e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended March 31, 2006 |
OR |
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission file number 1-143
GENERAL MOTORS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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STATE OF DELAWARE |
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38-0572515 |
(State or other jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
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300 Renaissance Center, Detroit, Michigan |
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48265-3000 |
(Address of Principal Executive Offices) |
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(Zip Code) |
Registrants telephone number, including area code
(313) 556-5000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2 of the
Act). Yes o No þ
As of April 30, 2006, there were outstanding
565,561,036 shares of the issuers
$12/3
par value common stock.
Website Access to Companys Reports
General Motors (GMs) internet website address is
www.gm.com. Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q, current
reports on
Form 8-K, and
amendments to those reports filed or furnished pursuant to
section 13(a) or 15(d) of the Exchange Act are available
free of charge through our website as soon as reasonably
practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission.
THIS PAGE LEFT BLANK INTENTIONALLY
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
INDEX
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Page No. |
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Part I Financial
Information |
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Condensed Consolidated Financial Statements
(Unaudited) |
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Condensed Consolidated Statements of Income
for the Three Months Ended March 31, 2006 and 2005 |
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I-1 |
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Supplemental Information to the Condensed
Consolidated Statements of Income for the Three Months Ended
March 31, 2006 and 2005 |
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I-2 |
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Condensed Consolidated Balance Sheets as of
March 31, 2006, December 31, 2005, and March 31,
2005 |
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I-3 |
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Supplemental Information to the Condensed
Consolidated Balance Sheets as of March 31, 2006,
December 31, 2005, and March 31, 2005 |
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I-4 |
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Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31, 2006 and 2005 |
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I-5 |
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Supplemental Information to the Condensed
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2006 and 2005 |
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I-6 |
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Notes to Condensed Consolidated Financial
Statements |
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I-7 |
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Managements Discussion and Analysis
of Financial Condition and Results of Operations |
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I-28 |
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Quantitative and Qualitative Disclosures
About Market Risk |
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I-57 |
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Controls and Procedures |
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I-57 |
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Part II Other
Information |
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Legal Proceedings |
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II-1 |
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Risk Factors |
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II-2 |
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Purchases of Equity Securities |
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II-8 |
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Exhibits |
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II-8 |
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Signatures |
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II-9 |
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Memorandum of Understanding |
UAW-GM-Delphi Special Attrition Program |
Quarterly Report on Form 10-Q |
302 Certification of Chief Executive Officer |
302 Certification of Chief Financial Officer |
906 Certification of Chief Executive Officer |
906 Certification of Chief Financial Officer |
PART I
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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Item 1. |
Condensed Consolidated Financial Statements |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended | |
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March 31, | |
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2006 | |
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2005 | |
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(Dollars in millions | |
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except per share | |
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amounts) | |
Total net sales and revenues
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$ |
52,245 |
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$ |
45,773 |
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Cost of sales and other expenses
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41,912 |
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39,499 |
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Selling, general, and administrative expenses
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5,532 |
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4,889 |
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Interest expense
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4,229 |
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3,679 |
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Total costs and expenses
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51,673 |
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48,067 |
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Income (loss) before income taxes, equity income and minority
interests
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572 |
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(2,294 |
) |
Income tax expense (benefit)
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|
194 |
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(972 |
) |
Equity income (loss) and minority interests
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67 |
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69 |
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Net income (loss)
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$ |
445 |
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$ |
(1,253 |
) |
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Basic earnings (loss) per share attributable to common stock
(Note 9)
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$ |
0.79 |
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$ |
(2.22 |
) |
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Earnings (loss) per share attributable to common stock
assuming dilution (Note 9)
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$ |
0.78 |
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|
$ |
(2.22 |
) |
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|
Reference should be made to the notes to condensed consolidated
financial statements.
I-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended | |
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March 31, | |
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2006 | |
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2005 | |
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(Dollars in millions) | |
AUTOMOTIVE AND OTHER OPERATIONS
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Total net sales and revenues
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$ |
43,390 |
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$ |
37,303 |
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Cost of sales and other expenses
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39,514 |
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37,146 |
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Selling, general, and administrative expenses
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3,400 |
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2,837 |
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Total costs and expenses
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42,914 |
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39,983 |
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Interest expense
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|
684 |
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685 |
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Net expense from transactions with Financing and Insurance
Operations
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146 |
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87 |
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|
Income (loss) before income taxes, equity income, and minority
interests
|
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|
(354 |
) |
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|
(3,452 |
) |
Income tax (benefit)
|
|
|
(105 |
) |
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|
(1,398 |
) |
Equity income (loss) and minority interests
|
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|
56 |
|
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|
72 |
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Net income (loss) Automotive and Other
Operations
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$ |
(193 |
) |
|
$ |
(1,982 |
) |
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FINANCING AND INSURANCE OPERATIONS
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Total revenues
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$ |
8,855 |
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$ |
8,470 |
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Interest expense
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3,545 |
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|
2,994 |
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Depreciation and amortization expense
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1,511 |
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1,398 |
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Operating and other expenses
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2,287 |
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|
2,089 |
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Provisions for financing and insurance losses
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732 |
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918 |
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Total costs and expenses
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8,075 |
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7,399 |
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Net income from transactions with Automotive and Other Operations
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(146 |
) |
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(87 |
) |
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Income before income taxes, equity income, and minority interests
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926 |
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1,158 |
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Income tax expense
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|
299 |
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|
426 |
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Equity income (loss) and minority interests
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|
11 |
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(3 |
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Net income Financing and Insurance Operations
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$ |
638 |
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$ |
729 |
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The above Supplemental Information is intended to facilitate
analysis of General Motors Corporations businesses:
(1) Automotive and Other Operations; and (2) Financing
and Insurance Operations.
Reference should be made to the notes to condensed consolidated
financial statements.
I-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31, | |
|
December 31, | |
|
March 31, | |
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|
2006 | |
|
2005 | |
|
2005 | |
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| |
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| |
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(Dollars in millions) | |
ASSETS |
Cash and cash equivalents
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|
$ |
34,868 |
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|
$ |
30,726 |
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$ |
26,389 |
|
Marketable securities
|
|
|
19,839 |
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|
|
19,726 |
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|
|
26,256 |
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|
|
|
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|
|
|
|
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|
Total cash and marketable securities
|
|
|
54,707 |
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|
|
50,452 |
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|
52,645 |
|
Finance receivables net
|
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|
180,161 |
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|
180,793 |
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|
190,646 |
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Loans held for sale
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|
18,171 |
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|
21,865 |
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22,569 |
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Accounts and notes receivable (less allowances)
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|
16,801 |
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15,578 |
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18,001 |
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Inventories (less allowances) (Note 2)
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|
15,519 |
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|
14,354 |
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|
13,189 |
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Assets held for sale
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|
19,030 |
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Deferred income taxes
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|
29,160 |
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|
29,889 |
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|
26,967 |
|
Net equipment on operating leases (less accumulated
depreciation)
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|
39,787 |
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|
38,187 |
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|
34,371 |
|
Equity in net assets of nonconsolidated affiliates
|
|
|
1,830 |
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|
3,291 |
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|
|
6,500 |
|
Property net
|
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|
40,235 |
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|
|
40,214 |
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|
38,106 |
|
Intangible assets net (Note 3)
|
|
|
4,458 |
|
|
|
4,339 |
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|
|
4,864 |
|
Other assets
|
|
|
62,835 |
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|
|
58,086 |
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|
|
60,239 |
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Total assets
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|
$ |
463,664 |
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|
$ |
476,078 |
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|
$ |
468,097 |
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|
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|
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|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Accounts payable (principally trade)
|
|
$ |
30,210 |
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|
$ |
29,913 |
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|
$ |
28,519 |
|
Notes and loans payable
|
|
|
277,007 |
|
|
|
285,750 |
|
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|
291,831 |
|
Liabilities related to assets held for sale
|
|
|
|
|
|
|
10,941 |
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|
|
|
Postretirement benefits other than pensions
|
|
|
36,445 |
|
|
|
33,997 |
|
|
|
28,462 |
|
Pensions
|
|
|
11,731 |
|
|
|
11,304 |
|
|
|
9,295 |
|
Deferred income taxes
|
|
|
5,275 |
|
|
|
4,477 |
|
|
|
6,709 |
|
Accrued expenses and other liabilities
|
|
|
86,496 |
|
|
|
84,060 |
|
|
|
77,774 |
|
|
|
|
|
|
|
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|
|
|
|
Total liabilities
|
|
|
447,164 |
|
|
|
460,442 |
|
|
|
442,590 |
|
Minority interests
|
|
|
1,075 |
|
|
|
1,039 |
|
|
|
416 |
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
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|
$12/3
par value common stock (outstanding, 565,559,329;
|
|
|
|
|
|
|
|
|
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|
|
|
565,518,106; and 565,470,511 shares)
|
|
|
943 |
|
|
|
943 |
|
|
|
942 |
|
Capital surplus (principally additional paid-in capital)
|
|
|
15,296 |
|
|
|
15,285 |
|
|
|
15,234 |
|
Retained earnings
|
|
|
2,652 |
|
|
|
2,361 |
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|
|
12,526 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
18,891 |
|
|
|
18,589 |
|
|
|
28,702 |
|
Accumulated foreign currency translation adjustments
|
|
|
(1,694 |
) |
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|
(1,722 |
) |
|
|
(1,784 |
) |
Net unrealized gains on derivatives
|
|
|
1,109 |
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|
|
733 |
|
|
|
612 |
|
Net unrealized gains on securities
|
|
|
956 |
|
|
|
786 |
|
|
|
535 |
|
Minimum pension liability adjustment
|
|
|
(3,837 |
) |
|
|
(3,789 |
) |
|
|
(2,974 |
) |
|
|
|
|
|
|
|
|
|
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|
Accumulated other comprehensive loss
|
|
|
(3,466 |
) |
|
|
(3,992 |
) |
|
|
(3,611 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
15,425 |
|
|
|
14,597 |
|
|
|
25,091 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
463,664 |
|
|
$ |
476,078 |
|
|
$ |
468,097 |
|
|
|
|
|
|
|
|
|
|
|
Reference should be made to the notes to condensed consolidated
financial statements.
I-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
December 31, | |
|
March 31, | |
|
|
2006 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
ASSETS |
Automotive and Other Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
17,427 |
|
|
$ |
15,187 |
|
|
$ |
10,205 |
|
Marketable securities
|
|
|
1,396 |
|
|
|
1,416 |
|
|
|
5,447 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and marketable securities
|
|
|
18,823 |
|
|
|
16,603 |
|
|
|
15,652 |
|
Accounts and notes receivable (less allowances)
|
|
|
9,440 |
|
|
|
7,758 |
|
|
|
6,493 |
|
Inventories (less allowances) (Note 2)
|
|
|
14,862 |
|
|
|
13,851 |
|
|
|
12,736 |
|
Net equipment on operating leases (less accumulated
depreciation)
|
|
|
7,217 |
|
|
|
6,993 |
|
|
|
6,329 |
|
Deferred income taxes and other current assets
|
|
|
10,032 |
|
|
|
8,877 |
|
|
|
10,975 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
60,374 |
|
|
|
54,082 |
|
|
|
52,185 |
|
Equity in net assets of nonconsolidated affiliates
|
|
|
1,830 |
|
|
|
3,291 |
|
|
|
6,500 |
|
Property net
|
|
|
38,457 |
|
|
|
38,466 |
|
|
|
36,265 |
|
Intangible assets net (Note 3)
|
|
|
1,851 |
|
|
|
1,862 |
|
|
|
1,550 |
|
Deferred income taxes
|
|
|
21,034 |
|
|
|
22,849 |
|
|
|
18,093 |
|
Other assets
|
|
|
41,724 |
|
|
|
41,103 |
|
|
|
40,405 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Automotive and Other Operations assets
|
|
|
165,270 |
|
|
|
161,653 |
|
|
|
154,998 |
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
17,441 |
|
|
|
15,539 |
|
|
|
16,184 |
|
Investments in securities
|
|
|
18,443 |
|
|
|
18,310 |
|
|
|
20,809 |
|
Finance receivables net
|
|
|
180,161 |
|
|
|
180,793 |
|
|
|
190,646 |
|
Loans held for sale
|
|
|
18,171 |
|
|
|
21,865 |
|
|
|
22,569 |
|
Assets held for sale
|
|
|
|
|
|
|
19,030 |
|
|
|
|
|
Net equipment on operating leases (less accumulated depreciation)
|
|
|
32,570 |
|
|
|
31,194 |
|
|
|
28,042 |
|
Other assets
|
|
|
31,608 |
|
|
|
27,694 |
|
|
|
34,849 |
|
Net receivable from Automotive and Other Operations
|
|
|
4,609 |
|
|
|
4,452 |
|
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations assets
|
|
|
303,003 |
|
|
|
318,877 |
|
|
|
315,399 |
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
468,273 |
|
|
$ |
480,530 |
|
|
$ |
470,397 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
Automotive and Other Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable (principally trade)
|
|
$ |
26,614 |
|
|
$ |
26,182 |
|
|
$ |
24,168 |
|
Loans payable
|
|
|
1,207 |
|
|
|
1,519 |
|
|
|
2,446 |
|
Accrued expenses
|
|
|
43,317 |
|
|
|
42,665 |
|
|
|
44,544 |
|
Net payable to Financing and Insurance Operations
|
|
|
4,609 |
|
|
|
4,452 |
|
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
75,747 |
|
|
|
74,818 |
|
|
|
73,458 |
|
Long-term debt
|
|
|
31,021 |
|
|
|
31,014 |
|
|
|
29,879 |
|
Postretirement benefits other than pensions
|
|
|
31,431 |
|
|
|
28,990 |
|
|
|
23,754 |
|
Pensions
|
|
|
11,576 |
|
|
|
11,214 |
|
|
|
9,204 |
|
Other liabilities and deferred income taxes
|
|
|
21,699 |
|
|
|
22,023 |
|
|
|
15,924 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Automotive and Other Operations liabilities
|
|
|
171,474 |
|
|
|
168,059 |
|
|
|
152,219 |
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
3,596 |
|
|
|
3,731 |
|
|
|
4,351 |
|
Liabilities related to assets held for sale
|
|
|
|
|
|
|
10,941 |
|
|
|
|
|
Debt
|
|
|
244,779 |
|
|
|
253,217 |
|
|
|
259,506 |
|
Other liabilities and deferred income taxes
|
|
|
31,924 |
|
|
|
28,946 |
|
|
|
28,814 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Financing and Insurance Operations liabilities
|
|
|
280,299 |
|
|
|
296,835 |
|
|
|
292,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
451,773 |
|
|
|
464,894 |
|
|
|
444,890 |
|
Minority interests
|
|
|
1,075 |
|
|
|
1,039 |
|
|
|
416 |
|
|
|
Total stockholders equity
|
|
|
15,425 |
|
|
|
14,597 |
|
|
|
25,091 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
468,273 |
|
|
$ |
480,530 |
|
|
$ |
470,397 |
|
|
|
|
|
|
|
|
|
|
|
The above Supplemental Information is intended to facilitate
analysis of General Motors Corporations businesses:
(1) Automotive and Other Operations; and (2) Financing
and Insurance Operations.
Reference should be made to the notes to condensed consolidated
financial statements.
I-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Net cash provided by (used in) operating activities
|
|
$ |
790 |
|
|
$ |
(6,148 |
) |
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Expenditures for property
|
|
|
(1,376 |
) |
|
|
(1,288 |
) |
Investments in marketable securities acquisitions
|
|
|
(5,443 |
) |
|
|
(6,178 |
) |
Investments in marketable securities liquidations
|
|
|
4,969 |
|
|
|
4,567 |
|
Net change in mortgage servicing rights
|
|
|
(56 |
) |
|
|
(104 |
) |
Increase (decrease) in finance receivables
|
|
|
(7,589 |
) |
|
|
1,282 |
|
Proceeds from sales of finance receivables
|
|
|
16,220 |
|
|
|
6,475 |
|
Proceeds from sale of business units/equity investments
|
|
|
9,911 |
|
|
|
|
|
Operating leases acquisitions
|
|
|
(4,524 |
) |
|
|
(3,672 |
) |
Operating leases liquidations
|
|
|
1,625 |
|
|
|
1,439 |
|
Investments in companies, net of cash acquired
|
|
|
(5 |
) |
|
|
(75 |
) |
Other
|
|
|
(2,402 |
) |
|
|
(2,451 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
11,330 |
|
|
|
(5 |
) |
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net increase (decrease) in loans payable
|
|
|
(5,900 |
) |
|
|
1,292 |
|
Long-term debt borrowings
|
|
|
23,824 |
|
|
|
10,545 |
|
Long-term debt repayments
|
|
|
(26,895 |
) |
|
|
(16,127 |
) |
Cash dividends paid to stockholders
|
|
|
(141 |
) |
|
|
(283 |
) |
Other
|
|
|
1,081 |
|
|
|
1,566 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(8,031 |
) |
|
|
(3,007 |
) |
Effect of exchange rate changes on cash and cash equivalents
|
|
|
53 |
|
|
|
(444 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
4,142 |
|
|
|
(9,604 |
) |
Cash and cash equivalents at beginning of the period
|
|
|
30,726 |
|
|
|
35,993 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$ |
34,868 |
|
|
$ |
26,389 |
|
|
|
|
|
|
|
|
Reference should be made to the notes to condensed consolidated
financial statements.
I-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION TO THE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive and Other | |
|
Financing and Insurance | |
|
|
| |
|
| |
|
|
Three Months Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Dollars in millions) | |
|
|
Net cash provided by (used in) operating activities
|
|
$ |
2,962 |
|
|
$ |
(2,555 |
) |
|
$ |
(2,172 |
) |
|
$ |
(3,593 |
) |
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property
|
|
|
(1,272 |
) |
|
|
(1,233 |
) |
|
|
(104 |
) |
|
|
(55 |
) |
Investments in marketable securities acquisitions
|
|
|
(44 |
) |
|
|
(93 |
) |
|
|
(5,399 |
) |
|
|
(6,085 |
) |
Investments in marketable securities liquidations
|
|
|
61 |
|
|
|
1,429 |
|
|
|
4,908 |
|
|
|
3,138 |
|
Net change in mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
(56 |
) |
|
|
(104 |
) |
Increase (decrease) in finance receivables
|
|
|
|
|
|
|
|
|
|
|
(7,589 |
) |
|
|
1,282 |
|
Proceeds from sales of finance receivables
|
|
|
|
|
|
|
|
|
|
|
16,220 |
|
|
|
6,475 |
|
Proceeds from the sale of business units/equity investments
|
|
|
1,968 |
|
|
|
|
|
|
|
7,943 |
|
|
|
|
|
Operating leases acquisitions
|
|
|
|
|
|
|
|
|
|
|
(4,524 |
) |
|
|
(3,672 |
) |
Operating leases liquidations
|
|
|
|
|
|
|
|
|
|
|
1,625 |
|
|
|
1,439 |
|
Net investing activity with Financing and Insurance Operations
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
|
|
Investments in companies, net of cash acquired
|
|
|
(5 |
) |
|
|
(75 |
) |
|
|
|
|
|
|
|
|
Other
|
|
|
(1,053 |
) |
|
|
(374 |
) |
|
|
(1,349 |
) |
|
|
(2,077 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(345 |
) |
|
|
154 |
|
|
|
11,675 |
|
|
|
341 |
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in loans payable
|
|
|
(361 |
) |
|
|
223 |
|
|
|
(5,539 |
) |
|
|
1,069 |
|
Long-term debt borrowings
|
|
|
58 |
|
|
|
13 |
|
|
|
23,766 |
|
|
|
10,532 |
|
Long-term debt repayments
|
|
|
(146 |
) |
|
|
|
|
|
|
(26,749 |
) |
|
|
(16,127 |
) |
Net financing activity with Automotive & Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500 |
) |
Cash dividends paid to stockholders
|
|
|
(141 |
) |
|
|
(283 |
) |
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
1,081 |
|
|
|
1,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(590 |
) |
|
|
(47 |
) |
|
|
(7,441 |
) |
|
|
(3,460 |
) |
Effect of exchange rate changes on cash and cash equivalents
|
|
|
56 |
|
|
|
(369 |
) |
|
|
(3 |
) |
|
|
(75 |
) |
Net transactions with Automotive/ Financing Operations
|
|
|
157 |
|
|
|
(126 |
) |
|
|
(157 |
) |
|
|
126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,240 |
|
|
|
(2,943 |
) |
|
|
1,902 |
|
|
|
(6,661 |
) |
Cash and cash equivalents at beginning of the period
|
|
|
15,187 |
|
|
|
13,148 |
|
|
|
15,539 |
|
|
|
22,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$ |
17,427 |
|
|
$ |
10,205 |
|
|
$ |
17,441 |
|
|
$ |
16,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above Supplemental Information is intended to facilitate
analysis of General Motors Corporations businesses:
(1) Automotive and Other Operations; and (2) Financing
and Insurance Operations. Classification of cash flows for
Financing and Insurance Operations is consistent with
presentation in GMs Consolidated Statement of Cash Flows.
Reference should be made to the notes to condensed consolidated
financial statements.
I-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
Note 1. |
Financial Statement Presentation |
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the U.S. for interim financial
information. In the opinion of management, all adjustments
(consisting of only normal recurring items), which are necessary
for a fair presentation have been included. The results for
interim periods are not necessarily indicative of results which
may be expected for any other interim period or for the full
year. The condensed consolidated financial statements include
the accounts of General Motors Corporation and domestic and
foreign subsidiaries that are more than 50% owned, principally
General Motors Acceptance Corporation and Subsidiaries (GMAC),
(collectively referred to as the Corporation, General Motors ,
GM, we, or us). In addition, GM consolidates variable interest
entities (VIEs) for which it is deemed to be the primary
beneficiary. General Motors share of earnings or losses of
affiliates is included in the consolidated operating results
using the equity method of accounting when GM is able to
exercise significant influence over the operating and financial
decisions of the investee. GM encourages reference to the GM
Annual Report on
Form 10-K for the
period ended December 31, 2005, filed separately with the
U.S. Securities and Exchange Commission (SEC).
GM presents its primary financial statements on a fully
consolidated basis. Transactions between businesses have been
eliminated in the Corporations condensed consolidated
financial statements. These transactions consist principally of
borrowings and other financial services provided by Financing
and Insurance Operations (FIO) to Automotive and Other
Operations (Auto & Other).
To facilitate analysis, GM presents separate supplemental
financial information for its reportable operating segments.
GMs Auto & Other reportable operating segment
consists of:
|
|
|
|
|
GMs four automotive regions: GM North America (GMNA),
GM Europe (GME), GM Latin America/Africa/Mid-East
(GMLAAM), and GM Asia Pacific (GMAP), which constitute
GM Automotive (GMA); and |
|
|
|
Other, which includes the elimination of intersegment
transactions, certain non-segment specific revenues and
expenditures, including legacy costs related to postretirement
benefits for certain Delphi and other retirees, and certain
corporate activities. |
GMs FIO reportable operating segment consists of GMAC and
Other Financing, which includes financing entities that are not
consolidated by GMAC.
Consolidation of GM
Daewoo
On February 3, 2005, GM completed the purchase of
16.6 million newly issued shares of common stock in GM
Daewoo Auto & Technology Company (GM Daewoo) for
approximately $49 million, which increased GMs
ownership in GM Daewoo to 48.2% from 44.6%. No other
shareholders in GM Daewoo participated in the issue. On
June 28, 2005, GM purchased from Suzuki Motor Corporation
(Suzuki) 6.9 million shares of outstanding common stock in
GM Daewoo for approximately $21 million. This increased
GMs ownership in GM Daewoo to 50.9%. Accordingly, as of
June 30, 2005, GM began consolidating GM Daewoo.
I-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 1. |
Financial Statement
Presentation (continued) |
The following unaudited financial information for the three
months ended March 31, 2006 and 2005 represents amounts
attributable to GM Daewoo on a basis consistent with giving
effect to the increased ownership and consolidation as of
January 1, 2005. The pro forma effect on net income (loss)
is not significant compared to equity income recognized.
