time of the vehicles disposal if
remarketing sales proceeds were less than the customers
contractual residual value limited to our standard residual
value. In addition to residual support programs, GM also
participated in a
risk-sharing
arrangement whereby GM shared equally in residual losses to the
extent that remarketing proceeds were below our standard
residual values (limited to a floor).
In connection with the Sale Transactions, GM settled its
estimated liabilities with respect to residual support and risk
sharing on a portion of our operating lease portfolio and on the
entire U.S. balloon retail receivables portfolio in a
series of lump-sum payments. A negotiated amount totaling
approximately $1.4 billion was agreed to by GM under these
leases and balloon contracts and was paid to us. The payments
were recorded as a deferred amount in accrued
238
Notes to
Consolidated Financial Statements
GMAC
LLC
expenses and other liabilities on our Consolidated Balance
Sheet. As these contracts terminate and the vehicles are sold at
auction, the payments are treated as a component of sales
proceeds in recognizing the gain or loss on sale of the
underlying assets. As of December 31, 2007, the
remaining deferred amount is $749 million.
In addition, with regard to U.S. lease originations and all
U.S. balloon retail contract originations occurring after
April 30, 2006, that remained with us after the
consummation of the Sale Transactions. GM agreed to begin
payment of the present value of the expected residual support
owed to us at the time of contract origination as opposed to
after contract termination at the time of sale of the related
vehicle. The residual support amount GM actually owes us is
finalized as the leases actually terminate. Under the terms of
the residual support program, in cases where the estimate was
incorrect, GM may be obligated to pay us, or we may be obligated
to reimburse GM. For the affected contracts originated during
the year ended December 31, 2007, GM paid or agreed to
pay us a total of $1.1 billion.
Based on the December 31, 2007, outstanding
U.S. operating lease portfolio, the additional maximum
amount that could be paid by GM under the residual support
programs is approximately $1.1 billion and would only be
paid in the unlikely event that the proceeds from the entire
portfolio of lease assets were lower than both the contractual
residual value and our standard residual rates. Based on the
December 31, 2007, outstanding U.S. operating
lease portfolio, the maximum amount that could be paid under the
risk-sharing arrangements is approximately $1.1 billion and
would only be paid in the unlikely event that the proceeds from
all outstanding lease vehicles were lower than our standard
residual rates.
Retail and lease contracts acquired by us that included rate and
residual subvention from GM, payable directly or indirectly to
GM dealers, as a percentage of total new retail installment and
lease contracts acquired, were as follows:
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2007
|
|
2006
|
|
GM and affiliates rate subvented contracts acquired:
|
|
|
|
|
|
|
|
|
North American operations
|
|
|
85
|
%
|
|
|
90
|
%
|
International operations (a)
|
|
|
42
|
%
|
|
|
52
|
%
|
|
|
|
|
(a)
|
|
The decrease in 2007 is primarily
due to a price repositioning in Mexico, which improved the
competitiveness of nonsubvented products and increased
Mexicos retail penetration by 2% in comparison with 2006
levels.
|
Distribution
of Operating Lease Assets
In connection with the sale by GM of a 51% interest in GMAC, on
November 22, 2006, GMAC transferred to GM certain GMAC
U.S. lease assets, along with related secured debt and
other assets as described in Notes 8, 11, and 12,
respectively. GMAC retained an investment in a note, which had a
balance as of December 31, 2007, of $35 million
secured by the lease assets distributed to GM as described in
Note 5. GMAC continues to service the assets and related
secured debt on behalf of GM and receives a fee for this
service. As it does for other securitization transactions, GMAC
is obligated as servicer to repurchase any lease asset that is
in breach of any of the covenants of the securitization
documents. In addition, in a number of the transactions
securitizing the lease assets transferred to GM, the trusts
issued one or more series of floating-rate debt obligations and
entered into primary derivative transactions to remove the
market risk associated with funding the fixed payment lease
assets with floating interest rate debt. To facilitate these
securitization transactions, GMAC entered into secondary
derivative transactions with the primary derivative
counterparties, essentially offsetting the primary derivatives.
As part of the distribution, GM assumed the rights and
obligations of the primary derivative whereas GMAC retained the
secondary, leaving both companies exposed to market value
movements of their respective derivatives. GMAC and GM have
subsequently entered into derivative transactions with each
other intended to offset the exposure each party has to its
component of the primary and secondary derivatives.
Exclusivity
Arrangement
GM and GMAC have entered into several service agreements, which
codify the mutually beneficial historical relationship between
GM and GMAC. In connection with the agreements, GMAC has been
granted a
10-year
exclusivity right covering U.S. subvented automotive
consumer business that ends in November 2016. In return for this
exclusivity, GMAC will pay GM an annual exclusivity fee of
$75 million and is committed to provide financing to GM
customers in accordance with historical practices. Specifically,
in connection with the U.S. Consumer Financing Agreement,
GMAC must meet certain targets with respect to consumer retail
and lease financings of new GM vehicles. If the contractual
commitments are not met, GM may assess financial penalties to
GMAC, or even rescind GMACs exclusivity rights. The
agreement provides GMAC ample flexibility to provide GM with
required financing support without compromising GMACs
underwriting standards.
In addition, we have entered into various services agreements
with GM designed to document and maintain the current and
historical relationship between us. We are required to pay GM
fees in connection with certain of these agreements related to
our financing of GM consumers and dealers in certain parts of
the world.
239
Notes to
Consolidated Financial Statements
GMAC
LLC
Royalty
Arrangement
For certain insurance products, GM and GMAC have entered into
the Intellectual Property License Agreement for the right of
GMAC to use the GM name on certain insurance products. In
exchange, GMAC will pay to GM a minimum annual guaranteed
royalty fee of $15 million.
Other
GM also provides payment guarantees on certain commercial assets
we have outstanding with certain third-party customers. As of
December 31, 2007 and 2006, commercial obligations
guaranteed by GM were $107 million and $216 million,
respectively. In addition, we have a consignment arrangement
with GM for commercial inventories in Europe. As of
December 31, 2007 and 2006, commercial inventories
related to this arrangement were $90 million and
$151 million, respectively, and are reflected in other
assets on our Consolidated Balance Sheet.
GM Call
Option
GM retains an option to repurchase certain assets from us
related to the Automotive Finance operations of our North
American operations and our International operations. This
option, which was granted pursuant to the Purchase and Sale
Agreement, expires on the earlier of (i) November 2016 and
(ii) the date upon which GMs common equity interest
in GMAC falls below 15%. GMs exercise of the option is
conditional on GMs credit rating being investment grade or
higher than our credit rating. The call option price will be
calculated as the higher of (i) fair market value,
determined in accordance with procedures set forth in the
Purchase and Sale Agreement, or (ii) 9.5 times the
consolidated net income of our Automotive Finance operations in
either the calendar year the call option is exercised or the
calendar year immediately following the year the call option is
exercised. As required by the Purchase and Sale Agreement, we
have created a subsidiary and have contributed to it certain
Automotive Finance assets to facilitate GMs potential
exercise of the call option.