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 |
|
2005 | |
|
|
|
|
| |
|
|
Actual |
|
Pro Forma | |
|
|
|
|
| |
|
|
(Dollars in millions) | |
Total net sales and revenues
|
|
$1,618 |
|
$ |
1,171 |
|
Change in Accounting
Principle
On January 1, 2006, GM adopted Statement of Financial
Accounting Standards No. 156, Accounting for
Servicing of Financial Assets (SFAS No. 156),
which provides the following: (1) 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) upon initial adoption, a
one time reclassification of available-for-sale securities to
trading securities for securities which are identified as
offsetting an entitys exposure to changes in the fair
value of servicing assets or liabilities that a servicer elects
to subsequently measure at fair value, and (5) requires
separate presentation of servicing assets and liabilities
subsequently measured at fair value in the balance sheet and
additional disclosures. GM recorded a reduction to retained
earnings as of January 1, 2006 of $13 million, net of
tax, as a cumulative effect of a change in accounting principle
for the adoption of SFAS No. 156.
New Accounting
Standards
Beginning January 1, 2006, the Corporation adopted
SFAS No. 123(R), Share-Based Payment
(SFAS 123(R)), requiring companies to record share-based
payment transactions as compensation expense at fair market
value. The Corporation elected the modified prospective method
in adopting SFAS 123(R). This method requires compensation
cost to be recognized (a) based on the requirements of
SFAS 123(R) for all share-based payments granted or
modified after the effective date and (b) based on the
requirements of SFAS 123 for all awards granted to
employees prior to the effective date of SFAS 123(R) that
remain unvested on the effective date. The Corporation began
expensing the fair market value of newly granted stock options
and other stock based compensation awards to employees pursuant
to SFAS 123 in 2003; therefore this statement did not have
a significant effect on GMs consolidated financial
position or results of operations.
Prior to the adoption of SFAS No. 123(R), the
Corporation used the Black-Scholes model to calculate the
grant-date fair value of awards granted under the GMLTIP plan.
The GMLTIP plan consists of award opportunities granted to
participants that are based on the achievement of specific
corporate business criteria. The condition is a minimum
percentile ranking of GMs Total Shareholder Return (TSR)
among the companies in the S&P 500. The achievement of
a certain TSR ranking relative to other stocks in the
S&P 500 is considered a market condition under
SFAS No. 123(R) and should be reflected in the
calculation of the grant-date fair value of the award. For
awards granted under the GMLTIP plan subsequent to the adoption
of SFAS No. 123(R), the Corporation uses a lattice
model to calculate the grant-date fair value of awards which
incorporates the market condition.
I-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 1. |
Financial Statement
Presentation (concluded) |
In December 2005, the FASB released FASB Staff Position (FSP)
SFAS 123(R)-3,
Transition Election Related to Accounting for the Tax
Effects of Share-Based Payment Awards, which provides a
practical transition election related to accounting for the tax
effects of share-based payment awards to employees. The
Corporation is currently reviewing the transition alternatives
and will elect the appropriate alternative within one year of
the adoption of SFAS 123(R).
In February 2006, the FASB released FSP SFAS 123(R)-4,
Classification of Options and Similar Instruments Issued
as Employee Compensation That Allow for Cash Settlement upon the
Occurrence of a Contingent Event, which clarifies the
classification of options and similar instruments issued as
employee compensation that allow for cash settlement upon the
occurrence of a contingent event. The FSP did not have a
significant effect on GMs consolidated financial position
or results of operations.
In April 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, requiring
retrospective application as the required method for reporting a
change in accounting principle, unless impracticable or a
pronouncement includes specific transition provisions. This
statement also requires that a change in depreciation,
amortization, or depletion method for long-lived, nonfinancial
assets be accounted for as a change in accounting estimate
effected by a change in accounting principle. This statement
carries forward the guidance in APB Opinion No. 20,
Accounting Changes, for the reporting of the
correction of an error and a change in accounting estimate. This
statement is effective for accounting changes and correction of
errors made in fiscal years beginning after December 15,
2005.
In November 2005, the FASB released FSP
FIN 45-3,
Application of FASB Interpretation No. 45 to Minimum
Revenue Guarantees Granted to a Business or Its Owners,
requiring companies to disclose minimum revenue guarantees in
accordance with the guidelines provided in FIN 45 for
interim and annual financial statements. GM adopted
FIN 45-3 upon
issuance. The Interpretation did not have a significant effect
on GMs consolidated financial position or results of
operations.
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments
which amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities and
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. This statement amends SFAS No. 133
to permit fair value remeasurement for any hybrid instrument
that contains an embedded derivative that otherwise would
require bifurcation. This statement also eliminates the interim
guidance in SFAS No. 133 Implementation
Issue D-1 which
provides that beneficial interests in securitized financial
assets are not subject to the provisions of
SFAS No. 133. Finally, this statement amends
SFAS No. 140 to eliminate the restriction on the
passive derivative instruments that a qualifying special-purpose
entity (SPE) may hold. This statement is effective for all
financial instruments acquired or issued in first fiscal years
beginning after September 15, 2006. Management is assessing
the potential impact on GMs financial condition or results
of operations.
In April 2006, the FASB issued FSP FIN 46(R)-6,
Determining the Variability to Be Considered in Applying
FASB Interpretation No. 46(R) which requires the
variability of an entity to be analyzed based on the design of
the entity. The nature and risks in the entity, as well as the
purpose for the entitys creation are examined to determine
the variability in applying FIN 46(R). The variability is
used in applying FIN 46(R) to determine whether an entity
is a variable interest entity, which interests are variable
interests in the entity, and who is the primary beneficiary of
the variable interest entity. This statement is effective for
all reporting periods after June 15, 2006. Management is
assessing the potential impact on GMs financial condition
or results of operations.
I-9
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories included the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
Dec. 31, | |
|
March 31, | |
|
|
2006 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Automotive and Other Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Productive material, work in process, and supplies
|
|
$ |
5,888 |
|
|
$ |
5,471 |
|
|
$ |
5,179 |
|
Finished product, service parts, etc.
|
|
|
10,465 |
|
|
|
9,871 |
|
|
|
8,999 |
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories at FIFO
|
|
|
16,353 |
|
|
|
15,342 |
|
|
|
14,178 |
|
|
|
Less LIFO allowance
|
|
|
(1,491 |
) |
|
|
(1,491 |
) |
|
|
(1,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories (less allowances)
|
|
$ |
14,862 |
|
|
$ |
13,851 |
|
|
$ |
12,736 |
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-lease vehicles
|
|
|
657 |
|
|
|
503 |
|
|
|
453 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated inventories (less allowances)
|
|
$ |
15,519 |
|
|
$ |
14,354 |
|
|
$ |
13,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3. |
Goodwill and Acquired Intangible Assets |
The components of the Corporations acquired intangible
assets as of March 31, 2006, and 2005 were as follows
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying | |
|
Accumulated | |
|
Net Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive and Other Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and intellectual property rights
|
|
$ |
510 |
|
|
$ |
159 |
|
|
$ |
351 |
|
Non-amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
753 |
|
|
Pension intangible asset
|
|
|
|
|
|
|
|
|
|
|
747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
$ |
1,851 |
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists and contracts
|
|
$ |
117 |
|
|
$ |
45 |
|
|
|
72 |
|
|
Trademarks and other
|
|
|
35 |
|
|
|
21 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
152 |
|
|
$ |
66 |
|
|
$ |
86 |
|
|
|
|
|
|
|
|
|
|
|
Non-amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
2,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
2,607 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
$ |
4,458 |
|
|
|
|
|
|
|
|
|
|
|
I-10
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3. |
Goodwill and Acquired Intangible
Assets (concluded) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying | |
|
Accumulated | |
|
Net Carrying | |
|
|
Amount | |
|
Amortization | |
|
Amount | |
|
|
| |
|
| |
|
| |
March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive and Other Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and intellectual property rights
|
|
$ |
303 |
|
|
$ |
71 |
|
|
$ |
232 |
|
Non-amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
571 |
|
|
Pension intangible asset
|
|
|
|
|
|
|
|
|
|
|
747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
$ |
1,550 |
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists and contracts
|
|
$ |
74 |
|
|
$ |
43 |
|
|
|
31 |
|
|
Trademarks and other
|
|
|
40 |
|
|
|
21 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
114 |
|
|
$ |
64 |
|
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
Non-amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
3,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
3,314 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
$ |
4,864 |
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense on existing acquired intangible
assets was $14 million for the quarter ended March 31,
2006. Estimated amortization expense in each of the next five
years is as follows: 2007 $71 million;
2008 $68 million; 2009
$60 million; 2010 $35 million; and
2011 $17 million.
The changes in the carrying amounts of goodwill for the quarters
ended March 31, 2006, and 2005, were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
|
|
|
|
GMNA | |
|
GME | |
|
Auto & Other | |
|
GMAC | |
|
Total GM | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Balance as of December 31, 2005
|
|
$ |
383 |
|
|
$ |
374 |
|
|
$ |
757 |
|
|
$ |
2,446 |
|
|
$ |
3,203 |
|
Goodwill acquired during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
71 |
|
Other
|
|
|
(16 |
) |
|
|
|
|
|
|
(16 |
) |
|
|
(2 |
) |
|
|
(18 |
) |
Transfer of business unit
|
|
|
(61 |
) |
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency translation and other
|
|
|
2 |
|
|
|
10 |
|
|
|
12 |
|
|
|
6 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2006
|
|
$ |
308 |
|
|
$ |
445 |
|
|
$ |
753 |
|
|
$ |
2,521 |
|
|
$ |
3,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2004
|
|
$ |
154 |
|
|
$ |
446 |
|
|
$ |
600 |
|
|
$ |
3,274 |
|
|
$ |
3,874 |
|
Goodwill acquired during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
3 |
|
Effect of foreign currency translation
|
|
|
(3 |
) |
|
|
(26 |
) |
|
|
(29 |
) |
|
|
(13 |
) |
|
|
(42 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2005
|
|
$ |
151 |
|
|
$ |
420 |
|
|
$ |
571 |
|
|
$ |
3,264 |
|
|
$ |
3,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I-11
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4. |
Investment in Nonconsolidated Affiliates |
Nonconsolidated affiliates of GM identified herein are those
entities in which GM owns an equity interest and for which GM
uses the equity method of accounting, because GM has the ability
to exert significant influence over decisions relating to their
operating and financial affairs. GMs significant
affiliates, and the percent of GMs current equity
ownership, or voting interest, in them include the following:
Japan Fuji Heavy Industries Ltd. (sold at
March 31, 2006, 20.1% at March 31, 2005), Suzuki Motor
Corporation (Suzuki) (3.7% at March 31, 2006, now accounted
for as an equity security rather than as an equity method
investment, and 20.4% at March 31, 2005); China
Shanghai General Motors Co., Ltd (50% at March 31, 2006 and
2005), SAIC GM Wuling Automobile Co., Ltd (34% at
March 31, 2006 and 2005); Korea GM Daewoo
(fully consolidated 50.9% at March 31, 2006 and
48.2% at March 31, 2005); Italy
GM-Fiat Powertrain
(FGP) (dissolved at March 31, 2006 and 50% at
March 31, 2005). Information regarding GMs share of
income (loss) for all nonconsolidated affiliates (as described
above) in the following countries is included in the table below
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
Ended March 31, | |
|
|
| |
GMs Share Of Nonconsolidated Affiliates Net Income (Loss) |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Italy
|
|
|
NA |
|
|
$ |
21 |
|
Japan
|
|
$ |
21 |
|
|
$ |
50 |
|
China
|
|
$ |
70 |
|
|
$ |
33 |
|
Korea
|
|
|
NA |
|
|
$ |
(8 |
) |
In the first quarter of 2006 GM sold 92.36 million shares
of its investment in Suzuki, reducing GMs equity stake in
Suzuki from 20.4% to approximately 3.7% (16.3 million
shares).
|
|
Note 5. |
Product Warranty Liability |
Policy, product warranty and recall campaigns liability included
the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Twelve Months | |
|
Three Months | |
|
|
Ended | |
|
Ended | |
|
Ended | |
|
|
March 31, 2006 | |
|
Dec. 31, 2005 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
| |
Beginning balance
|
|
$ |
9,128 |
|
|
$ |
9,315 |
|
|
$ |
9,133 |
|
Payments
|
|
|
(1,119 |
) |
|
|
(4,696 |
) |
|
|
(1,209 |
) |
Increase in liability (warranties issued during period)
|
|
|
1,090 |
|
|
|
5,159 |
|
|
|
1,221 |
|
Adjustments to liability (pre-existing warranties)
|
|
|
(11 |
) |
|
|
(381 |
) |
|
|
5 |
|
Effect of foreign currency translation
|
|
|
46 |
|
|
|
(269 |
) |
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
9,134 |
|
|
$ |
9,128 |
|
|
$ |
9,040 |
|
|
|
|
|
|
|
|
|
|
|
Beginning in the second quarter of 2005, product warranty
liability includes certified-used vehicles.
|
|
Note 6. |
Postemployment Benefit Costs (Plant Idling Reserve) |
Costs to idle, consolidate or close facilities and provide
postemployment benefits to employees idled on an other than
temporary basis are accrued based on managements best
estimate of the wage and benefits costs that will be incurred
for qualified employees under the JOBS bank provisions of the
current labor agreement through the date of its expiration in
September 2007, plus estimated costs expected to be paid
thereafter taking into account policy changes that GM intends to
negotiate into the JOBS program after the expiration of the
current collective bargaining agreement. Costs related to the
idling of employees that are expected to be temporary are
expensed as incurred. GM reviews the adequacy and continuing
need for these liabilities on an
I-12
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6. |
Postemployment Benefit Costs (Plant Idling
Reserve) (concluded) |
annual basis in conjunction with its year-end production and
labor forecasts. Furthermore, GM reviews the reasonableness of
the liabilities on a quarterly basis.
GM together with Delphi and the UAW announced on March 22,
2006 that they had entered into the UAW-GM-Delphi Special
Attrition Program Agreement (Attrition Agreement), which is
intended to reduce the number of U.S. hourly employees at
GM and Delphi through an accelerated attrition program. When
originally executed, Delphis participation in the
Attrition Agreement was subject to approval by the
U.S. Bankruptcy Court for the Southern District of New
York, which has jurisdiction over Delphis Chapter 11
proceedings. On April 7, 2006, the Bankruptcy Court
declared in a hearing that Delphis participation in the
Attrition Agreement was approved. The Attrition Agreement
provides for a combination of early retirement programs and
other incentives designed to help reduce employment levels at
both GM and Delphi, and by which the Corporation will be able to
reduce the number of employees that are and will be in the JOBS
bank in a cost effective manner.
In the first quarter of 2006, GM recorded a favorable pre-tax
adjustment of $136 million to the reserve for
postemployment benefits, primarily due to higher than
anticipated headcount reductions associated with previously
announced GMNA plant idling activities.
In 2005, GM recognized a pre-tax charge of $1.9 billion, or
$1.2 billion after tax, for postemployment benefit and
other liabilities related to the restructuring of North American
operations announced in November 2005. Approximately 17,500
employees were included in the charge for locations included in
this action, some leaving the company through attrition and some
transferring to other sites.
The liability for postemployment benefits (primarily wage and
benefit continuation) as of March 31, 2006 totals
approximately $1.8 billion relating to multiple plants and
approximately 17,600 employees. The liability for postemployment
benefits as of December 31, 2005 was approximately
$2.0 billion relating to multiple plants and approximately
18,400 employees. The liability for postemployment benefits was
$210 million relating to numerous plants and approximately
2,100 employees as of March 31, 2005. The following table
summarizes the activity for this liability (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Twelve Months | |
|
Three Months | |
|
|
Ended | |
|
Ended | |
|
Ended | |
|
|
March 31, 2006 | |
|
Dec. 31, 2005 | |
|
March 31, 2005 | |
|
|
| |
|
| |
|
| |
Beginning balance
|
|
$ |
2,012 |
|
|
$ |
237 |
|
|
$ |
237 |
|
|
Spending
|
|
|
(109 |
) |
|
|
(91 |
) |
|
|
(30 |
) |
|
Interest accretion
|
|
|
8 |
|
|
|
12 |
|
|
|
3 |
|
|
Additions
|
|
|
|
|
|
|
1,891 |
|
|
|
|
|
|
Adjustments
|
|
|
(136 |
) |
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$ |
1,775 |
|
|
$ |
2,012 |
|
|
$ |
210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7. |
Commitments and Contingent Matters |
Commitments
GM has guarantees related to its performance under operating
lease arrangements and the residual value of lease assets
totaling $639 million. Expiration dates vary, and certain
leases contain renewal options. The fair value of the underlying
assets is expected to fully mitigate GMs obligations under
these guarantees. Accordingly, no liabilities were recorded with
respect to such guarantees.
I-13
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7. |
Commitments and Contingent
Matters (continued) |
Also, GM has entered into agreements with certain suppliers and
service providers that guarantee the value of the
suppliers assets and agreements with third parties that
guarantee fulfillment of certain suppliers commitments.
The maximum exposure under these commitments amounts to
$114 million.
GMAC has guaranteed certain amounts related to the
securitization of mortgage loans, agency loan programs loans
sold with recourse, and the repayment of third-party debt. In
addition, GMAC issues financial standby letters of credit as
part of their financing and mortgage operations. At
March 31, 2006 approximately $8 million was recorded
with respect to these guarantees, the maximum exposure under
which is approximately $7.5 billion.
In addition to guarantees, GM has entered into agreements
indemnifying certain parties with respect to environmental
conditions pertaining to ongoing or sold GM properties. Due to
the nature of the indemnifications, GMs maximum exposure
under these agreements cannot be estimated. No amounts have been
recorded for such indemnities.
In connection with certain divestitures prior to January 1,
2003, GM has provided guarantees with respect to benefits for
former GM employees relating to pensions, postretirement health
care, and life insurance. Other than items pertaining to the
fourth quarter 2005 charge with respect to the contingent
exposures relating to the Delphi Chapter 11 filing,
including under the benefit guarantees, the maximum exposure
under these agreements cannot be estimated due to the nature of
these indemnities. No amounts have been recorded for such
indemnities as the Corporations obligations under them are
not probable and estimable.
In addition to the above, in the normal course of business GM
periodically enters into agreements that incorporate
indemnification provisions. While the maximum amount to which GM
may be exposed under such agreements cannot be estimated, it is
the opinion of management that these guarantees and
indemnifications are not expected to have a material adverse
effect on the Corporations consolidated financial position
or results of operations.
Contingent Matters
Litigation is subject to uncertainties, and the outcome of
individual litigated matters is not predictable with assurance.
Various legal actions, governmental investigations, claims, and
proceedings are pending against the Corporation, including a
number of shareholder class actions, bondholder class actions,
shareholder derivative suits and ERISA class action and other
matters arising out of alleged product defects including
asbestos-related claims; employment-related matters;
governmental regulations relating to safety, emissions, and fuel
economy; product warranties; financial services; dealer,
supplier, and other contractual relationships; and environmental
matters.
GM has established reserves for matters in which losses are
probable and can be reasonably estimated. Some of the matters
may involve compensatory, punitive, or other treble damage
claims, or demands for recall campaigns, incurred but not
reported asbestos-related claims, environmental remediation
programs, or sanctions, that if granted, could require the
Corporation to pay damages or make other expenditures in amounts
that could not be estimated at March 31, 2006. After
discussion with counsel, it is the opinion of management that
such liability is not expected to have a material adverse effect
on the Corporations consolidated financial condition or
results of operations.
Delphi Bankruptcy
On October 8, 2005, Delphi filed a petition for
Chapter 11 proceedings under the United States Bankruptcy
Code for itself and many of its U.S. subsidiaries. GM
expects no immediate effect on its global
I-14
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7. |
Commitments and Contingent
Matters (continued) |
automotive operations as a result of Delphis action.
Delphi is GMs largest supplier of automotive systems,
components and parts, and GM is Delphis largest customer.
GM will continue to work constructively in the court proceedings
with Delphi, Delphis unions, and other participants in
Delphis restructuring process. GMs goal is to pursue
outcomes that are in the best interests of GM and its
stockholders, and that enable Delphi to continue as an important
supplier to GM.
Delphi has indicated to GM that it expects no disruption in its
ability to supply GM with the systems, components and parts it
needs as Delphi pursues a restructuring plan under the
Chapter 11 process. Although the challenges faced by Delphi
during its restructuring process could create operating and
financial risks for GM, that process is also expected to present
opportunities for GM. These opportunities include reducing, over
the long term, the significant cost penalty GM incurs in
obtaining parts from Delphi, as well as improving the quality of
systems, components and parts GM procures from Delphi as a
result of the restructuring of Delphi through the
Chapter 11 process. However, there can be no assurance that
GM will be able to realize any benefits.
On March 31, 2006, Delphi filed a motion under the
U.S. Bankruptcy Code seeking authority to reject certain
supply contracts with GM. A hearing on this motion is scheduled
for June 2 and 5, 2006. Although Delphi has not
rejected any GM contracts as of this time and has assured GM
that it does not intend to disrupt production at GM assembly
facilities, there is a risk that Delphi or one or more of its
affiliates may reject or threaten to reject individual contracts
with GM, either for the purpose of exiting specific lines of
business or in an attempt to increase the price GM pays for
certain parts and components. As a result, GM might be
materially adversely affected by disruption in the supply of
automotive systems, components and parts that could force the
suspension of production at GM assembly facilities.
Delphi also filed, on March 31, 2006, motions under the
U.S. Bankruptcy Code seeking authority to reject its
U.S. labor agreements and modify retiree welfare benefits.
The unions and certain other parties have filed objections to
these motions. Hearings on these motions are scheduled for
May 9, 10 and 12, 2006. While Delphi has indicated to
us that it expects no disruptions in its ability to continue
supplying us with the systems, components, and parts we need as
Delphi pursues its bankruptcy restructuring plan, labor
disruptions at Delphi resulting from Delphis pursuit of a
restructuring plan could seriously disrupt our North American
operations, prevent us from executing our GMNA turnaround
initiatives, and materially adversely impact our business.
Accordingly, resolution of the Delphi related issues remains a
critical near term priority.
Various financial obligations Delphi has to GM as of the date of
Delphis Chapter 11 filing, including the
$927 million payable for amounts that Delphi owed to GM
relating to Delphi employees who were formerly GM employees and
subsequently transferred back to GM as job openings became
available to them under certain employee flowback
arrangements, may be subject to compromise in the bankruptcy
proceedings, which may result in GM receiving payment of only a
portion of the face amount owed by Delphi.
GM is seeking to minimize this risk by protecting our right of
setoff against the $1.15 billion we owed to Delphi as of
the date of its Chapter 11 filing. A procedure for
determining setoff claims has been put in place by the
bankruptcy court. However, the extent to which these obligations
are covered by our right to setoff may be subject to dispute by
Delphi, the creditors committee, or Delphis other
creditors, and limitation by the court. GM cannot provide any
assurance that it will be able to fully or partially setoff such
amounts. However, to date setoffs of approximately
$52.5 million have been agreed to by Delphi and taken by
GM. Although GM believes that it is probable that it will be
able to collect all of the amounts due from Delphi, the
financial impact of a substantial compromise of our right of
setoff could have a material adverse impact on our financial
position.
I-15
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7. |
Commitments and Contingent
Matters (continued) |
In connection with GMs spin-off of Delphi in 1999, GM
entered into separate agreements with the UAW, the International
Union of Electrical Workers and the United Steel Workers. In
each of these three agreements (Benefit Guarantee Agreement(s)),
GM provided contingent benefit guarantees to make payments for
limited pension and OPEB expenses to certain former GM
U.S. hourly employees who transferred to Delphi as part of
the spin-off and meet the eligibility requirements for such
payments (Covered Employees).
Each Benefit Guarantee Agreement contains separate benefit
guarantees relating to pension, post-retirement health care and
life insurance benefits. These limited benefit guarantees each
have separate triggering events that initiate potential GM
liability if Delphi fails to provide the corresponding benefit
at the required level. Therefore, it is possible that GM could
incur liability under one of the guarantees (e.g., pension)
without triggering the other guarantees (e.g., post-retirement
health care or life insurance). In addition, with respect to
pension benefits, GMs obligation under the pension benefit
guarantees only arises to the extent that the combination of
pension benefits provided by Delphi and the Pension Benefit
Guaranty Corporation (PBGC) falls short of the amounts GM has
guaranteed.
The Chapter 11 filing by Delphi does not by itself trigger
any of the benefit guarantees. Moreover, Delphis filing of
motions under the U.S. Bankruptcy Code to reject its
U.S. labor agreements and modify retiree welfare benefits
does not by itself trigger any of the benefit guarantees. In
addition, the benefit guarantees expire on October 18, 2007
if not previously triggered by Delphis failure to pay the
specified benefits. If a benefit guarantee is triggered before
its expiration date, GMs obligation could extend for the
lives of affected Covered Employees, subject to the applicable
terms of the pertinent benefit plans or other relevant
agreements.
The benefit guarantees do not obligate GM to guarantee any
benefits for Delphi retirees in excess of the levels of
corresponding benefits GM provides at any given time to
GMs own hourly retirees. Accordingly, if any of the
benefits GM provides to its hourly retirees are reduced, there
would be a similar reduction in GMs obligations under the
corresponding benefit guarantee.
A separate agreement between GM and Delphi requires Delphi to
indemnify GM if and to the extent GM makes payments under the
benefit guarantees to the UAW employees or retirees. GM received
a notice from Delphi, dated October 8, 2005, that it was
more likely than not that GM would become obligated to provide
benefits pursuant to the benefit guarantees to the UAW employees
or retirees. The notice stated that Delphi was unable at that
time to estimate the timing and scope of any benefits GM might
be required to provide under those benefit guarantees. Any
recovery by GM under indemnity claims against Delphi might be
subject to partial or complete discharge in the Delphi
reorganization proceeding. As a result, GMs claims for
indemnity may not be paid partially or in full.
As part of the discussion to attain GMs health-care
agreement with the UAW, GM provided former GM employees who
became Delphi employees the potential to earn up to seven years
of credited service for purposes of eligibility for certain
health-care benefits under the GM/UAW benefit guarantee
agreement.
As discussed above, GM together with Delphi and the UAW
announced on March 22, 2006 that they had entered into the
UAW-GM-Delphi Special Attrition Program Agreement (the Attrition
Agreement) which is intended to reduce the number of U.S. hourly
employees at GM and Delphi through an accelerated attrition
program. When originally executed, Delphis participation
in the Attrition Agreement was subject to approval by the
U.S. Bankruptcy Court for the Southern District of New
York, which has jurisdiction over Delphis Chapter 11
proceedings. On April 7, 2006, the Bankruptcy Court
declared in a hearing that Delphis participation in the
Attrition Agreement was approved. The Attrition Agreement
provides for a combination of
I-16
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7. |
Commitments and Contingent
Matters (concluded) |
early retirement programs and other incentives designed to help
reduce employment levels at both GM and Delphi.
In the Attrition Agreement, GM has agreed to assume certain
costs regarding UAW-represented Delphi employees. Specifically,
GM agreed to (1) pay lump sums of $35,000 to certain
employees who participate in the Attrition Program;
(2) allow Delphi employees who agree to retire under the
Attrition Program to flowback to GM for purposes of retirement
whereby GM will assume all post-retirement health care and life
insurance (OPEB) obligations to such retiree;
(3) subsidize, for an interim period of time, health care
and life insurance coverage for Delphi employees participating
in a special voluntary pre-retirement program if Delphi reduces
or eliminates its health care and/or life insurance coverage
provided to active UAW employees; and (4) accept 5,000
active flowback employees, and as a result after they flow back,
pay such employees wages and benefits and incur pension
and OPEB obligations for such employees. The Attrition Agreement
provides that for such costs, other than the $35,000 lump sum
payment, GM will have a prepetition, general unsecured claim
assertable against the estate of Delphi under certain existing
agreements. This claim is subject to the rights of parties in
interest to object to allowance on any grounds other than the
claim did not arise under the terms of the pre-existing
contractual agreements between GM and Delphi. GM believes that
the Attrition Agreement will enhance the prospects for GM, the
UAW and Delphi to reach a broad-based consensual resolution of
issues relating to the Delphi restructuring.
GM believes that it is probable that it has incurred a
contingent liability due to Delphis Chapter 11
filing. GM believes that the range of the contingent exposures
is between $5.5 billion and $12 billion, with amounts
near the low end of the range considered more possible than
amounts near the high end of the range. GM established a reserve
of $5.5 billion ($3.6 billion after tax) for this
contingent liability in the fourth quarter of 2005, and has made
no adjustments to that reserve balance as of March 31,
2006. These views reflect GMs current assessment that it
is unlikely that a Chapter 11 process will result in both a
termination of Delphis pension plan and complete
elimination of its OPEB plans. The amount of this charge may
change, depending on the result of discussions among GM, Delphi,
and Delphis unions, and other factors. GM is currently
unable to estimate the amount of additional charges, if any,
which may arise from Delphis Chapter 11 filing. A
consensual agreement to resolve the Delphi matter may cause GM
to incur additional costs in exchange for benefits that would
accrue to GM over time.
With respect to the possible cash flow effect on GM related to
its ability to make either pension or OPEB payments, if any are
required under the benefit guarantees, GM would expect to make
such payments from ongoing operating cash flow and financings.
Such payments, if any, are not expected to have a material
effect on GMs cash flows in the short-term. However, if
payable, these payments would be likely to increase over time,
and could have a material effect on GMs liquidity in
coming years. (For reference, Delphis 2004
Form 10-K reported
that its total cash outlay for OPEB for 2004 was
$226 million, which included $154 million for both
hourly and salaried retirees, the latter of whom are not covered
under the benefit guarantees, plus $72 million in payments
to GM for certain former Delphi hourly employees that flowed
back to retire from GM). If benefits to Delphis
U.S. hourly employees under Delphis pension plan are
reduced or terminated, the resulting effect on GM cash flows in
future years due to the Benefit Guarantee Agreements is
currently not reasonably estimable.
I-17
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8. |
Comprehensive Income (Loss) |
GMs total comprehensive income (loss), net of tax, was as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Net income (loss)
|
|
$ |
445 |
|
|
$ |
(1,253 |
) |
Other comprehensive income (loss)
|
|
|
526 |
|
|
|
(726 |
) |
|
|
|
|
|
|
|
|
Total
|
|
$ |
971 |
|
|
$ |
(1,979 |
) |
|
|
|
|
|
|
|
|
|
Note 9. |
Earnings (Loss) Per Share Attributable to Common Stock |
The reconciliation of the amounts used in the basic and diluted
earnings (loss) per share computations for income (loss) from
continuing operations was as follows (in millions except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$12/3 Par Value Common Stock | |
|
|
| |
|
|
Income | |
|
|
|
Per Share | |
|
|
(Loss) | |
|
Shares | |
|
Amount | |
|
|
| |
|
| |
|
| |
Three Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common stock
|
|
$ |
445 |
|
|
|
566 |
|
|
$ |
0.79 |
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed exercise of dilutive stock options
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income (loss) attributable to common stock
|
|
$ |
445 |
|
|
|
569 |
|
|
$ |
0.78 |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common stock
|
|
$ |
(1,253 |
) |
|
|
565 |
|
|
$ |
(2.22 |
) |
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed exercise of dilutive stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income (loss) attributable to common stock
|
|
$ |
(1,253 |
) |
|
|
565 |
|
|
$ |
(2.22 |
) |
|
|
|
|
|
|
|
|
|
|
Certain stock options and convertible securities were not
included in the computation of diluted earnings per share for
the periods presented since the instruments underlying
exercise prices were greater than the average market prices of
GM
$12/3
par value common stock and inclusion would be
antidilutive. Such shares not included in the computation of
diluted earnings per share were 108 million as of
March 31, 2006 and 114 million as of March 31,
2005.
I-18
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10. |
Depreciation and Amortization |
Depreciation and amortization included in cost of sales and
other expenses and selling, general and administrative expenses
for Automotive and Other Operations was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
|
Ended March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
Depreciation
|
|
$ |
1,114 |
|
|
$ |
1,270 |
|
Amortization of special tools
|
|
|
733 |
|
|
|
816 |
|
Amortization of intangible assets
|
|
|
14 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,861 |
|
|
$ |
2,096 |
|
|
|
|
|
|
|
|
|
|
Note 11. |
Pensions and Other Postretirement Benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans | |
|
Non-U.S. Plans | |
|
U.S. Other | |
|
Non-U.S. | |
|
|
Pension Benefits | |
|
Pension Benefits | |
|
Benefits | |
|
Other Benefits | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Three Months | |
|
Three Months | |
|
Three Months | |
|
Three Months | |
|
|
Ended March 31, | |
|
Ended March 31, | |
|
Ended March 31, | |
|
Ended March 31, | |
|
|
| |
|
| |
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
Components of expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
253 |
|
|
$ |
279 |
|
|
$ |
113 |
|
|
$ |
72 |
|
|
$ |
176 |
|
|
$ |
176 |
|
|
$ |
13 |
|
|
$ |
12 |
|
Interest cost
|
|
|
1,219 |
|
|
|
1,221 |
|
|
|
211 |
|
|
|
241 |
|
|
|
1,077 |
|
|
|
1,027 |
|
|
|
47 |
|
|
|
54 |
|
Expected return on plan assets
|
|
|
(2,014 |
) |
|
|
(1,974 |
) |
|
|
(174 |
) |
|
|
(185 |
) |
|
|
(375 |
) |
|
|
(421 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
273 |
|
|
|
291 |
|
|
|
25 |
|
|
|
27 |
|
|
|
(28 |
) |
|
|
(18 |
) |
|
|
(20 |
) |
|
|
2 |
|
Recognized net actuarial loss
|
|
|
406 |
|
|
|
517 |
|
|
|
94 |
|
|
|
69 |
|
|
|
619 |
|
|
|
562 |
|
|
|
32 |
|
|
|
22 |
|
Curtailments, settlements, and other
|
|
|
23 |
|
|
|
91 |
|
|
|
13 |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expense
|
|
$ |
160 |
|
|
$ |
425 |
|
|
$ |
282 |
|
|
$ |
283 |
|
|
$ |
1,469 |
|
|
$ |
1,326 |
|
|
$ |
72 |
|
|
$ |
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective February 7, 2006, GM announced and communicated
it would increase the U.S. salaried workforces
participation in the cost of health care, capping GMs
contributions to salaried retiree health care at the level of
2006 expenditures. Effective March 31, 2006, the
U.S. District Court for the Eastern District of Michigan
approved the tentative settlement agreement with the UAW related
to reductions in hourly retiree health care; this approval is
now under appeal. Given the significance of these events, the
plans will be remeasured as of their respective effective dates
because the plans year end was September 30, 2005. GM
will not commence recognition of the Net Periodic Benefit Cost
associated with the remeasurements until three months subsequent
to the remeasurement date(s). As a result, the first quarter
2006 values for Post Retirement Benefits Liabilities and Net
Periodic Benefit Cost do not reflect any amount associated with
these salaried or hourly plan remeasurements.
During the first quarter of 2006, GM withdrew $2 billion
from the VEBA trust. GM is considering additional VEBA
withdrawals in the future.
|
|
Note 12. |
Restructuring and Other Initiatives |
GMNA results in the first quarter of 2006 include a charge of
$65 million, after tax, related to costs expected to be
incurred in 2006 under a new salaried severance program, which
allows involuntarily terminated employees to receive continued
salary and benefits for a period of time after termination. In
addition, results in the first quarter of 2006 include a
favorable adjustment of $88 million after-tax, related to
the reserve for postemployment benefits, primarily due to higher
than anticipated headcount reductions associated with previously
announced GMNA plant idling activities, and an after-tax charge
of $52 million for certain components of the
U.S. hourly attrition program related to lump sum benefit
payments.
I-19
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 12. |
Restructuring and Other Initiatives
(concluded) |
Results in the first quarter of 2006 include other after-tax
restructuring charges recognized at GME and GMLAAM of
$40 million and $27 million, respectively.
Additionally, first quarter 2006 results included after-tax
curtailment charges of $12 million at GMNA and
$3 million in Other Operations related to modifications in
GMs pension plans for current U.S. salaried employees.
Results in the first quarter of 2005 include after-tax charges
of $140 million recorded in GMNA and $8 million
recorded in Other Operations related to voluntary early
retirement and other separation programs with respect to certain
salaried employees in the U.S.
GMNA results in the first quarter of 2005 include a charge of
$84 million, after tax, for the write-down to fair market
value of various plant assets in connection with the first
quarter announcement to discontinue production at the Lansing
assembly plant during the second quarter of 2005.
GME results in the first quarter of 2005 include an after-tax
separation charge of $422 million related to the
restructuring plan announced in the fourth quarter of 2004. This
plan targets a reduction in annual structural costs of an
estimated $600 million by 2006. A total reduction of 12,000
employees, including 10,000 in Germany, over the period 2005
through 2007 through separation programs, early retirements, and
selected outsourcing initiatives is expected. The charge
incurred in the first quarter of 2005 covers approximately 5,650
people, of whom 4,900 are in Germany.
|
|
Note 13. |
Stock Incentive Plans |
GMs stock incentive plans consist of the General Motors
2002 Stock Incentive Plan, formerly the 1997 General Motors
Amended Stock Incentive Plan (GMSIP), the General Motors 1998
Salaried Stock Option Plan (GMSSOP), the General Motors 2002
Long Term Incentive Plan (GMLTIP) and the General Motors
2006 Cash-Based Restricted Stock Unit Plan (GMCRSU),
collectively the Plans. The GMSIP, the GMLTIP and the GMCRSU are
administered by the Executive Compensation Committee of the GM
Board. The GMSSOP is administered by the Vice President of
Global Human Resources.
The compensation cost that has been charged against income for
the above plans was approximately $32.4 million and
$25.4 million for the three months ended March 31,
2006 and 2005, respectively. The total income tax benefit
recognized in the income statement for share-based compensation
arrangements was approximately $9.9 million and
$9.7 million for the three months ended March 31, 2006
and 2005, respectively.
Under the GMSIP, 27.4 million shares of GM
$12/3
par value common stock may be granted from June 1,
2002, through May 31, 2007, of which approximately
3.1 million were available for grants at March 31,
2006. Any shares granted and undelivered under the GMSIP, due
primarily to expiration or termination, become again available
for grant. Options granted prior to 1997 under the GMSIP
generally are exercisable one-half after one year and one-half
after two years from the dates of grant. Stock option grants
awarded since 1997 are generally exercisable one-third after one
year, 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.
Under the GMSSOP, which commenced January 1, 1998 and ends
December 31, 2007, the number of shares of GM
$12/3
par value common stock that may be granted each year is
determined by management. Approximately 0.9 million shares
of GM
$12/3
par value common stock were available for grants at
March 31, 2006. Stock options vest one year following the
date of grant and are exercisable two years from the date of
I-20
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13. |
Stock Incentive Plans (continued) |
grant. Option prices are 100% of fair market value on the dates
of grant and the options generally expire 10 years and two
days from the dates of grant subject to earlier termination
under certain conditions.
The fair value of each option grant is 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 the Corporations stock. The
Corporation uses 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 are expected to be outstanding. The interest rate for
periods during the expected life of the option is based on the
U.S. Treasury yield curve in effect at the time of the
grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | |
|
Three Months | |
|
|
Ended | |
|
Ended | |
|
|
March 31, | |
|
March 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
GM | |
|
GM | |
|
GM | |
|
GM | |
|
|
SIP | |
|
SSOP | |
|
SIP | |
|
SSOP | |
|
|
| |
|
| |
|
| |
|
| |
Interest rate
|
|
|
4.63 |
% |
|
|
|
|
|
|
3.74 |
% |
|
|
|
|
Expected life (years)
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
Expected volatility
|
|
|
48 |
% |
|
|
|
|
|
|
32 |
% |
|
|
|
|
Dividend yield
|
|
|
4.78 |
% |
|
|
|
|
|
|
5.5 |
% |
|
|
|
|
Changes in the status of outstanding options were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMSIP | |
|
|
$12/3 Par Value Common | |
|
|
| |
|
|
|
|
Weighted | |
|
|
|
|
|
|
Weighted- | |
|
Average | |
|
|
|
|
|
|
Average | |
|
Remaining | |
|
Aggregate | |
|
|
Shares under | |
|
Exercise | |
|
Contractual | |
|
Intrinsic | |
|
|
Option | |
|
Price | |
|
Term | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Options outstanding at January 1, 2006
|
|
|
84,130,586 |
|
|
$ |
53.11 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,702,796 |
|
|
$ |
20.90 |
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminated
|
|
|
2,861,108 |
|
|
$ |
42.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2006
|
|
|
83,972,274 |
|
|
$ |
52.39 |
|
|
|
5.3 |
|
|
$ |
1,007,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2006
|
|
|
73,660,530 |
|
|
$ |
54.61 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMSSOP | |
|
|
$12/3 Par Value Common | |
|
|
| |
|
|
|
|
Weighted | |
|
|
|
|
|
|
Weighted- | |
|
Average | |
|
|
|
|
|
|
Average | |
|
Remaining | |
|
Aggregate | |
|
|
Shares under | |
|
Exercise | |
|
Contractual | |
|
Intrinsic | |
|
|
Option | |
|
Price | |
|
Term | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Options outstanding at January 1, 2006
|
|
|
27,213,635 |
|
|
$ |
55.19 |
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminated
|
|
|
97,651 |
|
|
$ |
53.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at March 31, 2006
|
|
|
27,115,984 |
|
|
$ |
55.20 |
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2006
|
|
|
27,115,984 |
|
|
$ |
55.20 |
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I-21
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13. |
Stock Incentive Plans (continued) |
The weighted-average grant-date fair value was $7.06 and $7.21
for the GMSIP options granted during the three month periods
ended March 31, 2006 and 2005, respectively. The total
intrinsic value of GMSIP options exercised during the three
month periods ended March 31, 2006 and 2005 was
approximately $0 million and $2.1 million,
respectively. There were no options granted under the GMSSOP
during the three month periods ended March 31, 2006 and
2005.
The GMLTIP consists of award opportunities granted to
participants that are based on the achievement of specific
corporate business criteria. The target number of shares of GM
$12/3
par value common stock that may be granted each year is
determined by management. These grants are subject to a
three-year performance period and the final award payout may
vary based on the achievement of those criteria. The condition
for all three plans is a minimum percentile ranking of GMs
Total Shareholder Return among the companies in the S&P 500.
At March 31, 2006, approximately 5.7 million target
shares were outstanding under the GMLTIP. Of these outstanding
shares, a total of 1.3 million were granted in 2004 at a
grant-date fair value of $49.33. Management intends to settle
these awards with GM
$12/3
par value common stock. Of the remaining outstanding
shares, approximately 2.0 million were granted in 2005 at a
fair value of $39.13 and 2.5 million were granted for the
three month period ended March 31, 2006 at a fair value of
$21.13. Management intends 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 new 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 March 31, 2006 was $25.22 for
the shares granted during the three month period ended
March 31, 2006 and $12.78 for the shares granted in 2005.
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 award under
the GMLTIP is estimated on the date of grant, and each
subsequent reporting period, using a lattice-based option
valuation model that uses the assumptions noted in the following
table. Because lattice-based valuation models incorporate ranges
of assumptions for inputs, those ranges are disclosed. Expected
volatilities are based on the implied volatility from GMs
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. Because the payout
depends on the Corporations 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.
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2006 |
|
|
|
Expected volatility
|
|
|
64 |
% |
Expected dividends
|
|
|
N/A |
|
Expected term (years)
|
|
|
2-3 |
|
Risk-free interest rate
|
|
|
5.26 |
% |
I-22
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13. |
Stock Incentive Plans (concluded) |
The weighted average remaining contractual term was
2.75 years for target awards outstanding at March 31,
2006. There were no shares delivered or cash paid during the
three month periods ended March 31, 2006 and 2005.
In 2006, the Corporation established a cash-based restricted
stock unit plan which provides restricted share units to certain
global executives excluding executive officers. 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 exercise. 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.
The fair value of each RSU is based on the Corporations
stock price on date of grant and each subsequent reporting
period until date of settlement. There were 4.2 million
restricted units granted during the three month period ended
March 31, 2006 with a fair value of $20.90 a share. The
fair value at March 31, 2006 was $21.27 per share.
The weighted average remaining contractual term was
2.75 years for the RSUs outstanding March 31,
2006. There were no shares delivered during the three month
period ended March 31, 2006.
A summary of the status of the Corporations options as of
March 31, 2006 and the changes during the three month
period then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- | |
|
|
|
|
Average | |
|
|
|
|
Grant-Date | |
|
|
Shares | |
|
Fair Value | |
|
|
| |
|
| |
Nonvested at January 1, 2006
|
|
|
15,923,106 |
|
|
$ |
9.28 |
|
Granted
|
|
|
2,702,796 |
|
|
|
20.90 |
|
Vested
|
|
|
8,258,058 |
|
|
|
9.47 |
|
Forfeited
|
|
|
56,100 |
|
|
|
8.80 |
|
|
|
|
|
|
|
|
Nonvested at March 31, 2006
|
|
|
10,311,744 |
|
|
$ |
8.54 |
|
As or March 31, 2006, there was $40.6 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 for the three months ended March 31, 2006 and
2005 was $0 and $11.2 million, respectively. The tax
benefit from the exercise of the share-based payment
arrangements totaled $0 and $0.8 million, respectively, for
the three months ended March 31, 2006 and 2005.
I-23
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 14. |
Segment Reporting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total | |
|
|
|
Auto & | |
|
|
|
Other | |
|
Total | |
|
|
GMNA | |
|
GME | |
|
GMLAAM | |
|
GMAP | |
|
GMA | |
|
Other | |
|
Other | |
|
GMAC | |
|
Financing | |
|
Financing | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Dollars in millions) | |
For the Three Months Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured products sales and revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers and other income
|
|
$ |
29,870 |
|
|
$ |
7,601 |
|
|
$ |
2,962 |
|
|
$ |
3,262 |
|
|
$ |
43,695 |
|
|
$ |
(305 |
) |
|
$ |
43,390 |
|
|
$ |
8,822 |
|
|
$ |
33 |
|
|
$ |
8,855 |
|
Intersegment
|
|
|
(1,339 |
) |
|
|
490 |
|
|
|
178 |
|
|
|
671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total manufactured products
|
|
$ |
28,531 |
|
|
$ |
8,091 |
|
|
$ |
3,140 |
|
|
$ |
3,933 |
|
|
$ |
43,695 |
|
|
$ |
(305 |
) |
|
$ |
43,390 |
|
|
$ |
8,822 |
|
|
$ |
33 |
|
|
$ |
8,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income(a)
|
|
$ |
305 |
|
|
$ |
107 |
|
|
$ |
20 |
|
|
$ |
25 |
|
|
$ |
457 |
|
|
$ |
(265 |
) |
|
$ |
192 |
|
|
$ |
605 |
|
|
$ |
(154 |
) |
|
$ |
451 |
|
Interest expense
|
|
|
798 |
|
|
|
153 |
|
|
|
28 |
|
|
|
55 |
|
|
|
1,034 |
|
|
|
(350 |
) |
|
|
684 |
|
|
|
3,562 |
|
|
|
(17 |
) |
|
|
3,545 |
|
Net income (loss)
|
|
|
(503 |
) |
|
|
48 |
|
|
|
29 |
|
|
|
453 |
|
|
|
27 |
|
|
|
(220 |
) |
|
|
(193 |
) |
|
|
637 |
|
|
|
1 |
|
|
|
638 |
|
Segment assets
|
|
|
125,737 |
|
|
|
25,942 |
|
|
|
4,740 |
|
|
|
10,944 |
|
|
|
167,363 |
|
|
|
(2,093 |
) |
|
|
165,270 |
|
|
|
303,793 |
|
|
|
(790 |
) |
|
|
303,003 |
|
For the Three Months Ended March 31, 2005(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured products sales and revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External customers and other income
|
|
$ |
26,001 |
|
|
$ |
7,657 |
|
|
$ |
2,134 |
|
|
$ |
1,535 |
|
|
$ |
37,327 |
|
|
$ |
(24 |
) |
|
$ |
37,303 |
|
|
$ |
8,221 |
|
|
$ |
249 |
|
|
$ |
8,470 |
|
Intersegment
|
|
|
(774 |
) |
|
|
451 |
|
|
|
165 |
|
|
|
159 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total manufactured products
|
|
$ |
25,227 |
|
|
$ |
8,108 |
|
|
$ |
2,299 |
|
|
$ |
1,694 |
|
|
$ |
37,328 |
|
|
$ |
(25 |
) |
|
$ |
37,303 |
|
|
$ |
8,221 |
|
|
$ |
249 |
|
|
$ |
8,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income(a)
|
|
$ |
292 |
|
|
$ |
95 |
|
|
$ |
19 |
|
|
$ |
3 |
|
|
$ |
409 |
|
|
$ |
(200 |
) |
|
$ |
209 |
|
|
$ |
477 |
|
|
$ |
(94 |
) |
|
$ |
383 |
|
Interest expense
|
|
|
755 |
|
|
|
114 |
|
|
|
24 |
|
|
|
7 |
|
|
|
900 |
|
|
|
(215 |
) |
|
|
685 |
|
|
|
3,001 |
|
|
|
(7 |
) |
|
|
2,994 |
|
Net income (loss)
|
|
|
(1,737 |
) |
|
|
(514 |
) |
|
|
31 |
|
|
|
70 |
|
|
|
(2,150 |
) |
|
|
168 |
|
|
|
(1,982 |
) |
|
|
728 |
|
|
|
1 |
|
|
|
729 |
|
Segment assets
|
|
|
124,730 |
|
|
|
25,372 |
|
|
|
4,469 |
|
|
|
4,963 |
|
|
|
159,534 |
|
|
|
(4,536 |
) |
|
|
154,998 |
|
|
|
315,252 |
|
|
|
147 |
|
|
|
315,399 |
|
|
|
(a) |
Interest income is included in net sales and revenues from
external customers. |
|
(b) |
Effective January 1, 2006, four powertrain entities were
transferred from GMNA to GME for management reporting.