20. Comprehensive
Income
Comprehensive income is composed of net income and other
comprehensive income, which includes the after-tax change in
unrealized gains and losses on available-for-sale securities,
foreign currency translation adjustments, cash flow hedging
activities, and SFAS 158 adoption. The following table
presents the components and annual activity in other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Cumulative
|
|
Accumulated
|
|
|
gains (losses)
|
|
|
|
|
|
effect of
|
|
other
|
Year ended December 31,
|
|
on investment
|
|
Translation
|
|
Cash flow
|
|
SFAS 158
|
|
comprehensive
|
($ in millions)
|
|
securities (a)
|
|
adjustments (b)
|
|
hedges
|
|
adoption
|
|
income (loss)
|
|
|
Balance at December 31, 2004
|
|
|
$626
|
|
|
|
$366
|
|
|
|
$176
|
|
|
|
$
|
|
|
|
$1,168
|
|
2005 net change
|
|
|
(89
|
)
|
|
|
(295
|
)
|
|
|
46
|
|
|
|
|
|
|
|
(338
|
)
|
|
|
Balance at December 31, 2005
|
|
|
537
|
|
|
|
71
|
|
|
|
222
|
|
|
|
|
|
|
|
830
|
|
2006 net change
|
|
|
(431
|
)
|
|
|
291
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
(345
|
)
|
|
|
Balance at December 31, 2006
|
|
|
106
|
|
|
|
362
|
|
|
|
17
|
|
|
|
|
|
|
|
485
|
|
2007 net change
|
|
|
(14
|
)
|
|
|
490
|
|
|
|
(26
|
)
|
|
|
17
|
|
|
|
467
|
|
|
|
Balance at December 31, 2007
|
|
|
$92
|
|
|
|
$852
|
|
|
|
($9
|
)
|
|
|
$17
|
|
|
|
$952
|
|
|
|
|
|
(a)
|
|
Primarily represents the after-tax
difference between the fair value and amortized cost of our
available-for-sale securities portfolio.
|
(b)
|
|
Includes after-tax gains and losses
on foreign currency translation from operations for which the
functional currency is other than the U.S. dollar. Net change
amounts are net of tax expense of $11 million, tax benefit
of $37 million, and tax benefit $35 million for the
years ended December 31, 2007, 2006, and 2005,
respectively.
|
240
Notes to
Consolidated Financial Statements
GMAC
LLC
The net changes in the following table represent the sum of net
unrealized gains (losses) of available-for-sale securities and
net unrealized gains (losses) on cash flow hedges with the
respective reclassification adjustments. Reclassification
adjustments are amounts recognized in net income during the
current year and that were reported in other comprehensive
income in previous years. The 2006 amounts also include the
cumulative effect of a change in accounting principle due to the
adoption of SFAS 156. SFAS 156, upon initial adoption,
permitted a one-time reclassification of available-for-sale
securities to trading securities for securities, which were
identified as offsetting an entitys exposure or
liabilities that a servicer elects to subsequently measure at
fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle, net of
taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of unrealized loss for certain available-for-sale
securities
|
|
|
$
|
|
|
|
$17
|
|
|
|
$
|
|
|
|
Net unrealized (losses) gains arising during the period, net of
taxes (a)
|
|
|
(1
|
)
|
|
|
204
|
|
|
|
(11
|
)
|
|
|
Reclassification adjustment for net gains included in net
income, net of taxes (b)
|
|
|
(13
|
)
|
|
|
(652
|
)
|
|
|
(78
|
)
|
|
|
|
|
Net change
|
|
|
(14
|
)
|
|
|
(431
|
)
|
|
|
(89
|
)
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (losses) gains on cash flow hedges, net of
taxes (c)
|
|
|
(71
|
)
|
|
|
(207
|
)
|
|
|
45
|
|
|
|
Reclassification adjustment for net losses included in net
income, net of taxes (d)
|
|
|
45
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
Net change
|
|
|
($26
|
)
|
|
|
($205
|
)
|
|
|
$46
|
|
|
|
|
|
|
|
(a)
|
|
Net of tax expense of
$24 million for 2007, tax expense of $106 million for
2006, and tax benefit of $6 million for 2005.
|
(b)
|
|
Net of tax expense of
$8 million for 2007, $351 million for 2006, and
$42 million for 2005.
|
(c)
|
|
Net of tax benefit of
$12 million for 2007, tax benefit of $121 million for
2006, and tax expense of $23 million for 2005.
|
(d)
|
|
Net of tax benefit of
$12 million for 2007, and $1 million for 2006, and
2005.
|
21. Fair
Value of Financial Instruments
The fair value of financial instruments is the amount at which a
financial instrument could be exchanged in a current transaction
between willing parties other than in a forced sale or
liquidation. When possible, we use quoted market prices to
determine fair value. Where quoted market prices are not
available, the fair value is internally derived based upon
appropriate valuation methodologies with respect to the amount
and timing of future cash flows and estimated discount rates.
However, considerable judgment is required in interpreting
market data to develop estimates of fair value, so the estimates
are not necessarily indicative of the amounts that could be
realized or would be paid in a current market exchange. The
effect of using different market assumptions or estimation
methodologies could be material to the estimated fair values.
Fair value information presented herein is based on information
available at December 31, 2007 and 2006. Although
management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not
been updated since those dates; therefore, the current estimates
of fair value at dates after December 31, 2007 and
2006, could differ significantly from these amounts.
241
Notes to
Consolidated Financial Statements
GMAC
LLC
The following table presents the carrying and estimated fair
value of assets and liabilities considered financial instruments
under Statements of Financial Accounting Standards No. 107,
Disclosures about Fair Value of Financial Instruments
(SFAS 107). Accordingly, certain items that are not
considered financial instruments are excluded from the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
December 31, ($ in
millions)
|
|
value
|
|
value
|
|
value
|
|
value
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
$16,740
|
|
|
|
$16,740
|
|
|
|
$16,791
|
|
|
|
$16,791
|
|
Loans held for sale
|
|
|
20,559
|
|
|
|
20,852
|
|
|
|
27,718
|
|
|
|
28,025
|
|
Finance receivables and loans, net
|
|
|
124,759
|
|
|
|
122,378
|
|
|
|
170,870
|
|
|
|
171,076
|
|
Notes receivable from GM
|
|
|
1,868
|
|
|
|
1,868
|
|
|
|
1,975
|
|
|
|
1,975
|
|
Derivative assets
|
|
|
4,448
|
|
|
|
4,448
|
|
|
|
2,544
|
|
|
|
2,544
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt (a)
|
|
|
193,547
|
|
|
|
179,400
|
|
|
|
237,338
|
|
|
|
237,733
|
|
Deposit liabilities
|
|
|
12,851
|
|
|
|
13,020
|
|
|
|
9,566
|
|
|
|
9,566
|
|
Derivative liabilities
|
|
|
1,311
|
|
|
|
1,311
|
|
|
|
1,745
|
|
|
|
1,745
|
|
|
|
|
|
(a)
|
|
Debt includes deferred interest for
zero-coupon bonds of $399 million and $353 million for
2007 and 2006, respectively.
|
The following describes the methodologies and assumptions used
to determine fair value for the respective classes of financial
instruments.
Investment
Securities
Bonds, equity securities, notes, and other available-for-sale
investment securities are carried at fair value, which is
primarily based on quoted market prices. The fair value of
mortgage-related trading securities is based on market quotes to
the extent available, discounted using market prepayment
assumptions, and discount rates. If external quotes are not
available, valuations are based on internal valuation models
using market-based assumptions. Held-to-maturity investment
securities are carried at amortized cost. The fair value of the
held-to-maturity investment securities is based on valuation
models using market-based assumptions. Interests in
securitization trusts are carried at fair value based on
expected cash flows discounted at current market rates.
Loans
Held for Sale
The fair value of loans held for sale is based upon actual
prices received on recent sales of loans and securities to
investors and projected prices obtained through investor
indications considering interest rates, loan type, and credit
quality.
Finance
Receivables and Loans, Net
The fair value of finance receivables is estimated by
discounting the future cash flows using applicable spreads to
approximate current rates applicable to each category of finance
receivables. The carrying value of wholesale receivables and
other automotive and mortgage lending receivables for which
interest rates reset on a short-term basis with applicable
market indices are assumed to approximate fair value either
because of the short-term nature or because of the interest rate
adjustment feature. The fair value of mortgage loans held for
investment is based on discounted cash flows, using interest
rates currently being offered for loans with similar terms to
borrowers with similar credit quality; the net realizable value
of collateral;
and/or the
estimated sales price based on quoted market prices where
available or actual prices received on comparable sales of
mortgage loans to investors.