Accordingly, first quarter 2005 amounts have been revised for
comparability by reclassifying $151 million of revenue,
$33 million of net income and $59 million of segment
assets from GMNA to GME. |
Note 15. Subsequent Events
|
|
|
Sale of Equity Stake in Isuzu Motors, Ltd. |
On April 11, 2006, GM announced it would sell its 7.9%
equity stake in Isuzu Motors Ltd. GM realized proceeds of
approximately $300 million and completed the sale in April
2006. GM recognized a pre-tax gain of approximately
$300 million from this transaction, as GMs book basis
was written down to zero in 2002.
|
|
|
Sale of Regional Home Builder |
In April 2006 GMAC signed a definitive agreement to sell its
equity interest in a regional home builder. The definitive
agreement is subject to certain conditions prior to closing;
however, GMAC expects to close this cash transaction during the
second quarter of 2006. Upon closing, GMAC expects to record a
gain that is estimated to be material to its results of
operations. GMAC is selling its entire equity investment in this
regional home builder. Under the equity method of accounting,
GMACs share of pretax income recorded
I-24
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 15. Subsequent Events (continued)
from this investment approximated $20.1 million and
$13.4 million for the three months ended March 31,
2006 and 2005, respectively, and $95.8 million for the year
ended December 31, 2005.
|
|
|
Sale of a Controlling Interest in GMAC |
On April 2, 2006, GM and its wholly owned subsidiaries,
GMAC and GM Finance Co. Holdings Inc., entered into a definitive
agreement pursuant to which GM will sell a 51% controlling
interest in GMAC for a purchase price of $7.4 billion to
FIM Holdings LLC, a consortium of investors led by Cerberus
Capital Management, L.P., a private investment firm, which also
includes Citigroup Inc. and Aozora Bank Ltd. as consortium
members (FIM Holdings). GM will retain a 49% equity investment
interest in GMAC. In addition, GM and the consortium will invest
$1.9 billion of cash in new GMAC preferred equity, with
$1.4 billion to be invested by GM and $500 million to
be invested by FIM Holdings. The transaction is subject to a
number of U.S. and international regulatory and other approvals.
GM expects to close the transaction in the fourth quarter of
2006.
Prior to consummation of the agreement, (i) certain assets
with respect to automotive leases and retail installment sales
contracts owned by GMAC and its affiliates having a net book
value of approximately $4 billion will be dividended to GM,
(ii) GM will assume certain of GMACs post-employment
benefit obligations, (iii) GMAC will transfer to GM certain
entities which hold a fee interest in certain real properties,
(iv) GMAC will pay dividends to GM in an amount up to the
amount of GMAC net income prior to the Acquisition, (v) GM
will repay certain indebtedness owing to GMAC and specified
intercompany unsecured obligations owing to GMAC shall be no
greater than $1.5 billion and (vi) GMAC will make a
one-time distribution to GM of approximately $2.7 billion
of cash to reflect the increase in GMACs equity value
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.
The total value of the cash proceeds and distributions to GM
before it purchases preferred limited liability company
interests of GMAC will be approximately $14 billion over
three years, comprised of the $7.4 billion purchase price,
the $4 billion of retained assets and the $2.7 billion
cash dividend.
I-25
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 15. Subsequent Events (continued)
The following table presents the major classes of assets and
liabilities that are expected to be included in the sale
transaction. The amounts have been adjusted using certain
reasonable estimates to reflect the transactions described above
to the extent such transactions are expected to have an impact
on the asset and liability balances as of March 31, 2006 as
presented below:
|
|
|
|
|
|
|
|
March 31, 2006 | |
|
|
| |
|
|
(Dollars in millions) | |
ASSETS
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
13,807 |
|
Marketable securities
|
|
|
18,269 |
|
|
|
|
|
|
Total cash and marketable securities
|
|
|
32,076 |
|
Finance receivables net
|
|
|
173,375 |
|
Loans held for sale
|
|
|
18,171 |
|
Accounts and notes receivable (less allowances)
|
|
|
10,261 |
|
Inventories (less allowances)
|
|
|
657 |
|
Net equipment on operating leases (less accumulated
depreciation)
|
|
|
17,541 |
|
Property net
|
|
|
1,783 |
|
Intangible assets net
|
|
|
2,607 |
|
Other assets
|
|
|
16,749 |
|
|
|
|
|
|
Total assets
|
|
$ |
273,220 |
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Accounts payable (principally trade)
|
|
$ |
2,513 |
|
Notes and loans payable
|
|
|
226,035 |
|
Deferred income taxes
|
|
|
1,904 |
|
Accrued expenses and other liabilities
|
|
|
26,089 |
|
|
|
|
|
Total liabilities
|
|
|
256,541 |
|
Minority interests
|
|
|
46 |
|
|
|
|
|
|
Total liabilities and minority interests
|
|
$ |
256,587 |
|
|
|
|
|
GM will take a non-cash pre-tax charge to earnings currently
estimated at $1.1 billion to $1.3 billion
($750 million to $850 million after tax) in the second
quarter of 2006 associated with the planned sale of 51% of GMAC.
As part of the transaction, GM and GMAC will enter into a number
of agreements that will require that GMAC continue to allocate
capital to automotive financing consistent with historical
practices, thereby continuing to provide critical financing
support to a significant share of GMs global sales. While
GMAC will retain the right to make individual credit decisions,
GMAC will commit to fund a broad spectrum of customers and
dealers consistent with historical practice in the relevant
jurisdiction. Subject to GMACs fulfillment of certain
conditions, GM will grant GMAC exclusivity for 10 years for
U.S., Canadian, and international GM-sponsored retail and
wholesale marketing incentives around the world, with the
exception of Saturn branded products.
As part of the agreement, GM will retain an option, for
10 years after the closing of the transaction, to
repurchase from GMAC certain assets related to the automotive
finance business of the North American
I-26
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 15. Subsequent Events (concluded)
Operations and International Operations of GMAC, subject to
certain conditions, including that GMs credit ratings are
investment grade or are higher than GMACs credit ratings.
There can be no assurance that the sale transaction will be
completed or if it is completed, that the terms of the sale will
not be different from those set forth in the definitive
agreement. Furthermore, even if the sale transaction is
completed on the agreed-upon terms, there is no assurance that
it will delink GMACs credit rating from GMs credit
rating or maintain ResCaps credit rating at investment
grade.
The agreement is subject to the satisfaction or waiver of
customary and other closing conditions, including, among other
things, (i) reasonable satisfaction by the members of FIM
Holdings, pursuant to an agreement with or other writing from,
the PBGC that, following the closing, GMAC and its subsidiaries
will not have any liability with respect to the ERISA plans of
GM, (ii) receipt of ratings for the senior unsecured
long-term indebtedness of GMAC and Residential Capital
Corporation, an indirect wholly owned subsidiary of GMAC, after
giving effect to the transactions contemplated by the Agreement,
of at least BB and BBB- (or their respective equivalents),
respectively, and an A.M. Best rating for GMACs
significant insurance subsidiaries of at least B++
(iii) that no material adverse effect will have occurred
with respect to the business, financial condition or results of
operations of GMAC, which includes any actual downgrading by any
of the major rating agencies of GMs unsecured long-term
indebtedness rating below CCC or its equivalent, and
(iv) the receipt of required regulatory approvals and
licenses. The agreement may be terminated upon the occurrence of
certain events, including the failure to complete the
transaction by March 31, 2007.
* * * * * *
I-27
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
Basis of presentation
This managements discussion and analysis of financial
condition and results of operations (MD&A) should be read in
conjunction with the December 31, 2005 consolidated
financial statements and notes thereto (the 2005 Consolidated
Financial Statements), along with the MD&A included in
General Motors Corporations (the Corporation, General
Motors, or GM) 2005 Annual Report on
Form 10-K, filed
separately with the U.S. Securities and Exchange Commission
(SEC). All earnings per share amounts included in the MD&A
are reported on a fully diluted basis. See related discussion in
Item 2 of the General Motors Acceptance Corporation (GMAC)
Form 10-Q for the
quarterly period ended March 31, 2006, which is herein
incorporated by reference.
GM presents separate supplemental financial information for its
reportable operating segments:
|
|
|
|
|
Automotive and Other Operations (Auto & Other); and |
|
|
|
Financing and Insurance Operations (FIO). |
GMs Auto & Other reportable operating segment
consists of:
|
|
|
|
|
GMs four automotive regions: GM North America (GMNA),
GM Europe (GME), GM Latin
America/Africa/Mid-East
(GMLAAM), and GM Asia Pacific (GMAP), which constitute
GM Automotive (GMA); and |
|
|
|
Other, which includes the elimination of intersegment
transactions, certain non-segment specific revenues and
expenditures, including legacy costs related to postretirement
benefits for certain Delphi Corporation (Delphi) and other
retirees, and certain corporate activities. |
GMs FIO reportable operating segment consists of GMAC and
Other Financing, which includes financing entities that are not
consolidated by GMAC.
The disaggregated financial results for GMA have been prepared
using a management approach, which is consistent with the basis
and manner in which GM management internally disaggregates
financial information for the purpose of assisting in making
internal operating decisions. In this regard, certain common
expenses were allocated among regions less precisely than would
be required for stand-alone financial information prepared in
accordance with accounting principles generally accepted in the
U.S. (GAAP). The financial results represent the historical
information used by management for internal decision-making
purposes; therefore, other data prepared to represent the way in
which the business will operate in the future, or data prepared
in accordance with GAAP, may be materially different.
Consistent with industry practice, market share information
employs estimates of sales in certain countries where public
reporting is not legally required or otherwise available on a
consistent basis.
Overview
GM is primarily engaged in automotive production and marketing
and financing and insurance operations. GM designs,
manufactures, and markets vehicles worldwide, having its largest
operating presence in North America. GMs finance and
insurance operations primarily relate to GMAC, a wholly owned
subsidiary of GM, which provides a broad range of financial
services, including automotive finance and mortgage products and
services.
GMs consolidated net sales and revenues increased to
$52.2 billion in the first quarter of 2006 compared to
$45.8 billion the first quarter of 2005. The first quarter
2006 revenue levels were a record quarterly high for GM,
representing an approximate increase of 14% over the first
quarter of 2005. GM earned consolidated net
I-28
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financial
Results (continued)
income of $445 million in the first quarter of 2006,
compared to a net loss of $1.25 billion in the first
quarter of 2005. GMACs net income in the first quarter of
2006 declined to $637 million, compared to
$728 million in the first quarter of 2005.
GMs results of operations in the first quarter of 2006
were most significantly affected by the following trends and
significant events:
|
|
|
Automotive Operations Improved Profitability |
Both GMNA and GME reported considerably improved performance in
the first quarter of 2006 compared to the first quarter of 2005.
GMNA results improved by $1.2 billion, benefiting from
higher production volumes as well as improved vehicle pricing.
GMNA production volumes increased by approximately 73,000 in the
first quarter of 2006 compared to the first quarter of 2005. The
favorable pricing is attributable to the value pricing
initiatives announced in January, as well as improvements in
pricing on recently launched vehicles such as the Chevrolet
Tahoe, GMC Yukon, and Cadillac Escalade. In addition to the
profitability improvements at GMNA, the remaining three
automotive regions posted profitable results in the first
quarter of 2006. GMEs improved first quarter 2006 results
reflected continued progress in the restructuring efforts,
largely in manufacturing. GMAP and GMLAAM were also profitable
in the first quarter of 2006, with results comparable to the
first quarter of 2005 after taking into consideration the
favorable gain in GMAP associated with the sale of the Suzuki
shares discussed below. Please refer to the Results of
Operations section starting on
page I-33 for
further discussion on regional performance.
|
|
|
Sale of Suzuki Investment |
During the first quarter of 2006, GM reduced its equity stake in
Suzuki Motor Corporation from 20.4% to 3.7%. The sale of the
investment resulted in an after-tax gain of $372 million
recognized by GMAP. In addition to the favorable net income
impact, the transaction generated sales proceeds of
approximately $2.0 billion which enhance GMs
liquidity position as well as the strength of its balance sheet.
GM maintains a 3.7% equity ownership in Suzuki after the
transaction, and the strategic alliance between GM and Suzuki
continues.
|
|
|
UAW Health Care Settlement Agreement |
On October 29, 2005, GM and the International Union, United
Automobile, Aerospace, and Agricultural Implement Workers of
America (UAW) entered into a memorandum of understanding,
which was ratified on November 11, 2005, to reduce
GMs health-care costs significantly while maintaining
comprehensive health care coverage for its UAW hourly employees
and retirees in the United States. In December 2005, GM, the UAW
and a class of UAW hourly retirees finalized an agreement
(the Settlement Agreement), subject to court
approval. On March 31, 2006, the U.S. District Court for
the Eastern District of Michigan entered an Order and Final
Judgment (Judgment) approving the Settlement Agreement. This
Judgment is now on appeal. The Settlement Agreement provides
that either GM or the UAW can terminate the Settlement Agreement
on 90 days notice beginning in September 2011.
GM will account for the reduced health care coverage provisions
of the Settlement Agreement as an amendment of GMs Health
Care Program for Hourly Employees (the Modified Plan).
Currently, GM expects the impact of the reduced health care
coverage provisions of the Settlement Agreement to result in a
reduction of GMs OPEB obligations under the Modified Plan
of approximately $15 billion. The $15 billion
reduction will be amortized on a straight-line basis over the
remaining service lives of active UAW hourly employees
(7.4 years) as a reduction of OPEB expense. The overall
reduction of expense will also comprehend the amortization of
$3 billion related to contributions to the Mitigation Plan
as discussed below, and the expense related to previously
negotiated wage increases for active employees now diverted to
the
I-29
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financial
Results (continued)
Mitigation Plan, currently estimated to be $2.5 billion on
a net present value basis or approximately $350 million per
year, as also discussed below.
The Settlement Agreement also provides that GM will make
contributions to a new independent Voluntary Employees
Beneficiary Association (the Mitigation Plan). The assets of the
Mitigation Plan will be used to mitigate the effect of reduced
GM health care coverage on individual UAW retirees and,
depending on the level of mitigation, are expected to be
available for a number of years. The new independent Mitigation
Plan will be partially funded by GM contributions of
$1 billion in each of 2006, 2007, and 2011. The 2011
contribution may be accelerated under specified circumstances.
GM will also make future contributions subject to provisions of
the Settlement Agreement that relate to profit sharing payments,
increases in the value of a notional number of shares of
GMs
$12/3
par value common stock (collectively, the Supplemental
Contributions), as well as wage deferral payments, and dividend
payments.
GMs obligation to make contributions to the Mitigation
Plan are fixed or determined by formula as defined in the
Settlement Agreement and Judgment. GMs obligations are
limited to these contributions. GM is not obligated to provide
incremental funding in the event of an asset shortfall in the
Mitigation Plan, and the Settlement Agreement specifically
provides that the ability of the assets in the Mitigation Plan
to mitigate retiree health care costs is not guaranteed by GM.
Furthermore, the Mitigation Plan is completely independent of GM
and is administered by an independent trust committee which
shall not include any GM representatives.
As disclosed on GMs Forms 8-K dated April 13 and
April 20, 2006, because the Settlement Agreement became
effective upon Judgment, GM planned to begin accounting for its
contributions to the Mitigation Plan under the Settlement
Agreement in its financial statements for the first quarter of
2006. Under the accounting treatment consistent with this
approach, the Mitigation Plan would have been treated as a
defined contribution plan (given the limits on GMs
responsibility to make further contributions) and the obligation
to make the first $1 billion contribution was to be
recognized in the first quarter of 2006 when it became due and
payable. As also disclosed in the aforementioned Form 8-K
filings, GM has been in discussions with the Staff of the U.S.
Securities and Exchange Commission regarding the accounting
treatment for the Mitigation Plan.
Based on those discussions, GM has now determined that it will
account for the Mitigation Plan as a defined benefit plan, with
a cap on GMs OPEB obligation under that plan limited to
the present value of the three $1 billion cash payments and
minimum Supplemental Contributions required by the Settlement
Agreement, rather than a defined contribution plan. Under a
capped defined benefit model, the three $1 billion payments
and minimum Supplemental Contributions (considered funding of
the Mitigation Plan) represent the present value of GMs
obligation to the new Mitigation Plan of approximately
$3 billion. This amount will be amortized on a
straight-line basis over the remaining service lives of active
UAW hourly employees (7.4 years) as OPEB expense. Payments
from GM to the Mitigation Plan related to wage deferrals,
dividends or changes in the estimate of Supplemental
Contributions will be recorded as an expense in the quarter that
the hours are worked, the dividend is declared, or the change in
estimate occurs, respectively. GM will 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 have those amounts contributed to
the Mitigation Plan.
Therefore, these changes are expected to reduce GMs OPEB
obligations by $12 billion, which will be amortized over
the 7.4 year period. GM will commence recognition of this
amortization and lower interest and service cost from the
Settlement Agreement in the third quarter of 2006. Because the
annual plan measurement date for the Modified Plan is September
30 rather than December 31, and because the Settlement
Agreement became effective on March 31, 2006, amortization
of the $12 billion benefit related to the Modified Plan
will be recognized on a one quarter lag basis, beginning on
July 1, 2006. Accordingly, the $1 billion contribution
called for on March 31, 2006 is no longer considered a cost
for the first quarter of 2006, but rather will be recognized
through the amortization of the aforementioned net
$12 billion negative plan
I-30
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Financial
Results (continued)
amendment in the Modified Plan. For 2006, the reduction in
health care expense will be allocated approximately 80% to GMNA
and 20% to the Corporate sector.
The Settlement Agreement will also result in cash flow savings
estimated to be about $1 billion per year once the
Settlement Agreement is fully implemented and will remain in
effect until at least September 2011, after which either GM or
the UAW may cancel the agreement upon 90 days written
notice. Similarly, GMs contractual obligations to provide
health care benefits to UAW hourly retirees extends to at least
September 2011, and will continue thereafter until terminated by
either GM or the UAW. As a result, the provisions of the
Settlement Agreement will continue in effect for UAW retirees
beyond the expiration in September 2007 of the current
collective bargaining agreement between GM and the UAW.
Similar to the Settlement Agreement, on April 10, 2006 GM
and the Industrial Division of the Communication Workers of
America, AFL-CIO (IUE-CWA) also reached a tentative agreement to
reduce health-care costs. The agreement was ratified by the
IUE-CWA membership on April 21, 2006. The agreement is
subject to court approval. The remaining 2% of hourly employees
and retirees are represented by a group of other unions with
which we are planning health care discussions. The savings
achieved under the IUE-CWA agreement, while not significant, are
fully incorporated in the reduction of OPEB liabilities and
annual employee health-care expenses described above. Court
approval is expected during calendar year 2006 and recognition
of this benefit will commence 90 days following court
approval.
Strategy
GMs primary focus continues to be the return of its North
American operations to profitability and positive cash flow. The
2006 first quarter results indicate progress towards this goal,
and GM remains committed to the turnaround efforts to not only
return GM to profitability, but to position GM to be competitive
for years to come through management of the cost, revenue, and
liquidity aspects of our business.
On the cost side of the business, our primary goals were to
address our legacy cost burden and reduce our structural costs
in line with falling revenue. Legacy costs are primarily related
to the cost of benefits provided to retired employees and their
dependents, and costs associated with employees and their
dependents of businesses divested by GM. Structural costs, such
as the cost of unionized employees, are those costs that do not
vary with production and include all costs other than material,
freight, and policy and warranty costs. To date we have made
real progress in these areas, evidenced by the UAW Health
Care Settlement Agreement described above. On February 7,
2006, GM announced it would cap its contributions to salaried
retiree health care at the level of 2006 expenditures, and, on
March 7, 2006, GM announced it would freeze accrued pension
benefits for U.S. salaried employees and implement a new
benefit structure for future accruals. Regarding structural
costs, in November 2005 GM announced plans to idle 12
facilities and reduce manufacturing employment levels by
approximately 30,000 employees over the 2005 to 2008 period.
During the first quarter of 2006, two assembly plants within the
original announcement stopped production. To further support the
structural cost initiatives, on March 22, 2006 GM, the UAW,
and Delphi Corporation announced they had entered into the
UAW-GM-Delphi Special
Attrition Program Agreement designed to reduce the number of
hourly employees of GM and of Delphi through an accelerated
attrition program. In addition, on April 10, 2006 GM and
the IUE-CWA announced a
tentative agreement to reduce GMs health care costs for
IUE-CWA retirees in a
manner similar to the UAW health care Settlement Agreement.
In terms of revenue, GMNA sales of recently launched vehicles,
such as the Chevrolet Tahoe, GMC Yukon, and Cadillac
Escalade full size utility trucks, are performing well and
gaining momentum, with sales in January and February 23% higher
than the same period a year earlier, and up 30% in March when
compared to February 2006. GM plans on capitalizing on this
momentum with the introduction of new products such as the
Saturn Sky and Saturn Aura, which will be available for sale in
spring and later this year, respectively. Furthermore, GM is
seeing benefits associated with the Total Value
Promise initiative
I-31
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
|
|
|
Financial Results (concluded) |
Strategy (concluded)
announced in January 2006, as GMNA incentive levels have
been reduced while vehicle transaction prices have increased.
Similar progress has been achieved regarding liquidity items. In
February 2006 GMs Board of Directors elected to
reduce the quarterly dividend by 50% which will improve
liquidity by over $500 million. In March 2006 GM
reduced its equity interest in Suzuki generating approximately
$2.0 billion, and on April 11, 2006 GM announced it
would sell its 7.9% equity stake in Isuzu Motors Ltd, by which
GM expects to realize cash proceeds of approximately
$300 million. On April 2, 2006 GM entered into a
definitive agreement to sell 51% of a controlling interest in
GMAC. The total value of the cash proceeds and distributions to
GM before it purchases preferred limited liability company
interests of GMAC will be approximately $14 billion over
three years, comprised of the $7.4 billion purchase price,
the $4 billion of retained assets and the $2.7 billion
cash dividend. Collectively, these liquidity actions will serve
to fund our GMNA turnaround plan and to enhance the strength of
our balance sheet. In addition, the GMAC transaction will
provide GMAC with a solid foundation for improving its current
credit rating, position GMAC for long term growth, and provide a
stronger foundation to support GM sales and dealers.
In addition to the focus on restoring GMNA operations to
profitability, GM needs to address near term issues associated
with its largest supplier, Delphi Corporation. On March 31,
2006 Delphi filed a motion under the U.S. Bankruptcy Code
seeking authority to reject certain supply contracts with GM. A
hearing on this motion is scheduled for June 2 and 5, 2006.
Although Delphi has not rejected any GM contracts as of this
time and has assured GM that it does not intend to disrupt
production at GM assembly facilities, there is a risk that
Delphi or one or more of its affiliates may reject or threaten
to reject individual contracts with GM, either for the purpose
of exiting specific lines of business or in an attempt to
increase the price GM pays for certain parts and components. As
a result, GM might be materially adversely affected by
disruption in the supply of automotive systems, components and
parts that could force the suspension of production at
GM assembly facilities.
Delphi also filed on March 31, 2006 motions under the
U.S. Bankruptcy Code seeking authority to reject its
U.S. labor agreements and modify retiree welfare benefits.
The unions and certain other parties have filed objections to
these motions. Hearings on these motions are scheduled for
May 9, 10 and 12, 2006. While Delphi has indicated to
us that it expects no disruptions in its ability to continue
supplying us with the systems, components, and parts we need as
Delphi pursues its bankruptcy restructuring plan, labor
disruptions at Delphi resulting from Delphis pursuit of a
restructuring plan could seriously disrupt our North American
operations, prevent us from executing our GMNA turnaround
initiatives, and materially adversely impact our business.
Accordingly, resolution of the Delphi related issues remains a
critical near term priority.
Please refer to the Key Factors Affecting Future Results section
starting on
page I-40 for
further discussion on the above topics.
I-32
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
|
Consolidated Results |
|
2006 |
|
2005 |
|
|
|
|
|
|
|
(Dollars in millions) |
Consolidated:
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$ |
52,245 |
|
|
$ |
45,773 |
|
|
Net income (loss)
|
|
$ |
445 |
|
|
$ |
(1,253 |
) |
|
Net margin
|
|
|
0.9 |
% |
|
|
(2.7 |
)% |
Automotive and Other Operations:
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$ |
43,390 |
|
|
$ |
37,303 |
|
|
Net income (loss)
|
|
$ |
(193 |
) |
|
$ |
(1,982 |
) |
Financing and Insurance Operations:
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$ |
8,855 |
|
|
$ |
8,470 |
|
|
Net income
|
|
$ |
638 |
|
|
$ |
729 |
|
The increase in first quarter 2006 total net sales and revenues,
compared with first quarter 2005, was due to higher GMA revenue
of $6.4 billion, primarily driven by an increase in global
production volume of nearly 10%, with all regions except GME
showing increases, as well as a favorable pricing at GMNA.
Consolidated results improved by about $1.7 billion to net
income of $445 million in the first quarter of 2006,
compared to a net loss of $1.3 billion in the first quarter
of 2005. The net loss of $193 million at Auto &
Other is primarily attributable to GMNA, which had a net loss of
$503 million, and Other Operations, which incurred a net
loss of $220 million. These losses more than offset net
income earned at all other automotive regions. GMAC earned
$637 million in the first quarter of 2006, down
$91 million from the 2005 level, reflecting lower income
from mortgage operations partially offset by improved earnings
from financing and insurance operations.
First quarter 2006 results included:
|
|
|
|
|
Consolidated net income of $445 million; |
|
|
|
Improved results at GMNA; |
|
|
|
Profitability at all other automotive regions; |
|
|
|
Continued profitability at GMAC; and |
|
|
|
Strengthened liquidity position at Auto & Other. |
I-33
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Results of Operations (concluded)
More detailed discussions on the results of operations for the
automotive regions, other operations, and GMAC can be found in
the following sections.
GM Automotive and Other Operations Financial Review
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
Auto & Other:
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$ |
43,390 |
|
|
$ |
37,303 |
|
|
Net income (loss)
|
|
$ |
(193 |
) |
|
$ |
(1,982 |
) |
GMA net income (loss) by region:
|
|
|
|
|
|
|
|
|
|
GMNA
|
|
$ |
(503 |
) |
|
$ |
(1,737 |
) |
|
GME
|
|
|
48 |
|
|
|
(514 |
) |
|
GMLAAM
|
|
|
29 |
|
|
|
31 |
|
|
GMAP
|
|
|
453 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
27 |
|
|
$ |
(2,150 |
) |
|
Net margin
|
|
|
0.1 |
% |
|
|
(5.8 |
)% |
|
GM global automotive market share
|
|
|
13.2 |
% |
|
|
13.3 |
% |
Other Operations:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(220 |
) |
|
$ |
168 |
|
GM Auto & Others net sales and revenues increased
$6.1 billion, or 16%, in the first quarter of 2006,
compared to the year-earlier quarter. The increase was driven by
a 13% increase, or $3.3 billion, at GMNA, primarily from
higher production volume and favorable pricing. GMAPs
revenue more than doubled over 2005, largely due to the
consolidation of GM Daewoo, which was reported under the
equity method of accounting in the first quarter of 2005.
GMLAAMs revenue increased nearly 37%, while GMEs
revenue was essentially flat. GMs global market share was
13.2% and 13.3% for the first quarters of 2006 and 2005,
respectively. GMNAs market share decreased
1.5 percentage points, to 23.7% for the quarter, compared
to 2005. Market share gains were achieved in GMLAAM and GMAP,
while GMEs share decreased slightly.
GMA earned net income of $27 million in the first quarter
2006, an improvement of $2.2 billion compared to a net loss
of $2.2 billion in 2005, with all regions showing improved
results.
I-34
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review
(continued)
GM Automotive Regional Results
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(Dollars in millions) | |
GMNA:
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$ |
28,531 |
|
|
$ |
25,227 |
|
|
Net income (loss)
|
|
$ |
(503 |
) |
|
$ |
(1,737 |
) |
|
Net margin
|
|
|
(1.8 |
)% |
|
|
(6.9 |
)% |
|
|
(Volume in thousands) |
|
Production volume
|
|
|
|
|
|
|
|
|
|
Cars
|
|
|
496 |
|
|
|
470 |
|
|
Trucks
|
|
|
759 |
|
|
|
712 |
|
|
|
|
|
|
|
|
|
|
Total GMNA
|
|
|
1,255 |
|
|
|
1,182 |
|
Vehicle unit sales
|
|
|
|
|
|
|
|
|
|
Industry North America
|
|
|
4,758 |
|
|
|
4,688 |
|
|
GM as a percentage of industry
|
|
|
23.7 |
% |
|
|
25.2 |
% |
|
Industry U.S.
|
|
|
4,050 |
|
|
|
4,001 |
|
|
GM as a percentage of industry
|
|
|
23.8 |
% |
|
|
25.4 |
% |
|
GM cars
|
|
|
20.7 |
% |
|
|
23.3 |
% |
|
GM trucks
|
|
|
26.4 |
% |
|
|
27.1 |
% |
North American industry vehicle unit sales increased 1.5% to
4.8 million in the first quarter of 2006 compared to 2005,
whereas, U.S. industry vehicle unit sales increased
slightly to 4.05 million units compared to
4.00 million units in the first quarter of 2005.
U.S. industry volume in the first quarter of 2006
represents a seasonally adjusted annual rate of
17.4 million, compared to 17.1 million in the first
quarter of 2005. GMs U.S. market share decreased by
1.6 percentage points, to 23.8%, compared to the first
quarter of 2005 reflecting a decline in vehicle unit deliveries
of approximately 52 thousand units, or 5.1%. GMs
U.S. car market share declined by 2.6 percentage
points to 20.7%, while GMs U.S. truck market share
declined to 26.4%, down 0.7 percentage point.
GMNA production volumes were higher in 2006 by approximately
73 thousand units, at 1.255 million units for the
quarter, compared to 1.182 million units in the first
quarter of 2005. Dealer inventories in the U.S. declined
year over year by approximately 74 thousand units, to
1.169 million units at March 31, 2006 from
1.243 million units at March 31, 2005.
In the first quarter of 2006, GMNA recorded a net loss of
$503 million, a reduction of $1.2 billion from the
first quarter 2005 net loss of $1.7 billion. The
improvement in results was due in part to the following factors:
|
|
|
|
|
Increased production volumes, which contributed approximately
$460 million to quarterly results; and |
|
|
|
Favorable pricing, the result of GMs pricing initiatives
with less reliance on incentives, as well as higher demand for
recently launched vehicles such as the Chevrolet Tahoe,
GMC Yukon, and Cadillac Escalade, contributed approximately
$450 million to the improvement. These improvements were
the primary drivers of the increased GMNA net margins in the
first quarter of 2006 compared to the first quarter of 2005, as
expenses were relatively flat other than those items mentioned
below. |
I-35
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review
(continued)
GM North America
(concluded)
In addition to the factors above, results in the first quarter
of 2006 included the following items related to GMNAs
restructuring initiatives:
|
|
|
|
|
After-tax charges of $41 million, compared to
$140 million for the first quarter 2005. The first quarter
2006 charges include costs related to separations of salaried
employees, components of an hourly attrition program related to
retroactive lump sum payments, partially offset by favorable
adjustments for higher than anticipated headcount reductions
associated with previously announced GMNA plant closing
activities. |
Also contributing to the improvement in 2006 compared to 2005
were first quarter 2005 after-tax charges of $84 million
for the write-down to fair market value of various plant assets
in connection with the cessation of production at the Lansing
assembly plant.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
|
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
(Dollars in millions) |
GME:
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$ |
8,091 |
|
|
$ |
8,108 |
|
|
Net income (loss)
|
|
$ |
48 |
|
|
$ |
(514 |
) |
|
Net margin
|
|
|
0.6 |
% |
|
|
(6.3 |
)% |
|
|
(Volume in thousands) |
|
Production volume
|
|
|
494 |
|
|
|
502 |
|
Vehicle unit sales
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
5,522 |
|
|
|
5,283 |
|
|
GM as a percentage of industry
|
|
|
9.5 |
% |
|
|
9.7 |
% |
GM market share Germany
|
|
|
10.0 |
% |
|
|
10.9 |
% |
GM market share United Kingdom
|
|
|
14.5 |
% |
|
|
14.9 |
% |
Industry vehicle unit sales increased in Europe during the first
quarter of 2006 by approximately 4.5% compared to the first
quarter of 2005, with year-over-year growth in most countries.
GME vehicle unit deliveries increased by approximately
8 thousand units in the first quarter of 2006 versus the
same period in 2005. Although GME unit deliveries increased in
the first quarter 2006, given the strong increases in the
industry volumes, GMEs market share declined to 9.5%,
representing a 0.2 percentage point reduction versus the
same period in 2005. GME experienced market share losses for the
two largest markets in Europe, Germany and the United Kingdom,
in the first quarter of 2006 as compared to the first quarter of
2005.
GME earned net income of $48 million in the first quarter
2006, compared to a net loss of $514 million in the first
quarter of 2005, reflecting the turnaround efforts in the
region. The increase in income was due in part to the following
factors:
|
|
|
|
|
Pricing improvements of approximately $50 million,
primarily driven by the successful launch of the new
Zafira; and |
|
|
|
Material cost reductions and favorable structural cost savings
attributable to continued progress in restructuring efforts
largely in manufacturing, resulting in approximately
$100 million improvement. |
In addition, GMEs 2006 results include an after-tax
restructuring charge of $40 million, primarily at Adam
Opel, compared to restructuring charges of $422 million,
after tax, in the first quarter of 2005.
I-36
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review
(continued)
|
|
|
GM Latin America/Africa/Mid-East |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
|
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
(Dollars in millions) |
GMLAAM:
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$ |
3,140 |
|
|
$ |
2,299 |
|
|
Net income (loss)
|
|
$ |
29 |
|
|
$ |
31 |
|
|
Net margin
|
|
|
0.9 |
% |
|
|
1.3 |
% |
|
|
(Volume in thousands) |
|
Production volume
|
|
|
194 |
|
|
|
185 |
|
Vehicle unit sales
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
1,361 |
|
|
|
1,189 |
|
|
GM as a percentage of industry
|
|
|
16.9 |
% |
|
|
15.4 |
% |
GM market share Brazil
|
|
|
21.4 |
% |
|
|
19.0 |
% |
Industry vehicle unit sales in the GMLAAM region increased over
14% in the first quarter of 2006, to 1.361 million units,
compared to the first quarter of 2005. Overall, GMLAAMs
vehicle unit sales outpaced the strong industry growth resulting
in a 1.5 percentage point increase in market share to 16.9%
in the first quarter of 2006. The market share gain was
primarily the result of a 2.4 percentage points increase in
Brazil as well as gains from GMs Middle East operations.
The first quarter 2006 market share gains were partially offset
by decreases in Argentina and South Africa market share, both of
which had increases in sales but were subject to strong local
industry growth. GMLAAM achieved an all-time record first
quarter sales volume of 230 thousand units in 2006.
GMLAAM earned net income of $29 million in the first
quarter of 2006, compared to a net income of $31 million in
the first quarter of 2005. Favorable pricing, production
volumes, and product mix were offset by unfavorable currency
impacts, especially movements in the Brazilian real. First
quarter results for 2006 also included a $27 million charge
for restructuring primarily related to the costs of voluntary
employee separations at GM do Brasil.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
|
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
(Dollars in millions) |
GMAP:
|
|
|
|
|
|
|
|
|
|
Total net sales and revenues
|
|
$ |
3,933 |
|
|
$ |
1,694 |
|
|
Net income (loss)
|
|
$ |
453 |
|
|
$ |
70 |
|
|
Net margin
|
|
|
11.5 |
% |
|
|
4.1 |
% |
|
|
(Volume in thousands) |
|
Production volume
|
|
|
468 |
|
|
|
335 |
|
Vehicle unit sales
|
|
|
|
|
|
|
|
|
|
Industry
|
|
|
5,076 |
|
|
|
4,659 |
|
|
GM as a percentage of industry
|
|
|
6.4 |
% |
|
|
5.0 |
% |
GM market share Australia
|
|
|
16.5 |
% |
|
|
18.4 |
% |
GM market share China
|
|
|
13.5 |
% |
|
|
10.2 |
% |
I-37
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GM Automotive and Other Operations Financial Review
(concluded)
GM Asia Pacific
(concluded)
Industry vehicle unit sales in the Asia Pacific region increased
by approximately 9% in the first quarter of 2006 compared to the
first quarter of 2005, at 5.1 million units, with
significant gains in China, India, and South Korea. GMAP
increased its vehicle unit sales in the region by approximately
92 thousand units, or 40%, in the first quarter of 2006,
primarily due to increased sales in China. GMAP sales volume
includes Wuling sales in China due to the combination of the
market environment and GMs significant equity ownership
position in Wuling. GMAPs first quarter 2006 market share
increased to 6.4%, from 5.0% in the first quarter of 2005. In
China, GMAP increased its sales volume 76% compared to the first
quarter of 2005, and increased its market share to 13.5%, up
from 10.2% in the first quarter of 2005.
Net income from GMAP was $453 million and $70 million
in the first quarters of 2006 and 2005, respectively. The
increase in GMAPs net income, compared with the first
quarter of 2005, was primarily due to the following factors:
|
|
|
|
|
A gain of $372 million, after tax, from the sale of
approximately 85% of GMs investment in Suzuki, discussed
above; and |
|
|
|
Improved results at GM Daewoo and GMs joint ventures
in China, partially offset by unfavorable results at Holden and
Thailand. |
GMAP results reflect the consolidation of GM Daewoo as of
June 30, 2006.
Other Operations
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
|
|
|
2006 |
|
2005 |
|
|
|
|
|
|
|
(Dollars in millions) |
Other Operations:
|
|
|
|
|
|
|
|
|
|
Total net sales, revenues, and eliminations
|
|
$ |
(305 |
) |
|
$ |
(25 |
) |
|
Net income (loss)
|
|
$ |
(220 |
) |
|
$ |
168 |
|
Other Operations recorded a net loss of $220 million in the
first quarter of 2006, compared to net income of
$168 million in 2005. The deterioration in results is
primarily attributable to tax benefits included only in 2005,
which contributed $389 million to the prior year results.
Other Operations results also include after-tax legacy
costs of $149 million and $112 million for the first
quarters of 2006 and 2005, respectively, related to employee
benefit costs of divested businesses, primarily Delphi, for
which GM has retained responsibility. In addition, 2006 results
include an after-tax charge of $3 million related to
curtailment charges with respect to U.S. salaried pension
changes, and 2005 results include an $8 million after-tax
charge related to early retirement and other separation programs
for certain U.S. salaried employees.
GMAC Financial Review
GMACs net income was $637 million and
$728 million in the first quarters of 2006 and 2005,
respectively. The decrease in net income in the first quarter of
2006, compared with 2005, was primarily the
I-38
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
GMAC Financial Review (concluded)
result of a decline in mortgage income, partially offset by
improved earnings from financing and insurance operations.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
|
March 31, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
(In millions) | |
Financing operations
|
|
$ |
270 |
|
|
$ |
216 |
|
Mortgage operations
|
|
|
238 |
|
|
|
418 |
|
Insurance operations
|
|
|
129 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
637 |
|
|
$ |
728 |
|
|
|
|
|
|
|
|
Net income from financing operations totaled $270 million
and $216 million in the first quarters of 2006 and 2005,
respectively. The increase in earnings is primarily due to
favorable consumer credit provisions, primarily as a result of
automotive whole loan activity, and favorable international
credit experience. Earnings also benefited from lower
compensation expense primarily as a result of decreased OPEB
expense in the U.S.
Net income from mortgage operations totaled $238 million in
the first quarter of 2006, a 43% decrease from the
$418 million earned in the first quarter of 2005. Earnings
at ResCap were negatively affected by lower net margins
resulting from both pricing pressures and higher funding costs,
despite increased revenues from higher asset levels. In
addition, gains on sales of loans were down due to a significant
gain in the first quarter of 2005 realized from the sale of a
portfolio of distressed mortgage loans. Apart from this,
mortgage loan gains were relatively flat as the favorable effect
from higher sales volume was offset by lower margins.
ResCaps credit provision was lower compared to the first
quarter of 2005, as a result of favorable credit trends.
Mortgage originations were $41.6 billion for the latest
quarter, representing an increase from $34.6 billion in the
year-ago period. GMAC income related to commercial mortgage
operations was $41 million, representing operating earnings
of $50 million and a $9 million loss on the sale of
78% of the commercial mortgage business. Cash proceeds from the
sale were approximately $1.5 billion. At the closing, GMAC
Commercial Mortgage also repaid to GMAC approximately
$7.3 billion in intercompany loans, bringing the total cash
from the sale to $8.8 billion.
Net income from insurance operations totaled $129 million
and $94 million in the first quarters of 2006 and 2005,
respectively. The increase in net income in the first quarter of
2006, compared with 2005, was primarily due to the impact of
strong underwriting results. First quarter results also
benefited from the acquisition of MEEMIC Insurance Co., a
personal lines business that offers automobile and homeowners
insurance in the Midwest. Along with increased earnings, GMAC
insurance maintained a strong investment portfolio, with a
market value of $7.9 billion at March 31, 2006,
including net unrealized gains of $622 million.
I-39
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results
The following discussion identifies the key factors, known
events, and trends that could affect our future results.
|
|
|
GM North America Restructuring Plan
Update |
GM has been systematically and aggressively implementing its
four-point turnaround plan for GMNAs business to return
the operations to profitability and positive cash flow as soon
as possible. The four elements of this plan include:
|
|
|
|
|
Product Excellence |
|
|
|
Revitalize Sales and Marketing Strategy |
|
|
|
Accelerate Cost Reductions and Quality Improvements |
|
|
|
Address Health Care Burden |
To date GM has already taken a number of previously disclosed
steps resulting in progress towards the execution of the
turnaround plan. The following is an update regarding further
initiatives associated with certain elements of the GMNA
turnaround plan:
|
|
|
Accelerate Cost Reductions and Quality Improvements:
UAW-GM-Delphi Special Attrition Program Agreement |
As part of the initiatives to accelerate cost reductions and
bring our structural cost and employment levels in line with
revenues and demand for our vehicles, GM together with Delphi
and the UAW announced on March 22, 2006 that they had
entered into the UAW-GM-Delphi Special Attrition Program
Agreement (the Attrition Agreement) which is intended to reduce
the number of U.S. hourly employees at GM and Delphi
through an accelerated attrition program. When originally
executed, Delphis participation in the Attrition Agreement
was subject to approval by the U.S. Bankruptcy Court for
the Southern District of New York, which has jurisdiction over
Delphis Chapter 11 proceedings. On April 7,
2006, the Bankruptcy Court declared in a hearing that
Delphis participation in the Attrition Agreement was
approved. The agreement will provide for a combination of early
retirement programs and other incentives designed to help reduce
employment levels at both GM and Delphi, and by which GM will be
able to reduce the number of employees who are and will be in
the JOBS bank in a cost effective manner.
In the Attrition Agreement, GM has agreed to assume certain
costs regarding UAW-represented Delphi employees. Specifically,
GM agreed to (1) pay lump sums of $35,000 to certain
employees who participate in the Attrition Program;
(2) allow Delphi employees who agree to retire under the
Attrition Program to flowback to GM for purposes of retirement
whereby GM will assume all post-retirement health care and life
insurance (OPEB) obligations to such retiree;
(3) subsidize, for an interim period of time, health care
and life insurance coverage for Delphi employees participating
in a special voluntary pre-retirement program if Delphi reduces
or eliminates its health care and/or life insurance coverage
provided to active UAW employees; and (4) accept 5,000
active flowback employees, and as a result after they flow back,
pay such employees wages and benefits and incur pension
and OPEB obligations for such employees. The Attrition Agreement
provides that for such costs, other than the $35,000 lump sum
payment, GM will have a prepetition, general unsecured claim
assertable against the estate of Delphi under certain existing
agreements. This claim is subject to the rights of parties in
interest to object to allowance on any grounds other than the
claim did not arise under the terms of the pre-existing
contractual agreements between GM and Delphi. GM believes that
the Attrition Agreement will enhance the prospects for GM, the
UAW and Delphi to reach a broad-based consensual resolution of
issues relating to the Delphi restructuring.
I-40
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results
(continued)
|
|
|
GM North America Restructuring Plan
Update (concluded) |
Also under the Attrition Agreement, GM will provide certain
UAW-represented employees at GM with (i) a lump sum payment
of $35,000 for normal or early voluntary retirements retroactive
to October 1, 2005; (ii) a mutually satisfactory
retirement for employees with at least 10 years of credited
service and 50 years of age or older; (iii) payment of
gross monthly wages ranging from $2,750 to $2,900 to those
employees who participate in a special voluntary pre-retirement
program depending on years of credited service and plant work
location; and (iv) a buyout of $140,000 for employees with
ten or more years of seniority, or of $70,000 for employees with
less than 10 years seniority, provided such employees sever
all ties with GM and Delphi except for any vested pension
benefits.
GMNA recorded an after tax charge of $52 million in the
first quarter of 2006 associated with the $35,000 lump sum
payments for normal or early voluntary retirements between
March 31, 2006 and the October 1, 2005 retroactive
agreement date described above. GM expects all other significant
charges for this program to be incurred in the second and third
quarters of 2006 in conjunction with execution of the remaining
attrition program elements.
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|
|
Expected Cost Reduction in North America |
As has been previously disclosed, GMNA continues to target a
reduction of structural costs in North America by
$7 billion on a running rate basis by the end of 2006.
Running rate basis refers to the average annualized cost savings
into the foreseeable future anticipated to result from cost
savings actions when fully implemented. GM expects
$4.5 billion of the structural cost reduction to be
realized during calendar year 2006, which is greater than the
$4 billion of structural cost reductions previously
estimated for calendar year 2006 in GMs 2005 annual report
on Form 10-K. This
improvement is due to a reduction by $1 billion in
previously-expected charges associated with the UAW healthcare
settlement agreement in the first quarter of 2006, partially
offset by an increase in amortization expense related to the
$1 billion and future contributions associated with the
Mitigation Plan.
Attainment of the structural cost reductions will be, based in
part on the following restructuring initiatives which have been
announced and/ or executed:
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October 2005 UAW Health Care Settlement Agreement |
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November 2005 GMNA Capacity Reductions |
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February 2006 Salaried Retiree Health Care Revisions |
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|
March 2006 Salaried Retiree Pension Plan Revisions |
|
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|
March 2006 GM-UAW-Delphi Special Attrition Program
Agreement |
In addition to the structural cost reductions, GMNA was also
targeting a net reduction in material costs in 2006 of
$1 billion, prior to factoring in the cost of government
mandated product improvements. Reducing material costs remains a
critical part of GMNAs overall long-term cost reduction
plans. Attainment of this target, however, has been challenged
by higher commodity prices and troubled supplier situations.
GMNA will continue its aggressive pursuit of material cost
reduction via improvements in its global processes for product
development which will enable further part commonization and
reuse among architectures, as well as through the continued use
of the most competitive supply sources globally.