Notes
Receivable from GM
The fair value is estimated by discounting the future cash flows
using applicable spreads to approximate current rates applicable
to certain categories of other financing assets.
Derivative
Assets and Liabilities
The fair value of interest rate swaps is estimated based on
discounted expected cash flows using quoted market interest
rates. The fair value of caps, written and purchased options,
and mortgage-related interest rate swaps is based upon quoted
market prices or broker-dealer quotes. The fair value of foreign
currency swaps is based on discounted expected cash flows using
market exchange rates over the remaining term of the agreement.
Debt
The fair value of debt is determined by using quoted market
prices for the same or similar issues, if available, or based on
the current rates offered to us for debt with similar remaining
maturities. Commercial paper, master notes, and demand notes
have an original term of less than 270 days; therefore, the
carrying amount of these liabilities is considered to
approximate fair value.
Deposit
Liabilities
Deposit liabilities represent certain consumer bank deposits as
well as mortgage escrow deposits. The fair value of deposits
with no stated maturity is equal to their carrying
242
Notes to
Consolidated Financial Statements
GMAC
LLC
amount. The fair value of fixed-maturity deposits was estimated
by discounting cash flows using currently offered rates for
deposits of similar maturities.
22. Variable
Interest Entities
The following describes the variable interest entities that we
have consolidated or in which we have a significant variable
interest as described in Interpretation No. 46,
Consolidation of Variable Interest Entities
(FIN 46R).
Automotive finance receivables In certain
securitization transactions, we transfer consumer finance
receivables and wholesale lines of credit into bank-sponsored,
multiseller, commercial paper conduits. These conduits provide a
funding source to us (as well as other transferors into the
conduit) as they fund the purchase of the receivables through
the issuance of commercial paper. Total assets outstanding in
these bank-sponsored conduits approximated $12.4 billion as
of December 31, 2007. Although we have variable
interests in these conduits, we are not considered to be the
primary beneficiary, as we do not retain the majority of the
expected losses or returns. Our maximum exposure to loss because
of our involvement with these nonconsolidated variable interest
entities is $152 million and would only be incurred in the
event of a complete loss on the assets that we transferred.
Mortgage warehouse funding Our ResCap
operations transfer residential mortgage loans, lending
receivables, home equity loans, and lines of credit pending
permanent sale or securitization through various structured
finance arrangements to provide funds for the origination and
purchase of future loans. These structured finance arrangements
include transfers to warehouse funding entities, including GMAC
and bank-sponsored commercial paper conduits. Transfers of
assets into each facility are accounted for as either sales
(off-balance sheet) or secured financings (on-balance sheet)
based on the provisions of SFAS 140. However, in either
case, creditors of these facilities have no legal recourse to
our general credit. Some of these warehouse funding entities
represent variable interest entities under FIN 46R.
Management has determined that for certain mortgage warehouse
funding facilities, we are the primary beneficiary, and as such,
we consolidate the entities in accordance with FIN 46R. The
assets of these residential mortgage warehouse entities totaled
$7.7 billion at December 31, 2007, the majority
of which are included in loans held for sale, on our
Consolidated Balance Sheet. The beneficial interest holders of
these variable interest entities do not have legal recourse to
our general credit.
Residential mortgage loan alliances ResCap
has invested in strategic alliances with several mortgage loan
originators. These alliances may include common or preferred
equity investments, working capital or other subordinated
lending, and warrants. In addition to warehouse lending
arrangements, management has determined that we do not have the
majority of the expected losses or returns and as such,
consolidation is not appropriate. Total assets in these
alliances were $32 million at December 31, 2007.
Our maximum exposure to loss under these alliances, including
commitments to lend additional funds or purchase loans at
above-market rates, is $16 million at
December 31, 2007.
Construction and real estate lending We use a
special-purpose entity to finance construction-lending
receivables. This special-purpose entity purchases and holds the
receivables and funds the majority of the purchases through
financing obtained from third-party asset-backed commercial
paper conduits.
The results of our variable interest analysis indicate that we
are the primary beneficiary, and as such, we consolidate the
entity. The assets in this entity totaled $2.6 billion and
$2.1 billion at December 31, 2007 and 2006,
respectively, which are included in finance receivables and
loans, net of unearned income, on our Consolidated Balance
Sheet. The beneficial interest holders of this variable interest
entity do not have legal recourse to our general credit.
We have subordinated real estate lending arrangements with
certain entities. These entities are created to develop land and
construct properties. Management has determined that we do not
have the majority of the expected losses or returns, and as
such, consolidation is not appropriate. Total assets in these
entities were $549 million at December 31, 2007,
of which $195 million represents our maximum exposure to
loss.
Warehouse lending We have a facility in which
we transfer mortgage warehouse lending receivables to a 100%
owned SPE that then sells a senior participation interest in the
receivables to an unconsolidated QSPE. The QSPE funds the
purchase of the participation interest from the SPE through
financing obtained from third-party asset-backed commercial
paper conduits. The SPE funds the purchase of the receivables
from us with cash obtained from the QSPE, as well as a
subordinated loan
and/or an
equity contribution from us. The senior participation interest
sold to the QSPE and the commercial paper issued were not
included in our assets or liabilities in 2004. However, the QSPE
was terminated and a new SPE was created in 2005. As a result,
the senior participation interest sold and commercial paper
issued were included on our Consolidated Balance Sheet at
December 31, 2007 and 2006, respectively. Once the
receivables have been sold, they may not be purchased by us
except in very limited circumstances, such as a breach in
representations or warranties.
Management has determined that we are the primary beneficiary of
the SPE, and as such, consolidates the entity. The assets of the
SPE totaled $514 million and $14.5 billion at
December 31, 2007 and 2006, respectively, which are
included
243
Notes to
Consolidated Financial Statements
GMAC
LLC
in finance receivables and loans, net of unearned income, on our
Consolidated Balance Sheet. The beneficial interest holders of
this variable interest entity do not have legal recourse to our
general credit.
Collateralized debt obligations (CDOs) Our
ResCap operations sponsors and manages the collateral of certain
CDOs. Under CDO transactions, a trust is established that
purchases a portfolio of securities and issues debt and equity
certificates, representing interests in the portfolio of assets.
Bonds representing the collateral for the CDO include both those
issued by us from loan securitizations and those issued by third
parties. In addition to receiving variable compensation for
managing the portfolio, we sometimes retain equity investments
in the CDOs.
Management has determined that for certain CDO entities, we are
the primary beneficiary, and as such, we consolidate the
entities. The assets in these entities totaled $363 million
and $732 million at December 31, 2007 and 2006,
respectively, the majority of which are included in investment
securities on our Consolidated Balance Sheet. The beneficial
interest holders of these variable interest entities do not have
legal recourse to our general credit.
Commercial finance receivables We have a
facility in which we transfer commercial lending receivables to
a 100% owned SPE, which, in turn, issues notes received to
third-party financial institutions, GMAC Commercial Finance, and
asset-backed commercial paper conduits. The SPE funds the
purchase of receivables from us with cash obtained from the sale
of notes. Management has determined that we are the primary
beneficiary of the SPE and, as such, consolidates the entity.
The assets of the SPE totaled $1.7 billion as of
December 31, 2007, and are included in finance receivables
and loans, net of unearned income, on our Consolidated Balance
Sheet. The beneficial interest holders of this variable interest
entity do not have legal recourse to our general credit.
In other securitization transactions, we transfer commercial
trade receivables into bank-sponsored multiseller commercial
paper conduits. These conduits provide a funding source to us
(as well as other transferors into the conduit) as they fund the
purchase of the receivables through the issuance of commercial
paper. Total assets outstanding in these bank-sponsored conduits
approximated $2.0 billion as of December 31, 2007.
Although we have a variable interest in these conduits, we may
at our discretion prepay all or any portion of the loans at any
time.