On October 8, 2005, Delphi filed a petition for
Chapter 11 proceedings under the United States Bankruptcy
Code for itself and many of its U.S. subsidiaries. GM
expects no immediate effect on its global
I-41
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results
(continued)
|
|
|
Delphi Bankruptcy (continued) |
automotive operations as a result of Delphis action.
Delphi is GMs largest supplier of automotive systems,
components and parts, and GM is Delphis largest customer.
GM will continue to work constructively in the court proceedings
with Delphi, Delphis unions, and other participants in
Delphis restructuring process. GMs goal is to pursue
outcomes that are in the best interests of GM and its
stockholders, and that enable Delphi to continue as an important
supplier to GM.
Delphi has indicated to GM that it expects no disruption in its
ability to supply GM with the systems, components and parts it
needs as Delphi pursues a restructuring plan under the
Chapter 11 process. Although the challenges faced by Delphi
during its restructuring process could create operating and
financial risks for GM, that process is also expected to present
opportunities for GM. These opportunities include reducing, over
the long term, the significant cost penalty GM incurs in
obtaining parts from Delphi, as well as improving the quality of
systems, components and parts GM procures from Delphi as a
result of the restructuring of Delphi through the
Chapter 11 process. However, there can be no assurance that
GM will be able to realize any benefits.
On March 31, 2006, Delphi filed a motion under the
U.S. Bankruptcy Code seeking authority to reject certain
supply contracts with GM. A hearing on this motion is scheduled
for June 2 and 5, 2006. Although Delphi has not
rejected any GM contracts as of this time and has assured GM
that it does not intend to disrupt production at GM assembly
facilities, there is a risk that Delphi or one or more of its
affiliates may reject or threaten to reject individual contracts
with GM, either for the purpose of exiting specific lines of
business or in an attempt to increase the price GM pays for
certain parts and components. As a result, GM might be
materially adversely affected by disruption in the supply of
automotive systems, components and parts that could force the
suspension of production at GM assembly facilities.
Delphi also filed on March 31, 2006 motions under the
U.S. Bankruptcy Code seeking authority to reject its
U.S. labor agreements and modify retiree welfare benefits.
The unions and certain other parties have filed objections to
these motions. Hearings on these motions are scheduled for
May 9, 10 and 12, 2006. While Delphi has indicated to
us that it expects no disruptions in its ability to continue
supplying us with the systems, components, and parts we need as
Delphi pursues its bankruptcy restructuring plan, labor
disruptions at Delphi resulting from Delphis pursuit of a
restructuring plan could seriously disrupt our North American
operations, prevent us from executing our GMNA turnaround
initiatives, and materially adversely impact our business.
Accordingly, resolution of the Delphi related issues remains a
critical near term priority.
Various financial obligations Delphi has to GM as of the date of
Delphis Chapter 11 filing, including the
$927 million payable for amounts that Delphi owed to GM
relating to Delphi employees who were formerly GM employees and
subsequently transferred back to GM as job openings became
available to them under certain employee flowback
arrangements, may be subject to compromise in the bankruptcy
proceedings, which may result in GM receiving payment of only a
portion of the face amount owed by Delphi.
GM is seeking to minimize this risk by protecting our right of
setoff against the $1.15 billion we owed to Delphi as of
the date of its Chapter 11 filing. A procedure for
determining setoff claims has been put in place by the
bankruptcy court. However, the extent to which these obligations
are covered by our right to setoff may be subject to dispute by
Delphi, the creditors committee, or Delphis other
creditors, and limitation by the court. GM cannot provide any
assurance that it will be able to fully or partially setoff such
amounts. However, to date setoffs of approximately
$52.5 million have been agreed to by Delphi and taken by
GM. Although GM believes that it is probable that it will be
able to collect all of the amounts due from Delphi, the
financial impact of a substantial compromise of our right of
setoff could have a material adverse impact on our financial
position.
I-42
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results
(continued)
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|
|
Delphi Bankruptcy (continued) |
In connection with GMs spin-off of Delphi in 1999, GM
entered into separate agreements with the UAW, the International
Union of Electrical Workers and the United Steel Workers. In
each of these three agreements (Benefit Guarantee Agreement(s)),
GM provided contingent benefit guarantees to make payments for
limited pension and OPEB expenses to certain former GM
U.S. hourly employees who transferred to Delphi as part of
the spin-off and meet the eligibility requirements for such
payments (Covered Employees).
Each Benefit Guarantee Agreement contains separate benefit
guarantees relating to pension, post-retirement health care and
life insurance benefits. These limited benefit guarantees each
have separate triggering events that initiate potential GM
liability if Delphi fails to provide the corresponding benefit
at the required level. Therefore, it is possible that GM could
incur liability under one of the guarantees (e.g., pension)
without triggering the other guarantees (e.g., post-retirement
health care or life insurance). In addition, with respect to
pension benefits, GMs obligation under the pension benefit
guarantees only arises to the extent that the combination of
pension benefits provided by Delphi and the Pension Benefit
Guaranty Corporation (PBGC) falls short of the amounts GM
has guaranteed.
The Chapter 11 filing by Delphi does not by itself trigger
any of the benefit guarantees. Moreover, Delphis filing of
motions under the U.S. Bankruptcy Code to reject its
U.S. labor agreements and modify retiree welfare benefits
does not by itself trigger any of the benefit guarantees. In
addition, the benefit guarantees expire on October 18, 2007
if not previously triggered by Delphis failure to pay the
specified benefits. If a benefit guarantee is triggered before
its expiration date, GMs obligation could extend for the
lives of affected Covered Employees, subject to the applicable
terms of the pertinent benefit plans or other relevant
agreements.
The benefit guarantees do not obligate GM to guarantee any
benefits for Delphi retirees in excess of the levels of
corresponding benefits GM provides at any given time to
GMs own hourly retirees. Accordingly, if any of the
benefits GM provides to its hourly retirees are reduced, there
would be a similar reduction in GMs obligations under the
corresponding benefit guarantee.
A separate agreement between GM and Delphi requires Delphi to
indemnify GM if and to the extent GM makes payments under the
benefit guarantees to the UAW employees or retirees. GM received
a notice from Delphi, dated October 8, 2005, that it was
more likely than not that GM would become obligated to provide
benefits pursuant to the benefit guarantees to the UAW employees
or retirees. The notice stated that Delphi was unable at that
time to estimate the timing and scope of any benefits GM might
be required to provide under those benefit guarantees. Any
recovery by GM under indemnity claims against Delphi might be
subject to partial or complete discharge in the Delphi
reorganization proceeding. As a result, GMs claims for
indemnity may not be paid partially or in full.
As part of the discussion to attain GMs health-care
agreement with the UAW, GM provided former GM employees who
became Delphi employees the potential to earn up to seven years
of credited service for purposes of eligibility for certain
health-care benefits under the GM/ UAW benefit guarantee
agreement.
As discussed above, GM together with Delphi and the UAW
announced on March 22, 2006 that they had entered into the
UAW-GM-Delphi Special Attrition Program Agreement (the Attrition
Agreement) which is intended to reduce the number of
U.S. hourly employees at GM and Delphi through an
accelerated attrition program. When originally executed,
Delphis participation in the Attrition Agreement was
subject to approval by the U.S. Bankruptcy Court for the
Southern District of New York, which has jurisdiction over
Delphis Chapter 11 proceedings. On April 7,
2006, the Bankruptcy Court declared in a hearing that
Delphis participation in the Attrition Agreement was
approved. The Attrition Agreement provides for a combination of
early retirement programs and other incentives designed to help
reduce employment levels at both GM and
I-43
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results
(continued)
|
|
|
Delphi Bankruptcy (concluded) |
Delphi, and by which GM will be able to reduce the number of
employees who are and will be in the JOBS bank in a cost
effective manner.
In the Attrition Agreement, GM has agreed to assume certain
costs regarding UAW-represented Delphi employees. Specifically,
GM agreed to (1) pay lump sums of $35,000 to certain
employees who participate in the Attrition Program;
(2) allow Delphi employees who agree to retire under the
Attrition Program to flowback to GM for purposes of retirement
whereby GM will assume all post-retirement health care and life
insurance (OPEB) obligations to such retiree;
(3) subsidize, for an interim period of time, health care
and life insurance coverage for Delphi employees participating
in a special voluntary pre-retirement program if Delphi reduces
or eliminates its health care and/or life insurance coverage
provided to active UAW employees; and (4) accept 5,000
active flowback employees, and as a result after they flow back,
pay such employees wages and benefits and incur pension
and OPEB obligations for such employees. The Attrition Agreement
provides that for such costs, other than the $35,000 lump sum
payment, GM will have a prepetition, general unsecured claim
assertable against the estate of Delphi under certain existing
agreements. This claim is subject to the rights of parties in
interest to object to allowance on any grounds other than the
claim did not arise under the terms of the pre-existing
contractual agreements between GM and Delphi. GM believes that
the Attrition Agreement will enhance the prospects for GM, the
UAW and Delphi to reach a broad-based consensual resolution of
issues relating to the Delphi restructuring.
GM believes that it is probable that it has incurred a
contingent liability due to Delphis Chapter 11
filing. GM believes that the range of the contingent exposures
is between $5.5 billion and $12 billion, with amounts
near the low end of the range considered more possible than
amounts near the high end of the range. GM established a reserve
of $5.5 billion ($3.6 billion after tax) for this
contingent liability in the fourth quarter of 2005, and has made
no adjustments to that reserve balance as of March 31,
2006. These views reflect GMs current assessment that it
is unlikely that a Chapter 11 process will result in both a
termination of Delphis pension plan and complete
elimination of its OPEB plans. The amount of this charge may
change, depending on the result of discussions among GM, Delphi,
and Delphis unions, and other factors. GM is currently
unable to estimate the amount of additional charges, if any,
which may arise from Delphis Chapter 11 filing. A
consensual agreement to resolve the Delphi matter may cause GM
to incur additional costs in exchange for benefits that would
accrue to GM over time.
With respect to the possible cash flow effect on GM related to
its ability to make either pension or OPEB payments, if any are
required under the benefit guarantees, GM would expect to make
such payments from ongoing operating cash flow and financings.
Such payments, if any, are not expected to have a material
effect on GMs cash flows in the short-term. However, if
payable, these payments would be likely to increase over time,
and could have a material effect on GMs liquidity in
coming years. (For reference, Delphis 2004
Form 10-K reported
that its total cash outlay for OPEB for 2004 was
$226 million, which included $154 million for both
hourly and salaried retirees, the latter of whom are not covered
under the benefit guarantees, plus $72 million in payments
to GM for certain former Delphi hourly employees that flowed
back to retire from GM). If benefits to Delphis
U.S. hourly employees under Delphis pension plan are
reduced or terminated, the resulting effect on GM cash flows in
future years due to the Benefit Guarantee Agreements is
currently not reasonably estimable.
|
|
|
GMAC Sale of 51% Controlling Interest |
On April 2, 2006, GM and its wholly owned subsidiaries,
GMAC and GM Finance Co. Holdings Inc., entered into a definitive
agreement pursuant to which GM will sell a 51% controlling
interest in GMAC for a purchase price of $7.4 billion to
FIM Holdings LLC, a consortium of investors led by Cerberus
Capital Management, L.P., a private investment firm, which also
includes Citigroup Inc. and Aozora Bank Ltd. as consortium
members (FIM Holdings). GM will retain a 49% equity investment
interest in GMAC. In
I-44
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results
(continued)
|
|
|
GMAC Sale of 51% Controlling
Interest (continued) |
addition, GM and the consortium will invest $1.9 billion of
cash in new GMAC preferred equity, with $1.4 billion to be
invested by GM and $500 million to be invested by FIM
Holdings. The transaction is subject to a number of U.S. and
international regulatory and other approvals. GM expects to
close the transaction in the fourth quarter of 2006.
GM believes this agreement represents another critical event in
the current turnaround efforts, and will provide a number of
benefits such as:
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|
Strong long term Services Agreement between GM and
GMAC As part of the transaction, GM and GMAC will
enter into a number of agreements that will require that GMAC
continue to allocate capital to automotive financing consistent
with historical practices, thereby continuing to provide
critical financing support to a significant share of GMs
global sales. While GMAC will retain the right to make
individual credit decisions, GMAC will commit to fund a broad
spectrum of customers and dealers consistent with historical
practice in the relevant jurisdiction. Subject to GMACs
fulfillment of certain conditions, GM will grant GMAC
exclusivity for 10 years for U.S., Canadian and
international GM-sponsored consumer and wholesale marketing
incentives, with the exception of Saturn branded products. |
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|
Improved Liquidity Significant upfront sales
proceeds to bolster GM liquidity, strengthening GMs
balance sheet and funding the turnaround plan. |
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Enhanced shareholder value through a stronger GMAC
GM will retain an 49% equity investment interest in GMAC, and
will be able to continue to participate in GMACs strong
profitability levels. |
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Expected de-linkage of GMACs credit rating from
GM GM expects the introduction of a new controlling
investor for GMAC, new capital at GMAC, and significantly
reduced intercompany exposures to GM will provide GMAC with a
solid foundation to improve its current credit rating, and
de-link the GMAC credit ratings from GM. |
As part of the agreement, GM will retain an option, for
10 years after the closing of the transaction, to
repurchase from GMAC certain assets related to the automotive
finance business of the North American Operations and
International Operations of GMAC, subject to certain conditions,
including that GMs credit ratings are investment grade or
are higher than GMACs credit ratings.
Citigroup plans to arrange two asset-backed funding facilities
that total $25 billion which will support GMACs
ongoing business and enhance GMACs liquidity position. A
$10 billion facility is expected to be available before
closing and the other facility is expected to be available on or
after closing. Citigroup has committed $12.5 billion in the
aggregate to those two facilities. The funding facilities are in
addition to Citigroups initial equity investment in GMAC.
Prior to consummation of the agreement, (i) certain assets
with respect to automotive leases and retail installment sales
contracts owned by GMAC and its affiliates having a net book
value of approximately $4 billion, will be dividended to
GM, (ii) GM will assume certain of GMACs
post-employment benefit obligations, (iii) GMAC will
transfer to GM certain entities which hold a fee interest in
certain real properties, (iv) GMAC will pay dividends to GM
in an amount up to the amount of GMAC net income prior to the
Acquisition, (v) GM will repay certain indebtedness owing
to GMAC and specified intercompany unsecured obligations owing
to GMAC shall be no greater than $1.5 billion and
(vi) GMAC will make a one-time distribution to GM of
approximately $2.7 billion of cash to reflect the increase
in GMACs equity value 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. The total value of the cash
proceeds and distributions to GM before it purchases preferred
limited liability company interests of GMAC will be
approximately $14 billion over three years, comprised of
the $7.4 billion purchase price, the $4 billion of
I-45
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Key Factors Affecting Future Results
(concluded)
|
|
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GMAC Sale of 51% Controlling
Interest (concluded) |
retained assets and the $2.7 billion cash dividend. GM will
take a non-cash pre-tax charge to earnings currently estimated
at $1.1 billion to $1.3 billion ($750 million to
$850 million after tax) in the second quarter of 2006
associated with the planned sale of 51% of GMAC.
The agreement is subject to the satisfaction or waiver of
customary and other closing conditions, including, among other
things, (i) reasonable satisfaction by the members of FIM
Holdings, pursuant to an agreement with or other writing from,
the PBGC that, following the closing, GMAC and its subsidiaries
will not have any liability with respect to the ERISA plans of
GM, (ii) receipt of ratings for the senior unsecured
long-term indebtedness of GMAC and Residential Capital
Corporation, an indirect wholly owned subsidiary of GMAC, after
giving effect to the transactions contemplated by the Agreement,
of at least BB and BBB- (or their respective equivalents),
respectively, and an A.M. Best rating for GMACs
significant insurance subsidiaries of at least B++ and
(iii) that no material adverse effect will have occurred
with respect to the business, financial condition or results of
operations of GMAC, which includes any actual downgrading by any
of the major rating agencies of GMs unsecured long-term
indebtedness rating below CCC or its equivalent, and
(iv) the receipt of required regulatory approvals and
licenses. The agreement may be terminated upon the occurrence of
certain events, including the failure to complete the
transaction by March 31, 2007. There can be no assurance
that the sale transaction will be completed or if it is
completed, that the terms of the sale will not be different from
those set forth in the definitive agreement. Furthermore, even
if the sale transaction is completed on the agreed-upon terms,
there is no assurance that it will delink GMACs credit
rating from GMs credit rating or maintain ResCaps
credit rating at investment grade.
The sale of a controlling interest in GMAC will have the effect
of reducing a significant portion of the GMAC U.S. pre-tax
income available to GM. Given this anticipated decline in
U.S. pre-tax income as a result of the transaction, we have
reassessed the need for a valuation allowance against our
U.S. net deferred tax assets balance of $21.8 billion
as of March 31, 2006. At this time, we consider it more
likely than not that we will have U.S. taxable income in
the future that will allow us to realize these deferred tax
assets. However, it is possible that some or all of these
deferred tax assets could ultimately expire unused, especially
if our GMNA restructuring activities are not successful or if
GMACs income declines.
GM has been cooperating with the government in connection with a
number of investigations, including investigations concerning
pension and OPEB and certain transactions between GM and Delphi.
The Securities and Exchange Commission (SEC) has issued
subpoenas to GM in connection with various matters involving GM
that it has under investigation. These matters include GMs
financial reporting concerning pension and OPEB, certain
transactions between GM and Delphi, supplier price reductions or
credits, and any obligation GM may have to fund pension and OPEB
costs in connection with Delphis proceedings under
Chapter 11 of the U.S. 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 operations, and a
federal grand jury recently issued a subpoena in connection with
supplier credits.
Separately, SEC and federal grand jury subpoenas have been
served on GMAC entities in connection with industry wide
investigations into practices in the insurance industry relating
to loss mitigation insurance products such as finite risk
insurance.
I-46
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Liquidity and Capital Resources
Automotive and Other Operations
GM believes it has sufficient liquidity, balance sheet strength
and financial flexibility to meet its capital requirements over
the short and medium-term under reasonably foreseeable
circumstances. Over the long term, we believe that GMs
ability to meet its capital requirements will primarily depend
on the execution of its turnaround plan and the return of its
North American operations to profitability and positive cash
flow. GM Auto & Others available liquidity
includes its cash balances, marketable securities and
readily-available assets of its VEBA trusts. At March 31,
2006, GM Auto & Others available liquidity was
$21.6 billion compared with $20.4 billion at
December 31, 2005 and $19.8 billion at March 31,
2005. The amount of GMs consolidated cash and marketable
securities is subject to intra-month and seasonal fluctuations
and includes balances held by various GM business units and
subsidiaries worldwide that are needed to fund their operations.
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|
Mar. 31, 2006 | |
|
Dec. 31, 2005 | |
|
Mar 31, 2005 | |
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| |
|
| |
|
| |
|
|
(Dollars in billions) | |
Cash and cash equivalents
|
|
$ |
17.4 |
|
|
$ |
15.2 |
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|
$ |
10.2 |
|
Other marketable securities
|
|
|
1.4 |
|
|
|
1.4 |
|
|
|
5.4 |
|
Readily-available assets of VEBA trusts
|
|
|
2.8 |
|
|
|
3.8 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Available Liquidity
|
|
$ |
21.6 |
|
|
$ |
20.4 |
|
|
$ |
19.8 |
|
In addition to the readily-available portion of GMs VEBA
trusts included in available liquidity, GM expects to have
access to significant additional assets in its VEBA trusts over
time to fund its future OPEB plan costs. Total assets in the
VEBA trusts and related 401(h) accounts approximated
$18.6 billion at March 31, 2006 versus
$19.1 billion at December 31, 2005. The decline in
these balances was primarily driven by $2 billion of
withdrawals during the first quarter of 2006, partially offset
by asset returns during the quarter.
GM also has a $5.6 billion unsecured line of credit under a
standby facility with a syndicate of banks that terminates in
June 2008. GM has not previously drawn on this credit facility
or its predecessor facilities and believes that it has
sufficient liquidity over the short and medium term without
drawing on this facility. GM believes that it has a good faith
basis on which to make a borrowing request under this credit
facility. However, in view of GMs recent restatement of
its prior financial statements, there is substantial uncertainty
as to whether the bank syndicate would be required to honor such
a request, and therefore there is a high risk that GM would not
be able to borrow under this facility. GM believes that this
matter is unlikely to be tested because GM has no current need
or intention to draw on the existing facility.
Moreover, GM is currently exploring the possibility of amending
or replacing the existing facility (the New
Facility) by the end of the second quarter or early in the
third quarter. Changes to the existing line of credit could
include, among other terms, a security interest in certain GM
assets, a reduction in the size of the facility, and an
extension of the term beyond 2008. GM anticipates that it could
periodically use the New Facility to fund such needs as seasonal
working capital demands, which is a typical use for a secured
line of credit. There can be no assurance that GM will be
successful in negotiating an amendment or replacement of the
existing credit line or, if so, as to the amount, terms or
conditions of any New Facility.
GM believes that issues also may arise from its recent
restatement of its prior financial statements under various
financing agreements, which consist principally of obligations
in connection with sale/leaseback transactions and other lease
obligations and do not include GMs public debt indentures,
as to which GM is a party. GM has evaluated the effect of its
restatement under these agreements, including its legal rights
(such as its ability to cure) with respect to any claims that
could be asserted. While the amounts that might be subject to
possible claims of acceleration, termination or other remedies
under some or all of these agreements are uncertain, GM
currently believes such amounts would likely not exceed
approximately $2 billion,
I-47
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive and Other
Operations (continued)
Available
Liquidity (continued)
compared with an initial estimate of $3 billion as
discussed in GMs 2005
Form 10-K. The
reduction of this estimate is the result of further analysis of
the underlying portfolio. In addition, there may be economic
disincentives for third parties to raise such claims to the
extent they have them. GM believes that it has sufficient
liquidity over the short and medium term, regardless of the
resolution of these matters.
GM also has an additional $0.4 billion in undrawn committed
facilities with various maturities and undrawn uncommitted lines
of credit of $0.5 billion. In addition, GMs
consolidated affiliates with non-GM minority shareholders,
primarily GM Daewoo, have a combined $1.5 billion in
undrawn committed facilities.
On April 3, 2006, GM announced that it had entered into a
definitive agreement to sell a 51% controlling interest in GMAC
to a consortium of investors led by Cerberus Capital Management,
L.P. The transaction is subject to a number of U.S.,
international and other approvals and is expected to close in
the fourth quarter of 2006. The closing of the transaction would
have a material effect on GMs liquidity position. The
total value of the cash proceeds and distributions to GM before
it purchases preferred limited liability company interests of
GMAC will be approximately $14 billion in cash from this
transaction over three years, comprised of the $7.4 billion
purchase price, $4 billion of retained assets and a
$2.7 billion cash dividend.
The $1.2 billion increase in available liquidity to
$21.6 billion at March 31, 2006 from
$20.4 billion at December 31, 2005 was primarily the
result of GM Auto & Others positive operating
cash flow, and cash proceeds from asset sales, partially offset
by the significant capital expenditures required to support the
business.
For the quarter ended March 31, 2006, Auto &
Others operating cash flow was $3.0 billion compared
with a negative $2.6 billion in the first quarter of 2005.
GMs operating cash flow was principally driven by
Auto & Others improved first quarter performance,
a net loss of $0.2 billion compared with a
$2.0 billion net loss in the first quarter of 2005. The
2006 first quarter loss was offset by GMs withdrawal of
$2.0 billion from its VEBA trusts for its OPEB plans for
reimbursement of retiree healthcare and life insurance benefits
provided to eligible plan participants, improving operating cash
flow by $2.0 billion.
Auto & Others first quarter 2006 investing cash
flows consisted primarily of capital expenditures (a use of
investing cash flow) of $1.3 billion, compared with
$1.2 billion in the first quarter 2005. In March, 2006 GM
sold its interest in Suzuki common stock for approximately
$2.0 billion in cash, positively impacting investing cash
flow by the same amount.
GM Auto & Others total debt at March 31,
2006 was $32.2 billion, of which $1.2 billion was
classified as short-term and $31.0 billion was classified
as long-term. At March 31, 2005, total debt was
$32.3 billion, of which $2.4 billion was short-term
and $29.9 billion was long-term.
Separate from the $1.2 billion of short-term debt,
near-term North American term debt maturities include up to
approximately $1.2 billion in 2007, primarily related to
approximately $1.2 billion of convertible debentures that
may be put to GM for cash settlement in March 2007, and
approximately $1.3 billion of various maturities in 2008.
In order to provide financial flexibility to GM and its
suppliers, GM maintains a trade payables program through GMACCF.
Under the terms of the transaction to sell 51% of GMAC to
Cerberus, GM will be permitted to continue administering the
program through GMACCF so long as GM provides the funding of
advance payments to suppliers under the program. At
March 31, 2006, GM owed approximately $0.4 billion to
GMACCF under the program, which amount is included in the
balances of net payable to FIO and net
I-48
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Automotive and Other
Operations (concluded)
Available
Liquidity (concluded)
receivable from Auto & Other in GMs Supplemental
Information to the Consolidated Balance Sheets, and is
eliminated in GMs Consolidated Balance Sheets.
Net liquidity, calculated as cash, marketable securities, and
$2.8 billion ($3.8 billion at December 31, 2005)
of readily-available assets of the VEBA trust less the total of
loans payable and long-term debt, was a negative
$10.6 billion at March 31, 2006, compared with a
negative $12.1 billion at December 31, 2005.
Financing and Insurance Operations
At March 31, 2006, GMACs consolidated assets totaled
$303.8 billion, compared with $320.5 billion at
December 31, 2005 and $315.2 billion at March 31,
2005. The decrease from December 31, 2005 was primarily
attributable to the sale of approximately 78% of GMACs
equity in GMAC Commercial Mortgage in the first quarter of 2006.
The decrease from March 31, 2005 was primarily attributable
to a decrease of $9.5 billion in net finance receivables
and loans, driven by decreases in retail automotive receivables
partially offset by an increase in residential mortgage
receivables.
GMACs total debt decreased to $244.8 billion at
March 31, 2006, compared with $253.2 billion at
December 31, 2005 and $259.4 billion at March 31,
2005. GMACs ratio of total debt to total
stockholders equity at March 31, 2006 was 10.9:1,
compared with 11.9:1 at December 31, 2005, and 11.5:1 at
March 31, 2005. GMACs liquidity, as well as its
ability to profit from ongoing activity, is in large part
dependent upon its timely access to capital and the costs
associated with raising funds in different segments of the
capital markets. Part of GMACs strategy in managing
liquidity risk has been to develop diversified funding sources
across a global investor base. As an important part of its
overall funding and liquidity strategy, GMAC maintains
substantial bank lines of credit. These bank lines of credit,
which totaled $44.3 billion at March 31, 2006, provide
back-up liquidity and represent additional funding
sources, if required.
GMAC currently has a $3.0 billion syndicated line of credit
committed through June 2006, $4.4 billion committed through
June 2008, and committed and uncommitted lines of credit of
$3.3 billion and $8.6 billion, respectively. In
addition, at March 31, 2006, New Center Asset Trust
(NCAT) and Mortgage Interest Networking Trust
(MINT) had $18.5 billion and $3.0 billion in
committed liquidity facilities, respectively. NCAT is a special
purpose entity administered by GMAC for the purpose of funding
assets as part of GMACs securitization funding programs.
This entity funds the purchase of assets through the issuance of
asset-backed commercial paper and represents an important source
of liquidity to GMAC. At March 31, 2006, NCAT had
commercial paper outstanding of $12.0 billion, which is not
consolidated in the Corporations Consolidated Balance
Sheet. In addition, GMAC has been able to diversify its
unsecured funding through the formation of ResCap. ResCap, which
was formed as the holding company of GMACs residential
mortgage businesses, has a $3.5 billion syndicated line of
credit consisting of a $1.75 billion syndicated term loan,
a $0.9 billion syndicated line of credit committed through
July 2008, and a $0.9 billion syndicated line of credit
committed through July 2006. Finally, GMAC has
$108.0 billion in committed secured funding facilities with
third-parties, including commitments with third-party
asset-backed commercial paper conduits, as well as forward flow
sale agreements with third-parties and repurchase facilities.
This includes five year commitments that GMAC entered into in
2005 with remaining capacity to sell up to $59 billion of
retail automotive receivables to third party purchasers through
2010. The unused portion of these committed and uncommitted
facilities totaled $72.7 billion at March 31, 2006.
I-49
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Status of Debt Ratings
Standard & Poors, Moodys, and Fitch
currently rate GMs and GMACs credit at
non-investment grade. Dominion Bond Rating Services
(DBRS) rates GMs credit at non-investment grade and
maintains an investment grade rating for GMAC. All major rating
agencies rate ResCap at investment grade. The following table
summarizes GMs, GMACs and ResCaps credit
ratings as of April 21, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Debt |
|
Commercial Paper |
|
|
|
|
|
Rating Agency |
|
GM |
|
GMAC |
|
ResCap |
|
GM |
|
GMAC |
|
ResCap |
|
|
|
|
|
|
|
|
|
|
|
|
|
DBRS
|
|
B(High) |
|
BBB(Low) |
|
BBB |
|
R-3(Mid) |
|
R-2(Low) |
|
R-2(Mid) |
Fitch
|
|
B |
|
BB |
|
BBB- |
|
Withdrawn |
|
B |
|
F3 |
Moodys
|
|
B3 |
|
Ba1 |
|
Baa3 |
|
Not Prime |
|
Not Prime |
|
P3 |
S&P
|
|
B |
|
BB |
|
BBB- |
|
B-3 |
|
B-1 |
|
A-3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outlook |
|
|
|
Rating Agency |
|
GM |
|
GMAC |
|
ResCap |
|
|
|
|
|
|
|
DBRS
|
|
Negative |
|
Developing |
|
Developing |
Fitch
|
|
Rating Watch Negative |
|
Positive |
|
Positive |
Moodys
|
|
Negative |
|
Review for Possible Downgrade |
|
Review for Possible Downgrade |
S&P
|
|
Rating Watch Negative |
|
Developing |
|
Developing |
|
|
|
|
|
|
|
While GM experienced limited access to the capital markets in
the first quarter of 2006 as a result of deterioration in its
credit ratings, we were able to utilize available liquidity to
meet our capital requirements. Similarly, due to the downgrade
of GMACs unsecured debt to non-investment grade,
GMACs access to the unsecured capital markets was limited.
GMAC was able to meet its capital requirements by accessing
alternative funding sources, with a focus on secured funding and
automotive whole loan sales.
Each of Standard and Poors, Moodys, Fitch, and DBRS
has recently downgraded GMs senior debt ratings.
On February 21, 2006, Moodys downgraded GMs
senior unsecured debt to B2 with a negative outlook from B1
under review for a possible downgrade. On March 16, 2006,
Moodys placed the senior unsecured ratings of GM, GMAC and
ResCap under review for a possible downgrade. At the same time,
Moodys changed the review status of ResCaps
short-term P-3 ratings
to review for possible downgrade from direction uncertain. On
March 29, 2006 Moodys downgraded GMs senior
unsecured debt to B3 with a negative outlook leaving the ratings
of GMAC and ResCap on review for possible downgrade. On
May 5, 2006, Moodys placed GMs senior unsecured
debt rating under review for a possible downgrade. GMs
corporate rating and the ratings of GMAC and ResCap were
unaffected.
On March 1, 2006, Fitch downgraded GMs senior
unsecured rating from B+ to B. Following GMs April 2,
2006 entry into a definitive agreement to sell 51% of its stake
in GMAC, Fitch changed GMACs and ResCaps
rating-watch outlook to positive from evolving.
On March 29, 2006, Standard and Poors placed both
GMs long term B and short term
B-3 corporate credit
ratings on CreditWatch with negative implications. The ratings
for GMAC and ResCap were affirmed as BB and BBB minus,
respectively. Both GMAC and ResCaps ratings were left on
CreditWatch with developing implications.
I-50
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Status of Debt Ratings (concluded)
While the aforementioned ratings actions have increased
borrowing costs and limited access to unsecured debt markets,
these outcomes have been mitigated by actions taken by GM and
GMAC over the past few years to focus on an increased use of
liquidity sources other than institutional unsecured markets
that are not directly affected by ratings on unsecured debt,
including secured funding sources beyond traditional asset
classes and geographical markets, automotive whole loan sales,
and use of bank and conduit facilities. Further reductions of
GMs and/or GMACs credit ratings could increase the
possibility of additional terms and conditions contained in any
new or replacement financing arrangements. As a result of
specific funding actions taken over the past few years,
management believes that GM and GMAC will continue to have
access to sufficient capital to meet the Corporations
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 the Corporations funding strategy and
GMACs ability to sustain current level of asset
originations over the long-term. In addition, the ratings
situation and outlook increase the importance of successfully
executing the Corporations plans for improvement of
operating results. On April 2, 2006, GM entered into a
definitive agreement to sell 51% of its stake in GMAC. One of
the goals of this transaction is to delink GMACs credit
rating from GMs credit rating and renew its access to
low-cost financing.
Line of Credit Between GM and GMAC
GM has a $4 billion revolving line of credit from GMAC that
expires in September 2006. This credit line is used for general
operating and seasonal working capital purposes and to reduce
external liquidity requirements, given the differences in the
timing of GMs and GMACs peak funding requirements.
The line was not utilized in the first quarter of 2006. In the
first quarter of 2005, the maximum amount outstanding on this
line was $3.3 billion. Interest is payable on amounts
advanced under the arrangements based on market interest rates,
adjusted to reflect the credit rating of GM or GMAC in its
capacity as borrower.
Off-Balance Sheet Arrangements
GM and GMAC use off-balance sheet arrangements where economics
and sound business principles warrant their use. GMs
principal use of off-balance sheet arrangements occurs in
connection with the securitization and sale of financial assets
generated or acquired in the ordinary course of business by GMAC
and its subsidiaries and, to a lesser extent, by GM. The assets
securitized and sold by GMAC and its subsidiaries consist
principally of mortgages, and wholesale and retail loans secured
by vehicles sold through GMs dealer network. The assets
sold by GM consist principally of trade receivables.
In addition, GM leases real estate and equipment from various
off-balance sheet entities that have been established to
facilitate the financing of those assets for GM by nationally
prominent lessors that GM believes are creditworthy. These
assets consist principally of office buildings, warehouses, and
machinery and equipment. The use of such entities allows the
parties providing the financing to isolate particular assets in
a single entity and thereby syndicate the financing to multiple
third parties. This is a conventional financing technique used
to lower the cost of borrowing and, thus, the lease cost to a
lessee such as GM.
There is a well-established market in which institutions
participate in the financing of such property through their
purchase of ownership interests in these entities and each is
owned by institutions that are independent of, and not
affiliated with, GM. GM believes that no officers, directors or
employees of GM, GMAC, or their affiliates hold any direct or
indirect equity interests in such entities.
I-51
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Off-Balance Sheet
Arrangements (concluded)
Assets in off-balance sheet entities were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
Dec. 31, | |
|
March 31, | |
|
|
2006 | |
|
2005 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Automotive and Other Operations
Assets leased under operating leases |
|
$ |
2,288 |
|
|
$ |
2,430 |
|
|
$ |
2,469 |
|
Trade receivables sold(1)
|
|
|
737 |
|
|
|
708 |
|
|
|
1,153 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
3,025 |
|
|
$ |
3,138 |
|
|
$ |
3,622 |
|
|
|
|
|
|
|
|
|
|
|
Financing and Insurance Operations
Receivables sold or securitized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
$ |
90,207 |
|
|
$ |
99,084 |
|
|
$ |
81,496 |
|
|
Retail finance receivables
|
|
|
8,212 |
|
|
|
6,014 |
|
|
|
4,777 |
|
|
Wholesale finance receivables
|
|
|
21,326 |
|
|
|
21,421 |
|
|
|
24,507 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
119,745 |
|
|
$ |
126,519 |
|
|
$ |
110,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
In addition, trade receivables sold to GMAC were
$595 million, $525 million and $558 million for
the periods ended March 31, 2006, December 31, 2005,
and March 31, 2005, respectively. |
Book Value Per Share
Book value per share was determined based on the liquidation
rights of the common stockholders. Book value per share of GM
$12/3
par value common stock was $27.27 at March 31,
2006, $25.81 at December 31, 2005, and $44.37 at
March 31, 2005.
Book value per share is a meaningful financial measure for GM,
as it provides investors an objective metric based on GAAP that
can be compared to similar metrics for competitors and other
industry participants. The book value per share can vary
significantly from the trading price of common stock since the
latter is driven by investor expectations about a variety of
factors, including the present value of future cash flows, which
may or may not warrant financial statement recognition under
GAAP.
As of March 31, 2006, GMs book value per share was
significantly higher than the trading price of its
$12/3
par value common stock. GM believes that this difference
is driven mainly by marketplace uncertainty surrounding future
events at GM.
Dividends
Dividends may be paid on our
$12/3
par value common stock only when, as, and if declared by
GMs Board of Directors in its sole discretion out of
amounts available for dividends under applicable law. At
March 31, 2006, the amount of our capital surplus plus
retained earnings on a GAAP basis was about $17.9 billion.
Under Delaware law, our board may declare dividends only to the
extent of our statutory surplus (which is defined as
total assets minus total liabilities, in each case at fair
market value, minus statutory capital), or if there is no such
surplus, out of our net profits for the then current and/or
immediately preceding fiscal year.
GMs policy is to distribute dividends on its
$12/3
par value common stock based on the outlook and indicated
capital needs of the business. Cash dividends per share of GM
$12/3
par value common stock were $2.00 in 2005, 2004, and 2003. At
the February 6, 2006 meeting of the GM Board of
Directors, the board approved the reduction of the quarterly
dividend on GM
$12/3
par value common stock from $0.50 per share to
$0.25 per share, effective for the first quarter of 2006,
which was paid on March 10, 2006 to holders of record as of
February 16, 2006.
I-52
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Employment And Payrolls
|
|
|
|
|
|
|
|
|
|
Worldwide employment for GM and its wholly-owned subsidiaries at March 31, (in thousands) |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
GMNA
|
|
|
169 |
|
|
|
179 |
|
GME(1)
|
|
|
64 |
|
|
|
58 |
|
GMLAAM
|
|
|
31 |
|
|
|
30 |
|
GMAP(2)
|
|
|
32 |
|
|
|
15 |
|
GMAC
|
|
|
31 |
|
|
|
34 |
|
Other
|
|
|
2 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
Total employees
|
|
|
329 |
|
|
|
321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Ended |
|
|
March 31, |
|
|
|
|
|
2006 |
|
2005 |
|
|
|
|
|
Worldwide payrolls (in billions)
|
|
$5.3 |
|
$5.3 |
|
|
|
|
|
|
|
(1) |
Approximately 7,000 employees were added in the fourth quarter
of 2005 from a former powertrain joint venture with Fiat. |
|
(2) |
Approximately 13,000 employees were added as a result of the
GM Daewoo consolidation in the third quarter of 2005. |
Critical Accounting Estimates
The condensed consolidated financial statements of GM are
prepared in conformity with GAAP, which requires the use of
estimates, judgments, and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the periods presented. GMs accounting policies and
critical accounting estimates are consistent with those
described in Note 1 to the 2005 Consolidated Financial
Statements and the MD&A section in our 2005 Annual Report on
Form 10-K.
Management believes that the accounting estimates employed are
appropriate and resulting balances are reasonable; however,
actual results could differ from the original estimates,
requiring adjustments to these balances in future periods. The
Corporation has discussed the development, selection and
disclosures of its critical accounting estimates with the Audit
Committee of GMs Board of Directors, and the Audit
Committee has reviewed the Corporations disclosures
relating to these estimates.
GM will be remeasuring its U.S. Salaried Pension Plans as a
result of previously announced benefit modifications. The
primary impacts of this remeasurement will be reflected in the
second quarter of 2006 and subsequent periods.
Other than the above item, there have been no significant
changes in the methodologies and processes used in developing
these estimates from what is described in GMs 2005 Annual
Report on
Form 10-K.
New Accounting Standards
Beginning January 1, 2006, the Corporation adopted
SFAS No. 123R, Share-Based Payment
(SFAS 123R), requiring companies to record share-based
payment transactions as compensation expense at fair market
value. The Corporation elected the modified prospective method
in adopting SFAS 123R. This method requires compensation
cost to be recognized (a) based on the requirements of
SFAS 123R for all share-based payments granted or modified
after the effective date and (b) based on the requirements
of SFAS 123 for all awards granted to employees prior to
the effective date of SFAS 123R that remain unvested on the
effective date. The Corporation began expensing the fair market
value of newly granted stock options
I-53
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
New Accounting Standards (continued)
and other stock based compensation awards to employees pursuant
to SFAS 123 in 2003; therefore this statement did not have
a significant effect on GMs consolidated financial
position or results of operations.
Prior to the adoption of SFAS No. 123(R), the
Corporation used the Black-Scholes model to calculate the
grant-date fair value of awards granted under the GMLTIP plan.
The GMLTIP plan consists of award opportunities granted to
participants that are based on the achievement of specific
corporate business criteria. The condition is a minimum
percentile ranking of GMs Total Shareholder Return
(TSR) among the companies in the S&P 500. The
achievement of a certain TSR ranking relative to other stocks in
the S&P 500 is considered a market condition under
SFAS No. 123(R) and should be reflected in the
calculation of the grant-date fair value of the award. For
awards granted under the GMLTIP plan subsequent to the adoption
of SFAS No. 123(R), the Corporation uses a lattice
model to calculate the grant-date fair value of awards which
incorporates the market condition.
In December 2005, the FASB released FASB Staff Position
(FSP) SFAS 123(R)-3, Transition Election Related
to Accounting for the Tax Effects of Share-Based Payment
Awards, which provides a practical transition election
related to accounting for the tax effects of share-based payment
awards to employees. The Corporation is currently reviewing the
transition alternatives and will elect the appropriate
alternative within one year of the adoption of SFAS 123(R).
In February 2006, the FASB released FSP SFAS 123(R)-4,
Classification of Options and Similar Instruments Issued
as Employee Compensation That Allow for Cash Settlement upon the
Occurrence of a Contingent Event, which clarifies the
classification of options and similar instruments issued as
employee compensation that allow for cash settlement upon the
occurrence of a contingent event. The FSP did not have a
significant effect on GMs consolidated financial position
or results of operations.
In April 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, requiring
retrospective application as the required method for reporting a
change in accounting principle, unless impracticable or a
pronouncement includes specific transition provisions. This
statement also requires that a change in depreciation,
amortization, or depletion method for long-lived, nonfinancial
assets be accounted for as a change in accounting estimate
effected by a change in accounting principle. This statement
carries forward the guidance in APB Opinion No. 20,
Accounting Changes, for the reporting of the
correction of an error and a change in accounting estimate. This
statement is effective for accounting changes and correction of
errors made in fiscal years beginning after December 15,
2005.
In November 2005, the FASB released FSP FIN 45-3,
Application of FASB Interpretation No. 45 to Minimum
Revenue Guarantees Granted to a Business or Its Owners,
requiring companies to disclose minimum revenue guarantees in
accordance with the guidelines provided in FIN 45 for
interim and annual financial statements. GM adopted
FIN 45-3 upon issuance. The Interpretation did not have a
significant effect on GMs consolidated financial position
or results of operations.
In February 2006, the FASB issued SFAS No. 155,
Accounting for Certain Hybrid Financial Instruments
which amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities and
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. This statement amends SFAS No. 133
to permit fair value remeasurement for any hybrid instrument
that contains an embedded derivative that otherwise would
require bifurcation. This statement also eliminates the interim
guidance in SFAS No. 133 Implementation Issue D-1
which provides that beneficial interests in securitized
financial assets are not subject to the provisions of
SFAS No. 133. Finally, this statement amends
SFAS No. 140 to eliminate the restriction on the
passive derivative instruments that a qualifying special-purpose
entity (SPE) may hold. This statement is effective for all
financial instruments acquired or issued in first fiscal years
beginning after September 15, 2006.
In April 2006, the FASB issued FSP FIN 46(R)-6,
Determining the Variability to Be Considered in Applying
FASB Interpretation No. 46(R) which requires the
variability of an entity to be analyzed based on
I-54
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
New Accounting Standards (concluded)
the design of the entity. The nature and risks in the entity, as
well as the purpose for the entitys creation are examined
to determine the variability in applying FIN 46(R). The
variability is used in applying FIN 46(R) to determine
whether an entity is a variable interest entity, which interests
are variable interests in the entity, and who is the primary
beneficiary of the variable interest entity. This statement is
effective for all reporting periods after June 15, 2006.
Forward-Looking Statements
In this report, in reports subsequently filed by GM with the SEC
on Form 10-K and
Form 10-Q and
filed or furnished on
Form 8-K, and in
related comments by management of GM, our use of the words
expect, anticipate,
estimate, forecast,
initiative, objective, plan,
goal, project, outlook,
priorities, target, intend,
evaluate, pursue, seek,
may, would, could,
should, believe, potential,
continue, designed, impact,
or the negative of any of those words or similar expressions is
intended to identify forward-looking statements. All statements
in subsequent reports which GM may file with the SEC on
Form 10-Q and
filed or furnished 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. While these statements represent our
current judgment on what the future may hold, and we believe
these judgments are reasonable when made, these statements are
not guarantees of any events or financial results, and GMs
actual results may differ materially due to numerous important
factors that may be revised or supplemented in subsequent
reports on SEC
Forms 10-K, 10-Q
and 8-K. Such
factors include, among others, the following:
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The ability of GM to realize production efficiencies, to achieve
reductions in costs as a result of the turnaround restructuring
and health care cost reductions and to implement capital
expenditures at levels and times planned by management; |
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The resolution of the appeal of the court approval of the health
care settlement agreement; |
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The pace of product introductions; |
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Market acceptance of the Corporations new products; |
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Significant changes in the competitive environment and the
effect of competition in the Corporations markets,
including on the Corporations 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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Restrictions on GMACs and ResCaps ability to pay
dividends and prepay subordinated debt obligations to us; |
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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; |
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Changes in our accounting principles, or their application or
interpretation, and our ability to make estimates and the
assumptions underlying the estimates, including the range of
estimates for the Delphi benefit guarantees, which could result
in an impact on earnings; |
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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; |
I-55
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Forward-Looking Statements (continued)
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Negotiations and bankruptcy court actions with respect to
Delphis obligations to GM, negotiations with respect to
GMs obligations under the benefit guarantees to Delphi
employees, and GMs ability to recover any indemnity claims
against Delphi; |
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Labor strikes or work stoppages at GM or at key suppliers such
as Delphi; |
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Additional credit rating downgrades and the effects thereof; |
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The effect of a potential sale or other extraordinary
transaction involving GMAC on the results of GMs and
GMACs operations and liquidity; |
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Other factors affecting financing and insurance operating
segments results of operations and financial condition
such as credit ratings, adequate access to the market, changes
in the residual value of off-lease vehicles, changes in
U.S. government-sponsored mortgage programs or disruptions
in the markets in which our mortgage subsidiaries operate, and
changes in our contractual servicing rights; |
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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. |
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-Q
and 8-K. Such
factors include, among others, the following:
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The ability of GM to complete a transaction regarding a
controlling interest in GMAC while maintaining a significant
stake in GMAC, securing separate credit ratings and low cost
funding to sustain growth for GMAC and ResCap, and maintaining
the mutually beneficial relationship between GMAC and GM; |
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Significant changes in the competitive environment and the
effect of competition in the Corporations markets,
including on the Corporations pricing policies; |
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Our ability to maintain adequate financing sources; |
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Our ability to maintain an appropriate level of debt; |
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The profitability and financial condition of GM, including
changes in production or sales of GM vehicles, risks based on
GMs contingent benefit guarantees and the possibility of
labor strikes or work stoppages at GM or at key suppliers such
as Delphi; |
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Funding obligations under GM and its subsidiaries
qualified U.S. defined benefits pension plans; |
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Restrictions on ResCaps ability to pay dividends and
prepay subordinated debt obligations to us; |
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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 our mortgage subsidiaries
operate; |
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Changes in our contractual servicing rights; |
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Costs and risks associated with litigation; |
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Changes in our 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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Changes in the credit ratings of GMAC or GM; |
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The threat of natural calamities; |
I-56
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Forward-Looking Statements (concluded)
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Changes in economic conditions, currency exchange rates or
political stability in the markets in which we operate; 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. |
Investors are cautioned not to place undue reliance on
forward-looking statements. GM undertakes no obligation to
update publicly or otherwise revise any forward-looking
statements, whether as a result of new information, future
events or other such factors that affect the subject of these
statements, except where expressly required by law.