244
Notes to
Consolidated Financial Statements
GMAC
LLC
23. Segment
and Geographic Information
Operating segments are defined as components of an enterprise
that engage in business activity from which revenues are earned
and expenses incurred for which discrete financial information
is available that is evaluated regularly by the chief operating
decision makers in deciding how to allocate resources and in
assessing performance. Financial information for our reportable
operating segments is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Finance
|
|
|
|
|
|
|
|
|
|
|
operations (a)
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
International
|
|
|
|
|
|
|
|
|
Year ended December 31, ($ in millions)
|
|
operations (b)
|
|
operations (c)
|
|
ResCap
|
|
Insurance
|
|
Other (b)(d)
|
|
Consolidated
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing revenue
|
|
|
$90
|
|
|
|
$824
|
|
|
|
$36
|
|
|
|
$
|
|
|
|
$546
|
|
|
|
$1,496
|
|
Other revenue
|
|
|
3,151
|
|
|
|
890
|
|
|
|
1,640
|
|
|
|
4,902
|
|
|
|
(280
|
)
|
|
|
10,303
|
|
|
|
Total net revenue
|
|
|
3,241
|
|
|
|
1,714
|
|
|
|
1,676
|
|
|
|
4,902
|
|
|
|
266
|
|
|
|
11,799
|
|
Provision for credit losses
|
|
|
390
|
|
|
|
120
|
|
|
|
2,580
|
|
|
|
|
|
|
|
6
|
|
|
|
3,096
|
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
455
|
|
Other noninterest expense
|
|
|
1,642
|
|
|
|
1,090
|
|
|
|
3,023
|
|
|
|
4,235
|
|
|
|
200
|
|
|
|
10,190
|
|
|
|
Income (loss) before income tax expense
|
|
|
1,209
|
|
|
|
504
|
|
|
|
(4,382
|
)
|
|
|
667
|
|
|
|
60
|
|
|
|
(1,942
|
)
|
Income tax expense (benefit) expense
|
|
|
110
|
|
|
|
118
|
|
|
|
(36
|
)
|
|
|
208
|
|
|
|
(10
|
)
|
|
|
390
|
|
|
|
Net income (loss)
|
|
|
$1,099
|
|
|
|
$386
|
|
|
|
($4,346
|
)
|
|
|
$459
|
|
|
|
$70
|
|
|
|
($2,332
|
)
|
|
Total assets
|
|
|
$125,235
|
|
|
|
$36,129
|
|
|
|
$81,260
|
|
|
|
$13,770
|
|
|
|
($8,684
|
)
|
|
|
$247,710
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing revenue
|
|
|
($291
|
)
|
|
|
$765
|
|
|
|
$958
|
|
|
|
$
|
|
|
|
$770
|
|
|
|
$2,202
|
|
Other revenue
|
|
|
3,081
|
|
|
|
806
|
|
|
|
3,360
|
|
|
|
5,616
|
|
|
|
(243
|
)
|
|
|
12,620
|
|
|
|
Total net revenue
|
|
|
2,790
|
|
|
|
1,571
|
|
|
|
4,318
|
|
|
|
5,616
|
|
|
|
527
|
|
|
|
14,822
|
|
Provision for credit losses
|
|
|
425
|
|
|
|
85
|
|
|
|
1,334
|
|
|
|
|
|
|
|
156
|
|
|
|
2,000
|
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840
|
|
|
|
840
|
|
Other noninterest expense
|
|
|
1,614
|
|
|
|
1,065
|
|
|
|
2,568
|
|
|
|
3,990
|
|
|
|
517
|
|
|
|
9,754
|
|
|
|
Income (loss) before income tax expense
|
|
|
751
|
|
|
|
421
|
|
|
|
416
|
|
|
|
1,626
|
|
|
|
(986
|
)
|
|
|
2,228
|
|
Income tax expense (benefit)
|
|
|
(184
|
)
|
|
|
113
|
|
|
|
(289
|
)
|
|
|
499
|
|
|
|
(36
|
)
|
|
|
103
|
|
|
|
Net income (loss)
|
|
|
$935
|
|
|
|
$308
|
|
|
|
$705
|
|
|
|
$1,127
|
|
|
|
($950
|
)
|
|
|
$2,125
|
|
|
Total assets
|
|
|
$103,506
|
|
|
|
$31,097
|
|
|
|
$130,569
|
|
|
|
$13,424
|
|
|
|
$8,843
|
|
|
|
$287,439
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing revenue
|
|
|
($419
|
)
|
|
|
$877
|
|
|
|
$1,352
|
|
|
|
$
|
|
|
|
$1,152
|
|
|
|
$2,962
|
|
Other revenue
|
|
|
3,108
|
|
|
|
809
|
|
|
|
3,508
|
|
|
|
4,259
|
|
|
|
271
|
|
|
|
11,955
|
|
|
|
Total net revenue
|
|
|
2,689
|
|
|
|
1,686
|
|
|
|
4,860
|
|
|
|
4,259
|
|
|
|
1,423
|
|
|
|
14,917
|
|
Provision for credit losses
|
|
|
313
|
|
|
|
102
|
|
|
|
626
|
|
|
|
|
|
|
|
33
|
|
|
|
1,074
|
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
712
|
|
|
|
712
|
|
Other noninterest expense
|
|
|
1,216
|
|
|
|
1,018
|
|
|
|
2,607
|
|
|
|
3,627
|
|
|
|
1,184
|
|
|
|
9,652
|
|
|
|
Income (loss) before income tax expense
|
|
|
1,160
|
|
|
|
566
|
|
|
|
1,627
|
|
|
|
632
|
|
|
|
(506
|
)
|
|
|
3,479
|
|
Income tax expense (benefit)
|
|
|
415
|
|
|
|
158
|
|
|
|
606
|
|
|
|
215
|
|
|
|
(197
|
)
|
|
|
1,197
|
|
|
|
Net income (loss)
|
|
|
$745
|
|
|
|
$408
|
|
|
|
$1,021
|
|
|
|
$417
|
|
|
|
($309
|
)
|
|
|
2,282
|
|
|
Total assets
|
|
|
$128,868
|
|
|
|
$27,285
|
|
|
|
$118,608
|
|
|
|
$12,624
|
|
|
|
$33,172
|
|
|
|
$320,557
|
|
|
|
|
|
(a)
|
|
North American operations consist
of automotive financing in the United States and Canada.
International operations consist of automotive financing and
full-service leasing in all other countries and Puerto Rico
through March 31, 2006. Beginning
April 1, 2006, Puerto Rico is included in North
American operations.
|
(b)
|
|
Refer to Note 1 for a
description of changes to historical financial data for North
American operations and Other operating segment.
|
(c)
|
|
Amounts include intrasegment
eliminations between the North American operations and
International operations.
|
(d)
|
|
Represents our Commercial Finance
business, Capmark, certain corporate activities and
reclassifications and elimination between the reporting
segments. The financial results for 2006 reflect our
approximately 21% equity interest in Capmark commencing
March 23, 2006, whereas the 2005 financial results
represent Capmark as wholly owned. At
December 31, 2007, total assets were $5.3 billion
for the Commercial Finance business, and ($14.0) billion in
corporate intercompany activity, reclassifications, and
eliminations.
|
245
Notes to
Consolidated Financial Statements
GMAC
LLC
Information concerning principal geographic areas was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
|
Year ended December 31, ($
in millions)
|
|
Revenue (a)
|
|
assets (b)
|
|
|
2007
|
|
|
|
|
|
|
|
|
Canada
|
|
|
$522
|
|
|
|
$9,861
|
|
Europe
|
|
|
1,177
|
|
|
|
2,725
|
|
Latin America
|
|
|
1,075
|
|
|
|
186
|
|
Asia-Pacific
|
|
|
86
|
|
|
|
238
|
|
|
|
Total foreign
|
|
|
2,860
|
|
|
|
13,010
|
|
Total domestic
|
|
|
8,939
|
|
|
|
19,897
|
|
|
|
Total
|
|
|
$11,799
|
|
|
|
$32,907
|
|
|
2006
|
|
|
|
|
|
|
|
|
Canada
|
|
|
$596
|
|
|
|
$8,447
|
|
Europe
|
|
|
1,642
|
|
|
|
2,357
|
|
Latin America
|
|
|
924
|
|
|
|
138
|
|
Asia-Pacific
|
|
|
79
|
|
|
|
201
|
|
|
|
Total foreign
|
|
|
3,241
|
|
|
|
11,143
|
|
Total domestic
|
|
|
11,581
|
|
|
|
13,619
|
|
|
|
Total
|
|
|
$14,822
|
|
|
|
$24,762
|
|
|
2005
|
|
|
|
|
|
|
|
|
Canada
|
|
|
$539
|
|
|
|
$7,784
|
|
Europe
|
|
|
1,693
|
|
|
|
2,740
|
|
Latin America
|
|
|
864
|
|
|
|
121
|
|
Asia-Pacific
|
|
|
77
|
|
|
|
201
|
|
|
|
Total foreign
|
|
|
3,173
|
|
|
|
10,846
|
|
Total domestic
|
|
|
11,744
|
|
|
|
22,119
|
|
|
|
Total
|
|
|
$14,917
|
|
|
|
$32,965
|
|
|
|
|
|
(a)
|
|
Revenue consists of total net
financing revenue and other revenue as presented in our
Consolidated Statement of Income.
|
(b)
|
|
Consists of net operating leases
assets and net property and equipment.
|
246
Notes to
Consolidated Financial Statements
GMAC
LLC
24. Restructuring
Charges
On October 17, 2007, ResCap announced a restructuring plan
that would reduce its workforce, streamline its operations and
revise its cost structure to enhance its flexibility, allowing
ResCap to scale operations up or down more rapidly to meet
changing market conditions. The restructuring plan announced
included reducing the ResCap worldwide workforce by
approximately 25%, or approximately 3,000 associates, with the
majority of these reductions occurring in the fourth quarter of
2007. This reduction in workforce was in addition to measures
undertaken in the first half of 2007 when 2,000 positions were
eliminated.
In the fourth quarter, ResCap incurred restructuring costs
related to severance and related costs associated with the
workforce reduction of $58 million, contract termination
costs related to closure of facilities of $46 million, and
asset write-downs of $23 million.
Additionally, in the fourth quarter, our North American
Automotive Finance operations and Insurance operations incurred
restructuring costs related to severance and related costs of
$4 million each.
The restructuring charges primarily include severance pay, the
buyout of employee agreements and lease terminations. The
following table summarizes by category, restructuring charge
activity for the year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
|
|
|
|
|
Liability
|
|
Restructuring
|
|
or otherwise
|
|
Liability
|
|
|
balance at
|
|
charges through
|
|
settled through
|
|
balance at
|
($ in millions)
|
|
September 30,
2007
|
|
December 31, 2007
|
|
December 31, 2007
|
|
December 31, 2007
|
|
|
Restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee severance
|
|
|
$
|
|
|
|
$66
|
|
|
|
($34
|
)
|
|
|
$32
|
|
Lease termination
|
|
|
|
|
|
|
68
|
|
|
|
(23
|
)
|
|
|
45
|
|
|
|
Total restructuring charges
|
|
|
$
|
|
|
|
$134
|
|
|
|
($57
|
)
|
|
|
$77
|
|
|
25. Guarantees,
Commitments, Contingencies and Other Risks
Guarantees
Guarantees are defined as contracts or indemnification
agreements that contingently require us to make payments to
third parties based on changes in an underlying agreement that
is related to a guaranteed party. The following summarizes our
outstanding guarantees made to third parties on our Consolidated
Balance Sheet, for the periods shown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Maximum
|
|
Carrying value
|
|
Maximum
|
|
Carrying value
|
December 31, ($ in
millions)
|
|
liability
|
|
of liability
|
|
liability
|
|
of liability
|
|
|
Standby letters of credit
|
|
|
$161
|
|
|
|
$40
|
|
|
|
$191
|
|
|
|
$37
|
|
Securitization and sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HLTV and international securitizations
|
|
|
67
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
Agency loan
|
|
|
6,005
|
|
|
|
|
|
|
|
6,390
|
|
|
|
|
|
Guarantees for repayment of third-party debt
|
|
|
543
|
|
|
|
|
|
|
|
617
|
|
|
|
|
|
Repurchase guarantees
|
|
|
135
|
|
|
|
|
|
|
|
204
|
|
|
|
|
|
Nonfinancial guarantees
|
|
|
211
|
|
|
|
|
|
|
|
233
|
|
|
|
|
|
Other guarantees
|
|
|
185
|
|
|
|
8
|
|
|
|
223
|
|
|
|
4
|
|
|
Standby letters of credit Our finance
operations (primarily through our Commercial Finance Group)
issues financial standby letters of credit to customers that
represent irrevocable guarantees of payment of specified
financial obligations (typically to clients suppliers). In
addition, our ResCap operations issues financial standby letters
of credit as part of its warehouse and construction lending
activities. Expiration dates on the letters of credit range from
2006 to ongoing commitments and are generally collateralized by
assets of the client (trade receivables, cash deposits, etc.).
High loan-to-value (HLTV) and international
securitizations Our ResCap operations have
entered into agreements to provide credit loss protection for
certain HLTV and international securitization transactions. The
maximum potential obligation for certain agreements is equal
247
Notes to
Consolidated Financial Statements
GMAC
LLC
to the lesser of a specified percentage of the original loan
pool balance or a specified percentage of the current loan pool
balance. We are required to perform on our guaranty obligation
when the bond insurer makes a payment under the bond insurance
policy. We pledged mortgage loans held for sale totaling
$32 million and $60 million and cash of
$0 million and $9 million as collateral for these
obligations as of December 31, 2007 and 2006, respectively.
For certain other HLTV securitizations, the maximum obligation
is equivalent to the pledged collateral amount. We pledged
mortgage loans held for sale totaling $51 million and
$57 million as collateral for these obligations as of
December 31, 2007 and 2006, respectively. The event which
will require us to perform on our guaranty obligation occurs
when the security credit enhancements are exhausted and losses
are passed through to over the counter dealers. The guarantees
terminate the first calendar month during which the aggregate
note amount is reduced to zero.
Agency loan program Our ResCap operations
deliver loans to certain agencies that allow streamlined loan
processing and limited documentation requirements. In the event
any loans delivered under these programs reach a specified
delinquency status, we may be required to provide certain
documentation or, in some cases, repurchase the loan or
indemnify the investors for any losses sustained. Each program
includes termination features whereby once the loan has
performed satisfactorily for a specified period of time we are
no longer obligated under the program. The maximum liability
represents the principal balance for loans sold under these
programs.
Guarantees for repayment of third-party debt
Under certain arrangements, we guarantee the repayment of
third-party debt obligations in the case of default. Some of
these guarantees are collateralized by letters of credit.
Our Commercial Finance Group provides credit protection to third
parties that guarantee payment of specified financial
obligations of the third parties customers, without purchasing
the obligations.
Repurchase guarantees Our ResCap operations
have issued repurchase guarantees to buyers of certain mortgage
loans whereby, if a closing condition or document deficiency is
identified by an investor after the closing, we may be required
to indemnify the investor if the loan becomes delinquent.
Nonfinancial guarantees In connection with
the sale of approximately 79% of our equity in Capmark, we were
released from all financial guarantees related to the former
GMAC Commercial Holdings business. Certain nonfinancial
guarantees did survive closing, but are indemnified by Capmark
for payment made or liabilities incurred by us in connection
with these guarantees.