* * * * * * *
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Item 3. |
Quantitative And Qualitative Disclosures About Market
Risk |
There have been no significant changes in the Corporations
exposure to market risk since December 31, 2005. See
Item 7A in GMs Annual Report on
Form 10-K for the
year ended December 31, 2005.
* * * * * * *
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Item 4. |
Controls and Procedures |
The Corporation maintains disclosure controls and procedures
designed to ensure that information required to be disclosed in
reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized, and reported within
the specified time periods.
GMs management, with the participation of its chief
executive officer and its chief financial officer, evaluated the
effectiveness of GMs disclosure controls and procedures
(as defined in the Securities Exchange Act of 1934
Rules 13a-15(e) or
15d-15(e)) as of
March 31, 2006. Based on that evaluation, GMs chief
executive officer and chief financial officer concluded that, as
of that date, GMs disclosure controls and procedures
required by paragraph (b) of Exchange Act
Rules 13a-15 or
15d-15, were not
effective at the reasonable assurance level.
Managements assessment identified the following material
weaknesses and significant deficiency:
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(A) |
A material weakness was identified related to our design and
maintenance of adequate controls over the preparation, review,
presentation and disclosure of amounts included in our
previously-reported condensed consolidated statements of cash
flows for certain prior periods, which resulted in misstatements
therein and our previous restatements thereof. Cash outflows
related to certain mortgage loan originations and purchases were
not appropriately classified as either operating cash flows or
investing cash flows consistent with our original description as
loans held for sale or loans held for investment. In addition,
proceeds from sales and repayments related to certain mortgage
loans, which initially were classified as mortgage loans held
for investment and subsequently transferred to mortgage loans
held for sale, were reported as operating cash flows instead of
investing cash flows in our condensed consolidated statements of
cash flows, as required by Statement of Financial Accounting
Standards No. 102 Statement of Cash Flows
Exemption of Certain Enterprises and Classification of Cash
Flows from Certain Securities Acquired for Resale. Finally,
certain non-cash proceeds and transfers were not appropriately
presented in the condensed consolidated statements of cash flows. |
GM management is in the process of remediating this material
weakness through the design and implementation of enhanced
controls to aid in the correct preparation, review, presentation
and disclosures of our condensed consolidated statements of cash
flows. Management will monitor, evaluate and test the operating
effectiveness of these controls.
I-57
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Controls and Procedures (concluded)
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(B) |
As discussed in GMs Annual Report on
Form 10-K for the
year ended December 31, 2005, GM management remediated a
material weakness in control procedures used to account for
GMs portfolio of vehicles on operating lease with daily
rental car entities. |
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(C) |
GM management also identified a significant deficiency in
internal controls related to accounting for complex contracts.
This deficiency was identified as a result of certain contracts
being accounted for incorrectly and without appropriate
consideration of the economic substance of the contracts. GM
management is in the process of remediating this significant
deficiency by implementing a delegation of authority for
approval of the accounting for complex contracts that requires
formal review and approval by experienced accounting personnel. |
Other than indicated above, there were no changes in the
Corporations internal control over financial reporting
that occurred during the quarter ended March 31, 2006, that
have materially affected, or are reasonably likely to materially
affect, the Corporations internal control over financial
reporting.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that
our disclosure controls will prevent or detect all errors and
all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance
that the control systems objectives will be met. Further,
the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, within General Motors have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Controls can also
be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in
part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of
changes in conditions or deterioration in the degree of
compliance with associated policies or procedures. Because of
the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.
* * * * * * *
I-58
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
PART II
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Item 1. |
Legal Proceedings |
Stockholder and Bondholder Class Actions
In the previously reported ERISA Class Action In re
General Motors ERISA Litigation, on April 6, 2006, the
United States District Court for the Eastern District of
Michigan denied the motion of the GM defendants to dismiss. The
ruling is not a decision on the merits of the claims. No
determination has been that the case may be maintained as a
class action. The GM defendants intend to vigorously defend this
action.
In the previously reported stockholder class action In re
General Motors Securities Litigation (previously Folksam
Asset Management v. General Motors, et al. and
Galliani v. General Motors, et. al.) on
April 17, 2006, the Judicial Panel on Multidistrict
Litigation entered an order transferring In re General Motors
Securities Litigation to the United States 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., all of which have been
previously reported.
In the previously reported bondholder class action
Zielezienski, et al. v. General Motors,
et al. on April 3, 2006, the court entered an
order transferring the case to the United States District Court
for the Eastern District of Michigan from the United States
District Court for the Southern District of Florida.
Canadian Export Antitrust Class Actions
In the previously reported antitrust class actions In re New
Market Vehicle Canadian Export Antitrust Litigation Cases,
General Motors and Nissan Motor Co. Ltd. have filed a petition
for leave to appeal the decision of the United States District
Court for the District of Maine certifying a class action for
injuctive relief only under federal rule 23(b)(2) and deferring
a decision on plaintiffs motion to certify statewide
damages classes. On April 18, 2006, the United States Court
of Appeals for the First Circuit ordered that it will hold in
abeyance the petition for leave to appeal pending the district
courts ruling on the motion to certify statewide damages
classes.
Health Care Litigation
In the previously reported putative class action UAW,
et al. v. General Motors Corporation, which
challenged GMs ability to modify the health care plan for
certain hourly retirees and surviving spouses, the decision of
the U.S. District Court for the Eastern District of
Michigan on March 31, 2006 approving a settlement agreement
has been appealed by the putative plaintiff class to the
U.S. Court of Appeals for the Sixth Circuit.
Coolant System Product Litigation
Kenneth Stewart v. General Motors of Canada Limited and
General Motors Corporation, a complaint filed in the
Superior Court of Ontario dated April 24, 2006, alleges 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
alleges that defects in the engine cooling systems allow coolant
to leak into the engine and cause engine damage. The complaint
alleges violation of the Business Practices and Competition Acts
and seeks alleged benefits received as a result of failure to
warn and negligence, compensatory damages, punitive damages,
fees and costs.. Similar complaints were filed in the Supreme
Court of British Columbia on behalf of purchasers resident in
British Columbia (Donald Goodridge v. General Motors of
Canada Limited and General Motors Corporation, dated
May 2, 2006) and in the Superior Court of Quebec on behalf
of purchasers resident in Quebec and Canada. (Dominique
Gauthier v. General Motors of Canada Limited, dated
April 18, 2006).
II-1
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Legal Proceedings (concluded)
In Gutzler v. General Motors Corporation, initially filed
on April 11, 2003, the Circuit Court of Jackson County, Missouri
certified a class on January 9, 2006, comprised of
all consumers who purchased or leased a GM vehicle in
Missouri that was factory-equipped with Dex-Cool, coolant,
included as original equipment in GM vehicles manufactured since
1995. The Court also certified two sub-classes comprised of
(i) class members who purchased or leased a vehicle with a
4.3-liter engine, and
(ii) class members who purchased or leased a vehicle with a
3.1, 3.4 or 3.8-liter
engine. On March 6, 2006, the Missouri Court of Appeals for
the Western District declined to hear GMs appeal of the
class certifications, and GMs petition to transfer the
matter to the Missouri Supreme Court for further review is
pending. GM has been named as the defendant in 20 similar
putative class actions in various different federal and state
courts in the U.S. alleging defects in the engine cooling
systems in GM 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 federal multi-district proceeding in the
District Court for the Southern District of Illinois.
Environmental Matters
With respect to the previously reported matter in which the EPA
had issued an Administrative complaint on October 17, 2003
against General Motors in connection with the Corporations
assembly facilities in Moraine, Ohio, Pontiac, Michigan, and
Orion, Michigan, the EPA Administrative Law Judge has issued a
preliminary determination that GM is liable for multiple
violations of the hazardous waste rules as applied to GMs
painting and purge operations. The Judge has ordered GM to pay
$568,116 in penalties. GM believes that the case was wrongly
decided because the purge material in question is not a
waste, but instead is being used as intended in
enclosed systems to clean, suspend paint solids, and transport
fluids. The purge material is thereafter captured, reclaimed,
and reused by GM in its processes. GM intends to appeal to the
Environmental Appeals Board on the grounds that the purge
material in question is not a waste.
* * * * * * *
The risk factors immediately following, which were disclosed in
our 2005
Form 10-K, have
been modified to provide additional disclosure related to
changes since we filed our 2005
Form 10-K. See our
2005 Form 10-K for
an expanded description of other risks facing the Corporation
listed below under Other Risk Factors.
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Financial difficulties, labor stoppages or work slowdowns
at key suppliers, including Delphi, could result in a disruption
in our operations and have a material adverse effect on our
business. |
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, some of
these suppliers have experienced severe financial difficulties
and solvency problems. Financial difficulties or solvency
problems at those suppliers could materially adversely affect
their ability to supply us with the systems, components and
parts that we need to operate our business, resulting in a
disruption in our operations. Similarly, many of these suppliers
utilize workforces with substantial union representation.
Workforce disputes resulting in work stoppages or slowdowns at
these suppliers could also have a material adverse effect on
their ability to continue supplying us.
In particular, our largest supplier, Delphi, filed a
Chapter 11 bankruptcy petition in October 2005. On
March 31, 2006 Delphi filed motions under the
U.S. Bankruptcy Code seeking authority to reject its
U.S. labor agreements and modify retiree welfare benefits.
The unions and certain other parties have filed objections to
these motions. Hearings on these motions are scheduled for
May 9, 10 and 12, 2006. While Delphi has indicated to
us that it expects no disruptions in its ability to continue
supplying us with the systems, components, and parts we need as
Delphi pursues its bankruptcy restructuring plan, labor
disruptions at
II-2
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Risk Factors (continued)
Delphi resulting from Delphis pursuit of a restructuring
plan could seriously disrupt our North American operations,
prevent us from executing our GMNA turnaround initiatives, and
materially adversely impact our business. We believe that the
UAW has recently asked the UAW-represented Delphi employees to
authorize a strike if Delphi voids its labor contracts and that
the UAW has asked these employees to complete the vote by
May 14, 2006.
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Delphi may seek to reject or compromise its obligations to
us through its Chapter 11 bankruptcy proceedings. |
In connection with its Chapter 11 bankruptcy restructuring,
Delphi filed a motion under the U.S. Bankruptcy Code on
March 31, 2006 seeking authority to reject certain supply
contracts with GM. A hearing on this motion is scheduled for
June 2 and 5, 2006. Although Delphi has not rejected any GM
contracts as of this time and has assured GM that it does not
intend to disrupt production at GM assembly facilities, there is
a risk that Delphi or one more of its affiliates may reject or
threaten to reject individual contracts with GM, either for the
purpose of exiting specific lines of business or in an attempt
to increase the price GM pays for various systems, components
and parts we purchase from Delphi. As a result, we could
experience a material disruption in our supply of automotive
systems, components and parts that could force the suspension of
production at GM assembly facilities, which could materially
adversely affect our business, including implementation of our
GMNA turnaround initiatives. It is also difficult for us to
quickly switch to a different supplier for some of the systems,
components and parts we purchase from Delphi as a result of the
extended validation and production lead times for these items.
Various financial obligations Delphi has to GM as of the date of
Delphis Chapter 11 filing, including the
$927 million payable for amounts that Delphi owed to GM
relating to Delphi employees who were formerly GM employees and
subsequently transferred back to GM as job openings became
available to them under certain employee flowback
arrangements, may be subject to compromise in the bankruptcy
proceedings, which may result in GM receiving payment of only a
portion of the face amount owed by Delphi. GM will seek to
minimize this risk by protecting our right of setoff against the
$1.15 billion we owed to Delphi as of the date of its
Chapter 11 filing. A procedure for determining setoff
claims has been put in place by the bankruptcy court. However,
the extent to which these obligations are covered by our right
to setoff may be subject to dispute by Delphi, the creditors
committee, or Delphis other creditors, and limitation by
the court. GM cannot provide any assurance that it will be able
to fully or partially setoff such amounts. However, to date
setoffs of approximately $52.5 million have been agreed to
by Delphi and taken by GM. The financial impact of substantial
compromise or our right of setoff could have a material adverse
impact on our financial position.
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Continued failure to achieve profitability may cause some
or all of our deferred tax assets to expire. |
As of March 31, 2006, we had approximately
$21.8 billion in U.S. net deferred tax assets. These
deferred tax assets include net operating loss carryovers that
can be used to offset taxable income in future periods and
reduce our income taxes payable in those future periods.
However, many of these deferred tax assets will expire if they
are not utilized within certain time periods. At this time, we
consider it more likely than not that we will have
U.S. taxable income in the future that will allow us to
realize these deferred tax assets. However, it is possible that
some or all of these deferred tax assets could ultimately expire
unused, especially if our GMNA restructuring initiatives are not
successful or if GMs share of GMACs income declines.
On April 2, 2006, GM entered into a definitive agreement to
sell a 51% controlling interest in GMAC to a consortium of
investors. While this will not directly affect GMs ability
to realize our deferred tax assets, it will result in a
significant portion of GMACs U.S. pre-tax income to
no longer be available to GM. Therefore, unless we are able to
generate sufficient U.S. taxable income from our automotive
operations, a substantial valuation allowance may be required,
which would materially increase our expenses in the period taken
and adversely
II-3
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Risk Factors (continued)
affect our business. If we were required to record a valuation
allowance against all of our U.S. deferred tax assets as of
March 31, 2006, our resulting total stockholders
equity would have been negative.
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Restrictions in our labor agreements, including the JOBS
bank provisions in the UAW agreement, could limit our ability to
pursue or achieve cost savings through restructuring
initiatives, and labor strikes, work stoppages or similar
difficulties could significantly disrupt our operations. |
Substantially all of the hourly employees in our U.S., Canadian
and European automotive operations are represented by labor
unions and are covered by collective bargaining agreements,
which usually have a multi-year duration. Many of these
agreements include provisions that limit our ability to realize
cost savings from restructuring initiatives such as plant
closings and reductions in work force. In particular, our
collective bargaining agreement with the UAW, which covers the
majority of our U.S. hourly employees, includes a JOBS bank
provision that requires us to continue paying full wages and
benefits, generally after 48 weeks of layoff, during the
term of the agreement to qualified employees who would have
otherwise been laid off due to plant idlings or other
restructuring initiatives. We have been discussing these
provisions with the UAW in an effort to develop an agreed upon
accelerated attrition program by which we can reduce the number
of employees that are and will be in the JOBS bank in a cost
effective manner.
However, currently this provision significantly limits our
ability in the United States to achieve cost savings through
plant idlings, workforce reductions, or similar initiatives and,
in particular, our ability to execute our GMNA turnaround
initiatives.
As part of our discussions with the UAW, on March 22, 2006,
GM, Delphi and the UAW reached a tentative agreement intended to
reduce the number of U.S. hourly employees through an
accelerated attrition program. On April 7, 2006, the
bankruptcy court declared in a hearing that Delphis
participation in the agreement was approved. We cannot provide
any assurance that enough employees will agree to participate in
the attrition program to reduce employment levels at GM
sufficient to provide the benefits we anticipate.
Our current collective bargaining agreement with the UAW will
expire in September 2007. Any UAW strikes, threats of strikes,
or other resistance in connection with the negotiation of a new
agreement could impair our ability to implement further measures
to reduce structural costs and improve production efficiencies
in furtherance of our GMNA initiatives.
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We have reached an agreement to sell a controlling
interest in GMAC . There is a risk that this transaction may not
be completed, or if it is completed, that it may not delink
GMACs credit rating from GMs credit rating or
maintain ResCaps investment grade credit rating. In
addition, this transaction, if completed, would reduce our
interest in GMACs earnings going forward. |
On April 2, 2006, GM entered into a definitive agreement to
sell a 51% controlling interest in GMAC to a consortium of
investors. There can be no assurance that the sale transaction
will be completed or if it is completed, that the terms of the
sale will not be different from those set forth in the
definitive agreement. Furthermore, even if the sale transaction
is completed on the agreed-upon terms, there is no assurance
that it will not delink GMACs credit rating from GMs
credit rating or maintain ResCaps credit rating at
investment grade.
Failure to complete the sale transaction will place further
pressure on both GMs and GMACs credit profiles,
potentially resulting in further downgrades with GMACs
credit ratings explicitly re-linked to those of GM. Moreover,
any reduction in the automotive finance capacity of GMAC could
materially adversely affect GMs business to the extent
that third party financing is not available to fund GMs
automotive sales. In the absence of a transaction:
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GMACs access to capital may be seriously constrained, as
most unsecured funding sources may decline, including bank
funding; |
II-4
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Risk Factors (concluded)
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The cost of funds related to borrowings that are secured by
assets may increase, leading to a reduction in liquidity for
certain asset classes; |
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It may be increasingly difficult to securitize assets, resulting
in reduced capacity to support overall automotive originations; |
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Uncompetitive funding costs may result in a lower return on
capital and significantly lower earnings and dividends; and |
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GMAC may need to consider divesting certain businesses in order
to maintain adequate liquidity to fund new originations or
otherwise preserve the value of its businesses. |
In addition, the sale transaction, if completed, would reduce
our interest in the earnings of GMAC and ResCap, although the
financial effects of that reduction would be offset by the value
of the consideration we would receive from the purchasers.
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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 IRS-qualified
U.S. defined benefit pension plans and OPEB plans depend
upon changes in 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 minimum
ERISA 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 to
a point where our pension obligations are not fully funded, our
pension and OPEB expenses would increase and, as a result, could
materially adversely affect our business. Any decreases in
interest rates, if and to the extent not offset by contributions
and asset returns, could also increase our obligations under
such plans. We may be legally required to make contributions to
the pension plans in the future, and those contributions could
be material.
In addition, on March 31, 2006, the Financial Accounting
Standards Board (FASB) issued an exposure draft detailing
proposed changes in the accounting rules for pensions and other
postretirement benefits, which would require a company to
include on its balance sheet an additional net asset or net
liability to reflect the funded or unfunded status, as the case
may be, of its retirement plans. In light of the unrecognized
losses associated with our pension and OPEB liabilities under
existing accounting rules, if these expected proposed rules had
been in effect as of December 31, 2005, the substantial
additional liability that we would have had to include on our
balance sheet would have caused our total stockholders
equity to be negative.
Further, the U.S. Congress is currently considering
legislation that, if adopted, would affect the manner in which
GM administers its pensions. This proposed legislation is
designed, among other things, to increase the amount by which
companies fund their pension plans and to require companies that
sponsor defined benefit plans to pay higher premiums to the
PBGC. If this proposed legislation becomes law, GM, under
certain future circumstances, could become subject to additional
material funding requirements.
Other Risk Factors
The following risk factors, which were disclosed in our 2005
Form 10-K, have
not materially changed since we filed our 2005
Form 10-K. See our
2005 Form 10-K for
a complete discussion of these risk factors.
Risks related to GM and its automotive business
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Our ability to achieve structural and material cost reductions
and to realize production efficiencies for our automotive
operations is critical to our ability to achieve our turnaround
plan and return to profitability. |
II-5
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Risks related to GM and its automotive
business (concluded)
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We have guaranteed a significant amount of Delphis
financial obligations to its unionized workers. If Delphi fails
to satisfy these obligations, we would be obligated to pay some
of these obligations. |
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Our health-care cost burden is one of our biggest competitive
challenges, and if we do not make progress on structurally
fixing this issue, it will continue to be a long-term threat to
GM. |
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Our extensive pension and OPEB obligations to retirees are a
competitive disadvantage for us. |
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We have recently experienced a series of credit rating actions
that have downgraded our credit ratings to historically low
levels. 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. |
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Our liquidity position could be negatively affected by a variety
of factors, which in turn could have a material adverse effect
on our business. |
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GMs recent restatement of its prior financial statements
could negatively impact its rights and obligations under certain
contracts to which it is a party, including its
$5.6 billion standby credit facility, which could under
certain circumstances materially adversely affect GMs
future liquidity. |
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The government is currently investigating certain of our
accounting practices. The final outcome of these investigations
could require us to restate prior financial results. |
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We operate in a highly competitive industry that has excess
manufacturing capacity. |
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The bankruptcy or insolvency of a major competitor could result
in further competitive disadvantages for us in relation to that
competitor. |
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Shortages and increases in the price of fuel can result in
diminished profitability due to shifts in consumer vehicle
demand. |
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A decline in consumer demand for our higher margin vehicles
could result in diminished profitability. |
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Our indebtedness and other obligations of our automotive
operations are significant and could materially adversely affect
our business. |
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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. |
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The pace of introduction and market acceptance of new vehicles
is important to our success. |
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Economic and industry conditions constantly change and could
have a material adverse effect on our business and results of
operations. |
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Changes in existing, or the adoption of new, laws, regulations
or policies of governmental organizations may have a significant
negative impact on how we do business. |
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Our businesses outside the United States expose us to additional
risks that may cause our revenues and profitability to decline. |
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A failure of or interruption in the communications and
information systems on which we rely to conduct our operations
could adversely affect our business. |
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We could be materially adversely affected by changes in currency
exchange rates, commodity prices, equity prices and interest
rates. |
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We are subject to significant risks of litigation. |
II-6
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
Risks related to GMs finance, mortgage and insurance
businesses
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Our finance, mortgage and insurance businesses require
substantial capital, and if we are unable to maintain adequate
financing sources, our business, results of operations and
financial condition will suffer and jeopardize our ability to
continue operations. |
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We are exposed to credit risk which could affect the business,
results of operations and financial condition of our finance,
mortgage and insurance operations. |
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Our earnings may decrease because of increases or decreases in
interest rates. |
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Our hedging strategies may not be successful in mitigating our
risks associated with changes in interest rates. |
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ResCaps ability to pay dividends and to prepay
subordinated debt obligations to GMAC is restricted by
contractual arrangements. |
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We use estimates and assumptions in determining the fair value
of certain of our assets, in determining our allowance for
credit losses, in determining lease residual values and in
determining our reserves for insurance losses and loss
adjustment expenses. If our estimates or assumptions prove to be
incorrect, the business, results of operations and financial
condition of our finance, mortgage and insurance operations
could be materially adversely affected. |
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General business and economic conditions of the industries and
geographic areas in which we operate affect the business,
results of operations and financial condition of our finance,
mortgage and insurance operations. |
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Our business, results of operations and financial condition may
be materially adversely affected by decreases in the residual
value of off-lease vehicles. |
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Fluctuations in valuation of investment securities or
significant fluctuations in investment market prices could
negatively affect revenues. |
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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 our mortgage subsidiaries
operate, could materially adversely affect the business, results
of operations and financial condition of our mortgage business. |
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GMAC may be required to repurchase contracts and provide
indemnification if GMAC breaches representations and warranties
from its securitization and whole loan transactions, which could
harm our business, results of operations and financial condition. |
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Significant indemnification payments or contract, lease or loan
repurchase activity of retail contracts or leases or mortgage
loans could harm our business, results of operations and
financial condition. |
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A loss of contractual servicing rights could have a material
adverse effect on our operations. |
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The regulatory environment in which GMAC operates could have a
material adverse effect on its business. |
The worldwide financial services industry is highly competitive.
If we are 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, our margins could be materially
adversely affected.
* * * * * * * *
II-7
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
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Item 2(c). |
Purchases of Equity Securities |
GM made no purchases of GM
$12/3
par value common stock during the three months ended
March 31, 2006.
* * * * * * * *
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Exhibit |
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Number |
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Exhibit Name |
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10 |
.1 |
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Memorandum of Understanding dated October 29, 2005 between
the International Union, UAW and General Motors Corporation |
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10 |
.2 |
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UAW-GM-Delphi Special Attrition Program dated March 22,
2006 among the International Union, UAW, General Motors
Corporation and Delphi Corporation |
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13 |
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General Motors Acceptance Corporation Quarterly Report on
Form 10-Q, File No. 000-03754, for the quarterly period
ended March 31, 2006 |
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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 |
* * * * * * * *
II-8
GENERAL MOTORS CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
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GENERAL MOTORS CORPORATION |
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(Registrant) |
Date: May 10, 2006
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(Peter R. Bible, Chief Accounting Officer) |
II-9