Other guarantees We have other standard
indemnification clauses in certain of our funding arrangements
that would require us to pay lenders for increased costs
resulting from certain changes in laws or regulations. Since any
changes would be dictated by legislative and regulatory actions,
which are inherently unpredictable, we are not able to estimate
a maximum exposure under these arrangements. To date, we have
not made any payments under these indemnification clauses.
Our ResCap operations have guaranteed certain amounts related to
servicing advances, set-aside letters, and credit enhancement
and performance guarantees.
In connection with certain asset sales and securitization
transactions, we typically deliver standard representations and
warranties to the purchaser regarding the characteristics of the
underlying transferred assets. These representations and
warranties conform to specific guidelines, which are customary
in securitization transactions. These clauses are intended to
ensure that the terms and conditions of the sales contracts are
met upon transfer of the asset. Before any sale or
securitization transaction, we perform due diligence with
respect to the assets to be included in the sale to ensure they
meet the purchasers requirements, as expressed in the
representations and warranties. Due to these procedures, we
believe the potential for loss under these arrangements is
remote. Accordingly, no liability is reflected on our
Consolidated Balance Sheet related to these potential
obligations. The maximum potential amount of future payments we
could be required to make would be equal to the current balances
of all assets subject to these securitization or sale
activities. We do not monitor the total value of assets
historically transferred to securitization vehicles or through
other asset sales. Therefore, we are unable to develop an
estimate of the maximum payout under these representations and
warranties.
248
Notes to
Consolidated Financial Statements
GMAC
LLC
Commitments
Financing
Commitments
The contract amount and gain and loss positions of financial
commitments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Contract
|
|
Gain
|
|
Loss
|
|
Contract
|
|
Gain
|
|
Loss
|
December 31, ($ in
millions)
|
|
amount
|
|
position
|
|
position
|
|
amount
|
|
position
|
|
position
|
|
Commitments to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originate/purchase mortgages or securities (a)
|
|
|
$6,464
|
|
|
|
$6
|
|
|
|
($22
|
)
|
|
|
$14,248
|
|
|
|
$
|
|
|
|
($48
|
)
|
Sell mortgages or securities (a)
|
|
|
11,958
|
|
|
|
6
|
|
|
|
(29
|
)
|
|
|
20,702
|
|
|
|
28
|
|
|
|
(1
|
)
|
Remit excess cash flows on certain loan portfolios (b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,334
|
|
|
|
39
|
|
|
|
|
|
Sell retail automotive receivables (c)
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
|
|
21,500
|
|
|
|
|
|
|
|
|
|
Provide capital to equity-method investees (d)
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
278
|
|
|
|
|
|
|
|
|
|
Fund construction lending (e)
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
Unused mortgage lending commitments (f)
|
|
|
8,063
|
|
|
|
|
|
|
|
|
|
|
|
9,019
|
|
|
|
|
|
|
|
|
|
Bank certificates of deposit
|
|
|
8,116
|
|
|
|
|
|
|
|
|
|
|
|
6,686
|
|
|
|
|
|
|
|
|
|
Unused revolving credit line commitments (g)
|
|
|
6,361
|
|
|
|
|
|
|
|
|
|
|
|
7,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The fair value is estimated using
published market information associated with commitments to sell
similar instruments. Included as of December 31, 2007 and
2006 are commitments accounted for as derivatives with a
contract amount of $18,118 million and
$37,082 million, a gain position of $11 million and
$28 million, and a loss position of $41 million and
$49 million, respectively.
|
(b)
|
|
Under certain residential mortgage
purchase agreements, we are committed to remitting to its shared
execution partners cash flows that exceed a required rate
of return less credit loss reimbursements to the mortgage
originators. This commitment is accounted for as a derivative.
|
(c)
|
|
We have entered into agreements
with third-party banks to sell automotive retail receivables in
which we transfer all credit risk to the purchaser (whole loan
sales).
|
(d)
|
|
We are committed to lend equity
capital to certain private equity funds. The fair value of these
commitments is considered in the overall valuation of the
underlying assets with which they are associated.
|
(e)
|
|
We are committed to fund the
completion of the development of certain lots and model homes up
to the amount of the agreed upon amount per project.
|
(f)
|
|
The fair value of these commitments
is considered in the overall valuation of the related assets.
|
(g)
|
|
The unused portions of revolving
lines of credit reset at prevailing market rates and, as such,
approximate market value.
|
The mortgage lending and revolving credit line commitments
contain an element of credit risk. Management reduces its credit
risk for unused mortgage lending and unused revolving credit
line commitments by applying the same credit policies in making
commitments as it does for extending loans. We typically require
collateral as these commitments are drawn.
Lease
Commitments
Future minimum rental payments required under operating leases,
primarily for real property, with noncancelable lease terms
expiring after December 31, 2007, are as follows:
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
|
|
2008
|
|
|
$200
|
|
2009
|
|
|
153
|
|
2010
|
|
|
124
|
|
2011
|
|
|
88
|
|
2012
|
|
|
71
|
|
2013 and thereafter
|
|
|
165
|
|
|
|
Total minimum payment required
|
|
|
$801
|
|
|
Certain of the leases contain escalation clauses and renewal or
purchase options. Rental expenses under operating leases were
$227 million, $230 million, and $224 million in
2007, 2006, and 2005 respectively.
Contractual Commitments We have entered into
multiple agreements for information technology, marketing and
advertising, and voice and communication technology and
maintenance. Many of the agreements are subject to variable
price provisions, fixed or minimum price provisions, and
termination or renewal provisions. Future payment obligations
under these agreements totaled $3,117 million and are due
as follows: $2,505 million in 2008, $382 million in
2009 and 2010, $165 million in 2011 and 2012, and
$65 million after 2013.
Extended Service and Maintenance Contract
Commitments Extended service contract programs
provide consumers with expansions and extensions of vehicle
warranty coverage for specified periods of time and mileages.
The coverage generally provides for the repair or replacement of
components in the event of failure. The terms
249
Notes to
Consolidated Financial Statements
GMAC
LLC
of these contracts, which are sold through automobile
dealerships and direct mail, range from 3 to 120 months.
The following table presents an analysis of activity in unearned
service contract revenue.
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, ($
in millions)
|
|
2007
|
|
2006
|
|
|
|
Balance at beginning of year
|
|
|
$3,161
|
|
|
|
$3,159
|
|
|
|
Written service contract revenue
|
|
|
1,134
|
|
|
|
1,215
|
|
|
|
Earned service contract revenue
|
|
|
(1,353
|
)
|
|
|
(1,207
|
)
|
|
|
Foreign currency translation effect
|
|
|
5
|
|
|
|
(6
|
)
|
|
|
|
|
Balance at end of year
|
|
|
$2,947
|
|
|
|
$3,161
|
|
|
|
|
Legal
Contingencies
We are subject to potential liability under laws and government
regulations and various claims and legal actions that are
pending or may be asserted against us.
We are named as defendants in a number of legal actions and are,
from time to time, involved in governmental proceedings arising
in connection with our various businesses. Some of the pending
actions purport to be class actions. We establish reserves for
legal claims when payments associated with the claims become
probable and the costs can be reasonably estimated. The actual
costs of resolving legal claims may be substantially higher or
lower than the amounts reserved for those claims. Based on
information currently available, advice of counsel, available
insurance coverage, and established reserves, it is the opinion
of management that the eventual outcome of the actions against
us will not have a material adverse effect on our consolidated
financial condition, results of operations or cash flows.
Other
Contingencies
We are subject to potential liability under various other
exposures including tax, nonrecourse loans, self-insurance, and
other miscellaneous contingencies. We establish reserves for
these contingencies when the item becomes probable and the costs
can be reasonably estimated. The actual costs of resolving these
items may be substantially higher or lower than the amounts
reserved for any one item. Based on information currently
available, it is the opinion of management that the eventual
outcome of these items will not have a material adverse effect
on our consolidated financial condition, results of operations
or cash flows.
Other
Risks
Loans
Sold with Recourse
Our outstanding recourse obligations were as follows:
|
|
|
|
|
|
|
|
|
December 31, ($ in
millions)
|
|
2007
|
|
2006
|
|
Loans sold with recourse (a)
|
|
|
$249
|
|
|
|
$800
|
|
Maximum exposure on loans sold with recourse (b):
|
|
|
|
|
|
|
|
|
Full exposure
|
|
|
127
|
|
|
|
189
|
|
Limited exposure
|
|
|
28
|
|
|
|
58
|
|
|
|
Total exposure
|
|
|
$155
|
|
|
|
$247
|
|
|
|
|
|
(a)
|
|
Represents loans sold in the normal
course of the securitization process with various forms of
representations for early payment defaults.
|
(b)
|
|
Maximum recourse exposure is net of
amounts reinsured with third parties totaling $1 million
and $1 million at December 31, 2007 and 2006,
respectively.
|
Concentrations
Our primary business is to provide vehicle financing for GM
products to GM dealers and their customers. Wholesale and dealer
loan financing relates primarily to GM dealers, with collateral
consisting of primarily GM vehicles (for wholesale) and GM
dealership property (for loans). For wholesale financing, we are
also provided further protection by GM factory repurchase
programs. Retail installment contracts and operating lease
assets relate primarily to the secured sale and lease,
respectively, of vehicles (primarily GM). Any protracted
reduction or suspension of GMs production or sale of
vehicles, resulting from a decline in demand, work stoppage,
governmental action, or any other event, could have a
substantial adverse effect on us. Conversely, an increase in
production or a significant marketing program could positively
impact our results.
The majority of our finance receivables and loans and operating
lease assets are geographically diversified throughout the
United States. Outside the United States, finance receivables
and loans and operating lease assets are concentrated in Canada,
Germany, the United Kingdom, Italy, Australia, Mexico, and
Brazil.
Our Insurance operations have a concentration of credit risk
related to loss and loss adjustment expenses and prepaid
reinsurance ceded to certain state insurance funds. Michigan
insurance law and our large market share in North Carolina,
result in credit exposure to the Michigan Catastrophic Claims
Association and the North Carolina Reinsurance Facility totaling
$819 million and $909 million at December 31,
2007 and 2006, respectively.
We originate and purchase residential mortgage loans that have
contractual features that may increase our exposure to credit
risk and thereby result in a concentration of credit risk. These
mortgage loans include loans that may subject
250
Notes to
Consolidated Financial Statements
GMAC
LLC
borrowers to significant future payment increases, create the
potential for negative amortization of the principal balance or
result in high loan-to-value ratios. These loan products include
interest only mortgages (classified as prime conforming or
nonconforming for domestic production and prime nonconforming or
nonprime for international production), option adjustable rate
mortgages (prime nonconforming), high loan-to-value mortgage
loans (nonprime), and teaser rate mortgages (prime or nonprime).
Our total loan production related to these products and our
combined exposure related to these products recorded in finance
receivables and loans and loans held for sale (unpaid principal
balance) for the years ended and as of
December 31, 2007 and 2006 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal
|
|
|
Loan production
|
|
as of
|
|
|
for the year
|
|
December 31,
|
($ in millions)
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Interest only mortgages
|
|
|
$30,058
|
|
|
|
$48,335
|
|
|
|
$18,218
|
|
|
|
$22,416
|
|
Option adjustable rate mortgages
|
|
|
7,595
|
|
|
|
18,308
|
|
|
|
1,695
|
|
|
|
1,955
|
|
High loan-to-value (100% or more) mortgages
|
|
|
5,897
|
|
|
|
8,768
|
|
|
|
5,824
|
|
|
|
11,978
|
|
Below market initial rate (teaser) mortgages
|
|
|
38
|
|
|
|
257
|
|
|
|
1
|
|
|
|
192
|
|
|
|
|
|
Interest-only mortgages Allow interest-only
payments for a fixed period. At the end of the interest-only
period, the loan payment includes principal payments and
increases significantly. The borrowers new payment, once
the loan becomes amortizing (i.e., includes principal payments),
will be greater than if the borrower had been making principal
payments since the origination of the loan.
|
|
|
Option adjustable rate mortgages Permit a
variety of repayment options. The repayment options include
minimum, interest-only, fully amortizing
30-year, and
fully amortizing
15-year
payments. The minimum payment option sets the monthly payment at
the initial interest rate for the first year of the loan. The
interest rate resets after the first year, but the borrower can
continue to make the minimum payment. The interest-only option
sets the monthly payment at the amount of interest due on the
loan. If the interest-only option payment would be less than the
minimum payment, the interest-only option is not available to
the borrower. Under the fully amortizing 30- and
15-year
payment options, the borrowers monthly payment is set
based on the interest rate, loan balance, and remaining loan
term.
|
|
|
High loan-to-value mortgages Defined as
first-lien loans with loan-to-value ratios in excess of 100% or
second-lien loans that when combined with the underlying
first-lien mortgage loan result in a loan-to-value ratio in
excess of 100%.
|
|
|
Below market rate (teaser) mortgages Contain
contractual features that limit the initial interest rate to a
below market interest rate for a specified time period with an
increase to a market interest rate in a future period. The
increase to the market interest rate could result in a
significant increase in the borrowers monthly payment
amount.
|
All of the mortgage loans we originate and most of the mortgages
we purchase (including the higher risk loans in the preceding
table) are subject to our underwriting guidelines and loan
origination standards. This includes guidelines and standards
that we have tailored for these products and include a variety
of factors, including the borrowers capacity to repay the
loan, their credit history, and the characteristics of the loan,
including certain characteristics summarized in the table that
may increase our credit risk. When we purchase mortgage loans
from correspondent lenders, we either re-underwrite the loan
before purchase or delegate underwriting responsibility to the
correspondent originating the loan. We believe our underwriting
procedures adequately consider the unique risks that may come
from these products. We conduct a variety of quality control
procedures and periodic audits to ensure compliance with our
origination standards, including our criteria for lending and
legal requirements. We leverage technology in performing both
our underwriting process and our quality control procedures.
Capital
Requirements
Certain of our international subsidiaries are subject to
regulatory and other requirements of the jurisdictions in which
they operate. These entities either operate as banks or
regulated finance companies in their local markets. The
regulatory restrictions primarily dictate that these
subsidiaries meet certain minimum capital requirements, restrict
dividend distributions and require that some assets be
restricted. To date, compliance with these various regulations
has not had a materially adverse effect on our financial
position, results of operations or cash flows. Total assets in
these entities approximated $17.7 billion and
$15.5 billion as of December 31, 2007 and 2006,
respectively.
GMAC Bank, which provides services to both the Automotive and
ResCap operations, is licensed as an industrial bank pursuant to
the laws of Utah, and its deposits are insured by the Federal
Deposit Insurance Corporation (FDIC). GMAC is required to file
periodic reports with the FDIC concerning its financial
condition. Assets in GMAC Bank totaled $28.4 billion at
December 31, 2007. As of December 31, 2005, certain
depository institution assets were held at a Federal savings
bank that was wholly owned by ResCap. Effective
November 22, 2006, substantially all of
251
Notes to
Consolidated Financial Statements
GMAC
LLC
these federal savings bank assets and liabilities were
transferred at book value to GMAC Bank.
As of December 31, 2007, we have met all regulatory
requirements and were in compliance with the minimum capital
requirements.
On June 24, 2005, we entered into an operating agreement
with GM and ResCap, the holding company for our residential
mortgage business, to create separation between GM and us, on
the one hand, and ResCap, on the other. The operating agreement
restricts ResCaps ability to declare dividends or prepay
subordinated indebtedness to us. This operating agreement was
amended on November 27, 2006, and again on
November 30, 2006, in conjunction with the Sale
Transactions. Among other things, these amendments removed GM as
a party to the agreement.
The restrictions contained in the ResCap operating agreement
include the requirements that ResCaps members equity
be at least $6.5 billion for dividends to be paid. If
ResCap is permitted to pay dividends pursuant to the previous
sentence, the cumulative amount of these dividends may not
exceed 50% of our cumulative net income (excluding payments for
income taxes from our election for federal income tax purposes
to be treated as a limited liability company), measured from
July 1, 2005, at the time the dividend is paid. These
restrictions will cease to be effective if ResCaps
members equity has been at least $12 billion as of
the end of each of two consecutive fiscal quarters or if we
cease to be the majority owner. In connection with the Sale
Transactions, GM was released as a party to this operating
agreement, but it remains in effect between ResCap and us. At
December 31, 2007, ResCap had consolidated equity of
approximately $6.0 billion.
GMAC Insurance is subject to certain minimum aggregated capital
requirements, restricted net assets, and restricted dividend
distributions under applicable state insurance law, the National
Association of Securities Dealers, the Financial Services
Authority in England, the Office of the Superintendent of
Financial Institution of Canada, and the National Insurance and
Bonding Commission of Mexico. To date, compliance with these
various regulations has not had a materially adverse effect on
our financial condition, results of operations or cash flows.
Under various U.S. state insurance regulations, dividend
distributions may be made only from statutory unassigned
surplus, and the state regulatory authorities must approve these
distributions if they exceed certain statutory limitations. As
of the December 31, 2007, the maximum dividend that could
be paid by the insurance subsidiaries over the next twelve
months without prior statutory approval approximates
$380 million.
252
Notes to
Consolidated Financial Statements
GMAC
LLC
26. Quarterly
Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
($ in
millions)
|
|
First quarter
|
|
Second quarter
|
|
Third quarter
|
|
Fourth quarter
|
|
|
Net financing revenue
|
|
|
$544
|
|
|
|
$408
|
|
|
|
$390
|
|
|
|
$154
|
|
Total other revenue
|
|
|
2,436
|
|
|
|
2,867
|
|
|
|
1,863
|
|
|
|
3,137
|
|
|
|
Total net revenue
|
|
|
2,980
|
|
|
|
3,275
|
|
|
|
2,253
|
|
|
|
3,291
|
|
Provision for credit losses
|
|
|
681
|
|
|
|
430
|
|
|
|
964
|
|
|
|
1,021
|
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
455
|
|
|
|
|
|
Other noninterest expense
|
|
|
2,454
|
|
|
|
2,393
|
|
|
|
2,498
|
|
|
|
2,845
|
|
|
|
Income (loss) before income tax expense
|
|
|
(155
|
)
|
|
|
452
|
|
|
|
(1,664
|
)
|
|
|
(575
|
)
|
Income tax expense (benefit)
|
|
|
150
|
|
|
|
159
|
|
|
|
(68
|
)
|
|
|
149
|
|
|
|
Net income (loss)
|
|
|
($305
|
)
|
|
|
$293
|
|
|
|
($1,596
|
)
|
|
|
($724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 ($ in millions)
|
|
First quarter
|
|
Second quarter
|
|
Third quarter
|
|
Fourth quarter
|
|
|
Net financing revenue
|
|
|
$451
|
|
|
|
$397
|
|
|
|
$633
|
|
|
|
$721
|
|
Total other revenue
|
|
|
2,899
|
|
|
|
3,522
|
|
|
|
3,015
|
|
|
|
3,184
|
|
|
|
Total net revenue
|
|
|
3,350
|
|
|
|
3,919
|
|
|
|
3,648
|
|
|
|
3,905
|
|
Provision for credit losses
|
|
|
166
|
|
|
|
268
|
|
|
|
503
|
|
|
|
1,063
|
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
840
|
|
|
|
|
|
Other noninterest expense
|
|
|
2,467
|
|
|
|
2,504
|
|
|
|
2,295
|
|
|
|
2,488
|
|
|
|
Income (loss) before income tax expense
|
|
|
717
|
|
|
|
1,147
|
|
|
|
10
|
|
|
|
354
|
|
Income tax expense (benefit)
|
|
|
222
|
|
|
|
360
|
|
|
|
183
|
|
|
|
(662
|
) (b)
|
|
|
Net income (loss)
|
|
|
$495
|
|
|
|
$787
|
|
|
|
($173
|
) (a)
|
|
|
$1,016
|
|
|
|
|
|
(a)
|
|
Decline in third quarter 2006 net income primarily relates
to goodwill impairment taken at our Commercial Finance business.
Refer to Note 11.
|
(b)
|
|
Effective November 28, 2006, GMAC, along with certain U.S.
subsidiaries, became disregarded or pass-through entities for
U.S. federal income tax purposes. Due to our change in tax
status, a net deferred tax liability was eliminated through
income tax expense totaling $791 million.
|
27. Subsequent
Event
On February 20, 2008, we announced a restructuring of our
North American Automotive Finance operations to reduce costs,
streamline operations, and position the business for scalable
growth.
The restructuring will include merging a number of separate
business offices into five regional business centers located in
the areas of Atlanta, Chicago, Dallas, Pittsburgh, and Toronto.
The plan includes reducing the North American Automotive Finance
operations workforce by approximately 930 employees, which
represents about 15 percent of the 6,275 employees of
these operations. These actions are planned to occur largely by
the end of 2008.
We expect to incur restructuring charges of approximately
$65 million to $85 million, which includes costs
related to severance and other employee-related costs of
approximately $60 million to $70 million and the
closure of facilities of approximately $5 million to
$15 million. These charges will be incurred over the course
of 2008, with the majority of the charges occurring in the
second half of the year. The charges are expected to result in
future cash expenditures of approximately $65 million to
$85 million.
253
SIGNATURES
Pursuant to the requirements of Section 13 of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
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GENERAL MOTORS CORPORATION
(Registrant)
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Date: February 28, 2008
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By:
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/s/ G.
RICHARD WAGONER, JR.
G.
Richard Wagoner, Jr.
Chairman and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below on this 28th day of
February 2008 by the following persons on behalf of the
Registrant and in the capacities indicated, including a majority
of the directors.
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Signature
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Title
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/s/ G.
RICHARD WAGONER, JR.
(G.
Richard Wagoner, Jr.)
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Chairman and Chief Executive Officer
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/s/ FREDERICK
A. HENDERSON
(Frederick
A. Henderson)
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Vice Chairman and Chief Financial Officer
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/s/ WALTER
G. BORST
(Walter
G. Borst)
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Treasurer
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/s/ NICK
S. CYPRUS
(Nick
S. Cyprus)
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Controller and Chief Accounting Officer
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/s/ PERCY
BARNEVIK
(Percy
Barnevik)
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Director
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/s/ ERSKINE
BOWLES
(Erskine
Bowles)
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Director
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/s/ JOHN
H. BRYAN
(John
H. Bryan)
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Director
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/s/ ARMANDO
CODINA
(Armando
Codina)
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Director
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/s/ ERROLL
B. DAVIS, JR.
(Erroll
B. Davis, Jr.)
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Director
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/s/ GEORGE
M.C. FISHER
(George
M.C. Fisher)
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Director
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/s/ KAREN
KATEN
(Karen
Katen)
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Director
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254
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Signature
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Title
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/s/ KENT
KRESA
(Kent
Kresa)
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Director
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/s/ ELLEN
J. KULLMAN
(Ellen
J. Kullman)
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Director
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/s/ PHILIP
A. LASKAWY
(Philip
A. Laskawy)
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Director
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/s/ KATHRYN
V. MARINELLO
(Kathryn
V. Marinello)
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Director
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/s/ ECKHARD
PFEIFFER
(Eckhard
Pfeiffer)
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Director
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255